There has been a slight “softness” in the normal collections during income tax season, noted Ashish Masih, the president and chief executive officer of Encore Capital, possibly tied to the month-long government shutdown as well as changes to the tax code, during a conference call held yesterday to discuss the company’s fourth quarter and 2018 full-year earnings report.
The company earned $116 million in net income for 2018, up from $83 million a year earlier. For the fourth quarter, net income was $47 million, up from $12.6 million during the same quarter of 2017.
Total gross collections for the company were $484 million in the fourth quarter, up from $438 million in the same quarter a year earlier. The company spent $1.13 billion worldwide buying portfolios in 2018, with a record $638 million spent here in the United States.
When asked during a conference call with analysts about the impact of tax refunds being less than last year, Masih said the company has seen a pattern, but was not concerned about the potential impact.
“And just I would say in the last couple of weeks, you could — we have observed perhaps a little bit of softness, that’s consistent with some of the reports that the federal agencies put out on tax refund rates,” Masih said. “But again, it would be very minimal impact, if any, on our overall collections, maybe 1% or 2%. But I would also be — I don’t think I’ll be wrong to say that, that would be perhaps delayed collections. And this is again a first year of refunds after the big tax changes, so it’s possible people were able to withhold more — reduce their withholding, so it’s still early to tell, but given you asked, I would say two weeks of slightly some softness in collections, but too early to make a trend. And overall, it can catch up as well as we found in the prior years.”
Masih also said the company has $480 million of forward flow arrangements already “locked in” for 2019 and expects the company to “shift proportionally more” capital to the U.S. this year to purchase portfolios.
When asked whether Encore has noted any changes in how card issuers are handling their charged-off accounts, Masih said the company has not noticed any new patterns.
“What we know for sure and we see is all issuers have some sort of capacity, which they call internally capacity and it’s largely in post charge-off world agencies and law firms, right? Generally, they don’t have much internal employees working post charge-off,” Masih said. “And so they always have that and they have asset sales or debt sales as a channel. And over time, we see different issuers going through ebbs and flows in terms of the mix and they are constantly looking at strategies whether to sell write a charge-off for six to 12 months later, and that keeps changing and we characterize fresh as zero to six months for example, so there is no pattern I can tell you that’s predominant at this time, except that each issuer keeps kind of evaluating, and if they try to let’s say use agencies. But if they don’t get the returns to come back to sales, they have quarterly goals as well, so it’s a mix of those things and then clearly when you’re working through agencies and law firms, you have an expense line that’s you have to bear, which is very different than when you have a portfolio sold through the debt sales channel that impacts your losses in a very different way.
“So they keep evaluating those, I haven’t seen any pattern that you can draw on as you look at this stage of the economic cycle and the credit cycle that we are in right now.”
