UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): February 23, 2017
______________________
ENCORE CAPITAL GROUP, INC.
(Exact Name of Registrant as Specified in Charter)
(Exact Name of Registrant as Specified in Charter)
______________________
Delaware (State or Other Jurisdiction of Incorporation) | 000-26489 (Commission File Number) | 48-1090909 (IRS Employer Identification No.) |
3111 Camino Del Rio North, Suite 103, San Diego, California (Address of Principal Executive Offices) | 92108 (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):
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | 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 February 23, 2017, 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.
Exhibit Number | Description |
99.1 | Slide presentation of Encore Capital Group, Inc. dated February 23, 2017 |
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: February 23, 2017 | /s/ Jonathan C. Clark |
Jonathan C. Clark | |
Executive Vice President, Chief Financial Officer and Treasurer | |
EXHIBIT INDEX
Exhibit Number | Description |
99.1 | Slide presentation of Encore Capital Group, Inc. dated February 23, 2017. |
Encore Capital Group, Inc.
Q4 2016 EARNINGS CALL
Exhibit 99.1
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 its most
recent reports on Form 10-K and Form 10-Q, as
they may be amended from time to time. The
Company disclaims any intent or obligation to
update these forward-looking statements.
3
ENCORE UPDATE
4
U.S. MARKET CONTINUES TO DEMONSTRATE PRICING DISCIPLINE
Pricing remains meaningfully improved in relation to a year ago
Supply in the U.S. grew more than 15% in 2016 – on track for continued growth
in 2017
Issuers are seeing their loss rates rise
Some issuers are reducing their own in-house collections capacity
Regulatory hurdles and high issuer standards present challenges for new market
participants
Forward flow commitments of over $200 million with higher returns than last year
U.S. market offers attractive returns, driven by higher volume and lower pricing
5
U.S. DEBT MARKET SHOWING HIGHER RETURNS, BUT WITH
FRONT-LOADED EXPENSES
Incremental purchasing in late 2016 at high IRR’s – including
investments in lower balance portfolios – resulted in higher account
volumes
Expenses in legal collections and Account Manager hiring precede
liquidations
Front-loading of legal expenses will impact near-term earnings
Account Manager hiring, incremental legal expenses, and additional
lettering will add approximately $20 million in 2017 expenses
Our focus on IRR’s drives additional near-term expense
while maximizing profitability longer term
6
WE HAVE BEGUN EXPLORING AN INITIAL PUBLIC OFFERING FOR
CABOT CREDIT MANAGEMENT
Encore acquired ~43% economic interest
in Cabot Credit Management from
J.C. Flowers in 2013
At that time, Cabot was principally active
in only one country and one type of asset
Since then, we have grown Cabot’s ERC and liquidation capabilities -
including the legal collection channel - through a series of add-on
acquisitions
Cabot has entered into new markets including Spain, France and Portugal
JCF and Encore have begun exploring a Cabot IPO to take advantage of
the value created in Cabot
This presentation does not constitute or form part of, and should not be construed as, an offer or the solicitation of an offer to subscribe for or purchase
the securities of Cabot Credit Management Group Limited or any of its affiliates. We cannot assure that any transaction will be consummated, or as to
the timing or terms thereof.
