Q1 2026 Encore Capital Group Inc Earnings Call

May 6, 2026

Speaker #2: Good day, and thank you for standing by. Welcome to the ENCORE CAPITAL GROUP INC Tomas Hernanz, Q4, Ashish Masih, Bruce Thomas, 2026 earnings conference call.

Operator: Good day, and thank you for standing by. Welcome to the Encore Capital Group's Q1 2026 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 one on your telephone.

Speaker #2: 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.

Speaker #2: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.

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

Speaker #2: I would now like to hand the conference over to your first speaker today, Bruce Thomas, Vice President of Global Investor Relations. Please go ahead.

Speaker #3: Thank you, Operator. Good afternoon and welcome to ENCORE CAPITAL GROUP's first quarter 2026 earnings call. Joining me on the call today are Ashish Masih, our President and Chief Executive Officer; Tomas Hernanz, Executive Vice President and Chief Financial Officer; and Ryan Bell, President of Midland Credit Management.

Bruce Thomas: Thank you, operator. Good afternoon, and welcome to Encore Capital Group's Q1 2026 earnings call. Joining me on the call today are Ashish Masih, our President and Chief Executive Officer, Tomas Hernanz, Executive Vice President and Chief Financial Officer, and Ryan Bell, President of Midland Credit Management. Ashish and Tomas 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 between Q1 2026 and Q1 2025. 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.

Speaker #3: Ashish and Tomas 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 between the first quarter of 2026 and the first quarter of 2025.

Bruce Thomas: Unless otherwise noted, comparisons on this conference call will be made between Q1 2026 and Q1 2025. 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.

Speaker #3: In addition, 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.

Speaker #3: 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. During this call, we will use rounding and abbreviations for the sake of brevity.

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 on the investor section of our website. As a reminder, following the conclusion of this conference call, a replay along with our prepared remarks will also be 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.

Speaker #3: 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 on the investor section of our website.

Speaker #3: As a reminder, following the conclusion of this conference call, a replay, along with our prepared remarks, will also be available on the investor section of our website.

Speaker #3: With that, let me turn the call over to Ashish Masih, our President and Chief Executive Officer.

Speaker #4: Thanks, Bruce, and good afternoon, everyone. Thank you for joining us. ENCORE delivered another strong performance in the first quarter as an industry leadership and operational execution are on full display.

Ashish Masih: Thanks, Bruce. Good afternoon, everyone. Thank you for joining us. Encore delivered another strong performance in Q1 as our industry leadership and operational execution are on full display. Our business continues to thrive with solid Q1 portfolio purchases of $363 million. Record collections of $718 million, which were up 19% compared to a year ago. Average receivable portfolios increased 14% to $4.4 billion. Our record collections performance helped earnings increase sharply with net income in Q1 of $86 million and earnings per share of $3.86. Our leverage improved to 2.3x at the end of Q1 compared to 2.6x a year ago, even with continued significant portfolio purchases in Q1.

Speaker #4: Our business continues to thrive with solid first-quarter portfolio purchases of 363 million dollars. And record collections of 718 million dollars. Which are up 19% compared to a year ago.

Speaker #4: Average receivable portfolios increased 14% to 4.4 billion dollars. Our record collections performance helped earnings increase sharply with net income in the first quarter of 86 million dollars and earnings per share of 3 dollars and 86 cents.

Speaker #4: Our leverage improved to 2.3 times at the end of Q1. Compared to 2.6 times a year ago. Even with continued significant portfolio purchases in the first quarter.

Ashish Masih: Encore's strong operating and financial results are primarily driven by the exceptional performance of our MCM business in the US across all dimensions of purchasing, collections, and efficiency. I will provide more details on MCM's results later in the presentation. Before I continue, I believe it is helpful to remind investors of the critical role we play in the consumer credit ecosystem by assisting in the resolution of unpaid debts. These unpaid debts are an expected outcome of the lending business model. Our mission is to create pathways to economic freedom for the consumers we serve by helping them resolve their past due debts. We achieve this by engaging consumers in honest, empathetic, and respectful conversations. We pursue our business objectives through a three-pillar strategy of participating in the largest and most valuable markets, developing and sustaining a competitive advantage in these markets, and maintaining a strong balance sheet.

Speaker #4: ENCORE's strong operating and financial results are primarily driven by the exceptional performance of our MCM business in the US across all dimensions of purchasing, collections, and efficiency.

Speaker #4: I will provide more details on MCM's results later in the presentation. Before I continue, I believe it's helpful to remind investors of the critical role we play in the consumer credit ecosystem.

Speaker #4: By assisting in the resolution of unpaid debts. These unpaid debts are an expected outcome of the lending business model. Our mission is to create pathways to economic freedom for the consumers we serve.

Speaker #4: By helping them resolve their past due debts. We achieve this by engaging consumers in honest, empathetic, and respectful conversations. We pursue a business objectives through a three-pillar strategy.

Speaker #4: Of participating in the largest and most valuable markets. Developing and sustaining a competitive advantage in these markets. And maintaining a strong balance sheet. We employ a strategy across a two main businesses.

Ashish Masih: We employ a strategy across our two main businesses, Midland Credit Management or MCM in the US and Cabot Credit Management in select European markets. We believe value is created in the consumer debt buying industry through optimal execution of three critical drivers, buying, collecting, and funding. When these drivers are executed well within attractive markets, leveraging the resources we possess and our strong balance sheet, we believe they enable high, consistent returns and profitability. The cycle begins with a commitment to purchase portfolios of charged-off receivables at attractive returns, which is the buy well component of our value engine. Our disciplined portfolio purchasing is underpinned by superior data and analytics capabilities, which when applied to our very large data sets stemming from our scale and history, optimize portfolio valuation through account-level underwriting.

Speaker #4: Midland Credit Management, or MCM, in the US. And Cabot Credit Management in select European markets. We believe values created in the consumer debt buying industry through optimal execution of three critical drivers.

Speaker #4: Buying, collecting, and funding. When these drivers are executed well with an attractive markets. Leveraging the resources we possess. And a strong balance sheet. We believe they enable high, consistent returns and profitability.

Speaker #4: The cycle begins with a commitment to purchase portfolios of charged-off receivables at attractive returns. Which is the buy well component of our value engine.

Speaker #4: Our disciplined portfolio purchasing is underpinned by superior data and analytics capabilities. Which, when applied to a very large data sets, stemming from a scale and history optimized portfolio valuation through account level underwriting.

Speaker #4: As a result, we win more portfolios at strong returns enabled by a superior collections as reflected in our industry leading portfolio yield and collections yield.

Ashish Masih: We win more portfolios at strong returns enabled by our superior collections as reflected in our industry-leading portfolio yield and collections yield. The cycle continues with our commitment to collect efficiently, maximizing net collections to realize strong yields. Our operational excellence, advanced analytics, and our consumer-centric approach produce industry-leading yields while still exhibiting a solid cash efficiency margin. Our very effective personalized engagement with consumers leads to payments with predictable, consistent cash flow. This cash flow helps to complete the cycle as it contributes to our commitment to fund competitively based on low-cost funding and strong balance sheet. Importantly, our balance sheet strength enables access to capital at competitive costs through the credit cycle. Encore's value engine is the critical enabler of our competitive advantage that allows us to execute a proven three-pillar strategy to drive shareholder value.

