Encore Capital at Raymond James Conference: Strategic Adjustments and Growth

On Tuesday, 04 March 2025, Encore Capital Group (NASDAQ: ECPG) presented at the Raymond James & Associates’ 46th Annual Institutional Investors Conference. CEO Ashish Bassey provided a strategic overview, highlighting both the company’s strengths and challenges. While emphasizing Encore’s robust position in the U.S. and European markets, Bassey addressed recent adjustments in their European operations aimed at stabilizing future performance.

Key Takeaways

• Encore Capital aims for an 11% growth in collections to $2.4 billion in 2025.
• Adjustments in Europe are expected to enhance predictability and reduce volatility.
• U.S. operations show strong performance, with a 20% increase in collections last year.
• The company is leveraging data analytics and AI to improve efficiency and customer engagement.
• Digital engagement with consumers is on the rise, aligning with broader financial trends.

Financial Results

Encore Capital reported significant financial activities over the past year:

• Capital deployed: $1.35 billion
• Collections: $2.2 billion, with three-quarters from the U.S.
• U.S. collections increased by 20% last year.
• European operations saw a rebasing of Estimated Remaining Collections (ERC), leading to a Q4 charge.
• The company anticipates collections growth of 11%, reaching $2.4 billion in 2025.

Operational Updates

Encore Capital operates in eight countries with a workforce of over 7,000 employees, focusing on two main brands: Midland Credit Management in the U.S. and Cabot Credit Management in Europe.

• Over one-third of new customer payments are made through digital channels.
• The company employs speech analytics and robotic process automation to enhance operations.
• AI is being integrated for decision-making and channel selection.

Future Outlook

The strategic focus for 2025 includes:

• Stable supply levels in the U.S., similar to 2024.
• Anticipated growth in U.S. purchasing, exceeding the $1 billion record of 2024.
• European market adjustments to foster a more stable and predictable performance.
• Continued emphasis on digital and omnichannel consumer engagement.

Q&A Highlights

During the Q&A session, CEO Ashish Bassey addressed concerns and shared insights:

• Adjustments in Europe will not impact future cash generation capabilities.
• The competitive environment remains stable, with no significant changes anticipated.
• The company is committed to disciplined capital allocation, focusing primarily on the U.S. market.

Encore Capital Group’s strategic adjustments and growth plans underscore its commitment to leveraging technology and data analytics for improved performance. For more detailed insights, refer to the full transcript below.

Full transcript - Raymond James & Associates’ 46th Annual Institutional Investors Conference 2025:

Ashish Bassey, CEO, Omcor Capital/Encore Capital Group: The Raymond

Robert, Raymond James Institutional Investor Conference: James Institutional Investor Conference. It’s State of the Union Tuesday. So next up, we have Omcor Capital, Ashish Bassey, who’s the CEO. It’s going to be a little bit of a Q and A, but to start off with, I’m going to ask Ashish to give an overview of the company for anybody in the audience who’s not familiar with it.

Ashish Bassey, CEO, Omcor Capital/Encore Capital Group: Okay. Thank you, Robert. Getting an echo. Good morning again. As Robert introduced, I’m Ashish Massey, CEO of Encore Capital Group.

I’ve been at the company over fifteen years. I’m gonna take literally just five minutes to walk through a few of the pages from the presentation we just posted on our website so you can access that. To just give you an introduction to Encore as a kind of preamble to the q and a. So a few things on who we are and what we do, for those of you who might not be familiar with the business. So we are in the business of buying and collecting, charged off consumer receivables.

You can call it defaulted or delinquent consumer receivables. And as part of a consumer credit ecosystem in The US and across the world, consumers defaulting is a fact of life. Where there’s lending, there’s defaults or charge offs. And for example, in The US, there’s about 1,400,000,000,000 of credit card and unsecured consumer debt. And at a charge off rate, which the Federal Reserve reports at maybe 4.7% or something, you do the math and you get to, on an annual basis, about 60,000,000,000 of charged off debt coming off from credit card lenders and the bank’s balance sheets.

So we they have a they have an option to work it themselves, which they do, or outsource it, or sell to companies like Encore. And we are the largest player in The US, One of the largest players, and in Europe also we are participating. So that’s what we do. That returns capital back to the banks and enables kind of functioning of a healthy credit ecosystem. So we take pride in kind of the role we play in that.

