PRA Group Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 7, 2023

There are 8 speakers on the call.

Operator

Afternoon, and welcome to the PRA Group's 2nd Quarter 2023 Conference Call. After today's presentation, there will be an opportunity to ask Please note this event is being recorded. I would now like to turn the conference over to Mr. Najim Mostamand, Vice President of Investor Relations for PRA Group. Please go ahead.

Speaker 1

Thank you, operator. Good evening, everyone, and thank you for joining us. With me today are Vik Patel, President and Chief Executive Officer and Pete Graham, 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. We assume no obligation to revise or update these statements.

Speaker 1

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 in the earnings press release. All comparisons mentioned today will be between Q2 2023 in Q2 2022, unless otherwise noted, and our Americas results include Australia.

Speaker 1

During our call, we will discuss adjusted EBITDA and debt to adjusted EBITDA for the 12 months ended June 30, 2023 and December 31, 2022. Please refer to today's earnings release and the appendix of the slide presentation used during this call for a reconciliation of the most directly comparable U. S. GAAP financial measures to these non GAAP financial measures. And with that, I'd now like to turn the call over to Vik Atal, our President and Chief Executive Officer.

Speaker 2

Thank you, Najim, and thank you everyone for joining us this evening. It has been a pleasure these past few months connecting with many of you at The various conferences and meetings we attended, and I have been looking forward to sharing an update on our recent performance and business outlook. Having completed the 1st 100 days of my tenure, it is appropriate that I spend a few minutes reflecting on the perspective I have gathered during this period First, our people. It may be viewed as a cliche to have an incoming CEO extol the virtues of his team, But I do so nonetheless and in full sincerity based on my assessment of their capabilities and strength. Most of you are familiar with our long standing CFO, Pete Graham and the team that he leads.

Speaker 2

However, our talent extends beyond Pete To encompass individuals in every function and geography and across all levels of the organization. I believe that their intellect, domain knowledge and pride in their work are second to none and I have full confidence in their ability to drive PRA success. Next, our European business. This past month, I visited our European operations and not only had the opportunity to connect with our team, But also engage with banks and top sellers in meaningful conversations about our business. Europe now represents over 50% of our ERC.

Speaker 2

And while the UK remains our largest market presence in the region, We have established broad diversification across the continent. Over the years, we have invested considerable effort to build relationships with sellers and other stakeholders along with a focus on enhancing core capabilities such as digital. These efforts have paid off with broad investment opportunity across the region and a compelling track record on revenue growth and expense efficiency. Furthermore, we exercised significant restraint in recent years as pricing became irrational in certain markets. We believe the diversification provided through our European business Is a key differentiator for us versus most industry peers and we will be looking to build on the success while maintaining operational and pricing discipline.

Speaker 2

3rd, The growing portfolio supply. Consistent with the messaging from consumer lenders and credit card industry statistics, We are seeing increased inventory being made available for sale in the U. S. Global portfolio purchases are up 47% for the 1st 6 months of 2023 versus the year ago period. While we continue to anticipate seeing increased supply, We don't expect this level of year over year growth to sustain.

Speaker 2

Of note, within the U. S, We are not only benefiting from the increases in market supply, but are also anticipating opportunities To extend the set of seller relationships to supplement baseline trends. In contrast to recent trends, Pricing is also improving across all of our markets as we renew forward flows and enter into spot transactions. We believe we have now entered an inflection point in the cycle that is translating to portfolios being purchased at higher returns. 4th, our U.

Speaker 2

S. Business. It is undeniable that it is not performing to our expectations. Notwithstanding the references we made in previous quarters of our collection shortfalls on recent vintages, Our track record on underwriting purchases extends back over 2 decades and is excellent. We have, however, underinvested in the processes and capabilities required to optimize cash generation from the portfolios we own.

Speaker 2

Over time, this gap has expanded and coupled with the lower volume of available Supply in recent years contributed to the reduced levels of profitability in this portion of our overall business. Optimizing our U. S. Business is therefore key to our success both in the long and the short term. I shared a slide similar to this at the William Blair Conference earlier this summer, And I now wanted to briefly provide an update on this important initiative.

Speaker 2

It is essential that we generate more cash from our existing portfolio. To accomplish this, we are examining our end to end core processes with the goal of enhancing efficiencies, driving revenues and optimizing results. To expand our outsourcing and offshoring capabilities. We are also beginning to rationalize the capacity of our U. S.

