Portfolio Recovery?s Net Income Falls in Third Quarter

Debt buyer and collector Portfolio Recovery Associates said late Thursday that its net income for the third quarter of 2009 dropped compared to the same period a year ago.

Norfolk, Va.-based Portfolio Recovery Associates, Inc. (Nasdaq: PRAA) reported net income of $10.1 million, or $0.65 per diluted share, for the quarter ended September 30, 2009, down 12 percent from net income reported in the year ago quarter. Analysts polled by Thompson Reuters had anticipated earnings of $0.77 per share for the third quarter of 2009.

PRA said that total revenue in the third quarter of 2009 was unchanged from Q3 2008 at $68.6 million. The company took an $8 million net allowance charge — equivalent to approximately $4.8 million after tax, or 31 cents per diluted share — against its purchased portfolios. Net impairment charges were $3.3 million in the year ago period.

"Portfolio Recovery Associates continued to perform solidly in the third quarter of 2009, despite an economy still struggling to recover from recession,” said Steven D. Fredrickson, Chairman, President and Chief Executive Officer. “Not only did the Company produce strong results operationally, but we continued to build for the future — further refining our best-in-class platform and taking advantage of our access to capital to make significant portfolio acquisitions. An $8 million net allowance charge, equivalent to 31 cents a share, did undermine earnings growth. Nevertheless, Portfolio Recovery Associates is well-positioned to emerge from this economic downturn a stronger and more efficient competitor.”

On a conference call for investors Thursday evening, management noted that PRA’s accounting practices dictate that it take impairment charges on under-performing portfolios very quickly, while brand new portfolios that are exceeding expectations must wait at least six months to show the over performance on the company’s financial statements. They noted that this phenomenon was occurring in the third quarter of 2009, as recently purchased debt portfolios beat expectations in the period.

The company’s cash collections rose 11 percent to a record $92.4 million in the third quarter of 2009.  Call center and other collections increased 11 percent to $48.6 million; external legal collections decreased 29 percent to $15.3 million; internal legal collections grew 194 percent to $6.2 million; and purchased bankruptcy collections gained 45 percent to $22.2 million when compared with the year-earlier period.

The company’s fee-for-service businesses generated revenue of $14.2 million in the third quarter, down 10.1 percent from a year ago.  These businesses accounted for 20.8 percent of the PRA’s overall revenue in the third quarter of 2009, down from 23.1 percent in Q3 2008.

PRA purchased $1.75 billion of face-value debt during the third quarter for $76.7 million. The debt was acquired in 100 portfolios from 12 different sellers. The company said that 95 percent of the debt was credit card accounts, with the balance comprised of utility and installment loans. Of the accounts, 61 percent were in bankruptcy.

Management said that at the end of the quarter, the company employed 1,312 collection staff.