# Encore Capital Group Inc: Form 10-Q for the period ended Mar 31, 2016

- Company: [Encore Capital Group Inc](/companies/ecpg.md) (CIK 1084961)
- Form: 10-Q
- Filed: 2016-05-10
- Accepted by EDGAR: May 10, 2016, 17:18 ET
- Period: 2016-03-31
- Accession: 0001084961-16-000172
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1084961/000108496116000172/ecpg-2016331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1084961/000108496116000172/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-01-01 to 2016-03-31 | $289.0m | us-gaap:Revenues |
| Operating income | 3 months, 2016-01-01 to 2016-03-31 | $83.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2016-01-01 to 2016-03-31 | $50.7m | us-gaap:InterestExpense |
| Income tax | 3 months, 2016-01-01 to 2016-03-31 | $10.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-01-01 to 2016-03-31 | $25.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-01-01 to 2016-03-31 | $0.99 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-01-01 to 2016-03-31 | $1.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-01-01 to 2016-03-31 | 25,868,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2016-01-01 to 2016-03-31 | $31.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2016-01-01 to 2016-03-31 | $2.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2016-03-31 | $144.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2016-03-31 | $3.82bn | us-gaap:Assets |
| Total liabilities | at 2016-03-31 | $3.16bn | us-gaap:Liabilities |
| Shareholders' equity | at 2016-03-31 | $610.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 75,540 characters.

*This Quarterly Report on Form 10-Q contains “forward-looking statements” relating to Encore Capital Group, Inc. (“Encore”) and its subsidiaries (which we may collectively refer to as the “Company,” “we,” “our” or “us”) within the meaning of the securities laws. The words “believe,” “expect,” “anticipate,” “estimate,” “project,” “intend,” “plan,” “will,” “may,” and similar expressions often characterize forward-looking statements. These statements may include, but are not limited to, projections of collections, revenues, income or loss, estimates of capital expenditures, plans for future operations, products or services and financing needs or plans, as well as assumptions relating to these matters. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we caution that these expectations or predictions may not prove to be correct or we may not achieve the financial results, savings, or other benefits anticipated in the forward-looking statements. These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties, some of which may be beyond our control or cannot be predicted or quantified, that could cause actual results to differ materially from those suggested by the forward-looking statements. Many factors, including but not limited to those set forth in our Annual Report on Form 10-K under “Part I, Item 1A. Risk Factors,” could cause our actual results, performance, achievements, or industry results to be very different from the results, performance, achievements or industry results expressed or implied by these forward-looking statements. Our business, financial condition, or results of operations could also be materially and adversely affected by other factors besides those listed. Forward-looking statements speak only as of the date the statements were made. We do not undertake any obligation to update or revise any forward-looking statements to reflect new information or future events, or for any other reason, even if experience or future events make it clear that any expected results expressed or implied by these forward-looking statements will not be realized. In addition, it is generally our policy not to make any specific projections as to future earnings, and we do not endorse projections regarding future performance that may be made by third parties.*

### Our Business and Operating Segments

We are an international specialty finance company providing debt recovery solutions for consumers and property owners across a broad range of financial assets. We purchase portfolios of defaulted consumer receivables at deep discounts to face value and manage them by working with individuals as they repay their obligations and work toward financial recovery. Defaulted receivables are consumers’ unpaid financial commitments to credit originators, including banks, credit unions, consumer finance companies, commercial retailers, and telecommunication companies. Defaulted receivables may also include receivables subject to bankruptcy proceedings. Through certain subsidiaries, we are a market leader in portfolio purchasing and recovery in the United States, including Puerto Rico. Our subsidiary, Janus Holdings Luxembourg S.a.r.l. (“Janus Holdings”), through its indirectly held U.K.-based subsidiary Cabot Credit Management Limited and its subsidiaries (collectively, “Cabot”), is a market leader in credit management services in the United Kingdom, historically specializing in portfolios consisting of higher balance, semi-performing accounts (*i.e.*, debt portfolios in which over 50% of the accounts have received a payment in three of the last four months immediately prior to the portfolio purchase). Cabot expanded in the United Kingdom with its consolidating acquisition of Hillesden Securities Ltd and its subsidiaries (“dlc”) in June 2015. Our majority-owned subsidiary, Grove Holdings (“Grove”), is a U.K.-based leading specialty investment firm focused on consumer non-performing loans, including insolvencies (in particular, individual voluntary arrangements, or “IVAs”) in the United Kingdom and bank and non-bank receivables in Spain. Our majority-owned subsidiary, Refinancia S.A. (“Refinancia”), through its subsidiaries, is a market leader in debt collection and management in Colombia and Peru. In October 2015, we completed the acquisition of a controlling stake in Baycorp Holdings Pty Limited (“Baycorp”), one of Australasia's leading debt resolution specialists.

On March 31, 2016, we completed the divestiture of our membership interests in Propel Acquisition LLC (“Propel”). Propel represented our entire tax lien business reportable segment prior to the divestiture. Propel’s operations are presented as discontinued operations in our condensed consolidated statements of operations and comprehensive income. Beginning in the first quarter 2016, we conduct business through one reportable segment, portfolio purchasing and recovery.

Our long-term growth strategy involves continuing to invest in our core portfolio purchasing and recovery business, expanding into new geographies, and leveraging our core competencies to explore expansion into adjacent asset classes.

### Government Regulation

As discussed in more detail under “Part I - Item1 - Business - Government Regulation” in our Annual Report on Form 10-K, our U.S. debt purchasing business and collection activities are subject to federal, state and municipal statutes, rules, regulations and ordinances that establish specific guidelines and procedures that debt purchasers and collectors must follow when collecting consumer accounts, including among others, specific guidelines and procedures for communicating with consumers and prohibitions on unfair, deceptive or abusive debt collection practices. In addition, our international operations are affected by foreign statutes, rules and regulations regarding debt collection and debt purchase activities. These statutes, rules, regulations, ordinances, guidelines and procedures are modified from time to time by the relevant authorities charged with their administration, which could affect the way we conduct our business.

For example, the Consumer Finance Protection Bureau (“CFPB”) may adopt new regulations that may affect our industry and our business. Additionally, the CFPB has supervisory, examination and enforcement authority over our business and is currently examining the collection practices of participants in the consumer debt buying industry. The CFPB has recently engaged in enforcement activity in sectors adjacent to our industry, impacting credit originators, collection firms, and payment processors, among others. The CFPB’s enforcement activity in these sectors, especially in the absence of clear rules or regulatory expectations, can be disruptive as industry participants attempt to define appropriate business practices. As a result of the current regulatory environment, certain current practices or commercial relationships we maintain may be disrupted or impacted by changes in our or third-parties’ business practices or perceptions of elevated risk.

### Portfolio Purchasing and Recovery

### United States

We purchase receivables based on robust, account-level valuation methods and employ proprietary statistical and behavioral models across our U.S. operations. These methods and models allow us to value portfolios accurately (and limit the risk of overpaying), avoid buying portfolios that are incompatible with our methods or goals and align the accounts we purchase with our business channels to maximize future collections. As a result, we have been able to realize significant returns from the receivables we acquire. We maintain strong relationships with many of the largest financial service providers in the United States.

While seasonality does not have a material impact on our portfolio purchasing and recovery business, collections are generally strongest in our first calendar quarter, slower in the second and third calendar quarters, and slowest in the fourth calendar quarter. Relatively higher collections in the first quarter could result in a lower cost-to-collect ratio compared to the other quarters, as our fixed costs are relatively constant and applied against a larger collection base. The seasonal impact on our business may also be influenced by our purchasing levels, the types of portfolios we purchase, and our operating strategies.

Collection seasonality can also affect revenue as a percentage of collections, also referred to as our revenue recognition rate. Generally, revenue for each pool group declines steadily over time, whereas collections can fluctuate from quarter to quarter based on seasonality, as described above. In quarters with lower collections (*e.g.,* the fourth calendar quarter), the revenue recognition rate can be higher than in quarters with higher collections (*e.g.,* the first calendar quarter).

In addition, seasonality could have an impact on the relative level of quarterly earnings. In quarters with stronger collections, total costs are higher as a result of the additional efforts required to generate those collections. Since revenue for each pool group declines steadily over time, in quarters with higher collections and higher costs (*e.g.,* the first calendar quarter), all else being equal, earnings could be lower than in quarters with lower collections and lower costs (*e.g.,* the fourth calendar quarter). Additionally, in quarters where a greater percentage of collections come from our legal and agency outsourcing channels, cost to collect will be higher than if there were more collections from our internal collection sites.

### Europe

**Cabot:** Through Cabot, we purchase paying and non-paying receivable portfolios using a proprietary pricing model that utilizes account-level statistical and behavioral data. This model allows Cabot to value portfolios with a high degree of accuracy and quantify portfolio performance in order to maximize future collections. As a result, Cabot has been able to realize significant returns from the assets it has acquired. Cabot maintains strong relationships with many of the largest financial services providers in the United Kingdom and continues to expand in the United Kingdom and the rest of Europe with its acquisitions of other credit management services providers.

While seasonality does not have a material impact on Cabot’s operations, collections are generally strongest in the second and third calendar quarters and slower in the first and fourth quarters, largely driven by the impact of the December holiday season and the New Year holiday, and the related impact on its customers’ ability to repay their balances. This drives a higher level of plan defaults over this period, which are typically repaired across the first quarter of the following year. The August vacation season in the United Kingdom also has an unfavorable effect on the level of collections, but this is traditionally compensated for by higher collections in July and September.

