PRA Group Inc (PRAA) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the quarter four, 2004 Portfolio Recovery Associates Incorporated earnings conference call. My name is Amanda, and I will be your coordinator for today.

At this time all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of this conference. (OPERATOR INSTRUCTIONS.) As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Jim Bike (ph). Please proceed, sir.

Good afternoon. Thank you for joining Portfolio Recovery Associates fourth quarter 2004 earnings call. Speaking to you as usual, will be Steve Fredrickson, our Chairman, President and CEO, and Kevin Stevenson, our Chief Financial Officer. Steve and Kevin will begin the call with prepared comments and then follow-up with a question and answer period. Afterward, Steve will wrap-up the call with some final thoughts.

Before we begin, I'd like everyone to please take note of our Safe Harbor language. Statements on this call which are not historical, including Portfolio Recovery Associates' or management's intentions, hopes, beliefs, expectations, representations, projections, plans or predictions of the future, including with respect to the future portfolio's performance, opportunities, future space and staffing requirements, future productivity of collectors, expansion of the IGS Nevada business, and future contribution of the IGS business to earnings, are forward-looking statements.

These forward-looking statements are based upon management's beliefs, assumptions and expectations of the Company's future operations and economic performance, taking into account currently available information. These statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us.

Actual events or results may differ from those expressed or implied in any such forward-looking statements as a result of various factors, including the risk factors and other risks that are described from time to time in the Company's filings with the Securities and Exchange Commission, including but not limited to its Registration Statements on Form S-3 and S-8, its annual reports on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K, filed with the Securities and Exchange Commission and available through the Company's website, which contain a more detailed discussion of the Company's business, including risks and uncertainties that may affect future results.

Due to such uncertainties and risks, you are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein, to reflect any change in the Company's expectations with regard thereto, or to reflect any change in events, conditions or circumstances on which any such forward-looking statements are based, in whole or in part.

Now here's Steve Fredrickson, our Chief Executive Officer.

Thank you, Jim, and thank you all for attending Portfolio Recovery Associates' fourth quarter 2004 earnings call. On today's call I will cover the Company's results broadly, together with some thoughts on our overall strategy. Kevin will then take you through the financial results in detail and talk to you a bit about the Sarbanes-Oxley 404-certification process we are currently completing. After our prepared comments, we'll open up the call for Q&A.

PRA ended 2004, our second full year as a public company, with strong results across the board. In the fourth quarter we maintained high levels of productivity and record cash collections, even though the final quarter is typically the weakest of the year from a seasonal standpoint. Our business model is proving that discipline and performance need not be mutually exclusive.

Our financial highlights are as follows. Net income grew substantially in the quarter, increasing by 42 percent, to $7.7 million. Per share earnings rose to 48 cents on a fully diluted basis. Cash collections on owned portfolios increased 32 percent, to $40.7 million, with a 38 percent increase in cash received, to $44 million.

Cash received comprised cash collections on our portfolios, plus commissions generated by both our Anchor Contingency Collection operation and our new IGS Nevada Skip Tracing business. This drove a 38 percent increase in revenue, to $31.7 million.

I'll begin the detailed discussion of the fourth quarter by looking at our $22.5 million in portfolio acquisitions during the quarter. This was accomplished in a market that remained very competitive from a pricing perspective. Our debt portfolio purchases this quarter and this year as a whole, are instructive in terms of understanding our strategy of disciplined buying and exactly why it is so effective.

Indeed our fourth quarter 2004 purchases were made possible by the disciplined approach we took in the first three quarters of the year. As we've discussed in the past, debt purchases are an important driver of long-term growth and financial performance.

Yield flow during the quarter was extremely strong, stronger than it has been all year. In our opinion, however, pricing for the most part continued to be overly aggressive. This did limit the number of transactions we were comfortable buying, even given our $22.5 million in purchases.

The key to our buying in the quarter was our ability to find appropriately priced deals, even in this challenging pricing environment. We always take the same approach. Each portfolio we consider for purchase is analyzed for value at the account level. We focus on collectability of the accounts in relation to purchase price, not absolute purchase price for a given type or age of debt. In many cases, other market participants appear willing to pay prices for portfolios that are well in excess of our estimates of value. In these cases we simply walk away.

