Portfolio Recovery Posts Rise in Revenue, Income and Collections in Q2

Debt buying giant Portfolio Recovery Associates (Nasdaq: PRAA) last Wednesday announced financial for the second quarter of 2009 marked by increases in cash collections, revenue and net income.

Norfolk, Va.-based Portfolio Recovery Associates, Inc. (PRA) said that net income for the April-June quarter was $11.7 million -- or $0.76 per share –- up 3 percent from the same period in 2008.

Analysts on average expected the debt purchaser to earn 73 cents a share, according to Reuters Estimates. Investors cheered the good news, sending PRA’s share price up more than 6 percent in early trading Thursday.

The accounts receivable management firm noted that cash collections increased 6 percent in the quarter to a record $90.5 million. On a conference call with investors Wednesday evening, PRA President and CEO Steve Fredrickson credited the company’s collection staff for the “solid” collection results in a difficult economic environment for consumers.

“Our collectors needed to work out more payment arrangements [in the quarter],” Fredrickson noted. The company said that it increased its overall frontline collection staff –- collectors and collection managers –- by a net of 31 in the quarter to 1,526.

Call center and other collections increased 7 percent in Q2 2009, external legal collections decreased 26 percent, internal legal collections grew 119 percent, and purchased bankruptcy collections gained 43 percent when compared with Q2 2008.

The rise in cash collections drove overall revenue higher. Total revenue in the second quarter of 2009 increased 12 percent to $71.1 million.

PRA's fee-for-service businesses –- skip location and government revenue administration services -- generated revenue of $17.1 million in the quarter, up 61.5 percent from the same period a year ago.  These businesses accounted for 24 percent of the company's overall revenue in Q2 2009, up from 16.6 percent in Q2 2008.

Impairment charges on purchased portfolios amounted to $3.9 million in the quarter, flat from the second quarter of 2008 but down 37 percent and 56 percent from Q1 2009 and Q4 2008, respectively. Management noted on the conference call that purchases made through forward flow agreements entered into before portfolio prices started coming down were a main driver of current impairments.

The company purchased $3.38 billion of face-value debt during the second quarter of 2009 for $84.7 million. This debt was acquired in 119 portfolios from 15 different sellers. In the conference call, Fredrickson noted that 94 percent of the purchase volume was in the “major credit card asset class” and that bankrupt accounts made up about 58 percent of purchase volume.

Fredrickson also directly addressed some of the regulatory issues swirling around the ARM industry recently. He noted that the company is working to educate lawmakers on the unintended consequences of some proposed legislation.

He said that many states are considering rolling back statute of limitations periods so that debt will be legal unenforceable sooner. Fredrickson said that if this happens, his company and many other ARM firms may be forced to sue consumers sooner and at a higher rate.

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