Good day, ladies and gentlemen, and welcome to the Encore Capital Group Q3 2014 Quarterly Earnings Conference Call. [Operator Instructions] As a reminder, this call will be recorded. I would now like to introduce your host for today's conference, Mr. Bruce Thomas, Vice President of Investor Relations for Encore. Please go ahead.

Thank you, operator. Good afternoon, and welcome to Encore Capital Group's Third Quarter 2014 Earnings Call. With me on the call today are Ken Vecchione, our President and Chief Executive Officer; Paul Grinberg, our Executive Vice President and Chief Financial Officer; and Jonathan Clarke, who was recently appointed to the role of Executive Vice President and Chief Financial Officer of our Midland Credit Management Business, and who will become Chief Financial Officer of Encore Capital in early 2015 after a transition period. Ken and Paul will make prepared remarks today 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 the conference call will be between the third quarter of 2014 and the third 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 and especially our most recent Form 10-K and Form 10-Q for a detailed discussion of potential risks and uncertainties. During this call, we will use a 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. I'd also like to add that we've recently upgraded the Investors section of our website and invite you to visit us online at encorecapital.com. With that, let me turn the call over to Ken Vecchione, our President and Chief Executive Officer

Thank you, Bruce, and good afternoon. I appreciate everyone joining us for a discussion of our third quarter results. I'd like to acknowledge the hard work and dedication of the people of Encore for delivering another quarter of solid financial performance and recognize their efforts as we work together to build our global business. Before I get started, I'd like to provide some context to the third quarter's earnings. This quarter, we focused on driving growth from our core business and through our recent acquisitions. Where appropriate, we continue to drive cross-organizational synergies while maintaining our focus on worldwide collections and capital deployment. The Atlantic Credit Financial (sic) [Atlantic Credit & Finance] purchase, which we've previously announced, closed in August and provides us greater collection and deployment opportunity in the high-balance fresh paper channel. Now for the results. Encore's third quarter GAAP EPS rose to a record $1.11 per share compared to $0.82 per share in the third quarter of 2013. Excluding onetime items and convertible noncash interest, non-GAAP economic EPS was a record $1.17 per share compared to $1.02 per share, an increase of 15% from the third quarter of 2013. GAAP net income for the quarter was $30 million, and adjusted income was $31 million, or 15% greater than the same quarter last year. Cash collections increased 7% to a near-record $407 million. This increase was driven primarily by strong performances of our recent acquisition. Adjusted EBITDA was $252 million, an increase of 9%. Our overall cost-to-collect this quarter was 38.7%, reflecting the favorable impact of our European subsidiaries in our results this year. Our estimated remaining collections or ERC, at September 30 was approximately $5.1 billion, an increase of $1.1 billion or 27% compared to the end of the third quarter a year ago. During the quarter,…

Thank you, Ken. Jonathan and I have already spent a lot of time together over the last few weeks, and I'm anticipating a very smooth transition. As Ken discussed, we had a very productive third quarter, reflecting strong performance from our recent acquisitions, and our core business continues to deliver strong contributions to our bottom line. Before I go into our financial results in detail, I would just like to remind you that, as required by U.S. GAAP, we are showing 100% of Cabot, Grove and Refinancia's results in our financial statements. Where indicated, we will adjust the numbers to account for non-controlling interest. We generated $407 million of collections in the third quarter. This performance reflects the steady execution of our collections operation and, in particular, the continued growth of our operations outside of the U.S. 1/4 of our total collections, $102 million, were generated from accounts in the U.K. compared to 18% of our total collections in Q3 of 2013. For the quarter, our call centers contributed 46% of total collections or $189 million compared to $157 million in Q3 of 2013. Legal channel collections accounted for 41% of total collections and grew to $166 million in the third quarter compared to $154 million in 2013. Collection agencies accounted for 13% of total collections and declined to $53 million in the third quarter compared to $69 million in 2013, which was the quarter after we acquired Asset Acceptance and, therefore, had a disproportionate amount of related collections handled through their agencies. In addition, keep in mind that, for some of Cabot's purchases, we are contractually required to keep accounts with certain collection agencies for a period of time. When excluding the collections made by agencies on behalf of Cabot, only 5% of collections in the quarter came from…

Thanks, Paul. The Encore team delivered great third quarter performance, and as you've seen from our continued progress on the acquisition front and in our capital deployment, we are broadening our capabilities, deepening our understanding of our markets, and through our operational execution, we are providing ourselves with the flexibility to enter new markets and geographies while positioning ourselves better to navigate the challenging dynamics in our traditional markets. As a result of all of these efforts, we are evolving into an increasingly diverse international specialty finance company. Now we'd be happy to answer any questions that you may have. Operator, would you please open up the lines?

