Earnings call transcript Q2 2023

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Operator

Good afternoon and welcome to the PRA Group's Second Quarter 2023 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mr. of for President Group. Vice Mostamand, Investor PRA Relations Najim Please go ahead.

Najim Mostamand

Chief Good operator. are thank and Officer. Pete evening, Chief you President you, Executive Vik Officer; Vice Graham, for President today and Financial me everyone, Thank and and With joining Atal, Executive us.

are management's assume statements. make will statements no materially factors assumptions these revise update these on obligation caution uncertainties, during projections, listeners assumptions forward-looking which are our the from our to to We beliefs, call, and We and that could statements expectations. that differ based actual forward-looking risks, current subject expectations. We or to results other cause

the to detailed found we our will slide filings earnings the and website and release use for during refer today's www.pragroup.com. discussion our SEC be factors. a these section all call filings can SEC Relations of at release, presentation Please of our in that press earnings Investor the The

its available results of replay earnings All a Additionally, will Americas included comparisons unless in XXXX QX otherwise mentioned our information be press XXXX, after this the and noted, the release. and today Australia. will be replay dial-in QX is between include shortly conclusion, call and

appendix to reconciliation discuss for will GAAP these the our call call, US the debt-to-adjusted most XXXX, the EBITDA slide measures for months this EBITDA During we presentation the measures. during a ended December XXXX. of non-GAAP adjusted earnings directly Please and today's financial release and XXst, XX used and XXth, June of comparable financial refer to

and our over now to And the Atal, turn Officer. Executive I'd call with that, Chief President like to Vik

Vikram Atal

joining a you these attended and and and months business with sharing past pleasure has evening. forward outlook. of I on conferences thank It to this recent an Najim, we us you, many looking our meetings been have you, update performance various few connecting everyone, the and at for Thank been

appropriate discussing prior XXX My grouped the that it days for have period, minutes quarter. results of into I spend financial my I the few is broad to reflecting on our tenure, are a five this themes. perspective completed first remarks the Having during gathered

First, virtues CEO, team, their do be based in of his may full a but an the so extol It our on cliche viewed my incoming of nonetheless have strength. I to capabilities people. and as sincerity and assessment

with of our Pete long CFO, leads. and you he Graham, that familiar are the standing Most team

in and However, our of talent the individuals extends all geography across Pete beyond every and organization. levels encompass to function

I ability work and believe that confidence I PRA's none, in pride success. full their intellect, are their domain knowledge second in have to their and to drive

business. only month our connect Next also engage our about our the sellers operations with European in with business. top to meaningful This and European conversations our not team, had visited and past but I banks opportunity

while UK Europe have now diversification represents we continent. ERC. our over And across our remains XX% broad established largest in the market presence of region, the the

on as we Over and effort such the stakeholders, sellers invested years, have core along to with capabilities build focus with a digital. relationships considerable enhancing other

a and we irrational paid certain off investment restraint in markets. efficiency. on years broad These opportunity region track recent the growth compelling became Furthermore, pricing expense and efforts in have as with significant record across revenue exercise

for maintaining to build us We operational looking this key the through business diversification be peers will while a European and discipline. provided and believe is most pricing our differentiator we versus on industry success

the sale with credit portfolio consumer statistics, supply. from growing made available lenders US. increased card Consistent for are messaging in seeing of the inventory being industry Third, we the and

are Global portfolio first the up period. for purchases year six months of XXXX XX% ago the versus

to within sustain. but not level increases only of extend from relationships we US to supply, anticipating of trends. growth year-over-year market the to continue baseline note supply, Of set the benefiting in we opportunities don't supplement are While increased the this to anticipate seller we seeing are expect also

forward is enter purchased to markets point pricing recent all also believe in performing translating of business. renew portfolios we our that as contrast is our higher an now is to trends, our the into across and that cycle at we returns. spot it is being inflection undeniable have flows Fourth, improving to entered It In transactions. We US not expectations.

vintages, we record track back decades is of over shortfalls previous two extends Notwithstanding quarters references collection the in underwriting excellent. our purchases made our on on and recent

optimise processes generation and the the from have, we however, We capabilities to own. portfolios cash underinvested in required

this this levels coupled expanded reduced years, the and of time, contributed business our both the profitability success supply available overall has Optimizing in recent our the to gap to our short-term. is long Over US in portion of of the therefore in and with lower business. volume key

