UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): February 6, 2012
ENCORE CAPITAL GROUP, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware |
000-26489 |
48-1090909 | ||
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
3111 Camino Del Rio North, Suite 1300, San Diego, California | 92108 | |||
(Address of Principal Executive Offices) | (Zip Code) |
(877) 445-4581
(Registrants telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. | Results of Operations and Financial Condition. |
On February 9, 2012, Encore Capital Group, Inc. issued a press release announcing its financial results for the fourth quarter and full year ended December 31, 2011. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference herein.
The information in this Current Report on Form 8-K, including the information contained in Exhibit 99.1, is being furnished to the Securities and Exchange Commission pursuant to Item 2.02, and shall not be deemed to be filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act) or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by a specific reference in such filing.
Item 5.02. | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
(b) On February 6, 2012, Mr. John J. Oros notified Encore Capital Group, Inc. that he would be resigning from the Board of Directors effective February 7, 2012. Mr. Oross decision was not due to any disagreement with Encore Capital Group, Inc.
Item 9.01. | Financial Statements and Exhibits. |
(d) | Exhibits. | |||
Exhibit Number |
Description | |||
99.1 | Press release dated February 9, 2012. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
ENCORE CAPITAL GROUP, INC. | ||
Date: February 9, 2012 |
/s/ Paul Grinberg | |
Paul Grinberg | ||
Executive Vice President, Chief Financial Officer and Treasurer |
EXHIBIT INDEX
Exhibit |
Description | |
99.1 | Press release dated February 9, 2012. |
Exhibit 99.1
SAN DIEGO, February 9, 2012
For Immediate Release
Encore Capital Group Announces Fourth Quarter and Full Year 2011 Financial Results
Quarterly Net Income Increased 21% to $17.1 Million; Quarterly Gross Collections Increased 25%
to $185.9 Million; Quarterly Purchases Increased 15% to $136.7 Million
SAN DIEGO, February 9, 2012 Encore Capital Group, Inc. (Nasdaq: ECPG), a leading consumer debt buying and recovery company, today reported consolidated financial results for the fourth quarter and full year ended December 31, 2011.
For the fourth quarter of 2011:
| Gross collections were $185.9 million, a 25% increase over the $149.2 million in the same period of the prior year. |
| Investment in receivable portfolios was $136.7 million, to purchase $3.8 billion in face value of debt, compared to $119.1 million, to purchase $3.9 billion in face value of debt in the same period of the prior year. Available capacity under the revolving credit facility, subject to borrowing base and applicable debt covenants, was $105.5 million as of December 31, 2011. Total debt, consisting of the revolving credit facility, senior secured notes and capital lease obligations, was $389.0 million as of December 31, 2011, compared to $385.3 million as of December 31, 2010. |
| Revenue from receivable portfolios, net was $116.5 million, a 22% increase over the $95.7 million in the same period of the prior year. Revenue recognized on receivable portfolios, as a percentage of portfolio collections, excluding the effects of net portfolio allowances, decreased to approximately 64% from 68% in the same period of the prior year. |
| Revenue from bankruptcy servicing was $4.2 million, compared to $4.0 million in the same period of the prior year. |
| Total operating expenses were $88.0 million, a 23% increase over the $71.6 million in the same period of the prior year. Adjusted operating expense (operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses) per dollar collected decreased to 44.1% compared to 44.4% in the same period of the prior year. |
| Adjusted EBITDA, defined as net income before interest, taxes, depreciation and amortization, stock-based compensation expense and portfolio amortization, was $105.0 million, a 25% increase over the $83.9 million in the same period of the prior year. |
| Total interest expense remained consistent at $5.0 million, as compared to the same period of the prior year. |
Encore Capital Group, Inc.
