Encore Capital Announces Record Results; Comments on ARM Environment

Debt buyer Encore Capital Group, Inc. (NASDAQ: ECPG) announced late Thursday financial results for the third quarter of 2012 highlighted by record earnings, collections and operating cash flow.

The San Diego-based ARM firm reported income from continuing operations in Q3 2012 of $21.3 million, or $0.82 per share, compared to income from continuing operations of $15.4 million, or $0.60 per share 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 $150.9 million, a 41 percent increase over the $106.9 million in the same period of the prior year.

Total revenues for the third quarter 2012 were up 25 percent to $144.8 million. Revenue from receivable portfolios in the portfolio purchasing and recovery business, net of allowance adjustments, was $140.7 million, a 21 percent increase over the same period of the prior year.

Gross collections from the portfolio purchasing and recovery business were $246 million, a 30 percent increase over the $189.1 million in the same period of the prior year. All of Encore’s collection channels saw significant gains in the quarter, with internal collection sites (the largest channel in the quarter) increasing 40.3 percent, the legal channel rising 17.3 percent, and forwarding to third party collection agencies rising 64 percent.

“For the quarter, we delivered strong financial results, including record earnings, collections and operating cash flow,” said Brandon Black, Encore’s President and CEO. “We’ve been very disciplined with the investments we’ve made and how we’ve executed our strategies, and this continues to drive our performance across the board.”

Investment in receivable portfolios in the portfolio purchasing and recovery business was $47.3 million, to purchase $1.1 billion in face value of debt, compared to $65.7 million, to purchase $2 billion in face value of debt in the same period of the prior year.  The company said in its SEC filing that it focused more on telecom portfolios in Q3 2012 compared to the prior year, with investment in credit card portfolios declining.

Encore’s total domestic headcount declined 5.7 percent, compared to the end of Q3 2011, to 750, while its international headcount grew 36.6 percent over the same period to 2,010.

The company also discussed the major changes taking place in the ARM industry that are likely to lead to increased consolidation in the years ahead.  ”We built Encore for the exact business and regulatory environment we’re now entering,” Black commented. “Only companies with access to low cost capital, a differentiated operating model, an operating cost advantage and a real commitment to respecting consumers will succeed.”