This article first appeared on GuruFocus .
Release Date: August 06, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Cash collections grew 4% year over year to $559 million, with strong growth in US legal and digital channels and Europe.
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European ERC increased by $349 million following a comprehensive review, reflecting over 6 years of sustained overperformance and supporting higher future portfolio income.
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Adjusted EBITDA for the last 12 months rose 10% to $1.4 billion, helping reduce net leverage to 2.67 times from a peak of 2.87 times in Q3 2024.
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Cost reduction initiatives, including eliminating over 215 corporate roles and consolidating call centers, are expected to generate approximately $35 million in annualized savings.
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The successful launch of a cloud-based omnichannel contact platform in the US and continued digital growth (nearly half of new payment plans from digital) enhance operational efficiency and customer engagement.
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A new $150 million share repurchase program was authorized, reflecting commitment to shareholder value and capital allocation flexibility.
Negative Points
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Total operating expenses increased $16 million year over year, driven by continued investment in the legal channel and one-time reorganization costs.
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Legal collection costs are expected to continue rising as more accounts flow through the legal channel, though at a moderating growth rate.
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The $349 million European ERC increase may lead to more moderate changes in expected recoveries in the future, potentially reducing the potential for positive surprises.
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Net interest expense rose $2 million year over year due to a higher debt balance, despite overall leverage reduction.
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The effective tax rate was 33% during the quarter, higher than the expected 30%, which could pressure net income if sustained.
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Portfolio purchase price multiples increased in the US to 2.17 times, indicating a more competitive environment that could pressure future returns.
Q & A Highlights
Q: Can you provide more color on the competitive environment in Europe and the activity level from other buyers in the market? A: (Martin, President and CEO) The supply environment is looking pretty stable in both the US and Europe, with volumes looking generally good. Both markets remain competitive, which is why discipline in buying and global diversification are so important. We don't want to grow for growth's sake; we want to allocate capital in a disciplined way. In Q2, we invested according to plan, multiples ticked up, and leverage ticked down, which was exactly the plan we laid out.
Q: Is there a natural ceiling or a way to think about the share that the legal channel could represent in the business? A: (Rakesh, CFO) Legal is not the channel we lead with; we make extensive outreach efforts through other channels first. We only consider the legal channel for customers who don't engage voluntarily but have the ability to pay. Legal costs are driven by portfolio mix and the increase in accounts eligible for the channel. While total legal costs are expected to continue increasing as more accounts move through, the growth rate should moderate. In 2024, the growth rate was 40%, in 2025 it was 30%, and for 2026, we expect it to be lower than the last two years.
Q: Given the significant increase in European ERC, should we expect more moderate changes in expected recoveries going forward? A: (Rakesh, CFO) The European business has a long track record of significant overperformance driven by operational execution, disciplined investing, and technology investments. We asked our European underwriting team to do a deep dive on the portfolio, which resulted in the $349 million ERC increase. This will drive an increase in portfolio income going forward, reflecting the long track record of performance. We expect approximately $260 million of additional portfolio income to be recognized over the remaining life of the European cash flows, translating to an average annualized increase of about $25 million in the near term.
Q: What was driving the uptick in Europe, and did that motivate you to be more conservative in your bidding in the US? A: (Martin, President and CEO) The uptick in Europe was due to a generally decent supply environment and success in bidding, not any one-off event. The European market is more spot-driven, so investment quantum can vary. We think about capital allocation on a global basis, solving for return hurdles rather than hitting a certain volume in a given market. We ended up investing what we had planned for the quarter and met our return hurdles. (Rakesh, CFO) The global diversification works to our benefit; we look at opportunities and supply coming to market irrespective of country, and we won't grow for growth's sakeportfolios must meet our return thresholds.
Q: Is the current level of operating expenses a good run rate for the back half of the year? A: (Rakesh, CFO) The $219 million in operating expenses included $5 million of one-time expenses related to reorganization. For the second half, you should assume quarterly expenses fairly in line with this quarter, excluding those one-time charges. The $5 million was comprised of $2 million in severance (in compensation and employee services) and $3 million related to site consolidation (in other OpEx).
Q: Does the ERC adjustment essentially embed all the outperformance seen in Europe, or have you left something in the back pocket? A: (Martin, President and CEO) We had our team review this market by market and, in some cases, vintage and portfolio by portfolio. This now represents our best estimate going forward. There's always a little volatility because we're predicting the future, but we feel confident with the projection. (Rakesh, CFO) The 9% overperformance this quarter was relative to a target set in March. The comprehensive review was part of the quarterly assessment as of June. Going forward, you'll see higher portfolio income, which is the more predictable part of our revenue line item.
Q: Has there been an incremental shift in how attractive US pricing is now, given the multiple increased to 2.17 times in Q2? A: (Martin, President and CEO) In Q1, we invested in some new segments that came with lower multiples but also lower cost to collect. Q2 is more of a normalization for us. We think globally in terms of capital allocation and solve for the best returns we're able to get. Having been in this business for 15 years, long-term discipline and focus on return is really important. The mix you see is a result of the diversification we have.
Q: Can you give more color on the digital channel growth, where nearly half of new payment plans came from? A: (Martin, President and CEO) We've seen healthy growth in the digital channel and have been investing in digital both in Europe and the US. We believe there's a long-term shift toward digital and AI tools becoming more important. We're able to leverage a broader range of digital channels in an integrated way. Customers increasingly prefer digital interaction over phone calls. We also implemented our new omnichannel contact platform in the US this quarter, which integrates calling with digital channels like SMS, email, and chat. This platform has been used in Europe for years and is a big milestone for us.
Q: Is the bulk of the IT modernization and AI investment completed by the end of 2026, or should we think about an annualized expense rate over the next three years? A: (Martin, President and CEO) On the cost side, we've made a big push with significant cost savings exercises. The omnichannel contact platform was a significant milestone this quarter, and we launched a mobile app in Europe. We're in the process of migrating to the cloud, expected to be done by the end of the year. Other technology projects will span multiple years. However, these aren't massive investmentstechnology investments are in the low tens of millions spread across several years. You'll see a reduction in the compensation line as we become more efficient, while legal investments are direct investments expected to generate cash going forward.
Q: Is this industry going to be less labor-intensive and less determined by location in the future? A: (Martin, President and CEO) The industry has evolved from call centers in the cheapest locations to a technology-enabled, data and analytics industry where capital allocation is extremely important. We've gone from 7 US call centers down to 1 and rational
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
