Q1 2024 Encore Capital Group Inc Earnings Call

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Operator: Good day, folks, and thank you for standing by. Welcome to the Encore Capital Group's first quarter 2024 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 press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Bruce Thomas, VP of Industrial Relations. Bruce, please go ahead.

Good day folks and thank you for standing by welcome to the Encore capital group's first quarter 'twenty 'twenty four 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 press star one on your telephone.

You will then hear an automated message advising that your hand is raised to withdraw your question. Please press star one one again please be advised that today's conference call is being recorded I would now like to hand, the conference over to your first speaker today, Bruce Thomas VP of Industrial Relations Bruce. Please go ahead.

Bruce Thomas: Thank you, operator. Good afternoon, and welcome to Encore Capital Group's first quarter 2024 earnings call. Joining me on the call today are Ashish Masih, our President and Chief Executive Officer, Jonathan Clark, our Executive Vice President and Chief Financial Officer, and Ryan Bell, President of Midland Credit Management. Ashish and Jonathan 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 first quarter of 2024 and the first quarter of 2023.

Bruce Thomas: Thank you operator, good afternoon, and welcome to Encore capital group's first quarter 2024 earnings call.

Bruce Thomas: Joining me on the call today are Ashish Masih, our president and Chief Executive Officer, Jonathan Clark Executive Vice President and Chief Financial Officer, and Ryan Bell President of Midland Credit management, Ashish and Jon will make prepared remarks today and then we'll be happy to take your questions unless otherwise noted comparisons on this conference call will be made.

The first quarter of 2024, and the first quarter of 2023. In addition, today's discussion will include forward looking statements that are based on current expectations and assumptions and are subject to risks and uncertainties actual results could differ materially from our expectations. Please refer to our SEC filings for a detailed discussion.

Bruce Thomas: 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.

Bruce Thomas: Potential risks and uncertainties, we undertake no obligation to update any forward looking statements.

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 gap financial measures are included in our investor presentation, which is available on 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.

Bruce Thomas: During this call, we will use rounding and abbreviations for the sake of brevity.

Ashish Masih: We'll also be discussing non-GAAP financial measures reconciliations to the most directly comparable GAAP financial measures are included in our Investor presentation, which is available on the investors section of our website.

Ashish Masih: 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.

Bruce Thomas: With that let me turn the call over to Ashish Masih, our president and Chief Executive Officer.

Ashish Masih: Thanks, Bruce, and good afternoon, everyone. Thank you for joining us.

Ashish Masih: Thanks, Bruce and good afternoon, everyone.

Ashish Masih: I'll begin today's call with key highlights from the first quarter. Encore's solid first quarter performance was driven by strong portfolio purchasing in the U.S. and Double-Digit Collections Growth on a Global Basis. Continued growth in U.S. portfolio supply, driven by post-credit card lending growth and a charge-off rate at a 10-year high, has led to very attractive pricing and returns. As a result, we continue to allocate the vast majority of our capital to the U.S. market, deploying a record $237 million in the U.S. in the first quarter. However, in Europe, the portfolio purchasing market remains very competitive.

Ashish Masih: You for joining us I'll begin today's call with key highlights from the first quarter.

Ashish Masih: Encores solid first quarter performance was driven by strong portfolio purchasing in the U S and double digit collections growth on a global basis.

Ashish Masih: Continued growth in U S portfolio supply.

Ashish Masih: Driven by both credit card lending growth and.

And charge off rate at a 10 year high.

Ashish Masih: Led to very attractive pricing and returns.

Ashish Masih: As a result, we continue to allocate the vast majority of our capital to the U S market.

Deploying a record $237 million in the U S in the first quarter.

In Europe, the portfolio purchasing market remains very competitive.

Ashish Masih: Although we continue to see some examples of improved pricing, we believe European portfolio pricing still does not consistently reflect the higher cost of capital caused by higher interest rates. As a result, we continue to be very selective, which has led to reduced CABOT portfolio purchases.

Ashish Masih: Although we continue to see some examples of improved pricing.

Ashish Masih: We believe European portfolio pricing still does not consistently reflect the higher cost of capital caused by higher interest rates.

Ashish Masih: As a result, we continue to be very selective which has led to reduced cabot portfolio purchases.

Ashish Masih: However, performance in the first quarter was well aligned with expectations as portfolio purchasing, collections, and cash generation are all off to a strong start in 2024. I believe it's helpful to remind investors of the critical role we play in the consumer credit ecosystem by assisting in the resolution of unpaid debt. These unpaid debts are an expected and necessary outcome of the lending business model, although the levels may vary depending on the stage of the macroeconomic cycle. Regardless of where we are in the macroeconomic cycle, our mission is to create pathways to economic freedom for the consumers we serve. By helping them resolve their past due debt.

Overall.

Ashish Masih: Our performance in the first quarter was well aligned with expectations as portfolio purchasing collections and cash generation are all off to a strong start in 2024.

Ashish Masih: I believe it is helpful to remind investors of the critical role we play in the consumer credit ecosystem.

Ashish Masih: <unk> in the resolution of unpaid debts.

Ashish Masih: And paid debts at an expected and necessary outcome after lending business model.

Ashish Masih: Although the levels may vary depending on the stage of the macroeconomic cycle.

Ashish Masih: Regardless of where we are in the macroeconomic cycle.

Ashish Masih: Our mission is to create pathways to economic freedom for the consumers, we serve by helping them resolve their past due debts.

Ashish Masih: We achieve this by engaging consumers in honest, empathetic, and respectful conversation. 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 cross-factor, as well as ensuring the highest level of compliance and consumer focus. We achieve these objectives through a three-pillar strategy.

Ashish Masih: We achieved this by engaging consumers and honest empathetic and respectful conversations.

Ashish Masih: Our business is to purchase portfolios of nonperforming loans at attractive returns, while minimizing funding costs.

Ashish Masih: Well rich portfolio that we own we strive to exceed our collection expectations.

Ashish Masih: While maintaining an efficient cost structure as well as ensuring the highest level of compliance and consumer focus.

Ashish Masih: We achieved these objectives to a three pillar strategy.

Ashish Masih: This strategy enables us to deliver strong financial performance while positioning us well to capitalize on portfolio purchasing opportunities. We believe this is instrumental in building long-term shareholder value. The first pillar of our strategy, market focus, concentrates our efforts on the markets where we can achieve the highest risk-adjusted return.

Ashish Masih: This strategy enables us to deliver strong financial performance, while positioning us well to capitalize on portfolio purchasing opportunities.

Ashish Masih: We believe this was instrumental for building long term shareholder value.

Ashish Masih: The first pillar of our strategy market focus and concentrate our efforts on the markets, where we can achieve the highest risk adjusted returns.

Ashish Masih: Let's now take a look at our two largest markets, beginning with the U.S. U.S. revolving credit has been steadily rising since early 2021. Each month, for the last two years, the U.S. Federal Reserve has reported a new record level of outstanding loans. At the same time, since bottoming out in late 2021, the credit card charge-off rate in the U.S. has also been steadily rising and is now at a 10-year high. Similarly, U.S. consumer credit card delinquencies, a leading indicator of future charge-offs, also continue to rise, with both lending and the charge-off rate growing simultaneously.

Ashish Masih: Now take a look at our two largest markets beginning with the U S.

Ashish Masih: U S revolving credit has been steadily rising since early 2021, each month for the last two years. The U S. Federal Reserve has reported a new record level of Outstandings.

Ashish Masih: And at the same time since bottoming out in late 2021, the credit card charge off rate in the U. S has also been steadily rising and is now at a 10 year high.

Ashish Masih: Similarly U S consumer credit card delinquencies, a leading indicator of future charge offs also continued to rise.

Ashish Masih: With both lending and the charge off rate growing simultaneously.

