Encore Capital Group, Inc. (ECPG) Q3 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to Encore Capital Group's Third Quarter 2026 Earnings Call. Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your first speaker today, VP of Global Investor Relations, Bruce Thomas. Bruce, go ahead.

Thank you, operator. Good afternoon, and welcome to Encore Capital Group's Third Quarter 2026 Earnings Call. Joining me on the call today are Ashish Masih, our President and Chief Executive Officer; Tomas Hernanz, Executive Vice President and Chief Financial Officer; Ryan Bell, President of Midland Credit Management; and John Yung, President of Cabot Credit Management. Ashish and Tomas will make prepared remarks today, and then we'll be happy to take your questions. Unless otherwise noted, comparisons on this conference call will be made between the third quarter of 2026 and the third quarter of 2025. In addition, today's discussion will include forward-looking statements that are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from our expectations. Please refer to our SEC filings for a detailed discussion of potential risks and uncertainties. We undertake no obligation to update any forward-looking statement. During this call, we will use rounding and abbreviations for the sake of brevity. We will also be discussing non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are included in our investor presentation, which is available on the Investors section of our website. As a reminder, following the conclusion of this conference call, a replay, along with our prepared remarks will also be available on the Investors section of our website. With that, let me turn the call over to Ashish Masih, our President and Chief Executive Officer.

