Encore Capital Group's (ECPG) Ken Vecchione on Q1 2014 Results - Earnings Call Transcript

May.11.14 | About: Encore Capital (ECPG)

Encore Capital Group, Inc. (NASDAQ:ECPG)

Q1 2014 Earnings Conference Call

May 8, 2014 5:00 PM ET

Executives

Bruce Thomas - VP, IR

Ken Vecchione - President and CEO

Paul Grinberg - EVP and CFO

Analysts

David Scharf - JMP Securities

Sameer Gokhale - Janney Montgomery

Mark Hughes - SunTrust

Brian Hogan - William Blair

Robert Dodd - Raymond James

Operator

Good day ladies and gentlemen and welcome to the Encore Capital Group First Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will begin at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I will now like to introduce your host for today's conference, Bruce Thomas, Vice President of Investor Relations for Encore. You may begin.

Bruce Thomas

Thank you, operator. Good afternoon and welcome to Encore Capital Group's first quarter 2014 earnings call. With me on the call today are Ken Vecchione, our President and Chief Executive Officer; and Paul Grinberg, our Executive Vice President and Chief Financial Officer. Ken 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 first quarter of 2014 and the first quarter of 2013. Today's discussion will include forward-looking statements subject to risks and uncertainties. Actual results could differ materially from these forward-looking statements. Please refer to our SEC filings for a detailed discussion of potential risks.

During this call, we will use rounding and abbreviations for the sake of brevity. We will also be discussing non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are included in our earnings release, which was filed on Form 8-K earlier today.

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

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

Ken Vecchione

Thank you, Bruce, and good afternoon. I appreciate everyone joining us for a discussion of our first quarter results. Encore had a terrific quarter. Our GAAP EPS was $0.82 per share, compared to $0.80 cents per share in the first quarter of 2013. Excluding one-time expenses and convertible non-cash interest, Non-GAAP economic EPS was a record $1.08 per share, an increase of 26% from the first quarter of 2013.

Cash collections increased 47 percent to nearly $400 million dollars. This significant increase was driven by our acquisitions of Asset Acceptance, Cabot, and Marlin; each of which I would talk about in more detail, as we move through the presentation.

Adjusted EBITDA was $250 million, an increase of 43%. Our overall cost-to-collect this quarter was 38.4% percent, reflecting the presence of Asset Acceptance and Cabot in our results this year. Our estimated remaining collections, or ERC, at March 31st was approximately $4.8 billion dollars, an increase of $2.8 billion from last year.

During the quarter, we deployed $487 million, $105 million of which was in our core business in the U.S. Our capital deployment in the U.K. was also meaningful. Excluding the $208 million associated with the Marlin acquisition, we deployed $143 million in portfolio purchases in the U.K. during the first quarter. We believe that this demonstrates the strength of our U.K. platform and confirms our thesis of geographic diversification.

Our strong level of capital deployment in the first quarter demonstrates that we are able to deploy capital profitably, even in this period of lower supply -- primarily in the US market, driven by record low levels of charge-offs and the temporary pause in selling from a couple of large issuers. We are deploying capital at Refinancia and Propel in line with our business plans. With the closing of Grove on April 1st, we now have five asset classes and geographies, where we can channel our capital deployment, providing us with the opportunities we need to help us achieve our target of 15% annual economic EPS growth.

Before I talk about our progress on the acquisition front, let me review our value creation model with you. When we consider expansion and diversification, we look for opportunities that align with our four pillars of value creation. Our value creation model demand that we leverage our analytic strength, operational scale and cost leadership in order to increase liquidation and operate more efficiently. For each one of our new businesses, we will leverage the significant analytic and operational insights we developed at Encore over the last few years. Whether that's leveraging our deep consumer insights at Propel, or efficient and low cost call center in India for Cabot, or our call center specialization at Refinancia, our goal is to take what we've learned and apply it across our global operations. This disciplined approach, together with the strength of the people across all of our sites, is at the foundation of our value creation model.

Our convertible bond issuance in the first quarter and the recent securitization of Propel's assets demonstrates our ability to raise capital at favorable terms and confirm our role as strong stewards of your capital. Paul will discuss both of these in more detail.

Part of being strong stewards of capital is returning capital to shareholders. I'm pleased to announce that our Board has recently approved a $50 million share repurchase plan; and as we said at our Investor Day last year, we are always evaluating the best uses of capital. And even in periods where we are able to generate strong returns from buying portfolio in new businesses like we are in today's market, there are good reasons to buy back our stock. One of those reasons is when we believe that our stock is undervalued, which is currently the case. Another reason is to protect our shareholders from the dilution associated with equity grants. With this approval, we plan to include share repurchases in our future capital deployment efforts.

