Q3 2023 Encore Capital Group Inc Earnings Call
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Come to the Encore capital groups quarter 320, 23 earnings conference call. At this time, all participants are in a listen only mode.
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[noise] would now like to hand, the comforts over to your first speaker today, Bruce Thomas B P. A global industrial relations Bruce. Please go ahead.
Thank you operator.
Good afternoon, and welcome to Encore capital groups third quarter of 2023 earnings call.
Joining me on the call today are Ashish must be 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 John 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 third quarter of 2023 in the third quarter of 2022.
In addition, today's discussion will include forward looking statements subject to risks and uncertainties actual future 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 all use rounding and abbreviations for the sake of brevity, you'll 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.
<unk> excuse me as a reminder, this conference call will also be made available for replay on the investors section of our website or we will also post are prepared remarks. Following the conclusion of this call with that let me turn the call over to Ashish Mussy, our president and Chief Executive Officer.
Thanks, Bruce and good afternoon, everyone.
Thank you for joining us I'll begin today's call with a few Q3 highlights.
The third quarter was under the period of strong purchasing in the U S.
<unk> returns for MCM business, which continues to thrive.
Continued growth in U S portfolio supply driven by credit card lending growth and rising charge off rate has led to improved portfolio pricing and returns.
Had an attractive 2.4 purchase price multiple.
Concurrent with a favorite repurchasing environment in the U S.
It continues to navigate challenging market conditions in the U K and Europe.
Continue to do what's right for long term success of encore constrained.
Constraining cabinet deployments until returns become more attractive.
And investing instead and the stronger kerns available in the U S market.
In Q3.
Global collections were in line with expectations.
We continue to see normalized consumer behavior, and a stable collections environment.
I'd also like to highlight of financing activities since the end of the third quarter.
Tobar.
Challenging conditions in the capital markets.
Strong balance sheet enabled have to tap an existing bank.
And also create a new U S facility that further enhance liquidity.
<unk> provide more details on these accomplishments in a few minutes.
I believe it's helpful to reiterate the critical role you blame the consumer credit ecosystem.
By assisting in the resolution of unpaid debts, which are expected unnecessary outcome of the lending business model.
Our mission is to help create pathways to economic freedom for the consumers reserve by helping them cause all their past debts.
We do that by engaging consumers and honest and pathetic and respectful conversations.
Our business is to purchase portfolios of nonperforming loans at attractive returns while you're.
Minimizing funding costs for.
For each portfolio that we own we strive to exceed a collection expectations.
Maintaining an efficient cost structure as well as ensuring the highest level of compliance and consumer focus.
We achieve these objectives through a triple or strategy. This strategy enables us to consistently deliver outstanding financial performance and physicians as well to capitalize on future opportunities.
We believe this is instrumental for building long term shareholder value.
The first pillar of our strategy market focus concentrate their efforts on the markets, where we can achieve the highest risk adjusted returns.
Let's take a look at our two largest markets beginning with the U S.
Changes to consumer behavior during the pandemic led to unusually low credit card balances and below average charge offs, which in turn resulted in a reduced level of portfolio sales by banks.
However, since early 2021.
Findings have been driving.
Okay Walden credit in the U S surpassed pre pandemic levels in early 2022.
Each month thereafter C. U S. Federal reserve has reported a new record level of Outstandings, reflecting the steady growth in lending you have historically scene in the U S market.
The same normalizing consumer behavior that has driven increased demand for consumer credit in the U S. And then the grilled by their banks has also led to growing charge offs.
Since bottoming out in late 2021, the credit card charge off rate in the U S has been steadily rising and is now approaching pre pandemic levels.
U S consumer credit card delinquencies.
Leading indicator of future charge offs have also continued to arrive and are now above pre pandemic levels.
With both lending and the charge off rate growing simultaneously in the U S.
We are seeing continued strong growth in the U S market supply and improving pricing.
As a result, we expect.
