Q4 2024 PRA Group Inc Earnings Call
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Speaker Change: Good evening and welcome to the PRA Group's fourth quarter and full year 2024 conference call. All participants will be in a listen-only mode.
Speaker Change: Should you need assistance, please signal a conference specialist by pressing star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then the number one on your telephone keypad.
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, 'twenty 'twenty four and Q4 2023, unless otherwise noted in our Americas results include Australia.
Speaker Change: During our call we will discuss the debt to adjusted EBITDA for the 12 months ended December 31, 2024, and December 31, 2023, as well as return on average tangible equity.
Speaker Change: 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.
Speaker Change: With that I'd now like to turn the call over to Vic Its hall, our president and Chief Executive Officer.
Vic: Thank you Jim and thank you everyone for joining us this evening.
Speaker Change: We are excited to share with you the significant progress made in 2024.
Speaker Change: Which resulted in one of the most possible based on years beyond is nearly three decades.
Speaker Change: At the beginning of the year, we laid out several financial and operational targets that signal on expectations for 2024.
Speaker Change: As it moves onto the team's strong execution throughout the year I am exceptionally proud of our performance against these targets.
Speaker Change: To start.
Speaker Change: We achieved record portfolio purchases of $1 $4 billion up 22% year over year as we invested with disciplined globally.
Speaker Change: Capitalizing on our strong portfolio of supply in the U S.
Speaker Change: This strong U S supply combined with continued pricing discipline has meant to meaningfully improve returns on investments.
Speaker Change: In Europe, we finished the year on a high note with strong market supply in the fourth quarter and healthy diversification across all markets.
Speaker Change: Further to the supply environment, we have continued to strengthen and expand our set of relationships globally.
Speaker Change: Which contributed to the total investment volumes achieved in 'twenty, 'twenty, four and positions us well to sustain this momentum in 2025.
Speaker Change: Cash collections of $1 $9 billion for the year represented 13% year over year growth as we not only benefited from recent purchases, but more importantly extracted added value from our existing portfolios through the cash generating and operational initiatives.
Speaker Change: Particularly in our U S business.
Speaker Change: It's worth noting that the vast majority of our connections in any given year reflects collections from an existing portfolios versus portfolios, but just that same year.
Speaker Change: For instance, 89% of our total cash collections in 2024 was generated from portfolio split just prior to 2024.
Speaker Change: Our disciplined expense management resulted in a cash efficiency ratio of 59% for the year, even as we significantly increase investments in our legal collection channel, which we expect will continue to drive future cash collections.
Speaker Change: Net income attributable to PRA of $71 million translated into a return on average tangible equity of 10%.
Speaker Change: Presenting a substantial improvement from the negative 11% in 2023, and the 6% to 8% target we set at the start of 'twenty 'twenty four.
Speaker Change: As we look back on New York I would be remiss, if I didn't take this opportunity to thank every team member of PRA, who contributed to the results we achieved.
Speaker Change: Building on our exceptionally strong and seasoned group of leaders, we expanded our senior leadership team in 'twenty 'twenty four with the appointment of a new global operations Officer, Chief data and analytics officer, and a chief risk and compliance officer.
Speaker Change: Together, we have been undertaking a pivotal transformation across many fronts.
Speaker Change: Executing initiatives that focus and speed to drive higher returns and cash collections, while lowering the cost of big business.
Speaker Change: We have shared many of these initiatives on prior calls and in a moment I'll dive deeper into our progress and outlook on some of the key ones.
Speaker Change: But before I do I wanted to spend a moment focusing beyond the U S starting with Europe.
Speaker Change: Our European business continues to demonstrate its strong market position.
Speaker Change: Setting across multiple vectors and performance metrics.
Speaker Change: This past year, we expanded on our successful track record of disciplined growth efficiency and profitability across our pan European footprint against the backdrop, where some of our European peers have experienced recent challenges.
Speaker Change: A large part of this long standing success can be attributed to again, our people and I am incredibly proud of the organization. We have developed across the board, which is anchored by a tenured and experienced management team.
Speaker Change: This attribute along with our deep set of relationships highly efficient operating structure and disciplined approach to investments.
Speaker Change: Find a European business for the past decade, and I believe it will continue to do so in the future.
Speaker Change: Getting to this point has been the result of many years of hard work and strategic positioning.
This is true not only in Europe, but also in Brazil.
We have further demonstrated the strength of our expertise and capabilities on a global scale.
Speaker Change: As we close in on 10 years in this market.
Speaker Change: You'll find it at present has expanded from that of a small new entrant to a leading they are generating significant cash connections growth and profitability.
