Q1 2020 Earnings Call
Knowledge this pandemic as a human tragedy.
The likes of which the world has not seen in a very long time.
As a company that was started to do the right thing for the right reasons [noise].
We were extremely sensitive to the impact this is having on everyone globally.
There were thoughts go out to all of those affected.
But the world, we'll get through this and our economies will recover.
It's in that recovery that.
That the positive outlook, we're sharing this evening for pure raised largely explained.
We have a significant role to play assuring people through financial challenges, Steve Fredericksen I started this company almost 25 years ago.
Singular purpose of buying nonperforming loans, helping people recover in a very professional respectful and patient way.
Today everyone's focused on this crisis and how it impacts People's economic reality, but it's it's important to remember puree does not work with the average consumer.
Banks are generally engaged with non delinquent customer who is at risk for deterioration in financial condition.
You're moving from performing delinquent and ultimately charge off.
We on the other hand have nothing but a defaulted consumers.
100 per cent of our customer base is charged off defaulted nonperforming or whatever term you choose.
I've never nearly 30 years of experience in distressed debt I still find it sobering.
The thing that even in a good or booming economy.
Customers are always experiencing their own downturn.
It's just as impactful it's just as important it's just as it is just as personal to them.
<unk> good economy are bad economy, Dot com, driven mortgage driven or virus driven.
From an economic standpoint, they are still experiencing their own downturn.
They stressed economic environment is where we become more important and we prepare for it.
It's why having a conservative capital structure is one of the founding principles of our company.
We strive to be ready for these difficult times because they are inevitable.
Another founded concept is how we've you risk we take measured risks and we maintain preparedness for future.
That's where we find ourselves today.
Unfortunately, the world has to experience times, these but purely a strong very strong capital structure consumer focused mission.
And the experience move forward.
Well I take a moment now and and talk about how we were positioned as we entered 2020.
We've just completed a very strong 2019, and we were well positioned with multiple tailwinds that our backs.
In Europe, we had great success with portfolio purchased isn't 2019, after being very patient and waiting for irrational pricing to abate.
In the U.S., we also had a very good purchasing year.
Where supply remained steady along with stable pricing competition.
As the exit 2019, we were successfully balancing R.U.S. click to workforce in our legal channel.
Generating additional operational improvements.
I was driving cash efficiency ratio higher into 2020.
As a result, we drove global cash collections in the quarter of $495 million.
Quarterly purchases were $273 million another good start to the year.
And that's a bit Iranian collections worth $6.5 billion.
So following that Q1 performance headline I would like to take you through the operational results in the Americas and also provide your recap of what's transpired since mid March after that'll do the same for Europe and then he can take you to the financials with our assumptions around the impact from covert 19, and I will finish the summary, Oh look to the future.
In the Americas cash collections in core and insolvency were $349 million a new record.
<unk>.
We broke the old record from Q2 of 2019.
Or catch results have been so strong that any of the past five quarters would've been a new record.
If it was compared to any quarter prior to 2019.
In the U.S. cash collected per hour paid increased 24% from the first quarter of 2019.
Which sets a new Q1 record.
Pit logical advances increases in digital payments improvements in <unk> metric and we believe we can continue to move is even higher.
U.S. legal cash collections continue to grow as a result of prior investments.
Selections outside of the U.S. continue to grow, particularly given portfolio <unk> acquisitions from last year.
And total perform you'll purchases any america's during the quarter $193 million, yeah supply and pricey remain study.
Hmm.
The impact of covert 19 was first felt in our U.S. business in the middle of March when stay at home orders were issued by got many governors, including in those yeah in states, where we operate.
And while most of our offices were able to remain open as essential businesses.
<unk> a significant number of people who did not come to work for a number of reasons yeah ranged from school closures to general concern about the virus.
The decrease in our workforce was most impactful in the second half of March and that extended into early April.
For this period, we were generally staff there between 60 and 70%.
Of our U.S. collector employee base.
Our focus quickly turned to keeping our place safe while servicing our customers.
My message to the employees was and remains.
That we need to keep them safe productive and paid.
You know offices, we instituted early and aggressive social distancing measures.
Because of the additional capacity in many of our call centres, we were able to do this with very little disruption or cost.
Shifting our staff to every other workstation and distancing them easily over six feet.
Because we've discussed before rent is a very small part of our income statement and having extra space as important as it provides us with inexpensive insurance.
Against short notice capacity needs.
Well, our belief was it portfolio purchasing would it be the driver behind that need I'm pleased holding these extra real estate is paid off so quickly and allowed us to adapt to social distancing with no material cost.
Although the extra real estate has been important during this time, we were previously exploring options to downsize a call centre during 2020.
As well as we seek to optimize cost in space and productivity.
With the temporary closure of the Nevada call Centre, we made the decision to as the military calls it multiple that site.
Means that we will not exit the lease or dismantle the physical side since we want to see what the future holds.
Throughout our open sites, we continued and and began additional cleaning and disinfecting measures along with increasing the number of hand, sanitizer stations, which you've had for many years.
Facility staff underwent additional training.
Cleaning after every shift and periodically during the day and then at the end of the day of course.
We posted signage and all of our common areas reminding people of social distancing another measures to reduce the spread of germs.
Remark to force in certain areas to show employees, how far apart they needed to stand in order to m- maintain that for for distance.
We also provided to coven 19 section of our Internet, providing a frequently asked questions in updates.
Beyond the call centres, we immediately moved the vast majority of support functions to work from home status.
Literally we tested this on a on a Thursday.
And moved off on a Monday.
In the U.S. that amounted to approximately 700 people.
Our experience with back off a support functions working from home has been exceptionally good in many areas, we're seeing greater production from at home workers as compared to their own input their own output.
When they are on site.
We shifted right into the flow of work from home.
And I credit that to her acquisition of active capital and 2014.
We're very accustomed to managing the business via video conference. It's.
It has been quite literally a part of our daily lives for almost six years.
