Encore Capital (ECPG) 6 Nov 242024 Q3 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Encore Capital Group's Third Quarter 2024 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Bruce Thomas, Vice President of Global Investor Relations for Encore. ahead. go please Bruce,

Good XXXX welcome Earnings operator. Group's Encore Third Quarter Call. afternoon, you, to and Capital Thank

Joining me Executive on of Financial our Chief President Officer the Officer; Midland call today Chief Financial Credit Tomas Officer; are Credit Executive of Management; Jonathan Hernanz, Bell, Cabot Clark, Ryan Vice and and and President President Ashish Chief Masih, Management.

will end CFO when at the of As XXXX. Encore's you Jon as may succeed Jonathan recall, March Tomas retires

will will we happy prepared comparisons quarter remarks between third today, your XXXX. the Ashish Unless to the quarter and and Jon questions. then take will make on and this be third be otherwise noted, of XXXX conference of call made

assumptions results today's and include undertake In discussion detailed and no obligation SEC differ are could and forward-looking subject update will potential based forward-looking a for We to our from discussion refer uncertainties. to that of statement. Please risks risks any our expectations filings expectations. Actual addition, statements are materially and on to current uncertainties.

will call, the for of sake this and abbreviations use During brevity. rounding we

non-GAAP section be the presentation, We in is investor most the measures are financial GAAP website. discussing measures. included our Reconciliations will which on available directly of also our comparable Investors to financial

Investors Officer. call turn this and President of following reminder, me our the Ashish the be our Executive a a let with As this to website. that, the conclusion call, section call, also Masih, of on Chief available along of With conference replay prepared over will our remarks

to performance Record U.S. charge-off supply key the since highest coupled these Thank the purchasing up rate largest with highest favorable collections Encore's than while purchases year MCM Europe, third highlights compared years, in lending. the by market begin to show In good us. call robust the opportunity ago continues driven competitive. the quarter and strong to was with in level but is of portfolio I'll business. remains MCM driven portfolio the quarter. everyone. on up by XXXX. deliver our afternoon, in joining with the signs more the portfolio this for quarter, largely in U.S., Bruce, improvement XX XX% in being conditions, Thanks, continues third growth were quarter Amid to you from market today's XX%

pricing, consistently Although cost not reflect we of of interest European see caused higher does examples by believe pricing improved the portfolio higher still capital rates. we

are resolution the stage business cycle. we depending unexpected in unpaid of outcome although unpaid vary model, debts of assisting ecosystem to the may accordingly. resulting managing on debts. led Regardless of the lending ahead by We credit and are I upward remind the macroeconomic are the investors levels cycle, conversations. of serve revised engaging consumer in portfolio purchases. by higher Overall, maintaining we the necessary structure where purchasing we we is achieved believe our a and consumers reduced time, play has year-to-date Cabot's in of mission to ago, them continue cost performance the create by our empathetic are consumers be for freedom that Cabot pathways which role generation. discipline expectations in quarter is we honest, the We this past in and portfolio their At to and economic the These it's selective, same collections helpful in growth critical driven debts. to continued resolve the respectful cash by due helping of to

costs. while nonperforming minimizing Our business at funding loans to returns purchase is attractive portfolios of

this is on through focus. these financial the compliance We deliver own, performance each to well that efficient capitalize and highest of We building objectives positioning structure shareholder For while collection for to cost while portfolio an expectations, our strong consumer portfolio we our to achieved instrumental both exceed us believe ensuring us strive long-term enables X-pillar strategy. we purchasing maintaining This value. and strategy opportunities. level

our strategy, our the highest pillar concentrates first The the market returns. efforts we focus, of risk-adjusted on can markets achieve where

at at the been credit has been At a card X has than a U.S. largest look since Let's also credit Federal in has early steadily credit highest and is also the U.S. rate higher rate now in Reserve With and U.S. with continue The combination lending beginning of conditions charge-off charge-off Similarly, remain the simultaneously, XXXX, in rise. and steadily which the markets, out late The revolving in since U.S. time, years. the been rising our rate market reporting take same is charge-off the U.S. its U.S. XXXX. rising that in the now growing the bottoming XX U.S. more indicator record are supply highly to purchasing leading both favorable. of in level growth driving charge-offs, delinquencies, consumer lending in portfolio card future

