Q4 2023 PRA Group Inc Earnings Call
Operator: www.larryweaver.com Good evening and welcome to PRA Group's fourth quarter and full year 2023 conference call. All participants will be in a listen only mode.
Yes.
Speaker Change: Good evening and welcome to PRA group's fourth quarter and full year 2013 conference call all participants will be in a listen only mode.
Operator: If you need assistance, please signal a conference specialist by pressing star followed by zero on your telephone. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then the number 1 on your touchstone. To withdraw your question, please press star 5.
Speaker Change: Should you need assistance. Please signal a conference specialist by pressing star followed by zero on your telephone keypad.
Speaker Change: After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then the number one on your Touchtone phone.
Speaker Change: To withdraw your question. Please press Star then two please.
Operator: Please note, this event is being recorded. I would now like to turn the call over to Mr. Najee Mustaman, Vice President, Investor Relations, for PRA Group, to go ahead. Thank you. Good evening, everyone, and thank you for joining us.
Speaker Change: Please note. This event is being recorded I would now like to turn the call over to Mr. Najib Must've Mann, Vice President Investor Relations for PRA Group. Please go ahead.
Speaker Change: Thank you good evening, everyone and thank you for joining us.
Najee Mustaman: With me today are Vic Natal, President and Chief Executive Officer, and Rakesh Sehgal, Executive Vice President and Chief Financial Officer. We will make four 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 things.
Speaker Change: With me today are visits Hall, President and Chief Executive Officer, and our cash cycle Executive Vice President and Chief Financial Officer.
Speaker Change: We will make forward looking statements during the call, which are based on management's current beliefs projections assumptions and expectations and we assume no obligation to revise or update these statements.
Najee Mustaman: 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 in the investor relations section of our website at www.pragroup.com. 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.
Speaker Change: 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.
Speaker Change: Please refer to the earnings press release, and our SEC filings for a detailed discussion of these factors.
Speaker Change: The earnings release.
Speaker Change: <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 Dot com.
Speaker Change: 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.
Speaker Change: All comparisons mentioned today will be between Q4 2023.
Najee Mustaman: All comparisons mentioned today will be between Q4 2023 and Q4 2022, unless otherwise noted, and our America's results include Australia. During our call, we will discuss adjusted EBITDA and debt-to-adjusted EBITDA for the 12 months ended December 31st, 2023 and December 31st, 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 with that, I'd now like to turn the call over to Vic Atal, our President and Chief Executive Officer. Thank you, Najeem, and thank you, everyone, for joining us this evening.
Speaker Change: In Q4, 2022, unless otherwise noted.
Speaker Change: America's results include Australia.
During our call we will discuss adjusted EBITDA add back to adjusted EBITDA for the 12 months ended December 31, 2023 at December 31 2022.
Please refer to today's earnings release.
Speaker Change: And next on this slide presentation used during this call for a reconciliation of the most directly comparable U S GAAP financial measures.
Speaker Change: non-GAAP financial measures.
US Hall: And with that I'd now like to turn the call over to pick US Hall, our president and Chief Executive Officer.
Speaker Change: Thank you Jim and thank you everyone for joining us this evening.
Vic Natal: At the start, I want to spend a moment thanking each and every one of our team members for their hard work, sacrifice, and dedication through a challenging year. I could not be prouder of their contributions. As we move into the new year, it is, of course, necessary that we look back at our performance in 2023. Equally, if not more importantly, it is an opportune time for us to share our perspectives and expectations with regard to our future performance. A disappointing loss in the first quarter of 2023, largely due to underperformance in our U.S. business, crystallized our imperatives through the balance of last year. First, stabilize performance and, in parallel, drive the turnaround.
Speaker Change: Scott I wanted to spend a moment thanking each and every one of our team members for their hard work sacrifice and dedication through a challenging year.
Speaker Change: Could not be prouder of their contributions.
Speaker Change: As we move into the New York. It is of course necessary. If we look back half performance in 2023.
Speaker Change: Equally if not more importantly, he is an opportune time for us to share our perspective on it.
Speaker Change: Patients with regard to our future performance.
Speaker Change: Disappointing loss in the first quarter of 2000 feet.
Speaker Change: No I've seen.
Speaker Change: <unk> U S business.
Speaker Change: Crystallized, obviously candidates through the balance of last year.
Speaker Change: First stabilized performance.
Speaker Change: And that is driving that.
Vic Natal: It's worth reminding everyone that I assumed the position as the CEO in late March 2020 and that during the year, we experienced significant changes to the vast majority of our policy and strategy-making C-suite, in rebuilding my senior leadership team, in whom I have the highest confidence. I have concentrated on returning a keen sense of urgency, operational excellence, teamwork, and shareholder alignment to our collective focus. Furthermore, senior leaders and employees of the company have stepped up to play significant roles as we realign responsibility. Together, we have identified and made substantive progress since April 2023 on numerous important areas of operations where gaps in strategy and performance have emerged. I will cover some of this in greater detail later in the course.
Speaker Change: It's worth reminding everyone that I assumed the position of the CEO in late March 2023.
Speaker Change: And accordingly.
Speaker Change: We experienced significant changes to the vast majority of our policy and strategy, making C suite.
Speaker Change: In rebuilding my senior team.
Speaker Change: And whom I had the highest confidence I have concentrated on returning a keen sense of urgency.
Speaker Change: Operational excellence teamwork and Shannon, we're not mining.
Speaker Change: Through our collective focus.
Speaker Change: Furthermore, senior leaders and employees of the company has stepped up and played significant roles as we realigned responsibilities.
Speaker Change: Together, we have identified and made substantial progress since April 2020 fee on numerous important areas of operations like absent strategy and performance.
Speaker Change: I would cover some of this in greater detail later on the call.
Vic Natal: A few of these changes have involved complex process or organizational redesign which have taken some time to properly implement and whose financial results are expected to flow through beginning in 2024. As Rakesh will outline in a moment, our financial performance for the fourth quarter and full year of 2023 underscores the progress we have made to stabilize performance. Following his remarks, I will provide details regarding the scope, pacing, and progress of our turnaround and the associated financial expectations. With that, I turn it over to Rakesh.
Speaker Change: A few of these changes have been large complex process organizational redesign, which have taken some time to properly implement and financial results are expected to flow through commencing in 2024.
Speaker Change: As rakesh for all kind of in a moment, our financial performance for the fourth quarter and full year of 2020 Street.
Speaker Change: This call is the progress we've made to stabilize performance.
Speaker Change: Following his remarks I will provide details regarding the scope facing progress I'll hop on Mds.
Speaker Change: And the associated financial expectations.
Speaker Change: With that.
Rakesh: Over to Rakesh.
Rakesh Sehgal: Thanks, Rick. At a micro level, during 2023, we integrated our management team globally, grew our business with additional portfolio investment, and has our debt rating been affirmed? and made tangible progress on our cash-generating and operational initiatives while controlling our expenses. Turning now to our fourth quarter results, starting with portfolio purchases. We purchased $285 million of portfolios during the quarter, consistent with the prior year period.
Rakesh: Thanks Blake.
Rakesh: Micro level during 2023, we integrated our management team globally.
Rakesh: Our business with additional portfolio investments.
Rakesh: Our debt ratings affirmed.
Rakesh: And made tangible progress on our cash generating and operational initiatives, while controlling our expenses.
Rakesh: Yeah.
Rakesh: Turning now to our fourth quarter results, starting with portfolio purchases.
Rakesh: We purchased $285 million of portfolios during the quarter.
