Q4 2022 PRA Group Inc Earnings Call
Good afternoon, and they'll come to their P. R. E. Two Q4, 2022 conference call all participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by Seattle.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Mr. Najib Mastermind Vice President of Investor Relations for P. R. E Group. Please go ahead Sir.
Thank you good evening, everyone and thank you for joining us today.
With me are 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 beliefs projections assumptions and expectations, we assume no obligation to revise or update these statements.
We caution listeners that these forward looking statements are subject to risks uncertainties assumptions and other factors that could cause our actual results to differ materially from our expectations.
Please refer to the earnings press release, and our SEC filings for a detailed discussion of these factors the earnings release, the slide presentation that we will use during today's call and our SEC filings can all be found on the Investor Relations section of our web site at.
Www Dot PRA group dotcom.
Additionally, a replay of this call will be available shortly after its conclusion and the replay dial in information is included in the earnings press release.
All comparisons mentioned today will be between Q4 2022 in Q4 2021, unless otherwise noted and our Americas results include Australia.
During our call, we will discuss adjusted EBITDA and debt to adjusted EBITDA for the years ended December 31, 2022, and December 31 2021.
Please refer to today's earnings release, and the appendix of the slide presentation used during this call for a reconciliation of the most directly comparable U S. GAAP financial measures to these non-GAAP financial measures.
And with that I'd now like to turn the call over to Kevin Stevenson our parts.
Thanks, Chief Executive Officer.
Well, thank you Jim and thank you everyone for joining us this evening.
2022 we're certainly not a normal year.
We witnessed inflation around the world reach multi decade records.
The dollar reached heights, not seen since the start of the millennium.
The people of Ukraine standing in defense from our Russian invasion.
And countries continuing to grapple with the challenges of COVID-19.
Like in many other times during periods long history, we have.
Successfully navigated these challenges.
And even more so we've been able to continue positioning ourselves for the opportunities. These challenges often bring such as increased portfolio of supply.
As I've said, often its economic downturns, where we actually become more relevant and important to the global economy.
Banks and other creditors generally removed charged off loans from their balance sheets fairly quickly typically six months here in the U S. However.
However, we are able to take a long term view. So we can purchase those nonperforming loans and help creditors recoup some of the value.
This keeps lending options open, especially when creditors or otherwise preparing to be more conservative.
We then use this long term view with our customers and work to resolve their accounts at an affordable fashion.
2023 is shaping up to be another important year for PRA group as we progress along the consumer credit cycle and prepare for the anticipated increase in supply.
Before you turn our attention the remaining year ahead I want to recognize a few of milestone we celebrated in 2022.
So first and foremost we celebrated our 20th anniversary.
As a publicly traded company by ringing the closing bell at NASDAQ in times square.
It's hard for me to process. The two decades have passed since we went public in 2002.
I'm proud to have been part of the maturation of not only the industry, but of our company.
When I look at what we've accomplished as a team I am I am truly amazed since our IPO we've grown ERC.
$200 million to over $5 billion.
We've grown revenue from $56 million to nearly $1 billion.
We've grown net income from $11 million to $117 million.
And we've taken this company from a small player in the U S to one of the world's largest purchasers of Npls with portfolios in 18 countries around the globe.
Speaking of our global presence, we also celebrated our 10th year of operations in the U K, which is where we started our European journey.
And back then we were mostly a U S centric that buyer, who invested in a small debt buyer in servicer and Kilmarnock Scotland.
That then lead to further expansion across Europe in 2014 and beyond.
Along the way, we had a philosophy to be one team.
Not just the U S company with some European satellites.
It took some time and effort however, we've been able to integrate our company into one PRA.
I was reminded that just recently when I visited our Kilmarnock office celebrating our 10th anniversary alongside local leadership employees and community partners.
More complete 40 members.
Our Kilmarnock team have now been with the company since before the acquisition.
In the U K is our second largest market and we're proud to have grown our presence not only there.
But across Europe over this past decade.
Our European Operation has been a shining star for us but.
But if you think back to 2016 to 2018, we were very vocal and transparent about the competitive landscape in Europe in.
In addition to numerous conference calls I remember attending a conference in commenting about the irrational pricing and in fact that competitors are making land grafts.
But instead of getting caught up in the market, we remain disciplined and purchased only what we can do so profitably.