Speaker Change: Whereas others have retreated all found it difficult to succeed we have leveraged highly experienced local operators and a major Brazilian bank to carve out a unique position that enables us to make significant investments in nonperforming loans at highly attractive rates corporate debt.
Speaker Change: In addition to making investments we own an equity interest along with our partners in RCB servicing company for these investments.
Speaker Change: Capitalizing on the successful franchise, we have created in Brazil with our local partners. We recently took advantage of a favorable opportunity to generate additional capital.
Speaker Change: Last month, we exercised our right to sell our equity interest in RCB and we expect to record an after tax gain of approximately $25 million in the first half of 2020 five.
Speaker Change: To be clear this transaction does not impact our ownership of any portfolios in Brazil.
Furthermore, we do not expect this transaction will impact on existing operations, all future portfolio of investment opportunities in Brazil.
Speaker Change: <unk> remains an important part of our business and we will continue to pursue growth in that market.
Speaker Change: Many of the accomplishments I have shared thus far are part of the three strategic pillars, we unveiled at the start of 'twenty 'twenty four.
Speaker Change: As a reminder, the three pillars driving our enhance profitability.
Speaker Change: First optimizing investments second driving operational execution and third managing expenses.
Speaker Change: Starting with the first pillar optimizing investments.
Speaker Change: Due to the record volume of portfolios purchased in 'twenty 'twenty four we grew E. R C to a record $7 $5 billion in 2024.
Speaker Change: Looking ahead, we expect overall strong U S portfolio supply in 2020, five driven by rising credit card balances and elevated charge off rates in.
Speaker Change: In Europe, we expect relatively stable year over year volumes.
Speaker Change: Moving onto the second bit of operational execution.
Speaker Change: We implemented a wide range of strategic enhancements in our U S call Center operations through 'twenty 'twenty four.
Speaker Change: Tuning optimizing our dyno strategies Reconfiguring offers building capacity and driving expanded customer reach.
Within our legal collections channel, we are focused on three primary objectives.
Speaker Change: Finding end to end processes.
Speaker Change: Reducing cycle time across the various stages of the legal process to drive cash collections more quickly.
Speaker Change: And third optimizing our post judgment activities.
Speaker Change: Collectively these actions have led the U S legal cash collections, increasing 42% to $376 million from $264 million in 2023.
Speaker Change: We are not yet fully optimized and expect continued focus on this area joining 2025, providing a further catalyst to cash collections growth.
Speaker Change: It's important to note that these enhancements not only benefit all the vintages, but are also expected to benefit newer vintages to foster a cash collection and improved performance as they flow through the legal collections channel.
Speaker Change: Over time, this should make us both more profitable and a more competitive buyer of portfolios.
Speaker Change: Turning now to pillar number three managing expenses, which is closely intertwined with pillar number two.
Speaker Change: Whether it's operational execution initiatives may require cash outlay is particularly in the form of investments in the legal collections channel managing expenses is focused on optimizing our cost structure.
Speaker Change: A major component of this pillar has been the development and expansion of our offshore teams into low cost locations in Asia.
Speaker Change: After having virtually no offshore presence in the U S probably that we leverage third party vendors to rollout our first offshore call center at the end of 'twenty 20, Threep and accelerated this expansion throughout 2020 for launching a second call center and ramping up hiring in both locations.
Speaker Change: In the second half of 'twenty 'twenty four we launched at work from home initiative for our U S connectors.
Speaker Change: Along with providing greater flexibility for essentially both connectors. This initiative coupled with the performance of our offshore connectors has enabled us to begin consolidating our U S call Center footprint.
Speaker Change: And as previously noted we are on track to reduce it from six to three operating sites by mid 2025.
Speaker Change: The mix of onshore versus offshore collectors in the second half of 'twenty or 'twenty five will reflect a variety of factors, including U S investment spend levels.
Speaker Change: Efficient plans and overall performance of the respective teams.
Speaker Change: As of year end offshore connectors accounted for more than 30% of our overall connector base supporting our U S business and we anticipate this snakes to approach 50% in the second half of 2025.
Speaker Change: In summary.
Speaker Change: Offloading strategies has been us create a more variable cost structure in onsite blending strategies and better navigate the ebbs and flows of the credit cycle.
Speaker Change: I believe we are operating in a truly exciting time.
Speaker Change: Sharpening improving financial results and future catalysts for continued growth in the form of strengthening business fundamentals and attractive industry dynamics.
Speaker Change: We remain focused on continuing our transformation and believe that our future is bright.
