Encore Capital Group Q1 Earnings Call Highlights

Key Points

• Strong Q1 driven by U.S. operations: Encore reported record collections of $718M (up 19%) and global portfolio purchases of $363M, with Midland Credit Management accounting for 87% of purchases and posting $556M in collections (up 23%).
• Robust financials and updated guidance: Total revenue rose 21% to $475M, net income jumped 84% to $86M (EPS $3.86), and management raised 2026 guidance — collections now expected to be $2.8B (+8%) with EPS of $13 and portfolio purchases of $1.4–$1.5B; leverage improved to 2.3x and share repurchases remain a secondary priority after U.S. buying.
• Operational improvements boosting recoveries: New technology and digital capabilities increased payer generation and early-vintage performance, producing $46M of collections above forecast and prompting management to expect gradual upward adjustments to collection forecasts over time.

Encore Capital Group NASDAQ: ECPG reported what executives described as a “strong performance” in the first quarter of 2026, driven by record collections, higher earnings, and continued portfolio buying activity that remained concentrated in the U.S.

President and CEO Ashish Masih said the quarter reflected “industry leadership and operational execution,” citing global portfolio purchases of $363 million and record collections of $718 million, up 19% from the prior-year period. Average receivable portfolios rose 14% to $4.4 billion, while leverage improved to 2.3x at quarter end from 2.6x a year earlier, even as the company continued significant portfolio purchases.

U.S. business drives record collections and purchasing

Masih said the company’s performance was “primarily driven by the exceptional performance of our MCM business in the U.S. across all dimensions of purchasing, collections, and efficiency.” Of total first-quarter portfolio purchases, 87% of dollars were deployed in the U.S., reflecting what Masih called attractive market conditions and higher returns relative to other regions.

In the U.S. market, Masih pointed to Federal Reserve data showing revolving credit near record levels and credit card charge-off rates that rose to their highest level in more than 10 years in 2024 and “still remains at an elevated level.” Using Q4 2025 data, he estimated annualized net charge-off volume at more than $54 billion. He added that delinquencies remained near multi-year highs, which the company views as a leading indicator of future charge-offs.

Against that backdrop, Midland Credit Management (MCM) posted portfolio purchases of $316 million, which Masih described as “one of our strongest portfolio purchasing quarters ever.” MCM collections rose 23% year over year to a record $556 million. Masih attributed the U.S. overperformance to “the deployment of new technologies, enhanced digital capabilities, and continued operational innovation,” which he said helped the company reach more consumers, drive more payments, and grow its payer base. He noted these initiatives had a greater effect early in a portfolio’s life cycle and contributed to outperformance in recent vintages.

Masih also said consumer payment behavior remained stable “despite some of the negative news and macro uncertainty,” adding that this was consistent with commentary from banks and card issuers during recent earnings calls.

Cabot posts steady results amid selective buying

In Europe, the company’s Cabot Credit Management business delivered what Masih called “another quarter of solid performance.” Cabot’s first-quarter portfolio purchases were $47 million, which he said was consistent with its recent historical trend. Masih said Encore remained selective in the U.K. due to subdued consumer lending, low delinquencies, and “continued robust competition.”

Cabot collections were $161 million, up 7% year over year, which Masih said was supported by currency tailwinds. He added that the company is focused on operational excellence and cost management, including applying best practices from MCM, particularly as U.K. banks increasingly sell fresh portfolios through forward flow arrangements.

Financial results show operating leverage and higher earnings

Executive Vice President and CFO Tomas Hernanz reported that first-quarter collections increased 19% and portfolio revenue rose 13%. He said collection yield was 65.2%, improving 2.6 percentage points year over year, while portfolio revenue increased to $390 million, supported by a 14% increase in average receivable portfolios and a portfolio yield of 35.4%.

Hernanz detailed “changes in recoveries” of $62.7 million for the quarter, including $46 million of recoveries above forecast and $16.7 million of changes in expected future recoveries. “Put differently, we collected $46 million more than we forecasted in our ERC, which is incremental cash flow,” he said. He added that the company expects collection forecasts to “gradually adjust” to reflect the impact of new technologies and process improvements, with future cash flows eventually transitioning into portfolio revenues.