Speaker 2

Collection sites With the announced closure of 1 of our sites last month, these developments in and of themselves Not yet at a scale to impact the business with us, but I mentioned them here as an indication of the speed, decisiveness an open ended approach we are taking to address the underlying issues. In parallel, We are optimizing a range of customer interactions and revenue generating activities, including legal processes. This brings me to the 5th and final theme of my opening remarks, which is creating shareholder value. It is important to note that while the changes and initiatives referred to above are being implemented with urgency, We anticipate that it will take at least several quarters for that effect to flow through and influence our results. Ultimately, we believe the steps we are taking today are laying the foundation for a stronger, profitable and higher performing PRA.

Speaker 2

And with that, I'd now like to turn things over to Pete to go through investments and the financial results in more detail.

Speaker 3

Thanks, Vic. Looking at our investments this quarter, we purchased $328,000,000 of portfolios, Which represents a record for a second quarter in company history and is the highest quarterly investment since the Q3 of 2021. Up 42% year over year, this level of investment was driven by building flow volumes and a number of large spot transactions in the U. S. And Europe.

Speaker 3

Importantly, this record level of investment was achieved even as pricing improved. I'll talk more about that in a minute. In the Americas, we invested $184,000,000 which represented a sequential increase in purchases for the 5th consecutive quarter. The underlying U. S.

Speaker 3

Market is improving steadily. Volumes and pricing continued to improve during the quarter as we increased our U. S. Investment level for the 3rd consecutive quarter. The significant driver of this was the increased number and size of spot transactions we We were able to close during the quarter.

Speaker 3

While the U. S. Is predominantly a forward flow market, we experienced higher proportion of spot transactions than usual in the Q2. Historically, we've seen this happen when charge off volume is increasing. As sellers experience volumes that exceed committed flows, they will bring spot transactions to market.

Speaker 3

In our existing forward flows of FreshPaper, we once again experienced a sequential increase in volume from the prior quarter. Looking at publicly available economic data that we regularly share, active credit card balances, delinquency rates and charge off rates are all continuing to climb. And based on this data and our experience, we believe that these metrics will trend even higher. Given our seller interactions and the data sources we track, we expect increasing supply with pricing and returns continuing to improve and continues to provide healthy investment volumes. During the quarter, we invested $144,000,000 across 8 markets with meaningful purchases in Northern Europe, demonstrating the continued strength and diversity of our European operations.

Speaker 3

As a reminder, the 2nd and 4th quarters have historically been our strongest purchasing quarters in Europe. The rising cost of capital is clearly impacting the market. Pricing has improved and has been more consistent across markets. And in contrast to last quarter, when sellers were pulling deals for low pricing, it appears they are now starting to accept the lower prices. Some European competitors are continuing to struggle with high debt balances and increased funding costs and are reducing portfolio investment in attempting to sell parts of their book in order to delever.

Speaker 3

As supply builds, especially in the U. S, we will continue to practice prudent capital deployment with a firm discipline on pricing. Moving on to the financials. Total revenues were $209,000,000 for the quarter. Total portfolio revenue was $205,000,000 with portfolio income of $184,000,000 and changes in expected recoveries of $21,000,000 During the quarter, we collected $25,000,000 in excess of our expected recoveries.

Speaker 3

Exceeding our expectations on a consolidated level by 6%, with the Americas over performing by 2% In Europe, overperforming by 11%. The overperformance in Europe was mainly due to larger than expected one time payments and a catch up in legal collections due to the resolution of the court strikes in Spain. Operating expenses for the 2nd quarter For $164,000,000 an $11,000,000 decrease driven primarily by lower compensation and employee services in lower outside fees and services. The decrease in compensation and employee services was due to lower compensation accruals and healthcare expenses compared to the prior year. After normalizing for recent volatility and anticipating an increase in variable costs associated with higher investment levels, We expect the compensation expense in the Q3 to be in the mid-seventy million dollars range.

Speaker 3

Our legal collection costs were $22,000,000 for the quarter, with the year over year increase being driven by a higher volume of accounts placed into the legal channel. As a reminder, there's a timing lag when we invest in our legal channel. Typically, there's an upfront cost paid to the courts when a lawsuit is filed, which is then followed several months later by cash collections starting to build. We expect legal collection costs for the Q3 to remain consistent with the Q2 and approach the mid-twenty $1,000,000 range by Q4. Primarily due to the higher corporate legal expenses in the Q2 of last year.

