Encore Capital Group, Inc. (Nasdaq: ECPG), a leading distressed consumer debt management company, reported consolidated financial results for the first quarter ended March 31, 2007.
For the first quarter of 2007:
– Gross collections were $90.5 million, a 3% increase over the $87.6 million in the same period of the prior year.
– Revenues from the debt purchasing business were $62.2 million, an 8% increase over the $57.6 million in the same period of the prior year. Revenues from the bankruptcy servicing business were $3.2 million compared to $2.9 million in the same period of the prior year.
– Net income was $5.7 million, a 21% increase over the $4.7 million in the same period of the prior year.
– Earnings per fully diluted share were $0.24, a 20% increase over the $0.20 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 $45.9 million, a 4% decrease from the $47.8 million in the same period of the prior year.
Commenting on the quarter, J. Brandon Black, President and CEO of Encore Capital Group, Inc., said, “The beginning of 2007 has been very positive for Encore. Our first quarter collections performance was one of the strongest in the Company’s history and we saw increasing productivity from our key strategic collection initiatives in India and the legal channel. Additionally, after the quarter closed, we finalized a buyout of the remaining contingent interest on our legacy secured lending facility.
“During the first quarter, we invested $45.4 million to purchase $2.5 billion in face value of debt. Our purchases were more concentrated this quarter in credit card portfolios as this asset class exhibited the best value during the period. While purchasing activity was strong in the first quarter, we continue to see elevated pricing levels across all asset classes. We are not expecting this pricing trend to change in the near term and are focused on building our business through continuous innovation, not by merely using traditional operating strategies,” continued Mr. Black.
Revenue recognized on receivable portfolios, as a percentage of portfolio collections, was 69% in the first quarter of 2007, compared with 66% in the first quarter of 2006. The higher revenue recognition rate was attributable to improvements in internal rates of return associated with several of our quarterly pool groups and the timing of recent purchases.
The Company generated $3.2 million in fee-based revenue during the first quarter of 2007, compared with $2.9 million in the first quarter of 2006, primarily through the Ascension Capital bankruptcy services business.
Total operating expenses for the first quarter of 2007 were $49.8 million, compared with $44.7 million in the first quarter of 2006. First quarter 2007 operating expenses included stock-based compensation expense of $0.8 million, operating expenses of $4.1 million related to Ascension Capital, which is a fee-based business, and the final costs related to the consideration of strategic alternatives of $0.1 million. Excluding these items, operating expenses were $44.7 million in the first quarter of 2007, compared with $38.3 million in the first quarter of 2006, while operating expense per dollar collected increased to 49% compared to 44%. This increase was primarily attributable to the increase in legal costs associated with our newer initiatives, which contributed to the decline in Adjusted EBITDA from the same period in the prior year.
Total interest expense was $6.2 million in the first quarter of 2007, compared to $8.0 million in the first quarter of 2006. The contingent interest component of interest expense was $3.2 million in the first quarter of 2007, compared with $4.7 million in the same period of the prior year.
Commenting on the outlook for Encore Capital Group, Mr. Black said, “We are pleased with our performance in the first quarter. The progress we have made across many of our strategic initiatives is beginning to improve the profitability of the Company. We would caution, however, against using the first quarter earnings per share as a run rate for the rest of the year or assuming year-over-year increases in earnings per share for the remaining quarters of 2007. Specifically, in the second quarter of 2007, the buyout of the remaining contingent interest on our legacy secured lending facility will have a one-time negative impact of approximately $0.30 per share after taxes. However, the transaction is expected to be accretive over the long term from an earnings per share perspective and the Company will begin recognizing the earnings benefit of not having contingent interest in the third quarter of 2007.
“Earnings for the remainder of 2007 will be dependent on the level and timing of purchases and the continuation of the upfront costs associated with our new collection initiatives. While negatively impacting our short-term earnings, these investments are essential for maintaining our long-term competitive advantage in an environment of higher pricing for portfolio. We will also continue to experience the diminishing contribution from older, higher multiple portfolios. We reiterate our view that 2007 is the second year in a two-year investment. However, with each quarter, we are seeing more evidence that our new collection initiatives are working well, and should, in the long term, result in continued growth in collections and solid growth in revenues, earnings and cash flow,” continued Mr. Black.
About Encore Capital Group, Inc.
Encore Capital Group, Inc. is a systems-driven purchaser and manager of charged-off consumer receivables portfolios. More information on the company can be found at http://www.encorecapitalgroup.com.
For complete details on Encore Capital’s latest performance visit CardData ([www.carddata.com])