Q4 2021 Encore Capital Group Inc Earnings Call
Today's conference is scheduled in short please continue to standby and thank you for your patience.
[music].
And thank you for standing by and welcome to the Encore Capital Group's Q4 2021 earnings Conference call.
At this time all participants are in a listen only mode.
The speaker's presentation there'll be a question and answer session last quick question doing that session you will need to press star one on your telephone.
Today's conference is being recorded and if you require any assistance joined the call. Please press star zero.
But Dan so let to your speak today, Mr. Bruce Thomas Vice President of Global Investor Relations Mr. Thomas the floor is yours.
Thank you operator, good afternoon, and welcome to Encore capital group's fourth quarter 2021 earnings call joining.
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 CEO of Cabot credit management.
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 2021.
In the fourth quarter of 2020 or between the full year of 2021 and the full year 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.
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.
Please note that at the conclusion of today's call. We will post our annual report to our website, which includes among other items a letter to shareholders and a copy of our Form 10-K .
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.
On today's call I will start with a high level recap of 2021, including a few key achievements.
Then I'll review, our strategy and financial priorities as well as key measures that are important indicators of the strength of our business.
Then John will review, our financial results after which I'll comment on our outlook for 2022 and beyond.
Importantly at the conclusion of today's call. We will also post to our website. Our annual report. It includes among other items my letter to shareholders.
We will begin with a look back at our performance in 2020 one.
And a year of challenges across the globe related to the ongoing going COVID-19 pandemic.
We continue to execute on our strategy and delivered exceptional performance in 2020 one.
We maintained a disciplined consistent approach to our business that drive shareholder value and positions the company for long term success.
We point to a number of highlights in 2020 , one that illustrate the success.
To begin.
Our financial performance was driven primarily by a strong collections, particularly within our MCM business.
Overall, we achieved new all time high highs for collections returns and earnings.
On a global basis, our portfolio purchases were $665 million in 2020 , one slightly exceeding encore purchased order from a year ago, when we deployed $660 million.
Our weighted average purchase price multiple for the year remained attractive at 2.4 times.
Our focus on returns as well as continuous improvements in our collections operation.
Allowed us to mitigate portfolio pricing that was somewhat higher in 2020 one than in 2020 .
Although banks continue to sell portfolios throughout 2020 one.
Markets in the U S and the U K have been impacted by lower supply.
As a result of fewer charge offs. However, we are beginning to see indications that credit normalization has begun.
I'll expand upon this a bit later in our presentation.
Throughout 2021, our business performed extremely well delivering strong returns and cash flows as a result, our balance sheet has continued to strengthen as we improved our leverage ratio to one nine times by the end of the year.
We also refinanced the last of legacy Cabot bonds in 2020 , one further reducing our cost of capital.
Our strong cash generation and balance sheet combined with the low level of portfolio purchasing opportunities allowed us to return a meaningful amount of capital to shareholders in 2021 in total including open market purchases throughout the year.
And our tender offer in the fourth quarter.
We purchased 22% of encores outstanding shares for $390 million.
We play a critical role in the consumer credit ecosystem by assisting in the resolution of unpaid debts, which are an expected outcome of the lending business model.
Our mission is to help consumers resolved their debts. So they can regain the freedom to focus on what is important to them.
And we do that by engaging in honest and pathetic and respectful conversations.
As part of our business model, we continue to purchase portfolios of nonperforming loans at attractive returns using funding with the lowest cost available to us.
For each portfolio that we own we strive to exceed our collection expectations.
While both maintaining an efficient cost structure as well as ensuring the highest level of compliance and consumer focus.
We achieved these objectives through our three 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 concentrates our efforts in the markets, where we can achieve the highest risk adjusted returns.
Consistent with this strategy, we sold our portfolios in Colombia, and Peru during 2021 .
Okay.
Changes in consumer behavior, and government supported the economy led to lower credit card balances and below average charge offs, which resulted in lower portfolio sales, but banks in 2020 and 2021 .