And we do this we’ve been in this business for twenty five plus years, and we have over 7,000 colleagues or employees across the world, and we operate in eight countries. And I’ll more I’ll touch more on that in a second. So if you look at kind of who we are and some of the terms, if you look at our presentations and materials you might hear, we have two main brands from a consumer point of view, licensed entities, for example. So in US, it’s called Midland Credit Management or you might hear the term MCM. That’s a US business, that’s been in operation for over twenty five years.

And in UK and Europe, we have Cabot Credit Management. Generally, we call it Cabot. In UK, it’s been in operation for over twenty years. It’s also growing its presence in Spain and France, and we also operate in a couple of smaller countries, markets such as Ireland and and Portugal. So those are the brands you would see.

On the bottom of the page, there are a few statistics out there, that are unique to our industry. Capital deploy is how much we spend to buy portfolios in a year, and that was $1,350,000,000 last year. And then you have collections, which is the third pie, which is last year we collected $2,200,000,000 And if you take a look at those two and look at the mix, about three quarters of this of that was in The US, purchasing and collections. Now ERC is another unique thing about our sector, estimated remaining collections. That’s a little bit more towards Europe because the payment plans are longer in Europe and US collections happen faster when you purchase.

So those are the three main statistics. Our main business is debt purchasing. We have a very small servicing other business that shows up at 8% or less revenue from a global point of view. Now this is some of the stats on kind of how we stack up. For our 7,000 employees and colleagues, kind of this is very important, our mission, vision, and values.

That’s what drives people every day. And on the left is what we do, and the right is kind of how we operate. And left is about mission. People take it very seriously. It really helps people to recover from the defaulted debts.

Something happened in a consumer’s life. Nobody intended to default whether it was a medical situation or job loss or whatever it might be. And our employees take great pride in making sure we are helping consumers recover, their credit back, and it also helps restore their financial help and makes credit accessible. On the right is something we live day to day in our interactions with consumers with respect and empathy. Our calls take enough time to understand a consumer situation, for example, kind of what happened in their life.

And then we do it we’re constantly trying to improve in how we work together. So that’s reflected in our mission, vision, and values. And as I said, we were in operation for twenty five plus years in US, over twenty years in UK. And in those two markets in particular, we have collected a lot of consumer data. Not just data from the banks, we get data from credit bureaus, we get employment data and all sorts of things.

And more importantly, we have our own data whether a consumer responded to a call or not, whether did they pay or not, whether did they start a payment plan, did they finish the day complete it or not? We use all of that for a lot of modeling and analytics, and it’s used in two ways. On the left, we use it for portfolio evaluation. So when we look at a portfolio, we underwrite each account, kind of what is the likelihood of its payment, and we use dozens and dozens of variables for doing that. And then we price the portfolios.

But then equally, importantly, and probably more importantly over the life of the portfolio, we use it to make decisions whether to call, whether to send a letter, whether to send an email, whether to send an SMS, and what to do, and and also where we should not spend the effort. That is one of the big drivers of value in this business. And digital you see there, that’s something that we are very much focused on and investing a lot in omnichannel collections in US and UK. Over a third of our payments from new customers are coming from digital channel right now. So let me move quickly to close this out just to another page on our strategy and our business.

I explained the left side. On the right side, we look at markets that are good for this business. And what are they? They’re large. Banks regularly sell portfolios, not just a one off crisis driven sales.

Data is available. There’s good regulation, for example. Those are the characteristics of attractive markets. And we in those markets, we look to build competitive advantage, and it takes time building collections capabilities, analytics, data and so forth. And finally, balance sheet strength is a very important part of this business given how we are funded and we are unique in that we have a global funding structure.

We can allocate capital to any of the markets at any levels unlike many of our competitors who may have restricted balance sheets that are limited to certain regions. So let me close by jumping to a page on our value proposition. Again, what you have with Encore Capital Group is a leader in the debt purchasing industry, which plays a very critical role, an essential role in the consumer credit ecosystem. And we do this with a leadership position in US and also in UK. And we do this with empathy, data analytics, compliance, as well as a strong balance sheet and capital allocation priorities.

So hopefully, this gives you a very quick sense of who we are, what we do. And with that, I will stop and go into q and a.

