PRA Group Inc. Q1 2023 Earnings Call
Good evening and welcome to PRA group's first quarter 2023 conference call.
All participants will be in a listen only mode for the duration of the call and should you need any assistance during that time. Please signal a conference specialist by pressing the star key followed by zero.
To ask a question you May Press Star then one on your Touchtone phone.
Please also note that this event is being recorded today.
I would now like to turn the call over to Mr. Jim Most demand Vice President Investor Relations for PRA Group. Please go ahead, Sir thank you.
Good evening, everyone and thank you for joining us.
With me today are Vic a tall, 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.
<unk> presentation that we will use during today's call and our SEC filings can all be found in the Investor Relations section of our website at Www Dot PRA group Dotcom.
Additionally, a replay of this call will be available shortly after its conclusion.
The replay dial in information is included in the earnings press release.
All comparisons mentioned today will be between Q1 2023 in Q1 2022, unless otherwise noted and our Americas results include Australia.
During our call, we will discuss adjusted EBITDA and debt to adjusted EBITDA for the 12 months ended March 31st 2023, and December 31 2022.
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.
And with that I'd now like to turn the call over to Vic Ital, our president and Chief Executive Officer.
Thank you Jim and thank you everyone for joining us this evening.
It's a pleasure to be hosting my first earnings conference call SBR is new President and Chief Executive Officer.
Over the past 27 years, Steve Fredrickson, and Kevin Stevenson lead PRA from its inception to becoming one of the leaders in our industry.
I stepped into their shoes that humidity and deep respect for all that they have accomplished.
And I extend my deepest gratitude for the wisdom and insights they have shared to prepare me for this journey.
I also want to thank everyone at the company for welcoming and supporting me as I get settled into this new role on the other side of the boardroom table.
It has been fantastic to engage with so many of our leaders and employees across the globe over the past few weeks.
While these are still early days I am developing a deeper understanding of the business as it stands today.
And crucially I'm gathering more insights into areas of opportunity and growth.
My reviews and assessments continue to support the perspectives I had as a board member that PRT is business is on a solid foundation.
We enjoy an outstanding credibility and reputation among our customers investors legislators and other key stakeholders.
We possess one of the industry's strongest balance sheets, which gives us significant flexibility to capitalize on our global presence.
And invest in geographies, where we already have significant market share as well as in newer markets.
We have an integrated global business with relationships with key sellers around the world and operating expertise in all the markets we operate in.
We operate with a disciplined customer centric focus that is supported by a strong compliance environment.
And we have a strong base of deeply experienced employees, including our leaders who excel in their respective roles across every function and geography.
I have already had the opportunity to collaborate with team members throughout the entire organization.
And I can state with confidence that our talent positions us well for future success.
This is a great position for me to be in as an incoming CEO and particularly important as we position ourselves for the anticipated increase in the supply of nonperforming loan portfolios.
While I believe that our strategy is on target and our future is bright.
We do face near term challenges in our U S business.
Due to a combination of the weaker economic environment reduced consumer liquidity, and the resulting impact on cash performance and margin.
Looking ahead, I am committed to driving performance and results across economic cycles, and we are working to address the aforementioned challenges with urgency and intensity.
Already we have implemented several initiatives such as the reduction enforced mainly in our U S operations to rightsize the organization.
I have identified several near term initiatives to drive additional efficiencies, including continuing to optimize our collection strategy mix with an expansion of our legal channel for accounts that score highly and are not responding in the call Center.
And we are also evaluating the possibility of outsourcing and leveraging third parties for certain activities. We are now doing internally.
As we continue to assess these and other opportunities I want to reiterate that our overall strategy remains intact.
This includes building and deepening our seller relationships to boost up purchasing opportunities and drive market share growth.
Managing day to day performance as efficiently as possible, which is especially important in this challenging market environment.
Fostering a high performing workforce.
Strengthening our position as a recognized and trusted brand.
And maintaining our capital allocation priorities, leading with a core focus of purchasing nonperforming loans, while seeking opportunities to expand our addressable market.
I'm encouraged by the work we are doing to further refine our strategic focus Chris.
Crystallize, our business imperatives, and identify and address barriers to future success.
