Q2 2019 Earnings Call
Good afternoon.
And welcome to the P.R.A. Group Conference call.
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I would now like to turn the conference over to Darby Schoenfield Vice President of Investor Relations. Please go ahead.
Thank you.
Good afternoon, everyone and thank you for joining US with me today are Kevin Stevenson, President and Chief Executive Officer, and Pete Graham Executive Vice President and Chief Financial Officer, We will make forward looking statements during the call which are based on management's current expectations. We caution listeners that these forward looking statements are subject to risks uncertainties and assumptions that could cause actual results to differ materially from our expectations.
Please refer to the earnings press release, and our FDIC filings for a detailed discussion of these factors.
The earnings release, the slide presentation that we will use during today's presentation and our SEC filings can be found on the Investor Relations section of our website at Www Dot Peary group Dotcom.
Additionally, a replay of this call will be available shortly after its conclusion and the information needed to listen as in the earnings press release.
All comparisons mentioned today will be between the second quarter 2019 in the second quarter of 2018, unless otherwise noted.
Additionally, you will find the third quarter 2019 estimated revenue model as an appendix to the quarterly conference call slides on the website.
I'd now like to turn the call over to Kevin Stevenson, Our President and Chief Executive Officer.
Thank you Darby and good afternoon, everyone. Thank you for joining our conference call. This evening.
Well it did begin reflecting on our third quarter of 2018 conference call.
I'll begin the call with a person quote from a Wall Street Journal article, which was critical of short term thinking.
Yeah, Jamie Diamond Warren Buffett stated no quote companies frequently hold back on technology spending hiring research and development.
To meet quarterly earnings forecast in quote unquote. The article went on.
I'll then discuss the significant number of investments we've made over the last two years and in particular those in people.
Legal.
Data and digital.
I mentioned this again, because it's important to understand the vision.
And the planning.
And the effort that goes into making puree successful.
This industry demand that level of focus.
Because while the promise of purchasing and collecting nonperforming loans is relatively simple.
Successfully delivering results through a compliant consistent and disciplined operation It was complex.
This evening I'd like to review each of these investments and tell you how they contributed to the record cash collection results we are reporting.
So first or investment in people, which focused on ensuring that we met the needs of our U.S. portfolios by increasing the number of domestic collectors.
In addition to the hiring we provided enhanced training.
Improved policies and procedures and had direct feedback sessions with all levels of the U.S. organization.
In Europe , we invested heavily in recruiting additional talent to further bolster our team and had similar direct feedback sessions.
In all geographies, we invested in technology in order to increase productivity, while adhering to our purity care as core values and the high level of compliance.
This helped drive increases in cash collections globally, and built or long term payment plan base.
Yes.
Our investment legal collections was focused along similar lines has more U.S. counts were eligible and selected for the legal channel.
We drove process improvements to ensure the accounts of pass through efficiently and expeditiously.
We did not shy away from expensing materially more in court cost in order to address the volumes in fact, when we had the opportunity to invest sooner we did.
We knew that expensing these costs would drive a reduction in net income during that quarter, we viewed it as an investment in the future.
In Q1 of this year, we saw the return on this investment begin.
And this quarter it deliver even better growth.
Third our investments in the data area.
Created a collaborative team worldwide collectively responsible for our analytics.
We added staff unexplored additional data that we could use and predicting collections.
This created improved models, including those associated with portfolio pricing.
Our collection operation.
Predicting optimal staffing levels.
In determining the accounts to qualify for legal collections.
And finally in the digital arena.
We expanded the offerings and payment plan options that are U.S. site.
We launched improved sites in a number of European countries and the results have been incredible.
We continue to generate significant increases in cash collections through this channel.
Our continued focus on long term results are planning in patients and our work efforts all have advanced our operations and I'm extremely pleased with what we've accomplished.
So now some quarterly highlights.
This quarter, we reported record total cash collections of $470 million.
On the heels of our record breaking first quarter.
This included records in Americas core and total Europe .
Record cash collections generated record revenues and this drove a 15% increase in net operating income.
Second quarter global purchases were $289 million.
And built on last quarter's solid investment levels.
Importantly, this marked the third quarter in a row that we had significant portfolio investments in Europe .
This level of buying increased estimated remaining collections or you are seeing.
To a record $6.4 billion globally.
Focusing now on the Americas.
