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ENCORE CAPITAL GROUP INC (ECPG)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 headline GAAP loss per share of $9.42 reflected significant non-cash Cabot charges; underlying collections grew 21% year over year to $554.6M and portfolio purchases surged 69% to $495.1M .
  • Management guided 2025 global purchases to exceed $1.35B and collections to $2.40B (+11%), with expected interest expense ~$285M and mid‑20s% effective tax rate; plans to resume share repurchases in 2025 as leverage fell to 2.6x by year‑end .
  • Cabot reset: ~$453M ERC reduction drove negative changes in expected recoveries ($129.1M), $101.0M goodwill impairment, $18.5M IT impairment, and $6.1M restructuring charges; exit of Italian NPL market and prior exit of Spanish secured NPLs executed to “put issues behind us” .
  • U.S. (MCM) remained strong: record Q4 U.S. purchases of $295.3M and stable pricing with strong returns; consumer payment behavior stable; legal collections mix at a record low 36% as omnichannel collections improved .

What Went Well and What Went Wrong

What Went Well

  • Record global purchasing in Q4 ($495.1M) and full-year ($1.35B); record U.S. purchases ($295.3M in Q4; $1.0B for 2024) and strong collections growth (+21% YoY in Q4; +16% FY) .
  • Management guidance and capital plan: 2025 collections guided to $2.40B (+11%) and purchases to exceed $1.35B; leverage down to 2.6x despite record deployments; expects to resume buybacks in 2025 .
  • Operational efficiency: cash efficiency margin improved to ~54.2% for 2024; legal collections share fell to ~36% with call center/digital at record high, reflecting omnichannel execution .

Management quotes:

  • “We anticipate our global portfolio purchases in 2025 to exceed the $1.35 billion… We expect global collections in 2025 to increase by 11% to $2.4 billion… we plan to resume share repurchases in 2025.”
  • “MCM collections increased by 20% compared to 2023… pricing is stable, but returns are strong.”

What Went Wrong

  • Cabot reset weighed heavily: ~$453M ERC reduction (older vintages, U.K.-heavy), $101.0M goodwill impairment, $18.5M IT impairment, $6.1M restructuring; negative changes in expected recoveries reduced revenue by $129.1M in Q4 .
  • Q4 revenue declined 4% YoY to $265.6M despite higher collections, driven by changes in recoveries and Cabot adjustments; GAAP net loss was $(225.3)M .
  • Europe remains challenging: subdued lending, low charge‑offs, and competitive intensity limited Cabot purchasing sustainability; management does not expect Q4’s exceptional $200M Cabot purchases to repeat in 2025 .

Financial Results

Core Financials (YoY and QoQ)

MetricQ4 2023Q3 2024Q4 2024
Total Revenues ($USD Millions)$277.387 $367.071 $265.619
GAAP EPS (Diluted) ($)$(11.40) $1.26 $(9.42)
GAAP Net Income ($USD Millions)$(270.762) $30.643 $(225.307)
Operating Expenses ($USD Millions)$494.580 $260.981 $399.809
Collections ($USD Millions)$458.350 $550.268 $554.595
Portfolio Purchases ($USD Millions)$292.497 $282.485 $495.144
Changes in Recoveries ($USD Millions)$(52.476) $12.675 $(95.760)

Segment/Purchases Breakdown

MetricQ4 2023Q3 2024Q4 2024
U.S. Purchases ($USD Millions)$208.5 $230.2 $295.3
Europe Purchases ($USD Millions)$84.0 $52.3 $199.8

KPIs and Balance Sheet Context

KPI / MetricFY 2023FY 2024
Estimated Remaining Collections (ERC) ($USD Millions)$8,191.913 $8,501.370
Collections ($USD Millions)$1,862.567 $2,162.478
Revenues ($USD Millions)$1,222.680 $1,316.361
Cash Efficiency Margin (%)51.8% 54.2%
Leverage Ratio (Net Debt/EBITDA proxy, mgmt metric)2.9x YE23 2.6x YE24
Cash & Cash Equivalents ($USD Millions)$158.364 $199.865

Q4 Cabot-specific Impacts

ItemQ4 2024 Amount
Changes in Expected Future Recoveries ($USD Millions)$(129.128)
Goodwill Impairment ($USD Millions)$(100.600)
IT-related Asset Impairment ($USD Millions)$(18.544)
Loss on Extinguishment of Debt ($USD Millions)$(7.832)
Restructuring Charges ($USD Millions)$(6.087)
Total EPS Impact ($/share)$(10.92)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Global Portfolio PurchasesFY2025N/A>$1.35B New
Global CollectionsFY2025N/A$2.40B (+11%) New
Interest ExpenseFY2025N/A~$285M New
Effective Tax RateFY2025N/AMid‑20s% New
Share RepurchasesFY2025Priority > M&A (Q3) Plan to resume in 2025 Resumption expected
Global Portfolio PurchasesFY2024>$1,150M (Q2) ; ~$1,250M (Q3) Actual $1,352M Beat vs guidance
Global CollectionsFY2024>$2,075M (Q2) ; >$2,125M (Q3) Actual $2,162M Beat vs guidance