And I look forward to be at his next exciting chapter and doing everything I can to help us create long term value for our shareholders.
With that let's turn to some highlights for quarter one.
I am not satisfied with the results, we announced today as quarter, one presented several challenges, particularly in our U S business.
As we look ahead, we are examining our end to end processes to ensure we optimize cash generation and drive efficiencies.
Looking at our results for the quarter, we delivered total cash collections of 404 hundred $11 million globally.
Was primarily driven by lower portfolio purchases in 2021, and 2022 due to the overall lower volumes of portfolios offered for sale.
We also experienced a softer than expected tax season in the U S. This year, which impacted U S collections.
This increase in purchasing reinforces our expectations for a gradually improving supply environment and we continue to see leading indicators foreshadow any additional volumes entering the market in 2023 and beyond especially here in the U S.
Industry data shows active U S credit card balances continue to climb setting new record since hitting a trough in early 2021.
Balances in quarter, one 2023 exceeded the pre pandemic levels by 14%.
Credit card delinquency and charge off rates have also risen from that drops in 2021 to two 3% and two 6% respectively. Exiting 2022, and we believe these metrics will continue to trend higher, especially in non prime accounts.
As supply builds we will continue to practice prudent capital deployment.
And with that I'd now like to turn things over to Pete to go through the financial results in more detail.
Thanks Vic.
The first quarter was definitely a challenging period.
Driven largely by the impact of lower than expected collections in the U S business on the heels of lower buying in 2021 and 2022.
Which I will address in more detail shortly.
Total revenues were $155 million for the quarter.
Total portfolio revenue was $151 million with portfolio income of $188 million and changes in expected recoveries of negative $37 million.
During the quarter, we collected $4 million in excess of our expected recoveries.
Meeting our expectations on a consolidated level with Europe over performing about 3%.
This is a smaller margin than what we have experienced in recent quarters. Therefore, we didn't feel it prudent to adjust our curves higher in Europe .
Given uncertain economic conditions globally, and we intend to be cautious in terms of our ability to raise curves throughout the year.
After a strong run of 11 consecutive quarters of positive changes in expected recoveries, we experienced a negative result in the first quarter.
Which was largely due to underperformance in the U S business.
We experienced a much softer tax season than we had anticipated with U S collections missing our internal forecast by $10 million.
Which then prompted a reduction in forward looking New York C.
This resulted in a negative $31 million net present value adjustment.
Nearly half of this adjustment was related to the 2021 U S core vintage that we have highlighted is underperforming in prior quarters.
As a reminder, this vintage includes a large cohort of consumers, whose accounts were charged off in peak stimulus periods during the pandemic.
We believe this effect along with inflation and other macroeconomic factors are the drivers of this underperformance.
We believe our U S curves are appropriately set at this time.
Or given the continuing weak economic conditions, there may be some near term pressure on cash collections, which were monitoring.
It's worth reminding though that the factors that can cause near term collections pressure are also typically the same factors that historically have led to more portfolio of supply.
As consumers struggled to manage and pay downward.
Operating expenses for the first quarter were $189 million or $20 million increase driven primarily by higher compensation and employee services higher outside fees and services.
And higher legal collection costs.
The higher compensation and employee services expense this quarter was mainly due to severance expenses of $7 $5 million.
Our legal collection costs of $24 million were in line with the mid $20 million range, we communicated last quarter.
With the sequential increase being driven by higher volume of accounts placed into the legal channel.
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 from the lawsuit is filed.
Which was then followed several months later by cash collections starting to build.
We expect legal collections costs for the second quarter to be in the low $20 million range and approaching the mid $20 million range per quarter by the end of the year.
This reflects our anticipation of additional legal placement relating to accounts that have underperformed and the call Center.
Outside fees and services were up $6 million for the quarter.
Due to a $7 $6 million increase in corporate legal costs.
Primarily due to a certain case specific limited litigation expenses with a smaller contribution coming from Truing up our CFPB accruals following the previously announced settlement.
Net interest expense for the first quarter was $38 million, an increase of $7 million, primarily reflecting increased interest rates.
Our effective tax rate for the quarter was 26%.
