PRA Group Inc (PRAA) 2005 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the 1st quarter Portfolio Recovery Associates, Inc. Earnings Conference Call. My name is Michelle and I’ll 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 today’s conference. If at any time during the call you require assistance, please press star followed by zero and a coordinator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s conference, Mr. Jim Fike; please proceed, sir.

Good afternoon. Thank you for joining Portfolio Recovery Associates 1st Quarter 2005 Earnings Call. Speaking to you, as usual, will be Steve Fredrickson our Chairman, President and CEO, and Kevin Stevenson our CFO. Steve and Kevin will begin the call with prepared comments and then follow-up with a question and answer period. Afterwards, 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 future performance of the portfolios, opportunities, future space and staffing requirements, future productivity of collectors and expansion of the IGS business 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 Forms 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 web site which contain a more detailed discussion of the Company’s business, including risks and uncertainties that may effect 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 CEO.

Thanks Jim, and thank you all for attending Portfolio Recovery Associates 1st 2005 Earnings Call. On today’s call I’ll discuss the Company’s results broadly. Kevin will then take you through the financial results in more details. After our prepared comments, we’ll open up the call to q-and-a.

PRA began 2005 the same way we ended 2004, with strong results across the board. In the 1st quarter, we achieved record productivity, cash collections, revenue and net income. Our performance certainly lives up to the 1st quarter’s billing as the seasonally strongest of the year. The strength of our 1st quarter is particularly evident when you look at our growth in cash collections; a critical metric of portfolio performance. In Q1, cash collections grew 35% from the same period a year earlier. This was our highest growth rate since the 1st quarter of 2004 which we matched. Naturally, we’re please with this result. It clearly demonstrates that discipline and performance are not mutually exclusive.

Environments like today’s where portfolio pricing is very competitive tend to separate the winners from the losers in this business. Those who chase revenue without proper regard for profitability and sound financial footing will, over time, pay the price. PRA’s business model is designed to produce solid growth over the long-term. The keys to our approach are buying the right deals at the right price, staying away from portfolio sales, focusing on cutting edge portfolio management, and long-term collection strategies, and solid diversification in related fee businesses. The pay-off is evident in our strong 1st quarter performance.

Let me summarize the financial highlights of this quarter. Net income grew substantially in Q1, increasing 48% to $8.9 million; per share earnings rose to 55 cents on a diluted basis. Cash collections on owned portfolios increased 35%, as I mentioned earlier, to $47.8 million, with a 39% increase in cash receipts to $51.4 million. Cash receipts comprised cash collections on our portfolios, plus commission generated by both our anchor contingent fee collection operation and our new IGS Nevada Skip-Tracing business. This drove a 42% increase in revenue to $35.8 million.

Now let’s begin our detailed discussion of the 1st quarter by looking at the Company’s $17.8 million in portfolio acquisitions. This is up 19% from our purchases in the 1st quarter of 2004.

Deal flow during the quarter was extremely strong, continuing a trend that began in late 2004; however, because competition for portfolios remained heated, we did not buy as many as we would have otherwise. I won’t rehash our approach to portfolio acquisition here, except to say that we’re using the same account level pricing analysis and detailed, deal-by-deal pricing strategy that has been our hallmark. As always, we chose quality over quantity. Strong deal flow does tend to compliment our strategy of finding less efficiently priced deals and this was certainly the case in the 1st quarter.

During Q1, we acquired 22 pools from 12 different sellers, including, once again, several new relationships for us. The average price paid was 2.69% as we acquired $660 million in face value. The 1st quarter was a solid one for continued portfolio diversification. About 42% of our 1st quarter purchase volume, in terms of dollars invested, was in account types other than credit cards. We purchased pools of consumer installment loans and lines of credit as well as Telcom, Auto Deficiency and other accounts.

Additionally, once again, we acquired paying accounts for which we paid a much higher than usual rate, but a rate justified by these pools’ very high liquidity. We also acquired several pools of bankrupt debt during the quarter which is included in the Visa/Mastercard credit card category. Our bankruptcy portfolio has been performing as anticipated and our success in that segment over the past year is providing us with the confidence to increase our investment in bankrupt paper. This follows the same philosophy we have always taken with newer asset classes.

In terms of cash collections which reflect our ability to generate a return on our own portfolios, collections totaled record $47.8 million in the 1st quarter, up from $35.5 million a year earlier. Once again, recoveries were strong across our portfolios and they came without regard to date of purchase. This was an exceptional performance.

I’m extremely proud of our entire organization for the collection results we drove this 1st quarter; this include the folks that underwrite and price our pools, the portfolio management professionals, our in-house and outside legal collection staff and, of course, our call center employees. This team worked together in a very impressive manner to create the results I am able to report to you today.

Continued high levels of operating efficiency were a big factor in this performance. Our productivity in the 1st quarter was impressive. This was a function not only of the efforts of our experienced collection staff, but also our information systems, our intensified portfolio management, and our underwriting success last year, even in the face of a very competitive market. As you know, we measure productivity in terms of recoveries per hour paid. This is the core metric we use to look at the average amount of cash each collector brings in. This metric finish hit a new record of $135.62 for the 1st quarter of 2005 which compares with $117.59 for all of 2004.

