Portfolio Recovery Posts Lower Earnings, Higher Revenue in Q1

Bad debt buyer and collection agency Portfolio Recovery Associates said late Monday that earnings were down in the first quarter of 2008, but revenue was at an all-time high and the company spent nearly $100 million buying debt portfolios.

Norfolk, Va.-based Portfolio Recovery (Nasdaq: PRAA) reported that earnings had slipped 8 percent to $11.9 million in the first quarter, or $0.78 per share. Analysts had predicted a wide range for performance in the quarter, but generally thought the company would earn more than 80 cents a share.

Revenues at the accounts receivable management company came in at a record level. Portfolio Recovery said that it had total revenues of $64.1 million in the quarter, up 19 percent from the first quarter of 2007. Cash collections for the quarter was also a record, with $79.4 million collected, up 18 percent from Q1 2007.

“Despite record cash collections of $79.4 million, higher interest expense and a non-cash allowance charge held back our bottom-line performance for the quarter,” Steve Fredrickson, chairman, president and CEO, said during a conference call Monday. “However, our substantial portfolio purchasing activity combined with progress on the collector-productivity front helps position Portfolio Recovery Associates well for future growth.”

Increased interest expense held back earnings at the company as the company borrowed more money to support increased portfolio purchasing activity. Portfolio Recovery said that it purchased $1.5 billion of face-value debt during the first quarter for $95.4 million, the second-largest amount it has spent on debt acquisitions in a single quarter. The debt was acquired in 69 portfolios from 21 different sellers.

Fredrickson noted that the vast majority of the debt purchased in the quarter was credit card accounts and that 30 percent of the total represented bankrupt accounts across all asset classes.

He said that the first quarter typically offers a challenging portfolio buying environment, but that the firm’s total was a near record for any quarter. “Competition for portfolios is decreasing,” Fredrickson explained. “The collections environment is weaker, but lower pricing on paper is offsetting that.”

Cash collections increased in the first quarter across all sources for the company. Collections from call center and other operations was up 19 percent to $46.7 million, legal collections grew 5 percent to $21.9 million and bankruptcy collections were up 50 percent $10.8 million.

Fredrickson said that the company was “focused on growing the legal collections channel in 2008.” He noted that management is not satisfied with the single-digit growth rates they’ve been seeing in the channel so far.

Portfolio Recovery's fee-for-service businesses generated revenue of $11.5 million in the first quarter of 2008, up 34 percent from Q1 2007. The fee-for-service lines include revenue administration for government entities through RDS, collateral-location services for credit originators – primarily auto related -- via IGS Nevada, and fee-based collections through Anchor Receivables Management.
 
The company’s CFO, Kevin Stevenson, said on the conference call that Portfolio Recovery had entered a new agreement to expand its credit facility from $270 million to $340 million to support additional portfolio purchases. The new agreement adds one additional lender bank to the three on the current agreement.

Management also commented on an initiative to experiment with offshore collections in the Philippines ("PRA Notches Record Buying Year, Looks Offshore for Collections," Feb. 22). The company hired 25 collectors in the island country in March for the initial test, with the number currently standing at 50.

At the end of the first quarter, PRA counted 1,305 total collection employees, including collectors and managers, up from 1,240 at the end of the fourth quarter of 2007.