Encore Capital Group, Inc. (ECPG) Q3 2020 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Encore Capital Group's Q3 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Bruce Thomas from Encore Capital. Please go ahead.

Thank you, operator. Good afternoon and welcome to Encore Capital Group's third quarter 2020 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; Ryan Bell, President of Midland Credit Management; and Craig Buick, CEO of Cabot Credit Management. Ashish and Jon will make prepared remarks today, and then we'll be happy to take your questions. Unless otherwise noted, comparisons made on this conference call will be between the third quarter of 2020 and the third quarter of 2019. 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. With the COVID-19 pandemic persistence, we hope that each of you and your families remain safe and healthy, while adapting to the realities of your current circumstances. At Encore, through a combination of working from home, and the creation of safe workplaces, we continue to prioritize the welfare of our employees. And we remain fully operational in all the markets we serve. Working through the changing dynamics of the pandemic around the world, our team continues to perform at or above the high level of productivity we exhibited before the pandemic. The consumer dynamics we discussed a quarter ago continued into the third quarter. Our consumers are reaching out to us for assistance with their financial recovery. We deal with consumers and financial hardship every day, and have been able to extend relief when appropriate, while we have increasing numbers of consumers resolve their debts. As expected this past Friday, the CFPB released new rules for our industry in the U.S. These rules provide much needed clarity and create uniformity in the fair treatment of consumers and debt collection. They also provide opportunities for us to communicate with consumers for more modern means, consistent with the way consumers prefer to interact with us. The new rules are largely consistent with those proposed 18 months ago, and as a result, we are well prepared to fully implement them with no significant incremental operational changes. To these new rules, we remain very much aligned with the CFPB's goal of making consumer financial markets work for consumers, responsible providers, and the economy as a whole. The third quarter was a period of great achievement for Encore. The steady improvement of our balance sheet has been a strategic priority of ours for some time. As part of this effort, we had a goal of combining the strength of the U.S. and European balance sheets into one unified global funding structure. We accomplish this goal in September through a series of actions that now maximizes our financial flexibility. More specifically, the benefits include enhanced access to capital markets, improved ability to deploy capital in the market for the best returns and a line of sight to reducing our funding costs. Jon will recap the highlights of our new funding structure in a few moments. It was also an outstanding quarter operationally for Encore, in which we delivered strong results. Global collections for the third quarter with a record $540 million and came in better than expected for both MCM and Cabot. Revenues of $404 million were up 30% compared to the third quarter a year ago. Our ERC was record $8.5 billion and was up 15% compared to Q3 last year. As a result of our strong collections performance redeliver through GAAP net income of just for $1.72 per share, which was more than 40% Q3 last year. Non-GAAP adjusted income was $74 million, or $2.31 per share. In addition to these results, a clear indication of a performance can be found in the higher level of returns in our business. Our return-on-equity reached 21.3% on a trailing 12 months basis in Q3, as we continue to operate efficiently and deploy capital at solid returns. The result demonstrates our ability to deliver strong returns under current market conditions, as well as overtime. We believe, it is difficult to find such attractive returns at other companies and around our industry. Our consistent growth in cash generation demonstrates a steady improvement in the business over the past several years. In fact, in the third quarter, we again set a new record for adjusted EBITDA plus collections applied to principal, which is the industry benchmark for cash generation. We continue to operate efficiently and purchase portfolios that attractive multiples. Even after subtracting cash taxes, cash interest, and CapEx. We continue to generate substantial cash each quarter. Turning now to our U.S. business. MCM collections in Q3 were record $391 million, up 18% compared to the third quarter of last year. Our MCM performance continues to benefit from our efforts to direct a larger proportion of our collections towards the call center and digital channel. We continue to see strong demand from our consumer base to engage with us through our digital platform. As a result, Q3 collections in the call center and digital channel were up 32% compared to the same quarter last year. MCM deployments in the third quarter were $141 million, across the collect continues to improve when compared to the year ago period, which is a strong reflection of a continued focus on expense management, our operating efficiency and the resulting operating leverage we have created in our business. Due to COVID related impacts and constraints, MCM's expenses on the third quarter was somewhat lower than we would have incurred otherwise. These constraints are expected to diminish going forward. And, as I mentioned a moment ago, we believe the new rules released by the CFPB last week, provide clarity and create uniformity in how consumers should be treated across the industry. In addition, instead requires no significant incremental operational changes to achieve compliance with the new rules, as they are largely consistent with the CFPB's proposed rules that were issued 18 months ago, giving us time to prepare. Turning to Cabot. In the UK and in continental Europe, our collections in the third quarter showed continued signs of recovery, and we’re down only 6% compared to Q3 a year ago. In Europe government measures resulting from COVID pandemics continue to impact the litigation related collection practices. At the same time, collections in our call center and digital channel in Q3, but broadly in line with last year. As we continue to see no material change and demand for and breakage race. Capital management for all the pandemic has enabled continued solid profitability. The subdued purchasing environments in the UK and in continental Europe continued into Q3 and we expect this lower level of supply to persist to the end of 2020. However, we are seeing a stronger pipeline of servicing opportunities forming in the UK. We anticipate an increase in purchasing opportunities, as charge-offs are expected to rise meaningfully after government assistance programs subside. Looking forward, our new global funding structure removes the prior constraints related to Cabot's standalone leverage. And that provides us an enhanced stability to deploy capital at attractive returns. I'd now like to hand the call over to John for a more detailed look at our third quarter financial results.