I'd now like to give you an update on the progress of our recent acquisitions. We are very pleased with the financial performance of Cabot. Cabot's contribution to our overall profitability has increased in each of the last three quarters and is in line with our investment models. From an operational perspective, our first initiative was to leverage our talented workforce in India. Cabot India went live in January, a full two months ahead of our original schedule and our quality and compliance scores have exceeded the targets we set. We are now moving on to some of the other operational initiatives we identified with the Cabot management team.

Cabot acquired Marlin Financial Group in February and the integration of the two businesses is well underway. Through its enhanced litigation platform and success in collection of older and non-performing debt, Marlin has solidified Cabot's position as the market leader in the high-growth UK market. When combining its acquisition by Cabot, with Marlin's first quarter purchases, Marlin brought $598 million of ERC to Cabot in the first quarter. But just as important, Marlin's platform will generate substantial incremental ERC and earnings from Cabot's previous purchases. Marlin's success in collecting on non-performing debt, together with Cabot's strength in semi-performing debt, will allow the combined business to bid across the age and balance spectrum.

Today marks the two-year anniversary of our acquisition of Propel Financial Services, one of the nation's leading acquirers of delinquent property tax liens. Since the acquisition, we've expanded Propel's business into 11 states. We successfully influenced the legislation in Nevada, expanding the Texas model there. We acquired a large competitor in Texas, and we've leveraged Encore's analytic strength in our Costa Rica call center to enhance Propel's operations. These efforts are paying major dividends. Propel's first quarter profits almost doubled compared to a year ago and the profit continues to grow.

Last week, Propel completed the acquisition of a nationwide tax lien portfolio and servicing platform from a national acquirer of delinquent tax liens in a transaction valued at approximately $43 million. This acquisition will expand Propel's operational footprint to 22 states across the country, increasing our ability to deploy capital in this business. The many successful acquisitions we have completed over the past two years demonstrate our ability to identify solid businesses with strong management teams, to integrate the companies once we've acquired them, and to execute on the synergies and operational initiatives, we identify in our due diligence.

Turning now to Asset Acceptance; we completed our merger with Asset in June of last year and our progress in integrating the business into Encore is nearing completion. We exceeded our initial expectations for collections, and we've achieved all of our major milestones on or ahead of schedule, including the work we've planned on software integration and call center optimization; because of our strong performance so far, we can continue to focus our energy on continued collection enhancement and future cost savings.

This quarter our focus was on executing and integrating the acquisitions of the past several months. We like how Encore has evolved over the past year and we will continue to be opportunistic whenever acquisition targets become available.

With that, I will turn it over to Paul, who will go through the financial results in

more detail. Paul?

Paul Grinberg

Thank you, Ken. As Ken discussed, we had a very strong first quarter, reflecting strong performance from our core business and our recent acquisitions. Before I go into our financial results in detail, I would just like to remind you that as required by US GAAP, we are showing 100% of Cabot and Refinacia's results in our financial statements. Where indicated, we will adjust the numbers to account for our non-controlling interest.

We generated nearly $400 million of collections in the seasonally strong first quarter. $81 million of collections in the quarter came from Cabot. Our call centers outside of the U.K. contributed 36% of total collections, or $142 million, compared to $127 million in Q1 of 2013. Domestic legal channel collections grew to $151 million in Q1, compared to

$122 million in 2013, and accounted for 38% percent of total collections.

For some of Cabot's purchases, we are contractually required to keep accounts with certain collection agencies for a period of time after purchase. When excluding Cabot, 6% of collections in the quarter came from third-party collection agencies.

For the quarter, revenue was $254 million, an increase of 75% over the $145 million in the first quarter of 2013. With regard to our revenue from receivable portfolios, as a percentage of collections and excluding the effects of allowance reversals, our revenue recognition rate was 59.1%, driven largely by Cabot's influence, compared to 51.7% in Q1 of 2013. For the quarter, we had $3.2 million of allowance reversals, the majority of which were zero basis allowance reversals, compared to $1 million of allowance reversals in Q1 of 2013. We had no portfolio allowances in the quarter.

As many of you know, once we have evidence of sustained over-performance in a pool, we will increase that pool's yield. Consistent with this practice, and as a result of continued over-performance primarily in the 2009 through 2012 vintages, we increased yields in those pool groups this quarter.

Turning to cost-to-collect, excluding acquisition-related and other one-time costs, our overall cost-to-collect for the first quarter was 38.4%. Breaking the overall cost-to-collect into its components, Cabot's cost-to-collect in the quarter was comparatively low, approximately 29%, due to the fact that Cabot's portfolio primarily consists of consumers who are already on payment plans and involves very little litigation. The Marlin acquisition, with its litigation platform, has marginally increased Cabot's cost to collect. But with that increase, should come incremental net collections and a higher overall return.

