Encore Capital Group(ECPG) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Encore's global portfolio purchases increased by 34% in 2023, reaching a record $1.074 billion, with U.S. deployments leading the way at $815 million, which is double the amount purchased in 2021 [1][8][97] - Estimated remaining collections (ERC) at the end of 2023 was $8.2 billion, up 8% year-over-year, while operating expenses increased by 29% compared to the prior year [31][32] - The company reported a net loss of $206 million, or $8.72 per share, primarily due to a $238 million goodwill impairment charge, which has no impact on liquidity or operations [112][103] Business Line Data and Key Metrics Changes - MCM collections in 2023 were $1.3 billion, while Cabot's collections were $544 million, down from $553 million the previous year [105][102] - The U.S. market accounted for 76% of portfolio purchases in 2023, compared to 56% five years ago, indicating a strategic shift towards higher return opportunities [9][18] - The company added over 500 account managers to MCM's operations in 2023 to expand internal collections capacity [98] Market Data and Key Metrics Changes - The U.S. debt buying industry experienced rapid growth in portfolio supply, driven by increased lending and rising delinquencies, while growth in the U.K. and Europe remained muted [8][10] - U.S. consumer credit card delinquencies are now well above pre-pandemic levels, indicating a favorable environment for portfolio purchases [94][96] - The competitive environment in the U.K. remains challenging, with low charge-offs and a slow recovery in credit card outstandings [10][102] Company Strategy and Development Direction - The company employs a three-pillar strategy focused on disciplined portfolio purchasing, maintaining a strong balance sheet, and enhancing operational efficiency to build long-term shareholder value [5][28] - The company plans to continue allocating capital primarily to the U.S. market, where it expects to see significant growth in portfolio purchasing and collections in 2024 [25][40] - Investments in technology and digital capabilities are ongoing, with a focus on enhancing consumer engagement and collection efficiency [106][116] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about turning the corner in operational and financial results in 2024, supported by a robust supply pipeline in the U.S. [2][25] - The company anticipates collections to grow by approximately 8% to over $2 billion in 2024, with portfolio purchasing expected to exceed 2023 levels [35][34] - Management acknowledged the volatility in financial results due to CECL accounting standards but emphasized the underlying strength of the business [29][114] Other Important Information - The company reported a goodwill impairment of $238 million due to low purchasing levels at Cabot and declining valuations in the debt purchasing industry [103][39] - The company has extended the maturity of its Cabot securitization facility to September 2028 and reduced its size by £95 million [22] Q&A Session Summary Question: What is the reason for the goodwill impairment? - The goodwill impairment of $238 million was due to persistently low portfolio purchasing by Cabot and reduced valuations of competitors in the debt purchasing industry [39][103] Question: How should we think about purchasing levels at Cabot? - Management indicated that purchasing levels at Cabot are expected to remain low until market conditions improve, focusing on higher returns in the U.S. [40][44] Question: What percentage of forecasted collections were collected in Q4? - In Q4, MCM collections were better than 96% of forecast, while Cabot's performance was slightly below expectations [52][34] Question: How much goodwill remains for Cabot and MCM? - As of December 2023, goodwill remaining is approximately $457 million for Cabot and $149 million for MCM, totaling about $606 million [58][59] Question: What is the outlook for cash efficiency and leverage? - Management expects collections efficiency margins to improve in 2024, while leverage is anticipated to remain below 3 times [82][35]