Thanks, Bruce, and good afternoon, everyone. Thank you for joining us. Encore delivered very strong financial and operational performance in the third quarter, highlighted by strong portfolio purchasing and record global collections. Third quarter global portfolio purchases of $390 million included $310 million in the U.S. and global collections were $754 million, which were up 14% compared to a year ago. Average receivable portfolios also increased 11% to $4.69 billion. Our record collections performance helped drive GAAP net income in the third quarter of $124 million or $5.57 per share. Our leverage improved to 2.3x at the end of Q3 compared to 2.5x a year ago, even with continued significant portfolio purchases in the third quarter. Before I continue, I believe it's helpful to remind investors of the critical role we play in the consumer credit ecosystem by assisting in the resolution of unpaid debts. These unpaid debts are an expected outcome of the lending business model. Our mission is to create pathways to economic freedom for the consumers we serve by helping them resolve their past due debts. We achieved this by engaging consumers in honest, empathetic and respectful conversations. We pursue our business objectives through our 3-pillar strategy of participating in the largest and most valuable markets, developing and sustaining a competitive advantage in these markets and maintaining a strong balance sheet. We employ a strategy across our 2 main businesses: Midland Credit Management, or MCM in the U.S. and Cabot Credit management in select European markets. We believe value is created in the consumer debt buying industry through optimal execution of 3 critical drivers: buying, collecting and funding. When these drivers are executed well within attractive markets, leveraging the resources we possess and a strong balance sheet, we believe they enable high consistent returns and profitability. The cycle begins with our commitment to purchase portfolios of charged-off receivables at attractive returns, which is the buy component of our value engine. Our disciplined portfolio purchasing is underpinned by superior data and analytics capabilities, which when applied to a very large data sets stemming from our scale and history, optimize portfolio valuation through account level underwriting. As a result, we win more portfolios at strong returns, enabled by our superior collections as reflected in our industry-leading portfolio yield and collections yield. The cycle continues with our commitment to collect efficiently, maximizing net collections to realize strong yields. Our operational excellence, advanced analytics and our consumer-centric approach produced industry-leading yields while still exhibiting a solid cash efficiency margin. As a result, a very effective personalized engagement with consumers leads to payments with predictable, consistent cash flow. This cash flow helps to complete the cycle as it contributes to our commitment to fund competitively based on low-cost funding and a strong balance sheet. Importantly, our balance sheet strength enables access to capital at competitive costs throughout the credit cycle. In summary, Encore's value engine is the critical enabler of our competitive advantage that allows us to execute our proven 3-pillar strategy to drive shareholder value. I would now like to highlight Encore's third quarter performance in terms of several key metrics, starting with portfolio purchasing. In Q3, we delivered strong purchases across all our markets as global portfolio purchases for the third quarter were $390 million. As a result of the attractive market conditions, we continued a trend of strong portfolio purchasing in the United States, leading to 80% of our portfolio purchasing dollars being spent in the U.S. during the third quarter. Global collections in Q3 were up 14% to a record $754 million. This collections performance is a result of strong execution and continued significant portfolio purchasing as well as the deployment of new technologies, enhanced digital capabilities and continued operational innovation, especially in the U.S. Our cumulative global collections performance through the first 3 quarters of 2026 compared to our ERC at the end of 2025 was 109% -- we believe that our ability to generate significant cash provides us with an important competitive advantage, which is also a key component of our 3-pillar strategy. Similar to the collections dynamic I mentioned earlier, strong execution, higher portfolio purchases at strong returns over the past few years as well as operational improvements have also led to meaningful growth and cash generation. Our cash generation in the third quarter was up 18% compared to Q3 last year, and we expect it to continue to grow. Let's now take a look at our 2 largest markets, beginning with the U.S. The U.S. Federal Reserve reports that revolving credit in the U.S. remains near record levels. At the same time, since bottoming out in late 2021, the credit card charge-off rate in the U.S. increased to its highest level in more than 10 years in 2024 and still remains at a level that is higher than its 10-year average. The combination of strong lending and elevated charge-off rates continues to drive robust portfolio supply in the U.S. Let me illustrate this impact by highlighting the annualized amount of net dollar charge-offs, which can be estimated by multiplying revolving credit outstandings by the net charge-off rate. Within Q2 2026 data, the most recent quarter reported by the Federal Reserve, annualized net charge-off volume was more than $50 billion. Similarly, U.S. consumer credit card delinquencies, which are a leading indicator of future charge-offs, also remain near multiyear highs with revolving consumer credit at an elevated level and a charge-off rate near 4%. Purchasing conditions in the U.S. market remain favorable. We are observing continued strong U.S. market supply and favorable pricing as well. Third quarter delinquency data supports our expectation that the portfolio purchasing environment in the U.S. is expected to remain robust for the foreseeable future. MCM continues to capture a significant share of this robust U.S. market supply opportunity with portfolio purchases in Q3 of $310 million. MCM collections increased to a record $589 million, which was an increase of 17% compared to Q3 last year. The collections overperformance in the U.S. was driven by the deployment of new technologies, enhanced digital capabilities and continued operational innovation, which enabled us to reach more consumers, leading to more payments as well as a large and growing payer book. In fact, as I first mentioned over a year ago, these initiatives are having a greater impact on the early stages of a portfolio's life cycle, leading to overperformance of our recent vintages. We do expect that our collections forecast will continue to gradually adjust to reflect the positive impact of these initiatives. Our outstanding results reflect our substantial portfolio purchasing over the last few years at strong returns as well as the improvements we have made in our collections operation. In fact, we've been able to offset slightly higher portfolio pricing recently in the U.S. with improved collections efficiencies, allowing our returns to remain strong. As a reminder, returns are a function of market-driven portfolio pricing as well as our ability to maximize lifetime collections and optimize cash efficiency margin. Also vital to our success is our ability to connect with our consumers. Despite some of the negative news and macro uncertainty in the U.S., our consumers' payment behavior remains stable. This is in line with what many of the banks and credit card issuers are saying in the recent earnings calls. We, of course, continue to monitor for any signs of change. Turning to our business in Europe. Cabot delivered another quarter of solid performance in Q3. Cabot portfolio purchases were $80 million in the third quarter. We continue to be selective with Cabot's deployments as the U.K. market remains stable, anchored by growing consumer lending. Competition in Cabot's markets remains robust. Cabot collections in the third quarter were $164 million, up 2% when compared to Q3 last year. We continue to focus on Cabot's operational excellence and cost management, including leveraging best practices from our MCM business. This is particularly relevant in the U.K., where banks are increasingly selling fresh portfolios and forward flows. Our operational focus and initiatives within the Cabot business continue to drive cash efficiency margin improvement. I'd now like to hand the call over to Tomas for a more detailed look at our financial results.