**Grove:** On April 1, 2014, we completed the acquisition of a controlling equity ownership interest in Grove. Grove, through its subsidiaries and affiliates, is a leading specialty investment firm focused on consumer non-performing loans, including insolvencies (in particular, IVAs) in the United Kingdom and bank and non-bank receivables in Spain. Grove purchases portfolio receivables using a proprietary pricing model. This model allows Grove to value portfolios with a high degree of accuracy and quantify portfolio performance in order to maximize future collections.

### Latin America

In December 2013, we acquired a majority ownership interest in Refinancia, a market leader in debt collection and management in Colombia and Peru. In addition to purchasing defaulted receivables, Refinancia offers portfolio management services to banks for non-performing loans. Refinancia also specializes in non-traditional niches in the geographic areas in which it operates, including providing financial solutions to individuals who have previously defaulted on their credit obligations. In addition to operations in Colombia and Peru, we evaluate and purchase non-performing loans in other countries in Latin America, including Mexico and Brazil. We also invest in non-performing secured residential mortgages in Latin America.

### Asia Pacific

Through our acquisition of a majority ownership interest in Baycorp in October 2015 (the “Baycorp Acquisition”), we are one of Australia’s leading debt resolution specialists. Baycorp specializes in the management of non-performing loans in Australia and New Zealand. In addition to purchasing defaulted receivables, Baycorp offers portfolio management services to banks for non-performing loans.

### Purchases and Collections

### Portfolio Pricing, Supply and Demand

#### United States

Prices for portfolios offered for sale directly from credit issuers continued to remain elevated during the first quarter of 2016, especially for fresh portfolios. Fresh portfolios are portfolios that are generally transacted within six months of the consumer’s account being charged-off by the financial institution. We believe this elevated pricing is due to a reduction in the supply of charged-off accounts and continued demand in the marketplace. We believe that the reduction in supply is partially due to shifts in underwriting standards by financial institutions, which have resulted in lower volumes of charged-off accounts. We believe that this reduction in supply is also the result of certain financial institutions temporarily halting their sales of charged-off accounts. Although we have seen moderation in certain instances, we expect pricing will remain at elevated levels for some period of time.

We believe that smaller competitors continue to face difficulties in the portfolio purchasing market because of the high cost to operate due to regulatory pressure and because issuers are being more selective with buyers in the marketplace, resulting in consolidation within the portfolio purchasing and recovery industry. We believe this favors larger participants in this market, such as Encore, because the larger market participants are better able to adapt to these pressures. Furthermore, as smaller competitors limit their participation in or exit the market, it may provide additional opportunities for Encore to purchase portfolios from competitors or to acquire competitors directly.

#### Europe

The U.K. market for charged-off portfolios has grown significantly in recent years driven by a consolidation of sellers and a material backlog of portfolio coming to market from credit issuers who are selling an increasing proportion of their non-performing loans. Prices for portfolios offered for sale directly from credit issuers remain at levels higher than historical averages. We expect that as a result of an increase in available funding to industry participants, and lower return requirements for certain debt purchasers, pricing will remain elevated.

The U.K. insolvency market saw historically low sales volumes from banks in the prior year. We expect there will be increased purchasing opportunities once large retail banks start to sell their insolvency portfolios.

The Spanish consumer and small and medium enterprise non-performing loan market remains significant, with most of the major banks selling portfolios. Competition remains strong in large banking trades, but there remains an opportunity for incumbent buyers. Recently there have been multiple complex sales from consolidated regional banks trading at more favorable returns, as portfolio sale sizes and asset nuances reduce competition.

Although pricing has been elevated, we believe that as our U.K. businesses increase in scale and expand to other European markets, and with anticipated improvements in liquidation and improved efficiencies in collections, our margins will remain competitive. Additionally, Cabot’s continuing investment in its liquidation channel through litigation has enabled them to collect from consumers who have the ability to pay, but have so far been unwilling to do so.

### Purchases by Type and Geographic Location

The following table summarizes the types and geographic locations of consumer receivable portfolios we purchased during the periods presented *(in thousands):*

| United States: | Three Months Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Credit card | $131,395 | $98,987 |
| Consumer bankruptcy receivables | 11,075 | — |
| Subtotal | 142,470 | 98,987 |
| Europe: |  |  |
| Credit card | 93,400 | 19,995 |
| IVA | 99 | 1,637 |
| Subtotal | 93,499 | 21,632 |
| Other geographies: |  |  |
| Credit card | 20,784 | 4,535 |
| Total purchases | $256,753 | $125,154 |

During the three months ended March 31, 2016, we invested $256.8 million to acquire portfolios of charged-off credit card portfolios and consumer bankruptcy receivables, with face values aggregating $3.5 billion, for an average purchase price of 7.2% of face value. This is a $131.6 million, or 105.1%, increase in the amount invested, compared with the $125.2 million invested during the three months ended March 31, 2015, to acquire portfolios of charged-off credit card with face values aggregating $1.0 billion, for an average purchase price of 12.0% of face value. In the United States, our capital deployment increased during the three months ended March 31, 2016 as compared to the prior period partially as the result of entering into several forward flow commitments at the turn of the year, which established a strong base for our first quarter capital deployment. In Europe, the increase in capital deployment was primarily driven by Cabot’s continued investment in Spain and France as part of its European expansion strategy.

The average purchase price, as a percentage of face value, varies from period to period depending on, among other factors, the quality of the accounts purchased and the length of time from charge-off to the time we purchase the portfolios.

### Collections by Channel and Geographic Location

We currently utilize various business channels for the collection of our receivables. The following table summarizes the total collections by collection channel and geographic areas *(in thousands):*

| United States: | Three Months Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Legal collections | $154,050 | $158,959 |
| Collection sites | 128,390 | 135,929 |
| Collection agencies(1) | 14,673 | 18,101 |
| Subtotal | 297,113 | 312,989 |
| Europe: |  |  |
| Collection sites | 58,831 | 46,398 |
| Collection agencies | 36,825 | 40,124 |
| Legal collections | 31,478 | 18,103 |
| Subtotal | 127,134 | 104,625 |
| Other geographies: |  |  |
| Collection sites | 17,629 | 7,444 |
| Legal collections | 2,418 | — |
| Collection agencies | 3,511 | 13 |
| Subtotal | 23,558 | 7,457 |
| Total collections | $447,805 | $425,071 |

(1) Collections through our collection agency channel in the United States include accounts subject to bankruptcy filings collected by others. Additionally, collection agency collections often include accounts purchased from a competitor where we maintain the collection agency servicing until the accounts can be recalled and placed in our collection channels.

Gross collections increased $22.7 million, or 5.3%, to $447.8 million during the three months ended March 31, 2016, from $425.1 million during the three months ended March 31, 2015, primarily due to increased collections in Europe and other geographies, offset by a slight decrease of collections in the United States.

### Results of Operations

Results of operations, in dollars and as a percentage of total revenue, were as follows (*in thousands, except percentages):*

| Revenues | Three Months Ended March 31, 2016 |  | 2015 |  |
| --- | ---: | ---: | ---: | ---: |
| Revenue from receivable portfolios, net | $270,094 | 93.5% | $264,110 | 95.1% |
| Other revenues | 18,923 | 6.5% | 13,672 | 4.9% |
| Total revenues | 289,017 | 100.0% | 277,782 | 100.0% |
| Operating expenses |  |  |  |  |
| Salaries and employee benefits | 69,642 | 24.1% | 65,552 | 23.6% |
| Cost of legal collections | 54,308 | 18.8% | 54,998 | 19.8% |
| Other operating expenses | 26,343 | 9.1% | 24,326 | 8.9% |
| Collection agency commissions | 10,120 | 3.5% | 10,685 | 3.8% |
| General and administrative expenses | 35,239 | 12.2% | 31,197 | 11.2% |
| Depreciation and amortization | 9,861 | 3.4% | 8,137 | 2.9% |
| Total operating expenses | 205,513 | 71.1% | 194,895 | 70.2% |
| Income from operations | 83,504 | 28.9% | 82,887 | 29.8% |
| Other (expense) income |  |  |  |  |
| Interest expense | (50,691) | (17.5)% | (42,303) | (15.1)% |
| Other income | 7,124 | 2.4% | 2,117 | 0.7% |
| Total other expense | (43,567) | (15.1)% | (40,186) | (14.4)% |
| Income before income taxes | 39,937 | 13.8% | 42,701 | 15.4% |
| Provision for income taxes | (10,148) | (3.5)% | (14,614) | (5.3)% |
| Income from continuing operations | 29,789 | 10.3% | 28,087 | 10.1% |
| (Loss) income from discontinued operations, net of tax | (3,182) | (1.1)% | 1,880 | 0.7% |
| Net income | 26,607 | 9.2% | 29,967 | 10.8% |
| Net income attributable to noncontrolling interest | (913) | (0.3)% | (542) | (0.2)% |
| Net income attributable to Encore Capital Group, Inc. stockholders | $25,694 | 8.9% | $29,425 | 10.6% |

