Ladies and gentlemen, thank you for standing by, and welcome to the Encore Capital Group's fourth quarter 2019 earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker today, Mr. Bruce Thomas, Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon, and welcome to Encore Capital Group's fourth-quarter 2019 earnings call. 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, Craig Buick, who's been in place as the CEO of Cabot Credit Management since the first of January. Many of you have Met Craig before in his prior role as Cabot's Chief Financial Officer. Ashish and Jon will make prepared remarks today, and then we will be happy to take your questions. Unless otherwise noted, comparisons made on this conference call will be between the fourth quarter of 2019 and the fourth quarter of 2018 or between the full-year 2019 and the full-year 2018. We'll do our best to make those distinctions clear. In addition, 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 earnings call. Today, Encore announced financial results for the fourth quarter and full year of 2019. We have again achieved record results across nearly every key financial measure. And our business is delivering its strongest performance in the history of the company. In addition, during 2019, we reached a critical inflection point in which the majority of our MCM collections are coming from more recently purchased portfolios with higher returns. At the same time, we continue to reduce collection costs. This combination significantly increases our operating leverage today, I will provide an update on our priorities and accomplishments. But first, let me provide a few highlights on our strong performance in 2019. Global collections from our debt purchasing business exceeded $2 billion for the first time and global revenues were a record $1.4 billion. Within that total, U.S. revenues grew 15% to a record $818 million. At the end of the year, our worldwide ERC had increased 8% to a record $7.7 billion. We deployed a record $682 million in the U.S. during 2019, reflecting a strong return in our largest market. Encore's GAAP net income increased 45% to a record $168 million or $5.33 per share. Adjusted income in 2019 increased 32% to a record $187 million or $5.95 per share. We delivered another strong quarter in Q4 with approximately $500 million in global collections and $348 million in revenues. In the fourth quarter, we earned GAAP net income of $43 million or $1.36 per share. This compares to $47 million or $1.50 per share in the fourth quarter of 2018. A period in which we recorded a favorable settlement related to Cabot's acquisition of DLC that impacted our GAAP results a year ago, but not our adjusted…

Thank you, Ashish. As a reminder, we will sometimes refer to our U.S. business by its brand name, Midland credit management or more simply MCL. We may also refer to our European business as Cabot. Global deployments totaled $235 million in the fourth quarter compared to $247 million in the fourth quarter of 2018. MCM deployed a total of $154 million in the U.S. during Q4, up 16% from the same period a year ago when we deployed $134 million. European deployments totaled $80 million during the fourth quarter compared to $106 million in the same quarter a year ago. As we previously discussed, European deployment decreased due to more selective purchasing related to our plan to reduce Cabot's leverage over time. In addition, Cabot's co-investment strategy mentioned earlier by Ashish will allow us to fully participate in purchasing and servicing the highest return portfolios available, while requiring less capital. For the year, we deployed $1 billion on a global basis. Our MCM business in the U.S. deployed $682 million, establishing a new annual record level of purchasing to issuers. Global collections were $499 million in the fourth quarter, up 3% compared to the same quarter a year ago, a period in which Baycorp, a business we sold in August of 2019 generated $13 million of collections. MCM collections from our debt purchasing business in the U.S. grew 9% in Q4 to $322 million. Collections in Europe in the fourth quarter were $166 million, up 2% when compared to the same period last year. On a global basis, we collected a record $2 billion in 2019, up 3% as reported and up 5% in constant currency. U.S. collections at MCM were a record $1.3 billion and were up 8% for the year. European collections in 2019 exceeded the prior year's…

