Encore Capital Group, Inc. (ECPG) Q3 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, and welcome to the Encore Capital Group’s Q3 2019 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Mr. Bruce Thomas. Please go ahead.

Thank you, Operator. Good afternoon, and welcome to Encore Capital Group’s third quarter 2019 Earnings Call. With me on our call today are Ashish Masih, our President and Chief Executive Officer; Jonathan Clark, Executive Vice President and Chief Financial Officer; and by phone, Ken Stannard, the CEO of Cabot Credit Management. Ashish and Jon will make prepared remarks today, and then we will be happy to take your questions. Unless otherwise noted, comparisons made on this conference call will be between the third quarter of 2019 and the third quarter of 2018. In addition, today’s discussion will include forward-looking statements subject to risks and uncertainties. Actual results could differ materially from these forward-looking statements. Please refer to our SEC filings for a detailed discussion of potential risks and uncertainties. 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 earnings presentation, which was filed on Form 8-K earlier today. As a reminder, this conference call will also be made available for replay on the Investors section of our website, where we will also post our prepared remarks following the conclusion of this call. 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 our earnings call. Today Encore announced financial results for the third quarter of 2019. I am pleased to report Q3 was an outstanding quarter for Encore. We have again achieved record results across a number of key financial measures, and our business is delivering its strongest performance in years. We continue to make solid progress on key strategic priorities that are contributing to our success. I will provide some background on these priorities today and an update on our accomplishments. But first, let me provide a few highlights on the third quarter: Global collections from our debt purchasing business were $499 million dollars, up 2% in constant currency. Global revenues were a record $356 million dollars in Q3 and were up 6% as reported and up 8% in constant currency. Within that total, US revenues grew 18% to a record $211 million dollars. At the end of the quarter, our worldwide ERC was $7.3 billion dollars, up 4% in constant currency. Encore’s GAAP net income was up 88% to $39 million dollars, or $1.23 per share. Adjusted income in Q3 was up 45% to a record $52 million dollars or $1.64 per share. This strong financial performance is the result of our steady progress on three strategic priorities, which are strengthening our business and creating shareholder value. First, we have taken steps to strengthen our balance sheet while continuing to deliver strong financial results. Second, we have sharpened our focus on the US and UK markets, where we have the highest risk-adjusted returns. Third, we continue to innovate to enhance our competitive advantages. Let’s now take a closer look at these priorities. Strengthening our balance sheet continues to be a key priority for Encore. Through disciplined capital deployment and improved operational performance, we have continued to grow earnings and increase ERC, while reducing leverage. We have reduced our debt to equity ratio over the last two years from 5.9 times to 3.7 times. We have also reduced our ratio of net debt to adjusted EBITDA, a measure common in the debt purchasing industry in the US and in Europe. Since the first quarter of 2018, we have reduced this ratio from 3.2 times to 2.7 times, resulting in a level that is amongst the lowest in our industry. Although a portion of our improvement this year was driven by Cabot’s efforts to reduce their leverage, Encore’s de-levering began almost two years ago, when our stronger operating performance and refocused capital deployment began to drive higher levels of efficiency and improved profitability. Since the beginning of 2018, not only have we been purchasing portfolios at attractive returns, we have also reduced our leverage while simultaneously growing ERC by 11% on a constant currency basis. We have grown our ERC over this time period despite a reduction of $120 million dollars in ERC from the sale of Baycorp in the third quarter. Another key component to a stronger balance sheet is timing of our debt maturities. We have taken steps over the past two years to extend maturities in both the US and Europe to provide additional financial flexibility. This is particularly constructive as we believe both the US and UK debt purchasing markets are poised for substantial increases in supply. The recurring market opportunity is substantial within the $1.1 trillion dollars of outstanding revolving consumer debt in the US, as well as the quarter-billion dollars of outstanding unsecured consumer credit in the UK. Our continuing success in producing strong returns from these two consumer debt markets is the primary source of our optimism for the future. In total, we estimate that $18 billion dollars in face value debt was sold by issuers in the US in 2018, with an approximate investment opportunity of $2 billion dollars, which is nearly double the investment opportunity in 2014. In the UK, we believe the investment opportunity in 2018 was approximately $1 billion dollars based on $6 billion dollars of face value sold. We have demonstrated our increasing commitment to these two markets through our capital allocation decisions and the execution of our business strategy. In the first three quarters of 2019, 94% of our portfolio purchasing was directed toward either the US or the UK, and we remain on track to set another record for annual deployments in the US in 2019.We have also streamlined and simplified our business structure through the sale of Refinancia in South America last December and the sale of Baycorp in Australia in August. These divestitures were consistent with our strategy of concentrating our resources in our businesses with the highest risk-adjusted returns. Within these markets, we believe it is vitally