Thank you, Ashish. As a reminder, we will sometimes refer to our U.S. business by it's brand name, Midland Credit Management, or more simply MCM. We may also refer to our European business as Cabot. Global deployments where $170 million in the third quarter compared to $260 million in the third quarter of 2019. MCM deployed $141 million in the U.S. during Q3, down from $173 million in the same purity year ago, due to better pricing, coupled with somewhat lower supply. European deployments total $29 million during the third quarter, compared to $85 million in the same quarter year ago. The decrease in Q3 was primarily due to limited supply of portfolios coming to market as a result of the COVID pandemic. Global collections were record $540 million in the third quarter up 8% compared to the same quarter year ago. MCM collections grew 18% in Q3 to a record $391 million. Within that total MCMs call center and digital collections grew 32% compared to Q3 of last year. Cabot's collections from our debt purchasing business in Europe in the third quarter were $141 million down 6% compared to Q3 last year. Overall long course global collections for the first three quarters of 2020 were at 100% of our ERC as of December 31 2019. Global revenues in the third quarter were up 13% to $404 million, compared to $356 million in Q3 a year ago. In the U.S., revenues were $256 million in the third quarter. In Europe, Q3 revenues were $142 million. Higher than expected collections to open incremental $30 million of revenue in the third quarter. This is reflected in our income statement under changes and expected current and future recoveries. We believe the majority of our overperformance in the third quarter reflected over collections against the forecast reductions made at the onset of the COVID-19 pandemic. Our global ERC was $8.5 billion at the end of September, up 15% when compared to the end of Q3 last year. In the third quarter, we reported GAAP earnings of $1.72 per share, compared to $1.23 per share in Q3 of last year. After making noncash and non-operating adjustments that accounted for the tax effects of these adjustments our non-GAAP economic EPS was $2.31 per share in the third quarter. This compares to $1.64 per share of economic EPS in Q3 of last year. There are two items that I would like to highlight. First, our GAAP EPS in Q3 this year is net of the impact of a $15 million payment we made at the CFPB to settle a complaint they filed in September, which translates to $0.47 per share. Second, both our GAAP and economic EPS in Q3 are net of a $0.59 per share impact from expenses associated with establishing our new global funding structure, which totaled $19 million after tax. As Ashish mentioned in his opening remarks, we successfully implemented our new global funding structure in September, which effectively combined the balance sheet or MCM and Cabot businesses, and allows us to fully leverage their combined scale. Among the many benefits of this new structure, we have maximized our future flexibility, allowing us to better leverage our global borrowing base, and enhancing our access to capital markets. We have extended our debt maturities. We have removed the prior leverage constraints that were specific to Cabot providing us with an enhanced stability to allocate capital to the markets for the best returns. And we now have line of sight to reduce funding costs. As results of our new funding structure in the strengthening of our balance sheet over the past two plus years, we have put ourselves in a strong position to capitalize on the attractive opportunities that lie ahead. Since the beginning of 2018, we've reduced our debt-to-equity ratio from 5.9 times to 2.9 times. We've also reduced our ratio of net debt-to-adjusted EBIT, plus collections applied to principal, a measure of common our industry. We have reduced this ratio from 3.2 times to 2.4 times resulting in a level that is among the lowest in our peer group. On course de-levering has been driven by strong operating performance and focused capital deployment, which have in turn driven higher levels of efficiency and cash flow. Available capacity under our new global RCF was $465 million at the end of the third quarter. And we concluded Q3 with $150 million of non-client cash on the balance sheet. We also have paid off $89 million of convertible notes that matured in July, which reduced the size of our convertible complex by 13%. If you follow us closely, you will recall that we're in the midst of a conservative effort to reduce the level of convertible debt in our capital stack. With that, I'd like to turn it back over to Ashish.