Rockies: I'll now turn it over to Rockies, where a financial summary of our fourth quarter and full year results as well as our outlook and updated targets for 2025.
Rockies: Thanks, Vic we purchased $433 million of portfolios during the quarter of which $204 million were in the Americas and $229 million were in Europe.
Rockies: For the full year, we purchased $1 $4 billion globally.
Rockies: As a record annual amount so the company.
Rockies: In the U S. We purchased $171 million of portfolios during the quarter, which is up 21% compared to the prior year period.
Rockies: Though down sequentially due to a large spot purchase made in the third quarter.
Rockies: For the full year, we purchased $796 million up 40% year over year, representing the second highest U S investment level in company history.
Rockies: The year over year increase for both periods was primarily driven by higher portfolio of supply with the full year volumes also reflecting certain large spot transactions.
Rockies: We continue to capitalize on the strong levels of portfolio supply.
Rockies: And by the growth in industry credit card balances as well as elevated delinquency and charge off rates.
Rockies: Pricing remains attractive with our 2020 for Americas core purchase price multiple finishing the year at $2 one one times.
Rockies: This is higher than the 197 times recorded for our 2023 America's score a purchase price multiple.
In Europe portfolio purchases were $229 million for the quarter.
Rockies: Up 86% year over year with investments made in all our major markets.
Rockies: While Q4 is typically strong from a seasonality perspective.
Rockies: This year over year growth was exceptionally strong due in part to an increased volume of spot sales coming to market.
Rockies: For the full year, we purchased $508 million of portfolios in Europe.
Rockies: Moving onto our financial results.
Rockies: Total revenues were $293 million for the quarter and $1.1 billion for the full year.
Rockies: 32% and 39% respectively.
Rockies: Total portfolio revenue was $285 million for the quarter with portfolio income of $230 million and changes in expected recoveries of $55 million.
Rockies: For the full year.
Rockies: Total portfolio revenue was one point and $1 billion.
Rockies: With $857 million in portfolio income and $241 million in changes in expected recoveries.
Rockies: Portfolio income.
Rockies: Which is the yield component of our revenue was up 18% for the quarter and 13% for the full year.
Rockies: Reflecting an increased level of portfolio investments and higher purchase price multiples compared to 2023.
Rockies: Okay.
Rockies: Changes in expected recoveries is an important component of our revenue.
Rockies: Particularly as we continue to improve operational performance and increased collections from our cash generating initiatives.
Rockies: After $55 million in changes in expected recoveries this quarter $32 million or 58% was due to cash over performance.
Rockies: The remaining $23 million or 42%.
Rockies: Reflects the net present value of changes in our E. R C.
The majority of which was attributable to our U S core portfolios and driven in part by the impact of a cash generating initiatives.
Rockies: For the full year, 65% or $156 million after $241 million in changes in expected recoveries was due to cash over performance, while the remaining 35% or $85 million.
Rockies: The net present value of changes in our ERC.
Rockies: It is important to note that a significant portion of the total changes in expected recoveries for both periods was.
Rockies: Due to actual cash received above our previous expectations as we executed on our cash generating initiatives.
Rockies: Operating expenses for the quarter were $199 million, which were up $23 million or 13% from the prior year period.
Rockies: Legal collection costs were up $11 million year over year drill.
Rockies: Driven primarily by investments in our U S legal collections channel to drive future growth.
Rockies: While the investments in the legal collections channel create a near term drag on earnings and cash efficiency due to the lag between when we invest in the upfront court costs and when do you start collecting cash.
Rockies: We are confident that these investments will drive strong cash collections over the next several years.
Rockies: In fact, we are already starting to see a pay off from prior investments as Vic noted earlier.
Vic: As a reminder, we do not begin our collections activity with the legal collections channel.
Vic: But consider using it if and when our customers do not engage with us voluntarily.
Vic: Legal collection fees, which are backed by cash collections and thus variable in nature increased by $6 million driven primarily by higher external legal collections within our U S core portfolio.
Vic: Compensation and employee services expenses increased $4 million, primarily due to higher wage costs in the current year period.
Vic: We delivered a cash efficiency ratio of 58% for the fourth quarter up from 57% in the prior year period, while increasing our legal collections activity.
Vic: For the full year, our cash efficiency ratio was 59%.
Vic: <unk>, 258% in 2023, even after absorbing an additional $36 million of legal collection costs versus the prior year that will drive future cash collections.
Vic: Net interest expense was $61 million for the quarter.
Vic: An increase of $10 million, primarily reflecting higher debt balances due to increased portfolio investments.