7
OUR INTERNATIONAL BUSINESSES PROVIDE ENCORE WITH
ADDITIONAL OPPORTUNITY TO DEPLOY CAPITAL
Elevated pricing in the U.K. continues. Like in the U.S., consumer-
centric programs have been initiated in the U.K. to drive continued
strong returns
We continue to focus on adjacent markets, including Spain, France,
Ireland and Portugal
Early indications foreshadow a strong Q1 deployment total in Europe
Investments in Latin America remain focused on R&D, and we learn
more as we pursue long-term growth opportunities
Encore’s Asset Reconstruction Company (EARC) in India is
positioned to begin operating before the end of Q2
8
ENCORE IS WELL POSITIONED TO ADAPT TO THE REGULATORY
ENVIRONMENT UNDER ANY FORESEEABLE REGULATORY AGENDA
Encore is well-positioned regardless of how the new administration may
influence existing regulatory emphasis and industry regulation
Encore’s goals are well-aligned with the goals of any responsible regulatory
environment
We seek a regulatory framework that places value on treating consumers
fairly and provides them with sensible solutions based on reliable, accurate
information
We expect federal and state regulators to continue to promote high standards
for our industry – and we believe Encore is ahead of the curve
9
Detailed Financial Discussion
10
ENCORE’S FOURTH QUARTER 2016 GAAP EPS WAS $0.85
$0.72
Economic EPS2 GAAP EPS1
$0.85
GAAP Net Income1
$22.0
million
Adjusted Income2
$18.7
million
Estimated Remaining Collections of $5.8 billion
1) From continuing operations attributable to Encore
2) Please refer to Appendix for reconciliation of Economic EPS and Adjusted Income to GAAP
Collections
$397 million
11
ENCORE’S FULL-YEAR 2016 GAAP EPS WAS $3.05
$3.48
Economic EPS2 GAAP EPS1
$3.05
GAAP Net Income1
$78.9
million
Adjusted Income2
$90.1
million
Estimated Remaining Collections of $5.8 billion
Collections
$1.69 billion
1) From continuing operations attributable to Encore
2) Please refer to Appendix for reconciliation of Economic EPS and Adjusted Income to GAAP
United States
$148
Europe
$42
Other
$20
United
States
$562
Europe
$265
Other
$80
12
2016 DEPLOYMENTS REFLECT BETTER MARKET CONDITIONS IN
THE U.S.
Q4-2016 Deployments 2016 Deployments
$M
Total $907 Total $210
13
Q4 COLLECTIONS IN THE U.S. REFLECT DELAYS IN LEGAL
COLLECTIONS
Collections by Geography
0
100
200
300
400
500
2
0
1
5
2
0
1
6
2
0
1
5
2
0
1
6
2
0
1
5
2
0
1
6
2
0
1
5
2
0
1
6
Q1 Q2 Q3 Q4
Collection Sites Legal Collections Collection Agencies
$M
0
100
200
300
400
500
2
0
1
5
2
0
1
6
2
0
1
5
2
0
1
6
2
0
1
5
2
0
1
6
2
0
1
5
2
0
1
6
Q1 Q2 Q3 Q4
United States Europe Other
417 425
437 422
397
448 434
407
$M
Collections by Channel
417 425
437 422
397
448 434
407
14
ENCORE’S INTERNATIONAL COLLECTIONS COMPRISED 36% OF OUR
WORLDWIDE TOTAL IN 2016
Collections by Geography
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2012 2013 2014 2015 2016
United States Europe Other
948
1,280
1,607
$M 1,701 1,686
FOURTH QUARTER REVENUE REFLECTS HIGHER MULTIPLE
PORTFOLIOS ROLLING OFF IN THE U.S.
Revenue by Geography
15
-50
0
50
100
150
200
250
300
350
2
0
1
5
2
0
1
6
2
0
1
5
2
0
1
6
2
0
1
5
2
0
1
6
2
0
1
5
2
0
1
6
Q1 Q2 Q3 Q4
United States Europe Other
$M
289 283 279 291 278 289
179
271
2016 REVENUE DECLINE MOSTLY DRIVEN BY THE EUROPEAN
PORTFOLIO ALLOWANCE IN THE THIRD QUARTER & CURRENCY
Revenue by Geography
16
$M
0
200
400
600
800
1,000
1,200
2012 2013 2014 2015 2016
United States Europe Other
$M
545
756
1,043
1,130
1,029
17
ESTIMATED REMAINING COLLECTIONS GREW $129 MILLION IN 2016
Total Estimated Remaining Collections
0
1,000
2,000
3,000
4,000
5,000
6,000
2012 2013 2014 2015 2016
United States Europe Other
1,967
3,990
5,203
$M 5,711 5,840
ENCORE DELIVERED GAAP EPS OF $0.85 AND ECONOMIC EPS OF $0.72 IN THE
FOURTH QUARTER OF 2016
18
* Please refer to Appendix for reconciliation of Adjusted EPS / Economic EPS measurements to GAAP
$0.85
$0.02 ($0.31)
($0.15)
($0.10)
$0.72 $0.72
$0.12
$0.29
Net income per
diluted share from
continuing
operations
attributable to
Encore
Convertible notes
non-cash interest
and issuance cost
amortization
