Encore Capital Shares Soar on Strong First Quarter Results

Shares in accounts receivable management company Encore Capital Group rose 44 percent in trading Wednesday after the company announced that net income in the first quarter of 2009 was up 32 percent.

San Diego-based Encore (Nasdaq: ECPG) reported net income of $9 million for the period ended March 31, 2009, compared to net income of $6.8 million in Q1 2008. Earnings per share were $0.38, up from $0.29 a year ago.

Total revenues in the quarter increased 13.2 percent to $76.4 million. Cash collections were $114.4 million, a 14 percent increase over the $100.2 million in the same period of the prior year. Encore’s collection sites accounted for $50.3 million in collections — or 44 percent of total collections – the legal collection channel brought in $56.4 million (49.3 percent) and collection agency outsourcing accounted for the remaining 6.7 percent, or $7.7 million.

In addition, portfolio sales in the first quarter brought in $817,000.

Investors cheered the positive earnings news, sending shares in the debt purchaser up 44 percent in trading Wednesday to $8.38. The company’s stock had hit a 52-week low of $2.89 on March 12 and has been rising steadily ever since. Encore’s shares were trading slightly higher in early trading Thursday.

Encore invested $55.9 million to purchase $1.3 billion in face value debt portfolios in the first quarter of 2009, compared to $47.9 million to purchase $1.2 billion in face value of debt in the same period of the prior year. According to the company’s SEC filing, all of the debt purchased in the first quarter was from credit card accounts. In the first quarter of 2008, 94.5 percent of Encore’s purchased portfolios were credit card accounts.

The company recorded a net impairment provision of $5.4 million in Q1 2009, compared to a net impairment provision of $5.3 million in the same period of the prior year.

Encore also made a couple of additional announcements in its filings for quarterly results. The company said that it’s Board of Directors has named George Lund, its current Chairman, to the expanded role of Executive Chairman, effective July 6, 2009. Lund’s enhanced role will include developing the company’s corporate strategy and working with its leadership team to execute on key initiatives. Lund was formerly Chairman and CEO of BANKFIRST, a national issuer of consumer credit. Encore also announced the nomination of H Ronald Weissman to serve on its Board of Directors, effective July 6, 2009. Mr. Weissman is currently a senior partner with Ernst & Young’s Financial Services Office and will retire on July 3, 2009.

Brandon Black, Encores’ president and CEO, said of the appointments in a press release, "This is an unprecedented time of opportunity for Encore. George’s new role and Ron’s addition to the Board will better position the company to fully capitalize on it. While the supply of charged-off credit card debt has reached a historically high level, the number of well-capitalized consumer debt buyers is shrinking and portfolio prices are trending down.”

In addition, Encore noted in an SEC filing that it is expanding its operations in India. Last week, the company signed a lease agreement for a new site near its current office in Gurgaon, India. The present site has about 350 collectors and the new site will allow for expansion up to 1,100 total collectors in India. The company expects to occupy the facility in October.

Encore noted that it expects to maintain its current collector headcount in the U.S. and leverage the India sites for future growth.