Encore Capital Group, Inc. (NASDAQ:ECPG), an international
specialty finance company, today reported consolidated financial
results for the fourth quarter and full year ended December 31,
2017.
“In the fourth quarter, Encore continued to benefit from the
growing supply of charged-off credit card receivables in the U.S.
market, with solid deployments at favorable prices driving higher
expected returns than a year ago,” said Ashish Masih, the Company’s
President and Chief Executive Officer. “In the United States and in
Europe, our consumer-centric liquidation programs are also driving
better results and have contributed to substantial growth in our
Estimated Remaining Collections, resulting in a new all-time high
for Encore.”
“2017 was a strong year for Encore in which we generated a
record level of cash collections. We continue to invest in
expanding our collections capacity to capitalize on the growing
market opportunity in the U.S. In Europe, our subsidiary
Cabot Credit Management completed its acquisition of Wescot in the
fourth quarter and is now both the largest debt buyer and debt
servicer in the United Kingdom.”
“2017 was also a strong year for our industry in the U.S.
After growing an estimated 15% in 2016, we estimate that sales of
charged-off credit card receivables in the U.S. grew by more than
20% in 2017. We believe industry supply will continue to grow in
2018 and beyond, driven by recent record levels of revolving credit
in the U.S. coupled with statements made by issuers who are broadly
indicating that increases in charge-off rates are expected to
continue,” said Masih.
Financial Highlights for the Fourth Quarter of
2017:
- Estimated Remaining Collections (ERC) grew $1.1 billion
compared to the same period of the prior year, to $7.0
billion.
- Investment in receivable portfolios was $301 million, including
$170 million in the U.S. and $110 million in Europe, compared to
$210 million deployed overall in the same period a year ago.
- Gross collections were $438 million, compared to $397 million
in the same period of the prior year.
- Total revenues were $317 million, compared to $271 million in
the fourth quarter of 2016.
- Total operating expenses were $253 million, compared to $184
million in the same period of the prior year. This increase was a
result of several factors including: the impact of expenses related
to the withdrawn Cabot IPO; the acquisition of Wescot and related
restructuring costs; tax planning related to the U.S. Tax Cuts and
Jobs Act; and investments in the expansion of our collections
capacity. Adjusted operating expenses were $182 million, compared
to $152 million in the same period of the prior year.
- Total interest expense increased to $51.7 million, compared to
$48.4 million in the same period of the prior year.
- GAAP net income from continuing operations attributable to
Encore was $12.7 million, or $0.48 per fully diluted share,
compared to $22.0 million, or $0.85 per fully diluted share, in the
same period of the prior year. The decline in net income from 2016
to 2017 was largely due to the impact of expenses related to the
withdrawn Cabot IPO in November 2017.
- Adjusted income from continuing operations attributable to
Encore was $27.7 million, compared to $18.7 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) was $1.05,
compared to $0.72 in the same period of the prior year.
- Available capacity under Encore’s revolving credit facility,
subject to borrowing base and applicable debt covenants, was $213
million as of December 31, 2017.
Financial Highlights for the Full Year of
2017:
- Investment in receivable portfolios for the full year was $1.1
billion, including $536 million in the U.S. and $464 million in
Europe, compared to $0.9 billion deployed overall in 2016.
- Gross collections were $1.8 billion, compared to $1.7 billion
in 2016.
- Total revenues were $1.2 billion, compared to $1.0 billion in
2016.
- Total operating expenses were $862 million, compared to $788
million in 2016. Adjusted operating expenses were $698 million,
compared to $648 million in 2016 as we invested in the expansion of
our collections capacity.
- Total interest expense was $204 million, compared to $198
million in 2016.
- GAAP net income from continuing operations attributable to
Encore was $83.4 million, or $3.16 per fully diluted share,
compared to $78.9 million, or $3.05 per fully diluted share, in
2016.
- Adjusted income from continuing operations attributable to
Encore was $106.0 million, compared to $90.1 million in 2016.
- Adjusted income from continuing operations attributable to
Encore per share (also referred to as Economic EPS) was $4.04,
compared to $3.48 in 2016.
Conference Call and Webcast
The Company will host a conference call and slide presentation
today, February 21, 2018, at 2:00 p.m. Pacific time / 5:00 p.m.
