ECPG - Earnings call transcript Q2 2022 | Encore Capital Group, Inc.

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Operator

Good day and thank you for standing by. Welcome to the Encore Capital Group's Second Quarter 2022 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 for today, Mr. Bruce Thomas, Vice President of Global Investor Relations for Encore. ahead. go Please

Bruce Thomas

Good second operator. welcome Encore to Thank XXXX afternoon earnings Group's quarter call. Capital you, and

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

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

In forward-looking materially of and uncertainties. and from risks discussion for to addition, differ statements. potential uncertainties. risks forward-looking filings today's discussion refer Please will statements subject detailed these could our include Actual results SEC to a

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

Form will to Reconciliations was are in financial our also earnings financial the most on earlier non-GAAP be which measures We comparable GAAP included X-K measures. presentation, today. discussing directly filed

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

Ashish Masih

highlights. in important Bruce, good some better you performance Thanks, QX. results, quarter operating begin afternoon, for Thank with To joining everyone. another understand and strong us. Encore of delivered let's our

collection the year. were but resulted collections portfolio first an much This quarter higher to QX; Our a scale. expectations our million, to financial performance quarter results XX% in a in in period were on compared purchases in in up by global last second smaller basis, second the the to of this On U.S. the and future revenues year increase our $XXX within impacted quarter MCM business again better-than-expected led similar

We relative continue our to returns to attractive competitors. purchase at

delinquencies portfolio of are grow rising. their rising industry. that have indicators lending our growth continues for and levels In are banks delinquency increased forward, past, supply lending leading Looking the and to reporting strong been

priorities, quarter. to and Finally, allocation second of repurchased in capital shares the we solid consistent Encore $XX with as strong our deliver million we cash returns and flows, continue

As context, role critical of business outcome ecosystem consumer we understand assisting it's in expected lending resolution debts, helpful an to in believe I the which model. credit play the of unpaid by are the the

freedom consumers and Our purchase what is the And consumers resolve funding attractive debts respectful while can empathetic, mission minimizing nonperforming is to their we loans help costs. in We to honest, so conversations. look on returns engaging at by to that they important of them. to focus regain do portfolios

objectives strategy. instrumental future through positions performance, of portfolio For to an strategy exceed maintaining these us us is three and level building We value. we as well that on believe our achieve each ensuring cost deliver well enables financial compliance we capitalize and pillar the both collection highest we as This focus. expectations structure consumer opportunities, efficient shareholder outstanding to long-term strive our to in consistently own, while

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

charge-offs, sales As by to resulted the led balances lower economy credit in XXXX, of support has consumer below the and lower portfolio pandemic behavior in and emerged government in average card in changes banks. which turn

lending. rising been banks as growth now early since However, XXXX, in are reporting outstandings have

continued surpassed into We will balances lending the believe revolving now fact, credit in and will them. their charge-offs that freedom, translate means be their order sales team support and ready that looking to more card of recover has in while In resolve by economic pre-pandemic stands the course. lead our U.S. growth credit to to in due to more continue to also levels, levels banks U.K. in portfolio debts higher consumers This regain

Turning quarter million, normalizing MCM now due to were XX% collections U.S. the in QX valuable compared in second consumer $XXX our of similar of future behavior market. quarter and $XXX quarter increase much year, the primarily largest QX, decline to to resulted down to was and million, market last purchasing this purchased the most year. remaining scale. or lower ERC. in collections MCM to sustained an us in $XX our all collection to same In of the additional portfolio XX% to smaller million but regard outperform year purchases which again led in expectations. continues portfolio quarter second supply year, in quarters. book result raise increased recent on the this were the portfolios in before collection back $XX first last of MCM were a at contains of expectations, to when operation With million U.S. this and performance over compared our the This we estimated This the

