• Completion of the Cabot transaction creates largest global debt purchaser
  • Encore sets new records for collections and estimated remaining collections
  • GAAP EPS from continuing operations of $0.69 per share
  • Non-GAAP Economic EPS from continuing operations of $1.19 per share

SAN DIEGO, Nov. 07, 2018 (GLOBE NEWSWIRE) -- Capital Group, Inc. (NASDAQ: ECPG), an international specialty finance company providing debt recovery solutions for consumers across a broad range of assets, today reported consolidated financial results for the third quarter ended September 30, 2018.

“Encore had a strong quarter as we recorded our third consecutive quarter of record global cash collections and reached an all-time high for estimated remaining collections,” said Ashish Masih, President and Chief Executive Officer. “Robust collections continue to be driven by our ongoing focus on operational innovation and the collections capacity that we have steadily added over the past several quarters in the U.S.  In addition, global portfolio purchases totaled $249 million and included $123 million of deployments in the United States, a level that keeps us on track to deploy more capital in the U.S. in 2018 than in any other prior year. This solid performance was impacted by the charges incurred in the third quarter associated with the completion of the acquisition of Cabot and certain one-time tax items associated with one of our smaller international businesses, causing a higher than normal tax rate which further impacted our results.”

“The acquisition of Cabot strengthens our global business and establishes us as a clear leader in both the United States and in the United Kingdom, the world’s two most important markets for our industry. We are the global leader in debt purchasing when measured by estimated remaining collections. We expect Cabot’s debt purchasing and servicing platforms will strengthen our long-term leadership and growth in Europe through both its geographic and product diversity, as well as its broad servicing capabilities,” said Masih.

Key Financial Metrics for the Third Quarter of 2018:

  • Estimated remaining collections (ERC) increased 10% compared to the same period of the prior year, to a record $7.2 billion.

  • Portfolio purchases were $249 million, including $123 million in the U.S. and $115 million in Europe, compared to $292 million deployed overall in the same period a year ago.

  • Gross collections increased 13% to a record $499 million, compared to $443 million in the same period of the prior year.

  • Total revenues, adjusted by net allowances, increased 10% to $337 million, compared to $307 million in the third quarter of 2017.

  • Total operating expenses were $239 million, compared to $203 million in the same period of the prior year. Incremental operating expenses in the third quarter of 2018 included expenses related to the completion of the Cabot acquisition in the quarter, in addition to expenses associated with Wescot, acquired by Encore’s Cabot subsidiary during the fourth quarter of 2017.

  • Adjusted operating expenses, which represent the expenses related to our portfolio purchasing and recovery business, increased 6% to $180 million, compared to $170 million in the same period of the prior year.

  • Total interest expense increased to $65.1 million, compared to $52.8 million in the same period of the prior year, principally as a result of costs related to a Cabot refinancing, Encore’s purchase of the remaining interest in Cabot, higher average debt balances related to larger investments in receivables, and increases in the cost of short-term borrowing.

  • GAAP net income attributable to Encore was $20.7 million, or $0.69 per fully diluted share, as compared to $28.2 million, or $1.05 per fully diluted share in the same period a year ago.

  • Adjusted income attributable to Encore was $35.8 million, compared to $30.7 million in the third quarter of 2017. Adjusted income attributable to Encore per share (also referred to as Economic EPS) was $1.19, compared to $1.17 in the same period of the prior year.

  • As of September 30, 2018, after taking into account borrowing base and applicable debt covenants, available capacity under Encore’s U.S. revolving credit facility, was $178 million and availability under Cabot’s revolving credit facility was £77 million (approximately $100 million). These figures do not include cash on the balance sheet.

Conference Call and Webcast

Encore will host a conference call and slide presentation today, November 7, 2018, at 2:00 p.m. Pacific / 5:00 p.m. Eastern time, to present and discuss third quarter results.

Members of the public are invited to access the live webcast via the Internet by logging on at the Investor Relations page of Encore's website at www.encorecapital.com. To access the live, listen-only telephone conference portion, please dial (855) 541-0982 or (704) 288-0606.

