Encore Capital Group Inc (ECPG) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Encore Capital Group fourth quarter 2013 earnings conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference. Adam Sragovicz, you may begin.

Thank you, Nicole. Good afternoon, and welcome to Encore Capital Group's fourth quarter and full year 2013 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 full year of 2013 and the full year of 2012.

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.

Thank you, Adam, and good afternoon. I appreciate everyone joining us for a discussion of our fourth quarter and full year results. For those of you who have been following our strong growth in 2013 and our activities in 2014, you know that we have been very busy.

The fourth quarter concluded an outstanding year for Encore, as our financial results for 2013 reflect the strength of our emerging global investments and servicing platform. This has been a time of significant change in our industry, and today we will share with you how we are capitalizing on this change.

We are building a diversified platform that will enable us to achieve our 15% earnings growth target. We will drive growth organically through our existing business, and with new asset classes and geographies through strategic acquisitions. This approach positions us as one of the leading global specialty finance companies in the world.

Now I would like to take few minutes to highlight some significant achievements for the quarter and the year. As you can see, Encore had a record quarter.

Our GAAP EPS from continuing operations was $0.87 per share, compared to $0.79 per share in 2012. EPS on an economic basis, and excluding one-time expenses and convertible non-cash interest, was $1.05 per share, compared to $0.80 in 2012, an increase of 31%.

Cash collections increased 52% to $351 million. This significant increase was driven by our acquisitions of Asset Acceptance and Cabot, both of which we will address in more detail as we move through the presentation.

Adjusted EBITDA was $206 million, an increase of 53%. Our overall cost to collect decreased by 70 basis points from 2012 to 42.1%. With the acquisitions of Cabot and Asset Acceptance, our estimated remaining collections, or ERC, at December 31 was approximately $4 billion.

On a full year basis, GAAP EPS from continuing operations was $2.94. And after adjusting for one-time and certain non-cash items, economic EPS was $3.86. And we are very proud and excited to report that we exceeded $1 billion in annual collections for the first time in our Company's history, and we did it by more than $200 million.

On an adjusted EBITDA -- sorry, our adjusted EBITDA was $784 million, and our cost to collect was 39.1%, down 90 basis points from last year. These results reflect a disciplined and deliberate approach we have taken, to deploying capital and building very efficient operating platform, as well as exceptional work of the people of Encore.

Today, our global workforce is more than 5,000 strong. We couldn't have come this far, or be so well-positioned for the future, without their drive and determination.

Of late, we have made a number of strategic acquisitions that we expect to form the foundation of our long-term sustainable growth. Before I discuss these transactions, I would like to share the operating formula we used to purchase and manage these acquisitions.

One, Encore focuses on markets with attractive economic characteristics. Two, Encore intelligently levers the acquired companies as appropriate.

Three, we increase margins through lower operating expenses, or improving cash collections. Four, the companies we acquire are platformed, which we can create organic growth or growth through consolidation. And lastly, each acquisition needs to be accompanied by strong, talented management.

With the Refinancia, a Columbian company operating in the fast growing markets of Peru and Columbia, we gained a foothold in Latin America, and a platform for further expansion into that region. Marlin Financial Services, which we spoke of about -- excuse me, as we spoke about at length two weeks ago has been combined with Cabot, creating the market leader in the attractive UK debt-buying market.

Grove Capital is a leader in the UK in the deployment and management of IVAs or Individual Voluntary Arrangements, which are roughly equivalent to Chapter 13 bankruptcies. All of these companies are in markets with solid opportunities to deploy capital at good returns.

They also give us optionality, which is another major advantage for our business going forward. Optionality insulates Encore from temporary pricing pressures in one asset class or geography, as we are now able to allocate capital in multiple asset classes, and in multiple geographies to bring our shareholders the best returns.

Before we get into the specific of these -- specifics of these acquisitions, I want to put them into context of our value creation model. When we look at expansion and diversification, we look for opportunities that align with our four pillars of value creation.

The most recent acquisitions of Refinancia, Marlin, and Grove, along with our earlier acquisitions of Propel, Asset Acceptance and Cabot do just that. These acquisitions allow us to leverage our analytic strength, operational scale, and cost leadership to increase liquidation and operate more efficiently.

They allow us to be strong stewards of capital, giving us the ability to deploy capital globally, in search of the best returns. And they allow us to capitalize on what we do well, and leverage our strengths in other geographies and asset classes. The ultimate goal of these acquisitions, and quite frankly, everything else we do, is to drive growth, margin expansion, free cash flow and PE expansion, and ultimately deliver top quartile shareholder returns.

The acquisitions of Cabot, Marlin, Refinancia, Grove and Propel all have several similarities. They are all respected brand names and growing companies, and they occupy the number one or two position in their markets. These are investments with involvement.

Upon acquisition, we secure a sizeable majority interest, Board control, direct influence over management and operations, and the right to increase our ownership stake over time. This value creation model is also the lens we look through when we develop and execute our corporate growth strategy.

We are focused on three key areas, growing our existing businesses including our subsidiaries, expanding geographic footprint, and diversifying into new asset classes. As you can see, this corporate strategy aligns with our value creation model, and is demonstrated in the acquisitions we have made.

Now I would like to take a little more time and detail to talk about our recent additions to the Encore family. In December, we closed on our acquisition of a controlling stake in Refinancia, a leading debt purchaser in Columbia and Peru.

These two markets are growing quickly, with the expansion of the middle class and significant increases in consumer credit. While we initially focus on working with the Refinancia team to transfer our knowledge of the financially distressed consumer to their market, and to help put in place operational efficiencies over time, Refinancia will serve as our platform for expansion throughout Latin America.

We first began discussions with Refinancia's founder and CEO nearly two years ago. We were attracted to the quality of its management team, and its shared vision around using data to make decisions. We are also aligned culturally in our focus on operating ethically, and treating consumers with the respect they deserve.

As we learned more about Latin American credit markets and did our due diligence, we realized that this would be an exciting market to invest in. With a combined market size of almost 80 million consumers, these fast growing economies provide great opportunities for growth, and importantly, the investment returns in both of these markets are strong, at levels in excess of what we are experiencing in the US and the UK.

The deal structure with Refinancia was similar to Cabot's, and one that we expect to replicate in other geographies. We acquired a controlling interest in Refinancia, initially at just over 50%, and expect over time to acquire a larger stake in the business.

