Encore Capital Group, Inc. (ECPG) Q3 2022 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the Encore Capital Group Conference Call. [Operator Instructions] Please keep in mind that today's conference is being recorded. I would now like to hand the conference over to your speaker, Bruce Thomas, VP of Global Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and welcome to Encore Capital Group's Third Quarter 2022 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 will be happy to take your questions. Unless otherwise noted, comparisons made on this call today will be between the third quarter of 2022 and the third quarter of 2021. 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 us. I'd like to begin by noting that our performance in recent years and the disciplined execution of our strategy has put us in a position of strength to navigate the evolving macroeconomic environment that we and many companies face today. Against this backdrop, Encore delivered solid operating performance in Q3. However, as we stated last quarter, we will face some pressure in earnings over the next few quarters due to the impacts of the evolving macroeconomic environment. As expected, our third quarter collections declined due to our lower level of global portfolio purchases over the last two years and the continued normalization of consumer behavior in the U.S. In addition, Cabot's results were impacted by the weakening of the British pound and the euro in relation to the U.S. dollar. However, and importantly, Q3 was our strongest quarter of portfolio purchasing in 2.5 years, driven by the steady growth in supply that we now see, particularly in the U.S. On a global basis, our portfolio purchases were $233 million, up 38% compared to the third quarter last year, enabled by improving market supply in the U.S. Before we discuss the key markets in which we operate, I believe it's helpful to reiterate the critical role we play in the consumer credit ecosystem by assisting in the resolution of unpaid debts, which are an expected outcome of the lending business model. Our mission is to help consumers resolve their debt, so they can regain the freedom to focus on what is important to them, and we do that by engaging consumers in honest, empathetic and respectful conversations. We look to purchase portfolios of non-performing loans at attractive returns, while minimizing funding costs. For each portfolio that we own, we strive to exceed our collection expectations, while both maintaining an efficient cost structure, as well as ensuring the highest level of compliance and consumer focus. We achieve these objectives through our 3-pillar strategy. This strategy enables us to consistently deliver outstanding financial performance and positions us well to capitalize on future opportunities, and we believe is instrumental in building long-term shareholder value. The first pillar of our strategy, market focus, concentrates our efforts on the markets, where we can achieve the highest risk-adjusted returns. The macroeconomic induced changes to consumer behavior during the pandemic led to unusually low credit card balances and below average charge-offs, which in turn resulted in lower portfolio sales by banks. However, since early 2021, outstandings have been rising as banks continue to report strong growth in lending. In fact, earlier this year, revolving credit in the U.S. surpassed pre-pandemic levels. And each month thereafter the U.S. Federal Reserve has reported a new record level of outstandings. At the same time, in the U.K., credit card balances continue to steadily recover, albeit at a slower pace. We believe that the combination of continued lending growth and charge-off rates, which are rising from pandemic lows has now begun to translate into increased industry supply in the U.S. These dynamics are leading to higher levels of portfolio sales by banks in the U.S. market, which is evident in the steady growth in our purchasing this year, reaching a level in Q3 that is similar to the pre-pandemic 2019 quarterly average. This also means that more consumers will be looking to resolve their debts in order to regain their economic freedom, and our team stands ready to support them. This growth in purchasing is also manifested in our estimated remaining collections, or ERC, which, while declining 7% on a reported basis to $7.3 billion, grew 2% in constant currency to $8 billion. Turning now to our largest and most valuable market in the U.S. MCM collections in the third quarter were $325 million, down 20% compared to Q3 last year. This decline was due to the impact of macroeconomic factors that led to lower purchasing in 2020 and 2021, as well as the normalization of consumer behavior. I would like to note that this collections level is in line with MCM's average quarterly collections before the pandemic began, despite significantly lower purchasing during this 2-year period. which is a testament to the improvements we have implemented in our collections operation. Against this backdrop of growing market supply in the U.S., MCM had its strongest purchasing quarter in 2.5 years. Portfolio purchases in the third quarter were $177 million, an increase of 73% when compared to $102 million in the same quarter last year. Turning to our business in Europe. Another outcome of the evolving macroeconomic environment is the weakening of the British pound and the euro compared to the U.S. dollar. Because the reported results from our Cabot business in the U.K. and Europe were noticeably impacted by the significant changes in foreign currency exchange rates during the quarter. We have provided constant currency comparisons in addition to reported results in this presentation, where we thought it provided additional insight into our underlying performance. In the third quarter, Cabot collections were $132 million as reported, down 15% compared to Q3 of last year, but in constant currency, equal to the collections level of the year ago quarter. We continue to closely monitor the macroeconomic environment in the U.K. And despite inflationary pressures on consumers, our back book of regular payers have seen no impact. Another macro trend that we have been focused on is the continuing labor market tightness in the U.K. Our collection staffing levels have been affected by this pressure, but it has resulted in only a mild impact to collections. Cabot portfolio purchases in the third quarter as reported were $56 million compared to $66 million in Q3 of last year. After adjusting for the currency exchange impact, portfolio purchases in Q3 were at the same level, as a year ago. From a portfolio supply perspective, markets in the U.K. and Europe continue to be competitive, and we have maintained discipline in buying portfolios. The second pillar of our strategy focuses on enhancing our competitive advantages. Although, our cash generation has been impacted by lower portfolio purchasing in recent quarters and the normalization of consumer behavior, especially when compared to last year's extraordinary levels. Our competitive platform enables us to generate -- continue generating significant cash flow. We expect this decline will begin to reverse, as the purchase volumes become consistently higher. Our competitive advantages also allow us to deliver differentiated returns. In return to cash generation -- in addition to cash generation, another important measure of our business is return on invested capital, which considers both the performance of our collections operation, as well as our ability to price risk appropriately when investing our capital. Accordingly, one of our fundamental financial priorities is that our underlying business delivers strong long-term returns. We believe we are delivering returns that are very attractive when compared to those of our peer group in the debt buying industry. The third pillar of our strategy makes the strength of our balance sheet a constant priority. Our strong operating performance and focused capital deployment over many consecutive quarters drove higher levels of cash flow and contributed to a lower level of debt, which in turn reduced our leverage significantly over time. At the end of the third quarter, our leverage ratio was 2.1 times compared to 1.8 times a year ago and remains near the lowest in the industry. It is important to note that when compared to the pre-pandemic years, Encore is a much stronger company when it comes to a balance sheet and capital availability. In addition to lower leverage, we now have a unified global funding structure, which provides us with financial flexibility, including diversified sources of financing and extended maturities. Through our strong balance sheet, we remain well positioned with sufficient liquidity and capacity to fund the opportunities that lie ahead. I'd now like to hand over the call to Jon for a more detailed look at our financial results.