Eastern time to discuss fourth quarter and full year 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 4077176. 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 from continuing
operations 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
from continuing operations 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 and other related
services for consumers across a broad range of financial assets.
Through its subsidiaries around the globe, Encore purchases
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. Encore is the first
and only company of its kind to operate with a Consumer Bill
of Rights that provides industry-leading commitments to
consumers. 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 the company can be found
at http://www.encorecapital.com. More information about
the Company's Cabot Credit Management subsidiary can be found
at http://www.cabotcm.com. Information found on the company’s
or Cabot’s website is 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, each as
it may be amended from time to time. The Company disclaims any
intent or obligation to update these forward-looking
statements.
Contact:Bruce ThomasEncore Capital Group,
Inc.Vice President, Investor Relations(858)
309-6442bruce.thomas@encorecapital.com
SOURCE: Encore Capital Group, Inc.
FINANCIAL TABLES FOLLOW
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Financial
Condition(In Thousands, Except Par Value Amounts)
|
December 31, 2017 |
|
December 31, 2016 |
Assets |
|
|
|
Cash and cash
equivalents |
$ |
212,139 |
|
|
$ |
149,765 |
|
Investment in
receivable portfolios, net |
2,890,613 |
|
|
2,382,809 |
|
Deferred court costs,
net |
79,963 |
|
|
65,187 |
|
Property and equipment,
net |
76,276 |
|
|
72,257 |
|
Other assets |
302,728 |
|
|
215,447 |
|
Goodwill |
928,993 |
|
|
785,032 |
|
Total assets |
$ |
4,490,712 |
|
|
$ |
3,670,497 |
|
Liabilities and equity |
|
|
|
Liabilities: |
|
|
|
Accounts
payable and accrued liabilities |
$ |
284,774 |
|
|
$ |
234,398 |
|
Debt,
net |
3,446,876 |
|
|
2,805,983 |
|
Other
liabilities |
35,151 |
|
|
29,601 |
|
Total liabilities |
3,766,801 |
|
|
3,069,982 |
|
Commitments and
contingencies |
|
|
|
Redeemable
noncontrolling interest |
151,978 |
|
|
45,755 |
|
Redeemable equity
component of convertible senior notes |
— |
|
|
2,995 |
|
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, 25,801 shares and
25,593 shares issued and outstanding as of December 31, 2017 and
December 31, 2016, respectively |
258 |
|
|
256 |
|
Additional paid-in capital |
42,646 |
|
|
103,392 |
|
Accumulated earnings |
616,314 |
|
|
560,567 |
|
Accumulated other comprehensive loss |
(77,356 |
) |
|
(104,911 |
) |
Total
Encore Capital Group, Inc. stockholders’ equity |
581,862 |
|
|
559,304 |
|
Noncontrolling interest |
(9,929 |
) |
|
(7,539 |
) |
Total equity |
571,933 |
|
|
551,765 |
|
Total liabilities, redeemable equity and equity |
$ |
4,490,712 |
|
|
$ |
3,670,497 |
|
|
|
|
|
|
|
|
|
The following table includes assets that can only be used to
settle the liabilities of the Company’s consolidated variable
interest entities (“VIEs”) and the creditors of the VIEs have no
recourse to the Company. These assets and liabilities are included
in the consolidated statements of financial condition above.