Ashish Masih: Purchasing conditions in the U.S. market remain highly favorable, with continued strong growth in U.S. market supply and attractive prices. The most recent delinquency data supports our expectation that 2024 will be another year of record portfolio sales by U.S. banks and credit card issuers. With this environment in the U.S. as a backdrop, Q1 was another strong quarter of portfolio purchasing for our NCM business; we deployed a record $237 million in the U.S. at a strong return, the result of a disciplined purchasing approach amid an attractive pricing environment. MCM collections in the first quarter were $369 million, up 12% compared to the first quarter of 2023.

Ashish Masih: Purchasing conditions in the U S market remains highly favorable with continued strong growth in the U S market supply and attractive pricing.

Ashish Masih: The most recent delinquency data supports our expectation that 2024 will be another year of record portfolio sales by U S banks and credit card issuers.

Ashish Masih: With this environment in the U S. As a backdrop Q1 was another strong quarter of portfolio purchasing for our MCM business.

Ashish Masih: We deployed a record $237 million in the U S at strong returns.

Ashish Masih: As a result of our disciplined purchasing approach amid an attractive pricing environment.

Ashish Masih: MCM collections in the first quarter were $369 million.

Ashish Masih: Up 12% compared to the first quarter of 2023.

Ashish Masih: In addition, throughout the quarter, consumer payment behavior remains stable. After expanding MCM's internal collections capacity last year through the addition of approximately 500 account managers, we believe we are appropriately staffed to accommodate our higher recent purchase volume. We expect the benefits from expanding our operations headcount will increase over time, as these newer account managers gain experience and drive increased efficiencies and scale in our MCM collections operation, in contrast to the U.S. Supply in the UK has been growing much more slowly. Credit card outstandings are still not yet back to pre-pandemic levels, and banks in the UK, unlike those in the US, have not meaningfully increased lending since the pandemic. In addition, UK charge-offs remain at a low level.

Ashish Masih: In addition throughout the quarter consumer payment behavior remains stable.

Ashish Masih: After expanding mcm's internal collections capacity last year through the addition of approximately 500 account managers.

Ashish Masih: We believe we are appropriately staffed to accommodate our higher recent purchase volumes.

Ashish Masih: We expect the benefits from expanding our operations head count will increase over time.

Ashish Masih: As these newer account managers get experience and drive increased efficiencies and scaling our MCM collections operation.

Ashish Masih: In contrast to the U S.

Ashish Masih: Supply in the UK has been growing much more slowly.

Ashish Masih: Credit card Outstandings are still not yet back to pre pandemic levels as banks in the U K and like those in the U S have not meaningfully increased lending since the pandemic.

Ashish Masih: In addition, <unk>.

Ashish Masih: Net charge offs remain at low levels.

Ashish Masih: Cabot's collections in Q1 were $141 million, up 6% compared to the first quarter a year ago. Given the current state of the UK economy, we believe ongoing weakness in consumer confidence is marginally impacting one-time settlements, while existing payment plan performance remains stable. We continue to be selective with Cabot portfolio purchases, which were $59 million in the first quarter. We have maintained a purchasing discipline in the face of portfolio pricing in Europe that we believe still does not yet consistently reflect higher funding costs.

Ashish Masih: Cabot's collections in Q1 $141 million up 6% compared to the first quarter a year ago.

Ashish Masih: Given the current state of the UK economy, we believe ongoing weakness in consumer confidence is marginally impacting one time settlements while existing payment plan performance remained stable.

Ashish Masih: We continue to be selective with cabot's portfolio purchases, which were $59 million in the first quarter.

Ashish Masih: We have maintained our purchasing discipline.

Ashish Masih: Face a portfolio of pricing in Europe.

Ashish Masih: We believe.

Ashish Masih: <unk> does not yet consistently reflect higher funding costs.

Ashish Masih: We expect to continue to deploy at current low levels until the returns in Cabot's markets become more attractive. We are currently choosing to allocate significantly more capital to the U.S. market, which has higher returns consistent with a well-established strategic focus. We also continue to prudently manage the Cabot cost structure, given the reduced level of portfolio purchases in recent quarters.

Ashish Masih: We expect to continue to deploy at current low levels until the returns and cabot's markets become more attractive.

Ashish Masih: We are currently choosing to allocate significantly more capital to the U S market.

Ashish Masih: Which has higher returns consistent with our well established strategic focus.

Ashish Masih: We also continue to prudently manage the Cabot cost structure.

Ashish Masih: Given the reduced level of portfolio purchases in recent quarters.

Ashish Masih: I would now like to highlight Encore's first quarter performance in terms of several key metrics, starting with Portfolio Purchasing. Encore's global portfolio purchases increased 7% in Q1 to $296 million, with record U.S. deployments and our largest business, MCM. This increased portfolio purchasing will help drive Encore's collections growth over the next few years. The fact that 80% of our global deployment in the first quarter was in the U.S. is a reminder of the flexibility that our global funding structure provides to us.

Ashish Masih: I would now like to highlight on cores first quarter performance in terms of several key metrics starting with portfolio purchasing.

Ashish Masih: Encores global portfolio purchases increased 7% in Q1 to $296 million.

Ashish Masih: With record U S deployments in our largest business MCM.

Ashish Masih: This increase portfolio purchasing will help drive encores collections growth over the next few years.

Ashish Masih: The fact that 80% of our global deployment in the first quarter was in the U S. As a reminder of the flexibility that our global funding structure provides to us.

Ashish Masih: This structure enables us to allocate capital toward the highest return opportunity, as market supply remains elevated in the U.S., and the pricing environment remains subtracted, and CM's ERC, as well as our global Total ERC, continues to grow. The significant amount of ERC we are adding reflects the efficiency of our global capital deployment and is reflected in a higher purchase price model. This current highly favorable purchasing environment in the U.S. is allowing MCM to purchase portfolios at strong returns, which adds future cash flow and profitability to the business.

Ashish Masih: This structure enables us to allocate capital to them.

Ashish Masih: We're at our highest return opportunities as market supply remains elevated in the U S.

Ashish Masih: And the pricing environment remains attractive.

Ashish Masih: <unk> ERC.

Ashish Masih: As well as our global total ERC continues.

Ashish Masih: <unk> continues to grow.

Ashish Masih: The significant amount of ERC, we are adding reflects the efficiency of our global capital deployment.

Ashish Masih: And as reflected in a higher purchase price multiples.

Ashish Masih: This current highly favorable purchasing environment in the U S is.

Ashish Masih: It's allowing MCM to purchase portfolios at strong returns.

Ashish Masih: Which adds future cash flows and profitability to the business.

Ashish Masih: Global collections in the first quarter were $511 million, and we're up 10% compared to Q1 a year ago. The past several quarters of higher portfolio purchases, particularly in the U.S., have led to meaningful growth in collections. I'd now like to hand the call over to John for a more detailed look at our financial results.

Ashish Masih: Global collections in the first quarter were $511 million.

John: And we're up 10% compared to Q1 a year ago.

John: The past several quarters of higher portfolio purchases.

John: Clearly in the U S has led to meaningful growth in collections.

Ashish Masih: I would now like to hand, the call over to John for a more detailed look at our financial results.

John: Thank you Ashish.

Jonathan C. Clark: The first quarter was another period of strong purchasing for our U.S. business at attractive returns, while our collections grew in 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. I'd like to highlight a few items and provide more detail.

John: The first quarter was another period of strong purchasing for our U S business at attractive returns, while our collections grew in each of our key markets.

Jonathan C. Clark: Collections were in line with expectations for the quarter, and we had small adjustments to our ERC, which impacted earnings in a negative way.

Jonathan C. Clark: I'd like to highlight a few items and provide more detail.

Jonathan C. Clark: Q1 collections of $511 million were approximately $1 million above forecast. Small adjustments to our ERC resulted in negative changes in expected future recoveries, totaling $13 million, which reduced Q1 EPS by 46 cents. ERC at the end of the quarter was $8.3 billion, up 7% compared to a year ago. Operating expenses remain well-controlled and were up only 1% compared to Q1 last year, as we begin to realize operating leverage and scale benefits of collections growth in our business, as well as the cost efficiencies that accompany a higher proportion of digital collection. Gap net income of $23 million and gap EPS of 95 cents in the first quarter were up 25% and 27%, respectively, compared to the first quarter of 2023.