Thank you, Jon. As I mentioned in the past, we believe our three strategic priorities continue to be instrumental in building shareholder value, and driving strong results. The three priorities include focusing on the U.S. and UK, the two largest and most valuable markets. Innovating to maintain and enhance our competitive edge and continuing to strengthen our balance sheet, while delivering strong results. With a steady emphasis on these priorities, we continue to deliver solid operating performance each quarter and remain well positioned for the attractive opportunities expected in our markets. In summary, Q3 was an outstanding quarter for Encore, in which we achieved record collections, ERC and cash generation. Our results in the third quarter are a continuation of significant growth and GAAP earnings over the past five years. A strong return on equity reflects Encore solid performance overtime. We are pleased to see the finalization of the rules for our industry in the U.S. The new rules issued by the CFPB will provide clarity and create uniformity and how consumers are treated across the industry. And finally, in addition to our new global funding structure, the quality of a balance sheet and our liquidity have us well positioned to capitalize on the significant increase in charge-offs expected in 2021 and beyond. Now we'd be happy to answer any questions that you may have. Operator, please open up the lines for questions.

[Operator Instructions] And your first question is from Mark Hughes from Truist. Your line is open.

Jonathan, does the economic EPS include the $15 million in CFPB settlement?

No, that only impacted GAAP, the one that impacted both, whether, where is the charges related to new global funding structure.

So the economic EPS excludes both the funding structure and the CFPB charge, is that correct?

Yes. No, no, sorry. What I was trying to say is that the global funding structure, the $0.59 that are referred to before that was netted out of both. So both GAAP and economic are lower by that amount for the global finance structure. Economic EPS is not lowered by the settlement with the CFPB.

Okay. So if one were to do a operating EPS excluding the CFPB settlement, one would I have back the $0.47. Is that correct?

Well, yes, from our perspective, we incur these kinds of financing costs in refinancing bonds and from time to time with our bank facilities. And this one just happens to be bigger of course, but we have absorbed similar costs in the past, just so you're aware.