important to develop scale advantages in order to achieve superior returns. Encore’s collective scale in these markets is unmatched and we continue to leverage this advantage through disciplined portfolio purchasing in the US and the UK, and continually seeking to improve our operating performance in these regions. Our improved operating performance for both MCM and Cabot has been enabled by our consumer-centric approach to collections. For MCM, it was five years ago that we began to transform the way our call centers interacted with consumers. Similarly, Cabot experienced its own consumer-oriented transformation when the FCA standardized affordability assessments in the U.K. In both cases, it is clear to us that the progress we have made in improving our liquidation effectiveness is driving our strong financial results and providing us with competitive advantage. For MCM, we are increasingly collecting a higher percentage of our US collections from our lower cost call center and digital channel. Meanwhile, our consumer-centric approach builds loyalty as demonstrated by Cabot’s extremely low breakage rates on payment plans. As we grow our business, these low breakage rates lead to increasing levels of cost efficiency. In both our MCM business in the US and in our Cabot business in the UK, we are continuing to convert more consumers to payers, and we are collecting more cash sooner in the collections process. Our improvement in collections efficiency is particularly evident in our MCM business, where we have grown collections while improving cost to collect. Since 2017, MCM collections have grown more than 17% while MCM’s cost to collect has improved by a full 360 basis points. While Cabot has built its market leadership on unmatched scale and superior returns, it has also excelled on a very different dimension, which is best-in-class consumer satisfaction. Banks must weigh a number of factors when choosing the firms with whom they do business, whether through debt sales or when selecting servicing partners. Cabot consistently receives very high consumer satisfaction scores in independent studies, and continues to win important customer satisfaction awards in the UK. When banks decide to partner with Cabot, they have the confidence that their customers will be treated with the respect they deserve, reducing both their regulatory and reputational risk. Let’s now turn to third quarter performance for MCM, our US business. We deployed $173 million dollars in the US in the third quarter, up 41% compared to a year ago, and again one of our strongest purchasing quarters ever in the US. This level of purchasing keeps us on track to establish a new record for annual deployments in the US in 2019. MCM collections were $331 million dollars, growing 4% compared to the third quarter of 2018. The principal driver of this growth for MCM was our call center and digital channel. Collections were up 10% in this channel in Q3 compared to a year ago, as our consumer-centric approach and improved productivity continue to drive a higher proportion of collections through this channel. Initiatives to reduce costs and improve efficiency continue to have a meaningful impact on our MCM business, and have helped to improve operating leverage and reduce cost-to-collect, which improved 90 basis points compared to Q3 last year. Turning to Europe, our portfolio purchases in Q3 totaled $85 million dollars, and were at returns that are 200 basis points higher than last year. These higher returns are being driven by our operational scale as well as the unique access to portfolio purchasing brought about by our leading servicing platform. Collections in the third quarter from our European debt purchasing business grew 3% in constant currency, compared to the same period a year ago. Our European ERC of $3.6 billion dollars was up 4% in constant currency compared to the end of the third quarter last year. Cabot’s debt leverage continues to decline, driven by our improved operating performance while we maintain our focus on being more selective in our portfolio purchases. Finally, Cabot’s collections efficiency continues to improve as we have now completed the consolidation of our operations in Spain. As we mentioned a quarter ago, we have passed an inflection point in our business in which the majority of our US collections are now derived from portfolios purchased in 2017 and later, which have more attractive returns than those of the recent past. When coupled with new deployments in our key markets at even higher returns, along with improvement in overall operating efficiency, we are delivering a new level of operating margin performance and profitability. Our operating margin compares favorably to our peer group and is driven by a number of factors described earlier. We have achieved scale advantages in our key markets, which share certain characteristics that include market sophistication, substantial opportunities for growth, and significant barriers to entry for new participants. We continue to strive for improved operating efficiency by lowering our costs and moving more of our collections to our lowest cost channel, the call center and digital channel. We continue to leverage advanced analytical tools and capabilities, and we employ proprietary data assets to underwrite portfolios and develop collections strategies to make the most of each investment opportunity. Finally, we have divested our Baycorp and Refinancia businesses, which operated with lower margins and risk-adjusted returns than our US and European businesses. Our improved level of operating performance has also led to a new level of returns in our business. In fact, the best returns we have seen in years and is a key driver of our ability to continue to increase profits. As I mentioned earlier, our ultimate goal when setting priorities in our business is to create shareholder value. In this regard, we believe our return on equity performance is a solid indicator of attractive, steady returns to shareholders over time. With that, I’d like to hand the call over to Jon for a more detailed review of our financial results.

