NASDAQ:PRAA PRA Group Q3 2023 Earnings Report $19.20 -0.10 (-0.52%) Closing price 04:00 PM EasternExtended Trading$17.62 -1.58 (-8.23%) As of 04:59 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast PRA Group EPS ResultsActual EPS-$0.31Consensus EPS -$0.39Beat/MissBeat by +$0.08One Year Ago EPS$0.63PRA Group Revenue ResultsActual Revenue$216.40 millionExpected Revenue$205.24 millionBeat/MissBeat by +$11.16 millionYoY Revenue Growth-11.60%PRA Group Announcement DetailsQuarterQ3 2023Date11/6/2023TimeAfter Market ClosesConference Call DateMonday, November 6, 2023Conference Call Time5:00PM ETUpcoming EarningsPRA Group's Q2 2025 earnings is scheduled for Monday, May 5, 2025Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by PRA Group Q3 2023 Earnings Call TranscriptProvided by QuartrNovember 6, 2023 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Welcome to the PRA Group's Third Quarter of 2023 Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Operator00:00:37Najim Mustaman, Vice President of Investor Relations for PRA Group. Please go ahead. Speaker 100:00:47All right. Thank you. Good evening, everyone, and thank you for joining us. With me today are Vik Athol, President and Chief Executive Officer And Rakesh Sehgal, Executive Vice President and Chief Financial Officer. We will make forward looking statements during the call, which are based on management's current beliefs, projections, assumptions and expectations. Speaker 100:01:10We assume no obligation to revise or update these statements. We caution listeners that these forward looking statements are subject to risks, Uncertainties, assumptions and other factors that could cause our actual results to differ materially from our expectations. Please refer to the earnings press release and our SEC filings for a detailed discussion of these factors. The earnings release, The slide presentation that we will use during today's call and our SEC filings can all be found in the Investor Relations section of our website atwww.pragroup.com. Additionally, a replay of this call will be available shortly after its conclusion And the replay dial in information is included into your earnings press release. Speaker 100:02:03All comparisons mentioned today will be between Q3 2023 Q3 2022, unless otherwise noted, and our Americas results include Australia. During our call, we will discuss adjusted EBITDA and debt to adjusted EBITDA for the 12 months ended September 30, 2023 in December 31, 2022. Please refer to today's earnings release and the appendix of the And with that, I'd now like to turn the call over to Vikka Tal, Our President and Chief Executive Officer. Speaker 200:02:53Thank you, Najim, and thank you for everyone for joining us this evening. In a few minutes, I will pass the baton to Rakesh to cover the financial section of our Q3 results. Prior to doing so, however, I feel that it is important for me to provide a link between the results we are reporting today, which We believe these future results will be driven by a combination of portfolio supply, pricing, Operational effectiveness and efficiency. 1st, portfolio supply and pricing. The chart on the upper left profiles our quarterly investments in Europe stretching back 3 years. Speaker 200:03:47As you can see, purchasing levels vary throughout the year. This is due to the mix of spot transactions versus forward flows in the region, But the overall picture indicates relatively stable averages continuing into this year. Despite the competition in Europe, We continue to benefit from our deep relationships with sellers to maintain investment levels and renew important forward flow agreements. Moving across to the chart on the right, the U. S. Speaker 200:04:19Picture shows the correlation between the overall industry credit card charge off rates And our portfolio purchases. We believe these recent trends will continue into 2024, providing clear opportunities for us to benefit from this important tailwind. It is worth pointing out that along with the growth in volumes, The returns on our new purchases have improved over recent quarters and a substantial majority of our forward flows Are now priced to reflect the current macroeconomic conditions and funding environment. Because these increased volumes and return profiles Our fairly recent developments, they have not yet flowed through our current results to any meaningful extent. Iowa, we expect for this dynamic to positively influence cash collections and revenues through 2024 and beyond. Speaker 300:05:17Next, operational effectiveness. As I Speaker 200:05:20have referenced on previous calls, It is essential for us to not only focus on the front end of our business, purchasing portfolios at attractive returns, But also to optimize the value from our back book. Therefore, from my very first week as CEO, I have encouraged and challenged our team to reevaluate and enhance our operational effectiveness. They have responded superbly. Over the past 6 months, we have identified, tested And begun rolling out a wide range of cash generating initiatives, both large and small, to address our performance in the U. S. Speaker 200:06:01Some of these initiatives include enhancements to our legal collection activities, where we are identifying new information sources To optimize the value and decision making processes across this important channel, we are also leveraging additional third party resources To bolster and accelerate our post judgment customer interactions, both sets of initiatives have identified significant opportunities They are now migrating into execution mode. Similar efforts have been made within our U. S. Call center operations with correspondingly encouraging opportunities. We implemented a wide range of operational strategy enhancements starting in the 2nd quarter, Expanded these in the Q3 and are rolling out further initiatives this quarter. Speaker 200:06:50These changes are driving increased customer contact rates And more effective customer interactions leading to a growth in payment plans and U. S. Cash collections performance That has modestly outperformed our internal expectations over the past 6 months. Due to the timeline between the Actions being taken and the impact on cash generation, particularly within the legal channel, but also extending into the call center, The effect of these initiatives and enhancements are only minimally reflected in our year to date results. Finally, efficiency. Speaker 200:07:27Our relative underinvestment in platform and system upgrades will be a focus of ours In the time to come. Meanwhile, in the near term, there are tangible opportunities for us to improve our efficiency That don't require complex changes to our core architecture. Over the past 6 months, we have instituted initiatives That are improving call center productivity and optimizing our site footprint in the U. S. We have also piloted multiple programs with 3rd parties To leverage lower cost locations to support both voice and data processes. Speaker 200:08:05The rollout of these programs has commenced in the current quarter with an expectation that we will expand these over the next 12 to 18 months. While growth in account volumes and expanded legal processes Suggest a corresponding increase in expenses, we believe these anticipated higher expenses will be largely offset By the efficiency initiatives underway. In other words, growth in cash collections is expected to outpace our growth in operating expenses Over the near term, this should position us to march towards an improved cash efficiency ratio into the low 60s level. With growing portfolio supply, improved pricing, increased operational effectiveness in the U. S. Speaker 200:08:51And robust efficiency measures, We believe we have clear line of sight to deliver significantly improved financial performance in 2024 and beyond. The speed, scope and impact of the efforts underway have far exceeded my initial expectations. We recognize the need to deliver results for our shareholders, and we will not let off the pace at which we are working to achieve this. With that, it's over to Rakesh for a review of our quarterly results. Speaker 300:09:25Thanks, Vic. Looking at our investments this quarter, We purchased $311,000,000 of portfolios, up 70% year over year. This level of investment was driven by increased forward flow volumes, purchases from new sellers for PRA And a few spot transactions that were higher than anticipated. Given the strong investment levels to date, Our diverse geographic footprint across Americas and Europe and the healthy pipeline of portfolios for sale, We are well on track to achieve over $1,000,000,000 in portfolio investments in 2023, a feat we have achieved Since 2019, this demonstrates our ability to capitalize on industry tailwinds as credit normalizes. We are especially pleased that these recent investments are being achieved at improved prices and returns compared to the 2020 to 2022 time period. Speaker 300:10:32In the Americas, We invested $232,000,000 in the quarter, which represented the highest quarterly level of purchasing Since 2017, we are highly encouraged by the U. S. Market with investment levels increasing For the 4th consecutive quarter, as volumes and pricing continue to improve, This should have a positive impact on portfolio income, which demonstrates the significant opportunity ahead of us As we move further into the credit cycle, you can see prices improving by the purchase price multiple expansion in our 2023 Americas Core Vintage, which was initially recorded at 1.7 5 times at the end of the Q1, but has since grown to 1.9 times year to date at the end of the third quarter. In our existing U. S. Speaker 300:11:33Overflows of fresh paper, we once again experienced a sequential increase in volume from the prior quarter. As mentioned earlier, our forward floor agreements now largely reflect The higher interest rate environment and should generate returns exceeding recent vintages. At a macro level, active credit card balances in the U. S. Have exceeded $1,000,000,000,000 Up from roughly $850,000,000,000 pre pandemic. Speaker 300:12:07Charge off rates are also trending higher, Reaching 3.2% with size of continued credit normalization from pandemic era of lows, Suggesting a continued tailwind. Moving to Europe. Our European business continues to capitalize on stable investment volumes. As many of you know, Europe is more of a spot driven market and generally experiences Lower volumes of supply in Q3, which is reflected in this quarter's investment of $79,000,000 In the markets where we do have forward flows, the volumes remain stable and have yet to show an increase. The European market continues to be competitive. Speaker 300:12:58And as we have done in the past, we are being very disciplined, Ensuring that returns are appropriate. For example, we are observing that price discovery is in process in certain countries. We saw portfolios brought to market earlier this year that did not meet the seller's internal pricing thresholds And we're both. Some of these portfolios have since come back to market and we have purchased them at improved levels of return. Moving on to financials. Speaker 300:13:35Total revenues were $216,000,000 for the quarter. Total portfolio revenue was $212,000,000 