However, it is now clear that credit card balances are rising again in the U S and the U K and we expect a continued normalization toward pre COVID-19 levels during 2022.
We anticipate that this increased lending will translate into more charge offs and lead to higher levels of portfolio sales in due course.
Despite quarter to quarter variability that often characterize as market supply in our industry.
Portfolio purchasing volumes over the past two years have generally followed the trainer credit card balances within our primary markets.
Even though our level of deployment was nearly the same in both 2020 and 2020 one.
We believe the underlying volume trends clearly support our belief that the bottom of the supply environment is now behind us.
And we expect the deployment for the year to grow in both our MCM and Cabot businesses.
Importantly, while being mindful of lower market supply, we maintained our focus on returns, which we believe will enable us to deliver a stronger IC through the credit cycle.
Turning now to our largest and most valuable market in the U S.
In 2020 , one the ongoing effects of the pandemic caused a greater number of consumers to reassess the financial circumstances.
Many consumers chose improved the financial standing by reducing or eliminating their credit card debt and resolving the charged off accounts.
Well positioned to react to this change in consumer behavior and play our part in the credit ecosystem, providing hardship relief when appropriate and also providing solutions for a large number of consumers who are able to pay off the debts.
Our MCM business in the U S delivered exceptional performance in 2020 one at collections grew 7% to an all time high of $1.6 billion.
The continuous improvement in collections operations, the scale effect of higher collections and the change in consumer behavior. During pandemic led to a lower cost to collect for MCM in 2021 compared to 2020.
We successfully implemented the cfpb's new industry roots in November we are pleased to see the completion of this multiyear process, which was a lot of uncertainty and finally leveled the playing field for participants in our industry.
The new rules help modernize communications with consumers and allow us to engage with them using methods consumers prefer.
For the year MCM deployed $409 million to purchase portfolios at an average purchase price multiple of 2.4 times in a market where supply was limited by the backed off the pandemic.
Even though we encountered somewhat higher pricing in the fourth quarter, we continue to deploy capital at the best returns in the industry.
Our superior returns are the culmination of years of consistently applying our business strategy.
Our disciplined purchasing and superior collections effectiveness enable us to purchase portfolios at strong purchase price multiples.
Then over time, our continuous collection improvement efforts have enabled us to collect substantially more both current and historical portfolio vintages.
Which raises our current multiple for each vintage even higher and helps drive a differentiated returns.
Turning to our business in Europe .
Our collections recovered in 'twenty, 'twenty, one growing 16% compared to the prior year and reaching a new all time high after considerable COVID-19 related volatility in 2020.
Our collections mix in 2021 led to a higher cost to collect for cabot compared to the prior year.
Deployments in 'twenty, and 'twenty, one of $256 million more than doubled compared to the prior year as our markets in the U K and Europe began to recover from the impacts of the pandemic.
Portfolio pricing in 2020 , one was somewhat higher within our European footprint, while purchasing activity has also begun to pick up more recently in the region.
All the while we maintain returns focus discipline and purchasing portfolios.
The second pillar of our strategy focuses on enhancing our competitive advantages.
Our competitive platform enables us to consistently generate significant cash flow our.
Our cash generation in 'twenty, 'twenty, one increased 14% compared to last year.
Collecting the steady improvement in our business the efficiency of our operations and the resilience of our portfolios.
Our 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, including the return of capital to shareholders through steady open market repurchases and a tender offer in the fourth quarter of 2012.
One.
Our competitive advantages also allow us to deliver differentiated returns.
In addition to cash generation.
Another important measure of our business is our return on invested capital, which takes into account both the performance of our collection operation as well as our ability to price risk appropriately when investing our capital.
Accordingly, one of our fundamental financial priorities as the underlying business delivered strong long term returns and that we maintain these strong returns through the credit cycle.
Our Aro I see performance in 2021 and our performance over time are solid indicators of how we execute in comparison to our peers.
In simple terms terms, we delivered our highest return per invested dollar in the industry.