Thank you, Ashish. Moving to the financial results slide. In the third quarter, we delivered strong growth in collections and portfolio revenue of 14% and 12%, respectively. The strong collections performance was supported by the high levels of U.S. portfolio purchases in recent quarters, our focus on execution, operational improvements and a stable consumer behavior. Collection yield was 64.3% in Q3, an improvement of 1.6 percentage points compared to last year. Portfolio revenue increased by 12% to $414 million, supported by 11% growth in average receivable portfolio and a portfolio yield of 35.4%. As a reminder, change in recoveries is the sum of 2 numbers. First, recoveries above or below forecast is the amount we collected above or below our ERC expectation for the quarter. Second, changes in expected future recoveries is the net present value of changes in the ERC forecast beyond the current quarter. Changes in recoveries were $111 million for the quarter. Of that total, $52 million were recoveries above forecast. Put differently, we collected $52 million more than we forecasted in our ERC, which is incremental cash flow. As we mentioned over the past several quarters, the collections overperformance in the U.S. is being driven by the deployment of new technologies, enhanced digital capabilities and continued operational innovation, which enabled us to reach more consumers, leading to more payments as well as large and growing payer book. Changes in expected future recoveries were $59 million as we raised the collection forecast to reflect the improved collection outlook derived from operational improvements. The combined impact of these initiatives is having a greater impact on the early stages of our portfolio's life cycle, leading to over performance and improved collections outlook for our recent 2023, 2024 and 2025 U.S. vintages. 3 U.S. vintages contributed $88 million or approximately 80% of total changes in recoveries of $111 million as we continue to deliver a strong performance. We expect that our collections forecast will continue to gradually adjust to reflect the positive impact of these initiatives over the next several quarters, we expect collections overperformance to transition eventually into portfolio revenue. Debt purchasing revenue increased by 21% to $525 million, and the resulting debt purchasing yield was 44.9%. Approximately 9.5 percentage points of the 44.9% debt purchasing yield was the impact of changes in recoveries. Servicing and other revenue were $19 million, bringing total revenue to $545 million, reflecting growth of 18%. Operating expenses increased only 9% to $314 million compared to 14% growth in collections, reflecting significant operating leverage in the business. We accelerated some expenses in the quarter, notably related to legal collection strategies. Cash efficiency margin for the quarter improved by 1.2 percentage points to 59.6% compared to 58.4% in Q3 last year. We continue to expect cash efficiency margin for the full year to exceed 58% in 2026. In this quarter, we accelerated some expenses as we reinvested margin expansion to support future growth. Interest expense and other income increased to $70 million. Our tax provision of $37 million implies a corporate tax rate of approximately 23%, which is in line with our previous guidance. Separately, as we continue to evaluate our tax position in foreign jurisdictions, in the fourth quarter, it is reasonably possible that we will recognize a discrete noncash tax benefit of approximately $15 million to $20 million. This is equivalent to a positive EPS impact of $0.65 to $0.90 for the year. Finally, net income increased by 66% to $124 million, resulting in earnings per share for the quarter of $5.57, up 76% compared to $3.17 in Q3 last year. We believe our balance sheet provides us with very competitive funding costs and access to capital when compared to our peers. Our funding structure also provides us financial flexibility and diversified funding sources to compete effectively in this favorable supply environment. Leverage closed at 2.3x or 0.2x improvement versus last year. In August, we extended the maturity of our U.S. facility by 1 year to October 2029. In September, we settled in cash the $230 million convertible notes due in 2029. We also terminated the associated cap call transactions. We have no significant maturities until 2028 and ample liquidity to continue to grow our business well into the future. And with that, I would like to turn it back to Ashish.