with portfolio income of $119,000,000 And changes in expected recoveries of $22,000,000 Following a period of declines, Portfolio income has been stable for the past several quarters, and we now believe we are positioned for growth Based on expanding volumes and improved pricing. During the quarter, we collected $18,000,000 In excess of our expected recoveries, exceeding our expectations on a consolidated basis by 4%, With the Americas over performing by 3% and Europe over performing by 6%. Operating expenses for the Q3 were $173,000,000 which were consistent with the prior year period. Of note, this number includes a non cash impairment charge of $5,000,000 Related to our previously announced decision to cease call center operations at 1 of our owned Regional facilities in the U. Speaker 300:14:58S. Agency fees were up $4,000,000 this quarter, primarily due to higher cash collections in Brazil. Our legal collection costs were $21,000,000 for the quarter, Which were down $3,000,000 from the prior year period. We would like to reiterate Our expectation for legal collection costs to be in the low to mid $20,000,000 range in Q4. Our cash efficiency ratio was 58.9% for the 3rd quarter, which was up slightly from the prior year period. Speaker 300:15:40We expect the cash efficiency ratio To remain relatively stable for the Q4, net interest expense for the Q3 was $49,000,000 An increase of $17,000,000 primarily reflecting higher debt balance and increased interest rates. We expect net interest expense to be in the low $50,000,000 range for the 4th quarter. Our effective tax rate for the quarter was negative 28%. Looking at the full year, We expect an effective tax rate in the low 20% range. Net loss attributable to PRA was $12,000,000 on negative $0.31 in diluted earnings per share. Speaker 300:16:31This includes a $0.10 per share impact From the non cash impairment I mentioned earlier, cash collections for the quarter We're $420,000,000 compared to $412,000,000 in the Q3 of 2022. The 2% increase or 1% decrease on a constant currency basis was primarily due to higher collections in Brazil and Europe, which will partially offset by lower collections in the U. S. During 2022, We were witnessing year over year declines compared to 2021 due to excess consumer liquidity during the pandemic era. The year over year decline has now stabilized and we expect this positive momentum to continue to build into 2024. Speaker 300:17:30For the quarter, Americas cash collections decreased 2% or 3% on a constant currency basis, Driven primarily by the impact of lower levels of portfolio purchases in the U. S. Over the last few years. America's cash collections modestly exceeded our internal expectations Speaker 400:17:51for the Speaker 300:17:51quarter. European cash collections for the quarter increased 9% or 2% on a constant currency basis. Our year to date cash performance versus our expectations at December 31, 2022 Has experienced 5% over performance in Europe and 3% underperformance in the Americas, a 1% over performance On a consolidated basis. Let me give you a little more color on what we're seeing with our customers. There has been a lot of discussion in the news lately regarding pressure on the consumer. Speaker 300:18:35We have seen limited evidence to date that such pressure is impacting our U. S. Customers. Year to date, we exceeded our cash collection cost of living is having some impact on consumers in a few of our markets. In these markets, we have observed Fewer large one time payments. Speaker 300:19:04However, the proportion of customers paying us has remained stable. So we think that this will cause a timing delay instead of an overall reduction in cash collections. It's worth noting that the other markets are still performing well and that Europe as a whole has consistently exceeded our internal expectations. In both markets, it is our experience that economic downturns An increased pressure on the consumer has historically led to a more charge offs and portfolio supply Then more that more than offset the impact to cash collections. ERC at September 30 was $6,000,000,000 Which was up 12% compared to $5,300,000,000 at September 30 last year. Speaker 300:20:01On a sequential basis, ERC increased more than $70,000,000 compared to the prior quarter, With ERC in the U. S. Increasing by $135,000,000 ERC liquidates over a shorter timeframe in the U. S. So it is encouraging to see our U. Speaker 300:20:22S. ERC increasing. We expect to collect $1,500,000,000 of our ERC balance during the next 12 months. It's important to note That this number only reflects the amount we expect to collect on our existing portfolio. It does not include the cash we to collect from new purchases made over the next 12 months. Speaker 300:20:48Based on the average purchase price multiples we have recorded in 2020 3, we would need to invest approximately $841,000,000 globally Over the same timeframe to replace this runoff and maintain current ERC levels. With the continued build in U. S. Supply, we anticipate that we will exceed this level of investment And grow ERC further as we close this year and move into 2024. We have a strong capital structure with a debt to adjusted EBITDA leverage ratio of 2.8 times at September 30. Speaker 300:21:30We expect leverage to increase slightly as we continue to deploy capital at favorable returns. However, our long term goal is to have our leverage be in the 2 to 3 times range. In all three of our credit facilities, we have deep banking relationships, many of which stretch back over a decade. In terms of funding capacity, we have $3,100,000,000 in total committed capital to draw under our credit facilities. Our bank lines have margins ranging from 235 to 380 basis points over benchmark That provide an attractive cost of capital in this market and give us an advantage. Speaker 300:22:18As of September 30, we had total availability of $1,300,000,000 comprised of $278,000,000 Based on our current ERC and $1,100,000,000 of additional availability that we can draw from Subject to debt covenants, including advance rates. Given the build in supply we are expecting, We believe the capital available under our credit facilities, the cash generated from our business, Including the initiatives Vic mentioned and access to capital markets in both the U. S. And Europe Should position us well to take advantage of where we are in the cycle. It's also worth noting that we do not have debt maturing until September 2025. Speaker 300:23:13Looking ahead, our capital allocation strategy Remain focused on purchasing portfolios at favorable prices. We have recalibrated our net return thresholds in light higher interest rate environment and we expect to see the positive impact of this in our financial results as we move through 2024. That being said, I am very encouraged by the early signs of financial and operational progress in our business And the path that we have laid forward to create shareholder value. Now I'll turn it back to Vic. Speaker 200:23:53Thanks, Rakesh. Building on the strong progress we've made in the Q2, the Q3 was another step in the right direction As we continue to capitalize on the growing portfolio supply in the U. S. And execute on our initiatives. As far as the next few months and quarters are concerned, we are encouraged by where the business is heading. Speaker 200:24:16To recap, 1, portfolio purchases and pricing are improving, supported by the tailwind of increasing portfolio supply in the U. S. And our strong and diversified positioning across Europe. 2nd, operational effectiveness initiatives are in motion And should generate appreciably more cash. And finally, expenses remain carefully controlled. Speaker 200:24:43These developments provide a strong framework to deliver significantly improved results in 2024. And with that, we are now ready for questions. Operator00:24:57We will now begin the question and answer session. And our first question will come from David Scharf of JMP. Please go ahead. Speaker 500:25:31Hi, good afternoon and thanks for taking my questions. And welcome aboard, Bitesh, for I guess your first earnings call. Speaker 300:25:41Thanks, Dale. Speaker 500:25:43Sure. So, I guess a couple of things. I first wanted to maybe drill down into Kind of the purchasing environment and maybe the timing of how this is You expect this to unfold with respect to your portfolio returns because obviously Big question for investors is when we see sort of a return to consistent No GAAP profitability. I believe you had mentioned that the overall Collection multiple and therefore the yield, I guess it improved a bit closer to 1.9 times cumulatively From 1.7 earlier in the year. Can you give us a sense for When the weighted average yield on your portfolio, specifically the North American core, How long it takes at current pricing levels? Speaker 500:26:47How long does it take for the weighted average yield to return to 2019 levels because it seems like North American core was sort of yielding mid to high 40% returns on a gross basis Forever until 2020. Then it dropped about 10 percentage points into kind of GAAP loss territory and it Feels like it needs to get back to that mid to high 40% range, which corresponds to maybe anywhere from a 2.1 to a 2 point For multiple, like can you walk us through just the timing based on your expectations of purchase volumes And how long it takes kind of the old stuff to run off? Speaker 300:27:31Yes. So sure, that's a great question. So look, the way to think about it as and I'm glad you're bifurcating the U. S. Versus Europe because The way the cash comes in from a timing perspective, in the U. Speaker 300:27:45S, it's over a much shorter time period. I would say that most of the cash comes in, in the first, call it, 4 years. And so That's why what you're seeing is we're very encouraged by the multiples we're seeing in 2023 and between the volumes and Pricing that we're seeing in 2023, what we're going to see is that's going to offset some of the lower volumes and the lower multiples That we saw in the 2021, 2022 vintages. Speaker 500:28:20Right. And I guess, Rakesh, just In terms of expectations for purchase volumes, I mean, is it Do we is it mid-twenty 24, mid-twenty 25? Just once again trying to get a sense for How you see this transformation taking place whereby the blended yield on your portfolio, which is what Reach is sort of pre-twenty 20 levels because that seems to be sort of the high, almost the magical level to return to being a consistent GAAP earner. Speaker 300:28:57Yes. So look, couple of things, right. So one is, in terms of the purchase multiples that you mentioned. So remember that this In the latest vintage, this is happening with respect to a different environment with the interest rates. And if we are blending towards the 190, you do the math as to when we started the year at 175, So we are obviously writing business at multiples that's higher. Speaker 300:29:25And then second is you need to think about some of the initiatives That Vic mentioned, so what we're doing in the short term here over the next 12 to 18 months where you're going to see the fruition Is the investment that we're making with respect to how we run the business, whether it is internally or leveraging External parties, whether