34

### Results of Operations—Cabot

The following table summarizes the operating results contributed by Cabot during the periods presented *(in thousands):*

|  | Three Months Ended March 31, 2016 Janus Holdings | Encore Europe(1) | Consolidated | Three Months Ended March 31, 2015 Janus Holdings | Encore Europe(1) | Consolidated |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Total revenues | $89,533 | $— | $89,533 | $79,777 | $— | $79,777 |
| Total operating expenses | (50,830) | — | (50,830) | (40,782) | — | (40,782) |
| Income from operations | 38,703 | — | 38,703 | 38,995 | — | 38,995 |
| Interest expense-non-PEC | (28,272) | — | (28,272) | (23,297) | — | (23,297) |
| PEC interest (expense) income | (12,411) | 6,082 | (6,329) | (11,731) | 5,749 | (5,982) |
| Other expense | 5,966 | — | 5,966 | 758 | — | 758 |
| Income before income taxes | 3,986 | 6,082 | 10,068 | 4,725 | 5,749 | 10,474 |
| Provision for income taxes | (1,687) | — | (1,687) | (2,121) | — | (2,121) |
| Net income | 2,299 | 6,082 | 8,381 | 2,604 | 5,749 | 8,353 |
| Net income attributable to noncontrolling interest | (322) | (987) | (1,309) | (365) | (1,117) | (1,482) |
| Net income attributable to Encore Capital Group, Inc. stockholders | $1,977 | $5,095 | $7,072 | $2,239 | $4,632 | $6,871 |

(1) Includes only the results of operations related to Janus Holdings and therefore does not represent the complete financial performance of Encore Europe.

For all periods presented, Janus Holdings recognized all interest expense related to the outstanding preferred equity certificates (“PECs”) owed to Encore and other minority shareholders, while the interest income from PECs owed to Encore was recognized at Janus Holdings’ parent company, Encore Europe Holdings, S.a.r.l. (“Encore Europe”), which is a wholly-owned subsidiary of Encore.

### Non-GAAP Disclosure

In addition to the financial information prepared in conformity with Generally Accepted Accounting Principles (“GAAP”), we provide historical non-GAAP financial information. Management believes that the presentation of such non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of our operations. Management believes that these non-GAAP financial measures reflect an additional way of viewing aspects of our business that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business.

Management believes that the presentation of these measures provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with varying capital structures, compensation strategies, derivative instruments, and amortization methods, which provide a more complete understanding of our financial performance, competitive position, and prospects for the future. Readers should consider the information in addition to, but not instead of, our financial statements prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of these measures for comparative purposes.

***Adjusted Income From Continuing Operations Per Share.*** Management uses non-GAAP adjusted income from continuing operations attributable to Encore and adjusted income from continuing operations per share (which we also refer to from time to time as adjusted earnings per share), to assess operating performance, in order to highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. Adjusted income from continuing operations attributable to Encore excludes non-cash interest and issuance cost amortization relating to our convertible notes, one-time charges, acquisition, integration and restructuring related expenses, and settlement fees and related administrative expenses, all net of tax. The following table provides a reconciliation between income from continuing operations and diluted income from continuing operations per share attributable to Encore calculated in accordance with GAAP to adjusted income from continuing operations and adjusted income from continuing operations per share attributable to Encore, respectively. GAAP diluted earnings per share for the three months ended March 31, 2015, includes the effect of approximately 0.9 million common shares that are issuable upon conversion of certain convertible senior notes because the average stock price during the period exceeded the conversion price of these notes. However, as described in Note 10, “Debt—Encore Convertible Notes,” in the notes to our condensed consolidated financial statements, we have certain hedging transactions in place that have the effect of increasing the effective conversion price of these notes. Accordingly, while these common shares are included in our diluted earnings per share, the hedge transactions will offset the impact of this dilution and no shares will be issued unless our stock price exceeds the effective conversion price, thereby creating a discrepancy between the accounting effect of those notes under GAAP and their economic impact. We have presented the following metrics both including and excluding the dilutive effect of these convertible senior notes to better illustrate the economic impact of those notes and the related hedging transactions to shareholders, with the GAAP item under the “Per Diluted Share-Accounting” and “Per Diluted Share-Economic” (non-GAAP) columns, respectively *(in thousands, except per share data):*

|  | Three Months Ended March 31, 2016 $Per Diluted Share— Accounting |  | Per Diluted Share— Economic | 2015 $Per Diluted Share— Accounting |  | Per Diluted Share— Economic |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| GAAP net income from continuing operations attributable to Encore, as reported | $28,876 | $1.12 | $1.12 | $27,545 | $1.01 | $1.04 |
| Adjustments: |  |  |  |  |  |  |
| Convertible notes non-cash interest and issuance cost amortization, net of tax | 1,804 | 0.07 | 0.07 | 1,666 | 0.06 | 0.07 |
| Acquisition, integration and restructuring related expenses, net of tax | 1,329 | 0.05 | 0.05 | 1,348 | 0.05 | 0.05 |
| Settlement fees and related administrative expenses, net of tax | 1,853 | 0.07 | 0.07 | — | — | — |
| Adjusted income from continuing operations attributable to Encore | $33,862 | $1.31 | $1.31 | $30,559 | $1.12 | $1.16 |

***Adjusted EBITDA.*** Management utilizes adjusted EBITDA (defined as net income before interest, taxes, depreciation and amortization, stock-based compensation expenses, portfolio amortization, one-time charges, acquisition, integration and restructuring related expenses, and settlement fees and related administrative expenses), which is materially similar to a financial measure contained in covenants used in the Encore revolving credit and term loan facility, in the evaluation of our operations and believes that this measure is a useful indicator of our ability to generate cash collections in excess of operating expenses through the liquidation of our receivable portfolios. Adjusted EBITDA for the periods presented is as follows *(in thousands):*

| 2016 | Three Months Ended March 31, | 2015 |
| --- | ---: | ---: |
| GAAP net income, as reported | $26,607 | $29,967 |
| Adjustments: |  |  |
| Loss (income) from discontinued operations, net of tax | 3,182 | (1,880) |
| Interest expense | 50,691 | 42,303 |
| Provision for income taxes | 10,148 | 14,614 |
| Depreciation and amortization | 9,861 | 8,137 |
| Amount applied to principal on receivable portfolios | 177,711 | 160,961 |
| Stock-based compensation expense | 3,718 | 5,905 |
| Acquisition, integration and restructuring related expenses | 2,141 | 2,766 |
| Settlement fees and related administrative expenses | 2,988 | — |
| Adjusted EBITDA | $287,047 | $262,773 |

***Adjusted Operating Expenses.*** Management utilizes adjusted operating expenses in order to facilitate a comparison of approximate cash costs to cash collections for our portfolio purchasing and recovery business. Adjusted operating expenses for our portfolio purchasing and recovery business are calculated by starting with GAAP total operating expenses and backing out stock-based compensation expense, operating expenses related to non-portfolio purchasing and recovery business, one-time charges, acquisition, integration and restructuring related operating expenses, and settlement fees and related administrative expenses. Operating expenses related to non-portfolio purchasing and recovery business include operating expenses from other operating segments that primarily engage in fee-based business, as well as corporate overhead not related to our portfolio purchasing and recovery business. Adjusted operating expenses related to our portfolio purchasing and recovery business for the periods presented are as follows *(in thousands):*

| 2016 | Three Months Ended March 31, | 2015 |
| --- | ---: | ---: |
| GAAP total operating expenses, as reported | $205,513 | $194,895 |
| Adjustments: |  |  |
| Stock-based compensation expense | (3,718) | (5,905) |
| Operating expenses related to non-portfolio purchasing and recovery business | (26,885) | (21,623) |
| Acquisition, integration and restructuring related expenses | (3,059) | (2,766) |
| Settlement fees and related administrative expenses | (2,988) | — |
| Adjusted operating expenses related to portfolio purchasing and recovery business | $168,863 | $164,601 |

### Comparison of Results of Operations

### Revenues

Our revenues consist primarily of portfolio revenue and contingent fee income.

Portfolio revenue consists of accretion revenue and Zero Basis Revenue. Accretion revenue represents revenue derived from pools (quarterly groupings of purchased receivable portfolios) with a cost basis that has not been fully amortized. Revenue from pools with a remaining unamortized cost basis is accrued based on each pool’s effective interest rate applied to each pool’s remaining unamortized cost basis. The cost basis of each pool is increased by revenue earned and decreased by gross collections and portfolio allowances. The effective interest rate is the internal rate of return (“IRR”) derived from the timing and amounts of actual cash received and anticipated future cash flow projections for each pool. All collections realized after the net book value of a portfolio has been fully recovered, or Zero Basis Portfolios (“ZBA”), are recorded as revenue, or Zero Basis Revenue. We account for our investment in receivable portfolios utilizing the interest method in accordance with the authoritative guidance for loans and debt securities acquired with deteriorated credit quality. We incur allowance charges when actual cash flows from our receivable portfolios underperform compared to our expectations. Factors that may contribute to underperformance and to the recording of valuation allowances may include both internal as well as external factors. Internal factors that may have an impact on our collections include operational activities, such as the productivity of our collection staff. External factors that may have an impact on our collections include new laws or regulations, new interpretations of existing laws or regulations, and the overall condition of the economy. We record allowance reversals on pool groups which have historic allowance reserves when actual cash flows from these receivable portfolios outperform our expectations. Allowance reversals are included in portfolio revenue.