With up remained the This since growth well. performance highest quarter as supports is XXXX expectation U.S. record the at but XXXX over considering $XXX MCM's year, quarter was an stable up supply in of QX. that strong seasonally by U.S. especially sales collection in be collections a in the year observing calendar strong strong in is usually quarter to strong a in throughout of banks another attractive third are U.S. payment only U.S. that We XXXX, years, highest than surging portfolio quarter. purchasing compared returns. QX This market continued XX of data another will of typical in quarter XX% $XXX lower quarter XXXX. portfolio issuers. the Consumer our not pricing behavior business. compared its credit QX were resulting the million deployments XX% million, our were to QX and Collections portfolio card third U.S. for to supply level MCM in

more continue significantly we volume in We U.S. have ever than the to purchase

the be business the XXXX record In of expected as contrast the for in MCM anticipate been supply forward U.K. unlike U.K., been Given more our to just meaningfully the slowly. portfolio has and as banks increasing year levels hand, to Credit growing to current those another conditions outstandings in much U.S. already in card lending. purchasing commitments consumer have the not we U.S., in as market well recently flow in our returned pre-pandemic U.S.,

levels. in quarter at U.K. In $XXX compared ago. QX remain addition, third Cabot million, year were low the a collections charge-offs up XX% to

continue with We purchases, portfolio were million which to the third be selective quarter. Cabot's in $XX

reflect to believe higher improve, attractive. modest continue still to markets become portfolio Although we pricing the Cabot's costs. until in we at does funding expect more yet returns Accordingly, not continues consistently deploy to it levels

to choosing has our which We focus. are more the well-established higher consistent currently with strategic returns, market, to allocate U.S. capital significantly

It will important During the exited was related to and our primary NPL in market NPL been business, that small secured selling and third of portion the SME note is portfolios, where quarter, has resulting loss we be niche of Spanish focus consumer secured unsecured by in continue pretax a $X million. our to a Spain portfolios.

continue. ago. hand quarters the past the funding up our reminder growth of call performance Encore's Jon increased the over key given is Encore's would QX U.S. I'd X quarters. in our returns. compared collections the like also led our deployment trend reduced a This Cabot purchases, in to $XXX in particularly level the portfolio to that we of in us The to global the quarter a financial ago largest global global in over structure a a opportunities metrics, at QX with cost will next level enables purchases MCM. detailed to portfolio by our continue The expect of structure I deployments business, Global This that meaningful year several fact increased strong now and capital quarter markets recent terms third to majority like XX% third to years. a purchasing. more million, of look the compared to in driven to the portfolio continued portfolio results. We structure the in allocate flexibility U.S. manage collections, Encore's million U.S., with the highlight of XX% for the the has purchases $XXX the purchasing to us. help growth year higher portfolio quarter of was in provides few primarily vast starting prudently were highest in now to to collections drive to third

Thank you, Ashish.

of to forecast secured for related third our purchasing by higher for was would minor the we like U.S. sale portfolios I in strong the quarter NPL our our together another period or positive adjustments Spain from reiterate per quarter earnings share. earnings. which business reduced than quarter, ERC our made of Collections to earnings impact in in $X.XX were $X forecast, exit The and that a to our returns. million third the at attractive also to market resulted

quarter third highlight the were items. to XX% $XXX $X.XX up ERC last quarter like at compared to XX% we and year. Operating scale a to compared I'd In addition, to operating of up collections benefits of of a up year expenses billion, was collections the to QX the million few year remain well in and as growth business. ago. XX% continue leverage were the last QX compared realize end our controlled

have with to an GAAP important EPS GAAP competitive that portfolio we were generation, component quarter which the a mentioned compared margin As the growth the of XX% dynamic strategy. higher strong XXXX. in believe third returns million is XX% current earlier, us generate a net key quarter several XX.X% up over cash respectively, We years Ashish Similar and advantage, significant efficiency result, the to provides to our at a the in ability to cash XX%, year of meaningful a also X-pillar expect trend past and in to cash of increased quarter. ago our income from our continue. $XX third led also purchases to $X.XX of

