ENCORE CAPITAL GROUP INC (ECPG)·Q3 2025 Earnings Summary

Executive Summary

• Q3 2025 delivered record collections ($663.0M) and strong top-line growth; Revenues rose 25% YoY to $460.4M and diluted EPS surged 152% YoY to $3.17, driven by U.S. outperformance and technology-enabled collections overperformance .
• Both Revenue and EPS materially beat S&P Global consensus: $460.4M actual vs $411.3M estimate and $3.17 EPS vs $1.98 estimate; similar beats occurred in Q1 and Q2, underscoring estimate underappreciation of collection yields and cash overs* *.
• Guidance raised again: FY 2025 global collections increased to ~$2.55B (from ~$2.50B in Q2, and $2.40B initially in Q1); portfolio purchasing guidance maintained (expect to exceed 2024’s $1.35B), interest expense guided to ~$295M, cash efficiency margin ~58%, tax rate mid‑20s% .
• Capital allocation: $10M buyback in Q3 and ~$25M repurchased Q4‑to‑date; Board authorized an additional $300M to the program—near‑term stock catalysts include continued buybacks and raised collections outlook .

What Went Well and What Went Wrong

What Went Well

• Record global collections ($663M, +20% YoY) and U.S. collections ($502M, +25% YoY), supported by “new technologies, enhanced digital capabilities and continued operational innovation” improving conversions and payer book .
• Debt purchasing economics remained attractive: Q3 portfolio revenue +13% to $370.1M; changes in recoveries were $63.6M, with ~$61.5M from cash overs (above forecast), reflecting operational execution at MCM .
• Strengthened liquidity and extended maturities: increased U.S. facility by $150M to $450M (maturity 2028), issued $300M senior secured notes (6.625%, due 2031), and settled $100M convertibles in cash; leverage improved to 2.5x .

What Went Wrong

• Operating expenses grew (+10% YoY to $287.2M) amid legal collections and scaling; interest expense rose (+12% YoY to $73.3M), reflecting higher debt balances and funding costs .
• Europe (Cabot) remains supply‑constrained with subdued lending and robust competition; management remains selective, keeping deployment disciplined despite occasional spot opportunities .
• Collections outperformance is concentrated in earlier portfolio lifecycle vintages; sustainability will take time to reflect in ERC curves—management expects forecast adjustments but highlighted the lag in curve updates .

Financial Results

Consolidated Financials and Margins

Notes: EBIT Margin % computed from Income from Operations ÷ Revenues, citing source numerators and denominators.

Actual vs S&P Global Consensus

Values retrieved from S&P Global.*

Segment and Geographic KPIs

Additional Call Metrics (Q3): Collection yield 62.7%, portfolio yield 35%, debt purchasing yield 41%, cash efficiency margin 58.4%; leverage 2.5x .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Encore delivered another quarter of strong performance in Q3… record collections of $663 million… EPS of $3.17 up 152% compared to $1.26 a year ago.” — Ashish Masih, President & CEO .
• “We are again raising our global collections guidance and now expect our full‑year 2025 collections to be approximately $2.55 billion, reflecting year‑over‑year growth of 18%… guidance for portfolio purchasing remains unchanged.” .
• “Collections yield was 62.7%… changes in recoveries were $63.6M; the vast majority, $61.5M, were recoveries above forecast.” — CFO Tomas Hernanz .
• “We issued $300 million of senior secured notes at 6.625% due 2031, extended our U.S. facility to 2028, and settled the $100 million 2025 convertible notes entirely in cash.” — CFO .
• “We repurchased approximately $60 million year to date… board authorized an additional $300 million under our share repurchase program.” — CEO .

Q&A Highlights

• Q4 purchasing and forward flows: Management reiterated exceeding >$1.35B FY purchases with solid U.S. volumes; forward flows intact; quarterly volatility possible but overall trend strong .
• Collections multiples and pricing: U.S. and Cabot cumulative collections multiple at ~2.3; pricing stable with good returns; tech gains increase multiples .
• Sustainability of cash overs: 97% of $63.6M changes in recoveries were cash overs; forecast curves will adjust as data accumulates across portfolio lifecycle; confidence in continuation into Q4 and beyond .
• Balance sheet mix: ~75% fixed and hedged; ~25% floating debt; leverage 2.5x, improved vs prior periods .
• Buybacks cadence: ~$25M Q4‑to‑date, $60M YTD; pace subject to liquidity and balance sheet; increased recent pace reflects confidence .

Estimates Context

• Encore beat both revenue and EPS estimates in Q1, Q2, and Q3 2025; the largest surprise was in Q3 ($49.0M revenue beat; $1.19 EPS beat), driven by stronger collection yields and above‑forecast cash overs*.
• Expect analysts to raise FY EPS/Revenue trajectories to incorporate higher collection yield, sustained cash efficiency, and raised FY collections guidance*.
• Target price consensus mean: $60.25 with 4 estimates; Consensus recommendation text unavailable*.

Values retrieved from S&P Global.*

Key Takeaways for Investors

• Raised FY collections guidance to ~$2.55B and record Q3 collections signal durable demand tailwinds and operational upside; near‑term estimate revisions likely .
• Technology/digital initiatives are measurably lifting yields and driving significant cash overs; monitor curve updates as ERC incorporates early‑life outperformance over time .
• U.S. environment remains highly favorable (elevated charge‑offs, strong lending); Encore’s scale enables outsized share capture at attractive returns .
• Capital structure flexibility improved (facility upsize/extension; long‑dated notes; converts settled in cash); leverage at 2.5x supports both growth and buybacks .
• Buyback acceleration (+$300M authorization) provides downside support and enhances per‑share compounding amid expanding earnings power .
• Europe remains disciplined and selective; Q3 purchases higher on spot deals but management prioritizes returns given subdued lending/competition .
• Watch cash efficiency (58%) and interest expense trajectory ($295M FY) for incremental EPS sensitivity, alongside continued collections yield strength .