I initiative. shared provide to Blair similar this a I at that conference update our examining briefly is the generate this processes is earlier important It driving and from this, William with summer, and results. accomplish existing efficiencies, To to enhancing on now we of underway. this end-to-end slide more optimizing This the cash an work our wanted goal already we revenues essential core are portfolio.

select And, our and expand we capabilities. outsourcing parties in as are offshoring examples, advanced third discussions with to

We are our our capacity to also sites beginning last with the of closure of sites announced rationalize of collection US the one month.

the underlying at we as decisiveness business and the speed, them indication not and of scale address ended yet taking But an to issues. here are themselves results. the of I to mention These in impact open developments a are approach

which shareholder legal are customer me including the is of brings and In theme interactions parallel activities, a of optimizing generating fifth creating opening and value. final we revenue to processes. This range my remarks,

referred to we foundation anticipate initiatives flow least a are their to We stronger, will believe it important several the profitable quarters for above influence PRA. urgency. and the we results. that are effect that with changes our higher implemented take taking steps and are the being for at It laying through and Ultimately, to is today note while performing

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

Pete Graham

Vik. Thanks,

portfolios, quarter of we record XXXX. quarter, a of this investment and quarter a for third million the is quarterly investments which company highest our $XXX in the since second represents history purchased at Looking

this level Up of US building and large XX% the a Europe. in over volumes number year was driven of flow by and spot investment transactions year,

Importantly, talk level in improved. more about investment as was this record achieved minute. I'll that even pricing a of

In as the third the US to and we the Americas, continued market invested $XXX purchases investment consecutive Volumes underlying The for represented fifth level increased US steadily. which million, for sequential during pricing consecutive our in improve quarter we increase quarter. quarter. the is improving a

the increased were we spot The of number size significant able was of driver transactions and the close this during to quarter.

experienced spot transactions predominantly is proportion forward the of usual second in market, we a US higher flow a the than While quarter.

committed volume seen is again off transactions flows, In in Historically when this we sequential volumes prior happen our a they forward flows existing volume experience will once experienced to increase as sellers of spot paper, bring quarter. we've from market. that charge fresh exceed the increasing

balances, Looking are and continuing at off economic data all to publicly rates credit that climb. available delinquency we rates active share, charge card regularly

based and on these data experience, higher. metrics this even And our will we that trend believe

year expect sources continuing move Given pricing the our of we and we the this XXXX. into improve and to increasing track, with supply through interactions as stellar returns rest we and data

provide volumes. The and healthy to continues European market robust investment remains

we continued our strength eight European $XXX purchases and million the quarter, During operations. the demonstrating across meaningful diversity in markets Europe, of with invested Northern

quarter are our purchasing of And sellers second the in Pricing rising were The when the historically capital reminder, a and improved fourth prices. last quarters is the accept have strongest quarters market. now Europe. contrast consistent been to they has low has been pricing, in markets. appears lower clearly to deals As for more cost impacting it pulling starting and across

Some to are sell in portfolio are and balances order parts debt and deliver. attempting competitors funding continuing high costs of with their European and investment to to struggle reducing increased book

on deployment As supply to firm in especially pricing. practice a capital prudent will we the continue with builds, discipline US,

million Moving financials. the quarter. were onto Total the $XXX revenues for

revenue was portfolio changes $XXX with million and portfolio Total in of million. income of recoveries $XXX $XX expected million

$XX with and XX%. exceeding consolidated on During by by Europe of recoveries, our expected Americas by overperforming X% excess million our we collected the the overperforming X%, expectations in a level quarter,

and in The for $XXX strikes and compared employee compensation in decrease, million second by overperformance the mainly expenses and of services million, compensation larger primarily the to care time services resolution was a services. Europe the and in expected collections were to in to catch to $XX an Operating compensation Spain. court legal lower expenses accruals than lower one employee quarter up was lower prior due payments health outside driven due year. decrease due fees The and and the

million costs normalizing an expect third the anticipating mid recent the for increase with range. compensation investment in associated volatility After expense quarter in $XX in we in levels, to be the variable higher

being increase $XX Our for legal legal costs into higher placed driven a of were with year-over-year accounts volume million the quarter by the channel. the collection

there's reminder, lag timing a in our when invest legal As we a channel.

