Good day, ladies and gentlemen and welcome to the Encore Capital Group Q1 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce our host for today's conference, Mr. Bruce Thomas, Vice President of Investor Relations. Sir, you may begin.

Thank you, operator. Good afternoon, and welcome to Encore Capital Group's second quarter 2018 earnings call. With me on the call today are Ashish Masih, our President and Chief Executive Officer; Jonathan Clark, Executive Vice President and Chief Financial Officer; and by phone Paul Grinberg, President of Encore's International Business and Ken Stannard, the CEO of Cabot Credit Management, our subsidiary based in the UK. Ashish and Jon will make prepared remarks today, and then we'll be happy to take your questions. Before we begin, we have a few housekeeping items. Unless otherwise noted, comparisons made on this conference call will be between the second quarter of 2018 and the second quarter of 2017. Today's discussion will include forward-looking statements subject to risks and uncertainties. Actual results could differ materially from these forward-looking statements. Please refer to our SEC filings for a detailed discussion of potential risks and uncertainties. During this call, we will use rounding and abbreviations for the sake of brevity. We will also be discussing non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are included in our earnings presentation which was filed on Form 8-K earlier today. As a reminder, this conference call will also be made available for replay on the Investors section of our website, where we will also post our prepared remarks following the conclusion of this call. With that, let me turn the call over to Ashish Masih, our President and Chief Executive Officer.

Thanks, Bruce, and good afternoon everyone. Thank you for joining our conference call. Today Encore announced financial results for the second quarter of 2018 that included records for portfolio purchases, collections, revenues and estimated remaining collections. This performance supports our optimism for continued future growth and is indicative of the condition of the major markets we serve and our positions in those markets. Our optimism has also been reinforced by the completion of the acquisition of Cabot which we believe will benefit Encore in both the short term and the long term. This transaction is a transformational event for Encore. We have shifted from being an investor in Cabot to becoming its 100% owner which brings certainty to our future together. We now have even more freedom to implement our strategies and share proprietary information and we are now a clear leader in both the United States and in the United Kingdom; the world's two largest markets for our industry. We expect that these markets will generate long lasting cash flows and favorable returns for years to come. I'd like to highlight a few areas of Encore's second quarter performance which was anchored by new company records in several financial and operating measures. Global deployments were up 46% to $360 million representing the largest purchasing quarter in Encore's history excluding those periods in which we acquired portfolios associated platform acquisitions. Global collections were up 11% to $496 million representing our second consecutive quarter of record collections. Additional collections capacity that we added over the past several quarters and continued focus on operational innovation in the U.S. and in Europe helped drive the increase in collections. We generated a new record level of revenue for the fifth consecutive quarter as improved collections and additional servicing revenues in Europe helped drive global…

Thank you Ashish. Before I go into our financial results in detail I would like to remind you that as required by U.S. GAAP we were showing 100% of the results for Cabot and Refinancia in our financial statements. We're indicated we will adjust the numbers to account for non-controlling interest. Deployments totaled $360 million in the second quarter up 46% when compared to the second quarter of 2017. We deployed $203 million in the U.S. during Q2; of that total $189 million represented charged-off credit card paper comprised almost exclusively of fresh portfolios. We also deployed $14 million in bankruptcy receivables. European deployments through Cabot and Grove totaled $147 million during the second quarter compared to $92 million in deployments in the same quarter a year ago. We deployed $10 million in other geographies in the second quarter including purchases in Australia and in Latin America. Worldwide collections grew 11% to record $496 million in the second quarter compared to $446 million a year ago. Collections and our domestic call centers reaching new all-time high of 22% compared to Q2 last year as we continue to benefit from additional actions capacity, increased versus purchasing volumes and the acquisition in recent periods of portfolios with higher returns. Cabot also reported strong collections performance in the second quarter growing 17% compared to the same quarter last year. Worldwide revenue in the second quarter grew 20% to $350 million compared to $291 million in the prior year. U.S. revenue in the second quarter was $180 million. Q2 revenue in Europe was $144 million and grew primarily from the increase and collections driven by our operational innovation and Cabot's acquisition of Wescot which added servicing revenue. Revenue in the second quarter also included the reversal of prior allowance charges including $14.5 million reversal driven by continued improvement in European collections. In the second quarter we increased U.S. yields primarily in pool groups in the 2013 and 2016 vintages as a results of sustained over performance. In Europe we increased yields on certain pool groups in the 2013 through 2017 vintages also as a result of sustained over performance. Encore generated $34 million of zero basis revenue in Q2 compared to $39 million in the same period a year ago. Our Estimated Remaining Collections or ERC was a record $7.2 billion at the end of the second quarter up 15% or $960 million compared to the end of the same quarter a year ago. In the second quarter we recorded GAAP earnings from continuing operations of $1 per share. In reconciling our GAAP earnings for our adjusted earnings and after applying the income tax effect and adjusting for non-controlling interest we reported adjusted EPS of $1.33 per fully diluted share and our non-GAAP economic EPS was also $1.33. We did not exclude any shares from the calculation of our economic EPS in the second quarter. With that I would like to turn it back over to Ashish.