Rakesh: This change was the prior year period.
Rakesh Sehgal: For the full year, we purchased $1.2 billion of portfolio, up 36% year-over-year. This full-year volume represents the third-highest level in company history and is particularly encouraging when you consider that these investments are being achieved at improved prices and expected returns compared to the 2020 to 2022 time period, which was marked by low supply in the U.S. and tight pricing globally. In the Americas, we invested $162 million in the quarter, up 27% year-over-year. In the U.S., we deployed $141 million, which was up 61% year-over-year.
Rakesh: For the full year, we purchased $1 $2 billion of portfolios up 36% year over year.
Rakesh: This full year volume represents the third highest level in company history.
Rakesh: It is particularly encouraging when you consider that these investments are being achieved improved prices and expected returns.
Rakesh: Each of the 2022 2022 time period, which was marked by low supply in the U S and tight pricing globally.
Rakesh: In the Americas, we invested $162 million in the quarter of.
Rakesh: 27% year over year.
Rakesh: Is the U S. We deployed $141 million, which was up 61% year over year.
Rakesh Sehgal: This reflected our strongest Q4 investment level in the U.S. in the last five years. The improved pricing is demonstrated by the Purchase Price Multiple in our 2023 America's Core Vintage, which was initially recorded at 1.75 times at the end of the first quarter but ended the year at 1.97 times. Moving to Europe, we invested $123 million across multiple markets during the quarter, demonstrating the diversification of our European business.
Rakesh: This reflected our strongest Q4 investment level in the U S. In the last five years.
The improved pricing as demonstrated by the purchase price multiple in our 2023 Americas or vintage which was initially recorded at 175 times at the end of the first quarter, but ended the year at 197 times.
Rakesh: Moving to Europe.
Rakesh: We invested $123 million across multiple markets during the quarter.
Rakesh: That was trailing the diversification of our European business.
Rakesh Sehgal: This amount was up sequentially, but lower when compared to Q4 of last year, driven by fewer large spot transactions coming to market than what we would typically see in Q4. Moving on to our financial results, total revenues were $221 million for the quarter and $803 million for the year.
Rakesh: This amount was up sequentially, but lower when compared to Q4 of last year.
Rakesh: Driven by fewer large spot transactions coming to market.
Rakesh: And what we would typically see in Q4.
Speaker Change: Moving onto our financial results.
Speaker Change: Total revenues were $221 million for the quarter and $803 million for the year.
Rakesh Sehgal: Total portfolio revenue for the quarter was $217 million, with portfolio income of $195 million and changes in expected recoveries of $23 million. As a reminder, portfolio income is the yield component of our revenue. You can see in the chart on the left that the fourth quarter represented the second quarter in a row that portfolio income has grown year over year. We expect this growth in portfolio income to continue, reflecting not only purchases and pricing changes that have already taken place but also new projected investments that are expected to grow the portfolio. Turning to the chart on the right.
Speaker Change: Total portfolio revenue for the quarter was $217 million with portfolio income.
Speaker Change: $995 million and changes in expected recoveries of $23 million.
Speaker Change: As a reminder portfolio of income is the yield component of our revenue.
Speaker Change: You can see on the chart on the left at the fourth quarter represented the second quarter in a row that portfolio income has grown year over year.
Speaker Change: We expect this growth in portfolio income to continue.
Speaker Change: Reflecting not only purchases and pricing changes that have already taken place, but also new projected investments that are expected to grow the portfolio.
Speaker Change: Turning to the chart on the right.
Rakesh Sehgal: In addition to portfolio income, our revenues include changes in expected recoveries, which encompasses a combination of cash overperformance or underperformance in the current period and the net present value of expected changes in our ERC. To the extent that the operational initiatives that are underway create incremental value, such benefit would flow through our P&Ls as changes in expected recoveries. During the quarter, we collected $18 million in excess of our expected recovery, exceeding our expectations on a consolidated basis by 3% with the Americas overperforming by 1% and Europe over-performing by 6%. Operating expenses for the quarter were $176 million, which was up 8% compared to the prior year period. This increase was largely driven by legal collection costs.
Speaker Change: In addition to our portfolio income.
Speaker Change: Our revenues include changes in expected recoveries, which encompasses a combination of cash over performance or underperformance in the current period.
Speaker Change: The net present value of expected changes in our ERC.
Speaker Change: To the extent that the operational initiatives that are underway create incremental value.
Speaker Change: Such benefit will flow through our P&L as changes in expected recoveries.
Speaker Change: During the quarter, we collected $18 million in excess of our expected recoveries.
Speaker Change: Beating our expectations on a consolidated basis by 3%, but the Americas over performing by 1%.
Speaker Change: And Europe, all outperforming by 6%.
Speaker Change: Operating expenses for the quarter were often and $76 million.
Speaker Change: She was up 8% compared to the prior year period.
Speaker Change: This increase was largely driven by legal collection costs.
Rakesh Sehgal: Agency fees and communication expenses, which are all linked to growth in our portfolio. Cash efficiency was 57.3% for the fourth quarter. Legal collection costs were $23 million for the quarter, which was up $4 million from the prior year period, driven by a higher volume of accounts flowing into the legal channel from underlying portfolio growth in 2023. As a reminder, there is a timing lag when we invest in a legal channel. Typically, there is an upfront cost paid to the courts when a lawsuit is filed, which is then followed several months later by cash collection starting to build.
Agency fees and communication expenses.
Speaker Change: Which importantly are.
Speaker Change: So growth in our portfolio.
Speaker Change: Cash efficiency was 57, 3% for the fourth quarter.
Speaker Change: Legal collection costs were $23 million for the quarter.
Speaker Change: Which were up $4 million from the prior year period, driven by a higher volume of accounts slowing into the legal channel from underlying portfolio growth in 2023.
Speaker Change: As a reminder, there is a timing lag when we invest in our legal channel.
Speaker Change: Typically there is an upfront cost to the court when a.
Speaker Change: The lawsuit is filed which is then followed several months later by cash collection starting to mills.
Speaker Change: Agency fees, which are variable and largely driven by our cash collections in Brazil were up $4 million. This quarter as we continued to experience strong cash collections growth in that market.
Rakesh Sehgal: Agency fees, which are variable and largely driven by cash collections in Brazil, were up $4 million this quarter, as we continue to experience strong cash collections growth in that market. Communication expenses were up $3 million this quarter, primarily due to expanded business volume. Net interest expense for the fourth quarter was $51 million, an increase of $16 million, reflecting higher debt balances and increased interest rates.
Speaker Change: Communication expenses were up $3 million this quarter, primarily due to expanded business volumes.
Speaker Change: Net interest expense for the fourth quarter was $51 million, an increase of $16 million, reflecting higher debt balances and increased interest rates.
Rakesh Sehgal: We recorded a tax benefit of $16 million in 2023. We expect our effective tax rate to be in the low 20% range for 2024, depending on income mix and other factors. Net loss attributable to PRA was $9 million, or negative $0.22 in value-to-earnings-per-share. For the full year, net loss attributable to PRA was $83 million, or negative $2.13 in diluted earnings per share.
Speaker Change: We reported a tax benefit of $16 million in 2023.
Speaker Change: We expect our effective tax rate to be in the low 20% range for 2024, depending on income mix and other factors.
Speaker Change: Net loss attributable to PRA was $9 million or negative 22 cents in diluted earnings per share.
Speaker Change: For the full year net loss attributable to PRA was $83 million or negative $2 13.
Speaker Change: Diluted earnings per share.
