Q2 2024 PRA Group Inc Earnings Call
Najim Mostamand: 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 our earnings press release issued today 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.
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 our earnings press release issued today.
T 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 Dot PRA group Dotcom.
Najim Mostamand: Additionally, a replay of this call will be available shortly after its conclusion, and the replay dial-in information is included in the earnings press release. All comparisons mentioned today will be between Q2 2024 and Q2 2023, 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 June 30, 2024, and December 31, 2023. Please refer to 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 Vik Atal, our President and Chief Executive Officer.
Additionally, a replay of this call will be available shortly after its conclusion and the replay dial in information is included in your earnings press release.
All comparisons mentioned today will be between Q2 2024 in Q2 2023, 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 June 30th 'twenty 'twenty four and December 31 2023.
Please refer to the appendix of the slide presentation used during this call for a reconciliation of the most directly comparable U S GAAP financial measures.
non-GAAP financial measures.
Speaker Change: And with that I'd now.
Now like to turn the call over to Victor <unk>, our President and Chief Executive Officer.
Vikram Atal: Thank you, Najim, and thank you, everyone, for joining us this evening. The second quarter was another important step in demonstrating the turnaround in our US business, delivering against our financial and operational targets for 2024, and positioning the company for future growth. Our net income for the quarter reflects the progress we have made in executing the turnaround with speed across a broad set of initiatives. Perhaps most compelling is the fact that we delivered these results while absorbing both higher operational and funding costs to support portfolio growth.
Speaker Change: Thank you and the team.
Victor: Every one for joining us this evening.
Victor: The second quarter was another important step in demonstrating the turnaround in our U S business delivering against our financial and operational targets for 2024 and positioning the company for future growth.
Victor: Net income for the quarter reflects the progress we have made in executing the turnaround with speed across a broad set of initiatives.
Victor: Perhaps most compelling is the fact that we delivered these results while absorbing both higher operational and funding costs to support portfolio growth.
Vikram Atal: Additionally, our results reflect the increased investment we have made in our U.S. legal Collections channel, which we believe positions us well for future cash generation. We invested $379 million during the quarter, with pricing remaining attractive globally. Cash collections grew 13% year over year, primarily reflecting higher recent purchases and the positive impact of cash generating and operational initiatives in our U.S. business, along with continued cash collections growth in our European business. With the stabilization of our U.S. business in 2023 and the demonstrated progress in our turnaround efforts, we are focused on sustaining the business momentum through the balance of the year and driving growth as we transition into 2025. In a moment, I'll provide some updates on this front.
Victor: Additionally, our results reflect the increased investment we have made in our U S legal collections channel, which we believe positions us well for future cash generation.
Victor: We invested $379 million during the quarter with pricing remaining attractive globally.
Victor: Cash collections grew 13% year over year, primarily reflecting higher recent purchases and the positive impact of cash generating and operational initiatives.
Victor: U S business.
Victor: Along with continued cash collections growth in our European business.
With the stabilization of our U S business in 2023, and the demonstrated progress on our turnaround efforts. We are focused on sustaining the business momentum through the balance of the year and driving growth as we transition into 2025.
Vikram Atal: But before I do, I wanted to share that we are celebrating the 10 year anniversary of our acquisition of Active Capital in 2014. This transformative acquisition elevated us from primarily a U.S.-based player to a truly global enterprise with a diverse European footprint. Since then, our global presence has enabled us to shift capital across the world to respond to differing investment opportunities. It has also offered us critical geographic diversification so that we can hedge against local economic issues, consumer health, and competition.
Victor: In a moment I'll provide some updates on this front, but before I do I wanted to share that we are celebrating the Daniel anniversary of our acquisition of active capital in 2014.
Victor: This transformative acquisition elevated us from primarily a U S based player to a truly global enterprise with a diverse European footprint.
Victor: Since then our global presence has enabled us to shift capital across the world to respond to differing investment opportunities. It is also offered us critical geographic diversification. So that we can hedge against local economic issues, because you might have on competition.
Vikram Atal: In addition to the benefits of having a global presence and diversification, the active capital acquisition provided us with incredible talent that continues to be an asset to our teams and contributes to our culture worldwide. I have had the privilege of witnessing firsthand the success of our European business, which is in contrast to some of our peers who have faced sizable challenges.
Victor: In addition to the benefits of having a global presence and diversification the active capital acquisition provided us with incredible looks at it that continues to be an asset to our teams and contributes to our culture worldwide.
Victor: I've had the privilege to witness firsthand the success of our European business, which has been in contrast to some of our peers, who have faced sizable challenges.
Vikram Atal: Our growth has been predicated on several key elements, including management stability, market diversification, deep seller relationships, investment discipline, both organically and inorganically, a focus on operational execution, and a strong capital position. Like ACTIV in Europe, for many years now, we have had a highly successful operation in Brazil.
Speaker Change: Our growth has been predicated on several key elements, including management's stupidity market diversification deep set of relationships.
Speaker Change: Investment discipline, both organically and Inorganically.
Speaker Change: Our focus on operational execution, and a strong capital position.
We expect these attributes to drive continued success for the company.
Speaker Change: Like active in Europe for many years now we have had a highly successful operation in Brazil.
Vikram Atal: Using partnerships, both with highly experienced local operators and with a major Brazilian bank, we have been able to opportunistically invest in a significant amount of receivables during those years, realizing highly attractive rates of return. Our success in Brazil reflects years of work and strategic positioning in a market that has proved difficult for others. Shifting gears, I'll now provide an update on the turnaround in our U.S. business and the areas we are most focused on to rebuild profitability, drive growth, and enhance shareholder value. As a reminder, this roadmap is supported by three pillars.
Speaker Change: Using partnerships, both with highly experienced local operators and with our major Brazilian bank, we have been able to opportunistically invest in a significant number of bondo receivables during those years, realizing highly attractive rates of return.
Speaker Change: Our success in Brazil reflects years of work and strategic positioning in a market that has proved difficult for others.
Speaker Change: Shifting gears I will now provide an update on the turnaround in our U S business and the areas. We are most focused on the rebuild profitability drive growth and enhance shareholder value.
Speaker Change: As a reminder, this roadmap is supported by three pillars.
Vikram Atal: First, optimizing investments, which allows us to increase ERC and portfolio returns. Second, driving operational execution, which focuses on maximizing cash collected per dollar invested. And third, managing expenses, which is geared towards optimizing our cost structure. First, optimizing investment. In the U.S., we continue to capitalize on the strong levels of portfolio supply driven by higher industry credit card balances and rising delinquency and charge-off rates. More consumers are relying on credit to manage a higher interest rate environment and cost of living increases, which in part has led to credit card balances growing more than 20 percent to $1.1 trillion, as of the latest data, up from $850 billion pre-pandemic.
Speaker Change: First optimizing investments, which allows us to increase ERC and portfolio returns.
Speaker Change: Second driving operational execution, which focuses on maximizing cash collected but dollar invested.
Speaker Change: Tug managing expenses, which is geared towards optimizing our cost structure.
Speaker Change: First optimizing investments.
Vikram Atal: As the chart shows, there has been a long-term secular trend in industry credit card balance growth, while charge-off rates, although up from pandemic-era lows, are now trending around a 10-year average. Portfolio supply is driven by both charge-off rates as well as the absolute level of credit card balances.
In the U S. We continue to capitalize on our strong that was a portfolio of supply driven by higher industry credit card balances and rising delinquency and charge off rates more.
Speaker Change: More consumers are relying on credit to manage a higher interest rate environment and cost of living increases, which in Buck has led to credit card balances growing more than 20%.