Thank you John. In summary I'm excited about Encore's recent operational and financial performance and we are well-positioned to capitalize on future opportunities. We reported record purchasing, cash collections, revenues and ERC in the second quarter in addition to generating all new all-time high record of trailing 12 months cash flow. Our acquisition of the remaining interest in Cabot is a transformational event in Encore's history and it provides us with a number of strategic and financial benefits and opportunities. The U.S. market for debt purchasing remains very favorable and we are purchasing large amounts of receivables and strong returns. Our expanded collections capacity and our ability to liquidate our portfolios through innovation position us with arguably the best opportunity we have ever had to capture the attractive returns available in the U.S. market. We expect our annual earnings per share growth rate in 2018 to be at least 20% keeping in mind that we will be 100% owners of Cabot for less than six months of the year and we issued 4.9 million additional shares. After completing our acquisition of Cabot we have solidified our position as a global leader in our industry; capable of deploying capital across markets where we see the most attractive returns. Now we'd be happy to answer any questions that you may have. Please note that Paul and Ken are on the line in a remote location so just bear with us as it may take us a moment to hand off the call to them for any of the responses. Operator please open up the lines for questions.

[Operator Instructions] Our first question comes from the line of David Scharf from JMP Securities. Your line is now open.

Yes. Good afternoon and congratulations on closing the deal. Regarding the Cabot operations only the and I asked this is because there's been so much discussion about how competitive the European market maybe, can you bring us up-to-date on as far as the existing portfolio in Europe what percentage of those receivable balances are in the UK versus other geographies and then secondly what percentage of the portfolio consists of traditional unsecured credit card receivables versus other types of consumer loans?

David thank you for the question. I'm going to let Ken jump in on the both the questions. I think he's in better position to answer.

Yes. Thanks for the question. This is Ken Stannard. Hopefully you can hear me. So the majority of our ELC is still remaining. So just over 80% of our [indiscernible] and that is the number overseas is growing [indiscernible] grows as proportion in as the last quarter about 50/50 of our deployment in Europe versus UK but the backbone is strong and deep in Cabot and [indiscernible] with the majority in the UK. So 80% is the number I gave. In terms of the proportion of the credit card so total 50% of our collections will be I think original credit card balances. We do have a message from the unsecured part of our ERC [indiscernible] part of the unsecured loans that we fire in the Europe added personal loans and also over-drafts from, so it's not just credit card [indiscernible].

Got it. That's helpful and maybe as a follow-up to that Ken with it I mean the reason I ask is when we hear anecdotal comments about the pricing and competitive environment in Europe do you see distinctions between asset classes in particular credit card other unsecured consumer loans and secured?

Yes. There's definitely differences but the difference between overdrafts unsecured loans and credit card are not that substantial. I mean it's - the differences is greater between asset classes where the original creditor issued a secured loan you're buying potentially debt or when you're buying a secured debt or in fact a small medium enterprise credit. So we do [indiscernible] asset types and there's always [indiscernible] within unsecured I would say the biggest differences at the type of industry that you're buying from and the balance so the market difference between buying $5,000 financial services debt whether that be a loan or a credit card or buying a telco telecom debt of $200 from a phone contract that was cancelled at some point. I mean it's a very different collection methodology. One very deep data long curves the other one you want to trade quickly realize debt with discounts. So different techniques for different data types whoever experience from both.