Vic: Our effective tax rate was 32% for the quarter and 19% for the full year.
Vic: For full year 2025, we expect our effective tax rate to be in the mid twenties, depending on the income mix from various countries and other factors.
Vic: Net income attributable to PRA for the quarter was $18 million or <unk> 47 cents in diluted earnings per share.
Vic: For the full year net income attributable to PRA was $71 million or dollar 79 cents in diluted earnings per share.
Vic: Cash collections for the quarter were $468 million.
Vic: Up 14% from the prior year period.
Vic: For the full year cash collections were $1 $9 billion.
Vic: An increase of 13% year over year.
Vic: With the U S core cash collections up by 22%.
Vic: The increase in total cash collections for both the quarter and full year was primarily driven by higher levels of recent portfolio purchases in the U S and Europe as well as the positive impact of our cash generating initiatives in the U S.
During the quarter cash collections exceeded our seasonal expectations on a consolidated basis by 6% with the Americas over performing by 2%.
Vic: And Europe over performing by 13%.
Vic: Our full year cash collections versus our expectations at December 31, 2023.
Vic: Over performed by 9% on a consolidated basis.
Vic: With the Americas over performing by 8% in Europe, although performing by 12%.
Vic: We continue to monitor indicators of consumer health in the U S.
Vic: Which remained relatively benign as seen on this slide.
That said one of our biggest competitive advantages is our global portfolio and the diversification it provides.
Vic: It's important to remember that more than 50% of our global cash collections in Q4.
Vic: Came from geographies outside the U S.
Vic: Within the U S. The legal collections channel is less impacted by near term consumer pressure.
Vic: Given the longer time period over which we collect cash.
Vic: Our other U S core collection channels, which are more susceptible to near term U S consumer pressure accounted for less than 25% off our global cash collections.
Vic: Demonstrating that our collections aren't entirely dependent on near term U S macroeconomic factors.
Vic: In addition, unlike credit issuers.
Vic: Who generally need to address and resolve consumer delinquencies over a relatively short period of time, our business model has a much longer time horizon.
Vic: Allowing us to work with customers.
Vic: Taylor payment plans according to the evolving financial situations.
Vic: This gives us the ability to work closely with our customers.
Vic: Specialty during times when they are experiencing financial difficulties and enables us to continue generating cash over the long term.
Vic: To summarize the combination of a longer collection period, the geographic mix of our portfolio.
Vic: And the number of strategies at our disposal creates a resilient business model.
Vic: We believe our platform enables us to effectively navigate short term impacts to consumer liquidity or economic pressures.
Vic: Without a material impact to our overall cash collections.
Vic: Okay.
Vic: ERC at December 31, 2024 was $7 $5 billion.
Vic: Representing a company record and up 17% compared to $6 $4 billion at December 31, 2023.
Vic: On a sequential basis total ERC increased $167 million.
Vic: Which included an adverse foreign exchange impact of approximately $300 million due to the strengthening dollar in the fourth quarter.
Vic: We expect to collect approximately $1 $8 billion of our ERC balance during the next 12 months.
Vic: It's important to note that this number only reflects the amount we expect to collect on our existing portfolio.
Vic: It does not include the cash we expect to collect from new purchases made over the next 12 months.
Vic: Based on the average purchase price multiples we recorded in 2024.
Vic: We would need to invest approximately $907 million globally.
Vic: Over the same timeframe to replace this runoff and maintain current ERC levels.
We expect to exceed this investment level and continue growing ERC during 2025.
Vic: Okay.
Vic: Our debt to adjusted EBITDA ratio was 292 times as of December 31st.
Vic: While down sequentially, our leverage is up slightly versus a year ago, primarily due to the significant increase in portfolios purchased in 2024.
Vic: Our leverage ratio remains within our long term target of two to three times and well below covenant limits.
Vic: The leverage ratio would be expected to trend to the higher end of our range during periods of rising portfolio purchases.
Vic: As we progressed through 2025 and generate incremental cash collections from the portfolios purchased recently, we would expect that ratio to decline from existing levels.
Vic: In terms of our funding capacity, we had $3 $1 billion in total committed capital to draw under our credit facilities as of December 31st.
Vic: We had total availability of $1 billion comprised of $564 million available based on current ERC.
Vic: $462 million of additional availability that we can draw from subject to borrowing base and debt covenants, including advance rates.
Vic: During the fourth quarter, we successfully amended and extended our north American and UK credit facilities by five years, increasing our financial flexibility.
Vic: In addition, we were able to capitalize on a favorable capital markets environment to issue, an additional $150 million off our 2030 senior notes.
