Q4 2023 Encore Capital Group Inc Earnings Call
[music].
Operator: Good day, and thank you for standing by. Welcome to Encore Capital Group's fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode.
Good day, and thank you for standing by and welcome to Encore capital Group's fourth quarter 2023 earnings 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 to ask a question during the session you will need to.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised.
Press Star one and one on your telephone you will then hear and automated message advising your hand. This race to withdraw your question Press Star. One again, please be advised that today's conference is being recorded.
Operator: To withdraw your question, press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to the Vice President of Global Investor Relations, Bruce Thomas. Thank you, operator.
I would now like to hand, the conference over to the Vice President of Global Investor Relations Bruce Thomas.
Bruce Thomas: Good afternoon, and welcome to Encore Capital Group's fourth quarter 2023 earnings call. Joining me on the call today are Ashish Masih, our President and Chief Executive Officer, Jonathan Clark, Executive Vice President and Chief Financial Officer, and Ryan Bell, President of Midland Credit Management. Ashish and John will make prepared remarks today, and then we'll be happy to take your questions.
Thank you operator, good afternoon, and welcome to Encore capital group's fourth quarter 2023 earnings call. Joining me on the call today are Ashish Masih, our president and Chief Executive Officer, Jonathan Clark Executive Vice President and Chief Financial Officer, and Ryan Bell President of Midland Credit management or <unk>.
And Jon will make prepared remarks today, and then we'll be happy to take your questions.
Bruce Thomas: Unless otherwise noted, comparisons on this conference call will be made between the fourth quarter of 2023 and the fourth quarter of 2022, or the full year of 2023 and the full year of 2022. In addition, today's discussion will include forward-looking statements that are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from our expectations. Please refer to our SEC filings for a detailed discussion of potential risks and uncertainties. We undertake no obligation to update any forward-looking statement.
Unless otherwise noted comparisons on this conference call will be made between the fourth quarter of 2023 in the fourth quarter of 2022 or the full year of 2023 and the full year of 2022. In addition, today's discussion will include forward looking statements that are based on current expectations and assumptions and are subject to risks and uncertainty.
Yes.
Actual results could differ materially from our expectations. Please refer to our SEC filings for a detailed discussion of potential risks and uncertainties. We undertake no obligation to update any forward looking statements <unk>.
Bruce Thomas: During this call, we will use rounding and abbreviations for the sake of brevity. We will also be discussing non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are included in our investor presentation, which is available in the investor section of our website. As a reminder, following the conclusion of this call, a replay of this conference call, along with our prepared remarks, will also be made available on the investor section of our website. With that, let me turn the call over to Ashish Masih, our President and Chief Executive Officer. Thanks, Bruce, and good afternoon, everyone. Thank you for joining us.
During this call we will use rounding and abbreviations for the sake of brevity. We will also be discussing non-GAAP financial measures reconciliations to the most directly comparable GAAP financial measures are included in our Investor presentation, which is available in the investors section of our website.
As a reminder, following the conclusion of this call a replay of this conference call along with our prepared remarks will also be made available on the investors section of our website.
With that let me turn the call over to Ashish Masih, our president and Chief Executive Officer.
Thanks, Bruce and good afternoon, everyone. Thank you for joining us.
Ashish Masih: On today's call, I will start with a high-level recap of 2023. Then, I'll review our strategy as well as a few key measures that are important indicators of the state of our business. Then John will review a financial result, after which I'll touch on our financial priorities and provide guidance on several key metrics for 2024. At the conclusion of today's call, we will also post on our website our annual report, which includes a 10-K and my letter to shareholders.
On today's call I will start with a high level recap of 2023.
Then I'll review our strategy as well as a few key measures that are important indicators of the state of our business.
Then John will review, our financial results after which I'll touch on our financial priorities and provide guidance on several key metrics for 2024.
At the conclusion of today's call. We will also post to our website. Our annual report, which includes our 10-K in my letter to shareholders.
Ashish Masih: We will begin with a look back over the past year. For the debt buying industry as a whole, 2023 was a year characterized by continued rapid growth of portfolio supply in the U.S., contrasted by slower growth in the UK and Europe. Let's begin in the U.S., where continued increases in lending by banks coupled with rising delinquencies and charge-offs led to an exceptional purchasing environment. With record supply in the U.S. market for non-performing loan portfolios, the largest business, MCM, increased its portfolio purchases in 2023 to a record $815 million with strong returns. This total was double the amount we purchased in 2021.
We will begin with a look back over the past year.
So the debt buying industry as a whole 2023 was a year characterized by continued rapid growth of portfolio of supply in the U S.
Contrast, it by slower growth in the UK and Europe.
Let's begin in the U S where continued increases in lending by banks, coupled with driving delinquencies and charge offs led to an exceptional purchasing environment.
With record supply in the U S market for nonperforming loan portfolios, our largest business MCM increased its portfolio purchases in 2023 to a record $815 million at strong returns.
This total was double the amount we purchased in 2021.
Ashish Masih: Our disciplined approach to purchasing portfolios and the flexibility of our global balance sheet have allowed us to redirect our capital deployment to higher return opportunities in the U.S. In fact, 76 percent of our portfolio purchasing in 2023 was allocated to the U.S. market, compared to 56 percent five years ago. As a result of this focus, we believe Encore has emerged from 2023 in a stronger competitive position and a clear leader in the industry, with the U.S. business as the engine. However, in contrast to the U.S., supply growth in the U.K. has been much more muted.
Our disciplined approach to purchasing portfolios and the flexibility of our global balance sheet have allowed us to redirect our capital deployment to the higher return opportunities in the U S. In fact, 76% of our portfolio purchasing in 2023 was allocated to the U S market.
Compared to 56% five years ago.
As a result of this focus we believe encore has emerged from 2023 and a stronger competitive position and a clear leader in the industry with our U S business as the engine.
In contrast to the U S supply growth in the UK has been much more muted credit card outstandings are still not yet back to pre pandemic levels as banks in the U K. Unlike those in the U S.
Ashish Masih: Credit card outstandings are still not yet back to pre-pandemic levels, as banks in the U.K., unlike those in the U.S., did not start to meaningfully increase lending during the pandemic years. In addition, UK charge jobs remain at a low level.
Did not start to meaningfully increase lending during the pandemic years.
In addition.
UK charge offs remain at low levels the competitive.
Ashish Masih: The competitive environment faced by a business in the U.K. and Europe, cabinet credit management, continues to be stiffer than in the U.S., as many of our competitors appear to have been slow in fully adjusting pricing to higher funding costs. Against this backdrop, we remain patient, choosing to deploy at current low levels until the returns in CABOT's markets become more attractive. So, after several years of lower deployments caused by the pandemic and its aftereffects, and with our MCM business leading the way, we expect to turn the corner in 2024 with regard to our operational and financial results. At this time, I believe it's helpful to reiterate the critical role we play in the consumer credit ecosystem by assisting in the resolution of unpaid debt, which is an expected and necessary outcome of the lending business model. Our mission is to help create pathways to economic freedom for the consumers we serve by helping them resolve their past due debts. We do that by engaging consumers in honest, empathetic, and respectful conversation.
