ECPG - NASDAQ

Good day, everyone, and thank you for standing by. Welcome to the Encore Capital Group's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Bruce Thomas, Vice President of Global Investor Relations for Encore. Bruce, please go ahead.

Thank you, operator. Good afternoon, and welcome to Encore Capital Group's Fourth Quarter 2025 Earnings Call. Joining me on the call today are Ashish Masih, our President and Chief Executive Officer; Tomas Hernanz, Executive Vice President and Chief Financial Officer; Ryan Bell, President of Midland Credit Management; and John Young, President of Cabot Credit Management. Ashish and Tomas will make prepared remarks today, and then we'll be happy to take your questions. Unless otherwise noted, comparisons on this conference call will be made between the fourth quarter of 2025 and the fourth quarter of 2024 or between the full year 2025 and the full year 2024. 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 statements. 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 conference call, a replay, 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 2025. Then I'll review our strategy and market position as well as our view on how we create value for our shareholders. This will be followed by a few key measures that are important indicators of the state of our business and a 2025 recap of our MCM and Cabot businesses. Then Tomas will review our financial results, after which I'll touch on our financial objectives and priorities and provide guidance on several key metrics for 2026. 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. With the momentum of our largest business, MCM leading the way in the U.S., Encore delivered very strong results in 2025. For the full year, we grew portfolio purchases by 4% to a record $1.4 billion and increased collections by 20% to a record $2.6 billion. Average receivable portfolios increased 12% to $4.1 billion and estimated remaining collections, or ERC, rose 14% to a record $9.7 billion. These results clearly demonstrate Encore's leadership in the consumer debt purchasing industry and reflect the strengthening of our operating model through exceptional execution and investments in innovation. I'll provide more detail on both MCM's results and Cabot's performance later in the presentation. Our leverage improved to 2.4x at the end of the year compared to 2.6x a year ago. Importantly, we continue to improve and delever our balance sheet, even with continued significant portfolio purchases as well as the resumption of our share repurchase program early in the year. We repurchased approximately 9% of our outstanding shares in 2025 for approximately $90 million, reflecting our confidence in Encore's future performance. Our record collections performance in 2025 led to $257 million of net income for the year or earnings per share of $10.91. Before I continue, I believe it's helpful to remind investors of the critical role we play in the consumer credit ecosystem by assisting in the resolution of unpaid debts. These unpaid debts are an expected outcome of the lending business model. Our mission is to create pathways to economic freedom for the consumers we serve by helping them resolve their past due debts. We achieve this by engaging consumers in honest, empathetic and respectful conversations. We pursue our business objectives through our 3-pillar strategy of participating in the largest and most valuable markets, developing and sustaining a competitive advantage in these markets and maintaining a strong balance sheet. We employ a strategy across our 2 main businesses, Midland Credit Management, or MCM in the U.S. and Cabot Credit Management in select European markets. We believe value is created in the consumer debt buying industry through optimal execution of 3 critical drivers: buying, collecting and funding. When these drivers are executed well within attractive markets, leveraging the resources we possess and our strong balance sheet, we believe they enable high consistent returns and profitability. I'll take a moment to describe each of these 3 critical drivers of our value engine, which form the virtuous cycle of buying well, collecting efficiently and funding competitively. The cycle begins with a commitment to purchase portfolios of charged-off receivables at attractive returns, which is the buy well component of our value engine. Over the many years of our industry leadership, we have built a trusted reputation with the sellers of portfolios, the largest credit card issuers, which provides us access to bid on the opportunities we seek. Our disciplined portfolio purchasing is underpinned by superior data and analytics capabilities, which when applied to a very large data sets stemming from our scale and history, optimize portfolio valuation through account level underwriting. As a result, we win more portfolios at strong returns, enabled by our superior collections as reflected in our industry-leading portfolio yield and collections yield. The cycle continues with our commitment to collect efficiently, maximizing net collections to realize strong yields. Our operational excellence, advanced analytics and our consumer-centric approach produce industry-leading yields while still exhibiting a solid cash efficiency margin. Because of our large scale, we have a broader reach within the portfolios we buy than our competitors, as we often see consumers we have come to know in previously purchased portfolios. As a result, our very effective, personalized engagement with consumers leads to payments with predictable, consistent cash flow. This cash flow helps to complete the cycle as it contributes to our commitment to fund competitively based on low-cost funding and a strong balance sheet. Importantly, our balance sheet strength enables access to capital at competitive