Total revenues were $289.0 million during the three months ended March 31, 2016, an increase of $11.2 million, or 4.0%, compared to total revenues of $277.8 million during the three months ended March 31, 2015.

The following tables summarize collections, revenue, end of period receivable balance and other related supplemental data, by year of purchase (*in thousands, except percentages):*

| United States: | Three Months Ended March 31, 2016 Collections(1) | Gross Revenue(2) | Revenue Recognition Rate(3) | Net Portfolio Allowance Reversal | Revenue % of Total Revenue | As of March 31, 2016 Unamortized Balances | Monthly IRR |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| ZBA(4) | $29,774 | $28,148 | 94.5% | $1,722 | 10.5% | $— | — |
| 2007 | 576 | 220 | 38.2% | 147 | 0.1% | 1,389 | 4.6% |
| 2008 | 2,854 | 1,710 | 59.9% | 322 | 0.6% | 4,976 | 9.3% |
| 2009(5) | — | — | — | — | — | — | — |
| 2010 | 2,984 | 2,312 | 77.5% | — | 0.9% | 3,048 | 21.2% |
| 2011 | 22,241 | 15,076 | 67.8% | — | 5.6% | 20,076 | 18.7% |
| 2012 | 34,625 | 22,008 | 63.6% | — | 8.2% | 67,190 | 9.6% |
| 2013 | 61,293 | 37,252 | 60.8% | — | 13.9% | 137,457 | 8.0% |
| 2014 | 66,726 | 31,845 | 47.7% | — | 11.9% | 256,377 | 3.8% |
| 2015 | 70,225 | 27,490 | 39.1% | — | 10.3% | 401,376 | 1.9% |
| 2016 | 5,815 | 2,470 | 42.5% | — | 0.9% | 139,300 | 1.8% |
| Subtotal | 297,113 | 168,531 | 56.7% | 2,191 | 62.9% | 1,031,189 | 4.2% |
| **Europe:** |  |  |  |  |  |  |  |
| 2013 | 45,543 | 38,508 | 84.6% | — | 14.4% | 419,359 | 3.1% |
| 2014 | 43,145 | 26,386 | 61.2% | — | 9.8% | 419,870 | 2.1% |
| 2015 | 33,546 | 17,326 | 51.6% | — | 6.5% | 353,628 | 1.7% |
| 2016 | 4,900 | 2,496 | 50.9% | — | 0.9% | 94,300 | 1.5% |
| Subtotal | 127,134 | 84,716 | 66.6% | — | 31.6% | 1,287,157 | 2.2% |
| **Other geographies:** |  |  |  |  |  |  |  |
| ZBA(4) | 1,671 | 1,677 | 100.4% | — | 0.7% | — | — |
| 2013 | 371 | — | 0.0% | — | 0.0% | 2,163 | 0.0% |
| 2014 | 4,397 | 4,565 | 103.8% | — | 1.7% | 67,601 | 2.4% |
| 2015 | 15,084 | 7,541 | 50.0% | — | 2.8% | 78,709 | 3.2% |
| 2016 | 2,035 | 873 | 42.9% | — | 0.3% | 20,159 | 2.4% |
| Subtotal | 23,558 | 14,656 | 62.2% | — | 5.5% | 168,632 | 2.7% |
| Total | $447,805 | $267,903 | 59.8% | $2,191 | 100.0% | $2,486,978 | 3.1% |

38

| United States: | Three Months Ended March 31, 2015 Collections(1) | Gross Revenue(2) | Revenue Recognition Rate(3) | Net Portfolio Allowance Reversal | Revenue % of Total Revenue | As of March 31, 2015 Unamortized Balances | Monthly IRR |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| ZBA(4) | $15,378 | $12,547 | 81.6% | $2,859 | 4.8% | $— | — |
| 2007 | 985 | 333 | 33.8% | — | 0.1% | 1,952 | 4.6% |
| 2008 | 3,518 | 2,460 | 69.9% | — | 0.9% | 7,338 | 10.4% |
| 2009 | 7,535 | 5,626 | 74.7% | — | 2.2% | 5,970 | 25.1% |
| 2010 | 21,435 | 13,056 | 60.9% | — | 5.0% | 12,746 | 21.9% |
| 2011 | 32,760 | 24,973 | 76.2% | — | 9.6% | 48,126 | 15.4% |
| 2012 | 53,171 | 32,812 | 61.7% | — | 12.6% | 130,345 | 7.5% |
| 2013 | 87,440 | 47,630 | 54.5% | — | 18.2% | 244,911 | 5.7% |
| 2014 | 86,045 | 39,171 | 45.5% | — | 15.0% | 410,226 | 2.8% |
| 2015 | 4,721 | 1,194 | 25.3% | — | 0.4% | 95,332 | 2.0% |
| Subtotal | 312,988 | 179,802 | 57.4% | 2,859 | 68.8% | 956,946 | 5.3% |
| **Europe:** |  |  |  |  |  |  |  |
| 2013 | 55,063 | 43,707 | 79.4% | — | 16.7% | 468,814 | 3.0% |
| 2014 | 49,399 | 32,065 | 64.9% | — | 12.3% | 500,812 | 2.0% |
| 2015 | 163 | 294 | 180.4% | — | 0.1% | 21,413 | 1.5% |
| Subtotal | 104,625 | 76,066 | 72.7% | — | 29.1% | 991,039 | 2.5% |
| **Other geographies:** |  |  |  |  |  |  |  |
| ZBA(4) | 165 | 165 | 100.0% | — | 0.1% | — | — |
| 2012 | 387 | — | 0.0% | — | 0.0% | 78 | 0.0% |
| 2013 | 2,715 | 214 | 7.9% | — | 0.1% | 6,869 | 60.0% |
| 2014 | 3,675 | 4,894 | 133.2% | — | 1.9% | 78,915 | 2.0% |
| 2015 | 516 | 110 | 21.3% | — | 0.0% | 4,560 | 3.1% |
| Subtotal | 7,458 | 5,383 | 72.2% | — | 2.1% | 90,422 | 1.9% |
| Total | $425,071 | $261,251 | 61.5% | $2,859 | 100.0% | $2,038,407 | 3.8% |

(1) Does not include amounts collected on behalf of others.

(2) Gross revenue excludes the effects of net portfolio allowance or net portfolio allowance reversals.

(3) Revenue recognition rate excludes the effects of net portfolio allowance or net portfolio allowance reversals.

(4) ZBA revenue typically has a 100% revenue recognition rate. However, collections on ZBA pool groups where a valuation allowance remains must first be recorded as an allowance reversal until the allowance for that pool group is zero. Once the entire valuation allowance is reversed, the revenue recognition rate will become 100%. ZBA gross revenue includes an immaterial amount of accounts that are returned to the seller in accordance with the respective purchase agreement (“Put-Backs”).

(5) Total collections realized exceed the net book value of the portfolio and have been converted to ZBA.

Portfolio revenue was $270.1 million during the three months ended March 31, 2016, an increase of $6.0 million, or 2.3%, compared to revenue of $264.1 million during the three months ended March 31, 2015. The increase in portfolio revenue during the three months ended March 31, 2016 compared to 2015 was due to additional accretion revenue associated with a higher portfolio balance, primarily associated with portfolios acquired through our merger and acquisition related activities, and increases in yields on certain pool groups due to over-performance, offset by lower yields on recently formed pool groups.

During the three months ended March 31, 2016, we recorded a net portfolio allowance reversal of $2.2 million, compared to a net portfolio allowance reversal of $2.9 million during the three months ended March 31, 2015. We expect portfolio allowance reversals for certain ZBA pool groups with remaining allowance reserves to decrease over time as the related collections on those ZBA pool groups decrease.

Other revenues were $18.9 million and $13.7 million for the three months ended March 31, 2016 and 2015, respectively. Other revenues primarily represent contingent fee income earned on accounts collected on behalf of others, primarily credit originators. The increase in other revenues was primarily attributable to contingent fee income earned at our recently acquired subsidiaries.

### Operating Expenses

Total operating expenses were $205.5 million during the three months ended March 31, 2016, an increase of $10.6 million, or 5.4%, compared to total operating expenses of $194.9 million during the three months ended March 31, 2015.

Operating expenses are explained in more detail as follows:

### Salaries and Employee Benefits

Salaries and employee benefits increased $4.0 million, or 6.2%, to $69.6 million during the three months ended March 31, 2016, from $65.6 million during the three months ended March 31, 2015. The increase was primarily the result of increases in headcount and related compensation expense of $9.1 million in our international subsidiaries as a result of our growing global expansion, offset by a decrease in stock-based compensation expense of $2.2 million and decreases in salaries and employee benefits at our domestic sites.

Stock-based compensation decreased $2.2 million, or 37.0% to $3.7 million during the three months ended March 31, 2016, from $5.9 million during the three months ended March 31, 2015. The decrease was primarily attributable to lower fair value of equity awards granted in recent periods and expense reversals resulting from adjustments to estimated vesting of certain performance-based awards.