Thanks, Tomas. Now I would like to remind everyone of our key financial objectives and priorities. Maintaining a strong and flexible balance sheet, including a strong BB debt rating as well as operating within our target leverage range of 2x to 3x remain critical objectives. With regard to our capital allocation priorities, buying portfolios, particularly in today's attractive U.S. market, offers the best opportunity to create long-term shareholder value by deploying capital at attractive returns. This is indeed what we are doing as highlighted by our track record of purchasing receivable portfolios at strong returns. Next on our capital allocation priority list our share repurchases. We repurchased approximately $27 million of Encore shares in the third quarter, bringing our total through the first 3 quarters of 2026 to approximately $73 million. And finally, we remain committed to delivering strong return on invested capital throughout the credit cycle. Our ROIC increased to 15.7% in the third quarter on a trailing 12-month basis, up from 10.2% in Q3 last year. In summary, Encore's third quarter results are a reminder that we continue to execute at a high level in each of the 3 disciplines within our industry that are most important in building shareholder value. We are buying portfolios well, collecting efficiently and funding our business competitively. I'm truly excited about how Encore is performing and about our future prospects. Here is why I feel this way. To begin, through our MCM business in the U.S., we are the largest debt buyer in the largest and most valuable consumer credit market in the world. U.S. market conditions continue to be very favorable for us, driven by growth in consumer lending and charge-off rates that remain well above the 10-year average. Within this environment, we are leveraging our scale and extremely effective collections operation to purchase record amounts of portfolio in the U.S. at strong returns. In Europe, Cabot is delivering stable collections performance and remains focused on operational excellence and cost management. Finally, we have adequate liquidity to continue to grow the business as a strong flexible balance sheet provides us the capacity to capitalize on any opportunities that come up in the market. As a result of this continuing strong performance, we are providing the following updated guidance on key metrics. We now anticipate global portfolio purchases in 2026 to be in a range between $1.5 billion and $1.55 billion. We are also raising our collections guidance and now expect global collections in 2026 to be in a range between $2.9 billion and $2.95 billion. As a strong performance in 2026 continues, driven by productivity enhancements, strong operational execution and a highly successful $1 billion refinancing, we believe the business is demonstrating meaningfully improved earnings power. Accordingly, we expect 2026 EPS to be in a range between $15.50 per share and $16 per share. This expectation does not include the potential positive impact of the discrete noncash tax benefit that Tomas mentioned may be recognized in Q4. Our strong performance and momentum supports our EPS guidance for 2026 and provides us the confidence for continued earnings growth in 2027. We continue to expect interest expense in 2026 to be $295 million, and we continue to expect our effective tax rate for the year to be in mid-20s on a percentage basis. Although if we do recognize the tax benefit in Q4, our effective tax rate for the year would be impacted accordingly. 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 David Scharf with Citizens Capital Markets.

I have a question on... If it's all interrelated, sort of leverage, cash generation and purchasing. You've long articulated to the Street sort of this broad 2x to 3x leverage ratio goal or paradigm. And I'm wondering, Ashish, you've been through a number of credit and consumer cycles. You're still operating at the low end of that leverage ratio. You're generating a lot of excess cash. You've got borrowing capacity. I'm just wondering, is there anything that can drive you towards the high end of that leverage ratio in the near term? I mean, is there a strike while the iron hot kind of mentality ever because it seems like it's sort of a sweet spot in the purchasing environment. And I'm just wondering if there's anything that would ever lead you to say, you know what, there's just a lot of good paper out there at the right returns, and we ought to take advantage of the excess capacity we have right now.

A very good one. Absolutely. So that's our range. And if we see the right opportunities in terms of charge-offs rising or some bulk opportunity coming or somebody exiting in the back book, we'd absolutely capitalize on that, and we'd be very comfortable going higher in this leverage range. Now when we do that, we want to make sure there's a line of sight because it would be for a short period of time that there's a line of sight to -- for leverage to come down. That's exactly what happened a few years ago when we started increasing our portfolio purchasing in '22, '23, leverage went up from, I think, 1.9x to 2.8x, 2.9x in that range pretty rapidly. But we were buying at good returns, and we had very clear line of sight where it would peak and start declining, which is what happened. So we'd be very comfortable increasing the leverage temporarily if we see the right opportunity. And we welcome any such opportunities that might be out there in the market.