Thank you, Ashish. When comparing third quarter or year-to-date results this year to results from a year ago, keep in mind that the elevated level of collections last year was extraordinary and resulted in part from U.S. consumer behavior that was -- has largely normalized since the beginning of 2022. We continue to effectively manage our cost base. Operating expenses remain well controlled despite inflationary pressures. Importantly, the same normalization of consumer behavior in the U.S. that has led to year-over-year declines in collections is beginning to drive an increase in market supply. This is reflected in our Q3 portfolio purchases, which are up sharply compared to a year ago. For those of you, who closely follow the results of financial companies, you understand that CECL accounting may cause fluctuations in quarterly reported results, but that they do converge with cash results over the long term. This is yet another reason that we believe it's always helpful to consider the long view of our financial results, whether it's over trailing 12 months as many of our important metrics are measured or on a year-to-date basis as reported in our filings. This is consistent with the way we run the business and make decisions, employing a long-term perspective in building shareholder value. Collections were $458 million in Q3, down 19% compared to the extraordinary collections in the third quarter of last year. Breaking that result down into our 2 major businesses, MCM's collections in the U.S. declined 20% compared to Q3 last year, primarily due to lower portfolio purchasing in recent quarters and the normalization of consumer behavior in the U.S. Cabot's collections in the third quarter declined 15% as reported due to the foreign currency effect of the weakening British pound and euro. However, after adjusting for the relative movements in currency, Cabot's collections in Q3 were flat compared to the same quarter last year. For portfolios owned at the end of 2021, Encore's global collections performance through the third quarter was 105% of our portfolio ERC forecast for the period, as of December 31st, 2021. For MCM and for Cabot, collections through Q3 by the same measure, were 114% and 89%, respectively. With regard to collections in Europe, the weakening of the pound and euro in relation to the U.S. dollar has created a separation between reported and constant currency results. In this case, Cabot's collections performance through Q3 on a constant currency basis was 96% of our ERC forecast. In addition to the impacts I've already mentioned, the global macroeconomic environment has also led to higher interest rates and challenging conditions in the bond market for us and other companies. Nonetheless, it is times like these that our global funding structure provides us the financial horsepower to approach the growing supply environment for a position of strength. We believe our strong balance sheet provides us very competitive funding cost when compared to our peers and competitors. While we don't have any material maturity for the foreseeable future, we do monitor market conditions closely and adjust our return thresholds and pricing for new portfolios accordingly. In this environment, we believe higher financing costs will eventually have a moderating effect on portfolio pricing, as debt buyers adapt their bidding behaviors to their higher cost of capital. Our interest expense in the third quarter was $39 million compared to $41 million in Q3 last year. Looking ahead to the fourth quarter, we expect our interest expense to be in the low to mid-$40 million range, depending on rates and FX movements. With that, I'd like to turn it back over to Ashish.