At that same conference I said, many companies would have pulled out or downsized during times like this when we did the opposite we leaned in we invested heavily in digital data analytics and our workforce all of this set us up for a successful year in 2019.
Which we built on through today.
In 2022, our European collections were 113%.
Our December 31, 2021 seafood curves.
Well at the same time, we achieved record cash efficiency in Europe .
These and other achievements are reflective of nearly three decades of success and the other.
The result of constant planning setting goals, achieving those goals and raising the bar even higher.
This brings me now how we executed against our strategic objectives in 2022.
So first.
We continue to expand our products and market share.
A key component of this objective is to be more geographically diversified as seen most prominently in our growth in Europe , we achieved record cash collections in 2022 on a constant currency adjusted basis.
Okay.
This represents consecutive growth in each of the 10 years that we've operated in Europe .
Throughout the year, we also invested in all but one of our operational markets.
Alongside continuous continued strong performance in the U K, we're especially pleased with our developments in other parts of Europe , particularly.
Particularly the Nordics.
We also purchased the test portfolios.
New products in Europe .
These investments have given us important data that could expand our addressable market and provide opportunities for growth.
Looking beyond Europe 'twenty 'twenty. Two also represented the first full year of collections in Australia.
Since we began purchasing nonperforming loans there in 2021 we scale up our team and locked in some important forward flows while successfully collecting on the portfolios we purchased.
It's still early days, but I am more than pleased with the progress we've made thus far.
We also continue to evaluate M&A opportunities across our core business and adjacencies to drive growth and diversification.
Last year, we hired a new head of corporate development to help us evaluate opportunities that either enhance our existing footprint give.
Give us new skills or capabilities.
Provide access to new creditor relationships and data.
Or allow us to enter a new market.
Along with purchasing more portfolio as we see M&A as another lever, we can pull to drive long term shareholder value.
We're being very strategic and very disciplined in our approach, while making sure that we are well positioned to quickly pursue the right opportunity when it materializes.
The next objective is focused on modernizing our collections and improving efficiency at all levels.
We're always leveraging our data and analytics to improve our predictive scoring models test new data sources and.
And optimize our various collection channels.
Our digital platform is now established in all of our operational markets and it continues to drive significant portion of total collections.
Since 2019.
Global digital collections have increased over 80%.
Not only is digital help us collect more efficiently and cost effectively but it's also giving our customers a greater level of level of control that.
<unk> was previously unheard of in our industry.
In the U S.
Digital collections have increased 25% since 2019.
We continue to build out our internal legal capabilities shifting more accounts from external attorneys tour internal legal department and this has helped improve efficiency and increase our data knowledge.
Domestic call center productivity productivity also increased compared to 2019 as we recognize the benefits of recent improvements in scoring analytics. When you combine that with the growth in digital this is resulting in fewer collectors being needed.
In Europe .
We revamped our customer payment websites and increased our digital collections and achieved record efficiency.
These accomplishments are the product of the work we've done over the past few years to invest in digital platforms infrastructure automation and integration into supporting systems.
Our third strategic objective is to be a recognized and trusted brand.
We continue to increase our interactions with regulators and elected officials to control our own narrative.
Since 2018, we've invested significantly in government relations, we now have a seat at the table.
Key stakeholders proactively contact us to seek our opinions.
Over the past year, we've met with more than 300, local state and federal legislators and their staff. We've tracked hundreds of bills and proactively worked on dozens that would have an impact on our industry.
Our work has enabled us to build meaningful relationships create and leverage coalitions and influence impactful legislation.
And finally, our fourth strategic objective is fostering a high performing workforce our employees drive our success and we continue to respond to their needs and whether that is designing and building financial literacy programs work.
Launching employee resource group the hundreds of employees already participated in.
On a personal note continuing bi weekly dialogues to hear directly from our employees to better understand their needs.
In 2022 we continue to serve the communities, where we work and live around the world through donations and volunteer efforts.
Proud of our employees and their generosity and their heart forgiving.
Their efforts bring to life the values that make our company great. We are really one company one team worldwide.
Yeah.
Now turning to Q4 total cash collections were $392 million globally, 17% decrease year over year or 13% decrease on a constant currency adjusted basis.
The decrease was primarily driven by lower portfolio purchases in 'twenty, one and 2022 due to just the overall lower volumes of portfolios offered for sale.