Speaker Change: One one trillion dollars is also nato's data.
Speaker Change: Up from $850 billion prepaid debit.
Speaker Change: As the chart shows that it's been a long term secular trend in industry credit card balance growth charger.
Charge off rates, although up from pandemic and all of those are now trending around at 10 year average.
Speaker Change: Portfolio of supply is driven by both charge off rates as well as the absolute level of credit card balances.
Vikram Atal: Based on this, we anticipate continued growth in portfolio supply for the balance of this year. Further, as there is typically a lag between sellers charging off receivables and making portfolios available for sale, we believe the U.S. supply tailwinds will extend well into 2025. It's important to note also that the cash expected to be generated from our recent portfolio purchases is only modestly contributing to this year's results, and we expect to see more of an impact beginning next year.
Speaker Change: Based on this we anticipate continued growth in <unk> portfolio of supply for the balance of this year.
Speaker Change: Further as it is typically a lag between incentives charging off receivables and making portfolios available for sale. We believe the U S supply tailwind will extend well into 2025.
Speaker Change: It's important to note also that the cash expected to be generated from our recent portfolio purchases is only modestly contributing to this deals with us and we expect to see more of an impact beginning next year.
Vikram Atal: In Europe, we achieved a record amount of investment for any given second quarter in our history, which Rakesh will go into more detail later. Turning now to the second pillar, driving operational execution, we are fundamentally changing the way we drive connections in both existing and new portfolios. As previously noted, a new Global Operations Officer, Steve Mackey, joined us in late April, and he has hit the ground running.
Rakesh: In Europe, we achieved a record amount of investment for any given second quarter in our history, which rakesh will go into more detail later.
Rakesh: Turning now to the second pillar driving operational execution.
Rakesh: We are fundamentally changing the way we drive collections in both existing and new portfolios.
Steve Mackey: As previously noted our new Global operations Officer, Steve Mackey joined US in late April and he has hit the ground running.
Vikram Atal: In our U.S. call centers, we have made critical and incremental enhancements to our operating processes during the quarter, including simplifying collector workflows and rebalancing calling intensity. Ultimately, it's a matter of increasing the number of customers we are able to reach and improving the outcomes of these conversations. And we are very encouraged by the progress thus far. We have now made a number of meaningful operating improvements that are driving improved cash collections and operating results.
Steve Mackey: In our U S call centers, we have made critical in an incremental enhancements to our operating processes during the quarter, including simplifying collector workforce and rebalancing calling intensity.
Steve Mackey: Ultimately its a matter of increasing the number of customers, we are able to reach and improving the outcomes of these conversations and we are very encouraged by the progress thus far.
Steve Mackey: Although we have not made a number of meaningful operating improvements that are driving improved cash collections and operating results. We continue to identify further opportunities to build our processes towards being state of the art.
Vikram Atal: We continue to identify further opportunities to build our processes towards being state-of-the-art. As I first started talking to you about a year ago on the legal channel, we have been generating incremental cash collections by leveraging both internal resources and expanding our use of external resources. The enhancement to our U.S. legal processes is demonstrated in part by the growing number of wage garnishment filings beginning in the second half of 2023 and continuing into the current year. Post-judgment execution is just one of many areas within the Legal Collections channel that we have focused on optimizing for cash generation.
Steve Mackey: As I first started talking to you about a year ago in the legal channel, we have been generating incremental cash collections by leveraging both internal resources and extending our use of external resources.
Steve Mackey: The enhancement to our U S legal processes as demonstrated in part by the growing number of wage garnishment filings beginning in the second half of 2023 and continuing into the current year.
Post judgment execution is just one of many areas within the legal collections channel that we have focused on optimizing for cash generation.
Vikram Atal: We expect these much-needed process improvements to generate continued value over the next several quarters for our existing book of business, as well as to produce incremental value for new purchases. This same phenomenon is true of our other operating improvements as well. The third pillar of our business turnaround is managing expenses, and in particular, reducing the marginal cost of doing business. The increased level of buying in the U.S. has required an expansion of our total call center staffing by approximately 50% compared to a year ago.
Steve Mackey: We expect this much needed process improvements to generate continued value over the next several quarters for our existing book of business as well as producing incremental value the new purchases.
Steve Mackey: This same phenomenon is true of our other operating improvements as well.
Steve Mackey: The third pillar to our business turnaround is managing expenses and in particular, reducing the marginal cost of doing business.
Steve Mackey: The increase level of buying in the U S has required an expansion of our total call center staffing by approximately 50% compared to a year ago.
Vikram Atal: To counter the expense impact associated with this increase in portfolio purchases, we have focused on call center offshoring initiatives, which we initiated in the fall of 2023. We are highly encouraged that, in this relatively short period of time, we have onboarded teams in two separate low-cost locations in Asia. Today, more than 25% of our collectors supporting the U.S. business are based offshore, and we expect this proportion to increase over time. In addition to the absolute level of expense savings, we expect that our outsourcing initiatives will help us enhance our calling strategies and better navigate the cyclical nature of our industry.
Steve Mackey: To counter the expense impact associated with this increase in portfolio purchases, we have focus on call center offshoring initiatives, which we initiated in the fall of 2023.
Steve Mackey: We are highly encouraged that in this relatively short period of time, we are onboarding teams into separate low cost locations and issue.
Steve Mackey: Today more than 25% of our collectors supporting the U S business are based off shore and we expect this proportion to increase overtime.
Steve Mackey: In addition to the absolute level of expense savings, we expect that our outsourcing initiatives will help us enhance our calling strategies and better navigate the cyclical nature of our industry.
Vikram Atal: In summary, the initiatives we shared last year are well underway and are delivering results at or above expectations, giving us a solid platform for future growth. And with that, I turn it over to Rakesh for a financial summary of our second quarter results.
Steve Mackey: In summary, the initiatives, we shared last year are well underway and are delivering results at or above expectations, giving us a solid platform for future growth and with that I'll turn it over to Rakesh for a financial summary of our second quarter results.
Rakesh: Thanks, Mike.
Rakesh Sehgal: We purchased $379 million of portfolios during the quarter, up 16% year-over-year, representing our third-highest quarterly level stretching back five years. In the Americas, we invested $225 million in the quarter, up 23% year over year. In the U.S., we deployed $207 million, up 42% year over year.
Rakesh: He purchased $379 million of portfolios during the quarter.
Rakesh: Up 16% year over year, representing our third highest quarterly level stretching back five years.
Rakesh: In the Americas, we invested $225 million in the quarter up 23% year over year.
Speaker Change: In the U S. We deployed $207 million up 42% year over year.
Rakesh Sehgal: The increase was primarily driven by higher portfolio supply as reflected in the monthly amounts purchased under our existing and renewed forward flow arrangements. This was supplemented by additional forward flow and spot purchases as we successfully expanded our seller relationships over the last 12 months. Looking at pricing during the second quarter, our 2024 America Score Purchase Price Multiple finished the first half of the year at 2.11 times. This is consistent with the end of the first quarter and reflects the attractive pricing in the U.S. market today, along with our focus on improving net portfolio returns. Turning to Europe,
Speaker Change: The increase was primarily driven by higher portfolio supply as reflected in the monthly amounts purchased under our existing and renewed forward flow arrangements.
Speaker Change: This was supplemented by additional forward flow and spot purchase such as we successfully expanded our seller relationships over the last 12 months.
Speaker Change: Looking at pricing during the second quarter, our 2020 for Americas or purchase price multiple finished the first half of the year at 2.11 times.
