Encore Capital Group Inc

Good day, folks, and thank you for standing by. Welcome to the Encore Capital Group's first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Bruce Thomas, VP of Industrial Relations. Bruce, please go ahead.

Thank you, Operator. Good afternoon, and welcome to Encore Capital Group's first quarter 2024 earnings call. Joining me on the call today are Ashish Massey, our President and Chief Executive Officer, Jonathan Clark, Executive Vice President and Chief Financial Officer, and Ryan Bell, President of Midland Credit Management. Ashish and John will make prepared remarks today, and then we will be happy to take your questions. Unless otherwise noted, comparisons on this conference call will be made between the first quarter of 2024 and the first quarter of 2023. 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. 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 Investors section of our website. As a reminder, following the conclusion of this call, a replay of this conference call, along with our prepared remarks, will also be made available in the Investors section of our website. With that, let me turn the call over to Ashish Massey, our President and Chief Executive Officer.

Thanks, Bruce, and good afternoon, everyone. Thank you for joining us. I'll begin today's call with key highlights from the first quarter. On course, Solid first quarter performance was driven by strong portfolio purchasing in the U.S. and double-digit collections growth on a global basis. Continued growth in U.S. portfolio supply, driven by both credit card lending growth and charge-off rate at a 10-year high, has led to very attractive pricing and returns. As a result, we continue to allocate the vast majority of our capital to the U.S. market, deploying a record $237 million in the US in the first quarter. In Europe, the portfolio purchasing market remains very competitive. Although we continue to see some examples of improved pricing, we believe European portfolio pricing still does not consistently reflect the higher cost of capital caused by higher interest rates. As a result, we continue to be very selective, which has led to reduced CAVIT portfolio purchases. Overall, our performance in the first quarter was well aligned with expectations as portfolio purchasing, collections, and cash generation are all off to a strong start in 2024. I believe it's helpful to remind investors of the critical role we play in the consumer credit ecosystem by assisting in the resolution of unpaid debts. These unpaid debts are an expected and necessary outcome of the lending business model, although the levels may vary depending on the stage of the macroeconomic cycle. Regardless of where we are in the macroeconomic cycle, our mission is to create pathways to economic freedom for the consumers we serve by helping them resolve their past due debts. We achieve this by engaging consumers in honest, empathetic, and respectful conversations. Our business is to purchase portfolios of non-performing loans at attractive returns while minimizing funding costs. For each portfolio that we own, we strive to exceed our collection expectations while maintaining an efficient cost structure, as well as ensuring the highest level of compliance and consumer focus. We achieve these objectives through a three-pillar strategy. This strategy enables us to deliver strong financial performance while positioning us well to capitalize on portfolio purchasing opportunities. We believe this is instrumental for building long-term shareholder value. The first pillar of our strategy, market focus, concentrates our efforts on the markets where we can achieve the highest risk-adjusted returns. Let's now take a look at our two largest markets beginning with the US. US revolving credit has been steadily rising since early 2021. Each month for the last two years, the US Federal Reserve has reported a new record level of outstandings. At the same time, since bottoming out in late 2021, the credit card charge-off rate in the US has also been steadily rising and is now at a 10-year high. Similarly, U.S. consumer credit card delinquencies, a leading indicator of future charge-offs, also continue to rise. With both lending and the charge-off rate growing simultaneously, purchasing conditions in the U.S. market remain highly favorable, with continued strong growth in U.S. market supply and attractive pricing. The most recent delinquency data supports our expectation that 2024 will be another year and credit card issuers. With this environment in the U.S. as a backdrop, Q1 was another strong quarter of portfolio purchasing for our MCM business. We deployed a record $237 million in the U.S. at strong returns, the result of a disciplined purchasing approach amid an attractive pricing environment. MCM collections in the first quarter were $369 million, up 12% compared to the first quarter of 2023. In addition, throughout the quarter, consumer payment behavior remains stable. After expanding MCM's internal collections capacity last year, through the addition of approximately 500 account managers, we believe we are appropriately staffed to accommodate our higher recent purchase volumes. We expect the benefits from expanding our operations headcount will increase over time. as these newer account managers gain experience and drive increased efficiencies and scale in our NCM collections operation. In contrast to the US, supply in the UK has been growing much more slowly. Credit card outstandings are still not yet back to pre-pandemic levels, as banks in the UK, unlike those in the US, have not meaningfully increased lending since the pandemic. In addition, UK charge-offs remain at low levels. Cabot's collections in Q1 were $141 million, up 6% compared to the first quarter a year ago. Given the current state of the UK economy, we believe ongoing weakness in consumer confidence is marginally impacting one-time settlements, while existing payment plan performance remains stable. We continue to be selective with Cabot's portfolio purchases, which were $59 million in the first quarter. We have maintained a purchasing discipline in the face of portfolio pricing in Europe that we believe still does not yet consistently reflect higher funding costs. We expect to continue to deploy at current low levels until the returns in Cabot's markets become more attractive. We are currently choosing to allocate significantly more capital to the U.S. market which has higher returns consistent with a well-established strategic focus. We also continue to prudently manage the Cabot cost structure given the reduced level of portfolio purchases in recent quarters. I would now like to highlight OnCore's first quarter performance in terms of several key metrics, starting with portfolio purchasing. OnCore's global portfolio purchases increased 7% in Q1 to $296 million, with record US deployments in our largest business, MCM. This increased portfolio purchasing will help drive on-course collections growth over the next few years. The fact that 80% of our global deployment in the first quarter was in the US is a reminder of the flexibility that our global funding structure provides to us. This structure enables us to allocate capital toward our highest return opportunities. As market supply remains elevated in the U.S. and the pricing environment remains attractive, NCM's ERC, as well as our global total ERC, continues to grow. The significant amount of ERC we are adding reflects the efficiency of our global capital deployment and is reflected in our higher purchase price multiples. This current highly favorable purchasing environment in the U.S. is allowing MCM to purchase portfolios at strong returns, which adds future cash flows and profitability to the business. Global collections in the first quarter were $511 million and were up 10% compared to Q1 a year ago. The past several quarters of higher portfolio purchases, particularly in the U.S., and led to meaningful growth in collections. I'd now like to hand the call over to John for a more detailed look at our financial results.