Release Date: May 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PRA Group Inc (PRAA, Financial) reported a 7% year-over-year increase in portfolio purchases, totaling $246 million for the quarter.
- Americas investments grew by 48% year-over-year, with U.S. investments up by 71%, reflecting strong market activity and forward-flow arrangement benefits.
- Portfolio income showed growth for the third consecutive quarter, driven by higher recent purchases and improved returns, particularly in the U.S. business.
- Cash collections exceeded expectations, with an 8% overperformance on a consolidated basis, indicating effective cash generating initiatives.
- The company maintains a strong liquidity position with $3.1 billion in total committed capital and a leverage ratio within the target range of 2 to 3 times debt to adjusted EBITDA.
Negative Points
- European market volumes were below expectations in Q1, with only $29 million invested due to low availability, although a pickup is expected in Q2.
- Operating expenses for the quarter were $189 million, influenced by growth in account volumes and investment in legal channels.
- Net interest expense increased by $14 million due to higher debt balances and increased interest rates.
- The effective tax rate for the quarter was 17%, with an expectation to remain in the low 20% range for 2024, which could impact net income.
- Non-controlling interest expenses were significant, impacting pre-tax and after-tax results, particularly due to the performance of the joint venture in Brazil.
Q & A Highlights
Q: Can you remind us about the ownership structure in Brazil and whether there are any abilities to be complete ownership of that entity?
A: (Vikram Atal - President and CEO) We have a joint venture in Brazil, where we get a little over half of the income. The market there has evolved with a focus on the auto market, which is very concentrated with healthy economics. We've been disciplined in our investments and are working with our partners to evaluate all opportunities in that market.
Q: What is the broader message about market volumes in Europe? Are you starting to see more visibility into spot deals for the rest of the year?
A: (Vikram Atal - President and CEO) The European market is spot driven and varies over time. The first quarter had muted market supply, but we are seeing a tangible pickup in supply now. We expect our second quarter purchase volumes to be more in line with long-term trends, around $110 million.
Q: Are you seeing changes in the competitive landscape in Europe due to well-publicized headwinds faced by large competitors?
A: (Vikram Atal - President and CEO) The European market remains highly competitive. We have not seen an impact from competitors pulling back due to internal challenges.
Q: Can you discuss the overperformance in cash collections in the Americas and Europe?
A: (Rakesh Sehgal - EVP and CFO) We saw a consolidated 8% overperformance in cash collections, with 9% in the Americas and 5% in Europe. This indicates that our cash generating initiatives are starting to bear fruit, especially in older vintages in the U.S.
Q: How has the trend in forward flow pricing been lately?
A: (Vikram Atal - President and CEO) We have repriced a number of our forward flows in 2023 and continue to ensure our pricing framework is dynamic and reflective of market conditions. This has resulted in improved multiples, contributing to growth in portfolio income.
Q: Can you provide insights into the legal expenses and investments in Europe and the U.S.?
A: (Rakesh Sehgal - EVP and CFO) In Europe, there was a bit of catch-up in legal expenses due to cohorts closed last quarter. In the U.S., we continue to invest more in the legal channel, expecting the cash to come in over a longer period. Our focus is on driving higher cash collections through modest growth in our cost base.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