Cash collections were a record of $294 million during the second quarter of 2019.
This was driven by increases in all of our core collection channels, including U.S. digital.
Legal.
And call center as well as gains in Canada, and South America.
In the legal collections channel, we're delivering a return on investment on legal collection costs.
The matches our historical performance.
We have maintained excellent returns despite processing significantly more volume in fact, the average investment over the past four quarters with more than 25% larger than in any prior period.
Our ability to maintain or otherwise in excess of 200% was powered by investments in technology.
Combined with additional refinements, what our models and selection process.
As we said before.
Provided we select the correct accounts.
Do not overworked him on the call center and legal collections channel can deliver similar margin the call center collections channel over the life of the assets.
No. There's certainly the cash timing difference between legal and call center expense and collections.
Consider that legal costs were expensed in full during the quarter, we file a lawsuit.
That then drives cash collections over the next several years with little additional expense being recognized.
Conversely.
Call Center activities, typically generate cash today or in the near future, thus matching cash collections and Cas expenses more closely.
In light of this timing difference in the legal channel.
Our investment in data.
Which we find the decisioning of which customers have the ability to pay us but are not inclined to do so.
What's most important to deliver these results.
In the call centers advances in systems processes, and scoring contributed to productivity gains.
Therefore, we were able to collect more with a smaller workforce, while increasing the number of payment plans generated.
In fact, we collected 12% more compared to the second quarter of 2018 with 24% fewer collectors by quarter end.
Portfolio investment during the second quarter was $122 million in Americas core and $26 million in Americas insolvency.
We see stable supply and U.S. core.
With revolving consumer credit outstanding remaining high well charge off rates are holding steady.
Moving on to Europe .
Total cash collections were a record $126 million.
This was driven by recent portfolio investments as well as improved operations and despite.
Significant foreign exchange headwind.
On a constant currency basis cash collections in Europe increased 15%.
I'm very pleased by the results in Europe , and the operational improvements, we've made and how the market has evolved.
Three years ago.
We voiced a strong opinion that we believed the European pricing environment was growing irrational.
And our very vocal narrative did not change until late last year, when we saw slight improvements.
During that time, we stay disciplined.
We spent those years investing in our core competencies.
With the expectation.
Based on our experience in the U.S. during the late Ninetys and again in 2008 that the market would eventually exit.
The irrational cycle. It was then.
During the third quarter of 2018, we reported.
While the market was still competitive we did start to see a small shift in pricing.
Last quarter, we made investments more broadly than we had done in years.
Investing in six of our nine operating markets and this year or 100 or this quarter I'm, sorry, 141 million dollar investment.
Well spread over seven of our nine operational markets.
We remain disciplined in our pricing throughout.
We're now investing more in portfolios at what we believe to be better returns.
Just to be clear the market still competitive pricing does indeed vary by geography.
We also continue to see sellers seeking onerous seller friendly contracts.
But overall as you can glean from our level of investing we're encouraged by the improvements we're seeing broadly.
Similar to last quarter, Spain remains a challenge.
Our team there is both knowledgeable and experienced.
And the purchasing potential is significant.
However, as we discussed last quarter, we believe the heavy use of advisors in that market is keeping pricing irrational.
We see buyers come and go as advisors continue to recruit new participants.
From our standpoint, we do not see many repeat buyers at these levels.
Our goal in Spain is to once again be vocal on this matter while at the same time, keeping our team is energized engaged and our operations running efficiently until we see a pricing shift.
Across Europe , the purchasing <unk> pipeline is very active and keep in mind that European portfolios tend to be larger than those in the U.S.. So one or two portfolios can materially change your investment for the entire year.
I'd now like to turn things over to Pete to go through our financial results.
Thanks, Kevin.
I'll start with a quick overview of our second quarter 2019 results.
Total revenues were a record $252 million.
Net allowance charges were $1 million.
Operating expenses were $187 million.
Net income was $19 million generating 41 cents in diluted earnings per share.
Total cash collections in the quarter were a record $470 million.
This was led by record cash collections in Americas core.
With $294 million, an increase of 26%.
Typically we see a decline in cash collections from first to second quarter.
Due to seasonality related to tax payments to us.
But this year the normal seasonality was more than offset well U.S. legal cash collections, which increased 39% compared to the second quarter of 2018.
This is a direct result of the increased number of accounts previously placed in the legal channel.