The third pillar of our strategy make the strength of our balance sheet a constant priority.
Our strong operating performance and focused capital deployment have driven higher levels of cash flow and contributor to a lower level of debt.
Which in turn have reduced our leverage substantially overtime.
By the end of 2021 we had reduced our leverage ratio to one nine times down from 2.2, 0.4 times a year ago.
And near the lowest in the industry, even after the repurchase of $390 million of our shares during the year.
As a reminder, our financial priorities include objectives for our balance sheet as well as a clear capital allocation framework all underpinned by a long term focus on delivering strong returns through the credit cycle.
We have made tremendous progress in developing a strong and financially flexible balance sheet. The previously mentioned leverage of one nine times at year end year end is now just below our target range of two to three times.
And we maintained strong double b debt rating.
Our consistent capital allocation framework is critical to success in our business and our priorities are clear.
Our business is fueled by our ability to purchase portfolios at attractive returns and we have demonstrated our discipline in this area by delivering the best returns in our industry.
In keeping with our capital allocation priorities.
We began repurchasing on course shares in 2020 , one to return capital to shareholders.
Our strong cash generation and balance sheet combined with the lower level of portfolio purchasing opportunities allowed us to return a meaningful amount of capital to shareholders in 2021.
Culminating in a highly successful tender offer in the fourth quarter.
As a result of our actions during the act during the year, we repurchased approximately 23% of encores outstanding shares for $390 million.
These share repurchases were consistent with our capital allocation priorities and fully aligned with our balance sheet objectives to preserve financial flexibility and maintain prudent average.
Even after repurchasing more than $7 million of course shares in 2021 the majority of our multiyear share repurchase authorization, which we expanded last may remained available at the end of the year.
I'd now like to hand over the call to John for a more detailed look at our financial results.
Thank you Ashish.
In 2021 strong collections drove higher revenue net income and returns there.
The resulting strong cash generation combined with lower purchase volume led to a further reduction in our leverage ratio and lower E. R. C.
In the fourth quarter.
Pardon me.
He asks could you please can align.
The conference will resume shortly.
So.
Operator.
Yes, yes.
Yes, one moment, please hello bring him back okay.
Yeah.
Okay.
Yes.
So operator I will takeover if you don't mind this is ashish.
I will.
Go ahead Ashish.
Pick up the.
With John section.
Yes, I will start with John's section again apologies to everyone. They appear to be have a have been a technical difficulty.
So.
Let me take over for John .
And I'm on slide 17, Bruce so in 2020 , one strong collections drove higher revenue net income and return and returns.
The resulting strong cash generation combined with lower purchase volume led to a further reduction in our leverage ratio and board E. Our seat.
In the fourth quarter collections declined 3% compared to Q4 of last year. The result of lower ports portfolio purchasing in 'twenty, and 'twenty and 2021 .
However portfolio purchases totaled $183 million in Q4 up 44% compared to Q4 of 2020.
Our effective tax rate for Q4 was lower than normal at 11%.
As a result of a favorable tax benefit related to the release of valuation allowances and.
In certain foreign subsidiaries.
Looking forward, we expect our base tax rate for 2022 to be in the low to mid twenties on a percentage basis.
Collections were a record $2 $3 billion in 2020 , one up 9% compared to the prior year M.
MCM collections grew 7% in 2021 to a record $1 $6 billion.
Cabot's collections through our debt purchasing business in Europe were a record $645 million in 2020 , one up 16% compared to the prior year.
Encores global collections in 2021 for all portfolios owned at the end of 2020 was 116% of our E. R. C forecast for the year.
Revenues in 'twenty, and 'twenty, one were up 8% to $1 $6 billion compared to the prior year.
In the U S revenues were up 12% to $1.1 billion in 2020 , one and Europe 2021.
Revenues were flat when compared to the prior year.
Our global.
Funding structure provides many benefits to encore, including lower funding costs and extended maturities accordingly in mid 'twenty 'twenty. One we further strengthened our diversified funding structure by refinancing the last of the legacy Cabot bonds with new senior notes at a significantly lower coupons.
