Encore Capital Group's Q3 2025 Earnings Call: Contradictions Emerge on Purchasing Activity, Consumer Behavior, and Collection Multiples

Date of Call: November 5, 2025

Financials Results

• Revenue: $460.0M total revenue, up 25% YOY (debt purchasing revenue $434M, up 27%)
• EPS: $3.17 per diluted share, up 144% YOY (from $1.26)

Guidance:

• Global portfolio purchases in 2025 expected to exceed $1.35 billion.
• Global collections expected to grow ~18% to $2.55 billion (an increase of $50M vs prior expectation).
• Interest expense expected to be approximately $295 million for 2025.
• Effective tax rate expected in the mid-20s percent range.
• Cash efficiency margin expected to be approximately 58% for 2025.

Business Commentary:

• Strong Financial Performance:
  
• Encore Capital Group reported Q3 2025 earnings per share of $3.17, up over 150% compared to the previous year.

• This increase was driven by strong operational execution and exceptional performance of its MCM business in the U.S.

• Portfolio Purchases and Collections:

• Portfolio purchases in Q3 were $346 million, up 23% year-over-year, and collections increased 20% to a record $663 million.

• The growth in purchases and collections is attributed to favorable market conditions in the U.S., with strong lending and elevated charge-off rates.

• Cash Generation and Dividend Distribution:

• Cash generation on a trailing 12-month basis increased by 23%, and the company repurchased approximately $60 million in shares year-to-date.

• The strong cash flow allowed for significant capital return to shareholders, reflecting confidence in Encore's future prospects.

• Operational Efficiency and Collections Improvement:

• Operational improvements, including new technologies and digital capabilities, led to a 10% increase in estimated remaining collections (ERC).
• These initiatives, particularly in the call center and digital channels, resulted in overperformance of recent portfolio vintages, impacting collections positively.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted record collections of $663M (up 20% YOY), ERC of $9.5B (up 10%), and EPS of $3.17 (up 144% YOY). They raised collections guidance to $2.55B and increased buyback authorization by $300M, while noting improved leverage (2.5x) and strong liquidity from recent financings.

Q&A:

• Question from John Rowan (Janney Montgomery Scott LLC, Research Division): Just on the portfolio purchases, obviously, guidance is above $1.35 billion, but you're at $1.1 billion already for the year now with the third quarter included. Obviously, if $1.35 billion was the baseline, I know you're saying above that, it would indicate a relatively slow fourth quarter. I'm just wondering if you could give us any insight into purchasing for the fourth quarter? Do you have forward flows intact? I'm just trying to get an understanding of what the fourth quarter looks like because we have kind of a baseline number, but it could be anything above that number. And just trying to understand what it might look like in the fourth quarter.
  Response: U.S. market is robust, forward flows are intact, focus is on returns; expect to exceed $1.35B purchases and MCM to surpass 2024 deployment.

• Question from John Rowan (Janney Montgomery Scott LLC, Research Division): Okay. And then your peer seems to be a little bit more conservative on the purchasing front. Is there anything that you can attribute that to? Or juxtapose your very strong purchasing quarter relative to some of your other peers?
  Response: Can't comment on peers; our heavy U.S. focus (75% of Q3 capital) and discipline create opportunities—if others deploy less, returns improve for us.

• Question from Mark Hughes (Truist Securities, Inc., Research Division): The collections multiple for the U.S. core paper and the U.K. core paper, can you share those? The Q is not out, so I'm just curious how they...
  Response: Collections multiple for 2025 is 2.3x for both U.S. and Cabot, broadly stable through the year.

• Question from Mark Hughes (Truist Securities, Inc., Research Division): How do you find the pricing return dynamic? It sounds like supply is good. I think in recent quarters, you've said kind of the pricing was relatively stable. Those collections multiples would be consistent with that. Any shading on that as you see it now?
  Response: Supply remains good and pricing is stable; returns reflect both pricing and higher expected collections, so current returns are strong.

• Question from Mark Hughes (Truist Securities, Inc., Research Division): Tomas, did you provide guidance for the cash efficiency margin ratio?
  Response: Full-year cash efficiency margin guidance of approximately 58%.