Beginning in the third quarter of 2018, we began to accelerate our investment in the legal channel.
Due to a favorable environment for external firms had excess processing capacity.
We indicated at the time it was possible that collecting cash earlier in the curve would have a positive impact on yields.
We're clearly seeing that effect, that's part of the reason why we've been able to raise yields this quarter.
You must call center and other cash collections increased 12%.
So the 7% increase in call center only.
And the 49% increase in digital.
Cash collections and other Americas core increased 89% driven primarily by the acquisition in Canada earlier in the year.
As well as performance of portfolio investments made in Brazil in 2018.
Europe core cash collections during the quarter grew by 8%.
Well on a constant currency basis were up 14%.
The biggest driver of this increase was performance of recent portfolio investments.
Operational improvements that have been developing over the past few years or produce sustained performance and generated yield raises in several countries.
Global insolvency cash collections in the quarter decreased 8%.
Driven primarily by investment volumes in the U.S.
Not offsetting the wind down of older vintages.
Our amortization rate excluding allowance charges was 47%.
The past few years, our amortization rate has trended from the high Fortys in the first quarter.
The mid to low fortys by the fourth quarter.
Based on seasonality in U.S. the mix of what we've been purchasing recent trends in the portfolios.
We expect this pattern to be similar for 2019.
Operating expenses were $187 million.
An increase of $24 million from the second quarter 2018.
This is largely due to increases in legal collection costs and fees.
As well as increased costs from our Canadian acquisition.
Legal collection costs were $33 million, an increase of $14 million.
Based on our latest view.
We expect the remaining two quarters of this year to be in the same $30 million to $35 million range per quarter.
There could be some timing differences between Q3 and Q4.
Legal collection fees, which consist of the contingent fees, we pay firms.
Increased $4 million as a result of higher external legal cash collections.
For cash efficiency ratio was 60% for the second quarter.
Compared 59% in the first quarter.
The 8% for the full year of 2018.
Driven by record cash collections, coupled with productivity improvements.
This ratio continued to improve as we balance the U.S. collector workforce with the legal channel. This cash collections from past investments continued to deliver.
We expect that this ratio will approach approach.
But likely not exceed 60% for the remainder of 2019.
Below the operating income line interest expense was $36 million.
An increase of $5 million.
Mainly due to higher borrowings used to fund portfolio investments as well as higher interest rates, mostly in U.S.
Our effective tax rate for the first six months of 2019 was 18.6%.
And for the full year of 2019 range of 16% to 20% is still our best estimate.
Estimated remaining collections at the end of the second quarter were a record $6.4 billion.
With 55% in the us and 41% in Europe .
Darcy increased nearly $700 million from the second quarter of 2018, and almost a $150 million from the first quarter of 2019.
The sequential increase was driven primarily by portfolio purchasing and sustained performance that drove increases in our forecasted collections on certain pools in both the us and European portfolios.
Combining cash flow from operations and coal collections applied to principal the business generated $474 million during the first half of the year.
And at the end of the quarter, we also had capital available for portfolio purchasing.
Amounting to $555 million in the Americas.
And $198 million in Europe .
For a total of $753 million globally.
Additionally, given our conservative capital position, we have the ability to increase leverage as necessary.
To take advantage of portfolio purchasing opportunities as they may arise.
Now I'd like to turn things back to Kevin for some final thoughts.
Well, thank you beat.
Our past investments continued to deliver excellent results.
We reported another record for global cash collections with a 16% increase.
Along with record year see at $6.4 billion.
Portfolio investment continues to be steady worldwide with improvements in Europe , and an increasing win rate.
We delivered a cash efficiency ratio over 60% in Q2 and expect the full year two approach 60%.
Im very pleased with the discipline and focus and we have shown over the past few years, if I look back.
And we are in our 24th year of operations.
We've always operated PRM by a set of founding principles.
Foremost on this list.
Our long term focus.
Conservative capital structure.
Ethical code and diversification, which includes both product and geography.
Our willingness to hold to these principles from my perspective.
Has always proven beneficial and contributed to our success. We are not here to generate results for a few years and then move on to the next thing.
We have a tenured and committed management team globally.
One that believes in our vision statement, which is.
PR Ray will be known as the industry leader and partner.
That is collectively responsible compliant and solution oriented.
Thereby changing the world's perception of a nonperforming loan industry for the better.
With that operator, we're now ready for questions.