Available capacity under our global our CF was $643 million at the end of 2021.
And we concluded the year with $160 million of non client cash on the balance sheet.
With a strong balance sheet and financial flexibility and access to a variety of <unk>.
Capital sources, we funded portfolio purchases and care buybacks throughout 2021 as well as the tender offer in Q4.
Looking forward, we plan to settle our 2022 convertible notes with cash when they mature in mid March and we have ample liquidity and sufficient capacity to fund the opportunities that lie ahead.
Aligned with our three core values, we care, we find a better way and we are inclusive and collaborative.
Encore is committed to high standards and transparency around our environmental social and governance.
Priorities.
In 2020 , one we further expanded our organization's commitment to this area.
By formalizing, our internal ESG governance, and oversight publishing new disclosures aligning our priorities against well established frameworks and ensuring this is all underpinned by a five ESG pillars.
Consumer people environment community and operating responsibly.
We are proud of the progress we have made to date and we're looking forward to advancing our ESG program in 2022 by further increasing our disclosures formalizing our environmental reporting.
And issuing our first ESG annual report.
Looking back at last two years.
<unk> and gratified, how encores employees all over the world came together to support our consumers and each other during these unprecedented times.
While doing so we have announced on course position as a vibrant consumer focused operator, and a thoughtful disciplined allocator of capital.
We have clear financial objectives, our solid balance sheet and the best returns in the industry.
I am pleased with our market position and excited about our future prospects.
We all look forward to 2022 and beyond in anticipation that all of our lives. The lives of our consumers our colleagues in the world at large will finally returned to normal.
In terms of market supply, we anticipate that the credit markets in the U S and Europe will continue to normalize as revolving credit and credit card balances are on the rise.
As a result.
We expect that both MCM and Cabot and Grove portfolio purchase volumes in 2022.
In addition, we expect the collections environment and normalized compared to the exceptional level, we saw in 2021.
And we project our E R C to start growing again in 2022.
Consistent with our long term view, we believe our strategy will continue to be instrumental in driving strong results and enhancing shareholder value.
Now we'd be happy to answer any questions that you may have operator, please open up the lines for questions.
Thank you.
As a reminder to ask a question you need to press star one on your telephone to withdraw your question. Please press the pound key standby as we compile the Q&A roster and please limit yourself to jazz to two questions at a time.
And our first question shall come from David Scharf of JMP Securities.
Finally as open.
Yes. Good afternoon, thanks for taking my questions today.
Hey.
First off.
I apologize for kicking off with an accounting question, but.
I'm wondering as I look at the magnitude of the.
The.
And recoveries line.
Roughly $22 million, which I assume is.
Once again sort of a pull forward.
Future collections.
Given the debts.
Considerably lower figure than what.
We've seen throughout the course of 2021 is it fair to assume that.
A lot of the maybe maybe excess conservatism or caution in collections forecasting during the pandemic.
Is kind of winding down.
Sort of run its course.
Is that a figure that we should.
While you can never.
Our cast precisely just from a conservatism standpoint should we.
For all intents and purposes.
Assume that that's going to be a negligible amount going forward.
Hello.
I think I think we may have lost this year Hello.
David.
Thank you for your question. So we've had a series of technical issues.
My apologies so thanks for the question, David Let me take a stab and then I'll, let John chime in as well you had quite a few things embedded in there.
So.
As you know the last two years has been a period of just unusual consumer behavior and difficult to predict at times.
Given using historical experience and large data set that we maintain and.
And last year in particular, given how consumers were saving money and the government support, particularly early part of the year.
The collections for much higher so.
As we look ahead, the worst seems to be starting to normalizing in terms of consumer behavior as people are spending more to credit card spending is rising.
Sure.
We do our best and I will let John chime in but our forecast, but the best forecast that we use for every quarter when we prepare our financials. So.
That is our best estimate right now and we'll continue to observe any changes in consumer behavior or any macro environment towards astral evolving with inflation and other things around the corner.
