Encore Capital Group Reports Big Fourth Quarter and Full Year 2009

Accounts receivable management firm Encore Capital Group (Nasdaq: ECPG) late Monday announced results for the fourth quarter and full year 2009, marked by a swing to profit in the fourth quarter and yearly revenue in excess of $300 million. Investors cheered the news as Encore’s stock was trading up more than 15 percent early Tuesday.

The San Diego-based debt buyer and collector reported net income of $33 million, or $1.42 per share, for the full year ended December 31, 2009, up from the $13.8 million — $0.60 per share – reported for 2008. Adjusted EBITDA was $264.6 million in 2009, a 27 percent increase over the $208 million in 2008. Total revenues increased 23.6 percent in the year to $316.4 million.

The fourth quarter of 2009 saw dramatic improvement from the year-ago period. Encore said that total revenues soared 36 percent in the quarter to $81.5 million. This helped the company record net income of $8.4 million in Q4 2009 — $0.36 per share – compared to a net loss of $2.1 million (-$0.09 per share) in Q4 2008.

Encore said that gross collections were $487.8 million for 2009, up 22 percent from 2008. The company has four liquidation channels that it uses to collect revenue: legal collections, owned collection call center sites, external collection agency outsourcing, and portfolio sales. For the full year 2009, legal collections accounted for 47.7 percent of gross collections, collection sites accounted for 38 percent, collection agency outsourcing: 12.8 percent, and portfolio sales brought in 1.4 percent of the total.

The 2009 share of gross collections attributable to legal collections and collection sites were roughly in line with totals from 2008. But outsourcing to external collection agencies increased more than 80 percent in 2009, with debt portfolio sales dropping by nearly half.

In 2009, Encore invested $256.6 million for debt portfolios with face values aggregating $6.5 billion. This is a $26.4 million increase, or 11.4 percent, in the amount invested, compared with the $230.3 million invested during 2008, to acquire portfolios with a face value aggregating $6.6 billion. In the fourth quarter of 2009, investment in receivable portfolios was $41 million, to purchase $1 billion in face value of debt, compared to $63.8 million, to purchase $1.7 billion in face value of debt in the same period of the prior year.

Encore noted in an SEC filing that the entire $256.6 million debt portfolio pool it purchased in 2009 was comprised of credit card accounts. In 2008, 87.5 percent of the pool was comprised of credit card accounts, with the balance classified as “Other.”

The company said that it had signed a new lease for a larger building in India in April 2009. Total capacity there will be 1,100 collectors. Encore’s Indian operations moved to that facility in September. The company noted that it will keep its domestic collection operations steady and that all future collector headcount growth will be focused on India.

Separately, Encore announced that it has entered into a new $327.5 million, three-year revolving credit facility that expires in May 2013. The new facility contains an accordion feature, which allows the company to request an increase in the facility by up to $100 million, not to exceed a total facility of $427.5 million. The new facility replaces the Encore’s pre-existing $335 million revolving credit agreement that was scheduled to expire in May 2010. JPMorgan Chase Bank acted as administrative agent as well as a lender under the new agreement. Bank of America acted as syndication agent as well as a lender. The facility also includes Fifth Third, SunTrust, Morgan Stanley, California Bank & Trust and Citibank, among other lenders.