In other cases, however, our view of portfolio value is driven by our quantitative account level analysis supports (ph) a purchase price that turns out to be above that of our competitors. This occurs in highly competitive, widely offered transactions, as well as far more narrowly offered negotiated transactions. How does this happen? Some competitors, we believe, lack our sophisticated pricing ability. They price off the market in general, without an ability to accurately asses the quality differences among debt pools. We quite simply exploit these market inefficiencies by staying true to our pricing models.

Our strategy is to build cash during periods where there are not a great number of portfolios that meet our collectability criteria. This in turn positions us well for markets where we see an abundance of appropriately priced deals. We have demonstrated this discipline during the past 12 to 18 months and in particular, the first three quarters of 2004.

This approach provides us with tremendous flexibility. Our ability to step up for the fourth quarter's $22.5 million purchase volume, at the same time that we acquired IGS Nevada, is a powerful example of this strategy in action. We were able to fund our portfolio acquisitions and the purchase of a complimentary business, all with existing cash, while still finishing the year with no acquisition debt and a cash and investment balance nearly double the level at year-end 2003.

Now let me break down the quarter's portfolio purchases for you. We acquired 26 pools from 12 different sellers, including once again, several new relationships for us. The average price paid was 3.33 percent. The fourth quarter was a solid one for continued portfolio diversification. About 40 percent of our fourth quarter purchase volume, in terms of dollars invested, was in account types other than Visa-MasterCard. Included in the Visa-MasterCard purchases were several pools of bankrupt debt. However, we also purchased pools of consumer installment and line of credit loans, as well as telecom, healthcare, auto deficiency and other accounts.

Additionally, during the quarter we made several acquisitions of paying accounts, for which we paid a much higher than usual rate, but a rate justified by these pools' very high liquidity. This contributed to a quarterly blended purchase price that was higher than we've seen in some time.

For the full year, our portfolio acquisitions totaled $61.2 million in terms of price paid, little change from our $61.8 million in 2003. In 2004, we bought account balances of $3.34 billion, spread among 2.1 million accounts. The blended annual purchase rate was 1.83 percent, still substantially lower than the blended rate of 2.77 percent for all of 2003. Our average 2004 blended purchase price was actually the lowest we've experienced since PRA was founded in 1996.

Portfolio buying is a key to long-term growth, but as we've said in the past, our collection efforts drive near-term results. Our collective force performed in a truly outstanding way in 2004. In the fourth quarter we collected a record $40.7 million, up from $30.9 million a year earlier. Once again, recoveries were strong across our portfolios and they came without regard to date of purchase.

Continued high levels of operating efficiency were a big factor in this performance. Despite the fact that the fourth quarter is traditionally the weakest of the year, productivity in Q4 remained very high. In fact, it was near record levels. We measure productivity in terms of recoveries per hour paid, the core metric we use to measure the average amount of cash each collector brings in. This metric finished at a very strong $117.59 for the full year 2004, which is an annual record, compared with $108.27 for all of 2003. This recoveries per hour paid performance continues to include dilution from our relatively large and less tenured staff in Hanson, Virginia. However, we're pleased with that office's continued progress. As I've mentioned before, newer collectors tend to be far less productive than those with tenure.

Let me take a moment and discuss our plans for each of our call centers, as these centers represent our capacity to collect. We are currently working on a modest addition to our Kansas Call Center that will permit us to increase the number of collectors to 148 by the end of the second quarter, up from 92 collectors today. In conjunction with this expansion we have made a significant improvement to the phone system there and added a full backup generator to the site, putting it on par with all three of our Virginia call centers.

Our plan is to use this newly created capacity as well as the 40 seats remaining in our Norfolk building, on an as-needed basis to handle growth during the year. Once those sites approach capacity, we will continue to fill the additional remaining 45 seats we have in our Hampton, Virginia center. This should cover our expected growth this year.

Let me turn now to our two fee for service businesses, IGS Nevada and Anchor. IGS, our newly acquired Skip Tracing and Asset Location operation, performed as anticipated in the fourth quarter, operating profitably. We remain excited about the prospects for IGS. During the early part of 2005, we signed a new lease for an expanded IGS call center. The new site, located just a few miles from our existing center, will permit the IGS staff to essentially triple in size as business needs dictate. The new site will also be operating on a much more sophisticated phone and technology platform than IGS had been using previously. This gives us the ability to better serve our client base and grow the business. Our integration of the IGS business in on track.

Anchor Receivables Management, our contingent fee collection operation, continued to operate profitably during the fourth quarter. Anchor revenue advanced substantially from the year ago period and we remain pleased with its growth.

To sum up, the story of the fourth quarter, and indeed all of 2004, was once again a continued emphasis on disciplined buying and productivity, the flexibility of this overall strategy allowed us to complete a great acquisition in the purchase of IGS. Our approach is designed to let us continue making progress, regardless of the particular pricing environment. And we demonstrated this in a very positive way in the year just ended.

Now I'll turn the call over to Kevin, who will take you through the actual results. Kevin?

Thank you, Steve. As Steve said, 2004 was another strong year for Portfolio Recovery Associates, punctuated by the closing of our IGS Nevada acquisition on October 1st.

First, the fourth quarter. Our final quarter was a success for PRA on all levels. Operationally we achieved continued strong productivity, even in the face of the seasonal slowdown we typically experience during the fourth quarter of the year.

In terms of strategy, our overall approach of disciplined buying and attention to cost really showed its worth. The flexibility inherent in this strategy allowed us to deploy available cash towards the IGS acquisition, as well as our $22.5 million in portfolio acquisitions, both in the same quarter.

Let me run through the financial results quickly. Net income in the fourth quarter improved 42 percent, to $7.7 million from the year ago period. Our quarterly net income compares with actual net income of $5.4 million in the fourth quarter of 2003.

Total revenue for the fourth quarter was $31.7 million, which represents growth of 38 percent from the same period a year ago. Breaking our revenue down into its three components in the fourth quarter, once again, the majority of total revenue, or $28.4 million, came from income recognized on finance receivables. This is revenue generated by our owned debt portfolios.

Income on finance receivables is derived from the $40.7 million in cash collections we recorded during the quarter, a 32 percent increase to a new record level. These cash collections were reduced by an amortization rate of 30.2 percent, which compares with an amortization rate of 28.2 percent in the fourth quarter of 2003.

Let me remind you that PRA's amortization rate is the result of a pool by pool process that analyzes purchase price, actual cash received to date, future estimated cash, and timing, to arrive at an appropriate yield for each pool. This is not a process where the Company selects an amortization rate and manages to it. The amortization is a simple function of the magnitude, timing, and the source of each dollar of cash collections during the quarter.

During the fourth quarter, cash collected on fully amortized pools was $6.8 million. In referring to fully amortized pools, I mean purchase pools with no remaining basis on our balance sheet, 0-basis assets. Eliminating those pools from our amortization calculation gives us a core amortization rate for Q4 of 36.2 percent. This compares with the core rate of 32.9 percent in the fourth quarter of 2003, and 35.8 percent in Q3 of 2004.

During the quarter, commissions and fees generated by our Anchor Contingency Collection business and our new subsidiary, IGS Nevada, together, were $3.4 million. This puts IGS on track with our pre-acquisition expectations.

The third component of total revenue, cash sales of finance receivables, was 0 for the quarter. During the quarter we retained all of our purchases for internal collection efforts.

As Steve discussed, recoveries per hour paid finished at a record $117.59 for the full year 2004, which compares with $108.27 for all of 2003. If you back out legal cash collections, the comparison is $82.06 for 2004, versus $80.10 for 2003.

We continue to address expenses as a percentage of total revenue during the quarter. In Q4, operating expenses totaled 61 percent of revenue. For full year 2004, the ratio was 60 percent. This compares with 59 percent for full year 2003, 62 percent for 2002, 73 percent in 2001, and roughly 78 percent in both 2000 and 1999. The year-over-year increase is explained by an increase in the cash payments applied to principle, or amortization, from 30.1 percent in 2003, to 30.7 percent in 2004.

Operating expense to cash receipts is another important ratio we discuss, because variations in the purchase price amortization rates tend to move around our revenue ratio somewhat. Operating expenses as a function of cash receipts, excluding sales, has shown solid improvement over time, narrowing from 54 percent in 1999, to 49 percent in 2000, 44 percent in 2001, 43 percent in 2002, and 42 percent in 2003. This ratio is 44 percent for Q4, and 43 percent for the full year. The increase from 2003-2004 is explained by the one-time charge taken in Q2 of 2004 and the amortization of intangible assets related to the IGS acquisition in the fourth quarter of 2004.