to filed, build. a the when Typically, starting lawsuit followed by then there's to an courts cost upfront is collections which months several cash later is paid

costs the million We approached mid QX. quarter collection by $XX third quarter the the expect remain second and legal to with consistent for range

expense were Outside million, last million, million Net rates and an for was the debt quarter increase expenses interest second for reflecting down primarily the to fees of due $XX higher second interest higher legal $X and services year. the primarily $XX in increased quarter, corporate the of quarter balances.

of by which $X interest net from came Xst, interest recur million noted convertible investments which cash to was the future. be The expense our not in held quarter that retire will income. June should on majority notes It our in the reduced in in

quarter, $XX expense For we third expect approach will interest the our million.

with effective discrete Our XX%, due the to the quarter primarily of rate was increase tax for timing items.

the range. attributable in the an $X in at XX% or Net earnings effective full share. per year, $X.XX million looking was negative rate to expect loss However, diluted PRA tax we mid

in for collections quarter were collections Lower Americas $XXX compared million the million offset $XXX higher the in Europe. of partially to in collections second the were quarter XXXX. Cash by

the XXth, X% with ERC we and the our months X% above projections December six X% last ended in performance are For over Europe underperformance in made Americas. June

basis, $XXX or decrease the lower levels over currency impact portfolio of America's last in $XX the quarter, For million of were primarily cash purchasing few the million, by the years. $XX a of a on US million collections adjusted driven

compared This with European Americas our the for Despite cash increased second XX% quarter X% the for cash which or prior expectations.Our this, to efficiency overperformance basis. consistent internal collections the period. X% adjusted of currency collections year internal quarter, for the ratio in exceeded a on the approximately XX.X% was is our expectations quarter. represents modestly

lower XX% cash basis ratio on by collection generally a to a efficiency the efficiency higher cash a second expect of The quarter cash favorable a European have countries achieve cost fourth collect. ratio rate XXXX. approaching quarter to run and has we where because still quarterly We seasonality of

This US. more the $X.X ERC at was quarter strong in compared prior million as the helped Europe billion, us $XXX and in an to XXth grow increase quarter, the XX% represents of June ERC. in with XX% our purchasing than

collect ERC amount to important that only It's collect our $X.X existing next reflects the expect to expect months. balance during XX this We of portfolio our the to number on billion note we

we new the the include to we've expect ERC runoff recorded collect this XXXX, over price cash invest purchase does to and levels. maintain $XXX It the would from frame multiples to Based current average need made. globally on same we time replace not purchases approximately million in

exceed build grow continued into year US this further XXXX. this ERC pricing, improved will close we we move the in and we level investment supply of as and anticipate With and

markets strong and have conservative where ample We in the structure we invest. a with capacity capital

the of our of which had capacity quarter, considering of borrow credit restrictions. committed end borrowing the $X.X available after At $XXX under to million was facilities, base we undrawn billion

of in billion $X the XX we EBITDA. months, adjusted generated last Additionally,

Now, I'll back turn things Vik. to

Vikram Atal

the purchasing growing on ERC especially to and in an step that see was our to also work again, I further strong begun. Thanks, to look the return two consumer cycle. Pete. and encouraged I as just but recognize important capitalize right credit Quarter has we positive direction profitability am and

cash earlier, generation on and to of have processes it opportunities We focused business especially on objectives relates I initiatives build plenty potential. strategic shared and strong foundation remain our optimizing as to the our and we

are growth, we and forward opportunities a more stronger heading value overnight and returns here and The I increasing where unfold It but may the time. in and of early we line, it encouraged happen ahead. straight signs by am organic not over than are that lie won't to shareholder driving progress always look

joining us support of we continued for for again now you your Operator, for Thank questions. PRA. are and ready

Operator

session. question-and-answer the Scharf Securities. today begin now question will from We first go Instructions] David Please JMP The with [Operator ahead. comes

David Scharf

for Good taking Hi. afternoon. my Thanks questions.