For those who cannot listen to the live broadcast, a telephonic replay will be available for seven days by dialing (800) 585-8367 or (404) 537-3406 and entering the conference number 9439619. A replay of the webcast will also be available shortly after the call on the Company's website.

Non-GAAP Financial Measures

This news release includes certain financial measures that exclude the impact of certain items and therefore have not been calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company has included adjusted income attributable to Encore and adjusted income attributable to Encore per share (also referred to as economic EPS when adjusted for certain shares associated with our convertible notes that will not be issued but are reflected in the fully diluted share count for accounting purposes) because management uses this measure to assess operating performance, in order to highlight trends in the Company’s business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. The Company has included information concerning adjusted operating expenses in order to facilitate a comparison of approximate cash costs to cash collections for the portfolio purchasing and recovery business in the periods presented. Adjusted income attributable to Encore, adjusted income attributable to Encore per share/economic EPS, and adjusted operating expenses have not been prepared in accordance with GAAP. These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, net income, net income per share, and total operating expenses as indicators of the Company’s operating performance. Further, these non-GAAP financial measures, as presented by the Company, may not be comparable to similarly titled measures reported by other companies. The Company has attached to this news release a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

About Encore Capital Group, Inc.

Encore Capital Group is an international specialty finance company that provides debt recovery solutions for consumers across a broad range of assets. Through its subsidiaries including Midland Credit Management, Inc. (United States), Cabot Credit Management (Europe), Refinancia (Latin America), Baycorp (Australasia) and Encore Asset Reconstruction Company (India), Encore purchases or services portfolios of consumer receivables from major banks, credit unions, and utility providers. Encore partners with individuals as they repay their debt obligations, helping them on the road to financial recovery and ultimately improving their economic well-being.

Headquartered in San Diego, Encore is a publicly traded NASDAQ Global Select company (ticker symbol: ECPG) and a component stock of the Russell 2000, the S&P Small Cap 600 and the Wilshire 4500. More information about Encore can be found at www.encorecapital.com. More information about Cabot Credit Management can be found at www.cabotcm.com. Information found on Encore’s or its subsidiaries’ websites are not incorporated by reference.

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 “will,” “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 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 and 10-Q, as they may be amended from time to time. The Company disclaims any intent or obligation to update these forward-looking statements.

Contact:

Bruce Thomas
Vice President, Investor Relations
Encore Capital Group, Inc.
(858) 309-6442
bruce.thomas@encorecapital.com

FINANCIAL TABLES FOLLOW

ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Financial Condition
(In Thousands, Except Par Value Amounts)
(Unaudited)

 September 30,
2018
 December 31,
2017
Assets   
Cash and cash equivalents$204,649  $212,139 
Investment in receivable portfolios, net3,109,116  2,890,613 
Deferred court costs, net94,017  79,963 
Property and equipment, net96,429  76,276 
Other assets244,602  302,728 
Goodwill898,591  928,993 
Total assets$4,647,404  $4,490,712 
Liabilities and Equity   
Liabilities:   
Accounts payable and accrued liabilities$274,213  $284,774 
Debt, net3,561,467  3,446,876 
Other liabilities33,279  35,151 
Total liabilities3,868,959  3,766,801 
Commitments and contingencies   
Redeemable noncontrolling interest1,231  151,978 
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, 30,852 shares and 25,801 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively309  258 
Additional paid-in capital207,985  42,646 
Accumulated earnings673,153  616,314 
Accumulated other comprehensive loss(103,394) (77,356)
Total Encore Capital Group, Inc. stockholders’ equity778,053  581,862 
Noncontrolling interest(839) (9,929)
Total equity777,214  571,933 
Total liabilities, redeemable equity and equity$4,647,404  $4,490,712 
        

The following table presents certain assets and liabilities of consolidated variable interest entities (“VIEs”) included in the consolidated statements of financial condition above. Most assets in the table below include those assets that can only be used to settle obligations of consolidated VIEs. The liabilities exclude amounts where creditors or beneficial interest holders have recourse to the general credit of the Company.