Page 2 of 8
| Net income was $17.1 million, or $0.67 per fully diluted share, compared to net income of $14.2 million, or $0.56 per fully diluted share in the same period of the prior year. |
| Tangible book value per share, computed by dividing total stockholders equity less goodwill and identifiable intangible assets by the number of diluted shares outstanding, was $13.84 as of December 31, 2011, a 22% increase over $11.35 as of December 31, 2010. |
For the full year of 2011:
| Gross collections were $761.2 million, a 26% increase over the $604.6 million in 2010. |
| Investment in receivable portfolios was $386.9 million, to purchase $11.7 billion in face value of debt, compared to $362.0 million, to purchase $10.9 billion in face value of debt in 2010. |
| Total revenue was $467.4 million, a 23% increase over the $381.3 million in 2010. |
| Total operating expenses were $346.6 million, a 22% increase over the $284.3 million in 2010. Adjusted operating expense (operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses) per dollar collected decreased to 42.2% compared to 43.7% in 2010. |
| Adjusted EBITDA was $445.0 million, a 28% increase over the $346.7 million in 2010. |
| Net income was $61.0 million, or $2.37 per fully diluted share, compared to net income of $49.1 million, or $1.95 per fully diluted share in 2010. |
Conference Call and Webcast
The Company will hold a conference call today at 2:00 p.m. Pacific time / 5:00 p.m. Eastern time to discuss fourth quarter and full year results.
Members of the public are invited to listen to the event via a listen-only telephone conference call line or the Internet. To access the live telephone conference call line, please dial (877) 670-9781
Encore Capital Group, Inc.
Page 3 of 8
or (408) 940-3818. To access the live webcast via the Internet, log on at the Investors page of the Companys website at www.encorecapital.com.
Non-GAAP Financial Measures
The Company has included information concerning Adjusted EBITDA because management utilizes this information, which is materially similar to a financial measure contained in covenants used in the Companys credit agreement, in the evaluation of its operations and believes that this measure is a useful indicator of the Companys ability to generate cash collections in excess of operating expenses through the liquidation of its receivable portfolios. The Company has included information concerning adjusted operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses in order to facilitate a comparison of approximate cash costs to cash collections for the debt purchasing business in the periods presented. The Company has included information concerning tangible book value per share because management believes that this metric is a meaningful measure of the equity deployed in the business. Adjusted EBITDA, adjusted operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses, and tangible book value per share have not been prepared in accordance with generally accepted accounting principles (GAAP). These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, net income and total operating expenses as indicators of Encore Capital Groups operating performance and total stockholders equity as an indicator of Encore Capital Groups financial condition. Further, these non-GAAP financial measures, as presented by Encore Capital Group, may not be comparable to similarly titled measures reported by other companies. The Company has included a reconciliation of Adjusted EBITDA to reported earnings under GAAP, a reconciliation of adjusted operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses to the GAAP measure total operating expenses, and a reconciliation of tangible book value per share to the GAAP measure total stockholders equity in the attached financial tables.
About Encore Capital Group, Inc.
Encore Capital Group is a leader in consumer debt buying and recovery. We purchase portfolios of defaulted consumer receivables from major banks, credit unions, and utility providers and partner with individuals as they repay their obligations and work toward financial recovery. Our success and future growth are driven by our sophisticated and widespread use of analytics, our broad investments in data and behavioral science, the significant cost advantages provided by both our operations in India and our enterprise-wide, account-level cost database, and our demonstrated commitment to conduct business ethically and in ways that support our consumers financial recovery.
Headquartered in San Diego, California, we are a publicly traded NASDAQ Global Select company (ticker symbol: ECPG) and a component stock of the Russell 2000, the S&P SmallCap 600, and the Wilshire 4500. More information about the Company can be found at www.encorecapital.com.
Encore Capital Group, Inc.
