Debt Buyer Encore Capital Reports Sensational Third Quarter Results

Accounts receivable management firm Encore Capital late Wednesday reported financial results for the third quarter marked by significant increases in collections, revenue, net income and debt purchasing activity.

San Diego-based Encore Capital Group, Inc. (Nasdaq: ECPG) reported net income of $9 million — or $0.37 per fully diluted share — for the third quarter of 2009, compared to $3 million earned in the year ago quarter. Analysts polled by Thompson Reuters predicted earnings of $0.27 per share for Q3 2009.

Investors cheered the news Thursday, sending Encore’s shares up over 15 percent in early trading.

Revenues in the quarter grew 21 percent year-over-year to $80.4 million. Revenue from receivables portfolios was up 22.2 percent to $76.4 million while revenue from servicing fees, principally bankruptcy serving through its Ascension Capital unit, and other sources was relatively flat.

The company recorded a net impairment provision against purchased pools of debt of $4.3 million in the quarter, compared to a net impairment provision of $7.3 million during the same period in the prior year.

Encore reported gross collections of $125.7 million in the third quarter. Excluding portfolio sales, collections were $120.4 million, a 27 percent increase from the third quarter of 2008. Collections across all of the company’s three main channels – owned collection sites, legal collections, and outsourcing to debt collection agencies – increased significantly.

Legal collections accounted for $55.6 million, up 11.6 percent from the third quarter last year. Collections from the company’s owned sites were up 22.5 percent to $45.1 million. Outsourcing to third party collection agencies saw the greatest growth in the third quarter of 2009. The channel more than doubled its Q3 2008 total of $7.9 million to account for $19.7 million in collections in the third quarter of 2009.

In a filing with the Securities and Exchange Commission (SEC), Encore acknowledged the difficult economic environment, noting that “increases in unemployment, high foreclosure rates and the difficulties consumers are experiencing in obtaining credit” brought on by the recession negatively impact collections. But the company noted that the environment has also presented opportunities to acquire more debt, which it credits for the positive results in the quarter.

Encore said that in the third quarter of 2009 it invested $77.7 million for debt portfolios with face values aggregating $2.2 billion, a 17.6 percent increase from the amount it invested in the third quarter of last year. In the first nine months of 2009, the company has invested $215.7 million for debt portfolios with face values aggregating $5.5 billion, up 29.5 percent from the same period in 2008.

All of the portfolios purchased by Encore so far this year have been comprised of credit card accounts. This marks a shift from the strategy in the first nine months of 2008 when 14.4 percent of the accounts the company purchased were made up of “Other” accounts.

The company also noted in its filing that it had completed a move to a larger collection site in India. In April, Encore signed a lease on a facility in Gurgaon, India. The site will allow a headcount expansion to 1,100 from the current 350. The company’s Indian team moved into the new building in September.