Got it. That's helpful and then maybe just a couple quick ones Jonathan. First I haven't seen the 10-Q yet do you have a rough number for what the deferred kind of court costs or the capitalized legal expense in the quarter was?

I don't have that number right at the tips. See if we are going to get it up here.

And then just lastly and then I'll get back in queue. Just to clarify…

David it's 91 million at June 30 the court cost net that's what you're looking for.

Well actually what’s the amount that was capitalized in the quarter was?

That was capitalized. I don't have that here.

Okay. And then lastly just to be clear I know we touched on this last quarter, the EPS guidance the growth rate for this year are you referring to GAAP or adjusted when you provide the 20% figure?

Actually ironically it works for both.

Okay and I guess inherent in the adjusted EPS obviously we've got a lot of transaction and integration restructuring costs that have already been recorded on a go-forward basis in the second half are the add backs the more traditional non-cash interest in some intangible amortization or are there other cost in that?

There will be some trailers right and I say I'm not sure I can put my finger on all of them today but you'll have at a minimum David we hedged, the hedge charge that you saw on the adjustments this quarter there will be another one because first one done yet. And so I'd say another pre-tax something like $2.7 million in Q3. So there will be things like that that might trail beyond.

Got it. Okay. Thank you.

And our next question comes from the line of Mark Hughes SunTrust. Your line is now open.

Thank you. Good afternoon. Gentlemen what should we think about in terms of tax rate for the back half of the year and then in the next year?

Well, the next year is beyond my scope but I think mid-20s is the right way to think about the tax rate for the balance of the year. We're [indiscernible].

Okay and then the EPS impact from the reversal refreshment on the -- you would tax effect that but are there any other offsetting expenses?

No. just -- it's just depending of course Mark you've got your taxes if you're, if it's in Cabot it's only our share of that and that's pretty much it.

And then with that thought in mind, do you have the EPS impact the reversal in the quarter?

Well, for the European reversals which as I said were 14.5 million it was about 20%.

Okay.

And I think Mark I think it's important too if you don't mind, when thinking about reversals I think people should bear in mind that these are very bullish. That's right because conceptually if it just happens to be portfolios that are performing extraordinarily well and if we didn't have an existing impairment we would be raising the IRR. Right? So I think sometimes we all get a little bit too focused on impairment reversals and lose sight of the fact that it's actually from where I said at least it's actually a very bullish indicator because nothing else as I'm sure you're aware it what it does effectively increases your basis. So all other things being equal you'll generate more revenue in subsequent periods than you would have otherwise because your basis is now higher.

Right. That's a good point. That has an ongoing positive impact in terms of future revenue recognition is your point there.

Yes. I think people get a little bit too hung off on the fact that these are impairment reversals and somehow it I would say I rather short-sighted perspective that this is a one-time thing. Well it's not a one-time thing. What you've done is you've increased the basis your portfolio and they said all other things being equal you're going to recognize more revenue going forward right. So it's and when you think about it at least from where I sit you're wearing some scars from having taking an impairment and so you're a bit more reluctant to reverse an impairment than you might be to raise an IRR. So you have to feel pretty good about the way the pool is performing right.

That's right. Your run rate interest extends from here with your capital associated with their closing Cabot but the retirement of the PECs can you kind of give me a sense of what that was 3Q look like in terms of interest expense?

You're probably I wouldn't just kind of cut it because of course this is when we look at it we think of a whole slew of things including what we expect interest rates to be, etc. So something let's call it 59 million-ish. That's net as you pointed out that's net of the PECs interest going away. And actually now to think about it when I think about that quarter you're still going to have little bit of PECs to lead in there so the run rate of being a little bit lighter there to think through.

In Q3 it would be lighter than 59 you're saying?

Yes. Because we just think about what we're doing is you're taking this is just back to the envelope kind of math with you which I know you guys love if it's - if you're doing basically 15 million a quarter and interest with OpEx so it's 5 million a month so if you're at the high 50s let's say in Q3 it's probably going to be a bit lower in Q4 right. We have full quarter of [indiscernible].

Right. Okay. Understood. Okay thank you very much.

[Operator Instructions] Our next question comes from the line of Brian Hogan from William Blair. Your line is now open.

