SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13
or 15(d)
of the Securities
Exchange Act of 1934
Date of Report (Date of earliest event reported): March 2, 2004
Encore Capital Group,
Inc.
(Exact Name of
Registrant as Specified in its Charter)
| Delaware | 000-26489 | 48-1090909 | ||
|---|---|---|---|---|
| (State or other jurisdiction of incorporation or organization) |
(Commission File Number) | (I.R.S Employer (Identification No.) | ||
5775 Roscoe Court
San Diego, California 92123
(Address of Principal Executive Offices) (Zip Code)
(877) 445-4581
(Registrant’s
Telephone Number, Including Area Code)
Item 9. Regulation FD Disclosure
A copy of a slide presentation given by Carl C. Gregory, III, President and Chief Executive Officer, and Barry R. Barkley, Executive Vice President and Chief Financial Officer, at the Wall Street Analyst Forum 51st NYC Analyst Conference on March 3, 2004 in New York, New York, is attached to this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein solely for purposes of this Item 9. The attached exhibit reflects a correction that was made to 2002 pro forma net income as shown on slide 15.
The slide presentation attached to this Current Report on Form 8-K as Exhibit 99.1 contains financial measures for net income excluding one-time benefits and charges that are not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”). The Company has provided a reconciliation in Exhibit 99.2 to this Current Report on Form 8-K of the non-GAAP financial measures for net income excluding one-time benefits and charges to GAAP net income.
In response to a question asked during the March 2, 2004 conference call, Exhibit 99.2 also includes non-GAAP financial measures for interest expense and weighted average effective interest rate excluding one-time charges, including a reconciliation of the non-GAAP financial measures for interest expense and weighted average effective interest rate to GAAP interest expense and weighted average effective interest rate.
Management believes that the non-GAAP financial measures for net income provide useful information to investors about the Company’s results of operations because the elimination of one-time benefits and charges that are included in the GAAP financial measures results in a normalized comparison of certain key financial results between the periods presented. Management believes that the non-GAAP financial measures for interest expense and weighted average effective interest rate provide useful information to investors about the Company’s results of operations because the exclusion of one-time charges relating to the early redemption of the Company’s senior notes is more representative of the Company’s true borrowing costs during the periods presented.
The information in this Current Report on Form 8-K, including the exhibits, is furnished pursuant to Item 9 and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities under that Section. Furthermore, the information in this Current Report on Form 8-K, including the exhibits, shall not be deemed to be incorporated by reference into the filings of Encore Capital Group, Inc. under the Securities Act of 1933.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: March 5, 2004 | ENCORE CAPITAL GROUP, INC. By /s/ Barry R. Barkley —————————————— Barry R. Barkley Executive Vice President, Chief Financial Officer and Treasurer |
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EXHIBIT INDEX
| Exhibit | Description |
| 99.1 | Slide presentation given by Carl C. Gregory, III, President and Chief Executive Officer, and Barry R. Barkley, Executive Vice President and Chief Financial Officer, at the Wall Street Analyst Forum 51st NYC Analyst Conference on March 3, 2004 in New York, New York (corrected version). |
| 99.2 | Reconciliation of non-GAAP information pursuant to Regulation G. |
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Exhibit 99.1
Encore Capital Group, Inc.
NASDAQ: ECPG
March 3, 2004
Presentation to Wall Street Analyst Forum
New York, New York
Rev. 3-4-04
Forward-Looking Statements
Certain statements in this Presentation constitute “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
involve risks,
uncertainties and other factors which may cause actual results, performance or achievements of
the Company to be materially different from any future results, performance or achievements
expressed or implied by such statements.
Factors that could materially affect the Company’s results and cause them to differ from those
contained in the forward-looking statements include:
• the availability and cost of financing;
• our ability to purchase receivables portfolios on acceptable terms;
• our ability to recover sufficient amounts on receivables to fund operations;
• our continued servicing of receivables in our third party financing transactions;
• our ability to hire and retain qualified personnel to recover on our receivables
efficiently;
• changes in, or failure to comply with, government regulations; and
• the costs, uncertainties and other effects of legal and administrative proceedings.
Additional information concerning these and other factors that could cause actual results to be materially
different are contained in the Company’s Quarterly Reports on Form
10-Q and in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2003, filed with the Securities and Exchange
Commission.
In light of the significant uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the Company
or by any other
person or entity that the objectives and plans of the Company will be achieved.
Encore Capital Group, Inc
50 Year Old Purchaser of Consumer Debt
Present Management Team Took Over in
Mid-2000
Unique Business Model
Excellent Results
Strong Drivers for Growth
Compelling Fundamentals
“America’s appetite for borrowing
money bloats U.S. consumer debt to
a record high almost every month. As of September, the tab stood at $2
trillion and was spurting at an annual rate of 10 percent. Through good
times and bad, spending tomorrow’s dollars
today never goes out of
fashion.”