Unlike Cabot, the majority of the $13.5 million of capital we invested in Refinancia was used as a primary equities -- excuse me -- was used as primary equity, and will remain in the business to fund future growth. The founders of Refinancia and their current management team took no money off the table in connection with our investment. For all of our purchases in Columbia and Peru, Encore deploys 100% of the capital directly through Latin American special purpose vehicles, and then places the accounts with Refinancia for servicing.

Refinancia's core business is to service distressed consumer debt, including debt that Encore purchases, and debt that it services on behalf of large financial institutions and others on a contingency basis. It also provides us with a level of diversification, by providing merchant guarantee services, factoring, as well as a small credit card product in Columbia.

The credit card product extends our relationship with consumers as they recover, and it enables them to reenter the financial system. As we spend more time with Refinancia and learn its business, we expect that there will be a number of opportunities to implement some of these leading products across other parts of our organization.

Refinancia will not be a large contributor to EPS in 2014. Initially, we expect annual capital deployment opportunities to be in the $40 million range. Over time, as we build up our book and implement some of the synergies we have identified, we expect Refinancia to represent a more meaningful part of our earnings.

Last week, we entered into an agreement to acquire 68% of Grove Capital Management in the UK, a purchaser and servicer of insolvencies, consisting primarily of Individual Voluntary Arrangements or IVAs. An IVA is roughly equivalent to a Chapter 13 bankruptcy in the US. As with Refinancia, we will deploy capital in a separate vehicle, and place the accounts with Grove to service.

We began discussions with Grove more than a year ago, but put those discussions on hold, so that we can focus on Cabot, and then Marlin. Once those acquisitions were completed, we were able to reengage with Grove and its shareholders to finalize our deal. Grove allows us to expand our footprint in the UK through another asset class, and brings a full suite of offerings to issuers in the UK market.

We are very optimistic about pipeline for insolvency assets in the UK, and expect to be able to deploy $50 million in IVAs on an annual basis. As with Refinancia, EPS related to Grove should be modest in 2014, but we expect this to grow in 2015 as more and more capital is deployed. Although we expect to close acquisition of Grove later this quarter, or early next quarter pending regulatory approval, we will begin deploying capital immediately.

We also recently announced Cabot's acquisition of Marlin Financial Services. Marlin brings to Cabot estimated remaining collections, or ERC, of more than GBP350 million, or approximately $570 million. Marlin specializes in litigation-enhanced collections, similar to Encore's legal collection capabilities in the US. With this platform, Marlin has the right rate of success in collecting on nonperforming debt and complements Cabot's strength in semi-performing debt.

Marlin also provides the necessary legal collection capabilities that would otherwise be time-consuming and costly to develop internally. We expect these capabilities to increase liquidation on Cabot's current and future portfolios, and enables us to expand our capital deployment to nonperforming debt.

The acquisition establishes Cabot's presence in the secondary and tertiary markets, where we see additional opportunity to grow. Cabot will also add value to Marlin's business and ERC, with its expertise in the recovery of semi-performing debt. We expect the combined company to be much more competitive in the market than either would have been on a standalone basis.

And finally, Marlin adds valuable management depth with extensive industry experience. The combination of these two businesses gives us great platform to be a leader in what we believe will be upcoming industry consolidation in the UK debt purchase market.

Encore's global footprint represents our deliberate and thoughtful approach to exploring new markets through deployed capital. The state of the debt-buying industry and its future in the United States is a topic of much discussion and debate these days.

On one hand, we are seeing a period of industry consolidation, which is a product of intense regulatory pressure, and the need to have significant scale to compete effectively. We believe we will not only survive this consolidation, but emerge strong, as one of the clear industry leaders.

On the other hand, we are in a period of lower supply, as charge-offs are at record lows, and couple of issuers have temporarily pulled back from the market. This has resulted in elevated pricing, despite the market consolidation. With our ability to deploy capital in multiple geographies, the US, Latin America, the UK, and later this year India, we can channel our capital to those markets with greatest returns to help us achieve our 15% annual EPS target.

At our Investor Day on Thursday, June 5 in New York, we will introduce you to new management teams, and share more details with you about each of our new businesses, and the opportunities they present for Encore. We are confident in our ability to execute on these acquisitions, following the success of our two large acquisitions in 2013.

We have now collected over $175 million from our Asset Acceptance acquisition, ahead of our plan, and are nearing the full rationalization of support functions and call centers. The complexity of moving over 2 million accounts were handled skillfully by our dedicated integration team, and the acquisition allowed us to be more flexible and selective throughout 2013 in our portfolio purchasing.

We also are proud of the performance of our acquisition of Cabot, which added $100 million of adjusted EBITDA, ERC of $1.5 billion, and economic EPS of $0.36 to Encore in 2013. I would like to mention Cabot India went live on January 20, nearly two months earlier than our expectations. We are collecting and servicing accounts in India, while we continue to learn and modify our collection approaches to fit the nuances of the UK market.

In order to ensure our success in executing on these transactions, we made some changes within our executive management team, and promoted three new executive vice presidents. Ashish Masih, who had previously run our legal collections channel will now be responsible for all of the US-based collections. Ashish has done a great job in applying analytic rigor to our legal collections, which has significantly lowered our cost to collect in that channel; he also has been instrumental in building our internal legal channel.

Jim Syran, who has been responsible for all of our call centers, our marketing channel, and operational analytics over the last few years, will now take on the responsibility for integrating our international acquisitions, as well as new domestic business opportunities. His initial focus will be to work with the leaders of Cabot, Refinancia, and Grove to ensure that the synergies are implemented. With his intimate knowledge of Encore's analytics and operations, he will ensure that we leverage Encore's best practices throughout all of our international operations, and bring the appropriate resources to bear as needed.

And lastly, Manu Rikhye, who has built our India operations from a handful of people to nearly 2,000 strong today, will now take on the responsibility to develop and grow the Indian debt purchasing market, which is scheduled to launch at the end of this year. I am excited to see Ashish, Jim and Manu in these roles, and proud of the breadth and depth of our leadership team.

Turning to the regulatory environment, I would like to provide a quick update on the CFPB's Advanced Notice Proposed Rulemaking that began last November. We are just now wrapping up the first phase, following comments with the CFPB later this week. This begins what we expect to be a year-long process, with an anticipated final rule in late 2014 or early 2015, with a subsequent effective date.

Overall, we are pleased that the CFPB has initiated this rulemaking, as it will give much needed guidance to the collection industry. We believe, however, that until it completes its rule-making over the next 18 months, the bureau will continue to shape the industry standards through supervision and enforcement.