2023 to be a record year for portfolio sales by U S banks and credit card issuers.
With this favourable environment as a backdrop are MCM business had another strong quarter portfolio purchasing in Q3.
And see them deployed.
$179 million at an attractive to four purchase price multiples.
The result of participant purchasing approach Ah made in improving pricing environment.
Over the past four quarters MCM is deployed $775 million a strong returns.
To put that figure into proper context, and seems current record for portfolio purchases for a full calendar year.
$682 million in 2019.
We see no signs of this favorable purchasing environment slowing down in.
In fact, the supply pipeline in the U S remains robust with MCM fourth quarter purchasing expect it to be about $200 million at a $2 for multiple.
This would establish a new record for MCM annual purchases.
We cannot overstate the importance of a differentiated multiples, which are indicators of higher returns and.
And they are expected impact on future financial performance.
This is particularly relevant at the number of our competitors are starting to face the realities of their prior to purchasing and valuation decisions.
MCM collections in the third quarter, what $330 million.
Indicative of stable consumer behavior in the U S.
As market supply continues to grow into the U S. In Sam continues to expand internal collections capacity.
Since the beginning of 2023.
And CMS added 350 account managers to a collections operation.
Turning to our business in Europe.
<unk> collections $135 million in Q3.
That compared to recent quarters as the consumers the ability to pray it remains steady and Catholics markets.
With UK credit card outstanding skill, 8% below pre pandemic level and charge off rate still very low the markets in the U K and Continental Europe remained very competitive.
Catholic portfolio purchases in Q3 were $51 million.
We continue to constrained cabinet portfolio purchases.
Reallocating capital to the U S market as we believe European market pricing still does not yet fully reflect the higher cost of capital caused by higher interest rates.
Cabbage remains an integral part of encore global business strategy and its markets are amongst the most meaningful that purchasing markets in the world.
We have said in the past.
Exactly pricing will need to align with higher funding costs before we allocate additional capital.
Toward growing our deployments in Europe.
We continued to prudently manage the cabinet cost structure, given the reduced level of portfolio purchases in recent quarters.
The second pillar of our strategy focuses on enhancing our competitive advantages.
We have built our business around certain key competency that allow us to deliver differentiated returns and earnings as well as generate significant cash flow.
Discipline purchasing a superior collections effectiveness.
Enable us to purchase portfolio that strong purchase price multiples.
Then over time are continuous collection improvement efforts have enabled us to collect substantially more from both current and historical portfolio vintages.
This in turn raises a current multiple for each vintage even higher and helps drive are differentiated returns.
As a result of this diligent focus on returns and.
<unk> $2 for multiple for Q3 purchases has raised a purchase <unk> portfolios purchase or in a year to date basis to 2.3.
And also see a robust supply pipeline in the U S. What 2024.
As the market supply remains elevated in the U S and the pricing environment continues to improve MCM CRC is steadily growing and.
Importantly is the pricing continues to improve we expect to collect more for every dollar of capital deployed.
A significant amount of ER see we are adding each quarter reflects the efficiency of our capital deployment. During this portion of the credit cycle of.
Portfolio purchasing in the third quarter clearly illustrates this point.
MCM deployment in Q3.
Was one 5% higher than that in the third quarter a year ago.
Yet we added 20% more ERC from these more recent purchases at higher multiples.
This is the portion of the cycles, we've been anticipating.
M. C. M business is imposed tried pushing portfolio that strong returns.
Which at future cash flows and profitability to the business.
We believe that our ability to generate significant cash provides us an important competitive advantage, which is also a key component of the second pillar of our strategy.
In the U S from 2020 through the first half of 2022.
Your consumer spending credit card balances and charge off rate drill reduced market supply and of industry and.
And also led to higher connections for our business.
When consumer behavior began to normalize and incremental cash generation from these high collections began to subside a cash generation came under pressure as a prolonged period of lower portfolio purchases that led to reduced overall collections.