Vic: Net proceeds of which were used to pay down outstanding borrowings under our North American credit facility.
Vic: These recent actions further strengthened our capital structure.
Vic: We have ample availability under our credit facilities and no debt maturities until November 2027, when our European facility matures and we look forward to working with our long standing lenders at the appropriate time.
Vic: Okay.
Vic: We believe the cash generated from our business the capital available under our credit facilities and access to capital markets in both the U S and Europe position us to further capitalize on this strong portfolio supply environment.
Vic: In closing.
Vic: We are pleased with our performance against our 2024 targets.
Vic: Which has given us a strong foundation for 2025.
Vic: Based on the progress made in 2024, we are updating our 2025 targets, which reflect the current macroeconomic and FX environment.
Vic: First.
Vic: We are raising our target for portfolio purchases to $1 $2 billion from the 1 billion plus dollars previously disclosed.
Vic: Second building on our 2020 for performance, we expect high single digit cash collections growth.
Vic: Cash efficiency is expected to be above 60% for the full year.
Vic: Incorporating the increased spend in our legal cash collections activity, which should drive future cash growth.
Vic: And finally, we anticipate achieving a return on average tangible equity of approximately 12% in 2025.
Vic: From the 10% achieved in 2024, which represents another solid step forward for the business.
Vic: Please note that these targets exclude the impact of the previously mentioned Brazil transaction.
Vic: In summary, 2024 was a transformational year for PRA with significantly improved results.
Vic: We are still in the early innings of this journey, but there is great promise and where we are headed.
Vic: The opportunities to drive enhanced value across our business.
Vic: And the momentum that we're carrying forward in our execution.
Vic: Okay. Thank you for your continued support and for the opportunity to be responsible and disciplined stewards of capital.
Vic: And with that we are now ready for questions.
Vic: 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 you would hear a prompt that there has been raised.
Vic: Should you wish a decline from the polling process. Please press star followed by the number too.
Vic: If you're using a speaker phone please lift the handset before pressing any piece there.
Speaker Change: Your first question comes from the line of David Scharf from citizens JMP. Your line is now open.
David Scharf: Hi, good afternoon, thanks for taking my questions today.
Speaker Change: Terrific performance obviously.
David Scharf: I'm wondering.
Speaker Change: Just honing in on Europe for a moment.
You had mentioned a stronger supply of spot sales because it was a very big capital deployment quarter for you is there anything else going on competitively, that's helping supply I mean, obviously, theres, some pretty well publicized bankruptcies and restructurings among big competitors.
Speaker Change: It is.
Speaker Change: The competitive environment, possibly aiding in the <unk>.
Speaker Change: Apply available to you and might that continue for a few more quarters.
Speaker Change: To.
David Scharf: Catch up with you David.
Speaker Change: This quarters before I answer that question, let's call it the testing on the <unk>.
David Scharf: Nimbleness because I'm.
David Scharf: Hanging out by the beach, but unfortunately, it's doubled with about 40 inches of snow right.
David Scharf: We're operating a little bit more populated.
David Scharf: No I think you don't we.
We were we've been wondering ourselves as to whether the competitive environment in Europe with.
David Scharf: The ball with the challenges faced by <unk>.
David Scharf: Like many competitors there, but that's not what we are seeing yet David.
David Scharf: Let me just say unusually large volume of market supply coming.
David Scharf: Cross the Pan European sector in the fourth quarter and we we obviously are well positioned in all the markets, where they can take advantage of that.
David Scharf: Not seeing a competition, either abating or changing meaningfully at all in our market there.
David Scharf: Got it got it and.
David Scharf: Switching to two.
David Scharf: Just expenses I appreciate all of the.
David Scharf: All of the color on.
David Scharf: Both the legal channel investments and offshoring other initiatives.
David Scharf: Yeah.
Speaker Change: Wondering can you maybe provide us with.
David Scharf: Your thoughts on.
David Scharf: Whether or not there is just an inherent ceiling.
The cash efficiency ratio through cycles, obviously, it's going to be a little depressed. If you know there's a challenging collection environment, but but did you think about the business.
David Scharf: Through the cycle and once these initiatives are all in place.
David Scharf: And up and running as you would imagine.
David Scharf: How should we think about the margin upside.
David Scharf: In this business.
David Scharf: I would say David.
David Scharf: We could take a short term view and a longer term view right I would say the short term view.
David Scharf:
David Scharf: Obviously as.
David Scharf: As we get more efficient with the with the offshoring, we leverage that.
David Scharf: Appropriate extend.