Speaker #4: The cycle continues with a commitment to collect efficiently. Maximizing net collections to realize strong yields. Our operational excellence advanced analytics and our consumer-centric approach produce industry leading yields while still exhibiting a solid cash efficiency margin.

Speaker #4: As a result, our very effective personalized engagement with consumers leads to payments with predictable consistent cash flow. This cash flow helps to complete the cycle as it contributes to our commitment to fund competitively.

Speaker #4: Based on low-cost funding, and strong balance sheet. Importantly, our balance sheet strength enables access to capital at competitive costs through the credit cycle. In summary, ENCORE's value engine is the critical enabler of a competitive advantage that allows us to execute a proven three-pillar strategy to drive shareholder value.

Speaker #4: 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 for the first quarter were 363 million dollars.

Ashish Masih: I would now like to highlight Encore's Q1 performance in terms of several key metrics, starting with portfolio purchasing. Encore's global portfolio purchases for Q1 were $363 million. As a result of the attractive market conditions and higher returns available in the US, 87% of our portfolio purchasing dollars was spent in the US during Q1. Global collections in Q1 were up 19% to a record $718 million. This exceptional collections performance is a result of strong execution and continued significant portfolio purchasing, as well as the deployment of new technologies, enhanced digital capabilities, and continued operational innovation, especially in the US. Our global collections performance in Q1 compared to our ERC at the end of 2025 was 106%.

Speaker #4: As a result of the attractive market conditions and higher returns available in the United States. 87% of our portfolio purchasing dollars was spent in the US during the first quarter.

Speaker #4: Global collections in Q1 were up 19% to a record 718 million dollars. This exceptional collections performance is a result of strong execution and continued significant portfolio purchasing as well as the deployment of new technologies.

Speaker #4: Enhanced digital capabilities and continued operational innovation. Especially in the US. Our global collections performance in the first quarter compared to our ERC at the end of 2025 was 106%.

Speaker #4: 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.

Ashish Masih: 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 collections dynamic I mentioned earlier, strong execution, higher portfolio purchases at strong returns over the past few years, as well as operational improvements, have also led to meaningful growth in cash generation. Our cash generation in Q1 was up 21% compared to Q1 last year, and we expect it to continue to grow. Let's now take a look at our two largest markets, beginning with the US. The U.S. Federal Reserve reports that revolving credit in the US remains near record levels.

Speaker #4: Similar to the collections dynamic I mentioned earlier. Strong execution higher portfolio purchases at strong returns over the past few years. As well as operational improvements have also led to meaningful growth in cash generation.

Speaker #4: Our cash generation in the first quarter was up 21% compared to Q1 last year, and we expect it to continue to grow. Let's now take a look at our two largest markets, beginning with the US.

Speaker #4: The US Federal Reserve reports that revolving credit in the US remains near record levels. At the same time, since bottoming out in late 2021, the credit card charge-off rate in the US increased to its highest level in more than 10 years in 2024.

Ashish Masih: At the same time, since bottoming out in late 2021, the credit card charge-off rate in the US increased to its highest level in more than 10 years in 2024 and still remains at an elevated level. The combination of strong lending and elevated charge-off rates continues to drive robust portfolio supply in the US. Let me illustrate this impact by highlighting the annualized amount of net dollar charge-offs, which can be estimated by multiplying the revolving credit outstandings by the net charge-off rate. Using Q4 2025 data, the most recent quarter reported by the U.S. Federal Reserve, annualized net charge-off volume was more than $54 billion. Similarly, US consumer credit card delinquencies, which are a leading indicator of future charge-offs, also remain near multi-year highs.

Speaker #4: And still remains at an elevated level. The combination of strong lending and elevated charge-off rates continues to drive robust portfolio supply in the U.S.

Speaker #4: Let me illustrate this impact by highlighting the analyzed amount of net dollar charge-offs. Which can be estimated by multiplying the revolving credit outstandings by the net charge-off rate.

Speaker #4: Using Q4 2025 data, the most recent quarter reported by the Federal Reserve annualized net charge-off volume was more than 54 billion dollars. Similarly, US consumer credit card delinquencies which are a leading indicator of future charge-offs also remain near multi-year highs.

Speaker #4: With revolving consumer credit at an elevated level, and charge-off rate above 4%. Purchasing conditions in the US market remain favorable. We are observing continued strong US market supply and favorable pricing as well.

Ashish Masih: With revolving consumer credit at an elevated level and charge-off rate above 4%, purchasing conditions in the US market remain favorable. We are observing continued strong US market supply and favorable pricing as well. Q1 delinquency data supports our expectation that the portfolio purchasing environment in the US is expected to remain robust for the foreseeable future. MCM continues to capture significant portions of this US market supply opportunity. MCM portfolio purchases in Q1 were $316 million, one of our strongest portfolio purchasing quarters ever. In addition to its solid portfolio purchases in Q1, our MCM business continues to excel operationally. MCM collections increased to a record $556 million, which was an increase of 23% compared to Q1 last year.

Speaker #4: First quarter delinquency data supports our expectation that the portfolio purchasing environment in the US is expected to remain robust for the foreseeable future. MCM continues to capture significant portions of this US market supply opportunity.

Speaker #4: MCM portfolio purchases in the first quarter were 316 million dollars. One of our strongest portfolio purchasing quarters ever. In addition to its solid portfolio purchases in Q1, our MCM business continues to excel operationally.

Speaker #4: MCM collections increased to a record 556 million dollars. Which was an increase of 23% compared to Q1 last year. The collections overperformance in the US was driven by the deployment of new technologies.

Ashish Masih: The collections overperformance in the US was driven by the deployment of new technologies, enhanced digital capabilities, and continued operational innovation, which enabled us to reach more consumers, leading to more payments as well as a large and growing payer book. These initiatives had a greater impact on the early stages of a portfolio's life cycle, leading to overperformance of our recent vintages. We expect that our collections forecasts will gradually adjust to reflect the positive impact of these initiatives. Our outstanding results reflect a substantial portfolio purchasing over the last few years at strong returns as well as improvements we made in our collections operation. Despite some of the negative news and macro uncertainty in the US, our consumers' payment behavior remains stable. This is in line with what many of the banks and credit card issuers are saying in the recent earnings calls.

Speaker #4: Enhanced digital capabilities and continued operational innovation. Which enabled us to reach more consumers leading to more payments as well as a large and growing paybook.

Speaker #4: These initiatives had a greater impact on the early stages of a portfolio's life cycle. Leading to overperformance of our recent vintages. We expect that our collections forecasts will gradually adjust to reflect the positive impact of these initiatives.

Speaker #4: Our outstanding results reflect a substantial portfolio purchasing over the last few years at strong returns as well as improvements we made in our collections operation.

Speaker #4: Despite some of the negative news, and macro uncertainty in the US, our consumers' payment behavior remains stable. This is in line with what many of the banks and credit card issuers are saying in the recent earnings calls.

Speaker #4: We, of course, continue to monitor for any signs of change. Turning to our business in Europe, Cabot delivered another quarter of solid performance in Q1.

Ashish Masih: We, of course, continue to monitor for any signs of change. Turning to our business in Europe, Cabot delivered another quarter of solid performance in Q1. Cabot's portfolio purchases of $47 million in Q1 were consistent with Cabot's recent historical trend. We continue to be selective with Cabot's deployments as the UK market remains impacted by subdued consumer lending and low delinquencies, as well as continued robust competition. Cabot collections in Q1 were $161 million, up 7% compared to Q1 last year, supported by currency tailwinds. We continue to focus on Cabot's operational excellence and cost management, including leveraging relevant best practices from our MCM business. This is particularly relevant in the UK, where banks are increasingly selling fresh portfolios in forward flows. Our operational focus and initiatives within the Cabot business continue to drive cash efficiency margin improvement.