As you may remember the excess consumer liquidity of 'twenty, 2020 'twenty, one drove U S delinquency and charge off rates to historic lows.
This reduced the number and size of portfolios available for sale over the past couple of years.
We believe this trend maybe starting to reverse as demonstrated by our higher purchasing this quarter, but.
Low level of supply in recent quarters, certainly has impacted our collection results.
Net income for the quarter was $16 million.
Quarterly portfolio purchases were $288 million up 43% year over year, and representing the highest quarterly amount since Q3 2021.
56% of those purchases were in Europe .
Okay.
Taking a closer look at our purchase this quarter we.
We invested $128 million in the Americas, which.
Which represented a sequential increase in purchases for the third quarter in a row.
So after a few quarters of consistent supply and pricing there appear to be more signs, suggesting credit normalization in the U S.
Our existing forward flows so fresh paper.
We started to see small, but constant month to month increases in the volume in the fourth quarter.
And this trend has continued through February .
In addition, as banks are releasing their metrics around delinquencies charge offs and loan provisioning, we're seeing continued credit normalization.
In Europe , we invested $161 million during the quarter, we invested in every operational market, except for one including some markets, where we havent purchased in some time.
We deployed $407 million in portfolio purchases throughout the year and.
And we also saw an uptick in returns on portfolios that we purchased in Q4.
The competition in Europe can vary greatly by market.
But we're encouraged by our wins in 2022.
So a few comments about some of our markets.
The UK market has not seen an increase in charge offs and thus limiting fresh supply.
This has caused some more competition in recent quarters. However, we have been successful in that market.
Due to the significant flows the secured and the relationships we have with major sellers.
In Spain.
A market that we've been very vocal regarding elevated pricing. We remain disciplined however, we did purchase a couple of portfolios there in Q4.
And hope sign of things changing in that market.
Lastly, the Nordics market have continued to be increasingly important for us in.
In 2022, they represented nearly 30% of our European purchases.
Five years ago, the only represented 15% of our European purchases.
Europe overall has been a strong driver for PRA group, especially in last few years.
In 2017, our investments in Europe , we're roughly 25% total purchases and now just five years later in 2022, they make up closer to half.
Given our strong balance sheet access to funding and the fact that we are truly a global debt buyer, we've been able to successfully invest broadly across the globe, which we believe is a key competitive advantage.
Looking ahead.
We expect higher volumes in nonperforming loans in 2023, and this is based on some of the leading economic indicators that we've been frequently sharing.
Active U S credit card balances for example continue to climb and have set a new record since hitting a trough in early 2021.
Balances in Q4, 2022 exceeded their pre pandemic levels by 11%.
Certainly we all seeing the same data.
But the question I, sometimes get is so what so why does that matter. If wages are continuing to go up shouldn't they theoretically helped offset the rising credit card balances and you might think so.
But actually it's not the case. This next chart helps to illustrate that.
So even though wage has been increasing they're not keeping up with the increase in personal expenses.
And what's more is it a bigger portion of disposable income is going towards the consumers that as you can see on this chart household debt service payments have been trending higher and it reached pre pandemic levels.
For the past few quarters now we've also seen credit card delinquency rates and more recently charge off rates rise from their trough in 2021, and we believe these metrics will continue to trend higher.
This is increasingly supported by many public banks and other creditors, who are continuing to build their reserves and project higher loss rates in 2023.
With that I'll turn things that repeat that go through our financial results in more detail.
Yes.
Thanks, Kevin.
Total revenues were $223 million for the quarter nearly $1 billion for the full year.
Total portfolio revenue was $219 million with portfolio income of $185 million.
And changes in expected recoveries of $34 million.
During the quarter, we collected $19 million in excess of our expected recoveries.
Which represented consolidated over performance of 4% with Europe over performing by 11%.
For the full year, we collected $107 million in excess of expected recoveries, which represented consolidated over performance of 5%.
With the Americas over performing slightly in Europe over performing by 11%.
We continue to observe more normalized collections with sustained over performance in certain vintages.
This has given us the confidence to modestly increase our ERC forecast for those vintages, which drove a positive change in estimate of $15 million.
Operating expenses for the fourth quarter were $164 million and $11 million decrease driven primarily by lower expenses in our U S business.