And Mark, this is Ashish. If I could jump in on kind of the comments you made on kind of thinking about operating earnings. So, as I think about kind of Q3, there were three things out of norm. Jon mentioned two of them. So the $0.59 reduced it, because of the global funding structure. The two other elements that might be worth noting, as you know, we are performing really well on collections. And we continue to do well. But the forecast that we are performing and comparing against was done in Q1 in the very early stages of the COVID pandemic. And we continue to gain benefit from that. And this quarter, you could essentially assume about $30 million in revenues shifted from Q1 to Q3. So that's $0.35 benefit definitely had in Q3. And the other one is I mentioned in my comments, expenses, so we continue to see lower expenses, but in particular MCM, collections expenses relating to legal and other activities have been running lower. And that's about I would say $10 million a quarter approximately. So going forward Q4 onwards, over the quarter as I expect that to normalize. So those are the three out of norm elements in our earnings, economic earnings in Q3.

What is the trajectory on the lease spending? It'll normalize, but how long is it going to take to get back to that extra $10 million pace?

I think you'll start getting there pretty quickly. Some of it is legal, some of it is other collections expenses. So we start seeing in Q4 and then it will build-ups early in the year and going forward on a quarterly basis.

On the U.S. supply of the card companies have certainly made large provisions for expected losses that credit card charge-offs continue to be low. How do you see that playing out over the next 12 months?

So we are watching very closely, and we also talking to our bank and issuer partners in the U.S. You have, I'm sure followed all the bank earnings reports. So it's been an unusual time for the lending industry, returning credit card, banks are continuing to see, despite an economic hardship in a macro environment that has higher unemployment rates, but it's an odd one. Banks are continuing to see delinquencies lower than normal, and charge-offs lower than normal. They have reserved a lot in terms of the increase allowances, of course, so they expect those losses to come through. What many of them said and what we are hearing consistently is the second half 2021 is when they expect the charge-offs to start rising again. So we have seen all the U.S. banks are continuing to sell rather than wants to normally sell are selling. And just we are seeing volumes at the lower end of the contractual amounts and their flows. And that I think we'll continue through the end of this year, and most likely into the New Year. But this has been an interesting and strange economic environment in so many ways. So things have changed. But that's what we're hearing from the banks right now. And we're preparing for.

And your next question is from David Scharf of JMP Securities. Your line is open.

I'm wondering a couple things on the CFPB side with the, we hear you kind of loud and clear about the minimal operational changes. I'm just curious, do you either have a gut feeling? Or do you hear any chatter from your bank partners, that the formalization of the new rules might negatively impact some of their outsourcing partners? And they ultimately you compete with a third party contingency guys as well, because the bank can either keep it in house, outsource it or sell it. Did you think that these new rules are going to improve your competitive standing at all? Or should we just kind of view this is just a formalization of stuff you've been doing? And it's not going to change the competitive landscape much.

So David, a couple of things you had in there, so let me try to address. So one is, and then no significant incremental operational changes. So there are things, there are very positive in there on digital technology, while texting, e-mails and so forth. There are things I'm calling that we'll have to adapt, for example. But overall, it should be a net benefit. Now, we have been, we've seen the draft rules for 18 months, we've had a lot of time to think about it and adapt our plan for it. And the rules won't be in effect for another year. So we have time to implement. On your question about chatter from the banks, we look very fresh in terms of issuance, so they just came out on Friday As of now, we have not heard anything directly from the banks. But I would tend to have a point of view that you articulated, which is some of the agencies and smaller scale players may have to invest a lot more and complying with the rules. If you want to do digital, it takes a lot of fixed costs, and investing in digital for many years. So I would think it creates a benefit for people who are consumer focus, for people who are investing in these technologies and not waiting, and are going to be able to leverage those investments much more. And that's what the consumers want, actually. So consumers are used to working digitally with their bank and ensure just before charge-off, and things change dramatically. So now we'll be meeting the consumers with the preferences. And I would expect, again, I have no data to support this at this point, that people with technology and skill, like Encore should benefit from this long-term.

On the digital front, can you just clarify when you refer to digital in the context of digital and call center collections. Is that just referring to inbound payments, such as digital meaning, like a payment portal that a consumer is going to? Or does digital also refer to out bound kind of outreach that texting and so forth?

