Q2 2021 Encore Capital Group Inc Earnings Call
Good day today's conference is scheduled to begin shortly lease continues the standby. Thank you for your patience again todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Good day, and thank you for standing by welcome to the Encore capital group's quarter to the 2021earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
A question during the session you will need to press Star and then the number 1 on the telephone keypad. Please be advised that the East conference is being recorded if you require any further assistance. Please press star zero.
I would now like to hand, the conference over each of your first speaker today, Mr. Bruce Thomas Vice President of Investor Relations for EMCORE. Sir. Please go ahead.
Thank you operator, good afternoon, and welcome to Encore capital group's second quarter 2021 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, Ryan Bell, President of Midland Credit management, and Craig Buick.
Yo of Cabot credit management.
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 second quarter of 2021, and the second quarter of 2020.
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 of 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.
That let me turn the call over to Ashish Masih, our president and Chief Executive Officer.
[laughter].
Thanks, Bruce and good afternoon, everyone.
Thank you for joining our earnings call.
Encore delivered another strong performance in the second quarter as we continued to execute our strategy improve our balance sheet and focus on our capital allocation priorities.
To better understand the results, let's begin with some important highlights from the quarter.
The primary driver of our financial performance in Q2 was the record collections for both our MCM and Cabot businesses.
We continue to see consumers focus on resolving the debts, which should lead to a higher volume of inbound calls and online engagement.
We also started seeing an increase in legal collections in the second quarter.
On a global basis, our portfolio purchases of $143 million in Q2.
Which was lower than last year due to lower market supply.
Although issuers continue to sell.
Volumes of lower because of your charge offs.
As these conditions persist we have maintained discipline and continue to purchase at attractive returns.
In addition, our success over the past several years in improving our collections effectiveness.
And cost efficiency has allowed us to mitigate the impact of higher market pricing on our returns.
Our global financing structure continues to provide benefits in.
In June we refinanced the last of the legacy Cabot bonds with a significantly reduced coupon.
Saving 325 basis points, which will further reduce our interest expense in the future.
Our business continues to generate significant excess capital driving a further reduction in our leverage ratio.
Which is now at the low end of our target range of 2 to 3 times.
In line with the capital allocation priorities, we repurchase $27 million of encore shares during the second quarter.
As a result through the first 2 quarters of 2021, we.
We have spent a total of $47 million repurchasing shares.
We will continue to allocate capital according to our stated priorities and the future share repurchases are subject to maintaining our strong balance sheet liquidity.
And the continuation of our strong financial performance.
Before the describe of results for the quarter I would like to anchor the conversation to our previously outlined strategy.
We deliver best in class financial performance as the result of a consistent strategy and execution.
We look to purchase portfolios of nonperforming loans at attractive cash on cash returns.
Using funding with the lowest cost available to us.
Put each portfolio of that we own we strive to exceed our collection expectations, while both maintaining an efficient cost structure and ensuring the highest level of compliance and consumer focus.
We achieved these objectives through of 3 pillar strategy.
This strategy enables us to consistently deliver outstanding financial performance positions us well to capitalize on future opportunities.
And is instrumental in building long term shareholder value.
The first pillar of our strategy market focus leads us to concentrate our efforts on the markets, where we can achieve the highest risk adjusted returns.
Consistent with this strategy, we recently entered into an agreement to sell our portfolios in Colombia and Peru.
The sale is expected to close on the third quarter.
Our largest and most valuable market is in the U S.
In Q2, MCM delivered another quarter of record collections in an environment characterized by 2 meaningful dynamics.
First consumers continued to reach out to us through our cost efficient call center and digital channel to resolve the debts.
Collections through of legal channel grew 31% due to increased legal activity as coats and legal services have reopened we.
We do not expect this to be of long term shift in collection mix.
MCM deployed $90 million during Q2 as the impacts of the pandemic tempered supply in the U S.
We continue to deploy capital at attractive returns.
As announced by the CFPB last week the industry. The rules will become effective on November 30th 2021.
We are pleased to see the completion of this multiyear process, which will resolve of uncertainty and finally leveled the playing field for participants in our industry.