Speaker 3

Net interest expense for the Q2 was $43,000,000 An increase of $11,000,000 primarily reflecting increased interest rates and higher debt balances. It should be noted that our net interest expense in the quarter was reduced by $4,000,000 in interest income, The majority of which came from investments in cash held to retire our convertible notes on June 1, which will not recur in the future. For the Q3, we expect our interest expense will approach $50,000,000 Our effective tax rate for the quarter was 58%, with the increase primarily due to timing of discrete items. However, looking at the full year, we expect an effective tax rate in the mid-twenty percent range. Net loss attributable to PRA was $4,000,000 or negative $0.10 in diluted earnings per share.

Speaker 3

Cash collections for the quarter were $419,000,000 compared to $444,000,000 in the Q2 of 2022. Lower collections in the Americas were partially offset by higher collections in Europe. For the 6 months ended June 30, we are 1% above our ERC projections made last December, with 5% over performance in Europe and 2% underperformance in the Americas. For the quarter, America's cash collections were $247,000,000 a decrease of $31,000,000 or $30,000,000 on a currency adjusted basis, driven primarily by the impact of lower levels of portfolio purchasing in the U. S.

Speaker 3

Over the last few years. Despite this, collections in the Americas modestly exceeded our internal expectations for the quarter. European cash collections for the quarter increased 4% or 5% on a currency adjusted basis. This represents over performance of approximately 11% compared to our internal expectations. Our cash efficiency ratio was 61.2% for the Q2, which is consistent with the prior year period.

Speaker 3

The 2nd quarter generally has a higher cash efficiency ratio because of favorable cash collection seasonality in European countries, where we have a lower cost to collect. We still expect to achieve a cash efficiency ratio approaching 60% on a quarterly run rate basis by the Q4 of 2023. ERC at June 30 was $5,900,000,000 with 54% in Europe and 36% in the U. S. This represents an increase of more than $200,000,000 compared to the prior quarter as our strong purchasing in the quarter helped us grow ERC.

Speaker 3

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 expect to collect from new purchases made. Based on the average purchase price multiples we've recorded in 2023, we would need to invest approximately $843,000,000 globally over the same timeframe to replace this runoff and maintain current ERC levels. With the continued build in U. S.

Speaker 3

Supply and improved pricing, We anticipate we will exceed this level of investment and grow ERC further as we close this year and move into 2024. We have a strong and conservative capital structure with ample capacity in the markets where we invest. At the end of the quarter, we had $1,400,000,000 of undrawn capacity committed under our credit facilities, $332,000,000 of which was available to borrow after considering borrowing base restrictions. Additionally, In the last 12 months, we generated $1,000,000,000 of adjusted EBITDA.

Speaker 4

Now I'll

Speaker 3

turn things back to Vik.

Speaker 2

Thanks, Pete. Quarter 2 was an important and positive step in the right direction as we look to return to profitability and further capitalize on the consumer credit cycle. I am especially encouraged to see strong purchasing and ERC growing again, But I also recognize that our work has just begun. We have plenty of opportunities to build on our strong foundation, And we remain focused on the strategic objectives and initiatives I shared earlier, especially as it relates to optimizing business processes and our cash generation potential. The early signs of progress are here, and we look forward to driving organic growth, stronger returns and increasing shareholder value over time.

Speaker 2

It won't happen overnight and it may not always unfold in a straight line, But I am more than encouraged by where we are heading and the opportunities that lie ahead. Thank you again for joining us and for your continued support of PRA. Operator, we are now ready for questions.

Operator

We will now begin the question and answer session. The first question today comes from David Sharp with JMP Securities. Please go ahead.

Speaker 5

Hi, good afternoon. Thanks for taking my questions. Vic, I'll let others Kind of dig into the numbers and questions about the collection environment. But I was Curious, I wanted to ask you to follow-up a little bit on a couple of things you mentioned in your opening remarks. And the first Related to expanding seller relationships, are you primarily talking about adding more card issuing banks in the U.

Speaker 5

S. Or banks in Europe or are assist for credit card receivables or are you envisioning expanding the number of asset classes that PRA is involved in?