Thank you, Jon. In summary, Q4 was a great quarter for Encore. In 2019 was a terrific year. I'm very pleased with both our operational and financial performance, and I continue to be very excited about our prospects as a result of smarter deployment, improved liquidation and lower costs. We delivered record results in 2019 in nearly every important aspect of our global business. Collections, revenues, ERC and earnings. In the U.S., our largest market, we deployed a record level of capital at an initial purchase price multiple of 2.2 times, our best in years and reported record revenues in collections, while reducing costs thus substantially improving our operating performance. At Cabot, returns for portfolios purchased in 2019 were higher by 150 to 200 basis points compared to 2018. On a global basis, we grew ERC by 8% in 2019, while reducing a consolidated debt leverage. Our steady and consistent strategic direction is beginning to pay off. In consistent strong results. Our strategic priorities include: number one, concentrating in the U.S. and U.K., our most valuable markets with the highest risk-adjusted returns. Number two, innovating to continually enhance competitive advantages; and number three, strengthening our balance sheet while delivering strong results. Our progress on these priorities is strengthening our business and helping to drive a new level of financial performance for Encore. Our 2019 results underscore our ability to grow earnings. That has also been demonstrated by us over the last several years. To be clear, we operate in an industry sector that can be cyclical and portfolio purchasing opportunities and returns can fluctuate between quarters and years as well as across markets. While we seek to grow earnings, we do not have a target for an earnings growth rate. Instead, we seek to maximize portfolio returns by participating in the largest, most valuable markets. And by continuously improving the competitiveness and performance of our platforms. Given the attractiveness of our core markets. This strategy has enabled us to deliver significant earnings growth over the past several years. We are confident in our outlook, and we feel very optimistic as we begin 2020. In fact, we expect to grow elections revenues, ERC and earnings in 2020, while further reducing our debt leverage. We feel that the current consensus does not adequately reflect this. And thus feel compelled to comment on our outlook for 2020. To put it simply, as a result of the substantial operating leverage in our business and taking note of the attractiveness of our key markets. As well as our track record over the past several years, we believe the investment community is underestimating our ability to grow earnings in 2020 and beyond. Now we'd be happy to answer any questions that you may have. Operator, please open up the lines for questions.

Thank you. [Operator instructions] And our first question comes from Eric Hagen with KBW. Your line is open.

Great. Thanks. Hi, guys. Regarding the level of new purchases during the quarter. Did you guys see a lot that you didn't like the pricing on? Or was there just not a ton of supply out there? I'm just trying to get my arms around the drop in the level of purchases quarter over quarter? I'm just kind of tying that back to your earlier remarks with first fairly bullish on the current environment? Thanks.

Eric, in terms of purchasing, one has to be a bit careful in looking quarter-to-quarter comparisons. Especially in U.S. and to a decent extent in U.K. as well, purchases are locked in through forward flows that expire, and that can be long term. So we had a very strong year of purchasing. That's how I would look at it, especially in U.S., let's say, we had been around between $500 million to $550 million for many years. In 2018, we went way above 600, well ahead of 600. And this year, we achieved $680 million. So we feel we've been growing purchasing at good returns in a very systematic way. And we don't think of it on a quarter-to-quarter basis as long-term is how we think about it. In Europe, as you know, we are working to delever Cabot in line with its expectations that appears also have. So there, we also had strong deployment and good returns, as I indicated, but we also entered into two -- with a couple of co-investment deals with partners where we can actually access these portfolios for our platforms, get the data, get part of the returns and maintain issuer relationships. So we had strong purchasing. We just got very focused on the best markets and including co-invest.

And thanks for the commentary on CECL in the opening remarks, if the new treatment of CECL had been applied to the results in the fourth quarter. With the ability to offset the allowances from yield improvements. Do you know what your adjusted earnings would have been?

I'm always reluctant to hypotheticals. As you know. I would say the reality is, if you think about the way CECL works, and you think about what happened to our overall level of ERC, I think you can reasonably assume that the net allowance charge that we took on elevated basis in Q4 would be drastically reduced, a much smaller number, a number at all in that line.

Got it. Great. Thank you very much for that. Thanks for the comments.

Thank you. Our next question comes from David Scharf with JMP Securities. Your line is open.