Page 4 of 8
Forward Looking Statements
The statements in this press release that are not historical facts, including, most importantly, those statements preceded by, or that include, the words may, believe, projects, expects, anticipates or the negation thereof, or similar expressions, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the Reform Act). These statements may include, but are not limited to, statements regarding our litigation, future operating results, performance, business plans or prospects. For all forward-looking statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Reform Act. Such forward-looking statements involve risks, uncertainties and other factors which may cause actual results, performance or achievements of the Company and its subsidiaries to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks, uncertainties and other factors are discussed in the reports filed by the Company with the Securities and Exchange Commission, including the most recent reports on Forms 10-K, 10-Q and 8-K, each as it may be amended from time to time. The Company disclaims any intent or obligation to update these forward-looking statements.
Contact:
Encore Capital Group, Inc.
Paul Grinberg (858) 309-6904
paul.grinberg@encorecapital.com
Adam Sragovicz (858) 309-9509
adam.sragovicz@encorecapital.com
FINANCIAL TABLES FOLLOW
Encore Capital Group, Inc.
Page 5 of 8
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
December 31, 2011 |
December 31, 2010 |
|||||||
Assets |
||||||||
Cash and cash equivalents |
$ 8,047 | $ 10,905 | ||||||
Accounts receivable, net |
3,265 | 3,331 | ||||||
Investment in receivable portfolios, net |
716,454 | 644,753 | ||||||
Deferred court costs, net |
38,506 | 32,158 | ||||||
Property and equipment, net |
17,796 | 13,658 | ||||||
Other assets |
11,968 | 14,930 | ||||||
Goodwill |
15,985 | 15,985 | ||||||
Identifiable intangible assets, net |
462 | 748 | ||||||
|
|
|
|
|||||
Total assets |
$812,483 | $736,468 | ||||||
|
|
|
|
|||||
Liabilities and stockholders equity |
||||||||
Liabilities: |
||||||||
Accounts payable and accrued liabilities |
$ 29,628 | $ 26,539 | ||||||
Deferred tax liabilities, net |
15,709 | 17,626 | ||||||
Debt |
388,950 | 385,264 | ||||||
Other liabilities |
6,661 | 4,342 | ||||||
|
|
|
|
|||||
Total liabilities |
440,948 | 433,771 | ||||||
|
|
|
|
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Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Convertible preferred stock, $.01 par value, 5,000 shares authorized, no shares issued and outstanding |
| | ||||||
Common stock, $.01 par value, 50,000 shares authorized, 24,520 shares and 24,011 shares issued and outstanding as of December 31, 2011 and 2010, respectively |
245 | 240 | ||||||
Additional paid-in capital |
123,406 | 113,412 | ||||||
Accumulated earnings |
249,852 | 188,894 | ||||||
Accumulated other comprehensive (loss) income |
(1,968 | ) | 151 | |||||
|
|
|
|
|||||
Total stockholders equity |
371,535 | 302,697 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$812,483 | $736,468 | ||||||
|
|
|
|
Encore Capital Group, Inc.