    
 September 30,
2018
 December 31,
2017
Assets   
Cash and cash equivalents$471 $88,902
Investment in receivable portfolios, net444,503 1,342,300
Deferred court costs, net 26,482
Property and equipment, net 23,138
Other assets8,212 122,263
Goodwill 724,054
Liabilities   
Accounts payable and accrued liabilities$3,514 $151,208
Debt, net390,690 2,014,202
Other liabilities 1,494
    

ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)

  
 Three Months Ended
September 30,
 2018 2017
Revenues   
Revenue from receivable portfolios$295,357  $264,024 
Other revenues37,388  23,111 
Total revenues332,745  287,135 
Allowance reversals on receivable portfolios, net4,029  19,564 
Total revenues, adjusted by net allowances336,774  306,699 
Operating expenses   
Salaries and employee benefits95,634  77,232 
Cost of legal collections50,473  48,094 
Other operating expenses30,691  25,859 
Collection agency commissions10,682  10,622 
General and administrative expenses41,893  32,500 
Depreciation and amortization9,873  8,522 
Total operating expenses239,246  202,829 
Income from operations97,528  103,870 
Other (expense) income   
Interest expense(65,094) (52,755)
Other (expense) income(2,539) 8,873 
Total other expense(67,633) (43,882)
Income from operations before income taxes29,895  59,988 
Provision for income taxes(16,879) (17,844)
Net income13,016  42,144 
Net loss (income) attributable to noncontrolling interest7,709  (13,950)
Net income$20,725  $28,194 
    
Earnings (loss) per share attributable to Encore Capital Group, Inc.:   
    
Basic$0.69  $1.08 
Diluted$0.69  $1.05 
    
Weighted average shares outstanding:   
Basic29,867  26,011 
Diluted30,121  26,736 
      

ENCORE CAPITAL GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, In Thousands)

  
 Nine Months Ended
September 30,
 2018 2017
Operating activities:   
Net income$63,703  $76,199 
Adjustments to reconcile net income to net cash provided by operating activities:   
Loss from discontinued operations, net of income taxes  199 
Depreciation and amortization31,232  25,819 
Other non-cash expense, net30,453  24,768 
Stock-based compensation expense10,452  7,041 
Loss (gain) on derivative instruments, net10,648  (2,714)
Deferred income taxes18,733  (5,396)
Allowance reversals on receivable portfolios, net(31,472) (30,525)
Other, net(9,690) 330 
Changes in operating assets and liabilities   
Deferred court costs and other assets(19,537) (20,094)
Prepaid income tax and income taxes payable21,419  15,565 
Accounts payable, accrued liabilities and other liabilities(5,919) (9,501)
Net cash provided by operating activities120,022  81,691 
Investing activities:   
Cash paid for acquisitions, net of cash acquired  (5,623)
Purchases of receivable portfolios, net of put-backs(881,789) (739,478)
Collections applied to investment in receivable portfolios, net615,010  549,544 
Purchases of property and equipment(37,436) (20,518)
(Payment) proceeds from derivative instruments, net(28,656) 6,140 
Other, net6,800  2,155 
Net cash used in investing activities(326,071) (207,780)
Financing activities:   
Payment of loan costs(6,440) (19,910)
Proceeds from credit facilities766,471  928,141 
Repayment of credit facilities(465,666) (972,453)
Proceeds from senior secured notes  325,000 
Repayment of senior secured notes(1,029) (203,212)
Proceeds from issuance of convertible senior notes172,500  150,000 
Repayment of convertible senior notes  (60,406)
Proceeds from convertible hedge instruments  5,580 
Proceeds from other debt9,090  8,318 
Repayment of other debt(23,450) (4,309)
Payment for the purchase of PECs and noncontrolling interest(234,101)  
Payment of direct and incremental costs relating to Cabot Transaction(8,622)  
Other, net(3,826) (1,440)
Net cash provided by financing activities204,927  155,309 
Net (decrease) increase in cash and cash equivalents(1,122) 29,220 
Effect of exchange rate changes on cash and cash equivalents(6,368) 9,261 
Cash and cash equivalents, beginning of period212,139  149,765 
Cash and cash equivalents, end of period$204,649  $188,246 
        