Good afternoon. You mentioned in your prepared remarks you'll be able to obviously open up Cabot and learn more for them and exchange ideas and what have you. What have you been learning from Cabot and exchange and what best practices do you expect you take back to the U.S. or exchange back over there? And then with that kind of goes using those best practices how and given the competitive environments over there and your market leadership position there what is the returns that you're expecting and the confidence in generating those returns in the European realm?

Brian thanks for the question. So we've known Cabot for five years and we've been very involved with the management and through the board and strategic direction as well. So we've been sharing some best practices and information and kind of learning from each other but as I said full ownership will kind of put that on steroids and there would be no hesitation or given about the future or kind of about the future of Cabot whether it would be fully owned or IPO or not. So now that it's fully part of Encore we're sharing the best practices in a whole range of areas and let me list some of them. One is just general best practice sharing in operations which is call models, analytics, decision signs, digital capabilities both U.S. business and Cabot has been innovating on that front a lot and those are kind of the more generic things. Now what's also happening is in the European market Encore has had presence in Spain in terms of operations of servicing as well as debt purchasing and so has Cabot and we’ve immediately started combining those two and leveraging the best practices and the synergies that come with that. For example, SME and consumer their relative strengths and when you combine the two you are already seeing the value of the portfolio's that we would have separately looked at appear higher are higher now. So that's the second type of example that we are seeing and in terms of returns we have very disciplined process in terms of our investment committee decisions that's based on a very rigorous investment committee and an investment risk management process. So we're seeing good returns. The U.S. market continues to be very favorable and in UK Cabot has a very unique and differentiated platform unlike many companies. It is the leader in terms of debt purchasing of both types of portfolios, paying portfolios and the non-paying and it also has servicing which provides it competitive advantage and kind of capabilities to take on portfolios that may being put up for sale. So we find Cabot earning differentiated returns compared to their peers in the UK and it's starting to emerge as a very strong player in some of the markets in Europe particularly Spain as I described and over time it's going to grow and provide a very good platform for us and at this point I let Ken jump in as well with his perspective so you get a full picture on the story.

Sure.

Thanks Ashish and I think you did a good summary there. Let me start off with the learnings because I think just every day for me I'm seeing an amazing amount of exchange between our businesses. I'll repeat your example on the Spanish one, we are bidding on portfolios where we're able to learn from certain processes within the SME collections of the growth of [indiscernible] business and build them into the assumptions in our cross business modeling and also on the amicable and very strongly compliant amicable side from the Cabot's business we're able to build in the upside from those sides of portfolios. So we're going to be - it's just going to enhance our competitiveness and our liquidation effectiveness in the Spanish market. So that's a great example and on digital we have implemented -- we have done a great job across the Atlantic between the UK and the U.S. in implementing digital but when we peel back the layers of the onion we see that some of the sub-channels in digital are producing greater liquidation and connectivity in the States than they are in UK and vice-versa and some parts of our multi-channel process are working better in different areas and for different populations. So there is huge amounts of learning where we can -- we're effectively doing lots of different tests across the organization globally and we're going to be able to pick up on the best of those and roll them out to other geographies. In terms of confidence I think and the history that Ashish was talking about really driven by the UK business is that we have year-in-year-out add a whole series of improvement initiatives within our motherships UK business that have driven operational improvements that you're starting to see in the reversals that Jonathan was talking about before led to us a continuing year-in-year-out to over deliver on that ERC forecast. So that's very important and you can see more detail on that if you were to go and look at our presentations on the Cabot website and we're able to therefore deploy capital that returns that enabling us to deliver market leading margins. So margin also from that EBITDA perspective is significantly above appears in the European market and when we have in the UK been able to do independent benchmarking, liquidation unlike to like assets over a few year period since on boarding proves to be 15% to 20% higher than our competition. So I think Cabot is a story of continued enhancement in operational effectiveness that is sort of shining through and enabling that ever greater returns and our competition specifically in those markets the UK and Ireland where we've been the longer.

Thanks for the very detailed answer there and then I guess using those competitive advantages if you will and discussion of competition how do you really view the competition in Europe?