Not only been managing the business that way, but also building personal inter departmental relationships over video I'm very pleased with this this outcome.
On the customer side of things are normal policy and procedure is take take into consideration environment such as these.
It's in good times or in bad our customers are always in financial distress.
One of our Big focuses has been on our hardship policy, which is designed to deal with customers in severe stress.
They're just hospitalization or other serious illness.
Or collectors as well as third party attorneys are well versed in these policies and operate accordingly.
And the current environment this is more important than ever.
It's our goal to help our customers who are suffering from the impact of covert 19.
In addition to this hardship policy there several other policies that went into effect and we implemented additional procedures. For instance, we are not filing any new leans or garnishment.
And we've reduced or dialing and lettering and even stopping in some areas that have been the hardest hit.
We've also accommodated number of call center employees to work from home. They constitute those who are any high risk category for cover 19 or in offices, where staffing density is higher and we could not appropriately ensure social distancing without some collectors working from home.
The challenges of work from home collection environment in the U.S.R. numerous and these employees are not able to perform the full extent their jobs.
One of those challenges is simply infrastructure.
It's not all Internet services are created equal.
Differing infrastructures networking hardware personal computers personal devices can all impact the speed and quality.
Oh that home Internet service.
That impacts call quality in response time.
We've tested this extensively.
And the issues of included latency.
Noise in the line sound quality echoing.
Even dropped calls.
But thankfully it this time eight of our U.S. sites are open.
And while we've had as many as 80 collection to F.T.E. working off site previously we moved that number down to about 20 in may.
Now we love the idea of collectors working off site Hmm, However, the challenges extend beyond technology.
Prior to cope with 19, we would have only been able to collect in 22 states. If our collectors were working from home.
A number of states since issued guidance, allowing work from home during the pandemic, but there are still seventh dates and two large cities, which due to licensing or regulatory requirements keep us from collecting and if our employees are not sitting near registered and license location.
And when I speak of these challenges it's from the perspective of parity.
I would one are collectors, regardless of their physical location, the U.S. to be able to use the same tools. The same technology, while generating you know the same call volumes.
Hearing to the same compliance insecurity in short we would expect at home collectors to be just as effective as our collective collectors in the call center and they simply aren't at this time.
Oh that said, we've made preparations from technology standpoint for 1000 collectors to operate from home and should it become absolutely necessary.
However, we may still be faced with the challenges I just described.
Yeah.
We also many challenges I'm sorry, so many changes in our legal channel. During this crisis, Oh, we were filing lawsuits.
In in areas, where the reprocess served prior to Kobe 19.
However, we've not moved any new accounts into legal channel.
While the majority of courts are now open for you filing and teleconference or video conference hearings.
We've chosen not to serve people based on our own internal policies there for any lawsuit in which we had already served someone.
We were following the courts guidance on how to proceed.
However, if they have not been served we're currently in holding pattern and evaluating wouldn't be appropriate to resume that service.
To round out the Americas in South America, and Canada, we how the majority of our employees operating Mostar work from home status.
Well, we've seen some impact to catch collections, particularly April.
And we'll continue to monitor that M- monitor that accordingly.
Which brings me today and I want to share some recent data.
At the end of April.
Again, we have eight call centres across or U.S. platform open and operating within each state's guidelines, let me take a moment remind you where they're located.
So Norfolk and Hampton, Virginia.
Burlington North Carolina.
Birmingham, Alabama.
X. in Tennessee.
Hutchinson Kansas.
Ellis, Texas in our newest center and Danville, Virginia.
<unk> centres open, but not started hiring there yet, but it's aren't tend to add about 100 people there soon.
[noise] or U.S. collector attendance is also rebounded I mentioned previously that are collector workforce was operating between 60 and 70% during that back half of March but as we enter the letter parts of April they began to return to the office and we returned to more normal attendance levels.
Regarding cash collections recall that Q. on 2020 was a global record for P.R. I.
In the month of April cash collections in the U.S.
Ended above <unk> adjusted expectations like 28%.
And they also exceeded.
April 2019.
1% on a currency adjusted basis.
In addition, U.S. digital collections broke multiple records during April.
Well, there's only a few working days into may.
Collection trends continue to be strong.
I'm sure some more data.
Our calls per R.P.C., which stands for right party contact.
Or how many calls it takes to reach a customer has improved significantly.
Since mid March it began to improve in mid March and continue strong.
Versus 2019.
Or conversion rate, which is the percentage of right party contacts that make a payment or set up a payment plan did drop in the latter half of March.
Completely rebounded in April and that's extending into me.
The same can be said of our payment break rates, which increased let her half of March.
Will return to the same level in April as they were in April of 2019. This is all very encouraging.
Well, we're going to Europe.
Telecast collections in the quarter, where a record $146 million, representing that 50 straight quarter record sat in Europe.
Misrepresents growth of 16% or 19% on a currency adjusted basis and was primarily driven by strong portfolio purchases in 2019.
Portfolio purchase in the in the quarter were $80 million.
Similar to the Americas Europe started 2020 with great results.
But since many of the countries there felt the impact of covert 19 before the U.S.R. adjustment started earlier in March.
The hardest to countries that we operate in were Italy and Spain.
Both countries run national locked down with strict travel limits are we quickly shifted the majority of our employees to work from home status, but have maintained a few in the office since travel for work was permitted.
And the remaining operating countries, which are the U.K., Poland, Norway, Germany, Sweden, Finland in Austria.
We moved to a combination of work from home and in the office operations. According to local regulations.
Given the overall situation in Europe, we had no choice, but to move collectors off site since our offices were only partially opened in March and April.
This required changes to the tools used.
Limited the scope and methods of calling so their productivity was not when a parody to being in the office.
However.
As of Monday This week.
We started to bring more people back into the office as restrictions start to ease across most most European markets.
From an operating environment perspective, each country has a different operating requirement, let it <unk> we're tracking those closely.
In light of all these challenges let me share some recent data.
At the end of April cash collections in Europe in total we're trending inline.
With our Cobin 18, adjusted expectations does vary by country.
And I'm very pleased that result, because at least for April it indicates that the expectations that drove the kobe related charges stemming from the adjustments the R.C.
Sufficient.
Like to turn things over two p. to go through the financial results feet.
Thanks, Kevin.
Before reviewed the results for the first quarter I'd like to recap the presentation changes as a result of our Cecil implementation.
At the beginning of this year, we started accounting for our debt purchasing business under Cecil.
And on the income statement, we have two components of revenue.
First portfolio income.
Which is the yield component comparable to the prior years income recognized on finance receivables.
Second instead of having allowances charges as a separate item apart from revenue.
Now record changes unexpected recoveries.
As a component of revenue in order to provide compare ability.
We're presenting total revenues and that of allowances for the prior period in this presentation.
The first quarter began the year with strong performance total revenues were $252 million, an increase of $12 million or 5%.
Rarely do to solid portfolio income growth.
Or portfolio income was $262 million, an increase of $23 million or 10%.
Primarily due to higher purchasing in the past few years, coupled with solid operating performance.
Under Cecil instead of having allowance charges, we now record changes unexpected recoveries.
Which were a net negative $13 million in the corridor. This consists of two parts.
First we recognize the present value of positive or negative changes in E.R.C.
This quarter that needed to a negative $21 million.
Mary driver this was downward adjustments to our expected collections do the code 19 pandemic.
Based on historical experience with economic Recession's, including the global financial crisis.
Leave that the economic impact of the pandemic will be a delaying cash collections rather than a permanent reduction in the U.R.C.
Using trends, we were seeing in March as well as historical references we made downward adjustments to our expected collections in the second quarter and delayed those collections to latter part of the year and into 2021.
These adjustments were made to our curves on a forward looking basis.
After the first month of the second quarter. This assumption appears to be about right with the exception to the U.S., where it may have been too heavy of an adjustment.
The second part of changes unexpected recoveries, whose cash we collect in the corridor compared to expected collections.
This quarter, we collected $8 million in excess of expectations.
Partially offsetting the present value changing your c.
Operating expenses were $191 million almost flat to the first quarter of 2019.
And their cash efficiency ratio was 61.5% and the <unk> in the quarter.
Income from operations was $61 million, a 24% increase compared to the first quarter of 2019. This despite taking at 21 million dollar right down on the portfolio.
That income was $19 million an increase of 26%.
Generating 42 cents and diluted earnings per share.
[noise] cash collections in the quarter World record $495 million, an increase of $33 million or 7%.
Cash collections in the Americas increase $14 million. This is driven by a 10% increase in U.S. legal collections.
And the 23% increase in Brazil, Canada in Columbia.
Europe cash collections during the quarter grew by 16% and on the couch and currency basis, where up 19%.
Biggest drivers of this growth were higher levels of portfolio purchasing and the performance of recent percentages.
You don't normally provide commentary on what's happened after courtroom, but these are normal times.
Well one month of results doesn't provide any certainty for the full quarter or April cash results have significantly exceeded the adjusted levels of expected recoveries at the end of the first quarter.
Consolidated basis were slightly above the original expectations prior to our code adjustments.
In Europe, although there's variability country by country.
Or collections in total were down 7% from our original expectations. However, they exceeded our covert adjusted curves by 5%.
This was also the case and the U.K. or largest mark it outside the U.S., where our collections exceeded our covert adjusted curves by 2%.
In the U.S., we exceeded our original pre covert adjusted curves by 8%.
And exceeded our covert adjusted curves by 28%.
Although it's still very early to predict the ultimate any impact that the economic closures.
Offset in government actions will have on our collections. The early signs are encouraging.
Or cash efficiency ratio was 61.5% for the quarter.
230 basis point improvement compared to the first quarter of 2019.
Operating expenses in the quarter were $191 million almost unchanged from the first quarter of 2019.
Well cash receipts were 6% higher as a result to record cash collections.
<unk> expenses in the U.S. decreased as we continue to balance to call centres legal collections.
And leverage other operating efficiencies.
Or legal collection costs of stabilized at a level similar to the prior year.
We were collection fees have increased in concert with <unk> extra an illegal cash collections.
Outside trees and services increase due to a number of items that individually wearing material.
During the quarter, we had no material impact operating expenses as a result of the pandemic.
I had a significant amount of support functions and already state to work from home.
And as we're global company.
Substantial number of our internal meetings have been over video for quite some time. So we had no additional investments there either.
As we move into the second quarter remember, we're not putting any new accounts and legal channel in the U.S. in courts in many of our European countries are also closed.
Therefore, we expect or legal collection costs to decrease significantly in the second quarter.
Depending on the timing of reopening it could be as low as $12 million to $15 million. However, we will likely get back to our 30 to 35 million dollar per quarter level by the end of the year.
Targeting and cash efficiency ratio approaching 61% for the full year 2020.
You ever see at the end of the first quarter was $6.5 billion.
53% in the U.S., 42% in Europe.
You ever see increased almost $300 million from the first quarter of 2019.
However, the strengthening US dollar caused a 239 million dollar decrease and reported D.R.C. from the end of 2019.
Mining cash flow from operations and recoveries applied to negative allowance.
Business generated $283 million in the corridor.
We also had capital available for portfolio purchases amounting to $846 million globally $521 million in the Americas and $325 million in Europe.
At the end of the first quarter, we amended or European credit facility, adding a total of $200 million and capacity and extending the maturity to 2023.
In addition, just this week, we amended or North American facility temporarily increasing our leverage ratios and E.R.C. barring base calculation.
These actions combined.
Some short term flexibility that gives us the capability to manage our maturing convertible notes in August with cash on hand from committed credit lines should that be or decision.
Now I'd like to turn things back to Kevin.
I think <unk>.
Given the environment there have been a number of discussions about debt collection in industry news.
As well as in legislative and regulatory areas. As a result, we've been very active and the government relations space and and thus far head real impact on proposed as well as implemented legislation and orders.
Our primary focus has been on distinguishing between voluntary involuntary collections.
My opinion the phrase debt collection has been inflated by many with the concept of involuntary collections and specifically a bank cleans or garnishment.
We've we've stressed that a simple phone call.
And an amicable meeting of minds, resulting in a payment is certainly not involuntary nor offensive in any way.
We're helping our customers address the reality of their financial situation in a manner that works for them.
Our next focus was regarding legal channel.
Generally speaking a person not familiar with our industry might consider all legal collections involuntary something that I would strongly disagree with.
Those familiar with puree know that our goal is to work with people to create an affordable payment plan.
And only pursue legal where we believe someone can pay.
But it's not have the inclination to do so.
[noise] oftentimes, even after we obtain a judgment.
We generally do not have to resort to garnishment sort of leans as the customer will typically choose to negotiate payment plans.
As a as a result, only about 2% of our total cash.
A little cash collections comes from when I would consider involuntary meetings and that specifically wage garnishment or leans or bank garnishment.
And Bang participants are clearly a subset of that it's about half a percent.
I mentioned this because I believe it's important to understand the full extent of the environment. We're operating in.
We're holding to our philosophy of doing the right things for the right reasons.
In our policies and procedures are aimed at being empathetic and understanding during times like these.
We've seen all this evidence in April that our customers are resilient.
And they are choosing to continue to pay their balances.
There are multiple reasons why.
And certainly we can't ignore them any government.
Programs and government actions.
That have been put in place as a result of stay at home or locked on what are its globally.
When the U.S. these range from.
The P.P.P. loans that payroll protection program.
The unemployment changes the stimulus Chuck's and the last of which is also become a very hot topic during the pandemic.
Because I mentioned before garnishment are very small part of our cash collections and we have an longstanding practice to address situations. Like these are are practices exist.
Event, the garnishment exempt funds.
And we have no intention.
Tarnishing stimulus funds.
And we've specifically instructed our employees.
And collection law firms.
But.
We don't control the bank garnishment process.
And the rare case, where these funds may be swept up by a bank and sent to US. If we are notified we will return the fun to the customer.
College, we've not had this occur with respect to stimulus stimulus funds to date.
In Europe, many of the governments or providing companies with funds to continue to pay their employees they were forced to furlough.
And then with the closure of multiple public places.
Businesses across the globe.
Expenses <unk> decreased for many.
As an unfortunate consequences there fewer places for the consumer to spend their discretionary funds.
I can't scroll the mall and make an impulse purchase they can't go out for dinner and a movie in most cases, they can get their haircut.
However, it appears as though some consumers maybe choosing to utilize these extra funds to reduce debt.
It's possible that consumers may emerge from this in a better financial position then they went in.
That brings me to the future portfolio sales.
Reaction by many sellers to the pandemic in the U.S. has been it's been muted.
Most sellers are operating under normal circumstances, it continued to bring portfolios the market.
In Europe, we initially saw sellers halter postpone a portfolio sales, but recently, we've seen them start to reengage.
And began the process again.
No cases, we're utilizing historical data plus our recent experience to evaluate pricing and adjusting is necessary. This behavior is very similar to the G.F.C. has both buyers and sellers adjust to the new market realities.
Going forward it remains to be seen what happens with overall economic environment. Yeah. It's uncertain. If there would be a wave of charge offs. After this generating additional supply for us.
However, given the reserve builds that we've seen from virtually all consumer lenders and Q1.
We would expect to see portfolio volumes increase at some point in 2020, and if so we'll be prepared you well positioned with one of the most conservative capital structures in the industry.
However.
All of the actions and programs are all successful and limiting other global surge in charge offs and I will and.
I started the call.
We simply return to the attractive environment, we created.
As we entered 2020 period would still be integrate competitive position.
With significant amounts of supply.
Rational pricing and operations that are generating margin expansion.
Without operator, we are ready for questions.
Again, we will now begin the question and answer session to ask the question you. My parents Star then one on your touch tone ball.
If you're using a speaker phone please pick up your hands that before pressing nicky's isn't your question has been answered and you wish to try your question. Please press start then too.
For one moment to assemble roster.
Turns question today more compromise Dominic Gabriel Oppenheimer. Please proceeded your question.
Hey, Thanks, so much for checking my question. Thanks for all the color all what's going on in your business.
Guess, you know you you had talked about some of the clock jets being at home.
I think you mentioned about 20 collectors is what is that at the percentage of the total collect your workforce and when you think about their product 70 productivity as it did that 50% less productive 75 per cent. That's productive what what are you thinking that does metrics how are they.
Yeah. So.
Oh, no. That's that's 1% right. It's so we <unk> about 1600 people at quarter and we're probably in about 1500 right. Now. So it's 20 folks out of 1500. So it's a very small number again, we're doing and we're yeah, we're doing it too.
As I talked about to make sure we have proper social distancing in our sites you know for instance, like our Kansas site, you know, Tennessee site or.
No more densely occupied and so we have to put people off site.
[noise], there and again people that might be susceptible to Kobe as well their productivity I've got it somewhere here I I got to dig it out, but it's I mean, you're 50% to 75% is in the range I can see if I can find it before the calls over and and and square that away, maybe you could tax Dusty Robert to make sure I've got that number.
The question.
Sure sure and then you know when you think about the legal channel in particular, you had mentioned that some some things are going to be on pause and I would imagine even just some of the the lawyers getting some of the documents there they need maybe hard you mentioned that the expenses would be down what is.
The lay on you know how this could affect the cash collection dollars as you move forward and then any commentary that you provide.
What created the the papers and the payment swings that you saw you said you said that the break at your age kind of went up and then came back down actually again, you just talk about what you are hearing from the folks in your in your portfolios that <unk> kinda, that's not bad thanks, so much.
Wow I I was taking notes there's a lot of questions you made a comment in there though about documents the documents really on a problem documents today and this industry are electronic and we actually have moved toward Doc resource people working outside so that's really not challenge that I'm, where.
The the delays are really around as you might imagine all the things I talked about you know where we're not we're not I'm not serving people in this environment and we're working through accounts that have been over I could we called over the wall pre coven.
Courts are also a quarter generally open but.
Something around 70% of the counties.
Are have approved like you know video.
Yeah, yeah, interviews, but but appearance.
Which means about about 30% of them are either rolling dates forward or or or closed.
So that's that's the environment of that cash I mean, it just math cash will be impacted at some point.
It's just a byproduct of of this decision. We've made it's just it's just not a time, yet and maybe maybe we'll change our minds in the near future, but just not time you have to be serving people. During this pandemic. So that's that in and it probably wouldn't have an effect I'm just gonna maybe Pete ones wants to jump in but but you know they <unk>.
Q3, q. for a impact if any.
Yeah again, it's.
Timing timing thing right. So obviously the longer we're we're on holding pattern.
The the longer that delay will be.
But you know at this point, we feel like we've we've addressed that timing concern in in the adjustments <unk> well that's important right. We've we've made those adjustments in our coven curve as well as any any buying offer we might make such important.
You know the question was about the snap back in in cash, but but I think also it's also about the the the downward.
Velocity, we saw in a better <unk> back half of March.
It's a complicated question in in if you bear with me I've got a complicated answerx I thought a lot about it.
You know again in March this thing was sprung up on all of US and I think you know we all the entire glow about a sharp reaction to it and.
People were afraid of their lives right, it's very different than than for the losing their house so that certainly.
Create some trepidation on their part, but I I think about cash in terms of a few things. So first I think about our staffing so lets the thing in our staffing and late March I talked about the fact that it was you know 60% to 70% and so you know if that happens you know you can't expect to.
Two I collect all the cash that you had planned on so that's one thing up that would have created a downward pressure.
On cash.
The.
And of course, that's all it's all rebounded the the programs again I mentioned this you know the programs are certainly part of it and and and whether those programs give people comfort whether they use the money whatever it might be that's certainly part of the equation again from the P.P.P. loans, the unemployment increases the direct payments to taxpayers and <unk>.
Reimbursement schemes in Europe, and the actions are a big deal you know you got close the malls you got you got close restaurants and all that.
You know people have less places to to to buy a Michael Kors baggage that that's just that's just the reality. The world is the thing I think about in this might people and you guys on the phone might not be thinking about this but I think about tax season.
And.
So tax season. This year, you know really collided right into coded and I'm looking at our data tax season was a little shorter this year than it had been in prior years and so.
It's interesting I think that you know there's no reason for that there's no no systemic change that I know about from 2019 2020, so part of this.
This rebound in April and into May could be people, you know getting comfortable enough with the environment to now use their tax refund and <unk> and now.
It's it's the other part of tax season that we admit that's also a possibility but.
So those are the end of the day, there's a lot of exhaustion us influences around all this cash so I wanted to give you a full.
Kind of a full review of what I'm thinking about in terms of cash rebound.
Yeah. Thanks in large.
Yep.
Thank you are next question will come from Eric Hagen. Okay. B.W. Please proceed with your question.
Hey, Hey, Thanks, good afternoon, and and how do you guys are doing well just clarity on the legal costs did you say coming down by 12 million. According as you say it will be around 12 million a quarter of the next.
C corners, I think he said Oh, what I said was given the fact that were permit primarily in the U.S., we're kind of on pause and we got so many closures around around Europe, depending on the timing of you know starting that back up the the second quarter could be as low as $12 million to $15 million.
But that by the end of the year, we expect will be back in that you know range that we had been 30 to 35 million a quarter.
It's really you know this.
It's really hard to say, whether that second quarter, you know restart or third quarter restart but.
There were trending turning down as we sit right now.
Yeah got it alright, thanks, Yeah, just dislike claritin I appreciate that and then just yeah. A couple of questions. Born and then just what kind of cash efficiency race. Yeah. Do you think you guys can run.
In this environment, sending that you know.
For all intents and purposes, nothing really changes in the next couple of months and then just on incremental deployments I mean, there's the environment.
Telling you that you should giving you a reason I guess it'd be aggressive here is there.
Is there more sense in and and waiting and.
Taking a more measured approach to new deployments, where you get more constructive.
So I'll I'll I'll start this when they Pete wants to dive in on the cash efficiency ratio, but I'll I'll do I do when I say something about cash mission the ratio excuse me [noise].
Distance I was so you have over 20 years.
<unk>. This ratio is one of the lowest rates I think since around 2016.
And so it's well when the lowest rates one of them. The best are the best raise right I I think more of expense ratios everybody's putting their thumbs in there. So one of the best expense ratio since about about 2016.
Of course, I I have a little more granular look at.
Numbers, and then you guys do publicly but our salaries infringe number.
Is as far as my records go back the lowest that's ever been as a percentage of cash receipts. So that's that's really encouraging I'll that Pete finished that.
And now moved back to the investment tied to maybe now say about that yeah. No again, you know we.
We were.
Working on a goal to get to you know 60 plus percent, 61% and continue to move that higher I think.
The certainly in the second quarter.
If our cash holds up and we reduce our legal expenses as we've talked about I think that might be a blip.
But our view for the for the full year is is you know around 61% approaching that that I mentioned.
And then on the on the buying side.
I I. My guess is if you ask him about about anyone about P.R.A. aggressive probably wouldn't be one of the terms [laughter] you'd you'd hear bantered about but I.
I I I'll just tell you I push everybody you know this is what we do for a living we purchased debt and.
We take measured risks that's why I started off my script with those got commentary so I I I am not averse to buying right now I I do think that.
All the indicators would say that.
There there there will be a wave towards the end of 2020, that's again, if all the banks are right in their provisioning.
So it it pays the hold onto a little bit of capital for that and so we're trying to balance those things and that's probably the best way I can answer your question.
Yep Yep next time, thanks for that and then just just one on the housekeeping I think on.
But the leverage that's embedded in your borrowing agreements is that.
Net debt and equity or is that based on that to adjust and even a disgusting sense or what.
That coven it actually is.
Centrally debt to cash adjusted to you, but that's the biggest adjuster, but it's.
<unk>.
As with any of these bank agreements, it's very specific in the legal bucks as to how it's calculated.
Yeah.
Yeah, well appreciated.
Thank you.
Our next question will come from Robert Dodd Raymond James. Please proceed to your question.
Hi, guys and and congratulations on all that cash collections I'm, just going back to that the thing you've been thinking a lot about in terms of where the output supplements came home and timing I mean, obviously, if the U.S. is is.
The point in April 28% above you'll you'll coping adjusted expectations something is clearly happen.
Oh, well ahead of what.
He probably you can give is on on the types of the town's business small accounts since this.
The the the the <unk> mall, one off payment. So all it sounded more like payment plan formation was back to normal though than being.
<unk> can you give us any more calories than that because obviously I would think if if people are comfortable using that texture tens of palpable it might be a lump sum, but then setting up a a payment plan I mean any color.
The the the the mix between.
What's going on with consumers that gives me applet forms.
I think I'd, probably give you some let me just get my my thoughts in order.
So first you said clearly something happened you didn't expect three wouldn't know you know beat your covert adjustment curve by 28% [noise].
Remember.
You know we had two weeks the mall [laughter] over yeah.
And and I I tried to layout.
Some thoughts on cash collections as you pointed out and it just this idea that you know 40% of your staff wasn't there and you couldn't possibly penetrate your entire portfolio deck I think there were delays and tax season.
There was just you know panics, probably the wrong word, but everybody was frightened and I think probably goes for everybody on the call and so that's that so I think yeah, we we had a bit of.
Depression and I'm in the back part of March that was <unk>.
<unk>.
Again, it was multifaceted, let's put it that way and and its data we had in so we set our curves based on that and then it it's not back for all the reasons that I talked about so.
That's that's what I think change and and probably a good because you look at your up but we we sort of got it right and you're up in general.
<unk> those are my thoughts at least on bad channel wise.
I would say that Apple away, if I have some data here I think I.
I think we did see I got a report in front of me, we did see some higher payment and full <unk>.
Data in off the digital channels you know so we had some we had some larger payments there, but the average payment size really didn't change much fluctuated between that 120 to 100 hundred 20 dollar range and.
So you know while I see a little blip on digital I don't.
I don't think it was anything.
Specific <unk> I don't think so okay.
Okay <unk> yeah.
<unk> Yeah. The question on that that's 61, I said cash collection ratio.
I I'm then.
That's that's based on.
Expectations embedded in you know didn't you <unk> you does that.
<unk> <unk> formants you've seen.
So far in April granted since they show it.
Is that the potential but if that.
Formants continues and other things <unk>.
Shucks <unk> for a period of time and in terms of how you're going to utilize them. You know is is that potential of that <unk> collection ratio on the the <unk> could could exceed the the the the target you have college.
Hmm, Yeah, I mean, anything's possible I think what I'd say is to the first part of what you were saying there you know the the cash assumptions in that.
61% forecast are those that were sort of baked into our our financial close at a at the end of March so it it doesn't reflect the you know the the snap back we've seen in.
In in April.
But it also assumed a relatively short timeframe for for for being in this environment So to extent.
Yeah.
That extends farther than you know the cash.
You know the cash as well as expenses with sort of move in tandem.
That's about you know again I think it's extent, we stay closed for an extended period of time that will help on the expense side, but it will have continuing impact on you know delay in cash collection as well <unk>, if I could get Claire a couple of things Robert said, something I want to make sure. We also give a little bit of color and my script.
We are seeing that <unk> that strength in cash continuing to do any of these few working day, so far and may.
Yeah.
Okay, I I did I did.
Site.
<unk>.
Public performance.
And I had one more I'd one more comment I I wanted to get back on the question about at home production and <unk> certainly varies by rap, but that 50% to 75% as productive is is a is a good range to think about and so that means that there you know 15% to 25% less per.
Octave right. So I want to make sure we we cleaned out what that was so.
Thank you are next question will come from the data just sharply J.M.P. Please proceed with your question.
Hi, good afternoon. Thanks, Thanks for taking my questions I.
Had to hop out of a cue momentarily.
Hey, you know what Kevin Kevin I actually had written down before the call to ASCII.
About state regulations about.
Potentially a delay tax refund to season about what banks are thinking.
Now, they're paying about the impact of stimulus and.
Seem to.
Already preemptively a address all of those so.
I just I just have a couple left in one <unk>, you'll probably appreciate this one.
You know what one is just very open ended and candidly highly speculative but <unk>.
After sitting through a earning season.
In which.
Sumer lenders to people you buy from.
Are obviously grappling with an incredible lack of visibility in a one of the things. We're trying to think about is just you.
What what might permanently change when we emerge from all of this did you see anything whether it's regulatory whether it's even some of the.
Things, you're learning about digital collections or work at home.
See any permanent changes to your business here industry.
Because societies tend to change when they're shocks to the system like this.
Well sure no I I well you know <unk>. So it's interesting one of the things that I'll share a story with you, but it's probably been 18 months ago I'm, a big fan by the way of work from home I'm, a big fan of collectors working from home, we just got to figure out how it from regulatory standpoint to do that but.
I was talking with our chief risk officer, lower White, who runs our disputes department and I.
It's a perfect group to to test work from home with a perfect group to to to to do that with because they they've got dispute cues and.
About workforce and if you've got I'll I'll pick for example, a single mom, especially now with the schools close that we've got some a lot of folks like that in our disputes Department and go log in at like five A.M. start working there cue.
Worked through their Q. and kids get up and start rolling around they they do this stuff with school and then you know the log back in at night, and clearly accuse out so that's really outstanding they like it we like it and so that's that's something I told Laura you know why would you bring flux I got back if they if they want to stay off site. So that's interesting.
I I think the really interesting thing is going to be you know we all these the guy open Mike commentary about regulation I said that before <unk> I think you could call into our I'm. So you could collect from about 21 states now at seven seven that you can't collect from and so clearly have changed their their outlook. During this pandemic will that persists.
Or not.
Well that continue and then over time can you solve.
Some of these these simpler technology problems with like but I think certainly could so I think those it'd be things, they're kind of structural I'm sure.
Okay.
Oh I'm sorry.
No. It's go ahead, yeah, what's that discussion no. It's just curious you know I I think yesterday federal judge struck down to Massachusetts H. Geez.
Yeah.
If that's something that.
Would provide relief to you for these remaining seven.
I don't know what the interest.
Exactly.
I don't think yeah, I know the list I don't think they're in the seven they're just going through additional state that we as of.
Well yesterday, we couldn't couldn't call into and I think a trade group filed suit in federal Court <unk>, yeah, and by the way if anyone if anyone from these days on good a good kudos to you guys. You know I think they did a nice job.
You know I in my my speech, I say I, there's nothing offensive about a simple phone call in a meeting of minds to negotiate a payment and and we couldn't do that in Massachusetts, and the judge on if you read the judges opinion, but it was strong.
Strong talked about constitutionality of form communication and it talked about a capitalist society needing to have a free flowing finance arms. So to speak in debt collection is a very important part of it. So it was a really good I thought it was a good.
Opinion.
But that's not that's not one of the seventh dates right. Okay. Yeah. No I just didn't know if that since it was at the federal level ultimately will translate to the other seven but no.
You know soon enough Hey, Oh, so so oh, well, let let let me just clarify the seven our our work from home people write the seven states I'm talking about Oh got it Okay, Massachusetts, but you know again until you incident in until yesterday, you, even our call center couldn't couldn't call in Massachusetts.
Yeah.
Illegal side, what one thing it just double check with.
With just.
Obviously, you're not filing new suits, but without having to hit.
Pause button on.
The process for.
Stuff that's already been filed.
Or even the stuff that you know Erie.
Yet filing it does any of this run into statute of limitation risks depending on like if there's a fault if there's a <unk> resurgence into fall and we find courthouses closed again in October drink flu season does it jeopardize any.
That you to limitations.
Yeah cause I as far as I'm aware now maybe I get up this call on our general Counsel will correct me, but [laughter] as far as I'm aware people aren't extending statute, maybe <unk> it'd be darby can track that down while run the call.
Okay, Hey, it just the last question <unk> not so much the numbers but.
Maybe I just want to understand the.
I guess the forecasting is it sorta impacts the accounting because.
<unk> it it sounded like.
We had a lot of things happen in a compressed.
I mean, just like the lending area you know yet this huge drop off in the second Avenue.
<unk>.
It sounded like you <unk> you know you refer to it is your <unk> adjusted curves.
That.
Resulted in in the.
Yeah revenue adjustment as well and things bounce back so quickly and I guess I'm, just trying to get a sense for.
What.
Back row assumptions went into those curves because if you were it to outperform I'm just a few weeks later at April by 28%.
Seems to indicate.
It would be a reversal pretty soon.
Yeah. So again, you know to Kevin's point earlier, when we had to close the books, we were sort of two weeks in no. The whole lot of data. So this isn't.
This wasn't a a real data intensive adjustment and it was more kind of.
Top down approach Ah.
Product and.
Country specific.
You know the.
The rough order of magnitude if we.
<unk> pre adjusted curves for example, in the U.S. by 8% or sorry by yeah pre adjusted by 8%.
And post covert adjusted by 20%.
She could infer mathematically that we took a 20 per cent adjustments to our expectations for the U.S. core.
So that was kind of the approach we took.
We assume this is a temporary phenomena and.
We would start to rebound relatively quickly so.
I guess, all that said to the extent, we need to make further tweaks to our you know outlook on E.R.C. and collections as we learn more about how this is going to develop we certainly will have the the.
The offsetting adjustments in in the period that that are generated by Overperformance.
And just reference in the first quarter that was $8 million.
So in a normal corridor.
Yeah, Yeah, no no no normal.
The last couple of months [laughter] officiated well terrific <unk> terrific results. Obviously, so thanks for taking my question is once again.
<unk>.
Our next question will come from John <unk> of Jenny Cleans proceeded your question.
Evening guys.
I used to play and just play Devil's advocate for a second here you know we talk about and I think you know people assume that there's going to be a wave of charge offs coming in the fall, obviously, guys mentioned that and and the commentary as well what if we come to the fall and there is a resurgence of for the current a virus and.
You have to shut down more call centres and you have employees greater number working from home and you're still seeing 50% to 75% productivity out of them would you <unk>.
<unk> would that be a governor to your purchasing all else being held equally I mean, I'm just trying to understand you.
As much as you can in that scenario because you assume you'll get much better you know I R.R.'s in those pools or do you have to curtail it because you don't have the capacity in the near term potentially the service that that.
Wow, what f. scenario I like it [laughter], so if there's a resurgence, which which I think we should probably expect to some degree or another right in the fall.
<unk>.
And we had a close centres game, we we.
Yeah, we we.
Really <unk> didn't close anything I know, we close Vegas, and but we opened Danville. So so that that's a net.
If we did it had to work from home and again, they're 50% to 75% as productive we haven't solved the technology problem.
What we what I would do is you have to look at the pricing in the environment at the time and so what we would do is we would project the capacity we have at the time.
And forecast our existing portfolio along with the new when we're buying come up with a curve and run and I are are on it and if the seller sold it we would buy it I mean, that's simple simple answer but beat you any.
Counter to that yeah, no I think that's right now quite frankly, that's kind of what we're doing in the current environment, where we're making adjustments on on assumptions for money going out the door and pricing accordingly, the one the one thing I would point out though in your what if scenarios the wave of charge off isn't going to.
Them to market and third quarter, I mean, given the <unk>.
The programs that the the selling banks are.
Putting in place with regards to you know deferment payments and other things I think it's gonna be.
A little bit more of a slow burn before the works its way through the the process on the on the bank side before it turns into charge off for US I. My view is I think fourth quarter is probably as early as we would start to see that wave.
Okay, Alright, thank you yes.
Yep.
Our next question comes from Mark Hughes.
Please proceed with your question.
Thanks for the the call and the second it out here.
I think about forward flow <unk> when you think about the Ford flown you you clearly committed in a different environment <unk> can you get adjustments to a your purchase price.
Yeah. So just a couple of points on that the the numbers we disclose in the.
In the queue and in the press release or.
Maximum contractual commitments not sort of.
The the amounts that are definitely going to be put to work.
Oh, so that's one.
The other is you know these these forward flows or.
Or with a long-term partners and you know we're.
So that's ongoing.
Is that just to be expected as there is some stigma. If you say the underwriting environment is different so we we can't do that.
<unk> I don't think there's any stigma. This is so global pandemic and and.
I would say there are sellers, who are every bit.
I was concerned about it and as a as we would be so.
And then for Europe by just what I'd make sure the right number I think you you said.
Your collections in April worse, 7%.
Versus your original expectations, what was the percentage you shared relative to your revise expectation.
5%.
So 5% above.
5% above the issue above the right.
In total yeah.
And then did you try to estimate a number of the collection impact in the first quarter from Cove it.
Oh.
No I mean, it's.
Quite frankly, it's on noble or just three's too many variables Sydney variables.
And then when we think about the impact on the financial impact of this.
<unk> 20 million.
Essentially if you did not reverse that you're simply applying the same yield to a.
Fractionally smaller balance to calculate your finance income that the right way to think about it.
Yeah, conceptually I mean.
We're all still getting used to the the way Cecil works, but on the border compete [laughter] I'm not even a whole sort of but that is <unk> that essentially is going to be the impact on a portfolio income it'll behave similarly to the yield calculations under the old standard.
You know you've you've made an adjustment you you're you're expected future cash flows and you've discounted that adjustments. So there'll be a you know a reduction of revenue want to go forward basis.
Then just the final question another number I didn't write fast and you said that 283 million I think that might have been total cash.
Generated a cash flow of some sort may be the dog yeah <unk>.
It's.
You know from the Cashflow statement, which will be in the queue.
Adjusting.
Cash flow from operations and centrally adding back the Cecil equivalent of portfolio amortization.
Thank you very much.
Cash applied to negative <unk> applied to negative allowance, it's the old payments applied to principle right, yeah, right instead of cash flow from operations plus the old payments applied principle, essentially yeah. Okay, yeah, you'll see it on the cash for the right above each other on different lines.
Okay. Thank you push it.
Yeah.
I I also before we take the next question I I've got a answer on David Sharp's question about <unk> expiring statutes. The response from the team is that they don't think there's much to worry about a given that.
Had 70% of the courts are are in counties are accepting virtual hearing so that's.
That's the answer that question I don't think it's also thing that's interesting at the side note I think virtual hearings are really interesting idea I think it's very consumer friendly or litigant friendly. So it's.
I'd like to see continue I don't know how prevalent that was in the past or not but.
Right go ahead next question.
Oh. Thank you are next question woke up from to follow from Dominic Gabriel Oppenheimer. Please proceed with your question.
And thanks again for taking my question again can you just walk and maybe maybe you did this and I just missed it but you walk us from the gross revenue.
Vintage numbers to the portfolio income and maybe they should have known this already or something but could you walk us there and did any of the way you accounts for fully like unchanged from how used to count.
The gross revenue number.
Yeah. So.
They're conceptually similar.
But the mechanics of how you get there is different so the portfolio income number is the equivalent of the yield calculation that we would have had under 310 30.
Reporting income on financing receivables that would be in the prior year comparable.
But.
Under R. news Cecil income statement presentation.
We also have.
The other components as I said in my prepared remarks, so we've got changed unexpected recoveries.
That's two components one being.
The right down on here see the net present value without adjustment and then offsetting that is.
Performance in the period, so we haven't offsetting $8 million of cash.
Collections in the period that we're better than what was expected for the period. So we had a net.
12 13 million dollar.
Negative <unk> changing expected recoveries.
With the portfolio income.
Plus fee another get your total revenue.
Okay, Great and then just one more thing with everybody being home. When you think about everybody actually had to sit at home in their phone is to the left to them or send maybe they're just using their cell phones, but.
But the people that obviously had <unk> house phones that you've been calling and trying to reach you mean has the fact that people have been at home and are able to take these calls that you have you seen any impact in your ability to reach people more sorry.
Yeah, they fishing, yeah, yeah, <unk> and I didn't my script to my but I may I may have bungled the reading of it I don't know, but I was referring to the R.P.C. rate there right party contact grade and it it improved significantly in mid March and and that's significantly over.
Business as usual.
And so that's that was really interesting and that continues generally into into may.
Okay, great. Thanks.
Thank you concludes our question and answer session Oh, It now like you're trying to complex back over that Mr. Kevin Stevenson President and C.E.L.
Thank you very much that I do I do have something to say this evening at closing first of course, thank you for joining the call and please stay safe and keep your family safe, but please remember your local charities there are really suffering during this time and they need they need your support in your your company support so I thought I wanted to throw that out there.
So again, we look forward to talking to you next quarter and we'll see then.
Thank you.
<unk> now concluded. Thank you very much for attending today's presentation you may now disconnect.
[music].