[Operator Instructions] Our first question comes from David Scharf with JMP Securities.

First off, Ken, maybe more just kind of a very big-picture question, setting aside just all the numbers. Is it fair to say that your commentary this quarter, as it relates to pretty much most major issues, U.S. supply, pricing, foreign competition, collection environment, regulatory outlook, is this pretty much a replay of 3 months ago? It sounds like most of the core drivers and -- in metrics and outlook are pretty much the same, which I would take to be a positive. I just want to make sure I'm not missing anything.

No, no, Dave, I think that's exactly right. This quarter, for us as a company, was more on focusing on having the integration of the acquisitions and continuing to focus on the core and have the core produce the results that we wanted to produce. Really, nothing has changed quarter-to-quarter on the market side on pricing. It's, as I said, stayed flat to slightly down. Occasionally, you'll see the weird price coming in from a small player that may lift the pricing of a portfolio. But so far, the trend has been flat to slightly down, which we -- which we're pleased with. And basically, it's -- I want to say business as usual, whether it's in the U.S. or in the U.K. markets. We're just looking to execute against what we've already acquired.

Got it. Got it. That's helpful. And just curious, as it relates to the U.S. market, I kind of feel like I have to ask it every quarter, but as loss rates in a lot of consumer credit products remain quite low and employment continues to tick up modestly, is there any discernible change in the collection environment that's more positively skewed?

No. I mean, it looks the same every quarter in and out for us. It really hasn't changed much.

Got it, okay. And I just want to make sure, the capital deployment, the non-Propel, just on the core finance receivables, the $299.5 million, does that include anything that came over with ACF? Or was that, for better purposes, in sort of an organic number?

No, there were some things that came over with ACF. And of course, we have -- we now have some of the ACF's forward flows in our numbers and projected to be in our numbers for Q4 as well.

Dave, $105 million was allocated to the Atlantic portfolio as part of that transaction, so included in that number was $105 million for Atlantic.

Okay, I got it. And then, I heard, for the U.K., it was how much, $109 million?

Yes. It was $93 million at Cabot and then $16 million at Grove.

Our next question comes from Mark Hughes with SunTrust.

When you look at the receivables, year-over-year, they are up about 30%. If you look at expected remaining collections, up about 27%. If you look at collections, up about 7%. Can you talk about that? I know that there are mix issues in there, that the -- some of the European portfolios, the collections are more spread out. But is there anything there that we should think about in terms of higher pricing on portfolios maybe dampening collections? How should we look at those numbers?

Mark, actually, the largest driver for the collections was the fact that, on June 13, 2013, we completed the Asset acquisition. And unlike most other purchases that we do, a significant portion of that portfolio were payers. And so there were a lot of collections coming off of that portfolio immediately after that acquisition, which drove collections in Q3 '13 much higher than they would have been otherwise. So the growth in collections of only 7% is not a reflection of slower growth. It's just a reflection of very high period of collections following the Asset Acceptance acquisition. And then the growth in the balance sheet and the growth of the ERC reflects the fact that we're deploying capital intelligently and that we expect a lot of future collection growth coming out of our existing book. So the 2 are driven for different reasons, but we expect strong performance going forward, and we had a very strong period a year ago.

And Mark, when you have time, turn back to Slide 11, and you'll see that cash collections in the quarter before we purchased Asset was $278 million. In the quarter, we did purchase -- in the following quarter, Q3, sums up to $380 million in collections. So you could see that big uplift at that point.

You described the enthusiasm about the Spanish market, and you're buying some data sets there. When do you think you'll be in a position to actually do some material buying?

So we've done some buying. The Grove team is very methodical in their approach. I would say some of this is always dependent upon who is selling, so you never know when a big deal comes up. But we're trying to position ourselves for that big deal by understanding consumer behavior and beginning to model that. So we'll wait and see, but we've gotten a couple of small deals. And as I said, the pipeline is beginning to really heat up there. But in Spain and also in the U.K. IVA market, there's a lot of unpredictability and lumpiness to when portfolios actually get sold. There's what the tell us and then when they pull the trigger, the lag there is a little longer than I would expect or I'm used to compared to the U.S. market.

And one thing I would just add relating to Grove is that -- actually, before we acquired Grove, a number of their purchases in Spain were -- of telecom accounts, which is what they were buying before we acquired them. Now we're focused on financial services. But with the telecom accounts come a lot of consumers and a lot of data. And so while the amount of capital deployed in Spain hasn't been material, from an Encore perspective, the number of accounts acquired have been very significant, which has enabled us to do a lot of modeling around the performance of consumers and behavior of consumers in Spain. So we believe we're positioning ourselves to take advantage of opportunities as they come up.