It's definitely a competitive environment. It's a market that has grown enormously across Europe in all of the jurisdictions over the last five to ten years. It continues to grow because the banks are required a speed I think continuing to outsource and sell their impaired loans under a little bit more pressure from regulators and ECB and guidance and requirements to sell and provide for actually on balance sheet. So we benefit from that and the market is growing. The competition though is there are numerous competitors in each market. The key difference for us is our strategic advantage and the size we have. So in the UK we are more than twice the size of anybody in the UK market. We have advantages whether it be buying paying assets or non-pay assets. We have advantages in litigation and the data required to build scorecards over the last ten years. We have advantages in collecting on paying assets through the scale of our operation and the ability to invest in technology that enables compliant collections and optimizing payments. So the key for us is always stepping being ahead and having the best collections platform and with the best collections platform we will be able to survive whatever cycle the competitors bring to us and because we're delivering incremental return. So I think that you'll be able to read in the subtext of other competitors in the European environment that where they talk about competitive pricing in Europe, they'll also talk about the fact that they're focusing on trying to enhance their own operations and in most cases that's because they're trying to compete against Cabot in the major market where we have an advantage.

All right. Thank you. Shifting to the regulatory environment can you provide some commentary which is seen in the U.S., any updates there? I think it's been kind of quiet as of late but I've seen some core cases but just some commentary there?

Yes. So Brian and I think you're absolutely right. It's been kind of quiet and I would say consistent with the last few quarters in terms of regulatory outlook there's maybe two or three levels which are fairly consistent. So one major regulator that impacts our industry is the OCC guiding the banks and that's been very stable over the last few years in terms of their expectations of banks and which drives their certification and audit processes which is what we go through on a regular basis. Last year we went through over 40 audits and passed all of them. That's what creates differentiation for our platform against many other debt buyers here in the U.S. The second regulatory one is obviously the CFPB or the BCFP as it's now known and what we heard of few weeks ago maybe a couple of months ago was they plan to issue the notice of proposed rule-making sometime in 2019 I believe May or something around that and that will still take several quarters. If that happens at that timeframe for the rules to get finalized perhaps even a year given it's a long process and from that point of view we have seen the BCFP being a much more for balanced regulator and looking at consumers interest but also looking at it in a balanced way. The third element of regulatory that generally is of interest is the TCPA or the impact on auto-dialing cellphones. There was a court case as you mentioned and after that the FCC asked for commentary which many have provided including us and we are waiting for any changes or clarification to come from the FCC that makes it easier to use auto-dialers for reaching consumers because that's a more and more consumers have cell phones who may not have consented and it's very important to be able to reach those consumers. So that will improve once we get some clarification but nothing really has changed since the last quarterly call that we had on that front on either of the fronts.

Any regulatory news in other geographies of particular Europe?

In other geographies especially large markets we operate in for example the UK, FCA is a very active regulator, very focused on consumer treatment and that's where Cabot excels. It was the first large debt buyer to be regulated or licensed by the FCA and they are very focused on consumer treatment and Cabot continues to do really well on that front with their banks and sellers who come and audit them as well. So I don't see any big changes on that front. In Europe the regulations are a little bit less stringent and that's where more and more -- some more players can enter and try to invest in the portfolios but in U.S. and UK we see the regulatory regime being fairly stable and creating a high bar for entry in those and again I let Ken jump in if there's anything unique on the UK or European front.

No. I think very accurate Ashish. Thanks. The one thing I would also comment on is part of that deep relationship we have in the UK for example is that we invite the regulator's regularly in to look at our practices. In fact a tomorrow in Kent, the FCA spending the time in a workshop on disputes where they're looking at industry disputes and our practices and because they come to us first to understand how we're doing things before they set standards to the industry and I think that's a mark of just how strong the relationship is that we have. In Ireland we have just recently been increased our authorization [rate] from unsecured to secured servicing that the last few weeks GDPR the data protection regulation is one of the areas where I think we've been occupied quite intently over the last six months to make sure that in every corner of our European business we are protected as you would expect and it's all good news there and under the other I think I have mentioned for us we want to encourage regulation on that continent because I think it's a very good way of leveling the playing field and also it encourages the banks to look to us for advice and help in improving the practices and encouraging outsourcing.

Right and one last one for me is the other revenue service in revenue whatever it may be what kind of growth and trajectory should there be on?