Before I close, I'd like to remind everyone that the financial priorities that we have established some time ago remain unchanged. Our strong balance sheet will serve us well as the highly anticipated growth in market supply strengthens. We will continue to be good stewards of your capital. And as always, we'll maintain our focus on returns in order to build long-term shareholder value. By executing on our strategy and by staying true to our financial priorities, we believe we are exceptionally well positioned for the future. We believe the changes we are now seeing in the macroeconomic environment in terms of the normalization of consumer behavior, as well as the growth in portfolio supply are clear indicators that the next phase of the consumer credit cycle is upon us. This also means more consumers will need our support, and we are ready to help them resolve their debts and restore the financial health, consistent with our mission and the essential role we play in the consumer credit ecosystem. As we discussed in our previous call, we expect the impacts of an evolving macroeconomic environment to pressure our earnings for the next few quarters due to 2 years of lower portfolio purchasing, coupled with the normalization of consumer behavior in the U.S. Importantly, this same normalization of consumer behavior has begun to increase portfolio supply in the U.S. with consumer spending and lending growing and charge-off rates starting to rise from pandemic lows. In fact, the supply growth enabled our MCM business to deliver its best purchasing quarter in Q3 since the pandemic began, with deployments 52% higher versus Q2, 2022 and 73% higher versus Q3, 2021. This growth in purchasing also enabled our ERC to grow 2% to $8 million in constant currency terms at the end of Q3. While supply is now steadily growing in the U.S., keep in mind that it will take sustained higher portfolio purchases before material contributions to our financial results are evident. We see a growing supply pipeline ahead for 2023, as the credit cycle turns, but keep in mind that purchasing can fluctuate on a quarter-to-quarter basis. I'm truly excited about Encore's strong position as we have the required operational capacity and ample liquidity to take advantage of the growth in portfolio purchasing opportunities in the marketplace. Now we'd be happy to answer any questions that you may have. Operator, please open up the lines for questions?

Thank you [Operator Instructions]. David Scharf at JMP Securities, your line is open. Go please to proceed with your question.

Thank you. And good afternoon. Thanks for taking my questions. I had two things. I wanted to touch on that the first is -- and it's something I haven't paid much attention to or in a while, which is labor costs, and I appreciate the commentary about labor costs in the U.K. and it actually kind of prompted me to remind myself to ask, can you update us once again just sort of what percentage of the company's collections come out of your Indian-based call centers? It's always been obviously a differentiator and kind of lost track over the years, especially as Cabot's built out, how much is coming out of there? And whether -- and maybe if you can just give us a little kind of background on what kind of inflation in the labor markets are looking like over there as well.

Yes. Hi, David, thanks for your question there. So inflation clearly is out there in the labor markets, and it shows up more in certain pockets of certain skills and functions versus others and different geographies as well. And overall, we have not had any material impact on our SMB expense, as a result. And while clearly, we have had raises and such things to do in pockets, we've been able to mitigate that through automation and efficiency improvements. So overall, I would say that's kind of the outcome across all our geographies. Now regarding your earlier question on what percent of collections come from India, we don't think of it that way. I mean India is part of an integrated call center operation. It provides back office services. It provides a whole range of services, and it's part of the company. So -- and calls can be routed and started in one place, routed in another place and in a third place. So we don't think of it that way, and that's not something we've disclosed or think about it. We look at maximizing net collections, which is maximizing overall gross collections net of total expenses. So that's the best I can provide you. But to your question on inflation, I mean, that's impacting pretty much all labor markets, but it depends on kind of the job and function as well.