David Scharf: We get shop with regard to how we deploy them.
David Scharf: Our extensive today.
David Scharf: We should see sort of penal improvement from a cash efficiency ratio, which rocket.
David Scharf: India and the commentary right.
In the Oh in the longer term.
David Scharf: The impact that was.
David Scharf: Possibly benefit us and others right would be.
David Scharf: Technology.
David Scharf: Digital migration globally.
David Scharf: You could have an influence, but that's obviously all the way from where we are today.
David Scharf: I would say I would expect the business to continue over the next several years to have improved cash efficiency ratios.
Speaker Change: Oh, Hi, it gets I think it would be a matter of foot guy anyway.
Speaker Change: Got it understood and then lastly, maybe just.
Speaker Change: It's been quiet on the regulatory front, obviously, the CFPB has pretty much closed for business. These days.
Speaker Change: We haven't heard much at the state level on any new regulatory initiatives.
Speaker Change: Hum.
Speaker Change: But I'm wondering.
Speaker Change: It is.
Speaker Change: As the regulatory landscape becomes more forgiving and there was even talk of consolidating bank regulators, which have obviously.
Speaker Change: Kept some of the card issuers on the sidelines is there any sense that new competitors after 15 years of being on the outside.
Speaker Change: R R.
Speaker Change: Starting with foreign capital to enter this business or.
Speaker Change: And this is just in the U S or the card issuers still pretty firm and Hey here are the five or six people will sell to you know the floodgates are not gonna open.
Speaker Change: I think what.
Speaker Change: Let's see I mean, obviously, we're all watching.
Speaker Change: And that's what's happening.
Speaker Change: In D C and then beyond right, but given the unpredictability of the political and the general environment is sort of a little premature for us to go too far ahead of our skis on this.
Speaker Change: David It's not just the the CFPB, which you mentioned of the state's rights from a regulatory standpoint, there is a plethora of them regulations.
Speaker Change: Covering our industry that qualified in la and in in various sort of orders that have been passed over time.
Speaker Change: You know just as an example, but I think we've mentioned before at the thousands of jurisdictions that.
Speaker Change: That you've got to navigate when you're managing a legal process right and so.
Speaker Change: Just for competitors coming in here are setting up a capability that will allow them to do that is.
Speaker Change: A multiyear effort and not for the faith of heart rate.
Speaker Change: What we are seeing in the relationships, we have with the seller community is that they are very disciplined.
Speaker Change: On who they invite under their panels. They are very rigorous with regard to their.
Speaker Change: Evaluation folks like ourselves on a regular basis to make sure that we are complying with the dead expectations. So I think.
Speaker Change: Who knows what happens in the long term right.
Speaker Change: But in the in the in the foreseeable future that we are managing against though I don't see that as a.
Speaker Change: Is it particular impact that.
Speaker Change: I think theres going to be material to us right.
Speaker Change: Just one quick clarification did.
Speaker Change: Did you did you mentioned the gain on sale in Brazil. There was there was excluded from the return on tangible equity.
Speaker Change: Great.
Speaker Change: It wasn't the 'twenty 'twenty four but it will be it will be when it when we receive it which would be the first south of 2025. It will it will not be factored into the targets that are that rakesh was referencing.
Speaker Change: Got it got it thank you very much.
Speaker Change: Yeah.
Speaker Change: Thanks.
Speaker Change: Your next question comes from the line of Mark Hughes from <unk>. Your line is now open.
Mark Hughes: Yeah, Thank you and good afternoon.
Speaker Change: Hi, Mark Hi, Mark its fair to say that the.
Mark Hughes: The pricing in the U S is relatively stable I think here.
Speaker Change: Purchase multiples you put on this quarter were.
Mark Hughes: Pretty consistent.
Mark Hughes: Last quarter, you talked about stability between Q3 Q4.
Mark Hughes: Would you characterize it for <unk>.
Mark Hughes: Rakesh why don't you take that.
Mark Hughes: Yeah sure so yeah Mark.
Mark Hughes: Great observation look we've definitely come a long way from where we were in 2023, so as I mentioned did that one.
Mark Hughes: 197 for the U S core business, but the last few quarters.
Mark Hughes: We've really stabilized from our perspective.
Mark Hughes: At the 2.1.
Mark Hughes: Level, but keep in mind, Mark as we've mentioned previously in.
Mark Hughes: Right now we are undertaking a big transformation at the company.
Mark Hughes: And really focusing on our cash generating initiatives and those multiples currently do not take into account.
The higher multiple we could potentially achieve when we respect those those multiples into our cash expectations.