|
|
|
|
|
December 31, 2017 |
|
December 31, 2016 |
Assets |
|
|
|
Cash and cash
equivalents |
$ |
88,902 |
|
|
$ |
55,823 |
|
Investment in
receivable portfolios, net |
1,342,300 |
|
|
972,841 |
|
Deferred court costs,
net |
26,482 |
|
|
22,760 |
|
Property and equipment,
net |
23,138 |
|
|
19,284 |
|
Other assets |
122,263 |
|
|
79,767 |
|
Goodwill |
724,054 |
|
|
584,868 |
|
Liabilities |
|
|
|
Accounts payable and
accrued liabilities |
$ |
151,208 |
|
|
$ |
99,689 |
|
Debt, net |
2,014,202 |
|
|
1,514,799 |
|
Other liabilities |
1,494 |
|
|
1,921 |
|
|
|
|
|
|
|
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of
Operations(In Thousands, Except Per Share Amounts)
|
|
|
|
|
(Unaudited)Three Months Ended
December 31, |
|
Year Ended December 31, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Revenues |
|
|
|
|
|
|
|
Revenue
from receivable portfolios, net |
$ |
286,815 |
|
|
$ |
249,535 |
|
|
$ |
1,094,609 |
|
|
$ |
946,615 |
|
Other
revenues |
30,666 |
|
|
21,849 |
|
|
92,429 |
|
|
82,643 |
|
Total revenues |
317,481 |
|
|
271,384 |
|
|
1,187,038 |
|
|
1,029,258 |
|
Operating expenses |
|
|
|
|
|
|
|
Salaries
and employee benefits |
94,446 |
|
|
68,173 |
|
|
315,742 |
|
|
281,097 |
|
Cost of
legal collections |
50,598 |
|
|
42,808 |
|
|
200,058 |
|
|
200,855 |
|
Other
operating expenses |
28,689 |
|
|
25,317 |
|
|
104,938 |
|
|
100,737 |
|
Collection agency commissions |
10,025 |
|
|
7,899 |
|
|
43,703 |
|
|
36,141 |
|
General
and administrative expenses |
55,330 |
|
|
31,002 |
|
|
158,080 |
|
|
134,046 |
|
Depreciation and amortization |
14,158 |
|
|
8,740 |
|
|
39,977 |
|
|
34,868 |
|
Total operating expenses |
253,246 |
|
|
183,939 |
|
|
862,498 |
|
|
787,744 |
|
Income from
operations |
64,235 |
|
|
87,445 |
|
|
324,540 |
|
|
241,514 |
|
Other (expense)
income |
|
|
|
|
|
|
|
Interest
expense |
(51,692 |
) |
|
(48,447 |
) |
|
(204,161 |
) |
|
(198,367 |
) |
Other
(expense) income |
(1,157 |
) |
|
(130 |
) |
|
10,847 |
|
|
14,228 |
|
Total other expense |
(52,849 |
) |
|
(48,577 |
) |
|
(193,314 |
) |
|
(184,139 |
) |
Income from continuing
operations before income taxes |
11,386 |
|
|
38,868 |
|
|
131,226 |
|
|
57,375 |
|
Provision for income
taxes |
(8,607 |
) |
|
(28,374 |
) |
|
(52,049 |
) |
|
(38,205 |
) |
Income from continuing
operations |
2,779 |
|
|
10,494 |
|
|
79,177 |
|
|
19,170 |
|
Income (loss) from
discontinued operations, net of tax |
— |
|
|
829 |
|
|
(199 |
) |
|
(2,353 |
) |
Net income |
2,779 |
|
|
11,323 |
|
|
78,978 |
|
|
16,817 |
|
Net loss
attributable to noncontrolling interest |
9,902 |
|
|
11,489 |
|
|
4,250 |
|
|
59,753 |
|
Net income attributable
to Encore Capital Group, Inc. stockholders |
$ |
12,681 |
|
|
$ |
22,812 |
|
|
$ |
83,228 |
|
|
$ |
76,570 |
|
Amounts
attributable to Encore Capital Group, Inc.: |
|
|
|
|
|
|
|
Income from continuing
operations |
$ |
12,681 |
|
|
$ |
21,983 |
|
|
$ |
83,427 |
|
|
$ |
78,923 |
|
Income (loss) from
discontinued operations, net of tax |
— |
|
|
829 |
|
|
(199 |
) |
|
(2,353 |
) |
Net income |
$ |
12,681 |
|
|
$ |
22,812 |
|
|
$ |
83,228 |
|
|
$ |
76,570 |
|
Earnings (loss)
per share attributable to Encore Capital Group, Inc.: |
|
|
|
|
|
|
|
Basic earnings (loss)
per share from: |
|
|
|
|
|
|
|
Continuing operations |
$ |
0.49 |
|
|
$ |
0.85 |
|
|
$ |
3.21 |
|
|
$ |
3.07 |
|
Discontinued operations |
$ |
— |
|
|
$ |
0.03 |
|
|
$ |
(0.01 |
) |
|
$ |
(0.09 |
) |
Net basic
earnings per share |
$ |
0.49 |
|
|
$ |
0.88 |
|
|
$ |
3.20 |
