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ENCORE CAPITAL GROUP INC (ECPG)·Q1 2025 Earnings Summary

Executive Summary

  • Strong quarter: revenue $392.775M, diluted EPS $1.93; YoY +20% revenue and +103% EPS on record U.S. purchasing/collections and cash efficiency expansion .
  • Material beat vs consensus: EPS +$0.63 and revenue +$18.3M; operating leverage evident with OpEx +8% vs collections +18% (estimates from S&P Global; values marked with asterisks) .
  • Guidance reiterated: FY 2025 purchases >$1.35B, collections $2.4B (+11% YoY), interest expense ≈$285M, tax rate mid-20s; buybacks resumed ($10M in Q1) .
  • Catalyst: sustained favorable U.S. supply/returns (charge-offs/delinquencies elevated and stable), record MCM deployments/collections, and improved Cabot stability underpinning confidence for FY25 .

What Went Well and What Went Wrong

What Went Well

  • Record execution in the U.S.: MCM portfolio purchases $316M (+34% YoY) and collections $454M (+23% YoY) at very attractive returns .
  • Operating leverage: Cash efficiency margin improved to 58.3% (from 54.8% in Q1’24), with OpEx rising only 8% vs collections +18% .
  • Management confidence and discipline: Guidance reiterated for FY25; leverage 2.6x, no material maturities until 2027; resumed buybacks ($10M Q1; $16M YTD as of call) .

What Went Wrong

  • Negative revision to expected future recoveries: changes in recoveries totaled $21.5M, comprised of $27M cash-overs partly offset by -$5.5M changes in expected future recoveries (vintage-level judgment) .
  • Interest expense headwinds: up ~30% YoY to ~$69M due to higher debt balances and rates from 2024 bond issuances .
  • Europe remains competitive: Cabot purchasing held to $51M and selective given subdued lending/low delinquencies and robust competition (though collections +7% YoY) .

Financial Results

Core P&L vs Prior Periods

MetricQ3 2024Q4 2024Q1 2025
Revenues ($USD Millions)$367.071 $265.619 $392.775
Net Income ($USD Millions)$30.643 $(225.307) $46.796
Diluted EPS ($)$1.26 $(9.42) $1.93
Operating Expenses ($USD Millions)$260.981 $399.809 $263.432
Income from Operations (EBIT) ($USD Millions)$106.090 $(134.190) $129.343
Interest Expense ($USD Millions)$66.906 $68.498 $70.530

Notes:

  • Q4 2024 impacted by non-cash items at Cabot (goodwill impairment and ERC adjustments), creating a GAAP loss .

Margins vs Prior Periods

MarginQ3 2024Q4 2024Q1 2025
Net Income Margin %8.35% (calc from )(84.8%) (calc from )11.9% (calc from )
EBIT Margin %28.9% (calc from )(50.5%) (calc from )32.9% (calc from )
Adjusted EBITDA Margin %32.1% (Adj. EBITDA $117.823M on $367.071M) 0.3% (Adj. EBITDA $0.859M on $265.619M) 35.8% (Adj. EBITDA $140.460M on $392.775M)

Actuals vs Consensus Estimates (Q1 2025)

MetricConsensusActualSurprise
EPS ($)$1.3025*$1.93 +$0.63*
Revenue ($USD Millions)$374.487*$392.775 +$18.288*
EPS - # of Estimates4*——
Revenue - # of Estimates5*——

Values marked with asterisk (*) retrieved from S&P Global.

Segment and Operational Breakdown (Q1 2025)

MetricU.S. (MCM)Europe (Cabot)Total
Portfolio Purchases ($USD Millions)$316.4 $51.5 $367.9
Purchases YoY %+34% (13%) (51.5 vs 59.2) +24%
Collections ($USD Millions)$454 $150 $605
Collections YoY %+23% +7% +18%

KPIs

KPIQ3 2024Q4 2024Q1 2025
Estimated Remaining Collections (ERC) ($USD Millions)$8,648.886 $8,501.370 $8,862.661
Average Receivable Portfolios ($USD Millions)——$3,864.450
Collections Yield (annualized)——62.6%
Portfolio Yield (annualized)——35.7%
Cash Efficiency Margin (quarterly)——58.3%
Leverage (Net Debt/EBITDA proxy, company stated)—~2.6x (flat vs Q4) 2.6x
Share Repurchases ($USD Millions)——$10 (Q1)