costs through the credit cycle. In summary, Encore's value engine is the critical enabler of our competitive advantage that allows us to execute our proven 3-pillar strategy to drive shareholder value. I would now like to highlight Encore's performance for the year in terms of several key metrics, starting with portfolio purchasing. Encore's global portfolio purchases for 2025 were a record $1.4 billion, an increase of 4% compared to 2024. Keep in mind that the comparison to the prior year purchase level is impacted by the outsized $200 million of portfolio purchasing by Cabot in the fourth quarter of 2024. As a result of the attractive market conditions and higher returns available in the United States, 83% of our portfolio purchasing dollars were spent in the U.S. in 2025. Global collections in 2025 were up 20% to a record $2.6 billion. This exceptional collections performance is the result of strong execution and continued significant portfolio purchasing as well as the deployment of new technologies, enhanced digital capabilities and continued operational innovation, especially in the U.S. Our global collections performance in 2025 compared to our ERC at the end of 2024 was 109%. We believe that our ability to generate significant cash provides us with an important competitive advantage, which is also a key component of our 3-pillar strategy. Similar to the collections dynamic I mentioned earlier, strong execution, higher portfolio purchases at strong returns over the past few years as well as operational improvements have also led to meaningful growth in cash generation. Our cash generation in 2025 was up 22% compared to the prior year, and we expect it to continue to grow. Let's now take a look at our 2 largest markets, beginning with the U.S. The U.S. Federal Reserve reports that revolving credit in the U.S. remains near record levels. At the same time, since bottoming out in late 2021, the credit card charge-off rate in the U.S. increased to its highest level in more than 10 years in 2024 and still remains at an elevated level. The combination of strong lending and elevated charge-off rates continues to drive robust portfolio supply in the U.S. Let me illustrate this impact by highlighting the annualized amount of net dollar charge-offs, which can be estimated by multiplying revolving credit outstandings by the net charge-off rate. Using Q3 2025 data, the most recent quarter reported by the Federal Reserve, annualized net charge-off volume was more than $54 billion. Similarly, U.S. consumer credit card delinquencies, which are a leading indicator of future charge-offs, also remain near multiyear highs. With the revolving consumer credit at an elevated level and the charge-off rate above 4%, purchasing conditions in the U.S. market remain favorable. We are observing continued strong U.S. market supply and favorable pricing as well. Fourth quarter delinquency data supports our expectation that the portfolio purchasing environment in the U.S. is expected to remain robust for the foreseeable future. With portfolio supply in the U.S. market growing to its highest level ever in 2025, we purchased significantly more portfolio than we ever have in the U.S. MCM leaned into this opportunity by finishing the year with a record $1.17 billion of portfolio purchases, up 18% compared to the previous record high in 2024. That's an increase of $175 million on a year-over-year basis. In addition to solid portfolio purchases in 2025, our MCM business continues to excel operationally. MCM collections increased in 2025 to a record $1.95 billion, which was an increase of 24% compared to 2024. Our collections momentum continued throughout 2025 with Q4 collections of $503 million, the highest collections quarter ever for our U.S. business. The collections overperformance in the U.S. was driven by the deployment of new technologies, enhanced digital capabilities and continued operational innovation, which enabled us to reach more consumers, leading to more payments as well as a large and growing payer book. These initiatives had a greater impact on the early stages of the portfolio's life cycle, leading to overperformance of our recent vintages. We expect that our collections forecast will gradually adjust to reflect the positive impact of these initiatives. Our outstanding results not only reflect the improvements we've made in our collections operation and the overall effectiveness of our collection platforms, but also the strength of the U.S. consumer. Despite some of the negative news and macro uncertainty in the U.S., our consumers' payment behavior remains stable. This is in line with what many of the bank and credit card issuers are saying in the recent earnings calls. We, of course, continue to monitor for any signs of change. Turning to our business in Europe. Cabot delivered a solid year of performance in 2025. Cabot collections in 2025 were $641 million, up 9% compared to 2024. We continue to be focused on Cabot's operational excellence and cost management, including leveraging relevant best practices from our MCM business. This is particularly relevant in the U.K., where banks are increasingly selling fresh portfolios and forward flows. Our operational focus and initiatives have enabled Cabot to continue to deliver stable collections performance. Cabot's portfolio purchases in 2025 were $234 million, which is in line with the historical trend, but lower than 2024 due to the exceptional Q4 2024 purchases of $200 million that included large attractive spot market portfolio purchases. We continue to be selective with Cabot's deployments as the U.K. market remains impacted by subdued consumer lending and low delinquencies in addition to continued robust competition. I'd now like to hand the call over to Thomas for a more detailed look at our financial results.