Robert, Raymond James Institutional Investor Conference: Thank you, Ashish. Do you have a seat? So first question, kind of very topical. You did report fourth quarter earnings last week and there were some charges, some non recurring items. I I just wanted to discuss what was the driver for that and how comfortable are you that that’s done behind you now?

Ashish Bassey, CEO, Omcor Capital/Encore Capital Group: So what you saw was, a set of actions and charges in Q4 And they were all in our European business, UK and European business, Cabot. And let me just step back with a backdrop of kind of what’s happened in the industry, which is very important for that, which is so the industry in Europe got established after the great financial crisis, when there was a lot of nonperforming loans. And industry got funded by the bond market, lot of players came, and those NPL levels have come down. And there’s been a restructuring underway, correction, but the competitive levels have stayed high as a result. Now result.

Now fast forward to kind of pandemic and since then, credit or lending has not grown as much. It’s very subdued growth in lending. And on top of that, despite all the news on consumer, charge off rates have been low. So overall supply low and competition levels high. That’s what Cabot’s been dealing with, and we’ve been deploying at lower levels for the last five, six years.

So we’ve been taking actions on reducing capacity. We have taken some pretty major cost reduction actions over time. But over time, if you look at Cabot’s collection performance, it was maybe in the mid 90% of the curves that we have. And it was kind of a persistent variance that we were seeing over time. You try to decipher whether it’s a pandemic and you try to improve operations, which we did.

Kind of then what is kind of staying with us? So we did a holistic look at the estimated remaining collections, and we took the action to kind of reforecast or rebase that ERC. And we also exited a couple of markets such as Italy where we have been investing in an R and D mode for a few years. That reduces the ERC. And we earlier exited the Spain secured portion only.

So all of that led to culmination of a charge because you have to present value these reductions in ERC, some costs related to restructuring, some IT reduction, and basically to put Cabot on a more solid footing as we look forward. So I expect Cabot’s performance to be much more predictable, less volatile going forward, and we’ve put all of these kind of persistent issues, if you would, behind us so that investors and each of you can see the true value of our US business and encore. Because a US business is thriving and growing and collecting really well and generating cash. And sometimes because of the accounting noise and from this under persistent underperformance that was getting kind of drowned in that noise. So I feel very good and feel very confident that we put all of these issues behind us.

Any kind of noise that’s kind of more normal noise can be absorbed. But, as I look forward, The US business is thriving and our Cabot business is going to be on more solid footing and less volatile. And we should be in a very good place. I feel really good kind of looking forward.

Robert, Raymond James Institutional Investor Conference: Thank you for that. I mean, just in the context of some of the slides you put up there as well, I mean, Europe’s obviously roughly a quarter of capital deployment, roughly a quarter of cash collections. So with all these adjustments, I mean, how significant are those compared to The U. S, in terms of your overall ability to collect and generate cash to reinvest? How significant are these adjustments?

Ashish Bassey, CEO, Omcor Capital/Encore Capital Group: So if I want to make sure I understood your question that do these adjustments impact our ability to collect and generate cash in the future?

Robert, Raymond James Institutional Investor Conference: It’s a punchier way of thinking.

Ashish Bassey, CEO, Omcor Capital/Encore Capital Group: Yeah. It has no impact on our future ability to generate cash. So let me explain. So for example, the exits in Italy or the secured in Spain, I mean, they have expenses too. So on a net basis, those are completely immaterial to future cash generation.

Now The UK ERC reduction, one could argue, and that has some impact, but it is over fifteen years. Reality is our operations are performing well. They’re gonna collect what they’re collecting. And we just adjusted the forecast so that we’re gonna hit that forecast more closely. We guided to cash generation grow or collections growth of 11%, to 2,400,000,000 for ’25.

And I feel very good about that ability on the backs of these adjustments in Europe, but also how MCM, our US business, is doing, how well it’s, buying and collecting. So these adjustments have no impact on our cash generation ability. Our cash generation, we didn’t guide a number, will grow in 2025 as well. And that’s the other thing is we’re growing collections, but our collections efficiency margin is improving. So there’s some operating leverage.

So expenses are not growing as fast. So cash generation should grow pretty meaningfully in the coming year.