As well as the strengthening of the U S dollar against European currencies.
Net interest expense for the fourth quarter was $35 million, an increase of $3 million, primarily reflecting increased interest rates.
On a consolidated basis, we're roughly two thirds hedged to fixed rates. So we've mitigated a good portion of the impact of rising rates, but we will continue to feel some impact of higher interest costs going forward.
The effective tax rate was 29% for the quarter and 23, 8% for the full year <unk>.
Consistent with the guidance of low 20% range, we provided on our third quarter call.
Net income was $16 million, which generated 41 in diluted earnings per share for the fourth quarter.
For the full year net income was $117 million generating $2 94 and diluted earnings per share.
For the quarter cash collections were $392 million compared to $474 million in the fourth quarter of 2021.
Cash collections in the quarter were negatively impacted by $23 million due to the stronger U S. Dollar.
For the full year cash collections were $1 $7 billion.
<unk> to $2 $1 billion in 2021.
The decrease was driven by excess consumer liquidity in the prior year, which accelerated collections in 2021.
Coupled with lower levels of portfolio purchasing in 2021 and 2022.
As well as the impact from the strengthening U S dollar.
Comparing our full year collections on 2021 and prior vintages to our year end 2021 here see projections America's was right on target with Europe over performing but 13% <unk>.
Resulting in consolidated over performance of 5%.
For the quarter Americas collections were $234 million, a decrease of $61 million.
For the full year Americas collections were $1 1 billion, a decrease of $279 million driven primarily by the excess consumer liquidity of last year and the impact of lower portfolio purchasing.
We have experienced some early underperformance in the 2021 vintage in Americas core.
This was driven by Brazil, where we took a write down earlier in the year.
As well as softer collections in the U S Court vintage, which we've been monitoring.
This could be driven somewhat by inflation or by other factors is this vintage includes the cohort of consumers, whose accounts were charged off during peak stimulus periods.
Yes.
European cash collections for the quarter decreased 12%, but grew 1% on a currency adjusted basis.
For the full year European collections decreased 8%, but grew 4% on a currency adjusted basis.
The purchases we've made over the last few years, particularly in the Nordics.
Continue to drive the growth of our European collections.
Our cash efficiency ratio was 58, 6% for the fourth quarter.
61% for the full year.
Representing the high end of the full year guidance, we provided at the end of the third quarter.
The year over year decrease was largely due to lower cash receipts.
But it's worth noting that our cash efficiency remained strong and was still higher than pre pandemic levels.
Due to the capacity in our U S. Operation. We believe we can increase our purchases to some degree without increasing the number of collectors.
This would positively impact our cash efficiency ratio.
So with the ramp in supply we are expecting as we generate more cash and build on the operating efficiency improvements we've made over the past few years.
Offsetting this somewhat will be the expected build in our legal collections channel as supply ramps up.
As a reminder, there's a timing lag when we invest in our legal channel.
Typically there's an upfront cost paid to the courts when lawsuits filed.
Following several months later by cash collections starting to build.
This distorts the cash efficiency ratio in periods of increasing legal placement.
We saw something similar in 2018, when a significant increase in accounts placed in the legal collection channel resulted in a temporary dip in our cash efficiency ratio.
As we stabilize legal placement levels and generated more collections in 2019, we saw the ratio climbed back higher again.
We have experience to build and available legal inventory and expect to increase our legal placements in the first quarter of 2023.
With legal costs estimated to be in the mid $20 million range.
Taking into consideration all of these factors, we expect our full year 2023 cash efficiency ratio to be between 60 and 61%.
ERC at December 31 was $5 7 billion, 38% in the U S from 53% in Europe .
The decline from the end of 2020, one was largely a result of currency translation.
On a currency adjusted basis, ERC, whatever would've remained level at $6 billion.
We expect to collect $1 $5 billion or ERC balance during the next 12 months.
And based on the average purchase multiples we've recorded in 2022.
We would need to invest approximately $838 million globally over the same timeframe to replace runoff and maintain current <unk> levels.
We believe this level is attainable, but continues to depend on normalization of the U S market, we expect to happen in the coming months.
Yeah.
Our capital position remains strong with leverage ratios at the low end of our long term target of two to three times debt to adjusted EBITDA.
At the end of the quarter, we had $1 6 billion available under our credit facilities.