Speaker #4: Cabot's portfolio purchases of 47 million in the first quarter were consistent with Cabot's recent historical trend. We continue to be selective with Cabot's deployments as the UK market remains impacted by subdued consumer lending and low delinquencies as well as continued robust competition.

Speaker #4: Cabot collections in the first quarter were 161 million dollars up 7% compared to Q1 last year. Supported by currency tailwinds. We continue to focus on Cabot's operational excellence and cost management.

Speaker #4: Including leveraging relevant best practices from our MCM business. This is particularly relevant in the UK where banks are increasingly selling fresh portfolios in forward flows.

Speaker #4: Our operational focus and initiatives within the Cabot business continue to drive cash efficiency margin improvement. I'd now like to hand the call over to Tomas for a more detailed look at our financial results.

Ashish Masih: I'd now like to hand the call over to Tomas for a more detailed look at our financial results.

Speaker #2: Thank you, Ashish. Moving to the financial results slide. In the first quarter, we delivered a strong growth in collections and portfolio revenue of 19 and 13 percent respectively.

Tomas Hernanz: Thank you, Ashish. Moving to the financial results slide, in Q1, we delivered strong growth in collections and portfolio revenue of 19% and 13% respectively. A strong collections performance was supported by the high levels of US portfolio purchases in recent quarters, our focus on execution, operational improvements, and a stable consumer behavior. Collection yield was 65.2% in Q1, an improvement of 2.6 percentage points compared to last year. Portfolio revenue increased by 13% to $390 million, supported by 14% growth in average receivable portfolios and a portfolio yield of 35.4%. As a reminder, changes in recoveries is the sum of 2 numbers. First, recoveries above or below forecast is the amount we collected above or below our ERC expectation for the quarter and is also known as cash overs or cash unders.

Speaker #2: A strong collections performance was supported by the high levels of US portfolio purchases in recent quarters our focus on execution operational improvements and a stable consumer behavior.

Speaker #2: Collection yield was 65.2 percent in Q1 and improvement of 2.6 percentage points compared to last year. Portfolio revenue increased by 13 percent to 390 million dollars supported by 14 percent growth in average receivable portfolios and a portfolio yield of 35.4 percent.

Speaker #2: As a reminder, changes in recoveries is the sum of two numbers. First, recoveries above or below forecast is the amount we collected above or below our ERC expectation for the quarter and is also known as cash overs or cash unders.

Speaker #2: Second, changes in expected future recoveries is the net present value of changes in the ERC forecast beyond the current 62.7 million dollars for the quarter.

Tomas Hernanz: Second, changes in expected future recoveries is the net present value of changes in the ERC forecast beyond the current quarter. Changes in recoveries were $62.7 million for the quarter. Of that total, the majority, $46 million, were recoveries above forecast. Changes in expected future recoveries were $16.7 million. Put differently, we collected $46 million more than we forecasted in our ERC, which is incremental cash flow. The collections overperformance in the US was driven by the deployment of new technologies, enhanced digital capabilities, and continued operational innovation, which enable us to reach more consumers, leading to more payments as well as a large and growing payer book. These initiatives are having a greater impact on the early stages of our portfolio life cycle, leading to overperformance of our recent vintages.

Speaker #2: Of that total, the majority 46 million dollars were recoveries above forecast. Changes in expected future recoveries were 16.7 million dollars. Put differently, we collected 46 million dollars more than we forecasted in our ERC which is incremental cash flow.

Speaker #2: The collections over performance in the US was driven by the deployment of new technologies enhanced digital capabilities and continued operational innovation. Which enabled us to reach more consumers leading to more payments as well as a large and growing paybook.

Speaker #2: These initiatives are having a greater impact on the early stages of a portfolio life cycle leading to overperformance of our recent vintages. We expect that our collection forecast will continue to gradually adjust to reflect a positive impact of these initiatives.

Tomas Hernanz: We expect that our collection forecast will continue to gradually adjust to reflect the positive impact of these initiatives. Over the next few quarters, we expect any future cash offers to transition eventually into portfolio revenues. Changes in expected future recoveries in Q1 were $16.7 million, a reflection that this transition is taking place. Debt purchasing revenue increased by 23.5% to $453 million, and the resulting debt purchasing yield was 41.1%. Approximately 5.7% was the impact of changes in recoveries. Servicing and other revenues were $23 million, bringing total revenues to $475 million, reflecting growth of 21%. Operating expenses increased only 11% to $281 million compared to 19% growth in collections, reflecting significant operating leverage in the business.

Speaker #2: Over the next few quarters, we expect any future cash overs to transition eventually into portfolio revenues. Changes in expected future recoveries in Q1 were 16.7 million dollars a reflection that this transition is taking place.

Speaker #2: Debt purchasing revenue increased by 23.5 percent to 453 million dollars and the resulting debt purchasing yield was 41.1 percent. Approximately 5.7 percent was the impact of changes in recoveries.

Speaker #2: Servicing another revenues were 23 million dollars bringing total revenues to 475 million dollars reflecting growth of 21 percent. Operating expenses increased only 11 percent to 281 million dollars compared to 19 percent growth in collections reflecting significant operating leverage in the business.

Speaker #2: Cash efficiency margin for the quarter improved by 2.6 percentage points to 16.9 percent compared to 58.3 percent in Q1 last year. We continue to expect cash efficiency margin for the full year to exceed 58 percent in 2026.

Tomas Hernanz: Cash efficiency margin for the quarter improved by 2.6 percentage points to 16.9% compared to 58.3% in Q1 last year. We continue to expect cash efficiency margin for the full year to exceed 58% in 2026. Interest expense and other income increased by 5% to $72 million, reflecting higher debt balances. Our tax provision of $25 million implies a corporate tax rate of approximately 23%, which is in line with our previous guidance. Finally, net income increased by 84% to $86 million, resulting in earnings per share for the quarter of $3.86, up 100% compared to $1.93 in Q1 last year. We believe our balance sheet provide us with very competitive funding costs and access to capital when compared to our peers.

Speaker #2: Interest expense and other income increased by 5 percent to $72 million, reflecting higher debt balances. Our tax provision of $25 million implies our corporate tax rate of approximately 23 percent, which is in line with our previous guidance.

Speaker #2: Finally, net income increased by 84 percent to 86 million dollars resulting in earnings per share for the quarter of three dollars and 86 cents up 100 percent compared to one dollar and 93 cents in Q1 last year.

Speaker #2: We believe our balance sheet provides us with very competitive funding costs and access to capital when compared to our peers. Our funding structure also provides us financial flexibility and diversified funding sources to compete effectively in this favorable supply environment.

Tomas Hernanz: Our funding structure also provides us financial flexibility and diversified funding sources to compete effectively in this favorable supply environment. Leverage closed at 2.3x or 0.3x improvement versus last year and lower than a quarter ago. In March, we extended the maturity date of our Cabot Securitization facility by 1 year to January 2031, and we have no material maturities until 2028, and ample liquidity to continue to grow our business well into the future. With that, I would like to turn it over to Ashish.