Rakesh Sehgal: Cash collections for the quarter were $410 million, up 5% from the prior year period and up 2% on a constant currency basis. For the quarter, America's cash collections increased 5%, or 4% on a constant currency basis, driven primarily by higher collections in Brazil. U.S. cash collections decreased 5% for the quarter, largely as a result of lower yields and purchase price multiples from the 2020-2022 vintages as the older, higher-yielding vintages rolled off.
Speaker Change: Yeah.
Speaker Change: Cash collections for the quarter or $410 million up 5% from the prior year period and up 2% on a constant currency basis.
Speaker Change: For the quarter Americas cash collections increased 5%.
Speaker Change: 4% on a constant currency basis, driven primarily by higher collections in Brazil.
Speaker Change: U S cash collections decreased 5% for the quarter Mark.
Speaker Change: Largely as a result of lower yields and purchase price multiples from the 2022 and 2022 vintages.
Speaker Change: The older higher yielding vintages rolled off.
Rakesh Sehgal: This impact should gradually reverse as a result of higher multiples and volumes we recorded in 2023 and the early part of 2024. European cash collections for the quarter increased 5% or roughly flat on a constant currency basis. Our 2023 CAHPS performance versus our expectations at December 31, 2022 experienced 6% overperformance in Europe and 3% underperformance in the Americas, or 1% overperformance on a consolidated basis. With regard to pressures on the consumer, we mentioned last quarter that the cost of living in certain European markets has been having an impact. We continue to see the dynamic resulting in fewer large one-time payments, although the proportion of customers paying us has remained stable. In the U.S., we see a relatively stable collections environment and are not seeing any significant impact from customer segments that may be experiencing stress. However, to the extent such consumer stress becomes evident, we intend to manage this dynamically through a combination of various contact strategies, alternative offer strategies, and, where possible, an expansion of legal collection. ERC at December 31st was $6.4 billion, which was up 12% compared to $5.7 billion at December 31st last year.
Speaker Change: This impact should gradually reversed as a result of higher multiples and volumes, we recorded in 2023 and the early part of 2024.
Speaker Change: European cash collections for the quarter increased 5%.
Speaker Change: We're roughly flat on a constant currency basis.
Our 2023 cash performance versus our expectations at December 31, 2022.
Speaker Change: Experienced 6% over performance in Europe, and 3% underperformance in the Americas or 1% over performance on a consolidated basis.
Speaker Change: With regard to pressure some of the consumer we had mentioned last quarter that the cost of living in certain European markets has been having an impact.
Speaker Change: We continue to see the dynamic resulting in fewer large onetime payments, although the proportion of customers paying us has remained stable.
Speaker Change: But then the U S. We see a relatively stable collections environment and.
Speaker Change: Not seeing any significant impact from customer segments that may be experiencing stress.
Speaker Change: However to the extent such consumer stress becomes evident.
Speaker Change: We intend to manage this dynamically through a combination of various contact strategies alternative offer strategies.
Speaker Change: And where applicable and expansion of legal collections.
Speaker Change: Okay.
Speaker Change: At December 31 was $6 $4 billion, which was up 12% compared to $5 $7 billion at December 31 last year.
Rakesh Sehgal: On a sequential basis, ERC increased $423 million, with ERC in the U.S. increasing by $147 million. We expect to collect $1.5 billion of our ERC balance during the next 12 months. It's important to note that this number only reflects the amount we expect to collect on our existing portfolio. It does not include the cash we expect to collect from new purchases made over the next 12 months.
Speaker Change: On a sequential basis ERC increased $423 million.
Speaker Change: With ERC in the U S increasing by $147 million.
Speaker Change: We expect to collect one $5 billion of our ERC balance during the next 12 months.
Speaker Change: It is important to note that this number only reflects the amount we expect to collect on our existing portfolio.
It does not include the cash we expect to collect from new purchases made over the next 12 months.
Rakesh Sehgal: Based on the average purchase price multiples we recorded in 2023, we would need to invest approximately $858 million globally over the same time frame to replace this runoff and maintain current ERC levels. In this environment of increasing supply, we expect that we can exceed this investment level and grow ERC during 2024. Our capital structure remains strong, with a debt-to-adjusted EBITDA leverage ratio of 2.89 times as of December 31st. Our long-term goal is to have our sustained leverage be in the 2 to 3 times range. In all three of our credit facilities, we have deep banking relationships, most of which stretch back over a decade.
Speaker Change: Based on the average purchase price multiples being recorded in 2023.
Speaker Change: We would need to invest approximately $858 million globally over the same timeframe.
Speaker Change: Place, that's running off and maintain current ERC and levels.
Speaker Change: In this environment of increasing supply.
Speaker Change: Facts that we can exceed this investment level and grow ERC during 2024.
Speaker Change: Our capital structure remains strong with a debt to adjusted EBITDA leverage ratio up to eight nine times at December 31.
Speaker Change: Our long term goal is to have our sustained leverage fee in the two to three times range.
Speaker Change: And all three of our credit facilities, we have banking relationships.
Speaker Change: Most of which stretch back over a decade.
Rakesh Sehgal: In terms of our funding capacity... We have $3.2 billion in total committed capital to draw under our credit facility. Our bank lines have margins ranging from 235 to 380 basis points over benchmark that provide an attractive cost of capital. As of December 31st, we have total availability of $1.3 billion, comprised of $344 million based on our current ERC and $939 million of additional availability that we can draw from, although subject to debt covenants, including advanced rates.
Speaker Change: In terms of our funding capacity we.
Speaker Change: Have $3 $2 billion in total committed capital to draw under our credit facilities are.
Speaker Change: Bank lines have margins ranging from 235 to 380 basis points over benchmark that provide an attractive cost of capital.
Speaker Change: As of December 31, we have total availability of $1 $3 billion.
Speaker Change: Price of $344 million based on our current Trc and $939 million of additional availability that we can draw from.
Speaker Change: Subject to debt covenants, including advanced rates.
Vic Natal: Lastly, given we have our 2025 senior notes maturing in the fall of next year, we are actively monitoring the capital market. We believe the capital available under our credit facilities, the cash generated from our business, and Access to Capital Markets in both the U.S. and Europe position us favorably to accommodate the expected bills in portfolio supply. With that, I'll turn it back to Vic.
Speaker Change: Lastly, given we have our 2025 senior notes maturing in the fall of next year.
Speaker Change: We're actively monitoring the capital markets.
Speaker Change: We believe the capital available under our credit facilities, the cash generated from our business and access to capital markets in both the U S and Europe.
Speaker Change: <unk> favorably to accommodate the expected bills and portfolio of supply.
Speaker Change: With that I'll turn it back to Vic.
Vic Natal: Thank you, Rakesh. Over the nine months through December 2023, we have taken significant, decisive action to stabilize performance and drive the turnaround of our business, with particular emphasis on our U.S. operation. The new leadership team, supplemented by the onboarding of industry consultants with significant operational experience, is focused on the key initiatives needed to turn around the U.S. business with a broad scope and emphasis on speed, and above all, a commitment to the quality of our execution. Our Roadmap to Enhanced Profitability is supported by three pillars. Huh... ERC and pricing, which allows us to grow the portfolio with this. Second, operational effectiveness, which focuses on maximizing cash collected per dollar invested in our existing bank book. And third, expense management, which is geared to optimizing our cost structure. Let me now address each of these pillars in turn.
Vic: Thank you Rakesh.
Vic: Over the nine months through December 2023.
Vic: We have taken significant decisive action to stabilize performance.