Page 6 of 8
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Revenues |
||||||||||||
Revenue from receivable portfolios, net |
$ | 448,714 | $ | 364,294 | $ | 299,732 | ||||||
Servicing fees and other related revenue |
18,657 | 17,014 | 16,687 | |||||||||
|
|
|
|
|
|
|||||||
Total revenues |
467,371 | 381,308 | 316,419 | |||||||||
|
|
|
|
|
|
|||||||
Operating expenses |
||||||||||||
Salaries and employee benefits (excluding stock-based compensation expense) |
81,509 | 65,767 | 58,025 | |||||||||
Stock-based compensation expense |
7,709 | 6,010 | 4,384 | |||||||||
Cost of legal collections |
157,050 | 121,085 | 112,570 | |||||||||
Other operating expenses |
39,776 | 36,387 | 26,013 | |||||||||
Collection agency commissions |
14,162 | 20,385 | 19,278 | |||||||||
General and administrative expenses |
41,730 | 31,444 | 26,920 | |||||||||
Depreciation and amortization |
4,661 | 3,199 | 2,592 | |||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
346,597 | 284,277 | 249,782 | |||||||||
|
|
|
|
|
|
|||||||
Income from operations |
120,774 | 97,031 | 66,637 | |||||||||
|
|
|
|
|
|
|||||||
Other (expense) income |
||||||||||||
Interest expense |
(21,116 | ) | (19,349 | ) | (16,160 | ) | ||||||
Other (expense) income |
(394 | ) | 316 | 3,266 | ||||||||
|
|
|
|
|
|
|||||||
Total other expense |
(21,510 | ) | (19,033 | ) | (12,894 | ) | ||||||
|
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|
|
|
|
|||||||
Income before income taxes |
99,264 | 77,998 | 53,743 | |||||||||
Provision for income taxes |
(38,306 | ) | (28,946 | ) | (20,696 | ) | ||||||
|
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|
|
|
|
|||||||
Net income |
$ | 60,958 | $ | 49,052 | $ | 33,047 | ||||||
|
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|
|||||||
Weighted average shares outstanding: |
||||||||||||
Basic |
24,572 | 23,897 | 23,215 | |||||||||
Diluted |
25,690 | 25,091 | 24,082 | |||||||||
Earnings per share: |
||||||||||||
Basic |
$ | 2.48 | $ | 2.05 | $ | 1.42 | ||||||
Diluted |
$ | 2.37 | $ | 1.95 | $ | 1.37 |
Encore Capital Group, Inc.
Page 7 of 8
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Cash Flows
(In Thousands)
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Operating activities: |
||||||||||||
Net income |
$ | 60,958 | $ | 49,052 | $ | 33,047 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
4,661 | 3,199 | 2,592 | |||||||||
Amortization of loan costs and debt discount |
1,833 | 3,682 | 4,080 | |||||||||
Stock-based compensation expense |
7,709 | 6,010 | 4,384 | |||||||||
Gain on repurchase of convertible notes, net |
| | (3,268 | ) | ||||||||
Deferred income tax (benefit) expense |
(1,917 | ) | 646 | 1,872 | ||||||||
Excess tax benefit from stock-based payment arrangements |
(5,101 | ) | (3,249 | ) | (729 | ) | ||||||
Provision for allowances on receivable portfolios, net |
10,823 | 22,209 | 19,310 | |||||||||
Changes in operating assets and liabilities |
||||||||||||
Other assets |
2,179 | (1,390 | ) | (1,668 | ) | |||||||
Deferred court costs |
(6,348 | ) | (6,201 | ) | 2,379 | |||||||
Prepaid income tax and income taxes payable |
6,495 | (1,782 | ) | 11,204 | ||||||||
Accounts payable, accrued liabilities and other liabilities |
3,287 | 3,299 | 3,316 | |||||||||
|
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Net cash provided by operating activities |
84,579 | 75,475 | 76,519 | |||||||||
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Investing activities: |
||||||||||||
Purchases of receivable portfolios, net of forward flow allocation |
(386,850 | ) | (361,957 | ) | (246,330 | ) | ||||||
Collections applied to investment in receivable portfolios, net |
301,474 | 217,891 | 168,416 | |||||||||
Proceeds from put-backs of receivable portfolios |
2,852 | 3,981 | 3,375 | |||||||||
Purchases of property and equipment |
(5,564 | ) | (2,722 | ) | (4,632 | ) | ||||||
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Net cash used in investing activities |
(88,088 | ) | (142,807 | ) | (79,171 | ) | ||||||
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Financing activities: |
||||||||||||
Payment of loan costs |
(840 | ) | (6,248 | ) | | |||||||
Proceeds from senior secured notes |