that is data, whether that is from an efficiency or a cost effectiveness perspective. And the combination of the 2, our expectation is that that's going to drive meaningfully higher Numbers on the multiples in the next, call it, 24 months timeframe. And so between the offset of the existing book of the last 2 years, David, and the new initiatives, Our expectation and that's what we're focused on. Our expectation is that we're going to create significantly enhanced value on our cash Collections. Speaker 500:30:30Got it. Understood. And appreciate the color. Maybe as a follow-up on that operational side, I know you Reference the U. S. Speaker 500:30:40Collection center being wound down. Are there Efforts underway, I mean, our Speaker 600:30:52offshore Speaker 500:30:55Collection capabilities being explored either PRA zone or leveraging 3rd party? Speaker 200:31:04Yes. Just to supplement Rakesh's outline. So David, we're looking at cash initiatives, cash generating initiatives In the U. S. Covering both the legal sphere and the non legal activity, and as I mentioned in my remarks, we are seeing Tangible and meaningful opportunities that we are now starting to execute against on both. Speaker 200:31:36With regard to leveraging lower cost locations, I mentioned that too, we are exploring And are rolling out some items this quarter and will be exploring piloting other items in the Q1 of next year That extend to both voice and data processes. So you'll be hearing more about that As those programs evolve over time. Speaker 500:32:04Got it. Thank you very much. Operator00:32:11Next question comes from Bob Napoli of William Blair. Please go ahead. Speaker 400:32:17Thank you. Maybe following along the same line of questioning as David. I think you mentioned getting the cash efficiency ratio Into the low 60s? I'm sorry, over what timeframe and what's the visibility To getting there, I think you had mentioned 2024, but just any color on the improvements. I mean, that's a pretty big improvement in the efficiency ratio. Speaker 200:32:44Sure, Bob. I'll take that. As Rakesh mentioned in his remarks, we're looking at a fairly stable cash efficiency ratio for the 4th quarter. Speaker 300:32:53Right. As folks Speaker 200:32:55probably know that on this call, 4th quarter is generally a seasonally sort of softer quarter for cash generation, right? So And in the Q1, that's generally been seasonally higher in the U. S. In terms of cash collection. So the Cash efficiency ratio might improve, but I think if you're asking the question about from a secular perspective, when should we see the lift in the cash efficiency, At this point, we're looking at the back end of 2024 is when we would start seeing the impact of the higher Pricing combined with the initiatives falling into place and coupled with the expense initiatives that we've got that are offsetting some of the Natural growth that we need to have in our business for covering expanded volumes and covering potentially more legal activity. Speaker 400:33:52Thank you. That's helpful. Then, I guess, if I look at your stock today, it's trading below Tangible book value. And I don't know that if you even go back to the great financial crisis, the stock, your PRA never traded below tangible book value. When you look at the underwriting that you're doing for the purchases, what type of an ROE do you think you're underwriting to? Speaker 400:34:17I mean, what is the target? You must And I mean, it all rolls up into an ROE. So just then how are you managing The returns on your underwriting, what kind of return level are you targeting? Speaker 300:34:33Yes. Hey, Bob, it's Rakesh. Look, our goal is to ultimately create shareholder value. So what I will tell you is, We obviously look at the gross multiples that you're looking at, but we also have recalibrated our net on thresholds, both here in the Americas as well as in Europe. And the new vintages where we're originating It's been the idea to make a meaningfully improved return versus what we saw over the last couple of years. Speaker 300:35:09So I won't get into specific numbers, but rest assured, we are writing at numbers that It's going to make us profitable. And to your point, look, their cash efficiency is a metric that I understand for Your purposes folks have looked at, but all these initiatives are being undertaken. We are looking at on each of those initiatives because we want to spend the money to ultimately make more money and make it in a more cost efficient manner. So we're looking at different metrics and KPIs internally to ensure we are delivering shareholder value over the long term. Speaker 400:35:54Thank you. Appreciate it. Operator00:36:00Next question comes from Robert Dodd of Raymond James. Please go ahead. Speaker 200:36:06Hi, guys. I want to look Somewhat, Speaker 700:36:10I think, longer term on that. I think you made some comment about underinvestment in platform, Relative on investment platforms and that needs to be collected, but that's a much more Complex issue. Can you give us any more I mean, are we looking at you're going through 12 to 18 months of all these efficiency initiatives And then there being another multiyear cycle of a complete platform rebuild, or can you give us any color on what you're talking about there? Speaker 200:36:44Robert, first, sort of priority as I entered this position was to ensure that We diagnosed what bedevil does and we're addressing it, right? And I believe I can say looking back over the last 6 months That we have established that. We have stabilized the business. Speaker 300:37:09We have launched numerous Speaker 200:37:12initiatives to generate revenues, which is our top focus. And so that's going to be the priority into the near term. As we do that, we are reviewing the status of our underlying systems, architecture and sort of all of the sort of upgrades that might be required over time. And probably in the next 12 months, we will start putting some pen to paper with regard to in what priority and in what order we'll start doing that. And that, as you know, is not a simple exercise that might be take us a while to do, but we are going to be very thoughtful about making sure that Anything we do is not disruptive to the momentum that we're creating over the next 12 months, right? Speaker 200:38:04And so we will phase that As necessary. And it is not an impediment, as I mentioned, to us being able to create near term value In the franchise. Speaker 300:38:16Yes. If I could just add to that, I think you should be encouraged by the fact that we're looking at this in a couple of phases, right? We're thinking about what do we need to do in the next 12 months and how do we create that value and have meaningfully improved results in 2024. But sitting here today, we're also thinking about the long term, how do we create a much more sustainable thriving business. And that means we need to invest in some systems and processes. Speaker 300:38:45So that's going to be in the longer term. It's a multiyear Cycle and investment that we're going to, but we're already thinking about that. And so the idea is to build that vision of where we want to be in the next 12 to 18 months. And then sitting here today, where do we want to be in the next 3 to 5 years? Speaker 400:39:04Got it. I appreciate that, Thank Speaker 200:39:07you. Another one, on the market in U. Speaker 700:39:10S, I think you said there were some spot transactions that came in Surprisingly large relative to normal. Are you seeing anything in terms of Is the market evolving in a way? Do you think those are just one off occurrences? Or do you think there's going to be A greater incidence of spot activity in the future in the U. S. Speaker 700:39:36Market. Obviously, if there's more volume, there probably would be. But I mean, is it Anything unusual about that, that you think is really indicating a market change in terms of how sellers think about it? Speaker 300:39:51Yes. I think the comment was made more in general versus the U. S. So at the start of my remarks, we were talking about just A few spot transactions that were higher than anticipated, and that also includes Americas. It wasn't focused just on the U. Speaker 300:40:09S. I would just say that in the U. S, we're very encouraged by the ability of us being able to Repriced substantially most of our board flows to take into account the higher interest rate environment. Do we see spot transaction? Yes. Speaker 300:40:30But that comment was made more generally. Speaker 200:40:33I think Robert has commented that In a time when credit card charge offs are rising at a fairly rapid clip, LOs will bring Items to market that are over and above any of their forward flow arrangements that they might have entered into, right? And we're seeing Certainly, having some visibility to that, right, in terms of deals being brought to market. Speaker 700:41:03Got it. Thank Speaker 300:41:06you. Operator00:41:09The next Question comes from Mark Hughes of Truist. Please go ahead. Speaker 600:41:16Thanks. Good afternoon. Hi, Mark. Rakesh, could you give the number, the $22,000,000 change in recovery? Did you break out by the outperformance in the quarter Versus the expected change in future collections? Speaker 300:41:33Sure. So the outperformance in the quarter was 18 That we mentioned earlier and then 22 is the total. So 4 is the difference, which is the change in expected future recoveries. Speaker 600:41:48Okay, great. I understand. The tax rate for next year, this year it's in the low 20s. Is that a good bogey for next year or something Speaker 300:42:00different? Yes. I would just focus right now on for this year. So What we're telling you is for Q4, Mark, is to model in a low 20% range. We'll come back to you as we move into 2024 What you should model in for next year? Speaker 600:42:20Okay. Do you have any view, you talked about credit normalization. It's interesting to hear your description of the consumer. Your consumers don't seem to be under pressure. How do you view this evolving? Speaker 600:42:34There's some Potential, I think BofA has talked about the normalization extending for a few more quarters and then maybe stabilizing. Speaker 700:42:44Do you have Speaker 600:42:45a view on any event? Speaker 300:42:48Yes. Look, obviously, the consumers that we have are on their own journey that's Probably different from the consumers around some of the larger money center banks. As I mentioned, Mark, earlier in my remarks, We've looked at how our consumers are performing and look, we've seen limited evidence of them Being under pressure today in the U. S, we anticipate cash collections to continue In the coming quarters, as we engage with them, especially through all the initiatives that we were talking about earlier. So I view this as a tailwind in the sense that as credit normalizes further because some of the remarks made by the banks was They still expect credit to normalize further. Speaker 300:43:40Some of them actually reduced their credit costs this quarter. So we view that as a positive from a supply perspective. So all in all, between the consumer, where they are, As they are our customers today and the increased supply coming, we view that as a tailwind for our business. Speaker 600:44:03No, I think you had mentioned