Speaker Change: This is consistent with the end of the first quarter and reflects the attractive pricing in the U S market today, along with our focus on improving net portfolio returns.
Speaker Change: Turning to Europe.
Rakesh Sehgal: We invested $154 million across every major market. Similar to the U.S., we have continued to expand seller relationships in Europe, which contributed to the robust investment volumes realized this quarter. Since Europe is primarily a spot-driven market, volumes are dependent on seller strategies and timing in the UK, which is our largest market outside the US. We continue to benefit from our long-standing seller relationships with stable forward flow volumes. We also have a strong presence in Poland and the Nordics.
Speaker Change: We invested $154 million across every major market.
Speaker Change: Similar to the U S. We have continued to expand seller relationships in Europe, which contributed to the robust investment volumes realized this quarter.
Speaker Change: Since Europe is primarily a spot driven market volumes, our dependence on selling strategies and timing.
Speaker Change: In the UK, which is our largest market outside the U S.
Speaker Change: We continue to benefit from our long standing seller relationships with stable forward slow volumes.
Speaker Change: We also have a strong presence in Poland and in the Nordics.
Rakesh Sehgal: In contrast, Southern Europe remains intensely competitive, and we are being selective with our investments, which is illustrated by the fact that these markets make up less than 5% of our total ERC. Overall, we continue to exercise discipline while also keeping an eye out for new opportunities. Moving on to our financial results, total revenues were $284 million for the quarter. Total portfolio revenue was $283 million, with portfolio income of $209 million and changes in expected recoveries of $73 million. As a reminder, portfolio income is the yield component of our revenue.
Speaker Change: In contrast, southern Europe remains intensely competitive and we are being selective with our investments which is illustrated by the fact that these markets make up less than 5% of our total ERC.
Speaker Change: Overall, we continue to exercise discipline, while also keeping an eye out for new opportunities.
Rakesh Sehgal: You can see on the chart on the left that portfolio income has grown for the fourth consecutive quarter, driven primarily by higher recent purchases and improved pricing, especially in the US. We expect this trend to continue over the next several quarters. Turning to the chart on the right, in addition to portfolio income, our total portfolio revenue includes changes and expected recoveries, which encompasses a combination of cash overperformance or underperformance in the current period and the net present value of changes in our ERC.
Speaker Change: Moving onto our financial results.
Speaker Change: Total revenues were $284 million for the quarter.
Total portfolio revenue was $283 million with portfolio income of $209 million and changes in expected recoveries of $73 million.
Speaker Change: As a reminder portfolio income is the yield component of our revenue.
Speaker Change: You can see on the chart on the left that portfolio income has grown for the fourth consecutive quarter.
Driven primarily by higher recent purchases and improved pricing, especially in the U S.
Speaker Change: We expect this trend to continue over the next several quarters.
Speaker Change: Turning to the chart on the right. In addition to portfolio income. Our total portfolio revenue includes changes in expected recoveries, which encompasses a combination of cash over performance or underperformance in the current period.
Speaker Change: And the net present value of changes in our ERC.
Rakesh Sehgal: Over time, as the chart shows, we have modestly overperformed our cash collection expectations, which results in both cash overperformance and, where appropriate, a change in the ERC. The changes in expected recovery this quarter reflected cash overperformance of $54 million, with strong OLA performance in the U.S. and Europe. In the U.S. specifically, the overperformance was due in large part to the impact of our cash generating initiatives. While these initiatives are expected to continue generating incremental value, we expect the level of cash overperformance to moderate from the levels achieved in the second quarter.
Speaker Change: Overtime as the chart shows.
Speaker Change: We have modestly over performed our cash collection expectations.
Speaker Change: Which results in both cash or the performance.
Speaker Change: And where appropriate or change in ERC.
Speaker Change: The changes in expected recoveries this quarter reflected cash or the performance of <unk>.
$54 million with strong over performance in the U S and Europe.
Speaker Change: In the U S. Specifically the over performance was due in large part to the impact of our cash generating initiatives.
While these initiatives are expected to continue generating incremental value.
We expect the level of cash over performance to moderate from the levels achieved in the second quarter.
Rakesh Sehgal: The remaining $19 million of changes in expected recoveries reflected the net present value of changes in our ERC, with the majority of this increase associated with our U.S. portfolios. During the quarter, cash collections exceeded expectations on a consolidated basis by 12 percent, with the Americas overperforming by 10%, and Europe overperforming by 14%. Our year-to-date cash collections versus our expectations at December 31st, 2023 experienced 10% overperformance on a consolidated basis, with the Americas overperforming by 9% and Europe overperforming by 10%. Operating expenses for the quarter were $195 million, which were up $6 million sequentially and up $31 million from the prior year period.
Speaker Change: The remaining $19 million of changes in expected recoveries reflected the net present value of changes in our ERC with the majority of this increase associated with our U S portfolios.
Speaker Change: During the quarter cash collections exceeded expectations on a consolidated basis by 12% with the Americas over performing by 10%.
Speaker Change: In Europe over performing by 14%.
Speaker Change: Our year to date cash collections versus our expectations at December 31, 2023 experienced 10% over performance on a consolidated basis with.
Speaker Change: The Americas over performing by 9% and Europe over performing by 10%.
Speaker Change: Operating expenses for the quarter were $195 million.
Speaker Change: Which were up $6 million sequentially and up $31 million from the prior year period.
Rakesh Sehgal: These increases are primarily tied to the investments made in our U.S. legal channel to drive future cash growth over a sustained period of time. Legal collection costs were up $14 million year over year, driven primarily by investments in our U.S. legal channel and, to a lesser extent, by increased legal collections activities in Europe. Legal collection costs largely consist of four costs paid up front to file lawsuits. As you can see on this slide, there is a timing lag between the initial legal investment and the resulting cash collection, which generally begins three to six months post-judgment and pinches you over the following two to three years.
These increases are primarily tied to the investments made in our U S legal channel to drive future cash growth over a sustained period of time.
Speaker Change: Legal collection costs were up $14 million year over year.
Driven primarily by investments in our U S legal channel and to a lesser extent by increased legal collections activities in Europe.
Speaker Change: Legal collection costs largely consists of four cost paid upfront to file lawsuits.
Speaker Change: As you can see on this slide there is a timing lag between the initial legal investment and the resulting cash collections, which generally commence three to six months post judgment.
Speaker Change: And finishing it.
Speaker Change: Following two to three years.
Rakesh Sehgal: We expect the investments we are currently making in our U.S. legal processes to drive incremental cash collections over the next several years, beginning in 2024. We expect the level of legal collection spending to moderate in the second half of the year. While upfront legal costs may have a negative impact on cash efficiency in the short term, given the lag in cash generation, we believe it is the appropriate action for those customers who choose not to engage with us voluntarily. Census delivers optimal value over the long term.
Speaker Change: We expect the investments we are currently making in our U S legal processes to drive incremental cash collections over the next several years.
Speaker Change: For 2024.
Speaker Change: We expect the level of legal collection spending to moderate in the second half of the year.
Speaker Change: While upfront legal costs may have a negative impact on cash efficiency in the short term given the lag in cash generation. We believe it is the appropriate action for those customers, who choose not to engage with us voluntarily.
Speaker Change: <unk> delivers optimal value over the long term.
Rakesh Sehgal: Compensation and employee services expenses increased $8 million, primarily due to $6 million of atypically lower compensation accruals recorded in the prior year period. This quarter's amount was in line with the low $70 million range we have experienced over the past couple of quarters. As mentioned, we are benefiting from leveraging third parties and our offshore call centers, which have helped us absorb the costs associated with a significant increase in account volumes and customer contact.