Thank you, Ashish. Moving to the financial results slide. For the year 2025, we delivered strong growth in collections and portfolio revenue of 20% and 12%, respectively. The strong collections performance was supported by the high levels of U.S. portfolio purchases in recent quarters, our focus on execution, operational improvements and a stable consumer behavior. Collection yield for the year was 63.6%, an improvement of 3.9 percentage points compared to the prior year. Portfolio revenue in 2025 increased by 12% to $1.46 billion, supported by 12% growth in average receivable portfolios and a portfolio yield of 35.7% As a reminder, changes in recoveries is the sum of 2 numbers. First, recoveries above or below forecast is the amount we collected above or below our ERC expectations for the quarter and is also known as cashovers or cash unders. Second, changes in expected future recoveries is the net present value of changes in the ERC forecast beyond the current quarter. Changes in recoveries were $209 million for the year. Of that total, the vast majority, $198 million, were recoveries above forecast. Changes in expected future recoveries were $11 million. For the fourth quarter, changes in recoveries were $68 million. Of that total, $57 million were recoveries above forecast. Changes in expected future recoveries in the fourth quarter were $11 million. Both of our businesses, MCM in the U.S. and Cabot in Europe were net positive contributors to changes in recoveries for the fourth quarter and the full year. Put differently, during 2025, we collected $198 million more than we forecasted in our ERC, which is incremental cash flow. The collections overperformance in the U.S. was driven by the deployment of new technologies, enhanced digital capabilities and continued operational innovation, which enabled us to reach more consumers, leading to more payments as well as a large and growing payer book. These initiatives had a greater impact on the early stages of our portfolio life cycle, leading to overperformance of our recent vintages. We expect that our collections forecast will gradually adjust to reflect the positive impact of these initiatives. As this takes place in the next few quarters, we expect any future cashovers to migrate eventually into portfolio revenues. Debt purchasing revenue in 2025 increased by 37% to $1.66 billion, and the resulting net purchasing yield was 40.8%. Approximately 5.1% was the impact of changes in recoveries. Other revenue in 2025 were $104 million, bringing total revenue to $1.77 billion, reflecting growth of 34%. Operating expenses in 2025 decreased by 1% to $1.14 billion as reported. However, operating expenses for the year, adjusted for onetime items, were up 11% compared to 20% growth in collections, reflecting significant operating leverage in the business. Cash efficiency margin for the year improved by 3.2 percentage points to 57.8% compared to 54.6% in 2024. We expect cash efficiency margin for the year to exceed 58% in 2026. Interest expense and other income for the year increased by 15% to $291 million, reflecting higher debt balances. Our tax provision of $79 million in 2025 implies a corporate tax rate of approximately 24%, which is in line with our previous guidance. Finally, net income in 2025 was $257 million, resulting in earnings per share for the year of $10.91. We believe our balance sheet provides us with 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 favorable supply environment. Leverage closed for the year at 2.4x, a 0.2x improvement versus last year and lower than a quarter ago. In October, we issued $500 million of senior secured high-yield notes due 2031 at an attractive coupon of 6.625%. Also in October, we settled $100 million of 2025 convertible notes entirely in cash. In November, we repaid EUR 100 million of the principal outstanding under our 2028 floating rate notes. The combination of these transactions improve our balance sheet, leave us with no material maturities until 2028. and provides strong liquidity to continue to grow our business well into the future. With that, I would like to turn it back to Ashish.