Net loss attributable to PRA was $59 million were negative $1.50 and diluted earnings per share.
Okay.
Cash collections for the quarter were $411 million.
Compared to $481 million in the first quarter of 2022.
The decrease was primarily driven by lower levels of U S portfolio purchases as well as the impact from the strengthening U S dollar, which negatively impacted cash collections by $16 million.
For the quarter Americas cash collections were $254 million.
The decrease of $52 million, driven primarily by the impact of lower levels of portfolio purchases in the U S. Over the last few years as a result of the excess consumer liquidity of 2020 in 2020 one.
Which drove U S delinquency and charge off rates to historic lows and reduce the amount and size of portfolios available for sale.
In addition, the decrease was somewhat impacted by the muted tax season I mentioned earlier.
Which reduced the seasonal uptick from fourth quarter to first quarter that we had experienced before the pandemic.
We traditionally have experienced strong double digit sequential increases in first quarter collections in the U S.
Due to the timing of tax returns this year, we only experienced a single digit increase.
European cash collections for the quarter decreased 10%, but only 2% on a currency adjusted basis.
This represents over performance of approximately 3% compared to our internal expectations.
Our cash efficiency ratio was 54, 3% in the first quarter.
The year over year decrease was largely due to increased legal collection costs as well as the severance and corporate legal expenses that I mentioned earlier.
Excluding the severance and corporate legal expenses.
Cash efficiency ratio would've been 58%.
While the increased legal collection costs reduce the cash efficiency ratio at the time of investment.
We anticipate the ratio climb higher as we generate more collections.
We expect to achieve a cash efficiency ratio of 60% on a quarterly run rate basis by the fourth quarter of 2023.
Yeah.
Looking at our investments this quarter, we invested $133 million in the Americas.
Which represented a sequential increase from purchases for the fourth quarter in a row.
In the U S in particular pricing improved slightly during the quarter.
And our existing forward flows of fresh paper.
Experienced a sequential increase in volume from the fourth quarter of last year.
The economic indicators, we follow are continuing to move in the right direction, giving us confidence more supply entering the market in 2023 and beyond.
In Europe , we invested $98 million during the quarter.
Each represents one of the largest first quarter purchasing levels for Europe in Pra's history.
As a reminder, the first quarter is a seasonally low purchasing quarter in Europe .
From what we can see it appears that the rising cost of capital is beginning to impact the market.
This is something we've talked about for the past few quarters now given the higher interest rate environment and the fact that many of the European players are still over Levered.
We're seeing some evidence of improved pricing, although that's not consistent yet for every transaction across all markets.
There've been an increased number of re trades by competitors, which is essentially when a competitor sales part of their book.
In addition, several long term forward flows have not been continued by the purchasers of those flows causing that supply to return to the market.
And lastly, we're seeing some sellers pulled deals for market after failing to meet internal pricing guidelines, which we believe is another sign of pricing normalizing.
ERC at March 31 was $5 $7 billion with 37% in the U S and 54% in Europe .
He or she was roughly consistent with the end of 2022.
We expect to collect $1 $4 billion of our ERC balance during the next 12 months.
Based on the average purchase price multiples we've recorded in 2023.
We would need to invest approximately $848 million globally over the same timeframe to replace this run off and maintain current trc levels.
With the expected build in U S supply, we anticipate we will exceed this level of investment and begin to grow ERC as we close this year and move into 2024.
Our capital position remains strong with our leverage ratio within our long term target of two to three times debt to adjusted EBITDA.
And considerably lower if you give effect to the use of net proceeds from our recent notes offering.
At the end of the quarter, we had $1 $6 billion available under our credit facilities.
$437 million of which was available to borrow after considering borrowing base restrictions.
Additionally, in the last 12 months, we generated $1 billion of adjusted EBITDA, which we believe is a good proxy for cash generation and shareholder value being created.
During the quarter, we completed a $400 million offering of senior unsecured notes with.
With the majority of the net proceeds being set aside for repayment of our convertible notes that mature in June and.
And the remainder being used to pay down our revolving credit lines.
This has caused a temporary increase in leverage is we don't know the restricted cash against our borrowings.
As this chart illustrates on a pro forma basis, our debt to adjusted EBITDA ratio would've been 2.55 instead of 2.8.
For the second quarter, we're expecting net interest expense in the mid $40 million range.
Going beyond that once we repay our convertible notes, we would expect an effective interest rate in the high 6% range for the remainder of the year.
Ultimately, we believe our funding position is strong and we have ample capacity in all the markets, where we invest now.
Now I'd like to turn things back to Vic.
Thanks Pete.
While we experienced in quarter, one only a second quarterly net loss since we went public due to the items that we discussed we continue to generate strong cash flow with adjusted EBITDA consistent with the level, we generated in quarter four.
Perhaps most encouragingly we've repurchased.
230 million of nonperforming loan portfolios capitalizing on what we believe to be a gradually improving supply environment.
Looking ahead, we remain focused on accelerating our efforts to execute against our strategic objectives and deliver improved financial performance as we move through the year.
I believe we are well positioned to benefit from more supply and I'm encouraged by the opportunities that lie ahead.
As we look beyond 2023, I'm excited about where we are heading as a company.
I'm committed to guiding us that together as one team that is United by the coordination and strong values that have been central to our sustained performance.
Over the next few months, we will be participating in several conferences and engaging with current and prospective investors.
I look forward to interacting with each and every one of you as we maintain our focus on driving shareholder value and expanding our investor base.
Thank you again for joining us and for your continued support of PRA.
Operator, we're now ready for questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will take our first question, which will come from Bob Napoli with William Blair. Please go ahead with your question.
Thank you good afternoon Vic welcome to PRA.
Uh huh.
So maybe a big picture question first I mean, what what led you to accept this right to take this opportunity and what are the main things that you think you can add incrementally to the business.
Well.
You know, let me just go back and give some context.
Kevin Stevenson.
Stevenson served this company with them with great distinction for 25 plus years right and.
The board and Kevin mutually agreed.
Regarding his stepping down and.
As part of that process.
<unk> reached out to me to step in as a seal and up given.
My <unk>.
<unk> of the company. The fact that served on the board for.
Seven or eight years.
The view I had about the talent in the organization the opportunities for our business and understanding.
The situation I readily accepted and I'm all in.
And I guess, what incrementally do you want to.
As you looked at this what.
Uh huh.
I guess do you want to do incrementally more M&A or do you think that there's more efficiencies that oh yeah.
Another question hang. Thank you. Thank you Bob So look as part of the board.
Obviously, we've had a long I've had a long engagement with the company and.
Stepping in Vietnam Odyssey at one level of drinking from a fire hose right I'm trying to figure out everything that goes on yet it's one thing to serve on our board and operate at a 30 to 100000 feet and the other land at ground zero.
Ground zero now.
Our strategy is intact and that is no change that I am looking at are exploring or looking on with regard to the strategy I think what's happening is that.
The macro environment is complex at some level of challenging at some level. It provides opportunities with regard to the future buying.
I think the biggest item or the biggest items that I'm working on.
With regard to what I would call overall execution right how do we ensure.
That the pace and intensity.
The speed at which we operate internally is aligned.
With both customer expectations and market expectations right our customers each of us is wired.
For instantaneous.
Sort of interaction right with what are the what other companies are dealing with I do sort of buy something and you get something back in the second and how do we sort of take that prism and bring it back into the company.
And drive just sharper execution.
And drive better performance over time, so that's really where I see I'm spending a lot of my time on that and I see that's where the opportunities are for us.
In the in the sort of near term and then obviously, we've got to make sure that we are optimizing ourselves against our.
Our addressable market if there are opportunities to open up the market in terms of the geographies. We're already in that's great M&A I'm not spending time on M&A, but we've done M&A transaction the Boston.
They've been strategic and.
Opportunistic and if they come down the Pike of course, we'll take a look at that but that's not that's not the main focus of myself at this time.
Thank you and then for Pete.
I think typically when we go through cycles.
I guess, where you can go through a credit cycle. The IRR is on paper, you're able to buy it picks up significantly.
Just wondering if you're seeing that yet today and then I think you had suggested that.
Cash collections in the second quarter.
It started off a little bit slower.
Is that already built into your changes in expected recoveries.
Yeah, I guess, so on the first point I'd say, we've seen some modest improvement in pricing.
As we came through the back part of last year and continuing into the first quarter.
You know that our overall collections environment and.
In the U S. In particular this this quarter was with.
With challenging as I said in my prepared remarks.
We normally going back pre pandemic, we normally would have had a strong double digit increase Q4 to Q1.
Easily high teens, if not in the high Twenty's.
Percentage increase quarter over quarter.
And that was a single digit increase this year and so.
We're attributing that to the kind of the softer tax season, there was a lot of public commentary around around lower.
Lower refunds et cetera this year.
As well as just the overall economic backdrop.
And we.
We set our curves every quarter with our best our best outlook and.
We did that here in the first quarter I think we're optimistic that that.
Things are going to.
Performed well, but.
With the challenging environment, we just want to highlight that theres always the potential potential for more there.
Not that we see anything immediately.
On the horizon.
Yeah.
I appreciate it.
Okay.
And our next question will come from Robert Dodd with Raymond James. Please go ahead with your question.
Hi, guys. Thanks.
A win win.
When you you talked about the cash collection efficiency ratio getting up to a 60% run rate.
By Q4, obviously, you also talked about legal expenses, maybe ramping up into Q4, and there's also a work on production.
Uh huh.
For us in the U S I mean.
Is Q4 going to be kind of the peak for the year.
All in all the moving parts.
Jeremy maybe exit it at a 60% cash efficiency ratio.
Potentially it's it's not at that level.
Yeah Yeah.
Obviously with the start we've had we're not we're not likely to hit 60% for the full year. We were just trying to give some sort of trend guidance that we thought by the fourth quarter, we'd be at a run rate that would generate a 60% cash efficiency ratio, so kind of but by fourth quarter will be there.
And then my expectation is that would that would be kind of the floor as we move into 'twenty four and beyond.
Got it. Thank you and then on that pricing point I think in your prepared remarks.
You mentioned that a couple of sellers coal portfolios in the market because it wasn't hitting.
Yeah, the pricing expectations that pendulum, probably there's some resistance in the market.
The pricing moving much much more in your favor could you tell us how many how how broad base.
Okay.
Is that risk.
It moves.
Meaningfully the sellers just pull back.
That's a little bit of a dynamic.
In terms of what they want to achieve in terms of the cash proceeds.
Proceeds for these these are these portfolios.
Okay.
Yeah that comment was directed primarily European market Okay.
Just recall that Europe tends to be done.
Of Lumpier.
Transaction wise banks.
Banks might go for a year or more in aggregate portfolios before they come to market. So some of those processes in the quarter.
We observed bank spring a deal to market and hadn't been in the market for.
A period of time and there there are.
Their expectations, just need to get readjusted to pricing reality, and so that's that happens over time.
Hmm.
Just sort of at the margin sets, that's an indication for us that theres some discipline in the in the competitive landscape in those markets.
No.
We werent an outlier in terms of our bid expectations and it just didnt meet an internal pricing threshold for a bank or two here and there.
Got it.
Just to supplement that.
I think in the U S beat you know we have a reasonable view on you know what.
What the seller community is thinking about it and we've got a we've got a active.
Engagement, but each of them right. We're seeing nothing here that would suggest that the volumes that we're anticipating to pick up through the rest of the deal will not.
We will not be part of the market opportunity for us.
Thank you.
And our next question will come from Mark Hughes with Truest. Please go ahead with your question.
Yes. Thank you good afternoon.
Hey, Mark I E you.
You had suggested that the.
31 million NPV adjustment I guess would be other.
$6 million in the changes in expected recoveries as best you can.
Underperformance in the quarter was that a U S number.
Right.
Yeah. So.
We had a we.
We had a 10 million underperformance in the U S.
Which then led us to adjust or.
Our our forward looking ERC downward.
You know in total on a consolidated level were 37 million.
A change.
Change in estimates.
The U S is about 40 million negative so.
On a net basis.
Slight over performance in Europe , and some of the other geographies to kind of claw back.
Okay.
And then when.