Before I pass it over to Paul, who will review numbers with you in more detail, I would like to take this opportunity to publicly thank our outgoing Executive Chairman, George Lund, for his many years of service. George has been very supportive of Encore's vision and strategy over the years, and we all benefited in countless ways from his counsel. I am also pleased that the Board has chosen long-time member, Willem Mesdag, to become Chairman, and we look forward to his guidance and leadership.

Finally, we are pleased to welcome to our Board, Laura Olle, Capital One's former Chief Enterprise Risk Officer and former Senior Vice President of IT at Freddie Mac, and Rich Srednicki, the former CEO of Chase Card Services, and former President of AT&T Universal Card and Citi Credit cards. Laura and Rich have already been through extensive sessions with the Encore management team concerning our current business environment and future plans, and we are eager to work with them.

These are extraordinarily talented and experienced leaders, and the management team, and our shareholders are very fortunate to have them join the Board. The management changes and the Board additions are designed to reflect the growing global footprint of Encore Capital. And now, I will turn it over to Paul.

Thank you, Ken. As Ken discussed, we had a very strong fourth quarter and year, 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's results in our financial statements. Where indicated, we will adjust the numbers to account for our non-controlling interest.

The Asset and Cabot acquisitions led to strong capital deployment in 2013. We invested $1.4 billion across all geographies and asset classes, with $380 million associated with the Asset deal, and $621 million attributable to Cabot.

In the fourth quarter, we deployed $150 million across all business lines, with $97 million in the US, $35 million in the UK and Ireland, and $18 million in Latin America. As we mentioned earlier this year, the Asset acquisition provided us with nearly $1 billion in ERC, at returns much higher than we would have achieved had we been purchasing directly from issuers.

This allowed us to be more strategic in our domestic purchases for the rest of 2013, and will allow us similar flexibility in 2014. That said, we expect a solid purchasing year in 2014.

While we anticipate that most issuers will return to the market this year, we also expect elevated pricing will continue. One of the reasons we have invested so heavily in other geographies and asset classes is to have a flexibility to deploy our capital where we see the best returns, or when warranted to buy strategically in the US.

With elevated pricing, we also anticipate that 2014 will be a year of further industry consolidation, as smaller players are unable to make the compliance and regulatory investments required by leading issuers. It is our belief that smaller buyers, without the same operational cost advantages as leaders in the industry, will be unable to effectively compete, and will ultimately decide to sell their portfolios and exit the business. As these players exit the market, the supply/demand equation will be more favorable for purchasers, and pricing will not be under as much pressure.

Propel had a very strong quarter for capital deployment, with $45 million invested in tax liens. In December of last year, Propel acquired one of its competitors in Texas for $35 million. Like in our core business, companies with a lower cost of capital and analytical approach to understanding the consumer, and a cost efficient platform, will generate the best returns. Propel has all of these, and as such we expect Propel to grow its business both organically, and through industry consolidation.

We generated nearly $1.3 billion of collections in 2013, and just over $350 million in the seasonally slow fourth quarter. $[67] million of collections in the quarter came from Cabot.

For the year, our call centers contributed 41% of total US collections or $[466] million, compared to $442 million in 2012. Legal channel collections grew to $565 million in 2013, compared to $448 million, and accounted for 49% of total US collections. Finally, 10% of US collections came from third-party collection agencies.

As a result of the Asset acquisition, we expected to see an increase in third-party collections, as many of those accounts had already been placed with third-party agencies at the time of acquisition. We continue to shift much of this work to our internal channels over time, as part of our integration efforts. Also for some of Cabot's purchases, we are contractually required to keep accounts with certain agencies for a period of time after purchase.

For the quarter, revenue from receivable portfolios was $227 million, an increase of 62% over the $140 million in the fourth quarter of 2012. As a percentage of collections and excluding the effects of allowances, our revenue recognition rate was 63.3%, compared to 59.4% in 2012. For the quarter, we had $4.5 million of allowance reversals, compared to $2.7 million of net reversals in 2012.

Looking at the breakdown by year, we had $218,000 of allowance reversals in the 2006 vintage, $1.4 million in the 2007 vintage, and $2.9 million in DDA allowance reversals. We had no allowance charges for 2009 through 2013 vintages, as has been the case since we acquired these portfolios.

As many you know, we account for the business on a quarterly pool basis, rather than overall. When pools under-perform, we take allowance charges which are reflected as an immediate reduction in revenue.

We measure under-performance against the current yield that assigned to a pool, not its original expectations. This pool by pool accounting treatment may lead to noncash allowance charges in certain periods, even when we are overperforming a pool's initial expectations.

In contrast, when pools over-perform, that over-performance is not reflected immediately. 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, 2010, 2011, and 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 year decreased 90 basis points to 39.1%. Breaking the overall cost to collect into its components, Cabot's cost to collect is comparatively low in the mid to high [20%s], due to the fact that Cabot's portfolio primarily consists of consumers who are already on payment plans and involves very little litigation. With the Marlin acquisition and its new litigation platform, Cabot's cost to collect may increase, but with that increase will come incremental net collections and a higher overall return.

For our US business, direct costs per dollar collected in our call centers rose to 7.2% in 2013, verses 6.2% in 2012. This was the result of the increased cost associated with the Asset business. Our business also exhibits some seasonality, with lower collections in the fourth quarter leading to a higher cost to collect. 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 37.8%, down from 39.8% in 2012. 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 operation 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 $469 million, at a cost to collect of 35.9%, down from 37.8%.

This decrease was primarily related to improvements in our ability to more accurately and consistently identify those consumers with the financial means to repay their obligations. Total dollars collected in our internal legal channel were $96 million, at a cost to collect of 47.3%.

In 2011, our cost to collect in internal legal was over 200%, as we were investing in our technology platform, hiring staff and opening new sites. As our volume in the channel increased, our cost to collect came down. In 2012, our cost to collect was over 80%, and this year it dropped significantly.

In our 10-K, which we filed earlier today, we have broken out our legal cost to collect between our external and internal legal channels. This provides you with more visibility into our progress in reducing cost to collect in our internal legal channel.

I would 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 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 for a quarter, and continued investments in operating platform expanded the operating leverage in the quarter. This growth in collections and cost improvement led to improved cash flows, with 2013 adjusted EBITDA increasing 36% over last year to $784 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 gives investors a clear picture of the strong cash flow generated by our business.

Our estimated remaining collections, or ERC, at year end doubled, compared with the fourth quarter of 2012, driven by acquisitions of Asset Acceptance and Cabot. 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.