Acquisition,
integration and
restructuring
related expenses
Amortization of
certain acquired
intangible assets
Gain on reversal
of contingent
considerations
Income tax effect
of the adjustments
Adjustments
attributable to
noncontrolling
interest
Adjusted income
per diluted share
from continuing
operations
attributable to
Encore -
(Accounting)*
Adjusted income
per diluted share
from continuing
operations
attributable to
Encore -
(Economic)*
No
shares
deducted
in
Q4 2016
ENCORE DELIVERED GAAP EPS OF $3.05 AND ECONOMIC EPS OF $3.48 IN 2016
19
* Please refer to Appendix for reconciliation of Adjusted EPS / Economic EPS measurements to GAAP
$3.05
$0.24 $0.10 ($0.31)
($0.49)
($0.25)
$3.48 $3.48 $0.46
$0.68
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
Net income per
diluted share
from continuing
operations
attributable to
Encore
Convertible
notes non-cash
interest and
issuance cost
amortization
Acquisition,
integration and
restructuring
related
expenses
Settlement fees
and related
administrative
expenses
Amortization of
certain acquired
intangible
assets
Gain on
reversal of
contingent
considerations
Income tax
effect of the
adjustments
Adjustments
attributable to
noncontrolling
interest
Adjusted
income per
diluted share
from continuing
operations
attributable to
Encore -
(Accounting)*
Adjusted
income per
diluted share
from continuing
operations
attributable to
Encore -
(Economic)*
No
shares
deducted
in
2016
20
ENCORE’S LEVERAGE RATIO IS SIGNIFICANTLY IMPACTED BY THE
CONSOLIDATION OF CABOT’S DEBT ON OUR BALANCE SHEET
Debt and Debt Ratios1
Although we fully consolidate Cabot’s debt on our balance sheet,
their debt is non-recourse to Encore
Encore
With Cabot
at 12/31/16
Without Cabot
at 12/31/16
Total Debt $2.600 B $1.269 B
Total Debt / (Adjusted EBITDA + Collections
applied to principal balance)2
2.47x 1.78x
Total Debt / Equity 4.65x 2.27x
1) Preferred equity certificates treated as equity
2) Ratio calculation method is materially consistent with covenants in Encore’s restated credit agreement and senior secured notes
SUMMARY
Cabot IPO
• We believe Cabot’s equity value has grown through operational
improvement, market consolidation and geographic expansion
• Encore and J.C. Flowers have begun exploring an initial public offering
of Cabot
International Markets
• Opportunistically purchasing in international markets at solid risk-
adjusted returns
• Encore Asset Reconstruction Company poised to begin operations in 1H
2017
21
U.S. Market
• Capital constraints amongst some of our debt buying peers, along with a
lack of available collections capacity, have created a favorable
purchasing environment
• Encore investing to add call center capacity and increase legal spending
ahead of attractive purchasing opportunities
• Encore favorably positioned in the U.S. market as attractive returns are
driven by pricing declines and liquidation improvement programs
22
Q&A
23
Appendix
24
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 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 Attributable to Encore and Adjusted Income Attributable to
Encore per Share (also referred to as Economic EPS when adjusted for certain shares associated with our
convertible notes that will not be issued but are reflected in the fully diluted share count for accounting purposes)
because management uses these measures to assess operating performance, in order to highlight trends in the
Company’s business that may not otherwise be apparent when relying on financial measures calculated in
accordance with GAAP. The Company has included impacts from foreign currency exchange rates to facilitate a
comparison of operating metrics that are unburdened by variations in foreign currency exchange rates over time.
Adjusted EBITDA, Adjusted Operating Expenses, Adjusted Income Attributable to Encore, Adjusted Income
Attributable to Encore per Share/Economic EPS, and impacts from foreign currency exchange rates 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, net income per share, 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.
