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    ECPG
    Earnings call· Jun 2026(Q2 FY26)

    ENCORE CAPITAL GROUP Q2 FY26 earnings call ECPG

    Aug 5, 2026 Source

    Executive summary

    Encore Capital Group Q2 FY26 — Record Collections and Strong U.S. Purchasing Drive Earnings Growth

    Encore Capital Group delivered a strong second quarter, marked by record global collections and robust U.S. portfolio purchasing, which drove significant earnings growth despite one-time refinancing costs. The company continues to benefit from favorable U.S. market conditions, characterized by high revolving credit and elevated charge-off rates, enabling strategic capital deployment into attractive portfolios. Management remains focused on operational excellence and competitive funding to sustain its value creation engine.

    Highlights

    5

    • Global collections reached a record $737 million, up 13% year-over-year.

    • U.S. portfolio purchases hit a record $372 million in Q2, contributing to $444 million global purchases.

    • GAAP net income increased 9% to $64 million, with EPS up 13% to $2.81, despite $1 per share in refinancing costs.

    • Leverage improved to 2.3x at quarter-end, down from 2.6x a year ago, within the target range of 2x-3x.

    • Cash efficiency margin improved by 2.9 percentage points to 60.2%.

    Concerns

    3

    • Refinancing costs of $30.5 million pretax, or $1 per share, impacted Q2 earnings.

    • Cabot collections in Europe were flat at $164 million compared to Q2 last year.

    • The U.K. market remains impacted by subdued consumer lending and low delinquencies, alongside robust competition.

    Guidance & targets

    6
    CategoryTargetConfidence
    Global portfolio purchases
    $1.4 billion to $1.5 billion
    high materiality
    High
    Global collections
    $2.8 billion to $2.85 billion
    high materiality
    High
    EPS
    $13 to $14 per share
    high materiality
    High
    Interest expense
    $295 million
    medium materiality
    High
    Effective tax rate
    mid-20s on a percentage basis
    medium materiality
    High
    Cash efficiency margin
    exceed 58%
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Midland Credit Management (U.S.)
    Achieved record portfolio purchases and collections, driven by strong market supply and operational improvements. Overperformance in recent vintages due to new technologies and digital capabilities.
    Portfolio purchases: $372 millionCollections: $572 millionCollections growth YoY: 17%
    		————
    Cabot Credit Management (Europe)
    Delivered solid performance with selective deployments. The U.K. market remains challenged by subdued consumer lending and competition. Focus on operational excellence and cost management.
    Portfolio purchases: $72 millionCollections: $164 millionCollections growth YoY: flat
    		————

    Operational metrics

    20
    Global collections
    $737 millionup 13% compared to a year ago
    Q2 FY26

    Record global collections performance.

    Portfolio revenue
    $400 millionup 11%
    Q2 FY26

    Supported by growth in average receivable portfolios.

    Changes in recoveries (total)
    $71 million
    Q2 FY26

    Sum of recoveries above forecast and changes in expected future recoveries.

    Recoveries above forecast
    $53 million
    Q2 FY26

    Incremental cash flow collected above ERC expectation.

    Changes in expected future recoveries
    $18 million
    Q2 FY26

    Net present value of changes in ERC forecast beyond the current quarter, indicating a transition to portfolio revenues.

    Debt purchasing revenue
    $471 millionincreased by 13%
    Q2 FY26

    Includes the impact of changes in recoveries.

    Debt purchasing yield
    41.7%
    Q2 FY26

    Approximately 6.3% was the impact of changes in recoveries.

    Servicing and other revenues
    $21 million
    Q2 FY26

    Component of total revenue.

    Total revenue
    $492 milliongrowth of 11%
    Q2 FY26

    Reflects strong growth in collections and portfolio revenue.

    Operating expenses
    $305 millionincreased only 5%
    Q2 FY26

    Reflects significant operating leverage compared to 13% collections growth.

    Cash efficiency margin
    60.2%improved by 2.9 percentage points compared to 57.3% in Q2 last year
    Q2 FY26

    Improved due to operating leverage.

    Interest expense and other income
    $104 million
    Q2 FY26

    Includes refinancing costs.

    Pretax refinancing costs
    $30.5 million
    Q2 FY26

    Impacted Q2 earnings by $1 per share.

    Annualized savings from refinancing
    $15 million
    Annual

    Expected savings from the Q2 refinancing activities.

    Tax provision
    $19 million
    Q2 FY26

    Implies a corporate tax rate of approximately 23%.

    Corporate tax rate
    23%
    Q2 FY26

    In line with previous guidance.

    Share repurchases
    $27 million
    Q2 FY26

    Part of capital allocation strategy.

    Return on invested capital (ROIC)
    14.7%up from 9.1% in Q2 last year
    Q2 FY26 TTM

    Reflects strong returns on capital deployment.

