Encore Capital Group Says Diversification Drove Record Third Quarter Results

Encore Capital Group, Inc. (Nasdaq: ECPG) an international specialty finance company providing debt recovery solutions for consumers and property owners across a broad range of assets, today reported consolidated financial results for the third quarter ended September 30, 2014.

“Encore delivered record earnings per share during the third quarter, driven by our continued focus on growing the core business while diversifying into new geographies and asset classes,” said Kenneth A. Vecchione, President and Chief Executive Officer. “Our international operations contributed more than one fourth of the quarter’s collections, which grew meaningfully to $407 million. Similarly, we deployed more than one third of our capital overseas, enabling us to grow our Estimated Remaining Collections to a record $5.1 billion.”

“On the core business front, the acquisition of Atlantic Credit & Finance closed during the quarter, and the integration is progressing as we expected,” Vecchione said. “ACF’s continued success in collecting on recently charged-off, higher-balance accounts expands our capabilities and enables us to deploy additional capital in the recently charged-off market segment in the U.S. Our asset class expansion, coupled with our global diversification strategy, has positioned Encore to continue to thrive in a time of ongoing industry change and consolidation.”

Financial Highlights for the Third Quarter of 2014:

• Estimated Remaining Collections (ERC) grew 27% to a record $5.1 billion, compared to $4.0 billion in the same period of the prior year.
• Gross collections from the portfolio purchasing and recovery business grew 7% to $407.2 million, compared to $379.7 million in the same period of the prior year.
• Investment in receivable portfolios in the portfolio purchasing and recovery business was $299.5 million, to purchase $4.0 billion in face value of debt, compared to $617.9 million, to purchase $13.4 billion in face value of debt in the same period of the prior year, which included the $559.0 million acquisition of Cabot’s portfolio in July 2013.
• Available capacity under Encore’s revolving credit facility, subject to borrowing base and applicable debt covenants, was $263.6 million as of September 30, 2014, not including the $250 million additional capacity provided by the facility’s accordion feature. Total debt was $2.8 billion as of September 30, 2014, compared to $1.9 billion as of December 31, 2013.
• Total revenues increased 16% to a record $273.3 million, compared to $235.6 million in the same period of the prior year.
• Total operating expenses increased 8% to $189.0 million, compared to $174.4 million in the same period of the prior year. Adjusted operating expenses (defined as operating expenses excluding stock-based compensation expense, expenses related to non-portfolio purchasing and recovery business, one-time charges, and acquisition and integration related expenses) per dollar collected for the portfolio purchasing and recovery business decreased to 38.9%, compared to 39.7% in the same period of the prior year.
• Adjusted EBITDA (defined as net income before interest, taxes, depreciation and amortization, stock-based compensation expenses, portfolio amortization, one-time items, and acquisition and integration related expenses), increased 9% to $251.8 million, compared to $231.4 million in the same period of the prior year.
• Total interest expense increased to $43.5 million, as compared to $29.2 million in the same period of the prior year, reflecting the financing of Encore’s recent acquisitions.
• Net income from continuing operations attributable to Encore was $30.3 million, or $1.11 per fully diluted share, compared to net income from continuing operations attributable to Encore of $22.2 million, or $0.82 per fully diluted share, in the same period of the prior year.
• Adjusted income from continuing operations attributable to Encore (defined as net income from continuing operations attributable to Encore excluding the noncontrolling interest, non-cash interest and issuance cost amortization, one-time items, and acquisition and integration related expenses, all net of tax) increased to $30.8 million, compared to adjusted income from continuing operations attributable to Encore of $26.8 million in the same period of the prior year.
• Adjusted income from continuing operations attributable to Encore per share (also referred to as Economic EPS) grew 15% to $1.17, compared to $1.02 in the same period of the prior year. In the third quarter, Economic EPS adjusts for approximately 1.0 million shares associated with convertible notes that will not be issued but are reflected in the fully diluted share count for accounting purposes.