Speaker #2: Leverage closed at 2.3 times or 0.3 times improvement versus last year and lower than a quarter ago. In March, we extended the maturity date of our Cabot securitization facility by one year to January 2031 and we have no material maturities until 2028.

Speaker #2: We have ample liquidity to continue to grow our business well into the future. With that, I would like to turn it back over to Ashish.

Speaker #1: Thanks, Tomas. Now, I would like to remind everyone of our key financial objectives and priorities. Maintaining a strong and flexible balance sheet including a strong double B debt rating as well as operating within a target leverage range of two to three times remain critical objectives.

Ashish Masih: Thanks, Tomas. Now I would like to remind everyone of our key financial objectives and priorities. Maintaining a strong and flexible balance sheet, including a strong double B debt rating, as well as operating within our target leverage range of 2 to 3 times remain critical objectives. With regard to our capital allocation priorities, buying portfolios, particularly in today's attractive US market, offers the best opportunity to create long-term shareholder value by deploying capital at attractive returns. This is indeed what we are doing as highlighted by a track record of purchasing receivable portfolios at strong returns. Next on our capital allocation priority list are share repurchases. We repurchased approximately $20 million of Encore shares in Q1. Finally, we remain committed to delivering strong return on invested capital throughout the credit cycle.

Speaker #1: With regard to our capital allocation priorities, buying portfolios particularly in today's attractive US market offers the best opportunity to create long-term shareholder value by deploying capital at attractive returns.

Speaker #1: This is indeed what we are doing, as highlighted by a track record of purchasing receivable portfolios at strong returns. Next on our capital allocation priority list are share repurchases.

Speaker #1: We repurchased approximately 20 million dollars of on-core shares in the first quarter. And finally, we remain committed to delivering strong return on invested capital throughout the credit cycle.

Speaker #1: Our ROIC improved to 14.6 percent in the first quarter on a trailing 12-month basis. Up from 8.3 percent in Q1 last year. In summary, on-course first quarter results are an indication that we are off to a very strong start in 2026.

Ashish Masih: Our ROIC improved to 14.6% in Q1 on a trailing 12-month basis, up from 8.3% in Q1 last year. In summary, Encore's Q1 results are an indication that we are off to a very strong start in 2026. I'm truly excited about how Encore is performing and about our future prospects. To begin, through our MCM business in the US, we are the largest debt buyer in the largest and the most valuable consumer credit market in the world. The US market continues to be very favorable, driven by growth in consumer lending and charge-off rates that are at the highest level in 10 years. Within this environment, we are leveraging our scale and extremely effective collections operation to purchase record amounts of portfolio in the US at strong returns.

Speaker #1: I'm truly excited about how on-course is performing and about our future prospects. To begin, through our MCM business in the US, we are the largest debt buyer in the largest and the most valuable consumer credit market in the world.

Speaker #1: The U.S. market continues to be very favorable, driven by growth in consumer lending and charge-off rates that are at the highest level in 10 years.

Speaker #1: Within this environment, we are leveraging our scale and extremely effective collections operation to purchase record amounts of portfolio in the US at strong returns.

Speaker #1: In Europe, Cabot is delivering stable collections performance and remains focused on operational excellence and cost management. We continue to selectively purchase portfolios amid modestly growing market supply conditions.

Ashish Masih: In Europe, Cabot is delivering stable collections performance and remains focused on operational excellence and cost management. We continue to selectively purchase portfolios amid modestly growing market supply conditions. Finally, we have adequate liquidity to continue to grow the business as a strong, flexible balance sheet provides us the capacity to capitalize on any opportunities that come up in the market. This competitive advantage only grows as we continue to reduce our leverage. As a result of this continuing strong performance and the business momentum we carried into Q2, we are providing the following guidance on key metrics. We continue to anticipate global portfolio purchases in 2026 to be within a range from $1.4 billion to $1.5 billion.

Speaker #1: Finally, we have adequate liquidity to continue to grow the business as a strong flexible balance sheet provides us the capacity to capitalize on any opportunities that come up in the market.

Speaker #1: This competitive advantage only grows as we continue to reduce our leverage. As a result of this continuing strong performance, and the business momentum we carried into the second quarter, we are providing the following guidance on key metrics.

Speaker #1: We continue to anticipate global portfolio purchases in 2026 to be within a range from 1.4 billion dollars to 1.5 billion dollars. We are raising our collections guidance and now expect global collections in 2026 to increase by 8 percent to 2.8 billion dollars.

Ashish Masih: We are raising our collections guidance and now expect global collections in 2026 to increase by 8% to $2.8 billion. After a strong start to 2026 in Q1, in which productivity enhancements and strong execution across the business contributed to significant earnings power, we expect our EPS in 2026 to increase by 19% to $13 per share. We continue to expect the combination of interest expense and other income to be approximately $300 million for the year. We also continue to expect our effective tax rate for the year to be in the mid-20s on a percentage basis. Now we'd be happy to answer any questions that you may have. Operator, please open up the lines for questions.

Speaker #1: In addition, after a strong start to 2026 in the first quarter, in which productivity enhancements and strong execution across the business contribute to significant earnings power, we expect our EPS in 2026 to increase by 19 percent to 13 dollars per share.

Speaker #1: We continue to expect the combination of interest expense and other income to be approximately $300 million for the year. And we also continue to expect our effective tax rate for the year to be in the mid-20s on a percentage basis.

Speaker #1: Now, we'd be happy to answer any questions that you may have. Operator, please open up the lines for questions.

Speaker #2: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone.

Operator: Thank you. At this time, we will conduct a question and answer session. Our first question comes from David Scharf with Citizens JMP Securities. Please go ahead.

Speaker #2: And wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Speaker #2: Our first question comes from David Sharp with Citizens Capital Markets. Please go ahead.

David Scharf: Hi, good afternoon. Thanks for taking my questions. I guess to start off with, Ashish, you know, I've been kind of asking the same boring question of you the last few quarters, but I'll ask it again. That is, you know, as we digest your kind of prepared remarks about the purchasing and collection environments both here and abroad, is there anything that you would call out as being notably new versus the calls from 3 and 6 months ago? Recognizing that an answer of no is actually very positive, given kind of the groove the company is in.

Speaker #3: Hi, good afternoon. Thanks for taking my questions. I guess to start off with, Ashish, I've been kind of asking the same boring question of you the last few quarters, but I'll ask it again.

Speaker #3: And that is, as we digest your kind of prepared remarks about the purchasing and collection environments, both here and abroad, is there anything that you would call out as being notably new versus the calls from three and six months ago?

Speaker #3: Recognizing that an answer of no is actually very positive, given kind of the groove the company is in. But whether it's externally in the purchasing or collection environments here or abroad or internally, in terms of initiatives or investments, is there anything that we should take away as being incremental or is it more we're just in the kind of early stages of a long runway of an attractive kind of macro backdrop?

David Scharf: You know, whether it's externally in the purchasing or collection environments here or abroad or internally in terms of initiatives or investments, is there anything that we should take away as being incremental, or is it more we're just in the kind of early stages of a long runway of an attractive, kind of macro backdrop?

Ashish Masih: Hi, David Scharf. It may be a boring question, but it is a very pertinent one. The short answer is no. Things are very similar in our U.S. market in terms of total outstandings and charge-off rate, which leads to supply and competition level, pricing is stable, and returns are strong. Particularly given our strong collections, we are able to deliver even stronger returns than our competition, if you would. In Europe, pretty stable as well. Supply is not growing, competition level is a little bit higher than U.S., we are staying disciplined there and allocating our capital. In terms of the other macro question perhaps you had in mind, the consumer behavior as well remains very stable in terms of new payer generation.