### Cost of Legal Collections

The cost of legal collections decreased $0.7 million, or 1.3%, to $54.3 million during the three months ended March 31, 2016, as compared to $55.0 million during the three months ended March 31, 2015. These costs represent contingent fees paid to our network of attorneys and the cost of litigation. Gross legal collections were $187.9 million during the three months ended March 31, 2016, up from $177.1 million collected during the three months ended March 31, 2015. The cost of legal collections as a percentage of gross collections through this channel was 28.9% during the three months ended March 31, 2016, a decrease from 31.1% during corresponding period in 2015. The cost of legal collections as a percentage of gross collections through this channel in the United States was 29.7% and 31.3% during the three months ended March 31, 2016 and 2015, respectively. The decrease in the cost of legal collections was due to a reduction in upfront court costs spent as a result of fewer accounts placed in this channel as compared to the prior period. The cost of legal collections as a percentage of gross collections through this channel in Europe was 26.0% and 29.3% during the three months ended March 31, 2016 and 2015, respectively. During 2015, Cabot expanded the number of accounts placed into the legal collection channel, which resulted in increased cost of legal collections and cost to collect in this channel. We expect collections to increase as a result of our investment in this liquidation channel, which we anticipate will result in a lower cost of legal collections as compared to the prior periods. However, we expect that the cost of legal collections in Europe will remain elevated as we continue our investment in the legal collection channel.

### Other Operating Expenses

Other operating expenses increased $2.0 million, or 8.3%, to $26.3 million during the three months ended March 31, 2016, from $24.3 million during the three months ended March 31, 2015. The increase in other operating expenses for the three months ended March 31, 2016, as compared to the prior period, was primarily due to increased costs relating to various operation support activities, including skip tracing, media requests and bank charges.

### Collection Agency Commissions

During the three months ended March 31, 2016, we incurred $10.1 million in commissions to third-party collection agencies, or 18.4% of the related gross collections of $55.0 million. During the period, the commission rate as a percentage of related gross collections was 12.7% and 21.3% for our collection outsourcing channels in the United States and Europe, respectively. During the three months ended March 31, 2015, we incurred $10.7 million in commissions, or 18.3%, of the related gross collections of $58.2 million. During the period, the commission rate as a percentage of related gross collections was 15.8% and 19.5% for our collection outsourcing channels in the United States and Europe, respectively.

Collections through this channel vary from period to period depending on, among other things, the number of accounts placed with an agency versus accounts collected internally. Commissions, as a percentage of collections in this channel also vary from period to period depending on, among other things, the amount of time that has passed since the charge-off of the accounts placed with an agency, the asset class, and the geographic location of the receivables. Generally, freshly charged-off accounts have a lower commission rate than accounts that have been charged off for a longer period of time. Additionally, commission rates are lower in the United Kingdom where most of the receivables in this channel are semi-performing loans and IVAs, while the commission rates are higher in other European countries where most of the receivables in this channel are non-performing loans.

### General and Administrative Expenses

General and administrative expenses increased $4.0 million, or 13.0%, to $35.2 million during the three months ended March 31, 2016, from $31.2 million during the three months ended March 31, 2015. Excluding acquisition, integration and restructuring related expenses and settlement fees and related administrative expenses of $4.9 million and $1.6 million during the three months ended March 31, 2016 and 2015, respectively, general and administrative expenses increased $0.8 million, or 2.8%, to $30.4 million during the three months ended March 31, 2016, from $29.6 million during the three months ended March 31, 2015. The increase was primarily due to increased regulatory and legislative costs, and general increases in expenses to support our growth.

### Depreciation and Amortization

Depreciation and amortization expense increased $1.8 million, or 21.2%, to $9.9 million during the three months ended March 31, 2016, from $8.1 million during the three months ended March 31, 2015. The increase was primarily attributable to additional depreciation and amortization expenses resulting from fixed assets and intangible assets acquired through our recent acquisitions.

### Cost per Dollar Collected

We utilize adjusted operating expenses in order to facilitate a comparison of approximate cash costs to cash collections for our portfolio purchasing and recovery business. The calculation of adjusted operating expenses is illustrated in detail in the “Non-GAAP Disclosure” section. The following table summarizes our overall cost per dollar collected by geographic location during the periods presented:

|  | Three Months Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| United States | 39.2% | 40.9% |
| Europe | 33.7% | 33.2% |
| Other geographies | 40.0% | 29.0% |
| Overall cost per dollar collected | 37.7% | 38.8% |

Our overall cost per dollar collected (or “cost-to-collect”) for the three months ended March 31, 2016 was 37.7%, down 110 basis points from 38.8% during the prior period, primarily due to improved cost-to-collect in the United States. To counter higher prices in the U.S. market, we implemented innovative consumer-centric programs aimed at increasing liquidations. These programs were initiated in the beginning of 2014 and have become increasingly successful. Although Cabot’s cost-to-collect increased 50 basis points as compared to the prior period, it continues to trend lower than our overall cost-to-collect because its portfolio includes many consumers who are already on payment plans and historically involves little litigation. As more of Cabot’s accounts are serviced through its legal channel, we expect to see incremental net collections and a higher overall cost-to-collect. As we continue to grow our presence in the Latin American market, we expect to incur upfront cost in building our collection channels. As a result, cost-to-collect in this region may become elevated in the near term and may fluctuate over time.

Over time, we expect our cost-to-collect to remain competitive, but also to fluctuate from quarter to quarter based on seasonality, acquisitions, the cost of investments in new operating initiatives, and the changing regulatory and legislative environment.

### Interest Expense

Interest expense increased $8.4 million to $50.7 million during the three months ended March 31, 2016, from $42.3 million during the three months ended March 31, 2015.

The following table summarizes our interest expense (*in thousands, except percentages):*

|  | Three Months Ended March 31, 2016 | 2015 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Stated interest on debt obligations | $41,386 | $34,519 | $6,867 | 19.9% |
| Interest expense on preferred equity certificates | 6,329 | 5,982 | 347 | 5.8% |
| Amortization of loan fees and other loan costs | 3,040 | 2,071 | 969 | 46.8% |
| Amortization of debt discount | 2,554 | 2,278 | 276 | 12.1% |
| Accretion of debt premium | (2,618) | (2,547) | (71) | 2.8% |
| Total interest expense | $50,691 | $42,303 | $8,388 | 19.8% |

The payment of the accumulated interest on the preferred equity certificates issued in connection with the acquisition of a controlling interest in Cabot will only be satisfied in connection with the disposition of the noncontrolling interests of J.C. Flowers & Co. LLC and management.

The increase in interest expense was primarily attributable to increased debt levels in Europe related to additional borrowings to finance recent acquisitions and portfolio purchases.

### Other Income

Other income or expense consists primarily of foreign currency exchange gains or losses and interest income. Other income was $7.1 million during the three months ended March 31, 2016, up from $2.1 million during the three months ended March 31, 2015. The increase was primarily due to a gain of $5.4 million on foreign currency exchange forward contracts recognized by Cabot during the three months ended March 31, 2016. In January 2016, Cabot began entering into currency exchange forward contracts to reduce the short-term effects of currency exchange rate fluctuations between British Pounds and Euro resulting from the net asset or liability positions within its Euro functional currency entities. These contracts generally mature within one to three months and serve as economic hedges. The primary risk managed by using forward contracts is the currency exchange rate risk. The gains or losses on these currency exchange contracts are recognized as other income or other expense based on the changes in fair value.

### Provision for Income Taxes

We recorded income tax provisions for income from continuing operations of $10.1 million and $14.6 million, during the three months ended March 31, 2016 and 2015, respectively.

The effective tax rates for the respective periods are shown below:

|  | Three Months Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Federal provision | 35.0% | 35.0% |
| State provision | 6.2% | 8.2% |
| State benefit | (2.2)% | (2.9)% |
| Tax reserves | 0.0% | 0.1% |
| International benefit(1) | (9.8)% | (6.0)% |
| Permanent items(2) | 0.8% | 0.2% |
| Other(3) | (4.6)% | 0.0% |
| Effective rate | 25.4% | 34.6% |

(1) Relates primarily to lower tax rates on income attributable to international operations.

(2) Represents a provision for nondeductible items.

(3) Includes the effect of discrete items and an IRS audit settlement.

The effective tax rate decreased during the three months ended March 31, 2016, as compared to the three months ended March 31, 2015, as a result of earnings realized in countries with lower statutory tax rates than the U.S. federal tax rate and as a result of a favorable IRS audit settlement. Our effective tax rate could fluctuate significantly on a quarterly basis and could be adversely affected to the extent earnings are lower than anticipated in countries that have lower statutory tax rates and higher than anticipated in countries that have higher statutory tax rates.

Our subsidiary in Costa Rica is operating under a 100% tax holiday through December 31, 2018 and a 50% tax holiday for the subsequent four years. The impact of the tax holiday in Costa Rica for the three months ended March 31, 2016 and 2015 was immaterial.

### Supplemental Performance Data

We utilize proprietary forecasting models to continuously evaluate the economic life of each pool. For purposes of calculating IRRs, the collection forecast of each pool is estimated to be up to 120 months.