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Vic: <unk> emphasis on our U S operations.
Vic: The new leadership team.
Vic: Supplemented by the Onboarding of industry consultants with.
Vic: Difficult operationally VIX futures is focus on the key initiatives needed.
Vic: The U S business with a broad scope and emphasis on speed and above all a commitment to the quality of our execution.
Vic: Our road map to enhance profitability.
Vic: Wanted by cheap billets.
Vic: First <unk>.
Vic: <unk> and pricing, which allows us to grow the portfolio with discipline.
Vic: Second operational effectiveness, which focuses on maximizing cash collected per dollar invested on our existing back book.
Vic: Sure.
Vic: <unk> management, which are geared to optimizing our cost structure.
Speaker Change: Let me now address each of these fit us.
Vic Natal: First, ERC and Price. We have benefited from significant growth in portfolio supply within the U.S. in 2020. As shown by the chart on the left of the slide, there is a strong correlation between industry credit card charge-off rates and our U.S. portfolio purchases.
Speaker Change: First <unk>.
Speaker Change: <unk> and pricing.
Speaker Change: We have benefited from significant growth with portfolio supply within the U S. In 2023.
As shown by the chart on the left of the slide there is a strong correlation between industry credit card charge off rates.
Speaker Change: U S portfolio purchases.
Vic Natal: As supply in the U.S. continues to build, driven by rising industry credit card balances and higher delinquency and charge-off rates, we expect another very strong year for U.S. portfolio purchases. On the other hand, given the historic preponderance of spot transactions in the European market, the precise timing and amount of investment opportunities in Europe are less predictable.
Speaker Change: As supply in the U S continues to big <unk>.
Speaker Change: Driven by rising industry credit card balances and higher delinquency and charge off rates. We expect another very strong year for U S portfolio purchases.
Speaker Change: Given the.
Speaker Change: Started preponderance of spot transactions in the European market, the precise timing and amount of investment opportunities in Europe.
Speaker Change: It's predictable.
Vic Natal: We remain disciplined in our capital allocations and are intensely focused on ensuring we can underwrite and purchase portfolios responsibly through the cycle. And to reiterate, with respect to pricing, we have placed significant emphasis on both pricing new purchases and proactively managing pricing on existing forward flow arrangements to fully reflect market conditions. The repricing of certain large forward flows took effect in the latter part of 2023. As a result, we will begin realizing these year-over-year pricing improvements and their associated uplift to portfolio income in 2024. While portfolio growth and pricing are important factors driving cash collections and revenues, pillar number two, which we have referred to as operational effectiveness, is absolutely central to our ultimate success, as it seeks to extract value from the portfolios that we already own. Recognizing that there were numerous shortfalls in operational execution across our U.S. business, we launched multiple initiatives in April 2023. This work materialized along two principle axioms.
Speaker Change: We remain disciplined in our capital allocation and intensely focused on ensuring we can underwrite and purchase portfolios responsibly through the cycle.
Speaker Change: And to reiterate with respect to pricing, we have placed significant emphasis on both pricing new purchases.
Speaker Change: And proactively managing pricing on existing forward flow arrangements to fully reflect market conditions.
Speaker Change: The re pricing of certain large forward flows took effect in the latter part of 2023 as a result, we will begun begin realizing these year over year pricing improvements and the associated uplift to portfolio income in <unk>.
Speaker Change: 2024.
Speaker Change: <unk> portfolio growth and pricing on important factors driving cash collections and revenues.
Speaker Change: Number two which we have referred to as operational effectiveness.
Speaker Change: Absolutely central to our ultimate success as it seeks to extract value from the portfolios that we already own.
Speaker Change: Recognizing that there were numerous shortfalls and operational execution across our U S business, we've launched multiple initiatives.
Speaker Change: April 2023.
This work materialize two principal axes.
Vic Natal: First, call center actions, and second, legal activity. With regard to our call centers, during 2023, we addressed gaps in inventory management, optimized dial-up strategies, enhanced customer engagement processes, recent call offers, and rebid capacity to support portfolio growth. Further, our ongoing review of processes led to our testing and additional change in contact strategies to drive customer engagement. This process was fully rolled out in the fourth quarter and has shown very encouraging results with regard to incremental payment plans being established. The second axis of our operational effectiveness focuses on our end-to-end legal processes with a particular emphasis on post-judgment activity. Our review has identified very significant opportunities with regard to our existing inventory of judgments.
Speaker Change: First golf interactions.
Speaker Change: Second legal activities.
Speaker Change: With regard to our call centers, joining <unk> 2023, we address gaps and inventory management.
Speaker Change: Optimize diagnose strategies.
Speaker Change: And on customer engagement processes reconfigured offers and retain capacity to support portfolio.
Further our ongoing review of processes led to a lot of testing and as you sort of change in contact strategies to drive customer engagement.
Speaker Change: This process was fully rolled out in the fourth quarter and have shown very encouraging results with regard to incremental payment plans being established.
Speaker Change: The second axis of our operational effectiveness focuses on our end to end legal processes with a particular emphasis on post judgment activity.
Speaker Change: Our review has identified very significant opportunities with regard to our existing inventory of judgments.
Vic Natal: Addressing these opportunities required enhancements to multiple internal processes as well as the establishment of new third-party relationships, which commenced early in the second quarter of 2023 and was largely completed in the fourth quarter. Following the rollout, we have seen a meaningful increase in post-judgment value creation. We expect the associated cash collection from the opportunities identified to date to be in excess of $100 million, commencing in the first half of 2024, with a majority anticipated to flow through by year-end 2026. Looking ahead, we continue to evaluate additional improvements to our legal collection process. While my remarks regarding the call center and legal processes focus on existing portfolios, these enhancements will also apply to new investments that we are making. Over the long term, this should make us both more profitable and a more competitive buyer of portfolios.
Speaker Change: Addressing these opportunities require enhancements to multiple internal processes as well as the establishment of new third party relationships, which commenced early in the second quarter of 2023 and was largely completed in the fourth quarter.
Speaker Change: Following the rollout we have seen a meaningful increase in post judgment value creation.
Speaker Change: We expect the associated cash collection from the opportunities identified to date.
Speaker Change: <unk> in excess of $100 million commencing in the first half of 2024 with the majority anticipated drop through by year end 2026.
Speaker Change: Looking ahead, we continue to evaluate additional improvements to our legal collection processes.
Speaker Change: Why my remarks regarding the call center and legal processes focus on existing portfolios. These enhancements will also apply to new investments that we're making.
Speaker Change: Over the long term this should make us more profitable and then more competitive buyer for portfolios.
Speaker Change: Yeah.
Vic Natal: The third important pillar of our business turnaround is expense management. Since our industry is cyclical and highly competitive, it is imperative that we have an expense management structure that is flexible and enables us to drive lower marginal costs while continuing to ensure optimal customer outcomes. Our expenses for 2024 are expected to reflect a number of year-over-year pressures, largely offset by the benefit of our cost management program. The factors contributing to increased costs include growth in business volumes, both in the U.S. and globally, call center contact strategy changes in the U.S., investments in our legal channel, inflationary impacts, and appropriate investments in digital and analytics capabilities. Our cost management program has therefore focused with real intensity on countering this impact with actions to a. Restructure and eliminate non-essential processes and costs.
Speaker Change: The third important pillar to our business.
Speaker Change: Is expense management.
Speaker Change: Since our industry is cyclical and highly competitive.