Mark Hughes: So the flip side is this is why you are continuing to see.
Mark Hughes: A pretty big change in expected recoveries on our side as well and as I've mentioned earlier.
Mark Hughes: For the whole year, we had 65%.
Mark Hughes: The change in expected recoveries was actually true cash that we received above our expectations.
Mark Hughes: Yeah.
Very good we think about the efficiency ratio will the legal spending taper a bit.
Mark Hughes: And so maybe it contributes to improvement.
Mark Hughes: Efficiency ratio or.
Speaker Change: Or do you expect that to stay.
Mark Hughes: At about the same level relative to collections.
Speaker Change: Yeah look.
Speaker Change: Rick mentioned, a bit earlier, and what I've mentioned my target that I outlined we do expect that efficiency ratio, we had mentioned.
Speaker Change: For 2024 to be approximately 60, we expect that to move up in 2025.
Speaker Change: From a legal perspective look it is.
Speaker Change: In our view an investment in the business that drives future cash. It's also dependent on the portfolio mix, what we buy what is illegible.
Speaker Change: For the legal channel it is not.
Speaker Change: The channel that we lead with.
Speaker Change: But the the upside is also that there is greater certainty when we make that upfront investment in the court costs.
Speaker Change: That'd be collect the cash so from our perspective it is.
Speaker Change: The other lever that we pull as we try to drive more cash dependent.
Speaker Change: What kind of portfolios come to market and the good news is in all of this look we have better processes that are much more efficient we've reduced our cycle time. So from a legal process perspective, we are much much more nimble than we were previously and we want to continue to leverage that as well.
Speaker Change: More fun.
Speaker Change: Then one more question back you talked about some you gave some numbers on the.
Speaker Change: Percentage of head count.
Speaker Change: As a <unk>.
Speaker Change: International.
Speaker Change: What would you say about the productivity and cost.
Speaker Change: The.
Speaker Change: International collector.
Well first on the cost front I think we've shared it with you before you know last time you didn't mention it this time, but last time, we mentioned that are based on the number of collectors, we had offshore and the annualized savings that we attributed about $10 million.
Speaker Change: The basic batch was.
David Scharf: It's about 30 Grand book like David right.
David Scharf: Otherwise expense wise, if there is a meaningful save if we can moved up there.
David Scharf: From a productivity standpoint, absolutely on track up Mark.
David Scharf: Relative to expectations, obviously, we sort of benchmark them against an equivalent.
David Scharf: Tenured.
Sector in the U S right, because obviously collectors.
David Scharf: Performance generally improved and correlates to the level of tenure they have here.
David Scharf: So if you look at our collectors that I brought her tenure of less than one year because that's the average tenure of our folks are overseas.
David Scharf: But I put it up for me.
David Scharf: I'm sorry.
David Scharf: Yeah.
David Scharf: Yeah.
David Scharf: Yeah.
David Scharf: No no issues there.
David Scharf: Yes, Greg.
Greg: Was it allowed to go out there, but I appreciate your answer thank you very much.
David Scharf: Okay.
Speaker Change: Your next question comes from the line of Robert Dodd from Raymond James Your line is now open.
Speaker Change: Follow on to that actually in terms of your you're comparing them to a similarly tenured U S collector and I know, it's obviously really early days, but any indication of how much should you expect.
Speaker Change: What you could expect from churn is offshore collectors versus.
This is kind of similar you can get us collect because if you get back in the U S.
Speaker Change: It may be kind of cool separate operation, but any thoughts there.
Speaker Change: Yeah Yeah.
Speaker Change: We are actually experiencing Oh damn thing attrition in our offshore collectors relative to the attrition rates that we experienced in our onshore collectors. So that's encouraging as well.
Speaker Change: Got it thank you moving onto to win when you look at the and there was a lot of color.
Speaker Change: On on monitoring the health of the U S consumer.
Speaker Change: And things seem now that could put on you right now but.
Speaker Change: Are you seeing any any emerging signs went into this.
Speaker Change: I wouldn't call that a about the preliminary data from the IRS, there's a whole.
Speaker Change: No more refunds, but a lot less returns, but it's only a couple of weeks data.
Speaker Change: But any any trends you're seeing either in Q4 or this year at the beginning of tax season.
Speaker Change: That may change your color from benign two better than benign or western Benoit.
Speaker Change: Okay.
Speaker Change: So subtract the tax refund trends along with obviously everybody else in the industry. Maybe you can speak to that in terms of what we're seeing I think it's very early days generally right.
Speaker Change: Yeah, I agree to look up.