Speaker #1: Hi, David. It may be a boring question, but it is a very pertinent one. And the short answer is no. Things are very similar in our US market in terms of total outstandings and charge-off rate, which leads to supply and competition level and pricing is stable.

Speaker #1: And returns are strong. And particularly given our strong collections, we are able to deliver even stronger returns than our competition, if you would. And in Europe, pretty stable as well.

Speaker #1: Supply is not growing. And competition level is a little bit higher. Then US, so we are staying disciplined there. And allocating our capital. In terms of the other macro question, perhaps you had in mind the consumer behavior as well remains very stable in terms of new payer generation, for example, converting new accounts, newly purchased accounts to payers.

Ashish Masih: For example, converting new accounts, newly purchased accounts to payers or the payment plan behavior. It is very consistent with the prior quarters and what we are also hearing from banks and credit card issuers' earnings calls in this quarter that the consumer remains very resilient despite some of the pressures they may be feeling, for example, on gas prices and whatnot.

Speaker #1: Or the payment plan behavior. It is very consistent with the prior quarters, and what we are also hearing from banks and credit card issuers’ earnings calls in this quarter.

Speaker #1: That the consumer remains very resilient despite some of the pressures they may be feeling, for example, on gas prices and whatnot.

David Scharf: Got it. That's helpful and consistent with what every lender's been saying this reporting season. Maybe just my follow-up question. You know, haven't really talked a lot about AI, it's a topic that's been coming up more frequently on these earnings calls. I guess my question is, are there unique regulatory issues we ought to be paying attention to as it relates to maybe the pace of investments in AI by a collection company? Obviously, call center centric businesses have kind of been front and center talking about, you know, the advantages of enhanced automation and potential returns. Obviously the collection industry is much more heavily regulated than a lot of other sort of customer service business, call center centric businesses.

Speaker #3: Got it. That's helpful and consistent with what every lender has been saying this reporting season. Maybe just my follow-up question. Haven't really talked a lot about AI and it's a topic that's been coming up more frequently on these earnings calls.

Speaker #3: And I guess my question is, are there unique regulatory issues we ought to be paying attention to as it relates to maybe the pace of investments in AI by a collection company?

Speaker #3: Obviously, call center-centric businesses have kind of been front and center talking about the advantages of enhanced automation and potential returns. But obviously, the collection industry is much more heavily regulated than a lot of other sort of customer service business, call center-centric businesses.

David Scharf: Can you just maybe talk a little broadly about how you're viewing AI from the standpoint of where to invest, where to just kind of maybe wait and see what regulators, you know, are thinking about and how we ought to think about whether this is a business that could become potentially less labor-intensive somewhere down the road?

Speaker #3: Can you just maybe talk a little broadly about how you're viewing AI from the standpoint of where to invest, where to just kind of maybe wait and see what regulators are thinking about and how we ought to think about whether this is a business that could become potentially less labor intensive somewhere down the road?

Ashish Masih: Great question, David Scharf. Let me touch on a couple of things on this. As a bigger question, we've been leveraging technology for years and increasing its use in our digital and omni channel. For example, over 50% of our new payments take place digitally. We've been using technology, and now AI is another level of that technology that's coming in. In some cases, vendors are incorporating AI or AI-like approaches or technology into their tools, which we are using. In other cases, we are actively piloting some of the new technologies to see kind of what business results we get and so forth. We are actively thinking about and doing things. Over time, given our scale and focus on technology, we are very confident we will leverage AI kind of as it becomes more meaningful.

Speaker #1: Great question, David. So let me touch on a couple of things on this. So as a bigger question, we've been leveraging technology for years and increasing its use in our digital and omnichannel, for example, over 50 percent of our new payments come take place digitally.

Speaker #1: So we've been using technology. And now AI is another level of that technology that's coming in. In some cases, vendors are incorporating AI or AI-like approaches or technology into their tools, which we are using.

Speaker #1: In other cases, we are actively piloting some of the new technologies to see kind of what business results we get. And so forth. So we are actively thinking about and doing things.

Speaker #1: Over time, given our scale and focus on technology, we are very confident we will leverage AI kind of as it becomes more meaningful. Now, that said, I think you also raised another question early on, a point.

Ashish Masih: Now that said, I think you also raised another question early on, a point. Our calls are very complex. It requires empathy in dealing with consumers. So tools there, while there are a lot of voice-oriented tools, they are not quite ready to deal with that as well as we can do with our account managers. There are some regulatory nuances being able to use this artificial voice, for example, in collection calls and all that one has to be mindful of. Obviously, there's a broader backdrop of AI and financial services, which we are very mindful of as we work with our bank partners as well and what they are subject to. We want to be fully aware of that.

Speaker #1: Our calls are very complex. It requires empathy in dealing with consumers. So tools there, while there are a lot of voice-oriented tools, they are not quite ready to deal with that as well as we can do with our account managers.

Speaker #1: And there are some regulatory nuances to being able to use this artificial voice, for example, in collection calls and all that one has to be mindful of.

Speaker #1: Obviously, there's a broader backdrop of AI and financial services. Which we are very mindful of as we work with our bank partners as well.

Speaker #1: And what they are subject to. So we want to be fully aware of that. I would say the last thing is, you mentioned voice.

Ashish Masih: I would say the last thing is, you mentioned voice is important in collection industry. It is important, but it is not the only thing, at least from a debt buyer perspective. Voice is one element of it. There's complicated legal process, for example, that you need large datasets and other things where some AI can be used, some cannot be. While voice can seem the most intriguing part of technology that can impact collections, it is not the only thing. There's a lot of elements that go in, into our success and to win in this industry. We do have a higher bar, regulatory bar being in this industry. We just are very mindful of that fact as well.

Speaker #1: It's important in collection industry. It is important, but it is not the only thing, at least from a debt buyer perspective, voice is one element of it.

Speaker #1: There's complicated legal process, for example. You need large data sets and other things, where some AI can be used, some cannot be. So while voice can seem the most intriguing part of technology that can impact collections, it is not the only thing.

Speaker #1: There's a lot of elements that go into our success. And to win in this industry. And we do have a higher regulatory bar being in this industry.

Speaker #1: We just are very mindful of that fact as treading in a careful way, but we will be fully leveraging the capabilities when they become mature and kind of available for that.

Ashish Masih: so we treading in a careful way, but we will be fully leveraging the capabilities when they become mature and kind of available for that.

Speaker #3: Got it. Understood. Appreciate the color. Thank you.

David Scharf: Got it. Understood. Appreciate the color. Thank you.

Speaker #2: Thank you. Our next question comes from Mark Hughes with Truist. Please go ahead.

Operator: Thank you. Our next question comes from Mark Hughes with Truist. Please go ahead.

Speaker #3: Thanks. Good afternoon.

Mark Hughes: Thanks. Good afternoon.

Speaker #4: Hi, Mark.

Ashish Masih: Hi, Mark.

Mark Hughes: Ashish, did I hear you say you think overall supply is increasing? You definitely gave the big numbers for the outstanding balances and the elevated charge-off rates. From your perspective, supply is continuing to go up?