Productivity goes hand in hand with staffing, so let me take a moment to update you on the expansion plans for our call centers. You may recall that I briefed you on these efforts during our 4th quarter call. In Kansas, we are currently working on an addition to our Hutchison Call Center that will permit us to increase capacity there to 148 collectors by the end of the 2nd quarter, up from 92 today. This project is on track.

Our primary Norfolk Call Center has about 20 vacant seats and Hampton has about 35. With the 56 new seats in Kansas, our additional capacity of approximately 110 net new collectors should be ample to meet our 2005 needs under most buying scenarios.

Let me turn now to our two fee-for-service businesses, IGS Nevada and Anchor. We opened our new IGS call center in Los Vegas on April 18th, jus three days ago. The new site offers IGS room to grow, a world-class technology platform, and a true state-of-the-art call center facility. This infrastructure will help us drive the future growth of IGS. As we stated in the past, our strategy for this business is to effectively integrate IGS during 2005, and then turn our focus to growth in 2006 once a strong platform has been established. Anchor also continues to grow its business, now occupying about 70 of 112 available seats in its Norfolk Call Center. We remained pleased with its performance.

In the 1st quarter as a whole, our commission revenue from the IGS and Anchor businesses together increased to $3.5 million from $1.4 million a year earlier. Both businesses continue to operate profitably. Now I’ll turn the call over to Kevin who will take you through the results in detail. Kevin.

Thank you, Steve. As Steve described, the 1st quarter of 2005 was another particularly strong one for Portfolio Recovery Associates, even considering the seasonal strength typical in the 1st quarter.

Net income in the 1st quarter grew 48% to $8.9 million from the same period a year ago. Our 1st quarter net income compares with net income of $6 million in the 1st quarter of 2004.

Total revenue for the quarter was $35.8 million which represents growth of 42% from the same period a year ago. Breaking down our revenue into three components in the 1st quarter, once again, the majority of total revenue was $32.3 million which came from income recognized on finance receivables. This is revenue generated by our owned debt portfolios. Income on finance receivables is derived from the $47.8 million in cash collections we recorded during the quarter. These cash collections were reduced by an amortization rate of 32.6% which is slightly lower than the amortization rate in the 1st quarter of 2004 of 32.7%.

The 1st quarter of 2005 was our first using the new accounting pronouncement SOP0303. The several new directives contained in 0303 resulted in no impairment charges during the 1st quarter. As a result of our significant preparation, we were able to successfully integrate the new SOP with no disruption and no surprises as the result.

Cash collected on fully amortized pools was $7.3 million in the quarter, up from $6.8 million in Q4. In referring to fully amortized pools, I mean purchased pools with no remaining basis on our balance sheet, zero basis assets. Eliminating those pools from our amortization calculation gives us a core amortization rate for Q1 of 38.4%; this compares with a core rate of 38.3% in the 1st quarter of 2004 and 36.3% in Q4 of 2004.

During the quarter, commissions and fees generated by our Anchor contingent fee collection business and our new subsidiary IGS Nevada, together was $3.5 million. As Steve discussed, this compared to $1.4 million in the year ago quarter.

The third component of total revenue, cash sales of finance receivables was zero for the quarter. During the quarter, we retained all of our purchases for our internal collection efforts. Recoveries per hour paid finished at a very strong $135.62 for the 1st quarter of 2005 which compares with $117.59 for all of 2004. If you back out legal cash collections, the comparison is $95.71 for Q1 of 2005 versus $82.06 for all of 2004. This very strong performance was driven by the efforts of our talented and experienced collection staff, state-of-the-art systems, enhanced portfolio management as well as portfolio mix.

As always, we continue to address expenses as a percentage of total revenue during the quarter. In Q1, operating expenses totaled 59% of revenue. For full year 2004 the ratio is 60%. Operating expense to cash receipt is another important ratio we discussed because variations in purchase price amortization rates tend to move around our revenue ratios somewhat. Operating expenses as a function of cash receipts excluding sales have shown solid improvement over time, narrowing from 54% in 1999 to 43% in 2004. This ratio is 41% for Q1 of 2005.

Our legal collections increased to 27.4% of total cash receipts in the 1st quarter, compared with 26.3% in the same period a year ago, and 30.3% in Q4 of 2004. This is due to our maturing pipeline of legal accounts as well as a slightly expanded legal collection strategy.

Our balance sheet remains very strong, providing us with substantial flexibility for future debt purchase opportunities. Cash investments were $61.1 million at the end of the 1st quarter, up 26% from our level at the end of December of 2004. This was accomplished despite our Q1 purchases of $17.8 million.

Rounding out the balance sheet, we had $107.3 million in finance receivables; $8.8 million in property, equipment and other assets, and $12.3 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 $27.3 million. At quarter’s end, shareholder’s equity totaled $152.1 million and we have no amounts outstanding on our $25 million line of credit.