Source: Credit and Collections Daily – November 24, 2003
Source: Federal Reserve Board, September 2003
$ in billions
Non-mortgage consumer debt and charge-off rates
Competitive Advantage
Account Level Analytics
Multiple Collection Strategies
Sophisticated Account Management
System
Business Drivers
Buy Right
Collect Well
Manage Expenses
Challenge Everything
Demand Professional and Ethical
Behavior
Basic Business Model
This Is How We Make Money
Years
0
1
2
3
>3
Total
Investment
($100)
Collections
$114
$74
$51
$31
$270
Cumulative Multiple Of Costs Collected
1.1x
1.9x
2.4x
2.7x
Total Operating Expense
@40%
($46)
($30)
($20)
($12)
($108)
Net Cash Flow Stream
($100)
$68
$44
$31
$19
$162
Net IRR
29%
Representative Data Only; Not Actual Portfolio Results
Portfolio Purchases = Raw Material
Total Portfolio Purchases Through December 31, 2003
7.3 Million Accounts With $12.7 Billion Face
Purchase Price: $285.4 Million or 2.2¢
This Management Has Bought Through December 31, 2003
4.8 Million Accounts With $7.7 Billion Face
Purchase Price: $195.3 Million or 2.5¢
100%
$7.7
Total
13%
$1.0
37+ Months
18%
$1.4
25-36 Months
8%
$0.6
19-24 Months
25%
$1.9
13-18 Months
13%
$1.0
7-12 Months
22%
$1.7
0-6 Months
% of Total Face Purch.
Face Value ($ in
Billions)
Month Since Charge-
Off
Strong Collection Growth
Collection Innovation Drives
Our Performance Improvements
Innovation Yields Multiple Strengths
Portfolio Performance
*Average Multiple for All Portfolios at 6 Months, 12 Months, and 24 Months Respectively as of 12/31/03.
$1.9 Billion
$ 4.3 Billion
$ 6.2 Billion
Total Face Value
57
106
143
# of Portfolios
Portfolio Performance –
Another View
Multiple of Purchase Price Collected
by Year of Purchase
Expense Management
Cost Per Dollar Collected Has Decreased by 30%
While Monthly Collections Have Grown by 277%
Strong Financial Performance
Resulting in a Return to Profitability
*As Adjusted for Unusual Items.
Strong Financial Performance
Drivers for Growth
Core Business Growth
Innovations and Analysis
New Financing
Validation of Remaining Value Model
Profitable Investment of Cash
Experienced Management Team
Name / Position
Carl C. Gregory, III
President & CEO
Barry R. Barkley
EVP & CFO
J. Brandon Black
EVP &
COO
Alison James
SVP
Robin R. Pruitt
SVP
John Treiman
SVP & CIO
Eric Von Dohlen, PhD
VP
Experience
President and CEO; Former Chairman, President and CEO of West Capital
EVP & CFO; Former CFO of West Capital; Former CFO and Board Member of
Bank One, Texas, N.A; Former Controller of Great Western
Financial Corp.
EVP & COO; Former SVP of Operations of West Capital and First Data
Resources; Former VP/Risk Operations of Capital One
SVP, Human Resources; Former Director of Human Resources, Gateway, Inc.
SVP, General Counsel and Secretary; Former VP and General Counsel of
West Capital and ComStream Corp.; Former VP, Legal and
General Counsel of Mitchell International, Inc.
SVP & CIO; Former VP & CIO of West Capital; Former VP & CIO for
Frederick’s of Hollywood and The Welk Group
VP and Chief Credit Risk Officer; Former VP of Decision Science for
Associates Home Equity Division
Exhibit 99.2
Encore Capital Group,
Inc.
Supplemental Financial Information
Reconciliation of GAAP Net Income to
Net Income Excluding One-Time Benefits and Charges
For the Quarters Ended December 31, 2003 and 2002
(in thousands)
| For the Quarter Ended, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec 31 | Sep 30 | Jun 30 | Mar 31 | |||||||||||
| 2003 | ||||||||||||||
| GAAP, as reported | $ | 3,841 | $ | 3,104 | $ | 3,309 | $ | 8,166 | ||||||
| Gain on settlement of litigation | – | – | – | (4,376 | ) | |||||||||
| Write off of deferred costs | 528 | – | – | – | ||||||||||
| Net income, excluding | ||||||||||||||
| one-time benefits and charges | $ | 4,369 | $ | 3,104 | $ | 3,309 | $ | 3,790 | ||||||
| 2002 | ||||||||||||||
| GAAP, as reported | $ | 10,343 | $ | 2,521 | $ | 692 | $ | 233 | ||||||
| Benefit from restoration | ||||||||||||||
| of net deferred tax assets | (8,830 | ) | (914 | ) | (184 | ) | 41 | |||||||
| Net income, excluding | ||||||||||||||
| one-time benefits and charges | $ | 1,513 | $ | 1,607 | $ | 508 | $ | 274 | ||||||
Encore Capital Group,
Inc.
Supplemental Financial Information
Reconciliation of GAAP Interest Expense and Weighted Average Effective
Interest to
Interest Expense and Weighted Average Effective Interest
Excluding One-Time Charges
For the Year and Quarter
Ended December 31, 2003
(in thousands, except
percentages)
| Interest Expense |
Weighted Average Effective Interest Rate | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| For the Year Ended December 31, 2003 | |||||||||
| GAAP, as reported | $ | 20,479 | 49.1 | % | |||||
| Write off of deferred costs | (870 | ) | (2.1 | ) | |||||
| Excluding one-time charges | $ | 19,609 | 47.0 | % | |||||
| For the Quarter Ended December 31, 2003 | |||||||||
| GAAP, as reported | $ | 6,622 | 69.8 | % | |||||
| Write off of deferred costs | (870 | ) | (9.2 | ) | |||||
| Excluding one-time charges | $ | 5,752 | 60.6 | % | |||||