|
|
$ |
2.98 |
|
Diluted earnings (loss)
per share from: |
|
|
|
|
|
|
|
Continuing operations |
$ |
0.48 |
|
|
$ |
0.85 |
|
|
$ |
3.16 |
|
|
$ |
3.05 |
|
Discontinued operations |
$ |
— |
|
|
$ |
0.03 |
|
|
$ |
(0.01 |
) |
|
$ |
(0.09 |
) |
Net
diluted earnings per share |
$ |
0.48 |
|
|
$ |
0.88 |
|
|
$ |
3.15 |
|
|
$ |
2.96 |
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
Basic |
26,017 |
|
|
25,792 |
|
|
25,972 |
|
|
25,713 |
|
Diluted |
26,405 |
|
|
25,993 |
|
|
26,405 |
|
|
25,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Cash
Flows(In Thousands)
|
|
|
Year Ended December 31, |
|
2017 |
|
2016 |
|
2015 |
Operating
activities: |
|
|
|
|
|
Net income |
$ |
78,978 |
|
|
$ |
16,817 |
|
|
$ |
47,384 |
|
Adjustments to
reconcile net income to net cash provided by operating
activities: |
|
|
|
|
|
Loss from
discontinued operations, net of income taxes |
199 |
|
|
2,353 |
|
|
23,387 |
|
Depreciation and amortization |
39,977 |
|
|
34,868 |
|
|
33,160 |
|
Other
non-cash expense, net |
35,676 |
|
|
22,807 |
|
|
35,104 |
|
Stock-based compensation expense |
10,399 |
|
|
12,627 |
|
|
22,008 |
|
Deferred
income taxes |
28,970 |
|
|
(52,905 |
) |
|
(16,665 |
) |
(Reversal
of) provision for allowances on receivable portfolios, net |
(41,236 |
) |
|
84,177 |
|
|
(6,763 |
) |
Changes in operating
assets and liabilities |
|
|
|
|
|
Deferred
court costs and other assets |
(4,101 |
) |
|
(20,364 |
) |
|
(33,430 |
) |
Prepaid
income tax and income taxes payable |
(26,699 |
) |
|
25,417 |
|
|
(29,504 |
) |
Accounts
payable, accrued liabilities and other liabilities |
1,655 |
|
|
2,439 |
|
|
43,135 |
|
Net cash provided by operating activities from
continuing operations |
123,818 |
|
|
128,236 |
|
|
117,816 |
|
Net cash provided by (used in) operating activities
from discontinued operations |
— |
|
|
2,096 |
|
|
(1,667 |
) |
Net cash provided by operating activities |
123,818 |
|
|
130,332 |
|
|
116,149 |
|
Investing
activities: |
|
|
|
|
|
Cash paid
for acquisitions, net of cash acquired |
(96,390 |
) |
|
(675 |
) |
|
(276,575 |
) |
Proceeds
from divestiture of business, net of cash divested |
— |
|
|
106,041 |
|
|
— |
|
Purchases
of assets held for sale |
— |
|
|
(19,874 |
) |
|
— |
|
Purchases
of receivable portfolios, net of put-backs |
(1,045,829 |
) |
|
(907,413 |
) |
|
(749,760 |
) |
Collections applied to investment in receivable portfolios,
net |
709,420 |
|
|
659,321 |
|
|
635,899 |
|
Purchases
of property and equipment |
(28,126 |
) |
|
(31,668 |
) |
|
(28,624 |
) |
Other,
net |
8,794 |
|
|
10,794 |
|
|
(1,233 |
) |
Net cash used in investing activities from continuing
operations |
(452,131 |
) |
|
(183,474 |
) |
|
(420,293 |
) |
Net cash provided by (used in) used in investing
activities from discontinued operations |
— |
|
|
14,685 |
|
|
(52,416 |
) |
Net cash used in investing activities |
(452,131 |
) |
|
(168,789 |
) |
|
(472,709 |
) |
Financing
activities: |
|
|
|
|
|
Payment
of loan costs |
(28,972 |
) |
|
(32,338 |
) |
|
(17,995 |
) |
Proceeds
from credit facilities |
1,434,480 |
|
|
586,016 |
|
|
1,084,393 |
|
Repayment
of credit facilities |
(1,168,069 |
) |
|
(615,857 |
) |
|
(898,086 |
) |
Proceeds
from senior secured notes |
325,000 |
|
|
442,610 |
|
|
332,693 |
|
Repayment
of senior secured notes |
(204,241 |
) |
|
(352,549 |
) |
|
(15,000 |
) |
Proceeds
from issuance of convertible senior notes |
150,000 |
|
|
— |
|
|
— |
|
Repayment
of convertible senior notes |
(125,407 |
) |
|
— |
|
|
