UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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): August 8, 2013
ENCORE CAPITAL GROUP, INC.
(Exact Name of Registrant as Specified in Charter)
| Delaware | 000-26489 | 48-1090909 | ||
| (State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) | ||
| 3111 Camino Del Rio North, Suite 1300, San Diego, California | 92108 | |||
| (Address of Principal Executive Offices) | (Zip Code) | |||
(877) 445-4581
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 2.02. | Results of Operations and Financial Condition. |
On August 8, 2013, Encore Capital Group, Inc. posted a slide presentation on its website. A copy of the slide presentation is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference herein.
The information in Item 2.02 of this Current Report on Form 8-K, including the information contained in Exhibit 99.1, is being furnished to the Securities and Exchange Commission pursuant to Item 2.02, and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by a specific reference in such filing.
| Item 9.01. | Financial Statements and Exhibits. |
| 99.1 | Slide presentation of Encore Capital Group, Inc. dated August 8, 2013 |
SIGNATURE
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 hereunto duly authorized.
| ENCORE CAPITAL GROUP, INC. | ||||||||
| Date: August 8, 2013 | /s/ Paul Grinberg | |||||||
| Paul Grinberg Executive Vice President, Chief Financial Officer and Treasurer | ||||||||
EXHIBIT INDEX
| Exhibit |
Description | |
| 99.1 | Slide presentation of Encore Capital Group, Inc. dated August 8, 2013 | |
 Encore Capital Group, Inc.
Q2 2013 EARNINGS CALL
Exhibit 99.1 |
 PROPRIETARY
2
CAUTIONARY NOTE ABOUT
FORWARD-LOOKING STATEMENTS
The
statements
in
this
presentation
that
are
not
historical facts, including, most importantly, those
statements preceded by, or that include, the
words “will,”
“may,”
“believe,”
“projects,”
“expects,”
“anticipates”
or the negation thereof, or similar
expressions, constitute “forward-looking
statements”
within the meaning of the Private
Securities Litigation Reform Act of 1995 (the
“Reform Act”).
These statements may include,
but are not limited to, statements regarding our
future operating results, earnings per share, and
growth.
For all “forward-looking statements,”
the
Company claims the protection of the safe harbor
for forward-looking statements contained in the
Reform Act.
Such forward-looking statements
involve risks, uncertainties and other factors
which may cause actual results, performance or
achievements of the Company and its subsidiaries to
be materially different from any future results,
performance or achievements expressed or implied
by such forward-looking statements. These risks,
uncertainties and other factors are discussed in the
reports filed by the Company with the Securities and
Exchange Commission, including the most recent
reports on Forms 10-K, 10-Q and 8-K, each as it may
be amended from time to time.
The Company
disclaims any intent or obligation to update these
forward-looking statements. |
 PROPRIETARY
3
ENCORE CONTINUED ITS STRONG PERFORMANCE
ACROSS ALL KEY FINANCIAL METRICS
Adjusted
EPS*
$0.85
Collections
$278
million
Adjusted
EBITDA*
$177
million
Cost to
Collect**
38.8%
Estimated Remaining Collections of $2.7 billion
* Please refer to Appendix for reconciliation of Adjusted EPS, Adjusted EBITDA, and
Adjusted Income to GAAP GAAP EPS
$0.44