Turning to Cabot, for the year the business contributed $9 million to Encore's 2013 results, which is the equivalent of $0.36 of economic earnings per share. Remember that we own our interest in Cabot, together with our partner, J.C. Flowers. Cabot's contribution to Encore's profit is calculated by backing out J.C. Flower's and management's interest, and the preferred equity certificates attributable to Encore, which eliminate in consolidation.

Propel continues to grow and mature as a business. As I mentioned earlier, Propel completed a $35 million acquisition of a competitor in Texas. Like Encore, we believe that Propel will be a consolidator in its market. The other competitors in the Texas tax lien space are privately-held, and so precise numbers are not available, but we estimate that after this acquisition, Propel has just under a 50% market share in the Texas tax lien market.

Propel continues to deploy capital in other states acquiring tax liens, and at the end of the year Propel is deploying capital in ten states. As you can see, Propel is an increasingly more important contributor to Encore, and we expect this trend to continue in 2014.

To fully understand our overall results, there were certain one-time and non-cash items which affected our results this year. We had $0.04 related to the non-cash interest costs associated with our convertible notes, and $0.10 of one-time acquisition-related and advisory fees, which amounted to $0.14 per share. After adjusting for these, we ended up with $1.01 per share fully diluted on a GAAP basis, and $1.05 on a non-GAAP economic basis.

As you recall, in 2012 we issued $115 million in convertible notes at 3%, with a conversion premium of $31.56. At the time of this issuance, we entered into a call spread transaction which increased that conversion premium to $44.19.

For accounting purposes, if our share price exceeds $31.56, we are required to include shares that would be issued pursuant to the convert in our diluted share count. But since we entered into the call spread, we will only issue shares when our stock price exceeds $44.19.

Our average stock price during the quarter was $47.57, which resulted in 1,041,000 shares used to calculate EPS that, together with the repricing of the call spread which I will discuss in a minute, will never be issued. As such, in calculating economic EPS, we have not included those shares in our calculations, which increases EPS by $0.04 to $1.05 per share for the quarter.

We paid $11.6 million for the call spread, which protected us from economic dilution from $31.56 to $44.19. This represents about 1 million shares that we would have to -- we would of had to have issued, had we not entered into the call spread.

Late last year, recognizing that our stock price was in excess of the $44.19, and expecting it to increase beyond that prior to the maturity of the convertible note, we evaluated alternatives to protect our shareholders from dilution at stock prices above $44.19. We concluded that the best alternative was to enter into equity derivative transactions that effectively protect us from dilution up to $60 per share. We completed these transactions a couple of weeks ago at a total cost of $28 million.

That investment would save almost 700,000 additional shares, and the value of shares that would not be outstanding, at a stock price of $60 per share. As stewards of your capital, and with our strong views about the strength of our business and our future share price, we thought it prudent to protect from the dilution of the convert, so we entered into amended call spread, resulting in savings significantly greater than the cost. I want to remind you that with our 2013 convert of $172.5 million, we entered into a [capped] call transaction, which increased the economic conversion for $45.72 to $61.55.

There were also similar one-time and non-cash items that affected our results for the full year. We had $0.12 related to the non-cash interest costs associated with our convertible notes, and $0.71 of one-time acquisition-related and advisory fees, which together amounted to $0.83 per share. After adjusting for these, we ended up the year with $3.77 per share on a GAAP basis, and $3.86 on an economic non-GAAP basis.

I would also like to note that during 2013, we saw the resolution of outstanding items in our discontinued operations of Ascension Capital Group. We recognized costs of $0.07 per share to resolve some legacy contractual claims, and for costs related to the Ascension lease.

In order to support our future growth, we made a number of important modifications to our credit agreement. We increased our commitments by approximately $100 million, which brings our facility to more than $840 million, with the ability to add another $250 million through an accordion feature.

We extended the term of the facility to February 2019, replenished our ability to issue junior debt, and increased many of our baskets to reflect our recent growth. Specifically, we increased our ability to raise debt at Propel to $400 million, so that we can continue the strong growth we are experiencing there, and increased our ability to acquire foreign portfolios to $200 million, which will enable us to capitalize on the opportunities we are seeing at Refinancia and Grove.

We value the trust that our banking partners have placed in our Company and our growth strategy, and cannot continue to grow without their support. At this time, I would like to hand the call back to Ken for some closing comments.

Thanks, Paul. As you can see 2013, and first part of 2014, have been very busy times at our Company. We continue to position Encore to be successful on a go-forward basis.

Looking ahead, we are confident in Encore's long-term prospects and our culture of continuous improvement, which drives ever-improving performance, as demonstrated by our strong operating results and capital deployment.

We continue to enhance our ability to take advantage of new opportunities, as a result of our strong liquidity and solid access to capital. This quarter and the full year's results demonstrate that our acquisition activities continue to drive strong growth in cash flow, ERC, and profit.

Lastly, with our recent geographic and asset diversification, we are now truly a global company with investments in several asset classes and geographies, which positions us for strong earnings growth in 2014 and beyond. And with that, Operator, please open up the line, and we would be happy answer any questions.

Thank you.

(Operator Instructions)

Our first question comes from the line of Robert Dodd of Raymond James. Your line is now open.

Hello. Congratulations on all the acquisitions, (inaudible) you have been very busy. Could you give us anymore color on just the reporting that we are going to see? Obviously, I have got to do some (inaudible) that we model them on, Grove and Refinancia, particularly. You said, Encore will be purchasing those, and outsourcing the services.

So how are those going to be held? Are they going to be held by the US entity? And are you going to separate out an international segment or break it out by geography? Any more color you can give us there, would be very helpful at this point?

Grove and Refinancia will be held by the US company, but through the a Luxembourg subsidiary in Grove's case and a Columbian subsidiary in Refinancia's case. We will be consolidating the operations of both Grove and Refinancia, and we will show a non-controlling interest for that portion of those businesses which we don't own.

The portfolio that we acquire for both of those entities, will again be held in SPVs. So we won't be doing capital deployment through either Grove or Refinancia, but they will be done through SPVs. Encore will be deploying all the capital associated with Refinancia and the bulk of the capital associated with Grove, although Grove's minority shareholders will participate in some of those purchases with us.

From a reporting perspective, we are likely to show UK operations, we will show as it gets material, separating between bankruptcy and non-bankruptcy as we do in the United States. For Refinancia, until it becomes material it will likely just be included within our core operations. But at a point in time where it becomes larger as a percentage of our business, then we would break it out.

Great. Thank you.