to Are you environment. are banks in the are You I'll dig know, bit Vik, mentioned I expanding about couple to the others credit more first in know, PRA ask expanding a or and in was little opening on numbers adding your or number is wanted things collection banks you curious, about seller let remarks. of Europe? Or receivables talking of classes And the related the issuing to relationships. asset a you questions But up card into kind I primarily the card the you you envisioning US for you, involved in? of follow

Vikram Atal

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

David Scharf

may looking within know by card been largest exited is be comment issuers have your of the it's they re-enter. decade debt over implied that And US, is now I it. since market Got to the that sale that the understanding a some

Vikram Atal

have are That's the position stayed re-entering the market near thoughts be the of be what sense to our on from those to know -- the a My I'm it's not away a sense that that right. unlikely for that their market, but topic, term. decade in market in is might

David Scharf

Yeah, well. it. as understanding Got our

the issuers. just clarify relate it I expanding in to as other existing know you've up, your but you seller sounds for So a And again. I comments follow mentioned like apologize can then about asking relationships it past,

is agencies, your about organization? collection are third-party with that a commentary offshoring You -- throughout references this broad or collection is reference actual expenses and know, to agencies, activities, outsourcing the to a working

Vikram Atal

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

David Scharf

Thanks Great. it. Got much. very

Vikram Atal

you. Thank

Operator

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

Robert Napoli

and Pete. you. afternoon, Thank Vikram Good

So I on know into guess lot the a dig maybe there's to just numbers. -- I

in there's a others Just XXXX focus, so for not the you're a that where a pool such $XX to to is think lot quarter. recoveries, a to million business, but it point the I basis just turning on but for maybe if the expect more this quarter, The the in to able half change you, of as expected profitability and bigger like change maybe last year this was of million recovery you well, is corner negative that the would, where that, of And year? I picture, $XX Is underperforming, pool was that PRA. in change expected obviously. book negative on be back would you think return to sustained for

Pete Graham

they take the with to seen say, before things some regard would time strategies we've manifest vintage, start to that in underperformance XXXX I we've around legal vintage, but like will Yes, implemented period additional themselves. of some

vintage. 'XX cash on the on So cycle I'd back in the we're early say clawing

Robert Napoli

return And on to the profitability?

Pete Graham

We Again, less this guidance. the go We significant to and forward-looking pretty to we we'll can so curves adjustments say this in about we're right each first I of here. on get see our that's best quarter terms at some took where in and quarter, a point the glidepath all curves the do quarter from here.

Robert Napoli

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

Vikram Atal

the information Street, sort of I or right. don't shared we've believe, that with discussed Bob, that

we're this my want not profitable so we be in back not to to get where us be to is this conversation profitability, at I delivering there focus, a on now. we're that's need primary when So situation. Clearly, going wouldn't time, to point

Robert Napoli

Thank question. you. just this Maybe

execute you You this on sell expect other would portfolios? talked relates that to that I about competitors as to there in those. back of looking at books. year opportunities to the Are their selling Europe current half it European in companies looking imagine you're

Pete Graham

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

Robert Napoli

you. Thank

Operator

The comes go next question Truist. from Hughes Please Mark with ahead.

Mark Hughes

will in Thank you. you curve assume or order the Good curves your US upside that afternoon. Does forward be improvement outsourcing or the hit some offshoring if Do in you're successful? some need processes? to

Pete Graham

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

Mark Hughes

was a through you XX% How the of and thing much the Europe, court was kind system quarters? how flow or that onetime say subsequent in can in much -- Spain your that will overperformance that is of

Pete Graham

the think the seasonality thing versus in Nordics some the smaller onetime piece I overperformance the catch-up. large probably largely and Poland. It's of a was Spanish payments and

Mark Hughes

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

Vikram Atal

potential et And acceptable disciplined the evaluating pricing ensure in increases a to volume transactions with that covers almost rates, be a seeing what see daily we're the on our it would We all now. cetera. us very we're costs transactions. to about lot of basis We're and interest of being

were that that necessarily math we're XX% But not year. last do up exactly be commentary time in looking this year. around as it. business signal up We going and keep to just to assume tell ends we'll where to to at the the will So simple for from trying

Pete Graham

covered also, a say you've for Mark, us I'd And long time.