Got it. I appreciate the color. And as a follow-up, I guess the question really on everybody's mind regarding kind of the macro backdrop. I've only gotten one question in months from some investors, and it's not so much about timing somewhat, but they all acknowledge the eventual pickup in asset growth, they all acknowledge that among financials, and specialty finance companies, you'll probably experience asset growth rebound earlier than your lending counterparts. But many of them have kind of long memories in prior cycles when the drip, drip, drip of allowance charges kind of ruled the day in a pre-CECL world. And I guess I don't know if you can answer this maybe it's for Jonathan. But broadly speaking, when you think about your forecasting in credit models, we're coming off of a dozen or so years of 0% Fed funds, which will never happen again. We've got 40 inflation that we haven't seen in for decades. And so arguably, there's more uncertainty about what kind of the world looks like when we come out on the other side or what the new normal is. Do you -- I mean, do you view your forecasting models, even though you've been in business for decades, as being as current as you'd like, I mean, I'm just trying to get a sense for that relative to that $13 million negative adjustment, CECL adds more quarter-to-quarter volatility. That -- it's that line item that I'm candidly getting the most questions about. I think if people get a fair degree of comfort that it's not going to be kind of a 90-day event, and it's a lot easier to sort of gauge downside earnings risk. So it's a long, long-winded way of asking you. Do you feel like the macro environment is just something totally new that the company hasn't really experienced before? Or do you think this is just going to play out like every other credit cycle and you'll emerge obviously, very strong on the other side.

Yes. Definitely, a lot of factors in play in that question, David. I would say as all banks are discovering, as they try to forecast their provisions and whatnot, this is a bit of a different cycle, right? So the pandemic induced consumer behavior was very unusual. So let me just take you back and paint a little bit of a big picture. During the pandemic, consumers had a lot of excess cash and savings, and they paid down their credit card balances and they paid down their outstanding debt. So our earnings were exceptional and that helped drive our exceptional earnings and collections on that time. Now I think as the consumer behavior is normalizing and many of the bank's earnings calls that we read, I call it credit normalization. And it's not fully there yet, but it is getting there. So lending is growing pretty significantly. The loss rates, whether it's in delinquencies, the charge-off rates are starting to pick up, but they're still not back to pre-pandemic levels, even though lending is back to pre-pandemic levels. So we continue to monitor this. We have not seen any impact on our collections. We have absolutely seen impact of low purchasing over the last two years, but now that it's starting to grow because lending is growing and charge-off rates are picking up. So supply is definitely growing and it's much more clear in the U.S. That kind of dynamic did not play out as much in U.K. and Europe in terms of the excess cash and so forth. All the delinquencies are still lower in Europe and U.K. So we do our best -- we do put our best forecast forward every quarter, but it's definitely a new world, but it is starting to evolve to the new normal. What is pretty clear to us is we are entering a growth phase of the cycle, particularly in the U.S., as lending is at record levels and charge-off rates are starting to pick up. And if you look at a whole range of data out there, which we look at consumers' cash or balance sheets are still good, although they are better at higher income versus at the lower income level. So due to inflation and other drivers, some segments of the consumers will get pressured more, as we move forward. And that said, the unemployment rate is still low. So depending on how the impact of Fed rate increases play out, that's going to get impacted as well. But we feel very good about the overall picture we are -- place we are in, in terms of the economic cycle and entering the growth phase of the cycle, particularly in the U.S., which is the largest and most profitable market.

Got it. Very helpful. Thank you Ashish.

Thank you David. Please hold for our next question. Mark Hughes at Truist. Your line is now open.

Thank you, good afternoon. Jon is there anything, any perspective on the $13 million change in the collections in the quarter, I saw the breakout was $5 million of underperformance plus $8 million change in forecast? Any placed in particular? And if we're in this kind of down part of the cycle, at least in terms of collections, as the things gear back up. Is this something that we might anticipate in coming quarters?

Hi, Mark, that's a great question. I have to say, what do I anticipate? Well, I'll put this way. Our goal is to have this number be 0, right? Because at the end of every quarter, we, of course, try to make the best estimate we can. And you're correct, the breakout here is a split between current collections and changes in future recoveries. I have to say there are a number of -- I can go across introducing pool groups across the country and companies, and there are both ups and downs, right? So I -- my takeaway is we are moving away from this macro event, which, from my perspective, led to all pools becoming highly correlated. That's what macro events tend to do. And I think we're moving to a period, where we'll have ups and downs. So -- and as Ashish mentioned earlier in the call, right, there will be some volatility quarter-on-quarter. But I think the long-term trend is to -- is for -- if you look at the previous year, as an example, we were off for 2021 for the same period in 3 months, we were off about $66 million. So yes, it was moved in the positive direction, but we were off more than we are this quarter, right? So I think you can expect that the volatility will be reduced. And as we move forward, we're going to have ups and downs, both on an aggregate basis and importantly, on a pool-by-pool basis. As I said, I do believe that the macro impact is waning. And now we'll have pools that will react as pools do independently.