Speaker Change: It is imperative that we have an expense management structure that is flexible and enables us to drive lower module cost, while continuing to ensure optimal customer outcomes.
<unk> expenses for 2024 are expected to reflect a number of euro rate pressures.
Speaker Change: Largely offset by the benefit of our cost management program.
The factors contributing to increased costs include.
Speaker Change: Growth in business volumes, both in the U S and globally.
Speaker Change: Central contact strategy changes in the U S.
Speaker Change: Investment in our legal channel.
Speaker Change: Inflationary effects and appropriate investments in digital and analytics capabilities.
Speaker Change: Our cost management program has therefore focus with real intensity on countering this impact with actions to.
Speaker Change: Restructure and eliminate non essential processes and costs.
Vic Natal: B, reexamine and simplify our operational and management processes, and C, rebalance resources to leverage lower-cost locations. These actions are designed to build overall expense flexibility to operate efficiently across the business cycle. In the first quarter of 2023, we completed a reduction in force in the U.S. and restructured our Italy business. We also implemented new processes through automation initiatives that eliminated over 100 vendor resources supporting the U.S. business, and we closed a non-strategic U.S. call center in the third quarter.
Speaker Change: Reexamined and simplify our operational and management processes and C rebalance resources to leverage lower cost locations.
Speaker Change: These actions are designed to build overall expense capability to operate efficiently across the business cycle.
Speaker Change: In the first quarter of 2023, we completed a reduction in force in the U S and restructure our business.
Speaker Change: We also implemented new processes through automation initiatives.
Speaker Change: Eliminated over 100 vendor resources supporting the U S business and we closed a non strategic U S call center in the third quarter.
Vic Natal: Further, in the fourth quarter of 2023, we restructured our Australia business. As it relates to re-examining and simplifying processes, we have taken numerous steps to increase call center productivity. We are also deploying new workforce management tools and have enhanced our vendor management processes and oversight. In addition, we implemented a dynamic business prioritization process to drive requisite speed in our operational decision-making. Finally, we are intensely focused on lowering our marginal cost of operation. Historically, PRA's U.S. business has been almost entirely supported by domestic resources.
Speaker Change: Further in the fourth quarter of 2020, we restructured our Australia business.
As it relates to reexamining and simplifying processes, we have taken numerous steps to increase call center productivity.
Speaker Change: We are also deploying new workforce management tools and enhance our vendor management processes and oversight.
Speaker Change: In addition, we implemented a dynamic business prioritization process to draw.
Speaker Change: Requisite speed in our operational Decisioning.
Speaker Change: Finally, we are intensely focused on lowering our marginal cost of operations.
Speaker Change: Historically.
That is U S business has been almost entirely supported by domestic resources.
Vic Natal: Starting early in the second quarter of 2023, we began implementing a strategic shift on this front, which has led to an expansion of an existing partnership and the establishment of relationships with two well-recognized global service providers. To demonstrate the progress of these efforts, a process that required upwards of 150 resources was successfully offshored in the fourth quarter. We have a target to have less than 25% of the workforce be based in the U.S. by the end of the first half of 2024. Additionally, we successfully piloted an offshore call center in the fourth quarter of 2023 and are moving rapidly to scale up these operations in 2024. Based on the initiatives underway and others that are planned, we anticipate that our utilization of resources in lower-cost locations by the end of 2024 will be up almost 500 full-time employees from the level we had in 2022.
Speaker Change: So I think early in the second quarter of 2023, we began implementing a strategic shift on this front, which has led to an expansion of an existing partnership and the establishment of relationships with two well recognized global service providers.
To demonstrate the progress of these efforts a process would require upwards of 150 resources was successfully offshore in the fourth quarter.
Speaker Change: We have a target to have less than 25% of this team to be based in the U S. By the end of the first half of 2024.
Speaker Change: Additionally.
Speaker Change: We have successfully piloted in offshore call centers in the fourth quarter of 2023 and are moving rapidly to scale of these operations in 2024.
Speaker Change: Based on the initiatives underway and others that are planned.
Speaker Change: The pace of our utilization of resources in lower cost locations by the end of 'twenty 'twenty four will be up almost 500 full time employees from the level, we had in 2022.
Vic Natal: With the expense mitigation actions that are being completed and high confidence in others that are in flight, we are targeting overall expense levels to grow at a meaningfully slower pace year-over-year in 24 compared to cash collection. Having laid out a broad map as to our turnaround, it is important to summarize the key themes and link these facts to measurable outcomes.
Speaker Change: With the expense mitigation actions that have been completed and high confidence and others that are in flight. We are targeting overall expense levels to grow in a meaningfully slower pace year over year and 24 compares to cash collections.
Speaker Change: Okay.
Speaker Change: Having laid out a broad half soi turnaround it is important to summarize the key teams and link these back to measurable outcomes.
Vic Natal: First, we expect strong portfolio investment levels largely driven by the projected increase in U.S. portfolio supply. Second, we expect cash connections to grow by double digits compared to 2023, driven by higher portfolio purchases and improved pricing, but, as importantly, by the execution of cash generation initiatives on our existing backbooks. We anticipate modest expense growth compared to double-digit growth in cash collections, driving cash efficiency levels into the low 60% range for 2024. To place our turnaround into context and provide an overall metric capturing the creation of shareholder value, we are introducing return on average tangible equity as an added metric to our existing measures of performance, and expect to achieve a return on average tangible equity of 6% to 8% for the full year.
Speaker Change: First we expect strong portfolio investment levels, largely driven by the projected increase in U S portfolio of supply.
Speaker Change: Second we expect cash connections will grow by double digits compared to 2023, driven by higher portfolio purchases and improved pricing, but as importantly by the execution of cash generation initiatives on our existing back book.
Speaker Change: We anticipate modest expense growth compared to double digit growth in cash collections driving cash efficiency levels into the low 60% range for 2024.
Speaker Change: Maybe if I slow runoff into context and provide an overall metric capturing the creation of shareholder value. We are introducing return on average tangible equity as an added metric to our existing measures of performance and expect to achieve a return on average tangible equity of 6% to 8%.
Speaker Change: For the full year.
Speaker Change: It is important to note that the financial improvement is expected to gain momentum through the year as the cash generating and operating initiatives are scared.
Vic Natal: It's important to note that the financial improvement is expected to gain momentum through the year as the cash-generating and operating initiatives are scaled. Further, we expect this metric to continue to see additional uplift as we move beyond 2024.
Speaker Change: Further we expect this metric to contingency additional uplift as we move beyond 2024.
Speaker Change: In closing.
Speaker Change: While we are encouraged by the pacing and progress of the business turnaround, we recognize when achieving our aspiration to become a high performing company requires ongoing focus.
Speaker Change: With that we are facing on our roadmap, including our view on required organizational needs and capacity with expectations to drive additional shareholder value as we move into 2025 and beyond.
Operator: While we are encouraged by the pace and progress of the business turnaround, we recognize that achieving our aspirations to become a high-performing company requires ongoing focus. To that end, we are building on a roadmap, including a view on required organizational needs and capacity, with expectations to drive additional shareholder value as we move into 2025 and beyond. I wish to conclude by thanking our shareholders and broader set of stakeholders for your continued support during an important transition year at PRA. And with that, we are now ready for questions. Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the number 1 on your touchtone. You will hear a prompt that their hand has been raised. If you wish to decline the polling process, please press star followed by the number shown. If you are using a speakerphone, please lift the headset before pressing any button.
Speaker Change: Yes.
Speaker Change: I wish to conclude by thanking our shareholders and broader set of stakeholders.