But we still aim to operate inside the range of 2x to 3x, right? So we can see there is a spike, which is exactly what happened in '23 and '24, as Ashish mentioned. But then you saw leverage decrease rapidly, and now we are in the bottom end of our range.

Got it. No, that's helpful. And maybe as a follow-up, sort of related same topic, I guess. You've talked about a lot of recent initiatives, I guess, more automated that have led to, I guess, better collections on the early part of the collection curves in recent vintages. Can you provide maybe a little more, I guess, specific examples of what's taking place that might be automating the collection process a little more and whether or not collections per FTE or per call center head is no longer as relevant a metric as it used to be?

Yes. So without going into kind of specifics of kind of our secret sauce, if you would, we've been talking, David, on omnichannel and digital collections, but in general, operational initiatives that are driving improvement in this early stage. So we're generating more payers earlier, and we're generating payers that are sticking and keeping up with their payment plans. So our payer book has been growing and consumer behavior has been quite stable, very stable, as we have said, for a period of time. So all that is driving kind of higher collections in the early part of curve for these, let's say, '24 and '25 vintages compared to 2 years, 3 years ago. So that's kind of the biggest driver. Now call center headcount and all of those things, kind of that's not a metric. We think of it as omnichannel collections. So there's investment in technology, but clearly, you need less talk time. I have mentioned in the past, for example, I'll give you kind of some anecdote here. For example, in 2023, our collections and the headcount was a little over 7,000, and we disclosed this annually, so we are not disclosing it kind of in a very detailed manner. But collections are up almost 60% if you take our guidance for 2026 compared to 2023 collections, about 58%, I think. And our headcount is actually down a little over 500 right now, and that we'll report in another quarter the specific numbers. So you can see kind of the general productivity improvement we are seeing in the business. Now that comes from cost management control, but just better operational initiatives and better collections operation and it comes from technology, productivity improvement, just doing better across the board. That's what our ops teams and analytics teams do every day and are kind of looking at how to optimize every channel of collections. So that's driving that kind of productivity improvement. Hopefully, that anecdote helps you.

Our next question comes from the line of Mark Hughes with Truist Securities.

Do you happen to have the collections multiples for the 2026 vintage for MCM and for Cabot?

Yes. So the multiple for 2026 vintage currently stands at 2.3x for MCM and for Cabot, it's 2.2x.

So unchanged from the 6 months.

Unchanged from last quarter. That is correct.

Yes, yes. The legal spending is you're doing very well on the cost side in spite of the fact that you're spending a whole lot more on legal collections. Is this kind of a burst of legal you're seeing a lot of folks to do? Or this is a little more of the business model looks like salaries and benefits are flat. Legal is up. Is that just kind of a more sustained shift? Or is this something that could dissipate in coming quarters?

Yes. So on legal collections for MCM especially, so that mix has been around -- it had gone as low as 33%. It's around 37% or so right now. There's no business model shift. We are collecting more in call center and digital for sure. But if you think about our legal placements, this increase recently that you're seeing is from the increasing purchasing that we did over the 2 large vintages, and they are very large vintages and as they age, they're reaching the legal. It takes perhaps 18 months to 24 months and the timing of legal expense is not exactly aligned with collections, which come later. So we also accelerated some legal expenses in Q3. But overall, this purchasing at MCM has been very high over the last couple of years. And these vintages were, as you know, '24 and '25 were $1 billion, $1.2 billion. And so that's what you're seeing right now. Legal collections are also growing. They grew 23% or so and expenses grew 25%. So it's in line, but the collections will come later. So this is just aging of those very large vintages.