Robert, Raymond James Institutional Investor Conference: Got it. Thank you. Moving on slightly different topic, also potentially timing, the regulatory environment. I mean, over the last, yes, over many years, it really had been quite stable. I mean, yes, the CFPB had come in and out occasionally and things like that.

How do the latest noises coming out of Washington and potential I mean, a clear de emphasis in CFPB, if not elimination, how does that affect your go forward strategy?

Ashish Bassey, CEO, Omcor Capital/Encore Capital Group: In the near term, there is no impact. Now it is an evolving situation. So I would say this. So the CFPB took years to establish kind of a new set of rules for the industry, which were good, allowing certain technologies to be used, updating the rules from nineteen seventies. So they have been in effect for three to four years.

They’re still in effect today. What’s also in effect is state laws and regulations and rules. So none of that changes. The other element is the banks who sell to us have very high expectations on consumer treatment as well. They will come in and audit us, and at times, those are very detailed audits, for example.

So all that is in effect. So our operations are fully have absorbed and are implementing those things. Now we are, of course, observing the changes potentially if some of those happen at CFPB. I have not heard anything on the rules yet. Perhaps there’s some change in how supervision happens, how enforcement happens, but I think it is still very early.

So in the near term, there is no impact. And over the medium to long term, we’ll be monitoring and adapt as as necessary. But the Central and the Washington rules are just one element of the overall regulatory landscape.

Robert, Raymond James Institutional Investor Conference: Moving on to supply, to your point, revolving credit is at an all time high, frankly. Charge offs are back to above pre COVID levels, not the highs of the financial crisis. Obviously, the consumer is in better shape than that. Can you just give us some thoughts on how supply is progressing? And also, I do want for the audience particularly, if you can explain forward flows versus spot because it’s you’re not just dipping into the market every month and hoping somebody’s selling.

There’s a lot more relationship involved in how you buy that increased supply. So can you explain that to us?

Ashish Bassey, CEO, Omcor Capital/Encore Capital Group: And I imagine you were referring to The U. S. At this time. Probably. Yes.

Yes.

Robert, Raymond James Institutional Investor Conference: Yeah. So in US about Europe as well.

Ashish Bassey, CEO, Omcor Capital/Encore Capital Group: Revolving debt and credit card debt is at all time high, and that combined with the charge off rate and the sales by banks, 2024 was a record year for sales by the banks. So the capital deployed on our estimates and we track it very closely. It was driven by kind of the market growing. There were a few probably I would say over the last year or two fintech type of sellers who might have come out in the market as well. And consumer spending is still growing, notwithstanding some of the noise and news might be around there, but it’s still growing.

Charge off rate, if there’s any kind of a downturn or a mini recession or something would rise in that case or supply would rise. So at this point, I expect ’25 to be very similar to 2024 in terms of overall supply for the for the industry. Now in terms of forward flows, vast majority of our purchasing is done on forward flows. And these flows can be six months, twelve months, sometimes even two years. So you’re not dependent on spot or bulk deals that come out every month.

They happen every month on a very regular basis, and we win those too, and we bid for those. But vast majority of a purchasing is on forward flows, which the actual purchases depends on how much charges offered the issuer. So there’s generally a min and a max. So this year looks, as we guided, we expect our purchasing to be at least 1,350,000,000.00, which was the last year’s level. We also said Europe, we expect it to be less, which means US purchasing should grow from the level of $1,000,000,000 that was a record in 2024.

In 2025, we should grow from that level. And we feel very good about that number because, a lot of it is based on forward flows, as you pointed out.

Robert, Raymond James Institutional Investor Conference: Thank you for that. On Europe, obviously, more spot. Mark, you had an extremely strong Q4. So first on that Q4, and I do want, we’ve talked about this before. You bought a lot of supply in Q4 at the same time as taking some adjustments on all the vintages.

But could you give us some kind of odd why you felt confident doing that? And then kind of how the European market is evolving? You’ve been light in Europe for a while for various reasons.

Ashish Bassey, CEO, Omcor Capital/Encore Capital Group: And Europe, so let me provide the market answer first. So Europe is multiple different countries. It’s not as homogeneous a market. Some banks cut across boundaries, of course. So we are primarily in UK and Spain and France and a couple of very small countries, that are not that material.

