Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Encore Capital Group Inc (ECPG, Financial) reported a continuation of strong performance with sustained portfolio purchasing in the US and double-digit global collections growth.
- The company achieved record portfolio purchasing in the US, deploying $237 million in Q2 at strong returns.
- Global collections in Q2 were $547 million, up 15% compared to the same period last year.
- GAAP net income of $32 million and GAAP EPS of $1.34 in Q2 were up 22% and 24%, respectively, compared to Q2 2023.
- Encore Capital Group Inc (ECPG) raised its 2024 guidance, anticipating global portfolio purchasing to exceed $1.15 billion and year-over-year collections growth to be approximately 11%.
Negative Points
- The European portfolio purchasing market remains competitive with pricing not consistently reflecting higher costs of capital due to higher interest rates.
- Cabot's portfolio purchases were reduced to $42 million in Q2 due to selective purchasing in a competitive market.
- Operating expenses increased by 8% compared to Q2 last year.
- The leverage ratio, although improved, remains at 2.7 times, indicating ongoing debt management challenges.
- The company faces potential risks and uncertainties that could materially affect actual results, as highlighted in their SEC filings.
Q & A Highlights
Q: Jonathan, did you give the collections versus expectations for the UK and the US?
A: Hi, Mark, this is Ashish. I'll jump in. In terms of against the expectations of December 31, 2023, globally, we performed at 101%, the US was 104%, and Europe 97%. In constant currency, those numbers become globally 102%, US stays at 104%, and Europe is 99% against expectations.
Q: What is your collections multiple now on the 2024 paper in the US and UK?
A: The year-to-date multiple on US vintage is 2.3 times and for Europe, it is 2.1 for 2024 vintages year-to-date.
Q: How about the availability under the credit facility?
A: Right now, with what we've done with the bond deals, it's the full commitment. So it's $1.2 billion.
Q: How is the interest expense going to play out next year?
A: I think I'll beg off on quantifying much into 2025 at this point. In general, we do expect the trends we've seen this year to continue into next year, assuming the interest rate environment remains stable.
Q: Are there any consumers opting for longer payment plans or other signs of a more stressed consumer?
A: The US consumer has been very stable and consistent. No deterioration in payment rates or ability to stay on payment plans. It's a normalized environment compared to 2019 pre-pandemic.
Q: Does the global credit facility have any limits on how much can be deployed in the US?
A: There is no restriction. We will deploy dollars where we see the best returns, which could mean a heavy skew to the US for a period of time.
Q: Can you give us any color on the changes in curves, recoveries, etc., in the quarter?
A: The performance above forecast was about $27 million, and the impact of NPV on curve changes was about $21.7 million, netting a positive $5.7 million in terms of total CECL impact for the quarter. The numbers are small and more about forecasting refinements than major vintage performance or consumer behavior.
Q: Is the increase in legal collections expense indicative of a rising trend?
A: The increase is part of the natural growth in purchasing, all coming from the US side from the MCM business. The overall legal collections as a percent of total for MCM was in the 35%-36% range, similar to Q1.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