Thanks, Tomas. Now I would like to remind everyone of our key financial objectives and priorities. Maintaining a strong and flexible balance sheet, including a strong BB debt rating as well as operating within our target leverage range of 2 to 3x remain critical objectives. With regard to our capital allocation priorities, buying portfolios, particularly in today's attractive U.S. market, offers the best opportunity to create long-term shareholder value by deploying capital at attractive returns. This is indeed what we are doing as highlighted by our track record of purchasing receivable portfolios at strong returns. Next on our capital allocation priority list are share repurchases. As I mentioned earlier, we repurchased approximately 9% of our outstanding shares in 2025 for approximately $90 million, reflecting our confidence in Encore's future performance. And finally, we remain committed to delivering strong return on invested capital throughout the credit cycle. Our ROIC improved to 13.7% in 2025, up from 7.5% in the prior year and at the highest level in the last 4 years. As a result of our strong performance in 2025, the business momentum we are carrying into the new year and a positive outlook for 2026, we are providing the following guidance on key metrics: We anticipate global portfolio purchases in 2026 to be within a range from $1.4 billion to $1.5 billion. We expect global collections in 2026 to increase by 5% to $2.7 billion. In addition, after a strong year in 2025 in which productivity enhancements and strong execution across the business contributed to a new level of earnings power. We expect our EPS in 2026 to increase by 10% to $12 per share. We expect the combination of interest expense and other income to be approximately $300 million for the year, and we expect our effective tax rate for the year to be in the mid-20s on a percentage basis. In closing, as I look ahead at this year and beyond, I'm truly excited about how Encore is performing and our future prospects. Let me state 3 reasons why I feel this way. First, we're buying record amounts of portfolio at strong returns. Through our MCM business in the U.S., we are the largest debt buyer in the largest and most valuable consumer credit market in the world. The U.S. market continues to be very favorable, driven by growth in consumer lending and charge-off rates that are at the highest level in 10 years. Given our superior collections capabilities, we are able to purchase record amounts in the U.S. at strong returns. Second, our collections operations are performing very effectively. At the same time, our teams are continuing to enhance our collections capabilities through innovation in areas such as omnichannel and digital collections. And our collections effectiveness is also enabling us to reduce leverage while growing portfolio purchasing. The third and final reason is our funding. We have adequate liquidity to continue to grow the business as a strong flexible balance sheet provides us the capacity to capitalize on any opportunities that come up in the market. Now we'd be happy to answer any questions that you may have. Operator, please open up the lines for questions.

[Operator Instructions] Your first question comes from the line of David Scharf with Citizens Capital Markets.

Obviously, this attractive part of the cycle is translating into the very strong results. So focusing less on the quarter and more on 2026 guidance. Just drilling into the EPS guidance a little bit, a couple of questions. And just setting aside the actual number of $12 per share, I think maybe what's most noteworthy for investors is just the fact that you provided earnings guidance. Can you provide maybe a little bit of what the thought process was behind kind of why you felt now after so many years was the right time to give guidance and why it was a particular single number and not a range because I think all of it certainly is going to be viewed positively.

David, thanks for your question. This is Ashish. So as you -- just a bit of context, you correctly point out this part of the cycle is helping drive strong purchasing and collections. But I would like to just underscore and highlight that it's not just the market that's strong, which is the case, favorable U.S. market, but we are really buying well and executing well and not the case with everyone I would imagine. So we feel really good about how collections are performing. And in terms of your direct question on the guidance, this is indeed a different path we are taking because what we're finding is our expectations for the future and earnings power of the business was not truly getting reflected in some of the estimates that are out there. So we wanted to make sure investors and analyst community can take that cue from us. And your question around point estimate versus the range is a good one. We kind of thought that through, and we feel comfortable with this $12 number at this point. Of course, we'll monitor performance throughout the year, how that goes. But we just felt compelled to kind of make sure everybody was understanding kind of what our prospects are, and so we put it out there.

Got it. Understood. Certainly speaks to more earnings visibility. Maybe diving into the actual guidance itself a little more. As we think about 10% EPS growth. Are you able to, I guess, provide how much of that is coming from kind of the future share buybacks, just the lower share count, if we should be factoring in buybacks this year as well as whether or not a lot of the upfront legal expenses are going to level off into 2026?

So we kind of develop our guidance based on a range of factors and we'll continue to monitor it through the year. So clearly, you can estimate what happened last year in terms of the share repurchases impact. So that's a reasonable one to take, I guess. But we are not providing an estimate on repurchases amount for the coming year. Now in terms of legal expenses, they will rise, I would say, as we are buying a lot of accounts. But at some point, they do level off. Also, as you noticed, percent of legal collections is at an all-time low for MCM, around 34%, 35%. So we are collecting more and more in early part of the cycle, stage of a portfolio or a vintage, and that's going to call center and digital collections and increasingly to digital collections. So we feel really good about it, but we are buying a lot of portfolio in the U.S. So there will be some legal increase, I would imagine. At some point, it tapers off. So we took into account a whole range of things, as you can imagine, to provide that $12 number.