Jonathan C. Clark: Q1 collections of $511 million was approximately $1 billion above forecast.

Jonathan C. Clark: Small adjustments to our ERC resulted in negative changes in expected future recoveries totaling $13 million, which reduced Q1 EPS by <unk> 46.

Jonathan C. Clark: ERC at the end of the quarter was $8 3 billion up 7% compared to a year ago.

Jonathan C. Clark: Operating expenses remained well controlled and were up only 1% compared to Q1 last year as we begin to realize operating leverage and scale benefits of collections growth in our business as well as the cost efficiencies that accompany a higher proportion of digital collections.

Jonathan C. Clark: GAAP net income of $23 million and GAAP EPS of <unk> 95 in the first quarter were up 25% and 27% respectively compared to the first quarter of 2023.

Jonathan C. Clark: We believe that our ability to generate significant cash provides us with an important competitive advantage, which is also a key component of our three-pillar strategy. Similar to the dynamic Ashish mentioned earlier, higher portfolio purchases at strong returns over the past several quarters have also led to meaningful growth in cash generation, a trend we expect will continue. Our cash generation in Q1 was up 14% compared to Q1 of 2023. The third pillar of our strategy ensures that the strength of our balance sheet is a constant priority.

Jonathan C. Clark: We believe that our ability to generate significant cash provides us with an important competitive advantage, which is also a key component of our three pillar strategy Sim.

Jonathan C. Clark: Similar to the dynamic Ashish mentioned earlier higher portfolio purchases at strong returns over the past several quarters have also led to meaningful growth in cash generation a trend. We expect will continue our cash generation in Q1 was up 14% compared to Q1 of 2023.

Jonathan C. Clark: The third pillar of our strategy ensures that the strength of our balance sheet is a constant priority.

Jonathan C. Clark: Our unified global funding structure provides us with financial flexibility, diversified sources of financing, and extended maturity. It also underpins one of the best balance sheets in our industry with comparatively attractive leverage. Importantly, even though we continue to purchase at higher levels, our leverage declined slightly during the quarter given our strong cash generation. As we have discussed, this cash generation is driven by both the increased volume of purchases over the last several quarters and the higher returns associated with those purchases. Our leverage ratio of 2.8 times at the end of the first quarter remains within our target range and is down from 2.9 times at the end of 2023.

Jonathan C. Clark: Our unified global funding structure provides us with the financial flexibility diversified sources of financing and extended maturities. It also underpins one of the best balance sheets in our industry with comparatively attractive leverage.

Jonathan C. Clark: <unk>, even though we continue to purchase at higher levels, our leverage declined slightly during the quarter given our strong cash generation as we have discussed this cash generation is driven by both the increased volume of purchases over the last several quarters and the higher returns associated with those purchases.

Jonathan C. Clark: Our leverage ratio of two eight times at the end of the first quarter remains within our target range and is down from two nine times at the end of 2023.

Jonathan C. Clark: With elevated interest rates and evolving conditions in the bond markets, I'd like to emphasize the importance of our global funding structure. 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.

Jonathan C. Clark: With elevated interest rates and evolving conditions in the bond markets I'd like to emphasize the importance of our global funding structure.

Jonathan C. Clark: 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.

Jonathan C. Clark: In the first quarter, you may recall that we issued $500 million of 2029 Senior Secured Notes as a first-time issuer in the U.S. This offering expanded our options for future financing, establishing our access to the broad and deep U.S. high-yield bond market. While we initially used the proceeds to pay down a revolver, we plan to eventually use the proceeds to redeem our 2026 sterling senior secured notes at par in November 2024. I'd like to provide some additional context for this transaction.

Jonathan C. Clark: In the first quarter, you may recall that we issued $500 million of 2029 senior secured notes as a first time issuer in the U S.

Jonathan C. Clark: This offering expanded our options for future financing, establishing our access to the broad and deep U S high yield bond market.

Jonathan C. Clark: While we initially used the proceeds to pay down our revolver. We plan to eventually use the proceeds to redeem our 2026 drilling senior secured notes at par in November 2024.

Jonathan C. Clark: I'd like to provide some additional context for this transaction.

Jonathan C. Clark: It is the case that the coupon associated with a new bond is higher than the sterling bond it will replace. Importantly, we've been building this kind of higher coupon into our bidding strategy since rates started to rise over a year ago. This is precisely why we have been emphasizing that pricing in the UK and Europe has not consistently adjusted to the currently higher cost of funding. In the U.S., however, market pricing has indeed adjusted to this higher cost of funding.

Jonathan C. Clark: It is the case that the coupon associated with a new bond is higher than the Sterling bond. It will replace importantly, we've been building this kind of higher coupon into our bidding strategy since rates started to rise over a year ago. This.

Jonathan C. Clark: This is precisely why we have been emphasizing that pricing in the U K and Europe has not consistently adjusted to the currently higher cost of funding.

Jonathan C. Clark: In the U S. However market pricing has indeed adjusted to this higher cost of funding.

Jonathan C. Clark: I would also like to point out that our weighted average cost of debt on a pro forma basis after issuing the bonds and paying down the 2026 sterling notes is slightly below six and a half percent. We also estimate this issuance and other recent movements will result in approximately $10 to $15 million of additional interest expense through the end of 2024. Remember, if the current interest rate environment persists, then just as our cost of debt may increase over time, so will the positive impact of our investments in portfolios with higher returns. With that, I'd like to turn it back over to Ashish.

Jonathan C. Clark: I would also like to point out that our weighted average cost of debt on a pro forma basis after issuing the bonds and paying down the 2026 Sterling notes is slightly below six 5%.

Jonathan C. Clark: We also estimate this issuance and other recent movements will result in approximately $10 million to $15 million of additional interest expense through the end of 2024.

Jonathan C. Clark: Remember if the current interest rate environment persists, then just as our cost of debt may increase over time, so well the positive impact of our investments in portfolios with higher returns.

Jonathan C. Clark: With that I'd like to turn it back over to Ashish.

Ashish Masih: 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 in the midst of the highly anticipated growth in U.S. market supply. We will continue to be good stewards of your capital by always taking the long view and prioritizing portfolio purchases and attractive returns in order to build long-term shareholder value. I'd now like to describe how we are differentiated from others in our industry, especially during a time when a number of our competitors are dealing with their own challenges.

Ashish Masih: Before I close I'd like to remind everyone of our commitment to a consistent set of financial priorities that we established long ago.

Ashish Masih: The importance of a strong diversified balance sheet and our industry cannot be overstated.

Ashish Masih: Especially in the midst of the highly anticipated growth in U S market supply.

Ashish Masih: 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.

Ashish Masih: I'd now like to describe how we are differentiated from others in our industry.

Ashish Masih: Especially during a time when a number of our competitors are dealing with their own challenges.

Ashish Masih: First.

Ashish Masih: Second, we believe our ability to collect on the portfolios we buy and our corresponding purchase price multiples lead to collecting more over a vintage's lifetime, which in turn generates more cash, more earnings, and ultimately higher returns. Third, a well-diversified global balance sheet allows us to allocate capital to opportunities with the highest return. This flexibility is vital, as demonstrated by our allocation of the vast majority of our capital to our MCM business in the U.S. in order to maximize overall return. A balance sheet also gives us the flexibility to fund our business in a myriad of ways. This provides a significant advantage in times when traditional markets become less certain and more expensive.

Ashish Masih: We are the largest player in the attractive U S debt purchasing market.

Ashish Masih: Second we believe our ability to collect on the portfolios we buy.

Ashish Masih: And our corresponding purchase price multiples leap.

Ashish Masih: Leap two collecting more order vintages lifetime.

Ashish Masih: Which in turn generates more cash.

Ashish Masih: Our earnings and ultimately higher returns.

Ashish Masih: Third our well diversified global balance sheet allows us to allocate capital to opportunities with the highest returns.

Ashish Masih: This flexibility is vital as demonstrated by our allocation of the vast majority of our capital to our MCM business in the U S in order to maximize overall returns.

Ashish Masih: Our balance sheet also provides us the flexibility to fund our business and a myriad of ways.

Ashish Masih: This provides a significant advantage in times when traditional markets become less certain and more expensive.

Ashish Masih: And finally, our eight plus billion dollars of ERC represents our enormous capacity to generate cash. In closing, I'd like to quickly summarize our first quarter performance. Portfolio supply in the U.S. market, where we are currently focusing our capital, continues to grow to record levels. Against this favorable backdrop, we deployed a record $237 million in the U.S. in Q1 at a strong return. In the UK and Europe, we are maintaining our discipline, being very selective in our purchases, and constraining our capital deployment until returns become more attractive.

Ashish Masih: And finally.

Ashish Masih: Our eight plus billion dollars of ERC represents our enormous capacity to generate cash.

Ashish Masih: In closing I'd.

Ashish Masih: I'd like to quickly summarize our first quarter performance.

Ashish Masih: We're fully supply in the U S market, where we are currently focusing our capital continues to grow to record levels.

Ashish Masih: Against this favorable backdrop we.

Ashish Masih: We deployed a record $237 million in the U S in Q1 and strong returns.

Ashish Masih: In the UK and Europe, we are maintaining our disciplined being very selective in our purchases.

Ashish Masih: And constraining our capital deployment until returns become more attractive.

Ashish Masih: Our overall performance in Q1 was well aligned with expectations. 2024 is off to a strong start, driven by a strong first order performance and the Disciplined Execution of Our Strategy. We remain on track to deliver on our 2024 guidance provided in February. This guidance called for portfolio purchasing this year to exceed our 2023 total, and for our collections to grow approximately 8% to over $2 billion. Now, we'd be happy to answer any questions that you may have. Operator, please open up the lines for questions. Thank you very much.

Ashish Masih: Our overall performance in Q1 was well aligned with expectations in 2024 is off to a strong start.

Ashish Masih: Driven by our strong first quarter performance.

Ashish Masih: And the disciplined execution of our strategy.

Ashish Masih: We remain on track to deliver on our 2024 guidance provided in February.

Ashish Masih: This guidance call for portfolio purchasing this year to exceed our 2023 total.

Ashish Masih: And for our collections to grow approximately 8% to over $2 billion.

Ashish Masih: Now we'd be happy to answer any questions that you may have.

Ashish Masih: Operator, please open up the lines for questions.

Operator: Thank you very much. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from John Rowan of Jenny Montgomery Scott. John, your line is open.

Operator: Thank you very much at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

Operator: Our first question comes from John Rowan of Janney Montgomery, Scott John Your line is open.

Operator: Okay.

John J. Rowan: Jon? Hey Jon?

John J. Rowan: John Hey, John Mccain here you.

John J. Rowan: Sorry, my phone is on mute. Can you hear me now?

John J. Rowan: Sorry, My phone was on mute can you hear me now.

John J. Rowan: Yes, yes, okay.

John J. Rowan: So I guess, John, just to unpack kind of the commentary around interest expense, you said 6.5% is, you know, kind of the current weighted average cost. You said $10-15 million of additional interest expense by the end of the year, if I wrote that down correctly. I guess I'm just trying to understand, is that a run rate per quarter, or maybe if you could just give us what the weighted average cost of your interest will be once you do refinance those notes in November?

John J. Rowan: So I guess, John just to unpack kind of the commentary around interest expense. You said six 5% is kind of occurring weighted average cost you said $10 million to $15 million of additional interest expense by the end of the year. If I wrote that down correctly, I guess I'm just trying to understand.

John J. Rowan: Is that a run rate per quarter or maybe if you could just give us what the what the weighted average cost of your interest will be once you do refinance those notes in November.

Jonathan C. Clark: No, John, that's a good question. To make it clear, that's what the six and a half is, right? It is assuming that we refinance the bond. So it's not that we pay down the bonds. So this is the full round trip, if you will, right? It's not just raising money and paying down a revolver. It is then taking the money, the capacity from the revolver and paying down the sterling bonds. That's the six and a half.

Jonathan C. Clark: No.

Jonathan C. Clark: John.

Jonathan C. Clark: Good question as to make it clear that's what the six and a half is right.

Jonathan C. Clark: It is assuming that we refi the bonds. So it's not that we pay down the bonds. So this is the this is the full round trip. If you will right. It's not just.

Jonathan C. Clark: Raising money and paying down revolver. It is then taking the money the capacity from the revolver and paying down the Sterling bonds. That's correct at the second half.

John J. Rowan: Okay, but how much would that raise your, I mean, I guess, raise your cost of funds in general? And maybe, like, $10 to $15 million? Is that just for the fourth quarter? I'm just trying to make sure I get the guidance correct. Yeah.

John J. Rowan: Okay, but how much would that raise your I guess raise your cost of funds in general.

John J. Rowan: What is it $10 million to $15 million is that just for the fourth quarter I'm just trying to make sure I get the guidance correct, yes, yes, $10 million to $15 million for the balance of the year.

Jonathan C. Clark: Yeah, yeah, $10 to $15 million is for the balance of the year.

John J. Rowan: But that's only if you're doing that in November, so that's only for November and December then. No, this...

Jonathan C. Clark: But that's only because if youre doing that in November so thats only for November and December.

Jonathan C. Clark: No, this is assuming everything happens in November and assuming it all plays out as we just talked about, from a modeling perspective, being assumed to be between $10 to $15 million between now and the end of the year.

Jonathan C. Clark: This is assuming everything happens in November and assuming it all plays out as you as we just talked about.

Jonathan C. Clark: From a modeling perspective, and you assume $10 million to $15 million between now and the end of the year.

John J. Rowan: Okay, so that would be in addition to the kind of 1Q run rate of 50.

Jonathan C. Clark: Okay. So over okay. So that would be in addition to kind of <unk> run rate of 50 $56 million.

Jonathan C. Clark: That would be in addition to the 235 that we gave as guidance, a soft guidance kind of prior. Right. We told people what we thought would be a quarter ago. Okay. So 235 plus 10 to...

John J. Rowan: That would be in addition to the $2 35 that we gave as guidance.

Jonathan C. Clark: Soft guidance kind of prior right. We told you about what we thought would be a quarter ago.

John J. Rowan: Okay, so $235,000 plus $10 to $15 million would get you to about $245,000 to $250,000 for the year of interest. Correct. Okay. All right. Perfect. I guess, and while I have you, can you remind us what the $2.7 million of other income was?

Jonathan C. Clark: So 235, plus $10 million to $15 million that you'd like to 45 to $2 50 for the year of interest expense.

John J. Rowan: Correct, Okay, alright perfect.

John J. Rowan: Yes.

Speaker Change: While I have you.

John J. Rowan: Can you remind us what the $2 7 million of other income was.

John J. Rowan: Sure.

Jonathan C. Clark: And usually, what is contained in other income is... derivative impacts and things like interest income, which we, you know, we do have a few pockets around the world where we have funds where they earn interest. It's not what we normally do with funds, but when you have interest income such as that, that's where they fall. So interest income, if you look at the three months ended March 31, 24 versus year end or prior year, the difference there would just be some increase in interest income and some increase in gains and derivatives.

John J. Rowan: Usually in the.

Jonathan C. Clark: What is contained in other income is.

Jonathan C. Clark: Is.

Jonathan C. Clark: Right.

Jonathan C. Clark: Derivative impacts and things like that.

Jonathan C. Clark: Interest income, which we.

Jonathan C. Clark: We do have a few pockets.

Jonathan C. Clark: Around the world, where we have funds where they earn interest it's not what we normally do with funds, but when you have interest income such as that that's where they fall. So interest income if you look at.

Jonathan C. Clark: For the three months ended March 31, 24 versus year end.

Jonathan C. Clark: Prior year the difference there would just be some increased increase in interest income and some.

Speaker Change: Gain increase in gains on derivatives, Okay, and then just last question from me obviously.

John J. Rowan: Okay, and then just last question for me, you know, obviously you had 13 million in negative forecast revisions but 1 million in cash overcollections. Can you remind me if there's been a quarter where you overcollected but impaired forecast revisions? You know, obviously, you know, I guess I'm trying to get to any sort of, I don't want to say guidance, but, you know, an understanding of, you know, if we're close to the cycle where you're done kind of revising forecasts down, obviously, if you're overcollecting your forecasts, it seems kind of antithetical to also reduce forecasts as well. I realize, you know, one's more dated than the other, but I'm just trying to, you know, understand the relationship, if any, between those two.

John J. Rowan: Obviously, you had $13 million of negative forecast revisions, but $1 million of cash over collections.

John J. Rowan: Can you remind me if there has been a quarter where you.

John J. Rowan: Over collected but impaired forecast revisions obviously.

John J. Rowan: I guess I'm trying to get to any sort of guidance, but an understanding of if we're close to the cycle, where you're done kind of reward revising forecast down obviously youre over collecting your forecasts it.

John J. Rowan: It seems kind of antithetical to also reduce forecast as well.

John J. Rowan: Realized once longer dated than the other but I'm just trying to understand the relationship if any between those two.

Jonathan C. Clark: Yeah, it's a very good question, and I'll try to keep this very high level because we can get the weeds very quickly. They are separate and distinct things. One is obviously a current cash impact, and the other one is a change in expectations. But, as you alluded to, they are also interrelated. So, as an example, you may have a significant over-collections in the current period but then have a negative revision to your forecast, which solely means you have decided that that over-collections was a pull forward, not a betterment on your curve.

Jonathan C. Clark: Yes.

Speaker Change: Good question.

Jonathan C. Clark: And I'll try to keep this very high level, because we can get the weeds very quickly.

Jonathan C. Clark: They are separate and distinct things one is obviously.

Jonathan C. Clark: Our current cash impact and the other one is the change in expectations, but they are as you alluded to they are all.

Jonathan C. Clark: So interrelated so as an example.

Jonathan C. Clark: You may have.

Jonathan C. Clark: A significant over collections.

Jonathan C. Clark: In the current period, but then have a negative revision to your forecast, which is solely means you decided that that over collections was a pull forward.

Jonathan C. Clark: Betterment on your curves.

Jonathan C. Clark: So they are interrelated, and you have to remember a lot of moving parts underneath. Not all portfolios are moving in the same way in both how we collect data or expectations, and this is just the summation of how they landed. Does that make sense to you?

Jonathan C. Clark: So.

Jonathan C. Clark: So they are interrelated.

Speaker Change: It is.

Jonathan C. Clark: You have to remember that a lot of moving parts underneath lot all portfolios are moving in the same way in both how we collected or expectations and this is just the summation of how they how they landed.

John J. Rowan: Okay, yeah, no, the pull forward makes sense. I appreciate it. That's it for me. Thank you.

Speaker Change: That makes sense to you.

Speaker Change: Okay now the pull forward makes sense I appreciate it that's it for me. Thank you.

Operator: Thank you very much. As a reminder to ask a question, please press star 11 on your phone and you'll be brought into the queue. Our next question comes from Mark Hughes of Truist Securities. Mark, your line is open.

Speaker Change: Thank you very much as a reminder to ask a question. Please press star one on your phone and will be brought into the queue.

Mark Douglas Hughes: Our next question.

Operator: Comes from Mark Hughes of true Securities Mark Your line is open.

Mark Douglas Hughes: Yeah, thank you.

Mark Douglas Hughes: Yes. Thank you good afternoon.

Mark Douglas Hughes: Hi Mark. Jonathan, I'm going to ask that same question. You gave the 235 million soft guidance an extra $10 to $15 million if you're doing that transaction in November. Is there going to be incremental interest expense prior to that? [inaudible] Yeah, remember, Mark, it's a short term. What we're doing is we're paying down a revolver at X rate and have created new funding at Y rate. So is that there's that delta?

Mark Douglas Hughes: Hey, Mark Hey, Mark Jonathan Jonathan I'm going to ask that.

Mark Douglas Hughes: Same question.

Mark Douglas Hughes: You gave the $235 million.

Mark Douglas Hughes: <unk>.

Mark Douglas Hughes: An extra $10 million to $15 million.

Mark Douglas Hughes: If youre doing that transaction in November.

Mark Douglas Hughes: Is there going to be incremental interest expense prior to that.

Mark Douglas Hughes: Well.

Mark Douglas Hughes: Yes, great remember markets.

Mark Douglas Hughes: It's a short term what we're doing is we're paying down our revolver X rate and have created new funding at why rates are is that there is that delta as well right.

Mark Douglas Hughes: And when did that transaction take place? If you could... Well, no, the... If you look at the... I was...

Mark Douglas Hughes: And with that transaction take place if you could.

Mark Douglas Hughes: John.

Jonathan C. Clark: I'm referring to the first step, which has already taken place, right? So we already have the U.S. dollar bond, and then we pay down Revolver, but Revolver attracts a lower rate than the bond, right? So if you're searching for what's the incremental drag, if you will, that's where it comes from. Right, and that would be it does, that would be spread out evenly between now and the year.

Mark Douglas Hughes: Yes.

Jonathan: I'm, referring to the first step which has already taken place right. So we already have.

Jonathan C. Clark: The U S dollar bond and then we pay down revolver, but the revolver attracts a lower rate than the bonds right. So.

Jonathan C. Clark: If that's if you're searching for what's the incremental drag if you will that's where it comes from.

Jonathan C. Clark: Alright.

Speaker Change: Hey, Doug that would be spread out evenly between now and year end.

Mark Douglas Hughes: Now until November, correct?

Jonathan C. Clark: Now until now until November correct.

Jonathan C. Clark: and then there's a more substantial impact post-November.

Mark Douglas Hughes: Okay.

Mark Douglas Hughes: And then.

Jonathan C. Clark: More substantial impact post November.

Jonathan C. Clark: Well, if you think about it, all we're doing, we have this negative carry, if you will, because of the transaction we did, and then we're unwinding that, if you will, right? So our revolver will go up, and we'll still have – and our older, lower-cost bond, if you will, will go away. The sterling bond will go away. So I wouldn't get hung up on it, there's just some puts and takes, but...

Jonathan C. Clark: Well just know what they are.

Jonathan C. Clark: There is when you if you think about it.

Jonathan C. Clark: All we're doing we have this negative carry if you will because of the transaction, we did and then where.

Jonathan C. Clark: Unwinding that if you will right, so where our revolver, where our revolver will go up.

Jonathan C. Clark: And we will still have.

Jonathan C. Clark: And our older lower cost bond if you will will go away the Sterling bond will go away.

Jonathan C. Clark: So I wouldn't get hung up others, just some puts and takes but.

Jonathan C. Clark: The rest of the transaction will happen in November.

Mark Douglas Hughes: Thank you for that, and then the... Did you, on the call, mention the collections multiple on the 2024 paper? I assume it's in the queue, I haven't taken the opportunity to look at it, but how did that multiple come in relative to the 2023?

Speaker Change: Thank you for that and then the.

Mark Douglas Hughes: Did you on the call mentioned the collection multiple on the 2020 or paper.

Mark Douglas Hughes: I assume it's in the Q I haven't taken the opportunity to look at it but.

Mark Douglas Hughes: But how did that multiple come in relative to the 2023.

Speaker Change: Two for me maybe for.

Mark Douglas Hughes: The U S or the UK and the UK.

Ashish Masih: Provide that multiple, but it's 2.4, this is Ashish, Mark, so it's 2.4 for the U.S. in 2024. Yeah, so overall, just to step back, supply is still very strong, and pricing remains very favorable, the way it's been recently. So we continue to feel very good about how pricing is going and how multiples are going. Just remember, multiples are one element of a return, the shape of the curve, and cost to collect. At times, we have portfolios we buy that are lower multiples and much lower cost to collect, so that mix effect also plays out on a quarter-to-quarter basis, so just keep that in mind. But overall, the supply and return picture looks very similar and very favorable, and we booked a very good multiple for U.S. this quarter.

Mark Douglas Hughes: Scott.

Speaker Change: Providing multiple but it's two four this is ashish mark but two four for U S.

Ashish Masih: Yes.

Ashish Masih: In 2024.

Ashish Masih: And.

Ashish Masih: Yes.

Ashish Masih: Overall, just to step back suppliers.

Ashish Masih: Supply is still very strong pricing remains very favorable the way it's been recently.

Ashish Masih: So we continue to feel very good about how pricing is going and how multiples are going.

Ashish Masih: Just remember multiple is one element of a return the shape of the curve cost to collect at times we have.

Ashish Masih: Portfolios, we buy it at a lower multiple and much lower cost to collect so that mix effect also plays out on a quarter to quarter basis. So just to keep that in mind, but overall supply and return picture looks very similar and very favorable and we booked a very good multiple for us this quarter.

Mark Douglas Hughes: On the expense front, expenses were very attractive this quarter. I think the What was the efficiency and ratio? It was 54% if I'm looking at it properly.

Ashish Masih: Yes.

Mark Douglas Hughes: <unk> expenses were Barry.

Mark Douglas Hughes: Attractive this quarter I think.

Mark Douglas Hughes: The efficiency ratio was 54%.

Mark Douglas Hughes: Looking at it properly.

Jonathan C. Clark: 52, 52%, I believe. 52 on a trailing 12 basis. Yeah, but please go ahead and answer your question, Mark. Yeah, yeah.

Speaker Change: 252% I believe two two on a trailing 12 month basis, yes, but please go ahead and answer your question Mark.

Mark Douglas Hughes: Yeah, so on a trailing basis, it was 52. This quarter was stronger than that. Is this quarter a better guide for...? Going forward. I know there's some seasonality to collections. Yeah, I mean, it's

Mark Douglas Hughes: Yes, so on a trailing basis 52 on this quarter.

Mark Douglas Hughes: With stronger than that.

Mark Douglas Hughes: This quarter.

Mark Douglas Hughes: Better guide for.

Mark Douglas Hughes: Go forward.

Mark Douglas Hughes: Theres some seasonality.

Mark Douglas Hughes: Collections.

Mark Douglas Hughes: But.

Ashish Masih: Excuse me, I'm just shaking a lingering cough. So that's a good question, Mark. So in terms of the efficiency ratio, just general costs, as you correctly noticed, collections rose, and expenses are pretty much flat, just up 1%. So there is seasonality in Q1. There's more rise in collections. We have been purchasing very strongly over the quarters, over two years, and as those collections rise... Now we do expect a couple of things. Just as John said in his comments, natural efficiencies and the scale effect will take help.

Speaker Change: Excuse me.

Ashish Masih: Shaking a lingering cough. So that's a good question Mark so in terms of efficiency ratio or just general costs.

Ashish Masih: You correctly noticed.

Ashish Masih: Collections rose.

Ashish Masih: <unk> expenses are pretty much flat just up 1%. So there is a seasonality in Q1.

Ashish Masih: More ryzen collections, but.

Ashish Masih: We have been purchasing very strongly over the quarters over two years and as those collections rise now.

Ashish Masih: We do expect a couple of things just as John said in his comments natural efficiencies and scale effect will take help so efficiency ratio will improve as a result, we expect to see that operating leverage.

Ashish Masih: So the efficiency ratio will improve as a result, so we expect to see that operating leverage. The other one is, in MCM in particular, we have been growing the share of call center and digital collections and resolving consumer accounts earlier or through call center and digital as opposed to Eagle. So this quarter, legal share, the total for MCM is 35%, which has been at a record low for many years when you compare it.

Ashish Masih: Other one is in MCM in particular, we have been growing the share of call center and digital collections. So.

Ashish Masih: And they're solving consumer accounts earlier or to call center and digital as opposed to.

Ashish Masih: And Eagle So this quarter legal share of the total for MCM is 35%, which has been and that's a record low for many years. Many compare back so bunch of a couple of different things going on but we expect to see continued operating leverage as we grow collections, we are fully staffed up and the MCM operation.

Ashish Masih: So a couple of different things going on, but we expect to see continued operating leverage as we grow collections. We are fully staffed up in the MCM operation. As we said, we hired 500 account managers last year, and we feel we have adequate capacity for the growth.

Ashish Masih: As we said we hired 500 account managers last year.

Ashish Masih: And we feel we have adequate capacity for the growth in purchasing that we've been doing.

Ashish Masih: Um, so nothing per se unusual in this quarter. No timing shifts or anything like that, a good result.

Ashish Masih: Yes.

Ashish Masih: So nothing per se unusual in this quarter.

Ashish Masih: No timing shifts or anything like that.

Ashish Masih: Good result.

Mark Douglas Hughes: Because you get 10% growth in collections, and 1% growth in expenses is quite strong. And, [inaudible] I'll just be seeing what we have been anticipating as 2024 to be the turning point, and Q1 is proving to be exactly that. We've been purchasing well, and we expect to grow collections through the year, and we continue to expect to purchase well, and all of that effect will show in collections and cash generation.

Ashish Masih: Could you get 10% growth in collections, 1% growth in expenses, it's quite strong.

Speaker Change: Okay. Thank you.

Mark Douglas Hughes: Yes.

Mark Douglas Hughes: Nothing unusual I mean from a comparison to a year ago basis, we had some onetime charges in Cabot for restructuring a year ago, but those are still small in the big trend as you correctly noticed collections and grew 10% expenses only 1%.

Mark Douglas Hughes: As a result, our cash generation was up meaningfully or about 14% if you compare Q on Q. So.

Mark Douglas Hughes: Not just we're seeing what we have been anticipating as to 2024 to be the turning point and Q1 is proving to be exactly that purchasing well and we expect to grow collections through the year and we continue to expect purchase well and all of that effect, but it's showing collections and cash generation.

Speaker Change: Thank you.

Operator: Thank you very much. One moment for our next question. As a reminder, to ask a question, please press star one one on your phone to be brought into the queue. Our next question comes from Mike Grondahl of Northland Securities. Mike, your line is open.

Speaker Change: Youre welcome.

Speaker Change: Thank you very much one moment for our next question as a reminder to ask a question. Please press star one on your phone to be brought into the queue.

Operator: Our next question comes from Mike Grondahl of Northland Securities. Mike Your line is open.

Michael John Grondahl: Hey, thanks, guys. I did get on a little late. Did you say anything about Q2 purchases so far or any kind of pipeline or backlog?

Michael John Grondahl: Hey, Thanks, guys I did get on a little late did you say anything about Q2 purchases so far.

Michael John Grondahl: Kind of the pipeline or backlog.

Ashish Masih: Mike, this is Ashish. We did not. We provided that last quarter as a way to be helpful, kind of how the quarter of the year was starting. We did not, but we reiterated our guidance for the year, for the full year. We expect our purchasing in 2024 to be higher than our 2023 purchasing.

Michael John Grondahl: Mike This is ashish we did not.

Ashish Masih: We have provided that last quarter as a way to be helpful kind of how the quarters Euro starting we did not but we expect.

Ashish Masih: We reiterated our guidance for the year for the full year, we expect our purchasing in 24 to be higher than our 2023 purchasing.

Michael John Grondahl: Got it. End.

Mike: Got it.

Michael John Grondahl: I guess you guys used the term soft guidance a couple of times on this call. Could you just maybe remind us, just so I'm hearing all of it, like what is or was the soft guidance for 2024? And then was this interest expense situation the only change to it?

Speaker Change: I guess you guys use the term soft guidance a couple of times on this call.

Michael John Grondahl: Could you just maybe remind us just so I make sure I'm hearing all of it like what is or what what was the soft guidance for 2024, and then is this interest expense.

Michael John Grondahl: Since you won't have the only change to it.

Ashish Masih: So yeah, let me take a stab at it, Mike, and then I'll let John chime in as well. So I would call it very not soft.

Speaker Change: So yes, let me take a stab at it Mike and then I'll, let John chime in as well so I would call it very not soft on a real guidance as what we provided last quarter in February.

Ashish Masih: The real guidance is what we provided last quarter in February on purchasing and collections. On purchasing, we said it would be higher than the 2023 level. And in Q1, we're off to a good start. We're up 7%. Collections, we said we expected to grow year-over-year collections 8 percent, and we are off to a good start in Q1 with 10 percent growth. So those are the two key guidance elements that we provided. In addition, we provided some helpful, what John has alluded to as soft guidance, including on tax rates and interest expense. And interest expense is the only one. We kind of provided some revised estimates of $10 to $15 million higher expenses compared to the $235 million number we gave back in February because of the bond refinancing.

Ashish Masih: On purchasing and collections and purchasing we said it will be higher than 2023 level and in Q1, we're off to a good start we are up 7% collections, we said and we expect to grow year over year collection, 8% and we are off to a good start in Q1 with 10% growth. So those are the two.

Ashish Masih: Key guidance elements that we provided in addition, we provided some helpful. What Jonathan we have alluded to a soft guidance, including on tax rates and interest expense and interest expense is the only one.

Ashish Masih: We kind of provided some revised estimate of $10 million to $15 million higher expenses compared to the 235 million number we gave back in February and because of the bond refinancing.

Michael John Grondahl: Got it. Got it. And then. The $13 million. Bye. Bye.

Speaker Change: Got it got it and then.

Michael John Grondahl: The $13 million.

Michael John Grondahl: Hi.

Ashish Masih: Negative collection, kind of the change in expectations. Was that related to some of the recent books? I know you've talked about some post-COVID 21, 22 books where maybe initial payments were a bit smaller, or was it related to older books? Could you just, I mean, talk a little bit about what made up the $13 million? What years, maybe?

Michael John Grondahl: Negative.

Michael John Grondahl: Collection kind of.

Ashish Masih: Any change in expectations was that related to some of the recent books I know you've talked about some <unk>.

Ashish Masih: Post Covid 'twenty, one 'twenty two books, where maybe initial payments were a bit smaller.

Ashish Masih: Or was it related to older books could you.

Ashish Masih: Can you talk a little bit about what made up the $13 million what years maybe.

Michael John Grondahl: Yeah, so a couple of things. First, 13 million is a very small amount, we would say kind of, in some ways, noise, a small noise on our ERC of $8 billion, and it's the result of forecasting all the quarterly vintages, reviewing them, and what goes on every quarter. Now that said, you alluded to the recent vintages of MCM or U.S. vintages. So back in Q4 and last year, we had been underperforming the 21 and 22 vintages in the U.S. because we had kind of forecasted them at the peak of pandemic collections.

Ashish Masih: Yes. So couple of things first is I mean 13 million.

Michael John Grondahl: Is very small we would say kind of.

Michael John Grondahl: In some ways noise, a small noise on our ERC of $8 billion and as a result of forecasting all the quarterly vintages reviewing them and what goes on every quarter now that said you alluded to the recent vintages of MCM, Our U S. Vintages, so back in Q4 and last year, we had been underperforming.

Michael John Grondahl: So those we had adjusted back in Q4, and they are performing fine now. So 21 vintage was actually overperformed by a couple hundred thousand, and 22 vintage underperformed. Maybe there was a change in recoveries for that 2.7 million or so. The rest of it comes from all the other vintages in the U.S. and Europe when you add them up. I mean, overall, if you look at our Q. The 13 million changes, or 12 million expected recoveries, about four and a half are U.S., and eight-ish or so is Europe, I think. It comes from different sources, nothing major in particular, and those 21 and 22 vintages are performing fine, and it's just noise given the large size of those vintages at this point.

Michael John Grondahl: Forming the 'twenty, one and 'twenty two vintages in U S. Because we had kind of forecasted them at the peak of pandemic collections. So those we had.

Michael John Grondahl: Adjusted back in Q4.

Michael John Grondahl: And they are performing fine now so 21 vintage was actually over performed by a couple hundred thousand and 22 vintage underperformed.

Michael John Grondahl: There was a change in recoveries for that $2 $7 million or so.

Michael John Grondahl: And the rest of it comes from all the other vintages in U S and Europe.

Michael John Grondahl: Add them up I mean overall, if you look at our Q.

Michael John Grondahl: The $13 million of changes are 12 million expected recoveries about four and a half as U S and eight ish or so is Europe I think.

Michael John Grondahl: So it comes from different sources nothing major in particular in those 'twenty, one and 'twenty two vintages are performing fine and it just noise given the large size of those vintages at this point.

Michael John Grondahl: Okay. Hey, thanks a lot. Thank you very much.

Speaker Change: Okay, Hey, thanks, a lot.

Operator: Thank you very much. We have one moment for our next question. Again, our next question comes from Mike Hughes of Truist Securities. Mike, your line is open.

Mark Douglas Hughes: Thank you very much have one moment for our next question.

Operator: Yeah.

Operator: Our next question comes again from Mike Hughes of <unk> Securities. Mike Your line is open.

Mark Douglas Hughes: Yeah, thank you. Jonathan, did you give the performance relative to expectations for the MCM and UK or CABOT in times past you've given us kind of percentage numbers? You know, last quarter it was kind of the high 90s.

Mark Douglas Hughes: Yes. Thank you.

Mark Douglas Hughes: The.

Mark Douglas Hughes: Jonathan did you give the performance relative to expectations through the MTM in UK or cabinet.

Mark Douglas Hughes: Okay.

Mark Douglas Hughes: Thanks Jay.

Mark Douglas Hughes: Sure.

Mark Douglas Hughes: Percentage numbers.

Mark Douglas Hughes: Sure.

Mark Douglas Hughes: Yes.

Mark Douglas Hughes: Last quarter, it was kind of high <unk>.

Ashish Masih: I'll jump in, Mark. So we did provide it in the slide presentation. We didn't talk about it. Yeah. So overall, it's 99%, 100% for MCM, and 96% for CABIT, and on a constant currency basis, that 96% is actually 98% for CABIT.

Mark: I'll jump in.

Ashish Masih: So we did provided in the slide presentation, we didn't talk about it. So overall, it's 99%, 100% for MCM and 96% for Cabot and on a constant currency basis at 96% of that actually 98% time for Cabot.

Mark Douglas Hughes: And with the constant currency, the total, would it be 100, perhaps, or 99, still 99?

Mark Douglas Hughes: And with the constant currency with total would it be 100 per ounce or.

Mark Douglas Hughes: 91099.

Ashish Masih: Still rounds to 99. It still rounds to 99. I mean, it's all very close to each other.

Mark Douglas Hughes: So we're up to 99 still rounds to <unk> 90.

Speaker Change: Yes, I mean, it's all very close to each other.

Mark Douglas Hughes: Yeah. Okay. All right. Thank you for that. Thanks, Mark.

Ashish Masih: Yes.

Speaker Change: Okay, Alright, thank you for that.

Operator: Thank you very much. One moment for our next question. And our next question comes from Robert Dodd of Raymond James. Robert, your line is open.

Speaker Change: Thanks, Mark thank.

Robert James Dodd: Thank you very much one moment for our next question.

Operator: And our next question comes from Robert Dodd Raymond James Robert Your line is open.