• Question from Mark Hughes (Truist Securities, Inc., Research Division): You talked about new technologies, digital enhancements. It seems like it's really having a pretty meaningful impact on the business, both top and bottom line. Anything to expand on that? The -- and particularly, if you're still in the midst of doing that and -- are those partially implemented, fully implemented? It just seems like it's had a material kind of step-up in operations. So if you could talk a little bit more about it, that would be great.
  Response: Omnichannel digital and call-center enhancements, implemented over time, are driving meaningful outperformance in recent vintages (especially early lifecycle), and rollout continues.

• Question from Mark Hughes (Truist Securities, Inc., Research Division): Yes. Your own liabilities, your debt at this point, how much is fixed versus floating?
  Response: About 75% of debt is fixed/hedged and roughly 25% is floating (ballpark).

• Question from Unknown Analyst (Northland Capital Markets / on behalf of Mike Grondahl): First, collections were up 20% year-over-year despite what seemed like a tougher macro in 3Q. Can you guys provide some additional color on what you're seeing with the consumer and what drove another strong quarter of collections? ... Looking out to mid-2026, if leverage goes from 2.5 to 2.3x, how much cash could that free up for buybacks?
  Response: Consumer behavior remains stable (low unemployment); strong collections driven by operational and digital improvements. Buybacks are prioritized but subject to balance sheet, liquidity and other factors; no specific incremental buyback figure provided.

• Question from Zachary Oster (Citizens JMP Securities, LLC, Research Division): I wanted to dig in a little bit on the dynamics in the European markets and kind of see if we can get a little bit more color on the outlook and also potential [indiscernible] digging in on the competitive side and seeing if there's a potential ramp in the future, kind of any other color that you can provide in that sense?
  Response: Europe: supply is slow, delinquencies low, pricing variable; Cabot is disciplined and selective, focusing on cost management and operational excellence; Q3 had above-normal spot purchases.

• Question from Zachary Oster (Citizens JMP Securities, LLC, Research Division): And then just one follow-up question. So just in terms of the buybacks, obviously, there's a big sequential ramp quarter-to-date with $25 million deployed and the $300 million incremental authorization. Is the $25 million kind of a good way to think of a run rate per quarter? Just trying to get a sense of how aggressive these buybacks can be?
  Response: No fixed run-rate; buybacks depend on balance sheet and liquidity. $60M YTD ($25M in Q4 to date) signals intent and increased pace but future amounts will vary.

• Question from Robert Dodd (Raymond James & Associates, Inc., Research Division): On the collections overperformance, can you give us more color on how sustainable this cash overperformance is? The $63.6M of changes in recoveries was almost all cash overperformance—how sustainable is this new level of collections performance?
  Response: Overperformance is largely from MCM and early-vintage improvements; most of the $63.6M was cash-over; forecasts will be adjusted gradually as data accrues, so sustainability is expected but incorporated over time.

• Question from Robert Dodd (Raymond James & Associates, Inc., Research Division): On acquisition opportunities and strategic M&A, at what point would that move up your capital allocation list? Is it interesting in this environment?
  Response: M&A is considered but the bar is high; management prefers deploying into U.S. portfolios given attractive returns, but will pursue M&A opportunistically if it creates sustained shareholder value.

Contradiction Point 1

Purchasing Activity and Market Conditions

It involves differing outlooks on the purchasing activity and market conditions, which are crucial for investors and strategic decision-making.

Portfolio purchases guidance exceeds $1.35 billion, but you've already reached $1.1 billion this year, including Q3. How does this align with expectations? - John Rowan (Janney Montgomery Scott)

2025Q3: The U.S. market is very solid and robust, and there's been no change in any impact on the forward flows or anything like that. So we are just reiterating our guidance. We are focused on returns, and we do expect to exceed that guidance that we have of $1.35 billion. - Ashish Masih(CEO)

Can you provide any updates on the purchasing environment, specifically regarding competitive dynamics and pricing in both markets? - Zachary Y. Oster (Citizens JMP Securities)

2025Q2: Yeah, pricing is stable. Pricing is good. Returns remain very strong in the MCM. So I would say overall, a very stable environment. - Ashish Masih(CEO)

Contradiction Point 2

Consumer Behavior and Economic Conditions

It involves differing perspectives on consumer behavior and economic conditions, which are essential for understanding the company's operational outlook and risk assessment.