Speaker Change: <unk> support to an important transition year FBI.
And with that we are now ready for questions.
Speaker Change: Yes.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the number one on your Touchtone phone.
Speaker Change: You will hear a problem that they are kind of big race.
Speaker Change: With the client or the polling process. Please press star followed by the number too.
Speaker Change: If you're using a speaker phone please lift the handset before pressing any keys.
Speaker Change: Your first question comes from the line of David Scharf from citizens JMP. Your line is now open.
David Scharf: Hi, yes. Good afternoon. Thanks, Thanks for taking my questions.
David Scharf: I appreciate all the background on the operational.
David Scharf: Initiatives Vic and I wanted to.
David Scharf: Maybe follow up on your comments regarding.
David Scharf: Kind of offshore call Center piloting.
Speaker Change: Maybe I didn't write down quick enough but.
Speaker Change: Can you give us a sense for how how you're viewing the longer term.
David Scharf: Our first question comes from the line of David Scharf. Assistance, JMP. Your line is, Hi, good afternoon.
Speaker Change: Call Center model.
Speaker Change: The company at an end.
Speaker Change: Specifically.
Speaker Change: You know whether you feel the.
Speaker Change: The company can achieve the kind of returns on.
Speaker Change: Both assets and tangible equity.
Speaker Change: That you're targeting.
David Scharf: Thanks. I appreciate all the background on the operation, and the follow-up. Off. You know, maybe I didn't write it down quick enough, but... Give us a sense for your view of it, whether you feel www.larryweaver.com how to, obviously your largest U.S. competitor.
Speaker Change: Without a substantial.
Speaker Change: Substantial move a substantial mix of the collections taking place offshore obviously your largest U S competitor has been collecting U S collections out of India for close to 20 years can you just give us a little more sense for how we ought to think about.
Speaker Change: What the domestic versus offshoring collection mix.
Speaker Change: Its being targeted at and can you also provide based on both your piloting in your analysis, what the cost differential is based on currently.
David Scharf: Collections out of. Please give us a little more sense for how we ought to do this. What?
Speaker Change: Okay.
Vic Natal: All right, I will also provide www.larryweaver.com and all of our partners. So thank you very much. Thank you all. Have a great day. Bye.
Speaker Change:
Speaker Change: So.
Speaker Change: Let me take the second part of your question David.
Speaker Change:
To say, we don't disclose the cost differential between the U S and overseas.
Vic Natal: So let me take the second part of your question, David, first, to say, you know, we don't disclose the cost differential between the U.S. and overseas, and I don't want to get ahead of myself there, but I can tell you that the purpose of, uh..., is to take advantage of what we believe to be a tangible differential in the labor cause between the U.S. And regard to the first part of your question in We take the view that it is too early to determine what the ultimate balance will be between the U.S. and offshore drilling and any other factor. As we pointed out in the remarks, we have piloted, right? Which means we've just started the first phase of our offshore program.
Speaker Change: And I don't want to get ahead of myself, Dan, but I can tell you that.
Speaker Change: The purpose of.
Speaker Change: Is to take advantage of what we believe to be tangible.
Speaker Change: Differential.
Speaker Change: And the labor costs between the U S and overseas.
With regard to the first part of your question in terms of where we would see this mature into.
Speaker Change: We are taking the view that it is.
Speaker Change: Too early to determine what the ultimate balance will be between the U S and offshore and any other factors.
Speaker Change: As we pointed out in the remarks.
Speaker Change: We have.
Speaker Change: Piloted right, which means we have just started.
Speaker Change: The first phase of our offshore program.
Vic Natal: We are looking to scale that up with requisites to the first half of 2024. Along with scaling it up, we are rigorously tracking the Operating Performance Metric of the pilot and the expansion program to ensure that not only are we getting the benefit of lower labor costs but that we are getting appropriate file performance from the team. And as we go through the second half of the year, we will have a better view with regard to decisions that might need to be made with regard to the ultimate balance. In addition, we have been working for a while on, you know, continuing to expand our digital presence. So there are a lot of factors that go into this, and I think we will be in a better place to have this conversation with you and others at the back end of this year once these pilots and the learnings have been embedded into our business understanding, and we've got it understood, and maybe just a follow-up on, and the U.S. balance. I'm just curious, is there any change in behavior? Your key seller, whether they're to unload more than..., do dead of, I'm trying to get a sense for whether..., any of your maybe top five, www.larryweaver.com, Hey David, it's Rakesh. I'll take that one.
Speaker Change: We are looking to scale that up.
Speaker Change: With requisite speed.
Speaker Change: Probably through the first half of 2024.
Speaker Change: Along with scaling it up we are rigorously tracking the operating performance metrics.
Speaker Change: Of the pilot and the expansion program to ensure that not only on the.
Speaker Change: Getting the benefit of lower labor costs, but that we are getting are.
Speaker Change: Appropriate.
Speaker Change: File performance from the team.
Speaker Change: And as we go through the second half of the year.
Speaker Change: We will have a better view with regards to.
Speaker Change: Decisions that might need to be made with regard to the ultimate balance.
Speaker Change: In addition.
Speaker Change: As you know have been working for a while.
Speaker Change: Continue to expand our digital presence. So there's a lot of factors that go into this.
And I think we would be in a better place to have this conversation with you and others.
Speaker Change: At the back end of this year.
Speaker Change: Once these once these pilots and the learnings have been.
Speaker Change: Better to drop into our business understanding.
Speaker Change: Got it got it.
Speaker Change: Understood and maybe just to follow up on the.
Speaker Change:
Speaker Change: The outlook for for purchase volumes in the U S.
Speaker Change: Obviously balances and are at record highs and loss rates.
Speaker Change: A return to pre pandemic levels I'm just curious.
Speaker Change: Is there any change in behavior among.
Speaker Change: Your key sellers.
Speaker Change: Wet weather there.
Speaker Change: Looking to unload more than they typically do whether they're using collection agencies instead of selling selling to you just trying to get a sense for whether any of your maybe top five.
Speaker Change: Sellers is alright.
Speaker Change: Alright.
Speaker Change: Behavior differently than you would expect at this time part of the cycle.
Speaker Change: Hey, David It's Rick Kasch, I'll take that one so look up we see a very stable selling environments here from a seller perspective, the market structure has not changed in the U S. We expect yet another strong year of buying from our perspective.
Rakesh Sehgal: So look, we see a very stable selling environment here from a seller perspective. The market structure is not changing. In the US, we expect yet another strong year of buying from our perspective. And importantly, we expect pricing also to be holding up at the levels that we're seeing, which are significantly improved, as I mentioned in my remarks earlier on the America score. It's not getting better from where we are.
Rick Kasch: And importantly, we expect pricing also to be holding up at the levels that we're seeing which are significantly improved as I mentioned in my remarks earlier on the Americas core if not getting better from where we are so we feel good as Vic mentioned soon and then outlook for 2024.
Rakesh Sehgal: So we feel good, as Vic mentioned in his outlook for 2024. We feel very good from a U.S. perspective, both from a buying perspective as well as from price. Thanks so much. Your next question comes from the line of Mark Hughes from ThruWiz. Your line is now open. Yeah, thank you. Good afternoon. Does the... Come on.
Rick Kasch: We feel very good from a U S perspective, both from a volume perspective as well as from pricing.
Speaker Change: Got it.
Speaker Change: Thanks, so much.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Mark Hughes from previous per line is now open.
Mark Hughes: Yes. Thank you good afternoon.
Mark Hughes: Hi, Mark.