Thank you, Ashish. As a reminder, we will sometimes refer to our US business by its brand name, Midland Credit Management or more simply MCM. We may also refer to our European business as Cabot. We delivered strong third quarter results despite the impact of foreign currency exchange rate headwind, the magnitude of which we will identify for certain financial measures to better demonstrate the strength of our underlying business. In addition, our results in Q3 this year do not include the contributions from Refinancia, which we sold in December of 2018 or the full quarter performance from Baycorp, which we sold in a transaction previously announced in August of this year. Global deployments totaled $260 million dollars in the third quarter, compared to $249 million dollars in the third quarter of 2018. MCM deployed a total of $173 million dollars in the US during Q3, up 41% from the same period a year ago, when we deployed $123 million dollars. This year, our MCM business in the US remains on track to establish a new annual record level of purchasing directly from issuers. European deployments totaled $85 million dollars during the third quarter, compared to $115 million dollars in the same quarter a year ago. As we have previously discussed, European deployments decreased due to more selective purchasing related to our plan to reduce Cabot’s leverage over time. Global collections were $499 million dollars in the third quarter, that’s flat when compared to a year ago, but grew 2% in constant currency terms. MCM collections from our debt purchasing business in the US grew 4% in Q3, to $331 million dollars. Call center and digital collections for MCM were up 10% compared to Q3 of last year, due to the benefits of our consumer-centric collections approach and improved productivity. Collections in Europe in the third quarter were up 3% in constant currency terms when compared to the same period last year. Global revenues, adjusted by net allowances, were a record $356 million dollars in the third quarter, up 6% compared to $337 million dollars in Q3 of 2018, and were up 8% in constant currency terms. In the US, MCM revenues, adjusted by net allowances, were a record $211 million dollars in the third quarter, up 18% compared to the same quarter a year ago. In Europe, Q3 revenues, adjusted by net allowances, were $131 million dollars and were up 1% in constant currency terms. Our ERC was $7.3 billion dollars at the end of September, up $76 million dollars when compared to the end of September 2018 and up 4% in constant currency terms. This growth in ERC more than offset a reduction of $120 million dollars of ERC associated with our sale of Baycorp in August. In the third quarter, we recorded GAAP earnings of $1.23 per share up 78% compared to Q3 a year ago. As Ashish mentioned earlier, Encore’s GAAP earnings were impacted by our divestiture of Baycorp in August, which drove a $0.22 per share reduction in EPS after tax. After applying this and other adjustments and their related income tax effects, our adjusted EPS was a record $1.64 per fully diluted share, and our non-GAAP Economic EPS was also a record $1.64, up 38% compared to Q3 a year ago, when Encore purchased Cabot. Our earnings have also recently benefited from a larger proportion of our US revenues being derived from pool groups with stronger returns. With that, I’d like to turn it back over to Ashish.

Thank you, Jon. In summary, Q3 was a fantastic quarter for Encore and I am very pleased with our operational and financial performance. I continue to be very excited about our prospects. We reported record results in the third quarter as global revenues and adjusted earnings reached new all-time highs. In the US, portfolio purchases were up 41% over Q3 last year, and we reported record revenues for MCM in the third quarter, and call center and digital collections were up 10% compared to Q3 a year ago. We also continue to make progress on our strategic priorities which include: Number 1 Strengthening our balance sheet while delivering strong results. Number 2: Concentrating on the US and UK, our most valuable markets with the highest risk-adjusted returns, and Number 3: Innovating to continually enhance MCM’s and Cabot’s competitive advantages. Our progress on these priorities is strengthening our business and helping to drive a new level of financial performance for Encore. We are operating under conditions in which more of our revenues are generated by portfolios with strong returns and we are purchasing portfolios with even better returns. This highly desirable combination is reflected in our improved operating margin and the best returns that Encore has delivered in years, as we continue our focus on creating shareholder value. Now we’d be happy to answer any questions that you may have. Operator, please open up the lines for questions.

