Good afternoon everyone, and thank you for standing by. Welcome to the Encore Capital Group's Second Quarter 2024 Earnings Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [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 today, Bruce Thomas, VP of Global Investor Relations for Encore. Bruce, please go ahead.

Thank you, operator. Good afternoon and welcome to Encore Capital Group's second quarter 2024 earnings call. Joining me on the call today are Ashish Masih, our President and Chief Executive Officer; Jonathan Clark, Executive Vice President and Chief Financial Officer; and Ryan Bell, President of Midland Credit Management. Ashish and Jon will make prepared remarks today, and then we will be happy to take your questions. Unless otherwise noted, comparisons on this conference call will be made between the second quarter of 2024 and the second quarter of 2023. In addition, today's discussion will include forward-looking statements that are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from our expectations. Please refer to our SEC filings for a detailed discussion of potential risks and uncertainties. We undertake no obligation to update any forward-looking statement. 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 investor presentation, which is available on the Investors section of our website. As a reminder, following the conclusion of this call a replay of this conference call, along with our prepared remarks, will also be available on the Investors section of our website. 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 us. Before I begin today's quarterly remarks, I'd like to spend a moment addressing the news of Jonathan's retirement next year, which you've likely seen in the separate press release we issued today alongside our Q2 earnings release. This is something we've been carefully planning for. And although it's too early to start the goodbyes, I want to acknowledge Jon's invaluable contribution to Encore and our leadership team, and extend my gratitude for his dedication to Encore for more than a decade. So much of what makes Encore a respected industry leader today has been directly influenced by Jon's vision and guidance. Jon has made sure we'll continue to be in good hands after his departure with Tomas Hernanz transitioning into the Encore CFO role in April 2025. Many of you have met and even gotten to know Tomas over the years since he joined us back in 2016. With his proven track record and substantial industry and company knowledge, I am confident that Tomas will smoothly transition into the Encore CFO role and continue to be an important driver of our disciplined strategy and financial excellence, and I look forward to working with Tomas closely in his new role. I'll now begin with key highlights from the second quarter. Encore's second quarter results are a continuation of our strong performance trajectory. This performance was driven by sustained strong portfolio purchasing in the U.S. and double-digit global collections growth. In the U.S., the market for charged-off receivable portfolios continues to grow to record levels, driven by simultaneous growth in both credit card lending and the charge off rate. As a result, we continue to see very attractive pricing and returns in the U.S. Accordingly, we are currently allocating the vast…

Thank you, Ashish. The second quarter was another period of strong purchasing for our U.S. business at attractive returns, while collections grew in each of our key markets. Collections were higher than our forecast for the quarter and we made small adjustments to our ERC forecast, which together resulted in a positive impact to earnings. I'd like to highlight a few items and provide more detail. Q2 collections of $547 million was up 15% compared to the second quarter last year. ERC at the end of the quarter was $8.4 billion, up 5% compared to a year ago. Operating expenses remain well-controlled and were up 8% compared to Q2 last year as we continued to realize operating leverage and the scale benefits of collections growth in our business. GAAP net income of $32 million and GAAP EPS of $1.34 in the second quarter were up 22% and 24%, respectively, compared to the second quarter of 2023. We believe that our ability to generate significant cash provides us with an important competitive advantage, which is also a key component of our three pillar strategy. Similar to the dynamic Ashish mentioned earlier, higher portfolio purchases at strong returns over the past several quarters have also led to meaningful growth in cash generation, a trend we expect to continue. Our cash generation in the second quarter was up 19% compared to Q2 of 2023. The third pillar of our strategy ensures that the strength of our balance sheet is a constant priority. Our unified global funding structure provides us with financial flexibility, diversified sources of financing and extended maturities. It also underpins one of the best balance sheets in our industry with comparatively attractive leverage. Importantly, even with two consecutive quarters of record portfolio purchases in the U.S., our leverage declined again during…

