Q3 2019 Earnings Call
Today's presentation, there will be an opportunity to X question to actually quite she May Press Star then one way or your Touchtone phone to withdraw. Your question. Please press Star then too. Please note that this event is being recorded I would now like to turn the conference over to Mr. Darby Schoenfeld, Vice President of Investor Relations for Peoria Group. Please go ahead ma'am.
Thank you good afternoon, everyone and thank you for joining us with me today, or Kevin Stevenson, 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 expectations. We caution listeners that these forward looking statements are subject to risks uncertainties.
An assumption that could cause actual results to differ materially from our expectations.
Please refer to the earnings press release, and our FCC filing three detailed discussion of these factors earnings release, the slide presentation that we will use during today's presentation and our FCC filings can be found on the Investor Relations section of our website at Www Dot Perry group Dot Com. Additionally, a replay of this call will be available shortly after.
Sure its conclusion any information needed to listen as any earnings press release.
All comparisons mentioned today will be between Q3, 2019, and Q3 2018, unless otherwise noted. Additionally, you will find a Q4 estimated revenue model as an appendix to the quarterly conference call side on the website I'd now like to turn the call over to Kevin Stevenson, Our President and Chief Executive Officer.
Well, thank you Darby and good afternoon, everyone like reducing our carbon school.
I'd like to begin where it ended last quarter.
I'm, so proud of the discipline and focus we've shown especially over the past few years.
As I look back over past 24 years, it's clear that we've consistently operated puree by sort of founding principles for most of that list.
Wonder bogus conservative capital structure.
Michael Code and diversification <unk>, which includes both product and geography.
Or willingness to older These principles, especially during difficult times.
Perspective has been key to our success.
Today, we have a tendered and committed management team and we're not here to generate results for a couple of years and then move onto the next thing.
We're here to make a positive difference in this industry and generate profitable inappropriate returns, which brings me to third quarter results.
We reported another quarter of strong performance, which built on the positive trends we delivered during the first half of 20 lighting.
The foundation, we laid over the past few years.
These results. So continued validation of our philosophy of investing carefully with a long term view.
We've always believed to be successful participant in the nonperforming loan industry, you must be both an accurate and disciplined underwriter.
As well as inefficient and comply collector.
Of course being public third leg of that schools robust disclosure framework, so that investors can verify or performance.
Our deep experience in data saddened by the American and European markets gives us the ability to be inaccurate and discipline underwriter and this in turn allows us to intelligently deploy capital based on these principles.
Across geographies and prototype.
Or constant desire to improve our operational capabilities and be inefficient and compliant collector.
Nobody else to invest significantly and globally in our digital channels to invest in and improve our calling and legal channels and further develop our analytical capabilities world wide.
As a result during the quarter, we reported double digit growth.
Total cash collections over $453 million.
This included record cash collections in Europe .
This drove total revenue was higher by double digits as well.
But global cash efficiency ratio again outperformed our expectations and improved almost 60% for the first nine months of the year.
Hoping to produce a 47% increase income from operations.
We also continued its strong portfolio investment trends in 2018 with $279 million in global portfolio purchases during the quarter.
Focusing on the Americas cash collections in core and insolvency were $326 million during the third quarter between my team.
This was a once again driven by increases in all of our core collection channels, including U.S. digital legal and call centers as well as games in Canada.
In South America.
We maintain significant growth in the U.S. legal collections from the increase investments. We made late last year, we continue to pursue a number of initiatives in this area to increase efficiency and decrease costs with the goal of driving the cash efficiency ratio in ROI on this channel higher.
In the U.S. call centers increased productivity allowed us to collect 9% more that's compared to the third quarter of 2018 with 28% fewer collectors by quarter end.
Investment volumes remained steady in the U.S., Brazil, and Colombia has seen an uptick in investment volumes with good pricing.
As a result, we and invested a healthy $194 million in the quarter and are well placed to each of our markets in the Americas to continue to capitalize on these conditions.
Moving on to Europe total cash collections were a record $128 million. This once again or was it driven by strong portfolio investments and wasn't despite significant foreign exchange headwind on a constant currency basis cash collections in Europe increased 23%.