25
RECONCILIATION OF ADJUSTED INCOME AND
ECONOMIC / ADJUSTED EPS
Reconciliation of Adjusted Income and Economic / Adjusted EPS to GAAP EPS
(Unaudited, In Thousands, except per share amounts), Three Months Ended
December 31,
2016 2015
$
Per Diluted
Share –
Accounting
Per Diluted
Share –
Economic
$
Per Diluted
Share –
Accounting
Per Diluted
Share –
Economic
GAAP net income from continuing operations attributable to Encore,
as reported
$ 21,983 $ 0.85 $ 0.85 $ 28,226 $ 1.08 $ 1.10
Adjustments:
Convertible notes non-cash interest and issuance cost amortization 3,017 0.12 0.12 2,887 0.11 0.11
Acquisition, integration and restructuring related expenses1 7,457 0.29 0.29 2,635 0.10 0.10
Gain on reversal of contingent consideration2 (8,111) (0.31) (0.31) --- --- ---
Amortization of certain acquired intangible assets3 415 0.02 0.02 --- --- ---
Income tax effect of the adjustments4 (3,693) (0.15) (0.15) (1,687) (0.06) (0.06)
Adjustments attributable to noncontrolling interest5 (2,402) (0.10) (0.10) (292) (0.01) (0.01)
Adjusted income from continuing operations attributable to Encore $ 18,666 $ 0.72 $ 0.72 $ 31,769 $ 1.22 $ 1.24
1) Amount represents acquisition, integration and restructuring related expenses. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore adjusting for these
expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
2) Amount represents a gain recognized as a result of reversing a liability for contingent consideration that was established in October 2015 when we acquired a debt solution service provider in Europe. We have
adjusted for this amount because we do not believe this is indicative of ongoing operations.
3) As we continue to acquire debt solution service providers around the world, the acquired intangible assets, such as trade names and customer relationships, have grown substantially, particularly in recent quarters.
These intangible assets are valued at the time of the acquisition and amortized over their estimated lives. We believe that amortization of acquisition-related intangible assets, especially the amortization of an
acquired company’s trade names and customer relationships, is the result of pre-acquisition activities. In addition, the amortization of these acquired intangibles is a non-cash static expense that is not affected by
operations during any reporting period. As a result, the amortization of certain acquired intangible assets is excluded from our adjusted income from continuing operations attributable to Encore and adjusted income
from continuing operations per share.
4) Amount represents the total income tax effect of the adjustments, which is calculated based on the applicable marginal tax rate of the jurisdiction in which the portion of the adjustment occurred.
5) Certain of the above pre-tax adjustments include expenses recognized by our partially-owned subsidiaries. This adjustment represents the portion of the non-GAAP adjustments that are attributable to noncontrolling
interest.
26
RECONCILIATION OF ADJUSTED INCOME AND
ECONOMIC / ADJUSTED EPS
Reconciliation of Adjusted Income and Economic / Adjusted EPS to GAAP EPS
(Unaudited, In Thousands, except per share amounts), Twelve Months Ended
December 31,
2016 2015
$
Per Diluted
Share –
Accounting
Per Diluted
Share –
Economic
$
Per Diluted
Share –
Accounting
Per Diluted
Share –
Economic
GAAP net income from continuing operations attributable to Encore,
as reported
$ 78,923 $ 3.05 $ 3.05 $ 68,522 $ 2.57 $ 2.64
Adjustments:
Convertible notes non-cash interest and issuance cost amortization 11,830 0.46 0.46 11,332 0.43 0.44
Acquisition, integration and restructuring related expenses1 17,630 0.68 0.68 16,933 0.64 0.65
Gain on reversal of contingent consideration2 (8,111) (0.31) (0.31) --- --- ---
Settlement fees and related administrative expenses3 6,299 0.24 0.24 63,019 2.36 2.43
Amortization of certain acquired intangible assets4 2,593 0.10 0.10 --- --- ---
Income tax effect of the adjustments5 (12,577) (0.49) (0.49) (28,514) (1.07) (1.11)
Adjustments attributable to noncontrolling interest6 (6,461) (0.25) (0.25) (5,273) (0.20) (0.20)
Adjusted income from continuing operations attributable to Encore $ 90,126 $ 3.48 $ 3.48 $ 126,019 $ 4.73 $ 4.85
1) Amount represents acquisition, integration and restructuring related expenses. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore adjusting for these expenses
enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
2) Amount represents a gain recognized as a result of reversing a liability for contingent consideration that was established in October 2015 when we acquired a debt solution service provider in Europe. We have adjusted for this
amount because we do not believe this is indicative of ongoing operations.
3) Amount represents litigation and government settlement fees and related administrative expenses. For the year ended December 31, 2016 amount consists of settlement and administrative fees related to certain TCPA settlements.