Speaker Change: Compensation and employee services expenses increased $8 million.
Speaker Change: Primarily due to $6 million up eight typically lower compensation accruals recorded in the prior year period.
Speaker Change: This quarter's amount was in line with the low $70 million range, we have experienced over the past couple of quarters.
Speaker Change: As mentioned, we are benefiting from leveraging third parties and our offshore call centers.
Speaker Change: Which have helped us absorb the costs associated with a significant increase in account volumes and customer contacts.
Rakesh Sehgal: Legal collection fees increased $4 million, driven mainly by higher external legal collections within our U.S. OAR portfolio. Our cash efficiency ratio was 59% for the second quarter, compared to 61% in the prior year period. As mentioned, the primary driver for the year-over-year decline was legal collection costs.
Speaker Change: Legal collection fees increased $4 million, driven mainly by higher external legal collections within our U S core portfolio.
Speaker Change: Our cash efficiency ratio was 59% for the second quarter.
<unk> to 61% in the prior year period.
Speaker Change: As mentioned the primary driver for the year over year decline was legal collection costs.
Rakesh Sehgal: That interest expense for the second quarter was $55 million, an increase of $12 million, reflecting increased interest rates and higher debt balances due to increased portfolio investment. Our effective tax rate for the quarter was 26%. We expect our effective tax rate to be in the low to mid 20% range for 2024, depending on income mix and other factors. Net income attributable to PRA was $22 million, or $0.54 in diluted earnings per share.
Speaker Change: Net interest expense for the second quarter was $55 million, an increase of $12 million.
Speaker Change: Reflecting increased interest rates and higher debt balances due to increased portfolio investments.
Speaker Change: Our effective tax rate for the quarter was 26%.
Speaker Change: We expect our effective tax rate to be in the low to mid 20% range for 2024, depending on income mix and other factors.
Speaker Change: Net income attributable to PRA was $22 million or <unk> 54 cents in diluted earnings per share.
Speaker Change: Yeah.
Rakesh Sehgal: Cash collections for the quarter were $474 million, up 13% from the prior year period. America's cash collections increased 18 percent, driven by higher collections in the U.S., which were up 20%, due to higher portfolio purchases and the positive impact of our cash generating initiative. European cash collections increased 6%, driven primarily by higher recent purchases. With respect to financial pressures on the U.S. consumer,
Speaker Change: Cash collections for the quarter, but $474 million up 13% from the prior year period.
Speaker Change: Americas cash collections increased 18% driven by higher collections in the U S, which were up 20%.
Speaker Change: Due to a higher portfolio purchases and the positive impact of our cash generating initiatives.
Speaker Change: European cash collections increased 6%.
Speaker Change: Given primarily by higher recent purchases.
Speaker Change: With respect to financial pressures on the U S consumer.
Rakesh Sehgal: We believe that certain customer segments are experiencing stress from high interest rates and continued inflation, as it is generally taking longer for some of our customers to pay off their balance. However, we are seeing significant growth in the number of committed payment plans from our customer base. We also believe our cash-generating initiatives can help mitigate pressure that might build as economic circumstances evolve. The European consumer environment reflects some of the same economic factors.
Speaker Change: We believe that certain customer segments are experiencing stress from high interest rates and continued inflation.
Speaker Change: As it is generally taking longer for some of our customers to pay off their balances.
Speaker Change: However, we are seeing significant growth in the number of committed payment plans from our customer base.
Speaker Change: We also believe our cash generating initiatives can help mitigate pressure that might build as economic circumstances evolve.
Speaker Change: The European consumer environment reflects some of the same economic factors. However, we are also experiencing some positive trends with the proportion of pain customers continuing to remain stable.
Rakesh Sehgal: However, we are also experiencing some positive trends, with the proportion of paying customers continuing to remain stable. In addition, larger payments in the markets that were previously impacted are starting to show signs of improvement. ERC at June 30th was $6.8 billion, which was up 15% compared to $5.9 billion at June 30 last year. On a sequential basis, ERC increased $304 million. We expect to collect $1.6 billion of our ERC balance during the next 12 months.
In addition, larger payments in the markets that were previously impacting.
Speaker Change: We are starting to show signs of improvement.
Speaker Change: ERC at June 30th was $6 8 billion, which was up 15% compared to $5 9 billion at June 30th last year.
Speaker Change: On a sequential basis.
Speaker Change: <unk> increased $304 million.
Speaker Change: We expect to collect $1 $6 billion of our ERC balance during the next 12 months.
Rakesh Sehgal: 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: It's important to note that this number only reflects the amount we expect to collect on our existing portfolio.
Speaker Change: 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 here today, we would need to invest approximately $831 million globally over the same time frame to replace this runoff and maintain current ERC levels. Keep in mind that this replenishment amount decreased since last year because our multiples have improved over that time period. We expect that we can exceed this investment level and continue growing ERC during the remainder of 2024. Our debt to adjusted EBITDA was 2.92 times as of June 30, which remains within our long-term target range of two to three times sustained leverage.
Speaker Change: Based on the average purchase price multiples, we recorded year to date.
Speaker Change: We would need to invest approximately $831 million globally over the same timeframe.
Speaker Change: To replace this runoff and maintain current ERC levels.
Speaker Change: Keep in mind that this replenishment amount decreased since last year, because our multiples have improved over that time period.
Speaker Change: We expect that we can exceed this investment level and continue growing ERC during the remainder of 2024.
Speaker Change: Our debt to adjusted EBITDA was 292 times as of June 30th.
Speaker Change: Which remained within our long term target range of two to three times sustained leverage.
Rakesh Sehgal: Our leverage over the last few quarters reflects the higher level of portfolios we purchased during this time period. We have covenants in our revolving credit facilities that limit our leverage ratio to 3.5 times debt-to-adjusted EBITDA, and we are within that limit. During periods of higher portfolio investments, as we are currently witnessing, the leverage ratio would be expected to increase, and then decrease over time as we start to generate cash from those portfolios.
Speaker Change: Our leverage over the last few quarters reflects the higher level of portfolios. We purchased during this time period.
Speaker Change: We have covenants in our revolving credit facilities that limit our leverage ratio to three five times debt to adjusted EBITDA.
Speaker Change: And we are within that limit.
Speaker Change: During periods of higher portfolio investments as we are currently witnessing.
Speaker Change: The leverage ratio would be expected to increase and then decrease over time as we start to generate cash from those portfolios.
Rakesh Sehgal: In terms of our funding capacity, we have $3.1 billion in total committed capital to draw under a credit facility. In all three of our credit facilities, we have deep and longstanding banking relationships. Our bank lines have margins ranging from 235 to 380 basis points over benchmark that provide an attractive cost of capital. As of June 30th, we had total availability of $1.4 billion, comprised of $742 million based on the current ERC and $707 million of additional availability that we can draw from, subject to the borrowing base and debt covenants, including advanced rates.
Speaker Change: In terms of our funding capacity we.
Speaker Change: <unk> three $1 billion in total committed debt capital to draw under our credit facilities.
Speaker Change: All three of our credit facilities, we have deep and long standing banking relationships are.
Our bank lines have margins ranging from 235 to 380 basis points over benchmark that provide an attractive cost of capital.
Speaker Change: As of June 30th we had total availability of $1 $4 billion.
Speaker Change: Price of $742 million based on current ERC and $707 million of additional availability that we can draw from subject to borrowing base and debt covenants, including advance rates.