Yeah. Good afternoon, guys. Thanks. Thanks for taking my questions. First one for you, Jonathan, obviously, you continue to delever over at Cabot. And nevertheless, I think when you look at the company's consolidated leverage ratio, it's probably a full turn or more lower than what Cabot is. I believe you may have discussed the possibility at some point of perhaps lining up more of a global multicurrency facility, which could potentially raise the purchasing ability at Cabot near term. Is that a option at this point or the debt capital markets, the private capital markets, not really amenable to that?

No, it is one of many synergies that we've been rolling hard on, David. It's actually one that's near and dear to my heart. We continue to work very hard at it. I can't offer a whole lot more than that other than, I guess, I'm cautiously optimistic. I would like to take the moment to point out to separate, there's two separate things that you've raised, though, when we are very disciplined about how we deploy capital. And what a unified balance sheet would give us is flexibility in long-term lower cost of funds. It doesn't necessarily mean that we turn around and increased deployment significantly at Cabot, we will increase deployments at Cabot when there are returns that are attractive, which we see today. But when we get to -- whenever a global balance sheet is put in place, we will pursue appropriate purchases regardless of the financing structure. I just want to make sure that was clear.

No, no. Appreciate that. And just along the lines of sort of the Cabot outloOkay. Can you elaborate a little more, I guess I know the CECL will obviously remove the volatility of allowance charges going forward. Just curious about the magnitude of the writedown in the 2018 vintages there. It's not so much just the magnitude, but the fact that you're coming off of almost three years in a row of nothing but the tailwind of net reversals. I mean, was there something that showed up? And was it just concentrated in a handful of pools of or is there any observation you can provide us? And why after three years, suddenly, some sort of net charges emerge?

Yes. David, this is Ashish. Good question. Again, U.S. GAAP accounting is pretty clear on how we treat and actual performance slightly deviates from the forecast on upside you have to increase IRRs on the downside, you have to take all of it together. But I'm going to let Craig and Buick, jump in on this. He's on the phone from U.K. and give you some color on on this allowance that we have. It's not from one reason itself. It's from a couple of sources, but I'll let Craig chime in.

Yes. Thanks, Ashish. David, good to speak to you. In relation to the allowance, I guess, before we get into that, if we step back, if we look at the European business through 2019. We've had a mix of certain parts have overperformed in certain parts that have underformed. If we look at one of the core parts of our business, which is sort of the underlying regular payment plans that we get from customers that continues to perform very strongly. And actually, we see more and more regular payers coming out of our overall portfolios right through our vintages. If we look at what's happened here with the allowance charge, we do need to bear in mind that asymmetric nature of U.S. GAAP, which Eric was asking about on the earlier question. In terms of the downside, here you see in 2018, there are probably two main drivers to the allowance we recognized. The first of that was in 2018, we acquired one particular portfolio in Continental Europe, which came from a new client which hands up. We simply overestimated the collections at the pricing of that particular portfolio, and we're taking an adjustment on that back down to refresh it for our latest view. The second element here was through the latter half of 2019. We did detect a slight shift in the settlement behavior of U.K. consumers within these certain pool groups, which we believe has caused the delay for a portion of their collections. Now the impact there on the settlements cash coming through tends to be more pronounced in our more recent vintages. So that's where you see that impact more in the 2018 vintage. As I say, the underlying payment plans within that vintage continued to perform strongly, but under the nature of the U.S. GAAP approach, the downward revisions, we recognize the full impact now of the upward revisions we reflected an increase in IRR in the corresponding pool groups and recognize that benefit into the future. So that's really what's driven the 2018 allowance in particular.

No. That's very helpful. Maybe just one last question, and then I'll get back in queue here. Maybe this is more just a request for a broader update. It seems like it's been quite a while since we've really talked about the call center operations in India and the cost advantages that provides and I know with the acquisition of Atlantic years ago, doing more fresh paper. There's probably more domestic collections. Can you just bring us up-to-date on what percentage of your call center collections are actually taking place out of India these days. That's completely lost track?

