Encore Capital’s Record Third Quarter Show it Winning the Arms Race

Debt buyer and diversified ARM firm Encore Capital Group (NASDAQ: ECPG) late Thursday released financial results for the third quarter of 2013. The company recorded massive increases in most categories, mostly due to two large recently-closed acquisitions. The numbers also show it moving ahead of Portfolio Recovery Associates (NASDAQ: PRAA) in the battle for largest U.S. traded ARM company.

San Diego-based Encore in Q3 2013 recorded Adjusted EBITDA (defined as net income before interest, taxes, depreciation and amortization, stock-based compensation expenses, portfolio amortization, one-time charges, and acquisition and integration related expenses) was $234.4 million, a 55 percent increase over the $150.9 million in the same period of the prior year. Net income in the quarter was $22.2 million, up slightly from the $21.3 reported in Q3 2013.

Total revenues soared 62 percent to $235.5 million. That number outpaced the nearly $200 million reported last week by rival Portfolio Recovery Associates.

Encore’s cash collections also set a quarterly record at $379.7 million, a 54 percent increase from the same period a year ago.

The company directly attributed the huge increases to the recent acquisitions of U.S. debt buyer Asset Acceptance Capital Corp., which closed shortly before the third quarter, and U.K. debt buyer and collector Cabot Credit Management in a deal that closed at the very beginning of the quarter.

“For the quarter, we again delivered record financial results, as the disciplined execution of our growth strategies continue to drive shareholder returns,” said Ken Vecchione, Encore’s President and CEO. “Collections, revenues and Adjusted EPS all reached record highs as our recent acquisitions contributed to the quarter’s success. Asset Acceptance continues to exceed our expectations and integration efforts remain on schedule. We also successfully closed our acquisition of a controlling interest in Cabot Credit Management. Cabot provides Encore with the opportunity to deploy a meaningful amount of capital in a new market and generate substantial incremental earnings, as evidenced by this quarter’s results. We continue to be excited about the opportunities in the U.K. market and the progress we are making on synergy initiatives in partnership with Cabot’s leadership.”

The two acquisitions also heavily skewed the portfolio purchase figures for the quarter and first nine months of 2013.

During the three months ended September 30, Encore purchased receivable portfolios with a face value of $13.4 billion for $617.9 million. Purchases of charged-off credit card, telecom and consumer bankruptcy portfolios include $559.0 million of portfolios acquired in conjunction with the Cabot Acquisition. During the nine months ended September 30, the company purchased receivable portfolios with a face value of $83.9 billion for $1.1 billion, which includes $381.2 million acquired in conjunction with the Asset Acceptance merger.