Encore Capital Group Inc

and welcome to the Encore Capital Group's Q3 2020 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press pardon zero on your touchtone telephone. And as a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Bruce Thomas from Encore Capital. Please go ahead.

Thank you, operator. Good afternoon and welcome to Encore Capital Group's third quarter 2020 earnings call. Joining me on the call today are Ashish Masih, our President and Chief Executive Officer, Jonathan Clark, Executive Vice President and Chief Financial Officer, Ryan Bell, President of Midland Credit Management, and Craig Buick, CEO of Cabot Credit Management. Ashish and John will make prepared remarks today and then we'll be happy to take your questions. Unless otherwise noted, comparisons made on this conference call will be between the third quarter of 2020 and the third quarter of 2019. In addition, today's discussion will include forward-looking statements subject to risks and uncertainties. Actual results could differ materially from these forward-looking statements. Please refer to our FDC filings for a detailed discussion of potential risks and uncertainties. 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 earnings presentation, which was filed on Form 8K earlier today. As a reminder, This conference call will also be made available for replay on the Investors section of our website, where we will also post our prepared remarks following the conclusion of this call. With that, let me turn the call over to Ashish Mati, our President and Chief Executive Officer.

Ashish Mati Thanks, Bruce, and good afternoon, everyone. Thank you for joining our earnings call. With the COVID-19 pandemic persisting, We hope that each of you and your families remain safe and healthy while adapting to the realities of your current circumstances. At Encore, through a combination of working from home and the creation of safe workplaces, we continue to prioritize the welfare of our employees and we remain fully operational in all the markets we serve. Working through the changing dynamics of the pandemic around the world, our team continues to perform at or above the high level of productivity we exhibited before the pandemic. The consumer dynamics we discussed a quarter ago continued into the third quarter. Our consumers are reaching out to us for assistance with their financial recovery. We deal with consumers in financial hardship every day and have been able to extend relief when appropriate while we help increasing numbers of consumers resolve their debts. As expected this past Friday, the CFPB released new rules for our industry in the US. These rules provide much needed clarity and create uniformity in the fair treatment of consumers in debt collection. They also provide opportunities for us to communicate with consumers through more modern means, consistent with the way consumers prefer to interact with us. The new rules are largely consistent with those proposed 18 months ago. and as a result, we are well prepared to fully implement them with no significant incremental operational changes. Through these new rules, we remain very much aligned with the CFPB's goal of making consumer financial markets work for consumers, responsible providers and the economy as a whole. The third quarter was a period of great achievement for Encore. The steady improvement of our balance sheet has been a strategic priority of ours for some time. As part of this effort, we had a goal of combining the strength of our US and European balance sheets into one unified global funding structure. We accomplished this goal in September through a series of actions that now maximizes our financial flexibility. More specifically, the benefits include enhanced access to capital markets, improved ability to deploy capital in the markets with the best returns, and a line of sight to reducing our funding costs. John will recap the highlights of our new funding structure in a few moments. It was also an outstanding quarter operationally for Encore, in which we delivered strong results. Global collections for the third quarter were a record $540 million and came in better than expected for both MCM and Cabot. Revenues of $404 million were up 13% compared to the third quarter a year ago. Our ERC was a record $8.5 billion and was up 15% compared to Q3 last year. As a result of our strong collections performance, we delivered a GAAP net income of $50 million. $1.72 per share, which was more than 40% to 3 last year. Non-GAAP adjusted income was $74 million, or $2.31 per share. In addition to these results, a clear indication of our performance can be found in the higher level of returns in our business. Our return on equity reached 21.3% on a trailing 12-month basis in Q3. As we continue to operate efficiently and deploy capital at solid returns, the result demonstrates our ability to deliver strong returns under current market conditions as well as over time. We believe it is difficult to find such attractive returns at other companies in or around our industry. Our consistent growth in cash generation demonstrates the steady improvement in the business over the past several years. In fact, in the third quarter, we again set a new record for adjusted EBITDA plus collections applied to principal, which is the industry benchmark for cash generation. We continue to operate efficiently and purchase portfolios at attractive multiples. Even after subtracting cash taxes, cash interest, and CapEx, we continue to generate substantial cash each quarter. Turning now to our U.S. business. MCM collections in Q3 were a record $391 million, up 18% compared to the third quarter of last year. Our MCM performance continues to benefit from our efforts to direct a larger proportion of our collections toward the call center and digital channel. We continue to see strong demand from our consumer base to engage with us through our digital platform. As a result, Q3 collections in the call center and Digital Channel were up 32% compared to the same quarter last year. MCM deployments in the third quarter were $141 million. Our cost to collect continues to improve when compared to the year-ago period, which is a strong reflection of our continued focus on expense management, our operating efficiency and the resulting operating leverage we have created in our business. Due to COVID-related impacts and constraints, MCM's expenses in the third quarter was somewhat lower than we would have incurred otherwise. These constraints are expected to diminish going forward. And as I mentioned a moment ago, we believe the new rules released by the CFPB last week provide clarity and create uniformity in how consumers should be treated across the industry. In addition, MCM requires no significant incremental operational changes to achieve compliance with the new rules, as they are largely consistent with the CFPB's proposed rules that were issued 18 months ago, giving us time to prepare. Turning to Cabot, in the UK and in continental Europe, our collections in the third quarter showed continued signs of recovery and were down only 6% compared to Q3 a year ago. In Europe, government measures resulting from COVID pandemic continue to impact the litigation-related collection practices. At the same time, collections in our call center and digital channel in Q3 were broadly in line with last year, as we continue to see no material change in payment plan breakage rates. Cabot management throughout the pandemic has enabled continued solid profitability The subdued purchasing environment in the UK and in continental Europe continued into Q3. And we expect this lower level of supply to persist to the end of 2020. However, we are seeing a stronger pipeline of servicing opportunities forming in the UK. We anticipate an increase in purchasing opportunities as charge-offs are expected to rise meaningfully after government assistance programs subside. Looking forward, Our new global funding structure removes the prior constraints related to Cabot's standalone leverage and thus provides us an enhanced ability to deploy capital at attractive returns. I'd now like to hand the call over to John for a more detailed look at our third quarter financial results.