[Operator Instructions] our first question comes from the line of Eric Hagen with KBW. Your line is now open.

Just confirming Jon, the $19 million tax adjustment from GAAP to core, that was made at your statutory tax rate, not the 7% tax rate that was used in GAAP?

I’m sorry, specifically what are you referring to Eric. I just want to make sure I’m answering the question correctly.

The $19.1 million of tax related adjustments from GAAP to core, just the tax rate that was used.

The after tax number for Baycorp is $0.22, if that’s what you’re referring to, so that includes the tax impact, is that your question? And so therefore it’s not in rest, the rest are regular tax rate if you will.

Yes, got answer for the question, thank you.

Does that answer your question?

It does. Thanks a lot. And then, can you guys just us a snapshot in time of just how pricing and multiples on fresh paper compare now versus let’s just earlier in the year when I think your commentary was maybe equally as bullish as it is now.

Yes, so Eric this is Ashish. In terms of the US market when you speak of fresh paper, I think that’s what you’re referring to, the market is pretty stable in terms of pricing from earlier in the year. Pricing improved from 15, 16, 17 a bit towards 18 and since then it’s been stable now, depending on the portfolio is goes up 5%, comes down a little bit. But in general, I would say the market is very stable and growing at a steady clip and there’s equilibrium between kind of what our returns we expect and how the sellers are selling, so our pricing is pretty stable this year as we’ve observed.

Got it, thank you. And then when does the term on the revolver come up for renewal at both Midland and at Cabot?

I think it’s 2021, MCM. Cabot, I believe is 2023, wait a second, I’ll check.

I guess I’ll just search for that. I mean the positive trend that you guys are discussing especially as it relates to your leverage. I mean do you think, that will work in your favor in negotiating the loan terms on your revolvers as those [indiscernible].

While there’s already a leverage component built into it, so I don’t see an overt difference if you will or obvious difference in our negotiating position because if you think about it right, if you already have triggers in there based on leverage so it’s implicitly built already built into the document. Alright unless [indiscernible]. When the Cabot facility comes due in 2022. A – Unidentified Company Participant: September 22.

Great. Thanks. One on CCIL actually just before I hope off, one of the impacts, one may argue is just the stricter capital regime that banks have to work with it and I realized CCIL is really just an accounting impact more than anything, it’s not economic necessarily. But do you still expect that CCIL could change the behavior of banks and other credit providers in terms of their willingness or ability to sell paper or is it really too early to tell.

It’s not fully in effect yet, so you could say it’s a bit early to tell. But I would say the banks have been analyzing the impact off CCIL on their books and financials for a long time and we have not heard any material impact in terms of sales strategies. Occasionally here it will go up or later or pressure or you hear mixed things. In general, if you step back and look at what banks are talking about, we’re seeing as I mentioned last quarter especially heightened level of activity and discussions from all major banks, I’m talking about selling and that includes banks who have not sold for years. So we’re clearly seeing increased discussion whether it’s CCIL driven or an economic outlook or belief that loss rates may rise regardless of CCIL, I don’t know, but everybody is preparing for a higher credit loss environment and we’re engaged in all those discussions, so I feel much more optimistic very bullish about that supply will potentially increase, now nobody has actually started selling. But many of them are really in later stages have active discussions. So I see that as an overall positive whether CCIL had a minor, positive or negative impact. I don’t know for sure I think you’ll have to wait for that part.

Got it. Thank you very much for the comments.

Sure, thank you.

Your next question comes from the line of David Scarf with JMP Securities. Your line is now open. Q –David Scarf: Ashish, there clearly seem to be sort of two things that are happening simultaneously in terms of sort of impacting the margin profile as you mentioned sort of that inflection point on higher yielding vintages coupled with just the increasing mix on call center and digital collections. Focusing just on the margins, don’t want to pin you down on guidance but I’m trying to get a sense for I guess perhaps what the endgame is, where the endpoint in your mind in terms of the percentage of collections that will be call center based and therefore higher margin and through the legal channel and to give us, some sense or to put maybe that in the context of where GAAP operating margins can go from what you just recorded in the third quarter.