Our legal collections increased from 28.6 percent of total cash receipts a year ago, to 30.3 percent in the fourth quarter. This is due to our maturing pipeline of legal accounts, as well as a slightly expanded legal collection strategy. During Q4, we continued to test several tests on our ability to more accurately select accounts for profitable legal action. We plan to continue pursuing this strategy with the likely impact being higher legal collections and related costs as we move into 2005.

Our balance sheet remains very strong, providing us with substantial flexibility for future debt purchase opportunities. Cash and investments in short-term auction rate certificates were $48.5 million at the end of fourth quarter, down 15 percent from our level at the end of September 2004, but up 95 percent from December of 2003. Remember, this balance was reduced by $12 million to close the IGS Nevada acquisition on October 1st, as well as the substantial $22.5 million in Q4 portfolio purchases.

Rounding out the balance sheet, we had $105.2 million in finance receivables, and $8.8 million in property, equipment and other assets, and $12.7 million in intangible assets, all related to the IGS acquisition.

We have very little long-term debt, with total liabilities, both long and short-term, of $23.8 million. At quarter's end, shareholder's equity totaled $151.4 million. We have no amounts outstanding on our $25 million line of credit.

Lastly, we're in the final process of our Sarbanes-Oxley Section 404 certification. After discussions with our auditor we expect to have our 404 review completed in conjunction with the completion of our financial audit on or before March 15th of 2005. Our 2004 incremental cost for SOX 404 compliance is approximately $250,000, including dedicated internal resources, professional fees for auditors, consultants and attorneys.

With that, I've completed my prepared comments and would like to open the call to Q&A. Steve and I will both be available to answer your questions. Operator?

(OPERATOR INSTRUCTIONS.) Bob Napoli, US Bancorp Piper Jaffray.

Good afternoon, nice quarter, guys. A couple of questions. Deal flow you had in the fourth quarter, are you seeing strong deal flow carry over into the first quarter?

Yes, Bob, we are. We're seeing not only a very strong first quarter relative to other first quarters, but it looks to us like it's going to compete with Q4, in terms of volume. So we're seeing a lot of deals in the market.

When you say in volume, you mean in terms of your volume?

In terms of the volume of transactions that we see available for purchase.

That's very interesting. I just wondered what you've seen over the last two years? Consumer credit is extremely good and just wondering where these are coming from? Obviously, they must be more aged portfolios coming through or just the ramp up of volume that you've seen kind of differs from the strength in consumer credit?

Again, you can't make a direct link from what's happening in the charge off market in near terms, to necessarily what's hitting the debt sale market. A lot of the portfolio that does hit the debt sale market has already been through internal or a collection agency collection efforts, so it's a number of years old. I think that, combined with the fact that we see more types of debt sellers coming into the market, is certainly contributing to the volume that we're seeing.

Now, the competitive environment, would you characterize it as stable with the fourth quarter or stable with what you've seen over the last few quarters?

Yes, I think I would say that it's stable with where we've seen it over the last few quarters. Pricing is certainly aggressive, but it doesn't appear to be creeping up.

Dan Fannon, Jefferies.

Hi guys, thanks for taking my questions. Can you breakout the contribution from IGS and Anchor for the quarter, instead of combining them?

We had intended to do it, and we've decided that, for competitive purposes, it's best if we don't. So we're just going to run with the single item.

That's going forward also with the Qs and the Ks, not just the press releases?

That's right.

Okay. What was the contribution from forward flow agreements in the period?

It was de minimis.

Yes. And you said healthcare, was there any other new asset classes or contributions of a greater component that what you guys have done historically?

No, it would be kind of the typical mix. I think we commented there was a little bit of healthcare, there was some bankrupt paper as well.

Jay Levy, Credit Suisse First Boston.

Thank you. Congratulations, guys. Can you quantify the profitability and maybe return on investment of the legal collections, relative to the traditional call center collections?

Let me give you a couple of numbers first, and normally numbers I tend to give out in the calls. For the year, legal cash to total cash was about 28.8 percent, 28.9 percent and 30.3-ish for the quarter. And if you look at legal expenses to legal cash collection ratio, last year it was about 35.6 percent and this year it's about 34.5, so just the numbers I normally give out.

