Encore Capital Group Announces First Quarter 2016 Financial Results

Yesterday, Encore Capital Group (ECPG), reported its financial results for the first quarter of 2016. Encore is an international specialty finance company with operations in eight countries that provides debt recovery solutions for consumers across a broad range of assets.

Financial Highlights for the First Quarter of 2016:

• Estimated Remaining Collections (ERC) grew 12% to $5.7 billion, compared to $5.1 billion at March 31, 2015.
• Gross collections grew 5% to $448 million, compared to $425 million in the same period of the prior year.
• Investment in receivable portfolios was $257 million, compared to $125 million in the same period of the prior year.
• Total revenues increased 4% to $289 million, compared to $278 million in the same period of the prior year.
• Total operating expenses increased 5% to $206 million, compared to $195 million in the same period of the prior year. Adjusted operating expenses increased 3% to $169 million, compared to $165 million in the same period of the prior year. Adjusted operating expenses per dollar collected for the portfolio purchasing and recovery business decreased to 37.7%, compared to 38.8% in the same period of the prior year.
• Adjusted EBITDA increased 9% to $287 million, compared to $263 million in the same period of the prior year.
• Total interest expense increased to $50.7 million, as compared to $42.3 million in the same period of the prior year, reflecting the financing of recent acquisitions and portfolio purchases in Europe.
• GAAP income from continuing operations attributable to Encore was $28.9 million, or $1.12 per fully diluted share, as compared to $27.5 million, or $1.01 per fully diluted share in the same period of the prior year.
• Adjusted income from continuing operations attributable to Encore increased 11% to $33.9 million, compared to $30.6 million 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 $228 million as of March 31, 2016, and total debt was $2.9 billion.

insideARM perspective

We have commented before that ECPG and Portfolio Recovery Associates (PRAA) quarterly reporting provides an excellent overview of the debt-buying industry. We also suggest the reports should be viewed together. (Editor’s note: PRAA reported earnings yesterday.  See here for yesterday’s insideARM story on the PRAA Q1 earnings announcement.)

As noted in yesterday’s PRAA article, the earnings conference call is always more interesting than the raw numbers.

Some highlights from the call included:

• Ken Vecchione, ECPG President and CEO commented on the current environment for U.S. purchases, “In the US market, domestic supply remains stable and we are seeing early signs of pricing improvement in some categories of portfolios.” (Editor’s note: PRAA management made a similar observation.) That is quite interesting. One could speculate on the reasons for this observation from both companies. But, one thought is that there are fewer potential buyers that would be acceptable to today’s selling entity. Fewer bidders often translates to lower prices.
• ECPG remains bullish on Europe and Spain and France in particular. The company also sees great opportunity in Latin America and Mexico, Brazil and Columbia in particular.
• Like PRAA, ECPG management also commented on a “slowdown” in the legal process in Q1. Management discussed the impact of CFPB “Rulemaking through Enforcement Actions.” They specifically talked about the ECPG and PRAA consent orders as well as the Hanna and Pressler & Pressler consent orders. Like PRAA, ECPG management believes they, and all law firms, have been adapting to the policies and procedures outlined in the consent orders.  The consent orders contributed to a “slowdown” in legal activity in Q1, but the “slowdown” is temporary, as all parties involved are moving forward.

Finally, management referenced a strategy of moving to more consumer-focused programs. These programs seem designed to reduce consumer complaints and put more and more accounts into voluntary repayment programs as opposed to lump sum settlements. Any wide roll-out and adoption of that strategy will also reduce the number of accounts that would enter a legal program.