some new sellers. Any way to characterize The pace with existing sellers, what's the magnitude of the new sellers? Are there others that are exploring debt sales as well? Speaker 300:44:20Yes. So look, these are sellers that have been in the market. We just haven't engaged with them previously. So this is a positive for us as we expand the number of sellers from whom we buy and we get on their panels. So we're not this is not changing our product focus. Speaker 300:44:39So it's still looking at The credit card, the PLCC space and the areas that we're in today and just expanding the number of sellers that we buy from. Speaker 600:44:52Thank you very much. Operator00:44:59The next question is a follow-up from Bob Napoli of William Blair. Please go ahead. Speaker 400:45:06Thank you for the follow-up. Just a little more commentary on Europe. I mean, it seems that An international player, Australian player talked about a much tougher collections environment, payment plans being canceled or something like that. Another competitor just talked about how challenging and it seems like your European business is doing somewhat better. I mean, you've talked about competition, but How do you explain PRA's international commentary versus what we heard out of the other public company out of Australia and Other competitors discussing Europe? Speaker 200:45:46There might be it depends on the markets in which different players are Presentant, Bob, I can't comment on who you're referring to, but our business is fairly well distributed across Europe with The Nordics, Poland, UK and then Southern Europe. And similar to what Rakesh mentioned, There might be a market or 2 where large payments are impacted, but that has not affected the payer rates, Right. So the volume of customers making payments has remained stable even in those markets that might be experiencing slightly more stress. And so that has an impact on the timing of cash versus the totality of cash we will generate. So we certainly I'm seeing no particular stress. Speaker 200:46:39And as you can see from our results over many quarters, our business in Europe has been performing Consistently and consistently well. Speaker 400:46:50Thank you. The 2021 pool of U. S. Americas It's where you've taken the biggest write down and I think you actually even had maybe a hair of an improvement in the collections multiple there. Are you comfortable with that pool now, because in the past whenever you've had a pool in this industry, it generally You generally get follow-up marks, but it seems like you actually took a little bit of a positive mark there. Speaker 400:47:18Is that pull when is that pull shrinks, Your return should go up, but anything any commentary on that specifically? Speaker 200:47:28I think we've talked about that in the past, Bob. It's a fair question just given the sort of issues we had with that vintage We reported out in the Q1. In terms of the performance on the call center, That's moving along to expectations. As we've talked about, we have ramped up our legal activities against that vintage, and that just comes So with a slight lag in terms of when it starts taking effect. So at this point in time, we feel that we're in pretty good shape With that vintage and we're tracking it. Speaker 200:48:06And these initiatives that we've got underway are cutting across Every vintage of our business and we should see that impacting the 2021 vintage over time As we get through 2024 as well. Speaker 300:48:22Yes. And if I could just add to that, just To round it out, right, it's revenue recognition you're asking about CECL, right, under those rules, it's our best estimate With respect to our expectation for the cash flows and what you're going to see is variability quarter to quarter. But I think what Encourages us is that over the long term, we have always experienced in a modest outperformance versus Where we originated and as you can see that particular vintage in a quarter to date, we're seeing some positives. So and then the second is also just around the initiatives that Vic mentioned. We're starting to Really focusing on that and we should start seeing a better performance coming out of that vintage as these initiatives take hold. Speaker 400:49:19Thank you. If I could squeeze one last one in, you had mentioned last quarter outsourcing, offshoring as part of your VIC strategies. Any Updated commentary on offshoring or outsourcing. Speaker 200:49:33Yes. So I think I Good question, Bob. Thank you. So I look at outsourcing in 2 ways. 1 is leveraging Local players in the U. Speaker 200:49:46S. Market to bolster and accelerate activities that we want to do and that's it. We Have actually expanded our sort of engagement levels with some third parties, particularly on the legal front, To bolster and accelerate our activities there, that's U. S.-based. And then in offshoring, We piloted a couple of programs in the Q2 into the Q3. Speaker 200:50:16And now in the Q4, we're rolling out programs with a couple of parties and we're in pilot mode with other parties with regard to leveraging lower cost location. And I think the sense is that over the next 6 to 9 months, we will Validate and at this point in time, we fully expect that there will be positive validation. We will validate that these relationships are working to expectations, Meeting up thresholds and at that point in time, we will have a discussion internally as to whether we scale them up and at what level. So Based on the last 3, 4 months of activity, we are very encouraged by what we've accomplished. And As you might recognize, we've been moving at rapid fire speed on this stuff to get it done so quickly. Speaker 400:51:10Thank you. Operator00:51:16The next question is a follow-up from David Scharf of JMP. Please go ahead. Speaker 500:51:22Great. Thanks for squeezing me in again. Maybe just a Couple to end here. Hey, one Rakesh, just a quick maybe update on Status of kind of loan covenants, I'm assuming there is nothing to report, but I know there was kind of a unique situation in Q1 where the company I had to seek a one off covenant relief on the operating income thing. Is there anything else in your Bank facilities, whether it's restricted payments or coverage ratios or definitional changes We Speaker 200:52:01ought to Speaker 500:52:01be aware of or is everything pretty much status quo since that Q1 event? Speaker 300:52:06Yes, I would just say status quo, right? The Q1 event was NOI and as you could see, our income from operations positive. So no changes there, David. Speaker 500:52:17Got it. That's what I thought. And then one last one, circling back to kind of the purchasing Outlook and Supply, Speaker 300:52:28it seems like the last Speaker 500:52:29few years Pointing through the queue. The concentration of the company's purchases in private label seems to have gotten larger and larger relative to Over the last 3, 5, 10 years. And instinctively, I think it's kind of harder to collect from lower balance accounts. As you look at kind of your flow deals and just the overall increase in supply, a lot of people are used to thinking more in terms of the general purpose Asset class versus private label, is your mix changing? Are you engaging with more private general purpose auctions? Speaker 500:53:09And should that matter to us? Or am I overthinking this? Speaker 200:53:15I actually I'm just looking at some data here. I'm not sure What you're tracking to, David, but in our Q, we report out the mix Of the portfolios between the major credit cards and private label and actually private label as a percent Of our purchases has actually declined versus a year ago. But I would also say that like the whole notion of private label versus major credit cards has got So a little bit distorted out of our time because it's a question of really if you're talking about average balances And thinking that what is the collectability across average balances, we are not seeing a change, material change In the average balances that we're collecting on, right? And in fact, one way that that comes up is in what percent of our accounts Those that we might target, if necessary for legal coverage and that hasn't really changed out over time, right. Speaker 500:54:20Got it. Very helpful. Thanks so much. Speaker 300:54:24Thanks. Operator00:54:28The next question is a follow-up from Mark Hughes of Drew with. Please go ahead. Speaker 600:54:34Yes, thanks. Rakesh, what is The factor that drives the $1,100,000,000 in availability, I think you said subject covenants and advance rates. Could you just Maybe expand on that. Is that available? Under what circumstances is it available? Speaker 300:54:54Yes, sure. So look, we have committed capital of $3,100,000,000 Mark, and we borrowed Certain amounts under the credit facilities. And so that $1,100,000,000 that I was mentioning is something that we can draw on Subject to the advance rates that we have in those facilities as we purchase more ERC. So our advance rates that we've disclosed range anywhere from 35% to 55%. And so we can as we acquire more ERC, we can draw down on that debt available to us to fund our purchases. Speaker 600:55:39Okay. Very good. And then did you give a number when you gave the $841,000,000 to replace the runoff? Could you give the associated number what you do forecast for runoff over the next 12 months? Speaker 300:55:54Yes. So you're talking about the dollars of ERC running off, that's the 1,500,000,000 Speaker 600:56:02Okay. And then you're saying that the purchases in order to replace that, you need $841,000,000 correct? Speaker 300:56:10Correct. And we're just looking at the multiples that we are seeing in 23. Exactly. Speaker 600:56:17Yes. Okay, great. Thank you very much. Speaker 300:56:21Thank you. Thank you. Operator00:56:26This concludes our question and answer session. I would like to turn the conference back over to Vikram Alta for any closing remarks. Speaker 200:56:35Thank you everyone for joining us this afternoon and we appreciate further input and feedback over the next several Weeks and months. Thank you. Operator00:56:47The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallPRA Group Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) PRA Group Earnings HeadlinesPRA Group Reports First Quarter 2025 ResultsMay 5 at 4:05 PM | prnewswire.comPRA Group (PRAA) Expected to Announce Earnings on MondayMay 3 at 2:06 AM | americanbankingnews.comWarning: “DOGE Collapse” imminentElon Strikes Back You may already sense that the tide is turning against Elon Musk and DOGE. Just this week, President Trump promised to buy a Tesla to help support Musk in the face of a boycott against his company. But according to one research group, with connections to the Pentagon and the U.S. government, Elon's preparing to strike back in a much bigger way in the days ahead.May 5, 2025 | Altimetry (Ad)PRA Group to Announce First Quarter 2025 Results on May 5April 21, 2025 | prnewswire.comPRA Group Stock Short Interest Report | NASDAQ:PRAA | BenzingaApril 19, 2025 | benzinga.comJMP Securities Sticks to Its Buy Rating for Pra Group (PRAA)April 9, 2025 | markets.businessinsider.comSee More PRA Group Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like PRA Group? Sign up for Earnings360's daily newsletter to receive