What factors are driving the 20% year-over-year increase in collections despite a challenging macroeconomic environment in Q3? - Mike Grondahl (Northland Capital Markets)

2025Q3: There is definitely kind of noise out in the press around the consumer stress and whatnot. There are multiple signals there. Unemployment rate and all continues to be low. Overall, we are used to dealing with consumers who face some financial distress, and we are very flexible in how we work with them. We have seen no impact in terms of consumer behavior, whether it's on conversion of accounts to payers, strength of the payment plans or the resilience of payment plans or things of that nature. So we see a very stable consumer behavior in the U.S. market, which is what I think you're referring to. - Ashish Masih(CEO)

Could you provide more details on the competitive dynamics and pricing in both markets? - Zachary Y. Oster (Citizens JMP Securities)

2025Q2: We are definitely cognizant of the external environment overall. But in terms of consumer, we think for us, unemployment rate is low. I think that's one of the most important signals for us versus what's in the press or otherwise. I think delinquency trends are quite stable. And so we feel very good and kind of confident about the -- in terms of our consumer behavior and all. - Ashish Masih(CEO)

Contradiction Point 3

Collection Performance and Multiple Stability

It involves differences in the reported stability and changes in collections multiples, which are crucial for understanding the company's financial performance and forecasting abilities.

Could you provide the collections multiple for U.S. and U.K. core paper? - Mark Hughes (Truist Securities)

2025Q3: The collections multiple in 2025, and that again is a cumulative multiple in our Q, it's 2.3 for U.S. and 2.3 for Cabot as well. It's been very stable throughout the year with a little bit variations here and there, but it's been stable. - Ashish Masih(CEO)

What is the expected collections multiple for U.S. paper and Cabot? - Mark Hughes (Truist Securities)

2025Q1: For Q1, both MCM and Cabot had a 2.3 multiple. - Ashish Masih(CEO)

Contradiction Point 4

Purchasing Strategy and Market Conditions

It involves the company's approach to purchasing receivables and its assessment of market conditions, which directly impacts its financial strategy and growth projections.

Can you provide any insights into fourth-quarter purchasing activity, particularly whether forward flows remain intact, given that year-to-date purchases including Q3 are $1.1 billion versus the $1.35 billion baseline guidance? - John Rowan (Janney Montgomery Scott)

2025Q3: The U.S. market is very solid and robust, and there's been no change in any impact on the forward flows or anything like that. So we are just reiterating our guidance. We are focused on returns, and we do expect to exceed that guidance that we have of $1.35 billion. - Ashish Masih(CEO)

Can you share the 2025 purchase mix between Cabot and MCM? - John Rowan (Janney Montgomery Scott)

2024Q4: I'm not going to comment on specifics around guidance or anything like that, but we do certainly expect our Cabot purchases to be lower in '25 than what they were in '24, and we will certainly be looking at our mix as we go into '25. - Ashish Masih(CEO)

Contradiction Point 5

Consumer Behavior Stability and Economic Conditions

It involves differing perspectives on the stability of consumer behavior and the impact of macroeconomic conditions on collections, which are important factors in assessing the company's growth potential and risk management.

Collections rose 20% YoY despite a challenging Q3 macroeconomic environment. Can you clarify the consumer trends and factors driving the strong collections performance? - Mike Grondahl (Northland Capital Markets)

2025Q3: There is definitely kind of noise out in the press around the consumer stress and whatnot. There are multiple signals there. Unemployment rate and all continues to be low. Overall, we are used to dealing with consumers who face some financial distress, and we are very flexible in how we work with them. We have seen no impact in terms of consumer behavior, whether it's on conversion of accounts to payers, strength of the payment plans or the resilience of payment plans or things of that nature. So we see a very stable consumer behavior in the U.S. market, which is what I think you're referring to. - Ashish Masih(CEO)

Were there any fluctuations in collectability during Q1? Did the U.S. tax season present any unexpected factors such as tariffs or economic concerns? - Mark Hughes (Truist Securities)

2025Q1: Consumer behavior was stable. No macro impacts on collections. - Ashish Masih(CEO)