Rakesh Sehgal: During the quarter, we issued $400 million of our senior notes due 2030, the proceeds of which we used to repay borrowings under a North American revolving credit facility. We intend to use borrowings under that facility to redeem our $298 million senior notes due 2025 on or about September 1st of this year. We are very pleased with the success of the transaction and how it enabled us to create additional capital for portfolio purchases.
Speaker Change: During the quarter, we issued $400 million of our senior notes due 2030.
Speaker Change: The proceeds of which we used to repay borrowings under our north American revolving credit facility.
Speaker Change: We intend to use borrowings under that facility to redeem our $298 million senior notes due 2025.
Speaker Change: On or about September 1st of this year.
Speaker Change: We are very pleased with the success of the transaction and how it enabled us to create additional capital for portfolio purchases.
Rakesh Sehgal: As we look toward upcoming maturities, refinancing our North American and UK credit facilities due July 2026 remains a high priority. 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 to take advantage of the continued build in portfolio supply.
Speaker Change: As we look toward upcoming maturities refinancing, our north American and UK credit facilities. Due July 2026 remains a high priority.
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: Position us to take advantage of the continued build in portfolio supply.
Speaker Change: With that I'll turn it back to back.
Rakesh: Thanks Rakesh.
Vikram Atal: As seen by our financial and operational results in the first half of this year, we are continuing to push the ball forward, with our initiatives remaining well on track. We are highly encouraged by the overall progress thus far, recognizing that it will take some time to see the full fruition of our efforts. Looking ahead, our 2024 targets are outlined on this slide with the following additional commentary.
Speaker Change: As seen by our financial and operational results in the first half of this year, we are continuing to push the ball forward with our initiatives remaining well on track we.
Speaker Change: We are highly encouraged by the overall progress thus far recognizing that it will take some time to see the full fruition of our efforts.
Speaker Change: Looking ahead at <unk>.
Speaker Change: <unk> 'twenty four targets are outlined on this site with the following additional commentary.
Vikram Atal: First, we continue to expect portfolio investments to remain strong through the balance of this year. Cash collections in the first half of this year have already grown double digits compared to the prior year period, and we expect to sustain this level for the full year. We are also expecting cash efficiency to be closer to the 60% mark for the full year. This reflects improved strategies and processes driving operational effectiveness, as well as the increased investment in legal collection spend through the year to drive future cash growth.
Speaker Change: First we continue to expect portfolio of investments will remain strong through the balance of this year.
Speaker Change: Cash collections in the first half of this year have already grown double digits compared to the prior year period.
Speaker Change: We expect to sustain this level for the full year.
Speaker Change: We are also expecting cash efficiency to be closer to the 60% Mark for the full year.
Speaker Change: This reflects improved strategies and processes driving operational effectiveness as well as the increased investment in <unk> the collection spend through the year to drive future cash growth.
Vikram Atal: And lastly, we continue to expect ROATE to range between 6% to 8% for the full year. While it is still too early for us to precisely forecast how this metric will evolve through an entire business cycle, we expect to see additional uplift beyond this range as we move into 2025. In closing, I am really proud of our team and how we have been able to accomplish so much in such a short amount of time.
And lastly, we continue to expect auto a T E to range between 6% to 8% for the full year.
Speaker Change: While it is still too early for us to precisely forecast how this metric will evolve through an entire business cycle, we expect to see additional uplift beyond this range as we move into 2025.
Speaker Change: In clothing.
Speaker Change: I'm really proud of our team and how we have been able to accomplish so much in such a short amount of time.
Vikram Atal: We are working hard to drive positive momentum in our U.S. business, continue to benefit from the strength of our European and Brazil business, and achieve greater profitability as we move into the future. Thank you, as always, for your continued support.
Speaker Change: We are working hard to drive positive momentum in our U S business.
Speaker Change: We never benefit from the strength of our European and Brazil business and achieve greater profitability as we move into the future.
August: Thank you as August for your continued support.
August: And with that we are now ready for questions.
Operator: 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 phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2. If you are using a speakerphone, please lift the headset before pressing any key. Your first question comes from the line of David Scharf from Citizens JMP. Your line is now open.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: 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 <unk> had thats been raised.
Speaker Change: Should you wish that the client at the polling process. Please press star followed by the number two.
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: Thank you, good afternoon, and thanks for taking my question. Um, hey, notwithstanding what was clearly a very strong collection performance and, obviously, you exceeded expectations.
David Scharf: Thank you good afternoon, and thanks for taking my questions.
David Scharf: Notwithstanding.
Speaker Change: Clearly, it's a very strong collection performance and obviously you exceeded expectations.
David Scharf: I'm kind of obligated to focus on the state of the U.S. consumer just based on kind of market sentiment right now. Um, first off, Rakesh, I just wanted to clarify your, your, um..., you know, qualifier regarding, you know, some stress from inflation and high rates on the U.S. consumer. Was that a new comment? Was this something incremental? I can't recall because, obviously, we've been hearing that from, you know, lenders we cover. Was that incremental versus Q1, or is that just kind of a reiteration and a cautionary disclosure?
Speaker Change: I'm kind of obligated to focus on the state of the U S. Consumer just based on kind of market sentiment right now.
Speaker Change: First off I just wanted to clarify.
Speaker Change: Sure.
Speaker Change: Qualifier regarding.
Speaker Change: You know some stress from inflation and high rates in the U S consumer.
What was that a new comment was it something incremental I can't.
Speaker Change: I can't recall, because obviously, we've been hearing that from lenders we cover for the better part of the last year.
Speaker Change: Was that incremental versus Q1 or is it just kind of a reiteration in the cautionary disclosure.
Speaker Change: Yes.
Rakesh Sehgal: Yeah, look, David. It is good to hear your voice again. You know, it is a reiteration of what we mentioned previously. So what we're seeing is that we have different strategies to counter any stress that consumers may be facing. And, you know, there's a cumulative impact of inflation that's been building up over time. We believe that the cash-generating initiatives that we've been undertaking, both in the call center, as well as on the legal channel, those are strategies that we can employ to counter and mitigate some of the pressures that the consumer may be impacted by.
Speaker Change: Yeah.
Speaker Change: David Good to hear your voice again.
Speaker Change: It is a reiteration of what we had mentioned previously so what we're seeing is.
Speaker Change: That we have different strategies to counter any stress.
Speaker Change: That consumers may be facing.
Speaker Change: The cumulative impact of the inflation that's been building up over time, we believe that the cash generating initiatives that we've been undertaking both in the call center as well as some of the legal channel.
Speaker Change: Those are strategies that we can employ to counter and mitigate some of the pressures that the consumer may be.
Rakesh Sehgal: You know, what we are also very encouraged by in the U.S., in particular, as I mentioned in my comments, is that we're seeing that the number of payment plans is increasing, and that is positive from our perspective. And if I just switch to Europe for a second, we're starting to see some positive news.
Speaker Change: Impacted by you know.
Speaker Change: What we are also very encouraged by in the U S. In particular, you know I mentioned in my comments is that we're seeing that the number of payment plans are increasing.
Speaker Change: That is a positive from our perspective.
Speaker Change: And if I just switch to Europe for a second yeah, we're starting to see some positive news in the past I've always said that.
Rakesh Sehgal: In the past, I'd always said that the proportion of paying customers has remained stable, and we continue to see that. But one of the positive trends that we've seen in this past quarter was that the larger payments that had previously been impacted were starting to show signs of improvement. So, you know, overall, what I would say is that the data that's come out in the market, you're seeing it in real time as we are, you know, it's just a few data points in the last few days here.
Speaker Change: That the proportion of paying customers has remained stable and we continue to see that but one of the positive trends that we've seen in this past quarter.