** Cost to Collect is Adjusted Operating Cost / Dollar collected. See Appendix for
definition of Adjusted Operating Cost. GAAP
Income
$11
million
Adjusted
Income*
$21
million |
 PROPRIETARY
4
WE MADE SEVERAL IMPORTANT STRATEGIC MOVES
Asset Acceptance
Largely satisfies our 2013
purchasing goals
Better returns than we would
have achieved in the market
Cabot Credit Management
Leading player in the UK debt
recovery market
Pent up supply expected to
come to the market over the
next 2-3 years
Will leverage the use of our
India call center
Placement of $172.5M of 7-year
convertible notes at 3%
Provides long-term financing at
a favorable rate
Includes an additional $22.5
million of underwriters’
overallotment, which was
recently exercised |
 PROPRIETARY
5
OUR CAPITAL DEPLOYMENT WAS VERY STRONG |
 PROPRIETARY
6
WHICH LED TO SIGNIFICANT GROWTH IN ERC |
 PROPRIETARY
WE ARE EXECUTING ON OUR PLAN FOR A SEAMLESS
INTEGRATION WITH AACC
7
Jul
Aug
Sep
Oct
Retention
Agreements
Synergy
Identification
Integration
Planning
Nov
Dec
Jan
Pre-close
Jun
Call Center Rationalization
Support Function Rationalization
Law Firm
Management
Internal Legal Platform Integration
Finance Integration
HR Integration
Consolidated Internal Legal Platform
Close Of AACC Transaction
Collections Agency Rationalization |
 PROPRIETARY
PROPEL CONTINUES TO GROW AND CONTRIBUTE TO
ENCORE
Q3 & Q4 -
growing operating income
8
$60 million capital deployed
Q1 & Q2 -
heavy marketing expenditures |
 PROPRIETARY
9
ON JULY 1
ST
, WE CLOSED THE CABOT CREDIT
MANAGEMENT TRANSACTION
Pent up supply from issuers in the UK is
expected to come to market over the next
2-3 years
Expect to leverage Encore’s expertise in
secondary and tertiary collections
Developing a plan to utilize Encore’s India
operational capacity during the day
ERC has just surpassed £1 billion |
 PROPRIETARY
THERE HAVE BEEN MANY DEVELOPMENTS ON THE
REGULATORY FRONT
10
Office of the
Comptroller of the
Currency (OCC)
Consumer Financial
Protection Bureau
(CFPB)
Statement on Oversight of
Debt Collection and Debt
Sales
Oversight of original issuers
Sample letters to assist
consumers in collection
process |
 PROPRIETARY
11
ENCORE IS WELL POSITIONED TO MAINTAIN ITS
MOMENTUM & CONTINUE DELIVERING TOP QUARTILE TSR
Management Team •
Learning Organization •
Principled Intent
Growth, Margin Expansion, Free Cash Flow, PE Multiple Expansion
Top Quartile Total Shareholder Return |
 PROPRIETARY
12
Detailed financial discussion |
 PROPRIETARY
WE HAVE PRELIMINARILY COMPLETED THE PURCHASE
PRICE ALLOCATION FOR AACC
13
Purchase Price
Cash
$316,485
Stock
62,352
Total
$378,837
Allocation
Cash
$23,156
Investment in receivable
portfolios, net
381,233
Deferred court costs, net
6,141
Property plant and equipment,
net
11,003
Other assets
19,629
Liabilities assumed
(132,166)
Identifiable intangible assets
1,490
Goodwill
68,351
Total net assets acquired
$378,837
(Amounts in $ thousands) |
 PROPRIETARY
14
DESPITE LOW PURCHASING IN Q1 AND Q2, COLLECTIONS
IN THE QUARTER WERE STRONG |
 PROPRIETARY
STRONG COLLECTIONS LED TO SOLID REVENUE
GROWTH
15
Revenue From Core Collections |
 WE
CONTINUE TO MAKE IMPROVEMENTS IN OUR COST TO COLLECT
16
Overall Cost to Collect*
Site CTC*
* Cost to Collect is Adjusted Operating Cost / Dollar collected.
See Appendix for definition of Adjusted Operating Cost.
PROPRIETARY |
 PROPRIETARY
AFTER SEVERAL QUARTERS OF INVESTMENT, COST
TO COLLECT IN INTERNAL LEGAL IS DECLINING
17
* Cost to Collect is Adjusted Operating Cost / Dollar collected.