Speaker 2

At this point in time, David, we are focused on our core business and we're expanding or looking to expand Our market access within our core business without expanding into new asset classes.

Speaker 5

Got it. And within the U. S, I know it's been over a decade now since some of the largest card issuers have exited the debt sale market. It is implied by that comment that Your understanding is that they may be looking to reenter. And this is obviously

Speaker 2

No, I think My sense is that those that have stayed away from the market for a decade unlikely to be reentering the market in the near term. That's our sense of the market. But assist I'm not in a position to know what their thoughts might be on that topic, right?

Speaker 5

Got it. Yes, no, our understanding as well. Assistance So it sounds like your comments about expanding seller relationships relate to other existing issuers. And then as a follow-up, can you just clarify, I know you've mentioned it in the past, but I apologize for asking assistance Your references to outsourcing and offshoring, is that a reference to actual Collection activities, working with collection agencies, 3rd party agencies or is this a broad commentary about Expenses throughout the organization.

Speaker 2

It's a I don't want to get ahead of myself because we're in discussions with a lot of parties, David, on different processes. But it's a broad commentary, as I mentioned, and I just want to reemphasize. We're looking at our end to end processes, and I've defined processes broadly, to explore what option is Across the entire envelope, there would be for us to leverage capabilities, flexibility, including costs, right?

Speaker 5

Got it. Great. Thanks very much.

Speaker 2

Thank you.

Operator

The next question comes from Bob Napoli with William Blair. Please go ahead.

Speaker 6

Thank you. Good afternoon, Vikram and Pete. So I guess, maybe just there's a lot to dig into on the numbers. Just the change in expected recoveries, the 2021 pool is like where there's a lot of focus obviously. And And I think it's that year is underperforming not just for you, but for others as well, but maybe more so For PRA, the change in expected recoveries to change was a negative $15,000,000 this quarter, negative $37,000,000 last quarter.

Speaker 6

Is that pull is it To the point where you're turning the corner on that book of business, if you would, Such that and I think maybe a bigger picture, would you expect to be able to return to profitability on a sustained basis in the back half of this year?

Speaker 3

Yes. I would say with regard to 2021, vintage, we've implemented some additional strategies around The underperformance we've seen in that vintage, but things like legal will take some period of time before they start To manifest themselves. So I'd say we're kind of early in the cycle on clawing back cash on the 2021 vintage. Again, we're on a glide path here. We took some pretty significant adjustments to the curves In the Q1, less so this quarter and we'll see where we go from here.

Speaker 3

We do our best each quarter to get the curves right. And that's about all I can say at this point in terms of forward looking guidance.

Speaker 6

Okay. And just maybe for Vikram, and this is like a big picture question as well. What should be the right return levels for I don't know if you think about it in return on equity, like over the long term, where should this company be earning? What do you would you a

Speaker 2

I don't believe Bob that we've sort of discussed or shared that information With The Street, right. So I wouldn't want to be going there on this conversation now, right. Clearly, we're not where we need to When we're not delivering profitability, so that's our that's my primary focus at this point in time is to get us back to a profitable situation.

Speaker 6

Thank you. And maybe just last question. You talked about European Competitors looking to sell books, I mean, I would imagine that you're looking at those. Are there opportunities that you to execute on in Europe in the back half of this year as it relates to other companies selling their current portfolios?

Speaker 3

Yes. That wasn't necessarily intended to signal any pending transactions by us, but just more an indication of stress in the marketplace In Europe, and that's having more of an impact on pricing of deals, Less aggressive behavior by some competitors and market pricing Adjusting to reflect increased cost of funds for everybody.

Speaker 6

Thank you.

Operator

Next question comes from Mark Hughes with Truist. Please go ahead.

Speaker 4

Yes. Thank you. Good afternoon. Does the forward curve Assume some improvement in your U. S.

Speaker 4

Processes. Do you need some outsourcing offshoring in order to hit the curves or will that be upside if you're successful?

Speaker 3

In terms of the offshoring, outsourcing commentary, that's really more a cost Thing at this point than overall cash generation, we do have Some assumption in our curves of the initiatives that we've taken to start recouping value in that particular vintage occurring in the future.

Speaker 4

How much was the your 11% Over performance in Europe, can you say how much of that was the court system in Spain? And is that kind of a one time thing? Or is that will that flow through subsequent quarters?

Speaker 3

I think largely the Spanish thing was a catch up. It was probably the smaller piece of the over performance versus Yes, some seasonality and one time large payments in the Nordics and Poland.

Speaker 4

I think, Vic, you had alluded to the fact that we're not going to see this level of increase in coming quarters on purchasing. Would it make sense to hold off, wait till balances the supply demand imbalance becomes presumably even more favorable in subsequent What was the thinking in terms of kind of pushing ahead this quarter when it sounds like you think things should be getting better?

Speaker 2

We're evaluating we see a lot of transactions. We're evaluating Transactions almost on a daily basis with the volume we're seeing now, and we're being very disciplined About what pricing would be acceptable to us to ensure that it covers all of our costs and the potential increases in interest rates, etcetera. So we'll keep looking at it. We were just trying to signal in that commentary not to do the simple math and necessarily assume that We're going to be up around 50% from last year, but time will tell us to exactly where the business ends up for this year.

Speaker 3

And I'd say also Mark, you've covered us for a long time. You know that pricing And price discovery is important for us. So we'll continue to use the same discipline that we always do to sort of test into Pricing as the market continues to evolve. We're doing that on bids a Every week, every month as we move through this part of the cycle.

Speaker 4

I guess you discovered you're winning more than you might have Bob, perhaps.

Speaker 3

Yes. We don't want to win every bit. That's for certain in this type of an environment.

Speaker 4

Yes. And final question in Europe and the core, it looks like the collections multiple for the 6 months is down a little bit to 1 165%, I think it's down few basis points sequentially. Anything going on there?

Speaker 3

That's just mix of different price multiple or gross purchase price multiples in different countries and different cost to collect Of the business there, it's a normal sort of dynamic in Europe.

Speaker 4

Would you say the pricing is better in 2Q than in 1Q?

Speaker 3

Yes.

Speaker 4

Good. Okay. Thank you very much.

Operator

The next question comes from Robert Dodd with Raymond James. Please go ahead.

Speaker 7

Hi, everybody. On the outsourcing and Offshoring, again, I think you mentioned more efforts on cost and efficiency. But obviously, with some of the bank relationships in the past, There's been some resistance to outsourcing or offshoring particularly in some relationships, not necessarily yours. Have you approached any of your bigger clients and had any preliminary discussions about whether they'd actually be open to off Assuring as a component of the collection process rather than just the efficiency process per se or is that just not something that you're going to leave up to them or discuss with them in advance.

Speaker 2

Anything we're doing is obviously any action we're taking is Completely in conformity with our existing contractual processes and connections with them. And I think just to reiterate this whole notion of Offshoring and outsourcing is not just on collections and voice, but we have enormous amounts of As a company, right, enormous amount of data management that we need to do at every level of processes from the starting of the relationship to executing it. So we're looking at as I just we're looking at voice, we're looking at data, we're looking at all of the optionality that we have. And Over the next several months, we hope to be able to make decisions around that, that would be helpful. But all of it would be in conformity with our contracts, and We don't believe at this time that we need to open up conversations with our seller relationships to get any variance from them on their existing protocols.

Speaker 7

Got it. Thank you. And I scribbled something now. Me? On the comp for Q3, did you say kind of mid-70s up from like mid-60s?

Speaker 7

Could you Or did I write that down wrong? And if that is the case, can you kind of give us any color on the big driver? Obviously, mid-70s isn't It could be high compared to well off last year, but it would be a big change from Q2.

Speaker 3

Yes. Again, you heard me right. I'd Signaled that mid-70s for compensation for the Q3. Again, we're we've had some volatility in that line item over Last quarter and this quarter, some one time things in terms of timing of different accruals and the like, from quarter to quarter based on claim experience. So that mid-70s is our best view of What Q3 is going to look like?

Speaker 7

Got it. Thank you.

Operator

The next question comes from Bob Napoli with William Blair. Please go ahead.

Speaker 6

Thank you for the follow-up. Just Can you give some color on the mix of forward flows that maybe at historical higher prices versus The better pricing, the higher IRRs that you're getting in today's market?

Speaker 3

Just Broadly, we as we go through this year, Because of this the way that forward flows are staggered in terms of their renewal dates, we will gradually blend into to the more current pricing environment and the older flow bids will roll off. We've also begun to look at optionality on some of those existing flows Where returns might not be commensurate with current market pricing and evaluating options for what to do there as well.