You have a very good question, David. I think you hit on couple of key drivers of margin improvement which is higher multiple and returns as well as you hit on one of the elements of cost to collect improvements which is shift to call center and digit. But the other one is, just in every other channel we’re actually reducing cost to collect including G&A and overhead cost. So just overall CTC improvement combined with multiple improvement is driver of margin. Now the shift to call center we’ve been pushing on it through two things improving our kind of call center approach we started that in MCM five years ago and with the acquisition of Atlantic Credit and Finance, a call center approach gets cash and collections earlier in the cycle and before, consumers have to be kind of go through the legal process in some cases. The other one is digital investments. Now we made a significant shift and we expect, it should continue but as you can imagine the marginal change and that could slow down and the other thing is to keep in mind, it’s been a fairly homogenous mix of fresh paper with certain balance ranges that we’ve seen in MCM. The mix depends a lot on what kind of paper we buy and at times, a higher CTC paper could have even a higher return in terms of IRRs because we may have a mix low balance accounts, different kinds of balances accounts or age accounts. So CTC is an output of our strategy and our continued push to reduce cost in each channel and in overhead. What it actually comes out depends on the mix, so overtime if mix shift is little bit towards lower balances CTC, we may be buying those at much higher IRRs. But if nothing else changes, I would believe steady improvement in that mix will continue although perhaps not as faster rate as in the past because we made a lot of push early on. Q –David Scarf: Understood and maybe shifting to the yield side. Once again just looking for some help directionally, if I just do a simple gross yield calculation just taking your finance receivable revenue divided by average receivables in the quarter, I guess excluding the big allowance reversal 39.5% gross yield which ticked up a bit from the prior quarter. Given where you’re purchasing or pricing paper lately and given the pace at which pre-2017 vintages are rolling off the balance sheet. Should we be comfortable modeling north of 40% gross yield next year?

So in terms of the paper we’re buying, you’re right. So 2017 and onwards is now majority of our collection for US so they have better yield than the previous ones. I’m not sure if I can answer your 40% question as directly right now. We may have to take that offline or something, but if you look at our multiples. They’re at one decimal place at around 2.1 and they are slightly improving, if you look at the more detailed information in the Q and we expect that will continue and as supplying freezes potentially when improved, but at this point as I said earlier pricing is fairly stable and we’re in a very good equilibrium market and that’s what it is [indiscernible] at least will continue. And we’re focused on IRRs that’s the other thing I would highlight and not multiples. Multiples, is one dimension of the return on a portfolio and 2.1 multiple today at a much higher IRR than a 2.1 multiple a few years ago because the cost to collect is better and we’re collecting cash earlier. So those two factors in addition to multiples are improving our IRRs as we go forward. Q –David Scarf: Got it, just one question, one on CCIL as well for Jonathan. I’ll be careful on how I phrase this, but my understanding is that, you’ll no longer record allowance charges that symmetry will be restored so that any revisions of pool forecast upward, downward now just flow through a new yield forecast and it seems like that reduces a lot of volatility or to downward estimates or to downward performance and did this, does the absence of allotment charges in your mind give you a little more room to perhaps be less cautious in how you’re going to set initial yields.

Well I think, there’s not – you’re correct. There’s no longer the asymmetric risk, David. I think what people will see and just to make – your yield will be set day one and to the extent that anything good or bad happens, yield discount that change and expected cash flows either maybe just a shortage for the current – or perhaps a different outlook on the long-term ability of the Encore to collect cash on a given portfolio will make an adjustment either up or down. So the concept of the asymmetric risk is gone and conceptually there’s just to be clear, there is no safe harbor and conservatism in US GAAP. We try every time to put our best forecast into the mix if you will, in our long-term projections, but you are correct that the asymmetric risk is gone, the volatility that you mentioned is great cocktail party conversation and speculation because you need to sit back and think about it David, it comes down to your view on how correlated or not a global portfolio is in terms of I’ll call it the goods or the bads, right. If everybody runs in one direction it could create more volatility, if they tend to counterbalance each other then it will – create less volatility. Q –David Scarf: Got it. Very helpful. Thanks for taking my questions.

[Operator Instructions] your next question comes from the line of Hugh Miller with Buckingham. Your line is now open. Q –Hugh Miller: I guess I had a couple on Europe. If I may. So in the slide deck, there’s a notable uptick in the cost to collect for Europe and was wondering if you could just maybe point out, what may have been driving that and how we should think about that.