Speaker Change: Was that the larger payments that have previously been impacted.
Speaker Change: Starting to show signs of improvement so overall, what I would say is.
Speaker Change: The data that's come out in the market Youre seeing it real time as we are you know its just a few data points on last year.
Rakesh Sehgal: But overall, we're taking a much longer-term view. We'll continue to monitor the new data that's come out just like you would, David. But overall, sitting here today, you know, we've seen some positive impact in Europe with our consumers and in the US. You know, we're taking advantage of all the cash-generating activities to mitigate any pressure. But at the end of the day, we take a very long-term view, you know, in terms of our cash collections. As you know, it goes out over 10 plus 15 years, perhaps in certain countries in Europe even longer. I got it.
Speaker Change: Days here, but overall, we're taking a much longer term view.
Speaker Change: We will continue to monitor the new data that's come out just like you would David.
David Scharf: But overall I'm sitting here today, we have seen some.
David Scharf: Positive impact in Europe, with our consumers in the U S.
David Scharf: We're taking.
David Scharf: Vantage of all the cash generating activities to mitigate any pressure, but at the end of the day, we take a very long term view in terms of our cash collections. As you know it goes out over 10, plus 15 years, perhaps in certain countries in Europe even longer.
David Scharf: Got it. No, no. That's very helpful, Rakesh.
David Scharf: Got it no no that's very helpful. Rakesh I mean, it sounds like.
Speaker Change: Not really signaling that you have seen any.
David Scharf: I mean, it sounds like you're not really signaling that you've seen any kind of leading indicators of increased stress yet in the US. Hey, maybe as a follow-up. Switching to the expense side and specifically, and Collector Productivity. It's a pretty remarkable statistic now that over a quarter of U.S. collections are being serviced offshore. Is there any way you can help?
Rakesh: Kind of leading indicators.
Speaker Change: Increased stress yet in the U S.
Speaker Change: Hey, maybe as a follow up.
Speaker Change: Switching to.
Speaker Change: The expense side and specifically.
Speaker Change: Collector productivity.
Speaker Change: It's a pretty remarkable statistic now that over a quarter of U S collections are being serviced offshore.
Speaker Change: Is there any way you can.
Speaker Change: Nope.
David Scharf: to quantify or at least frame it for us on a relative basis. You know, what the cost is to collect a dollar from your offshore sites versus what it is in the US, as well as what your plans are ultimately for what percentage of your U.S. collections will be
Speaker Change: [noise] quantify or at least frame for us on a relative basis.
Speaker Change: What what the cost is to collect a dollar.
Speaker Change: From your offshore sites versus what it is in the U S.
Speaker Change: As well as.
Speaker Change: You know what your plans are ultimately for what percentage of your U S collections.
Speaker Change: Come from overseas collectors.
Vikram Atal: I'll take that, David. This is Vik. You know, I think taking the second half of your question, we, you know, we're building up our overseas and our offshore collections. The general learning in the industry is that it takes, you know, between six and 12 months, maybe nine to 12 months for a collector to get seasoned, okay? So none of the collectors that we have in our offshore locations have had, you know, nine months of experience, right?
David Scharf: I'll take that David those big.
David Scharf: You know I think taking the second half of your question we.
Speaker Change: You know, we're building up our overseas and our offshore connections.
Speaker Change: The general.
Speaker Change: The general learning in the industry is that it takes.
You know between six and 12 months, maybe nine to 12 months for a collector who get season right. So.
Speaker Change: None of the collectors that we have in our offshore locations have had you know nine months of experience right. So we're going to we're going to.
Vikram Atal: So we're going to, we're going to, you know, watch and track the effectiveness and full performance and stability of those relationships over certainly the balance of this year before we decide how much further to ramp that up. Directionally, though, I think we would like to see, you know, continued build in our, in our overseas proportions over time, TBD as to whether to normalize it out. In terms of the cost differential, we don't disclose that, but I would say to you, it's a meaningful differential, which is, you know, which led us to evaluating this alternative, right?
Speaker Change: Watch and track.
Speaker Change: Effectiveness in full performance and stability of that of those relationships.
Speaker Change: Although certainly the balance of this year.
Speaker Change: Before we decide.
Speaker Change: Much political.
Speaker Change: That did.
Speaker Change: Directionally, though I think we would like to see.
Speaker Change: Continued bid in a row.
Speaker Change: And our overseas proportions overtime.
Speaker Change: D V D as to where that normalizes out.
Speaker Change: In terms of the cost differential we don't disclose that but I would say do it so it's a meaningful differential.
Speaker Change: Which as you know.
Speaker Change: Which is what led us to.
Speaker Change: Two evaluating this alternative right.
David Scharf: Got it. Understandable. Thanks.
David Scharf: Got it. Understandable. Thanks so much.
Got it understood. Thanks, so much.
Speaker Change: Okay.
Speaker Change: Okay.
Operator: Your next question comes from the line of Mark Hughes from Truist. Your line is now open.
Speaker Change: Your next question comes from the line of Mark Hughes from tourists. Your line is now open.
Mark Hughes: Yeah, thanks. Good afternoon. Hey, Mark. Hello, when we think about pricing here,
Mark Hughes: Yeah. Thanks, good afternoon.
Mark Hughes: Hey, Mark.
Mark Hughes: Hello, when we think about.
Speaker Change: Pricing here.
Mark Hughes:
Mark Hughes: Yes can you hear me.
Mark Hughes: Yep, sure, I'm up. Excellent, very good.
Mark Hughes: Yeah sure Hi, Marc excellent very good when you think about pricing.
Mark Hughes: Excellent, very good. When you think about pricing, the collections multiple in the U.S. was steady from Q1 to Q2 at 2.11 times. Are we at kind of a stable point, do you think, in terms of pricing, or if supply continues to increase for the balance of the year, and I think you've described into next year, then do you think that pricing has the opportunity to improve?
Mark Hughes: Collections multiple in the U S with the steady Q1 to Q2.
Speaker Change: $2, one one times.
Are we at a kind of a stable point do you think in terms of pricing or if.
Speaker Change: Supply continues to increase through the balance of the year and I think you described into next year and do you think that pricing is the opportunity to improve.
Vikram Atal: You know, I think it's difficult for us to opine on forward pricing. Obviously, in the U.S., we have, as you know, a finite or, up to now, a finite set of, you know, you know, buyers, right, with significant access to capital, right? So in that regard, if there's a further change in the supply-demand equation, that might naturally lead to improved pricing. But at this point in time, it depends really on what files are coming to market, the age of the file, and the mix of the file.
Speaker Change: I think it's difficult for us to.
Speaker Change: Buying on.
Speaker Change: Forward pricing.
Speaker Change: All the C in the U S.
Speaker Change: We have as you know a finite or up to now a finite set of.
Speaker Change: Buyers right.
Speaker Change: Significant access to capital right. So in that regard if there's a if there's a.
Speaker Change: Further.
Speaker Change: Change in the supply demand equation that might naturally lead to.
Speaker Change: <unk> pricing, but at this point in time.
Speaker Change: Depends really on.
Speaker Change: What Pfizer coming to market all of the age of the Phi the mix of the file so I think it's we.
Vikram Atal: So, you know, I think it's us. I would be hesitant to project changes in the multiples or signal that changes in the multiple would be part of our equation going forward until we see it happen. [inaudible]
Speaker Change: I would be hesitant to project changes in the.
Speaker Change: And the multiples or signal the changes in the multiple would be a part of our equation going forward till we see it happening yet mark but I would just add is look we're winning our fair share of the deals.