For our U.S. business, direct cost per dollar collected in our call centers was 6.2% in Q1, versus 5.7% last year. This was the result of increased costs associated with the Asset business. As we mentioned when we acquired Asset, we expected our call center cost-to-collect to remain elevated for three to four quarters, as we adjusted our combined workforce to the appropriate levels. Direct cost per dollar collected in the legal channel was 36.7%, down from 37.7% in Q1 of 2013.

While cost-to-collect is an important metric, we don't focus on it in isolation. Overall, success in our business is driven by generating the greatest net return per dollar invested. We accomplish that by generating more gross dollars collected per investment dollar at what we believe to be the lowest cost per dollar collected in the industry.

Our legal channel, which includes both legal outsourcing and our internal legal operations in the United States, continues to be a strong contributor to the business, both in terms of dollars collected and cost to collect. Total dollars collected in our legal outsourcing channel was $121 million, at a cost to collect of 36.1%, up from 35.1% last year. This increase was primarily related to higher legal outsourcing costs at Asset Acceptance.

In the past three years, our cost to collect in internal legal has improved from 200% to 80%, to under 50% last year as we invested in our technology platform, hired staff, and opened new sites. As our volume in the channel increased, our cost to collect continued to improve.

In Q1, we collected $31 million in our internal legal channel, at a cost to collect of 38.9%. We've broken out our legal cost to collect between our external and internal legal channels in our 10-Q to provide more visibility into our progress in reducing cost to collect in our internal legal channel.

I'd like to reiterate that our long-stated preference is to work with our consumers to negotiate a mutually acceptable payment plan, tailored to their personal financial situation. These plans almost always involve substantial discounts from what is owed to us. We not only believe that this is the right thing to do for our consumers, but the right thing to do for our business. For Encore, legal action is always a last resort and is pursued only after numerous attempts to communicate and reach an acceptable agreement with a consumer.

As mentioned earlier, collections reached an all-time high in the first quarter. This growth in collections led to improved cash flows, with first quarter Adjusted EBITDA increasing 43% over last year to $250 million. As investors who are familiar with Encore know, Adjusted EBITDA is one of the most important ways that we measure our company's operating performance. It helps us determine amounts available for future purchases, capital expenditures, debt service and taxes, and it gives investors a clear picture of the strong cash flow generated by our business.

Our Estimated Remaining Collections, or ERC, at the end of the first quarter was $4.8 billion, an increase of 150% over last year. This was driven by the acquisitions of Asset Acceptance, Cabot and Marlin. We believe that our ERC, which reflects the value of portfolios that we have already acquired, is conservatively stated, because of our cautious approach to setting initial curves and our practice of only increasing future expectations after a sustained period of over-performance.

Cabot contributed $6 million to Encore's Q1 adjusted income, which is the equivalent of $0.21 of economic earnings per share. Remember that we own our interest in Cabot together with our partner JC Flowers. Cabot's contribution to Encore's profit is calculated by backing out JC Flowers' and managements' interests and the preferred equity certificates attributable to Encore, which eliminate in consolidation.

To fully understand our overall results, there were certain one-time and non-cash items that affected our results this quarter. $0.05 cents were related to the non-cash interest costs associated with our convertible notes and $0.15 related to one-time acquisition costs and advisory fees primarily associated with the acquisition of Marlin for a total of $0.20 cents per share. After adjusting for these, we end up with $1.02 per fully diluted share, and $1.08 on a non-GAAP economic basis.

In calculating our EPS on a non-GAAP economic basis, we exclude those shares associated with our convertible debt that are reflected in our EPS denominator from an accounting perspective, but which will not be issued, as a result of the call spread we entered into at the time we issued the convert. For Q1, there were approximately 1.5 million shares included in the calculation of GAAP EPS which will not increase the number of outstanding shares as a result of the call spread.

During the first quarter, we took advantage of the strong convertible market once again and issued $161 million of notes at a 2.875% interest rate for seven years. Using a capped call structure similar to what we have used in the past, we increased the conversion price from $59.39 up to $83.14. The proceeds from the convert were used to purchase a capped call and to repay a portion of the amount outstanding on our credit facility. On a cash basis, this was an accretive transaction and provides us with fixed-rate, low-cost funding.

In the future, we will be able to draw on our credit facility for portfolio acquisitions or to support our geographic and asset class diversification efforts. At the end of the first quarter, our credit facility had $470 million of availability excluding the $250 million accordion. Also in the quarter, we completed the warrant amendment underlying the call spread on our convertible notes due in 2017 to protect against dilution up to $60 per share. This transaction, like similar ones before it, has the potential to provide substantial savings given our strong views about the strength of our business and our future share price.