Thank you.
We will now begin the question and answer session.
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Our first question today will come from Hugh Miller with Buckingham Research Group. Please go ahead.
Hi, good afternoon. Thanks for taking my questions I guess I wanted to start off one on the regulatory front.
I was reading an article that talked about how the the fifth Circuit District Court in Texas had ruled that a predictive dollars are outside of the scope of the TCPA I'm wondering I guess get your take and seeing if that would have any implications for the company and you know you hear your thoughts on on that case.
Yes, thanks for the question Hugh.
It's always dangerous to ask the CEO questions about courts rule.
The other.
So I will give you my best read on it it's not going to be a lot, but as I recall that court case and I recall.
And I'll have to go on a limb here I think its ninth circuit.
In California, I think theres, some theres some discrepancies across courts about defining dialers or predictive dialers or 80, Dsas and so I don't.
Yes, I think it's I think it just shows the confusion that exists across courts, but you know.
Do you have another opinion on that.
Yeah. It certainly is a differing view there but it is if that's the way the things stand you know does that change your ability to kind of use a dialer in Texas.
Does that really have much of an impact on the business.
Yeah. That's a good that's a good way to ask it well I'll tell you that some of the technology, we're using today.
Well, obviously not using not using any tds, but we are we are approaching productivity standards that we havent seen since 2015.
So I guess my position is we'd certainly love to use predictive dialer. However, we've been we've been combating that headwind for years and we're we're almost.
Now almost flat to Q2 15 production numbers help.
It would be upside for us if that ever happened.
Got it that's helpful. Thank you and then I appreciate the commentary that you've been getting along the way in terms of Europe and pricing returns.
It did look as well like you had booked the gross money multiples for the core paper in Twoq. You know ahead of where you were looking at the one Q1 9, one of your peers you kind of mentioned I guess in IR terms, you know the improvement in the 19 vintage relative to the 18 and I was wondering you know a few.
Kind of agreed with with that view in terms of the improvement they were talking about and I are ours for purchases made this year, you know and whether or not there were any geographic regions, where you were seeing kind of a more progressive improvements and.
And pricing.
Sure I'll start and then I'll hand, it off to Pete talk a little bit about deal multiples and I are ours I guess from my perspective.
Firstly I wanted to say it was you know, we're we're kind of holding fast to our bidding strategies, we're just winning more deals.
And that's interesting to us as I mentioned in my script.
We went from six of nine operational markets last quarter to seven of nine.
I would say UK in Poland are probably the strongest volume wise to Pete do you have something to add to that yeah. I think I'm just looking at the money multiples of the first quarter was fairly consistent with.
You know the full year of last year.
1.1, 0.5 on the round.
And we're almost a 10 points better than the second quarters.
You know that's because the second quarter was much better again, I would say Poland and in the UK are probably.
The two areas I would highlight where that where that multiples change significantly.
That's very helpful. Thank you and then I guess one last from me on the U.S. side are you hearing any difference in language as you speak to the credit issues out there about you know.
A willingness and propensity to sell accounts relative to placements or anything like that.
Oh, I can't say that I have anything off the top of my head it's materially different.
So I I think it's more steady as she goes right now you know, obviously I think that.
You know to the extent recessionary winds blow I think that can change people's minds.
You know I know you've been around a long time and I know that you think you can think about the model if you think about.
Agency placement models.
Yeah, but my guess is if you ask him of my competitors debt buyers in the United States, We would say we could probably beep.
[laughter] beat the banks, a NPV on that on that flow of cash from that from that agency pipeline.
And I also think that from a customer journey standpoint.
Having someone like ourselves by the paper and hold it is a much much better experience for people then placing that one two or three agencies. So.
You know again, I I think that the real.
Shake out will probably occur when there was a.
More upward pressure on charge off rates.
Yeah, certainly understandable thanks, Kevin I appreciate your insight.
Thanks take care.
Our next question will come from Bob Napoli with William Blair.
Please go ahead.
Thank you.
Congratulations nice to see the or that the industry performing well and you guys certainly have.
The $700 million from 351 million is.
Is that essentially coming out of the same areas, where youve you are talking about the UK and.
Poland or maybe a little bit of color on the forward flow.
They did on that Pete and yes, I mean, I think in general that number can can swing around just based on where we are in.
In renewals of the flows you know because the sellers tend to.