In addition, the new rules will modernize communications with consumers and allow us to engage using methods consumers prefer.
We are prepared to fully implement the new rules by the confirmed the effective date.
Turning to our business in the UK and Europe.
Our collections performance continues to it.
It has returned to normal levels after several quarters of Covid related volatility.
Collections on the second quarter grew 45% compared to Q2 last year.
Period, when the effects of the pandemic were most impactful.
Collections for the first half of 2021 for Cabot portfolios owned at year end 2020 exceeded our expectations by 7%.
Second quarter collections on the legal channel increased 36% compared to Q2 last year, which drove cost to collect higher.
Deployments in Q2 of $53 million were higher compared to the second quarter of last year, and cabot's portfolio purchases of $131 million in the first half of 2021.
Have already exceeded the total for all of 2020.
Despite the fact that delinquencies remained low supply has increased in UK and Europe.
Sellers are now coming back to market.
Portfolio pricing has become more competitive across the European footprint and constrained our investments in the second quarter as we maintained our return focused disciplined and purchasing.
The second pillar of our strategy focuses on enhancing our competitive advantages are.
Our competitive platform enables us to consistently generate.
Significant cash flow of.
Cash generation for the 12 months ending in June <unk>.
Increased 16%.
Reflecting the steady improvement in our business the ifs.
<unk> CFO of operations and the resilience of our portfolios.
Our consistent growth in cash generation has contributed to our reduced borrowings and the deleveraging of our balance sheet.
Our strong cash generation also provides us with additional flexibility when we consider our capital allocation priorities, which include portfolio purchases at attractive returns.
Strategic and disciplined M&A and share repurchases.
Our competitive advantages also allow us to deliver differentiated returns.
We emphasize our ROIC.
As an important measure of our business because it takes into account.
The performance of our collections operation as well as the ability to appropriately price risk.
When investing our capital.
We believe it's important to demonstrate that our underlying business delivers strong long term returns that we can maintain through the credit cycle.
On ROIC performance in the second quarter, an outperformance of our time are solid indicators of the improvements in our business. During a period that was characterized by uncertainty and.
And volatility in global financial markets.
We continue to believe it is difficult to find such attractive returns at other companies in or around our industry.
The third pillar of our strategy make strengthening of our balance sheet of constant priority.
We believe that our strong balance sheet is critical to being successful in our sector.
Our continued focus on strengthening our balance sheet has enabled us to reduce the debt to equity ratio to 2.2 times.
And reduce the leverage ratio to 1.9 times, which is now at the low end of of targeted range of 2 to 3 times.
And is near the lowest in the industry.
Our strong operating performance and focused capital deployment have driven higher levels of cash flow, which in turn has led to leverage reduction.
As a result of of financing accomplishments over the last year.
Including the refinancing we completed in Q2.
We have significantly lowered our cost of funds and we believe we have established a best in class capital structure that will allow us to capitalize on future opportunities.
I'd now like to hand over the call to John for a more detailed look at our financial results.
Thank you Ashish.
In the second quarter very strong collections in both the call Center channel and the legal channel drove higher revenue net income and returns.
Importantly, the resulting strong cash generation combined with lower purchase volume led to a further reduction in our leverage ratio and slightly lower ERC. The.
The quality of our strong underlying second quarter results is not readily apparent when comparing to the second quarter of 2020.
This was a period during the emerging stages of the pandemic when we observe significant volatility in our business.
Our continued strong financial performance become performance becomes more clear when viewed as a comparison of the first half of 2021 to the first half of 2020.
Through this lens it is clear that our growth in collections drove higher revenues in earnings. It also shows that our operating expenses remain well managed in fact, we've maintained an expense level within a tight relative range for the past several of the quarters, except for the second quarter of 2020 of period during which legal channel spending.
With significantly reduced due to the impact of the pandemic.
Collections were a record $612 million in the second quarter up 21% compared to Q2 last year MCM collections grew 13% in the second quarter to a record $437 million.
Within that total Mcm's legal channel collections grew 31% compared to Q2 last year when the pandemic impact on the legal channel was most prevalent.