U.S. the price believe MCM's a advantage. somewhat also purchase pricing We reflect had to continue has seen we that multiples recently competitive plateaued. in higher

has with year, decline exchange QX business Turning Cabot the million, Cabot the purchasing Market compared recent of quarters. in keeping in Cabot of compared QX $XXX to in Europe. we've portfolio compared discipline collections and collections year. million, million, to in In lower year. inconsistent of to our due to $XXX the QX were in highly primarily currency, last XX% portfolio to only our X% portfolios. $XX of impact second down quarter In million strategy, buying portfolio purchases second purchasing quarter, In maintained representing were competitive. foreign been remains supply last and a constant $XX of were last currency

second A generate our to flow. cash advantages. competitive focuses significant The competitive enhancing us strategy enables on of platform pillar our

quarters behavior. impacted this in line as has levels. that reverse lower portfolio purchasing to portfolios the of been well expect recent begin resume Although in cash by higher to our trend pre-pandemic after volumes we generation purchasing are consumer we as normalization of with Nonetheless, more

returns. deliver us Our differentiated to competitive advantages also allow

of important our collections underlying as long-term Accordingly, generation, of investing performance well our both our as return which is one another cash returns. to strong measure the considers invested fundamental is our risk ability addition the financial when appropriately business our priorities business capital, our that delivers operation to price of In capital. on

ROIC for favorably those our revenue on Our by we continues expectations. reflecting ERC, which portfolios of impacted higher effect increases returns the recent raised performance to be in our collections

times The of the third of pillar contributed end time. balance operating higher makes quarters strong to more have our ratio of strength industry. times deployment to to lowest focused consecutive look Jon significantly I'd X.X capital ago, reduced We over many at the ahead. our year a flow over leverage to the sheet for and of lower that our lie our sufficient constant driven and detailed our in compared financial debt, strategy to A levels of cash positioned have call over remains results. which near turn leverage priority. was well a liquidity quarter, now the like opportunities the capacity level performance fund remain a second with a At the and and X.X in the hand

Jonathan Clark

contributed XX% the in million expected GAAP part collections performance a accounting the beginning second Thank When keep comparative by you, from future at in The expected. that revenue Ashish. mind collections was for were recoveries than this largely last of changes to extraordinary resulted lower basis consumer EPS second of corresponding $XXX second in a quarter decline In level purchasing behavior revenue down the the line recent and behavior. of returns and that on and ERC quarter elevated of combination Collections since of second extraordinary XXXX but in QX. the comparing expectations compared and year the QX the collections earnings were mentioned our normalizing over U.S. was the of in additional quarter of contributed quarter normalized the XXXX. driven ago, to year increases million higher future second and added the increased QX, for $XX and the earlier, higher quarter The portfolio in in the in has in in in the consumer quarter. collections quarters the and $X.XX we to year primarily

For the December XXst, at as Encore's the collections end was our XXX% through global of of portfolios period the quarter portfolio XXXX. of for second forecast owned XXXX, performance ERC

through the result QX For with In the same were second respectively. QX, and compared currency second forecast, million, collections the by Europe, to on ago. With ERC largely in the generally $XXX in expectations. weakening XX% has to Cabot, down reported collections separation year on weakness Collections the in this U.S. through our underperformance through the Revenues dollar XX%, measure, a regard the of collections a MCM of created currency the in XX% basis with relation Cabot's a constant U.K. were in XXXX quarter Spain. were of results. XXX% between to of constant quarter line was constant for performance a and QX pound the in basis and case, currency

due Our capital structure effect for which in costs, players We non-client the we sheet turn global competitive available balance $XXX quarter, strong sheet, all and group. like moderating a million, including to of increasing under benefits environment, fund At to global that, current lower the to on concluded extended provides With funding over relative to the quarter Nonetheless, pricing. RCF industry was financial funding Ashish. to to have in flexibility, the of lie and second very that our balance ahead. capacity portfolio costs sufficient many sources, funding end diversity is $XXX opportunities the capacity rising which us the provides capital of million cash Encore, believe maturities. with rate our interest back of and it liquidity the the peer our cost I'd is should