On Refinancia, there were some comments that you made, some comments about the defactoring a little bit of credit card product, et cetera, and maybe that could be expanded to your other geographies. Any color on timing? Obviously, it is very, very early days, it is a small business, and there is a lot of work to be done. But that's obviously, could be some significant incremental products added to either the UK or the US market. Can you give us more color there?

Yes. You are right.

There is great opportunity to deploy their knowledge base throughout the rest of our companies and geographies. We just closed on Refinancia December 1, so we are in the infancy of understanding what they are doing. Their credit card book of business literally is under 2,000 accounts. What we see is, we love it, but that is just 2,000 accounts.

We like what they are doing with their factoring and check guaranteeing business for merchants in Columbia. My guess is, as we look to move out of Columbia and Peru into Brazil, that will be some of the first places you will see us take those products, and extend them out into Latin America first. Lending is always something we chat about here, and we will probably have a little more comment about that as we get closer to our Investor Day. But I think you are going to see a slow roll out of most of the services of Refinancia at first.

Okay. Perfect. I will hop back into queue. Thanks.

Okay. Thank you.

Thank you. Our next question comes from the line of Bob Napoli of William Blair. Your line is now open.

Thank you. Gee, not much to ask questions about this quarter. (Laughter). Did I hear you say you did a Propel deal as well, that Propel bought a competitor?

Yes, they bought a small competitor, $35 million, which while small in size really moves Propel's EPS contribution in 2014 for the Company. So but, Propel, whether it be Propel, whether it be Cabot, Refinancia, Grove, we buy these deals, we buy these companies with ability to grow organically, and have the right platform that we can consolidate upon. And Propel is a good example of that, as we see consolidation in the Texas tax lien transfer business.

So you bought an account of $35 million portfolio?

Well, largely it was a portfolio. There is, I mean, the bulk of that $35 million was allocated to the portfolio. There was a few million dollars that was allocated were -- (Multiple Speakers). It was largely the portfolio.

Then the IVA deal with Grove, what did they, what did Grove have before -- what kind of history do you have, and what kind of volume do you expect? I mean, you have already started purchasing out of Grove you said, so what kind of purchase volume do you expect out of Grove?

So just to be clear. We started purchasing with Refinancia. With Grove, they -- we expect them to deploy $50 million going forward on an annual basis, could be a little more depending on the market size. And --

What did they do in the past? How long have they been doing it?

They have been doing it for several years, about three years. They have deployed over GBP100 million to date, and they -- we put it in other SPVs. So on day one, when we buy management company, we will be getting 68% of the management fees that support the servicing of SPVs. But going forward, as we do deals, we will get the bulk of earnings from those deals. The Grove existing shareholders have the right to tag along with us and invest if they wish.

And just to get a feeling -- your target to grow earnings by 15%. Now you said, this year your adjusted earnings per share was $3.86, and that is the number you would expect to grow, you would hope to grow by 15% in 2014?

That's correct.

What gives you confidence that in the US that you are going to see JPMorgan, Bank of America, Wells back in the market?

Well, I will say two out of those three, I don't think are coming back into the market in 2014. And if they do, it would be the end of 2014, most probably early 2015. One of those three has been rumored to be coming back for sometime, but has yet to show up.

So a couple reasons why we have confidence. Number one, we saw this trend early on, and hence we got ahead of it by buying Asset with a very strong multiple, and Asset continues to be a strong contributor to our earnings as we move throughout 2014.

Second, Cabot was another reason, another reason we purchased Cabot was to get ahead of the slowdown that we saw in the US in terms of supply. So supply is contracting. There is some scarcity value. Pricing is being elevated. Returns are coming down.

But between Asset and Cabot, we saw better returns and better opportunities to deploy our monies there. And then, as we said about two weeks ago, now it seems almost a lifetime. But when we announced the Marlin deal, that we are going to use some of the Marlin EPS that we are going to generate to ensure that we grow 15% this year.

So we will be a little less dependent on the US It doesn't mean we're going to be absent the US market at all. We have been actually very active so far. But it gives us, as I said earlier, optionality to move into different markets and different geographies.

And then last question, on the deal for Refinancia, how long have they been in business, and what kind of history database do you have? What is the market like there? What are the returns like? What kind of database do you have? So how long have they been in business?

What do you see as IRRs there versus other places in the world, and how confident are you? I mean, how much history gives you how much confidence, I guess?

Yes. So we will split this question up between Paul and I. But on the return side, we have been investing with them for the last year plus. And what I will say, is the IRR returns are far in excess of what we are seeing in the US and the UK.

The best way I can describe them as, they are juicy. Okay? That is why we like being in the market. They have to date, I think have deployed about $165 million in different SPVs.

So much like Grove, that we are buying the management company, in which we will get 50% of the income for the management company, but we get 100% of the deployment of the capital. Do you want to do some other?

They have been around, Bob, for about seven or eight years or so, and have been ramping up their deployment of capital in both of those markets. So they have got a very long history of deploying capital, and similar to our approach, they are valuing portfolios at the consumer level. They are making decisions around how to collect at the consumer level.

So they share a lot of our perspective, on both analytics, cost efficiencies and on treating consumers fairly. So there were a lot of things that aligned, as we started having discussions nearly two years ago with them, about potentially doing something together.

I wanted to bring out one thing with Refinancia. What is different, with acquisitions sometimes, there is always a short period to get to know them. So basically you get married, and then you learn to fall in love with acquisitions.

With Refinancia, since we have been working with them for over a year, maybe closer to a year and a half, working with them in valuing portfolios, and working with them -- their investment committee working with our investment committee, we really had a long lead time to get to know them and understand how they think, and to trade best practices and understand markets between Encore and Refinancia. So what I like about the transaction is that we really had a long look into their business for a little over a year, maybe a year and a half.

And how much do you think you will buy out of Refinancia this year? I mean, just -- (Multiple Speakers).

We think will do about $40 million. And they own -- the market share position in Columbia is about 39%, and the market share position in Peru, because they also do business in Peru, is 56% I think. I will have to give you a quote on that, but I think it's 56% in Peru. Sorry, 54% for Peru.

Great. Thank you very much.

Thank you.

Thank you. Our next question comes from David Scharf of JMP Securities. Your line is now open.

Good afternoon. Boy, once again, where to start?

Ken and Paul, I wonder if you can comment on actually the UK pricing environment? Because obviously, not just Encore, but along with your other public competitor, you have seen five acquisitions entering that market in a short period of time. Plus you have got Arrow as a newly-minted public company there, so a lot of capital flowing into that market. Have you yet to see that manifest itself in any other kind of the pricing pressures that you have seen in the US, but (inaudible) for different reasons?

