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Encore Capital Reports Earnings, Talks About Increased Supply of Credit Card Debt

Revenue and profits were up at Encore Capital Group, which reported its second quarter financial statements yesterday.

The company had revenue of $350 million for the second quarter of 2018, up from $291 million in the same quarter a year earlier. Net income at the company was $26.3 million for the quarter, up from $20.2 million in the same period last year.

Encore said it spent more money during the second quarter to buy charged-off credit card debt from U.S. banks than ever before. As well, company Chief Executive Ashish Masih said, the supply of charged-off debt continues to grow.

“The second quarter for Encore was a period of strong financial and operational performance as our global business generated record levels of portfolio purchases, collections, revenues, and estimated remaining collections,” Masih said in a statement. “Our strong collections were helped by our operational innovation and the additional collections capacity we’ve been adding steadily around the world.”

Encore spent $203 million on buying portfolios in the U.S. during the second quarter, and have spent $382 million through the first half of 2018, Masih said on a conference call yesterday to discuss the earnings results.

While many of the questions from analysts on the call were about Encore’s European operation and its acquisition of Cabot Credit Management, there were some questions about the U.S. market. Here are some snippets given by Masih from a transcript of the call.

When asked about the status of the U.S. operation and it’s growth potential:

So in terms of capacity we started growing capacity in early 2017 for the U.S. business in all our three locations rather three geographies in our four call centers in the U.S. and in Costa Rica and India, and we started doing that in a very measured way because it takes time to hire and train and retain good account managers and we also have started growing capacity in our internal litigation operation which is kind of more of a production or back office kind of operation. And we continue to do that this year. I expect it will continue for a remainder of the year at a steady pace.

And in terms of expenses you probably wouldn’t see too much increase from that but there are other puts and takes that come into play as well but the capacity increase continues and we are focusing a lot more in call center because what we’re finding is to your other part of the question given the sales are more fresh and we’ve been very successful in purchasing fresh portfolios and signing forward flows we are putting a lot of emphasis on our consumer centric call model which allows consumers to settle their debts or get on a payment plan earlier in the cycle and using just through a conversation as opposed to later in the cycle or through litigation.

And we’re finding good success in developing payment plans that are long-lasting and very resilient. And the second thing it’s doing is it’s increasing our share of call center collections in a very slow but measured manner. So we feel it’s good for us given the differences in cost to collect of the two channels but also extremely positive and a better outcome for consumers that they’re able to connect with our account managers, have a detailed conversation understand — we are able to understand what their financial situation is and then have the one up payment plan that makes sense as opposed to one that just they agreed to without thinking through. So we take our time to talk to the consumers, the calls are long. That’s the focus of a consumer centric call model that’s driving some of the – that’s being — that’s an output of some of our expansion and capacity in all our three geographies.

When asked about the regulatory climate in the U.S.

It’s been kind of quiet and I would say consistent with the last few quarters in terms of regulatory outlook there’s maybe two or three levels which are fairly consistent. So one major regulator that impacts our industry is the OCC guiding the banks and that’s been very stable over the last few years in terms of their expectations of banks and which drives their certification and audit processes which is what we go through on a regular basis. Last year we went through over 40 audits and passed all of them. That’s what creates differentiation for our platform against many other debt buyers here in the U.S.

The second regulatory one is obviously the CFPB or the BCFP as it’s now known and what we heard of few weeks ago maybe a couple of months ago was they plan to issue the notice of proposed rule-making sometime in 2019 I believe May or something around that and that will still take several quarters. If that happens at that timeframe for the rules to get finalized perhaps even a year given it’s a long process and from that point of view we have seen the BCFP being a much more for balanced regulator and looking at consumers interest but also looking at it in a balanced way. The third element of regulatory that generally is of interest is the TCPA or the impact on auto-dialing cellphones. There was a court case as you mentioned and after that the FCC asked for commentary which many have provided including us and we are waiting for any changes or clarification to come from the FCC that makes it easier to use auto-dialers for reaching consumers because that’s a more and more consumers have cell phones who may not have consented and it’s very important to be able to reach those consumers. So that will improve once we get some clarification but nothing really has changed since the last quarterly call that we had on that front on either of the fronts.


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