When you're thinking about the underwriting of the.
2021 paper.
Valuation of it was there.
Maybe if you look back on it some judgment.
Liquidity at that time might persist.
It was a mistake.
Was that a meaningful contributor to the what we're seeing happening here or is it.
Do you think really the.
Because I think you've pointed out that it's been pretty soft for some time.
But it was it a change that you observed in the.
Quarter of very recently.
Giving them.
No I mean, I think it's just the magnitude of the continued underperformance that we've experienced life to date.
And the fact.
It really didn't perform.
Perform.
Differently in the.
Tax season.
As you would expect.
I'd say with regards to the underwriting of that vintage.
We were underwriting with pre pandemic data. So we werent taking into account performance during that peak liquidity period my commentary on.
You know the consumer there is.
Yes, there is potential that there was some adverse selection.
It just happen naturally because of the excess liquidity and the people that charged off during that peak liquidity period, maybe.
We're we're less less inclined.
B payers and so that's something we'll work on as we continue to work this.
The accounts that came in that cohort.
Those that <unk>.
Score appropriately is as we've kind of indicated in the commentary that score appropriately that haven't responded and the call centers will start to move that into a.
More of a legal collection channel.
And look to to.
To build the collections over time.
You had mentioned the thank you for that the case specific litigation accounted for most of the higher legal costs what is the.
What is that about was there a kind of a.
High level decision, let's just get this cleaned up this quarter.
No I mean, we did yes.
As we work through.
A variety of ongoing litigation that we have.
As and when it gets to a point where.
The accounting rules require us to make an accrual we will do that.
And we did have some case specific accruals that were.
Increased during the year just based on activity on those cases.
And then we have a smaller piece of that which was kind of a final true up versus the accrual we had at year end for the CFPB settlement.
Was there some pace.
Perhaps it set a precedent or a benchmark that you then have to reflect that through other cases.
No. It's just the ongoing back and forth on any given year.
Litigation activity.
But it was.
Related to us hitting that threshold in the quarter for four accrual.
So we wanted to call that out so you didn't break it into a run rate going forward.
And then one final question, if I might be.
The collections multiple U S core it looks like it's.
175 times.
What sort of expected return would you anticipate with that kind of collections multiple.
Well you know that we don't disclose our our iron horse so.
Maybe I can I can wonder is that.
To.
To achieve your target IRR.
If we hit the underwriting curve it will hit or will hit our expectations for returns yes.
Very good thank you.
Mhm.
And again as a reminder, joined the key May Press Star then one.
Our next question here will come from David Scharf with JMP Securities. Please go ahead with your question.
Yeah. Good afternoon. Thanks for taking my questions most have been asked.
But first off welcome aboard.
Vic.
Hum.
I was wondering maybe a follow up to the very first question about.
Our strategic priorities it sounds like.
Maybe some just minor modifications around the edges, but.
I am curious.
At the beginning of your prepared remarks, I think he made references to.
Some of the actions.
That you are taking place to address some.
Some of the cyclical challenges in the U S business reduction in force.
Perhaps some additional outsourcing of certain activities. There was a third I couldn't type fast enough can you expand on those a little bit maybe just provide a little more detail.
Certainly David.
Delighted to.
To start our relationship here.
And I think I mentioned in my remarks, not not in the section that you're referencing but I think later on that.
Over the last and I have been I think today is like six weeks of the dark rate over the last six weeks I've been asking.
And engaging with all of our senior team.
On end to end processes across the entire franchise right and up.
And that work is ongoing and you can imagine that for enterprise as broad as I was going to take a while for me to get to.
Bottom of that but as we go through that exercise.
I pointed out sort of two examples among many.
We're working on internally.
That came to mind one is that we every.
Every company goes back and forth with regard to it.
With regards to the decision about how vertically integrated.
And we for example, I think <unk> spoken in the past I believe beat about.
How much applause.
Legal activity is done externally versus internally right and we've been sort of bringing that on internally and I've just been asking the question about.
What processes and activities are we doing inside the company that might be done.
At a high quality at a variable cost base and give us some flexibility by excellent body. So thats one of them that I pointed out.
The other is.