But back to your question, it depends on when you pull that trigger. We mentioned in the script that we've been working on ways to, I guess I'd say, more intelligently select and get legal accounts into pipeline. Because obviously, the quicker you notice someone's a "won't pay," as we call it, and the quicker you get it into that legal pipeline, the more profitable it is to us. So that's certainly our goal and we think it's a very profitable business if done that way.

So just to follow-up on that, the things that are flowing through the legal side are things you've deemed that are not going to be collected under the normal course of business? So you're not just accelerating the collection, you've deemed that that's the only way to collect?

That's a good question. We call these "won't pays." These are guys that have the capacity, but not the inclination to pay us. And we try to collect it. We prefer to collect it on the phone. But "won't pays" sometimes you have to drop the hammer.

Joe Chumbler, Stephens Incorporated.

Hey, congratulations on a great year, guys. Can you give us an idea of how much performing paper you acquired in the fourth quarter?

It certainly wasn't a lion's share or anything that I think you guys would look at as unusual. Because of the rate though, it did tend to skew our number upwards. So, without giving you all the pieces to be able to back it out, it wasn't an enormous piece of the pie (ph).

Okay. And is that a class that you have historically purchased in the past or was it just an opportunistic purchase in the quarter?

No, we've bought buying accounts all the way back to '97-'98, if my memory serves me right. So we've been buying them for a long time. And generally every year we get an opportunity to invest in a few deals that we think make sense.

Charles Trafton, America's Growth Capital.

Hi, thanks. Earlier in '04, you had talked about buying a significantly more BKs than you had in the past. What's your experience been with that? I know you've done it before, back in the '90s, but what was your experience with it when you bought it earlier in '04?

Well, as we do really with most new asset types, we started with smaller purchases. We like to watch how they come along our collection curves. And as the paper performs as expected, we get more confidence in those models, and so step up our levels of purchases. And I would say our entry into bankruptcy really has followed those same lines. We started with very, very modest purchases, and they seem to be tracking well along the lines that we've created. And so we've been comfortable stepping those purchases up somewhat as the year went on.

And are you buying those from other collectors or from creditors?

A little of both.

What was the turnover among the collection staff for the year?

Actually, that's something I don't have at my fingertips. I can get it in very few moments.

Well, while you're looking for that, today, the volume you said was up substantially, prices are still up, so you're being picky, you're being choosy. You obviously could have spent more money than you did if you saw values out there. Is it fair to say that even the stuff you are buying is at a higher price, and therefore, your multiple of purchase prices in the future will be down and your amort rate, at least on the stuff you're buying today, will be down?

Well, I don't think anybody can tell you that the portfolios that they're purchasing, no matter how good they are, have not been impacted at all by what's going on in terms of market competition. We do believe though that we have continued pressure on the upside as to our ability to perform, our ability to collect better than we had historically. So we believe that a good piece of those higher prices should be mitigated by our ability to collect more efficiently than we have historically. And ultimately, as to how those two numbers come out, we're just going to have to watch and perform.

So, would you then go out on a limb and say that even though prices are up for basically the same paper, you're still going to be able to collect the same multiples that you have, because you're getting better at it?

Well, I mean, that would be our hope and goal.

Right. Kevin, do you think you'll take any impairment charges in '05, for the adoption of 0303 or in regards to 0303, or would it be a goal of yours not to take any of those?

You led me down that one. It's always a goal--.

Goal versus reality, I'm trying to get to.

Right. Just for the sake of everybody on the call, really briefly, we do disclose what the changed 0303 is and what the differences are between taxable and fixed and 0303. In a nutshell, simply that you can't lower the yield any more once you set it up. Once you establish that yield, you can't go down. So, as we disclosed in our Qs and Ks for past couple of quarters, the sheer fact that you can't lower that yield, should at least increase the probability of an impairment.

Now, what I think is fascinating is that from our standpoint, we're going to continue to look at the deals. We're going to continue to start off with a good solid projection and then move them up over time, as those deals perform. And so I think at this point--.

So you don't think it's a foregone conclusion that you're going to take one?

I think the probability is higher. And that's why I stated that. Because we haven't used it, I think the probability is higher. But as I said today, I almost get the impression when I'm asked the question that people think that I've got Portfolio's (indiscernible) be impaired or something. And we don't, as we said today. And so I'm going to keep focusing and try to do my best, but again, the SOP itself does tend to increase the probability of impairment.