Our cash to compared of generation XX% in was quarter QX XXXX. up the third

pillar of sheet priority. balance our is constant a As third a strength strategy,

industry us with sources funding diversified It flexibility, provides sheets balance financing with of best financial Our one the unified maturities. our also attractive leverage. global extended structure in underpins and comparatively of

the our cash leverage volume strong third portfolio we those declined generation the expected year, we higher as as of on returns purchases U.S. increased a is our our driven by continued strong the generation, purchases given cash the associated several even and in would. again collections. during pace record with quarters, just this Importantly, for last This it remain purchases over quarter

our our within quarter well the end from competitive of provides compared target very to Our leverage X.Xx costs the down ratio range X.Xx is us our when of at balance third believe XXXX. and We the funding peers. of sheet remains end at

our growing extend Our provides funding In flexibility this sources structure made funding its compete among the and In to us amended our in good funding capacity $XXX environment. facility we our of U.S. XXXX. use its by we from extended and year effectively supply third maturity manage to increase again quarter, maturities. September, to million debt things, financial to, diversified X structure million also diversified and $XXX proactively October to other

secured $X the You broad may recall, expanded establishing senior first a comprised market. to XXXX, we $XXX our million future of deep high-yield of billion issued bonds offerings. the for half X access notes in of U.S. These options total and financing, X our of

While our par XXXX euro proceeds used facility, pay bonds in sterling these we par subsequently our redeem we revolving facility and at from used mid-November. the notes to notes our at October, credit redeem we initially same in plan the to XXXX down to

now have XXXX. effectively maturities no As we a until material result,

by extended that, our extended margin by back to I'd XX million by year $XX and We X its With it to XXXX. like over to in amended Ashish. facility maturity $X.XXX capacity we September credit increased to turn and its October. points basis billion, the addition, reduced In interest revolving

Thanks, Jon.

performance flexibility our Now the strong to change prospects the valuable our in to our that a are factors allocation our would all business over like a that capital We I financial U.S. believe discipline, competitors margin. investing a operational advantage A priorities. by exceed our market, strongly us those for consistent competition. wide provide of position address and

exactly what purchasing long-term offers best capital when by recent returns, so history. we portfolios, as attractive shareholder the opportunity deploying to particularly in we U.S., create our by which are the today's highlighted doing look And at value at market, is buying

at look we as and we challenges, ongoing M&A. seeing opportunities for Now value-creating are the market industry strategic not

own our As another a to firm. than consequence, we are acquire repurchase far more likely stock

flexible range and rating said BB Having a a M&A. as including as strategic several in this the more and by record explicit that, strong well been track strong want past has maintaining of Xx operating be now of our to allocation Although remain balance the return we capital prioritizing implicit over clearly within capital our target by to demonstrated over sheet, Xx objectives. years, critical debt leverage our

low through subject that we and to As to as midpoint the the range, especially range, leverage pace the will of or the end now approaches conditions. in portfolios dealing nears anticipate increase decline. When are repurchases our when time stock also sheet industry, a of work challenges. target balance how even cycle levels, our to repurchases. target purchasing others during can own at expect you are I'd current leverage an continue leverage current number growing from like to their of expect Furthermore, our with and continue a recap resume our our of see to market we we in considerations competitors share we differentiated

market. First, the we debt in are U.S. attractive the largest purchasing player

allows with cash, demonstrated of returns. vintage's the a to more returns. flexibility higher allocate and our earnings which we capital as corresponding to global third, Second, collecting by allocation believe our more in ability we and balance well-diversified This opportunities of purchase majority sheet business turn vital our to buy the our capital current vast us in the a multiples And on U.S. to our generates highest MCM lead is to over the price ultimately more lifetime, portfolios collect

record provides be Against grow In in deployment. favorable third we business our our flexibility our attractive. discipline more highly U.S. times Our closing, backdrop, majority levels, quarter the significant and focusing a to U.K. million returns. which U.S. to in less myriad strong in the expensive. capital and fund at are currently like the are purchases our QX balance deployed to in a performance. to traditional sheet I'd $XXX In provides returns this is until very we continues of in the of where become we ways. Europe, us and become supply our certain also selective maintaining continue more quickly when the advantage Portfolio summarize market to markets This in

We are also rightsizing business purchasing levels. reflect to the Cabot's current

expectations through in purchasing we portfolio ahead is of by and the August, performance QX overall strong Our driven collections. last raised

and our XXXX. As guidance purchase this large to be at of purchasing anticipate global MCM by approximately portfolio raising as our our $XXX compared million a purchasing well as $XXX we result, when This are now continued QX billion, We driven implies an Cabot. at spot purchasing to be increase again. strong $X.XX approximately million is year a to

increase to $XXX be XXXX. now $X.XXX over to expect million over collections when we In growth year-over-year addition, our compared to approximately XX% an billion, of

questions. Now up please we'd happy to questions be any that may you answer have. Operator, open the lines for

[Operator Instructions].