Great question, David. So a couple of things happening. If you step back on the call center front, you're right, with the acquisition of Atlantic. We did get a call center in U.S., which we have grown, we've actually grown our India call center as well. And I think you should think of India is not just a call center, but a broader cost play that we have. So a few different ways. It's is a very critical one in call center that you know, it also plays a very critical role in our internal litigation operation, which has a large back office, and it's grown to over 20 states now. So that's the other one. In terms of the cost to collect or call center overall, the India call center matters as providing kind of a labor arbitrage of course. But it plays a very integrated role in the way we apply technology in digital and the role they play and the role they play in conjunction with our four U.S. call centers. So we do not disclose by location, how much of the call center collections are coming. But you have to think the role India playing and other call centers are playing. Overall call center in digital continues to grow very very steadily in its share of total collections. And that's driving our costs down as well as the role India plays, of course, and Costa Rica as well and the Spanish-speaking collections that we have. So we've had that for about 10 years now, or close to 10 years.

Thank you. Appreciate it.

Thank you. Our next question comes from Mark Hughes with SunTrust. Your line is open.

Thank you. Good afternoon and thank you for all that detail. All right. I'll ask Jon, I think you talked about your optimism about the growth outlook and 2020, and you said that you thought the consensus was not capturing the growth prospects? Would it be to before that? I see the consensus on Factset of $6.34, or do we to assume that you feel like that number is too low. Is that what you're communicating?

That's the intent. Correct.

The gain in the quarter from the portfolio sale. Where does that show up in the P&L?

It's in the other revenues. Sorry.

So the 31 23, $3.1 million would be the — that's the gain.

Let me get to that. Well, we think about that seems like there's a lot of movement in the cost categories, Mark, Mark...

I was. Go ahead.

Mark, Ashish pointed out as other revenue. So if you go in looking for the year under other revenues was 9 9 7 4, and the vast majority of that is tied to the gain.

So the $0.24.

It's a portion of the amount for the quarter, Mark. So the 31 23 for Q4 that you see in the press release.

Correct, yes.

A portion of that reflects the gain on the sale of the portfolio.

OKAY. A portion of that. And then does that capture the full $0.24?

Yes.

It seems like that I'll have to do some math, but it seems like that's not a big enough number for $0.24?

That's correct.

OKAY. Well, I'll follow-up. To the cash flow statement, your accounts payable, it was a $62 million drag. Was that part of the portfolio sale? Or what caused that accounts payable seemed like they had not been much of an issue in earlier years?

I'm sorry, Mark, what was that question again, what?

I was just looking at the cash flow statement. And one of the drags in 2019 with accounts payable, accrued liabilities, other liabilities was the $62.2 million headwind? I was just sort of curious if that was any item in particular?

No. Nothing in particular. There is a number of things that were at work. And quite frankly, some of it was tightening up our processes internally and cleaning up much of what was on our books as we move through 2019. So there isn't any one particular thing that would direct you to a cause for that. It was just many, many small things.

OKAY. And then in the expense category, it seems like there was a lot of movement between categories. They clearly added up to improvement year over year. But within the categories, there was a lot of change. Agency commissions were up, G&A down, etc. Could you talk about that a little?

Yes. There's a number of things going on, as you point out. As you'll see, SG&A went down quite a bit. '18 was elevated from higher M&A and some infrastructure costs and FX. And then if you go down to other operating expenses in '18, much of that was tied to a charge we incurred for Refinancia. And then in the line below that, the collection agency commission. Once again, it was a refinance a sale, which was impacted then. Because remember, we continue to hold portfolio. In that part of the world, but if the categorization has been shifted from other places to collection agency commission since they're now working as a third-party for us. Does that answer your question?

It does. It seems like a lot of movement. And I hear what you're saying, I'll take a look at that. And then I'll ask one more question and get back in the co-invest model, could you explain, again, the nature of the partners, I think you suggested this is a way for you to get some good data, get some experience, low risk, a little more capital light, who are you partnering with? And what sort of portfolio is again?