Speaker 6

Great. Thank you. And then, Vic, just from an operating perspective, I know you've talked about areas of Under investment and I know we've talked about that before. Can maybe just give an update on versus not just assistance, but just overall where the underinvestment has been and where you see the biggest opportunities to make improvements?

Speaker 2

Look, I think I look at it similar to what we've all experienced as consumers, Bob, where the world has changed and over the last 10 or 15 years in terms of the infrastructure, the capabilities that exist outside, how do we bring that level of thinking and investment into the company, right? So we're looking at our core operating platforms, we're looking at the supporting infrastructure, We're looking at the efficient management of data. We're looking at policies and procedures that are updated to reflect Both customer needs and customer expectations and this is a sort of a broad exercise that For a variety of reasons, the company did not fully do over the last several years. They were running a lot of other things really well. Like I mentioned, Our underwriting processes are terrific, right, really exceptional.

Speaker 2

But there were other things that might have been done in years past that were not. And so We're looking at all of that and we will over time, time will determine the value that we can create from that, We're encouraged by the early start.

Speaker 4

Thank you.

Operator

The next question comes from David Scharf with JMP Securities. Please go ahead.

Speaker 5

Thanks for allowing the follow ups. Taking a step back, I'm wondering, last quarter, there seemed to be more discussion about just the state of the U. S. Consumer, the macro backdrop, A weaker tax refund season and so forth. I mean setting aside the variances to forecast, Are you telegraphing any different near term outlook on collectability in the collection environment or the comments from last quarter pretty much hold steady?

Speaker 3

No, I think the we had done a lot of communication around our interpretation of the various Data publications by the Fed and others just trying to broadcast kind of where we thought we were in the cycle. I think That data, nothing's really changed there. And I think we continue to see the migration in delinquency and Charge off metrics and on balance, that's a good thing for us in terms of Increased supply and more favorable pricing dynamics. So the fact that we didn't go into lots of a listen only mode. Should you

Speaker 5

need a detail on

Speaker 3

that on the more economic statistics isn't an indicator of anything other than we thought we had made that point In prior quarters and didn't need to keep beating that drum.

Speaker 5

Got it, got it. I appreciate it. And maybe one last question. This isn't meant to pin you down in any kind of forward guidance, but within the I'm trying to understand sort of The margin structure that ultimately you hope to achieve with a lot of the cost efficiencies, outsourcing, Rationalization, I mean if we think about your guidance of exiting the year at about a 60 cash efficiency ratio. And then looking at the abnormal 2021 Pandemic stimulus driven 65% ratio is maybe a ceiling.

Speaker 5

I mean, do you ultimately after all of these operational moves, do you think that this is a business that can operate closer Do you think that this is a business that could operate closer to that 65% in a normal environment? Or Is this all kind of meant to sort of stabilize things at a predictable 60%, 61% level?

Speaker 3

No, I think our goal is to be 65% and potentially beyond that in years to come. And I think Given the focus that we have on efficiency and the impact that some of these Opportunities could present for us. I think that's imminently doable.

Speaker 5

Got it. Very helpful. Thanks, Pete.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Vik Patel for any closing remarks.

Speaker 2

Thank you everybody for joining us today and really truly appreciate your support of PRA. Thank you.

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Key Takeaways

  • Leadership perspective: After his first 100 days, CEO Vik Patel highlighted PRA’s deep bench of talent and the strength of its European business, which now represents over 50% of the company’s ERC and benefits from diversified markets and disciplined pricing.
  • Rising portfolio supply: Global purchases rose 47% in H1 2023 versus a year ago, with improved pricing across all markets as PRA enters an inflection point in returns on new deals.
  • US operations optimization: Acknowledging underperformance, the company has launched an end-to-end review of collection processes, including outsourcing/offshoring and site rationalizations, to boost cash generation from existing portfolios.
  • Record investments: Q2 portfolio purchases reached $328 million (up 42% y/y), the highest second-quarter total in company history, driven by stronger flow volumes and large spot transactions in both the Americas and Europe.
  • Financial results: Q2 revenues were $209 million with a net loss of $4 million (–$0.10 EPS); cash collections were $419 million and ERC grew to $5.9 billion (54% Europe), as PRA targets a ~60% cash efficiency ratio by Q4 2023.
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Earnings Conference Call
PRA Group Q2 2023
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