Yes. For this month, for this quarter, 1/3 of the deployment for Grove was in the U.K. and the rest was in Spain, still small numbers.

But maybe next year, you see more ramp in Spain?

Well, next year, I'll say, we see more of a ramp for growth overall. I think we've kind of discussed that at our Investor Day. And some of that growth is going to come from Spain, absolutely.

[Operator Instructions] Our next question comes from Robert Dodd from Raymond James. Robert J. Dodd - Raymond James & Associates, Inc., Research Division: I'm looking at the detail in the queue in terms of pricing, and you mentioned increased competition, et cetera. If I look at Europe for 2014 and the incremental purchases, again, the $109 million, the total estimated collections for that only went up 150 million despite putting 109 roughly -- 105, roughly, to work, which implies a pretty low purchase multiple in the U.K., particularly during the third quarter. Is that the case there? Or have there been revisions down in purchases of prior quarters in 2014? Can you give us any more color there?

So there is a lot of impact of mix of purchases in the U.K. from one period to the other. So keep in mind that a lot of what Cabot has historically purchased are paying accounts, where the purchase price is a much higher percentage of face than what you might see in the United States because the consumers are -- a significant percentage of them are already on payment plans, and the cost-to-collect is actually a lot lower. So the multiple is lower than it would be otherwise. So there's a lot of mix implications of what's purchased from one period to another as it relates to the U.K. Also, within the U.K., when we acquired Marlin, a big component of our purchase price related to the ability to drive uplift in Cabot's portfolio. And so when you look at multiples as it relates to the Marlin acquisition, you have to look at both the multiple pay for that portfolio as well as additional ERC that we expect to generate out of Cabot's back-book as a result of using Marlin's platform. So there are lot of different components, but the environment really hasn't changed much from this quarter to previous quarters. We're still generating very good returns in the U.K.

[Operator Instructions] Our next question comes from David Scharf with JMP Securities.

Ken, I just want to follow up on kind of the recurring comment about ongoing consolidation in the U.K. I know there was a recent investment in a top 3 or 4 buyer, but can you expand a little more? I mean, is there an identifiable pipeline? I'm just trying to get a handle on maybe what to expect over the next 12 or 18 months.

Yes, well, let me just make -- the opening investment thesis for us was that there would be enough organic growth for us, and then there would be also opportunities to consolidate other platforms onto ours. That's when we bought Cabot. Of course, then we brought Marlin and connected it to the Cabot platform. There were just recently a trade that occurred for another, I'll say, second-tier debt purchaser, and we see at least a couple of others that are in the process or soon will be in the process of being sold. So that debt -- that platform consolidation has begun, and I think it will continue not only through '15 but into '16. So the U.K. market is following the U.S. market slowly, but it is following the U.S. market.

Got it. And just one kind of follow-up financial question just for Paul. Can you just, I guess, help me relate the -- I guess, the minority, the very small minority interest line relative to the first couple of quarters of this year on the consolidation?

So the minority interest line is going to be based on the investment at Cabot, the debt levels at Cabot. There is an impact on it as well. There's some fair valuing that gets done of our potential repurchase of the minority interest at some point in time. So there are 3 or 4 components that will impact that line that go into the determination of the value at any given quarter. I don't know if that answers your question.

Well, yes, I mean, more than anything else, I'm just trying to get a sense for how to think about this going forward. I mean, it looks like it was under a $1 million in the third and fourth quarter last year. It was $4 million and $2 million, respectively, in the first half of this year. And then, it was just a couple of hundred thousand dollars this quarter. And seems to be pretty variable.

I mean, I think, the best way to look at that line -- actually, the best thing to do is probably to look at contributions to Encore rather than focus on the minority interest line because we showed a slide today of what the EPS contribution from Cabot to Encore was going to be -- was over the last couple of quarters, and we expect that over time, that will continue to grow. So rather than focus on the non-controlling interest, I think if you focus on what their contribution is to Encore, the non-controlling interest will fall out.

I'm showing no further questions at this time. I'd like to turn it back to Mr. Ken Vecchione for closing remarks.

Thank you. So clearly, the management and the executive teams have been focused on driving growth from our existing inventory and integrating our 2014 acquisitions within Encore. As we prepare for our 2015 budget cycle and begin to lock down our 2015 budget, we are focused on pushing and unlocking organic growth from our current book of business. This doesn't mean that we're not going to pursue acquisitions that fit our strategic plan, but rather, have the acquisitions provide us the flexibility to optimize our capital deployment in 2015. Just wanted to drop that note to you. And that concludes our call for today. I want to thank you, all, for participating. We look forward to talking to you in the fourth quarter. And Jonathan and Paul look forward to meeting some of you right after this call next week. Thanks, again, for all your attention and time.

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