— |
|
Repayment
of securitized notes |
— |
|
|
(935 |
) |
|
(44,251 |
) |
Repurchase of common stock |
— |
|
|
— |
|
|
(33,185 |
) |
Proceeds
from other debt |
33,197 |
|
|
36,172 |
|
|
— |
|
Payment
for the purchase of noncontrolling interest |
(29,731 |
) |
|
(4,842 |
) |
|
— |
|
Other,
net |
(8,040 |
) |
|
(15,024 |
) |
|
(8,448 |
) |
Net cash provided by financing activities |
378,217 |
|
|
43,253 |
|
|
400,121 |
|
Net increase in cash
and cash equivalents |
49,904 |
|
|
4,796 |
|
|
43,561 |
|
Effect of exchange rate
changes on cash and cash equivalents |
12,470 |
|
|
(8,624 |
) |
|
(14,131 |
) |
Cash and cash
equivalents, beginning of period |
149,765 |
|
|
153,593 |
|
|
124,163 |
|
Cash and cash
equivalents, end of period |
212,139 |
|
|
149,765 |
|
|
153,593 |
|
Cash and cash
equivalents of discontinued operations, end of period |
— |
|
|
— |
|
|
29,600 |
|
Cash and cash
equivalents of continuing operations, end of period |
$ |
212,139 |
|
|
$ |
149,765 |
|
|
$ |
123,993 |
|
Supplemental
disclosures of cash flow information: |
|
|
|
|
|
Cash paid
for interest |
$ |
162,545 |
|
|
$ |
147,899 |
|
|
$ |
151,946 |
|
Cash paid
for income taxes, net |
44,365 |
|
|
60,071 |
|
|
84,101 |
|
Supplemental schedule
of non-cash investing and financing activities: |
|
|
|
|
|
Conversion of convertible senior notes |
$ |
28,277 |
|
|
$ |
— |
|
|
$ |
— |
|
Fixed
assets acquired through capital lease |
3,577 |
|
|
55 |
|
|
2,220 |
|
|
|
|
|
|
|
|
|
|
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 December 31, |
|
2017 |
|
2016 |
|
$ |
|
Per DilutedShare—Accounting |
|
Per
DilutedShare—Economic |
|
$ |
|
Per Diluted Share—
Accounting |
|
Per Diluted Share— Economic |
GAAP net income from
continuing operations attributable to Encore, as reported |
$ |
12,681 |
|
|
$ |
0.48 |
|
|
$ |
0.48 |
|
|
$ |
21,983 |
|
|
$ |
0.85 |
|
|
$ |
0.85 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Convertible notes non-cash interest and issuance cost
amortization |
3,126 |
|
|
0.12 |
|
|
0.12 |
|
|
3,017 |
|
|
0.12 |
|
|
0.12 |
|
Acquisition, integration and restructuring related expenses(1) |
11,911 |
|
|
0.45 |
|
|
0.45 |
|
|
7,457 |
|
|
0.29 |
|
|
0.29 |
|
Net gain
on fair value adjustments to contingent considerations(2) |
(49 |
) |
|
— |
|
|
— |
|
|
(8,111 |
) |
|
(0.31 |
) |
|
(0.31 |
) |
Amortization of certain acquired intangible assets(3) |
1,610 |
|
|
0.06 |
|
|
0.06 |
|
|
415 |
|
|
0.02 |
|
|
0.02 |
|
Expenses
related to withdrawn Cabot IPO(4) |
15,339 |
|
|
0.58 |
|
|
0.58 |
|
|
— |
|
|
— |
|
|
— |
|
Income
tax effect of the adjustments(5) |
(4,183 |
) |
|
(0.16 |
) |
|
(0.16 |
) |
|
(3,693 |
) |
|
(0.15 |
) |
|
(0.15 |
) |
Adjustments attributable to noncontrolling interest(6) |
(13,965 |
) |
|
(0.53 |
) |
|
(0.53 |
) |
|
(2,402 |
) |
|
(0.10 |
) |
|
(0.10 |
) |
Impact
from tax reform(7) |
1,182 |
|
|
0.05 |
|
|
0.05 |
|
|
— |
|
|
— |
|
|
— |
|
Adjusted income from
continuing operations attributable to Encore |
$ |
27,652 |
|
|
$ |
1.05 |
|
|
$ |
1.05 |
|
(8 |
) |
$ |
18,666 |
|
|
$ |
0.72 |
|
|
$ |
0.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________________
(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) Amount represents the net gain recognized as a result of
fair value adjustments to contingent considerations that were
established for our acquisitions of debt solution service providers
in Europe. We have adjusted for this amount because we do not
believe this is indicative of ongoing operations.
