Sign in
EC

ENCORE CAPITAL GROUP INC (ECPG)·Q2 2025 Earnings Summary

Executive Summary

  • Strong quarter with broad-based outperformance: revenue up 24% YoY to $442.1M and diluted EPS of $2.49 up 86% YoY; collections hit a record $655M, driving margin expansion and a sharp earnings inflection .
  • Material beat vs S&P Global consensus: Q2 revenue $442.1M vs $383.4M consensus*; diluted EPS $2.49 vs $1.51 consensus*; both aided by $55.6M positive “changes in recoveries” (c.$52.3M cash over-performance) .
  • Guidance raised: FY25 global collections now ~$2.5B (+15.5% YoY) vs prior $2.4B (+11%); portfolio purchasing to exceed 2024’s $1.35B unchanged; interest expense ~$285M and tax mid‑20s% unchanged .
  • Key catalysts: record U.S. purchasing ($317M) and collections ($490M) at MCM, resilient consumer payments, and improved liquidity (RCF upsized/extended; U.S. facility upsized/extended; no material maturities until 2028) .

What Went Well and What Went Wrong

  • What Went Well

    • Record operating execution: global collections up 20% to $655M; U.S. (MCM) collections reached a record $490M (+24% YoY) .
    • Positive recovery dynamics: “Changes in recoveries” were $55.6M, with ~$52.3M above forecast (“cash overs”), reflecting stronger-than-modeled collection performance; debt purchasing yield ~41% .
    • Management confidence and raised guidance: “we are raising our global collections guidance… now expect… ~$2.5B,” citing favorable U.S. supply and superior execution .

  • What Went Wrong

    • Higher interest expense: Q2 interest expense rose to $73.9M (+23% YoY) reflecting higher balances and 2024 bond issuances; management still expects ~$285M for FY25 .
    • Europe remains structurally tougher: Cabot’s supply/pricing conditions remain competitive amid subdued lending/low delinquencies; constant-currency collections +4% YoY vs +10% reported .
    • Cash from operations optics: reported operating cash flow down YTD due to GAAP treatment of “changes in recoveries” (backed out in CFOA), prompting investor questions on cash conversion .

Financial Results

Revenue, EPS, margins, and core KPIs (oldest → newest)

MetricQ4 2024Q1 2025Q2 2025
Revenues ($000)$265,619 $392,775 $442,122
Diluted EPS ($)$(9.42) $1.93 $2.49
Net Income ($000)$(225,307) $46,796 $58,721
Income from Operations ($000)$(134,190) $129,343 $150,733
Net Income Margin %(84.8%) 11.9% 13.3%
EBIT Margin % (Op Inc/Rev)(50.5%) 32.9% 34.1%
Collections ($000)$554,595 $604,807 $654,985
Portfolio Purchases ($000)$495,144 $367,851 $367,099
Estimated Remaining Collections (ERC) ($000)$8,501,370 $8,862,661 $9,362,400

Note: Margin percentages calculated from reported figures (citations reference underlying revenue and income lines).

Q2 2025 vs S&P Global Consensus

MetricQ2 2025 ActualQ2 2025 Consensus# of Estimates
Revenue ($)$442,122,000 $383,423,600*5*
Primary EPS ($)$2.49 $1.5075*4*

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

Segment/Geography Operating Detail

Segment KPIQ1 2025Q2 2025
MCM (U.S.) Portfolio Purchases ($M)$316.4 $317.3
MCM (U.S.) Collections ($M)$454 $490
Cabot (Europe) Portfolio Purchases ($M)$51.5 $49.8
Cabot (Europe) Collections ($M)$150 $164

Additional KPIs

KPIQ1 2025Q2 2025
Average Receivable Portfolios ($000)$3,864,450 $4,068,656
Collections Yield % (annualized)62.6% 64.4%
Portfolio Yield % (annualized)35.7% 35.5%
Debt Purchasing Yield %37.9% 41%
Changes in Recoveries ($000)$21,464 $55,599
- of which above forecast ($000)$27,000 $52,300
Cash Efficiency Margin %58.3% 57.3%
Interest Expense ($000)$70,530 $73,943
Leverage (CFO, period-end)2.6x 2.6x
Adjusted EBITDA ($000)$140,460 $164,233

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Global CollectionsFY 2025~$2.4B (+11% YoY) ~$2.5B (+15.5% YoY) Raised
Global Portfolio PurchasingFY 2025>$1.35B (exceed 2024) >$1.35B (exceed 2024) Maintained
Interest ExpenseFY 2025~$285M ~$285M Maintained
Effective Tax RateFY 2025Mid‑20s % Mid‑20s % Maintained
MCM U.S. PurchasingFY 2025Grow vs 2024 record “Poised to surpass” 2024 record Maintained (qualitatively stronger)