Abbott collection through our debt purchasing business in Europe in the second quarter were a record $168 million up 45% compared to Q2 last year Q2 of last year was a period during the early days of the pandemic when cabot's collections were impacted severely.
Encores global collections in the second quarter for portfolios owned at year end 2020 achieved 119% of our ERC.
Revenues in the second quarter were $428 million compared to $426 million in Q2 last year.
Call that in early 2020, the uncertainty surrounding the coronavirus pandemic caused us to push our collections forecast in Q1.2020, and subsequently pull most of it back.
In during the Q2 and Q3 of 2020.
This dynamic essentially suppressed our revenues in the first quarter last year and reversed the process in the second and third quarters of 2020.
Our estimated remaining collections at the end of Q2 was $8.1 billion.
Down 3% compared to the end of Q2 last year, primarily as a result of very strong collections performance during the past year as well as lower portfolio purchasing during the same period.
Our global funding structure provides many benefits the encore, including lower funding costs on extended maturities in June we refinanced the last of our legacy of Cabot bonds with 250 million pounds of new senior secured notes with the 325 basis point lower.
Coupon, while also extending the maturity from 2023 to 2028.
We also expect the interest savings from these new notes, we will pay back the call premium from the redemption of our previous notes by the end of 2021.
Available capacity under our global our CF was $720 million at the end of the second quarter and we concluded Q2 was the $175 million of non client cash on the balance sheet.
With our strong balance sheet, our financial flexibility and access to a variety of capital sources, we are well prepared for the opportunities that lie ahead.
With that I'd like to turn it back over to Ashish.
Okay.
Thank you John.
Yes.
I'm proud of 4 accomplishments on the first half of 2021.
And excited about the opportunities in front of us.
As I reflect on the last year and a half.
Which has brought constant and unprecedented change to our personal and professional lives.
I am proud of my 7000, plus colleagues at encore located across many countries around the world.
Each of them has managed through a variety of COVID-19 related challenges impacting the families.
Their health and the communities.
They have debt admirably with the constant ups and downs on their lives.
Through it all they have kept the focus on our mission, which is to create pathways to economic freedom for our consumers.
And our vision, which is to make credit accessible by partnering with consumers to restore the financial health.
We understand that no 2 consumers are the same and we pride ourselves on gaining an understanding of each consumer circumstance to determine the best solution to help them resolve the depths.
And restore the financial health.
Everything we do at Encore is informed by 3 core values.
The care so we always put people first.
We find a better way so we remain committed to always delivering our best.
And we are inclusive and collaborative.
So we always embraced the differences so that each individual can thrive.
Together, our mission vision and values serve as the bedrock of the organization and for the performance that follows.
To continue to deliver strong results and plan for a successful future.
We remain focused on executing our strategy, which we believe is critical to building long term shareholder value.
We have a clear view of our financial priorities and the importance to building upon our success.
Our bond refinancing in Q2, once again demonstrated the benefits of our global funding structure.
We continue to be focused on achieving our balance sheet objectives, which include preserving our financial flexibility.
Getting leverage in the range between 2 and 3 times.
Maintaining a strong double b decorating.
Consistent with the capital allocation priorities, we followed a disciplined approach to purchase portfolios at attractive returns in the second quarter.
Furthermore.
We continued to repurchase encore shares in the second quarter after having initiated share repurchases.
And receiving board approval to increase the repurchase authorization earlier in the year.
Finally, with regard to our operating and financial performance on.
The returns remained very strong and we are committed to delivering strong ROIC.
Through the credit cycle.
Looking forward I'm excited about our business for the remainder of this year and beyond.
We continue to operate at a high level.
Hitting upon our solid liquidity position and a strong flexible balance sheet.
Which will allow us to capitalize on whatever the future holds.
Now we'd be happy to answer any questions that you may have.
Operator, please open up the lines for questions.
Thank you Asher and just a reminder to ask your question just the press Star and then the number of line on your telephone keypad again, just the press star and the net number 1 on your telephone keypad and if you wish to lead the go on your question from the queue just press the pound key.
The standby, while we compile the Q&A roster.
Our first question comes from the line of David Scharf from JMP Securities. Sir Your line is open.