In another important capital markets transaction, this week Propel closed the first ever securitization of Texas tax liens. This was a very successful transaction which was more than six times oversubscribed. The terms, which were very favorable for a first-time issuer, included a AAA rating from S&P and Kroll, a 92.5% advance rate and a fixed coupon of 1.44%. This financing brings several immediate and future benefits to Propel and ultimately to Encore. It lowers our cost of capital. It provides access to a new source of capital and sets the stage for programmatic issuances. It eliminates exposure to rising interest rates. It also creates capacity on our existing credit facilities to allow us to continue to increase market share through organic growth and acquisition.

Given Propel's first quarter results, its recent securitization, and the recent acquisition of a national tax lien portfolio, we are extremely excited about Propel's expected ability to grow and make meaningful contributions to Encore's profits.

With that, I'd like to turn it back over to Ken for his closing comments.

Ken Vecchione

Thanks, Paul. As you can see from our activities in the U.K. and Latin America, and when we begin deploying capital in India early next year, we are transitioning ourselves into a global company. With that comes the ability to deploy capital in different geographies and different asset classes, which we believe will continue to allow us to generate strong growth and earnings even when one market may have pricing or other pressures.

As we continue our asset class and geographic diversification strategy. We will become an even more versatile company with a broader range of investment opportunities to consider when choosing how best to deploy our capital.

And while we've done a lot over the last year, we have executed well, as evidenced by our results so far. But we know that as we do more, we must manage the execution risk. As many of you know, Paul has spent a significant amount of his time working on identifying and analyzing new business opportunities and in helping with the ongoing oversight of these businesses. We continue to see significant opportunities in new markets and geographies and believe that we should pursue these to continue to build shareholder value.

It is becoming more and more difficult for Paul to work on these new opportunities and continue managing the financial operations of the company. Simply put, there are just so many hours in the day.

Since Paul has done so well in helping us expand our business, I have asked him to spend even more of his time in pursuit of those opportunities and in overseeing some of our recent acquisitions. To give him the time and bandwidth to be successful, we have decided to undertake a search to find a strong, experienced Chief Financial Officer to offload that important portion of Paul's current responsibilities.

We're just in the beginning stages of planning this transition, and it will take time to find the right candidate for this important role. And Paul isn't going anywhere. He will be intimately involved in the process and will essentially work closely with the new person for a period of time to ensure a smooth transition. We view this change as an investment in the growth of our company, and a great opportunity to add bench strength along the way. We look forward to Paul's continued contributions to Encore's future success and I want to congratulate him on all the hard work and dedication that has positioned him for this terrific opportunity.

With that, we would be happy to answer any questions you may have. Operator, would you please open the line for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from David Scharf of JMP. Your line is open.

David Scharf - JMP Securities

Thank you. Good afternoon. Paul, a question on funding options going forward, because the Propel transaction kind of reminded me that back when the debt buying industry sort of went public in the early or mid-90s, it actually did engage in a fair number of securitizations. Have you guys explored a return to the ABS markets for the core portfolio purchasing business?

Paul Grinberg

Yes. We try to look at all available opportunities to raise capital and ABS financing and the core business is certainly one that we have and continue to look at.

David Scharf - JMP Securities

Has there been any kind of soft feedback from investors? I mean, there is obviously a lot of demand in the asset-backed markets now, given that so many asset classes aren't issuing much? Is it something that you think is a viable event within 12 months perhaps?

Paul Grinberg

I think its certainly something that we are exploring, and that's something that is vital. Its obviously a more complicated transaction than our typical financing, but its one that we've definitely spent some time on.

David Scharf - JMP Securities

Okay, got it. Switching to the regulatory side here in the U.S., obviously things seem to be pretty much in holding pattern until the CFPB undertakes some rulemaking. But just wanted to get a sense for what you're hearing from sellers? I think on the last call you mentioned that you had 11 issuer audits in the previous quarter, has that died down, is there a sense that the sellers have pretty much done all the work they feel they need to do and that they are just waiting for the ground rules to be laid out by the bureau?

Ken Vecchione

I think that's correct. I mean, we did have 11 issue of audits last quarter. This quarter, I think we might have had one that has been very-very quiet. Each issuers has their own particular hot buttons, but we have gone through 11 of them, we have come out with flying colors. And I think you're right, it’s a little quiet here now, that we see in the --

David Scharf - JMP Securities

Got it. Okay. Broadly speaking as it relates to guidance, based on the events of the first quarter, how capital was deployed? Is mid-teens -- long term goal of mid-teens annualized growth still how we should be thinking about this year as well?

Ken Vecchione

Look, I think the best guidance we can give you is that, we would be very proud of this company, if we can continuously grow 15% earnings per share year-after-year. And some years doesn't mean that we may grow a little more than 15, but really our goal is 15%.

