PRAA Announces Financial Results for Q2 2016; Comments On CFPB Outline of Proposed Debt Collection Rules

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On Monday, PRA Group (PRAA) reported its financial results for the second quarter of 2016. The company also hosted a conference call for investors.  PRAA is one of the largest purchasers of defaulted receivables worldwide.

Second Quarter 2016 Highlights

  • Cash collections of $387.2 million, (currency adjusted cash collections of $391.3) million versus $389.6 million in the prior year period.
  • Cash collections for the first six months of 2016 were $771.5 million versus $789.4 million in the prior year period.
  • Total revenues for the quarter of $228.5 million, currency adjusted revenues of $230.0 million versus $237.2 million in the prior year period.
  • Total Revenues for first six months of 2016, were $453.3 million versus $482.4 million in the prior year period.
  • Income from operations of $72.8 million, non-GAAP income from operations of $75.1 million.
  • Net income for the quarter of $36.5 million, non-GAAP net income of $38.3 million, compared with $51.4 million in the prior year period.
  • Net income for the first six months of 2016 was $68.4 million, compared with $109.6 million in the prior year period.
  • Net income margin in the second quarter of 2016 was 16.1%
  • Net income margin for the first six months of 2016 was 15.4% compared with 22.7% in the prior year period.
  • $249.5 million in investments.
  • Estimated remaining collections of $5.3 billion

In the press release that accompanied the earnings announcement, Steve Fredrickson, PRA Group Chairman and Chief Executive Officer, commented on the quarter,

“We are beginning to see signs that may indicate the credit cycle is turning, which could ultimately increase the supply of nonperforming loans in the U.S. In Europe, we see a strong acquisition pipeline and strong cash collections in most markets. Global sellers are increasingly looking for buying partners that offer competitive pricing, a strong compliance system, and a reputation for treating customers respectfully.

insideARM Perspective

insideARM suggests that parties interested in PRAA also review the quarterly earnings announcement for Encore Capital Group (ECPG) to get a broader picture of the debt buying industry. See here for that story.

Echoing a similar sentiment about the state of the U.S. market from the ECPG earnings call Frederickson commented,

“Although the U.S. core market remains competitive, we have been awarded portfolios at higher IRRs throughout Q2 and into Q3. We feel these returns better reflect the current operational intensity, regulatory complexity, and ambiguity and general risk in the market then did the lower returns prevailing prior to this year.”

Frederickson also commented on the CFPB’s recent release of the Outline of Proposed Debt Collection Rules,

“We support the CFPB’s efforts in rule making for our industry and are glad to see them take another step in the process in a manner that levels the playing field for third-party debt collectors. We believe that most of the rules considered in this document generally are aligned with what we’ve seen from them previously in public documents, industry consent orders, and periodic bulletins. However, we’re still digesting it and we’ll continue to monitor the process.”

The issue of the CFPB ultimately imposing call limits also came up on the conference call.  Frederickson did a nice job or articulating the importance of the issue:

“It’s a critical issue and it’s one that we hope through this rulemaking process is [an area] where everybody can fall into a good common ground.

On the one hand, we don’t want the collection industry enabled to make abusive or vast amounts of phone calls. That’s not what we do and that’s certainly not something that I think the consumer advocates or regulators want to see. But on the other hand, you can’t cut off that dialogue between the collector and the consumer because what’s going to happen especially in a world that these days is largely driven by upfront documentation and very thorough documentation.”

In short, Frederickson suggested that if communication attempts are substantially reduced, increased collection litigation could necessarily follow.

Finally, during the Q&A session an unidentified analyst asked about changes in the regulatory environment in the UK.  It seemed as though this analyst was referencing a dialogue on the issue in last week’s ECPG call.

Tiku Patel, Chief Executive Officer, PRA Group Europe responded:

“The FCA and CSA have had guidelines for a couple of years now and they have remained pretty consistent. And we’ve been in line with those or indeed ahead of those as we sought to be a standard there of customer centricity, and in particular compliance in all of our markets. I think maybe you’re referring to affordability checks, would that be right. And if that’s the case, I mean, we specifically been using affordability checks for all one-off payments and repayment plans in our UK businesses since about 2013 and in particular income and expenditure analysis.”

It is interesting to compare the PRAA comments on this issue with those articulated in the ECPG call last week.

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