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PRA (PRAA) - 2023 Q3 - Earnings Call Transcript
PRAAPRA (PRAA)2023-11-07 03:20
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Financial Data and Key Metrics - Portfolio purchases in Q3 2023 were 311million,up70311 million, up 70% YoY, driven by increased forward-flow volumes and spot transactions [40] - Americas investments in Q3 2023 were 232 million, the highest quarterly level since 2017, with US market investment levels increasing for the fourth consecutive quarter [41] - Net interest expense for Q3 2023 was 49million,up49 million, up 17 million YoY, primarily due to higher debt balances and increased interest rates [45] - Cash collections for Q3 2023 were 420million,a2420 million, a 2% increase YoY, with higher collections in Brazil and Europe partially offset by lower collections in the US [45] - ERC (Expected Recoverable Collections) at September 30, 2023, was 6 billion, up 12% YoY, with US ERC increasing by 135millionsequentially[54]BusinessLinePerformance−Americascorevintagepurchasepricemultipleexpandedfrom1.75xattheendofQ12023to1.9xbytheendofQ32023,reflectingimprovedpricingandreturns[42]−EuropeaninvestmentsinQ32023were135 million sequentially [54] Business Line Performance - Americas core vintage purchase price multiple expanded from 1.75x at the end of Q1 2023 to 1.9x by the end of Q3 2023, reflecting improved pricing and returns [42] - European investments in Q3 2023 were 79 million, with stable forward-flow volumes and competitive market conditions [44] - Legal collection costs in Q3 2023 were 21million,down21 million, down 3 million YoY, with expectations for Q4 2023 to be in the low to mid 20millionrange[52]MarketPerformance−UScreditcardcharge−offratesaretrendinghigher,reaching3.220 million range [52] Market Performance - US credit card charge-off rates are trending higher, reaching 3.2%, indicating continued credit normalization from pandemic-era lows [43] - In Europe, cost-of-living pressures have impacted some markets, leading to fewer large one-time payments, but the proportion of paying customers remains stable [46] - The company expects to collect 1.5 billion of its ERC balance over the next 12 months, with 841millionneededgloballytoreplacerunoffandmaintaincurrentERClevels[54]StrategicDirectionandIndustryCompetition−Thecompanyisfocusingonportfoliosupply,pricing,operationaleffectiveness,andefficiencytodriveimprovedfinancialperformancein2024andbeyond[32][38]−Operationalinitiativesincludeenhancinglegalcollectionactivities,leveragingthird−partyresources,andimprovingcallcenterproductivity[35][36]−Thecompanyisexploringoffshoringandoutsourcingopportunitiestoreducecosts,withpilotprogramsunderwayandexpectedtoexpandoverthenext12−18months[37][63]ManagementCommentaryonOperatingEnvironmentandFutureOutlook−ManagementisencouragedbytheUSmarket,withinvestmentlevelsandpricingincreasing,andexpectsthistopositivelyimpactportfolioincome[41]−Thecompanyanticipatescontinuedcreditnormalization,withincreasedsupplyandimprovedpricingdrivingfuturecashcollectionsandrevenues[34][38]−Managementexpectsthecashefficiencyratiotoimprovetothelow60sbytheendof2024,drivenbyhigherpricingandefficiencyinitiatives[38][65]OtherImportantInformation−Thecompanyhas841 million needed globally to replace runoff and maintain current ERC levels [54] Strategic Direction and Industry Competition - The company is focusing on portfolio supply, pricing, operational effectiveness, and efficiency to drive improved financial performance in 2024 and beyond [32][38] - Operational initiatives include enhancing legal collection activities, leveraging third-party resources, and improving call center productivity [35][36] - The company is exploring offshoring and outsourcing opportunities to reduce costs, with pilot programs underway and expected to expand over the next 12-18 months [37][63] Management Commentary on Operating Environment and Future Outlook - Management is encouraged by the US market, with investment levels and pricing increasing, and expects this to positively impact portfolio income [41] - The company anticipates continued credit normalization, with increased supply and improved pricing driving future cash collections and revenues [34][38] - Management expects the cash efficiency ratio to improve to the low 60s by the end of 2024, driven by higher pricing and efficiency initiatives [38][65] Other Important Information - The company has 3.1 billion in committed capital under its credit facilities, with 1.1 billion of additional availability subject to debt covenants and advance rates [48] - Debt-to-adjusted EBITDA leverage ratio was 2.8x at September 30, 2023, with expectations for leverage to increase slightly as capital is deployed at favorable returns [54] Q&A Session Summary Question: Timeline for improving cash efficiency ratio to the low 60s - The company expects to achieve the low 60s cash efficiency ratio by the end of 2024, driven by higher pricing and efficiency initiatives [1][65] Question: Long-term platform underinvestment and potential rebuild - The company is reviewing its systems architecture and plans to prioritize upgrades over the next 12 months, with a focus on maintaining momentum in operational initiatives [68][69] Question: Consumer credit normalization and its impact on collections - The company sees limited evidence of consumer pressure in the US, with cash collections expected to continue growing as credit normalizes further [14][46] Question: Outsourcing and offshoring strategies - The company is piloting offshoring programs and leveraging third-party resources in the US, with plans to expand these initiatives over the next 6-9 months [63][84] Question: Portfolio purchase outlook and yield improvement - The company expects to see improved portfolio yields over the next 24 months, driven by higher purchase multiples and operational initiatives [60][62] Question: European market performance compared to competitors - The company's European business has consistently performed well, with stable payer rates despite cost-of-living pressures in some markets [80][81] Question: Status of loan covenants and debt availability - The company has 1.1 billion of additional availability under its credit facilities, with no changes to loan covenants following the Q1 2023 event [85][86] Question: Portfolio mix and private label vs. general purpose credit cards - Private label as a percentage of portfolio purchases has declined YoY, with no material change in average balances or collectability [87]