David Scharf - JMP Securities

Okay, got it. And may be along those lines, when I think about maybe four components of that growth and these components are going to move around from year-to-year. But when we think about kind of asset growth reductions in the cost-to-collect, improvements in yields and lastly lower funding costs. Can you kind of rank those in terms of order of magnitude, how they kind of help drive that mid-teens outlook near term? I mean, I would imagine asset growth as clearly number one, but may be the others?

Ken Vecchione

Well you know, actually inside the company, we are putting more and more focus on improving liquidation and increasing our yields, we think that's important. We have over $140 billion, nearly $150 billion of defaulted debt on our books, and we can improve the liquidation rates on that, we think that's very-very important. And simultaneously with that, we want to do it a more -- a more efficient way and that would lead us to a lower cost to collect.

On the asset side, we are looking at different opportunities. They generally come across our debt. We don't usually miss out on many, and if they work for us, then we will go ahead and do an acquisition or -- a portfolio acquisition or a business acquisition. But we do have a very specific playbook when it comes to doing M&A deals, and its got a bunch of our checklist on that playbook, that's in that playbook.

David Scharf - JMP Securities

Got it, got it. And lastly, I apologize again I was fading in and out during your important remarks at the end regarding Paul's transition. Is there a title he is assuming?

Ken Vecchione

I don't know. Do you have a title in mind?

David Scharf - JMP Securities

Yeah, I caught about half of it. I guess what I really wanted to confirm, is based on your description, is it effectively sort of corporate development if you will, or head of M&A?

Ken Vecchione

No, its more than that. And [indiscernible] is in a very -- we are going to have a normal transition. We just started to search for a new CFO. Paul will help that new person come in and transition into the new role. And then Paul is going to be in charge of all the new businesses that we are purchasing. So yes, will there be a corporate development aspect to that, you bet. But sort of as I said before privately, you bought it, you run it, you make sure we hit the numbers. So its all kind of residing in one place, as it relates to the international stuff. If its something we buy domestically, then we have got some of our other senior execs that will run those businesses and integrate them, but Paul will have a hand in also buying them.

David Scharf - JMP Securities

Got it. All right. Thanks a lot guys.

Ken Vecchione

Okay.

Operator

Thank you. Our next question comes from Sameer Gokhale of Janney Capital. Your line is open.

Sameer Gokhale - Janney Montgomery

Hi thanks. Just a few questions. The first one was just come context around that tax lien acquisition. It seems like you bought it from another acquirer of tax liens. Could you give us a sense for price or just price per premium that you paid for that portfolio or was there any other reason, why specifically they turned -- it seems like in that business. So why did they turn around and sell that portfolio to you guys? Just some context would be helpful?

Ken Vecchione

So this was a business that was -- really wasn't focused upon, it was another large institution that just wasn't putting the time and effort against it. We paid $43 million for the deal. As we said, I think last quarter when Propel's or PTS, one of the things we liked about the Propel business, is that it can grow organically and has the ability to scale-up in terms of doing consolidation. The PTS was acquired and integrated rather quickly, and we had those opportunity, which we have been working on for quite some time with this other platform, and we closed the deal last week and we just thought to integrate it as well.

Sameer Gokhale - Janney Montgomery

Okay. Can you give me a sense for what that premium was? That you might have paid -- maybe discounts, since that -- since they may not have been able to focus as much on that portfolio and sold it to you guys?

Paul Grinberg

We will provide some additional disclosure when we report in our Q2 results. But we paid less than the face value for the liens that were acquired.

Sameer Gokhale - Janney Montgomery

Okay. That's helpful. Then just, in terms of the legal channel and some of the commentary you've provided. One of your competitors clearly talked about -- I think the way they put it was adjusting their return thresholds and expanding the amount of legal channel work that that they are doing. Are you also viewing that similarly, as maybe kind of adjusting your ROE thresholds and then therefore expanding more of the paper that pushed through the legal channel, or do you feel you have kind of optimized there to the extent possible?

Paul Grinberg

So we have done models that help us determine, when we buy some paper, and depending on the type of paper, whether its fresh or very-very old paper, how best to collect it. We let those models drive our decision points, as to how best to collect. So some paper obviously will just go through the call centers, and some will more quickly go to our legal channel. And then, inside of the legal channel, what we do is, we try to optimize in the space that we both have legal outsourcing and our internal legal operations in. We do Champion and Challenger test all the time to see who is performing best between our internal legal and our legal outsourcing, and then we move paper between the two of those sources.

As Paul said, we are not fixated always on the cost to collect, but really, on the return that we get for investing in this paper, whether it be the internal legal or the legal outsourcing channel.