Were any of the portfolios you bought today -- or this quarter, from sellers who were new to the marketplace, to your knowledge?

I don't know that I'd characterize anything we bought this quarter as coming form that group.

Okay. And the last question, one of your competitors earlier today said, as you did, volume of options was up substantially during Q4, and they pegged it somewhere probably around 13 percent in terms of total deals, but face value was probably up more like 30 percent. Would you ballpark those numbers in the same area or above or below?

Yes. I think everybody tracks the market a little bit differently, but the numbers that we track, just in terms of dollar volume of portfolios that were out there, we think Q4 '04 volume was about 35 percent over Q4 '03 volume.

Face or number of portfolios?

Face.

I have that turnover number for you. I'm going to try to give you that same kind of number. Total turns, life to date, and once you're hired with PRA is about 59 percent, about 60 percent. After training, if you just look at it, people that dropout really out of training for the first year, is about 45 percent.

Great, good numbers all around. Thank you.

Joe LaManna, William Blair & Company.

Yes, should we assume that since you're not willing to breakdown the revenue between IGS and Anchor, that you're probably not going to discuss the accretion or earnings from IGS?

Right, that's where we're at.

Okay. And, I know it remains to be seen whether Congress will or will not pass any bankruptcy legislation this year, but if they were, can you give us any framework for thinking about historically, after you purchase your portfolios, roughly what percentage of them do end up declaring Chapter 7 bankruptcy?

Sure. We have found that our bankruptcy rates are very dependent upon a number of things. But the big driver is the age of the deal post-charge-off. So what we find is we have much lower bankruptcy rates for secondary tertiary quad paper than you do when you have fresh paper. Generally, if somebody hasn't filed bankruptcy after they've been through two or three or four collection agencies, they're not going to file, just because we're there. Order of magnitude, we could be in the 10 to 15 percent range for lifetime bankruptcies for old paper, and we could be in the 20 to 40 percent range for very fresh paper.

Now would those percentages be total bankruptcies or just Chapter 7?

Yes, those would be total bankruptcies. Then generally you're about 20 percent 13s, and the remainder 7s. So the vast preponderance is Chapter 7.

David West, Davenport & Company.

Good evening. Looking at the condition line, we know Anchor's revenues are a little seasonal just with the general collection cycle, but is there anything potentially really seasonal with IGS' business?

Yes, IGS, from what we have seen in one quarter with the business and then in our due diligence, is they tend to be seasonal just like the rest of our business operations.

Okay. And I guess we could assume looking on a sequential basis, the difference in the depreciation amount, that is largely the amortization of intangibles related to IGS?

That's correct, David.

Okay, great. Kevin, sometimes you've had the numbers for the estimated remaining collections as a percent of purchase price for your pools by year. Do you happen to have that today?

I've got it here somewhere. I thought you were going to ask me just for ERC, but I'll look here if I've got it. I do. Want me to read down through these for you?

Great.

All right, I'll start with 1996, and read my way forward, and I'm just going to give you the total estimated collections purchase price, which included actual cash collected (indiscernible) to date, plus what we call ERC, which is estimated remaining collections. All right, so '96 it's 304 percent; 295; 288; 302; 349; 386; 328; 371; 228. The aggregate is about 296, once you add them all up.

Okay. So that's interesting, most all of them are trending upward with the exception of '04 right now.

Right. Well now's when you start looking in '04. In any given year, when you're adding yields to a year and so on, it always moves around. So now we start looking at a static pool for 2004.

Okay. And another numbers question, do you happen to have the number of full time equivalent employees and the number of tenured collectors?

I do. All right, for 12/31 of '04, greater than one year are about 298, less than one year, 349.

Okay. And Steve, sometimes you've kind of discussed the quarter's purchases about primary, secondary, tertiary paper you bought. Did you have any commentary along those lines?

Kevin has the numbers that will be in the K, so I'll go ahead and let him read through.

I can give it to you in percentages. If you look at the quarter's volume for Q4, just about 1.1 percent was fresh, 7.5 was primary, secondary was about 1.8, service was about 32, and other category was about 57. These are all face amounts, obviously.

All right, great. Thanks very much. Great quarter.

(OPERATOR INSTRUCTIONS.) Bob Napoli, Piper Jaffray.