    Convertible notes soft call
    $230 million
    Q3 FY26

    Notes due 2029, soft call initiated in July.

    Annualized net charge-off volume (U.S.)
    more than $50 billion
    Q1 2026

    Estimated by multiplying revolving credit outstandings by the net charge-off rate.

    Industry KPIs

    10
    MetricValueDetails
    Funding mix$750 millionUSD
    Payment ratestable
    Delinquenciesnear multiyear highs
    Capital returns$27 millionUSD
    Credit quality mixstable
    Net charge off ratenear 4%%
    Loans card receivables$4.52 billionUSD
    Provision reserve rate$71 millionUSD
    Billed business purchase volume$444 millionUSD
    Net interest margin yield on receivables35.4%%

    Risks & headwinds

    3
    Refinancing costsQ2 FY26

    $30.5 million pretax, or $1 per share impact on Q2 EPS

    Mitigation: Successfully completed refinancing at significantly lower coupons, expecting $15 million in annualized savings.

    Subdued consumer lending and low delinquencies in the U.K.Q2 FY26 and ongoing

    Cabot collections flat at $164 million YoY

    Mitigation: Focus on operational excellence and cost management, leveraging best practices from MCM.

    Robust competition in the U.K. marketOngoing

    Not quantified, but stated as a factor impacting Cabot's selectivity

    Mitigation: Being selective with Cabot's deployments and focusing on operational efficiency.

    What to watch in Q3 FY26

    5

    Global portfolio purchases

    Q3 FY26 earnings call
    Current$1.4 billion to $1.5 billion (FY26 guidance, likely near top of range)
    TargetConfirmation of purchases near the top of the range

    Why it matters

    Sustained high purchasing volume indicates continued favorable market conditions and future collections growth.

    We continue to anticipate global portfolio purchases in 2026 to be within a range from $1.4 billion to $1.5 billion. Though given our performance in the first half, it's now likely we finish the year near the top of this range.

    Q&A highlights

    6

    Given the strong Q2 cash efficiency margin of 60.2%, is the full-year guidance of 'better than 58%' conservative, and is 59-60% more reasonable?

    Management reiterated the guidance of 'better than 58%', implying there is still room for improvement and not providing a more specific higher range.

    “We said better than 58%. So there is room for improvement in there.”

    asked by Mark Hughes · answered by Tomas Hernanz

    2 min read5 chapters

    Detailed Narrative

    01

    U.S. Market Conditions and Purchasing Strategy

    The U.S. market continues to present favorable conditions for portfolio purchasing, driven by revolving credit near record levels and credit card charge-off rates approaching 4%, the highest in over 10 years. This environment has led to robust portfolio supply, with annualized net charge-off volume estimated at over $50 billion. Encore's MCM business capitalized on this by achieving record U.S. portfolio purchases of $372 million in Q2, including opportunistic spot market acquisitions. The company expects continued strength in the U.S. purchasing environment.

    02

    Record Collections and Operational Excellence

    Encore achieved record global collections of $737 million in Q2, a 13% increase year-over-year, with MCM collections in the U.S. growing 17% to $572 million. This performance is attributed to strong execution, significant portfolio purchasing in recent years, and the deployment of new technologies and enhanced digital capabilities. These initiatives have particularly impacted the early stages of a portfolio's life cycle, leading to overperformance in recent vintages and a gradual adjustment of collections forecasts to reflect higher expected lifetime collections.

    03

    Refinancing and Balance Sheet Strength

    The company successfully refinanced $750 million of high-yield debt due 2032 and EUR 325 million of floating rate notes due 2033, resulting in significantly lower coupons and expected annualized savings of $15 million. This refinancing incurred $30.5 million in pretax costs in Q2, impacting EPS by $1 per share. Encore's leverage improved to 2.3x, down from 2.6x a year ago, demonstrating a strong balance sheet that provides competitive funding costs and access to capital.

    04

    European Market Performance

    Cabot Credit Management in Europe delivered solid performance with $72 million in portfolio purchases and $164 million in collections, which were flat year-over-year. The U.K. market remains challenging due to subdued consumer lending, low delinquencies, and robust competition. Cabot continues to focus on operational excellence and cost management, leveraging best practices from the MCM business, particularly as U.K. banks increasingly sell fresh portfolios in forward flows.

    05

    Capital Allocation and Shareholder Value

    Encore's capital allocation priorities focus on purchasing portfolios in attractive markets, followed by share repurchases. The company repurchased $27 million of shares in Q2, bringing the H1 FY26 total to $47 million. Return on invested capital (ROIC) increased to 14.7% on a trailing 12-month basis, up from 9.1% in Q2 last year, reflecting the company's commitment to delivering strong returns throughout the credit cycle.

    AI-generated summary of the company’s earnings call. Not investment advice.