Guidance Changes

MetricPeriodPrevious Guidance (Feb 26, 2025)Current Guidance (May 7, 2025)Change
Global Portfolio PurchasesFY 2025>$1.35B >$1.35B Maintained
Global CollectionsFY 2025$2.4B (+11% YoY) $2.4B (+11% YoY) Maintained
Interest ExpenseFY 2025N/A≈$285M New / Confirmed
Effective Tax RateFY 2025N/AMid-20s % New / Confirmed
Share RepurchasesFY 2025Plan to resume in 2025 Executed $10M in Q1 Initiated

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024 and Q4 2024)Current Period (Q1 2025)Trend
U.S. Supply/Returns“Highly favorable purchasing” with charge-off rates at 10+ yr highs; raised FY24 guidance Elevated/stable delinquencies/charge-offs; robust supply and attractive pricing Strong and stable
MCM ExecutionQ3: $230M purchases; collections at highest since 2021 Record $316M purchases; record $454M collections Strengthening
Cabot EuropeQ4: restructuring; goodwill impairment; ERC rebasing Solid operations; collections +7% YoY; selective purchasing Stabilizing
Changes in RecoveriesQ4: large negative changes at Cabot $21.5M total; $27M cash-overs offset by -$5.5M future recoveries Mixed but net positive
Leverage/LiquidityQ4: improving leverage, no maturities until 2027 Leverage 2.6x; no material maturities until 2027 Stable/improving
Capital ReturnQ4: plan to resume repurchases $10M Q1 buyback; $16M YTD at call Initiated

Management Commentary

  • “Encore’s 2025 is off to a strong start… portfolio purchases in Q1 of $368 million were up 24%… collections of $605 million were up 18%… earnings per share of $1.93 was up 103%” — Ashish Masih, CEO .
  • “Collections yield was 62.6%… portfolio yield 35.7%… changes in recoveries were $21.5M ($27M above forecast, offset by -$5.5M in expected future recoveries)” — Tomas Hernanz, CFO .
  • “We are reiterating our guidance… global portfolio purchasing in 2025 to exceed $1.35B… global collections to grow by 11% to $2.4B… interest expense ≈$285M… effective tax rate mid-20s” — Ashish Masih .
  • “Leverage closed at 2.6x… we don’t have any material maturities until 2027” — Tomas Hernanz .

Q&A Highlights

  • Cabot collections performance: Combination of improved forecasts and stable operations driving 107–108% performance vs ERC .
  • Expected collections multiple: 2.3x for both MCM and Cabot in Q1 .
  • U.S. supply outlook: Elevated but stable delinquencies/charge-offs and record lending support another record year of MCM purchasing; commitments running ahead of last year .
  • Tax season/consumer behavior: Normal tax season; payment behavior stable; no macro-driven deterioration observed in Q1 .
  • Changes in recoveries to EPS: ~$0.73 EPS impact from changes in recoveries; management cautioned against viewing EPS “ex-cash-overs” as normalized run-rate .
  • Buyback cadence: Future repurchases contingent on balance sheet strength, liquidity, U.S. purchasing opportunities, and cash generation; executed as previously signaled .

Estimates Context

  • Q1 2025 beat: EPS $1.93 vs $1.3025*; revenue $392.775M vs $374.487M*; magnitude reflects stronger collections (including cash-overs), record U.S. purchases/collections, and operating leverage .
  • Revisions watch: With portfolio/collections momentum and reiterated FY guide, sell-side estimates for FY25 EPS may need upward adjustments, while interest expense assumptions should reflect ≈$285M guidance (mid-20s tax rate) . Values marked with asterisk (*) retrieved from S&P Global.

Key Takeaways for Investors

  • U.S. engine accelerating: Elevated/stable charge-offs and robust supply/pricing underpin record MCM purchasing and collections, driving revenue/earnings momentum .
  • Operating leverage materializing: Cash efficiency margin at 58.3% and OpEx growth well below collections growth support margin durability near-term .
  • Guidance consistency: Reiteration of >$1.35B purchases and $2.4B collections with explicit interest/tax parameters increases confidence in FY25 trajectory .
  • Cabot stabilization: Post-Q4 rebasing/improvements, Cabot’s solid Q1 collections (+7% YoY) and disciplined purchasing reduce a key overhang .
  • Capital allocation: Repurchases resumed ($10M in Q1) within a framework prioritizing high-return U.S. deployments and leverage within 2–3x, suggesting balanced offense/defense .
  • Trading lens: Strong beat, reiterated guide, and constructive U.S. backdrop are positive near-term drivers; monitor changes-in-recoveries mix, interest expense trajectory, and Cabot execution for sustainability .
  • Risk checks: Interest expense sensitivity to rates/debt mix and European competition/pricing remain watchpoints despite improving fundamentals .