Ken Vecchione

You shouldn't expect to see any significant change in volumes going through that channel, going forward compared to where it has been historically.

Sameer Gokhale - Janney Montgomery

Okay. That's helpful. Then just a couple of your peers also settled with regulators in New York and kind of stopped doing collections activity on older paper. And I was just trying to get a little bit more perspective on that, and clearly in that particular case, it didn't look like the fines were material and they did -- they were going to stop collections on some portion of those receivables. But I guess in your case also, can you provide some context with where you are at in that process with regulators; and how should we think about that? I mean should we think about New York State being one state where maybe you stop going after order paper, but can we see that happening in more states, and then if you cumulatively look at the amount which you are not going to be collecting, would that be a meaningful number? So I am just trying to frame that a little bit. I don't think its material, but I just want to make sure.

Paul Grinberg

Anything that relates to our competitors, I will let them give you their own opinion as to how and why they settle. But from our point of view, this should not impact us materially. These are basically older issues. They have been around since 2010, and we have adjusted our operations for them.

Ken Vecchione

And I think Sameer as it relates to other states, just related to a specific technicality on what the statute of limitation was based upon some contractual things in the agreements with consumers. So I don't think you can draw an inference from New York to other states.

Sameer Gokhale - Janney Montgomery

Okay. Perfect. Thanks a lot guys.

Ken Vecchione

Thank you.

Operator

Thank you. Our next question comes from Mark Hughes of SunTrust. Your line is open.

Mark Hughes - SunTrust

Yeah, thank you. Paul is it the case that you will still be full time with the company and you will -- it sounds like you are like a chief admin or chief operations officer or business development?

Paul Grinberg

I will be -- I wish it was just full time. I think it’s the same as it is today, which is 150% of the time, and as Ken mentioned I will be working on all the geographic and asset class diversification that we are doing, and for those transactions that we do overseas, I will be continuing to oversee them and then make sure that they deliver on the results that we are achieving. There is no -- we haven't formulated titles or anything like that, but I think we are still talking about a process that's going to take some time. We are just kicking off the recruiting efforts. It will take some time to bring the right person in, and we will take some time to transition into -- my responsibilities to that person.

So we are still way off before that become what I am doing full time. So I will continue to do what I am doing now for quite some time.

Mark Hughes - SunTrust

Okay. Thank you. The securitization, how does that impact the model, the contribution to earnings as we look at Q2 or Q3? What are the adjustments we should make?

Paul Grinberg

So Propel -- credit facility as about L plus 300, this is fixed at 1.44%. So the difference between the two of those on $140 million-ish of debt is the impact that its going to have. Those liens do pay off over a period of time, so you just have to take a look at the redemption rates or the payoff rates on those liens and use that balance to calculate any interest savings on it. But its basically the difference between L plus 300 and 144 basis points.

Mark Hughes - SunTrust

Okay. And then the -- can you talk about the amortization excluding Cabot? I heard you saying that the Cabot influenced amortization. How should we think about that going forward? Is there going to be as much seasonality in amortization? Is it going to be relatively steady from here? How did the amortization look on the underlying non-Cabot business?

Paul Grinberg

On the non-Cabot business, amortization was positively impacted by the asset deal in Q2. So Q1 last year, we didn't have that large purchase. So Asset was a large transaction and also the multiple was very good, as we mentioned when announced that deal, the reason we often buy our competitors or portfolio from competitors, its because they are more complex transactions. Others can't execute on those as effectively as we can, and therefore the multiples and returns are higher. So we also had some positive impact from the Asset in our non-U.K. amortization. So over time, that will moderate a little bit. I think the seasonality in the core U.S. market will continue. There is less seasonality in the U.K. market. But the U.S. amortization was positively impacted by Asset and over time won't have as much of an impact.

Mark Hughes - SunTrust

Right. How much did you say you deployed in the U.K. outside of the Marlin transaction? Was it $143 million?

Ken Vecchione

$143 million.

Mark Hughes - SunTrust

Right. And then, I think you have touched on this, but the supply in the U.S., your outlook for your ability to purchase any meaningful way in the U.S., could you talk about it?

Ken Vecchione

Sure. So the pricing environment is still competitive. Supply continues to be constrained. Pricing still remains to be -- remains elevated. I would say that, we witnessed the early signs of stabilization. I am really going to stress on the word early. But despite all this, we acquired $105 million in the U.S. But there is a lot of activity around these portfolios, there is some scarcity. You know that three large issuers are not in the market at this time, and that creates a scarcity, and we are seeing that the -- even the winner of the top -- the winner of the portfolio there, the top three bids are very closely clustered together in terms of price.

Mark Hughes - SunTrust

Thank you.