Yes. So far mixed, certain bids, not much pressure, certain bids, you are beginning to see pressure. But I would suggest that much like the US market, over time you will see elevated pricing as new entries into the market, and people that are public or companies that expect to go public, there is a pipeline of rumors of who is going to be coming, will look to all feed their multiples or projected multiples. And it would not surprise me, if pricing would continue to stay elevated, and returns will come down somewhat.

Offsetting that, is that there is a greater supply in the UK coming out today, and there is a greater stock of supply that has to be released as well, as UK banks try to come under the new capital levels. So that should offset some of the pricing pressure. But I think you should expect over time, that the market will follow something of the model of the US. I don't think it is going to move as quickly as the US. But over time, I think it will look a little bit more like the US

And David, one of the reasons that we were focused on -- executing on the Marlin acquisition was so we had a full suite of collection strategies that we could bring to bear. So we have the call center and the expertise of Cabot in the semi-performing space. Encore brings to that India, which enables us to collect older portfolio, lower balance portfolio, and semi-performing portfolio at a lower cost.

Marlin brings a litigation platform, which allows us to collect on a significant volume of accounts, that frankly prior to the acquisition of Marlin we wouldn't be able to generate any net liquidation from. So Marlin adds, both a lot to our existing ERC. But also as we go forward and bid, we are going to have the benefit of all of the strategies for generating liquidation, and that will result in what we believe to be better yields than others will be able to sustain in that market.

So I should, David, it is an interesting question, and let me just add one last thing. The difference between the UK market and the US, at least for us, we are buying a lot of semi performing paper in the UK. So once you get that paper, you have it for the next ten years, and it is paying over time.

So we kind of anticipated that a little bit, and wanted to be one of the first to move in the market, in order to take advantage of that. And then look to use our Cabot operations, sorry, India Cabot operations is the way we are describing it, to continue to lower our cost base, so that we can remain competitive.

Got it. Got it.

And you gave the expected capital deployment for Refinancia and Grove, and I know Cabot had been putting about GBP100 million to use per year, I guess, leading up to the acquisition. What kind of figure from Marlin should we be thinking about this year?

What we will do as we do every year, David, is give you a sense of total deployment, and we will split it by geographies at our Investor Day on June 5.

Got it.

We will talk about Propel, talk about Cabot and Marlin, and also have more color on where Grove and Refinancia will be.

Okay. And switching to the US, back to the question Bob asked, about whether we see some big sellers return to the market. I have been talking to a number of collection companies and debt buyers, and it seems like some are insinuating that the banks are more focused on getting CFPB rulemaking out of the way, once there is some clarity. There is a road map for a hopefully a quick return to the market. Others are saying that, no, it is really the OCC guidelines dating back to last year, that they are still vague enough and open-ended enough, that the banks just seem to be caught in some inertia.

I mean, do you have an opinion? Are you getting feedback from the banks? Are they all different? Are they all focused on kind of one thing more than the other? Because I am trying to get a sense, ultimately of what might be the catalyst for a return to the market?

Yes. So I will say, right now, things are quiet, which is nice. We have had about 11 issuer audits in the last quarter, did very well with them. And we seem to be -- and all issuers seem to be saying, that there is only going to be a handful of people that they are going sell to, and we are one of them.

So that is our good news. The -- what comes first, CFPB or the OCC? A little hard to say, and it is almost on a sort of point by point basis.

But if I had to make a generalization I would say, the banks are being driven more by the OCC -- or the OCC is probably taking some input, or taking some suggestions from the CFPB. But hard for me to see it, fully sitting here.

What we do is we respond to the risk metrics, and the compliance questions and issues that they have for us. And we respond for it that way, and we are really not asking, who is asking the ultimate question. But my guess, is the OCC is probably taking a little bit more of a lead there. But that is just a former banker taking a guess.

Our focus is to make sure that, whenever the issuers that are on the sidelines do come back to the market, we have done everything that we need to up to that point. So that there is no question that Encore is on the very short list to sell to. So when they are ready to come back, we will be positioned to buy from them.

Got it. And since the latest round of audits, these 11 that occurred in the last quarter -- I know this was a hot topic a quarter ago, but I will kind of have to throw it out again. Have any of them taken a harder look at the offshoring commentary, any way in the guidelines?

No, I think we gave you guidance last time that there were two banks that wanted to do onshoring, and we are going to accommodate them. One of those two hasn't really come to the market, so there hasn't been much accommodation yet.

But we will accommodate them, and I think some of that is just temporary for them, and eventually, once they get through a couple of rounds of buying with us, will get them comfortable. Hopefully, we will get them comfortable with India, and this won't be an issue. So there hasn't been anymore conversation really, since the last time we have discussed this.

Great, great. And speaking of India, is it too early Ken to gauge whether or not, the Indian-based collection efforts for Cabot are running as expected? I know it is very early in the process, and when the Company first moved to India, there was a long period of trial and error, but any observations so far?

Yes, we had our morning meeting about it today. So it has been three weeks up and running. And so, I will give you some general facts, because percentages will move too quickly in the early stages. But we are, we Cabot India, are performing better than the standards Cabot has set for both collections and quality.

Now we are trying to determine, was it because we had some of our best collectors, or is it that we really got some of the nuances down, and we are really beginning to make a lot of progress? So we are proud that what was going to happen, getting Cabot India up and running at the end of Q1, was moved to January 20.

And we will have a little more to say about that as time goes on, but right now all the initial indications are pretty positive. But as I said, it is still a small sample group, and we are learning our way through this, but I like what I am hearing.

Got it. And Paul, just to confirm, when asked about how things are going to be reported going forward in the Qs that come out this year, are we just going to see vintage analysis by country? I mean, is there basically going to be a US core and bankruptcy, and then a UK consolidated?

No, as it becomes material, there will be the UK, core and bankruptcy as well, so that we can show the differences between the two.

But does the -- but would we expect Cabot, Marlin and Grove all to be consolidated initially?

Initially, it will be. When Grove, when IVAs become more material, then we will break it out.

Okay. And then, it sounds like Refinancia will actually be captured in the US?

That's right, and that is where it has been captured since we started acquiring portfolios in Columbia and Peru, which the first one we did was over a year ago.

Yes. And I will just correct you on one thing. Cabot and Marlin is just one company, so we are not differentiating what is coming from Marlin now, or what is coming from Cabot. We will be out there in two weeks from now, or three weeks from now, to do the board meeting, our first combined board meeting to set new budgets and what have you.