Yes. This is Ashish, Mark. So we have worked with co-investors in the past in Europe, Cabot has, and this is new investors, we have partnered with. And the way it structures is we end up owning a portion of the portfolio and the co-investor owns the rest, although and we service the whole portfolio. So we are able to meet the needs of our clients, maintain their relationships. And then in terms of servicing, we are keeping the data and collections and merging our capacity. And also, this has potential for buying remaining parts of the portfolio, if that's an approach we want to take in the future. So it allows us to maintain a higher level of deployment, but not put our own capital. in. But I would let Craig jump in with some additional color as well. We have not disclosed the names of our co-investors for obvious reasons, but I'll let Craig provide a little bit more color on this.

Yes. Thanks, Ashish. As Jon mentioned, we are going to talk of who our partners are, but suffice to say, these are sophisticated financial investors with many years of experience in this sector. They know what they are looking at. They know what they are looking for. When you are buying portfolios in regulated markets like the U.K., you need a regulated servicer to undertake the servicing activities on those particular accounts. So we'll often team up with these financial investors who need a strong servicer who is the best of what they do in terms of collections activity. It's a nice partnership that we have with our co-investment partners, and as Ashish mentioned, it's a way of if you like, sharing the risk on potentially larger portfolios that come to market and enables us to continue meeting our clients' needs, particularly during this period where we are seeking to deleverage the cabo balance sheet.

Thank you. Our next question comes from Brian Hogan with William Blair. Your line is open.

Thank you. I'm going to actually quickly start on the regulatory environment. Obviously, we're still awaiting the CFEB rules, final rules, if you will, but they didn't put out another event proposed rule making thing on another topic. So I guess, one comment there. And two, I think, on a state level as well. California, they're trying to set up a mini CFPB from what I understand, and maybe New York, too. I guess, could you comment on any movements on the state regulatory front as well in addition to the COPP,

Sure. Brian, so first, on the new thing that you mentioned on CFPB, it's notice of proposed rule making we have issued for time bar debt. The practices we have, actually, is going to have no impact. Our current practices meet or exceed their proposals. And there are three specific areas that they proposed, whether it's disclosures on a recurring basis and whatnot. So we are already doing these are more, in some cases, in terms of frequency of disclosures, we actually disclosed more often than this new rule requires, it may be beneficial to us in some ways. So this will have 0 impact on us when it gets into effect. On the state level, we continue to monitor rules as they come out. And clearly, we live in California. So we hear a lot more about it. And especially on privacy or the previous privacy rule that went into effect, we have already incorporated all of those requirements in our daily NPRCs and business practices. And without any major or any increase in costs. And any new things that come up, we continue to monitor, and we have a very effective team of government relations staff in the U.S. that's monitoring literally every bill that's being proposed in any state legislator. And then when we partner with other industry players with the create associations and educate lawmakers and the related entities when needed. So we keep a close eye on those, and nothing of material significance right now.

Great. Thanks. On that front, moving on to, I guess maybe contingency planning for maybe a potential coronavirus, obviously you had call centers, a lot of people in there. What are your contingency plans for, hopefully, nothing happens, what are just kind of what is that time?

No. I mean that's what it's called contingency, Brian. So we are very focused on it and an executive team we have been discussing this on a very regular basis. So a few things. One is just we're informing our employees. We've done it a few times already and kind of just best practices on travel, precautions and so forth. So we are working to limit exposure that way. But then we also have a business continuity plans that we have prepared in the past for situations like these, and we will put those in effect if any of our sites gets impacted. Now it's important to note that we do not have business in the countries where the outbreak has been more prominent. Now any new countries can get on that pretty quickly as we found out. So we are well prepared and talking about that, we have procedures pick and place if and when any location gets impacted or a city gets impacted where we are located. So we feel pretty good about it. We're just also hoping that this doesn't spread the way at times in some countries it has so.

Sure. And just actually, kind of a follow-up to the operating expense discussion with collection agent commissions, 37.9 million to in the quarter. That's up materially from the prior three quarters and a year ago. And from my understanding is your basis on the refinance yet. But I guess, is that a level that should be continuing? Or is that just a lumpiness? And then the same thing for the G&A. I'm not going to tie that in with a bigger overall question on operating expense and margin potential, obviously, showing great improvement going over the past several years. And I guess, do you still see more of that on the horizon?

