Encore Capital Group (NasdaqGS:ECPG) Q3 2025 Earnings Call November 05, 2025 05:00 PM ET Company ParticipantsTomas Hernanz - EVP and CFOAshish Masih - President and CEOBruce Thomas - VP of Investor RelationsConference Call ParticipantsLogan Hennen - AnalystRobert Dodd - AnalystMark Hughes - Equity AnalystJohn Rowan - AnalystZach Oster - AnalystOperatorGood day, and thank you for standing by. Welcome to the Encore Capital Group's third quarter 2025 earnings conference call. At this time, all participants are ...

Financial Data and Key Metrics Changes - Portfolio purchases in Q3 2025 were $346 million, up 23% compared to Q3 2024 [4] - Collections increased 20% to a record $663 million [4] - Average receivable portfolios rose 16% to $4.2 billion [4] - Estimated remaining collections (ERC) increased 10% to a record $9.5 billion [4] - Earnings per share for Q3 2025 were $3.17, up more than 150% compared to Q3 2024 [4][18] - Leverage improved to 2.5 times at the end of Q3, compared to 2.7 times a year ago [4][18] Business Line Data and Key Metrics Changes - The MCM business in the U.S. drove strong performance, with portfolio purchases of $261 million in Q3, a 13% increase year-over-year [12] - MCM collections reached a record $502 million, up 25% compared to Q3 2024 [12] - Cabot's portfolio purchases were $85 million, higher than historical trends, with collections of $160 million, up 8% year-over-year [14] Market Data and Key Metrics Changes - U.S. revolving credit remains near record levels, with elevated charge-off rates driving robust portfolio supply [10] - Annualized net charge-off volume in the U.S. was estimated at $55 billion, significantly higher than previous years [11] - U.S. consumer credit delinquencies remain near multi-year highs, indicating favorable purchasing conditions [11] Company Strategy and Development Direction - The company employs a three-pillar strategy focusing on large markets, competitive advantages, and a strong balance sheet [8] - The focus remains on purchasing portfolios in the U.S. market, which accounted for 75% of capital deployed in Q3 [9] - The company plans to exceed $1.35 billion in global portfolio purchases for 2025, with MCM expected to surpass its 2024 purchases [22] Management's Comments on Operating Environment and Future Outlook - Management noted stable consumer behavior despite macroeconomic uncertainties, with no significant impact on payment plans [49] - The company expects continued strong performance in collections and cash generation, driven by operational improvements and technology deployment [64] - Future acquisitions are considered but will be approached with caution, focusing on opportunities that create sustained shareholder value [68] Other Important Information - The company repurchased $10 million of shares in Q3 and nearly $25 million in Q4, totaling approximately $60 million year-to-date [5] - An additional $300 million was authorized for share repurchases, reflecting confidence in future prospects [21] Q&A Session Summary Question: Insights on fourth quarter purchasing - Management confirmed robust purchasing conditions in the U.S. and reiterated guidance to exceed $1.35 billion in purchases [28][29] Question: Comparison with peers on purchasing - Management stated that their strong purchasing reflects favorable market conditions and opportunities not taken by peers [31] Question: Collections multiple for U.S. and U.K. core paper - The collections multiple for both U.S. and Cabot is 2.3, stable throughout the year [37] Question: Impact of new technologies on operations - Management highlighted significant improvements in collections due to the implementation of new technologies and digital capabilities [42] Question: Sustainability of collections overperformance - Management expressed confidence in the sustainability of collections performance, driven by MCM's operational excellence [64] Question: Future acquisition opportunities - Management indicated that while acquisition opportunities are monitored, the focus remains on portfolio purchases due to reliable returns [68]

Financial Data and Key Metrics Changes - Encore Capital Group reported a record global portfolio purchase of $1.35 billion in 2024, a 26% increase compared to 2023 [20][21] - Global collections reached $2.16 billion, up 16% from the previous year, driven by higher portfolio purchases [22][24] - Cash generation increased by 20% year-over-year, reflecting strong operational performance [23] Business Line Data and Key Metrics Changes - Midland Credit Management (MCM) achieved portfolio purchases of $1 billion, a 23% increase compared to 2023, with collections growing by 20% [26][27] - Cabot Credit Management's collections increased by 8% to $588 million, with a significant deployment of $200 million in Q4 [34][35] - Cabot's portfolio purchases rose by 36% to $353 million, primarily due to opportunistic purchases in Q4 [35] Market Data and Key Metrics Changes - The U.S. market saw a rise in revolving credit and charge-off rates, creating favorable purchasing conditions for Encore [24][25] - In contrast, the UK market experienced slower growth in supply and low charge-offs, impacting Cabot's performance [29][30] Company Strategy and Development Direction - Encore's strategy focuses on market selection, emphasizing regions with high risk-adjusted returns and strong regulatory frameworks [18][19] - The company aims to maintain a strong balance sheet and leverage ratio, with plans to resume share repurchases in 2025 [14][45] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the U.S. market's favorable conditions for portfolio purchasing, expecting continued growth in collections and cash generation [24][25][48] - The restructuring actions taken at Cabot are believed to position the company for a more predictable performance trajectory moving forward [34][80] Other Important Information - The company reported a decline in its leverage ratio from 2.9% at the end of 2023 to 2.6% at the end of 2024, despite record portfolio purchases [14][41] - Significant non-cash charges related to goodwill and restructuring impacted reported financial results, but underlying business strength remains robust [39][43] Q&A Session Summary Question: Inquiry about Cabot's moves and confidence in resolving issues - Management acknowledged the challenging market environment in the UK and Europe but expressed confidence that the issues at Cabot are now behind them due to recent restructuring actions [51][56] Question: Cash efficiency and operating expenses for 2025 - Management indicated that cash efficiency margins have improved, with expectations for continued operational leverage as collections grow [63][72] Question: ERC reduction specifics - The ERC reduction at Cabot in Q4 totaled approximately $453 million, with significant impacts from older vintages and market exits [74][78] Question: Future purchasing mix between Cabot and MCM - Management expects MCM to continue to dominate purchasing in 2025, with Cabot's purchasing levels anticipated to decline from 2024 [100][101] Question: Comments on pricing in the U.S. market - Pricing remains stable, with strong returns expected to continue driving collections and cash generation [80][81] Question: Confidence in the new models driving purchasing decisions - Management expressed high confidence in the new models used for pricing and purchasing, noting that recent vintages have performed well [122][123]