Earnings Call Transcript - ECPG Q3 2022

Bruce Thomas, VP of Global Investor Relations

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.

Ashish Masih, President and CEO

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 operations. 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 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 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.

Jonathan Clark, CFO

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 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 two 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 from a position of strength. We believe our strong balance sheet provides us very competitive funding costs 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.

Ashish Masih, President and CEO

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 their 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 two 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?

Operator, Operator

Thank you. David Scharf at JMP Securities, your line is open. Please proceed with your question.

David Scharf, Analyst

Thank you. Good afternoon. I appreciate the opportunity to ask my questions. I have two items to discuss. The first concerns labor costs, which I haven't focused on recently. I appreciated the comments regarding labor costs in the U.K., which reminded me to inquire about the percentage of the company's collections that come from your call centers in India. This has always been a differentiator, and I’ve lost track of it over the years, especially as Cabot has expanded. Additionally, could you provide some insight into the current labor market inflation in that region?

Ashish Masih, President and CEO

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. 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. Calls can be routed and started in one place, routed in another place and in a third place. 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 the job and function as well.

David Scharf, Analyst

Thank you for your insights. As a follow-up, I'd like to address the overarching macroeconomic concerns that are on everyone's minds. It seems the primary question from investors lately has been less about timing and more about the expectation of asset growth. Many recognize that, compared to other financial and specialty finance companies, you might see a rebound in asset growth sooner than your lending peers. However, some investors carry memories of past cycles where the gradual increase in allowance charges prevailed in a pre-CECL world. While I’m not sure if this question is best directed to Jonathan, I’d like to ask about your credit forecasting models. We have experienced a long period of 0% Fed funds rates that is unlikely to return, coupled with high inflation that we haven't encountered in decades. This creates uncertainty about what the landscape will look like moving forward and what the new normal might be. Given your extensive experience in the business, do you consider your forecasting models to be as relevant as you would like them to be? I’m trying to gauge your perspective on the recent $13 million negative adjustment and the increased quarter-to-quarter volatility introduced by CECL. Investors are particularly focused on this aspect, and if they feel reassured that it won't lead to a short-term issue, it would help in assessing downside earnings risks. Essentially, do you believe that the current macro environment represents a completely new challenge for the company, or do you expect it to unfold similarly to previous credit cycles, allowing you to emerge strong once again?

Ashish Masih, President and CEO

Yes. There are many factors involved in that question. As all banks are learning while forecasting their provisions, this situation is somewhat unique. The consumer behavior during the pandemic was quite unusual. To provide some context, during the pandemic, consumers had excess cash and savings, which allowed them to pay down their credit card balances and reduce their outstanding debt. This contributed to our exceptional earnings and collections during that period. Now, as consumer behavior starts to normalize, many banks' earnings calls reflect what I refer to as credit normalization. We're not fully there yet, but we are making progress. Lending is growing significantly, and while loss rates, including delinquency and charge-off rates, are beginning to rise, they have not returned to pre-pandemic levels, despite lending returning to those levels. We continue to monitor the situation and have not seen any adverse effects on our collections. We have observed an impact from low purchasing levels over the past two years, but as lending increases and charge-off rates rise, overall supply is clearly growing, especially in the U.S. This trend has not been as pronounced in the U.K. and Europe, where delinquencies remain lower. We strive to provide the best forecasts each quarter, but we acknowledge it is a new environment that is evolving towards a new normal. It is evident to us that we are entering a growth phase in the economic cycle, particularly in the U.S., where lending is at record levels and charge-off rates are starting to increase. A variety of data shows that consumers' financial health remains strong, although higher-income individuals are in a better position compared to those with lower incomes. Due to inflation and other factors, some consumer segments may face more pressure as time goes on. Nonetheless, the unemployment rate remains low. The impact of Fed rate increases will also play a role in how things develop. Overall, we feel positive about the economic cycle and the growth phase we are entering, especially in the U.S., which is our largest and most profitable market.

David Scharf, Analyst

Got it. Very helpful. Thank you Ashish.

Operator, Operator

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

Mark Hughes, Analyst

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 place 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?