I'm sorry, did you say that the other category was 57?

Yes. (Multiple speakers) face amount.

That's the face amount. Can you go over what is in the other category again, in a little more detail, possibly?

I don't have any granularity on that number with me in the call. If we include everything from mixed portfolios, Bob, to things that are older than terse (ph), anything else that we can't accurately categorize in a placement level.

What was the percentage of non-credit card purchases in the quarter by, I guess, purchase amount?

Non-credit card by purchase amount, I believe was 40 percent.

Okay, so that's where you saw the biggest jump in the quarter from prior quarters?

Actually, it's pretty flat to Q3. If you look at the same data I just gave you -- I only have at my fingertips, and I apologize for this, I only have the breakout by principle amount. Which will be filed in our Qs and Ks. But, if you look at the percentage acquired in Q3, it was 2.7 percent, 7.5, 18 percent in secondary, 15 percent in terse and again, 55 percent in other. So it was pretty consistent to Q3.

And I believe also from a volume buying standpoint, I think it was up a little bit from a couple of the prior quarters, but we've been bouncing around at that 35-40 percent level.

It was 34 percent in Q1, 20 percent in Q2.

Okay. You talked about what you're seeing on the purchase side. On the collections side, this is kind of when seasonally things kick in pretty strong for your strongest period of the year. Are you seeing that same seasonality on the collections side?

Yes, we are. This year it looks similar to the other Q1s for us.

Okay. I think you did say earlier that the IGS acquisition was performing on trend or performing in line with what you had given out as your previous earnings guidance when you initially announced the deal.

What we said was that its operating as we expected within our pre-acquisition estimates.

Okay. Your amortization expense is -- your amortization on your income statement is much higher, your payments applied to principle, I guess, than many of your peers. And one company reported today -- is reporting, even adjusted for collections on fully amortized pools, amortization expense like at 20 percent, versus your 30 percent. Just significantly different numbers. I just wondered why you think that might be?

All I can really talk about is my numbers. But what I'll say is that as we analyze our portfolio, the deals we have in-house and the cash collections we've experienced in the past and that we're looking forward in the future, dictate at this point in time this amortization rate. So, I'm not going to be able to give you much granularity on anything else or commentary on anyone else's rates, because I'm assuming that from their standpoint they're looking at their static pool analysis and look at the same things that we do.

Okay. In the balance sheet, your deferred tax liability has really spiked up in 2004. I'm just trying to understand a little bit better why the growth in the deferred tax liability and what you would expect out of that item? Because it's providing you with some pretty good cheap funding, if you will.

Sure it is, we like that. In a nutshell, we are using cost recovery for tax and that's what's basically generating it, again, in a nutshell. I don't want to give any expectations of where that will start flipping, but someday that will start to flip and we'll start paying taxes again. But, at this point we're building it up, as you noticed.

And as long as you're growing, that number should continue to build.

It does tend to do that. I guess I could say that. It does, as you're growing, you're purchasing and essentially collecting on your cost recovery. As those older deals are fully amortized in the cost recovery start recognizing revenue for tax.

On the acquisition front, last question, are you seeing anything else, are there any other thoughts, broadly, about your strategies for new segments to move into, either organically or through acquisitions?

Sure. We're always keeping our eyes open, Bob. And I think that rather than telegraph to the competition as to what our plans are, suffice it to say that really since we started the Company we've kept our eyes open for profitable new areas to be involved in and we're going to continue to do just that, entering, as we typically do, small at first and then ramping up our exposure as we feel comfortable that we know what we're doing from a pricing standpoint. So, believe me, we've got our eyes open and we're looking at a number of different areas.

Scott Baxter, Baxter Bold & Company.

Hey, guys, just a couple of quick questions and I will just make a parenthetical comment to you. I applaud, actually, anything that you think from a competitive standpoint that you need to hold tight. I welcome that as a shareholder.

First question, what type of guidance are you giving for earnings for '05?

We decided to give the same earnings guidance that we gave over the last couple of years and that's not -- a little humor here at the end of the call, but we don't give guidance and we're going to stand by that in '05.

Good enough, good enough. Second question, what is the actual -- you disclosed in your 10-K this ERC, the estimated remaining collections, what would that absolute dollar amount be roughly at the end of '04?

I've got that, it's 308,111,000.