Thanks, Jon. Before I close, I'd like to remind everyone of our commitment to a consistent set of financial priorities that we established long ago. The importance of a strong, diversified balance sheet in our industry cannot be overstated, especially in the midst of the ongoing growth in U.S. market supply. We will continue to be good stewards of your capital by always taking the long view and prioritizing portfolio purchases at attractive returns in order to build long- term shareholder value. I would now like to highlight how we are differentiated from others in our industry, especially during a time when a number of our competitors are dealing with their own challenges. First, we are the largest player in the attractive U.S. debt purchasing market. Second, we believe our ability to collect on the portfolios we buy and a corresponding purchase price multiples lead to collecting more over a vintage’s lifetime, which in turn generates more cash, more earnings and ultimately higher returns. And third, our well diversified global balance sheet allows us to allocate capital to opportunities with the highest returns. This flexibility is vital, as demonstrated by our current allocation of the vast majority of our capital to our MCM business in the U.S. in order to maximize overall returns. Our balance sheet also provides us the flexibility to fund our business in a myriad of ways. This provides a significant advantage in times when traditional markets become less certain and more expensive. In closing, I’d like to quickly summarize our second quarter performance. Portfolio supply in the U.S. market continues to grow to record levels, which is where we are currently focusing the majority of our capital deployment. Against this highly favorable backdrop, we deployed a record $237 million in the U.S. in Q2 at strong returns. In the UK and Europe we are maintaining our discipline and continue to be very selective in our purchases until returns become more attractive. Our overall performance through Q2 is ahead of our expectations, driven by strong portfolio purchasing and collections. Due to the strength of our position in the favorable U.S. market for portfolio purchasing and the continued execution of our strategy, we are raising our 2024 guidance provided in February. We now anticipate our global portfolio purchasing this year to exceed $1.15 billion, an increase of $75 million when compared to 2023. In addition, we expect our year-over-year collections growth to be approximately 11% to over $2.075 billion, an increase of over $200 million when compared to 2023. Now, we would be happy to answer any questions that you may have. Operator, please open up the lines for questions

Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] First question comes from Mark Hughes with Truist Securities. Go ahead, Mark, your line is open.

Yes, thank you. Jonathan, did you give the collections versus expectations for the UK and for the U.S.?

Hi, Mark, this is Ashish. I will jump in. I have it in front of me. So, in terms of against the expectations of December 31, 2023, which I believe you’re asking, so, globally, we performed at 101%; U.S. was 104%; and Europe, 97%. Now, in constant currency, those numbers become globally 102% U.S., of course, it stays at 104% and Europe is 99% against expectations.

And is that six months or is that 2Q.

It’s six months year-to-date. Yes.

Okay. And then what is your collections multiple now on the 2024 paper in the U.S. and U.K.? I’m sorry, I didn’t see if the queue was out, so I apologize, but since I…

That’s okay. Yes, so the year-to-date multiple on U.S. vintage is 2.3 times and for Europe it is 2.1 for 2024 vintages year-to-date.

So the 2.3 times is that – am I right in thinking that’s down a little bit from the 2.4 at the first quarter? And if so, what – what’s driving that?

Yes, you are right, Mark. So cumulative number, is that slightly down from 2.4? I would say there is just overall the multiples are still strong. And for like for like portfolios, we have not seen any degradation in return. So there is often product differences, types of portfolios you buy high balance, large balance or low balance, for example. And I would say on a like-for-like basis, returns are absolutely very strong and no degradation. Multiples may move around a little bit here and there, but there is still very strong multiples. And on Europe the multiple has been increasing. I know you asked just for U.S., but that’s the other thing I would highlight.

Yes. How about availability under the credit facility?

Well, right now what we’ve done with the bond deals, it’s the full commitment. So it’s $1.2 billion.

And then Jonathan, how is the interest expense going to play out next year? I hear your guidance for this year sort of implies something, what, in the mid-60s for the second half, once you pay off those obligations, is that going to continue next year in the mid-60s or is that going to dip down? All depending on interest rates, obviously though.

Yes, I’d tell you to quantify much into 2025 at this point I think I’ll back off on that. Just in general, we do expect the general trends to continue that we’ve seen this year into next year. And that’s probably – could be a true statement for what you’re seeing in the back half of the year for interest rates. As you point out, as long as interest rate environment remains stable.

Yes. Okay. All right. Thank you very much.

Please stand by for the next question. Next question comes from Zach Oster with Citizens JMP. Go ahead, your line is open.

Hi, thank you for taking the question. This is Zach on for David. So we wanted to just quickly check in on two things. So first of all, just on the macro front, you kind of mentioned the stable payment rates, we want to see if there is any consumers that are opting for any longer payment rates or longer payment plans and if there’s any other kind of general signs of a more stressed consumer. And then on the funding side, I just wanted to see if we can get a reminder on if the global credit facility has any limits to how much of it can be deployed in the U.S., as you kind of talk about that flexible deployment. Thank you.

