First Quarter 2015 Financial Results Investor Call
- 1. Financial Results Q1 2015 May 14, 2015 Time: 8:30am MTN Domestic: (877) 201-0168 International: (647) 788-4901 Confirmation Code: 30894149
- 2. Safe Harbor Provisions 2 Certain statements made in this presenta/on are forward-‐looking statements under the Private Securi/es Li/ga/on Reform Act of 1995. These can be iden/fied by words such as "intend," "believe," and "expect," and phrases using those or similar terms. Specifically, statements rela/ng to projec/ons of future proceeds, revenue, income, profitability, cash flow, non-‐GAAP financial measures such as Adjusted EBITDA and Es/mated Remaining Proceeds, also known as “ERP”, and our ability to expand and u/lize flexibility under our credit facility are forward-‐looking statements. These forward-‐looking statements are not guarantees of our future performance and are subject to risks and uncertain/es that could cause actual results to differ materially from the results contemplated by the forward-‐looking statements. Factors that could affect our results and cause them to materially differ from those contained in the forward looking statements include those that we discuss in “Risk Factors” or comparable headings in our most recent Annual Report on Form 10-‐K. Adjusted EBITDA and ERP, as presented today and in our earnings release we issued this morning, are supplemental measures of our performance and purchased debt asset value, respec/vely, that are not required by, or presented in accordance with, accoun/ng principles generally accepted in the U.S., also known as “GAAP.” They are not measurements of our financial performance or asset value under GAAP and should not be considered as alterna/ves to net income, asset value, or any other performance measures derived in accordance with GAAP, or as alterna/ves to cash flows from opera/ng ac/vi/es or a measure of our liquidity. We believe adjusted EBITDA is representa/ve of our cash flow genera/on that can be used to purchase charged-‐ off receivables, pay down or service debt, pay income taxes, and for other uses. ERP represents the expected cash proceeds of our then-‐current purchased debt por[olios over a nine year period. You are, however, cau/oned not to place undue reliance on adjusted EBITDA and ERP.
- 3. Our Strategy Paul A. Larkins, Chief Execu6ve Officer
- 4. 4 SquareTwo and the Market Evolving Debt Sales: -‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐ ReturntoMarket Charge-Off Growth Money Center Banks FinTech Commercial Regional Banks Canada
- 5. 5 • Launched in January at Partner Summit • Franchise agreements -‐> Modified • Regionaliza/on + Technology = Cost Structure Reduc/on Profitability Improvement Initiative
- 6. Key Strategic Goals 6 Our People • Inspire a culture of leadership by living our core values Our Services • Pursue systemic opera/onal and compliance excellence Our Channels • Create an outstanding network of call centers and exclusive branch offices Our Customers • Deliver the Fair Square Promise Our Financials • Deliver solid financial results
- 7. 7 • Financial ins/tu/on visits con/nue • Marketplace lenders = Success • Closed Loop Network = Compelling • Proposed Payday rules providing insights Our Services Pursue systemic operational and compliance excellence
- 8. Our Channels Create an outstanding network of call centers and branch offices 8 • Denver consumer call center complete • New por[olios being placed with Fresh View • Fresh View Solu/ons reduces non-‐legal costs
- 9. Financial Results John D. Lowe, Chief Financial Officer
- 10. ERP and Adjusted EBITDA 10 • Consolidated ERP of $612M • Adjusted EBITDA of $42M Q1 2014 Q1 2015 Q1 2014 Q1 2015 57.1% 71.8% 1.55x 2.37x Company Debt as a % of Consolidated ERP Company Debt ÷ TTM Adjusted EBITDA 772 732 681 655 612 100 200 300 400 500 600 700 800 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Consolidated ERP Trending ($ millions) Canada US 54 54 48 42 42 0 10 20 30 40 50 60 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Adjusted EBITDA Trending ($ millions)
- 11. Returns by Purchase Year 11 • Ac/ve Por[olio Returns Maintain Strength • 2015 Returns Improve • Ini/al 12 Months = Conserva/sm 1.8x 1.1x 0.6x 0.1x 2.1x 0.4x 0.7x 1.0x 1.8x 0.00x 0.50x 1.00x 1.50x 2.00x 2.50x Ac6ve PorLolio * 2012 2013 2014 YTD 2015 Consolidated Return on Investment Purchase Years 2012 through YTD 2015 Actual Returns Es/mated Returns
- 12. Purchasing 12 • Purchased $22 Million • Commercial purchases up significantly • 53% = Fresh Consumer Debt 2015 2014 $ Variance % Variance Credit Card/Consumer Loan -‐ Fresh* Face $97,305 $174,811 ($77,506) (44.3%) Price 11,579 24,172 (12,593) (52.1%) Price (%) 11.9% 13.8% Credit Card/Consumer Loan -‐ Non-‐Fresh* Face 68,642 9,606 59,036 NM Price 4,770 573 4,197 NM Price (%) 6.9% 6.0% Other** Face 70,903 36,380 34,523 94.9% Price 5,653 1,019 4,634 NM Price (%) 8.0% 2.8% TOTAL Face $236,850 $220,797 $16,053 7.3% Price 22,002 25,764 (3,762) (14.6%) Price (%) 9.3% 11.7% * Includes both Domestic and Canadian purchases. ** Other includes commercial, student loan, and medical purchased debt assets. NM Not meaningful. Purchasing (in thousands) Quarter Ended March 31,
- 13. Proceeds 13 • Mix of Legal as % of Total Collec/ons Increased from 48% to 52% • Legal and Other Collec/ons Maintain Strength Cash Proceeds (in thousands) 2015 2014 $ Variance % Variance Credit Card/Consumer Loan Collections Non-‐Legal Collections $38,326 $52,253 ($13,927) (26.7%) Legal Collections 48,288 52,875 (4,587) (8.7%) Other Collections* 6,517 5,282 1,235 23.4% Total Collections 93,131 110,410 (17,279) (15.6%) Sales, Recourse & Bankruptcy 1,342 1,830 (488) (26.7%) Total Cash Proceeds on Purchased Debt $94,473 $112,240 ($17,767) (15.8%) Quarter Ended March 31, *Other includes collections and court cost recoveries on commercial, student loan, and medical accounts
- 14. Unadjusted Results 14 • Purchased Debt Revenues, Net: › $52 million, 28% decrease from $72 million in Q1 2014 • Costs to Collect as % of Purchased Debt Collec/ons: › Including Gross Court Costs: 45.1% ; +111bps from Q1 2014 › Excluding Gross Court Costs: 37.0% ; +163bps from Q1 2014 › Non-‐Legal/Legal Mix: 47%/48% (Q1’14), 41%/52% (Q1’15) › Costs to Collect Expected to decrease 500bps+ by EOY • GAAP EBITDA: › -‐$1 million, decrease of $13 million from Q1 2014 • Net Loss: › $15 million net loss, decrease of $13 million from Q1 2014
- 15. Liquidity Update 15 • Investment Strategy + Cost Reduc/on = Net Returns+ • Consolidated ERP of $612 million • Liquidity = $55 million
- 16. Q & A