ECPG - NASDAQ

Good day, and thank you for standing by. Welcome to Encore Capital Group's Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to the Vice President of Global Investor Relations, Bruce Thomas.

Thank you, operator. Good afternoon, and welcome to Encore Capital Group's fourth quarter 2023 earnings call. Joining me on the call today are Ashish Masih, our President and Chief Executive Officer; Jonathan Clark, Executive Vice President and Chief Financial Officer; and Ryan Bell, President of Midland Credit Management. Ashish and Jon will make prepared remarks today, and then we will be happy to take your questions. Unless otherwise noted, comparisons on this conference call will be made between the fourth quarter of 2023 and the fourth quarter of 2022 or the full year of 2023 and the full year of 2022. In addition, today's discussion will include forward-looking statements that are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from our expectations. Please refer to our SEC filings for a detailed discussion of potential risks and uncertainties. We undertake no obligation to update any forward-looking statement. During this call, we will use rounding and abbreviations for the sake of brevity. We will also be discussing non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are included in our investor presentation, which is available on the Investors section of our website. As a reminder, following the conclusion of this call, a replay of this conference call, along with our prepared remarks, will also be available on the Investors section of our website. With that, let me turn the call over to Ashish Masih, our President and Chief Executive Officer.

Thanks, Bruce, and good afternoon, everyone. Thank you for joining us. On today's call, I will start with a high-level recap of 2023. Then I'll review our strategy as well as a few key measures that are important indicators of the state of our business. Then Jon will review our financial results, after which I'll touch on our financial priorities and provide guidance on several key metrics for 2024. At the conclusion of today's call, we will also post to our website our annual report, which includes our 10-K and my letter to shareholders. We will begin with a look-back over the past year. For the debt buying industry as a whole, 2023 was a year characterized by continued rapid growth of portfolio supply in the U.S., contrasted by slower growth in the U.K. and Europe. Let's begin in the U.S., where continued increases in lending by banks coupled with rising delinquencies and charge-offs led to an exceptional purchasing environment. With record supply in the U.S. market for non-performing loan portfolios, our largest business, MCM, increased its portfolio purchases in 2023 to a record $815 million at strong returns. This total was double the amount we purchased in 2021. Our disciplined approach to purchasing portfolios and the flexibility of our global balance sheet have allowed us to redirect our capital deployment to the higher return opportunities in the U.S. In fact, 76% of our portfolio purchasing in 2023 was allocated to the U.S. market compared to 56% five years ago. As a result of this focus, we believe Encore has emerged from 2023 in a stronger competitive position and a clear leader in the industry, with our U.S. business as the engine. In contrast to the U.S., supply growth in the U.K. has been much more muted. Credit card outstandings are still not yet back to pre-pandemic levels as banks in the U.K., unlike those in the U.S., did not start to meaningfully increase lending during the pandemic years. In addition, U.K. charge-offs remain at low levels. The competitive environment faced by our business in the U.K. and Europe, Cabot Credit Management, continues to be stiffer than the U.S., as many of our competitors appear to have been slow in fully adjusting pricing to higher funding costs. Against this backdrop, we remain patient, choosing to deploy at current low levels until the returns in Cabot's markets become more attractive. So, after several years of lower deployments caused by the pandemic and its after-effects, and with our MCM business leading the way, we expect to turn the corner in 2024 with regard to our operational and financial results. At this time, I believe it's helpful to reiterate the critical role we play in the consumer credit ecosystem by assisting in the resolution of unpaid debts, which are an expected and necessary outcome of the lending business model. Our mission is to help create pathways to economic freedom for the consumers we serve, by helping them resolve their past-due debts. We do that by engaging consumers in honest, empathetic and respectful conversations. Our business is to purchase portfolios of non-performing loans at attractive returns while minimizing funding costs. For each portfolio that we own, we strive to exceed our collection expectations, while maintaining an efficient cost structure as well as ensuring the highest level of compliance and consumer focus. We achieve these objectives through our three-pillar strategy. This strategy enables us to deliver outstanding financial performance and positions us well to capitalize on future opportunities. We believe this is instrumental for building long-term shareholder value. I would now like to highlight Encore's performance in 2023 in terms of several key metrics, starting with portfolio purchasing. Encore's global portfolio purchases increased 34% for the year, with record U.S. deployments in our largest business, MCM, leading the way. This increased portfolio purchasing will help drive Encore's collections growth in 2024. Our concentration of portfolio purchases in the U.S. in 2023 is a reminder that the flexibility of our global funding structure allows us to allocate capital toward our highest return opportunities. You may recall that our balance sheet strength is a key element of our three-pillar strategy. As market supply remains elevated in the U.S. and the pricing environment continues to improve, MCM's ERC is steadily growing. Importantly, as pricing continues to improve, we expect to collect more for every dollar of capital deployed. The significant amount of ERC we are adding reflects the efficiency of our global capital deployment and is reflected in our higher purchase price multiples. Our portfolio purchasing in 2023 clearly illustrates this point. I mentioned a moment ago that compared to 2022, Encore's portfolio purchases in 2023 increased 34%. Over that same period, the ERC we added as a result of those purchases increased 43%. That increase in purchasing efficiency and higher purchase price multiples translates to an incremental $142 million of future collections for the 2023 purchase vintage. We cannot overstate the importance of our differentiated multiples, which are indicators of our higher returns, and their expected impact on future financial performance. This current purchasing environment in the U.S. is what we've been anticipating. Our MCM business is in full stride purchasing portfolios at strong returns, which adds future cash flows and profitability to the business. Global collections in 2023 were $1.86 billion compared to $1.91 billion in the prior year. After being impacted by several years of lower deployments due to the pandemic and its after-effects, we expect collections to grow meaningfully in 2024. We believe that our ability to generate significant cash provides us an important competitive advantage, which is also a key component of our three-pillar strategy. In the U.S., from 2020 through the first half of 2022, lower consumer spending, credit card balances and charge-off rates drove reduced market supply in our industry and also led to higher collections for our business. When consumer behavior began to normalize and incremental cash generation from these higher collections began to subside, our cash generation came under pressure as the prolonged period of lower portfolio purchases then led to reduced overall collections. More recently, however, higher portfolio purchases and improving pricing over the past several quarters have begun to reverse this trend. Similar to what I mentioned a moment ago regarding our collections' trajectory, we expect our cash generation to also grow meaningfully in 2024 in comparison to 2023. U.S. consumer credit card delinquencies, a leading indicator of future charge-offs, have also continued to rise and are now well above pre-pandemic levels. As both lending and the charge-off rate grew simultaneously, we saw record U.S. market supply in 2023. Delinquency data at year-end supports our conclusion that we expect 2024 to be another record year for portfolio sales by U.S. banks and credit card issuers. Reports from the U.S. Federal Reserve show that credit card balances continue to set new all-time records on a monthly basis, powered in part by strong consumer spending. In addition, we continue to see steadily rising delinquencies and charge-offs, resulting in increased availability of charged-off portfolios for purchase from U.S. banks at increasingly attractive returns. We believe a higher share of this charge-off growth is coming from issuers that are active in the near-prime and sub-prime segments, as well as from newer players such as fintech lenders. We also believe strong growth in lending during the pandemic years is now exhibiting higher delinquency rates when compared to older origination vintages. As a result, the supply of charged-off portfolios in the U.S. reached a record level in 2023 and we expect it to continue to grow in 2024. With this favorable environment as a backdrop, our MCM business deployed a record $815 million in 2023 at an attractive purchase price multiple of 2.3 times. This outcome was the result of our disciplined purchasing approach amid an improving pricing environment. To put this purchasing figure into proper context, MCM's prior record for portfolio purchases for a full calendar year was $682 million in 2019, meaning our 2023 deployment surpassed the prior record by 20% or $133 million. MCM ended its record 2023 with $208 million of portfolio purchases in Q4 at strong returns. We see no signs of this favorable purchasing environment slowing down. In fact, the supply pipeline in the U.S. remains robust as we have already $230 million of committed portfolio purchases in Q1 at strong returns. To be ready for our increased purchasing, MCM continues to expand internal collections capacity. During the full year 2023, we added over 500 account managers to MCM's operation. MCM collections in 2023 were $1.3 billion. In terms of consumer behavior, we are observing a more normal, stable environment that is similar to the pre-pandemic years, most notably in terms of payment plan performance. The shift of consumer preferences toward more on-line and digital interactions is evident in every part of the consumer financial services industry. More than 90% of consumers who responded to marketing correspondence from MCM responded via our online portal. Accordingly, we continue to invest significantly in technology and digital capabilities, which we believe, given our scale, will maintain or even enhance our competitive advantage. These investments have allowed our MCM business over the past four years to double the proportion of consumers who make their first payment using our digital channel. The accounting will show you that we recorded negative CECL adjustments in 2023 for our MCM business. These adjustments have largely been focused on five quarterly pool groups in the 2021 and 2022 vintages, which were purchased during the height of the pandemic's positive impact on our collections. As a result, they present forecasting challenges, but not collection challenges. In fact, even after the CECL adjustments we have made, the current purchase price multiples remain attractive with the 2021 vintage still above 2.3 times and the 2022 vintage at 2.1 times. Importantly, these portfolio purchases are profitable and are generating strong cash collections. Jon will have more to say about the CECL accounting impacts during his remarks. In contrast to the U.S., supply growth in the U.K. has been much more muted. Credit card outstandings are still not yet back to pre-pandemic levels as banks in the U.K., unlike those in the U.S., did not start to meaningfully increase lending during the pandemic years. And even today, U.K. charge-offs remain at low levels. Cabot's collections in 2023 were $544 million compared to $553 million a year ago. With the U.K. economy now officially in recession, we believe a weakening in consumer confidence is impacting one-time settlements, though existing payment plan performance remains stable. We continue to constrain Cabot's portfolio purchases, which were [$255 million] (ph) in 2023. We have maintained our purchasing discipline in the face of portfolio pricing in Europe that we believe still does not yet fully reflect higher funding costs, although we saw some improvement in the fourth quarter. Against this backdrop we remain patient, choosing to deploy at current low levels until the returns in Cabot's markets become more attractive, and choosing for now to allocate significantly more capital to the higher-return U.S. market, consistent with our well-established strategic focus. We reduced Cabot's headcount by 8% in 2023 to better align the expense structure with this lower purchasing level. As you may recall, we announced a portion of these headcount reductions in the first quarter of 2023. While these actions reduced expenses and helped offset a portion of cost inflation, we continue to invest significantly in Cabot's technology and digital capabilities, similar to MCM. As a result of these efforts, nearly one-third of new payment plans in the U.K. were set up digitally in 2023 and the proportion continues to trend upward. As a result of our annual test for goodwill, we reported a $238 million goodwill impairment in the fourth quarter. This non-cash charge was primarily driven by persistently low purchasing by our Cabot business for the last five years, combined with a sustained decline in debt purchasing industry valuations. This charge has no impact on our liquidity, on our ability to purchase portfolios, on our capability to collect on portfolios we have already purchased, or on our outlook for Encore. I'd now like to hand over the call to Jon for a more detailed look at our financial results.

Thank you, Ashish. 2023 was another period of strong purchasing for our U.S. business at attractive returns, while our collections performance remained stable in each of our key markets. Collections were slightly below expectations for the fourth quarter, and we made small adjustments to our ERC. Both of these items impacted earnings in a negative way. Our reported financial results in 2023, and in particular our net loss of $206 million, or $8.72 per share, were not indicative of the underlying strength of our business due to certain non-cash charges, the largest of which was the $238 million goodwill impairment charge. We want to be clear that this charge has no impact on our liquidity, on our operations, or on our outlook for the business. In addition, our revenues in 2023 were reduced by $83 million due to changes in recoveries stemming from the CECL accounting methodology. In contrast, our revenues during 2022 were increased by $93 million due to CECL impacts. For our industry, CECL uses collections forecasts to determine quarterly revenue. Small variations in actual performance versus forecast or even smaller changes in forecasts themselves can lead to significant volatility in revenues. However, it is important to understand that over the full life-cycle of a portfolio, revenue will always be equal to total portfolio collections less purchase price. We believe with the passage of time post-pandemic, the CECL-related volatility, which we have observed to date, will likely recede. In addition, we are working diligently at enhancing our forecasting and related processes. We have provided a list of these accounting impacts to our fourth quarter and full year results in our earnings press release and presentation. We hope that this information will allow investors to understand the true underlying performance of our business. I'd like to highlight a couple of items not yet mentioned: Estimated remaining collections, or ERC, at the end of 2023 was $8.2 billion, up 8% compared to a year ago. Our operating expenses, which were up 29% in 2023 compared to the prior year, were up only 2% after excluding the impact of goodwill and intangible asset impairments. The third pillar of our three-pillar strategy ensures that the strength of our balance sheet is a constant priority. When compared to the pre-pandemic years, Encore has become a much stronger company. We now have a unified global funding structure that provides us with financial flexibility, diversified sources of financing and extended maturities. Our leverage ratio at the end of 2023 was 2.9 times, near the high end of our target range of 2 times to 3 times. Our debt-to-equity ratio rose sharply in Q4, largely the result of the impact of the non-cash goodwill impairment on our equity. With higher interest rates and evolving conditions in the bond markets, the importance of our global funding structure cannot be overstated. We believe our balance sheet provides us very competitive funding costs when compared to our peers. Our funding structure also provides us financial flexibility and diversified funding sources to compete effectively in this growing supply environment. In the fourth quarter, we made good use of this flexibility by adding $175 million of incremental liquidity to our balance sheet as we prepare for the robust supply pipeline we see in the U.S. in 2024. To achieve this, we entered into a $175 million facility secured by U.S. receivable portfolios. We also extended the maturity of the Cabot securitization facility to September 2028 and reduced its size by £95 million to £255 million. In addition, we issued an incremental €100 million of our 2028 floating rate notes, as a follow-on tap of our December 2020 offering. With that, I'd like to turn it back over to Ashish.

Before I close, I'd like to remind everyone of our commitment to a consistent set of financial priorities that we established long ago. The importance of a strong, diversified balance sheet in our industry cannot be overstated, especially given the exceptional portfolio purchasing environment in the U.S. We will continue to be good stewards of your capital by always taking the long view and prioritizing portfolio purchases at attractive returns in order to build long-term shareholder value. Now, I would like to spend a moment on the recent volatility in our financial results. Despite the fact that we have a fairly predictable business in terms of operational metrics, such as collections and cash generation, the volatility in our GAAP earnings results since the adoption of the CECL accounting standard has been a source of frustration for us, and for investors. We hear you. In fact, we learn a great deal from the investment community, constantly listening to feedback and conducting periodic investor perception studies, which we refreshed in 2023. Based on this feedback, we plan to continue to provide information each quarter which clearly identifies the impact on our results from CECL-related items. We believe Encore is truly differentiated in our sector with a solid track record of operating results and superior capabilities. After several years of low deployments caused by the pandemic and its after-effects, we have been purchasing record amounts of portfolio at strong returns in the U.S. market. And as I stated at the beginning of our presentation, we believe we are now turning the corner in operational and financial results. To further emphasize the fundamental predictability of our business and our positive outlook for 2024, we have chosen to provide guidance on certain key metrics for the year. Driven primarily by the continuing robust pipeline for portfolio supply in the U.S., we expect portfolio purchasing to exceed our 2023 total of $1.074 billion. We expect collections to grow by approximately 8% to over $2 billion. We also expect interest expense to increase to approximately $235 million, and we expect our effective tax rate to be in the mid-20s on a percentage basis. Now, we'd be happy to answer any questions that you may have. Operator, open up the lines for questions.

Thank you. [Operator Instructions] One moment for our first question. And it comes from the line of David Scharf with Citizens JMP. Please go ahead.

Good afternoon. Thanks for taking my questions. Hey, Ashish and Jonathan, I guess not surprisingly, I'd like to dig in a little more to the impairments at Cabot. Obviously, from an accounting standpoint, I'm sure the level degree of impairment is what it should be. Just trying to get a sense for really two things to begin with. Number one, is the bulk of the impairment related to valuations of other European comps, particularly the public ones you're seeing out there? Or is more of it related to maybe your longer-term assessment of how large that purchasing market is?

Let me take a stab at it. And David, Hello. So, the goodwill impairment is a result of our annual impairment test, goodwill impairment test that we have to do for the standard. And it resulted in $238 million non-cash impairment. Again, two drivers that you kind of alluded to already. The first is persistently low portfolio purchasing by Cabot for the past five years. So, if you go back in history and look at Cabot's purchasing from 2017-'18 and then the five years after. And second was due to reduced valuation of competitors who comprise the purchasing -- debt purchasing industry, both European and U.S. Now on the first driver I would highlight, we have been mentioning low purchasing at Cabot for a very long time due to initially market supply and returns, but more importantly and more recently, allocating more capital to U.S. because of higher returns. So keep in mind, this allocation reduces collections since cash generation at Cabot, but it drives more collections, more cash generation and more value at Encore level. So, on this -- and on the second driver, again, the collective market value of our -- many of our competitors has been under pressure for a long time and it's a factor in the testing. So, I just want to be clear about those drivers, but also that this charge, again, to repeat, has no impact on our liquidity, no impact on our operations, our ability to collect or on the outlook for the business.

Understood. And given, obviously, as you noted, it's kind of five years, not just the pandemic anomalies that we've seen depressed volumes. I know, you're not guiding a line item in geography, but should we be thinking about purchasing levels, not just this year, but maybe just as a more normalized level at Cabot something that was consistent with what we just saw in 2023? Or should it be even more conservative?

So, as we focus on returns, if you look at the market, the way kind of we have articulated and what we've seen, on a relative basis, U.S. market is growing very significantly and at attractive returns. And the markets we are in, in Europe, again, it's a number of different countries. We are primarily in U.K. and as well as France and Spain being the next two. And U.K. lending hasn't really picked up and charge-offs still remain very low. So, from all indications, the market is not going to suddenly start changing. Now officially, U.K. is in recession now, just two quarters of very slight negative growth, who knows where that goes. But we expect 2024 for us at least, our growth and purchasing to come from the U.S. market, which we expect will exceed overall for Encore level, our 2023 purchasing at this time.

Got it. And then just the last, the geographic focus question. I'm not sure if I missed it in the presentation. The change in expected recoveries and the current period variants that resulted, I guess they were around $50 million, $52 million combined basis. Was there a geographic breakdown of that? Was that mostly Cabot-focused? Or is it those 2021-'22 vintages in the U.S?

Yes. So, the $52 million in Q4 is comprised of $31 million for U.S. and $22 million for Cabot. And as I mentioned earlier, for the U.S., $31 million is the total, but they're predominantly in fact, more than 100%, so $34 million out of the $31 million is from the two vintages, 2021 and 2022. And even in that, there's five quarterly pool groups that are impacted. And these were purchased at the time of transition was happening. Supply was still low. Pricing was high, kind of flattish, and our valuations were reflecting kind of trying to reflect what was happening to collections. So, it's taken us a little bit of time to work through those changes and forecasting changes as we monitor the actual performance. Now, I'd like to emphasize that if you look at these vintages, they are still strong multiples. The 2021 vintage is at 2.3 times still after the CECL adjustments. 2022 vintage is at 2.1 times. So these are good profitable vintages that are generating strong collections. And I would also emphasize kind of these were forecasting challenges, not collecting challenges. So, as we've taken our time to catch up to kind of what the normalized pattern is, these are forecasting issues, not collecting issues. We're still collecting really well on these vintages.

Got it. Understood. Thank you very much.

Thank you. [Operator Instructions] One moment for our next question, please. And it comes from the line of Mike Grondahl with Northland Securities. Please proceed.

Hey, guys. Did you say what percent of forecasted collections you collected in 4Q for the U.S. and for Cabot? Sometimes you've given us that information. And then secondly, how much goodwill is left in relation to Cabot or Europe in general?

Yes. So, let me take the first question. In terms of forecasted collections to Q4 forecast or actual collections, we did not talk about it against the December 2022 back-book at that time. Cabot, MCM and overall Encore, of course, were all at 96%. Now through the year, as we've adjusted the forecast, as you can imagine, within the fourth quarter, MCM was better than 96%. I think, maybe less than 3% variance to forecast at MCN. In terms of your question on the goodwill, it's going to be in our Q -- K rather, as we've disclosed. I'll take a stab at it. And if I'm wrong, Jon can correct me. What's remaining as of December 2023 is, at Cabot is $457 million in goodwill and about $149 million at MCM. So, a total of about $606 million goodwill at this time, at the end of December 2023.

Got it. $457 million roughly for Cabot and $149 million for MCM. So, there is...

That's correct.

...still a chunk of goodwill. You wrote down about a third of it, roughly at Cabot?

That's right. It was $672 million at December 2022, and then we wrote down $238 million. There's some FX impacts there as well, but small.

Okay. And you gave a metric about online respondents in the U.S., I think, with first-time payments. I didn't quite write down the number you gave. I think you said it doubled in the digital channel. But did you also give a percentage?

Yes. So, it doubled over the four years to about 33% of -- so people who are coming in to pay for the first time through multiple channels, about a third are coming through the online channel now. And it's pretty consistent in U.S. and U.K. So, MCM, that number is 33%. Cabot is about 32%. So -- and it's pretty much kind of doubled for both over the four years, investing a lot in digital and technology capabilities there.

Got it. And maybe a question for Jonathan. Jonathan, if I back out the goodwill charge, the impairment of the intangible asset and then sort of add back the softer collections number, about $1.05, does that sound right for the quarter kind of on a cleaner basis?

Yes. Actually, if you -- on a quarterly basis, Mike, if I take it to in our deck on Page 22, it goes through the add-backs for the quarter, and they total $12.65 in terms of what the negatives were, that we -- that Ashish specked out before and I mentioned as well. And so, with netting against a quarter, you're about at $1.25.

Got it. Got it. And that includes the recoveries below forecast and the changes in expected?

That's correct. If you took all four items and netting them against the GAAP loss per share, you'd net out to $1.25 positive.

And if I could just add, we also noted on that page, the charge we took for Cabot headcount reduction in Q1. So, all of that netted out leads to $1.25.

[indiscernible] Q4.

Okay. Hey, that's it for me. Thanks, guys.

Thank you. One moment for our next question. It comes from the line of John Rowan with Janney Montgomery Scott. Please proceed.

Good evening, guys. Did you give the percent of your ERC that's tied to kind of the underperforming vintages that you called out earlier that are driving kind of the negative revisions?

John, we did not. All the CECL charges are around performance over/under as well as changes in ERC and timing. So there's a whole range of things that go. 2021 and 2022 vintages were -- for MCM, were what we highlighted as kind of made forecast corrections, and they're still strong multiples. But...

Yes. I'm just curious how much they are of the overall ERC?

Our 10-K will have that. Let me go to the page. So, if you look at the vintages '21-'22, they have about $395 million and $769 million in ERC out of a total of $4.3 billion for MCM.

Okay. All right, thank you very much.

Thank you. One moment for our next question, please. All right, and it comes from the line of Mark Hughes with Truist Securities. Please proceed.

Yeah, thank you. Good afternoon. Jonathan, how should we think about the growth in portfolio income if cash collections are growing 8% and if returns on the newer paper are improving? Should the portfolio income grow faster?

If you're -- if I'm following your line of questioning -- can you just repeat it one more time? I just want to make sure, I've got it.

Yes. Just thinking of the portfolio income revenue item, just trying to think about whether that should grow faster or slower than cash collections?

Would that grow faster or slower than? Yes, it will be cash-driven, thinking through whether -- just to be honest with you, Mark, sitting here today, it's unclear to me, other than they're both going to grow in a very similar way. And I would -- since you're adding -- I understand where you're heading with this. Since you're adding portfolio with higher multiples, you would think on a percentage basis that it would accelerate faster. But, that's my intuition. You're correct.

Yes. I guess, that all takes into account what's rolling off the back end, so to speak. But I'll go with your first answer there. How about cash efficiency? I think you said for the full year, collections cost expenses up 2%, excluding non-recurring items. How should we think about efficiency or expense growth in 2024? Maybe relative to that 8% collections bogey?

Yes. Mark, this is Ashish. So, we do expect -- as I said, across the board, we expect our operating and financial performance to turn compared to '23. So, we expect collections efficiency margin to also improve over the 2023 level. We've not provided a specific number, but we expect it to improve given the collections growth we are seeing, managing our cost and the scale effect that comes with that, but we expect it to grow above 2023 level.

And then, do you anticipate your leverage will stay below 3% -- 3% or below? Or could it possibly inch up above your outlook range or your preferred range?

Well, I think, Mark, as we've said in the past, if we saw some extraordinary opportunities, it could grow above 3%, but we'd always have to see a very clear line back down. I'd have to say, given that we're buying so heavily in the U.S., where as you know, the speed with which cash comes back is faster than in other parts of the world. If we have what I'll call a steady-ish, if that's a phrase, level of deployments that we would not move above 3.0%. But I don't want to take off the possibility that given the opportunity, we might, for a brief period of time.

Yes. And then one more, if I might. Ashish, you suggested that the adjustment in the U.S. was really more of a forecasting challenge rather than a collection challenge. Is that to say that the collections performance Q3 to Q4 was reasonably steady? I think, you said earlier that the consumer was -- consumer behavior is stable. But just in your curves, you had expected something else to happen. And so therefore, as you say, a forecasting error rather than a collection issue, is that right?

Yes, Mark. So, I would say forecasting adjustments, right, not error, but -- so there's a process, there's a kind of principles we have, and we monitor certain vintages, certain performance and make adjustments as appropriate and sometimes it takes a few quarters to get them adjusted. So, these adjustments were pretty much in 2021 and -- all of them were actually, more than 100% or '21 and '22 vintages, and which were purchased at the peak of the pandemic. So, we've just been monitoring the performance and adjusting them steadily. And as you saw, we took a larger adjustment -- as you kind of felt confident of kind of where these are headed, we took that larger adjustment in Q4 in 2023 to get them aligned. So, we feel we've captured all that we know to-date. There's still very strong vintages, 2.3 times and 2.1 times. So profitable, good collections, just forecasting catching up to kind of post-pandemic world of normal consumer behavior in the U.S.

Thank you very much.

Thank you. And this concludes the Q&A session. I will turn it back to Mr. Masih for final comments.

As we close the call, I would like to reiterate a few important points. We believe Encore is truly differentiated in our sector, with a solid track record of operating results and superior capabilities. As the consumer credit cycle continues to turn, the U.S. market is seeing the world's strongest supply growth. This is the portion of the credit cycle we've been waiting for. We continue to apply a disciplined portfolio purchasing approach by allocating record amounts of capital to the U.S. market, which has the highest returns. When combined with our effective collections operation, we believe this approach will enable 2024 to be a turning point in our operational and financial results. Thanks for taking the time to join us and we look forward to providing our first quarter 2024 results in May.