Rakesh Sehgal: And Mark, what I would just add is, look, we're winning our fair share of the deals. It's a function of supply and demand, as Vik mentioned. It's also mixed.
Speaker Change: That's a function of supply and demand as Beckman mentioned its also mix.
Rakesh Sehgal: That comes into play, but look we're very encouraged if you just look at the trend over the last couple of years. We've gone from a multiple of 1.75 times in 22 to 1.97 at the end of 23, and we're continuing to build on that. So more to come as we see the supply story unfold in the second half of this year.
Speaker Change: That comes into play, but look we're very encouraged shifts you just look at the trend over the last couple of years here, we've gone from a multiple of 175 times.
Speaker Change: In 'twenty two to 197 at the end of 'twenty, three and we're continuing to build on that so more to come.
Speaker Change: We see the the supply story unfold in the second half of this year.
Speaker Change: Okay.
Mark Hughes: Understandable. And then just the overall level of supply in Europe, I think you talked about your expanded seller relationships, it's more spot driven, but did you comment on kind of what you're seeing in terms of just the volume of deals that are out there?
Speaker Change: Understood and then just the.
Speaker Change: Overall level of supply in Europe, I think you've talked about your expanded seller relationships.
Speaker Change: More spot driven but did you comment on kind of what youre seeing in terms of just the volume of deals that are out there.
Vikram Atal: Look, I think that, as we've said, and you're, I'm sure, very familiar with this, Mark, right? We have better visibility into the ongoing supply trends in the U.S. than we have in Europe just because of the very high propensity of Europe to be spot-driven, and that's what really drove a meaningful uptick in volumes coming to market in the second quarter versus what we've seen. I think Rakesh was a much softer number in the first quarter, right?
Speaker Change: Look I think that the as we've said and Youll.
Speaker Change: I am sure are very familiar with this mark right.
Speaker Change: We have better visibility to the ongoing supply trends in the U S than we have in Europe, just because of the very high propensity of Europe to be spot driven.
Speaker Change: And that's what really drove.
Speaker Change: Yeah.
A meaningful uptick in.
Speaker Change: And volumes coming to market in the second quarter versus what we'd seen I think rakesh will look much softer lumber in the first quarter right.
Vikram Atal: So I and Rakesh have got, you know, limited visibility to being able to predict, you know, what's going to happen in the spot market in the third quarter and, you know, even less certain in terms of what's going to happen in the fourth quarter. Yeah, look at
Rockies: So I and Rockies or not.
Rockies: Hum.
Rakesh: Limited visibility to being able to predict.
Rakesh: What's going to happen in the spot market.
Rakesh: The third quarter and 13 evenly.
Speaker Change: Even less in terms of what's going to happen in the fourth quarter, yes, Okay. I agree with you that if I can just add to <unk> point around Q1, yes.
Rakesh Sehgal: Look, I agree with you, Vik. If I can just add to the point about Q1, we were at $49 million versus $154 million this quarter. Again, it depends on seller strategies also. We know it's a spot-driven market. But Mark, where we always get encouraged is that we know that we're in a dozen-plus countries in Europe. There are so many moving parts. Our goal is to ensure that we are engaging with all the sellers and ensuring that we're winning the fair share of deals coming to market.
Speaker Change: Yeah, we were at 49 million versus 154 this quarter.
Speaker Change: Again.
Speaker Change: And on seller strategies also and it's we know it's a spot driven market.
Speaker Change: Where we get always encouraged as we know that we're in a dozen plus countries in Europe. There are so many moving pieces. Our goal is to ensure we are engaging with all the sellers and ensuring that we're winning.
Speaker Change: The fair share of deals coming to market.
Mark Hughes: Yeah, yeah. And then you give me your guidance on the efficiency ratio. I think last quarter you talked about 60-plus, and I think here you're talking about approximately 60%. It was pretty striking that you... You increased your spending in the legal channel, and I definitely understand that there's a delay on that, on the cash collection. Is that the change in the efficiency outlook and is that essentially stepped-up investment versus what you had previously anticipated, is that the right way to look at it?
Speaker Change: Yeah Yeah.
Speaker Change: Your.
Speaker Change: <unk> on the efficiency ratio.
Speaker Change: I think last quarter, you talked about 60, plus and I think here you're talking about approximately 60%.
Speaker Change: It was pretty striking that you.
Speaker Change: You increased your spending in the legal channel.
Speaker Change: Definitely I understand that there is a delay on that.
Speaker Change: On the cash collections.
Speaker Change: Is.
Speaker Change: Is it is the change in the efficiency outlook and needed that essentially the stepped up investment versus.
Speaker Change: What you had previously anticipated is that the right way to look at it.
Vikram Atal: Yes, I think in general it is linked to, you know, principally to the larger volume of investment we've made in our legal channel. And that's not due to any change in strategy with regard to, you know, what we have determined qualifies for legal. It's really a function of the volume of accounts that have flowed into the channel, the speed at which we are managing the accounts through all of the different stages of the legal funnel, so to speak, as well as, relative to our prior projections, the mix of accounts that we believe qualify for legal placement in terms of, you know, our legal placement strategy is higher than we had originally projected.
Speaker Change: Yes, I think in general it is linked to the.
Simply to the to the law.
Speaker Change: A larger volume of.
Speaker Change: Our investments.
Speaker Change: Made in our legal channel and that's not due to any change in strategy.
Speaker Change: With regard to you know what.
Speaker Change: We have determined quantified legal it's really a function of the the volume of accounts that are floating rate channel.
Speaker Change: The speed at which we are.
Speaker Change: Managing the <unk>.
Speaker Change: Accounts through all of the different stages of the legal funnel so to speak.
Speaker Change: As well as.
Relative to our prior projections.
Speaker Change: The mix of accounts that we believe qualifies for legal placement in terms of you know our.
Speaker Change: <unk> been strategy.
Speaker Change: Is higher than we had originally projected and that's just a function of the mix of what we have happened to our board.
Vikram Atal: That's just a function of the mix of what we have happened to abort. So all of those have put a, you know, have been piled into our view with regard to where the efficiency metric will net out for this year, but I think, as we point out, that's a function of spending now for tangible cash collections to come in the future. Yeah, Mark, all these investments that we're making, right? They have to meet our
Speaker Change: So all of those have put a.
Speaker Change:
Speaker Change: Finally it in.
Speaker Change: Glove view with regard to where the.
Speaker Change: Efficiency metric.
Speaker Change: Well net out for this year.
Speaker Change: But I think as we pointed out that's a function of spending now for tangible cash collections to come in the future.
Rakesh Sehgal: Yeah, Mark, all these investments that we're making, right? They have to meet our internal return threshold. So we're obviously taking that into account.
Mark Hughes: Yes, Mark all these investments have been making right. They have to meet our internal return thresholds that we're obviously taking that into account and just for context also as you think about the.
Rakesh Sehgal: And just for context, also, as you think about the targets and the metrics that we have, the 6 to 8 on ROATE that takes into account these expenses, we haven't changed that. And when you look at the 60 plus versus 60 target, you know, when you look at just our cash collections annualized, so in the first half, it's about 900 million; you annualize that 1.8. You know, a 1% change in cash efficiency would have an 18 million impact.
The targets and the metrics that we have the six to eight on R. O. A T E that takes into account. These expenses, we haven't changed that and when you look at the 60 plus versus 60 target.
Mark Hughes: When you look at just our cash collections annualize. Some first half it's about 900 million you annualize that 1.81% change in cash efficiency.
Mark Hughes: What happens like $18 million impact.