Environment faced by our business in the UK and Europe Cabot credit management continues to be tougher than the U S. As many of our competitors appear to have been slow and fully adjusting pricing to higher funding costs.
Against this backdrop, we remain patient.
Using to deploy at current low levels until the returns in cabot's markets become more attractive.
So after several years of lower deployments caused by the pandemic and its after effects and with our MCM business, leading the way we expect to turn the corner in 2024 with regard to our operational and financial results.
At this time I believe it is helpful to reiterate the critical role we play in the consumer credit ecosystem by assisting in the resolution of unpaid debts.
Each are unexpected and necessary outcome of the lending business model.
Our mission is to help create pathways to economic freedom for the consumers, we serve by helping them resolve their past due debts.
We do that by engaging consumers and honest and pathetic and respectful conversations.
Ashish Masih: Our business is to purchase portfolios of non-performing loans at attractive returns while minimizing funding costs. For each portfolio that we own, we strive to exceed our collection expectations while maintaining an efficient cost structure as well as ensuring the highest level of compliance and consumer focus. We achieve these objectives through a three-pillar strategy.
Our business is to purchase portfolios of nonperforming loans at attractive returns, while minimizing funding costs for each portfolio that we own we strive to exceed our collection expectations, while maintaining an efficient cost structure as well as ensuring the highest level of compliance and consumer focus.
We achieved these objectives through a three pillar strategy. This strategy enables us to deliver outstanding financial performance and positions us well to capitalize on future opportunities.
Ashish Masih: This strategy enables us to deliver outstanding financial performance and positions us well to capitalize on future opportunities. We believe this is instrumental to building long-term shareholder value. I would now like to highlight Encore's performance in 2023 in terms of several key metrics, starting with portfolio purchases. Encore's global portfolio purchases increased 34% for the year, with record U.S. deployments and our largest business, MCM, leading the way.
We believe this was instrumental for building long term shareholder value.
I would now like to highlight on cost performance in 2023 in terms of several key metrics starting with portfolio purchasing.
Encores global portfolio purchases increased 34% for the year with record U S deployments in our largest business MCM, leading the way.
Ashish Masih: This increased portfolio purchasing will help drive Encore's collections growth in 2024. Our concentration of portfolio purchases in the U.S. in 2023 is a reminder that the flexibility of our global funding structure allows us to allocate capital toward the highest return opportunities. You may recall that balance sheet strength is a key element of a three-pillar strategy.
This increased portfolio purchasing will help drive encores collections growth in 2024.
Our concentration of portfolio purchases in the U S. In 2023 is a reminder, that the flexibility of our global funding structure allows us to allocate capital towards the highest return opportunities humira.
You may recall that our balance sheet strength is a key element of our three pillar strategy.
Ashish Masih: As market supply remains elevated in the U.S. and the pricing environment continues to improve, MCM's ERC is steadily growing. Importantly, as pricing continues to improve, we expect to collect more for every dollar of capital deployed. The significant amount of ERC we are adding reflects the efficiency of our global capital deployment and is reflected in a higher purchase price multiple.
As market supply remains elevated in the U S and the pricing environment continues to improve.
<unk> is steadily growing importantly, as pricing continues to improve we expect to collect more for every dollar of capital deployed.
The significant amount of ERC, we are adding reflects the efficiency of our global capital deployment and is reflected in a higher purchase price multiples are.
Ashish Masih: Our portfolio purchasing in 2023 clearly illustrates this point. I mentioned a moment ago that compared to 2022, Encore's portfolio purchases in 2023 increased 34%. Over that same period, the ERC we added as a result of those purchases increased 43%; that increase in purchasing efficiency and higher purchase price multiples translates to an incremental $142 million of future collections for the 2023 purchase vintage. We cannot overstate the importance of our differentiated multiples, which are indicators of our higher returns and their expected impact on future financial performance.
Our portfolio purchasing in 2023, clearly illustrates this point.
I mentioned, a moment ago that compared to 2022 encore portfolio purchases in 2023 increased 34%.
Over that same period, the ERC, we added as a result of those purchases increased 43%.
That increase in purchasing efficiency and higher purchase price multiples translates to an incremental $142 million of future collections for the 2023 purchase vintage.
We cannot overstate the importance of our differentiated multiples, which are indicators of a higher returns and their expected impact on future financial performance.
Ashish Masih: This current purchasing environment in the U.S. is what we've been anticipating. Our MCM business is in full stride purchasing portfolios at strong returns, which adds future cash flows and profitability to the business. Global collections in 2023 were $1.86 billion, compared to $1.91 billion in the prior year, after being impacted by several years of lower deployments due to the pandemic and its after effects.
This current purchasing environment in the U S is what we've been anticipating our MCM business is in full stride purchasing portfolios at strong returns, which adds to future cash flows and profitability to the business.
Global collections in 2023 were $1 86 billion.
Compared to $1 $91 billion in the prior year after being impacted by several years of lower deployments due to the pandemic and its after effects, we expect collections to grow meaningfully in 2024.
Ashish Masih: We expect collections to grow meaningfully in 2024. We believe that our ability to generate significant cash provides us an important competitive advantage, which is also a key component of our three-pillar strategy, in the U.S. from 2020 through the first half of 2022. Lower consumer spending, credit card balances, and charge-off rates drove reduced market supply in our industry and also led to higher collections for our business.
Yes.
We believe that our ability to generate significant cash provides us an important competitive advantage, which is also a key component of our three pillar strategy.
In the U S from 2020 through the first half of 2022.
Lower consumer spending credit card balances and charge off rates drove reduced market supply in our industry.
And also led to higher collections for our business and consumer behavior began to normalize and incremental cash generation from these higher collections began to subside or.
Ashish Masih: When consumer behavior began to normalize, and incremental cash generation from these higher collections began to subside, our cash generation came under pressure as the prolonged period of lower portfolio purchases then led to reduced overall collections. More recently, however, higher portfolio purchases and improving pricing over the past several quarters have begun to reverse this trend. Similar to what I mentioned a moment ago regarding collection trajectory.
Our cash generation came under pressure as the prolonged period of lower portfolio purchases, then led to reduced overall collections.
More recently however.
Higher portfolio purchases and improving pricing over the past several quarters have begun to reverse this trend.
What I mentioned, a moment ago regarding our collections trajectory.
Ashish Masih: We expect our cash generation to also grow meaningfully in 2024 in comparison to 2023. U.S. consumer credit card delinquencies, a leading indicator of future charge-offs, have also continued to rise and are now well above pre-pandemic levels. As both lending and the charge-off rate grew simultaneously, we saw record U.S. market supply in 2023. Delinquency data at year-end supports our conclusion that we expect 2024 to be another record year for portfolio sales by U.S. banks and credit card issuers. Reports from the U.S. Federal Reserve show that credit card balances continue to set new all-time records on a monthly basis, powered in part by strong consumer spending.
We expect our cash generation to also grow meaningfully in 2024 in comparison to 2023.