$465 million of which was available to borrow after considering borrowing base restrictions.
Additionally, in the last 12 months, we generated $1 $1 billion of adjusted EBITDA, which we use as a good proxy for cash generation and shareholder value being created.
During the quarter, we completed the renegotiation of our European credit facility.
Simplified covenants reduced borrowing costs and extended the maturity to 2027.
Earlier this month.
We completed a $400 million offering of senior unsecured notes.
Due to the robust demand for the notes, we were able to upsize the offering to $400 million with pricing at the low end oriented stated range.
$345 million of the net proceeds from this offering will be used to retire our convertible notes maturing in June .
With the remainder used to pay down our revolving credit lines.
Although we will see a slight uptick in our leverage metrics in the first quarter.
<unk> leverage neutral and improves our maturity profile.
Our funding position is strong and we have ample capacity in all the markets, where we invest.
Now I'd like to turn things back to Kevin.
Yeah.
Alright, Thanks Pete.
Two was another strong meaningful year for PRA group led by the performance of our European operations.
And while not producing the same record results we experienced in 2020 'twenty 'twenty. One this past year was certainly one to remember.
We celebrated our 20th anniversary as a publicly traded company.
Our 10th anniversary in Europe , and completed 26th year in business, which is not something many companies in our industry can say.
Since our humble beginnings of expanded in 18 countries and have grown to employ more than 3000 talented individuals around the world.
We have seen and experienced a lot during this past two decades.
I believe the time is near for us to enter the next phase of the consumer credit cycle. One that is marked by strong and increasing supply.
Frankly, we thought this was going to happen exiting 2019, and entering 2020, but then COVID-19 happened and we all know what followed.
That being said, we remain disciplined in our purchasing.
We strengthened our balance sheet.
We remain focused on the customer and delivering on our strategic objectives, and we continue to invest in our employees technology and operations.
These areas of focus have been pivotal to our success for nearly three decades and will be even more critical to our success going forward.
We are ready to help millions of people around the world resolve their debt.
And we are ready for the next phase of growth as we continue to deliver value for our employees customers partners communities and shareholders. So operator, we are now ready for questions.
Yes.
Thank you we will now begin the question and answer session.
I'll ask a question you May press Star then one on your Touchtone phone, you're using a speakerphone. Please pick up your handset before pressing the keys.
But anytime Youre question has been addressed than you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
The first question comes from Bob Napoli with William Blair. Please go ahead.
Hey, guys good afternoon.
Nice to talk good results here.
Got it.
A question on the changes in expected recoveries I mean, you guys had some nice outperformance.
Yes, obviously adds a volatile revenue stream.
Again, how should we think about how you're positioned.
As we.
Think about over or under performance in 2023.
Yes, I think.
Bob as we've talked about on prior calls we've we've taken an approach with our <unk>.
<unk> forecast where were.
We're really focused on what's happening in the near term what's the latest trending.
And over time, we've we've kind of been able to try and dial that and so we went from.
You'll have an excess of $200 million of over performance and.
In 2020 in 2021 to being under under 100 million. This year for the full year $88 million and we've continued to sort of get closer to the pen each quarter.
I think we continue to try and try and do that but as you know this the.
This asset class is not one that's highly predictable. So we tend to give our best view at the end of each quarter and true that up.
As we go along.
Thank you.
You sound, a little more optimistic about Europe than maybe I expected just.
Any commentary.
Supply I think had been slower to ramp up in Europe .
Oh, yes.
Macro there isn't.
Not quite as that as the U S. I don't think so just any commentary on your.
The confidence that you have there in Europe .
Yes.
We've been obviously very pleased with our performance of Europe and.
And if you look at look at some of the things that have occurred in terms of buying for example.
We've shifted some buying out of the U K and the Nordics.
Just on that for you in the script.
The nordics will become even more important.
I think that the.
The small wins, we had in Spain are really interesting because we havent purchased there in quite a while.
There have been sellers, who had exited the market for some period of time reenter in Europe .
There have been some.
I guess, we would call it unexpected deals come to market in Europe and so.
That's what we're talking about and besides just the raw performance, which has been great. You know again 10 years of increasing cash collections.
This.
This volume that we've seen.
It Hasnt increased in my script, I said, we haven't seen charge offs.
But we're just seeing these these green shoots so to speak.
Kind of all around the geographies so.