Okay. Very good. And then this point that you've talked about a number of times, and I get asked in prior calls, you're getting this very good outperformance, these new strategies, new technologies are driving the change in recoveries, the recent vintages are making a nice contribution, but you say that should normalize over time. And that's obviously an important driver of the income statement is those change in recoveries. So is there any kind of signposts, guideposts metrics that you might be able to share when we think about what's the pace of the normalization that is obviously the word torrid comes to mind that you're having a very good success here in 2026. And the question about sustainability or the trajectory of that is certainly very relevant when we think about forward numbers. So just curious if you have any comments on that topic.

Yes. So in line with kind of what I've been saying for about a little over a year, the front part of the early stage of our collections curve for MCM is improved. So this is strong collections, but improving collections. And as you know, these changes in recoveries, there's 2 parts, and it was $111 million this time. About half is the cash overs, recoveries above forecast and the other half, about $59 million is changes in future recoveries. Now that's the NPV of forecast change. And it is now -- as you see this collections performance starting to get incorporated in our forecast. And it's this Q3, this $59 million is evidence of that. Now also, the basis goes up. So over time, you will see higher portfolio revenues as well. But this will take some time because it's the '23, '24 and '25 vintages that are starting to see this impact. And as they age and as we get enough data for each vintage and we get confident about the collections performance and the forecast change gets incorporated. Now Tomas, anything else to add?

Yes, I think that in terms of the sustainability of the financial performance, I think in our prepared remarks, we mentioned that we expect earnings to continue to grow in '27. So based on the guidance that we have provided for '26. So that probably gives you a sense of how confident we are around the sustainability of this in '27.

[Operator Instructions] Our next question comes from the line of Logan Hennen with Northland Capital Markets.

Ashish, first question for you. While we know it's still too early to provide any initial guidance, can you give us just some high-level commentary about how you're thinking about 2027, maybe in regard to purchase environment, portfolio supply, the competitive landscape? Any color here would be great.

Yes. A couple of things. So we mentioned in our prepared remarks as well, and Tomas also just mentioned. So overall, we are really pleased with the business performance and the momentum of the business. So as you saw for this year, we have raised guidance for purchasing, collections and earnings and earnings being at between $15.50 per share and $16 per share. And we also said we have the confidence that our earnings growth will continue in 2027. Now hopefully, that provides you some specifics. But in general, we are seeing the market in U.S. still to be very strong and favorable. Lending is at a record level, charge-off rates kind of above 10-year averages. That's creating about a $50 billion annualized charge-off volume in U.S. And in Europe, we are staying disciplined. But there also in U.K. lending is growing actually, even though charge-off rate is still very low, lending is starting to grow. So overall, our global deployments at MCM and Cabot combined have been strong. And so we have not given specific guidance. And for that, we'll have to wait. You'll have to wait for a quarter. But we feel really good about the momentum of the business in purchasing, collections performance and even on earnings, as we indicated, kind of what we feel will be coming in 2027.

Great. That was really insightful. Then a follow-up for Tomas. Can you provide some additional color on how we should think about kind of a notably large jump to that $59 million of changes in expected future recoveries this quarter versus what we've seen previously in the last 3 quarters to 4 quarters and maybe the implications of that relative to the core business?

Sorry, your question is around the implications of the changes on future recoveries?

Yes. Yes, that $59 million in this quarter and kind of how we should think about that?

Yes. So there is a mechanical implication of this, which is it's going to increase the basis of the portfolio. So it is mechanically going to increase as well portfolio revenue going forward. I think as we've been now talking for, I think it's about 4 quarters, we're now getting to the stage where we're uplifting the ERC on those vintages. So it's not only the fact that we are doing better, but we are uplifting those curves, and that's why you're saying that changes in future recoveries going up. So I expect everything else being equal as we continue to -- if performance continues, we continue to uplift expectations in the next few quarters on those vintages.