Mark Hughes: The stockholder.
Mark Hughes: The stockholder, hey, does the stockholder's equity include AOCI or exclude AOCI? I'm just looking at your balance sheet, kind of $1.5 billion as opposed to $1.2 billion. So you have the $1.2 billion, that's reflected net of AOCI, Mark. Right, and is that the bogey we should be looking at? left the goodwill of 430.
Mark Hughes: Stockholders' equity include a OCI or exclude Aoc I'm, just looking at your balance sheet.
Mark Hughes: One 5 billion as opposed to <unk> 2 billion okay.
Mark Hughes: So you have the $1 2 billion, that's reflected net of LCI Mark.
Mark Hughes: Right and is that.
Maybe we should be looking at less of a goodwill of $430 million.
Rakesh Sehgal: That's exactly right. OK. And then, just to be clear, is that after tax? 6 to 8.
Speaker Change: That's exactly right.
Speaker Change: Okay.
Speaker Change: And then just to be clear is that an after tax return the 6% to 8%.
Rakesh Sehgal: Yeah, we're looking at, so maybe just to give a little color, so we're talking about a six to eight percent average return on tangible equity, so we're talking about net income attributable to PRA, and that is going to be on an after-tax basis. And, you know, the other thing important to keep in mind, you know, we're giving guidance for the full year. And you've seen our results in Q4 of 2023, and as we mentioned about the imperative around stabilizing the business in 2023 and then turning it around and continuing to grow. So that growth in 2024, importantly, is going to be sustained. We're working on a lot of cash initiatives that Vic outlined earlier in the call that are going to get scaled up as we move into the coming months. And then, at the same time, we expect expenses to modestly grow. So cash collections, we expect double-digit growth, and then expenses modestly. And we're going to see a lot of the benefits coming in the coming quarters in 2024. Yeah, I appreciate all those details.
Speaker Change: Yeah, we're looking at.
Speaker Change: Just to give a little color. So we're talking about a 6% to 8% average return on tangible equity. So we're talking about net income.
Speaker Change: The vehicles to PRA and that is going to be on an after tax basis and the other thing importantly to keep in mind.
Speaker Change: We're giving guidance for the full year.
And you've seen our results in Q4 of 2023 and as we mentioned about the imperative around stabilizing the business in 'twenty, three and then turning it around and continuing to grow so that growth in 2024 importantly is going to be over time, we're working on.
Speaker Change: A lot of cash initiatives that <unk> outlined earlier on the call that are going to get scaled up as we move into 2024.
Speaker Change: Coming months and then at the same time, we expect expenses to modestly grow so cash collections, we expect double digit growth and then expenses modestly and we're going to see a lot of the benefits coming over the coming quarters in 2024.
Speaker Change: Yes, and I appreciate all the detail.
Speaker Change: Portfolio.
Mark Hughes: Should it grow faster than cash? So, look, we should see cash collections doing double-digits, and then portfolio income is going to continue to grow, but I would say that's going to be on a quarterly basis. You'll see it growing year over year, slightly under the cash collections. Remember that portfolio income is also dependent on our full book, and there are lower yielding advantages that we have purchased recently in the 2020 to 2022 time frame that would continue to impact that portfolio income. But we're very optimistic here, Mark, as we've seen improvement now for the last two quarters as portfolio income has started moving up in the right direction. We expect that to continue into the next few quarters of 2024. Again, thanks for this detail. I appreciate it.
Speaker Change: Should it grow faster than cash collections.
Speaker Change: Yes.
Speaker Change: Yes, so look we should see cash collections.
Speaker Change: In the double digits, and then portfolio income is going to continue to grow but I would say that it's going to be.
Speaker Change: On a quarterly basis youll see it growing year over year slightly under our cash collections remember that portfolio income is also dependent on our full book.
Speaker Change: And there are lower yielding vintages that we had purchased recently in the 2020 to 2022 time frame that would continue to impact that portfolio income, but we're very optimistic here Mark is we've seen the improvement now for the last two quarters as portfolio.
Speaker Change: It is targeted to be up in the right direction, we expect that to continue going into the next few quarters of 2024.
Speaker Change: Okay.
Speaker Change: Again, thanks for the detail I appreciate it.
Speaker Change: Thank you.
John Rowan: Thank you. Your next question comes from John Rowan from Janney. Good evening, guys. Just to make sure I understand all the guidance correctly, so there is the number of 1.5 billion collections, but that's just under the current ERC, but you're guiding for collections to be up double digits, which would imply something north of 1.8 billion.
Speaker Change: Your next question comes from the line of John Rowan from Janney. Your line is now open.
John Rowan: Good evening guys.
John Rowan: Just so I make sure I understand all the guidance correctly. So there is a number of $1 5 billion of collections, but that's just under the current ERC.
John Rowan: You are guiding for collections to be up double digits that would imply something north of $1 8 billion am I correct I'm, just trying to make sure I get the.
Rakesh Sehgal: Am I correct? I'm just trying to make sure I get the, you know, the collections and the expense numbers correct to fit in with the, you know, cash efficiency ratio guidance. So is the 1.8 billion, give or take, kind of the baseline figure for cash collections for the year, assuming at least a 10% growth rate? Yes, you're thinking about it correctly, which is that $1.5 billion is just an ERC.
John Rowan: The collection than the expense numbers correct to put up with the cash efficiency ratio guidance. So is the $1 8 billion give or take kind of the.
John Rowan: The baseline figure for our cash collections for the year, assuming at least a 10% growth rate.
John Rowan: Yes.
John Rowan: Thinking about it correctly, which is a one 5 billion is just our ERC that does not take into account the new bi that's going to happen as well as the cash collections.
Rakesh Sehgal: That does not take into account the new buying that's going to happen as well as cash collection. So I think you're headed in the right direction that we're talking about a cash collection number that is north of that 1.5 billion. And so you're absolutely headed in the right direction.
John Rowan: No.
John Rowan: I think.
John Rowan: We are headed in the right direction that we're talking about a cash collection number that is north of that one 5 billion and so you are absolutely headed in the right direction. Okay. And then just to make sure the expense numbers are correct. So.
John Rowan: Okay, but just to make sure the expense numbers are correct, you're saying that there's modest growth, right? You had $702 million in expenses this year. Now there were a couple of items in there that were non-recurring or non-operational in the first and the third quarters, so are we just expecting growth? I mean, are operating expenses supposed to be north of $702 million for... 2024? The way I would approach that is, as Vic said, we are going to continue to invest in the business, to grow the business, and there is the expense management program, and so there will be modest growth in expenses, but the way to think about it is, we have cash collection growth that is going to be significantly higher than the growth in those expenses. And, you know, just to be clear, Mark, we don't have a governor in the business on the dollar We are looking at the business to say we want to optimize and maximize cash collections in an appropriate way.
John Rowan: Youre, saying that there is some modest growth there you had $702 million of expenses in this year I know there were a couple of items in there that were not.
John Rowan: Nonrecurring or non operational.
John Rowan: The first and the third quarters. So are we just expecting growth.
Operating expense is supposed to be north of $702 million for 'twenty.
John Rowan: 2024.
Speaker Change: Yes, the way I would approach that is south as Vic said, we're going to continue to invest in the business to grow the business and there would be an expense management program and so there will be modest growth in expenses, but the way to think about it is we have cash collections growth that is.
It's going to be significantly higher than the growth in those expenses and you know just to be clear.
We don't have a governor in the business.
On the dollar amount of expenses right.
We are.