Yes, it's the first to all of them, because it is a multi-channel, Omni channel kind of approach if you would. So, sometimes a call may lead a consumer to pay online or on the app or an email will trigger them to talk to us. So it's tough to think. So when we have combined digital and call center into one channel, and that's what we refer to when you mentioned, digital call center and digital channel. And again, back to your earlier question on CFPB, I think call caps of seven calls per account in a week is also going to be something that the shops that are very outbound focused, and will have to adapt and may suffer some collections. So that should be another factor as I just thought about it. And as you know, we've mentioned last few quarters, our inbound, both call center and digital continues to grow very significantly. So consumers are reaching in calling us and engaging digitally. So that's another factor. That should help the trend that we've been driving for a while.

Just one final question I guess for Jonathan. I don't know if it's just a coincidence, but obviously the CECL related allowance. The outperformance in Q2 plus Q3 is almost dollar for dollar, the COVID negative mark you took in Q1? Is that a coincidence or we should kind of view Q3 is sort of cleaning up the initial underperformance from Q1 and we're kind of having more of a fresh start now?

Yes, it's a great question, David. You hate to, I don't want to sound 2Q and try to get 2Q around, because as you know, these are complicated calculations with various discount rates and obviously cash overs or how you've seen the current quarter is obviously not discounted at all. Having said that, and you're absolutely right. By the time you get to year-to-date, we're basically washed. So I think directionally, you're correct that we have now on a go forward basis, we've caught off on a significant percentage of what we had delayed in the past. And remember, there's difference in as we've discussed in the past in terms of recoveries in the U.S. versus the UK. And so they're moving at different speeds UK and Europe given what's going on there, right with those markets. But yes, generically you're correct.

[Operator Instructions] Next question is from Mike Grondahl of Northland Securities. Your line is open.

Digital collections, it looks like they're now 63% call center in digital in the U.S. growing 32% year-over-year. Can you kind of just get a little bit more granular there? What's working? You think you can driving those? Because the cost associated with them is definitely showing up, they seem to be doing well for you. Can you just tell us a little bit more color?

Absolutely, Mike. So pretty good observation in decline, but as I look at for many years back as I have chart in 2015 almost. Are the care of call center and digital has been growing steadily. So that's been part of an effort, as we've enhanced our call model, card call center account managers and really focus on the consumer focused call model, and analytics to help segment cost accounts into legal versus call center. That trend was very steady increase, not dramatic, within a year-over-year, but over years, from 2015 onwards, it has increased the call center portion very significantly until the end of 2019. Now what we did find is the pandemic environment in which perhaps consumers are behaving differently as banks also finding out in terms of how they're paying off their debts or savings rates, their home mode, their perhaps opening mail mode, and responding to e-mails. There has been a marked shift increase of calling into us speaking account managers as well as engaging digitally. Now how much of that was sustained as a one time or it is now to quarter bump. And continue I cannot quite say. But I can say consumers are getting very comfortable digitally and it's growing. And maybe the rate of growth will slow down. And we'll be on a steady uptick the way we were. Now I would also add which is not immediate, but a year from now when the rooms going into effect use of outbound the-mail, texting and voicemails and all of those things that consumers prefer to interact with on buy. We'll also help increasing that channel use. So you're absolutely right the impact is better outcome for the consumer, as well as very clear improvement in our overall cost to collect and the impacts on straight to the bottom-line.

Secondly, if the U.S. gets a second stimulus at some point, how do you think about that in terms of your business? I.e. is there a trade-off better collections but a little bit softer supply? How should we think through a second stimulus if we get one?