Just kind of sharing what we're seeing.
Thank you and then.
Yes, if I could just sneak in one quick one on you talked mentioned new products several times.
Can you maybe give a little more color.
On those new products are you active in like the buy now pay later space or.
Yes.
Hello.
New products.
Sure.
One thing that I thought I thought you might ask that question.
One of the things Yeah, one of the things I thought about was tell you what it's not so.
So we're not buying a bunch of real estate secured stuff.
<unk> for example, or anywhere else you know so.
But it's generally unsecured paper.
It's generally in other in geographies, where EMEA, maybe haven't bought from a particular seller.
And I think that's.
I wouldn't quantify it I don't want to put a label and whether it's buy now pay later or peer to peer or.
Just think it's kind of the same product, we might've been buying in one geography and not another casino one of the thing that's interesting about Europe .
Is the banks for example.
You know can operate as independent.
Independent bank, so to speak across different geographies, so if youre dealing with bank, a and the U K you might not be dealing with the same people in Spain, or Italy or anywhere else. So sometimes we are buying a little bit different products across those geographies.
Okay. Thank you I appreciate it.
Yeah.
The next question comes from David Scharf with JMP Securities. Please go ahead.
Hey, good afternoon. Thanks for thanks for taking my questions.
Wanted to shift to the cost side.
And maybe question.
The key here.
Yes.
As you noted there are always a lot of competing dynamics.
So it's timing related such as ramping up for renewal.
Channel again.
And macro related.
But.
Now notwithstanding sort of the 2023 guidance range for efficiency ratio.
Kind of wondering as you think about the progress you've made in digital.
Some of the other productivity enhancements, both domestically and in Europe .
How should we think about it I mean do you think about a peak efficiency ratio in this business I mean, I know we saw just some.
Crazy stimulus early 2021 levels.
65, 67% range.
Yes, that's probably got the answer but is 60 61 a year behind.
A normalized level or you see other laws for Goldman.
All the different investments you're making.
Okay I think.
You rightfully pointed out kind of pressure that we're seeing.
So this cycle I've talked on prior calls about the fact that we've got some slack in the system.
But we feel like we'll be able to.
Absorb increased purchases without.
A one for one ramp in variable costs associated with that.
So that said I don't I don't think the.
Level that we're forecasting for 2023 and that kind of low $60 range I don't feel like that's in any way.
The long term trajectory for this business I think we'd like to push our efficiency back to levels. We saw during the pandemic and beyond as we think about.
Continuing to drive efficiencies in the core operation and thinking about.
All other elements of our of our cost base and trying to continue to improve and drive efficiency in the operation.
Okay.
Got it.
That's helpful. Just trying to gauge kind of what.
Sure.
Essentially ceiling is.
Shifting to the purchasing side I know in years past.
The caution.
That anytime there is significant.
Quarterly performance in Europe , regardless of the content, you're buying from but very often very lumpy that it might be.
Hey, you know what.
One or two banks unloading some nonperforming loans it was.
Is that the case in this quarter should we read this.
More broadly as well.
More supply coming down the Pike in 2023 out of the Nordics countries. Besides.
Okay.
Yeah, I think I think.
What Kevin was trying to say in his prepared remarks was was it was pretty broadly dispersed across.
All of our geographies in Europe during the quarter, we did have.
Some some larger deals in the Nordics.
But we also bought in all but one of the markets and so it's a yes.
Yes, it's a really great quarter in terms of geographic diversification.
Okay, and maybe just.
One quick follow up.
Just to clarify.
Okay.
Is that primarily a non credit card market for years that correct.
I mean is it similar like mostly personal installment loan.
Personal loans like the Catholics, the other markets in the continent or is it mostly correct.
No. It's it's more geared towards credit card paper quite frankly in the UK.
Got it.
But as Kevin said, we're still not seeing we have some forward flows in that market, we're still not seeing any real change in fresh charge offs.
I'd say the U K market, maybe it was a little behind the U S market in that regard.
But there has been.
Other types of back book sales and things like that that have supported the market broadly.
Thank you.
The next question comes from Mark Hughes with Childress. Please go ahead.
Yes, Thank you and good afternoon.
Yes.
Properly.
Hello.
Thank you said the.
Change in estimates.
The $15 million and that was a component of the change in expected recoveries.
That's correct.
Playing the over performance in the quarter was $19 million my thinking about that properly.
Yeah, that's that's a round numbers that's right over performance in other kind of cash adjustments that happened in the quarter put backs and things like that.
Okay.
And then the elevated legal spending does that continue at the same level on a go forward basis, but it's offset by better collections or does that.
Taper at some point.
And if so when.
Yeah, I think that's going to be we've only given guidance on the first quarter I think that's largely going to be contingent on.
You know how the inventories continue to build and.
Frankly, we would expect it to normalize and go a little bit higher as we start investing in more portfolio.
So I think it might be a little lumpy quarter to quarter as we go through this year. So we'll try and give color as and when we feel comfortable releasing that.
Okay.
Kevin what was your comment that you made about returns in the U S. Maybe starting to improve a bit.
Expand on that if possible.
Sure Ken.
I was thinking about that before the call and if I could maybe.
Give some color kind of broadly about how things how things kind of unfold, but.
So we are so we are seeing again I would say in the U S. But also across the globe. So we are seeing some some increase our improvements to yield.
But what.
What you tend to see.
When the market is transitioning right so markets transitioning from from where we were to where we're going it's not it's not easy a smooth progression, it's kind of jerky.
And so so yeah, we've seen and won some deals at higher returns and we've also.
Lost some deals bidding at higher return so we've.
We've seen as I mentioned before we've seen some sellers that maybe it's well it stopped selling in Europe . They reenter the market. We've seen some deals that we didn't expect to see.
One of the things I read in my script was this.
The fresh flows we have in the U S are starting to increase their increase.
It's kind of a small progression every month, along the way and we're still seeing that in the February so yeah, but that's it's a little spotty right now, though and it'll it'll continue to do that and it'll settle in at some point too I.
I think appropriate levels, given credit normalization, but also kind of the reality of increased funding.
The cost of increased funding across the globe. They just have to go up just for that alone.
Yes sure.
Your forward flow agreement.
Europe .
If I'm reading it properly maybe down a little bit.
Is that.
But the timing is right to be more active on the spot market or is that just the ebb.
<unk> been flow of things.
Okay.
That's a combination of sort of elaboration of time, because remember we're forecasting those to kind of new.
Breakpoints in the contracts.
But theres also.
Feature and some of those European agreements, where there they reset periodically based on the sellers latest forecast of what they are anticipating volumes to be.
So thats just reflective of yes.
The fact that.
The fresh.
Charge offs supply in Europe , particularly in the U K has been slower to develop them.
And what we would have anticipated at this point.
Okay.
I think that was said I appreciate it.
The next question comes from Robert Dodd with Raymond James. Please go ahead.
Hi, guys.
Congratulations on a quota question.
Yes.
Coming back on legal collection and.
Our legal fees and costs combined I mean, you mentioned 2018 in your prepared remarks.
18, combined two numbers were 150 million Bucks.
And 'twenty two onwards, it was 115 watt claimed purchase.
The environment or E C.
Acquisition.
Necessitate moving back to that $1 50 level or is that just going back to that given the.
The investments you've made in two.
Capabilities on that side.
Okay.
Yes, I think there's there's two components there right.
As you rightfully pointed out there is the cost component, which.
In simple terms is that kind of what we're paying to the courts to.
Yes.
<unk> filed the suits outside the U S. There are some markets, where there are largely legal driven and those will flow into into that line item as well.
And then the legal fees, which is really that sort of commission on collections that were paying too.
Yes to the external firms.
What I was referring to really was that court cost component and the fact that we anticipate that to build here in the in the first quarter.
R R.
Backdrop of our operation has dramatically changed since 2018.
In terms of the build that we've done in our internal legal collections capabilities and the fact that we're we're play.
Placing a lot more of our of our legal collections internally versus versus with the external firms and so we'll have a much better margin on that as a as the collections do come in in the future.
Got it thank you for that Oh, another one on that.
The internal collectors perspective, you've driven tremendous efficiency, you talked about potential for more with digital et cetera et cetera.
But in the context, obviously, but that's been Noah EIC less to buy it.
Well.
What point do you need.
Need to stop driving that head count.
Hi.
Concerned about your efficiency ratio, because you're giving us guidance for that for this year, but as much about that.
The capacity at heart.
Certainly.