Speaker #3: Did I hear you say you think overall supply is increasing? You definitely gave the big numbers for the outstanding balances. And the elevated charge-off rates.

Speaker #3: But from your perspective, supply is continuing to go up?

Speaker #1: I would say it's pretty stable. So now there are two drivers, right? So lending and spending is pretty strong from consumers. So lending, there might be seasonal things here and there.

Ashish Masih: I would say it's pretty stable. Now there are two drivers, right? Lending and spending is pretty strong from consumers. Lending, there might be seasonal things here and there, but in general, if you look at the trend, it's up, and charge-off rate is at a 10-year high. It is still at a pretty normal level, little over 4%. I would say total supply is stable, although some fintech sellers have come to market over the last 2 to 3 years. There's some new sellers in there that are pretty regular sellers. Maybe marginally higher, but a very stable, good market in terms of our ability to purchase at strong returns.

Speaker #1: But in general, if you look at the trend, it's up. And charge-off rate is at a 10-year high. It is still at a pretty normal level, a little over 4%.

Speaker #1: So I would say total supply is stable, although some fintech sellers have come to market over the last two to three years. So there's some new sellers in there that are pretty regular sellers.

Speaker #1: So maybe marginally higher. But a very stable good market in terms of our ability to purchase at strong returns.

Mark Hughes: The I think it's probably in the queue. I have not had the opportunity to look at it. The collections multiple for the US 2026 paper, how does that look and compared to last year?

Speaker #3: And then the I think it's probably in the queue. I have not had the opportunity to look at it. The collections multiple for the US 2026 paper.

Speaker #3: How does that look, and compared to last year?

Speaker #1: Yeah, that's a good question, Mark. So collections multiple for Q1 2026 vintage has started at 2.4. I would highlight, given you mentioned that kind of how we've been performing better in the early stages of our collections lifecycle, which, as I've said before, has led to 24 and 25 vintages doing really well compared to forecast.

Ashish Masih: Yeah, that's a good question, Mark. Collections multiple for Q1 2026 vintage has started at 2.4. I would highlight, given you mentioned that, kind of how we've been performing better in the early stages of our collections life cycle, which, as I've said before, has led to 2024 and 2025 vintages doing really well compared to forecast. 2024 multiples started at 2.3, is 2.4 now. 2024 multiples started a couple of years ago at 2.3, became 2.4, and is now at 2.5.

Speaker #1: 24 multiples started at 2.3, is 2.4 now. 24 multiples started a couple of years ago at 2.3, became 2.4, and is now at 2.5.

Mark Hughes: Very good. Then, your outlook for purchasing, seems like under the circumstances, perhaps you could, you could do better. Is that, just a prudential judgment that the share buybacks or, maybe a better use of capital or, equivalent use of capital?

Speaker #3: Very good. And then your outlook for purchasing seems like under the circumstances, perhaps you could do better. Is that just a prudential judgment that the share buybacks are maybe a better use of capital or equivalent use of capital?

Speaker #1: I want to make sure I understood your question. In terms of portfolio purchasing, we are staying with our guidance of 1.4 to 1.5 billion.

Ashish Masih: I want to make sure I understood your question. In terms of portfolio purchasing, we are staying with our guidance of $1.4 to $1.5 billion. Now, as you get better multiples, you're actually getting more ERC for that. Keep in mind, $ deployed is one element of kind of earnings power or collections power. Number one priority is portfolio purchases, as I've been very clear in our priority. Given our leverage is in this lower half of our range, we have been repurchasing shares, and it's always subject to other conditions of balance sheet strength, ability to generate cash, kind of the market conditions, as I've said many times. If you took all of that in consideration, we are repurchasing our shares, we bought $20 million of that in Q1.

Speaker #1: Now, as you get better multiples, you're actually getting more ERC for that. So keep in mind dollars deployed is one element of kind of earnings power or collections power.

Speaker #1: And number one priority is portfolio purchases, as I've been very clear in our priority. But given a leverage is in the lower half of our range, we have been repurchasing shares.

Speaker #1: And it's always subject to other conditions of balance sheet strength, ability to generate cash, kind of the market conditions as I've said many times.

Speaker #1: So if we took all of that in consideration, we are repurchasing our shares. And we bought 20 million dollars of that in Q1.

Mark Hughes: Does that feel like a good run rate, the $20 million per quarter?

Speaker #3: Does that feel like a good run rate to 20 million per quarter?

Ashish Masih: That's what we did in Q1. We are in the kinda midpoint of that lower half of leverage range. We have not guided on that number. Again, it's subject to multiple other conditions. Number one priority, again, is portfolio purchasing, but we feel good about how we're generating cash and the share repurchases we were able to do in Q1. I would leave it at that.

Speaker #1: So that's what we did in Q1. We are in the kind of midpoint of that lower half of leverage range. So we have not guided on that number.

Speaker #1: Again, it's subject to multiple other conditions. Number one priority again is portfolio purchasing. But we feel good about how we're generating cash and the share repurchases.

Speaker #1: We were able to do in Q1. So I would leave it at that.

Speaker #3: In the guidance for the cash efficiency margin, is it did I hear correctly? I think last quarter you talked about to exceed 58%. Was that the same guidance as of this quarter?

Mark Hughes: In the guidance for the cash efficiency margin, did I hear correctly, I think last quarter you talked about to exceed 58%? Was that the same guidance as of this quarter?

Speaker #1: Yeah. I'll jump in, but Tomas here is probably going to chime in on that. Yes, we are staying with that general guidance, although we did better in Q1.

Ashish Masih: Yeah. I'll jump in, but Tomas here is probably gonna chime in on that. Yes, we are staying with that general guidance, although we did better in Q1. Now, Q1 can be, because of seasonality and all, at times higher, but we do expect to keep improving kind of compared to the 58% historical one. Tomas, any other color?

Speaker #1: Now, Q1 can be because of seasonality and all—at times, higher. But we do expect to keep improving compared to the 58% historical one.

Speaker #1: Tomas, any other color?

Tomas Hernanz: Yeah. I think what we said was we're gonna do better than 25. We did just shy of 58%. We deliver in Q1, 60.9, which was a very good print. The cost behaved very well in the quarter. We feel pretty comfortable with margins and cost in 2026.

Speaker #4: Yeah. I think what we said was we're going to do better than 25. So we did just shy of 58%. So we deliver in Q1 60.9.

Speaker #4: And which was a very good print. The cost behaved very well in the quarter. So we feel pretty comfortable with margins and cost in '26.

Mark Hughes: Very good. Thank you very much.

Speaker #3: Very good. Thank you very much.

Speaker #1: Thank you.

Ashish Masih: Thank you.

Speaker #2: Thank you. Our next question comes from Mike Grundahl with Northland Capital Markets. Please go ahead.

Operator: Thank you.

Operator: Our next question comes from Mike Grondahl with Northland Capital Markets. Please go ahead.

Speaker #3: Hey, this is Logan on from Mike. Thanks for taking our question. First, can you give some additional color on what drove the collection strength in the quarter?

Logan Hennen: Hey, this is Logan on for Mike. Thanks for taking our question. First, can you give some additional color on what drove the collection strength in the quarter and also an update on how the 2024 and 2025 vintages are performing? Thanks.

Speaker #3: And also an update on how the 2024 and 2025 vintages are performing? Thanks.