Our from Mark Truist Securities. comes first question Hughes with

the we be be increasing next about think strategies. you of think off we think a about great Is U.S. increase It an should and Ashish, of odds. investing you're therefore, little this allocation started How rate you indication you And How kind for may of charge-offs on should the may that? supply that a the preparing to stage? slowing then or topping you the and you're and got it? refer money. the capital slides the lot end, at at in some seems call meaningfully

it's change -- in the of in no U.S. from market globally opportunities indication we or any Mark, the have. way

I me operation said So discipline our recap. in so The thing important believe was collections and remarks, we the my our most forth. have said it's in thing let of and first and an we whether competitors, I terms investing advantage as

and buying to highest the thing be important So most at strong portfolios returns. the priority continues

in are record. is where at healthy buy track as and and there particularly by which change our clip no a demonstrated So to the portfolios continuing we U.S.,

and in see record to front was lending is a in charge-offs, So a and a be favorable. be even market, it's growth after at if in belief plateauing going very the growth 'XX we no change to continued somewhat in a level on 'XX normalized of terms continues record, a that higher which at level.

be to very supply continues So strong.

So opportunities we on think change along there's is we as allocation X indicate level about change our page. the that capital the priority that ahead. next to parts looking And

kind one stock we see particularly industry acquire as M&A is, likely not strategic at our and we're of And than more another far as to challenges, actually our asked, market repurchase for observing some of peers, when value-creating comes, this So been we do firm. are time own opportunities the first often point. we've

So more and been our priority that's pretty years. allocation demonstrated our over capital track even in in much implicit the important, record

thought be that. we be time, would to it that's as being this So we implied. investors to helpful chose this to our explicit highlight about opposed more to And why

a this market here, we're finally, Again, add that opportunity range, elements, hopefully, sheet. about nothing in of trying market provides capital about end have separate accelerate. kind to BB do U.S. many want what the considerations a the levels, approaches color and of provide are strong that levels X midpoint, we of target therefore, wanted are more sheet we observed, to leverage did balance includes second it to that maintaining And -- to and continue our debt steadily as leverage and sheet None growing of strong it we likely a at our we to to rating, And on that's allocation, strong our likely But provide strong times, purchasing course, repurchases time, balance and changing. to resume X. balance you've color separate conditions. we should color that The always flexibility even are thinking a is will And our some critical. element decline. it And it of the saying approaches our there, -- changes. our if we as stated or investors. within and pace do range -- and to kind there comment X subject as operating thinking is as at are and purchases so of of stock the And is, to we what lower balance it's the of sheet and

the Appreciate I and Cabot paper? not will you out U.S. think multiples the collections XXXX Can on see paper vintages? that the the as the yet, sit for what multiple core detail. collections maybe we is but share they Q

Yes.

you a the the will as Cabot will vintage X.X see you for On vintage a well for multiple XXXX U.S., Q. And see in on X.X our multiple. business,

Is on? -- your happen you a of same both Did fourth And properly? the broader there for on spot large of also the Or purchase a something large at purchasing. in strong then going And to some quarter. Okay. opportunity hit the you in I part that European hear had competitor Europe? Cabot trend? large Is the that mentioned time

Yes.

So can kind of about comment view. our I

you it around heard So million QX, correctly, that expecting we $XXX Mark, in purchases. in are

X is on U.S. MCM spot an opportunity. one got of that there as Cabot things: purchase based in continued purchasing, that's Now purchasing we but as kind strong well normal larger

know, higher in Europe, because U.K. in lumpy and you there's of purchasing can and a more spot prevalence -- As U.K. and quite be there's that's quarter-to-quarter, deals Europe

And those. you win sometimes

what So that's happened.

part market your of reflecting capital. environment to but the the over fully improving, terms time, of question, it's yet In steadily not overall cost it's terms of kind in other of there of second

competitive. It been improving has or year months. X maybe still So over last or the XX

as full provide a purchasing we were therefore, And the So opportunity, trend. to year wanted we advance given we've to get spot to this it's that one and over clearly you. in good able

