ENCORE CAPITAL GROUP INC Q4 FY2025 earnings call

• 2025 saw Encore deliver strong results with record portfolio purchases of $1.4 billion, record collections of $2.6 billion, and average receivable portfolios up 12% to $4.1 billion. - Strategy includes participating in large and valuable markets, developing competitive advantage, and maintaining strong balance sheet. - Value creation driven by buying well, collecting efficiently, and funding competitively. - MCM in US benefited from favorable market conditions, strong portfolio purchases, and operational excellence. - Cabot in Europe focused on operational excellence and cost management.

For the US segment, Midland Credit Management (MCM) had record portfolio purchases of $1.17 billion in 2025, up 18% year-over-year, and record collections of $1.95 billion, up 24% year-over-year. For the European segment, Cabot Credit Management had collections of $641 million in 2025, up 9% year-over-year, and portfolio purchases of $234 million in 2025, in line with historical trend but lower than 2024 due to exceptional Q4 2024 purchases. Revenue contribution: 83% of portfolio purchasing dollars were spent in the US in 2025.

• Anticipates global portfolio purchases in 2026 to be within $1.4 billion to $1.5 billion. - Expects global collections in 2026 to increase by 5% to $2.7 billion. - Anticipates EPS in 2026 to increase by 10% to $12 per share. - Expect combination of interest expense and other income to be approximately $300 million for 2026. - Expect effective tax rate for 2026 to be in the mid-20s.

• Actual results could differ materially from expectations due to risks and uncertainties in forward-looking statements. - Refer to SEC filings for detailed discussion of potential risks and uncertainties.

Q: Good afternoon, and thanks for taking my questions. Obviously, this attractive part of the cycle is translating into the very strong results, so focusing less on the quarter and more on 2026 guidance, just drilling into the EPS guidance, a little bit of a couple questions. And just setting aside the actual number of $12 per share, I think maybe what's most noteworthy for investors is just the fact that you provided earnings guidance. Can you provide maybe a little bit of what the thought process was behind kind of why you felt now, after so many years, was the right time to give guidance and why it was a particular single number and not a range, because I think all of it certainly is going to be viewed positively.

A: Hi, David. Thanks for your question. This is Ashish. So just a bit of context, you correctly point out this part of the cycle is helping drive strong purchasing and collections, but I would like to just underscore and highlight that it's not just the market that's strong, which is the case, favorable U.S. market, but we are really buying well and executing well, and not the case with everyone I would imagine. So we feel really good about how collections are performing, and in terms of your direct question on the guidance, this is indeed a different path we are taking because What we're finding is our expectations for the future and earnings power of the business was not truly getting reflected in some of the estimates that are out there. So we wanted to make sure investors and analyst community can take that cue from us. And your question around point estimate versus the range is a good one. We kind of thought that through and we feel comfortable with this $12 number at this point. Of course, we monitor performance throughout the year, how that goes. But we just felt compelled to kind of make sure everybody was understanding kind of what our prospects are. And so we put it out there.

Q: Hi, guys. Congrats on the quarter and with David on thanks for the earnings guidance as well. On the left, in answering David, you just said that you would not be giving guidance for how much to expect on the buyback front, but when I look at the the rest of the guidance components, right? I mean, collections growing. I mean, obviously, purchase is growing, but you generate such a large amount of cash and efficiency is improving. All of that would tend to point to your leverage is going to continue heading lower, in my opinion, at least. And you're already below the midpoint. So, I mean, while maybe not giving guidance per se, would it be reasonable to... that maybe buybacks would accelerate in 26 versus what we saw in 25?

A: Hi, Robert. Hi. Thanks for the question. You're right on the leverage. So as we are, we've grown purchasing, but we are collecting really well. Our leverage will continue to trend downwards. And kind of how that impacts repurchases. So what we've said, our priorities are very clear. And in terms of, we said, as you approach midpoint, we will resume share purchases and repurchases, which happened last year. But there are other factors we've said, like balance sheet and liquidity, strength balance sheet, liquidity, community performance, kind of outlook on the markets and so forth. So those factors are there as well. But we did accelerate, to your point, a repurchase rate towards the end of 2025 compared to early part of 2025. So that's We are well positioned to continue supporting repurchases, as I indicated, but we haven't given an exact number.