Speaker #1: Yeah, Logan. So overall collections growth in the quarter is driven by strong purchasing that's been going on for multiple quarters. At strong multiples, as well as as I've highlighted many times, the improvements we are doing, particularly in our MCM line of business, is driving a lot of that growth because it's impacting the early stages of our portfolio lifecycle.

Ashish Masih: Logan, overall collections growth in the quarter is driven by strong purchasing that's been going on for multiple quarters at strong multiples. As well as I've highlighted many times, the improvements we are doing, particularly in our MCM line of business, is driving a lot of that growth because it's impacting the early stages of our portfolio life cycle. As we said, a couple of quarters now, that impacts the vintages of 2024 and 2025, and they're very large vintages in terms of deployments. That's why you see very meaningful increases. Now, all of that MCM performance is also complemented by very stable Cabot Collections performance. When you add the whole picture up, purchasing and good collections execution as well as improvement in the early stage is driving the growth in collections.

Speaker #1: As we said a couple of quarters now, those that impacts the vintages of '24 and '25. And they're very large vintages in terms of deployments.

Speaker #1: So that's why you see very meaningful increases in all of that MCM performance is also complemented by very stable cabot collections performance. So when you add the whole picture up, purchasing and good collections execution, as well as improvement in the early stage, is driving the growth in collections.

Speaker #1: Now, to your other question on the vintages, those vintages are the ones that I just said. Early stage improvements have been higher. So '24 vintage moved from 2.3 multiples to 2.5.

Ashish Masih: To your other question on the vintages, those vintages are the ones that I just said. Early stage improvements have been higher. 2024 vintage moved from 2.3 multiples to 2.5. 2025 vintage moved from 2.3 multiples to 2.4. We're starting out 2026 vintage at 2.4, 2.4. Feeling really good about the 2024 and 2025 vintages and how they've been performing and starting out strong in 2026.

Speaker #1: '25 vintage moved from 2.3 multiples to 2.4. And we're starting out 2026 vintage at 2.4, 2.4. So feeling really good about the '24 and '25 vintages and how they've been performing.

Speaker #1: And starting out strong on 2026.

Logan Hennen: Great. Thank you. That's very helpful then. One more. Is there anything to call out on the US purchasing environment so far in Q2 or just some additional insight there? Thanks.

Speaker #3: Great. Thank you. That's very helpful then. One more. Is there anything to call out on the US purchasing environment so far in Q2 or just some additional insight there?

Speaker #3: Thanks.

Ashish Masih: No additional insight, Logan. I would say as the other question asked, it's been very stable but strong supply, stable supply, good returns. Returns are partially driven by not just good stable pricing, but our collection ability. I just wanna highlight that. We are able to buy the portfolios we want and performing well with those as well. No, no change in Q2 compared to Q1 numbers that we just put out there.

Speaker #1: No additional insight. Logan, I would say, as the other question asked, it's been very stable, but strong supply, stable supply, good returns. And returns are partially driven by not just good stable pricing, but our collection ability.

Speaker #1: So I just want to highlight that. So we are able to buy the portfolios we want. And performing well with those as well. So no change in Q2 compared to Q1 numbers that we just put out there.

Speaker #3: Appreciate the color. Congrats on the quarter.

Logan Hennen: Appreciate the color. Congrats on the quarter.

Speaker #1: Thanks.

Ashish Masih: Thanks.

Speaker #2: Thank you. As a reminder to ask a question, you'll need to press star 11 on your telephone. One moment for our next question. Our next question comes from Robert Dodd with Raymond James.

Operator: Thank you. As a reminder, to ask a question, you'll need to press star one one on your telephone. One moment for our next question. Our next question comes from Robert Dodd with Raymond James. Please go ahead.

Speaker #2: Please go ahead.

Robert Dodd: Hi, guys. Congrats on another really excellent quarter. Digging in a little bit, as you just said, right? The 2024s and the 2025s have continued to outperform overall cash collections, $46 million above curves and 106% collections versus ERC just from the end of the year. Can you give us any more color on, like, what's the driver? I mean, the 2024 was outperforming last year, and that was kind of factoring into the expectations for the 2025s. I mean, is the outperformance now being the 2025s taking over for the 2024s? I mean, the 2024s may be still continuing to outperform, but they're smaller now.

Speaker #3: Hi, guys. Congrats on another really excellent quarter. Going digging in a little bit is, as as you said, right, the '24s and the '25s have continued to outperform overall cash collections 46%, not sorry, 46 million dollars above curves and 106% collections versus ERC just from the end of the year.

Speaker #3: What's the can you give us any more kind of on what's the driver? I mean, the '24 was outperforming last year. And that was kind of factoring into the expectations for the '25s.

Speaker #3: I mean, is the outperformance now being the '25s taking over for the '24s? I mean, the '24s maybe still continuing to outperform, but they're smaller now.

Speaker #3: I mean, any relatively speaking, any additional color on is this or is it still that 46 million, for example? Is that predominantly coming from the '24s?

Robert Dodd: I mean, any, you know, relatively speaking, any additional color on, like, is this or is it still that $46 million, for example, is that predominantly coming from the 2024s, and that's just a spectacular vintage? Or any color on how that's shaping?

Speaker #3: And that's just a spectacular vintage. Any on how that's shaping?

Speaker #1: Yes. So it's still coming from those vintages in terms of the overperformance. '24 is still doing very strong. It continues to perform well. And so the '24 vintage had kind of the changes and recoveries of about 15 million.

Ashish Masih: Yes. 2024, it's still coming from those vintages in terms of the overperformance. 2024 is still doing very strong. It continues to perform well. The 2024 vintage had kind of the changes in recoveries of about $15 million and $24 million for the 2025 vintage. As you can see, they both continue to perform well. They're still in the early stages, and as we have said in the past, it takes some time for our actual performance.

Speaker #1: And '24 million for the '25 vintage. So as you can see, they both continue to perform well. They're still in the early stages. And as we have said in the past, it takes some time for our actual performance of history to get into the forecast.

Ashish Masih: -of history to get into the forecast, and it will. By the way, this quarter, in addition to this performance of our forecast, we also had changes in expected future recoveries of about $16.7 million.

Speaker #1: And it will. And by the way, this quarter, in addition to this performance of our forecast, we also had changes in expected future recoveries of about 16.7 million.

Robert Dodd: Yeah.

Ashish Masih: The mix was not 95 5, but 70 30, if you would. That's kind of is one proof of how that transition will happen over time. Over time, when that happens, it's gonna increase the basis as well on those vintages, and they'll see higher portfolio revenue as those things add up. Still similar good performance from those two vintages. By the way, dollar amounts seem large because those were very large purchases.

Speaker #1: So the mix was not 95.5, but 70.30, if you would. And that's kind of one proof of how that transition will happen over time.

Speaker #1: And over time, when that happens, it's going to increase the basis as well on those vintages. And they'll see higher portfolio revenue, as those things add up.

Speaker #1: So, still similar good performance from those two vintages. By the way, dollar amounts seem large because those were very large purchase vintages as well.

Robert Dodd: Yeah.

Ashish Masih: As well, so.

Robert Dodd: Yeah. Yeah, yeah. Understood. Understood. Thank you. Just to flip back to David's question on the AI issue. I mean, to your point, maybe it's not quite ready versus a human account manager for some of the voice calls versus into some other things. How has it been incorporated in any meaningful manner in pricing models in terms of maybe curve modifications or initial pricing? Obviously, there is very good supply. You are buying a ton, the multiples look pretty good.

