Q3 2020 PRA Group Inc Earnings Call

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Good afternoon, and welcome to the P. Carey Group Conference call.

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After todays presentation, there will be an opportunity to ask questions.

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Please note this event is being recorded.

Now I turn the conference over to Ms. Darby Schoenfeld, Vice President of Investor Relations for PRB Group. Please go ahead.

All of those affected.

Im very proud of the hard work and dedication our employees have shown in 2020.

As well as our commitment to treating our customers respectfully.

Fairly and with empathy as we continue to work with those who.

We continue to review these rules in conjunction with other laws and guidelines, including the TCPA telephone consumer Protection Act.

As well as individual state requirements in order to determine the best pathway.

To expand usage of these channels.

There's a lot more of these roles in a limited example that I spoke of but in general we applaud. The CFPB. These efforts here and are pleased.

Auction ships with sellers.

And then rounding out the quarterly highlights estimated remaining collections or year see ended the quarter at $6.3 billion.

In the Americas cash collections were $374 million.

In the us the trends we saw in the first half continued into the third quarter and as we discussed in prior conference calls is our continued belief that large scale scale work from home.

Decreased opportunity just spend money on travel and entertainment and continuing forbearance programs have provided us consumers with excess net funds at their disposal and this has been a key driver of cash collections. This year.

This phenomenon is also evidenced in many areas of our economy outside our industry and I Trust. Most of you have seen that.

Sales in South America have been quieter than normal as the pandemic has delayed sales volumes. There simply is similar to what we saw in Europe.

Moving onto Europe silica.

For performance versus expected collections during the quarter.

Recall that under Cecil revenue has two components first his portfolio income the yield component.

Which was $240 million.

Second is changes unexpected recoveries, which has two parts first.

First is cash that we collected in the quarter compared to expected recoveries. This amount of $289 million in excess of expectations driven by significant over performance globally.

The second part is the present value impact of any changes in ERC. This.

This quarter that netted to a negative $64 million.

Five 3% a continued improvement compared to last year.

Legal collections costs, where the largest contributor to the decrease in operating expenses when compared to the third quarter of 2019.

As Kevin indicated we've seen an increasing number of payments coming in through the call centers and digital channels.

Our data indicates that some of the accounts paying us today would have historically been pursued through the legal channel later in the cash collections curve.

$88 million of convertible notes that matured in August.

The actions of governments everywhere seems to have slowed the realisation of that.

May deliver.

And if you examine the position we've built over the last few years by believe we've done that.

[laughter].

Ajay Speakerphone, please pick up your handset before pressing the keys to start a question. Please press Star then too.

At this time, we will pause momentarily to assemble our roster.

And the first question comes from David Scharf JMP.

Hey, good afternoon, everyone. Thanks for taking my questions.

There's a couple of things.

Kevin.

You know, but for the most part it sounds like the overall commentary on the environment is similar to three months ago or except in Europe and.

Ah I I, just wanted to get a sense for.

If you feel like the <unk> you.

You know the resurgence of some volumes there.

ER is maybe just.

Sort of a a.

Chatter and feedback from your sellers or is it is based entirely on just kind of looking at the same quantitative reserving.

Figures that we can see for public centers.

[noise] well, it's a great question, David So I'll be measured in my response.

So.

One of the great things about.

Yes.

About people's willingness to get on Webex and zoom calls is that they are willing to get on Webex and Jim calls and so I have personally talk to not only a lot more employees I normally do but also.

Lawmakers.

Same pace and maybe that does become more permanent level.

No thats it thats helpful. Obviously, it's a huge near term margin jolt, okay. Thanks, very much guys.

Thank you and the next question comes from Mark Hughes is trust.

Yes. Thank you good afternoon [laughter] [noise].

That's the only work, though <unk> earlier in the earlier in the call.

But the collections trajectory through the quarter did you notice any or any changes as you progress through the month.

[laughter].

Well you know things like let's take the contact rates. For example, you know as you enter Q3 and Q4, they tend to be seasonally weaker collection periods in contact period. So I would say we did see some some I I would say expected degradation along with the seasonality.

Certainly significantly higher.

In less than a year ago in last year, but that would be it would be the color I'd provide.

So just normal seasonality, albeit at a higher level, you're getting with the fair yeah, Yeah. That's fair.

And then Ah I I think that you were just touching on this but the.

Do you that you're pulling forward the collections that it's done.

Acceleration rather than a betterment.

What what influences your.

You on that is that.

I mean is this something kinda tangible unless you're seeing the nature of the collections and that looks like.

Acceleration rather than better men or is that always.

Most the judgment.

[noise] I mean, it's always down to judgment part of the issue. We've had this year as we've never you know.

Had a collection profile during during the year that that we've had this year right like usually marches the peak.

And we you know, we kinda float down through the through the remainder of the year.

We had consecutive month after month you.

You know build of collections above that March peak this year, and we don't never experienced that before in company history, and we're just cautious that.

You know we.

We don't know what we don't know at this point.

I think the only thing tangible we could probably point to is you know what what I said around the legal collections channel in terms of you know data.

That would say.

Yeah, we've collected things earlier.

Through a voluntary channel, but but yeah, we're we're cautiously or looking at how we set the forward curves.

And then I don't know if you commented on the any international disruption from a cold.

Coal did a re acceleration.