U S consumer credit card delinquencies, a leading indicator of future charge offs have also continued to rise and are now well above pre pandemic levels as.
As both lending and the charge off rate grew simultaneously.
We saw record U S market supply in 2023.
Delinquency data at year end supports our conclusion that we expect 2024 to be another record year for portfolio sales by U S banks and credit card issuers.
Sure.
Reports from the U S. Federal reserve showed that credit card balances continue to set new all time records on a monthly basis.
Powered in part by strong consumer spending.
Ashish Masih: In addition, we continue to see steadily rising delinquencies and charge-offs, resulting in increased availability of charge-off portfolios for purchase from U.S. banks at increasingly attractive returns. We believe a higher share of this growth is coming from insurers that are active in the near prime and subprime segments, as well as from newer players such as Fintech Lenders. We also believe that strong growth in lending during the pandemic years is now exhibiting higher delinquency rates when compared to older origination vintages. As a result, the supply of charged stock portfolios in the U.S. reached a record level in 2023, and we expect it to continue to grow in 2024. With this favorable environment as a backdrop, our MCM business deployed a record $815 million in 2023 at an attractive purchase price multiple of 2.3 times. This outcome was a result of a disciplined purchasing approach amid an improving pricing environment.
In addition, we continue to see steadily rising delinquencies and charge offs, resulting in increased availability of charge off portfolios for purchase from U S banks at increasingly attractive returns.
We believe a higher share of the charge off growth is coming from insurers that are active in the near prime and subprime segments as.
As well as from newer players such as Fintech lenders.
We also believe strong growth in lending during pandemic yours is now exhibiting higher delinquency rates when compared to older origination vintages.
As a result, the supply of charged off portfolios in the U S. U S reached a record level in 2023.
And we expect it to continue to grow in 2024.
With this favorable environment as a backdrop RMC business deployed a record $815 million in 2023 at an attractive purchase price multiple of two three times.
This outcome was the result of our disciplined purchasing approach.
An improving pricing environment.
Ashish Masih: To put this purchasing figure in proper context, MCM's prior record for portfolio purchases for a full calendar year was $682 million in 2019, meaning a 2023 deployment surpassed the prior record by 20% on $133 million. MCM ended its record 2023 with $208 million of portfolio purchases in Q4 at strong returns. We see no signs of this favorable purchasing environment slowing down. In fact, the supply pipeline in the U.S. remains robust, as we have already $230 million of committed portfolio purchases in Q1, a strong return. To be ready for our increased purchasing, MCM continues to expand internal collections capacity. During the full year 2023, we added over 500 account managers to MCM's operations.
To put this purchasing figure in proper context.
CMS prior record for portfolio purchases for a full calendar year was $682 million in 2019.
Meaning by 2023 deployments surpassed the prior record by 20% or $132 million.
MCM ended its record 2023 with $208 million of portfolio purchases in Q4 had strong returns.
We see no signs of this favorable purchasing environment slowing down in fact, the supply pipeline in the U S remains robust as we have already $230 million of committed portfolio purchases in Q1 strong returns.
To be ready for our increased purchasing MCM continues to expand internal collections capacity <unk>.
During the full year 2023, we added over 500 account managers to Mcm's operation.
Ashish Masih: MCM collections in 2023 were $1.3 billion. In terms of consumer behavior, we are observing a more normal, stable environment that is similar to the pre-pandemic years, most notably in terms of payment plan performance. The shift of consumer preferences toward more online and digital interactions is evident in every part of the consumer financial services industry. For example, more than 90% of consumers who responded to marketing correspondence from MCM responded via our online portal.
MCM collections in 2023 were $1 3 billion.
In terms of consumer behavior, we are observing a more normal stable environment that is similar to the pre pandemic years, most notably in terms of payment plan performance.
The shift of consumer preferences toward more online and digital interactions is evident in every part of consumer financial services industry.
More than 90% of consumers, who responded to marketing correspondence from MCM responded.
Ashish Masih: Accordingly, we continue to invest significantly in technology and digital capabilities, which we believe, given our scale, will maintain or even enhance our competitive advantage. These investments have allowed our MCM business in the past four years to double the proportion of consumers who make their first payment using our digital channel. The accounting will show you that we recorded negative CECL adjustments in 2023 for our MCM business. These adjustments have largely been focused on five quarterly pool groups in the 2021 and 2022 vintages, which were purchased during the height of the pandemic's positive impact on our collection. As a result... represent forecasting challenges but not collection challenges. In fact, even after the seasonal adjustments we have made, the current purchase price multiples remain attractive, with the 2021 vintage still above 2.3 times and the 2022 vintage at 2.1 times.
Our online portal.
Accordingly, we continue to invest significantly in technology and digital capabilities, which we believe given our scale will maintain or even enhance our competitive advantage.
These investments have allowed our MCM business over the past four years to double the proportion of consumers who make their first payment using our digital channels.
The accounting will show you that we recorded negative seasonal adjustments in 2023 for our MCM business. These adjustments have largely been focused on five quarterly pool groups in the 2021 and 2022 vintages, which were purchased during the height of Pandemics positive impact on.
Our collections.
As a result.
And forecasting challenges, but not collection challenges.
In fact, even after the seasonal adjustments we have made the current purchase price multiples remain attractive with the 2021 vintage still above two three times in the 2022 vintage at two one times.
Ashish Masih: Importantly, these portfolio purchases are profitable and are generating strong cash collections. John will have more to say about Cecil's accounting impacts during his remarks. However, in contrast to the U.S., supply growth in the UK has been much more muted. Credit card outstandings are still not yet back to pre-pandemic levels, as banks in the UK, unlike those in the US, did not start to meaningfully increase lending during the pandemic years. And even today, U.K. charge-offs remain at low levels.
Importantly, these portfolio purchases are profitable and are generating strong cash collections.
John will have more to say about Cecil accounting impacts during his remarks.
In contrast to the U S supply growth in the UK has been much more muted credit card outstandings are still not yet back to pre pandemic levels as banks in the U K. Unlike those in the U S did not start to meaningfully increase lending during the pandemic years and even.
Today U K charge offs remain at low levels.
Yes.
Ashish Masih: Cabot's collections in 2023 were $544 million, compared to $553 million a year ago. With the UK economy now officially in recession, we believe a weakening in consumer confidence is impacting one-time settlements, though existing payment plan performance remains stable. We continue to constrain Cabot's portfolio purchases, which were $255 million in 2023.
Cabot's collections in 2023 were $544 million compared to $553 million a year ago.
With the UK economy now officially in recession.
We believe a weakening in consumer confidence is impacting one time settlements the existing payment plan performance remained stable.
We continue to constrained cabot's portfolio purchases, which were $255 million in 2023.
Ashish Masih: We have maintained a purchasing discipline in the face of portfolio pricing in Europe that we believe still does not yet fully reflect higher funding costs, although we saw some improvement in the fourth quarter. Against this backdrop, we remain patient, choosing to deploy at current low levels until the returns and capital markets become more attractive, choosing for now to allocate significantly more capital to the higher return U.S. market, consistent with a well-established strategic focus. We reduced Cabot's headcount by 8% in 2023 to better align the expense structure with this low purchasing level.