Looking at the business and say we want to.
Speaker Change: Optimize and maximize cash collections.
Speaker Change: In an appropriate way and if that requires additional.
John Rowan: And if that requires additional expense, we will do that. I think the way that we would guide your thinking on this is that the expense growth rate will be will be lower than the cash collections rate that we've... Okay, no, that's helpful. If we're trying to pin an efficiency ratio, right, obviously, the 57.3% number in the fourth quarter came in kind of well below, you know, guidance, which I believe you guys had said was going to be flattish relative to the third quarter. So just kind of understanding what the actual numbers are, as opposed to the efficiency ratio, is helpful.
Speaker Change: <unk> spend we will do that I think the way that we would guide your thinking on this is to say that the expense growth rate will be.
Speaker Change: Jonathan will.
Speaker Change: It will be will be lower than the.
Speaker Change: And then the cash collections rate that we're experiencing.
Speaker Change: Okay. No that's helpful. Because if we're trying to pin an efficiency ratio right obviously.
Speaker Change: Seven 3% number in the fourth quarter came in kind of well below guidance, which I believe you guys had said was going to be flattish relative to the third quarter. So just kind of understanding what the actual numbers are as opposed to the efficiency ratio is helpful. But okay. Thank you that's all for me.
Speaker Change: Thanks, Sean.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Robert Dodd from Raymond James Your line is now open.
John Rowan: But okay, thank you. That's all. Thanks, Sean. Your next question comes from the line of Robert Dodd from Raymond James. Your line is now open.
Robert Dodd: Hi, guys.
Robert Dodd: Just a question about about purchasing.
In your prepared remarks, you talk about you.
Robert Dodd: Hi guys, first a question about purchasing. You're prepared to talk about the EU being a little bit hard to predict, right? Is that getting more so? That is the question. I mean even the forward flow agreements in Europe are lower this quarter than they were last quarter, and obviously, they're down more than half. So has there been any definitional change in Hagen's frozen forward flow in Europe, or is it getting even more sponorian? um, than it was even say, you know, a year ago. I don't think so, Robert.
Robert Dodd: Europe.
Robert Dodd: Being a little hard to predict right.
Robert Dodd: Getting more so is your question I mean, even even the forward flow agreements.
Robert Dodd: In here are lower this quarter than they were last quarter I don't think the download them from where they were this time last year. So has there been any definition change in hydro disposal workflow and Europe or is it getting even more spot oriented.
Robert Dodd: Then it was even a year ago six months ago any color.
Robert Dodd: Okay.
Speaker Change: I don't think so.
Vic Natal: I think that, you know, the behavior of sellers in Europe has remained the same. You know, we have forward flow arrangements with, you know, major institutions across the continent and in the UK. I think, unlike the U.S., we have not seen the same uptick or a similar uptick in losses across the pond.
But I think that.
Speaker Change: The behavior of <unk> in Europe is remains the same.
Speaker Change: We have.
Speaker Change: Our forward flow arrangements with.
Speaker Change: With major institutions across.
Speaker Change: Across the continent and in the UK.
Speaker Change: I think unlike.
Speaker Change: The U S. We have not seen the same uptick obviously.
Speaker Change: The uptick in losses.
Vic Natal: And so, you know, there's been no change. I think, as we pointed out in our remarks, you know, there were fewer spot transactions that came to market in the fourth quarter. And, you know, timing is dependent on when players choose to bring that to market. So, you know, there's been no change in seller behavior.
Across the across the pond.
Speaker Change: And so there's no there's been no change I think as we've pointed out in our remarks.
Speaker Change: There were fewer spot transactions that came to market in.
Speaker Change: In the fourth quarter and.
Speaker Change: That timing is dependent on when.
Speaker Change: Players choose to bring that to market. So there is no change in seller behavior.
Vic Natal: And, you know, we are making sure that we are taking a – in building our expectations for 2024, that we do not have expectations that are outside, you know, what we've recently experienced. So we're being careful not to overestimate, you know, what future buying would be. We want to be like, you know, running this business with appropriate baseline assumptions. Got it, got it. Thank you. And if I can, one more on beating the... and the Implicit Guidance course. Does the 6-to-8 include any assumptions on forward change in curves or expected, you know, changes in curve shapes during the course of 2024? I mean, if you execute, then you say, you know, hey, it will flow through in change and expected collections.
Speaker Change: And we are making sure that we are taking a bid.
Speaker Change: Building, our expectations for 2024 that we do not have.
Expectations.
Speaker Change: That are outside.
Speaker Change: What we've recently experiencing so we're being we're being careful not to over estimate.
Speaker Change: You know what the future buying would be we want to be like.
Speaker Change: Running this business with appropriate.
Speaker Change: Appropriate based on assumptions.
Speaker Change: Got it got it. Thank you and then if I just had one more on beating.
Speaker Change: Yeah.
Speaker Change: The input costs.
Speaker Change: Cost.
Speaker Change: The six two way include any assumptions on.
Speaker Change: Forward change.
Speaker Change: Uh huh.
Speaker Change: Curves or expected.
Speaker Change: No.
Speaker Change: Changes in curve shape during the course of 2024.
Speaker Change: If you execute.
Speaker Change: And then you said it well.
Speaker Change: Do we mean change in expected collections billings any of that.
Vic Natal: But is any of that built into the six to eight target, or is that Yeah, so I think, as we tried to point out, right, the portfolio income line is sort of, you know, Locked in, right? Effectively, as we buy stuff, Rakesh, right? And I think to the extent that the initiatives we have create incremental value, right? That flows in as an uptick against that. So, you know, I think that's, I would just reiterate the remarks we made in the script, right? Yeah, Robert, that's what I was mentioning earlier, right?
Speaker Change: Built into the six to eight target or is that excluded.
Yes.
Yeah. So I think as we tried to point out right.
Speaker Change: The portfolio income line as well.
Speaker Change: No.
Speaker Change: <unk> right effectively as we buy stock brokerage right and I think to the extent that the.
The initiatives we have.
Speaker Change: Create incremental value right that flows in as an uptick against that so so I think thats a I would just.
Speaker Change: The remarks, we made in the script, Brian Robert That's what I was mentioning earlier right you have the two line items and so we do expect through over performance for example in a versus what our current curves are at these initiatives come into play we would expect cash over performance and then.
Vic Natal: You have the two line items. And so we do expect through all the performance, for example, on a bus is what our current curves are as these initiatives come into play. We would expect a cast over performance.
Rakesh Sehgal: And then, to the extent we see some sustained improvement, you know, we'll make some decisions around the line item going forward. Got it, thank you. As a reminder, if you have any questions, please press star followed by the number one on your touchtone phone. www.larryweaver.com. There are no further questions at this time. I will now hand the call over to Vic Atal, President and CEO. Please continue. Thank you, everybody, for joining us this evening. And I look forward to continuing our conversation through an exciting 2024. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now, www.larryweaver.com
Speaker Change: To the extent, we see some sustained improvement.
Speaker Change: We'll make some decisions around.
Speaker Change: Around the line item going forward.
Speaker Change: Got it thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: As a reminder, if you have any questions. Please press star followed by the number one on your Touchtone phone.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: There are no further questions at this time I will now hand, the call over to Vicki <unk> President and CEO. Please continue.
Speaker Change: Yes.
Vicki: Thank you for everybody for joining us.
Vicki: This evening and look forward to continuing our conversation through.
Vicki: Through an exciting 2024, thank you.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
[music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: <unk>.
Speaker Change: Okay.
Speaker Change: