Portfolio Recovery Earns $10.1 million in Tricky First Quarter

Accounts receivable management firm Portfolio Recovery Associates (Nasdaq: PRAA) reported results late Tuesday for the first quarter of 2009 marked by a decline in net income due to allowance charges on purchased portfolios, but an increase in revenues and productivity of collection efforts.

Norfolk, Va.-based Portfolio Recovery reported net income of $10.1 million in the first quarter 2009, down 15 percent from the first quarter of 2008. Earnings per share were $0.66 compared to $0.78 in the year ago period. But Steven Fredrickson, PRA’s Chairman, President and CEO, noted on a conference call for investors that a $6.2 million allowance charge on against certain pools of finance receivables accounts lowered Q1 2009 earnings by $0.25 per share.

The majority of the allowance charge was attributable to portfolios purchased in 2006 and later.

Revenues for the quarter were up 6 percent from the prior year period to $68.2 million in the first quarter of 2009. Cash collections increased 13 percent to a record $89.9 million. Fredrickson said on the conference call that results were “ahead of internal forecasts.”

"Despite a difficult collections environment brought on by the recession, Portfolio Recovery Associates’ core businesses continued to perform well to start off 2009,” said Fredrickson in a press release. “The Company was able to produce record cash collections of nearly $90 million in the first quarter, as our efforts to improve collector productivity delivered results.”

On the conference call, Neal Stern — SVP and Chief Operations Officer, Owned Portfolios — noted that a targeted mail campaign during tax season returned excellent results at a time when many in the ARM industry have looked to reduce mailing costs. He also said that payment arrangements are becoming more common as debtors no longer have the ability to pay-in-full or execute a settlement-in-full.

In the first quarter, 64 percent of cash collections came from payment plans, up from 56 percent in the first quarter of 2008 but down from 67 percent in the fourth quarter of 2008. The trend mirrors what participants have indicated in insideARM’s Quarterly Confidence Surveys (“In Your Words: The ARM Industry on the Current State of Affairs,” March 10).

Of the $89.9 million in cash collections in the first quarter, call center collections accounted for $50.9 million, an increase of 13 percent from the year prior. External legal collections fell 19 percent to $17.8 million while internal legal collections grew 95 percent and purchased bankruptcy collections gained 63 percent.

Productivity, as measured by cash collections per hour paid, Portfolio Recovery’s key measure of collector performance, finished at $147.45 for the first quarter 2009 versus $131.29 for all of 2008. Total collection headcount at the end of the first quarter of 2009 was 1,250, virtually unchanged from the fourth quarter of 2008. Collection operations are conducted at call centers in Kansas, Virginia, Tennessee, Alabama and the Philippines.

PRA’s fee-for-service businesses — which include skip location and government revenue administration services — generated revenue of $16.9 million in the first quarter of 2009, up 48 percent from the same period a year ago. These businesses accounted for 24.8 percent of the company’s overall revenue in the first quarter of 2009, up from 17.9 percent in Q1 2008.

Fredrickson said that the company’s skip location business, IGS, moved to a new facility in Las Vegas in April. He noted that the new location had increased capacity, enough to accommodate the company’s other business lines should it choose to do so.

Portfolio Recovery purchased $961 million of face-value debt during the first quarter of 2009 for $52 million.  This debt was acquired in 87 portfolios from 19 different sellers.