Second Quarter 2015 Earnings for PRA Group Rise Sharply

PRA Group (PRAA), a global leader in acquiring defaulted receivables, yesterday reported its financial results for the second quarter of 2015.

Second Quarter Highlights

• Cash collections of $389.6 million, up 22% from the second quarter of 2014.
• Revenues of $237.2 million, up 20%.
• Income from operations of $88.9 million, up 23%. The second quarter of 2014 included costs and foreign exchange currency losses associated with the previously announced Aktiv Kapital acquisition.
• Net income of $51.4 million, up 37%.
• $208.4 million in investments.
• The company has signed a binding agreement to purchase a portfolio of receivables in Europe with a purchase price of approximately $200 million that is scheduled to close within days.

At the same time as the earnings were announced the company also announced several management changes.

1)      Kevin Stevenson, formerly Executive Vice President, Chief Financial and Administrative Officer, Treasurer and Assistant Secretary, will assume the role of President, PRA Group, and will join the company’s board of directors.

2)      Neal Stern, former head of PRA’s Core Operations for the Americas, will transition into a new global role as Executive Vice President, Chief Global Investment, Analytics, and Operations Strategy Officer.

3)      Chris Graves, Executive Vice President Core Acquisitions, will assume responsibility for all Core business in the Americas — Core Acquisitions and Core Operations.

4)      Steve Roberts, President, Business and Government services, will add responsibilities for global strategy and business development.

5)      Judy Scott, General Counsel, has announced her plans to retire effective December 31, 2015. Effective January 1, 2016, PRAA will appoint Chris Lagow, currently Deputy General Counsel, to the role of Senior Vice President, General Counsel.

Management also commented on an announcement from Friday, August 7^th.  In that announcement the company reported that Vikram, “Vik” Atal had joined the company Board of Directors. Vik served in executive roles within Citigroup for 27 years.

During the earnings conference call management mentioned ongoing discussions with the Consumer Financial Protection Bureau. Steve Fredrickson, Chairman and CEO commented:  “We made some progress during the quarter; however, more work is needed to narrow our differences and bring the matter to a conclusion. Nonetheless, we remain engaged with CFPB, and are intent to resolve this issue.”

In the 10Q filed yesterday the company reported:

The CFPB is currently looking into practices regarding the collection of consumer debt in our industry. In response to an investigative demand from the CFPB, we have provided certain documents and data regarding our debt collection practices. We have provided comments and engaged in discussions, which have included a number of face-to-face meetings with the CFPB staff. Subsequently, we have discussed a proposed resolution involving possible penalties, restitution and the adoption of new practices and controls in the conduct of our business. In these discussions, the staff has taken certain positions with respect to legal requirements applicable to our debt collection practices with which we disagree. While we are actively seeking a consensual resolution to this matter, if we are unable to resolve our differences through these ongoing discussions, we could become involved in litigation.

insideARM Perspective 

For a complete view of the debt buying business this article should be read in conjunction with our article on the ECPG quarterly earnings announcement. Both companies are dealing with the CFPB.  While ECPG mentions a potential cost “in excess of $35 million, PRAA does not provide any guidance on a potential cost of settlement.

The PRAA quarterly report was very positive.  PRAA is very active in Europe and is bullish on future opportunities in Brazil. Portfolio purchases in the U.S. were $117 million. (Compare with ECPG U.S. purchases of $128 million.)

Finally, management was very positive about increased collections coming from their call centers and a reduced emphasis on legal activity. It is likely that ongoing discussions with the CFPB is driving that movement.