Hugh, this is Ashish. Thanks for your question. So last year, Q3, 2018 there was a bit of an adjustment and catch up for the first two quarters of the year, that’s what caused the CTC for Europe to be lower than normal that you would see a year ago. Q –Hugh Miller: Okay, great. That’s helpful. And then maybe a couple for Ken. One of the kind of positives around the Westcott [ph] acquisition was just the ability to potentially buy accounts, the tails of the accounts of the accounts that Westcott [ph] servicing. We’re just wondering has that become a source of capital deployment for Cabot and you know and if so, how does that return profile look compare to what you’re seeing in the open market? A –Ken Stannard: So if I ask that, answer directly, Ashish, so yes, the answer it’s not the same every quarter. But if I look at this year and last year, I’d say a considerable percentage something like a third of the deployment in the UK would have been from holdings that were effectively serving on the Westcott [ph] side of things. The return is better definitely I can’t give you a precise number but I would talk in sort of 100 basis points IRR range and that comes from not necessarily a difference in the approach of pricing with the seller, we want to give the clients the best price we can, but we understand the book so much better. I mean we understand the way in which we’re going to collect on those books so much that we’re able to deliver higher liquidation from day one, so it is proved to be very successful strategy. We visited and it’s come along and by virtue of the clients, [indiscernible] books and those books, being managed by Westcott [ph] so it’s continuing to be successful now. This will work for us going into the future because as defaults rise in the UK and Westcott [ph] receives more of that cloth [ph] of fresh debt into the market through its collection [indiscernible] the banks will continue to have more and more stock to sell [indiscernible] Westcott, so this is not something that runs out overtime and so a continue advantage of this acquisition. Q –Hugh Miller: It’s definitely helpful color, thank you for that and then maybe question on France. We’re hearing a little bit about a rise and secure at NPL sales that are going on in that jurisdiction, was wondering if you could maybe comment about what you’re seeing in the non-performing space there and maybe a sense of, I know that the focus is on the UK at this point. How much are you deploying in France and what could that maybe overtime if we’re seeing a rise in opportunities there. A – Ken Stannard: Yes, so it’s very good question. So I think France is certainly now seeing a shift in mindset there’s a lot more conversation happening, a lot more coming to market. I would say, in the secured space certainly there’s have been some big transactions that have happened, we haven’t participated in those, we’re looking at potentially servicing some of those going forward, but not going capital insecure in France, as we speak. But in an unsecured market, it has I would say grown by about 50% already and could be going up further from that, obviously from a relatively low base and as yet, I think deployments are relatively modest in France. So we’ll be spending circa sort of EUR10 million to EUR20 million not anything greater this year, but I think over the next few years I’d expect that to rise to quite an equal number. Q –Hugh Miller: Thanks, helpful. And then I guess one on Spain, one of your peers reported some collection challenges in Spain and I guess particularly in a legal channel. How is Cabot viewing the operating environment there and how much of your legal expertise from Marlin [ph] can you apply in the Spanish market? A – Ken Stannard: Well first of all I think what you’re referring is quite different than the troubles that were reported by one of our competitors in the last few days and their Q3 results were much more driven by the BPO contracts that they had effectively bought large scale ones in the Spanish market and some of which had come to a point of termination and we haven’t done that at all, in our business sort of business we’ve been growing over the last few years, has been organic both in service and in deployment in unsecured. So I don’t think it’s a read across in any way. I think our Spanish businesses is benefiting enormously from the integration benefits of two well arguably sub scale businesses and brought together sub sequent to the integration in mid-2018, we’ve actually made those businesses considerably more efficient and I think we’re now competing very effectively. I think we’re probably leading in certain asset classes in non-performing unsecured loans and growing our business very, very positively on a bottom line basis. So I’m feeling very positive about Spain coming from relatively small scale and growing. We don’t have the legacy of BPO contracts that are running down. So it’s very different story for us. Q –Hugh Miller: Got it, that’s helpful, thank you and then one last from me. As we think about kind of the collections in the UK. Obviously, you guys have significant headroom between the payment plans you’re receiving and the disposal income from the consumer. But given the prolong uncertainty around BREXIT, is there any impact that you’re seeing there just in terms of the ability to generate collection lift and does it way on the consumer’s mindset and the discussions you’re having with them, any impact whatsoever you’re seeing there on the cash collections? A – Ken Stannard: Very good question. We’re spending an awful lot of time monitoring. I think the best answer I can give you is that, on plans and regular small payments we’re not seeing any impact. I think they have as we’ve predicted been really robust. I think as you approach various different deadlines for BREXIT and there have been many, there’s some evidence that customers hold back from making settlements in just running up to those particular deadlines and then as the six month extensions go through, I think some of those settlement then come through again, but I’m you can be in danger of reading too much into the BREXIT deadline impact. But we’re certainly sort of quite focused on making sure we can predict as much of it as possible. I think the more of arriving trends in the UK are driven by some other things that people don’t spend as much time thinking about. I mean if you look at UK, default rates in the past few years has been very benign environment lowest for many, many years but we’re going to be seeing rising defaults in the UK driven by some important changes. I mean the obviously the unsecured lending has been driven upwards, has been an opening up as underwriting criteria and then very importantly from a regulatory perspective there’s a change in persistent debt which means that those customers who have regularly only pay their minimum payments on credit cards over 12 month period they’re going to have to be put on higher payment amounts and that’s causing, a more cause more default in the UK. So I think we all see in the UK higher default rates, higher flows into that business. It’s not a matter of whether they’re going to go up, it’s a matter of how much, so we’re preparing ourselves to be ready from a capacity perspective to take on that additional volumes and just to keep our clients in a position where they can suppress that default rates as much as possible. Q –Hugh Miller: Thanks, Ken. It’s very helpful insight. A – Ken Stannard: Thanks for your question, Hugh.