(3) 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,
particularly in recent quarters. 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.
(4) In October 2017, Cabot announced its intention to proceed
with an initial public offering and to apply for admission of its
ordinary shares to the premium listing segment of the Official List
of the Financial Conduct Authority and to trade on the main market
for listed securities of the London Stock Exchange. In November
2017, Encore announced that Cabot has decided to not go forward
with its previously announced initial public offering as a result
of poor performance of other IPOs on the London Stock Exchange and
unfavorable equity market conditions in the U.K. 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.
(5) Amount represents the total income tax effect of the
adjustments, which is calculated based on the applicable marginal
tax rate of the jurisdiction in which the portion of the adjustment
occurred.
(6) 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.
(7) As a result of the U.S. Tax Cuts and Jobs Act (the “Tax
Reform Act”), we incurred a net additional tax expense of
approximately $1.2 million. We believe the Tax Reform Act related
expenses are not indicative of our ongoing operations, therefore
adjusting for these expenses enhances comparability to prior
periods, anticipated future periods, and our competitors’
results.
(8) Adjusted income from continuing operations
attributable to Encore per economic share includes $0.40
of adjustments to Cabot’s EPS contribution after tax and
noncontrolling interest, consisting primarily of a portion of
expenses related to the withdrawn Cabot IPO as well as
restructuring charges related to Cabot’s acquisition of Wescot.
|
|
|
Year Ended December 31, |
|
2017 |
|
2016 |
|
$ |
|
Per DilutedShare—Accounting |
|
Per
DilutedShare—Economic |
|
$ |
|
Per Diluted Share—
Accounting |
|
Per Diluted Share— Economic |
GAAP net income from
continuing operations attributable to Encore, as reported |
$ |
83,427 |
|
|
$ |
3.16 |
|
|
$ |
3.18 |
|
|
$ |
78,923 |
|
|
$ |
3.05 |
|
|
$ |
3.05 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Convertible notes non-cash interest and issuance cost
amortization |
12,353 |
|
|
0.47 |
|
|
0.47 |
|
|
11,830 |
|
|
0.46 |
|
|
0.46 |
|
Acquisition, integration and restructuring related expenses(1) |
16,628 |
|
|
0.63 |
|
|
0.63 |
|
|
17,630 |
|
|
0.68 |
|
|
0.68 |
|
Net gain
on fair value adjustments to contingent considerations(2) |
(2,822 |
) |
|
(0.11 |
) |
|
(0.11 |
) |
|
(8,111 |
) |
|
(0.31 |
) |
|
(0.31 |
) |
Settlement fees and related administrative expenses(3) |
— |
|
|
— |
|
|
— |
|
|
6,299 |
|
|
0.24 |
|
|
0.24 |
|
Amortization of certain acquired intangible assets(4) |
3,561 |
|
|
0.13 |
|
|
0.14 |
|
|
2,593 |
|
|
0.10 |
|
|
0.10 |
|
Expenses
related to withdrawn Cabot IPO(5) |
15,339 |
|
|
0.58 |
|
|
0.58 |
|
|
— |
|
|
— |
|
|
— |
|
Income
tax effect of the adjustments(6) |
(7,936 |
) |
|
(0.30 |
) |
|
(0.30 |
) |
|
(12,577 |
) |
|
(0.49 |
) |
|
(0.49 |
) |
Adjustments attributable to noncontrolling interest(7) |
(15,720 |
) |
|
(0.60 |
) |
|
(0.60 |
) |
|
(6,461 |
) |
|
(0.25 |
) |
|
(0.25 |
) |
Impact
from tax reform(8) |
1,182 |
|
|
0.05 |
|
|
0.05 |
|
|
— |
|
|
— |
|
|
— |
|
Adjusted income from
continuing operations attributable to Encore |
$ |
106,012 |
|
|
$ |
4.01 |
|
|
$ |
4.04 |
|
|
$ |
90,126 |
|
|
$ |
3.48 |
|
|
$ |
3.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________________
(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) Amount represents the net gain recognized as a result of
fair value adjustments to contingent considerations that were
established for our acquisitions of debt solution service providers
in Europe. We have adjusted for this amount because we do not
believe this is indicative of ongoing operations.