timely earnings updates on PRA Group and other key companies, straight to your email. Email Address About PRA GroupPRA Group (NASDAQ:PRAA), a financial and business services company, engages in the purchase, collection, and management of portfolios of nonperforming loans worldwide. It is involved in the purchase of accounts that are primarily the unpaid obligations of individuals owed to credit originators, which include banks and other types of consumer, retail, and auto finance companies. The company also acquires nonperforming loans, including Visa and MasterCard credit card accounts, private label and other credit card accounts, personal loans, automobile loans, and small business loans from banks, credit unions, consumer finance companies, retailers, utilities, automobile finance companies, and other credit originators. In addition, it provides fee-based services on class action claims recoveries. The company was formerly known as Portfolio Recovery Associates, Inc. and changed its name to PRA Group, Inc. in October 2014. PRA Group, Inc. was founded in 1996 and is headquartered in Norfolk, Virginia.View PRA Group ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Is Reddit Stock a Buy, Sell, or Hold After Earnings Release?Warning or Opportunity After Super Micro Computer's EarningsAmazon Earnings: 2 Reasons to Love It, 1 Reason to Be CautiousRocket Lab Braces for Q1 Earnings Amid Soaring ExpectationsMeta Takes A Bow With Q1 Earnings - Watch For Tariff Impact in Q2Palantir Earnings: 1 Bullish Signal and 1 Area of ConcernVisa Q2 Earnings Top Forecasts, Adds $30B Buyback Plan Upcoming Earnings American Electric Power (5/6/2025)Advanced Micro Devices (5/6/2025)Marriott International (5/6/2025)Constellation Energy (5/6/2025)Arista Networks (5/6/2025)Brookfield Asset Management (5/6/2025)Duke Energy (5/6/2025)Energy Transfer (5/6/2025)Mplx (5/6/2025)Ferrari (5/6/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 8 speakers on the call. Operator00:00:00Welcome to the PRA Group's Third Quarter of 2023 Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Operator00:00:37Najim Mustaman, Vice President of Investor Relations for PRA Group. Please go ahead. Speaker 100:00:47All right. Thank you. Good evening, everyone, and thank you for joining us. With me today are Vik Athol, President and Chief Executive Officer And Rakesh Sehgal, Executive Vice President and Chief Financial Officer. We will make forward looking statements during the call, which are based on management's current beliefs, projections, assumptions and expectations. Speaker 100:01:10We assume no obligation to revise or update these statements. We caution listeners that these forward looking statements are subject to risks, Uncertainties, assumptions and other factors that could cause our actual results to differ materially from our expectations. Please refer to the earnings press release and our SEC filings for a detailed discussion of these factors. The earnings release, The slide presentation that we will use during today's call and our SEC filings can all be found in the Investor Relations section of our website atwww.pragroup.com. Additionally, a replay of this call will be available shortly after its conclusion And the replay dial in information is included into your earnings press release. Speaker 100:02:03All comparisons mentioned today will be between Q3 2023 Q3 2022, unless otherwise noted, and our Americas results include Australia. During our call, we will discuss adjusted EBITDA and debt to adjusted EBITDA for the 12 months ended September 30, 2023 in December 31, 2022. Please refer to today's earnings release and the appendix of the And with that, I'd now like to turn the call over to Vikka Tal, Our President and Chief Executive Officer. Speaker 200:02:53Thank you, Najim, and thank you for everyone for joining us this evening. In a few minutes, I will pass the baton to Rakesh to cover the financial section of our Q3 results. Prior to doing so, however, I feel that it is important for me to provide a link between the results we are reporting today, which We believe these future results will be driven by a combination of portfolio supply, pricing, Operational effectiveness and efficiency. 1st, portfolio supply and pricing. The chart on the upper left profiles our quarterly investments in Europe stretching back 3 years. Speaker 200:03:47As you can see, purchasing levels vary throughout the year. This is due to the mix of spot transactions versus forward flows in the region, But the overall picture indicates relatively stable averages continuing into this year. Despite the competition in Europe, We continue to benefit from our deep relationships with sellers to maintain investment levels and renew important forward flow agreements. Moving across to the chart on the right, the U. S. Speaker 200:04:19Picture shows the correlation between the overall industry credit card charge off rates And our portfolio purchases. We believe these recent trends will continue into 2024, providing clear opportunities for us to benefit from this important tailwind. It is worth pointing out that along with the growth in volumes, The returns on our new purchases have improved over recent quarters and a substantial majority of our forward flows Are now priced to reflect the current macroeconomic conditions and funding environment. Because these increased volumes and return profiles Our fairly recent developments, they have not yet flowed through our current results to any meaningful extent. Iowa, we expect for this dynamic to positively influence cash collections and revenues through 2024 and beyond. Speaker 300:05:17Next, operational effectiveness. As I Speaker 200:05:20have referenced on previous calls, It is essential for us to not only focus on the front end of our business, purchasing portfolios at attractive returns, But also to optimize the value from our back book. Therefore, from my very first week as CEO, I have encouraged and challenged our team to reevaluate and enhance our operational effectiveness. They have responded superbly. Over the past 6 months, we have identified, tested And begun rolling out a wide range of cash generating initiatives, both large and small, to address our performance in the U. S. Speaker 200:06:01Some of these initiatives include enhancements to our legal collection activities, where we are identifying new information sources To optimize the value and decision making processes across this important channel, we are also leveraging additional third party resources To bolster and accelerate our post judgment customer interactions, both sets of initiatives have identified significant opportunities They are now migrating into execution mode. Similar efforts have been made within our U. S. Call center operations with correspondingly encouraging opportunities. We implemented a wide range of operational strategy enhancements starting in the 2nd quarter, Expanded these in the Q3 and are rolling out further initiatives this quarter. Speaker 200:06:50These changes are driving increased customer contact rates And more effective customer interactions leading to a growth in payment plans and U. S. Cash collections performance That has modestly outperformed our internal expectations over the past 6 months. Due to the timeline between the Actions being taken and the impact on cash generation, particularly within the legal channel, but also extending into the call center, The effect of these initiatives and enhancements are only minimally reflected in our year to date results. Finally, efficiency. Speaker 200:07:27Our relative underinvestment in platform and system upgrades will be a focus of ours In the time to come. Meanwhile, in the near term, there are tangible opportunities for us to improve our efficiency That don't require complex changes to our core architecture. Over the past 6 months, we have instituted initiatives That are improving call center productivity and optimizing our site footprint in the U. S. We have also piloted multiple programs with 3rd parties To leverage lower cost locations to support both voice and data processes. Speaker 200:08:05The rollout of these programs has commenced in the current quarter with an expectation that we will expand these over the next 12 to 18 months. While growth in account volumes and expanded legal processes Suggest a corresponding increase in expenses, we believe these anticipated higher expenses will be largely offset By the efficiency initiatives underway. In other words, growth in cash collections is expected to outpace our growth in operating expenses Over the near term, this should position us to march towards an improved cash efficiency ratio into the low 60s level. With growing portfolio supply, improved pricing, increased operational effectiveness in the U. S. Speaker 200:08:51And robust efficiency measures, We believe we have clear line of sight to deliver significantly improved financial performance in 2024 and beyond. The speed, scope and impact of the efforts underway have far exceeded my initial expectations. We recognize the need to deliver results for our shareholders, and we will not let off the pace at which we are working to achieve this. With that, it's over to Rakesh for a review of our quarterly results. Speaker 300:09:25Thanks, Vic. Looking at our investments this quarter, We purchased $311,000,000 of portfolios, up 70% year over year. This level of investment was driven by increased forward flow volumes, purchases from new sellers for PRA And a few spot transactions that were higher than anticipated. Given the strong investment levels to date, Our diverse geographic footprint across Americas and Europe and the healthy pipeline of portfolios for sale, We are well on track to achieve over $1,000,000,000 in portfolio investments in 2023, a feat we have achieved Since 2019, this demonstrates our ability to capitalize on industry tailwinds as credit normalizes. We are especially pleased that these recent investments are being achieved at improved prices and returns compared to the 2020 to 2022 time period. Speaker 300:10:32In the Americas, We invested $232,000,000 in the quarter, which represented the highest quarterly level of purchasing Since 2017, we are highly encouraged by the U. S. Market with investment levels increasing For the 4th consecutive quarter, as volumes and pricing continue to improve, This should have a positive impact on portfolio income, which demonstrates the significant opportunity ahead of us As we move further into the credit cycle, you can see prices improving by the purchase price multiple expansion in our 2023 Americas Core Vintage, which was initially recorded at 1.7 5 times at the end of the Q1, but has since grown to 1.9 times year to date at the end of the third quarter. In our existing U. S. Speaker 300:11:33Overflows of fresh paper, we once again experienced a sequential increase in volume from the prior quarter. As mentioned earlier, our forward floor agreements now largely reflect The higher interest rate environment and should generate returns exceeding recent vintages. At a macro level, active credit card balances in the U. S. Have exceeded $1,000,000,000,000 Up from roughly $850,000,000,000 pre pandemic. Speaker 300:12:07Charge off rates are also trending higher, Reaching 