Ashish Masih

comparisons quarter last of has months. was for as biggest changed year over But it charge-offs last during meaningfully strong part second XX performance. The to collections the same in last ever. consumer The Though normal. to behavior important another record drove the also has was in the to note QX Encore's time behavior quarter collections returned largely Encore U.S. operational this and difficult, are contributed a period year supply period. portfolio to is consumer same reducing that It that lot

are we previous to the have credit continuing discussed see in the we that However, normalization quarters.

are will and have the to financial their supply resolve Europe health, we in This, As portfolio the with inconsistent. critical them in play ready ecosystem. their our consumers mission help the U.S., the we remains more support, means in role a consistent result, supply debts credit an although course, of we in and restore and our to see consumer increase need started

portion ahead, few look upcoming the key of we unfold will As cycle. the during we factors anticipate a

two on behavior. consumer purchasing, lower the one after On we our hand, next the normalization coupled expect earnings few of the for of years pressure quarters, with

capital, supply the we hand, are particularly with portfolios, balance consumer such and the of amounts to we are deploy operators strong of believe are increase other in and really the Encore, best the driven positioned purchase position to players that entering. to liquidity, increasing by the being sheets, as benefit portion the we normalization I to now On behavior. expect like access in U.S., same in the capital are from we cycle as who of experienced line have

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

Operator

Instructions]. [Operator

comes Hughes line from question Truist of first Your Company. Mark of the

Your is line open.

Mark Hughes

you. Good afternoon. thank Yes

Ashish Masih

Hello Mark.

Mark Hughes

should Any over Ashish, earnings when a mentioned and about next the think on we year earnings what what think on think few do year, couple that, adjectives you sequentially? desire you to to quarters. of pressure throw pressure we

Ashish Masih

for thanks Mark questions. the

because we before, term. recap we the say, guidance few do did this our had. we've we explain quarterly next And we So think say the earnings be did pressure stated but elaborated -- about under I increase. over long prepared let this, a not further, to quarters, just over our on that will I is as What business to the me deployments and for remarks provide I've expect

pandemic, years XXXX this at they XXXX, savings excess had actually. very higher So And two during cash, and card had and and paid balances of -- and down their much effects debts rates. consumers the at

full also same behavior purchasing consumer this collections earnings. our led two And consumer below was drive behavior years. for secondly, particularly a levels for resulted to helped which -- us in an in the and of period charge-offs, lower extended U.S., historical First behavior, well exceptional time, of

normalization we but it have and as U.S., in compared in ways is today payment this and well. of in the we as to Banks years. portfolio to calls, are is impact normalizing credit charge-offs again behavior the particularly XXXX, opposite purchasing the also supply, collections, rising, and example, meaningful purchasing earnings our going Consumer now, our improvements when see collections prior relates delinquencies it their observing portfolio as two but consumer are both and and normalizing. we middle However, are to growing stand called for behavior on we in

I'd may impact trends fully In just in the and So key I in -- take out summary, on highlight to audience play we message fact good a given strong a to these quarters like play to earnings. take collections that increasing, stand you away want would away in out just and our for operational our the is now it very to that few sheet, supply summary, balance underscore the is terms take of and place today. capabilities, and that

Mark Hughes

run just rate think benefit that, I quarter's other make and from out, that change the this take that about think kind any Does if just point to expected we apply maybe the factors we back $X.XX $X.XX, if sense? that that? then if mentioned we starting and is recoveries, in a we Jonathan, of you

Jonathan Clark

so we impact understand on could was there, the everybody what Yes, the put in Mark, quarter. that that

here I to where you even guidance really take think I to -- that do to do is avoid soft we want from people. up you. providing

we back number that view. out, long-term it but you. expect take So I would that be leave you a to for reasonable to I'll do

Mark Hughes

quarter, multiple Very you the year-to-date, those new will second that yet, And multiple? for you see if then I the acquired can share think Q we in good. number of I you out portfolios what but collections but don't the And terms in is numbers? know presented the

