Encore Capital Group, Inc. reported consolidated financial results for the first quarter ended March 31, 2004.
For the first quarter of 2004:
— Net income was $6.0 million for the first quarter of 2004 as compared to $8.2 million for the first quarter of 2003. The first quarter of 2003 included a one-time after-tax benefit from litigation settlement of $4.4 million. Adjusting for the one-time benefit, net income grew 59%, from $3.8 million in the first quarter of 2003 to $6.0 million in the first quarter of 2004.
— Earnings per fully diluted share amounted to $0.26 in the first quarter of 2004. That compares with $0.44 per fully diluted share earned in the first quarter of 2003 and with $0.20 per fully diluted share after adjusting for the first quarter 2003 benefit from litigation settlement of $0.24 per fully diluted share. Also, in the first quarter of 2004, there were 4.8 million more fully diluted weighted average shares outstanding as compared to the first quarter of 2003, largely as a result of the Company’s follow-on public offering that closed October 1, 2003.
— Gross collections increased 36% or $16.9 million to $64.0 million over the first quarter of 2003.
— Total revenues were $42.4 million, a 51% increase over the prior year’s $28.1 million.
— Cash Flow from Operations was $8.2 million, a 76% increase over 2003’s $4.7 million.
“Encore turned in another strong performance during the first quarter,” said Carl C. Gregory, III, President and CEO of Encore Capital Group, Inc. “Importantly, this growth has been led by improving productivity, as seen by the 17% growth in monthly average of gross collections per average employee to $29,282 in the first quarter of 2004 from $25,001 in the first quarter of 2003.
“In addition, we also diversified our purchasing. 52% of the first quarter of 2004 purchases were in the alternative paper category. This not only improved the potential return on these portfolios as they were purchased with our own funds, but also enabled us to make purchases that were more attractive than many credit card opportunities.”
Mr. Gregory added, “In our industry, the first quarter is usually the year’s best in terms of collections. It appears that debtors try to resolve past issues at the start of a new year when they can use their tax refunds as a source of debt repayment. Our challenge is to maintain this momentum throughout the year.”
First Quarter Financial Highlights
Revenue from receivable portfolios recognized as a percentage of collections was 68% in the first quarter of 2004 compared to 64% in the first quarter of 2003. When revenue and collections from the retained interest and servicing portfolios are included, revenue recognized as a percentage of collections was 66% in the first quarter of 2004 compared to 60% in the first quarter of 2003.
Total operating expenses were $23.3 million, an increase of 34% or $5.9 million over the $17.4 million in the first quarter of 2003. Total expenses as a percentage of gross collections declined slightly from 37% in the first quarter of 2003 to 36% in the 2004 quarter.
Cash flow from operations grew 76% or $3.5 million, to $8.2 million in the 2004 quarter from $4.7 million in the 2003 quarter. Cash flow as a percentage of gross collections also grew to 13% in the first quarter of 2004 compared with 10% in the 2003 quarter.
The Company spent $17.2 million to purchase approximately $786.4 million in face value of portfolios during the first quarter of 2004, a blended purchase price of 2.19% of face value. The Company spent $18.8 million to purchase approximately $589.4 million in face value of portfolios during the first quarter of 2003, a blended purchase price of 3.19% of face value.
Commenting on the outlook for the Company, Mr. Gregory said, “Although the first quarter’s pace of collections was quite impressive, we recognize that the year will be full of challenges and requires constant attention to the fundamentals that have contributed to our success to date. Our improved performance has been driven by disciplined portfolio purchases based on our proprietary modeling, effective collection efforts through multiple channels, and prudently scaling our business to service the volume of receivables that we own. We believe that continued execution on these core strategies will continue to create additional value for our stockholders.”
The table included in the attached supplemental financial information is a reconciliation of generally accepted accounting principles in the United States of America (“GAAP”) income before taxes, net income, and fully diluted earnings per share to income before taxes, net income, and fully diluted earnings per share, excluding one-time benefits for the periods presented. We believe that these non-GAAP financial measures provide useful information to investors about our results of operations because the elimination of one-time benefits that are included in the GAAP financial measures results in a normalized comparison of certain key financial results between the periods presented.
About Encore Capital Group, Inc.
Encore Capital Group, Inc. is an accounts receivable management firm that specializes in purchasing charged-off and defaulted consumer debt.
For complete first quarter details on Encore’s performance visit CardData ([www.carddata.com]).