Encore Capital Group Inc (ECPG) Q1 2025 Earnings Call Highlights: Record Growth in Portfolio ...

GuruFocus News

Thu, May 8, 2025, 1:32 AM 4 min read

Portfolio Purchases: $368 million in Q1 2025, up 24% compared to Q1 2024.
Collections: $605 million in Q1 2025, up 18% compared to Q1 2024.
Earnings Per Share (EPS): $1.93 in Q1 2025, up 103% compared to Q1 2024.
Leverage: Improved to 2.6 times at the end of Q1 2025, compared to 2.8 times a year ago.
Share Repurchases: $10 million in Q1 2025, with a total of $16 million since the beginning of the year.
MCM Portfolio Purchases: $316 million in Q1 2025, a record and up 34% compared to Q1 2024.
MCM Collections: $454 million in Q1 2025, up 23% compared to Q1 2024.
Cabot Collections: $150 million in Q1 2025, up 7% compared to Q1 2024.
Portfolio Revenue: Increased by 9% to $345 million in Q1 2025.
Net Income: Increased by 101% to $47 million in Q1 2025.
Total Revenue: $393 million in Q1 2025, reflecting growth of 20%.
Operating Expenses: Increased by 8% to $263 million in Q1 2025.
Cash Efficiency Margin: Improved to 58.3% in Q1 2025, compared to 54.8% in Q1 2024.
Interest Expense: Increased by 30% to $69 million in Q1 2025.
Tax Provision: $40 million, implying a corporate tax rate of approximately 23%.

Warning! GuruFocus has detected 8 Warning Signs with ECPG.

Release Date: May 07, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Encore Capital Group Inc (NASDAQ:ECPG) reported a strong start to 2025 with Q1 earnings per share of $1.93, up 103% compared to the first quarter of 2024.
Portfolio purchases in Q1 2025 were $368 million, a 24% increase compared to Q1 2024, indicating robust growth in investment activities.
Collections in Q1 2025 reached $605 million, an 18% increase from the previous year, showcasing effective collection strategies.
The company's leverage improved to 2.6 times at the end of Q1 2025, compared to 2.8 times a year ago, reflecting better financial management.
Encore Capital Group Inc (NASDAQ:ECPG) resumed share repurchases, buying back $10 million of its shares in Q1 2025, signaling confidence in its financial health and future prospects.

Negative Points

Interest expense and other income increased by 30% to $69 million, reflecting higher debt balances and interest rates, which could impact future profitability.
The European market, particularly the UK, remains impacted by subdued consumer lending and low delinquencies, affecting Cabot's purchasing strategy.
Operating expenses increased by 8% to $263 million, which, although lower than collections growth, still represents a significant cost increase.
The company's tax provision of $40 million implies a corporate tax rate of approximately 23%, which could affect net income if rates increase.
Despite strong collections, there were negative revisions to forecasted recoveries, indicating potential challenges in future cash flow predictions.

Q & A Highlights

Q: The collections performance at Cabot, was it due to updated forecasts or improvements in underlying collections? A: It's a combination of both. We've been working on improving operations and stabilizing collections. The forecast improved, and the operations are performing steadily, which is pleasing to see.

Q: What is the expected collections multiple on US paper and Cabot for Q1? A: For Q1, both MCM and Cabot had a 2.3 multiple.

Q: Is the supply in the US market stable, given the delinquency rates? A: Yes, the supply is stable and possibly a tad higher than last year. Delinquencies and charge-off rates are elevated but stable, and lending remains strong. We expect MCM to grow purchasing in 2025.

Q: Was there any volatility in collectability during Q1, particularly during the US tax season? A: The tax refund season was normal, maybe slightly better. Consumer behavior was stable, with no significant issues affecting collections.

Q: What is driving the cashovers despite negative revisions to forecasted recoveries? A: Cashovers and changes in expected recoveries are based on different vintages. A cashover might lead to a negative impact if future collections are not expected to increase. It's a judgment call made on a vintage basis.

Q: How should the $21.5 million changes in recoveries be viewed from a core EPS perspective? A: The changes translate to about a $0.73 impact on EPS. These are real collections increases, reflecting strong performance.

Q: With $10 million in buybacks during the quarter, is this the expected pace for 2025? A: Future buybacks depend on financial conditions, balance sheet strength, liquidity, and purchasing opportunities. We resumed buybacks as planned, and future actions will be based on these criteria.

Q: What makes the US market attractive for purchasing, and how do you see future purchases? A: The US market remains favorable with record lending and elevated charge-offs. There is ample supply of portfolios at strong returns, and we expect to grow US purchasing to another record in 2025.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

Terms and Privacy Policy

Your Privacy Choices

Utah Privacy Notice

More Info