There will just be one number we are going to be looking for. So we are not going to be dividing this between Marlin and Cabot. We are going to talk about it as just one company.

Got it. Got it. Thanks very much.

Okay. Thanks.

You're welcome.

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

Thank you. I just got a question about how much you paid for Grove and Refinancia? I apologize if it is in the slides, or if I missed that. I was just trying to get a sense for the multiple as a percentage of ERC? I don't know if you have that handy, but I was just trying to calculate some of the metrics there, if you would share those?

So we talked about the purchase price for Refinancia, which was about $15 million, a little bit less. But that was, that is effectively primary equity going into the business. So the owners of that -- of Refinancia did not take any money off the table. So that went directly into the business. Grove is largely a servicer, though there is about $10 million or so of ERC that we will get with that transaction. But it is largely the acquisition of a servicing platform.

With Grove, we didn't disclose specifically what the purchase price was for that. It is less than Refinancia, but again we are just acquiring a servicing platform, and we are not getting a portfolio. Because Grove, the capital invested in acquiring IVAs were done through SPVs, and then serviced by Grove, which is how we will be doing it going forward.

Okay. That's helpful.

And then, in terms of the operations in Peru and Columbia, I mean, is the thinking that with the acquisition of Refinancia, maybe there are some things you could take from those two markets, and then apply them to the India market? And as you said you start purchasing paper I think later this year, do you find those markets to be fairly similar where, or are those quite different?

Interesting question. I don't think we have any answer to that yet. We are still in the process of setting up the Indian business. It's complicated rules there, and we probably won't know anything for certain if there is any cross learnings to be shared, until sometime into 2015. We won't probably be good to go with the Indian business, until the very, very back part of the end of the year. So if we buy a few dollars at the end of the year, great.

But it's really, you will see most of our buying happening in 2015. And that market is slightly different, and we will explain what that market looks like again on Investor Day. But I don't necessarily know that there is going to be any initial learnings that we are going to be able to swap.

I think maybe, over time it is going to be interesting to see the analytic group of Marlin, Cabot, Encore and Refinancia begin to share stuff. We are hoping that there is going to be knowledge transfer there. But we will wait and see on that, and we will give you more color as we go along.

And as Ken mentioned earlier, I think the learnings are likely to come from the three lending businesses that Refinancia has. And as we continue to learn more about that, seeing how we can apply those products and offerings to other parts of our business.

Okay. Thank you. And then, just to think about purchasing. I think, Paul in the US, I think -- I believe you said your deployed work was $97 million this -- in the fourth quarter for purchases? Is that right?

Yes, that's for our core business and for Propel.

And for Propel. So should we expect that to be roughly the run rate going forward? Because Propel was an acquisition that you made in Texas. So let the ex Propel, if you were to just look at the core purchased receivables market, would you expect that to go down in 2014, just given pricing environment? Or stable offset by growth in Propel and some of the other acquisitions? I mean, I am just trying to get a handle on how to think about purchases in the core US market in 2014?

What we have done every year is provide more detailed guidance on purchasing at the Investor Day in June, because we do see opportunities from issuers. We also see a lot of consolidation in the market, and some of the smaller competitors are making decisions to exit the market. We are able to execute on the Asset deal last year, which was a large competitor exiting the market. But the -- getting clarity on a specific number will depend on how many of those come to market, whether we are successful at any of those. So we will have some good clarity on our US deployment at our Investor Day.

I think for now, we did give some general guidance on what should be a typical year for capital deployment in each one of our markets. We gave that last June, what it should be on an ongoing basis, and nothing has changed since then. But to get specific on where it will be this year, I think we will give you more guidance in June.

Okay. Fair enough.

And then, in terms of capital management, I mean you have made these acquisitions, to diversify and give you the optionality, if your largest competitor is doing the same thing. But at what point, do you feel, because you brought these parts of stakes in companies, and it seems like buying out the remaining stakes also at some point could make sense for you, could deliver maybe some sort of EPS benefit, depending on how those acquisitions are funded.

But on the flip side, you also have with all this cash coming in, the opportunity to buy back stock? So again, as we look at the next year or two, is the assumption that you will probably exercise your option to pull the trigger on some of the other remaining stakes that you have, that you haven't already acquired? And that we still buyback for stock still kind of way off the table for the foreseeable future? Is that the way to think about that?

I think you have that right. Right now, if the acquisitions perform the way we expect it, we would expect over the next couple years to be buying up our positions in Cabot and in Refinancia and Grove. And as long as those returns are far better than the returns of buying back our stock, I think that is the path we are going to go down.

Okay. All right. Well, thank you very much.

Thank you.

Thanks, Sameer.

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

Thank you very much. What should we expect in the non-controlling interest line, also the tax rate going forward?

I don't know if there is anything we can expect from the non-controlling interest line. What I would say, Mark, is that we have shown what the contribution is from Cabot for the last two quarters of this year, and I think that will continue into 2014.

Our goal is with the acquisition of Marlin that should improve, from where it was the back half of this year. And from a tax rate perspective, it is going to be in the 39% range, give or take as things move from quarter to quarter. But it will be somewhere in that ballpark.

Do you have a little more specifics on the degree of the inflation in the cost of the portfolios in the fourth quarter, was it a continuation of the trend that you had seen? Was it a significant acceleration? How would you characterize it?

I would just say a continuation of the trend. I think you all know the influences that all come play together, the less supply, two major issuers clearly out of the market, another one not coming back to the market yet.

You still have some smaller guys hanging around the hoop, as I would call it, trying to put some bids in, and pushing the price up somewhat. So I think those are all the things that are happening in the market, and the pricing hasn't come down and continues to move up.

To be clear, you said that the Refinancia had collected on $165 million in different SPVs. Is that right?

Collecting on.

That is how much capital they have deployed over the years.

Right. And --

We don't get any of that, just to be clear --

Right. (Multiple Speakers).

The income from the servicing fees, but --

Because of the depth of experience, I guess?

Yes, that's correct.

And then, did you give a similar number for Grove?

They have deployed about GBP100 million and, over a three-year period.

Right. How about supply? Could you be a little more specific about supply in the fourth quarter? What you saw? You obviously didn't buy much that in the domestic core market. Was that because it just wasn't there, or you were anticipating other capital deployment? How was 4Q specifically, and do you think the market overall in 2014, what do you anticipate in terms of the supply compared to 2013?