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
U.S. portfolio supply & pricingRecord U.S. purchasing; favorable market Record supply, favorable pricing; strong collections Pricing stable, returns strong; record U.S. Q4 purchases Strength sustained
Cabot restructuring & ERCSelective deployment; competitive markets Exit Spain secured NPLs; pretax loss $8M Major ERC reduction ($453M), goodwill/IT impairments; exit Italy NPL Reset executed
Leverage & balance sheetNot highlightedLeverage 2.7x; extended facilities/maturities Leverage 2.6x YE; no material maturities until 2028 Improving
Capital allocation (Buybacks vs M&A)Raising FY guidance Prioritized buybacks over strategic M&A Plan to resume buybacks in 2025 Progressing
Collections efficiency & legal mixStrong collections; omnichannel noted CEM up to 53.6%; legal expense rising with volume Legal share record low 36%; call center/digital record high Efficiency improving
Technology/OmnichannelOngoing improvements Continued omnichannel execution Omnichannel highlighted; IT impairment in U.K. servicing Mixed (exec strong; legacy IT write‑down)
European macro & competitionPricing improving but not reflecting cost of capital Slow U.K. supply; competition high Subdued lending, low charge‑offs; competitive intensity persists Challenged

Management Commentary

  • “MCM leaned into this opportunity by finishing the year with its highest quarter of portfolio purchasing ever, deploying $295 million in Q4 at strong returns… MCM collections increased by 20% compared to the prior year.”
  • “Reductions to Cabot’s ERC led to negative changes in expected future recoveries of $129 million in the fourth quarter… we incurred $101 million goodwill impairment… and a $19 million IT-related asset impairment.”
  • “We anticipate global portfolio purchasing in 2025 to exceed the $1.35 billion… We expect global collections to grow by 11% to $2.4 billion… we expect to resume share repurchases in 2025.”
  • “Our leverage ratio declined from 2.9x at the end of 2023 to 2.6x at the end of 2024… even while purchasing a record level of portfolio during the year.”

Q&A Highlights

  • Cabot ERC reduction magnitude and composition: total ~$453M ERC reduction, ~2/3 U.K.; revenue impact PV of $(129.1)M; goodwill impairment $101.0M; exit Italy NPL; $19.0M IT impairment; $6.1M restructuring .
  • Pricing and returns: U.S. pricing stable with strong returns; outstandings near $1.4T; charge‑off rate ~4.7% per latest Fed data cited by management .
  • Cash-overs: Q4 cash-overs were ~$26M; management would not guide this item .
  • Mix and 2025 purchasing: Expect U.S. to comprise ~80% of purchasing; Cabot to decline from 2024, overall purchases to exceed $1.35B .
  • Legal collections and efficiency: legal share at ~36% (record low) as call center/digital rose; expense dollars up with volume, but efficiency metrics improving .

Estimates Context

  • S&P Global consensus for Q4 2024 EPS and revenue was unavailable at time of analysis due to data access limits; therefore, a formal beat/miss comparison to Wall Street estimates cannot be provided. Values retrieved from S&P Global.*

Key Takeaways for Investors

  • The quarter’s GAAP loss was driven by Cabot non‑cash charges; underlying cash generation and collections remain strong, particularly in the U.S. MCM franchise .
  • U.S. supply/pricing backdrop remains favorable; record Q4 U.S. purchases suggest continued collection momentum into 2025 .
  • Europe reset should reduce volatility: Cabot exits (Italy NPL, Spain secured NPL) and ERC rebasing aim to align future performance with updated expectations .
  • Balance sheet flexibility intact: leverage down to 2.6x; extended/renewed facilities push major maturities to 2028; supports resumption of buybacks .
  • 2025 guide implies double‑digit collections growth and sustained high purchasing; watch interest expense (~$285M) and effective tax rate (mid‑20s%) as headwinds to EPS translation .
  • Operational efficiency strengthening via omnichannel; legal collections mix at lows should support margin resilience as volumes rise .
  • Near‑term stock narrative hinges on confidence in Cabot reset and buyback resumption; catalysts include continued U.S. collections strength and capital returns, while European performance stabilization is a key watch item .