ENCORE CAPITAL GROUP, INC.
Supplemental Financial Information
Reconciliation of Adjusted Income Attributable to Encore to GAAP Net Income Attributable to Encore and Adjusted Operating Expenses Related to Portfolio Purchasing and Recovery Business to GAAP Total Operating Expenses
(In Thousands, Except Per Share amounts) (Unaudited)

  
 Three Months Ended September 30,
 2018 2017
 $ Per Diluted
Share—
Accounting and Economic
 $ Per Diluted
Share—
Accounting
 Per Diluted
Share—
Economic
GAAP net income from continuing operations attributable to Encore, as reported$20,725  $0.69  $28,194  $1.05  $1.07 
Adjustments:         
Convertible notes and exchangeable notes non-cash interest and issuance cost amortization3,719  0.12  3,135  0.12  0.12 
Acquisition, integration and restructuring related expenses(1)12,458  0.41  342  0.01  0.01 
Amortization of certain acquired intangible assets(2)1,947  0.07  803  0.03  0.03 
Loss on derivatives in connection with the Cabot Transaction(3)2,737  0.09       
Income tax effect of above non-GAAP adjustments and certain discrete tax items(4)(2,335) (0.08) (1,321) (0.04) (0.04)
Adjustments attributable to noncontrolling interest(5)(3,474) (0.11) (461) (0.02) (0.02)
Adjusted income attributable to Encore$35,777  $1.19  $30,692  $1.15  $1.17 

____________________

  1. Amount represents acquisition, integration and restructuring related expenses. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.

  2. As we continue to acquire debt solution service providers around the world, the acquired intangible assets, such as trade names and customer relationships, have grown substantially. These intangible assets are valued at the time of the acquisition and amortized over their estimated lives. We believe that amortization of acquisition-related intangible assets, especially the amortization of an acquired company’s trade names and customer relationships, is the result of pre-acquisition activities. In addition, the amortization of these acquired intangibles is a non-cash static expense that is not affected by operations during any reporting period. As a result, the amortization of certain acquired intangible assets is excluded from our adjusted income from continuing operations attributable to Encore and adjusted income from continuing operations per share.

  3. Amount represents the loss recognized on the forward contract we entered into in anticipation of the completion of the Cabot Transaction. We adjust for this amount because we believe the loss is not indicative of ongoing operations; therefore adjusting for this loss enhances comparability to prior periods, anticipated future periods, and our competitors’ results.

  4. Amount represents the total income tax effect of the adjustments, which is generally calculated based on the applicable marginal tax rate of the jurisdiction in which the portion of the adjustment occurred. Additionally, we adjust for certain discrete tax items that are not indicative of our ongoing operations.

  5. Certain of the above pre-tax adjustments include expenses recognized by our partially-owned subsidiaries. This adjustment represents the portion of the non-GAAP adjustments that are attributable to noncontrolling interest.
  
 Three Months Ended
September 30,
2018 2017
GAAP total operating expenses, as reported$239,246  $202,829 
Adjustments:   
Operating expenses related to non-portfolio purchasing and recovery business(1)(45,980) (28,934)
Acquisition, integration and restructuring related expenses(2)(8,475) (342)
Stock-based compensation expense(5,007) (3,531)
Adjusted operating expenses related to portfolio purchasing and recovery business$179,784  $170,022 

________________________

  1. Operating expenses related to non-portfolio purchasing and recovery business include operating expenses from other operating segments that primarily engage in fee-based business, as well as corporate overhead not related to our portfolio purchasing and recovery business.

  2. Amount represents acquisition, integration and restructuring related operating expenses (excluding amounts already included in stock-based compensation expense). We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.