PRA Group Reports Q12016 Results; Revenue, Income Fall Compared to Same Period in 2015

Yesterday, PRA Group (PRAA) reported its financial results for the first quarter of 2016. PRA Group is one of the largest purchasers of defaulted receivables worldwide.

First Quarter Highlights – 2016

• Estimated remaining collections at a new record of $5.3 billion
• Cash collections of $384.3 million, currency adjusted cash collections of $389.7 million.  Cash collections in first quarter of 2015 were $399.7 million
• Revenues of $224.9 million, currency adjusted revenues of $228.6 million. Revenues in the first quarter of 2015 were $245.2 million.
• Income from operations of $70.9 million, non-GAAP income from operations of $74.4 million. Income from operations in the first quarter of 2015 was $96.2 million.
• Net income of $32.0 million, non-GAAP net income of $39.5 million. Net income in the first quarter of 2015 was $58.1 million
• Return on average equity, annualized, of 15.4%, non-GAAP return on average equity, annualized, of 18.9%.
• The company invested $336.8 million in new finance receivables in the first quarter. $178 million of that was invested in Europe

“Broadly speaking, cash results from our global operations were generally in line with our internally forecasted expectations. Globally, our buying in Q1 was quite strong as we invested $337 million in the quarter. This enabled us to grow estimated remaining collections to a record $5.3 billion,” said Steve Fredrickson, chairman and chief executive officer, PRA Group. “Our strategy going forward continues to be taking advantage of our access to low cost capital, low operating costs, scale and underwriting prowess and pressing those advantages in every market in which we operate.”

insideARM Perspective

As usual, the earnings conference call provided more interesting information and perspective than the written reports.

In the U.S., the company feels that there are signs of more favorable pricing in the Core Markets. However management did not provide significant guidance or predict domestic volumes going forward.

The company is also bullish on opportunities in Latin America, Poland, and Italy. However, when discussing Italy, management confirmed that numerous operational issues have hampered performance to date on portfolios that were purchased in late 2014 – early 2015. That discussion highlighted the various challenges of international expansion.

Management discussed an 11% decline in revenue from their U.S. legal programs, noting that the decline was attributed to: 1) increased productivity in the traditional call centers and collecting money via call center activity that would previously been part of the legal program, and 2)  negative impacts attributed to requirements imposed upon the company in their recent CFPB consent decree and other outside legal/regulatory impacts to legal collections. The Hanna settlement was referenced several times as impacting the legal process, as PRAA internal and outside attorneys are reacting to that agreement. (Editor’s Note: insideARM has written extensively on the Hanna case. See here.)

Management also discussed an increase in “disputes” from consumers on accounts.  It is insideARM’s view that this is a trend that is being seen across the entire ARM industry. Today’s consumer has significantly more access to information on how to deal with debt collectors and the collection process than ever before.  A quick Internet search will provide links to numerous sources on how to dispute accounts.