Stagger those so that they don't come all do at one time, so just depending on where we are in the mix that can move around I will also say that you know the forward flow.
Contract.
Is.
Is heavily weighted.
Ah typically towards towards the U.S., but we are starting to see more prevalence of.
Flow contracts in Europe as well.
Okay. Thank you now the.
Maybe the efficiency ratio, the improving efficiency ratio and I think Kevin used the word incredible for digital collections.
Just wondering maybe if you could give a little more color on where you see the the efficiency ratio improving to it he gave a metric on.
Had the amount of collections relative to 25% less collectors and how the digital collective collections are helping and is any signs thing anything you can give us to quantify that.
Yeah, that's something we'll do going forward, we still haven't broken it out, but it's a good question and it's.
It's a it's a strongly growing piece of our business. So that's that's something we will indeed breakout for you later.
But let me also give you some color on.
Some of the commentary I mean ill put a little finer point on it when it comes to.
His payment plan builds you know one of the things that you would have seen back in 2015 2016, as we if you recall that.
Okay period, we went through where we reduced headcount.
Probably not matched with our portfolio.
We were actually reducing payment plan sizes. So I guess I'd use the word cannibalizing it are consuming it today as as we.
We drive collector headcount down and inefficiency up we're building those long term payment plans. So part of what you're seeing I think is almost like a layering effect. If you think back to some of the early days of PRB being public we talked about layering effect of portfolio purchasing the same kind of thing happens when you're layering on payment plans that are very sticky.
So I think Thats also part of this equation.
Yeah, I think the.
Bob the other thing I'd add there is when we started ramping legal costs in the back half of last year that had a depressive effect on.
On our efficiency ratio.
And we said you know as we moved into this year, we thought that that would improve just just from a pure dynamic of.
The legal cost sort of leveling out quarter by quarter by quarter and the the topline cash starting to deliver and we certainly did see that topline cash come through in a big way in the second quarter.
As I highlighted in my remarks, I mean typically in the U.S., we have a decline in cash collections from first quarter to second quarter because of seasonality and we we actually went up and that's on the back of the legal cash.
Thank you last question is can you kind of a broader question.
Hi, Kevin have any followed this company for a long.
Time, and I you know the.
For many years PRB delivered return on equities in.
Yes, they the.
Mid to high teens said, even in over 20%.
Hi, consistently and I know there is goodwill in the equation now but.
When I look at the amortization rate it.
In a higher Fortys state cash efficiency ratio are you seeing the industry seems a lot more rational certainly in the U.S. and now incrementally in Europe do you think getting back to historical levels of returns is.
Hi, it is feasible.
How do you think about returns today.
Yeah. That's it that's maybe that's a better question.
So so your observations are strong.
The Emirates are separated by.
Now what five from our from our.
Some of our more normal periods of five percentage points in our.
Our expense our expense ratios are actually approaching old historical norms.
So.
We're also thinking a lot about tangible equity inside inside the walls up you're right I think we'll probably talk a little bit more about that in the next call. Once we get some some some good solid thoughts around it but that's one of the things that we're seeing globally is.
If you look at <unk>.
Especially folks in Europe .
One of them have negative.
Yeah, well common equity and so.
Ours is ours is pretty strong positive number so other things will start talking about as time moves on but that's how we're looking at how we're generating returns and of course, we're trying to generate EPS as well so.
Okay. Thank you.
Our next question will come from Eric Hagen with KBW. Please go ahead.
Hi, Thanks, and congrats on a solid quarter, what percentage of the acquisitions made into Q were selected for the legal channel.
Yeah.
Typically you know investments or when we book those on we'll we'll spend some amount of time.
Getting to know the account so to speak and working them in a in the call centers and otherwise lettering and.
And other things to gather more information on the portfolio to inform the scoring that will then.
Pushed that into legal so the underwriting does have some assumptions over the life of the portfolio as to how much will be eligible for legal.
But typically it's you know.
Call It six months or so you know working the accounts before you really start to select and identify the accounts that are going to actually go into it and that's actually a really good question. Because I think there are there have been and we also have been participants who immediately sue kind of ASU first model and we don't have that you know Pete right. It's it's six plus months.
To get accounts through that process and understand which ones. You then have the ability, but not the inclination to pay.
Interesting okay. Thanks, So maybe we'll follow up on that.
And the next couple of quarters can you can you talk about changes in the level of pricing since the start just call. It the start of this year.