Earnings Call Themes & Trends

TopicQ4 2024 (Q-2)Q1 2025 (Q-1)Q2 2025 (Current)Trend
U.S. supply & pricingRecord U.S. supply; MCM purchases +23% in 2024 Favorable; expect 2025 to match/exceed 2024; strong returns Continued favorable supply/pricing; MCM on pace to surpass 2024 record Positive/stable
Consumer payment behavior—Stable; normal tax season, strong payer rates Stable; performance above forecast (cash overs) Positive/stable
Europe (Cabot) environmentRestructuring/impairments; rebased ERC Solid collections; selective deployments amid competitive market Collections +10% reported (+4% CC); competition still elevated Stabilized but structurally tougher
Leverage & LiquidityLeverage path improving; plan to resume buybacks in 2025 2.6x; no material maturities until 2027 2.6x; RCF +$190M to 2029; U.S. facility +$150M to 2028; no maturities until 2028 Improved flexibility
Share repurchasesPlan to resume in 2025 Resumed ($10M) $15M in Q2; $25M 1H25 Increasing
Changes in recoveriesNegative in Q4 due to Cabot adjustments +$21.5M; $27M above forecast +$55.6M; ~$52.3M above forecast Strengthening

Management Commentary

  • “Encore delivered another quarter of strong performance in Q2… Portfolio purchases of $367 million were up 32%… record collections of $655 million were up 20%… earnings per share of $2.49 up 86% YoY.” — Ashish Masih, CEO .
  • “We are raising our global collections guidance… now expect… approximately $2.5 billion… an increase over our prior expectation of 11% growth to $2.4 billion.” — CEO .
  • “Changes in recoveries were $55.6 million… the vast majority, $52.3 million, were recoveries above forecast… This is an outstanding result that reflects the effectiveness of our collection platforms and the strength of the consumer.” — CFO .
  • “Cash efficiency margin for the quarter improved… to 57.3%… We expect [it] to remain near current levels for the remainder of the year.” — CFO .
  • “In July, we increased the size of our U.S. facility by $150 million… and extended its maturity to 2028… [and] increased the size of our RCF by $190 million… to 2029… [so] we don’t have any material maturities until 2028.” — CFO .

Q&A Highlights

  • Consensus and interest expense runway: Despite Q2 interest expense of ~$74M, management reaffirmed FY25 interest expense of ~$285M, indicating no incremental one‑offs expected .
  • Supply dynamics: U.S. supply remains elevated; pricing stable; MCM expected to exceed 2024 record in purchasing despite quarter‑to‑quarter variability .
  • Collections outperformance: Of the $55.6M changes in recoveries, ~$45M from MCM; ~95% represents recoveries above forecast (“real dollars that came in the door”) .
  • Cash flow optics: CFO explained CFOA is impacted by backing out “changes in recoveries,” which can make cash from operations appear softer despite strong collections .
  • Vintage multiples: 2025 vintage expected collections multiple of ~2.3x at MCM and ~2.4x at Cabot (Q2 update); both were ~2.3x in Q1 .

Estimates Context

  • ECPG delivered a clear beat vs S&P Global consensus in Q2 2025: revenue $442.1M vs $383.4M consensus*, and diluted EPS $2.49 vs $1.51 consensus* .
  • Estimate breadth: 5 revenue and 4 EPS estimates for Q2 2025*; magnitude of beat reflects stronger-than-modeled recoveries and record U.S. collections (MCM) .

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

Key Takeaways for Investors

  • Structural tailwind continues: Elevated U.S. card charge-off/delinquency and robust lending sustain record supply; Encore is capturing share at strong returns (MCM purchases/collections at records) .
  • Quality of beat matters: ~$52.3M of Q2 “cash overs” signals durable operational outperformance, not accounting noise; debt purchasing yield uplift to ~41% underscores monetization strength .
  • Guidance raise is notable: FY25 collections raised to ~$2.5B (+15.5%), suggesting stronger 2H25 cash generation even as seasonality softens; portfolio purchasing outlook maintained above record 2024 .
  • Balance sheet/liquidity improved: Expanded and extended facilities; no material maturities until 2028; leverage steady at 2.6x affords capacity to deploy and repurchase shares opportunistically .
  • Watch Europe but execution stable: Cabot collections improving, though market supply remains constrained and competition elevated; constant-currency growth moderates headline .
  • Near-term trading setup: Dual beats plus guidance raise are positive catalysts; any pullback on interest expense optics or CFOA mechanics may be opportunities given strong underlying cash generation .
  • Medium term: If U.S. supply/pricing and consumer payment stability persist, earnings power and cash generation should trend higher; monitor changes in recoveries trajectory and incremental capital deployment pace .

Additional Context (Q2-relevant press releases)

  • Encore’s Economic Freedom Study highlights elevated consumer willingness to work with collectors and focus on debt reduction—aligns with stable payments and collection performance trends noted by management .