Thank you good afternoon, and thanks for taking my questions.
Just a couple of here.
First.
Regarding Europe.
Maybe because U S. Obviously may take a while in terms of the.
The credit environment, turning but.
Can you give us your best guess about whether Europe.
Your mind is sort of on the cusp.
Of an inflection point, where we'll see a meaningful.
Return of supply.
At prices that you find.
Conducive or.
It seemed to be a little bit of mixed messaging there on the pricing versus the supply front and the.
Prepared remarks, so I wanted to make sure I didn't misinterpret.
Well thanks for the question, David Let me provide a bit of context on the overall environment and then I'll, let Craig jump in after that with more color.
So in general in both U S and Europe.
There are similarities right so.
Delinquencies and charge offs on law.
Given how the consumers have behaved.
The supply is lower now in U S. All of the banks, who sell regularly have been selling adjusted the delinquencies on the volumes have been lower.
In Europe, particularly in the UK now what we found is.
Banks typically last year mid of middle of last year from sales of bit.
On.
So that compounded the reduction but now the have come back and we are seeing debt. So the increase from relatively compared to last year is there, but U S. Banks have always continued to sell.
So that's kind of of the environment kind of lead time, Craig chime in with a bit of more color on whether the supply of our pricing in the UK as you.
Wanted to know.
Okay.
Yes, Thanks, Ashish Hi, David.
Yes, I think of association summarized it well I think you've got to think about it David for the the demand on the supply side here in terms of the European market when I talk about Europe, I'm kind of like there's probably more on the UK, which is our largest market. If you think about what's happening within our clients right now.
Credit card balances were mined down compared to what they were previously we are seeing that decrease starting to slow.
At this point in time, they ask to day question, but the rate of decrease has slowed at this point. So we might be approaching an inflection in terms of the consumer credit balances credit card balances, we say in the U K delinquencies they remain low at this particular point.
The.
The consumers still appear to be quite a strong position and we see that with low delinquencies across many of our clients. At this stage, we have seen supply starts to come back to market position as you mentioned.
Many of the players upselling, while Sheila coming back that bringing the type of back to the market.
On the demand side, you then say we have a number of well funded experienced the industrial players in this market.
Well looking at this type of at this particular point in time I would say pricing is back to where at times, maybe a little above where it was at pre COVID-19 levels.
And we continue the main side of that capital deployment rigor of at this particular point.
That helps.
Yes, no no.
It does I mean, it certainly sounds like.
The market might see sort of credit and selling behavior normalize.
[noise] quicker quicker than the us.
Just a follow up to that sort of just the math question I know I could plug.
Plug in some assumptions and true.
Got it back into this but your quick too.
Provided probably more quickly could you give us a sense.
Generally how much you would have to deploy in the second half of the year.
To close out the year with the ERC flat.
From where it was at June 30th.
Okay.
This is ashish David So let me just provide 1 more color to your kind of common that you had at the end of Craig. So I would say in terms of market normalization that you were looking at the U S has been more normal so sellers never stepped away.
Hello, Brian.
I was using the term the way the card issuers on the earnings calls I've been using it in terms of loss rates rising to normalized levels. Yeah got it. So I just wanted to be clear on kind of the sales environment, what that is and it just delinquencies and charge offs. The loan book markets, but spending is rising new card activations are back to norm.
Moving from some of the reports I've seen in U S. So many of those things are starting to.
Turn and then we will have to wait and see how the government programs impact.
Some of the consumer behavior to becoming more normal win at the end of which.
I think the lending levels will be normal and charge offs rates will be more normal.
Any any case so to your second question on <unk>.
And that depends on how we collect we have been collecting really well, we still have 8 billion in ERC.
And we don't think of it that way that we have to.
On.
Key go to a certain target NERC, we are focused on returns and so we maintain the discipline.
And depending on how the collections growth kind of of math on what the period end ERC is.
And just keep in mind again, the overall size of the PRC is $8 billion, an ounce of any substantial 1.
Right.
Great. Thank you.
Thank you very much.
Thank you. Your next question comes from the line of Mike Grondahl from Northland Capital markets. Sir Your line is open.