So in UK, it’s much more like US. There are spot deals, but there’s more forward flows from the banks as well. In the Continental Europe, it’s much more of a spot kind of market, but deals still come from banks often or occasionally from other debt buyers as well who are trying to clean up their balance sheets or need cash because the leverage is too high. So spot deals get created from banks as well as from these, other debt buyers. So we’ve been staying very disciplined up kind of spending between 50 and 60,000,000 a year a quarter, sorry, in our UK European sector.

And Q4 was just a coincidence kind of when we were doing the kind of cleanup and charges. Some of these opportunities came by, and, we felt very comfortable there, not in any areas that are different from what we do. It’s in the sweet spot of what we do, but we felt very comfortable how we valued them and we priced them that these are good investments. In some ways, it pulled forward some purchasing from ’25, maybe Q1 into Q4, just because these were large one times pot opportunities that may or may not come all the time. So we feel very comfortable about these purchases despite and I completely understand the question on kind of the reduction of ERC that we did on some of the older vintages that we had purchased a while back.

Robert, Raymond James Institutional Investor Conference: Got it. Thank you. I think the regulation and the supply question both also tie into something competition. So again, it differs between in The U. S, very stable competitive market, Europe.

But even in The U. S, post financial crisis when there was a large increase in supply, there were a lot of new entrants into the market. Many of them weren’t around a long time. But can you give us any thoughts on do you expect The U. S.

Competitive environment to change over the next couple of years? Or is there any risk there from that?

Ashish Bassey, CEO, Omcor Capital/Encore Capital Group: Yes. At this point, I have seen no evidence that suggests any change in competitive environment. Now, of course, over the years, a new form or two pop up, they buy some flows and then they wait. Depending on how it performs, they may exit. But let me back up to kind of the great recession, great financial crisis.

That is a world that was very different. And I joined Encore in the midst of it from a credit card company. I was on the side of managing delinquencies down and selling portfolios, and then I joined Encore. So I’ve seen that kind of world from both sides, and regulation was very different then. Since then, the OCC guidelines came for banks to manage their third party collection agencies, manage their debt buyers.

Most of them prohibit resales. In the old days, debt buyers are buying portfolios, collecting and reselling, collecting and reselling, and that was not a good experience for consumers who couldn’t quite follow the debt. So as a result, there was banks also didn’t like it, regulators didn’t like it. And so that world is gone. It wiped out a whole bunch of players from the industry.

And there was a lot of consolidation. We acquired a public company in 2013 and one of the private ones. So since then, the market has been very stable. Of course, some new players pop up here and there, but nothing major has happened or changed, and nothing is at least brewing right now that tells me in the next year or two competition level is gonna change. So banks are comfortable selling.

There’s a stable set of buyers. There’s a rational set of bidding that goes on, and it’s a fairly stable. Now every now and then an auction or two would surprise us on both sides. You don’t expect to win or you win or you can expect to lose, you lose. But in general, it’s been very stable and rational market down in

Robert, Raymond James Institutional Investor Conference: The U. S. Thank you. Taking the question, obviously, Europe, there’s it’s a more fragmented market, as you said. It’s not one geography.

It’s multiple countries, etcetera, etcetera. There’s multiple different probably more variation in types of product in Europe and The U. S. As well. So very, very different.

I mean, how do you think that’s going to develop? It’s been pretty aggressive in many cases over the last several years, which is why you partly haven’t been buying as much. So do you think that’s self correcting or how do you think European competition is going to play out?

Ashish Bassey, CEO, Omcor Capital/Encore Capital Group: There’s a couple of things happening. It is self correcting. So there are a lot of capacity was created, funded by the bond market and others in Europe and the post grid crisis. And that’s as the NPL levels have come down, a lot of players are facing difficult times and are restructuring. So that is happening.

Supply has not grown, so competition levels are still high. But I would say if you compare a year ago to today, it’s better today. And even last year compared to two years ago, it had improved. So it is improving, but much more slowly. The other driver in US was a huge growth in lending and charge of supply from lending and charge of rates.

So that hasn’t happened in Europe or UK. So that correction is taking much longer as well. But it is correcting. There are players who have stepped away from buying completely. Is it done?

Is it enough? Not yet. So I think the movie is still probably half done, I would say, and we stay patient there. We have a global balance sheet. We don’t have to buy at the levels where some of them have to buy, perhaps.

