ECPG

Encore Capital Group Inc (ECPG)

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Encore Capital Group (ECPG)

Q4 2012 Earnings Call

February 13, 2013 5:00 pm ET

Executives

Adam Sragovicz - Director of Finance and Treasury

J. Brandon Black - Chief Executive Officer, President and Director

Paul J. Grinberg - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Analysts

David M. Scharf - JMP Securities LLC, Research Division

Hugh M. Miller - Sidoti & Company, LLC

Mark D. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

Sameer Gokhale

Robert P. Napoli - William Blair & Company L.L.C., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Encore Capital Group Announces Fourth Quarter and Full Year 2012 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Adam Sragovicz. You may begin.

Adam Sragovicz

Thank you, Latoya. Good afternoon, and welcome to Encore Capital Group's fourth quarter and full year 2012 earnings call.

With me on the call today are Brandon Black, our President and Chief Executive Officer; and Paul Grinberg, our Executive Vice President and Chief Financial Officer. Brandon and Paul will make prepared remarks, and then we will be happy to take your questions.

Before we begin, we have a few housekeeping items. Unless otherwise noted, all comparisons made on this conference call will be between the full year of 2012 and the full year of 2011.

Throughout the call, we will use forward-looking statements including predictions, expectations, estimates or other information that might be considered forward-looking. While these forward-looking statements represent our current judgment, these statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements being made today.

As a result, we caution you against placing undue reliance on these forward-looking statements, which speak only as of the date they are made. We will also use rounding and abbreviations in our conference call for the sake of brevity. For more detailed numbers and explanations, please refer to our Form 10-K that was filed today with the SEC.

We will also be referencing both GAAP and non-GAAP financial results. We believe certain non-GAAP financial measures provide useful information about our business. However, the presentation of this additional information should not be considered an alternative to, or more meaningful than, our results prepared in accordance with GAAP.

Management utilizes adjusted EBITDA, which is similar to a financial measure contained in covenants used in our credit agreement in the evaluation of our operations and believes this measure is a useful indicator of our ability to generate cash collections in excess of operating expenses through the liquidation of our receivable portfolios.

We included information concerning adjusted operating expenses, excluding stock-based compensation expense, in order to facilitate a comparison of approximate cash costs to cash collections for the debt purchasing business in the periods presented. Once again, please be sure to see our Forms 10-K, 10-Q and other SEC filings, including a press release issued as an exhibit to our current report on Form 8-K filed today, which includes a reconciliation of non-GAAP financial measures for a more complete discussion of these factors and other risks.

As a reminder, this conference call will also be made available for replay on the Investors section of our website, and we also plan to post the prepared remarks following the conclusion of this call.

With that, let me turn the call over to Brandon Black, our President and Chief Executive Officer.

J. Brandon Black

Thank you, Adam, and good afternoon, everyone. I appreciate you joining us for a discussion of Encore's fourth quarter and full year 2012 results. I'm pleased to report that 2012 was an exceptional year for Encore. We delivered strong financial results while making investments that we believe will strengthen our core business, provide long-term strategic advantages and position our company to succeed in an increasingly complex regulatory environment. Our strategies and deliberate and disciplined approach to portfolio underwriting and management again drove record earnings, record collections and record operating cash flow for both the fourth quarter and the full year.

Of course, none of this would be possible without our more than 2,800 employees. I appreciate their daily commitment to our company and their willingness to help our consumers resolve their past financial obligations.

To put our performance in a context, I'd like to take a step back and look at our progress over the past 3 years. In 2009, we recorded collections of $490 million. This year, we collected $950 million, nearly double the amount from just 3 years ago. We delivered these strong results, thanks to the deep insights we've developed into consumer behavior over the past decade. We are seeing similar results in our cost-to-collect. In 2009, our cost-to-collect was 47.6%. In 2012, our cost-to-collect was 40.4%, a decrease of 720 basis points. This meaningful reduction in cost-to-collect translates into a savings of almost $70 million or $1.60 in earnings for 2012 alone. These savings have been achieved through various operational strategies, including stopping collection efforts on accounts where we believe the consumer has unlimited ability to pay. The lower cost-to-collect has allowed us to develop our internal legal initiative, expand our operating site in Costa Rica and make the investments required to manage the changing regulatory and legislative environment.

All of this adds up to earnings per fully diluted share from continuing operations of $3.04 in 2012. That's an increase of 125% over our 2009 earnings of $1.37. Clearly, our team has been executing the right strategies for the current environment and have built our success year after year.

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