The markets in Europe , where during 2017 to 2018, we reduced our volumes due to high pricing have begun to normalize.
During the first quarter between 18, we invested in six or nine operating markets.
In the second quarter it was seven.
And this quarter, we were awarded the portfolio in our eighth market.
The result, we invested over $592 million during the last four quarters in Europe .
The double the preceding 12 month period.
As I mentioned in the past two conference calls, Spain, Italy remain challenging as we continue to observe market pricing that we believe is resulting in a rational and low returns.
And our opinion, the Spanish market is being driven by deal advisory firms.
So first the sellers can hire a deal advisory firm.
Who have proven adept at finding new and inexperienced buyers to support what we believe or walk the valuations.
The second if you're one of the new entrants in that market. You can also higher a separate advisory firm, who maybe incentivized to win the portfolio.
To provide data needs you in your underwriting.
Predictably, one tends not to see many repeat buyers for many of the large Spanish transactions.
Italy as some of this but also has large several entrenched participants that are driving the irrational pricing and allocation.
The good news.
The good news is despite these issues.
Pricing has improved considerably in both markets.
Deals trading closer to what we believe our minimally acceptable returns.
In both markets continue to generate large buying volumes. So stay tuned we'll see all this evolves over the next few quarters.
The cross your broadly because we've held or principles and patiently waited for the demand side of equation to abate, while concurrently investing in her operation or operations in our digital and analytic platforms.
We're now in a position where we have significant capital strong operations in an increasing market share in geographies that continue to have a robust pipeline a portfolios.
And this is critically important as Weve also avoided deploying capital against low returning long lived assets over the past few years.
Well that I'll turn things over to Pete to go through the financial results.
Thanks, Kevin I'll start with an overview of the third quarter 2019 results.
Third quarter continued strong performance for pure right and 2019.
As we maintain momentum from our prior investments.
Total revenues were $250 million, an increase of $24 million were 11%.
Merely due to investment portfolios and yield increases generating higher income on finance receivables.
Invested record amounts in Americas core in both 2017 in 2018.
And if significantly increased our investment levels in Europe , the last 12 months.
Yield increases occurred in both the Americas in Europe .
The result of sustained performance in both geographies.
The Americas performance was driven impart by an increase in the number of long term payment plans.
And sustained performance and the legal collections channel the continued to impact or collection curves.
Net allowance charges were $4 million.
Operating expenses, which all dressed in more detail in a moment, we're $181 million.
Income from operations was $65 million, the 21 million dollar were 47% increase.
Below the operating income line interest expense was $36 million, an increase of $5 million, mainly due to higher borrowings used to fund portfolio investments.
We also had a foreign exchange gain of $5 million, primarily related to Brazil, where excess cash is invested in the U.S. dollar linked fund.
Our effective tax rate for the first nine months of 29 team was 19%.
For the full year range of 16% to 20% is still our best estimate.
Net income was $25 million generating 55 cents diluted earnings per share.
Total cash collections in the quarter were $453 million, an increase of 16%.
Growth in cash collections in the Americas was driven by 35% increase in U.S. legal collections.
9% increase in collections from U.S. call Center and other.
In a 51% increase in collections from other Americas.
This continues the trend from the first half of this year, because we're seeing the impact of record portfolio investments in 2017, and 2018 as well as return on investments made in the legal collections true.
Europe cash collections during the quarter grew by 16% and on a constant currency basis were up 23%.
Biggest driver of this was higher levels of portfolio purchases and performance of recent vintages.
Yeah.
Operating expenses were $181 million, an increase of 4%.
We go collection expenses were driven higher by legal collection fees related to the 53% increase in external legal cash collections.
Legal collection costs have now evened out and we're fully realizing the related cash collections.
Partially offsetting these increases was a decrease in compensation expense as we continue to balance the call centers with legal collections.
Our cash efficiency ratio was 60% <unk> third quarter 450 basis point improvement.
The ratio was positively impacted by productivity improvements in cash collections from past investments that continued to deliver.
We expect that this ratio will approach, 60% for the full year.
Estimated remaining collections at the end of the third quarter were $6.4 billion with 54% in the U.S. and 40% in Europe .
Your see increased nearly $600 million from the third quarter of 20 team.
Combining cash flow from operations.
Collections applied to principal on finance receivables.
Business generated $721 million during the first nine months of the year.
And at the ended the quarter, we also had capital available for portfolio purchasing.
Amounting to $528 million to the Americas and $241 million in Europe for a total of $770 million globally.
Given our conservative capital position as evidenced by our leverage and positive tangible common equity. We also have the ability to increase funding is necessary to take advantage of large portfolio purchasing opportunities as and when they arise.
Now I'd like to turn things back to Kevin for some final thoughts.
Well, thank you Pete.
It's another quarter, where puree delivered excellent results.
Also marks another period of time that holding door founding principles has benefited pure Rick.
Here are just a few examples of our recent past.
The first principle maintain a conservative capital structure, we remain prepared with substantial amounts of phones ready to capitalize on the pipeline of opportunities. In addition, given our leverage ratios and our strong cash flows we have the ability to raise capital should the opportunity demand.
Historically this focus is created multiple significant investment opportunities for us in the past most recently I know you've seen it begin to about develop in Europe .
The second principal and best carefully the long term view, while this is certainly component of maintaining a conservative capital structure. It goes far beyond that the recent legal investments or good example.
Since we expense legal collections costs when incurred investing the legal channel creates a short term drag on earnings, especially in the second half with 2018, but a year later those investments continue to drive outstanding cash flows and contribute to yield increases in our more recent U.S. portfolios.
Third principal focusing on profitable growth.
For the past few years, we've been investing in people digital data legal.
The result, we're generating improved productivity along with digital channel improvements and these are increasing our cash efficiency ratio.
The fourth principal set the bar for disclosure and transparency.
We've always prided ourselves on or transparency, particularly around the portfolio performance and believed that our disclosures set the bar for the industry.
And while the U.S. industry has robust voluntary disclosure framework, we believe it'd be good for the larger global industry to adopt that as well.
In closing theory is in great.
Great competitive position worldwide and I continue I I could not be more proud of this team and what they've accomplished.
We remain dedicated or principles and we're confident that it based on our experience and discipline will continue to generate solid operational and financial performance.
With that operator, I'd like to open the call up for questions.
Thank you well now begin the question and answer session to actually question. You May Press Star then one all your Touchtone phone if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then to at this time, we'll pause momentarily to assemble roster.
And our first question will come from Mark Hughes of Suntrust. Please go ahead.
Yes. Thank you good afternoon.
Hey, Mark Mark.
Thank.
You gave the nine month.
The 721 million net cash from operations plus amortization give the just the cash flow piece of that for Threeq you.
I do not have that I'll start my head all looked to see if I can do that for before the end of the cool.
I think I can back into it.
The revenue model.
Oh, it's a pretty steady compared to what you had for Threeq you, maybe even down to the mid if I'm looking at a properly.
Doug.
If there is some.
Impact I know you incorporate some of their base collections into that I think.
If it is that a seasonal factor what would that be down sequentially given your purchasing.
That's a tough one I mean, it's a it's a rough you know gauge to to try and calibrate the next quarter the main things settle.
You know impact out that aren't in the model again or a any allowance charges, which was kind of her out of revenue now with the current presentation as well as purchases in the period.
And a yield raises that we might have in the period. So it's probably those last two that are causing variance from what you might have thought.
No not just a commentary on supply and pricing in the a U.S. you touched on the Europe I think about the U.S. anything on that.
Yeah, I think that again supply tends to be fairly study and the U.S.
Pricing similar.
Yeah pretty steady.
Thank you very much.
And our next question will come from David Scharf of J M. P. Please go ahead.
Hi, good afternoon, and thanks for taking my questions.
So.
I mean every everything looked very impressive sort of all all around.
I guess I wanted first maybe just a quick question echoing the last one on just the U.S. environment.
Yeah, just curious if it's another earning season, we're all the consumer lenders are reporting very stable credit trends. So.
The supply is coming more from portfolio seasoning that and then loss rates, increasing I would imagine I'm. Just curious is there any change in card issuer activity in terms of.
Just how often they come to market to sell or how much they're coming with the or is it just a very steady state predictable kind of bidding calendar.
I think you hit it it pretty much on the had you know the issuers that our sellers are.
You know experience in pretty pretty stable delinquency and charge off rates.
So in that kind of an environment you know growth is going to be relative to overall growth in credit outstanding and you know in terms of.
Your market dynamics.
Same same mix of forward flows the same sellers all that kind of stuff is continue status quo.
Okay, Great obviously, it adds to your visibility eight I am just the cash efficiency the collection environment.
Couple of things I guess number one.
The comment about.
Call Center collections up 9% with a 28%.
Head count.
<unk> reduction.
How are you able to do that or was that all sort of a quarter end.
Figure I'd I'd collectors, and we ought to.
Maybe temper the next couple of quarters call center growth due to that there isn't there is a little bit of that sort of end of period.
Measurement aspect, but I think there's also this dynamic of.
You know we've continued to make <unk> technology improvements, we've continued to build out.
Digital capabilities as well as continually improving our scoring a in analytics to drive the activities for the call Center. So all those things combined are allowing us to generate growth in in a in that channel.
With fewer total headcount yeah. That's it that's gets right Pete and I would also just for those have been around pardon me.
Those have been around a long time.
You know one of the things that you might recall is that during 2015 2016 reduced head count.
Probably the wrong time, and we talked a lot about that in our journey to rebuild.
And so what I'll just tell you here is that we've got our eyes on that we're not going to make that mistake again and these head count reductions are much what Peter said as well as matching to our current inventory the we're purchasing.
Okay, you, a kind of foreshadowed or preempted my.
Next question, Hey, Lastly, just staying.
On this theme.
Kinda collection costs and margins can you kind of remind us I mean, it is you see more higher balance accounts to qualify for legal collections. Just wondering you know.
How much more expensive visit now to collect a dollar through that channel versus call center in does that imply any kind of inherent ceiling on your.
Efficiency ratio.
No again, it's all driven by mix of.
Type of paper that we're buying so were.
We're we're agnostic, we will will price the appropriate collection strategy and costs associated with that the to generate the similar IR routes you know small balance private label accounts or whether it's larger balance accounts that.
Tend to ship more in the legal channel. So I don't think it employs anything with regards to.
Ability to generate a higher level of cash efficiency I'd say, the one opportunity. We have right now is that a lot of the placements we've made over.
Over the past but.
Two years, yes.
There's been largely external.
Yes, it attorneys and we've got a pretty significant margin advantage to the extent, we use our internal attorneys and will overtime will start migrating back towards internal attorneys you're going if you remember the conversation the external attorneys just had the capacity to handle that volume that we needed at the time.
Got it Okay, just one last quick one.
The same vein.
Reference to digital.
Investments and Kate is that basically the payment portal.
Yeah, it's payment portal, it's the way we're out you know drive to site efforts you know, it's even to some degree its chad improvements and and things like that but to yes. That's that's it.
Great. Thank you.
And our next question will come from Eric Hagen of KBW. Please go ahead.
Hi, guys. Thanks, maybe I can just follow up on the on the revenue model question.
I'm just trying to square together you know the what was projected last quarter versus what.
You guys did during the quarter I mean.
You had 242 almost $243 million of.
Projected revenue last quarter.
And you guys did 247 or almost 248 million this quarter.
Before the allowance reversal I'm just trying to understand like what's the was a model off in the last quarter or was the revenue on a new purchases during the quarter just.
Somewhat weak and if it's the latter just what kind of accounted for that.
Hey Air against Army that model it tends to be.
Dependent on a lot of different factors. So it's it's just an estimate based on our current portfolio at the ended the quarter what it would be if everything was status quo. The next quarter.
There's so many things that can impact it like Pete said from cash on fully amortized pools yield increases.
Buying in the quarter. So it can't it's merely out there kind of as a guide not necessarily a this is what it's going to be next quarter.
Yeah, I didn't I didn't mean to imply that the numbers or kind of hard and fast numbers, there but I.
I guess Oh.
I guess I was just maybe a little surprised that the the you know what it implied for for the revenue on new purchases.
I was just maybe lower I'm, just trying to squared up.
That's all.
Well I would say that are our goal ultimately now I'm not the CFO anymore. So you off to a two to bear with me a little bit but.
Theoretically if you have all the yields that just right in a perfect world.
That's going to its going to hit your existing portfolio. Then the only delta right will be will be what will be increases in a fully amortized cash which isn't there you're buying a new by I think that context, though just just recall when we first started publishing revenue model.
Most of the analyst models were significantly I won't say double but were significantly higher than what the revenue was that we were producing so it was really intended to be.
Abroad gauge for you to calibrate your models not necessarily.
Predictive of water next quarter was going to be.
Fair enough and I should have preempted by saying the revenue model is extremely helpful and into your point on disclosure at.
I think you guys do a great job of that so thank you I'm.
But the nature of the write downs, though in the U.S. during the quarter can you just give us little context there.
So again, it's a it's.
It's the similar you know vintages, a that we continue to sort of have to trim the curves on.
No I wouldn't read really any anything into it a last quarter there were allowance reversals another pools.
That were largely a dampening the you know the the allowance charges in the U.S. again I've said this on many occasions for a portfolio our size and complexity, yes, three to 5 million allowances in any given quarter is not going to.
And not the ordinary not you know again to reiterate.
This quarter in next quarter is all we got left under that model. So.
We'll have symmetry after that.
Yep Yep, Thanks for that and then forward flow commitments any.
Any color there and that was what's the number what was the number at the another quarter.
727, 25 of us for <unk>.
Super Thank you guys.
And then again thank you.
Before we go to the next caller Mark Hughes 39, 745 is your three month number.
Okay. We'd go next caller.
Our next question will come from Hugh Miller of Buckingham. Please go ahead.
Hi, Thanks for taking my questions and.
Yeah, I certainly agree with the prior comments about how helpful. The other revenue model is interest had one follow up on that one I'm certainly I understand the variable factors. It seemed like purchase activity was strong in the third quarter. So.
Was there any difference in either the pace of yields write ups in Threeq you relative to maybe the first half a year or the pace at which you are collecting zero basis revenue in Threeq you relative to the first half a year that they had been a bit slower either one of those being notable items.
Neither of those.
Okay.
Okay. Moving on then question just about I guess in the UK as we think about kind of yesterday's regulation around persisting debt.
What impact would you expect.
UK charge offs in 2020 to potentially have as issuers are required to kind of work and engage with consumers to achieve faster repayments. If there you know.
Only paying them I don't for an extended varied.
Yeah, that's that's a good one.
The regulators nuclear definitely focused on persistent.
So I think's interesting about it is kinda reminds me of Yeah, I think it was what 2009, there when the cardiac time.
In a U.S. regulators were all concerned about a minimum payments need if you remember that period, Hugh and that's when.
It all the customers were required to actually almost doubled their their payments now.
Thank you it's hard to see because it was in if it was if I. If my dates right. It was you know nine.
On the precipice of the global financial crisis. So there was probably a little masked but but so it does remind me very similar thing and I I would feel strongly that it will.
It will increase charge offs I think that also coupled with the new regulations to after right NPL is down to zero. After what is it two or three years, I forget and yep and so that's going to certainly increase supply over there and it didn't today, it's going to be you know from customer journey perspective, we're ready for that I think our ER.
Folks, especially in UK do a fantastic job.
With customer journey and can assure them through very difficult times, so yeah, I would agree with that.
That's helpful. Thank you and then in Europe , we've been hearing about kind of large transactions coming to market in Italy in Poland.
You know the fourth quarter I mean can you comment at all about what you're seeing there in terms of volumes and yeah. That's the purchasing competition you're seeing in those jurisdictions.
Sure.
I mentioned in Italy, and I mean, it mission, Italy and Spain.
I would say, Italy, Spain, Poland I don't have the numbers I'll keep my head right here I didnt bring that but all three of those markets, though our robust from Poland, Italy and Spain.
We are we're doing really well in Poland right now and a you know from an operational perspective, you know this this this period in time.
That we've invested in Poland has been really well spent.
And you know ever since you gave me the failure get back that really disrupted the a the Polish market and we've been buying strongly there. So that's about all that's about calorie have for you. This evening mill.
Would you say, though that the level of kind of purchasing competition is rational and Oh. You know are you seeing you know anything any color you can provide there yeah in Poland. Yes, you know I'll like to talk about competitors named their names. So I figured I could we get back because that's pretty is pretty.
Well known.
The Polish market I think this is fairly a really rational now and I'm, the guy, but it'll in Poland, Italy, and Spain or different stories, yeah. All right. That's very helpful. Thanks, and then what on the U.S. side.
I guess as we think about you know credit issuers to.
Have you there it out of the market or haven't sold in the past you know as they think about kind of where we are in the cycle right. Now are you seeing any changes in dialogue you have you engaged at all with people you may not have bought.
From in the past or in the recent past in terms of you know dialogue about a willingness to kind of considered that sales at some point anything kind of changing on that.
<unk>.
You know since since Oh boy what has been I.
I would say that if you're talking about the three major sellers that left the market. It was somewhere around 2013, and that's you know there was no uniform date, but that was about the time that the exited so if you recall.
Weve long talked about that it's good.
Predicting when when they when they might come back is probably your time spent doing something else probably but I.
I would say that over all those years, you know we've been engaged with them on them off and whether people are out of the market temporarily whether there have never been in the market. We are whatever those rational or whatever the rationale as or their behavior. We've generally been.
Communication with folks you know, we're always marketing to them. So we have conversations.
I'm not going to comment on.
Whether we think there imminently ready or not I think theres story to tell and.
If you see our volumes pop up because we've been buying from somebody New then we'll we'll disclose some of that information.
That's helpful. And then I guess, one more just for me if I may yeah on the U.S. side, obviously, you know a returns there relative to maybe some other regions are strong and we've seen you know maybe players that are in other international markets that.
Maybe smaller participants in the U.S. space that have been buying more paper ramping up collector headcount you know can you just talk about just maybe the competitive dynamics in the U.S. market. You know how have you seen any creep there just in terms of an uptick in purchasing competition or has it been relatively steady.
Well you know theres been at the margins. Some some some other folks that they're not I wouldn't call them small players in the overtime. There just there has been players in the market near for years that pop in and out from time to time, but I think our we're getting more than our fair share of the market and Oh, you know, we keep our eyes on it.
If returns are great here, we lean in the returns are great in the UK, we lean in there and or Brazil or anywhere else. So I'm I'm I'm fairly again I might my comments were I think the U.S. market is fairly study I think pizza commentary about credit losses is a solid wouldn't give some <unk> <unk> I think that's right I mean I think that's.
The power of our geographic diversity is in capital positions the ability to do that be patient flux from one place the other as we seek to.
Great well, thank you very much taking my questions.
Absolutely.
And our next question will come from Robert Dodd Raymond James. Please go ahead.
Hi, guys.
Just one more on the revenue model, if I can before I move to collections.
This is the difference this quarter and and and actual especially as what the bottle said.
When you get it turns last quarter was probably the smallest and.
I guess almost two years and was also quite a way you had the biggest.
Well, what a pretty large FX headwind. So I don't know if you have that that number but you know how much impact the actual intensive FX for this quarter would have impacted that model buses. This is what the.
Fax was when you when you put the bundled together.
Well I think that's a good that's a good question Robert Dodd Pizza digging through some some paper and is destined to be find that.
Okay. So I'll move on to some other things.
Okay.
On the collective obviously I mean, you said any perpetual that's given that the 60% cash collection ratio exceeded expectations. So it sounds like some of the or the lower expenses were a little surprising.
So can I presume from that that may be that 20% decline in and collect a head count wasn't necessarily a desired outcome. This quarter and I mean, you mentioned keeping an eye on it but what would we expect that head count and some of maybe the efficiency gains.
You collected this quarter from that.
What would be reversed course, and you'll be adding collectors again.
<unk>.
During the course of what I said portal next year.
That's another good question, Robert So I'll take an pieces.
I would say no that the.
Head count.
Position, we ended up in was not undesirable from our position.
And what we're trying to do as match, we're trying to match inventory the inventory of accounts to the.
The amount that has to go to legal burst amount task of the call center. So.
That's a great question there was a bunch of other movements on income statement, though that I think surprising able to get to the 60% cash efficiency ratio. So that's what I'd say about that and then for going forward I actually think theres probably downward pressure.
On collector headcount actually as you as you look forward or getting a anything can change you know as you ramp up towards Q1, there might you know there maybe there could be up a pop up at the end of the year to get people prep for Q1, but by and large I think it was anything at the downward pressure at this point in our.
Inventory maturity.
Thank you for that and if I count another one on that.
Well you've talked before about kind of course, they gave all 18 months, even the difference in [noise].
Performance between a at you collect versus a 10 you collect a given you know the amount, but cash collections went up even with that kind of come with presuming that the the majority or the bulk of that the head count reduction accommodating in in Eucalyptus may be a rotating out.
The then you're more tenured staff, which is where you get must see collections anyway. Yes, you can do I don't have the data in front of me, but you can assume that I I would I would tend to agree would agree with that position and I'm looking through my notes here I think productivity levels are.
<unk> has a a here.
About $124 per our paid and if you go back to 2014. It was 112, so and 2017 was 125. So we're we're we've got some good productivity a year ago. It was 107.
And so that that accounts for some of that that cash.
Difference.
Got it got it thank you.
And then just following up on your question on currency.
Three around $3 million of revenue headwind related to currency.
Got it thank you.
And our next question will come from Dominic Gabriel of Oppenheimer. Please go ahead.
Hey, Thank you so much for taking my questions.
Is there anything on the funding side, where you can refinance your either data renegotiate some other revolver.
Given where rates have gone I know they've come back up a little bit lately, but is there opportunity to reduce the.
Interest expense that you're showing.
Your liabilities.
We're predominantly whereas.
Predominantly floating rate, both the credit facilities or.
Our [noise].
Excuse me LIBOR based credit facilities I want to say are sort of fixed.
Profile between hedging and.
Yeah, the converts which are both fixed rate coupons.
A little bit over 50% probably on the notional basis. So.
No again as I said in my prepared remarks, most of the increase in interest expenses, just driven by higher borrowings outstanding rather than rate movements.
Okay, great. Thank you and.
If we think about how you've just heard been turning to the legal channel.
From the call center lately, what and what are some likely scenarios or maybe the top two scenarios you could see that could unexpected they bring your collection mix back to call Center.
From kind of the current strategy.
That's that's a great question so.
I think about it the easy movie inventory mix.
Let's just say that starting first point in 2020, we start buying a balance is more in Oh, I think our average balance in 2016 with something like.
1300, Bucks or 1500 Bucks average balance something like that and so you start buying lower balance accounts.
There are less less legal eligible.
And and so that would manifest itself over the year. It would start changing the weighting of of that anyone shift back more towards call Center.
Simple things like you know, it's one of the reason, we like to keep a little extra real estate under our belts is that if you if someone asked earlier if a seller comes back to market well. It would certainly be nice to have some extra real estate you'd probably see head count pop up to service that.
And it, but but likely ramp back down as well.
Yeah, I think also I think as we move forward thinking about the CR P.B. rules.
I think about those rules are really if I can put in a nutshell trying to modernize collections.
So if they were able to give us a path to I'll say worry free email people and Texas people that would actually have a probably a downward pressure on head count.
So there's a number moving factors from inventory to customer responses to customer preferences.
So I'm thinking about right now.
Okay, great well I really appreciate it thanks so much.
And our next question will come from Brian Hogan of William Blair. Please go ahead.
Good afternoon.
Right.
Right.
Yes first questions on.
Legal investments how much.
More do you have left to invest and legal channel as or more to do there.
Dive deeper.
Just kind of your thoughts around around that.
I think in terms of the inventory in pipeline you know the level that we've been placing is then that we've been sort of guiding to for the for the back half of this year still holds.
As we begin to sort around the corner into next year, we'll take a look.
And see if we see anything that would change that but as we sit right now.
As we said in my prepared remarks, we kind of leveled off in terms placement volumes.
And were.
Delivering the topline cash that we had anticipated.
Sure.
And then.
They pretty substantially reason that productivity.
I guess, what is really all you're doing to drive the improvement in productivity, obviously, it's better scoring.