3.2% with size of continued credit normalization from pandemic era of lows, Suggesting a continued tailwind. Moving to Europe. Our European business continues to capitalize on stable investment volumes. As many of you know, Europe is more of a spot driven market and generally experiences Lower volumes of supply in Q3, which is reflected in this quarter's investment of $79,000,000 In the markets where we do have forward flows, the volumes remain stable and have yet to show an increase. The European market continues to be competitive. Speaker 300:12:58And as we have done in the past, we are being very disciplined, Ensuring that returns are appropriate. For example, we are observing that price discovery is in process in certain countries. We saw portfolios brought to market earlier this year that did not meet the seller's internal pricing thresholds And we're both. Some of these portfolios have since come back to market and we have purchased them at improved levels of return. Moving on to financials. Speaker 300:13:35Total revenues were $216,000,000 for the quarter. Total portfolio revenue was $212,000,000 with portfolio income of $119,000,000 And changes in expected recoveries of $22,000,000 Following a period of declines, Portfolio income has been stable for the past several quarters, and we now believe we are positioned for growth Based on expanding volumes and improved pricing. During the quarter, we collected $18,000,000 In excess of our expected recoveries, exceeding our expectations on a consolidated basis by 4%, With the Americas over performing by 3% and Europe over performing by 6%. Operating expenses for the Q3 were $173,000,000 which were consistent with the prior year period. Of note, this number includes a non cash impairment charge of $5,000,000 Related to our previously announced decision to cease call center operations at 1 of our owned Regional facilities in the U. Speaker 300:14:58S. Agency fees were up $4,000,000 this quarter, primarily due to higher cash collections in Brazil. Our legal collection costs were $21,000,000 for the quarter, Which were down $3,000,000 from the prior year period. We would like to reiterate Our expectation for legal collection costs to be in the low to mid $20,000,000 range in Q4. Our cash efficiency ratio was 58.9% for the 3rd quarter, which was up slightly from the prior year period. Speaker 300:15:40We expect the cash efficiency ratio To remain relatively stable for the Q4, net interest expense for the Q3 was $49,000,000 An increase of $17,000,000 primarily reflecting higher debt balance and increased interest rates. We expect net interest expense to be in the low $50,000,000 range for the 4th quarter. Our effective tax rate for the quarter was negative 28%. Looking at the full year, We expect an effective tax rate in the low 20% range. Net loss attributable to PRA was $12,000,000 on negative $0.31 in diluted earnings per share. Speaker 300:16:31This includes a $0.10 per share impact From the non cash impairment I mentioned earlier, cash collections for the quarter We're $420,000,000 compared to $412,000,000 in the Q3 of 2022. The 2% increase or 1% decrease on a constant currency basis was primarily due to higher collections in Brazil and Europe, which will partially offset by lower collections in the U. S. During 2022, We were witnessing year over year declines compared to 2021 due to excess consumer liquidity during the pandemic era. The year over year decline has now stabilized and we expect this positive momentum to continue to build into 2024. Speaker 300:17:30For the quarter, Americas cash collections decreased 2% or 3% on a constant currency basis, Driven primarily by the impact of lower levels of portfolio purchases in the U. S. Over the last few years. America's cash collections modestly exceeded our internal expectations Speaker 400:17:51for the Speaker 300:17:51quarter. European cash collections for the quarter increased 9% or 2% on a constant currency basis. Our year to date cash performance versus our expectations at December 31, 2022 Has experienced 5% over performance in Europe and 3% underperformance in the Americas, a 1% over performance On a consolidated basis. Let me give you a little more color on what we're seeing with our customers. There has been a lot of discussion in the news lately regarding pressure on the consumer. Speaker 300:18:35We have seen limited evidence to date that such pressure is impacting our U. S. Customers. Year to date, we exceeded our cash collection cost of living is having some impact on consumers in a few of our markets. In these markets, we have observed Fewer large one time payments. Speaker 300:19:04However, the proportion of customers paying us has remained stable. So we think that this will cause a timing delay instead of an overall reduction in cash collections. It's worth noting that the other markets are still performing well and that Europe as a whole has consistently exceeded our internal expectations. In both markets, it is our experience that economic downturns An increased pressure on the consumer has historically led to a more charge offs and portfolio supply Then more that more than offset the impact to cash collections. ERC at September 30 was $6,000,000,000 Which was up 12% compared to $5,300,000,000 at September 30 last year. Speaker 300:20:01On a sequential basis, ERC increased more than $70,000,000 compared to the prior quarter, With ERC in the U. S. Increasing by $135,000,000 ERC liquidates over a shorter timeframe in the U. S. So it is encouraging to see our U. Speaker 300:20:22S. ERC increasing. We expect to collect $1,500,000,000 of our ERC balance during the next 12 months. It's important to note That this number only reflects the amount we expect to collect on our existing portfolio. It does not include the cash we to collect from new purchases made over the next 12 months. Speaker 300:20:48Based on the average purchase price multiples we have recorded in 2020 3, we would need to invest approximately $841,000,000 globally Over the same timeframe to replace this runoff and maintain current ERC levels. With the continued build in U. S. Supply, we anticipate that we will exceed this level of investment And grow ERC further as we close this year and move into 2024. We have a strong capital structure with a debt to adjusted EBITDA leverage ratio of 2.8 times at September 30. Speaker 300:21:30We expect leverage to increase slightly as we continue to deploy capital at favorable returns. However, our long term goal is to have our leverage be in the 2 to 3 times range. In all three of our credit facilities, we have deep banking relationships, many of which stretch back over a decade. In terms of funding capacity, we have $3,100,000,000 in total committed capital to draw under our credit facilities. Our bank lines have margins ranging from 235 to 380 basis points over benchmark That provide an attractive cost of capital in this market and give us an advantage. Speaker 300:22:18As of September 30, we had total availability of $1,300,000,000 comprised of $278,000,000 Based on our current ERC and $1,100,000,000 of additional availability that we can draw from Subject to debt covenants, including advance rates. Given the build in supply we are expecting, We believe the capital available under our credit facilities, the cash generated from our business, Including the initiatives Vic mentioned and access to capital markets in both the U. S. And Europe Should position us well to take advantage of where we are in the cycle. It's also worth noting that we do not have debt maturing until September 2025. Speaker 300:23:13Looking ahead, our capital allocation strategy Remain focused on purchasing portfolios at favorable prices. We have recalibrated our net return thresholds in light higher interest rate environment and we expect to see the positive impact of this in our financial results as we move through 2024. That being said, I am very encouraged by the early signs of financial and operational progress in our business And the path that we have laid forward to create shareholder value. Now I'll turn it back to Vic. Speaker 200:23:53Thanks, Rakesh. Building on the strong progress we've made in the Q2, the Q3 was another step in the right direction As we continue to capitalize on the growing portfolio supply in the U. S. And execute on our initiatives. As far as the next few months and quarters are concerned, we are encouraged by where the business is heading. Speaker 200:24:16To recap, 1, portfolio purchases and pricing are improving, supported by the tailwind of increasing portfolio supply in the U. S. And our strong and diversified positioning across Europe. 2nd, operational effectiveness initiatives are in motion And should generate appreciably more cash. And finally, expenses remain carefully controlled. Speaker 200:24:43These developments provide a strong framework to deliver significantly improved results in 2024. And with that, we are now ready for questions. Operator00:24:57We will now begin the question and answer session. And our first question will come from David Scharf of JMP. Please go ahead. Speaker 500:25:31Hi, good afternoon and thanks for taking my questions. And welcome aboard, Bitesh, for I guess your first earnings call. Speaker 300:25:41Thanks, Dale. Speaker 500:25:43Sure. So, I guess a couple of things. I first wanted to maybe drill down into Kind of the purchasing environment and maybe the timing of how this is You expect this to unfold with respect to your portfolio returns because obviously Big question for investors is when we see sort of a return to consistent No GAAP profitability. I believe you had mentioned that the overall Collection multiple and therefore the yield, I guess it improved a bit closer to 1.9 times cumulatively From 1.7 earlier in the year. Can you give us a sense for When the weighted average yield on your portfolio, specifically the North American core, How long it takes at current pricing levels? Speaker 500:26:47How long does it take for the weighted average yield to return to 2019 levels because it seems like North American core was sort of yielding mid to high 40% returns on a gross basis Forever until 2020. Then it dropped about 10 percentage points into kind of GAAP loss territory and it Feels like it needs to get back to that mid to high 40% range, which corresponds to maybe anywhere from a 2.1 to a 2 point For multiple, like can you walk us through just the timing based on your expectations of purchase volumes And how long it takes kind of the old stuff to run off? Speaker 300:27:31Yes. So sure, that's a great question. So look, the way to think about it as and I'm glad you're bifurcating the U. S. Versus Europe because The way the cash comes in from a timing perspective, in the U. Speaker 300:27:45S, it's over a much shorter time period. I would say that most of the cash comes in, in the first, call it, 4 years. And so That's why what you're seeing is we're very encouraged by the multiples we're seeing in 2023 and between the volumes and Pricing that we're seeing in 2023, what we're going to see is that's going to offset some of the lower volumes and the lower multiples That we saw in the 2021, 2022 vintages. Speaker 500:28:20Right. And I guess, Rakesh, just In terms of expectations for purchase