Release Date: November 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PRA Group Inc (PRAA, Financial) reported strong cash collections and significant revenue increases in Q3 2024, reflecting a robust financial performance.
- The company achieved a record year-to-date portfolio purchase amount of $975 million globally, indicating successful acquisition strategies.
- PRA Group Inc (PRAA) has made substantial progress in optimizing its legal collections channel, resulting in a 51% increase in US legal cash collections year-over-year.
- The company has effectively leveraged its European presence, maintaining a strong cash collections growth track record despite challenges faced by competitors.
- PRA Group Inc (PRAA) has successfully extended its North American and UK credit facilities by five years, ensuring financial flexibility for future growth.
Negative Points
- Operating expenses increased by $18 million year-over-year, driven by higher legal collection costs and compensation expenses.
- The company's debt to adjusted EBITDA ratio has increased to three times, reflecting higher debt balances due to increased portfolio investments.
- Legal collection costs are expected to continue rising, creating a near-term drag on earnings and cash efficiency.
- The effective tax rate for the quarter was negative 2%, indicating complexities in tax management.
- Despite strong performance, the company remains cautious about overcommitting to future portfolio purchase targets, reflecting uncertainties in the European spot market.
Q & A Highlights
Q: Can you explain the geographic mix in terms of returns, especially with the expected high purchasing activity in Europe?
A: Rakesh Sehgal, CFO, explained that Europe tends to have a flatter cash curve with a longer tail, resulting in lower purchase price multiples compared to the US. However, due to the cost efficiency in Europe, the returns are comparable. The company uses a global investment framework to ensure appropriate returns across geographies.
Q: Will recent hurricanes in parts of the US affect your collection expectations for the fourth quarter and Q1?
A: Vikram Atal, CEO, stated that while they comply with FEMA rules in affected areas, the impact on collections is not significant due to the diversification of their cash collections globally and within the US.
Q: With the recent refinancing and extensions, what is the variable rate component of your capital stack, and how might interest costs change next year?
A: Rakesh Sehgal, CFO, noted that about 60% of their debt is fixed, and they are monitoring forward curves to manage interest expenses. They expect leverage to be at or slightly above their long-term target of 2 to 3 times, with a natural governor at 3.5 times.
Q: Is the current pricing stable, and how does it reflect on your collection multiples?
A: Rakesh Sehgal, CFO, mentioned that pricing has improved, with the America's core pricing multiple at 2.1 times, up from 1.75 at the end of 2023. The market is in equilibrium, and they aim to extract more cash from investments by optimizing processes.
Q: Why is the purchasing guidance for 2025 set at $1 billion when the US supply is expected to remain elevated?
A: Vikram Atal, CEO, explained that they are cautious not to overestimate, especially given the spot-driven nature of the European market. They are in the process of planning for 2025 and will update guidance as they gain more visibility.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