is know You price for pricing and important us. discovery that

So market every into move continues to of that do cycle. test we'll continue of evolve. we the doing discipline the to every to this we part through as that always the sort use pricing month week, as bids We're same on

Mark Hughes

I than perhaps. have winning you're thought more discovered guess you might you've

Pete Graham

want to in type Yes, this environment. for certain, every we bid, don't that's an of win

Mark Hughes

collections the month And looks final six the for at down question in Europe in XXX%. bit a like the it core, multiple little is

sequentially. few going I basis points on think there? it's Anything down

Pete Graham

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

Mark Hughes

Would you in better say in the XQ than pricing XQ? is

Pete Graham

Yes.

Mark Hughes

much. you Yes, very okay. Thank

Operator

next Instructions] [Operator with comes Robert The ahead. Raymond Please go question Dodd from James.

Robert Dodd

Hi, everybody.

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

Vikram Atal

processes we of notion it. connections company, on conformity And starting relationship action of level I with and with processes, our management have that executing amounts the completely as think this of we're to contractual taking data offshoring whole our obviously, of collections from do is is every existing them. a not enormous enormous outsourcing we and voice, amounts, at just to Anything but the need reiterate, just and right, in doing we're to is, any

we that, I we're on relationships it we this be to that at with don't at and we're at able would conformity you, at, believe So of need our be their variance in told over looking the any to be all make voice, at get as to months, from the them with that we're helpful, conversations looking several looking decisions just all data, around we're looking optionality have, to of next existing open protocols. and seller we our but would contracts, time up that hope we

Robert Dodd

you. Got I something it. out. And scribbled Thank

a wrong? say the isn't any it QX, Obviously for mid-XXs case, did up to you the from I comp on big last color down year, that mid-XXs the QX? like did kind can of Or On is high where driver. if us but particularly And write big mid-XXs? you change that be compared it from was give would

Pete Graham

right. And move different item for Again, heard things over you line in of Again, last mid-XXs some like. terms volatility accruals quarter. had on onetime this compensation well around me experience. expenses, signaled that quarter quarter, as timing the we've and for the that and from Yes. third I of which based some healthcare claim quarter-to-quarter can in as

So going that view third is look quarter what our of to mid-XXs is best like.

Robert Dodd

Got it. you. Thank

Operator

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

Robert Napoli

Thank follow-up. you for the

that you at can that the today's you're IRRs prices some on market? the better be in give forward mix may higher the flows getting Just historical versus of color pricing, higher

Pete Graham

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

Robert Napoli

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

Vikram Atal

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

time the of encouraged we're that. at by early looking will we create from that will But determine so And start. we're overtime -- can And we that. value the all

Robert Napoli

Thank you.

Operator

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

David Scharf

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

Pete Graham

Fed and of publications to various lot broadcast No, we the the where we communication cycle. of just kind the by interpretation I a done thought think trying we were data our had others in around of

think that's increased pricing for And charge-off I thing see dynamic. favorable more balance delinquency and the there, migration continue and supply changed good a to in on really metrics. nothing's us data, terms we that in of think and I

lots that the keep anything than So prior we and didn't need of that that beating indicator economic fact go had quarters to on of point thought other detail didn't statistics we into we isn't made more an drum. in

David Scharf

environment exiting Got within last -- one down it. sort year maybe that lot think to And kind you of trying question. to any hope And ratio that guidance that of about at and the ultimately abnormal a cash we meant to a stabilize is I'm could closer understand but pandemic XX% cost ceiling, XX%, after ratio, sort to ultimately the all rationalization. business if your XXXX mean looking forward these Appreciate of achieve XX% of you at efficiency to structure the a I normal at is meant the about of you with pin or a predictable maybe all a this in think guidance, operate it. do kind as then of this efficiencies, stimulus-driven outsourcing, do operational the moves, mean in that this things margin of a level? you XX% isn't I XX%

Pete Graham

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

David Scharf

Got Pete. it. Very helpful. Thanks,

Operator

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

Vikram Atal

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

Operator

today's for now you conference The presentation. has concluded. Thank attending

You may now disconnect.

PRA (PRAA) 7 Aug 232023 Q2 Earnings call transcript