Sounds good. Let me take a stab at it and I'll just -- in different locations from trying to jump in if he has additional points after this. So we do not target stimulus money per se. We dealing with consumers and financial hardship on an ongoing basis. That's our business. For bank, small portion of consumer debt and hardship, but we are always dealing with and we've given them delays and payment, floor independent plan, hardship, temporary hardship collections stop, and so forth. So we're not targeting stimulus money, maturity, something is happening in the consumer front, whether it's stimulus or much lower expensive. The savings rate in the country and across the world in many ways has gone up. So and banks are finding out that banks, their consumers are taking care of their debts at an higher rate. So delinquencies are down charge-offs are down. I don't know which specific driver is it stimulus or just expenses or not traveling and other spending that's happening. And it may very as the economy opens up. Over time, I would think the impact will be different. The other impact on lower delinquencies and supply and lower charge-offs is forbearance, whether in UK and in U.S. And forbearance programs, if you look at some of the bank presentations are pretty close to low single digits if not getting close to zero. So that's us was significant in U.S. in the early stages of pandemic. That was impacting the delinquency and kind of role rates and charge-off rates that will probably go away as at least what the banks are saying. Forbearance may be a bit more prevalent in UK, so they might be longer. So stimulus comes in many ways, its support in terms of direct cash, but also the support for consumers from forbearance, and will end. So we'll have to see how this plays out but I have to believe what banks are saying and telling us that really expected influences in charge-offs eventually rise. And stimulus may impact some collections, perhaps delinquencies a bit here and there, but I don't, nobody has really point pinpointed the exact driver there. So Ryan, did you have anything else you're observing and operations on the MCM side?

I think you covered it well, Ashish. I think one thing I reiterate is a lot of things go into the individual economic situation that the consumer thinks that he's right is an important metric to keep track of I think people look at stimulus and other aspects, but just the overall, health of the consumer determines their ability to pay. So as we track savings rates, we see that does correlate well, people consumer to pay their debt.

Next question is from Dominick Gabriele of Oppenheimer. Your line is open.

So if we just look at the 540 of rose collections, and then we kind of look at that versus the yield on those collections, the revenue recognition rate to some extent, the revenue recognition rates actually pretty flat versus the last year where we've been seeing some kind of improvements of the first and second quarter. So I'm wondering, if were there a bunch of balances that were basically collected that perhaps didn't have the time to either. I don't know how to say this profit, or maybe not make as much money off of or came on at lower profitability, or something along those lines. Just because, for instance your gross collections beat me by like, let's say $50 million, but the revenues were right in line, so the multiples seems lower. And then I just have a few more, that's okay. Maybe this is you could explain some of the dynamics you're seeing there.

So I think revenue is now under the CECL. There's this first line and second line impacts also wins and that could impact us. So I see your point on revenue recognition as a percent of collections 63.3 to 63.5. But there's impact that we get from a CECL approach that's impacting it. I can't think of anything else pretty unique that's happening. Jon, do you wanted to chime in?

We see, as you can see from our multiples, we're booking better multiples. And we're, and we have CECL did change our ERC, as you know, right? And made it comparable to everybody else and cause some growth. But if you remember Q-on-Q or period-on-period, I continue to expect certainly to maintain or perhaps improve on the revenue recognition rate. But I think part of this isn't what part of what Ashish was alluding to, right? There are a number of moving parts caused by CECL. So I wouldn't read too much into it. I think the important takeaways is that our IRs have gone up, or you can see it in the multiples. And there is a little bit of noise caused by CECL

And then if you if you back out the it looks like $7 million modeling question. But if, there is $7 million is in operating expense, it says and then I'm guessing the rest of that was probably captured in interest expense itself, which is why interest expenses was so much higher, maybe 16 something like 16 each?

Yes. So I'm sorry. Are you talking how many refer into the global implementation, the global funding suffer?

Yes. So I guess, about that going forward, maybe more like 50,51 back at the normal levels, given all you've done and accomplished because that was obviously a big accomplishment, trying to keep these expenses down going forward. So you guys thinking more along the lines of second quarter's interest expense on a core basis?