Robert James Dodd: Hi everyone. On the legal front, legal collections were quite low because you've been focusing on call centers, and digital, which have a lower cost to collect. At the same time, legal expenses in the quarter were a high that we haven't seen in several years. Are you increasing the legal investment now to try and bring up the mix? Is that 35 where you want it to be? Or is it a little lower because maybe the legal expense has been lower than you want it to be in the future?

Speaker Change: Hi, everyone.

Robert James Dodd: On the legal front.

Robert James Dodd: As you pointed out we see some of them also in the legal collections as well were quite low.

Robert James Dodd: Because you've been focusing on.

Robert James Dodd: Call centers digital lower cost to collect.

Robert James Dodd: At the same time, the legal expenses in the quarter.

Robert James Dodd: Hi, but we haven't seen in several years so.

Robert James Dodd: Are you increasing the legal investments labs and try it.

Robert James Dodd: The mix is that is that 35, where you want it to be.

Robert James Dodd: Or is it is it a little lower because it may be the legal has been lower than you want it to be the legal expense has been lower than you wanted to be in future any color on that.

Robert James Dodd: Any color on that? Just in the context that you say you're fully staffed in call centers, et cetera, so that expense line looks like it's going to be very under control. But what about the legal line? Should we expect some upside there to try and drive more through that channel or thoughts there?

Robert James Dodd: Just in the context of you say, you're fully staffed and call centers et cetera, So that expense line looks like.

Speaker Change: We got it under control.

Robert James Dodd: Legal lines should we expect some upside that try and drive more through that channel or thoughts there.

Ashish Masih: So, Robert, I would say. We are working to reduce our kind of use of legal, so resolving consumers in call centers and digital. What basically is happening is we've been buying more and more, and there's a delay when accounts get selected after the initial talk-off and give enough time to consumers who have the ability, perhaps to pay, but are unwilling to engage. So, the volume of those legal placements will rise over time just because we've been buying more.

Ashish Masih: So Robert I would say.

Ashish Masih: So we are working to reduce our use of legal so resolving consumers and <unk>.

Ashish Masih: Call Center and digital.

Ashish Masih: What basically is happening as we have been buying more and more and there is a delay when accounts get selected after the initial talk often giving enough time to consumers who have the ability.

Ashish Masih: Perhaps to pay.

Ashish Masih: Unwilling to engage so.

Ashish Masih: The volume of those legal placements will rise over time, just because we've been buying more.

Ashish Masih: So, and again, remember, legal expenses come from two sources. One is the court cost, which is the volume, and then it's legal fees that we pay to collection law firms. And about two-thirds, roughly, is external and one-third internal. So, that's the pressure on the higher side because we are increasing placements, not trying to get anything, not trying to use legal more than necessary or than in the past. And again, the other element is... Currency effects for Cabot's legal expenses also kind of worked against us in this, so the legal expenses look a little bit higher from that point of view, so just a bunch of different factors there. But as we mentioned in our queue as well, the increase was related to volume, which is going to continue, I would say, given we've been buying at higher levels.

Ashish Masih: So and again remember legal expenses come from two sources. One is the court costs, which is the volume and then it's legal fees that we pay to collection law firms and about two thirds Luckily is external and one third internal so.

Robert James Dodd: Got it. Got it. Thank you.

Robert James Dodd: So thats the dynamic also plays up but it's going to.

Robert James Dodd: The pressure on the higher side, because we are increasing placements not trying to get anything not trying to use legal more than necessary are done in the past.

Robert James Dodd: And again the other element is key.

Robert James Dodd: Currency effects for Cabot's legal expenses also kind of worked against.

Robert James Dodd: As in this.

Robert James Dodd: <unk> made the legal look a little bit higher from that point of view.

Robert James Dodd: Bunch of different factors, there, but as we mentioned in our Q as well.

Robert James Dodd: The increase was related to volume and which is going to continue I would say given we've been buying at high levels.

Robert James Dodd: And then just on the U.S. volume, I mean, obviously there can be lags, etc., but to the point on the slides in the presentation, there has been... tremendous growth, and you did hit a really high number in the U.S. Your guidance for growth overall, I mean, is there anything you can tell us about where you expect the U.S. to be this year? Do you think you're going to break a billion or any color on how much of that growth or how much of the overall growth is going to come from outside growth? given the return of the battle right now. Excuse me.

Speaker Change: Got it got it. Thank you and then just.

Robert James Dodd: The U S volume I mean, obviously, there can be lags et cetera.

Robert James Dodd: To the point in the slides in the presentation, but there has been.

Robert James Dodd: Tremendous growth and you did you did you probably.

Robert James Dodd: Slide number in the U S.

Robert James Dodd: Your guidance for growth.

Robert James Dodd: Overall, I mean is there anything you can tell us about where you expect the U S to be this year.

Speaker Change: Thank you, Kevin Beggs, Belgian or any color on how much of that growth how.

Robert James Dodd: How much of that.

Robert James Dodd: Our growth is going to come from price in the U S.

Robert James Dodd: Given the veto.

Ashish Masih: Excuse me. I assume you mean about purchasing. So, we are allocating, yeah, no, of course, I figured. We are allocating, as we said, the majority, and by majority, I mean not 50%, 51%, but 80% of our capital to the US right now. And I think that won't change unless market dynamics change in Europe suddenly, and they can from a spot market point of view. A lot of our purchasing in the US is heavily influenced, and in the UK, it's heavily influenced as well. Europe is less flow-based, so we have a good line of sight to kind of how those flows are going. Now, those flows can increase or decrease.

Speaker Change: Excuse me.

Ashish Masih: I assume you mean about purchasing so yes, we are allocating yes, no of course I figured we are allocating as we said majority and by majority I mean, not 50%, 51%, but 80% of our capital to use right now and I think that doesn't change unless market dynamics change in Europe suddenly in it.

Ashish Masih: Ken from a spot market point of view a lot of purchasing in the U S is heavily flow any UK. It's heavily floor Israel Europe is less flow base. So we have a good line of sight to kind of how those flows are going now those flows can increase decrease.

Robert James Dodd: But we do expect the U.S. to be the predominant place where we deploy our capital. And in terms of guidance or expectation for the year, I would stand by what we said back in February, which is that we expect to exceed the 2023 number, which is just north of a billion dollars of deployment. Billion thirty seven or something like that; I think so. Billion seventy four. So, yeah, the majority going to be U.S.

Robert James Dodd: But we do expect.

Robert James Dodd: U S to be the predominant play.

Robert James Dodd: We deploy our capital and in terms of guidance our expectation for the year I would standby what we said back in February which is we expect to exceed the 2023 number which is just north of $1 billion of.

Robert James Dodd: Deployment building 37, or something like that I think so 94 billion 74, sorry.

Speaker Change: Got it.

Robert James Dodd: Yes, its majority are going to be U S.

Operator: Thank you. At this time, I'm showing no further questions. I would now like to turn the call back over to Mr. Masih for closing remarks.

Speaker Change: Thank you at this time Im showing no further questions I would now like to turn the call back over to Mr. <unk> for closing remarks.

Operator: Yes.

Ashish Masih: As we close the call, I'd like to reiterate a few important points. We believe Encore is truly differentiated in our sector with a solid track record of operating results and superior capabilities. As the consumer credit cycle continues to turn, the U.S. market is seeing the world's strongest supply growth. With 2024 off to a strong start, 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.

Operator: Yes.

Masih: As we close the call I'd like to reiterate a few important points.

Ashish Masih: So 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 worlds strongest supply growth with.

Ashish Masih: With 2024 off to a strong start 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.

Ashish Masih: When combined with an effective collection 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 second quarter results in August.

Ashish Masih: When combined with our effective collection operation. We believe this approach will enable a 2024 to be a turning point in our operational and financial results.

Ashish Masih: Thanks for taking the time to join US and we look forward to providing our second quarter results in August.

Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.

Operator: Okay.

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Operator: Okay.

Operator: Yes.

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Operator: Okay.

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