Okay, Zach, this is Ashish. Let me take the first one and I’ll let Jon take the funding one. In terms of the consumer, I think, you’re alluding to the U.S. consumer. It’s been very stable and consistent from what we have seen last time, several months quarters, no real – no deterioration in any way of payment rates or people’s ability to stay on the payment plans. So it’s very much a normalized environment when you compare it to 2019 pre-pandemic. And it’s continuing – we are continuing to see that as well. And that’s showing up in a very strong collections driven by stable consumer behavior combined with higher purchasing, that’s driving increased collections.

Jon, on the funding.

Yes, in terms of funding, yes, there is no restriction we will deploy dollars where we see the best returns, and that could continue to mean a heavy skew to the U.S. for a period of time. And that’s fine.

Yes, thank you.

[Operator Instructions] Next question comes from Robert Dodd with Raymond James. Go ahead, your line is open.

Hi, guys. Congratulations on the quarter and on Jonathan, on your eventual retirement. The changes in curves, recoveries, et cetera, in the quarter, it’s the first time it’s been positive in a while, so congrats on that. Pretty small number. Looks to me like it was maybe a $1 million negative on cash collections versus expectations, and then plus 6.5 on changes in curves. So is that right? And if it is, I realize there’s a really small numbers. Can you give us any color like if there were vintages or geographic concentrations in area, I would guess maybe a little weakness in Europe. But where the curve changes are occurring, is there any particular concentration in any vintages there?

Hi Robert, this is Ashish. So, the numbers are actually slightly different. So, the performance above forecast was about $27 million. And the impact of NPV on curve changes was about $21.7 million. So, net is 5.7 positive in terms of total CECL impact for the quarter for the company. Now, in terms of your question on region. So overall, I would say the numbers are very small and really noise against how we adapt forecast and refine it quarter-over-quarter. But in our queue, you will find that the other way to look at the 5.7 is it’s positive, about 9 million for MCM in us and for Cabot, it’s about negative 4 million or so. Again, those numbers combine action versus forecast performance and the change in forecast. So just be mindful of kind of how that’s calculated, that’s how it divides up.

Okay. And any vintage differences, I mean, obviously, like the 2001s were a problem, but I think stabilized. Anything that’s particular to a year in there or is it just spread out?

I would say overall, any changes in vintage you might see, again, those are change impact of two things. First, performance against forecast, and second is change in forecast. So overall, I would say these are just minor, very minor impacts and noise. I would not draw any conclusions from vintage level data that you will see in our queue. The overall number is a sum of all those vintages across geographies, across product types, and there is no real differences across vintages or anything. Our overall collections, as I said, we had a very good quarter in terms of collections. And the CECL impacts are small and they are more about forecasting refinements and impacts on those than anything around major vintage performance or consumer behavior or anything like that.

Got it. Thank you. And then just one more if I can. On legal collections, in total, it broke over 60 for the first time in a while. So, is that – are we now starting to hit a period of ramp in legal, given you have been buying a lot for some period of time, there’s always a lag before legal goes up following purchases, because it’s not your first choice to pursue the legal avenue. But is this the beginning of a rising trend only in legal, or was there anything just unusual in Q2 about timing of items?

So, Robert, I want to make sure I understood, you meant the legal collections expense, correct? Is that your question?

Yes, correct. Correct.

Yes. All of that is coming from our U.S. business as we are growing purchasing and just there’s a natural [indiscernible]. Now that said, the overall legal collections as a percent of total for MCM was in the 35 36% range kind of on the lower side, similar to Q1. So, we continue to get very good success in our call center and digital channel. Any rise in legal expense is just part of increased purchasing, and it’s all coming from the U.S. side from the MCM business.

Got it. Thank you.

I am seeing no further questions at this time. So, I would like to hand the call back to Ashish Masih for his closing statement.

As we close the call, I’d like to reiterate a few important points. We believe Encore is truly differentiated in our sector, with a solid track record of operating results and superior capabilities, guided by a consistent strategy and clear financial priorities. As the consumer [indiscernible] continues to turn, the U.S. market for portfolio supply is growing to record levels. We continue to apply our disciplined portfolio purchasing approach by allocating record amounts of capital to the U.S. market, which has the highest returns. When combined with our effective collections operation, we believe this approach is enabling 2024 to be a turning point in our operational and financial results. Thanks for taking the time to join us and we look forward to providing our third quarter results in November.

Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.