So we are allocating our capital to The U. S. And staying patient in U. K. And Europe, and waiting for those returns to come and where we find the opportunity as we did in Q4 or otherwise in a small levels of the flows, we are deploying capital there.

Robert, Raymond James Institutional Investor Conference: Got it. Thank you. Moving on to kind of very top of the list, the health of the consumer. I mean, the last couple of days, we’ve last week, Walmart, Target, etcetera, there’s lots of noise there. And market concerns are growing more broadly.

But I mean, one of the things I think you pointed out before I say, by the time somebody becomes a customer of Encore, they’re already in their own personal recession. So can you give us any color on what you’re seeing in the health of the consumer currently and how historically a more healthy versus less healthy consumers affected the business?

Ashish Bassey, CEO, Omcor Capital/Encore Capital Group: So a couple of things there. First is, as you rightly pointed out, consumers encountered some financial difficulty, their personal recession when they when we acquired the account. And then we work with them to either pay down their debt or set up a payment plan. In that sense, in that world, we have not seen any change in The US. It’s fairly stable in terms of our ability to convert a conversation or customer into a peer and their ability to hold on to the payment plans and meet those.

Of course, some of them break, but we can put them back. We don’t charge interest. We don’t charge fees. So we have we are very flexible in adapting to a consumer situation. We have seen no change, in terms of consumer behavior in our customer base.

We do monitor the credit card issuers metrics, and we look at data on delinquencies and charge off rates. So delinquency rates are still somewhat on an upward trend. Now some of the last two days of news, the last week of news, notwithstanding at some point, does it show up in delinquencies? Don’t know. It may show up in perhaps spending volumes, even though that has been going up.

Consumers have been spending quite actively. So that’s something we monitor because it’ll show up delinquencies will show up six months later in a charge off because that’s what time it takes. So that’s something we’ll monitor. And we haven’t heard anything from our banking partners, hey, our volumes are going to certainly change or rise or whatever, anything like that. But I think that will take time to play out.

But in our consumer base, we’re seeing a fairly a very stable behavior.

Robert, Raymond James Institutional Investor Conference: Got it. Thank And I mean, last question for me. Of course, not normally thought of as a tech company, just a consumer company. But I mean, one of the boxes on how you approach consumers is digital now. And that’s been quite successful in terms of improving efficiency and still room to go there, I think.

Could you give us any idea? I mean, what’s new on the technology front? And I’ve got to throw in the, how is AI going to affect your business?

Ashish Bassey, CEO, Omcor Capital/Encore Capital Group: Yep. So you’re right. I mean, in how we might have positioned ourselves, but we are very much a data and technology company. And of course, there’s a call center element to it. Mhmm.

But we are very data and technology. And on data, there’s a couple of ways we as I mentioned earlier, we use lot of data, and we have the largest amount of consumer charged off data in The US, compared to anyone else, to value portfolios, and price and for pricing models. But we also use the same data and technologies such as speech analytics to record calls and analyze calls in our operations. Few things are playing out. Digital is growing.

So consumers are using more and more digital means to engage with us, and we are deploying increasing amount of technology to, enable that because consumers are used to a digital interaction on all their other financial products. So debt collection is no different. It still requires a nudge and a conversation and understanding, so call center is relevant, but it’s part of an omnichannel strategy. And that’s where this potential AI, comes in, that we are kind of partly evaluating, partly deploying, but carefully given the regulatory environment, where decisioning can be done better, which channel to use, what offer to give. So that’s where AI will probably be the most impactful in our business, and we are spending a lot of time and energy on that front.

We also do a lot of other technology use such as automation or robotic process automation to automate back office or, non customer interaction processes. And you can see it as an example in MCM’s collections or your US collections went up 20% last year and a headcount of account managers was essentially flat. So there’s some scale leverage there, but also use of technology and digital that’s driving a lot of that.

Robert, Raymond James Institutional Investor Conference: Got it. Thank you. I think we have a couple of minutes for questions, if anybody has a question. If not, there is a breakout session downstairs, I write down, quarter over six. Make sure I get the lightroom.

So are there any questions? No? Thank you, Ashish.

Ashish Bassey, CEO, Omcor Capital/Encore Capital Group: Thank you. Appreciate the time.

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