Your next question comes from the line of Robert Dodd with Raymond James. Your line is now open. Q –Robert Dodd: Just a couple, first I’ll follow-up on the BREXIT question. I guess it keeps getting kicked down low at every quarter. given the latest talk right which is I think already been phone in, but that’s – would it add any incremental complications to you if there was a hypothetical European Data Protection directive line down the middle of the Irish sea. I mean you got operations in Ireland and then, the UK. But would it add any complications to collections for the Northern Ireland. A – Ken Stannard: It’s a very good question and we’ve been spending quite a lot of time making sure that we’re prepared for exactly that eventuality so making sure that, a day after any hypothetical BREXIT we can answer a European client who wants to know where that data resides and making sure that it doesn’t reside out of the future definition of the EU, but we are already very well prepared with our databases and IT barriers to ensure that we can reassure those clients in all regards. So there’s no issue in our European structure from a regulatory perspective because all of our business is also pretty regulated. The one thing that we do need to make sure we can reassure our clients on is the resident location of all of that data and we’re well prepared to be able to do that. So we don’t see any impact our ability to collect in different jurisdictions or indeed to keep our clients happy with respect to the where the data resides. Q –Robert Dodd: Okay, got it. Thank you for that color. One more unrelated to that, but any update on rule making process in the US? A – Ken Stannard: That’s a US question? Is it? Q –Robert Dodd: Yes. A – Ken Stannard: Ashish, you want to?

Yes, we were cut off, we just got back in, something happened. So we had to dial back in through the operator. Q –Robert Dodd: I’ll repeat the query. Any update on rule making [indiscernible] in the US?

Robert, the only update is the common period has ended and a lot of comments were filed. We filed our comments. Traders Associations filed their comments. So it seems a bit delayed than the original timeline that was set. So after the rules are promulgated, I think it’s going to be a year to take into effect, so at this point. I don’t have a timeline I was expecting perhaps mid next year for rules to be in effect. It’s possible it still happens, but maybe some delay that’s the best we know for now. But their common period has ended so that key step is done and there’s a lot of comments so I’m sure the CFPB is analyzing those and will be kind of incorporating those and or any changes into the proposed rules. Q –Robert Dodd: Okay, got it. Thank you.

You’re welcome. Apologies. Somehow, we were cut off, so we’re back in now from San Diego. And I know today is a very busy day for company’s earning’s announcement. I think in a long time it’s one of the busiest days ever or something like that. So I believe many companies are conducting calls. So we do not have any more questions in the queue that we can see and this concludes the call for today. Thank you all for taking the time to join us. We look forward to providing you our fourth quarter 2019 results in February. Thank you.

Ladies and gentlemen. This concludes today’s conference and thank you for your participation. You may now disconnect.