And then your point about the consumer, do you see any deterioration? I think you might have said when you look at the U.K. back book, the payers are consistent -- just -- and I know you -- see normalization in payment rates, but is there any sign of a recession kicking in or the impacts from inflation?

Mark, this is Ashish. I'll jump in. So the normalization I've talked, it's much more relevant to U.S. consumer who had excess cash and paid down the debt and now is normalizing. To your very specific question, on U.K., we are not seeing any impact yet on our back book in terms of payer rates or retention rates. Even though the news absolutely is about inflation and energy prices and those kind of things, which could impact things in the future. But to-date, we have not seen any impact on the back book in U.K. Now I just also wanted to add kind of one more bit of commentary to Jon's point. So he highlighted the fluctuation. As you know, CECL accounting, given how different it is from the pre-CECL days back in 2019 and prior years. may cause these fluctuations in the quarterly results. But I do want to kind of mention that they always and they do converge with cash results over the long term, right? So we do our best on forecasting, but quarter-to-quarter, whether you exceed or miss the forecast or change the forecast, both those phenomena cause quarterly volatility. But long term, it converges with cash.

I don't have the Q in front of me. Do you happen to have the expected collections multiple through 9 months for the 2022 paper for the MCM and Cabot?

Yes. So the current purchase multiple for the 2022 vintage is 2.1 for U.S. and 1.9 for Cabot.

And then when you think about the supply, I hear what you're saying about the balances are up, charge-off rates are starting to recover. It almost sounds like your purchasing or your view of supply is ahead of that. Is there some dynamic of the banks are selling more? Are they doing that to get ahead of the cycle, say, behavior a little bit different? Or would you say that this is just consistent with the underlying level of charge-offs that are coming into the system.

Yes. I would say the underlying the behavior of all banks is very consistent. All banks used to sell before the pandemic are still selling in a very similar way. There's quarter-to-quarter or over a few months changes in strategies. Some may sell some bulk they've accumulated. They're always doing champion challenger between servicing and agencies and law firms versus selling, for example, or internal capacity. But in terms of overall behavior, it's consistent. What we have seen is a very steady increase in -- when you look at a flow that lasts for a long time, steady increase month-over-month in their charge-off volumes. So that's giving us the confidence kind of how the volumes are rising, and they're lending more. And even if the charge-off rate ticks up a little bit, even though it's below pre-pandemic, the volumes have been consistently rising. Ryan, anything to add from your front?

No, I think we're seeing the combined impact of larger number of outstanding and an increase in charge-off rate. So the multiplicative impact of that is you see a pretty significant growth in supply and then purchasing.

Thank you.

Thank you. One moment, please. Mike Grondahl, Northland Capital Markets. Your line is open.

Hey guys. Just as a follow-up to that, in the U.S., you said you had $177 million of purchases in 3Q. It's November 2nd today. How is 4Q U.S. purchases looking? And any comment on forward flow commitments that are in place?

Mike, thanks for your question. But as in the past, we will be unable to comment on kind of how the month is going, things change. I mean, it's still very early in the quarter. What I would say is for flows that are there, they are consistently or steadily growing month-over-month. Now flows are not the only way we buy, especially in U.S., so -- even in U.S., where there are spot deals off and on. So quarter-to-quarter fluctuation can happen. But I point out kind of the steady trend that we are seeing over the year and you compare it to 2019, we are growing our purchasing. But quarter-to-quarter, there could be fluctuations, of course. At this point, I'm not able to provide any more color on how the fourth quarter is progressing.

Got it. And sort of at a very high level, Ashish, what would you say the average lag is portfolio purchases in a quarter begin to show up in revenue -- collections, revenues and earnings. Is that about a 2-quarter lag? Or would you even say a little bit more?

That's a pretty broad question. It depends on the type of portfolio. So let's say, the collection starts coming in kind of they start pick up pretty soon, but we work on just getting -- contacting consumers, getting them on the right kind of plan. And then depending on the type of portfolio, the expense profile can be quite different. For example, low balance portfolios on a per unit basis, they cost the same versus others, but we may pay different prices and our return expectations are very consistent. So it's just the earnings profile can look different low versus high balance. And of course, there are some very specialty kind of portfolios that are not just typical fresh that may have even a different profile. But I would say revenues start immediately after you purchase, collections profile may -- maybe a little bit disconnected, but then it catches up. And over the life, of course, they match.