Debt purchasing revenue increased 23.5% to $453 million, producing a debt purchasing yield of 41.1%. Hernanz said approximately 5.7% of that yield reflected the impact of changes in recoveries. Servicing and other revenues were $23 million, bringing total revenue to $475 million, up 21%.

Operating expenses increased 11% to $281 million, which Hernanz said reflected “significant operating leverage” given 19% collections growth. The company’s cash efficiency margin improved by 2.6 percentage points to 60.9% in the first quarter, and Hernanz said Encore continued to expect full-year 2026 cash efficiency margin to exceed 58%.

Interest expense and other income increased 5% to $72 million, reflecting higher debt balances. The tax provision was $25 million, implying a corporate tax rate of about 23%, which Hernanz said was consistent with prior guidance. Net income rose 84% to $86 million, and earnings per share increased to $3.86 from $1.93 a year earlier.

On funding and liquidity, Hernanz said leverage improved to 2.3x and that the company extended the maturity of its Cabot securitization facility by one year to January 2031. He added Encore had “no material maturities until 2028” and “ample liquidity to continue to grow our business well into the future.”

Capital allocation, share repurchases, and updated guidance

Masih reiterated Encore’s priorities of maintaining a strong and flexible balance sheet and operating within its target leverage range of 2x to 3x. He said the company views portfolio purchases—particularly in the U.S.—as its top capital allocation priority, followed by share repurchases. Encore repurchased approximately $20 million of shares in the first quarter. Masih also noted return on invested capital improved to 14.6% on a trailing 12-month basis from 8.3% a year earlier.

Based on what Masih called “continuing strong performance and the business momentum we carried into the second quarter,” the company issued updated guidance for 2026:

• Global portfolio purchases: still expected to be $1.4 billion to $1.5 billion
• Global collections: raised; now expected to increase 8% to $2.8 billion
• EPS: expected to increase 19% to $13 per share
• Interest expense and other income: still expected to be approximately $300 million
• Effective tax rate: still expected to be in the mid-20s percentage range

Q&A focuses on market stability, AI, and vintage performance

During the question-and-answer session, Citizens Capital Markets analyst David Scharf asked whether anything had changed meaningfully in purchasing or collections conditions in recent months. Masih responded that “the short answer is no,” describing U.S. supply, competition, and pricing as stable with strong returns, and Europe as stable with higher competition than the U.S. He said consumer behavior remained “very stable,” including new payer generation and payment plan behavior.

Scharf also asked about artificial intelligence and potential regulatory considerations for a collections business. Masih said Encore has leveraged technology for years and that “AI is another level” now being incorporated through vendors and internal pilots. He noted that collections calls require empathy and complexity that current voice tools are “not quite ready” to handle as well as human account managers, and added there are regulatory nuances around using artificial voice in collection calls.

Truist analyst Mark Hughes asked about U.S. supply trends, with Masih characterizing supply as “pretty stable,” though he noted some fintech sellers have entered the market over the last few years. Hughes and others also asked about collections multiples for recent vintages. Management said the U.S. Q1 2026 vintage started at a 2.4 collections multiple; the 2025 vintage moved from 2.3 to 2.4; and the 2024 vintage moved from 2.3 to 2.5. For Cabot, management said the Q1 collections multiple was 2.2.

Raymond James analyst Robert Dodd asked for more detail on the $46 million collections overperformance versus forecast and whether it was driven more by 2024 or 2025 vintages. Management said the overperformance was still coming from those vintages, citing about $15 million of changes in recoveries for the 2024 vintage and $24 million for the 2025 vintage, while noting both were still in early stages and large in size.

Asked about tax season effects, Masih said it had been “a typical tax season,” with benefits generally in the first quarter and early second quarter depending on timing.

Encore said it expects to report second-quarter 2026 results in August.

About Encore Capital Group NASDAQ: ECPG

Encore Capital Group, Inc is a global specialty finance company that focuses on the purchase and management of nonperforming consumer receivables. Through its subsidiaries, the company acquires charged-off debt portfolios from credit card issuers, banks, and other financial institutions, and seeks to recover outstanding balances through a combination of customer outreach, payment arrangements, and, where appropriate, legal collection efforts. Encore's business model emphasizes compliance with regulatory and industry standards to ensure ethical and transparent debt-recovery practices.

Headquartered in San Diego, California, Encore operates across North America and Europe.

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