25,000 | 50,000 | | |||||||||
Proceeds from revolving credit facility |
121,000 | 125,500 | 90,500 | |||||||||
Repayment of revolving credit facility |
(143,000 | ) | (58,500 | ) | (68,500 | ) | ||||||
Repayment of convertible notes |
| (42,920 | ) | (22,262 | ) | |||||||
Proceeds from net settlement of certain call options |
| 524 | | |||||||||
Proceeds from exercise of stock options |
1,263 | 2,118 | 1,175 | |||||||||
Taxes paid related to net share settlement of equity awards |
(3,891 | ) | (2,024 | ) | (403 | ) | ||||||
Excess tax benefit from stock-based payment arrangements |
5,101 | 3,249 | 729 | |||||||||
Repayment of capital lease obligations |
(3,982 | ) | (1,850 | ) | (540 | ) | ||||||
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Net cash provided by financing activities |
651 | 69,849 | 699 | |||||||||
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|||||||
Net (decrease) increase in cash |
(2,858 | ) | 2,517 | (1,953 | ) | |||||||
Cash and cash equivalents, beginning of period |
10,905 | 8,388 | 10,341 | |||||||||
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Cash and cash equivalents, end of period |
$ | 8,047 | $ | 10,905 | $ | 8,388 | ||||||
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Supplemental disclosures of cash flow information: |
||||||||||||
Cash paid for interest |
$ | 19,038 | $ | 15,652 | $ | 12,521 | ||||||
Cash paid for income taxes |
32,125 | 30,125 | 8,243 | |||||||||
Supplemental schedule of non-cash investing and financing activities: |
||||||||||||
Fixed assets acquired through capital lease |
$ | 2,949 | $ | 4,317 | $ | 516 | ||||||
Allocation of forward flow asset to acquired receivable portfolios |
| | 10,302 |
Encore Capital Group, Inc.
Page 8 of 8
ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information
Reconciliation of Adjusted EBITDA to GAAP Net Income, Adjusted Operating Expenses Excluding Stock-based Compensation Expense and Bankruptcy Servicing Operating Expenses to GAAP Total Operating Expenses, and Tangible Book Value Per Share to GAAP Total Stockholders Equity
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months
Ended December 31, |
Year
Ended December 31, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
GAAP net income, as reported |
$17,134 | $14,171 | $60,958 | $49,052 | ||||||||||||
Interest expense |
4,979 | 5,003 | 21,116 | 19,349 | ||||||||||||
Provision for income taxes |
10,351 | 9,075 | 38,306 | 28,946 | ||||||||||||
Depreciation and amortization |
1,309 | 958 | 4,661 | 3,199 | ||||||||||||
Amount applied to principal on receivable portfolios |
69,462 | 53,427 | 312,297 | 240,100 | ||||||||||||
Stock-based compensation expense |
1,729 | 1,254 | 7,709 | 6,010 | ||||||||||||
|
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|
|||||||||
Adjusted EBITDA |
$104,964 | $83,888 | $445,047 | $346,656 | ||||||||||||
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|
|||||||||
Three Months
Ended December 31, |
Year
Ended December 31, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
GAAP total operating expenses, as reported |
$88,024 | $71,589 | $346,597 | $284,277 | ||||||||||||
Stock-based compensation expense |
(1,729 | ) | (1,254 | ) | (7,709 | ) | (6,010 | ) | ||||||||
Bankruptcy servicing operating expenses |
(4,385 | ) | (4,055 | ) | (18,031 | ) | (14,328 | ) | ||||||||
|
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|
|
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|
|
|||||||||
Adjusted operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses | $81,910 | $66,280 | $320,857 | $263,939 | ||||||||||||
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|
|
As
of December 31, 2011 |
As
of December 31, 2010 |
|||||||
GAAP total stockholders equity, as reported |
$371,535 | $302,697 | ||||||
Goodwill |
(15,985 | ) | (15,985 | ) | ||||
Identifiable intangible assets, net |
(462 | ) | (748 | ) | ||||
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|
|||||
Tangible book value |
$355,088 | $285,964 | ||||||
Diluted shares outstanding |
25,657 | 25,206 | ||||||
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|
|||||
Tangible book value per share |
$13.84 | $11.35 |