volumes, I mean, is it Do we is it mid-twenty 24, mid-twenty 25? Just once again trying to get a sense for How you see this transformation taking place whereby the blended yield on your portfolio, which is what Reach is sort of pre-twenty 20 levels because that seems to be sort of the high, almost the magical level to return to being a consistent GAAP earner. Speaker 300:28:57Yes. So look, couple of things, right. So one is, in terms of the purchase multiples that you mentioned. So remember that this In the latest vintage, this is happening with respect to a different environment with the interest rates. And if we are blending towards the 190, you do the math as to when we started the year at 175, So we are obviously writing business at multiples that's higher. Speaker 300:29:25And then second is you need to think about some of the initiatives That Vic mentioned, so what we're doing in the short term here over the next 12 to 18 months where you're going to see the fruition Is the investment that we're making with respect to how we run the business, whether it is internally or leveraging External parties, whether that is data, whether that is from an efficiency or a cost effectiveness perspective. And the combination of the 2, our expectation is that that's going to drive meaningfully higher Numbers on the multiples in the next, call it, 24 months timeframe. And so between the offset of the existing book of the last 2 years, David, and the new initiatives, Our expectation and that's what we're focused on. Our expectation is that we're going to create significantly enhanced value on our cash Collections. Speaker 500:30:30Got it. Understood. And appreciate the color. Maybe as a follow-up on that operational side, I know you Reference the U. S. Speaker 500:30:40Collection center being wound down. Are there Efforts underway, I mean, our Speaker 600:30:52offshore Speaker 500:30:55Collection capabilities being explored either PRA zone or leveraging 3rd party? Speaker 200:31:04Yes. Just to supplement Rakesh's outline. So David, we're looking at cash initiatives, cash generating initiatives In the U. S. Covering both the legal sphere and the non legal activity, and as I mentioned in my remarks, we are seeing Tangible and meaningful opportunities that we are now starting to execute against on both. Speaker 200:31:36With regard to leveraging lower cost locations, I mentioned that too, we are exploring And are rolling out some items this quarter and will be exploring piloting other items in the Q1 of next year That extend to both voice and data processes. So you'll be hearing more about that As those programs evolve over time. Speaker 500:32:04Got it. Thank you very much. Operator00:32:11Next question comes from Bob Napoli of William Blair. Please go ahead. Speaker 400:32:17Thank you. Maybe following along the same line of questioning as David. I think you mentioned getting the cash efficiency ratio Into the low 60s? I'm sorry, over what timeframe and what's the visibility To getting there, I think you had mentioned 2024, but just any color on the improvements. I mean, that's a pretty big improvement in the efficiency ratio. Speaker 200:32:44Sure, Bob. I'll take that. As Rakesh mentioned in his remarks, we're looking at a fairly stable cash efficiency ratio for the 4th quarter. Speaker 300:32:53Right. As folks Speaker 200:32:55probably know that on this call, 4th quarter is generally a seasonally sort of softer quarter for cash generation, right? So And in the Q1, that's generally been seasonally higher in the U. S. In terms of cash collection. So the Cash efficiency ratio might improve, but I think if you're asking the question about from a secular perspective, when should we see the lift in the cash efficiency, At this point, we're looking at the back end of 2024 is when we would start seeing the impact of the higher Pricing combined with the initiatives falling into place and coupled with the expense initiatives that we've got that are offsetting some of the Natural growth that we need to have in our business for covering expanded volumes and covering potentially more legal activity. Speaker 400:33:52Thank you. That's helpful. Then, I guess, if I look at your stock today, it's trading below Tangible book value. And I don't know that if you even go back to the great financial crisis, the stock, your PRA never traded below tangible book value. When you look at the underwriting that you're doing for the purchases, what type of an ROE do you think you're underwriting to? Speaker 400:34:17I mean, what is the target? You must And I mean, it all rolls up into an ROE. So just then how are you managing The returns on your underwriting, what kind of return level are you targeting? Speaker 300:34:33Yes. Hey, Bob, it's Rakesh. Look, our goal is to ultimately create shareholder value. So what I will tell you is, We obviously look at the gross multiples that you're looking at, but we also have recalibrated our net on thresholds, both here in the Americas as well as in Europe. And the new vintages where we're originating It's been the idea to make a meaningfully improved return versus what we saw over the last couple of years. Speaker 300:35:09So I won't get into specific numbers, but rest assured, we are writing at numbers that It's going to make us profitable. And to your point, look, their cash efficiency is a metric that I understand for Your purposes folks have looked at, but all these initiatives are being undertaken. We are looking at on each of those initiatives because we want to spend the money to ultimately make more money and make it in a more cost efficient manner. So we're looking at different metrics and KPIs internally to ensure we are delivering shareholder value over the long term. Speaker 400:35:54Thank you. Appreciate it. Operator00:36:00Next question comes from Robert Dodd of Raymond James. Please go ahead. Speaker 200:36:06Hi, guys. I want to look Somewhat, Speaker 700:36:10I think, longer term on that. I think you made some comment about underinvestment in platform, Relative on investment platforms and that needs to be collected, but that's a much more Complex issue. Can you give us any more I mean, are we looking at you're going through 12 to 18 months of all these efficiency initiatives And then there being another multiyear cycle of a complete platform rebuild, or can you give us any color on what you're talking about there? Speaker 200:36:44Robert, first, sort of priority as I entered this position was to ensure that We diagnosed what bedevil does and we're addressing it, right? And I believe I can say looking back over the last 6 months That we have established that. We have stabilized the business. Speaker 300:37:09We have launched numerous Speaker 200:37:12initiatives to generate revenues, which is our top focus. And so that's going to be the priority into the near term. As we do that, we are reviewing the status of our underlying systems, architecture and sort of all of the sort of upgrades that might be required over time. And probably in the next 12 months, we will start putting some pen to paper with regard to in what priority and in what order we'll start doing that. And that, as you know, is not a simple exercise that might be take us a while to do, but we are going to be very thoughtful about making sure that Anything we do is not disruptive to the momentum that we're creating over the next 12 months, right? Speaker 200:38:04And so we will phase that As necessary. And it is not an impediment, as I mentioned, to us being able to create near term value In the franchise. Speaker 300:38:16Yes. If I could just add to that, I think you should be encouraged by the fact that we're looking at this in a couple of phases, right? We're thinking about what do we need to do in the next 12 months and how do we create that value and have meaningfully improved results in 2024. But sitting here today, we're also thinking about the long term, how do we create a much more sustainable thriving business. And that means we need to invest in some systems and processes. Speaker 300:38:45So that's going to be in the longer term. It's a multiyear Cycle and investment that we're going to, but we're already thinking about that. And so the idea is to build that vision of where we want to be in the next 12 to 18 months. And then sitting here today, where do we want to be in the next 3 to 5 years? Speaker 400:39:04Got it. I appreciate that, Thank Speaker 200:39:07you. Another one, on the market in U. Speaker 700:39:10S, I think you said there were some spot transactions that came in Surprisingly large relative to normal. Are you seeing anything in terms of Is the market evolving in a way? Do you think those are just one off occurrences? Or do you think there's going to be A greater incidence of spot activity in the future in the U. S. Speaker 700:39:36Market. Obviously, if there's more volume, there probably would be. But I mean, is it Anything unusual about that, that you think is really indicating a market change in terms of how sellers think about it? Speaker 300:39:51Yes. I think the comment was made more in general versus the U. S. So at the start of my remarks, we were talking about just A few spot transactions that were higher than anticipated, and that also includes Americas. It wasn't focused just on the U. Speaker 300:40:09S. I would just say that in the U. S, we're very encouraged by the ability of us being able to Repriced substantially most of our board flows to take into account the higher interest rate environment. Do we see spot transaction? Yes. Speaker 300:40:30But that comment was made more generally. Speaker 200:40:33I think Robert has commented that In a time when credit card charge offs are rising at a fairly rapid clip, LOs will bring Items to market that are over and above any of their forward flow arrangements that they might have entered into, right? And we're seeing Certainly, having some visibility to that, right, in terms of deals being brought to market. Speaker 700:41:03Got it. Thank Speaker 300:41:06you. Operator00:41:09The next Question comes from Mark Hughes of Truist. Please go ahead. Speaker 600:41:16Thanks. Good afternoon. Hi, Mark. Rakesh, could you give the number, the $22,000,000 change in recovery? Did you break out by the outperformance in the quarter Versus the expected change in future collections? Speaker 300:41:33Sure. So the outperformance in the quarter was 18 That we mentioned earlier and then 22 is the total. So 4 is the difference, which is the change in expected future recoveries. Speaker 600:41:48Okay, great. I understand. The tax rate for next year, this year it's in the low 20s. Is that a good bogey for next year or something Speaker 300:42:00different? Yes. I would just focus right now on for this year. So What we're telling you is for Q4, Mark, is to model in a low 20% range. We'll come back to you as we move into 2024 What you should model in for next year? Speaker 600:42:20Okay. Do you have any view, you talked about credit normalization. It's interesting to hear your description of the consumer. Your consumers don't seem to be under pressure. How do you view this evolving? Speaker 600:42:34There's some Potential, I think BofA has talked about the normalization extending for a few more quarters and then maybe