Speaker #3: Yeah. Yeah, yeah. Understood. Understood. Thank you. Just to flip back to kind of David's question on the AI issue, I mean, to your point, maybe it's not quite ready versus a human account manager for some of the voice calls for getting to some other things.

Speaker #3: Has it been incorporated in any meaning? I mean, I'm sure it has to a degree, but in any meaningful manner in pricing models in terms of maybe curve modifications or initial pricing would be because obviously, there is good very good supply.

Speaker #3: You are buying a ton. And the multiples look really good. I mean, is that just same old kind of processes? Or a new technology has been incorporated into that component of the business as well?

Robert Dodd: I mean, is that just same old kind of processes or a new technology has been incorporated into that component of the business as well?

Ashish Masih: It's been over time and AI like, I mean, machine learning models and AI kind of modeling techniques we've been incorporating over time. Machine learning algorithms have been there for a while.

Speaker #1: It's been over time. And AI-like so I mean, machine learning models and AI kind of modeling techniques we've been incorporating over time. Machine learning algorithms have been there for a while.

Robert Dodd: Yeah

Speaker #1: And now they're kind of in the AI family. And as new tools are available that leverage more of that, we are testing some of those.

Ashish Masih: Now they're kind of in that AI family. As new tools are available that leverage more of that, we are testing some of those. Some are doing fine, some not so, but it's part of our test and learn continuous improvement culture that we have. They keep getting incorporated, new techniques into our modeling. Years ago it was the cloud and how data got into it and how you could get more efficient and get better modeling, then machine learning and now a bit more self-learning kind of tools that we test and look at. Nothing that's going to suddenly change kind of how we get the modeling and valuation done for our pricing. It's been a constant evolution, and we expect to continue to improve on that.

Speaker #1: Some are doing fine. Some not so. But it's part of our test and learn continuous improvement culture that we have. So they get keep getting incorporated.

Speaker #1: New techniques into our modeling. And years ago, it was the cloud, and how data got into it, and how you could get more efficient and get better modeling.

Speaker #1: And then machine learning. And now a bit more self-learning kind of tools that we test and look at. But nothing that's going to suddenly change kind of how we get the modeling and evaluation done for our pricing.

Speaker #1: It's been a constant evolution. And we expect to continue to improve on that.

Robert Dodd: I appreciate that. One more, if I can. On all these things, right, I mean, the new technologies in the US, et cetera, these are all paying off, right? You know, they're clearly, I think the efficiency's up, you know, et cetera, et cetera. What's, I think qualitatively rather than quantitatively, I mean, how much at some point, I would presume you're gonna hit the flatter part of the diminishing return curve on all the technological processes you can introduce rather than modify. I mean, how close is that in terms of, you know, you've done a lot of work. Is it all predominantly done and it's now fine-tuning or are there still significant steps that you can take?

Speaker #3: I appreciate that. And one more if I can. All these things, right, I mean, the new technologies in the US, etc., these are all paying off, right?

Speaker #3: Clearly. I mean, the efficiency's up, etc., etc. What's and I think qualitatively, rather than quantitatively, I mean, how much at some point, I would presume, you're going to hit the flatter part of the diminishing return curve on all the technological processes you can introduce rather than modify.

Speaker #3: I mean, how close is that in terms of—you've done a lot of work. Is it all predominantly done, and it's now fine-tuning? Or are there still significant steps that you can take?

Ashish Masih: This is a constant kind of improvement journey. I'm not gonna predict or bet on kind of how and when technology starts providing diminishing returns kind of in broadly in financial services. Over time, we've leveraged things like automation from a cost point of view or cycle times and accuracy point of view to now what we are seeing is, as I answered last quarter, technology is driving collections improvements much more, especially in the early stage. We start these things with a multi-year roadmap, if you would, and I implement in phases of implementing these, but every year the roadmap keeps getting enhanced and refined with new tools and techniques come. As I said last quarter, I think our head count from 2023, 2024 to 2025 was flat around 7,300, 7,400.

Speaker #1: This is a constant kind of improvement journey. So I'm not going to predict or bet on kind of how and when technology starts providing diminishing returns kind of broadly in financial services.

Speaker #1: But over time, we've leveraged things like automation from a cost point of view or cycle times and accuracy point of view to now what we're seeing is, as I answered last quarter, technology is driving collections improvements much more, especially in the early stage.

Speaker #1: So we start these things with a multi-year roadmap, if you would. And I implement in phases of implementing these, but every year, the roadmap keeps getting enhanced and refined.

Speaker #1: With new tools and techniques come. So as I said last quarter, I think, our headcount from '23, '24 to '25 was flat, around 7,300, 7,400.

Speaker #1: And collections went up in those three years by 39%, I think. I'm going by memory. So there's a lot of improvement possible still from efficiency but, as I also said, it's a collection side that we are also starting to see big gains.

Ashish Masih: The collections went up in those 3 years by 39%, I think. I'm going by memory. There's a lot of improvement possible still from efficiency, but as I also said, it's the collection side that we are also starting to see big gains. I think there's a lot of runway left on both sides of the P&L, in this journey.

Speaker #1: So I think there's a lot of runway left on both sides of the P&L in this journey.

Speaker #3: Got it. Thank you.

Robert Dodd: Got it. Thank you.

Speaker #2: Thank you. Our next question comes from Mark Hughes with Truist. Please go ahead.

Operator: Thank you. Our next question comes from Mark Hughes with Truist. Please go ahead.

Speaker #4: Yeah. Thank you. The collections multiple on the Cabot paper in Q1, what was that?

Mark Hughes: Thank you. The collections multiple on the Cabot paper in Q1, what was that?

Ashish Masih: In Q1, the collections multiple was 2.2.

Speaker #1: In Q1, the collections multiple was 2.2.

Mark Hughes: 2.2. Any comment on tax season? Did you see the tax season with a meaningful benefit?

Speaker #4: 2.2. And then, any comment on tax season? Did you see that tax season was a meaningful benefit?

Ashish Masih: It's been a typical tax season, as I would say, kind of, always there's a benefit in Q1 and maybe early part of Q2 from tax season, depending on the timing, but it's been kind of similar. There are some reports on a little bit higher refunds, but, depending on which part of this kind of population they go to, it's generally been as expected.

Speaker #1: It's been a typical tax season, as I would say, kind of always there's a benefit in Q1 and maybe early part of Q2 from tax season, depending on timing.

Speaker #1: But it's been kind of similar there are some reports on a little bit higher refunds. But depending on which part of this kind of population they go to, it's generally been as expected.

Speaker #4: Okay. Thank you very much.

Mark Hughes: Okay. Thank you very much.

Speaker #2: Thank you. I'm showing no further questions at this time. I'd now like to turn it back to Mr. Masih for closing remarks.

Operator: Thank you. I'm showing no further questions at this time. I'd now like to turn it back to Mr. Masih for closing remarks.

Speaker #4: Thanks for taking the time to join us today. And we look forward to providing our second quarter 2026 results in August.

Ashish Masih: Thanks for taking the time to join us today, and we look forward to providing our Q2 2026 results in August.

Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.

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Q1 2026 Encore Capital Group Inc Earnings Call

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Encore Capital Group

ECPG

Earnings

Q1 2026 Encore Capital Group Inc Earnings Call

Wednesday, May 6th, 2026 at 9:00 PM

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Encore Capital Group

Earnings