ENCORE CAPITAL GROUP INC Q3 FY2024 earnings call

• Encore's strong Q3 performance was largely driven by MCM in the U.S. due to record portfolio supply from high charge-off rates and lending growth. • Europe's portfolio purchasing market was competitive, with Cabot being selective and managing costs. • Exited secured NPL market in Spain with a pretax loss of $8 million. • Global portfolio purchases and collections grew, with ERC at $8.65 billion, up 10% year-over-year. • Operating expenses were well controlled, and cash efficiency margin increased to 53.6%. • Balance sheet strength was highlighted with amended and extended facilities. • Capital allocation priorities shifted to prioritizing stock repurchases over strategic M&A, with plans to resume repurchases when leverage nears midpoint of target range.

Encore's third quarter performance was driven by MCM in the U.S., its largest business. MCM in the U.S. had portfolio purchases up 28% compared to Q3 2023, with deployments of $230 million and collections of $402 million, up 22% (highest since 2021). Cabot in Europe had portfolio purchases of $52 million in Q3, with collections of $148 million, up 10%. Global portfolio purchases increased 23% to $282 million compared to Q3 2023, driven by strong U.S. deployments. Global collections in Q3 were $550 million, up 18% compared to Q3 2023.

• Global portfolio purchasing in 2024 is anticipated to be approximately $1.25 billion, an increase of $175 million from 2023. • Year-over-year collections growth is expected to be approximately 15% to over $2.125 billion. • Anticipate leverage to continue declining as they continue purchasing portfolios, with plans to resume stock repurchases when leverage nears the midpoint of the target range of 2x to 3x.

• Actual results could differ materially from expectations based on current assumptions and uncertainties. • Market conditions, including portfolio pricing in Europe not consistently reflecting higher funding costs. • Legal expenses may continue to rise as increasing portfolio purchases flow through the legal process.

Q: How should we think about the capital allocation strategy change and its relation to market opportunities?

A: Ashish Masih stated it's not a change in belief in market opportunities, with the U.S. market remaining favorable. Capital allocation priority shift is about repurchasing stock over strategic M&A, with plans to resume repurchases as leverage nears midpoint of target range.

Q: Did Encore disclose collections as a percent of expectations for U.S. and Cabot?

A: Yes, Encore's collections were 103% of expectations, MCM U.S. was 105%, and Cabot was 97% versus expectations as of December 31, 2023.

Q: What about legal expenses given increased portfolio purchases?

A: As purchasing levels increase, legal expenses are expected to steadily rise as accounts flow through the legal process, but operating leverage is expected to continue improving.