See Appendix for definition of Adjusted Operating Cost.
|
 PROPRIETARY
COLLECTIONS GROWTH AND COST IMPROVEMENT LED
TO IMPROVED CASH FLOWS
18
Adjusted EBITDA*
* Please refer to Appendix for reconciliation of Adjusted EBITDA
to GAAP |
 PROPRIETARY
WITHOUT THESE ONE-TIME EXPENSES, EPS WAS STRONG
19 |
 PROPRIETARY
ON THE FINANCING FRONT, WE COMPLETED A
CONVERTIBLE NOTE OFFERING ON FAVORABLE TERMS
20
Term
Coupon
Convertible Terms
Initial Offering Size
Additional market interest
Underwriters’
Overallotment
Total offering
Conversion price
Capped calls strike price
7 years
3%
$115.0 million
$35.0 million
$22.5 million
$172.5 million
$45.72
$61.55
7 years
3%
$115.0 million
$35.0 million
$22.5 million
$172.5 million
$45.72
$61.55 |
 PROPRIETARY
WE CONTINUE TO BE SUBSTANTIALLY (1.9x) OVER
COLLATERALLIZED ON OUR DEBT
21
Estimated Remaining Net Collections ($M, Q2 2013)
* Net Debt = Total Debt (Excluding Propel Facilities plus
convertible debt discount) minus Cash ** DTL = Deferred Tax
Liability Gross ERC
Cost to Collect at
30%
Tax
Net ERC
Net Debt * +
DTL
** |
 PROPRIETARY
22
WE CONTINUE TO EXPAND OUR CREDIT FACILITY TO
SUPPORT OUR GROWTH |
 PROPRIETARY
23
ENCORE’S LONG-TERM PROSPECTS CONTINUE TO
BE FAVORABLE
Operating Results
& Deployment
Operating results and
deployment continue to
be strong
Liquidity &
Capital Access
Strong liquidity and
access to capital enhance
our ability to
take advantage
of market opportunities
Solid Cash Flows
As we build ERC and
continue to execute
efficiently, we expect
solid cash flows
to continue
Geographic &
Asset Class
Diversification
Our geographic and asset
class diversification will
position us for strong
earnings growth going
forward |
 PROPRIETARY
24
APPENDIX |
 PROPRIETARY
25
NON-GAAP FINANCIAL MEASURES
This presentation includes certain financial measures that exclude the impact of
certain items and therefore have not been calculated in accordance with U.S.
generally accepted accounting principles (“GAAP”). The Company has
included information concerning Adjusted EBITDA because management utilizes this
information, which is materially similar to a financial measure contained in
covenants used in the Company's revolving credit facility, in the evaluation
of its operations and believes that this measure is a useful indicator of
the Company’s ability to generate cash collections in excess of operating expenses
through the liquidation of its receivable portfolios. The Company has included
information concerning Adjusted Operating Expenses in order to facilitate a
comparison of approximate cash costs to cash collections for the portfolio
purchasing and recovery business in the periods presented. The Company has
included Adjusted Income from Continuing Operations per Share because management
believes that investors regularly rely on this measure to assess operating
performance, in order highlight trends in the Company’s business that
may not otherwise be apparent when relying on financial measures calculated in
accordance with GAAP. Adjusted EBITDA, Adjusted Operating Expenses and
Adjusted Income from Continuing Operations per Share have not been prepared
in accordance with GAAP. These non-GAAP financial measures should not be
considered as alternatives to, or more meaningful than, net income and total
operating expenses as indicators of the Company’s operating performance. Further, these non-GAAP
financial measures, as presented by the Company, may not be comparable to similarly
titled measures reported by other companies. The Company has attached to
this presentation a reconciliation of these non- GAAP financial measures
to their most directly comparable GAAP financial measures. |
 PROPRIETARY
26
RECONCILIATION OF ADJUSTED EPS TO GAAP EPS |
 PROPRIETARY
Reconciliation of Adjusted EBITDA to GAAP Net Income
(Unaudited, In Thousands) Three Months Ended
27
RECONCILIATION OF ADJUSTED EBITDA |
 PROPRIETARY
Reconciliation of Adjusted Operating Cost to GAAP Operating Cost
(Unaudited, In Thousands) Three Month Ended
28
RECONCILIATION OF ADJUSTED OPERATING COST
Three Months Ended
June 30, 2013
GAAP total operating expenses, as reported
$126,238
Adjustments:
Stock-based compensation expense
(2,179)
Tax lien business segment operating expenses
(3,504)
Acquisition related legal and advisory fees
(6,948)
Acquisition related integration and severance costs, and consulting fees
(5,455)
Adjusted operating expenses
$108,152 |