And can you also just give us a snapshot just because I think it would be.
Maybe a useful reference point on what the price per dollar is that you're paying.
Roughly speaking on fresh charge offs.
Today.
So we don't we don't disclose that anywhere anymore right, it's not that long time ago and I'll I'll tell you why we stopped it.
And I know your question specifically towards ports towards fresh but.
People used to talk a lot about how much they paid on average per dollar and it really it.
Really didnt matter, which paid for dollars what your turns going to be so it's not been a long time ago.
Most people are using just shifts in.
Your multiple tables.
But.
So I guess, what I'll tell you is obviously from from Q2 of last year, we've had a decent move as we've talked about in earlier Q1 c between in both United States and as well as in Europe .
Okay Fair enough and then just the domestic bankruptcy.
Purchases continue to be somewhat light I mean is that mostly a result of weak volume.
Out there for a bit or is it is it pricing that you just don't find very attractive.
No. That's a good question no. It's it's mostly the volume unit volume just been it's been low for a number of years, it's something we've talked about.
You know, especially if you're looking at coming down off of I think our peak summer is it 2013. Your 2014 off top of my head and you know if you look into the 15 16 timeframe. You know we were running in cat in terms of cash flow.
$100 million reduction year after year.
Really as a result of less purchasing and so we'd love to.
Cultivate more buyers in a couple of years ago, Weve cultivated a seller I'm, sorry, sellers, what called to redeem where buyers.
We cultivating new seller who were selling.
Auto secured paper and we bought a bunch of that so we're still rummaging around that area trying to I'm trying to drum up more business. It's a great business for us we've got a great operation highly scalable.
But I would say mostly it's around.
It's around volume more than is pricing.
Great. Thanks for that color one last one from me just you know that you talked about raising yields what was the amount of reclassification that you guys booked in the quarter.
So I'm a little over 100 million 101 hundred 13 million.
And that was roughly spread sort of the way he or she is spread distributed you us versus Europe interesting. Okay. Thanks for that color. Thank you guys.
Yep.
Our next question will come from Mark Hughes with Suntrust. Please go ahead.
Yes. Thank you Pete could you repeat again the amortization pattern. You described how did you a phrase that when we think about the back half of the year.
Yeah. So it's typically you know given the pattern of cash collections is typically highest in the first quarter.
And then we'll sort of.
Moderate through through the year and so the last couple of years. If you look at the actual pattern quarter by quarter. It was in the high Fortys in the first quarter and then you know in the in the low to mid Fortys by.
By the fourth quarter, and all indications are well will likely repeat that pattern this year as well.
And then when we think about the legal spending.
It clearly has been a big success this year and is going to continue in Q3 and Q4.
Notionally, how should we think about next year.
[noise], Yeah, how should we think about next year.
Oh, sorry push to push the button off I think theres, a possibility that it trends down slightly from these levels, but you know again the portfolio will be placing next year as the portfolio. We bought this quarter and will buy likely next quarter, and maybe a little bit into the fourth quarter.
And we will.
You know as I stated earlier in the in the in the queue in a you have to.
Work the portfolio, a little bit to to be able to precisely predict.
Or more precisely predict the you know the overall placement levels.
Is it right to think of you know your level lately, it's a little bit of a.
With that catch up after under investment in legal or are you can you kind of came to the point, we recognize more should be placed on legal what a normal run rate.
B or lower than the current level.
Well the catch up piece really is around the portfolio. We were buying so we started talking about that.
Several quarters in advance of actually ramping up our legal investment. The fact that we were shifting the mix of what we were buying had shifted from.
You know lower balance paper, which typically doesnt fit well in the legal channel.
To a higher average balance paper and so again the mix of what we what we actually buy will.
You know will dictate that.
And I guess that's right.
Actually I had a couple of teens when it started yeah.
Do you have that might now you've got the collection matched against the expenses a little better is the point that I guess.
And I wanted to be clear I got Pete you're right next to me some of Mark's question notional amount. So your answer that question correctly, you think the notional amount going into 2020, you'll be level or lower.
Yeah by notional I assume you meant the dollar amount all our mouth right. So so hopefully hopefully as we grow cash collections, hopefully that percentage will start trending downward.
That's right.
Okay, and Kevin I like how you're aiming high with your analogy between the Warren Buffett and the.
A period management team.
[laughter], Yeah, we're kind of the same folks so I thought that would be a good analogy.
There you go thank you.
You're welcome.
Our next question will come from Robert Dodd with Raymond James. Please go ahead.
Hi, guys, just going back to the pricing in India. Obviously, you gave a I love Kellie UK versus <unk> can you just.
Give us a kind of them kind of the range across the that they dine geographies you are putting a whole other seven you are buying in the range of defenses in the multiples obviously, we see it in the U.S. wagon on solvency II is a lower purchase multiples and cool because that's less expenses et cetera. So.
It all relates to the <unk>, but obviously, we can see a the purchase multiple can you give us any color on on just how wide that range is across geographies.
I don't have anything here in front of me, but off memory I would say you know probably on the low end is call. It 1.2 and on the high end, maybe a 1.8 in kind of blending from there and again, depending on the volumes were buying.
In a in the individual.
Yeah.
Countries out of food countries have a huge.
Impact on that you know if you're buying something.
In Norway, or you're buying something in the UK, it's paying or the UK NPL.
I would consider I was caught true npls versus versus paying.
Versus Poland versus Italy, it varies a lot.
So you know that's all.
Okay, Okay fair enough. Thanks.
I'll have to get in front of us right now.
Yeah, and if I got one more kind of housekeeping on them the minority.
<unk> was a little larger than I was expecting this quarter is that kind of any I've thought about it Tim rule of thumb that we should be using I mean, you give as guidance on on a tax site any any rule of thumb on kind of the minority late.
As that flows through the yeah go forward.
No again, that's that's a tough one because it's really driven by.
The areas, where we have you know sort of joint venture.
Partners are predominantly that's that's going to be South America.
But then also there's a couple of.
Corky structures and in Ah.
In Poland in particular, where there's some outside.
Investment money not as well so it's.
It's really difficult to predict that one from.
From a forecasting perspective.
Okay understood. Thank you.
Our next question will come from Dominic Gabriel with Oppenheimer.
Please go ahead.
Thanks, Thanks for taking my questions I'm, just I've remind or does the revenue model at the end of the presentation take into consideration the acceleration of legal collections.
Yeah, I think it would reflect everything through the activity. We did this quarter so to the extent, we we raised yields and that impacts the.
Sort of reported book yield in a.
In the tables that are in the press release and will be in the 10-Q than than it would be in there as well.
Okay, great. Thanks, and then.
Do you still need given that the seasonality kind of shifted because of legal collections from first quarter to second quarter. Do you expect the same seasonality that we use a saying going from second to third as a step down or could kind of stay flat are you expecting a ramp and collections sold to occur.
Moving from the second third before.
In the Eagle well.
Yeah, well in it just overall cash it you know you know I'll just address that so this is.
First quarter long time.
Yeah, probably 2014 that Q2 cash exceeded Q1, and I would also say probably around that same time as first time that expense ratios wind down Q1 to Q2. So it was a nice nice Q2 for us.
Let's put it this way.
Q3 is definitely a harder time to collect.
It's seasonally it's always been seasonally harder in the U.S. and of course in Europe . We all know we know how that were how August works in Europe .
So.
In July in the Nordics. Thank you Pete for that so I would say I'll just tell you that it's harder to collect so our ability to be able to push through cash collections and try to keep growing that.
And to keep down expenses will be harder in Q3 now.
I think your question is it really good win related to legal.
Because to the extent our models are working correctly and we are indeed seeing people, who can pay us that will help that will help buffer that headwind. So how about if we leave it with that does that get you what you need.
Perfect perfect, yes. Thank you.
And then do you think is there any.
Internal guideline or.
Sort of target and where you expect your you are seeing waiting to Europe , because that really obviously isn't it.
Gets affected by the purchase of them, there's obviously been a lot more purchases than in Europe versus the U.S. This quarter than I was expecting and do you have an internal target where you would not like in Europe to be over some percentage of the total mix of the BRC or or is it really there is there is no.
You know limit there because it's really based on.
Returns.
It's all thank you for that it's all based on return and so.
If Europe went to 60% you know I wouldn't care.
And I would also say that it's a similar question you know people often ask us to like fresh paper do we like you know primary secondary tertiary paper and its same there I don't really have a preference.
It's all about return.
Okay, Great Yeah, and then just.
You had mentioned the nominal rate of legal collections if I.