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

On the question related to your opening remarks, I think, Ashish, you said pricing had moved slightly higher. I mean, not enough to move returns, et cetera, et cetera, but slightly higher. But it hasn't moved the multiple much yet. So I mean, can you give us any more color on that? Was that -- how best like-for-like pricing? I mean was there anything unusual that like just cosmetically moved pricing? Or is there something that's beginning to shift in the market like maybe new entrants or just people pushing for a land grab? Obviously, you're still buying a lot of paper at very good returns. So it's not moving anything yet. But what was the driver of that comment about pricing starting to move up?

Yes, Robert. So we mentioned this last time as well briefly. Basically, nothing surprising or to note. It's not somebody just driving pricing up. It's some players we've seen actually withdraw and some are higher. So it's like-for-like pricing that's up. So if you really compare similar portfolios and slightly up over the last, let's say, last few quarters. Now our better collections is able to mitigate that pretty easily. That's why you see the multiple is kind of the same as before, even though multiples of prior vintages are going up, let's say, the '24 vintage and '23 vintage even. So that's what we're able to mitigate and still win portfolios that we like at still very strong returns for us.

I apologize. [indiscernible] And then one -- I appreciate that. Just one housekeeping one quick. On the tax in the fourth quarter, the potential onetime, what's the -- a, is that cash or accounting? Because obviously, cash is cash. And then what's the determinant about whether it may happen or not? Obviously, you've excluded it from your guidance. But when it gets reported, whether it's in there or not, is going to affect the numbers. I mean what's the determinant about whether that gets recognized and is it cash or not?

Right. So let me tackle that in 2 different questions. So the first one around what is driving and the nature of this tax credit and then what is going to -- how to think about Q4, right? So in terms of what is driving this tax credit, so you might remember that Cabot generated some losses a few years ago. But those -- that affected those losses created tax assets. Now from an accounting perspective under GAAP, you can only recognize those tax assets in your balance sheet if you are -- if you have prospects of making profit. And the accounting rules are pretty prescriptive around what that means. And that's usually a backward-looking test around if you haven't -- if you haven't generated enough income in the past, you are basically -- you need to provision against those tax assets. As the business has stabilized and has now for a number of years, delivered consistent profits, we basically are in a position to remove that provision. And that will, in Q4, basically generate the tax credit that we have highlighted here between $15 million and $20 million. The -- so that's the first part of the answer. The second part around how to think about the likelihood of this. I mean, we are basically giving you some guidance on this event, but we still need to follow our accounting process, and we need to close the year to be able to firm up on those numbers. But basically, based on where we see where we sit today, I think there is a strong likelihood that this will crystallize.

Got it. really clear. And if I can, one more. On the terms, I mean, I mean, the '23, '24, '25, they're all doing better and you're moving the curves up. I mean how much of this is acceleration? Because obviously, with an NPV, if you thought you were going to collect over 4 years and you collect over 3, it's a positive curve adjustment. Or if you just think you're going to collect more, it's a positive curve adjustment. So I mean, how much of that that's been flowing through is just shifting everything higher that you just think you're going to collect a higher and have data to support it, obviously, not just thinking it, collect a higher total cash versus it's moving things forward because you're collecting sooner because both of those can have different dynamics later on.

Yes. I'm going to let Tomas add something to the prior question, and then I'll answer this, Robert.

Just to finalize, I forgot to mention to confirm that this is a noncash credit.

Correct.

Regarding the tax issue.

The tax issue was noncash. So back to your question around the vintages, Robert, we believe this is a betterment. It's incremental cash collections. So we started with certain multiple in the '24, '25 vintages, and those are higher now based on actual performance that's been better as well as the increase that we've been able to do it to this time based on our process and the proof that we need to see, and that gives us the confidence to raise those forecasts. Now over time, as we look at these quarterly vintages, that may happen more, but it is all betterment in increased collections, not pull forward.

I'm showing no further questions at this time. I would now like to turn it back to President and CEO, Ashish Masih, for closing remarks.

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

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