Hey, guys. Thank you.
Can you talk a little bit about how youre thinking about collections.
Maybe if you could comment on July and then how youre kind of thinking generally about the second half of the year and I'm asking that question in light of the $600 million in <unk> $600 million in <unk>.
Kind of how youre thinking about it.
So Mike.
Thanks for your question the way we are focused on is just.
Maximizing long term value from our portfolios right. So collections are a result of kind of our efforts as well as consumer behavior. So.
As you know from our discussions and just broader discussions on the consumer financial services industry.
<unk> really accelerated payment rates and kind of resolving the debts.
Much more than Q1 continued some of it in Q2.
So whether pieces of our home saving money the savings rates were higher that's how they decided to kind of take care of the financials.
On.
And that's continuing but I cant quite predict and we don't think how in a way that kind of what that rate is going to be in the second half of your very focused on making sure. We are collecting for the long term, we are offering the right kind of payment arrangements discounts in terms of consumers that helps them resolve the debt, but also it doesn't destroy long term.
So.
Based on kind of on the consumer behavior goes in the second half of the year.
On this COVID-19 situation for the last 18 months has anything been.
I'm kind of.
Usual and hard to predict how consumers will behave just imagine I kind of go back a year ago. Thanks, Todd on what really happened. So we'll be focused we have ample call center capacity because of times consumers have called us. The lock we have very robust digital capabilities, because consumers tend to be seem to be using data lots of.
The engage with us.
And then we've ramped up our other channels of <unk>.
Sections as well so we'll just look to maximize value from the back book, but also we continue to purchase.
At good returns and collections will come from those as well on the second half of the year on beyond so that's what I can offer in terms of kind of how we think about it and where it ends up.
We'll find out at the end of the quarter.
Sure that's fair.
Any thoughts on July can you can you comment on that month.
I will not comment on that Mike a year ago, I think we provided some color kind of what the first month into the quarter.
<unk> not done that typically and we are not going to get into that at this point how July is going.
Got it got it and then.
The buyback the 2.
27 million that was in <unk>.
After the $20 million that was in 1 Q is that about a rate that we should think of going forward.
Or is it going to be more mechanical based on purchase levels and leverage it could be higher than 2007, it could be lower how do you want people to think about the buyback going forward.
Yeah. That's of Great question, so as we've initiated buybacks this year.
Kind of if you step back.
For many quarters, we had been generating excess capital. So that's 1 driver the other 1 is.
We approach the lower end of our leverage target of 2 to 3 times right. So that.
If you combine those 2 factors that lead us to any share repurchases, Inc. And we have bought $47 million as you correctly said and the first chunk of the year.
And simultaneously the increased our authorization to a multiyear program of $300 million, which is what our board authorized.
So.
That was originally $50 million. So that's kind of the context that we have 2 of the framework and parameters. We have to operate around and then we're going to allocate capital according to our priorities.
Sure.
Which is leverages 1 of the targets, but any future repurchases are subject to a strong balance sheet subject to maintaining enough liquidity.
Subject to continuing strong financial performance.
Got it got it okay. Thank you.
Yeah.
Thank you once again as a reminder, if you wish to ask a question just the press star 1 on your telephone keypad again, just the press Star and then the number 1 on your telephone keypad. Our next question comes from the line of Mark Hughes from truly Securities. Sir Your line is open.
Yes, Thank you and good afternoon.
Hello from historical any historical perspective on the supply do you see kind of a market that's restricted and then opened up.
Is that and I don't know if there is any historical precedent but.
Could you see people coming back and then kind of a flurry of activity of trying to make up for lost ground and then it evens out or.
Any historical perspective would be helpful.
Yeah.
I think historical perspectives of der Mark, but I'm not sure of.
Kind of how to extrapolate of use them for future. So on the great recession time.
The charge off Spike was very rapid.
And many players who didn't so also sort of in that time.
On a year on a half ago of year in 4 months ago. Thanks, Todd something similar was about to happen the increase the reserves.
But they never materialized into losses.
And then the other factor is the time for example, U S is heavily forward flow based all of the banks, who sell our selling they just have lower volumes.