The whole notion of ensuring that we are.
Sort of.
Optimize across it what I would call an omnichannel type of broad sites that we have.
We have a phone contacts we have digital we have legal and I think as Steve mentioned.
I believe that for a variety of reasons.
We are going to be looking at expanding our legal channel and then they can spend the money now, but the payoff comes in time.
So.
Longitudinal view of that that's actually going to lift.
The overall.
Efficiency and effectiveness of our business right. So those are those.
Those are two examples and then as we go forward.
In quarters to come we will certainly pointed out.
Yes on these items as well as talk about other processes that we're looking at right.
Got it.
Very helpful and I.
Yes.
Following up on that I guess for Pete.
Clearly expanding legal collections.
You know raises the denominator or just the dollars collected but it's a much higher cost channel.
Storage really then.
Then call center is the.
Should we I know you're not trying to pin you down on guidance going out a full year, but that mid $20 million level of legal upfront legal collections.
Per quarter it sounds like in the back half of the year I mean should we view that as a.
Is it as an upfront investment to or probably a floor, even in an improving supply environment.
I think with respect to spend.
I think you're accurately pointing out.
As we increase the level of portfolio, we're purchasing we.
We will naturally have an increase in the overall amount of legal spend that we've got.
On a quarterly basis.
Uh huh.
That will tend to lag somewhat the ramp in.
In purchasing we will tend to work a portfolio.
For for six months or more in the in the call centers and digital before scoring for for the legal channel.
Without that.
<unk> for the remainder of this year is really more around the investments that we already have.
Portfolio, we already have in the book.
Primarily around.
Addressing that.
Underperformance, we've seen early on in.
And these recent vintages.
In terms of.
The longer term.
You know I think that that will naturally increase and so you could probably look at that as a floor going into into next year.
With regard to the overall legal investment.
And then coming back to your initial read in there that it's a higher cost channel again.
Scoring appropriately.
There is still good.
Return on investment for that incremental cost.
<unk> investment in that.
Legal channel so.
Yeah.
In response to your points got.
Got it and maybe one last one sort of more on the macro front.
I mean, we've been hearing obviously.
For for a number of months.
About the prospects of a later tax refund season.
Hum.
And we still have a pretty robust there tight labor market at least among kind of London.
Blue collar.
Employment sectors, what's your sense of the.
U S performance like how much is.
Related to.
The unique aspect of this year's refunds versus you know broader.
The macro environment I mean.
It's not like the last three months, we learned about stimulus drying up in household savings.
As you reflect on.
Kind of decreasing the forward expected.
Yeah.
See you.
Uh huh.
Is it related are you starting to see or speculate the impact of higher borrowing costs and consumers are there other factors in.
And does it incorporate certain assumptions near term about unemployment.
Because clearly this earning season the people you're buying from.
And you know, they're all baking in various year end unemployment forecast that they share with investors that's behind their reserve rates.
Curious if kind of you know since the shapes of your curve matter as much as the aggregate amount of collections. If you have a certain expectation for maybe six to 12 months unemployment as it impacts your yields.
Yes, we have I mean, we're not we don't use macroeconomic factors in the modeling it's more.
Trend based.
Modeling.
Current throughput expectations for.
The results of recent activities that we've taken through whether that's legal placements are lettering et cetera.
But I would say that.
Yes.
The overall environment is a challenging one in the U S right now.
In prior cycles when we've.
Gone into into this part of the cycle, we have had some softness in cash collections elongation of.
The collections curves.
Lower levels of <unk>.
One time payments and more longer term payment plans and those are things that we are experiencing in the current environment.
In terms of the adjustments we've made to the curbs yes.
You know again, we focused on the near term call. It rest of this year and into next year and making those adjustments.
And our expectation is that.
You know that.
We should be able to hit those curves if things performed the way we think they are going to.
But time will tell.
Got it.
Great. Thank you.
Mhm.
And this concludes our question and answer session I'd like to turn the conference back over to Victor <unk> for any closing remarks.
Thanks, everybody for you all.
Listening in and for your questions and your engagement and we look forward to seeing.
Seeing you in the coming weeks and months to get thanks.
Yeah.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.