### Cumulative Collections to Purchase Price Multiple

The following table summarizes our purchases and related gross collections by year of purchase *(in thousands, except multiples):*

| Year of Purchase \<2007 Purchased consumer receivables: United States: | Purchase Price(1) | Cumulative Collections through March 31, 2016 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | Total(2) CCM(3) |  |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| \<2007 | $719,081 | $1,377,276 | $286,676 | $183,982 | $114,648 | $73,397 | $52,137 | $36,955 | $28,242 | $22,012 | $18,835 | $4,097 | $2,198,257 | 3.1 |
| 2007 | 204,064 | — | 68,048 | 145,272 | 111,117 | 70,572 | 44,035 | 29,619 | 20,812 | 14,431 | 12,002 | 2,384 | 518,292 | 2.5 |
| 2008 | 227,755 | — | — | 69,049 | 165,164 | 127,799 | 87,850 | 59,507 | 41,773 | 29,776 | 23,247 | 4,839 | 609,004 | 2.7 |
| 2009 | 253,004 | — | — | — | 96,529 | 206,773 | 164,605 | 111,569 | 80,443 | 58,345 | 42,960 | 8,468 | 769,692 | 3.0 |
| 2010 | 345,423 | — | — | — | — | 125,465 | 284,541 | 215,088 | 150,558 | 106,079 | 80,051 | 16,065 | 977,847 | 2.8 |
| 2011 | 383,656 | — | — | — | — | — | 122,224 | 300,536 | 225,451 | 154,847 | 112,659 | 22,241 | 937,958 | 2.4 |
| 2012 | 466,608 | — | — | — | — | — | — | 186,472 | 319,114 | 233,045 | 155,647 | 30,465 | 924,743 | 2.0 |
| 2013 | 513,293 | — | — | — | — | — | — | — | 217,245 | 372,967 | 276,552 | 56,929 | 923,693 | 1.8 |
| 2014 | 519,429 | — | — | — | — | — | — | — | — | 144,178 | 307,814 | 66,726 | 518,718 | 1.0 |
| 2015 | 479,091 | — | — | — | — | — | — | — | — | — | 105,588 | 69,839 | 175,427 | 0.4 |
| 2016 | 131,286 | — | — | — | — | — | — | — | — | — | — | 5,806 | 5,806 | — |
| Subtotal | 4,242,690 | 1,377,276 | 354,724 | 398,303 | 487,458 | 604,006 | 755,392 | 939,746 | 1,083,638 | 1,135,680 | 1,135,355 | 287,859 | 8,559,437 | 2.0 |
| Europe: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| 2013 | 619,079 | — | — | — | — | — | — | — | 134,259 | 249,307 | 212,129 | 45,543 | 641,238 | 1.0 |
| 2014 | 630,347 | — | — | — | — | — | — | — | — | 135,549 | 198,127 | 43,145 | 376,821 | 0.6 |
| 2015 | 423,451 | — | — | — | — | — | — | — | — | — | 65,870 | 33,546 | 99,416 | 0.2 |
| 2016 | 93,499 | — | — | — | — | — | — | — | — | — | — | 4,900 | 4,900 | 0.1 |
| Subtotal | 1,766,376 | — | — | — | — | — | — | — | 134,259 | 384,856 | 476,126 | 127,134 | 1,122,375 | 0.6 |
| Other geographies: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| 2012 | 6,569 | — | — | — | — | — | — | — | 3,848 | 2,561 | 1,208 | 208 | 7,825 | 1.2 |
| 2013 | 29,568 | — | — | — | — | — | — | — | 6,617 | 17,615 | 10,334 | 1,072 | 35,638 | 1.2 |
| 2014 | 88,227 | — | — | — | — | — | — | — | — | 9,652 | 16,062 | 4,397 | 30,111 | 0.3 |
| 2015 | 91,290 | — | — | — | — | — | — | — | — | — | 15,061 | 15,084 | 30,145 | 0.3 |
| 2016 | 20,784 | — | — | — | — | — | — | — | — | — | — | 2,797 | 2,797 | 0.1 |
| Subtotal | 236,438 | — | — | — | — | — | — | — | 10,465 | 29,828 | 42,665 | 23,558 | 106,516 | 0.5 |
| Purchased U.S. bankruptcy receivables: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| 2010 | 11,971 | — | — | — | — | 388 | 4,247 | 5,598 | 6,248 | 5,914 | 3,527 | 270 | 26,192 | 2.2 |
| 2011 | 1,642 | — | — | — | — | — | 1,372 | 1,413 | 1,070 | 333 | 247 | 65 | 4,500 | 2.7 |
| 2012 | 83,159 | — | — | — | — | — | — | 1,249 | 31,020 | 26,207 | 21,267 | 4,160 | 83,903 | 1.0 |
| 2013 | 39,833 | — | — | — | — | — | — | — | 12,806 | 24,679 | 21,516 | 4,364 | 63,365 | 1.6 |
| 2014 | — | — | — | — | — | — | — | — | — | — | — | — | — | — |
| 2015 | 24,372 | — | — | — | — | — | — | — | — | — | 22 | 386 | 408 | — |
| 2016 | 11,075 | — | — | — | — | — | — | — | — | — | — | 9 | 9 | — |
| Subtotal | 172,052 | — | — | — | — | 388 | 5,619 | 8,260 | 51,144 | 57,133 | 46,579 | 9,254 | 178,377 | 1.0 |
| Total | $6,417,556 | $1,377,276 | $354,724 | $398,303 | $487,458 | $604,394 | $761,011 | $948,006 | $1,279,506 | $1,607,497 | $1,700,725 | $447,805 | $9,966,705 | 1.6 |

(1) Adjusted for Put-Backs and Recalls. Recalls represent accounts that are recalled by the seller in accordance with the respective purchase agreement (“Recalls”).

(2) Cumulative collections from inception through March 31, 2016, excluding collections on behalf of others.

(3) Cumulative Collections Multiple (“CCM”) through March 31, 2016 refers to collections as a multiple of purchase price.

### Total Estimated Collections to Purchase Price Multiple

The following table summarizes our purchases, resulting historical gross collections, and estimated remaining gross collections, by year of purchase *(in thousands, except multiples):*

| Purchased consumer receivables: United States: | Purchase Price(1) | Historical Collections(2) | Estimated Remaining Collections (3) | Total Estimated Gross Collections | Total Estimated Gross Collections to Purchase Price |
| --- | ---: | ---: | ---: | ---: | ---: |
| \<2006 | $578,055 | $1,867,745 | $8,019 | $1,875,764 | 3.2 |
| 2006 | 141,026 | 330,512 | 6,395 | 336,907 | 2.4 |
| 2007 | 204,064 | 518,292 | 15,762 | 534,054 | 2.6 |
| 2008 | 227,755 | 609,004 | 31,813 | 640,817 | 2.8 |
| 2009 | 253,004 | 769,692 | 57,696 | 827,388 | 3.3 |
| 2010 | 345,423 | 977,847 | 109,355 | 1,087,202 | 3.1 |
| 2011 | 383,656 | 937,958 | 110,752 | 1,048,710 | 2.7 |
| 2012 | 466,608 | 924,743 | 221,917 | 1,146,660 | 2.5 |
| 2013 | 513,293 | 923,693 | 485,088 | 1,408,781 | 2.7 |
| 2014 | 519,429 | 518,718 | 573,526 | 1,092,244 | 2.1 |
| 2015 | 479,091 | 175,427 | 660,424 | 835,851 | 1.7 |
| 2016 | 131,286 | 5,806 | 218,731 | 224,537 | 1.7 |
| Subtotal | 4,242,690 | 8,559,437 | 2,499,478 | 11,058,915 | 2.6 |
| Europe: |  |  |  |  |  |
| 2013 | 619,079 | 641,238 | 1,058,486 | 1,699,724 | 2.7 |
| 2014 | 630,347 | 376,821 | 852,806 | 1,229,627 | 2.0 |
| 2015 | 423,451 | 99,416 | 666,972 | 766,388 | 1.8 |
| 2016 | 93,499 | 4,900 | 166,134 | 171,034 | 1.8 |
| Subtotal | 1,766,376 | 1,122,375 | 2,744,398 | 3,866,773 | 2.2 |
| Other geographies: |  |  |  |  |  |
| 2012 | 6,569 | 7,825 | 2,243 | 10,068 | 1.5 |
| 2013 | 29,568 | 35,638 | 7,676 | 43,314 | 1.5 |
| 2014 | 88,227 | 30,111 | 134,849 | 164,960 | 1.9 |
| 2015 | 91,290 | 30,145 | 163,837 | 193,982 | 2.1 |
| 2016 | 20,784 | 2,797 | 50,006 | 52,803 | 2.5 |
| Subtotal | 236,438 | 106,516 | 358,611 | 465,127 | 2.0 |
| Purchased U.S. bankruptcy receivables: |  |  |  |  |  |
| 2010 | 11,971 | 26,192 | 233 | 26,425 | 2.2 |
| 2011 | 1,642 | 4,500 | 52 | 4,552 | 2.8 |
| 2012 | 83,159 | 83,903 | 15,217 | 99,120 | 1.2 |
| 2013 | 39,833 | 63,365 | 6,175 | 69,540 | 1.7 |
| 2014 | — | — | — | — | — |
| 2015 | 24,372 | 408 | 27,904 | 28,312 | 1.2 |
| 2016 | 11,075 | 9 | 12,890 | 12,899 | 1.2 |
| Subtotal | 172,052 | 178,377 | 62,471 | 240,848 | 1.4 |
| Total | $6,417,556 | $9,966,705 | $5,664,958 | $15,631,663 | 2.4 |

(1) Adjusted for Put-Backs and Recalls.

(2) Cumulative collections from inception through March 31, 2016, excluding collections on behalf of others.

(3) Estimated remaining collections (“ERC”) for purchased consumer receivables includes $116.3 million related to accounts that converted to bankruptcy after purchase.