Yes, Brian, as you said, a few different elements on the expense line there. So I would say there's a bit of noise in our kind of expense line over time because of a couple of things. We sold to finance at the end of 2018. So that expense is not intent we sold Baycorp in the third quarter of 2019. So there's only part year Baycorp in 2019 and full year in '18. Then there is a third element that Jon just described, a shift of expenses from call center expenses, mostly our G&A and other categories to third-party collections. Now in U.S., we use very little third-party almost none. And in other geographies, it's the lumpiness that happens. And in Europe, also, we don't use it in a large way, but it's much more than U.S. and at times, certain holdings of portfolios that we may purchase, they may stay at a certain servicer until we onboard it back to us, so that it can be more lumpy and drawing a trend on channel expenses would be a bit difficult thing to do. That said, if you step back on our expenses, we are very focused on cost to collect and expenses, what we have been doing is reducing overhead expenses. And it's very focused on each channel cost to collect. Now how the channels get used has been evolving. In the U.S., we're pushing more and more collections based on our consumer-focused approach and digital investments, more collections are coming from call center digital channel. And that trend, I think, will continue on a very slow, steady measured way in the future as well. So in the MCM cost to collect, that's one of the big drivers. Now that said, we do not shoot for a certain cost to collect number. Because if you find opportunities to buy portfolios that have a higher cost to collect, but are even higher returns, we will. And the mix matters, whether it's low balance accounts in U.S. or high balance accounts in Europe. It's secured versus unsecured SME versus consumer. All of those things play a role in the cost to collect metric that eventually gets reported. But we are very focused on it. You're absolutely right, and we hope to continue that trend.

All right. One last one for me is actually your ROE, it's been right around 20% the last, actually several years, 20% plus two years 19% a year in 17% against — I guess is that a trend that we is expected to continue, particularly with the, I don't know, CECL accounting impacts would impact it. What -- and that kind of ties in with your comments on the consensus outloOkay. Obviously, the consensus number would be a much lower ROE. So I just kind of is a 20% number a reasonable number to go going forward?

Yes. So that's a number we like. And we are comfortable with. And we're very focused on improving the performance of the company and improving the balance sheet. So as we continue to get operating leverage from higher collections and revenues and reducing costs. So we will continue to drive earnings, and that's a comfortable ROE number that we have. And that's something that we will not provide guidance on, on a very specific number, but it is something we are watching very carefully. It's one of our core metrics that we look at.

Yes. And the one thing I'll state the obvious, the challenge you face, right, as you do better and better and better and grow your equity, you obviously get a bigger and bigger challenge to maintain your return on that equity, but that's our expectation.

Our next question comes from Dominick Gabriele with Oppenheimer. Your line is open.

Hi. Thanks so much for taking my question. When you think about the term of 15 years on collection. I know the way at least I do most of this stuff comes in, in the first 10 years and even far before that. Is there any reason that the the collection curves are going to change or how you kind of view your IRRs are going to change or not particularly since so much comes in the first call it, five years versus that last five years out of your 15-year period.

Dominick, this is Ashish. So collections, the cash collection curves are what they are. And what we've been observing in U.S., for sure, is we are getting collections well beyond the 15-year time period because of litigation and payment plans people get on or garnishments and other things. So we are seeing continued performance after that 15-year period. So that's a phenomenon that's very clearly visible, and we have data and collections coming through. In Europe, the collection curve, especially in the U.K. along anyway. So they are much longer because of the consumer behavior there and the FCA requirement on affordability and payment plans and payment plans are very sticky there. So that also is a factor in the curves being long. So it is not going to change anything in terms of cash impact, what we said is if CECL is going to impact the methodology and how we calculate the ERC. And I'll let Jon jump in on implications there, perhaps.

At the end of the day, curves aren't going to change the way we are calculating anything is not going to change. The only thing that will change is the -- is what you include, if you will, in your calculation for revenue, right? Because now you'll be able to, where in the past, you may have run the course on something, and it may have gone CBA. Now you're going to have pools that will continue to live for a very, very long time. And so that's the only real change here.