Operator

Thank you. (Operator Instructions). Our next question comes from Brian Hogan of William Blair. Your line is open.

Brian Hogan - William Blair

Thank you. A question on -- kind of a follow-up to the last one, capital deployment. Obviously, the U.S. being constrained, but you did deploy $105 million, which isn't a bad number. What are the opportunities in the United States from a -- and I'm talking from a risk return perspective versus, opportunities in the UK versus, call it, South America. Where do you see the best return and how much do you expect to deploy?

Ken Vecchione

So I think the best returns these days are in Colombia and Peru, that's the good news .The bad news is, there is only limited dollars that we can deploy there. But we like those markets and I think I said last quarter, they have very-very attractive returns. After that, we see the returns in the U.K. next in line. We had a good quarter, we deployed $143 million that's well ahead of what we are anticipating for the full year, meaning that we have moved a long way against our full year goals. So the opportunities are there.

In the U.S., while we did -- while the market is constrained, we did put out $105 million. We think are going to have another good quarter in Q2. So we are seeing opportunities there as well. So really the first rule is, does it equal or achieve our hurdle rate, and then we decide from there, where best do we get the best bank for a dollar. But we have multiple pools of dollars chasing investment portfolios. Does that help?

Brian Hogan - William Blair

Yes, I guess. And even on that front, are you saying 2Q is going to be another good quarter -- is that the impact of the stabilization? Is that -- you said it's very competitive still, just fewer bidders are winning. Basically the seller is narrowing it from a lot to just a few then? And then a follow-up to that, is are there portfolio acquisition opportunities?

Ken Vecchione

Okay well; what I would say is, while there are fewer competitors -- I am sorry, fewer issuers selling these days. The ones that are selling, are selling a little bit more frequently. I think they realize that the pricing for them is very good and they are bringing more to market. As I said to one of the other questions, we are really focused on our operational efficiencies and improving liquidation, and we see opportunities to buy at these levels, and to meet our hurdle rates, and we are pretty pleased with what those hurdle rates will be.

As it relates to acquisitions, we are always talking to folks. People are always calling us, and I would say some of the smaller competitors have an ask for their business or portfolios that's way too high. But believe over time, as they see the compliance effort that is in front of them, and the cost of that compliance effort. Their price requests will come down, and I think there will be opportunities to buy from these competitors as well.

Brian Hogan - William Blair

Sure. And then sticking with the U.S. market, what are your expectations, timeframes or any have been articulated from the three issuers that are on the sidelines. Any timeframe around there when they come back?

Ken Vecchione

One of the three we always hear is coming back this quarter. And I have heard that since I joined the company, and that issuer has not returned yet. So I am hearing that again this quarter. The other two I think are a little longer out, but as we think about it, in spite our company, for two of those three issuers, we are just assuming they are not returning in 2014, and not returning in 2015. Now they may come back, but we are just assuming they are not. And what we do here is we have got a plan for life without them for the next two years. Hence we have been diversifying geographically, and we feel comfortable that we could continue to move forward, and achieve our 15% growth rates.

Brian Hogan - William Blair

And you think they will come back to market? I mean, the risk is they could take it in-house? Is it their intention --

Ken Vecchione

I don't see that happening, but my crystal ball gets a little fuzzy when you start asking me what are they going to do. So I can only control what we can do, and we are just assuming they are not coming any time soon, and we are going to continue to move on without them. When they come back, we are happy to be there.

Brian Hogan - William Blair

All right, a couple of other items. The share repurchase program, the $50 million is roughly 5% of the market you have. How aggressive do you expect to be with that? I mean, you mentioned your stock is undervalued and, obviously, you have the equity grants.

Paul Grinberg

Yeah. So we are going to work on using some of that $50 million to buy back the equity and as we said, we will be opportunistic when we think there -- our stock is not reflecting the value that we see in it, we will be out there purchasing.

Brian Hogan - William Blair

Sure. And then one last one with the kind of Propel and tax lien business strategy. You bought a business for $43 million and you see it as a nice growth opportunity. But yet originations were actually down year over year. I'm trying just to --what's that disconnect and --

Paul Grinberg

Originations usually are a little bit stronger in Q2 than they are net income Q1. This deal could have easily closed in Q1, it didn't, just as you could imagine -- just contract negotiations usually take longer than you would expect. But we are optimistic about the growth with Propel, and Propel has become more and more of a significant contributor to the overall EPS of the company. Its doing a nice job. As I said it, as an opportunity to grow organically and as an opportunity to do consolidation in the Texas market, and we like it.

Brian Hogan - William Blair

Sure, and then one last one. The other revenue line, other income, I guess. Is that the Asset Acceptance bankruptcy business? What is that in particular?