Speaker Change: Bulk stock.
Speaker Change: Submitting their taxes at the end of January it takes about three weeks. So it's just early days. We are seeing the same data that you are seeing in terms of trends over the last three years I think.
Speaker Change: The key is also the earned income tax credit, we really focus on that because a number of our customers benefit from that and as you know the data just came out with that would be released early March March start to be exact so we'll be monitoring that as well and then I think we'll have a better idea as to how the.
Speaker Change: The tax season would flow into our business.
Speaker Change: Got it got it thank you and then on <unk>.
Speaker Change: Going back to sort of jumping around a little bit only efficiency and you mentioned a number of things.
Speaker Change: The long term.
Speaker Change: The Digitization AI, maybe someday, we'll chat box et cetera.
Speaker Change: Any any new.
Speaker Change: Our efforts there.
Speaker Change: You're starting up on that front, obviously, you've done a lot of work on the digital front.
Speaker Change: Paid off.
Speaker Change: So is there going to be a growth of investment for the expansion of that or just kind of you know.
Speaker Change: Steady steady as she goes or are you looking to accelerate anything on that front to drive.
Speaker Change: Did that proficiency.
Speaker Change: Nothing in our business as steady progress.
Speaker Change: [laughter] odd and fast and furiously right.
Speaker Change: So I would expect nothing dramatic meaning like there's no new sort of whiz-bang tool that we're developing but we are making sure you know as rakesh talked about and I did too.
Speaker Change: Cross our entire enterprise, we are still in the what we refer to as the early innings of just making sure. We are adjusting the covers off everything and and moving quickly. So there's nothing there's always bang.
Speaker Change: <unk>.
Speaker Change: That I've got to share similar to the offshoring, that's going to be dramatic changes, but we are moving fast right and on all fronts.
Speaker Change: Got it thank you.
Speaker Change: Okay.
Speaker Change: Okay.
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 John Rowan from Janney. Your line is now open.
Speaker Change: Yeah.
Speaker Change: Once again, John Rowan Your line is now open.
Speaker Change: Sorry, I had my phone on mute.
Speaker Change: So most of my questions have been answered just on the other revenue line item on the $8 $3 million was there anything unusual in that it was.
Speaker Change: Obviously, a lot higher than the prior quarter can you just explain why that was up.
Speaker Change: Right, Yeah, no nothing unusual.
Speaker Change: Unusual look a lot of that fee income comes from our.
Speaker Change: CCD business with it which is our securities and antitrust claims business.
Speaker Change: We're able to benefit from a transaction that we undertook in that quarter, but it's.
Speaker Change: Normal for our business nothing unusual.
Speaker Change: Okay and then just you know obviously you came in the efficiency ratio a little bit lower than you had guided to for 2024 again I think it's pretty clear it's a lot of in the legal expenses, but again do we you know maybe try answering the same it's asking the.
Same question do we expect legal expenses to.
Speaker Change: Turning down a little bit or you mean is that gonna be a further endurance to kind of a meeting that plus 60% efficiency goal for 2025.
Speaker Change: No I think you can supplement but my view would be that we had as we've signaled.
John Rowan: John has stepped up.
Speaker Change: Meaningful step up right in the legal.
Speaker Change: Activities over the last year to 2024 relative to where we were in 2023, so that all the C shape. The final numbers will be reporting and you know as I've signaled before.
Speaker Change: You know we are running the business for our overall value creation.
Speaker Change: Trying not to be sort of guided to a particular vector of metric.
Speaker Change: So, but that said you know when we signaled our cash efficiency expert with 25.
Speaker Change: We're fairly confident at this point in time that the.
Speaker Change: That incorporates our expected legal spend that we would have to incur in 2005.
Brian: Brian I don't know if you want to add to that in any regard right yeah.
Brian: Yeah, I think John the way to also think about it as you know we just invested $1 4 billion also and so it's early days or some of those accounts, especially what we bought in Q4.
Brian: To have the legal cost. So we are going to see some elevated level of those costs, but as Vic said, we're taking that into account plus the target that we put out for it.
Brian: This year in 2025.
Brian: So youre going to have to get the legal costs move up and down relative to some of the buying that we do and and the type of accounts. So it's not just the dollar amount, but whether the oldest accounts that we buy it or legally eligible.
Brian: Okay. Thank you very much.
Brian: Yeah.
Speaker Change: There are no further questions at this time I will now turn the call back to Mr. Victor <unk>. Please continue.
Speaker Change: Thank you so much for joining us this evening and we look forward to continuing our conversation over the next several quarters. Thank you again.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: Oh.