PRA (PRAA)2024-05-07 00:24Financial Data and Key Metrics - Total revenues for Q1 2024 were $256 million, with portfolio revenue contributing $254 million, including $202 million in portfolio income and $52 million in changes in expected recoveries [36] - Cash collections for the quarter were $450 million, up 9% YoY and 7% on a constant currency basis, driven by strong performance in the U S and Brazil [51] - ERC (Expected Recoverable Collections) at March 31 was $6 5 billion, up 15% YoY, with $1 6 billion expected to be collected in the next 12 months [62] - Net income attributable to PRA was $3 million or $0 09 in diluted earnings per share [50] Business Line Performance - Americas cash collections increased 11% YoY (10% on a constant currency basis), driven by higher collections in the U S and Brazil [51] - U S cash collections increased 9% YoY, with U S Core cash collections up 23% sequentially in Q1 2024, reflecting higher portfolio purchases and cash-generating initiatives [52] - European cash collections increased 6% YoY (3% on a constant currency basis) [52] - Portfolio income grew YoY for the third consecutive quarter, driven by higher recent purchases and improved returns, particularly in the U S [45] Market Performance - In the Americas, the company invested $197 million in Q1 2024, up 48% YoY, with $187 million deployed in the U S, up 71% YoY, reflecting the second-highest Q1 U S investment level in company history [34] - In Europe, the company invested $49 million in Q1 2024, influenced by low market volumes, but expects a significant uptick in Q2 purchases [35][44] - The U S Core Vintage pricing improved to 2 11 times at the end of Q1 2024, compared to 1 97 times for the full year 2023 [34] Strategic Direction and Industry Competition - The company's turnaround strategy is supported by three pillars: optimizing investments, driving operational execution, and managing expenses [16] - The U S market continues to see strong credit normalization, with credit card balances exceeding $1 trillion and delinquency and charge-off rates rising to 3 1% and 4 2%, respectively [17] - The company is strategically deploying capital in markets with the most attractive returns, benefiting from repriced forward flows and improved pricing [18] - In Europe, the company maintains a disciplined underwriting and purchasing approach, with a stable management team and a long track record of healthy investments [43] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the U S market, citing strong cash initiatives and improved collections from older vintages [2][5] - The company expects continued growth in U S portfolio purchases due to increasing supply and improved pricing [29] - In Europe, the company anticipates stronger investment volumes in Q2 2024, aligning with long-term trends [30] - Management reiterated financial and operational targets for 2024, including double-digit cash collection growth, modest expense growth, and a return on average tangible equity between 6% and 8% [65] Other Important Information - The company has $3 1 billion in total committed capital under its credit facilities, with margins ranging from 235 to 380 basis points over benchmark rates [56] - Operating expenses for Q1 2024 were $189 million, including $6 million in outsized corporate legal and consulting expenses [57] - The company's leverage ratio was 2 83 times debt-to-adjusted EBITDA as of March 31, within the target range of 2 to 3 times [63] Q&A Session Summary Question: Non-controlling interest expense in Brazil - The company has a joint venture structure in Brazil, with strong performance driven by a focus on the auto market and disciplined investments [69][70] - Management is evaluating opportunities for consolidation but continues to work with partners [69] Question: Europe market activity and competition - The company expects Q2 2024 purchases in Europe to be around $100-$110 million, reflecting a tangible pickup in supply [75][76] - Competition in Europe remains aggressive, with no significant pullback from competitors despite market challenges [81] Question: Wage garnishment and regulatory risks - Wage garnishment is a standard, well-established element of the U S legal process, with no regulatory concerns [95] Question: Cash efficiency target - The company aims for a 60% cash efficiency target for 2024, with potential improvements beyond that in 2025 [92][96] Question: Legal expenses in Europe - Higher legal expenses in Q1 2024 were due to a catch-up in court activity, and the company does not expect this level to be the new baseline [117]