More recently however.
Higher portfolio purchases.
And improving pricing over the past few quarters has reverse this trend.
Holding a cash generation to begin to grow again.
This is a trend we expect will continue.
I'd now like to hand, the call over to John but a more detailed look at a financial results and to provide an update on the third pillar of our strategy.
<unk> strength.
Thank you Ashish to.
The third quarter was another period of strong purchasing for our U S business at attractive returns, while our collections performance remains stable and each of our key markets.
Collections were in line with expectations for the quarter, and we had small adjustments to our ERC, which impacted earnings in a negative way.
Would like to highlight a few items and provide more detail.
Interest expense in Q3 of $51 million, which was sequentially Platt has grown since last year, primarily due to last year's increase in interest rates and higher that balance related to our increased portfolio purchasing Q.
Q3 collections of $465 million resulted in $4 million of recoveries below forecast, thus, reducing reducing Q3 EPS by 16.
Changes in expected future recoveries totalling $13 million reduced Q3, EPS by 44 cents.
Together changes in recovery reduce Q3 revenues by $17 million in reduced Q3 earnings by 60 cents.
ERC at the end of the quarter was up 8% compared to a year ago.
It bears repeating that particular county, and can cause significant fluctuations in quarterly reported results, but they do converge with cash results over the long term. This is yet another reason that we believe it's important to take the long view of our financial metrics. This is consistent with the way we were in the business and make decisions employing a long-term perspective to global.
Shareholder value.
For both MCM cabinet collections in Q3 will line with expectations.
Poor portfolios owned at the end of 2022.
Encore is global collections performance year to date through the third quarter was 97% of our year end portfolio ERC.
Four MCM and for cabinet collections through Q3 by the same measure or 97% and 98% respectively.
All three of these figures through the third quarter.
Denticle to our first half performance.
The third pillar of our strategy ensures that strength of our balance sheet that constant priority.
When compared to the pre pandemic ears encore has become a much stronger company. We now have a unified global funding structure that provides us with financial flexibility diversified sources of financing an extended maturities.
Over the past several years are strong operating performance and focus capital deployment drove higher levels of cash generation and contributed to a lower level of debt, which reduced our leverage significantly.
More recently, our leverage has risen driven by lower collections and increased portfolio purchasing during each of the last four quarters, but now as collections environment has stabilized we're seeing our leverage level off as we expected it would.
With our strong balance sheet lane, well positioned to fund the portfolio purchasing opportunities that lie ahead.
With interest rates and with higher interest rates and continued challenging conditions in the bond markets. The importance of our global funding structure cannot be overstated. We believe our balance sheet provides us very competitive funding costs when compared to our peers and competitors are funding structure also provides us financial flexibility.
80, and diversified funding sources to compete effectively in this pairing supply environment.
In October we made good use of his flexibility by adding $175 million of incremental liquidity to our balance sheet as we prepare for the robust supply pipeline, we see in the U S. In 2024.
To achieve this we entered into a 70 $575 million facility secured by U S receivable portfolios. We also extended the maturity to cabinet securitization facility to September 2028, and reduced in size by 95 million pounds to 255 million pounds and a.
<unk>, we issued an incremental 100 million dollar euro.
<unk> 2028th floating rate notes as a follow on tap of our December 2020 offerings.
With that I'd like to turn it back over to Ashish.
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 as they are highly anticipated growth and market supply has arrived in the U S.
We will continue to be good stewards of your capitals I always taking the long view and prioritizing portfolio purchases at attractive returns in order to build longterm shareholder value.
I'd also like to summarize a competitive advantages, especially during a time and a number of our competitors are dealing with their own challenges.
These advantages differentiate our business in the industry and a longterm financial results are the evidence.
First.
Which is also happens to be the world's largest market is the highest returns.
Second we believe our ability to collect on the portfolios, we buy and a corresponding purchase price multiples are best in class.
We collect more order vintages lifetime, which in turn generates more cash more earnings and ultimately higher returns.
Heard Ah well diversified global balance sheet allows us to allocate capital two opportunities with the highest returns.
This flexibility as vital as.
As demonstrated by a relocation of catheter from our cabinet business in Europe to our MCM business in the U S and.
In order to maximize overall returns.
A balance sheet also provides us the flexibility to fund our business and a myriad of rates.
This provides a significant advantage and time in traditional markets become less certain and more expensive and.
And finally are $8 billion of ERC has been built using a consistent disciplined purchasing approach and represents an enormous capability to generate cash.
We believe these competitive advantages supported by a mission vision and values truly differentiate encore standing in the dead purchasing industry.
As the credit cycle continues to turn you have committed to the essential will be playing the credit ecosystem.
Through the great work colleagues around the world are doing to help an increasing number of consumers restore the financial health.
In closing.
As a result of the continued disciplined execution of our strategy. We believe on court is the best position company in our sector.
We have the operational capability and balance sheet to capitalize on the substantial and growing portfolio purchasing opportunity in the U S market.
Looking ahead.
We expect 2023 will be a record year of capital deployment in the U S for MCM business at stronger turns.
We see a robust supply pipeline in the U S for 2024 with even better returns.
We plan to remain disciplined in the highly competitive and valuable European market.
And will only allocate significantly more capital when the returns become more attractive.
Which we expect will happen over time.
And we expect steady growth and ERC.
Earnings.
Now we'd be happy to answer any questions that you may have.
Brighter please open up the lines for questions.
Thank you at this time, we will conduct a question and answer session.
A reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please stand by while we compiled.
Last year.
Okay.
One moment please.
Our first question comes from the line of Mark Hughes from Truest Securities. Your line is now open.
Okay. Thank you very much good afternoon.
Hello, Mark.
Jonathan can we think about your collection, you're at 97% of forecasts.
<unk> kind of at the current level.
Level.
Would we perhaps anticipate more.
Change isn't expected recovery.
17 million of Nick quarters, obviously, very small amount relative to your <unk>.
Overall receivables balance in your C, but is.
Is.
The portfolio does it already reflect 97 until another 97.
Would be in line or if it stays at 97 would we would there be elevated risk of more adjustments.
Yeah. So that's great question, Mark, but just to clear up any confusion.
97% refers to our ERC as of the end of 2022. So the purpose of that metric is really so people understand more longer term. If you will how close you are to hitting that ERC forecast that was created as of that date and need to remember.
Two things that that impact your ERC after that one you know what portfolio.
And so if you will everything that you purchased.
During the course of 2023 is not included in that number and in addition, as you go as you know every quarter. We go through a process, we'll reevaluate and establish what our best guess is forecast going forward and by definition, that's gonna move quarter on quarter. So.
I understand your question I understand where it comes from but you shouldn't take that as an indicator of any future PCL charges.
Good.
It does if I restate it the portfolios mark to market and already takes into account your expectations based on the recent history is that is that fair.
Correct It and it and in addition, you have added obviously all your purchases from 2023.
And if I could add to that Mark. This is ashish <unk> 2023 purchases as you will see it.
Or in the queue.
Well exceeding our expectations so.
Some of the negative charges were around 21 22 in order to vintages by 23 is exceeding those.
Wondering those circumstances.
You can get somebody who's charge off numbers mean king.
Doubling or so across so certain.
Saving issuers.
Why why Higgins you bought more paper is the any change in behavior of the banks in terms of selling is just the.
Natural leg, you're being more selective I wonder if you could just.
Comment on that dynamic.
Yeah and it's.
So we are buying more as I indicated or if you're buying a record amounts for MCM 200 million over 200 million for two quarters and this one is close.
And what matters is not purchased you spend but how much ER C. You add.
Faith amount if you look at that chart a few less.
Lending in charge offs pre pandemic Postpay NAMIC actually you multiply the two it'll look pretty close but the deployment opportunities higher because some other banks who are.
Selling their charge off rate dining, including at a even higher rate.
And then we are spending the same amount of money are actually more than to getting even more for that same spend so.
He had adding ERC at a varied record right as you have shown on that one slide in our presentation.
I appreciate that they need the 20th 22 vintage you show in your.
Slide back that it.
A little bit below initial expectations, how have you seen that performing.
Here lately, if you look at the last quarter I guess, we'll see.
Q.
But the how're you feeling about that vintage.
It's performing fine at this point I mean.
What what the reflection of that multiple changes as you had indicated I think in a call or two prior that as evaluations. When we were buying 21 and 22, we were coming off a high collection Peter for the pandemic and valuations take time to adjust pricing really hadn't improved.
So that was more of a driver and as that spin adjusted over the past several quarters.
Performing very consistently and no major changes, there's nothing particularly unique about it in that sense in terms of the paper we bought.
It just.
Performance exams expectations as the big driver of those uhm slight movements.
Moments and the total multiple ERC.
It's bathing like 2020 2021 vintage actually.
Wonderful thank you.
Our next question.
<unk>.
Mm one moment, while we prepare the next question.
Our next question comes from the line of John <unk> from Janney Montgomery Scott. Your line is now open different guys.
Hey, Jess.
Sure I understand you know the MCM purchases took a dip in the quarter relative to the prior two quarters and relative to the Guy who said he gave for the fourth quarter.
Why is it.
Apparently just a little bit weak here in the third quarter.
I wouldn't call it we could just.
Reflection of what portfolios come to market. Some of the flows they may increase or decrease in sizes.
Just a normal volatility might expect quarter over quarter does nothing.
Special about it in terms of wise at 179 verses 213 in the prior two quarters. So we are buying it very.
Good right.
Being also being selective so that pricing reflects what it should given higher cost of capital and kind of what the market's supply demand dynamics are so we are staying disciplined and making sure the pricing direction were able to fully.
Capitalize on that if you would.
So it just can ebb and flow a little bit, but if you look at the cumulative year given our expectation of 200, it is going to <unk>.
<unk> the last record quarter by a huge margin which was in 2019.
Okay.
It was a little surprised to see the negative revision just given the comments that you made you know back in August about.
Yeah, Yeah. The the note deal you know that the portfolio is performing in line with kind of the marks you know when you look at December 22 relative to the first half of the year through August it was consistent with the first half of the year. So you know I I I would assume at that point, there probably wasn't you know.
A negative revision through at least two months of the year was September notably weaker than the other two months.
That's not the case, John So let me explain a few things here right. The first is.
September was no different another two months it just whatever normal seasonality and performances. That's number one number two and reset it performance was an in line with what we had said previously it's at 97% number that John talked about.
At 97% at the end of Q2 was against the December 2022 ERC.
And we said.
Two three we are seeing the same 97% for the two months and at the end of Q tree, which includes September we are still at 97 and our.
Script and presentation.
Now you mentioned the divisions, if you'd notice in our queue the.
Performance above or below recoveries is just $4 million number.
If you put that in context, that's less than 1% of barely 1% impact in terms of the forecast so.
That's very close to expectations and better than the 97%, which it was because of forecasters change, but also the 20th <unk> performing so that those two factors of John talked about.
So 4 million is just less than 1% and the other one is change.
Changes in the R. C. So I'm afraid is actually timing.
As diamond changes in the forecast every vintage.
Changes.
Way less than 1% on those <unk> as well, but it's a small changes that can cause quarterly variation. So that's why I'm gonna have to look at it over the long term. If you start back in 21 of 2022 Q1, we've had significant upward revisions and then some downwards over time, it adds up and as John et cetera, and we have said.
Accounting will equal cash over the full life of the vintage.
Thank you for that.
Thank you.
One moment for our next question.
One moment please.
Alright next question comes from the line of micro Grondahl from Northland.
Mine is now open.
Hey, guys stinks.
Could you give us any color.
Into sort of the impairment.
What'd, you say, that's more macro inflation driven.
Sort of I'm trying to understand the why student loan driven maybe.
And then secondly, what years were most affected negatively.
Yeah like so.
As I just mentioned in the response to the previous question.
Performance of collections under forecast was less than 1%.
And it is if you look at any forecast that's true.
Pretty good outcome too.
To attribute that to any one variable.
That would not be possible or a right thing to do now.
Re giving you a student loan comment we've actually gone and looked given the changes that I've just come about retract every call we've looked at speech data.
And we've found consumers really not impacted by student loan payments at least in our consumer base, we found much less than 1% of consumers even mentioned student loan repayment as as part of a long conversation with the account manager. So it's miniscule and immaterial from that point of view.
Again, I just wanted to call out the impairment you mentioned, that's a 4 million dollar.
Collections under forecast and it's a very small percent of the total ERC are the book value.
Got it and.
Second question was just sort of.
What years were most affected it it sounds like 21, and 22 are where your biggest headaches or can.
<unk> can you verify that and then just sort of.
How do you determine.
That the impairments enough I mean.
I shouldn't it be more.
Yeah. That's a good question, sorry, I didn't address <unk> actually in our queue by vintage road B disclose the changes in recovery now recognize that the combination of actual performance plus any change in the forecast or the timing.
So the biggest numbers were 2021, and then would be 22 in 2019, which actually had all performed in the past and deposit. It was 2023 again I'm talking you estimate.
Cabot's European vintages that across spread across and there are some positives and some negatives.
So to your other question.
We always have the best estimate prepared for every quarter.
And that will look at past data and put our process, that's heavily audited and whatnot.
Make any revisions to the forecast every quarter. So at this point and our best estimate we've incorporated everything that's out there now if you add cumulatively take the nine months view some of those vintages have.
Taken some of those hits, a leather quarters, but 2022 vintage has continued to outperform the initial expectations as well. So there's some puts in desert takes.
Got it and.
I mean this is the fourth quarter in a row.
That I think sadly, we're spending too much time talking about impairments and maybe not enough time talking about the robust purchases or the purchase pipeline.
Because it's been four quarters in a row.
Do you guys get.
Get any latitude to maybe increased the provision just so.
Just so we're not dealing with this or continually dealing with it.
No. It does not work that way, John can chairman as well, but.
And again for the four quarters seek orders have been very small.
And I wouldn't call the word impairment.
This is <unk> you forecast and then you have performance aura or under and then you have a change in forecast right. So.
I would also remind Q1 2022 Q2 2022 for U S.
We had very very large increases in future expected recoveries of 125 million in Q1, and I'm going by memory, maybe 60 million.
And cm for Q2.
So.
If you take a longer view that are some puts and takes and I agree with you. These are just small variations.
To talk about as much time.
Hangup, you're most excited about as you mentioned is the strong purchasing MCM is doing the capital allocation, we can do from Europe to U S.
And the multiples we are seeing in the ER C. A building up for future collections revenue then therefore earnings.
Okay, and if I could just chime in I just wanted to make I just Wanna make sure you understand.
I don't want anybody in the call to think that.
This is anything other than a very very rigorous process that we go through in order to determine what our forecast as it is highly audited because it's so impactful too.
Now and so we have a very very strict process very structured process.
Of how we go about it and then to the extent that you have a model that January something and you and you have to have some kind of overlay or adjustment that has to be defended his too.
Why it makes sense to do that.
And.
And we are.
The important thing to remember I know Ashish mentioned this but.
As an impairment this is.
It's an adjustment because of impairment one takes an impairment from an accounting perspective, that's permanent saying this is not permanent we don't know.
What the future will hold all we know is what our models tell us and we make the adjustments as we need them.
Yeah fair enough impermanent might be a strong word but it it's still kind of a write down to some extent on the pool.
Okay, Hey, Thanks, guys hopefully we don't have to talk about these next quarter.
Mmm.
Thank you one moment for our next question.
Our next question comes from the line of proper Guide Raymond James Your line is now open.
Hi, guys, Yeah, a couple.
Couple of questions on on the adjustment.
<unk> 2023, as I can say it to $6.9 million output over the nine months. This yeah. This time last year that as of 2022.
Now as well.
So can you.
I don't know.
Johnson twice continue our best efforts.
Could you get cashback, but.
How confident are you that the behavior you saw in the 20 twos from early outperformance to where we are today, where there's a little bit of hundreds of four months. It seems how confident are you that that type of behavior is kind of a <unk> with a 26.
Oh, Hi, Robert.
So one thing I would just correct or add to your <unk> you point out $6 9 million, that's just for the three months.
And actually for the 20th.
<unk> nine months it is $16.7 million.
Overall division. So you just wanted to kind of correct that now.
In terms of payment behavior, let me just step back from all these minor adjustments on each vintages forecast because we do our best possible estimate for each.
We are seeing a very stable payment U S consumer payment behavior as you said in the past year evaluation models in 2021 and 2022.
Adapting to changes from the pandemic levels of high collections. It takes some time, there's a lag at times the valuation models for adjusting.
And they have adjusted because twenty-three overperforming, but that said every vintage we look at it very granular level.
And the forecast in a confident in that forecast as we said today and then we look at it again in three months. So that's how that process works, but overall.
Consumer behavior is very stable. Unlike what some competitors out there may be saying or what or what not.
We found post pandemic consumers have a little bit less cash, so making smaller downpayments, but setting up payment plans and we just looked at data again, our data is consistently showing payment plans are holding up really steady very well in the U S market in the U S business. So.
So we've been very good with.
Underlying operational metrics, we are adding staff for additional purchasing that we are doing we added 350 account managers for the year.
Nothing concerning from either big macro point of view or operational capability point of view.
These are forecasting changes that happened on a vintage my vintage basis, and you do your best to adapt an estimate for each vintage and the net effect of those and you can see that on a Q some vintage as a positive or negative across globally right. So that's what happens from a <unk>.
Forecasting and the implications on accounting point of view.
Oh I appreciate that thank you she's actually add the staffing with the next question <unk> Uhm.
Account managers.
Are we going to see potentially C. A deterioration near term deterioration efficiency. If you are you planning on staffing up for.
The increased volume is coming quite that you've already got a hit record and you <unk> and 2024 looks good.
Are you planning on starting up a head of that or do you think it could be managed so that the the staffing grows and cash collection efficiency or attorney invested capo whatever it doesn't take a niche.
<unk> from from timing mismatches on staffing brushes collections.
Yeah. So this is not a one time southern hiring and sudden closing of call centres and whatnot, we've been adding staff for last six months and a very steady fashion.
And are you a business and they're gonna be doing it across you.
U S Costa Rica, India.
And therefore, we were able to train them and it's on a large base of account managers already so it's not like.
This increase will impact our efficiency much it's a very steady measured way to add capacity and we continue to do that and we plan to continue doing that for the rest of the year for sure as we plan for increased purchasing so we are very confident operationally, how these will perform and have bacon that into our expectations.
Again back to the forecast or the best possible our ability that we can.
Got it thank you.
Thank you one moment for our next question.
Our next question.
<unk> comes from the line of Martinez from two of Securities. Your line is now open.
[noise]. Thank you Jonathan did you give the UK purchase multiple or the cabinet purchase multiple.
We we have that.
The purchase multiple for cabinet for that you're talking about for Q3.
Yeah. Thank you usually have you have nine months, but if you've got two three that's good too.
Q3 years, one point 75.
Okay.
What's your judgment about what's going on in the.
UK market or in Europe, we've been talking about irrational competitors for quite a while.