And adjust.
As we can.
As the best we can.
Knowing that the world continues to be quite volatile and uncertain quarter to quarter, but John do you want to chime in.
Yeah. Thank you David.
Let's face it the last couple of years has been very challenging to forecast.
I just want to reiterate something that Ashish said.
There is no safe harboring gap for conservatism. So we don't try to be conservative we try to put forward the best curve we have.
And.
You could you could maybe assume that after a couple of years, we're getting better at it where you could assume that consumer behavior is starting to change a bit and that's why things are starting to converge, but but we are we do put forward every quarter, our best guess.
Got it.
Understood and maybe just as my follow up.
As you've noted.
The low supply environment, which looks like we finally have the trough in the rearview mirror, but.
That combined with the existing portfolio.
Collecting on it your leverage ratio is below the low end of your target.
Is it fair to assume that the company will continue.
To have a sort of aggressive.
Approach to capital actions capital returns.
Until we see that.
A meaningful inflection in purchase volumes.
David So we've been very clear.
As we started a year ago with our shareholder letter and annual report, we laid out our balance sheet priorities.
So balance sheet needs to be strong our liquidity needs to be strong we have a law.
Leverage range between two and three so that's the starting point and then based on that our business is about buying portfolios. So that's what we expect to continue doing and given where consumer lending is growing and what we're hearing from banks I think our portfolio purchases.
As we said as I said should be higher in 2022, Dan 2021. So we will look at a balance sheet, where it things that are at and then allocate capital accordingly.
Continue to believe.
Share repurchase those purchases or the appropriate way to return capital, but all of that is subject to a strong balance sheet.
Quiddity position in continuation of our strong financial performance.
Got it thank you very much.
Youre welcome.
Thank you.
Our next question comes from the line of Mark Hughes of Truest.
Your line is open.
Yeah. Thank you very much just getting out the you pointed out collections normalizing.
I think you've talked in the past about your collections relative to expectations.
Is there any way to say the kind of the exceptional level last year was what.
And the normal would be.
Would be what what level.
Just.
Again looking at the 2021 actuals versus the longer term norms.
Mark Great question tough to parse it out on those two what I would say is that every quarter.
We have our best estimate of what the future collections are going to be in any of the excess recoveries that excess collection that show up in the first line. So that's within the quarter and then we keep readjusting forecast out with the best information we have at that time.
So that's the best indication I can give you kind of put out are a best estimate and if you were performed and yet every time you have to make a decision around kind of for each pool and vintage kind of how much is pull forward versus bettman town and so that's how that goes so I would say that's your best indicator, but beyond that it could be tough.
Parse.
Anything you can say about the cost to collect in 2020 to do given some good directional thoughts on a lot of categories, how 'bout cost to collect.
So one thing.
You should note and I'm sure you have.
Cost to collect is a function of kind of the underlying cost structure, but also collections given some of the exceptional collections, we saw particularly in U S.
There's a scale effect of mass effect that happens in terms of.
Mr Cola being somewhat lower because of that so that is starting to normalize and go away.
Now that said we are very focused on.
Overall cost structure, but also E channels cost structure and lowering your channels cost to collect.
And at times are actually increasing cost to collect is.
Better to drive higher returns now for example, investing in direct mail or calls call center staff and whatnot or legal collections. So it depends on the portfolio, where we are at and the timing often we will increase investments and costs to drive near term collections, and therefore higher returns and that said.
A few other factors that go into the cost to collect a lot that I have indicated before which is in.
The type of accounts, we buy it could be low balanced sources high balance low balance accounts have higher cost to collect.
Paying versus non paying debt, which is very common in U K.
Cured versus unsecured and so forth are fresh horses order accounts. So while we are focused on cost to collect it said tank. We watch now it is not a kind of a singular focus.
It can be impacted by a whole range of other drivers, particularly the mix of collections and accounts that we're working on.
Very good.
I'd sneak in one more the Jonathan the interest expense.
Still pretty modest in the quarter.
What should we think about the kind of a run rate from here.
Well, we don't you know.
We clearly stay away from.
Giving guidance and.
And full run rate, but.
In terms of interest.
You saw it in Q4 as being kind of.
Mid to high Thirty's 38.
So.
That's probably.
Depending on what happens on a whole host of factors a reasonable way to look at it going forward.
Great. Thank you.
Thank you.
Our next question comes from the line of Mike.
Northland Securities Your line is open.
Hey, Thanks, guys and congratulations on 2021.
My first question.
Just trying to go maybe one level deeper in the purchase environment Youre seeing.
<unk>.
I think we're all seen sort of slight.
Slightly higher credit card balances.
I guess I'm curious after you see those.
And then kind of collectively taught to your customers.
Do you feel better about the purchase environment and supply or do you feel a little bit more cautious effie actually talk to your customers.
Hi, Mike.
As you look at kind of the data.
<unk> Bank is reporting higher spending and Barry.
More aggressive marketing new card openings activations are up and a whole range of things then if you look at.
The credit card balances had a chart that we showed in our presentation.
It is the bottom is behind us.
So, they're writing and even if the delinquency rates are stable.
You will see higher dollar charge offs and actually delinquency rates not comparing a year ago, but if you look at a quarter ago, two quarters ago, three quarters ago, many of the U S issuers and even some of the UK once it's starting to show.
Turn so I feel good I feel.
More certain today than let's say a couple of quarters ago that.
Charge off volume is starting to rise and it's going to be a steady slow rise and some banks actually went as far as saying Hey, do you expect charge offs to peak.
Early or mid 2023, and they think delinquencies might be late this year now one of them said so.
I feel good that the bottom is definitely behind us and volte.
Volumes will start rising.
As we talk to a bank clients, but also absorbing the data.
Got it and then maybe secondly.
Just.
As you look at Europe .
Operating expense.
Sure.
Do you feel like 'twenty two you have in that.
Estimates to make.
Being out of the ordinary or are those.
Operating expense that structure pretty much in place and that kind of going to depend on what purchases you put on top of it.
There is always investments going on so we are continuing to invest in digital technologies, we continue to invest in some of our infrastructure technology and its underlying collection systems, particularly in Europe and then some.
Some of the countries, where we are.
Pushing too.
Increase our scale and presence so there might be some.
Incremental expenses there but.
I would say over time, they will normalize and some of those are capital expense.
So.
I think we have.
Our expense structure pretty much there now COVID-19 did cause certain expenses to be below average like travel and just being an office expenses and relatively.
Speaking all of those will start normalizing again as we go into 2022 and beyond so I would say some pressure upwards on those expenses, but definitely be there.
Got it okay. Thank you.
You're welcome.
Thank you.
Next we have on the line Robert Dodd of Raymond James Your line is open.
Hi, guys.
This may be related to box question Ashish in in your prepared remarks, you talked about pricing in the U S.
The U K it starts to move.
Hi.
Can you give us any color.
Do you feel that thats related to competition, because obviously discuss why.
Or is it a fact that is.
Is the mix of the accounts.
Coming to market right now a little a little different than than it was before basically is that.
Our price increase.
It literally.
Just a change in mix of what's available for you to buy.
Let me take a stab at it and I'll, let Ryan chime in as well he manages our MCM business. So it is the price increase I don't think the mix of portfolios has changed much but and when we say price increase it's kind of we look at it by type of accounts. So if it's a 12 month old portfolio via.
Making a commentary on a like for like portfolios are fresh sportswomen under like for like So Q4, we saw pricing up a bit I don't think there are any new competitors or players that just now.
It's a result of supply demand dynamic that's out there Brian do you have anything to add on that.
No I think you summarized it well she said, it's a supply demand dynamic there that we're seeing as supply dropped a bit throughout the year, we saw price rise for like accounts.
So nothing nothing in China in terms of a new type of mix or different type of mixture and brought to the market just like for like we saw a slight increase in price.
Got it got it thank you and then.
One.
Maybe to get away with that just on the financial tax rate in the fourth quarter was down a little bit about 20% for the year is that 20% number a good one going going forward is obviously, it's a little lower in Q4 than it had been in the first three quarters.
Yes.
Robert D.
The tax rate to assume going forward as kind of mid to low twenty's.
Candidly I think that 20% number would be a little tight I wouldn't I wouldn't if I was modeling I wouldn't model it that low.
Got it got it. Thank you and then just on the interest.
Expense question following up on an earlier one.
If you use the new global senior facility to repay the converts etc and floating.
Floating rate notes.
Proportion I can probably calculate it shouldn't acute.
Being lazy to pick that.
A portion of your outstanding debt is floating rate versus versus fixed rate.
Well I'll tell you what it is was at the end of the year right.
Which which is certainly the way I would look at it.
And by the way when I talk about the way I look at it I look at it from the perspective of.
Not just what's fixed and what's floating but also.
What we do behind the scenes to.
Our hedge it right.
A.
At face value.
Got a I think it's roughly 93% now I'm sorry, when I look at it as it hedged roughly 93% is.
Fixed.
It's a I'm sorry today, it's more like 87% it dropped a little bit because of whats been going on so.
<unk> fixed is 87% the way I look at it and have that.
If you break it into the two component parts.
Face of is fixed at 56% and whats hedge is 31% so.
Roughly a little over half of our of our funding is at face looks fix but we hedge 31% to get up to 87% fixed. So it's a we believe our underlying assets are inherently long duration fixed rate and so we try to minimize.
Minimize our interest rate exposure that makes sense to you got it.
It does that's perfect. Thank you.
Thank you.
And again to ask a question you need to press star one on your telephone to withdraw your question. Please press the pound key.
Again. Thank you please limit yourself to just two questions.
Our next question comes from Bob Napoli of William Blair.
Your line is open.
Hi, This is spenser James on for Bob can you guys hear me okay.
Yes, Hey, Spencer.
Hi.
Wanted to ask how servicing the third party servicing as a strategic asset for encore and any expectations around investing in that business.
Spencer This is Ashish, let me take a stab and then I'll, let Craig chime in.
So servicing which is collecting as a third party for a fee.
It depends on the market structure in U S. The market is.
Kind of the debt buyers are pure play debt buyers and that's where the issuers and the banks have preferred or at least that's the way the industry structure has evolved.
And so that's what we do in U S now in Europe , and U K in other countries.
It is very common for the same players to provide both services and our client relationship basis. It's very important. So we are one of the largest servicers in UK. For example, and also have presence in other countries like France, and Spain. So it's much more part of an integrated strategy, but Craig how you want to chime in with your view on that especially for Europe .
Yes, Thanks, Ashish Hi, Spenser. Thanks. Thanks for the question I think when we think about servicing particularly in the UK as Ashish mentioned, we seek to provide to our clients. What are the full range of credit management products everything from potentially outsourcing of their collections and recoveries operations through the placement throw debt collection agency all style.
And that business continues to thrive in the current market delinquent delinquencies are down in the UK and we see that more broadly across the financial services sector, but the strength of the relationships and the reputation.
Our servicing business without clots remains very strong and we continue to engage in terms of your question on investment we are as Ashish mentioned earlier continuing to invest in these businesses to ensure we remain flexible and nimble to be able to continually meet our clients' needs, which are evolving over time. So yes. It remains a really important part of our overall business model.
That's helpful. Thank you and one follow up.
Given that we've had an unusual past couple of years are you expecting a relatively normal.
Tax season.
Anything you can share on how that's trending in the first quarter and how the first quarter will look seasonally in light of tax season.
So that's a U S question given the tax season is very U S focused so I'll, let Brian chime in in a second but we're watching it carefully because all different parts different parts of the government how are experiencing.
It's called a liberal impact tissues, our library shoes, or some delays. So we are carefully watching where that's going to come out of there are any delays on that or not but Brian do you have any initial.