### Estimated Remaining Gross Collections by Year of Purchase

The following table summarizes our estimated remaining gross collections by year of purchase *(in thousands):*

*Purchased consumer receivables:*

*United States:*

|  | Estimated Remaining Gross Collections by Year of Purchase(1), (2) 2016(3) | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | \>2024 | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| \<2006 | $3,004 | $2,607 | $1,439 | $772 | $197 | $— | $— | $— | $— | $— | $8,019 |
| 2006 | 2,425 | 1,881 | 1,041 | 585 | 332 | 131 | — | — | — | — | 6,395 |
| 2007 | 5,271 | 4,388 | 2,655 | 1,627 | 998 | 613 | 210 | — | — | — | 15,762 |
| 2008 | 9,555 | 8,903 | 5,274 | 3,405 | 2,129 | 1,332 | 848 | 367 | — | — | 31,813 |
| 2009 | 19,760 | 15,193 | 9,240 | 5,691 | 3,285 | 2,066 | 1,317 | 838 | 306 | — | 57,696 |
| 2010 | 36,199 | 29,393 | 15,862 | 10,335 | 6,794 | 4,416 | 2,871 | 1,866 | 1,213 | 406 | 109,355 |
| 2011 | 35,719 | 34,763 | 13,926 | 8,454 | 5,486 | 4,575 | 3,199 | 2,079 | 1,351 | 1,200 | 110,752 |
| 2012 | 65,027 | 65,719 | 33,870 | 21,142 | 13,594 | 8,854 | 5,694 | 3,302 | 2,146 | 2,569 | 221,917 |
| 2013 | 116,951 | 124,329 | 83,613 | 55,738 | 37,589 | 25,160 | 16,475 | 10,477 | 6,063 | 8,693 | 485,088 |
| 2014 | 131,451 | 151,470 | 101,293 | 64,504 | 42,357 | 27,251 | 19,371 | 13,699 | 9,279 | 12,851 | 573,526 |
| 2015 | 137,208 | 178,074 | 125,971 | 82,650 | 52,600 | 30,595 | 19,851 | 14,123 | 9,823 | 9,529 | 660,424 |
| 2016 | 30,988 | 67,611 | 46,570 | 28,581 | 17,806 | 10,446 | 6,418 | 4,513 | 3,213 | 2,585 | 218,731 |
| Subtotal | 593,558 | 684,331 | 440,754 | 283,484 | 183,167 | 115,439 | 76,254 | 51,264 | 33,394 | 37,833 | 2,499,478 |
| Europe: |  |  |  |  |  |  |  |  |  |  |  |
| 2013 | 140,576 | 183,879 | 166,474 | 146,809 | 130,739 | 116,054 | 103,812 | 70,143 | — | — | 1,058,486 |
| 2014 | 106,890 | 146,080 | 131,663 | 115,285 | 101,071 | 87,950 | 76,616 | 67,963 | 19,288 | — | 852,806 |
| 2015 | 74,186 | 103,802 | 103,942 | 87,343 | 72,443 | 61,561 | 54,108 | 47,701 | 41,795 | 20,091 | 666,972 |
| 2016 | 19,167 | 29,973 | 25,561 | 21,248 | 17,579 | 14,316 | 11,799 | 9,976 | 8,593 | 7,922 | 166,134 |
| Subtotal | 340,819 | 463,734 | 427,640 | 370,685 | 321,832 | 279,881 | 246,335 | 195,783 | 69,676 | 28,013 | 2,744,398 |
| Other geographies: |  |  |  |  |  |  |  |  |  |  |  |
| 2012 | 498 | 533 | 400 | 290 | 222 | 187 | 113 | — | — | — | 2,243 |
| 2013 | 2,267 | 2,280 | 1,575 | 766 | 457 | 199 | 114 | 18 | — | — | 7,676 |
| 2014 | 11,375 | 16,811 | 46,085 | 40,291 | 13,485 | 2,156 | 1,600 | 1,591 | 1,455 | — | 134,849 |
| 2015 | 35,931 | 40,142 | 30,870 | 22,503 | 16,506 | 9,968 | 4,364 | 1,528 | 1,095 | 930 | 163,837 |
| 2016 | 6,936 | 11,597 | 12,047 | 8,781 | 6,176 | 3,228 | 569 | 294 | 211 | 167 | 50,006 |
| Subtotal | 57,007 | 71,363 | 90,977 | 72,631 | 36,846 | 15,738 | 6,760 | 3,431 | 2,761 | 1,097 | 358,611 |
| Purchased U.S. bankruptcy receivables: |  |  |  |  |  |  |  |  |  |  |  |
| 2010 | 233 | — | — | — | — | — | — | — | — | — | 233 |
| 2011 | 50 | 2 | — | — | — | — | — | — | — | — | 52 |
| 2012 | 7,719 | 5,756 | 1,742 | — | — | — | — | — | — | — | 15,217 |
| 2013 | 4,306 | 1,869 | — | — | — | — | — | — | — | — | 6,175 |
| 2014 | — | — | — | — | — | — | — | — | — | — | — |
| 2015 | 1,058 | 5,781 | 7,250 | 6,947 | 5,498 | 848 | 223 | 145 | 99 | 55 | 27,904 |
| 2016 | 170 | 2,134 | 3,130 | 3,281 | 2,910 | 968 | 130 | 76 | 51 | 40 | 12,890 |
| Subtotal | 13,536 | 15,542 | 12,122 | 10,228 | 8,408 | 1,816 | 353 | 221 | 150 | 95 | 62,471 |
| Total | $1,004,920 | $1,234,970 | $971,493 | $737,028 | $550,253 | $412,874 | $329,702 | $250,699 | $105,981 | $67,038 | $5,664,958 |

(1) ERC for Zero Basis Portfolios can extend beyond our collection forecasts.

(2) ERC for purchased consumer receivables includes $116.3 million related to accounts that converted to bankruptcy after purchase. The collection forecast of each pool is generally estimated up to 120 months based on the expected collection period of each pool in the United States and in Europe. Expected collections beyond the 120 month collection forecast in the United States are included in ERC but are not included in the calculation of IRRs.

(3) 2016 amount consists of nine months data from April 1, 2016 to December 31, 2016.

### Unamortized Balances of Portfolios

The following table summarizes the remaining unamortized balances of our purchased receivable portfolios by year of purchase *(in thousands, except percentages):*

| Purchased consumer receivables: United States: | Unamortized Balance as of March 31, 2016 | Purchase Price(1) | Unamortized Balance as a Percentage of Purchase Price | Unamortized Balance as a Percentage of Total |
| --- | ---: | ---: | ---: | ---: |
| 2007 | $1,389 | $204,064 | 0.7% | 0.1% |
| 2008 | 4,976 | 227,755 | 2.2% | 0.5% |
| 2009 | — | 253,004 | 0.0% | 0.0% |
| 2010 | 3,048 | 345,423 | 0.9% | 0.3% |
| 2011 | 20,076 | 383,656 | 5.2% | 2.1% |
| 2012 | 53,367 | 466,608 | 11.4% | 5.5% |
| 2013 | 134,373 | 513,293 | 26.2% | 13.7% |
| 2014 | 256,377 | 519,429 | 49.4% | 26.2% |
| 2015 | 376,926 | 479,091 | 78.7% | 38.5% |
| 2016 | 128,191 | 131,286 | 97.6% | 13.1% |
| Subtotal | 978,723 | 3,523,609 | 27.8% | 100.0% |
| Europe: |  |  |  |  |
| 2013 | 419,359 | 619,079 | 67.7% | 32.6% |
| 2014 | 419,870 | 630,347 | 66.6% | 32.6% |
| 2015 | 353,628 | 423,451 | 83.5% | 27.5% |
| 2016 | 94,300 | 93,499 | 100.9% | 7.3% |
| Subtotal | 1,287,157 | 1,766,376 | 72.9% | 100.0% |
| Other geographies: |  |  |  |  |
| 2013 | 2,163 | 29,568 | 7.3% | 1.3% |
| 2014 | 67,601 | 88,227 | 76.6% | 40.1% |
| 2015 | 78,709 | 91,290 | 86.2% | 46.7% |
| 2016 | 20,159 | 20,784 | 97.0% | 11.9% |
| Subtotal | 168,632 | 229,869 | 73.4% | 100.0% |
| Purchased U.S. bankruptcy receivables: |  |  |  |  |
| 2012 | 13,823 | 83,159 | 16.6% | 26.3% |
| 2013 | 3,084 | 39,833 | 7.7% | 5.9% |
| 2014 | — | — | 0.0% | 0.0% |
| 2015 | 24,450 | 24,372 | 100.3% | 46.6% |
| 2016 | 11,109 | 11,075 | 100.3% | 21.2% |
| Subtotal | 52,466 | 158,439 | 33.1% | 100.0% |
| Total | $2,486,978 | $5,678,293 | 43.8% | 100.0% |

(1) Purchase price refers to the cash paid to a seller to acquire a portfolio less Put-Backs, Recalls, and other adjustments.