We have maintained our purchasing discipline in the face of portfolio pricing in Europe.
We believe still does not yet fully reflect higher funding costs, although we saw some improvement in the fourth quarter.
Against this backdrop, we remain patient choosing to deploy at current low levels until the returns in cabot's markets become more attractive.
And choosing for now to allocate significantly more capital to the higher return U S market <unk>.
Consistent with our well established strategic focus.
We reduced cabot's head count by 8% in 2023 to better align the expense structure with the slow purchasing level as you may recall, we announced a portion of these head count reductions in the first quarter of 2023.
Ashish Masih: As you may recall, we announced a portion of these headcount reductions in the first quarter of 2023. While these actions reduced expenses and helped offset a portion of cost inflation, we continue to invest significantly in CAVUS technology and digital capabilities similar to MCM. As a result of these efforts, nearly one-third of new payment plans in the UK were set up digitally in 2023, and the proportion continues to trend upward. As a result of our annual test for goodwill, we reported a $238 million goodwill impairment in the fourth quarter.
While these actions reduced expenses and helped offset a portion of cost inflation.
We continue to invest significantly in cabot's technology and digital capabilities similar to MCM as a result of these efforts nearly one third of new payment plans in the UK. We're set up digitally in 2023 and the proportion continues to trend upward.
As a result of our annual test for goodwill.
We reported a $238 million goodwill.
Payment in the fourth quarter.
This noncash charge was primarily driven by persistently low purchasing by our cabinet business for the last five years.
Combined with the sustained decline in debt purchasing industry valuations.
Ashish Masih: This non-cash charge was primarily driven by persistently low purchasing by a Cabot business for the last five years, combined with a sustained decline in debt purchasing industry valuation. This charge has no impact on our liquidity, on our ability to purchase portfolios, on our capability to collect on portfolios we have already purchased, or on our outlook for Encore. I'd now like to hand the call over to John for a more detailed look at the financial results. Thank you, Ashish.
This charge has no impact on our liquidity on our ability to purchase portfolios on our capability to collect on portfolios, we have already purchased or on our outlook for encore.
I'd now like to hand, the call over to John for a more detailed look at our financial results.
Thank you Ashish.
2023 was another period of strong purchasing part of the U S business at attractive returns, while our collections performance remains stable in each of our key markets.
Collections were slightly below expectations for the fourth quarter, and we made small adjustments to our ERC. Both of these items impacted earnings in a negative way.
Jonathan Clark: 2023 was another period of strong purchasing for our U.S. business at attractive returns, while our collections performance remained stable in each of our key markets. However, collections were slightly below expectations for the fourth quarter, and we made small adjustments to our ERC. Both of these items impacted earnings in a negative way.
Our reported financial results in 2023, and in particular, our net loss of $206 million or $8 72 per share. We are not indicative of the underlying strength of our business due to certain noncash charges, the largest of which was the $238 million goodwill impairment.
Charge, we want to be clear that this charge has no impact on our liquidity on our operations or on our outlook for the business.
Jonathan Clark: Our reported financial results for 2023, and in particular, our net loss of $206 million, or $8.72 per share, were not indicative of the underlying strength of our business due to certain non-cash charges, the largest of which was the $238 million goodwill impairment charge. We want to be clear that this charge has no impact on our liquidity, on our operations, or on our outlook for the business. In addition, our revenues in 2023 were reduced by $83 million due to changes in recovery stemming from the CECL accounting methodology. In contrast, our revenues during 2022 were increased by $93 million due to the CECL impact. For our industry, CECL uses collections forecast to determine quarterly revenue.
In addition, our revenues in 2023 were reduced by $83 million due to changes in recoveries stemming from the <unk> silver accounting methodology. In contrast, our revenues during 2022 were increased by $93 million due to seasonal impacts.
There are industry seasonal users collections forecast to determined quarterly revenue small variations in actual performance versus forecast or even smaller changes in forecast themselves can lead to significant volatility in revenues.
However, it is important to understand that over the full lifecycle of the portfolio.
Revenue will always be equal to total portfolio collections less purchase price.
We believe with the passage of time post pandemic to see some related volatility, which we have observed to date will likely recede. In addition, we are working diligently at enhancing our forecasting and related processes.
We have provided a list of these accounting impacts to our fourth quarter and full year results in our earnings press release and presentation. We hope this information will allow investors to understand the true underlying performance of our business.
Jonathan Clark: Small variations in actual performance versus forecast, or even smaller changes in forecasts themselves, can lead to significant volatility in revenues. However, it is important to understand that over the full life cycle of a portfolio... revenue will always be equal to total portfolio collections, less purchase price. We believe with the passage of time post-pandemic, CECL-related volatility, which we have observed to date, will likely recede.
I'd like to highlight a couple of items not yet mentioned.
Estimated remaining collections or ERC at the end of 2023 was $8 2 billion.
Up 8% compared to a year ago.
Our operating expenses, which were up 29% in 2023 compared to the prior year were only up 2% after excluding the impact of goodwill and intangible asset impairments.
The third pillar of our three pillar strategy ensures that the strength of our balance sheet is a constant priority.
Jonathan Clark: In addition, we are working diligently to improve our forecasting and related processes. We have provided a list of these accounting impacts on our fourth quarter and full year results in our earnings press release and presentation. We hope this information will allow investors to understand the true underlying performance of our business. I'd like to highlight a couple of items not yet mentioned. Estimated remaining collections, or ERC, at the end of 2023 were $8.2 billion, up 8% compared to a year ago. However, our operating expenses, which were up 29% in 2023 compared to the prior year, were only up 2% after excluding the impact of goodwill and intangible asset impairment. The third pillar of our three-pillar strategy ensures that the strength of our balance sheet is a constant priority.
When compared to the pre pandemic years 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 and extended maturities.
Our leverage ratio at the end of 2023 was two nine times near the high end of our target range of two to three times, our debt to equity ratio rose sharply in Q4, largely the result of the impact of the noncash goodwill impairment on our equity.
With higher interest rates and evolving 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.
Our funding structure also provides us financial flexibility and diversified funding sources to compete effectively in this growing supply environment.
In the fourth quarter, we made good use of this flexibility by adding a $175 million of incremental liquidity to our balance sheet as we prepare for the robust pipeline pipeline, we see in the U S. In 2024.
To achieve this we entered into a $175 million facility secured by U S receivable portfolios. We also extended the maturity of the Cabot securitization facility to September 2028, and reduced its size by 95 million pounds to 255 million pounds.
Jonathan Clark: Compared to the pre-pandemic years, 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, and extended maturity. Our leverage ratio at the end of 2023 was 2.9 times, near the high end of our target range of two to three times. Our debt-to-equity ratio rose sharply in Q4, largely as a result of the impact of the non-cash goodwill impairment on our equity.
In addition, we issued an incremental 100 million euro of our 2028 floating rate notes as a follow on tap of our December 2020 offering.
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.