I see it as about 47 for the quarter of a total legal collections.
<unk> expense rather.
You said that that nominal rate roughly could be flat to down and that percentage will be die. They I can see where you're going with that can you talk about the relationship between legal collections expense total and Danny.
Compensation and benefits expense and how those two can move.
Maybe with or against one another as you target various.
Types of collections is there a see saw method there I know you talked about.
Yeah, there really is and that's something that we've been trying to communicate for couple of quarters now this whole idea of balancing between.
Salary line and legal cost line, so, let's let's let's let's parse it out just for a second.
As we look at it there's there's just legal expense, but there was legal contingency fees and that's what we do the extent we use a third party attorney outside attorneys, we pay them a commission.
Now if I use my internal attorneys I don't obviously I guess the salary line and then the cost line is who we choose to sue in any.
Any given quarter. So that's let's get the ground rules down on that one.
And so what Pete actually alluded to earlier was if you look back into and again I think its 2015 2016 early part of 17, we were buying what I would consider more call center centric accounts for smaller balance they lent themselves more towards.
Telephone or digital collections and less towards legal because it's harder to see the small balance account.
And so as we ramped up that to service that portfolio and then in the back half of 17, we started to buy.
Larger balance accounts, which would be more again, historically legal centric component to them.
We started to work on balancing out those those numbers, but we had to catch up to do.
If you around back then we had some short staffing that we had to catch up on.
Certainly during the 2018 timeframe.
So when I think about is again, it's about portfolio management and to the extent that I'm seeing more people because they may not have the willingness.
To pay US then what we have to do is flip over and matched out from a a collector head count perspective and so.
Back of the envelope I like to look at averages.
On average we were down.
150 reps or something like that for the quarter.
No the notional and end of period numbers are bigger than that so that's one of things, you'll probably see you'll probably see some trending down on head count.
Throughout the rest of the year and and that balance will sit over there and legal cost so.
That's how we think.
Yes, thanks, so much and if I may just one more and maybe I'm getting ahead of myself with that 2020 here, but.
Is there something to be said with if you're pulling the collections forward, but say almost slipped out of the next but they two years as you ramp up the legal collections now because you had mentioned that maybe the pie hasn't grown as really pulling some collections forward is there a chance that the gross cash collections could be at a similar level of in 2020 year end as 2019 year end I mean borrowing.
With similar purchase levels lets say.
That we see today is there a reason that it could be.
Perhaps somewhat or 19, just because you pulled.
Forward.
But you know I I don't know it's good it's a good question I don't I don't I don't think so.
You know Pete did allude to the idea that we are possibly accelerating some of our cash.
In that legal channel, but.
Remember the timing.
Component of this you know we're talking about.
Again off the back of the envelope, we're doing 2018 accounts, probably now and so you're going to see.
Hopefully a good buying from us.
You know for the rest of the year, and then globally and and then in 2020 it's.
So you know Pete me, what he's ready to push a button and say something you want to do something like that.
I think that's right. It's it's you know just continuing to build a obviously purchase things a big piece of that.
And you know there might have been some acceleration in the back half of last year, but it's you know we're now sort of suing the right amount of accounts for the portfolio we own in a you know again, that's why couldn't give a.
The precise number on what we think's going to happen with legal costs in the first part of 2020.
Because we probably won't know that until we get into the fourth quarter and have.
A view on what portfolios been through the pipeline enough to be placed in first quarter. If I could also add to that you know it's one of the things that I'm excited about and if you look at if you look at the evolution of PR a.
You know it before the global financial crisis.
Through the financial crisis, and then been exiting out the other side of it.
You know what we're trying to build today is a is a is a diverse.
Income line a diverse.
Opportunity to invest in all sorts of markets around the planet.
And.
It just allows us to kind of to follow follow the investments around and avoid any kind of.
Irrationality that might exist in a place like Spain today, and hopefully capitalize on a place like Poland or or the UK or the nordics and and so I really like that ability and and hopefully we'll be able to.
You have to create a real sustainable really interesting.
Platform.
Great. Thanks, so much and thanks for taking all my questions I know it was kind of a lot. Thank you.
Absolutely.
This concludes our question and answer session.
I would now like to turn the conference back to Kevin Stevenson, President and CEO for any closing remarks.
All right well. Thank you everyone for joining our call. This evening you know I'll, we look forward to speaking to you again next quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.