stabilizing. Speaker 700:42:44Do you have Speaker 600:42:45a view on any event? Speaker 300:42:48Yes. Look, obviously, the consumers that we have are on their own journey that's Probably different from the consumers around some of the larger money center banks. As I mentioned, Mark, earlier in my remarks, We've looked at how our consumers are performing and look, we've seen limited evidence of them Being under pressure today in the U. S, we anticipate cash collections to continue In the coming quarters, as we engage with them, especially through all the initiatives that we were talking about earlier. So I view this as a tailwind in the sense that as credit normalizes further because some of the remarks made by the banks was They still expect credit to normalize further. Speaker 300:43:40Some of them actually reduced their credit costs this quarter. So we view that as a positive from a supply perspective. So all in all, between the consumer, where they are, As they are our customers today and the increased supply coming, we view that as a tailwind for our business. Speaker 600:44:03No, I think you had mentioned some new sellers. Any way to characterize The pace with existing sellers, what's the magnitude of the new sellers? Are there others that are exploring debt sales as well? Speaker 300:44:20Yes. So look, these are sellers that have been in the market. We just haven't engaged with them previously. So this is a positive for us as we expand the number of sellers from whom we buy and we get on their panels. So we're not this is not changing our product focus. Speaker 300:44:39So it's still looking at The credit card, the PLCC space and the areas that we're in today and just expanding the number of sellers that we buy from. Speaker 600:44:52Thank you very much. Operator00:44:59The next question is a follow-up from Bob Napoli of William Blair. Please go ahead. Speaker 400:45:06Thank you for the follow-up. Just a little more commentary on Europe. I mean, it seems that An international player, Australian player talked about a much tougher collections environment, payment plans being canceled or something like that. Another competitor just talked about how challenging and it seems like your European business is doing somewhat better. I mean, you've talked about competition, but How do you explain PRA's international commentary versus what we heard out of the other public company out of Australia and Other competitors discussing Europe? Speaker 200:45:46There might be it depends on the markets in which different players are Presentant, Bob, I can't comment on who you're referring to, but our business is fairly well distributed across Europe with The Nordics, Poland, UK and then Southern Europe. And similar to what Rakesh mentioned, There might be a market or 2 where large payments are impacted, but that has not affected the payer rates, Right. So the volume of customers making payments has remained stable even in those markets that might be experiencing slightly more stress. And so that has an impact on the timing of cash versus the totality of cash we will generate. So we certainly I'm seeing no particular stress. Speaker 200:46:39And as you can see from our results over many quarters, our business in Europe has been performing Consistently and consistently well. Speaker 400:46:50Thank you. The 2021 pool of U. S. Americas It's where you've taken the biggest write down and I think you actually even had maybe a hair of an improvement in the collections multiple there. Are you comfortable with that pool now, because in the past whenever you've had a pool in this industry, it generally You generally get follow-up marks, but it seems like you actually took a little bit of a positive mark there. Speaker 400:47:18Is that pull when is that pull shrinks, Your return should go up, but anything any commentary on that specifically? Speaker 200:47:28I think we've talked about that in the past, Bob. It's a fair question just given the sort of issues we had with that vintage We reported out in the Q1. In terms of the performance on the call center, That's moving along to expectations. As we've talked about, we have ramped up our legal activities against that vintage, and that just comes So with a slight lag in terms of when it starts taking effect. So at this point in time, we feel that we're in pretty good shape With that vintage and we're tracking it. Speaker 200:48:06And these initiatives that we've got underway are cutting across Every vintage of our business and we should see that impacting the 2021 vintage over time As we get through 2024 as well. Speaker 300:48:22Yes. And if I could just add to that, just To round it out, right, it's revenue recognition you're asking about CECL, right, under those rules, it's our best estimate With respect to our expectation for the cash flows and what you're going to see is variability quarter to quarter. But I think what Encourages us is that over the long term, we have always experienced in a modest outperformance versus Where we originated and as you can see that particular vintage in a quarter to date, we're seeing some positives. So and then the second is also just around the initiatives that Vic mentioned. We're starting to Really focusing on that and we should start seeing a better performance coming out of that vintage as these initiatives take hold. Speaker 400:49:19Thank you. If I could squeeze one last one in, you had mentioned last quarter outsourcing, offshoring as part of your VIC strategies. Any Updated commentary on offshoring or outsourcing. Speaker 200:49:33Yes. So I think I Good question, Bob. Thank you. So I look at outsourcing in 2 ways. 1 is leveraging Local players in the U. Speaker 200:49:46S. Market to bolster and accelerate activities that we want to do and that's it. We Have actually expanded our sort of engagement levels with some third parties, particularly on the legal front, To bolster and accelerate our activities there, that's U. S.-based. And then in offshoring, We piloted a couple of programs in the Q2 into the Q3. Speaker 200:50:16And now in the Q4, we're rolling out programs with a couple of parties and we're in pilot mode with other parties with regard to leveraging lower cost location. And I think the sense is that over the next 6 to 9 months, we will Validate and at this point in time, we fully expect that there will be positive validation. We will validate that these relationships are working to expectations, Meeting up thresholds and at that point in time, we will have a discussion internally as to whether we scale them up and at what level. So Based on the last 3, 4 months of activity, we are very encouraged by what we've accomplished. And As you might recognize, we've been moving at rapid fire speed on this stuff to get it done so quickly. Speaker 400:51:10Thank you. Operator00:51:16The next question is a follow-up from David Scharf of JMP. Please go ahead. Speaker 500:51:22Great. Thanks for squeezing me in again. Maybe just a Couple to end here. Hey, one Rakesh, just a quick maybe update on Status of kind of loan covenants, I'm assuming there is nothing to report, but I know there was kind of a unique situation in Q1 where the company I had to seek a one off covenant relief on the operating income thing. Is there anything else in your Bank facilities, whether it's restricted payments or coverage ratios or definitional changes We Speaker 200:52:01ought to Speaker 500:52:01be aware of or is everything pretty much status quo since that Q1 event? Speaker 300:52:06Yes, I would just say status quo, right? The Q1 event was NOI and as you could see, our income from operations positive. So no changes there, David. Speaker 500:52:17Got it. That's what I thought. And then one last one, circling back to kind of the purchasing Outlook and Supply, Speaker 300:52:28it seems like the last Speaker 500:52:29few years Pointing through the queue. The concentration of the company's purchases in private label seems to have gotten larger and larger relative to Over the last 3, 5, 10 years. And instinctively, I think it's kind of harder to collect from lower balance accounts. As you look at kind of your flow deals and just the overall increase in supply, a lot of people are used to thinking more in terms of the general purpose Asset class versus private label, is your mix changing? Are you engaging with more private general purpose auctions? Speaker 500:53:09And should that matter to us? Or am I overthinking this? Speaker 200:53:15I actually I'm just looking at some data here. I'm not sure What you're tracking to, David, but in our Q, we report out the mix Of the portfolios between the major credit cards and private label and actually private label as a percent Of our purchases has actually declined versus a year ago. But I would also say that like the whole notion of private label versus major credit cards has got So a little bit distorted out of our time because it's a question of really if you're talking about average balances And thinking that what is the collectability across average balances, we are not seeing a change, material change In the average balances that we're collecting on, right? And in fact, one way that that comes up is in what percent of our accounts Those that we might target, if necessary for legal coverage and that hasn't really changed out over time, right. Speaker 500:54:20Got it. Very helpful. Thanks so much. Speaker 300:54:24Thanks. Operator00:54:28The next question is a follow-up from Mark Hughes of Drew with. Please go ahead. Speaker 600:54:34Yes, thanks. Rakesh, what is The factor that drives the $1,100,000,000 in availability, I think you said subject covenants and advance rates. Could you just Maybe expand on that. Is that available? Under what circumstances is it available? Speaker 300:54:54Yes, sure. So look, we have committed capital of $3,100,000,000 Mark, and we borrowed Certain amounts under the credit facilities. And so that $1,100,000,000 that I was mentioning is something that we can draw on Subject to the advance rates that we have in those facilities as we purchase more ERC. So our advance rates that we've disclosed range anywhere from 35% to 55%. And so we can as we acquire more ERC, we can draw down on that debt available to us to fund our purchases. Speaker 600:55:39Okay. Very good. And then did you give a number when you gave the $841,000,000 to replace the runoff? Could you give the associated number what you do forecast for runoff over the next 12 months? Speaker 300:55:54Yes. So you're talking about the dollars of ERC running off, that's the 1,500,000,000 Speaker 600:56:02Okay. And then you're saying that the purchases in order to replace that, you need $841,000,000 correct? Speaker 300:56:10Correct. And we're just looking at the multiples that we are seeing in 23. Exactly. Speaker 600:56:17Yes. Okay, great. Thank you very much. Speaker 300:56:21Thank you. Thank you. Operator00:56:26This concludes our question and answer session. I would like to turn the conference back over to Vikram Alta for any closing remarks. Speaker 200:56:35Thank you everyone for joining us this afternoon and we appreciate further input and feedback over the next several Weeks and months. Thank you. Operator00:56:47The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.Read morePowered by