Initial data or any read on on that front.
I mean from a tax seasonality standpoint, we're very.
Early in that curve. So we're just at the beginning of it so we've seen nothing yet and in our data that would indicate anything off the normal seasonality, but we obviously will keep track of that and have we seen any changes later in during the tax season, we'll make those adjustments as needed, but nothing as of yet.
Thank you.
Thank you.
And our next question comes from the line of Mark <unk>.
<unk> list.
Your line is open.
Yes. Thank you.
I'm not sure if you mentioned it but the collections multiple at Cabot.
Look at the full year number versus nine months I'm sure. It's in the K, but.
Likewise being lazy I wonder if you have it there.
So the collections multiple for the 'twenty, one was 2.2 in Europe for us.
And then what was that through nine months, we've got similar.
2.3, or so I believe.
And I have to go check to be 100% sure, but it was slightly higher.
Is that the pricing or mix would you say.
Craig you want to jump in on that.
Yeah, Hi, Mark its Craig here, it's going to be driven by mix.
We haven't really seen any fundamental change in sort of pricing dynamic quarter to quarter, but as you are aware within Europe . There's a number of different geographies, we work within a number of different asset classes, it's more down to mix.
And Jonathan.
The over performance in the quarter I think in the past you've given us the number.
The AR collections.
Collections upside in Covid.
And then how much are you.
<unk> recognized in terms of.
Change in expected.
Current and future recovery.
The 23 million.
Expected changes there are.
A over performance and total number.
Sure.
Yes.
For Q.
For Q4.
The order performance was $48 million.
$40 million okay.
Great.
Thank you very much.
Thank you.
And we have a question from the line of John Rowan of Janney.
Janney Your line is open.
Gearing.
Jonathan can you just the $48 million over collection there was a net number against that correct can you just let us know what the net number was to bring it down to the gain that you reported.
Oh, well the if you start it.
48.
And let's say you end at 22, then the Delta is can be 26, right. So it could be at 26 negative if you will to get to the net number okay. I just want to make sure because I think you usually put that in.
In the release and then can.
Can you give us an idea of where you ended the quarter from a diluted share count given.
Given the repurchases didn't go down quite as much as I anticipated and I'm trying to figure out if that was just a timing issue.
Where we start.
<unk> from a diluted share outstanding.
Yeah the.
The diluted share count for the quarter.
Was a little over 30, it was 30 O four O.
So there's some dynamics here that are important to understand.
And when you think about the <unk>.
How this is viewed for a year or two or even a quarter. The majority of the shares we repurchased in Q4 were show stated with a tender which closed in December so as a result, the impact of the shares repurchased through the tender had a reduced impact on the weighted.
Weighted average share count.
And then in addition to that.
We the diluted share count was also impacted by roughly a million and half shares related to the dilutive effect of the convertible notes.
So we took out a number of shares but it's going to take a while for the full effect of that to be seen because of the way you have to do your you're averaging and and we had some inquiry because we have some increased dilution from our convertible notes because of.
A significant rise in our stock price.
Okay, So where would you say.
<unk> diluted share count is.
Yes.
I don't have that number off the top of my.
My head.
Maybe let's say 27 to 20 lets call it 27 and a half.
Okay alright, thank you.
Okay.
Yes.
Thank you.
No further questions in the queue I will turn the call back over to Ashish Masih here.
For clothing comment.
Thank you.
So as we close the call today I'd like to reiterate a couple of key points.
Our strategy of focusing on the right markets executing effectively to deliver strong returns on our portfolios and maintaining a strong balance sheet are key drivers of our best in class performance as.
As credit continues to normalize and supply starts rising again.
We stand ready to increase our portfolio purchases to drive encores continued success.
Thanks for taking the time to join US and we look forward to providing our first quarter results in may.
This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.
Okay.
Okay.
Thanks.
Yes.
Alright.
As well.
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Germany.
Yes.
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No.
Okay.
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