Encore Capital Group(US:ECPG)2021-11-04 02:57Financial Data and Key Metrics Changes - In Q3 2021, collections were $567 million, up 5% compared to Q3 2020, with MCM collections growing 4% to $407 million [19][20] - Revenues increased to $413 million from $404 million in Q3 2020 [20] - The leverage ratio improved to 1.8x, down from 2.4x at the beginning of the year, and is now below the target range of 2x to 3x [7][17] Business Line Data and Key Metrics Changes - MCM's legal channel collections grew 22% compared to Q3 2020, reflecting the reopening of courts [19] - Cabot's collections in Europe increased by 10% to $155 million compared to Q3 2020, with year-to-date portfolio purchases totaling $197 million [14][19] - Portfolio purchases in Q3 were $168 million, nearly matching the $170 million from the same period last year [4][19] Market Data and Key Metrics Changes - The U.S. remains the largest market, with MCM delivering strong performance despite lower supply due to fewer charge-offs [12][19] - In Europe, collections performance is returning to normal levels, with a 10% increase in Q3 collections compared to the previous year [14] - The market is experiencing upward pressure on pricing due to low supply and increased competition [27][28] Company Strategy and Development Direction - The company is focused on maintaining a strong balance sheet and executing a disciplined capital allocation strategy, including a $300 million share repurchase plan [6][7] - A $300 million tender offer is being launched to return capital to shareholders, reflecting confidence in future performance [8][9] - The company aims to capitalize on future opportunities as charge-offs are expected to rise, positioning itself for increased portfolio purchases [10][46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate uncertainties and execute its strategy effectively [22] - The company is prepared for the new CFPB rules, which will modernize consumer communications and enhance engagement [13][39] - Management believes the current market conditions indicate a potential bottom in purchase volumes, with expectations for increased charge-offs in the future [42][46] Other Important Information - The estimated remaining collections at the end of Q3 were $7.9 billion, down 7% from the previous year [20] - The company has $130 million of non-client cash on the balance sheet and $864 million in available capacity under its global RCF [20][21] - The company has a strong cash generation capability, with a 15% increase in cash generation over the past 12 months [15][16] Q&A Session Summary Question: Funding for the $300 million tender - Management indicated that the funding would likely be a mix of cash on hand and incremental borrowing, with $130 million in cash available [24] Question: European market supply and pricing - Management noted that supply is constrained in Europe, leading to upward pressure on pricing, but expects some increase in charge-offs in the future [27][28] Question: Impact of the sale of the Colombia and Peru business - Management confirmed that the loss from the sale would not impact future collections as those portfolios are no longer part of the business [31] Question: U.S. competition dynamics - Management described the U.S. market as stable, with traditional sellers still active, but noted that charge-offs are at a low point [32][33] Question: Insights on consumer savings and potential supply - Management acknowledged a decline in consumer savings and rising early-stage delinquencies, which could indicate a future increase in supply [49] Question: European market supply outlook - Management indicated that while the U.K. market tends to cycle quickly, Europe is starting to see banks address historic NPL levels, which may lead to increased supply [51]