(3) Amount represents litigation and government settlement fees
and related administrative expenses. For the year ended December
31, 2016, amount consists of settlement and administrative fees
related to certain TCPA settlements. We believe these fees
and expenses are not indicative of ongoing operations, therefore
adjusting for these expenses enhances comparability to prior
periods, anticipated future periods, and our competitors’
results.
(4) 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,
particularly in recent quarters. 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.
(5) In October 2017, Cabot announced its intention to proceed
with an initial public offering and to apply for admission of its
ordinary shares to the premium listing segment of the Official List
of the Financial Conduct Authority and to trade on the main market
for listed securities of the London Stock Exchange. In November
2017, Encore announced that Cabot has decided to not go forward
with its previously announced initial public offering as a result
of poor performance of other IPOs on the London Stock Exchange and
unfavorable equity market conditions in the U.K. 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.
(6) Amount represents the total income tax effect of the
adjustments, which is calculated based on the applicable marginal
tax rate of the jurisdiction in which the portion of the adjustment
occurred.
(7) 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.
(8) As a result of the Tax Reform Act, we incurred a net
additional tax expense of approximately $1.2 million. We believe
the Tax Reform Act related expenses are not indicative of our
ongoing operations, therefore adjusting for these expenses enhances
comparability to prior periods, anticipated future periods, and our
competitors’ results.
|
|
|
|
|
Three Months Ended December 31, |
|
Year Ended December 31, |
2017 |
|
2016 |
|
2017 |
|
2016 |
GAAP total operating
expenses, as reported |
$ |
253,246 |
|
|
$ |
183,939 |
|
|
$ |
862,498 |
|
|
$ |
787,744 |
|
Adjustments: |
|
|
|
|
|
|
|
Stock-based compensation expense |
(3,358 |
) |
|
(3,125 |
) |
|
(10,399 |
) |
|
(12,627 |
) |
Operating
expenses related to non-portfolio purchasing and recovery
business(1) |
(41,164 |
) |
|
(29,291 |
) |
|
(125,028 |
) |
|
(110,875 |
) |
Acquisition, integration and restructuring related operating
expenses(2) |
(11,911 |
) |
|
(7,457 |
) |
|
(16,628 |
) |
|
(17,630 |
) |
Net gain
on fair value adjustments to contingent considerations(3) |
49 |
|
|
8,111 |
|
|
2,822 |
|
|
8,111 |
|
Settlement fees and related administrative expenses(4) |
— |
|
|
— |
|
|
— |
|
|
(6,299 |
) |
Expenses
related to withdrawn Cabot IPO(5) |
(15,339 |
) |
|
— |
|
|
(15,339 |
) |
|
— |
|
Adjusted operating
expenses related to portfolio purchasing and recovery business |
$ |
181,523 |
|
|
$ |
152,177 |
|
|
$ |
697,926 |
|
|
$ |
648,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________________
(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. 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.
(3) Amount represents the net gain recognized as a result of
fair value adjustments to contingent considerations that were
established for our acquisitions of debt solution service providers
in Europe. We have adjusted for this amount because we do not
believe this is indicative of ongoing operations.
(4) Amount represents litigation and government settlement fees
and related administrative expenses. For the year ended December
31, 2016, amount consists of settlement and administrative fees
related to certain TCPA settlements. We believe these fees and
expenses are not indicative of ongoing operations, therefore
adjusting for these expenses enhances comparability to prior
periods, anticipated future periods, and our competitors’
results.
(5) In October 2017, Cabot announced its intention to proceed
with an initial public offering and to apply for admission of its
ordinary shares to the premium listing segment of the Official List
of the Financial Conduct Authority and to trade on the main market
for listed securities of the London Stock Exchange. In November
2017, Encore announced that Cabot has decided to not go forward
with its previously announced initial public offering as a result
of poor performance of other IPOs on the London Stock Exchange and
unfavorable equity market conditions in the U.K. 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.
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