Ashish Masih

see and for purchasing what Yes, will is Q year-to-date is the out, MCM. That's for X.X. Mark, you

see will you For X.X. Cabot,

Mark Hughes

going good. Jonathan, then, Okay. XXs, rate the good tax quarter, in number high that's the a forward? And Very

Jonathan Clark

think, as for in I XXs Mark, I'll I think past, said we've at peg year. us the mid-to-low still the

Mark Hughes

million? me. share you for Okay. much pace, And Is authorization? or what we should good a then the capacity on pace? availability more how do this about then one think $XX The And buybacks, just the have

Ashish Masih

million have was repurchases end of to Any the it's So, Mark, are plan. subject million QX, the is before, said as by our authorization $XXX we at And $XXX Board. multiyear a remaining.

strong as our timing As strong authorization. and to subject well balance we've but said, sheet, remains million performance, $XXX are financial in of $XXX purchase sizes as million continuation liquidity,

Mark Hughes

you much. very Thank

Ashish Masih

Mark. You’re Thanks welcome.

Operator

line Mike Grondahl Your Northland from next of is question the from Capital Markets.

open. is line Your

Mike Grondahl

thanks. guys, you just into Ashish, Hey could go detail. bit more little a And

You you're more said the U.S. in seeing supply.

want you're that paper? of better. bidding more Just Is that maybe banks, help greater to little us -- understand a better. more understand a bit that on volume just I just

Ashish Masih

Yes, Mike, question. that's a great

said increased same observe, selling. before, the and in rate continued lending, example, is back look up to steady are the the what And trend terms we reporting sell, how of ticking over volumes reading a for from in earnings pretty I've those reports you the all very used way forward charge-off as are observe clearly last banks agreements months, U.S., is, clearly before upward cases, kind general, several contracts. see in we sell to if in in the and that So banks slowly. And are banks the we the to is pandemic, and flow of And all for are and the some still starting trending. they're can we

dollar what the above is volume pre-pandemic And level. back is So combination drives of the charge-offs. lending

is So in and the the sales increases charge-off showing U.S. pretty meaningful supply by combination banks the in steady and

Mike Grondahl

overall? expenses? at overall the that tighter? to how and you you were thinking a Got just a Do with lower next few are about about quarters? be you they How then it. are And operating want you Are little expenses thinking today you wish level and operating

Ashish Masih

returns a our of expenses have strategy of then So part as we know. variable our and operating Overall, the overall on the operating you portfolios. to they think component fixed as maximize relative expenses, component,

collections should the to we that control in as balance, migrate often of and versus channels, So, for the each versus on the and accounts our non-paying we improve. unsecured, are fixed average of as for decrease happens minimize example. expenses it course, expenses And But looking of channels, it's example. portfolio lower-cost purchasing, depends to paying also whether for mix it's whether U.K., secured

the So expense levels. will that drive

productivity In automation mitigate so impacts, and been terms inflation forth. we've by and of that to improvements able any

In as terms using. be well. would efficiency of we somewhat a the to now that's have metric I pressure expect that margin, cash been under

earlier, we're the purchasing volume that while, starting we've of pressure to increase As had a the collections be mentioned lower now for quite I will under given but that.

Mike Grondahl

you can results? the Got it. you about just consumers how mentioned that's if can you what impacting, impact more And then any, maybe on was, words, want or offset. so lastly, -- I the can What we don't inflation take muted that, but say to say understand

Ashish Masih

can and Yes. imagine. front No, center, you a is and question, as inflation that's great

alluded inflation but I there is, two little to say, are So bit, types impacts. I of it a would

on is business. our first The

to So, consumer any seen impact behavior inflation due on date, not we collections directly. or to collections, have consumer

has the behavior a normalized strong ago couple coming payment consumer a that particularly the rates overall, down ago. in Now, from U.S. -- saw we year of years the

collections on not any we impact. So seen have

been inflation, of feeling, In that -- terms base. able to wage terms expense and as everybody is we our cost mitigate have in of on

the that's business So impact.