Thank you. And in your proxy, you compare yourselves to five peers, but I can't find the five peers that you're comparing yourselves to. Who are the five companies?

I don't have the whole list in front of me. We can follow-up and get that list out to you if you'd like.

Good enough. Thank you, guys.

Daniel O'Sullivan, UCP.

Good evening. I don't know if I missed this comment, did you give out a number for cash flow from operations and CapEx during the quarter?

I didn't. That was in the cash flow statement, which is part of the K. I just have it for the year. Cash flow provided by operations for the year, about 49,285,000. And I have CapEx around $2.5 million -- say about $2 million, in true purchase of property (indiscernible) equipment kind of stuff.

Right. Over to purchases, can you give us a sense as to the mix between what you bought via auction and via negotiated deals during the quarter, and how it may compare to what you've been doing in the past?

I don't have a good reliable breakdown for you. If I had to guess, it would probably be 40 percent negotiated, 60 percent auction, but that's an estimate on the spot.

Okay. Let me rephrase it a little bit. Would you say, given the current pricing environment, are you trying to pursue more negotiated transactions?

Well, we'd always prefer to do more negotiated transactions. We're typically working our relationships with sellers very hard to get to that point. Sometimes you prevail and other times you don't. So, it's always nice to avoid the larger auction, but it's not always possible.

Okay, great. And Kevin, you gave a lot of numbers today. These numbers here I don't believe you gave out. Can you give us the year-end balances by account types; fresh prime, et cetera?

Yes, I can. They're big ones, so I'll just read it in millions. So, starting out with fresh, 574045; primary is 2280076; secondary is 312541; tertiary 3103321; and then 2035734. Total of 11118820.

Moving over to a comment you made, Steve, about IGS, what's the number of seats you have in the call center right now, in the old one?

It's about a 50-person shop right now.

Okay. And you made the comment the new call center, I believe you said could triple that capacity?

That's right.

Okay. What are your plans for -- do you plan to ramp that up all through this year or is that more of a three-year plan?

Well, again, remember, IGS is a client-dependent business and so, we need to bring the business in before we ramp up, or as we ramp up. So, it'll be really dependent on our ability to sell that service to our client group.

Okay. And just one last quick question. I think you mentioned in the past, putting some processes in place and maybe even having consultants come in to work on the turnover and to reduce that. Can you give us a little update or information on where all that stands?

Yes. We brought a group in early in '04, started using their process and recommendations in the middle of the year. And so, at this point we've got six, seven months or so of actual results. And I'd say the jury's out. We're looking at -- we're seeing some positives in some areas and other areas I think we'd like to see them more impacted. So, we're continuing to keep our eye on it. As I think everybody experiences when you run a very people intensive call center business like we do, it's tough to find that magic bullet that lets you know who's going to be a great long-term employee and who isn't. And I'm sure as long as we're running this business, that could be a challenge for us.

Okay. So it sounds like that will be evolving a little bit more. It appears that what has been put in place, you're still drawing information from it then?

That's correct. I mean, a six-month timeframe isn't a whole lot to get a good idea of what it's doing to your medium to long-term turnover. So we're continuing to watch it and (inaudible).

And that does conclude your questions today. I would now like to hand the conference over to Mr. Steve Fredrickson, for some closing remarks.

Thank you, operator. First, I'd like to thank all of you for participating in our conference call. Before we go, I'd like to reiterate a few key points about our strong fourth quarter and full year 2004 performance. Net income grew substantially in the quarter, increasing by 42 percent, to $7.7 million. Per share earnings grew to 48 cents on a fully diluted basis. Total revenue rose 38 percent in the quarter, to $31.7 million. This was driven by a 38 percent increase in cash received, to $44 million. Our cash in investment balances finished at $48.5 million, even after the IGS acquisition, which closed in the beginning of Q4. This positions PRA extremely well to react to market opportunities as they present themselves.

Our performance in 2004, highlighted by very strong productivity and record cash collections, was made possible by our long established strategy of disciplined buying and consistent attention to the efficiency of our operations. It also demonstrates the Company's ability to turn in strong results even during a period of adverse pricing.

Thanks again for your time and attention. We look forward to speaking with you again next quarter.

Ladies and gentlemen, thank you for your participation in today's conference. That does conclude your presentation. Have a wonderful day.