Yes. One more thing is I wouldn't focus so much on the specific lines of the OpEx line. But just keep in mind what I said in the call where we do expect cash efficiency margin to be better than 58%, right? So which is very much what we printed in '25. So regardless of where we end up in legal, we think that margins are going to increase year-on-year.

Your next question comes from the line of Robert Dodd with Raymond James.

Congrats on the quarter and with David on thanks for the earnings guidance as well. On the -- in answering David, you just said that you would not be giving guidance for how much to expect on the buyback front. But when I look at the rest of the guidance components, right, I mean, collections growing, I mean, obviously, purchases growing, but you generate such a large amount of cash and efficiency is improving. All of that would tend to point to your leverage is going to continue heading lower. And in my opinion, at least. And you're already below the midpoint. So I mean, while you maybe not giving guidance per se, would it be reasonable to -- for an investor to think that maybe buybacks would accelerate in '26 versus what we saw in '25?

Robert, thanks for your question. You're right on the leverage. So as we are -- we have grown purchasing, but we are collecting really well. Our leverage will continue to trend downwards. And kind of how that impacts repurchases. So what we have said, our priorities are very clear. And in terms of we said where as you approach midpoint, we will resume share purchases -- repurchases, which happened last year. But there are other factors we've said like balance sheet and liquidity -- strength of balance sheet, liquidity, continued performance, kind of outlook on the markets and so forth. So those factors are there as well. But we did accelerate, to your point, our repurchase rate towards the end of 2025 compared to early part of 2025. So that's kind of we are well positioned to continue supporting repurchases, as I indicated, but we haven't given an exact number.

Got it. Got it. Appreciate that. I mean one other thing I did know, I mean, in the past, when you've given capital allocation priorities, M&A is a bit on the list, usually at the bottom of the list, to be fair. It's well below portfolio purchases. This time, it's not on the list at all. I mean, is that an indication that just the market for portfolio purchases is so good that you cannot see M&A representing a good candidate for capital allocation over the next 12 months? I mean is that just -- it just doesn't -- it seems very, very unlikely to you? Or any color there?

Yes. So 2 things there, Robert. So one is we changed that hierarchy in Q3 2024 results, in November 2024. So at that time, I stated and I kind of still hold to kind of what we are seeing is a very consistent set of portfolio buying opportunities, particularly in U.S. So we feel very comfortable. And M&A, of course, it's always there as a possibility. We see all the opportunities. We look at it. The bar for us is high. We've been very disciplined. It does not mean that if a very attractive opportunity came by, particularly if there's a back book with it or whatever it might be, that we would not take it more seriously, we would. But based on the opportunity that we see, combined with the purchasing environment in the U.S., we felt portfolio buying is clearly the #1 priority and M&A had moved, of course, a little bit lower. So that's what change we made about 15, 16 months ago, and we are still holding true to that right now.

Got it. Got it. I appreciate. My memory may be failing me. One more, if I can. On the efficiency, and I mean, obviously, your collections performance has improved markedly. And at the early parts of the curves and as you say, you haven't -- that hasn't fully flowed into the curves themselves right now, and you need more proof case. But at the same time, your collections efficiency seems, if anything, to be accelerating, right? I mean -- so I mean, how far -- for lack of a better term, how far behind the curves or how far behind are the curves versus the pace at which your operational efficiency and execution continues to improve? I mean another way to put it, like how many quarters do you think it will take for all of those improvements to actually be reflected in the curve might be the simpler way of asking it.

Yes. So I kind of got the 2-ish parts of your questions. So on that one, it will take a few quarters. So as we get actual results -- and again, these are the early stages of the 2024 and '25 vintages, which are very large, by the way. So that's why the dollar impact is huge. '24 was $1 billion of purchasing. '22 is close to $1.2 billion. So these are large vintages. It takes -- it will take a few quarters as the actual data comes through. Now what you will see then is the cash over revenue, which is recoveries above forecast will migrate over time to portfolio revenue. So that's one element of your question. I think the other one is the efficiency or the cash efficiency margin on the operating leverage, that's continuing to kind of improve as well, and we continue to innovate and improve our operations. If you look at our headcount that we disclosed, the total headcount, I mean, it's been flat for 3 years, and our collections are up from '23, '24, '25, our headcount was flat, and our collections have gone up almost 40% in that time. So you can see the operating leverage is truly kicking in combination with improvement in our collections as well, not just pure fixed variable issue. Are there any other questions in the queue?

Yes, excuse me. The line for Mike Grondahl is now open with Northland.

Congratulations on a very strong finish to the year. Ashish, I got on a little late, so I apologize if this has been asked, but I think it's important, too. I can't remember the last time, and this is probably going back 5, 10 years that ECPG has guided earnings for a forward year. But here, you guys are guiding to $12 for next year, roughly a $3 per quarter run rate. What is sort of giving you the confidence to do that? What's sort of driving this change, if you will?

Mike, thanks for your question. So we've been buying really well for many years and collecting really well in a very consistent manner as we expected our collections to grow. We've also kind of stabilized Cabot. So there was a couple of years where we were kind of restructuring Cabot operations in terms of operations performance as well as its cost structure. And after we made some of the corrections at the end of '24, last full year has been very stable performance that Cabot team has delivered. And on top of that, MCM team continues to deliver innovation, operational excellence and growing collections. So all of that is playing into our confidence, and we see very good purchasing outlook for 2026 as well in the U.S. And we'll, of course, be disciplined at Cabot, and we are buying our kind of fair share there at the right returns. So overall, the environment feels -- we feel very confident, combined with kind of how we are executing in the market to provide the guidance. Now of course, as I said earlier, part of that motivation was also that the investment community, the estimates were not truly reflecting our prospects. So we felt compelled to kind of provide it at this stage so that everybody can get a sense of what our future prospects are as we feel them at this moment.

Cool. And then maybe 2 more questions. Clearly, we're in early '26. This purchase environment has been good for you guys for the last, I'll say, 3 or 4 years. I described it as you're kind of filling up your bucket. Are there -- as we roll from '25 to '26, would you say the environment is steady, the same? Is there really any changes you're observing in the U.S. purchase environment?

Yes. It's -- I would say you characterized it correctly. It's very steady. So overall volume of supply that we see and our team can kind of seize all the deals is very stable in terms of total dollars available for sale. Now that's also dependent on the environment itself. So outstandings are at a record level. The charge-off rate is near 10-year high. So the combined impact of that is, as I said in my prepared remarks, if you take Q3 data from Federal Reserve, it's about $54 billion in annualized charge-offs. It's a very big number. So overall supply is stable. The second element is pricing is also very stable. We see a rational environment there. So both of them are very similar to 2025. And therefore, we guided to a number we expect it to exceed 2025 purchasing of $1.4 billion, and we provided a range there. Of course, we are very focused on returns. We're not going to buy for the sake of buying, but we feel it can grow based on the 2025 number.

Got it. And next, a question about technology. Would you say technology is helping Encore more on the expense side by lowering costs? Or is it helping more on the revenue side because lower cost to collect, you can pursue more accounts that were kind of previously uneconomic.

I would say it's helping more on the collection side, which is the revenue side. So our yields, our portfolio yields that we now disclose, and you can compare those calculations to anyone in the industry in Europe and here in U.S. are the highest. So we are collecting more. And our cash efficiency margin is solid. It is not the lowest. So we are really spending a bit more, and a lot of that is on technology to collect even more. So the net collections is the highest. And as I said, our omnichannel and digital collections are rising. All of that innovation is driving more and more collections. And yes, we are spending some more, but the netback is very attractive. And therefore, we are able to bid and win the portfolios we want in the market.

Got it. And then last question. I know you're investing in the business buying back shares second and then maybe M&A. But it seems like from a cash flow and a deleveraging basis, '26 is going to be even better than '25. Are we naive to think that buyback almost has to be higher in '26 than '25, annualizing 3Q, 4Q, the back half of '25, a lot of cash flow. How do you want people to think about that?

I would kind of reiterate what I said, and I think on one of the questions as well. Leverage will trend down from what we can see based on how we are collecting and even though we are growing purchasing. So leverage will continue to trend down. And we have a very clear framework. So we did accelerate repurchases later in the year in '25, of course. So we stand by our kind of framework, which was 15 months ago, we said that we will resume buybacks at midpoint of leverage and potentially accelerate as we get to the lower end. So that's the framework that I think would be most appropriate for you to think about. Clearly, leverage will improve, and we'll watch it every quarter how it's going to go, and that would impact. Other factors are important, too, opportunities may be there for more portfolio buying or some potentially M&A or who knows what could come, although the bar is very high, as we said. So we have to look at kind of what's happening today, but also the outlook and then factor in and decide kind of on those repurchase levels, if you would.