Paul Grinberg

Other revenue largely relates to the Cabot's contingency business.

Brian Hogan - William Blair

Okay. Thank you.

Operator

Thank you. Our next question comes from Robert Dodd of Raymond James. Your line is open.

Robert Dodd - Raymond James

Just can you compare for us the pricing between the U.K. and U.S.? I mean, obviously, you bought more over there, but given everything we hear about -- just how aggressive the U.S. is -- $105 million in the U.S. versus $143 million ex-Marlin in the U.K. Do you feel that matches up to the relative returns in the two markets so is there a supply constraint in the U.K. as well, in terms of lumpiness; and if you've got any color there on what your market share is? You are the market leader, clearly, but how much room do you have relative to kind of where the ceiling is in the U.K. market at this point?

Ken Vecchione

I think the U.K. market is going to be a very strong market. I think U.K. banks are still referring some of their balance sheets. They have some pent-up demand sitting on their balance sheets. And I also think that you are going to see several of our competitors come to market and put themselves up for sale. So I think you're going to see both of those things happening. Its almost again, the way we look at, why we bought Propel is the same reason why we bought Cabot, which is a business that could be scalable either organically, or we can buy other businesses and put them on our platform or connect them to our platform. Hence Marlin, and we see a few other competitors that we think will be coming to the market for sale.

So I think that, the strong pipeline in the U.K., and we are going to look to be disciplined in how we purchase, and to make sure we achieve our stated hurdle rates that we have in the U.K.

Paul Grinberg

And Robert, as Ken had mentioned before, we have separate financing vehicles or financing facilities for both of those markets. So when we are thinking about capital allocation, we are not making the decision, do we deploy capital in the U.S. or the U.K., because we have separate facilities, we can do both, and we just measure how much we deploy in each market, based upon the returns associated with the opportunities in front of us. So its not like we are taking one pool of capital and allocating in much markets, we have got two separate facilities, and another at Propel to -- where we can deploy as much capital as we think is prudent in each one of our geographic markets or asset classes.

Robert Dodd - Raymond James

Okay, I got that. And just one follow-up on that or clarification. In the U.K., is there any atypical seasonality in terms of when sales occur from -- obviously, it's relatively lumpy; but is there any kind of pattern that you can point us to about -- is Q1 abnormally strong or abnormally weak relative to kind of an annual quarterly average?

Ken Vecchione

I don't know I can give you any guidance on that. I will say that some of the issuers tend to sale on half-year sales, rather than some of the issuers here in the U.S. that will come to market quarterly.

Paul Grinberg

And as we had mentioned previously, when we did the Cabot acquisition, there is backlog and so some of the issuers come to the market with backlog periodically, and that's not a regular quarterly sale, it is a one-off transaction. So there is lumpiness associated anytime there is a backlog transaction, to the extent that we win those.

Robert Dodd - Raymond James

Got it. Thanks a lot, guys.

Ken Vecchione

Thank you.

Operator

Thank you. Our next question comes from Mark Hughes of SunTrust. Your line is open.

Mark Hughes - SunTrust

On that other revenue, the contingency fee revenue, is there any seasonality in that?

Ken Vecchione

There is less seasonality in the U.K. than there is in the U.S. So there is a little bit, but frankly given the small -- the size of that revenue as compared to the rest of our business and the fact that contingency business doesn't have extremely high margins. From an earnings perspective, any seasonality really doesn't have much impact on our earnings. So I wouldn't worry about having them model in seasonality associated with that. And its also, just not a focus of our operations either. We have it, it adds some strategic value, but its not a big focus.

Mark Hughes - SunTrust

I don't know if you break this out in the Q, but do you have the amortization associated with the U.K. operation?

Paul Grinberg

We do break it out separately. There is a table in the Q which -- we show the inverse, we show the revenue recognition rate. That is broken out separately between the U.S. -- its broken out by pool group and it is broken out for the U.K. pool groups and the U.S. pool groups.

Mark Hughes - SunTrust

You don't happen to have it there, do you?

Paul Grinberg

Let me just look. I do. So the U.K. for the quarter was 69.1% revenue recognition rate, so correct that from one to get the amortization rate, and the U.S. was 56.5%.

Mark Hughes - SunTrust

Super. Thank you.

Operator

Thank you. I am not showing any further questions in queue. I'd like to turn the call back over to management for any further remarks.

Ken Vecchione

Yeah, one last thing I will say is, we are looking forward to see you all in June for our Investor Day, and at that meeting, you will get a chance to meet the CEOs of Refinancia and Cabot and Grove, and I think you will enjoy meeting them and hearing what they have to say about their markets. So we look forward to seeing you then, and we thank you all for attending and we thank you all for your questions.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may now disconnect. Everyone, have a great day.

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