Q: Hey, guys, congratulations on a very strong finish to the year. Ashish, I got on a little late, so I apologize if this has been asked, but I think it's important, too. I can't remember the last time You know, and this is probably going back five, ten years that ECPG has guided earnings for a forward year. But here you guys are guiding, you know, to $12 for next year, roughly a $3 per quarter run rate. What is sort of giving you the confidence to do that? What's sort of driving this change, if you will?

A: Mike, thanks for your question. So we've been buying really well for many years and collecting really well in a very consistent manner as we expected our collections to grow. We've also kind of stabilized cabbage. So there was a couple of years where we were kind of restructuring Cabot operations in terms of operations performance as well as its cost structure. And after we made some of the corrections at the end of 24, last full year has been very stable performance and that Cabot team has delivered. And on top of that, MCM team continues to deliver innovation, operational excellence, and growing collections. So all of that is playing into our confidence and we see very good purchasing outlook for 2026 as well in the U.S. And we'll, of course, be disciplined at Cabot and we are buying our kind of fair share there at the right returns. So overall, the environment feels, we feel very confident combined with kind of how we are executing in the market to provide the guidance. Now, of course, as I said earlier, Part of that motivation was also that the investment community, the estimates were not truly reflecting our prospects. So we felt compelled to kind of provide it at this stage so that everybody can get a sense of what our future prospects are as we feel them at this moment.

Q: Hi, thank you. I'm on for Mark Hughes. Did you see any tailwinds to collections in 4Q from the lower interest rates, and then how would you expect that to affect 2026 collections and your guidance if rates were to go a little bit lower and help ease that marginal pressure on consumers?

A: um max we cannot isolate kind of mark small changes in interest rates to collections i mean overall i would say and reiterate what i said in my prepared remarks in terms of the u.s environment the collections consumer is very stable we are seeing good pair rates how people are holding on to the plants it's been very stable so overall fairly stable consumer outlook on payment behavior. And just remember, our consumers who we deal with are already in some kind of financial distress and we know how to work with them. So small changes in interest rate or other factors may or may not impact them. And we have a lot of flexibility. We don't charge kind of interest or fees and things of that nature. So we are able to change the payment plans and adapt. So we have not seen any kind of noticeable impact on payment behavior in late 2025, as you asked. And from what I can sitting here tell, we don't expect that any of the interest rate changes to impact in 26. Now, if any other things happen, we'll be monitoring them, of course.

Q: Thanks for squeezing me in here. Ashish, you know, it's been quite a while since we really asked about competition in the U.S., but there's clearly been a much more benign regulatory environment at the federal level. under the current administration, it's led to a lot of actions taken by consumer finance companies, getting bank licenses and other such things. Has the perception that there is a, you know, less onerous CFPB or other framework, has that impacted how sellers are thinking about potentially engaging with new competitors, or is it still a very small circle of buyers that are approved and likely to continue to be that way?

A: There were a couple of different things in your question, David. So in terms of the regulatory environment, The rules are all well set for the industry. They took years of rulemaking, and then four years ago, they went into effect. So all of those rules, everyone has to comply with them. They are good rules for the consumer, good for the industry. Those are there. Whatever state-level regulations are there are still there. So I just want to make sure I address your question broadly. So none of that regulatory kind of perhaps whatever you mentioned on CFPB, all of that is I don't think that's impacted number of new buyers coming into the picture because they can get financing or other things that are possible perhaps. So we're not seeing any new competitors. There's a bunch of mids, a few midsize and a lot of small ones that have always been there. So nothing new. Some of them buy a significant amount and then go away as they see the performance. So that phenomenon is pretty stable. on that front. So on the buying side, that's a change on the selling side. Yeah, I would say, as I think we indicated a few quarters ago, off and on, there's a bit of chatter in banks trying to figure out whether they should sell or not, some who don't sell or test water. So nothing material to report on that front right now. But that chatter has been there for the last year or so, if you would.

Q: Hey, thanks, guys. Two more. One, just curious, any benefit in 1Q26 that you're seeing from higher tax refunds? It's still early.

A: Yeah, it's still early to see. We monitor tax refunds on a weekly basis. The data that comes out, there is kind of news out there in terms of how the tax bill was structured. So some of the benefits that consumers would have gotten, people would have gotten last year, they're going to get in refunds. Now, it also depends on which income strata it's going to go to and how it trickles down or trickles sideways, whatever might happen. So we are going to observe. But that's kind of out in the news, and how it will impact, it's way too soon in the quarter.