Brian on that one so it is growing given our acquisition or Cabot's acquisition on Wescot. So from a year-over-year comparison you will see a growth and it's a very strong business. It's the leading servicer and a BPO service provider to bank and related institutions. We have not provided a breakdown of those numbers or any growth expectations in terms of specific quantitative numbers where that is going. Needless to say it is a very good market with a lot of banks in the UK of bringing back operations and needing capacity from trusted players and that's where Wescot steps in and it provides a very good partnership to take over those operations.

All right. Thank you for your time.

Thanks Brian.

And our next question comes from the line of Robert Dodd from Raymond James. Your line is now open.

Hi guys. Maybe I should take to talk about the U.S. for a second. Obviously you put in very strong purchases. You've talked this quarter, last quarter about new capacity expansion and kind of dynamically managing this as volume comes on. Can you give us any more color about what your future plans are there given your expectations for more and more volume to come from the banks and also if you're seeing different characteristics in the fresh paper that may cause you to adjust the approach to collections in the U.S.?

Robert thanks for the question. It's a great question. So in terms of capacity we started growing capacity in early 2017 for the U.S. business in all our three locations rather three geographies in our four call centers in the U.S. and in Costa Rica and India, and we started doing that in a very measured way because it takes time to hire and train and retain good account managers and we also have started growing capacity in our internal litigation operation which is kind of more of a production or back office kind of operation. And we continue to do that this year. I expect it will continue for a remainder of the year at a steady pace. And in terms of expenses you probably wouldn't see too much increase from that but there are other puts and takes that come into play as well but the capacity increase continues and we are focusing a lot more in call center because what we're finding is to your other part of the question given the sales are more fresh and we've been very successful in purchasing fresh portfolios and signing forward flows we are putting a lot of emphasis on our consumer centric call model which allows consumers to settle their debts or get on a payment plan earlier in the cycle and using just through a conversation as opposed to later in the cycle or through litigation. And we’re finding good success in developing payment plans that are long-lasting and very resilient. And the second thing it's doing is it's increasing our share of call center collections in a very slow but measured manner. So we feel it's good for us given the differences in cost to collect of the two channels but also extremely positive and a better outcome for consumers that they're able to connect with our account managers, have a detailed conversation understand -- we are able to understand what their financial situation is and then have the one up payment plan that makes sense as opposed to one that just they agreed to without thinking through. So we take our time to talk to the consumers, the calls are long. That's the focus of a consumer centric call model that's driving some of the - that's being -- that's an output of some of our expansion and capacity in all our three geographies.

Great. Great. Really appreciate that color and kind of the follow-up if the supply does continue to ramp up we've seen I mean that obviously 243 million available on domestic revolver do you feel confident that between that and obviously the fact that every time you buy something you get more events. Do you feel confident that your domestic liquidity position is enough to take advantage of any supply that comes -- any being relative supply that comes to market?

Yes we are and John was going to jump in.

The simple answer, yes.

Absolutely. Thank you.

And we have a follow-up from the line of Mark Hughes. Your line is now open.

You are talking about the Wescot doing quite well. Can you share any organic growth numbers? How strong is that growth internally there it seem lately.

We have not shared any numbers per se Mark at this point but it is growing well and I will again let Ken jump in with color but without any numbers because we have not disclosed that at this stage.

Yes. So Mark what I can probably tell you is that Wescot's organic growth is above the average organic growth for the European business. So it's one of our fastest growing businesses and just to give you a little bit of color in that so we have been very successful in [indiscernible] literally creating the market for early stage collection outsourcing in financial services in the UK. We have a number of very big clients amongst the high street banks and those bank having given us a proportion of their early stage collections and now wanting to give us a higher proportion of their early stage collections and so long as we've got the adequate resource and facilities to do that in a quality manner we will be ramping that up because I think that's a - it's a really effective way of deepening our relationship with our clients.

Thank you. I think I wouldn't want to let the opportunity go by without extending my congratulations to Paul and I hope he has luck with that last sushi restaurant.

Thank you Mark. I appreciate it.

And our next question comes from the line of Eric Hagen from KBW. Your line is now open.

Thanks. Good afternoon. I think a lot of my questions have been asked and answered well. Just a follow up on interest expense, I mean I'm just curious how we should think about that item ahead of rising interest rates? I mean are there any hedges in place to reduce the cash flow risk of that line? Thanks.