Yes. I would say that supply was down somewhat compared to fourth quarter of 2012. And for us, the story that we told you in the middle of the year with Asset, which is we would be selective about what we want to bid on all during the course of the year, continued to play out in Q4.

Having said that, there were portfolios that we lost for some irrational pricing, that we did not follow with. But we were I will say, protected with the purchase that we made with Asset and then with the purchase of Cabot. So going forward, if I might -- supply is the hardest thing to gauge. I will just say that. But my guess, is supply would probably be constant -- equal to 2013 as we go forward.

And to be clear, that is in the US market?

US market, that was your question, right?

That's right. And then growing in other markets?

We think there is a faster -- there is certainly faster growth rate in the UK, and in Columbia and Peru.

Thank you.

Thank you.

(Operator Instructions)

Our next question comes from Bob Napoli of William Blair. Your line is now open.

Just quickly the, what is the economic share count?

Let me look that up, Bob, and I will --

While you are looking that up, a question on the IVA market and the returns on IVA? What kind, I mean, if the IVA is it -- I mean, is it like bankruptcy market, is it very, very similar to the US bankruptcy market in the way that it works?

It is actually a little bit different in the way that it works. There are, I guess, similar to trustees, but their IPs are insolvency practitioners that look at consumers overall debt, and then negotiate with the creditors around that.

So it is relatively similar to a 13, but it is not as formalized through a court system like a -- like the US market is. And then, 27.1 million is your economic share count.

Okay. And the returns on IVAs?

The returns on IVAs are, our belief is better than the returns on 13s are in the US market.

But not as high of a return as core business in UK, I guess, if you --?

That's correct.

Okay. And then, what is the other revenue, $6 million this quarter, and a couple million dollars last quarter? Where does that come from?

That is largely going to be servicing revenues.

Yes. So Cabot has services portfolios for other banks. Refinancia does some of that as well. So you will see that show up in that number.

Okay. And then, just last question. In the US competitive environment, so what you are seeing, are you seeing ten competitors that you are bidding against? What does that compare to a year ago?

Are there some players do you feel like are just hanging on, that are still buying paper? I mean, are there some bigger private companies that are out there, that are being more aggressive that you feel like might go away? I don't know?

It is interesting. We have seen some deals where it has been open to as many as ten folks, and we have seen some deals where it has just come down to two or three folks. So I think over the longer trend, the issuers as they get more comfortable -- I will say it just this way. The issuers have said to us, over a longer period of time, it will just be three or four players that are going to basically bid. Today there are a few players that can still sneak in there, as I said still hanging around the hoop, and make some bids that get them to the party.

But we do believe, Bob, that there will be continued consolidation, and we do believe that there are companies that are bidding to negative returns, and that can't be sustained for a long period of time. It's similar to -- the last time we saw this in the cycle, I think we were pretty vocal about the fact that, there are certain players out there that won't be around for the long haul. And that was the case then, and that will probably be the case again now.

Okay. Thank you very much.

Sure.

You're welcome.

Thank you. Our next question comes from David Scharf of JMP Securities. Your line is now open.

Hello. Just a few other ones. One just to clarify. The capital deployment of Propel, the $45 million, that included the acquisition, correct?

Yes.

I mean, okay, that was effectively sort of $10 million core plus $35 million --?

It was about -- of the $35 million, $29 million or so is allocated to the portfolio. So it's $15 million and $29 million.

Got it. Got it. And could you run through, remind us. With the terms of the investment with Flowers and Cabot, which is now Marlin, as well as Refinancia and Grove, what are the triggers or the options for you to take up your ownership stake from the current majority, but not full interest? Or are there any?

Each deal is a little bit different. The one we talked about at length because of the size of it, was the Cabot deal with Flowers. At a certain point in time, they are obligated to offer us to acquire their interest, and then there are various mechanisms to determine what the appropriate price would be. But the goal is that it would be at fair market value.

So there are trigger points at various times, which would ultimately in our view, result in us owning100% of that business. With Grove, again it will be, it will be similar, probably on a faster time frame than Cabot, at least contractually on a faster time frame than Cabot, that would enable us to own 100% of the business.

Refinancia is a little bit different, where we would increase our ownership stake, but potentially not get to -- potentially not get to 100% as quickly as we would with the others. But we would increase beyond the 50% over a couple -- after a couple years. So it is different for each one, and all those agreements David, are filed as part of our 10-K. So that you can go in and look at the specific mechanisms for each one.

Got it, got it. Lastly, just on the US market once again, where are all the charge-offs now? I mean, are the banks still outsourcing as much to collection agencies? Are they picking up the amount of placements since they are selling less, or are they still just kind of -- or are they working more and more of it in-house?

I think there is a little bit of all three that is happening. But the charge offs are coming just from handful of players, major players.

And like the regulatory pressure on our business, there is also similar regulatory pressure on the agencies that service the debt. So many of the issuers are culling their agency network from many, many contingent agencies, to just a handful of contingent agencies. So that is shrinking as well. So there is definitely contraction across the system.

And in just thinking ahead strategically, I mean, the agency business has just been a sectorally a tougher and tougher one for the last 10, 15 years. But if this new regulatory regime is such that, suddenly the number of agencies that are permitted, if you will, shrinks. Is that a business you would ever get back into?

I think there are other businesses that we see that have far better returns that are more exciting to us, and the agency business is not one that, on the top of our list at this time.

That's good to hear. Thank you. (Laughter).

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

Any updates on how much of the Marlin purchase price will be allocated to the portfolios versus other?

We will report that in our Q1, 10-Q, so early May. Stay tuned until early May.

If we wanted do sort of a simple ERC-based calculation, would the portfolios be coming in at like 2 times? Something less? Something more?

I think if you did, what we did for Cabot, it is a good enough swag for purposes of modeling.

And what was that?

We actually published that in our -- in the Q that we -- it's in the K, and it was also published in the Q, that we -- our third quarter Q, so we have the allocation of the purchase price. So it will be, I mean, it is complicated, Mark, because of the tax situation and deferred taxes, which have an impact on goodwill and allocations of the portfolio.

So it is -- I think if you looked the best way do it is to look at the ERC, assume a cost to collect, assume that return associated with that, and you can sort of re-engineer Cabot's that way, and then apply that percentage to Marlin's ERC, and you will come up with something that won't be too far out of the ballpark.

Thank you.

Thank you. I am showing no further questions at this time. I would like to hand the call back over to Ken Vecchione.

Thank you. Listen, thanks a lot for joining us today, a little longer call than normal. We had a lot to report on. Good questions, and we look forward to our next conference call with you. Thanks, again.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day everyone.