Jonathan Clark: With higher interest rates and evolving conditions in the bond markets, the importance of a global funding structure cannot be overstated. We believe our balance sheet provides us with very competitive funding costs when compared to our peers. Our funding structure also provides us with financial flexibility and diversified funding sources to compete effectively in this growing supply environment. In the fourth quarter, we made good use of this flexibility by adding $175 million in 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 $175 million facility secured by U.S. receivables portfolios.
The importance of a strong diversified balance sheet and our industry cannot be overstated.
Especially given the exceptional portfolio purchasing environment in the U S.
We will continue to be good stewards of your capital by always taking the long view and prioritizing portfolio purchases at attractive returns in order to build long term shareholder value.
Yes.
Now I'd like to spend a moment on the recent volatility in our financial results. Despite.
Despite the fact that we have a fairly predictable business in terms of operational metrics, such as collections and cash generation.
The volatility in our GAAP earnings results since the adoption of the seasonal accounting standard has been a source of frustration for us and for investors we hear you.
Jonathan Clark: We also extended the maturity of the Cabot Securitization Facility to September 2028 and reduced its size by 95 million pounds to 255 million pounds. In addition, we issued an incremental 100 million euros of our 2028 floating rate notes as a follow-on tap of our December 2020 offering. With that, I'd like to turn it back over to you. But 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 an industry cannot be overstated, especially given the exceptional portfolio purchasing environment in the U.S. We will continue to be good stewards of your capital by always taking the long view and prioritizing portfolio purchases at attractive returns in order to build long-term shareholder value.
In fact, we learn a great deal from the investment community constantly listening to feedback and conducting periodic investor perception studies, which we refreshed in 2023.
Based on this feedback we plan to continue to provide information each quarter, which clearly identifies the impact on our results from <unk> related items.
We believe encore is truly differentiated in our sector with a solid track record of operating results and superior capabilities.
After several years.
<unk> deployments caused by the pandemic and its after effects, we have been purchasing record amounts of portfolio at strong returns in the U S market.
And as I stated at the beginning of our presentation.
We believe we are now turning the corner and operational and financial results.
To further emphasize the fundamental predictability of our business.
And our positive outlook for 2024.
We have chosen to provide guidance on certain key metrics for the year.
Jonathan Clark: Now, I'd like to spend a moment on the recent volatility in our financial results, despite the fact that we have a fairly predictable business in terms of operational metrics such as collections and cash generation. The volatility in our GAAP earnings results since the adoption of the CECL accounting standard has been a source of frustration for us and for investors. We hear you.
Driven primarily by the continuing robust pipeline for portfolio supply in the U S. <unk>.
We expect portfolio purchasing to exceed our 2023 total of 1.074 billion.
We expect collections to grow by approximately 8% to over $2 billion.
We also expect interest expense to increase to approximately $235 million.
Ashish Masih: In fact, we learn a great deal from the investment community, constantly listening to feedback and conducting periodic investor perception studies, which we refreshed in 2023. Based on this feedback, we plan to continue to provide information each quarter, which clearly identifies the impact on our results from CECL-related items. We believe Encore is truly differentiated in our sector with a solid track record of operating results and superior capabilities after several years of low deployments caused by the pandemic and its after effects.
And we expect our effective tax rate to be in mid twenties on a percentage basis.
Now we'd be happy to answer any questions that you may have.
Operator open up the lines for questions.
Thank you and as a reminder to ask a question simply press Star one one on your telephone and wait for your name to be announced to withdraw your question Press Star one again.
For our first question.
Okay.
Ashish Masih: We have been purchasing record amounts of portfolios at strong returns in the U.S. market. And, as I stated at the beginning of our presentation, we believe we are now turning the corner in operational and financial results, to further emphasize the fundamental predictability of a business and a positive outlook for 2024. We have chosen to provide guidance on certain key metrics for the year, driven primarily by the continuing robust pipeline for portfolio supply in the U.S. We expect portfolio purchasing to exceed our 2023 total of $1.074 billion, and we expect collections to grow by approximately 8% to over $2 billion. We also expect interest expense to increase to approximately $235 million, and we expect our effective tax rate to be in the mid-20s on a percentage basis.
And it comes from the line of David Scharf with citizens JMP. Please go ahead.
Yes. Good afternoon, thanks for taking my questions.
Hey, Ashish and Jon I guess.
Not surprisingly.
Like to dig in a little more to the.
Impairments at Cabot.
Obviously from an accounting standpoint, I'm sure the <unk>.
A level degree of impairment as what it.
Should be just trying to get a sense for.
Really two things that to begin with number one is the bulk of the impairment related to valuations of other European comps, particularly the public ones Youre seeing out there.
Operator: Now, we'd be happy to answer any questions that you may have. Operator, open up the lines for questions. Thank you. And as a reminder, to ask a question, simply press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 1, 1 again.
Or is more of it related to.
Maybe your longer term assessment of how large.
Debt purchasing market is.
Let me take a stab at it and David Hello.
David Sharfwith: One moment for our first question, and it comes from the line of David Sharfwith, Citizens J&P. Please go ahead. Hi, good afternoon.
So the goodwill impairment is a result of our annual impairment test goodwill impairment test that we have to do.
For the standard.
Ashish Masih: Thanks for. Thank you. Ashish and Jonathan, I guess, you know, not surprisingly...
And it resulted in 238 million noncash impairment.
Ashish Masih: I'd like to dig in a little more to... You know, obviously from an accounting standpoint, I'm sure the level of the impairment is, should be, just trying to get a sense for really two things, to begin with. Number one, is the bulk of the impairment related to... Evaluations of other European compa..., public ones you're seeing out there, or is more of it related? your longer-term assessment of how it will affect you. Let me take a stab at it. David, hello.
Then two drivers that you've kind of alluded to already.
The first is persistently low portfolio purchasing by Cabot for the past five years. So if you go back in history and look at Cabot's purchasing from 2017 to 18 and then the five years after.
And second was due to reduced valuation of competitors, who comprised of purchasing debt purchasing industry, both European and U S. One of the first driver I would highlight we have been mentioning low purchasing at Cabot for a very long time due to initially market supply and returns, but more importantly, and more recently allocating more cap.
Ashish Masih: So the Goodwill impairment is a result of our annual impairment test, which we have to do for the standard. And it resulted in 238 million non-cash impairment. Again, two drivers that you kind of alluded to already.
Due to U S because of higher returns so keep in mind.
This allocation reduces collection since cash generation at Cabot.
But it drives more collections more cash generation and more value at oncor level.
Ashish Masih: The first is persistently low portfolio purchasing by Cabot for the past five years. So if you go back in history and look at Cabot's purchasing from 2017-18 and then the five years afterward, And second, it was due to reduced valuation of competitors who comprise the debt purchasing industry, both European and U.S. And on the first driver I would highlight, we have been mentioning low purchasing at Cabot for a very long time due to initial market supply and returns. But more importantly and more recently, allocating more capital to the U.S. because of higher returns.
So on this and on the second driver.
The collective market value of our many of our competitors has been under pressure for a long time and it is a factor in the testing. So I just wanted to be clear about those drivers, but also that this charge again to repeat has no impact on our liquidity no impact on our operations our ability to collect on the outlook for the business.
Yes.
Understood and given obviously.
As you noted it's kind of five years not just the pandemic anomalies.
We've seen depressed volumes.
Yeah.
I know youre, not guiding line item and geography, but.
Ashish Masih: So keep in mind that this allocation reduces collections and cash generation at Cabot, but it drives more collections, more cash generation, and more value at the Encore level. So on this, and on the second driver, again, the collective market value of many of our competitors has been under pressure for a long time, and that's a factor in the testing. So I just want to be clear about those drivers, but also that this charge, again, to repeat, has no impact on our liquidity, no impact on our operations, our ability to collect, or on the outlook for the business, you know, understood and given, you know, This is the New York Times. I'm Robert Huggins. Thank you for joining us. I'm Hugh Miller. I'm Leslie Vandegrift.
Yeah.
Should we be thinking about purchasing levels not just this year, but maybe just as a more.
<unk> level.
Cabot something that was consistent with what we just saw in 2023 or could it be even more conservative.
So as we focus on returns.
If you look at the market the way, we've articulated and what we've seen.
On a relative basis U S market is growing very significantly and at attractive returns and the markets. We're in in Europe again, it's a number of different countries, primarily in U K and as well in France, and Spain being the next two and UK lending Hasnt really picked up and charge offs to remain very low so.
From all indications the market is not going to suddenly start changing now.
Operator: Thank you for joining us. And we'll see you next time. That's right. Press 5.
Officially UK is in recession now just two quarters, a very slight negative growth, who knows where that goes but we expect 2024 for us at least.
Ashish Masih: I know you're not guiding a line item in Geography, but... Should we be thinking about purchasing levels, not just this year, but maybe... Normal.dotm, https://www.youtube.com?v=LmZwYK9, So, as we focus on returns, if you look at the market, the way we've articulated and what we've seen, on a relative basis, the U.S And the markets we are in in Europe, again, there are a number of different countries. We are primarily in the U.K., and as well as France and Spain being the next two.
Growth in purchasing to come from the U S market, which we expect will exceed overall for oncor level, our 2023 purchasing at this time.
Got it and then just the last.
The geographic focus question I'm not sure if I missed it in the presentation.
The <unk>.
Change in expected recoveries.
Current period.
Variance. The result, I guess, they were around $50 $52 million combined basis.
Was there a geographic breakdown of data was that mostly.
Ashish Masih: In the U.K., lending hasn't really picked up, and charge-offs still remain very low. From all indications, the market is not going to suddenly start changing. Now, officially, the UK is in recession now, just two quarters of very slight negative growth. Who knows where that goes?
Cabot focused or is it those 2021 'twenty two vintages in the U S.
Yes, so the 52 million in Q4.
It is comprised of $31 million for U S and $22 million per cabinet and as I mentioned earlier for the U S.
Ashish Masih: We expect 2024 for us, at least, of growth and purchasing to come from the US market, which we expect will exceed overall for Encore level 2023 purchasing at this time. We have it. And then just the last.
$31 million of the total but they are predominantly in fact more than 100% of $34 million out of the 31 is from the two vintages 2021, and 2022 and even in that that's five quarterly pool groups.
Ashish Masih: Thank you. Geographic focus question, I'm not sure if I missed it in the presentation, um... Change Unexpected Recoveries and current period. Variants that result, I guess they were. Was there a geographic breakdown of that?
That are impacted and diesel purchased at.
The time of transition was happening.
Supply is still low pricing was high kind of flattish.
Jonathan Clark: Was that mostly..., a Cabot focused company or The Beginning of the World? Yes, so the $52 million in Q4 is comprised of $31 million for U.S. and $22 million for Cabot. And as I mentioned earlier, for the U.S., 31 million is the total, but they're predominantly, in fact, more than 100%. So 34 million out of the 31 is from the two vintages, 2021 and 2022. And even in that, there are five quarterly pool groups that are impacted, and these were purchased at the time when the time of transition was happening, supply was still low, pricing was high, kind of flattish, and evaluations were trying to reflect what was happening to collections. It's taken us a little bit of time to work through those changes and forecasting changes as we monitor the actual performance. But I'd like to emphasize that if you look at these vintages, they are still strong multiples.
And evaluations were reflecting kind of trying to reflect what has what was happening to collections. So it's taken us a little bit of time to work through those changes in the forecasting changes to as we monitor the actual performance now.
I would like to emphasize that if you look at these vintages. They are still strong multiples that 2021 vintage is at two three times. After the seasonal adjustments 2022 winters is at two one times. So these are good profitable vintages that are generating strong collections and I would also emphasize kind of.
These were forecasting challenges not collecting challenges.
So as we've taken our time to catch up to kind of what the normalized pattern is.
These are forecasting issues not collecting issues, we still collecting really well on these vintages.
Got it understood. Thank you very much.
Thank you and once again, ladies and gentlemen, if you have a question press star one one on your telephone.
To get into queue.
Jonathan Clark: The 2021 vintage is at 2.3 times still after seasonal adjustments. The 2022 vintage is at 2.1 times. So these are good, profitable vintages that are generating strong collections. And I would also emphasize, kind of.
One moment for our next question please.
And it comes from the line of Mike Grondahl with Northland Securities. Please proceed.
Yes.
Hey, guys.
Did you say.
What percent of forecasted collections you collected in for Q4, the U S and for Cabot.
Jonathan Clark: These were forecasting challenges, not collecting challenges. So as we've taken our time to catch up to kind of what the normalized pattern is, these are forecasting issues, not collecting issues. We're still collecting really well on these vintages.
You've given us.
That information.
And then secondly.
How much goodwill is left in relation to Cabot.
Operator: Thank you very much. Thank you. And once again, ladies and gentlemen, if you have a question, press star 11 on your telephone to get in the queue. One moment for our next question, and it comes from the line of Mike Gronthal with Northland Securities. Please proceed. Hey, guys. Did you say... um, what percent of forecasted collections did you collect in 4Q for the US and for Cabot? Sometimes you've given us that information.
Or Europe in general.
Yes, So let me take.
Take the first question in terms of forecasted collections to Q4 forecast our actual collections, we did not talk about it again.
December 2022 back book at that time.
Cabot MCM and overall Oncor of course, we're all at 96% now.
Through the year as we've adjusted our forecast as you can imagine.
Michael Kaye: And then secondly, how much goodwill is left in relation to Cabot or Europe?
Within the fourth quarter MCM was better than 96%.
Jonathan Clark: Yeah, so let me take the first question. In terms of forecasted collections for Q4 or actual collections, we did not talk about that. Again, the December 2022 back book, at that time, Cabot, MCM, and overall Encore, of course, were all at 96%. Now, through the year, as we've adjusted the forecast, as you can imagine, within the fourth quarter, MCM was better than 96%. I think maybe less than 3% variance to forecast at MCM. In terms of your question on the Goodwill, it's going to be in our Q, or K, rather, as we've disclosed. I'll take a stab at it, and if I'm wrong, John can correct me.
Maybe less than 3% variance to forecast it.
At MCM.
In terms of your question on the.
Goodwill.
It's going to be in our Q or K, rather as we've disclosed.
I'll take a stab at it and if I'm wrong, John can correct me, what's remaining as of December 2023.
At Cabot is $457 million in goodwill and about $149 million at MCM. So total of about $606 million and goodwill at this time.
At the end of December 2023.
Got it $4 57, roughly for Cabot and $1 49 for MCM. So theres Thats correct chunk of goodwill you wrote down about a third of it roughly at Cabot.
Jonathan Clark: What's remaining as of December 2023 is at Cabot 457 million in Goodwill and about 149 million at MCM. So a total of about 606 million Goodwill at this time, at the end of December 2023. Got it. $4.57, roughly, for Cabot and $1.49.
That's right.
It was $2 72 at December 29, 2022, and then we wrote down to 38, there is some FX impact there as well small.
Okay and.
And.
You gave a metric.
About.
Online respondents in the U S. I think with first time payments I didn't quite.
Jonathan Clark: So there's still a chunk of goodwill. You wrote down about a third of it, roughly. That's right. It was 672 in December 2022.
Right right down the number you gave I think you said it doubled in the digital channel, but did you did you also give a percentage.
Yes.
Jonathan Clark: And then we wrote down 238. There's some FX impact there as well, but small, and you gave us a metric!
Yes, so a doubled over the four years to about 33%.
So people who are coming into play for the first time through multiple channels about a third are coming through the online channel now.
Ashish Masih: About online respondents, in the US, I think, with first-time payments. I didn't quite write down the number you gave. I think you said it doubled in the digital channel, but did you also give a percentage? Um, Yeah, so it doubled over the four years to about 33% of people who are coming in to pay for the first time on multiple channels; about a third are coming through the online channel now. And it's pretty consistent in the US and UK, so MCM, that number is 33%, Cabot is about 32%.
And it's pretty consistent in U S and UK, so MCM that number at 33% Cabot its about 32%, so and it's pretty much kind of doubled for boat.
Over the four years investing a lot in digital and technology capabilities there.
Yes.
Got it.
And maybe a question for Jonathan.
Jonathan if I back out the goodwill charge.
Ashish Masih: So, and it's pretty much kind of doubled for both over the four years, investing a lot in digital and technology capabilities there. Got it. And maybe a question for Jonathan.
The.
Impairment of the intangible asset.
And then sort of.
Add back.
Jonathan Clark: Jonathan, if I back out the goodwill charge, the impairment of the intangible asset, and then sort of, add back, um.., the Softer Collections number, about $1.05, does that sound right for the quarter, kind of on a cleaner basis? Yeah, actually, if you on a quarterly basis, Mike, if I take it to, in our deck on page 22, it goes through the advects per quarter, and they total 1265. In terms of what the negatives were that Ashish spec'd out before and I mentioned as well.
The softer collections number.
About a dollar five does that sound right for the quarter kind of on a cleaner basis.
Yes, actually if you if you on a quarterly basis.
Mike.
Take it too.
In our in our deck on page 22, it goes through.
The add backs for the quarter.
They totaled $12 65.
So in terms of in terms of what the negatives were that we that Ashish spect that before and I mentioned as well.
Jonathan Clark: And so with netting against a quarter, you're about at $1.25. Got it. Got it.
And so with it with netting against the quarter, you're about at about 25%.
Got it got it.
Jonathan Clark: And that includes the recoveries below forecast and the changes in the... That's correct; if you took all four items and netted them against the gap loss per share, you net out to $1.25 positive. And if I could just add, we also noted on that page the charge we took for Cabot's headcount reduction in Q1. So all of that netted out to lead to $1.25. He was talking about Q4. Hey, that's it for me, thanks.
That.
Ooh.
The recoveries below forecast and the changes in expected.
That's correct. If you took all four items.
And netted them against the GAAP loss per share.
With that out $2 25 positive and if I could just add we also noted on that page. The charge, we took for Cabot head count reduction in Q1, so all of that netted out to about 25 points you saw in Q4.
Okay.
Okay.
Okay.
That's it for me thanks, guys.
John Rowan: Thank you. One moment for our next question. That comes from the line of John Rowan with Jannie Montgomery-Scott. Please proceed. See you, guys. Did you give the percent of your ERC that's tied to kind of the underperforming vintages that you called out earlier that are driving kind of the negative revisions? John, we did not.
Thank you one moment for our next question.
It comes from the line of John Rowan with Janney Montgomery Scott. Please proceed.
Hey, guys.
Did you give the percent of your ERC, that's tied to kind of the underperforming vintages that you called out earlier that are driving kind of the negative revisions.
John we did not.
Jonathan Clark: All the CECL charges are around performance over under as well as changes in ERC and timing. So there's a whole range of things that go. 2021 and 2022 integers were in for MCM were what we highlighted as kind of made forecast corrections, and they're still strong multiples. I'm just curious how much they are of the overall ERC. Our 10K will have that; let me go to the page.
All the seasonal charges are around performance or under as well as changes in ERC and timing. So there's a whole range of things that go.
2021, and 2022 vintages were in for MCM was what we highlighted is kind of you've made forecast corrections and they're still strong multiples.
I'm just curious how much how much they are of the overall ERC.
Our 10-K, we'll have that let's see.
Jonathan Clark: So if you look at the vintages, 21, 22, they have about $395 million and $769 million in ERC out of a total of $4.3 billion for MCM. Okay. All right.
And go to the page.
So if you look at the vintages.
'twenty one 'twenty two they have about $3 95 billion and $6 $769 million in ERC out of a total of $4 3 billion for MCM. Okay. Alright. Thank you very much.
John Rowan: Thank you. One moment for our next question, please. All right, and he comes from the line of Mark Hughes with Truist Securities. Please proceed. Yeah, thank you. Good afternoon.
Thank you one moment for our next question. Please.
Alright, and it comes from the line of Mark Hughes with tourists Securities. Please proceed.
Mark Hughes: Jonathan, how should we think about growth and portfolio income? If cash collections are growing 8% and if returns on the newer paper are improving, should portfolio income grow faster? If you're, if I'm following your line of questioning, uh, you just repeat it one more time. I just want to make sure I've got it.
Yes, Thank you and good afternoon.
Jonathan Martin how should we think about the growth in portfolio.
Cash collections are growing 8%.
And if returns on the newer paper are improving.
Should the portfolio income growth faster.
If you're if I'm following your line of questioning.
And can you just repeat it one more time was want to make sure I've got it.
Jonathan Clark: Yeah, just thinking of the portfolio income revenue item. Just trying to think about whether that should grow faster or slower than cash collections. Oh, that broke faster or slower than, yeah, it's, it, it, it, it, it will be cash driven. Um.., think it through.
Yes, just thinking of the portfolio income revenue item.
Just trying to think about whether that should.
Grow faster or slower than cash collections.
So with that grow faster or slower than.
It will be cash driven.
Jonathan Clark: To be honest with you, Mark, sitting here today, it's unclear to me other than they're both going to grow at a very similar rate. And I would, since you're adding, I understand where you're heading with this, since you're adding portfolios with higher multiples, you would think on a percentage basis that it would accelerate faster, but That's my intuition. You're correct. Yeah, I guess that all takes into account what's coming back in, so to speak. But I'll go with your first answer.
Thinking through whether actions.
To be honest with you Mark sitting here today, it's unclear to me other than they are both going to grow at a very similar.
Wei.
<unk>.
And.
Since you are adding I understand where youre heading there since you are adding portfolio with higher multiples.
You would think.
On a on a percentage basis that it would accelerate faster but.
Sure.
My intuition.
Yes, you are correct, yes, I guess it all takes into account what's rolling off the back end.
Okay.
Ashish Masih: How about cash efficiency? I think you're... that for the full year collections cost expenses of 2% excluding non-recurring items. How should we think about efficiency or expense growth in 2024, maybe relative to that 8% collections bogey? Yeah, Mark, this is Ashish.
But I'll go with your first answer again.
How about cash efficiency.
Thank you.
You said the full year collections.
<unk> expenses up 2% excluding.
Nonrecurring items.
Should we think about efficiency our expense growth.
2024, maybe relative to that 8% collections bogey.
Ashish Masih: So we do expect, as I said, across the board, we expect our operating and financial performance to turn compared to 23. So we expect the collections efficiency margin to also improve over the 2023 level. We have not provided a specific number, but we expect it to improve given the collections growth we are seeing, managing our costs, and the scale effect that comes with that, but we expect it to grow above the 2023 level. And then do you anticipate your leverage will stay below 3%, 3%, or below, or could it possibly inch up above your Outlook range or your preferred range? Well, I think, Mark, as we've said in the past, you know, if we saw Grrr some extraordinary opportunities, it could grow above three, but we'd always have to see a very clear line back down.
Yes, Mark this is ashish so we do expect as I said.
Across the board, we expect our operating and financial performance to turn compared to 23. So we expect collections efficiency margin to also improve over the 2023 level, we have not provided a specific number.
But we expect it to improve given the collections growth we're seeing.
Managing our costs and the scale effect that comes with that.
But we expect it to grow about 2023 level.
And then.
Do you anticipate your leverage will stay below 3%, 3% or below or could it possibly inch up above your.
Outlook range or your preferred range.
Well I think mark as we've said in the past.
If we saw.
<unk>.
Some extraordinary opportunities it could grow above.
Three but we'd always have to see a very clear line back down.
Jonathan Clark: I'd have to say, given that we're buying so heavily in the U.S., where, as you know, that's a phrase level of deployments that we would not move above 3.0, but I don't want to take off the possibility that, given the opportunity, we might for a brief period of time. Yeah, and then one more, if I might, Ashish, you suggested that the adjustment in the U.S. was really more of a forecasting challenge rather than a collection challenge. Is that to say that the collections performance? Q3 to Q4 was reasonably steady. I think you said earlier that the consumer was. Consumer behavior is stable.
I'd have to say given that.
That we're buying some so heavily in the U S.
As you know the.
The speed with which cash comes back is faster than in other parts of the world.
We have what I'll call a steady ish.
If that's a phrase.
Level of deployments that we would we would not move above three point out.
Don't want to take off the possibility that given the opportunity we might appropriate period of time.
Yes, and then one more if I might Ashish you.
Suggested that the adjustment in the U S was really more of a forecasting challenge rather than a collection challenge is that to say that.
Collections performance Q3 to Q4 was reasonably steady I think you said earlier that the consumer was.
Consumer behavior is stable.
Ashish Masih: But just in your curves, you had expected something else to happen, and so, therefore, it's, as you say, a forecasting error rather than a collections issue, is that right? Yeah, Mark, so it's, I would say, forecasting adjustments, right, not errors, but so there's a process, there's a kind of principles we have. And we monitor certain vintages, certain performance, and make adjustments as appropriate. And sometimes it takes a few quarters to get them adjusted. So these adjustments were pretty much in 2021 and 2020. All of them were actually more than 100% were 21 and 22 winches, vintages, and which were purchased at the peak of the pandemic.
But just in your curves you had expected.
Something else to happen and so therefore as you say.
A forecasting error rather than <unk>.
A collection issue is that right.
Yes, Mark so I would say forecasting adjustments right not error, but.
So there is a process.
Kind of principles, we have and we monitor certain vintages certain performance and make adjustments as appropriate and sometimes it takes a few quarters to get them adjusted.
These adjustments were pretty much in 2021, and 2020 for all of them were actually more than 100% of our 'twenty, one and 'twenty two winter vintages.
And which approaches are the peak of the pandemic. So we've just been.
Ashish Masih: So we've just been monitoring the performance and adjusting them steadily. And as you saw, we took a larger adjustment. You kind of felt confident of kind of where these are headed. We took that larger adjustment in Q4 of 2023 to get them aligned. So we feel we've captured all that we know to date. There are still very strong vintages, 2.3 times and 2.1 times.
Monitoring the performance and adjusting them steadily and as you saw we took a larger adjustment as you kind of felt confident of kind of where these are headed and we took that larger adjustment in Q4 and 2023.
To get them aligned so we feel we've captured all that we know to date.
There is still very strong vintages, two three times to one one times so profitable good collections just.
Mark Hughes: So profitable, good collections, and forecasting catching up to the kind of post-pandemic world of normal consumer behavior in the US. Thank you very much. Thank you. And this concludes the Q&A session. I will turn it back to Mr. Masih for final comments. As we close this call, I would like to reiterate a few important points. We believe Encore is truly differentiated in our sector with a solid track record of operating results and superior capabilities. As the consumer credit cycle continues to turn, the U.S. market is seeing the world's strongest supply growth. This is the portion of the credit cycle we've been waiting for. We continue to apply a disciplined portfolio purchasing approach by allocating record amounts of capital to the U.S. market, which has the highest returns.
Forecasting catching up to kind of post pandemic world of normal consumer behavior in the U S.
Thank you very much.
Thank you and this concludes the Q&A session I will turn it back to Mr. <unk> for final comments.
Sure.
Yes.
As we.
The call I would like to reiterate a few important points.
We believe encore is truly differentiated in our sector with a solid track record of operating results and superior capabilities.
As a consumer credit cycle continues to return the U S market is seeing the worlds strongest supply growth.
This is the portion of the credit cycle, we've been waiting for we continue to apply a disciplined portfolio purchasing approach by allocating record amounts of capital to the U S market, which has the highest returns.
Mark Hughes: When combined with our effective collections operation, we believe this approach will enable 2024 to be a turning point in our operational and financial results. Thanks for taking the time to join us, and we look forward to providing first quarter 2024 results in May. And thank you all for joining our call today. You may now disconnect. Thanks for watching this video.
When combined with our effective collections operation. We believe this approach will enable 2024 to be a turning point in our operational and financial results.
Thanks for taking the time to join US and we look forward to providing our first quarter 2024 results in may.
And thank you all for joining our call today you may now disconnect.
Okay.
[music].