I would say, generically, you're right. And the reason I say generically is I just want to caution you a little bit to the extent that we just like with the global funding structure to the extent that we refinance some high coupon debt, right and replace it with some lower coupon debt which we may conclude economically is the right thing to do. In that period, you could see elevated interest expense again, because of costs related to doing that. But if you were to ignore that you'd be, I believe you'd be right, we'd be back in that low 50s range.

And then on the legal collections, I really appreciate all the color there. I just want to make sure I know which direction we're going. So there was about $16 million or so and I believe the common was around $10 million lower than you maybe otherwise would have seen. But I'm remember there was some kind of push and pull from the second quarter into the third quarter and across perhaps the next few quarters, if you wouldn't mind just touching on that. And are you are you kind of suggesting that, legal collection is going to be a bigger portion of collections on a go forward basis for any particular reason where it could hit more like $70 million or did I maybe just here you're wrong. Thanks so much. I will appreciate it.

You're largely right as what we are seeing roughly whether it all shows up in legal collections expense or some other operating expense, whether there are some other collections related expenses, whether it's mailing costs and other things that might be would for MCM. What I did want to highlight is roughly $10 million expense benefits that we saw in Q3 that we expect to start diminishing, and not be there going forward. So that's probably be most illegal but it could be in other parts too.

Next question is from Robert Dodd of Raymond James. Your line is open.

Question more about Cobat or really the UK. I mean, as you said in your prepared remarks, you said, obviously not surprising, right COVID has impacted litigation in the European market I think probably not the UK there. So two questions that are I mean, obviously, the UK has gone down into another shutdown for the rest of November. So how does that impact anything going on that, either on the operational front or the expense front? And then also tied to that, obviously, we're now nine weeks out from the end of the year. And in the UK, that means Brexit no deal, et cetera? Can you give us an idea of what your plans are around that? If you have any ideas about how that could play out? And where there would be any need to make an adjustment on that basis?

So I'll do a very short response. And then I will let Craig respond. He's on the line as well from UK. So you mentioned UK primarily, that is largely true, but we also have from a legal collections point of view other countries in Europe where we're active, especially Spain, where we have portfolios and SME and secure, which are even more impacted by any kind of legal or court shutdowns or legal processes not working at an full 100% level. So it does get impacted in other places. But I'm going to let Craig jump in on your couple of questions that you had there.

Yes, thanks, Ashish and hi, Robert. Certainly timely at this point in time that everything that happened over the weekend, I lot operationally moving into another lockdown here in the UK is not going to impact us at this particular point in time. There's a lot that we've invested in over the years on technology and process that allowed us to move very quickly when the first lockdown came upon us with limited notice. We've managed to maintain our operational capacity through this period, which is allowed us to continue to meet our clients and our customers' needs at this particular point in time. The second lockdown will not be impacting on our operational capabilities. We still believe that we can continue to do what we are, it's slightly different to the first lockdown. A lot of the courts and a lot of public services are remaining open this time, they were closed down the first time around. There's a lot that is still moving. So we're still paying close attention to this. But as I sit here today, I think we can continue with operational capabilities, we did pull back from our litigation activity on the first lockdown kicked in. We have reinitiated those litigation activities, albeit and a very controlled and measured manner, because we take very seriously our responsibilities to ensure that we are doing the right things by our customers to those activities on the way. In terms of Brexit is just COVID working to last with Brexit on the horizon as well. It's drifted into the background in terms of the commentary, but it does remain out there we have left Europe now, but we haven't got, it's excite deal, that's going to take place at the end of the year. That should not impact on us operationally, the way we set up within Europe, we have separate operating entities within each of the jurisdictions. So even in a no trade deal, we still will be able to undertake our activities as we are today in our various jurisdictions. So it shouldn't impact on our operational capabilities. We spend a lot of time looking at this, particularly around probably one of the main impacts is around GDPR and data sharing. We've been putting a lot of work into that to make sure we understand the implications, again, with that gray that's having a material impact on the way we do business today. But we continue to monitor what's going on in those government discussions. We don't think it's going to impact on us from an operational perspective. But there's a lot of time between here and the end of the year. And we'll continue to monitor it perfectly Robert that helps give a little bit of help.