Jonathan Clark, CFO

Hi Mark, that's a great question. What do I anticipate? Our goal is to have this number be zero, as at the end of every quarter, we strive to make the best estimate possible. You're right that the breakdown here is a division between current collections and changes in future recoveries. There are several factors at play across different pool groups and companies, both positive and negative. My takeaway is that we are moving away from the macro event that led to high correlation among all pools. Macro events tend to create this situation, but I believe we are entering a phase where we will see fluctuations. As Ashish mentioned earlier, we can expect some quarterly volatility. However, looking at last year, for the same three-month period in 2021, we were off by about $66 million. While it moved positively, we were off more than we are this quarter. So, I believe the volatility will decrease moving forward, and we will experience ups and downs, both overall and for individual pools. I truly believe the impact of the macro situation is diminishing, and now pools will respond independently as they typically do.

Mark Hughes, Analyst

Regarding your question about the consumer, do you notice any decline? You mentioned that in the U.K., the payment patterns are steady, and while there is a normalization in payment rates, are there any indications of a recession starting or effects from inflation?

Ashish Masih, President and CEO

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.

Mark Hughes, Analyst

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?

Ashish Masih, President and CEO

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

Mark Hughes, Analyst

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?

Ashish Masih, President and CEO

Yes. The fundamental behavior of banks remains quite consistent. Banks that were selling before the pandemic continue to sell in a similar manner. There may be shifts in strategies from quarter to quarter or over a few months, with some possibly selling bulk amounts they have gathered. They constantly assess their options between servicing and various agencies and law firms versus selling, or using internal capacity. However, the overall behavior remains stable. We have observed a steady month-over-month increase in their charge-off volumes over an extended period, which gives us confidence in the rising volumes and their increased lending. Even if the charge-off rate sees a slight increase, it remains below pre-pandemic levels, and the volumes have been consistently growing. Ryan, do you have anything to add?

Ryan Bell, President of Midland Credit Management

No, I think we're seeing the combined impact of a 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.

Mark Hughes, Analyst

Thank you.

Operator, Operator

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

Mike Grondahl, Analyst

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?

Ashish Masih, President and CEO

Thank you for your question, Mike. As in the past, we are unable to comment on how the month is going since things can change. It's still early in the quarter. What I can say is that the flows we do have are consistently growing month-over-month. However, flows are not the only way we make purchases, particularly in the U.S., where there are occasional spot deals. This means there can be fluctuations from quarter to quarter. That said, we are noticing a steady trend over the year, and when you compare it to 2019, our purchasing is increasing. But keep in mind, there may still be fluctuations from quarter to quarter. At this time, I cannot provide additional details on how the fourth quarter is shaping up.

Mike Grondahl, Analyst

Got it. At a high level, Ashish, what would you say the average delay is for portfolio purchases in a quarter to start reflecting in collections, revenues, and earnings? Is it around a two-quarter delay, or would you say it’s a bit longer?

Ashish Masih, President and CEO

That's a broad question that depends on the type of portfolio. If collections start coming in soon, our focus will be on contacting consumers and getting them on the right plan. The expense profile can vary significantly based on the type of portfolio. For instance, low balance portfolios cost the same per unit as others, but we may pay different prices and maintain consistent return expectations. Therefore, the earnings profile can differ between low and high balance portfolios. Additionally, some specialty portfolios may not fit the typical model and could have a different profile. Revenues begin immediately after a purchase, but the collections profile may initially be disconnected before it eventually aligns. Over time, they do match.

Mike Grondahl, Analyst

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?

Jonathan Clark, CFO

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

Mike Grondahl, Analyst

Got it. Okay, thank you.

Operator, Operator

Our next question comes from Robert Dodd at Raymond James. Your line is open.

Robert Dodd, Analyst

Hi everyone. Moving on to a few questions. First, regarding the U.K., as you know, it's the largest part of Cabot and Cabot serves as a collection site. Looking ahead, could you provide some insights on how the environment is shaping up for winter, especially with rising utility bills and reduced subsidies? Have you accounted for these factors in your expected collections from that market? To what extent is this affecting your outlook, particularly considering the projected decline in future recoveries of $13 million? Is this decline driven by those new challenges, which weren't significant issues three quarters ago, along with the current governmental instability in the U.K.? Can you shed any light on how these factors are influencing your projections?

Craig Buick, CEO of Cabot Credit Management

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, 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 one-time 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, continue 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 that 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.

Robert Dodd, Analyst

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?

Jonathan Clark, CFO

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 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?

Robert Dodd, Analyst

Yes, yes understood. Appreciate it, thank you.

Operator, Operator

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

Ashish Masih, President and CEO

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.

Operator, Operator

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