Rakesh Sehgal: And that's the investment that we're making in our legal channel. So, at the end of the day, and we mentioned this previously, cash efficiency is really an output of all the investments that we're making, and we think that it's the appropriate action for us to invest in the legal channel, given the value that we get from those investments.
Mark Hughes: And that's the investment that we're making into our legal channel.
Mark Hughes: So at the end of the day and we mentioned this previously.
Mark Hughes: Cash efficiency is really an output of all the investments that we're making and we think that that's the appropriate action for us to invest in the legal channel given the the value that we get.
Mark Hughes: From those investments.
Speaker Change: Understood. Thank you.
Speaker Change: Okay.
Operator: As a reminder, if you have a question, please press star 1 on your telephone keypad. Your next question comes from the line of Sean Paul Adams from Raymond James. Your line is now open.
Speaker Change: As a reminder, if you have a question. Please press star one on your telephone keypad.
Speaker Change: Your next question comes from the line of Sean Paul Adams from Raymond James Your line is now open.
Sean Paul Adams: Hey guys, good evening.
Sean Paul Adams: Circling back to Europe, I know you guys mentioned that a lot of the supply is kind of driven by the spot market. But last quarter, you talked a little bit about stage two loan levels on bank balance sheets. If you could share a little bit of color on that for this quarter, as well as the level of competition related to pricing and what kind of value you guys are getting in relation to the pricing. I know you guys said that it was a very competitive market in Europe.
Speaker Change: Hey, guys. Good evening I'm circling back to Europe, I know you guys mentioned that.
Speaker Change: A lot of the supply is kind of driven by the spot market.
Speaker Change: Last quarter, you kind of talked about a little bit about stage two loan levels on bank balance sheets, if you could share a little bit color on.
Speaker Change: A little bit of color on that for this quarter as well as.
Speaker Change: The level of competition related to the pricing what kind of value you guys are getting.
Speaker Change: In relation to the pricing I know you guys said that it was a very competitive market in Europe.
Rakesh Sehgal: Yeah, look, we obviously monitor the stage two level loans. But at the end of the day, though, they have to the sellers have to focus on what they think is appropriate for them to bring to market. You know, we obviously are still encouraged by what we saw this quarter; we continue to engage with them. But at the end of the day, it's their decision when they bring products to market. So, our goal is to ultimately ensure that we are pricing deals that come to market appropriately.
Speaker Change: Yeah look we obviously monitor that.
Speaker Change: States still level loans, but at the end of the day, though.
Speaker Change: They have to the sellers have to focus on what they think is appropriate for them to bring to market.
Speaker Change: We obviously are still encouraged by what we saw this quarter, we continue to engage with them.
Speaker Change: But at the end of the day, it's their decision when they bring to market. So.
Speaker Change: Our goal is to ultimately ensure that we are pricing deals that come to market appropriately we know that.
Rakesh Sehgal: We know that from a competition perspective, competition continues to be pretty healthy; notwithstanding some of the pressures that we are seeing some of our peers under, we continue to see a pretty healthy competitive environment. And Vik, if you want to add something,
Speaker Change: From a competition perspective comp.
Speaker Change: Competition continues to be pretty healthy notwithstanding some of the pressures that we're seeing some of our peers under we continue to see a pretty healthy competitive environments and make a few.
Speaker Change: Want to add something to that.
Vikram Atal: If you want to add something to that, No, I think, you know, from a Forward Pro standpoint, I think you mentioned, Rakesh, in your remarks that the Forward Pro volumes remain pretty pretty stable, right? So, you know, I think we're not seeing any change in strategy from our perspective or from the competition. And, you know, we just got to wait and see when the supply comes to market.
Speaker Change: No I think.
Speaker Change: From a.
Speaker Change: From a cultural standpoint, I think you mentioned.
Speaker Change: Cash in your remarks right that these forward for volumes remain.
Speaker Change: Oh, it's pretty pretty stable right.
Speaker Change: So.
Speaker Change: I think.
Speaker Change: I think we're not seeing we're not seeing any any.
Speaker Change: Any change in strategy from our perspective, all from the competition.
Speaker Change: We're just going to wait and see when the supply comes from market.
Sean Paul Adams: Got it. Thank you. That's very helpful. Additionally, can you share any additional color on cash collection characteristics between the individual portfolio vintages in the U.S. market? And has there been a decline in proportions of customers voluntarily repaying debt specifically between individual vintages?
Speaker Change: Got it. Thank you that's very helpful. Additionally.
Can you share any additional color.
Speaker Change: Cash collection characteristics between the individual portfolio vintages in the U S market.
Speaker Change: And has there been a decline in proportions of customers voluntarily voluntarily repaying debt specifically between individual vintages.
Rakesh Sehgal: I don't think we've disclosed that, and we haven't talked about it. I think you can, there is information that you can see in our materials, right, about the cash trends on different.
Speaker Change: I don't think we disclose that.
Speaker Change: We haven't talked about it I think you can that is information that you can see in our road materials right.
Speaker Change: About.
Speaker Change: With that pencil on different bid.
Rakesh Sehgal: I think, yeah, you look at what I would just say, Shankar, just focus on a couple of things. You know, we mentioned around our older vintages; we've been seeing, you know, significant overperformance in our older vintages, which leads us to believe that our cash initiatives are bearing fruit. So, you know, that's one piece. And then the other piece that I mentioned, you know, just in my comments is that we're seeing customers pay over a longer period of time. That's not vintage specific, but our view is that it's more a timing issue, just that the payments are coming in over a longer period of time.
Speaker Change: Okay.
Speaker Change: Yeah, you have to look at what I would just say Sean.
Sean: Focus on a couple of things we mentioned around our older vintages.
Speaker Change #101: Been seeing significant over performance in our older vintages, which leads us to believe that.
Speaker Change #101: Our cash initiatives are bearing fruit so.
Speaker Change #101: That's one piece and then the other piece that I mentioned just in my comments is.
Speaker Change #101: That we are seeing customers say over a longer period of time that's not.
Speaker Change #101: Vintage specific.
Speaker Change #101: Our view is that's more of a timing issue just that that the payments are coming in over a longer period of time.
Speaker Change #101: Okay.
Sean Paul Adams: Got it. Thank you so much. Yeah, I've seen that there are differences in income for consumers, the income brackets, and issues regarding repayment among the different income brackets. So that was the source of the question.
Speaker Change #102: Got it. Thank you so much yet I I've seen that there has.
Sean Paul Adams: Thank you very much for the color.
Speaker Change #103: Ben differences in the income for consumers the income brackets and.
Speaker Change #104: Issues regarding repayment among the different income brackets. So that's that was the source of the question. Thank you very much for the color.
Speaker Change #105: Thank you.
Vikram Atal: There are no further questions at this time. I will now turn the call over to Mr. Vik Atal for final comments.
Mr. <unk>: There are no further questions at this time I will now turn the call over to Mr. <unk> for final comments.
Vikram Atal: Thank you everybody for joining us today, and obviously, thank you for your support. We have a lot more to look forward to in the second half of this year.
Mr. <unk>: Thank you everybody for joining us today and obviously, thank you for your support.
A lot more to look forward to in the second half of this year.
Speaker Change #107: Thank you.
Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change #108: Thank you ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.
Oh.
Speaker Change #108: Yeah.
Speaker Change #108: Yeah.
Speaker Change #108: Okay.
Speaker Change #108: Okay.
Speaker Change #108: No no.
Speaker Change #108: No.
Speaker Change #108: Okay.
Speaker Change #108: Okay.
Speaker Change #108: Okay.
Speaker Change #108: [music].