Anything there to think about there.

Volumes that we see the opportunity.

And that way.

Thanks, so much I appreciate it.

Absolutely and truck is down real quick so the first part of the question being about Europe, NPL flow or charge off increases I guess I would I would drive from that.

I I don't I can't come up with an idea of why that would be delayed you know I think that.

I think that I talked about in my script about how I think there's going to be a sooner recognition that in Europe, even even versus the United States.

Because there's a lot of things that happen the United States you ended that could that could potentially delay I would like to stimulate some significant stimulus package or something like that but I don't see that in Europe.

And there's also some structural things around around bank regulation I think could also drive volume in Europe as well, so I know I'm I'm pretty I'm pretty optimistic about well I'm optimistic about both markets frankly, but certainly to your question specifically I can't think of a reason that would be delayed.

[music].

As such that on on.

The idea of using this capital to purchase.

Another company, we'll do that first.

The problem with purchasing a company is generally.

Pay for a platform and so you take for instance, our acquisition of Aktiv Kapital that was that was fantastic and I'm really I'm really pleased with that and it's worked out so well for us on so many fronts, but we needed a platform over there and it was worth putting some goodwill or intangible assets on your on your books. This.

This point, we are we are in a lot of places and we're in a place we want to be.

I don't I don't see us needing a platform somewhere if you could pick up npls off someone's books.

For a reasonable price that's a possibility but.

It has to be some something I'm not thinking about right now in terms of acquiring a platform.

And I'll just tell you that.

Your rating agencies, they're not they're not big fans of negative.

Negative tangible common equity ratio isn't all that so I am very cautious on that matter and then lastly is a joint venture.

I think we might have been asked that question in Q1 sometime ago and one of the things I have an issue as joint ventures is we've got a lot of capital and I think the most precious thing we have is our relationship with our sellers and if you had a JV or you're kind of given some of that secret sauce away. So I think only time I would think about something.

Got to somehow if somebody brought a.

The legal legal collection costs.

Really as I was talking before about inventory that's really around.

The cost for placing.

Those accounts.

Through the legal channel the legal fees.

Are the sort of the commission's to external league.

Illegal providers and so those'll move in tandem with.

Legal.

Cash collections from from third parties. The agency fees are really driven by.

We're we're using third parties for collections and that's predominantly.

Outside the U S.

Particularly or Brazil.

Activity. So the drivers of those can be very disparate I would caution against kind of lumping that altogether and then the other one that you threw in there was outside fees and services. That's that's everything from corporate legal costs consulting.

Consulting fees that were spinning in the business to.

Debit card interchange fees and things like that roll-up there. So that's.

Again, I wouldn't I wouldn't lump them all together to model.

Okay. Thanks, so much for the very I really appreciate that.

Thank you and the next question comes from Rob.

Dodd with Raymond James.

Hi, guys all on any prepared remarks, Kevin I think you mentioned I always think that.

Material increase in in charge of.

When that happens could call out some tideline tell us I mean that just is that based on any of your any of those.

Human Webex calls, you've you've had with those banks or is that more of a of.

I have a hypothetical it would make sense, if it happened and spat.

More an assessment of whether it makes national economic sense, all based on conversations you bet.

No.

I'd say.

It doesn't come out of the Webex calls it really comes out of just our experienced in the global financial crisis, and we saw it happen there on to varying degrees back then and so it's just one of those things writes one of those things that just give people that extra X.

Extra kick over the finish line and if you think about it Robert you've been around long enough probably to remember.

Those guys left the market back in what around 2013.

Somewhere around there because finance problem in the world is so changed the world I mean, it's a hold it's post CFPB world and it's.

The requirements are it's again, it's just a whole different world. So I think.

You've got a lot of distance between note goes original compliance concerns back in 27 years ago. You have got if you get a kick in the pants, a little bit for for charge off rates and goodness. If some of the analysis, we've seen if they do indeed double that's.

That's a pretty it's a pretty strong kick. So it's just it's just a hope.

And it's just something we saw in the GSC. So that's why I mentioned it.

Yeah absolutely.

It makes sense [laughter].

It does make sense on and then on the the question of the calves.

Yeah, and then you've addressed it obviously.

Now you're pulling things Ford.

How long would.

Good.

Would this kind of outperformance need to continue before you would conclude that made me at comp E. I guess it can be just put forward about how what what's the Mexican how long would this need to continue before maybe you'd make the adjustment to say that it's not just to pull forward the data.

It is a a rise in the the gross amount of collections, you're gonna get some nice accounts.

Yeah, I think that's gonna depend on.

A variety of things one is.

How do we how do we see and observe.

A return to our expected sort of seasonality, particularly in the us business.

Think also it's going to depend on and some respect on.

Sort of how long have the vintage has been on book.

To the extent.

Something's been on book for a longer period of time, and we see kind of a return to normal patterns, we might we might do different things with different vintages, depending on just how new they are.

Because again these are.

Particularly if you think about like.

2019, or even 2018 benches, we haven't we're in the front part of that curve. These are tenure curves that were pricing too.

We've never seen anything like this ever before in company history. So.

It will take some time to evaluate.

Exactly before we know whether it's.

Betterment or not.

Got it cut I appreciate it thank you.

HM.

Thank you and that concludes our question and answer session as well as a call. So thank you so much for attending today's presentation.

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