Thank you very much. And and when you just think about some of the CECL changes as far as the legal collections and how that's going to impact your income statement, in particular, can you just walk us through if you had, say, $10 million of collections, how that would change the reporting of your expenses on the income statement versus how they were previously in the quarter?

Yes. I'm not sure I can give a 3-dimensional description, that one's going to be kind of a challenging but I'll point out to take a shot at it and point out where the delta is, right? And the delta will be -- you will have a cost today, let's say, of $100, right, instead of taking $100 and recognizing $50 today, and then $50 you put on the balance sheet and then work down or charge-off, depending on what your actual performance is in terms of recovering those costs. And when you think about it, the way that plays is, you reduced your relative basis, your charge is lower in your current period and then it's recognized or not, depending upon your actual recoveries. Under the new approach, you'll be recognizing $100 in period one. You'll be getting that $100 or whatever you would have recovered of that $100, let's call it, $40. You get that $40 over time. So the only difference is that is really that you're going to be recognizing costs now upfront and then be recovering them, but you're going to be recovering them over time. And when you think about it as we ramp up here in this transition, after you get to a run rate, it's all going to be the same. That makes sense to you.

Yes. So when you think about to 2020 and the cost of legal collection was $53 million in the quarter. Does that effectively then if you were doing $50 million versus your $100 million with that double with the other 50 coming around in, say, nine months or so. And so there's kind of a transition period where your legal costs of $53 million throughout the quarters of 2020 go to, I don't know, 75 or 80. And meanwhile, six to nine months later, you start recognizing that differential in the cash collections. And so there's just kind of this grow-over period 20 that would affect EPS then?

Yes. You did need to be careful about the numbers you're pulling, right? This is just court costs. It's not legal collections or commissions in there. There are other things in there is just court costs. So be careful if you try to grab the whole number, right.

Great. All right. Thanks so much. I appreciate it.

And Dominick, the other thing, this is Ashish again. Just wanted to clarify your earlier question on 15-year curves, since we keep getting cash beyond the significant changes rolling 15-year curves versus fixed 15 year. So if you keep getting cash beyond that, and you have a rolling curve that will keep getting into our ERC numbers.

Thank you. And we have a question from Robert Dodd with Raymond James. Your line is open.

Hi, guys. It's actually related, but that was a coincidence, I think. On the balance sheet, obviously, you've got $100 million in deferred court costs currently. That is going to be written off. And then you say in the K, the net impact would be 50, call it, to the equity. Is that going to be an adjustment on accounting basis? And the write-off of ERC going to run through the P&L.

No. We will take a hit to retained earnings for what we will write-off effectively January 1, 2020.

Got it. Got it. And then the next one, kind of a follow-up to that question on the court cost versus revenue timing. I mean, to your point, eventually, in steady state, it all works out to the same. But I guess the question is, how long how long is the delta between court cost recognition and revenue recognition? And how long is it going to take to get to that kind of steady state. All other things being equal, which they up.

Well, yes, if all other things being equal, you're probably talking about a couple of years, but the reality is, with the order of magnitude that we're talking about, we're going to earn through this, right? If you're thinking that there's going to be some kind of significant drag created here, I can assure you that's not the case.

And we have a follow-up from Mark Hughes with SunTrust.

I think you pretty much just answered this, that the court costs as a proportion of the legal collections costs roughly, how meaningful is it?

I think let's call it 40% to 50% maybe.

And then the tax rate for 2020?

Oh, I was going to miss it if you didn't ask me the tax rate, Mark. I count on you. Mid-20s for 2020. As you noticed, we were 24.3% for Q4 so.

And I'm showing no further questions at this time. I'd like to turn the call back to management for any closing remarks.

That concludes the call for today. Thanks for taking the time to join us, and we look forward to providing our first-quarter 2020 results in May. Thank you.

Ladies and gentlemen this concludes today's conference call. Thank you for participating, you may now disconnect. Everyone have a great day.