In on we seen our not collections, but ready the to we've consumers, consumers. impact terms of stand help

do, or them And difficulty. As of to helping just impact of them and the consumers imagine, a inflation starting reason, are you financial can of difficulty, we different in expense business one that many regardless increases. our as reason new is reason could always is face cause

in flexibility, have. hardship terms of we options payment payment skip them we and that So length policies plan, payment even the payment, our a have of for amount,

with help be the on So ones financial may expenses personal impacts situation. inflation those we have a whole of who range their to of facing for the tools and consumers household

Mike Grondahl

it. Got

you. thank Okay,

Operator

from Dodd Robert Raymond James. from is question next your And

Your line is open.

Robert Dodd

can economic a timing mismatch. often impacts ahead collections of in a the little the potentially bit On that sometimes Hi periods stress this consumers of supply coming, of past, be guys. on theme,

said you it. to for do so not As really Do example, these you pressures you seeing has Walmart we're on expect you do kind it expect earnings, inflation far -- impacted of expect way that think this cycle? to ahead level not of going the Or that you have out to maybe it's any impact going defaults on do the just up? collections play

Ashish Masih

the cycle the we about up quickly in see, pressure Robert, then and over talked little on did bit term. let's of a collections, bit say, in a The is the maybe we Recession, we it time. made Great X%, past, than different long U.S., X%, more this pretty have

be the higher. time, they Now very rate they it's unemployment if normal got get difficulty. different. this given will jobs economy now People a even Right low financial a unemployment much recession, feels bit In rate. lose can into it,

So it's is behavior hard banks in than payment pandemic, are people of different that's And is also normalization to issuers. has say. seeing, the Because the impacting card credit and is excess sure, which What savings. past. normalized. we for That happening, the had

So their rising. delinquencies and charge-offs are

ago year So we from saw the bottom we are seeing in a steadily. pretty increases that supply

back it's and levels, steady Now in not way. very rising pre-pandemic up it to a meaningful but is

and to a forth, been as good and so I -- ahead the supply. continued our balance But happen, from increase our should you interplay couple cycle, impact like strengthen are cost efficiency So years, don't in very negative exactly sheet, growth to at we of we any in. look it notice we in the operations, if collections multiples supply the Last of our and position really now. I a as with on if able our impact the there we've stand know the where we when is combined place we our in and recession, stand stand improve

Robert Dodd

Got it. appreciate that color. I

they've a isn't tend mean when of do Legal on related cost obviously, up, your collections legal run to lower I a They of of how supply, that ahead obviously, approach to -- sort efficiency. choice to And consumer. lower they first been ramp but expenses, little the right?

start if you supply is continue rise, continue to going So to contemplating investments the does increasing supply in when channel? would legal

Ashish Masih

predict. It's going difficult to to be

are increasingly to from the are non-legal we're although more collections getting some increase, for continues front You right, call as expenses of supply channels, center. digital, loaded,

increase; have may I know some therefore, don't it when. So,

European This legal impacted expenses exchange -- for our also expenses. the somewhat quarter legal was were foreign

you So we pretty other using increasingly, much effect is legal that's expenses approach. less, need part less mind. But to it collections our on in although all of the keep and our are a

happen portfolios on depends buy say and of exactly the would that So forth. type we will to it if. and when Hard so

Robert Dodd

I appreciate that. Thank you.

Operator

the & is Company. next from of from Your Blair question line James Spencer William

open. is line Your

Spencer James

also This U.S. is the then Napoli for wondering on on James the out update you has Europe I you in William And Blair. loan on why to continued softness return in at could was an slower Spain. provide be if to expand you Spencer growth Bob versus called maybe could

Ashish Masih

Europe. appropriate. I'm the also to but on let to Craig? Buick supply slower going touch can Spain So then the from on add line to being in increase who's respond it Craig London on I the as And

Craig Buick

okay? Yes. Thanks can hear Spencer, Ashish. Hi, you me

Spencer James

Yes, thank you.