For the year ended December 31, 2015, amount relates to the consent order with the CFPB that we entered into in September 2015. We believe these fees and expenses are not indicative of ongoing operations; therefore adjusting
for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
4) As we continue to acquire debt solution service providers around the world, the acquired intangible assets, such as trade names and customer relationships, have grown substantially, particularly in recent quarters. These intangible
assets are valued at the time of the acquisition and amortized over their estimated lives. We believe that amortization of acquisition-related intangible assets, especially the amortization of an acquired company’s trade names and
customer relationships, is the result of pre-acquisition activities. In addition, the amortization of these acquired intangibles is a non-cash static expense that is not affected by operations during any reporting period. As a result, the
amortization of certain acquired intangible assets is excluded from our adjusted income from continuing operations attributable to Encore and adjusted income from continuing operations per share.
5) Amount represents the total income tax effect of the adjustments, which is calculated based on the applicable marginal tax rate of the jurisdiction in which the portion of the adjustment occurred.
6) Certain of the above pre-tax adjustments include expenses recognized by our partially-owned subsidiaries. This adjustment represents the portion of the non-GAAP adjustments that are attributable to noncontrolling interest.
Reconciliation of Adjusted EBITDA to GAAP Net Income
(Unaudited, In $ Thousands) Twelve Months Ended
12/31/16 12/31/15 12/31/14
GAAP net income, as reported $ 16,817 $ 47,384 $ 98,278
Adjustments:
Loss (income) from discontinued operations, net of tax 2,353 23,387 (5,205)
Interest expense 198,367 186,556 166,942
Interest income1 (2,538) (1,664) (962)
Provision for income taxes 38,205 27,162 48,569
Depreciation and amortization 34,868 33,160 27,101
Stock-based compensation expense 12,627 22,008 17,181
Acquisition, integration and restructuring related expenses2 16,712 15,528 18,771
Gain on reversal of contingent consideration3 (8,111) --- ---
Settlement fees and related administrative expenses4 6,299 63,019 ---
Adjusted EBITDA $ 315,599 $ 416,540 $ 370,675
Collections applied to principal balance5 738,989 628,289 614,665
RECONCILIATION OF ADJUSTED EBITDA
27
1) In the fourth quarter of 2016, we made a change to our presentation of adjusted EBITDA to adjust for interest income. In previous years we did not include interest income as an adjustment because it was
immaterial. We have updated prior periods for comparability.
2) Amount represents acquisition, integration and restructuring related expenses. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore adjusting for these
expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
3) Amount represents a gain recognized as a result of reversing a liability for contingent consideration that was established in October 2015 when we acquired a debt solution service provider in Europe. We have
adjusted for this amount because we do not believe this is indicative of ongoing operations. Refer to Note 4 “Fair Value Measurement - Contingent Consideration” in the notes to our consolidated financial statements
for further details.
4) Amount represents litigation and government settlement fees and related administrative expenses. For the year ended December 31, 2016, amount consists of settlement and administrative fees related to certain
TCPA settlements. For the year ended December 31, 2015, amount relates to the consent order with the CFPB that we entered into in September 2015. We believe these fees and expenses are not indicative of
ongoing operations; therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
5) In our previous filings, amount was referred to as “Amount applied to principal on receivable portfolios.” Amount represents (a) gross collections from receivable portfolios less (b) revenue from receivable portfolios,
net. Historically, we included this amount in our calculation of adjusted EBITDA.
Reconciliation of Adjusted Operating Expenses to GAAP Operating Expenses
(Unaudited, In $ Thousands) Three Months Ended
RECONCILIATION OF ADJUSTED OPERATING EXPENSES
3/31/15 6/30/15 9/30/15 12/31/15 3/31/16 6/30/16 9/30/16 12/31/16
GAAP total operating expenses, as reported $ 194,895 $ 198,362 $ 248,185 $ 206,271 $ 205,513 $ 197,695 $ 200,597 $ 183,939
Adjustments:
Stock-based compensation expense (5,905) (6,198) (5,156) (4,749) (3,718) (5,151) (633) (3,125)
Operating expenses related to non-portfolio
purchasing and recovery business1
(21,623) (19,946) (20,835) (26,144) (26,885) (28,253) (26,446) (29,291)
Acquisition, integration and restructuring related
operating expenses2
(2,766) (7,892) (2,235) (2,635) (3,059) (3,271) (3,843) (7,457)
Gain on reversal of contingent consideration3 --- --- --- --- --- --- --- 8,111
Settlement fees and related administrative expenses4 --- --- (54,697) --- (2,988) (698) (2,613) ---
Adjusted operating expenses related to portfolio
purchasing and recovery business
$ 164,601 $ 164,326 $ 165,262 $ 172,743 $ 168,863 $ 160,322 $ 167,062 $ 152,177
28
1) Operating expenses related to non-portfolio purchasing and recovery business include operating expenses from other operating segments that primarily engage in fee-based business, as well as corporate overhead
not related to our portfolio purchasing and recovery business.