Your next question comes from the line of Max Fritscher with Truist.

I'm on for Mark Hughes. Did you see any tailwinds to collections in 4Q from the lower interest rates? And then how would you expect that to affect 2026 collections in your guidance if rates were to go a little bit lower and help ease that marginal pressure on consumers?

Max, we cannot isolate kind of small changes in interest rates to collections. I mean, overall, I would say and reiterate what I said in my prepared remarks, in terms of the U.S. environment, the collections consumer is very stable. We are seeing good payer rates, how people are holding on to the plans. It's been very stable. So overall, fairly stable consumer outlook on payment behavior. And just remember, our consumers who we deal with are already in some kind of financial distress, and we know how to work with them. So small changes in interest rate or other factors may or may not impact them, and we have a lot of flexibility. We don't charge kind of interest or fees and things of that nature. So we are able to change the payment plans and adapt. So we have not seen any kind of noticeable impact on payment behavior in late 2025, as you asked. And from what I can sitting here tell, we don't expect that any of the interest rate changes to impact in '26. Now if any other things happen, we'll be monitoring them, of course.

Understood. And then what is your assumption on the change in recoveries that you expect in 2026?

So changes in recoveries is calculated every quarter based on our forecast, kind of there's 2 components, right? Cashovers or recoveries above forecast. And then the second component is the NPV of the forecast change. So in 2025, vast majority was cashovers. And again, those were heavily coming in U.S. from the 2024 and 2025 vintages, which, by the way, as I said, were driven off because of our improvements in digital and kind of other operational improvements impacting the early part of the curve. Now those vintages are starting to age, and we expect over time, these cashovers to migrate into portfolio revenue over time, and it will take a few quarters, as we said.

You have another question from the line of David Scharf with Citizens Capital Markets.

Ashish, it's been quite a while since we really asked about competition in the U.S., but there's clearly been a much more benign regulatory environment at the federal level under the current administration. It's led to a lot of actions taken by consumer finance companies getting bank licenses and other such things. Has it -- has -- the perception that there is a less onerous CFPB or other framework, has that impacted how sellers are thinking about potentially engaging with new competitors? Or is it still a very kind of small circle of buyers that are approved and likely to continue to be that way?

So there were a couple of different things in your question, David. So in terms of the regulatory environment, the rules are all well set for the industry. They took years of rulemaking and then 4 years ago, they went into effect. So all of those rules, everyone has to comply with them. They are good rules for the consumer, good for the industry. Those are there. Whatever state-level regulations are there are still there. So I just want to make sure I address your question broadly. So none of that regulatory kind of perhaps whatever you mentioned on CFPB, all of that is pretty stable. I don't think that's impacted number of new buyers coming into the picture because they can get financing or other things that are possible perhaps. So we're not seeing any new competitors. There's a bunch of -- a few midsized and a lot of small ones that have always been there, so nothing new. Some of them buy a significant amount and then go away as they see the performance. So that phenomenon is pretty stable on that front. So on the buying side, that's the change. On the selling side, yes, I would say, as I think we indicated a few quarters ago, off and on, there's a bit of chatter, banks trying to figure out whether they should sell or not, some who don't sell or test water. So nothing material to report on that front right now. But that chatter has been there for the last year or so, if you would.

Your next question comes from the line of Mike Grondahl with Northland Capital Markets.

Two more. One, just curious, any benefit in 1Q '26 that you're seeing from higher tax refunds?

It's still early. Yes, it's still early to see. We monitor tax refunds on a weekly basis, the data that comes out. There is kind of news out there in terms of how the tax bill was structured. So some of the benefits that consumers would have gotten, people would have gotten last year, they're going to get in refunds. Now it also depends on which income strata it's going to go to and how it trickles down or trickles sideways, whatever might happen. So we are going to observe, but that's kind of out in the news and how it will impact, it's way too soon in the quarter. Operator?

I'm showing no further questions at this time. And I'd now like to turn it back to Mr. Masih for closing statements.

Thanks for taking the time to join us today, and we look forward to providing our first quarter 2026 results in May.