### Estimated Future Amortization of Portfolios

As of March 31, 2016, we had $2.5 billion in investment in receivable portfolios. This balance will be amortized based upon current projections of cash collections in excess of revenue applied to the principal balance. The estimated amortization of the investment in receivable portfolios balance is as follows *(in thousands):*

| Years Ending December 31, | Purchased Consumer Receivables United States | Purchased Consumer Receivables Europe | Purchased Consumer Receivables Other Geographies | Purchased U.S. Bankruptcy Receivables | Total Amortization |
| --- | ---: | ---: | ---: | ---: | ---: |
| 2016(1) | $162,892 | $91,830 | $12,137 | $8,739 | $275,598 |
| 2017 | 277,234 | 163,296 | 17,152 | 12,756 | 470,438 |
| 2018 | 194,856 | 172,781 | 48,651 | 10,875 | 427,163 |
| 2019 | 124,772 | 158,796 | 47,975 | 9,481 | 341,024 |
| 2020 | 82,776 | 150,962 | 25,115 | 8,093 | 266,946 |
| 2021 | 52,204 | 149,850 | 8,506 | 1,750 | 212,310 |
| 2022 | 36,689 | 159,827 | 5,545 | 324 | 202,385 |
| 2023 | 26,202 | 157,699 | 2,021 | 269 | 186,191 |
| 2024 | 15,193 | 56,246 | 794 | 179 | 72,412 |
| 2025 | 5,552 | 24,996 | 632 | — | 31,180 |
| 2026 | 353 | 874 | 104 | — | 1,331 |
| Total | $978,723 | $1,287,157 | $168,632 | $52,466 | $2,486,978 |

(1) 2016 amount consists of nine months data from April 1, 2016 to December 31, 2016.

### Headcount by Function by Geographic Location

The following table summarizes our headcount by function by geographic location:

|  | Headcount as of March 31, 2016 Domestic | International | 2015 Domestic(1) | International |
| --- | ---: | ---: | ---: | ---: |
| General & Administrative | 937 | 2,167 | 980 | 1,601 |
| Internal Legal Account Manager | 26 | 172 | 40 | 89 |
| Account Manager | 231 | 3,131 | 301 | 2,391 |
|  | 1,194 | 5,470 | 1,321 | 4,081 |

(1) Headcount as of March 31, 2015 includes 84 Propel employees.

### Purchases by Quarter

The following table summarizes the consumer receivable portfolios and bankruptcy receivables we purchased by quarter, and the respective purchase prices (*in thousands):*

| Quarter | # of Accounts | Face Value | Purchase Price |
| --- | ---: | ---: | ---: |
| Q1 2014(1) | 1,104 | $4,288,159 | $467,565 |
| Q2 2014 | 1,210 | 3,075,343 | 225,762 |
| Q3 2014(1) | 2,203 | 3,970,145 | 299,509 |
| Q4 2014 | 859 | 2,422,128 | 258,524 |
| Q1 2015 | 734 | 1,041,011 | 125,154 |
| Q2 2015(1) | 2,970 | 5,544,885 | 418,780 |
| Q3 2015 | 1,267 | 2,085,381 | 187,180 |
| Q4 2015(1) | 2,363 | 4,068,252 | 292,608 |
| Q1 2016 | 1,450 | 3,544,338 | 256,753 |

(1) Includes portfolios acquired in connection with certain business combinations.

### Liquidity and Capital Resources

### Liquidity

The following table summarizes our cash flow activity, including the cash flows from discontinued operations, for the periods presented *(in thousands):*

*(Unaudited)*

|  | Three Months Ended March 31, 2016 | 2015 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $31,853 | $19,390 |
| Net cash provided by investing activities | 18,796 | 4,491 |
| Net cash used in financing activities | (61,487) | (12,273) |

#### Operating Cash Flows

Cash flows from operating activities represent the cash receipts and disbursements related to all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting net income for non-cash operating items such as depreciation and amortization, allowance charges and stock-based compensation charges, and changes in operating assets and liabilities which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in results of operations.

Net cash provided by operating activities was $31.9 million and $19.4 million during the three months ended March 31, 2016 and 2015, respectively. Cash provided by operating activities during the three months ended March 31, 2016 was primarily related to net income of $26.6 million, adjustments for discontinued operations, various non-cash add backs in operating activities, and changes in operating assets and liabilities. Cash provided by operating activities during the three months ended March 31, 2015 was primarily related to net income of $30.0 million, adjustments for discontinued operations, various non-cash add backs in operating activities, and changes in operating assets and liabilities.

#### Investing Cash Flows

Net cash provided by investing activities was $18.8 million and $4.5 million during the three months ended March 31, 2016 and 2015, respectively.

The cash flows provided by investing activities during the three months ended March 31, 2016 were primarily related to collection proceeds applied to the principal of our receivable portfolios in the amount of $180.8 million, offset by receivable portfolio purchases of $281.0 million. The cash flows provided by investing activities during the three months ended March 31, 2015 were primarily related to collection proceeds applied to the principal of our receivable portfolios in the amount of $164.2 million, offset by receivable portfolio purchases of $143.2 million.

Capital expenditures for fixed assets acquired with internal cash flows were $2.3 million and $4.3 million for three months ended March 31, 2016 and 2015, respectively.

#### Financing Cash Flows

Net cash used in financing activities was $61.5 million and $12.3 million during the three months ended March 31, 2016 and 2015, respectively. Net cash used in financing activities from discontinued operations was $15.5 million and $0.2 million, during the three months ended March 31, 2016 and 2015, respectively.

The cash used in financing activities during the three months ended March 31, 2016 primarily reflects $235.2 million in repayments, offset by $185.9 million in borrowings under our credit facilities. The cash used in financing activities during the three months ended March 31, 2015 primarily reflects $124.4 million in repayments of amounts outstanding under our credit facilities and $10.4 million in repayments of notes, offset by $134.3 million in borrowings under our credit facilities.

### Capital Resources

Historically, we have met our cash requirements by utilizing our cash flows from operations, bank borrowings, convertible debt offerings, and equity offerings. From time to time, depending on the capital markets, we consider additional financings to fund our operations and acquisitions. Our primary cash requirements have included the purchase of receivable portfolios, the acquisition of U.S. and international entities, operating expenses, the payment of interest and principal on borrowings, and the payment of income taxes.

On March 24, 2016, we amended our revolving credit facility and term loan facility pursuant to Amendment No. 3 to the Second Amended and Restated Credit Agreement (as amended, the “Restated Credit Agreement”). The Restated Credit Agreement includes a revolving credit facility of $742.6 million (the “Revolving Credit Facility”), a term loan facility of $158.8 million (the “Term Loan Facility”, and together with the Revolving Credit Facility, the “Senior Secured Credit Facilities”), and an accordion feature that allows us to increase the Revolving Credit Facility by an additional $250.0 million ($55.0 million of which was exercised in November 2015). The Senior Secured Credit Facilities have a five-year maturity, expiring in February 2019, except with respect to two subtranches of the Term Loan Facility of $60.0 million and $6.3 million, expiring in February 2017 and November 2017, respectively. As of March 31, 2016, we had $637.1 million outstanding and $228.2 million of availability under the Senior Secured Credit Facilities, excluding the $195.0 million available under the accordion.

Through Cabot Financial (UK) Limited (“Cabot Financial UK”), an indirect subsidiary, we have a revolving credit facility of £200.0 million (the “Cabot Credit Facility”). The Cabot Credit Facility includes an uncommitted accordion facility which will allow the facility to be increased by an additional £50.0 million, subject to obtaining the requisite commitments and compliance with the terms of Cabot Financial UK’s other indebtedness. As of March 31, 2016, we had £100.5 million (approximately $144.5 million) outstanding and £99.5 million (approximately $143.1 million) of availability under the Cabot Credit Facility.

Currently, all of our portfolio purchases are funded with cash from operations and borrowings under our Senior Secured Credit Facilities and our Cabot Credit Facility.

We are in compliance with all covenants under our financing arrangements. See Note 10, “Debt” to our condensed consolidated financial statements for a further discussion of our debt.

Our cash and cash equivalents at March 31, 2016 consisted of $27.2 million held by U.S.-based entities and $117.4 million held by foreign entities. Most of our cash and cash equivalents held by foreign entities is indefinitely reinvested and may be subject to material tax effects if repatriated. However, we believe that our U.S. sources of cash and liquidity are sufficient to meet our business needs in the United States and do not expect that we will need to repatriate the funds.

We believe that we have sufficient liquidity to fund our operations for at least the next twelve months, given our expectation of continued positive cash flows from operations, our cash and cash equivalents, our access to capital markets, and availability under our credit facilities. Our future cash needs will depend on our acquisitions of portfolios and businesses. The divestiture of Propel provided liquidity to deleverage our company and paid down our debt. Additionally, it is expected to improve our overall corporate return on invested capital and provide us additional liquidity for increased investment capital flexibility.

## Market risk

As filed, 577 characters.

*Foreign Currency Exchange Rates.* At March 31, 2016, there had not been a material change in any of the foreign currency risk information disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

*Interest Rates.* At March 31, 2016, there had not been a material change in the interest rate risk information disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

## Controls and procedures

As filed, 1,662 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”) and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and accordingly, management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on their most recent evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act are effective.

### Changes in Internal Control over Financial Reporting

No changes in our internal control over financial reporting occurred during the quarter ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 180 characters.

There is no material change in the information reported under “Part I—Item 1A—Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Filed May 10, 2016.
Source: SEC EDGAR, the filing index for accession 0001084961-16-000172. Last ingested by Listed: Nov 10, 2026, 04:18 ET. No prices; not investment advice.