If you need supply desktop you need to ramp it back up do you need to start doing that.
Six months in advance of when you actually think you need them given.
Okay.
The time to hire and train and get the right people et cetera, how are you thinking about that.
Yes, Thanks, Robert it's a good question.
It's not like it used to be and so when it comes to the ramp up time. So first of all I'll tell you is that I do.
Doubt very seriously.
Youll see us at 3500 collectors again I think that.
We could buy so much paper and be far less than that number given how much digital and how much are scoring analytics have improved everything and so.
And I'd also say that our training times.
Maturation times have greatly sped up.
No.
As you look at US right now we're at.
797, just about either.
<unk>.
And we are at about 830 at the end of last quarter and here. We are entering tax time, right with that kind of level of people and we're very comfortable with it. So it's it's been it's been quiet again I used the word maturation and I think that's got really summed it up so.
It isn't it isn't.
Again quite like the old days, so I hope that does that answer your question.
It does it does thank you yes.
Hum.
Yeah.
Coming back anytime soon.
Yes.
If I can.
Obviously the tax the tax rate for the year was right in line with your guidance did you give them.
Guidance for tax rate at 23 or is it the same.
Right.
2020.
Yes, I think we're going to be in that similar kind of ZIP code for for the full year this year kind of.
And the in the low to low to mid 20% range.
Got it thanks.
The next question is just follow up from Bob Napoli with William Blair. Please go ahead.
Alright, thank you.
Wanted to see if you could give any more color on digital because it does seem to be.
Industry game changer, if you will.
What was the growth in digital collections could you give us I know you havent given the percentage of collections, but any color you can give on.
How much debt is changing the game if you would.
Yeah sure.
So what I said in the script was that.
Digital collections globally since 2019.
It's been up 80% overall eight zero percent.
And in the U S. Because we started digital earlier in the U S. It's up about 25%.
And I was just talking to some folks before the call and we've given some statistics some time ago.
And there are still generally true is that the digital platform is still collecting on order of as much as our two largest call centers. So it's it's continuing to produce at the U S. Obviously U S.
Yep.
Okay, Alright, and then on purchases I mean, looking at delinquencies and the growth in credit card debt.
To add some some good charge it does seem like charge offs as we normalize through the year could be up substantially.
Do you expect quarter to quarter to quarter to purchase more.
That out of the out of the U S. I mean, I know it can be a little bit lumpy at times.
Is that what you based upon the amount of debt it seems like to us like.
You could add materially higher purchases in the back half of the year in the U S.
So yeah I think first of all I'd expect these rates to continue to normalize I. Just think it's just again I don't want to oversimplify, it but I think it's just math.
Those things are going to happen.
And if you link that together with what I had said about our forward flows how they've been it's just a constant movement upward one step forward one step forward one step forward and pretty soon you have got.
Pretty substantial increases if you look at where we're at today versus where we're at today in October .
And so and the trend has continued and so I think that's that's what you should expect to see.
Yes, again, the open market bidding I addressed earlier questions that can be a little spotty, but yeah.
Yeah, I think we would expect to see just a continued dripping of that those flows are increasing.
Thanks, and then just.
Lastly on the.
The M&A I mean, you've brought up M&A, just so we're going to wake up one morning, and theres going to be an announcement to PRA acquired such and such.
Should we expect.
Should we expect.
A new market.
Similar.
The current business.
European player or should we expect something.
Tangential or related type of business, but not in the maybe the debt purchasing business just any color. So we're kind of we can be prepared for what we might see.
Yeah well.
Let my script Standalone Bob.
It's we are we are looking at all of those things.
I wrote in the script I thought hard about it to try to give you guys a feel.
But again this whole idea of either expanding the footprint new skills.
Capabilities.
New access to data, but again, new market new market, which would include as you said tangentially related market is not out of the question by any means so.
We'll try to give you some heads up as best we can but we're being very strategic about it.
And I know, sometimes it's hard to be disciplined and strategic but be able to be flexible and fast enough to react when something comes up but where we're trying to do all of those things at one time.
Thank you I appreciate it.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to Kevin Stevenson for any closing remarks.
Well, thank you very much operator, and thanks, everyone for joining the call. This evening and I guess, all I can say as we look forward to speaking to you again.
Next quarter.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may all now disconnect.
Yeah.
[music].
Yes.
[music].