And in U K, if you found some banks stepping back and coming back in.
And in Continental Europe, There's also a lot of secondary market sales net.
Buyers have made.
And a lot of sales of from the stock that's built up over the years. So.
There's different factors that drive.
And the outcome in each market will depend so I'd be hesitant to try to predict exactly based on past behavior of what may happen. I think is the economies of normalizing the normalizing in a very steady way lending is rising and people are spending more on cards of getting activator sort of normalize to a more normal level.
The time I think than some rapid reaction.
Please go ahead. Thank you were kind of jump in here.
Yes, no I appreciate your you.
Youre completing your thought there.
How about from a buyer perspective.
Do you think they may be.
The kind of front end loading things and therefore, the spike in competition so to speak lighten the last just curious.
We've found a buyer of kind of approaches of different there are many sectors in Europe different kind of paper, but lift on U S side, let's see.
Let's try and jump in here kind of what he's seeing.
On the kind of how the market's behaving and what the supply situation is Ryan.
Sure Yes.
The specific question on the Spike in my fire of competition, we're not seeing that it's pretty much still a rational market the buy.
Ours that were buying before cell buying now.
The lower supply based on lower charge offs from the from the seller. So I wouldn't say, there's a bit of any significant change on the competitive landscape on the U S. On.
And then to your earlier question on how we expect to see.
On the supply increase less of our belief now on lesser of that.
I'll be a steady increase in supply not a start to spike.
On a 1 time point at some point in the future, but we do expect to see.
A steady increase in supply by start.
Later this year early next year as we've talked to our banking partners.
Jonathan the $109 million and over performance from the quarter.
What was the comparable number in Q1.
Yeah.
The second.
And while you are kind of playing that 1.
The outlook for legal costs, how should we be thinking about the absolute level of spending.
In the coming quarters.
I think on the question before we go can you go ahead, John Mark market was roughly.
$91 million was there any of them.
The 1.1.
Is it fair to assume there on the collections environment at least with debt measure was better more robust in the second quarter, because you've got the.
Usually the seasonally slower quarter, but.
Rental increase more over performance so.
Is that a fair takeaway.
Uh huh.
It probably should have Ryan <unk> from his perspective on the collections, but I view.
Q2, as being a very strong collections quarter.
Yes the.
The us side I think not much of a difference between Q1 and Q2, both very strong collection.
Collection quarter.
Thank you.
Material difference between the 2 on the U S side.
And on the legal costs.
Yeah on the legal cost Mark so I'm going to let Brian and then Craig jump in but we have seen a pickup in the legal collections as legal activity has normalized so.
On the USAID, Ryan and then Craig if you can just chime in on on what that looks like.
Yeah on the legal cost side, specifically, we were probably at a run rate number we feel it was obviously depressed.
The middle of last year because of the the situation with the courts, but as that pick back up I wouldn't expect any material change in legal costs.
The same holds true for Europe Ron.
Now that can change last year. This of this year and where are we on today.
The Jonathan you mentioned, the 119% performance on collections.
Instead of ERC was it.
The U S.
Sorry, I was on mute.
That's the combined.
That is.
Or the.
And to be clear of that says the percentage of the ERC at year end sort of measures. How we've how we're doing based on what we expect it to do come ahead of the year.
At year end 2020.
Correct.
And then the.
You mentioned youre going to be selling portfolios in Colombia, and Peru, what's the.
What would you expect to.
Clear on net sales.
So if I could jump in John there on <unk>.
Mark.
So we have.
Not close the transactions on a bit limited.
What I can provide you what we expect the.
The FX related losses of these portfolio of sales would be around $15 million or 50 cent impact in Q3.
So EPS law.
What about the.
What about the.
Is that going to be recognized of the is that going to contribute the collection. So whatever your proceeds are.
No.
Okay.
Okay, and then Jonathan the.
Interest expense on a go forward basis.
$44 million this quarter.
This does that already reflect this refinancing or what will be the incremental impact.
Alright. Thank you can you can probably look to our.
Uh huh.
Net interest expense going forward the kind of.
The mid to low <unk>, that's a lot of that can be driven obviously by.