Seems like I have come under some pressure from a balance sheet perspective, but.
Cause it hadn't really contributed to any kind of improvement in the market why are they.
Why is it irrational behavior so durable.
Yeah. That's a good question Mark and we discussed at a loss as you can imagine internally.
Now I would say we've seen some change in behavior uncertain pain outcomes of certain options.
That would have been different six months ago now.
Thanks for taking it back to an auction people who've been renewed for it for examples of you seeing early signs of change behavior, especially in the UK, but it's at this point given the number of players in the supply that's not grown because lending has not grown it's still below pandemic in charge offs us until at record low so the supply.
Factor has not contributed.
You're still seeing.
Competitive behavior that's.
Uhm, so pretty high competitive intensity.
So we've seen some early signs not enough to change pricing and our allocation of capital, particularly given we can move capital around and giving a <unk> balance sheet structure and the opportunity we see in the U S. So it's something we staying very focused on and watching and staying discipline in buying portfolio that <unk>.
<unk> will return so that.
We are still buying but you don't need to buy any more than we need to constrain.
<unk> the purchasing you can get Exceptive returns because there are new segments and sellers in relationships and capabilities that kind of match up pretty well, where we can buy what we want.
<unk>.
And then Ah Jonathan with the capital raised.
Assuming.
That stays out where it is.
Currently let's call it what would the quarterly interest rate run right look like.
Oh.
Well if you if you're looking for are weighted average cost of debt.
For the as of the end of the quarter.
It was about 5.7%.
So.
This wouldn't quite frankly, it would it would move it up a little bit, but it wouldn't move it materially my expectations.
Okay. Thank you very much.
Thank you.
While we prepare our next question.
One moment please.
Our next question comes from John Rohan Jenny Mcelmurray Scott Your line is now open.
John I just had to quick housekeeping items did you say that the that the you know revision was 60 cents to earnings I didn't quite hear it I think you gave.
44, and a 13 cent number and then 60 I'm trying to confirm that.
Yes, the the total.
Or changes was.
60, 44, 16, 40, 44, plus 16 16, Okay I thought I heard 13, that's always.
I was confused and then what was the 5 million in other income and the reason why the tax rate was so hard for the quarter.
Yeah actually there, they're all kind of related.
So as you know we've been reducing portfolio purchasing in the current environment in the UK in Europe.
So we as I walk through.
We reduced the size of our cabinet securitization facility.
And accordingly in anticipation of that we reduced and associated.
Hedge and interest rate cap.
And that produced a gain of roughly.
Three and a half late.
So that explains how I think how come the.
The other income was higher than normal.
And in terms of tax rate tax rate was higher as a result of a valuation allowance that was related to European business.
And so that's all bye was higher this quarter.
I'm a bit old goat I assume it'll move down to the mid 20th excellent correct.
I think actually it'll move down, but I I would expect for the year. We're gonna have something we're just gonna have something more in the high twenties low thirties, because as you know you're you're where your tax rate lands is driven by where you earn your income so as it moves around your tax rates going to move up and down so.
But my current expectation will be high twenties or thirties actually for the year, though not for next quarter.
Correct, Okay, alright, thank you.
Four.
This concludes the question and answer session.
I would now like to turn it back to Mister Massey for closing remarks.
As we close the call I'd like to reiterate a few important points.
We believe encore, it's truly differentiated in our sector with a solid track record of results So Peter capabilities.
As a consumer credit recycled continues to turn the U S market is seeing the worlds strongest supply growth.
We continue to apply a disciplined portfolio purchasing approach <unk>.
Allocating record amounts of capital to the U S market, which has the highest returns.
When combined with Ella effective collections operation.
We believe this approach will enable us to continue to grow our cash generation. This is the portion of the credit cycle, we've been waiting for.
Thanks for taking the time to join US and we look forward to providing a fourth quarter and full year 2023 results in February.
Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.
Mmm.
[music].