And one then more. just

picture, going be to cash we there With those so stable? think prospects efficiency? about how for portfolios work are aggressively cash cost the continue lot you to strong purchasing, the Is should the Or leverage a should of strong relatively it and there? flow, collections,

faster than point. on I are collections think growing expenses. hit our an you I mean important

operations, effect investments So scale overall, whatnot. we technology leverage. improve our are and But operating seeing drive and you're to continuing

would continue XX% from collections that one just quarter. our current that see. And scale a improved the I typical trend in expect to So effect in way, to XX.X% steady should efficiency margin

with Our Grondahl Northland. next question comes from Mike

U.S. Did have you Do and as the you of disclose collections a of percent kind those for expectations both numbers? Cabot?

Mike. Yes,

disclose that a presentation, footnote. in our in So slide do we

expectations XXX% is and that is to versus just the it's XX%. percent of for NCM this XXXX, Cabot U.S., as So in December clarify, is for XX, Encore, XXX%

I emphasis stretch fair of of forma a priority to about it would to it's million think that this you think it buy reallocation like can on a sort little do your million of kind Ashish, paper, a process, Is And buy pro to doesn't wild of kind and lower. if about fair that, seem the or thinking $XXX be Great. $XX at stock buyback? it increasing you million million fair way $XX just stage? repurchase $XXX increased bit or is of of discipline it's especially that mean in as that adds a the Okay. of the quarter the

back what first do. the Mike, which I priority returns which portfolios would so continue we buying to said we our strong at anchor in remarks, is is, to

And that at and same therefore, you We levels resume you and we an what's are if happening the we to M&A strong collections, can we continue we time. as once wanted can multiples repurchases. high are, to our strategic clarify even, of Now is seeing the opportunity, even kind of that we do at range, buy and not strong leverage given come levels midpoint stock both delever. if that growing continues, to

balance strength considerations and paramount. those Now are sheet all

But midpoint something So on. range. we it focusing about always at that's to of the how we want the that's think will be

levels even given opportunity delever while growing portfolio the And #X priority buying strong levels. we is buying again, see. we at continue to expect continue very that, the to Before to or

Got And is it. place? buyback have much you And active how an it? in do on left

is remaining that. on an active million Yes. About $XX buyback There authorization. is

or you then about bps you XX% Fed little recall And XX of thumb Fed give guys? how cut debt I of sort of to bps. think ago, us that the for will translate Okay. your XX going down Any can about float. a and Jonathan, If bit the XX rates how right, rule

floating what's today. level on Yes, question. to fixed just And great set you and

XX, fixed look If we're what's hedged, September about we actually at as of were XX% you and -- -- our fixed.

the I about you XX, the September use RCF continue it, our could impact. So there'd we bonds XX% to a that, as guess... tell little I XX% when refinanced early to floating. you you retiring range that think as be no be in -- But of year, And as could up we'll back to we to of

that Is by year-end?

be by Yes. would That year-end.

XX... Okay,

We've already do second and month. done the this one, we'll

Our Dodd next with Raymond Robert from question James. comes

presentation clarity, for the you capital allocation Thank on clear priorities.

is question pretty the year-over-year legal. have I So given Bob, -- the sequentially. in is is the Not significantly I quarter surprisingly, up expense Obviously, -- on legal purchasing. mean, should But should we all mean, I expect would to continue? the very that And process 'XX, I are, purchases growth had now. in you in those 'XX. legal obviously, 'XX, purchase strong assume, start this flowing into

So process? not this beginning years through is slower, new I a a level, the a kind level maybe couple but ramp purchases the that but of mean, of last continued as flow set, of

Yes, Robert.

are So they process. as the going legal through we increasing start levels, buying

we as continue try steadily process. But as purchasing prior expenses many rise. and of resolve of kind expect very to to is to the legal Now rising, consumer-focused be to accounts volume can legal you the

improved in that see margin the we leverage, continue overall point to operating of to repeat the I'd collection which expect terms overall, Now structure. is efficiency cost

showing Instructions]. back further this [Operator Masih no at for Mr. closing time. now to like questions it to turn I'd I'm remarks.

time our for year fourth us quarter results February. forward we to in to Thanks today, taking the and full providing join look and

This for you participation conference. the your concludes today's Thank in program.

disconnect. now may You