And then maybe one quick one for Jonathan. Did you buy back any stock in the quarter? And if so, the number of shares in the dollar amount maybe?

We did. We repurchased approximately 457,000 shares for $26 million average price of $56 and $68.

Got it. Okay, thank you.

[Operator Instructions] Our next question comes from Robert Dodd at Raymond James. Your line is open.

Hi guys. On to a couple of questions. First, on the U.K., when it comes -- or Cabot, obviously, the U.K. is the largest piece of Cabot and Cabot is a 13 -- collection site. So looking forward, could you -- this is a hard question, how the environment heading into winter with utility bills and less subsidies, etcetera are taxed, but still I mean, have you factored that into presumably, yes, factored into -- into your expected collections out of that market? How much -- if anything is that influence, is it really the sum of the decline in expected future recoveries in that $13 million. Is that a function of developments like that, which really weren't an issue necessarily 3 quarters ago and there's governmental instability in the U.K. to put it politely. So can you give us any color on how that's all factored in?

Yes. Robert, that's a lot of elements, as you mentioned correctly. I'm going to let Craig respond to that. He's joined us from the U.K. by phone.

Robert, it's Craig here. Thanks for the question. Look, I think the U.K. market is certainly an interesting place right now with what's been happening on the political front and then obviously, on the macroeconomic side of things as well. Usually [Ph] you're asking about sort of how we're seeing things. And I guess there's a couple of elements to this. One is, as we look at new portfolios, we're very aware of sort of what we're facing into. And consequently, in terms of our risk-adjusted return expectations, we're allowing for that as we look at new portfolios to ensure we're making the right decision now for the future. In terms of our existing customer base, as Ashish mentioned, what we're seeing right now is our existing customers, who are making regular payments continue to perform as they've done in the past. And we haven't seen any real impact of that. Where we probably have started to see an impact of how consumers are feeling about the world we're in is a small portion of our cash comes in sort of where customers want to make a onetime payment to pay off their debts. And I think what we're seeing at the moment is some of these consumers are probably preferring to just sit on their cash because of the uncertainty they're facing into. Now our underlying cash collections, as I said, continues to be robust. But some of those consumers are just wanting to see where things are going right now. And as we work with those consumers, we want to ensure whatever they pay is affordable. So that's probably the one impact that we're taking a look at and monitoring has made a material impact on our overall operations right now. But we are looking at that, and that's part of what we reassess every quarter when we take our view of what we think the future looks like.

Got it. I appreciate that color. Thanks a lot. And then I'll -- maybe switch on. On the change in recoveries, the $13 million, could you explain how much influence does the FX have on that? Because obviously, it changes the ERC, etcetera, etcetera? And do you get into a double hit that when FX works against you, obviously, your cash collection is coming in a little lower, but then also they come in below the curve until you kind of get double hit by FX in some cases. Is that the case?

Thanks for the question, Robert. As we pointed out, we do share metrics, as an example of how we're performing relative to the curves that we established at the beginning of the year. So if you're looking at comparing to the beginning of the year, there is an impact for FX. In other words, FX was set initially and then you have whatever it is you collect and then you convert to U.S. dollars, if you're converting at different rate, it will be different, right? But in terms of these calculations, if you just within the quarter, I wouldn't say within the quarter that the curves are in local currency. So you're -- when you look at it over time, as I said, if you take a -- when we look at our curves for the -- for the entirety of the year, and as I walked through in that example, FX does hurt you, right, because you're collecting in local currency, but then you're collecting fewer American dollars, right?

Yes, yes understood. Appreciate it, thank you.

Thank you. I'd now like to turn it back to Ashish Masih for closing remarks.

As we close the call today, I'd like to reiterate a couple of key points. Our strategy of focusing on the right markets, employing discipline in our purchasing approach, executing effectively and maintaining a strong balance sheet are key drivers of our performance and have put us in a position of strength as portfolio supply in the U.S. is now growing. This is the portion of the credit cycle we've been anticipating, and we are ready for it. We are also as committed as ever to the essential role we play in the credit ecosystem and to help consumers regain their financial freedom. Thanks for taking the time to join us, and we look forward to providing our fourth quarter results in February.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.