Digital collections as a payment plans I would kind of going to go into the details on what's driving that.
Big increases and productivity.
During the second so I was just have no sidebar with Pete still on your on your legal question.
So one of the things I want to want to go back to other ones. If I could so so what we're thinking about here is I think Brian is talking about.
Acceleration of legal that occurred I think that from a notional dollar amount placement amount.
Those those those dollars are probably remain fairly study because that's the placement levels, yet, but as we grow cash is going to can become less and less and less driving it back down to kind of the order levels of a percentage of legal cost too to cash collections fair enough I think that's I.
I think that kinda wraps it up in a BOE does that make sense so Brian .
Yes, yes.
I'm sorry, <unk>. Please if you wouldn't know I was always scattered.
And again on the other one I'd appreciate it just for the next one is actually it's a it's a question around productivity and what is driving the improvement in productivity is it scoring is that a payment plans.
Where all the factors that are you've done a two and answer productivity.
But you hit around the knows it's exactly so we've made fairly significant changes to our scoring bands to work toward 24 hour twin tiles and things, what they're calling them.
Law changes to those and then we are we're building really steady sustainable payment plans as well to your point and you know where you don't get out you I think a broken record, but it is a very good customer journey to the extent I can get folks on the phone or engage them digitally either one and have them set up.
Longer term plans with you know things that they can actually afford and they did and that they are sticky.
It's a great thing you know I spent some time in DC and some of the state capitals talking to regulators and lawmakers.
And it's a it's a good story to tell and I was shared with you know from answer unsecured side of our business. You know, we don't charge interest and fees and all that stuff so not really gets the.
I think it surprises lawmakers in it and its.
Very well received.
Great.
Next question is actually any updates on Cecil and its impact unexpected impact I guess.
Yeah, we're still at this juncture a waiting on the final release.
But you know our implementation is well underway or nothing really new to share other than sort of a high level commentary that we've given prior.
Well look to get more specific color guidance, whether we want to called out once we're sure that the rules aren't going to change with with any final pronouncements.
And then last one for me as they.
From your eyes and into it in both.
Your been United States, the health of the consumer use any noticeable changes or the status quo were near rise obviously I understand your deal with the distressed consumer I understand that but as there have you seen any incremental changes.
You took all the fun on my answer Brian .
So I'll tell you. The did you know we go through you know exhaustive.
Customer journeys, we go through what we call quarterly business reviews.
And I'll just share with you that no. One has brought any changes to my attention. So I've been my answer to use I think it's weird your point, we're dealing with very distressed customer one that's in in some financial troubles and I haven't seen a lot of behavioral difference.
But I can point to.
Alright, thank you.
Our next question will come from Dominic Gabriel of Oppenheimer. Please go ahead.
Hey, Thanks, just one quick follow up actually.
Do you see you guys have been around for a really long time.
And seen different cycles have you seen through the cycle that trend in the type of card are valid side that goes first and the downtime and it down terms. So is it a large balance let's say from a retail store card that goes first and maybe a small bounce from a general purpose card any sort of dynamics you've seen over the last.
Next year that you guys had been around if you've seen any continuity and that would be awesome. Thanks.
That's a another fabulous question and I'm, a you're right I've been around long time, and I'm trying to figure out why everybody looks older and I don't.
[laughter] and to jump people lap in the room.
So in a way I think if you can maybe darby can can text some more folks and see if we get an answer to that that's a good went off top of my head I can't answer it I do certainly remember entering the a global financial crisis and everybody started to.
When they started with the house go first I was a surprise everybody. So we'll see if there's any kind of.
Any kind of sides.
We've seen over the past 24 years, hopefully and getting before the called <unk>.
Okay, great. Thanks, so much.
This concludes our question and answer session, Oh, sorry about that I.
I didn't realize it goes over I apologize that will well seeping dig that out in connect somewhere.
Good operator I'm sorry.
Oh, you're fine. This concludes our question and answer session I would like to turn the conference back over to Kevin Stevenson for any closing remarks. Please go ahead Sir.
Well. Thank you very much appreciate everyone joining the call. This evening and we certainly look forward to speaking to next next quarter.
The conference has now concluded. Thank you for attending today's presentation you may disconnect.