Craig Buick

And thanks question. the Perfect. for

comprise average and with the prepared a medium Europe the Iberian The as the mentioned, I U.S. the movements. exchange what sized in see our just And the the enterprises the impact in has this a those The percentage is little accounts appreciation we In we'd call of of Jonathan volatility portfolios year. business, underlying XX. number Spanish means mentioned ticket broadly we've SME have terms of these accounts. of there think half that's more is couple One reported bigger, of to Jonathan in a small in and pieces our of are business, U.K. In expectations. the collections out, very remarks. portfolios. across his you line the first foreign in is mind is And more piece, call nature as in what in seen dollar performing inherently of to what And those widening led like percentages. or bear

implicit to about at is, recover the the If that cycles, the sector. I guess growth, portfolio look the there. than probably the natural you European that U.S. on see that if you'll of think I tends loan most European call views sector historic slower one services I in So volatility my financial

the tend around there some levels, and a recovery. differences efficiencies structural drive the slower I capital to that think there are etcetera,

It still any I'll to to one. back just trends place. same that longer But a taking directional on it see little takes thoughts You for move. further pass the those Ashish for

Ashish Masih

No, I you Spencer, it, on address. follow-up that, covered think you've to any happy Craig. have if

Spencer James

in in is the the in between the a of Or credit Could there bit the you supply Is call on between behind the Europe, and disconnect to that maybe of there U.S.? is normalization comment there lagging distinct disconnect markets? Europe? two of normalization just credit the quality the paper quality anything out between

Ashish Masih

Yes.

with Craig I said, European markets think in U.S. line what there are differences and across the

I sure terms home, the in much, not at spending consumers. behavior, bit as money, everyone but direct to quality, government So support impact different consumer similar from U.S. being was support credit would of terms a put it while faced of as the in saving not

government And either reason, the consumer other consumer for and us. that just behavior to And example, the collections programs salary as in supporting support. at rates charge-offs were direct -- opposed job countries, put They debts that and different place that U.K., whatever So some larger well terms for behavior terms a of U.S. just in strong different or declining which it different. the led consumer driving pretty was than put of for delinquencies U.K., the payments place rapidly of example, programs were government for in more us. were as the and a in strong to collections

behaved alluded rapidly say, definitely might more more the we're rise let's to, structural in seeing well. the therefore, U.S. to U.K. compared some to actively be But differently there now differences lending spending differences, and So U.S. And inherent as that consumers due Craig that.

Spencer James

Thank you Appreciate so much it. guys.

Operator

next question is [Operator the Hughes Truist Mark Instructions] from of Your line Company. from

open. is line Your

Mark Hughes

versus know cash I the were if this in it. year margin didn't The numbers? quarter, what ago efficiency this those quarter see was I Yes. presentation. don't the

Ashish Masih

Yes. in I it's the in presentation, it's know don't if the Q.

it's so quarter, XX%, for it a last year this trailing close. XX.X%, very and was XX-month So XX% number,

Jonathan Clark

It's XX in Page also Mark. slides, the on

Mark Hughes

Okay. good. Yes, very Thank you.

Operator

time. at to like I questions would conference further now to this Mr. back the turn No

remarks. Masih Ashish for closing

Ashish Masih

Thank you.

of like the reiterate couple a points. As we I'd today, close to call key

our markets, the effectively a on our right executing focusing strong of portfolios, drivers strategy key to sheet best-in-class deliver and Our on strong are performance. of returns balance maintaining

what we Looking also leading the results higher consumers credit ecosystem our time in increasing as freedom. as regain committed to portfolio the to the ever best. We're credit November. for and quarter continue ahead, as and to providing role to look to we in to we purchasing. join It's expect financial continues portfolio critical to forward taking normalize, the do play help supply; we third our us, Thanks

Operator

concludes This participating. Thank call. today's conference for you all

You now may disconnect.

Encore Capital (ECPG) 6 Aug 222022 Q2 Earnings call transcript