We have a question from Mark Hughes from SunTrust. Your line is open.

Jonathan touched on this, I think, but to talk about the line of sight to reduce funding costs. Any specifics, you'd care to share or just got a roadmap, as you see it, how this cost evolve?

Sure. If you looked at our debt stack, you'll see a couple of relatively, on a relative basis, expensive pieces of debt, which are the currently outstanding telethons that have been reconfigured to fit, if you will, within our global structure. And when appropriate, I can see those being refinanced. And I think you can do some quick math and come up with round numbers, you're talking about a billion dollars. And if you save a couple hundred basis points, that's adds up to real money for the given year, right to step one if you will? And then I just think, I do expect that as we continue to move forward, we will get better and better execution as we continue to develop this structure. But I think that the big near-term pops will be as the opportunities present themselves for those two bonds.

And is there some in terms of call protection that makes it obviously an economic, when does that become more palatable?

Well, it's they're both callable today. They're at some pretty one in particular is pretty steep premiums. But that doesn't mean that if the, if we see something compelling that we wouldn't be willing to pay that premium to do it right, it all comes down to economics at the end of the day.

And your last question is from Dominick Gabriele of Oppenheimer. Your line is open.

Do you think that the, I just want to ask a bigger question, since we have all of you here. Do you think that the quarter-over-quarter change in the U.S. purchases in particular, that actually improved and I remember you saying people were really reluctant to sell at one point? Are they opening back up? And then also, have you seen any slowdown in the inbound activity as you work your way through the second and third quarter? Perhaps those, I don't know, maybe stimulus weighing center and center. Post those infusions from the government? Thanks so much, guys. I really appreciate it.

Okay, Dominick, I'll take on the first one and then second, I'm not sure if we have seen any kind of real observable impact, but I let Ryan jump in, because I think your question is for U.S. On the selling, so I just wanted to clarify, all U.S. banks who have been selling into this market before COVID pandemic are continue to sell. It continue to sell through some stop sales, but heavily for the forward flow. So there's no change in selling patterns. What is now changing is the volumes of delinquencies, and therefore charge-offs have reduced. So that's what's impacting. I don't think anybody was holding back, I would say the volumes are coming down. And UK and Europe, that clearly has been more of a pause, although we've seen deals and the participate in them. But the activity level of the banks, particularly in UK have slowed down to take care of the consumers, whether it's delinquency or forbearance programs and other things. So eventually, the supply will still come, it might be a bit land from the U.S., because the forbearance programs maybe that thing a bit longer in UK and U.S. As I said in U.S. from what I could see from the bank's presentations, they are down to very small proportions of their portfolios. But again, all the banks have continued to sell in U.S. has been no change, their volumes are down. And in Europe, which is less dependent on foreign flows, there has been much more of a pause and we expect as volumes will come through the delinquencies and charge-offs price will be back in the market, as well. Probably in the latter part of '21 so the slow rate that we expect rest of the year, may likely continue early in the year, early part of the year for UK. On the inbound call volumes, I'm going to let Ryan jump in, if there's been any observable impacts that we're able to share with you.

Thanks Dominick. No observable impacts, so we always see changes into inbound both from our call centers into our website and our digital side, ups and downs of seasonality. But I think across Q2 and Q3, no material change in any of our key metrics that we would observe that would, make you believe or see any change in consumer behavior. So no observations there at all.

And there are no further questions at this time. And I will turn the call over back to Mr. Masih for his closing remarks.

Thank you. That concludes the call for today. Thanks for taking the time to join us, and we look forward to providing our fourth quarter 2020 results in February. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.