2) Amount represents acquisition, integration and restructuring related operating expenses. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore adjusting
for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
3) Amount represents a gain recognized as a result of reversing a liability for contingent consideration that was established in October 2015 when we acquired a debt solution service provider in Europe. We have
adjusted for this amount because we do not believe this is indicative of ongoing operations.
4) Amount represents litigation and government settlement fees and related administrative expenses. For the year ended December 31, 2016 amount consists of settlement and administrative fees related to certain
TCPA settlements. For the year ended December 31, 2015, amount relates to the consent order with the CFPB that we entered into in September 2015. We believe these fees and expenses are not indicative of
ongoing operations; therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
(Unaudited, In Millions, except per share amounts)
IMPACT OF FLUCTUATIONS IN FOREIGN CURRENCY
EXCHANGE RATES
Three Months Ended
12/31/16
As Reported
Constant
Currency
Revenue $ 271 $ 289
Operating expenses $ 184 $ 193
Net income* $ 22 $ 23
Adjusted net income* $ 19 $ 19
GAAP EPS* $ 0.85 $ 0.88
Economic EPS* $ 0.72 $ 0.75
Collections $ 397 $ 422
ERC $ 5,840 $ 6,377
29
Year Ended
12/31/16
As Reported
Constant
Currency
Revenue $ 1,029 $ 1,067
Operating expenses $ 788 $ 819
Net income* $ 79 $ 79
Adjusted net income* $ 90 $ 90
GAAP EPS* $ 3.05 $ 3.05
Economic EPS* $ 3.48 $ 3.49
Collections $ 1,686 $ 1,754
ERC $ 5,840 $ 6,377
* from continuing operations attributable to Encore.
Note: Constant Currency figures are calculated by employing Q4 2015 foreign currency exchange rates to recalculate Q4 2016 results and FY2015 foreign currency exchange rates to
recalculate FY2016 results. All constant currency values are calculated based on the average exchange rates during the respective periods, except for ERC, which is calculated using the
changes in the period-ending exchange rates. Management refers to operating results on a constant currency basis so that the operating results can be viewed without the impact of
fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of the company's operating performance. Constant currency financial results are calculated by
translating current period financial results in local currency using the prior period’s respective currency conversion rate. Certain foreign subsidiaries’ local currency financial results in our
calculation include the translation effect from their foreign operating results.
FOURTH QUARTER COST-TO-COLLECT REFLECTS A RETURN TO
NORMALCY AFTER THIRD QUARTER ADJUSTMENT IN EUROPE
30
Overall Cost-to-Collect1
38.8% 37.7% 37.6% 36.9%
39.2%
41.1% 41.5%
38.4%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2
0
1
5
2
0
1
6
2
0
1
5
2
0
1
6
2
0
1
5
2
0
1
6
2
0
1
5
2
0
1
6
Q1 Q2 Q3 Q4
1. Cost-to-Collect = Adjusted operating expenses / collections. See appendix for reconciliation of Adjusted operating expenses to GAAP.
2. Cost-to-collect in Q3 2016 includes the impact of $11 million adjustment to deferred court cost receivable in Europe.
Location
Q4 2016
CTC
Q4 2015
CTC
United States 43.0% 43.9%
Europe 25.9% 36.7%
Other 48.7% 37.5%
Encore total 38.4% 41.5%
Location
FY 2016
CTC
FY 2015
CTC
United States 40.5% 42.0%
Europe 32.8% 33.0%
Other 44.1% 32.9%
Encore total 38.5% 39.2%
2