Eric much of Cabot is fixed rate and a little less on the Encore side. There are -- we do have some - there are some hedges in place in Cabot and today in our floating rate instruments in the U.S. I want to say the percentage just keeps me as to what is floating versus fixed but in [indiscernible] cap call ours is -- currently our floating rate is unhedged.

Got it. Okay and then just to follow up now that the deal is closed can you just remind us what the lock-up is for JC [Flowers] on the shares that were issued to them? Thanks.

Yes. It is for half the shares it's 105 days and for remainder is 165 days.

165. Great. Thank you.

On closing.

Right. Thank you.

Sure.

And we have a follow up from the line of David Scharf. Your line is now open.

Thanks. A few extras one is in terms of visibility on domestic purchasing for the second half I know in the last few quarters you commented about the forward flows in place. Are those becoming more and more prevalent? And can you possibly put that in relation to expectations relative to what we just saw in the first half.

The forward flows are quite prevalent now and pretty much all issuers use them to some extent and not exclusively clearly and that's where we've been successful and they make more sense especially in the fresh portfolios because they're coming right off their main card holder or billing system as they charge off. So that's what we have and that's what gives us the confidence to say that we will end up the year at a highest purchasing level than we have ever had in the U.S. In terms of percentages I'm not sure if I have that right now and that's not something we've disclosed either.

Got it. And Jonathan but maybe follow up on the reversals and then it definitely is helpful the qualitative commentary on directionally what they mean. I was looking back it looks like over the last seven quarters since there was that big roughly $100 million allowance charge at Cabot that you cumulatively have had 73 million of reversals and a lot of that has been concentrated in Europe. Just to give us a sense for in theory at the end of every quarter there shouldn't be any more reversals or charges you try to adjust the curves to where you think they'll perform but is the daylight between kind of that 98,000 million charge two summers ago and the 73 million accumulative reversal since then is kind of the Delta not a bad way to think about maybe how you're thinking of the next four to six quarters.

That's a good question David. If you look at the European portfolio just a little more precision on your back of the envelope we started off in Q3 of 2016 with $94 million allowance charge and we now have a little over $25 [indiscernible] I amsitting here today if the momentum continues you would think that we would start to work through that but as you know if as you correctly stated if we were competently for doing that we would have booked it we would have had to book it. So we don't know where opportunities will be to lift curves and don't know if they will do whether it'll come from a curve or portfolio a pool group that as an existing net allowance charge on it or not. I'd like to think that the momentum will continue in Europe but I'll tell you regardless of that if you look at and I've adjusted the road without any giving credit for any allowance charges you're still up 37% year-on-year. So we're getting a lot of growth regardless of allowance charges and I do believe reversals I do believe reversals are you know a very bullish sign. I would love to be able to tell you that we're going to work our way through this remaining 25 million but for all I know we may be at a good place now. I don't know. I would tell you that I bought in previous quarters that we were going to not see any again for a while or would be kind of slow and the guys I don't know perform again. So I won't bet against them but I can't put in the bank right.

No. Fair enough, then hey just some final housekeeping in post acquisition what -- when you throw in the shares the [flowers] as well as the new convert but then there's a cap on there. Could you actually -- can you just give us the what the diluted share accounts going to look like in Q4 when it's out there for the whole quarter. I mean you don't have to wait an average for Q2 but just basically looking through what the right number to plug in these days.

Let me see yes. I really don't -- I don't have -- I can only do this what I have in front of me is the kind of simple math that you can do yourself right where you're basically you're at we're at 26 for for net for fully diluted shares and then we issued another 49 to get it right I mean to JC Flowers as part of a Cabot transaction. Beyond that I really don't have any --

The convert doesn't add anything either the latest?

Well, I think we are not -- well we're not in the money right.

Right. So I won't be. Got it. Okay. Perfect. Thank you so much.

Sure.

Thank you. At this time I'm showing no further questions. I will just the call back over to Ashish Masih for any closing remarks.

That concludes the call for today. Thank you all for taking the time to join us. We really appreciate it and we look forward to providing a third quarter 2018 results in early November. Thank you.

Ladies and gentlemen thank you for your participation in today's conference.