How much debt, we have outstanding in and.
To the lesser extent where rates go.
Okay.
Thank you very much.
Thank you. Our next question comes from the line of Robert Dodd from Raymond James Sir Your line is open.
Thanks, and congratulations on the collections performance again, a question on all of the leverage.
Coming back to kind of the leverage and the potential buyback issue and I. Appreciate the comments you made I mean, obviously of the 1.9 times leverage there's a numerator and denominator effect on me. She has generated a lot of cash you've de levered.
But obviously also Kashi EBITDA, if I can call of that has been extremely strong with the collection of elevated.
Obviously, it's been outperforming your expectations. So if EBITDA were to perform more in line with you.
Patients.
Well conceptually would that put you in your leverage target range and how does that influence how much.
Excess capital.
If you will you have available.
Potentially to fund the buyback program I realize that it's a little tricky to estimate the.
Yeah.
Yeah, Robert Thanks for your question.
I'm not going to try to speculate what the leverage number in the future might be on.
The way, we think about buybacks as I said is.
We have been generating excess cash and capital capital.
And what's important is our.
Kind of a broader set of criteria, which is.
Leverage should be at the lower end of the 2 to 3 so that led us to start to repurchases and then we also look at just generally overall balance sheet being strong and liquidity given the portfolio purchase outlook.
And just overall strong financial performance, we have had all of those things for a period of time. Therefore, we were able to buy for the 2 quarters. So I would leave it at that.
[noise] Leverages the range for 2 to 3.
As opposed to a specific number kind of what would initiate on not initiate buybacks. So I would leave it at that hopefully that provides enough framework on how we think about kind of repurchases.
I appreciate the actually thank you and then 1 more just on on your on the day mentioned that the that the pricing.
It's in some cases is worse and worse in the sense the the pre COVID-19.
Any color or idea on.
Is that just driven by the the the scarcity of of supply relatively speaking, even though some of it some of it is coming back because obviously a lot of pre.
Competitors in Europe, some of the irrational before.
On the back to the old habits.
Well on.
Or is this just scarcity and its is there leverage.
Not playing the role than it was in say 2019 in terms of inhibiting some of the irrational pricing.
Yes on U S.
And in both markets of course as you correctly said the supply demand clearly plays a role on pricing. So when that goes in a different kind of balance so pricing would go up in U S. It's what we see is the very rational set of players and no new entrants.
And there was no lack of liquidity on the part of the major buyers. So its the similar market. It's just lower volumes pricing has been stable in the U S. We do see portfolio here or there that has higher pricing so marginally up I would say, but in general.
Staying in line and then in Europe.
There are players who had leverage of funding constraints before the pandemic those have gone away. So there are many well funded players as Craig alluded to.
And that when combined with the less supply.
Can create of environment, where some portfolios we've seen have had higher pricing and we make our bids based on our return expectations and there are also players who have different specializations day focused on different kinds of paper. So everyone has kind of the ability to get what they want but in general you're right.
The lack of leverage constraint on funding is.
More normal in Europe now than it used to be.
Before the pandemic and Craig anything else on that front on Europe.
No I think I think the so you should cover the key elements.
Robert it's really about.
There's been a bit of a quiet period type is coming back.
In Europe, we've got experienced well funded the industrial players.
And is that looking at that type of.
Some people look at it in the different way the way day, what else I think when you're looking at Europe.
There's lots of different things in terms of asset classes of what you buy and where many of all of the players in the sector with it you got a slightly different area of specialism certain portfolios might appeal more to others.
When would that believes the returns there, we'll let it pass and we'll move on to the next opportunity is at that particular point in time Europe is the big market will continue to maintain the capital allocation.
Discipline that we've demonstrated in the past that's allowed us to be able to generate the sort of iron ore I see the ashish talked about earlier.
I appreciate that thank you.
Thank you there are no further questions on the Q I will now turn the call over back to Mr. <unk> Marcy Sir Please go ahead.
Thank you.
That concludes the call for today, thanks for taking the time to join US and we look forward to providing of third quarter 2021 results in November.
This concludes today's conference call. Thank you for participating you may now disconnect.
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