We’re proud of our performance during Q1. Our record cash collections were driven by strong execution within our call centers, complimented by our innovative and disciplined portfolio management. Our approach is very much a long-term collection strategy, but one that is more intent than ever on driving cash collections from every possible pocket of receivables throughout the life of our portfolios. Moreover, this is being accomplished with an eye on profitability. With that, I’ve completed my prepared comments and would like to open the call up to q-and-a. Steve and I will both be available to answer questions, Operator.

Thank you, sir. Ladies and gentlemen, if you wish to ask a question, please key star followed by one on your touchtone telephone. If your question has been answered or you wish to withdraw your question, please key star followed by two. Once again, that is star, one to ask a question.

Our first question comes from the line of Dan Fannon of Jefferies, please proceed.

Thanks for taking my question. Can you discuss the correlation between collections, productivity and compensation, while collections or productivity were up nicely on the quarter, on a percentage basis, compensation declined?

Well, they are related, but we’ve got a couple of things going on. We had significant amounts of incentive of compensation pay that the collectors are receiving; however, the more our people collect, the more profitable their performance is for us. And so, what you see happening is that compensation ratio decline is an example of operating leverage that we’re achieving at larger scale.

Ok. One more question. When you guys look at the market today for purchasing and your outlook for portfolios, can you compare the supply and demand dynamics from this quarter with what you saw, say in the 4th quarter with or with what were happening a year ago?

Well we continue to see volume, overall volume, grow. The volume that we saw in terms of deal flow in Q1 was the strongest that we have seen and it was stronger than Q4. So, we continue to be pleased with the amount of portfolios that are coming onto the market. A year ago, again, what we’re seeing currently would be in excess of what we just seen a year ago in terms of supply for portfolios.

Ok. And has that translated into April as well?

Look, I don’t want to get ahead of ourselves in terms of, you know, giving sneak-previews to Q2. We made a habit of talking about Q1 on this call and so we’ll pass on the quarter for next [inaudible].

Ok, thank you.

You bet.

Our next question comes from the line of Bob Napoli of Piper Jaffray, please proceed.

I guess you’re probably not going to be able to answer my first question, given—just, historically, you guys, I mean the 1st quarter is always, I mean seasonally you get a big ramp up and the 1st quarter is the best quarter as you said, and it held true. Historically, you do get a ramp-up in collections through the year, but much less of one, that has kind of been the normal seasonal pattern. Would you expect a normal seasonal pattern that you’ve seen in prior years or is there something about the strength of the cash collections that you saw this quarter that would prevent that normal seasonal pattern?

Well, I think you’re talking about two things, Bob, if I’m not misunderstanding you. One is the piece of—the productivity piece and the other is the cash collection piece. I would say from both perspectives what we’ve seen thus far of 2005 doesn’t suggest that it’s going to look different in particular than past years.

Ok.

Generally what we see from a productivity standpoint is we have a very strong Q1 and then we tend to work to defend that productivity for the remainder of the year.

Uh huh.

And, I would suspect that that would be the case again this year.

Ok. With regards to the cash on the balance sheet, I mean, it’s great, it looks wonderful when its, you know, really strong looking balance sheet, but what are you going to do with it? I mean it—note that arguably this business could easily handle some leverage and then I know you’re keenly aware of all the cash you have, but I just wondered if you have any update on—at what you might be thinking about doing with that cash as opposed to watching it build?

Yeah, no updates at this point. As you said, we continue to be very focused on it and we are, you know, we’re not going to turn the Company into a bank. So, we’re watching our cash levels. At this point, we feel as though the amount of cash we have is good dry powder, but should that attitude change we’ll, you know, we’ll figure something else out to do with cash.

And, last question; I’ll let somebody else ask questions. Is—on the purchases for the quarter, you talked, you said I think that 40% of that was non of the amount—42% was other than credit card?

That’s right.

Can you kind of give us—give me a feel for which are the more materials pieces of the non-credit card this quarter with sectors?

Hey, Bob, it’s Kevin and I’m going to look at my notes here to see if I’ve got it. Turns out, we were talking about terms of purchase price though, correct?

Right

Those notes were—were terms of purchase price and, Bob, the typical—the typical tables that we update are in terms of face value; so, it going to be a little, apples and oranges for you.

So what it is, I mean, what would be the breakdown on face value? I mean, I’m sorry, of—you’re talking about of the $18 million you spent or the $17.8 million, 42%, make sure I understand that was non-credit card?

That’s right.

Ok, now, of that what—what are the biggest pieces?

I don’t have the breakout; I could probably dig it out here. I don’t have the breakout for purchase price, it’s all principal amount.

I mean just generally. I mean, it doesn’t have to be an exact percentage?

You know, it would be the usual [inaudible]; anything from Telcom to Auto to consumer bankrupt paper.

And you said the bankruptcy stuff is included in the credit card, so it would be—not be in that 42%?

That’s right.

And, how material is the bankruptcy paper at this point?

Well, we’re—for competitive purposes I don’t want to lay out all the details, but it was more significant than it was the prior quarter.

Ok, thank you, nice quarter.

Our next question comes from the line of Charles Trafton of America’s Growth Capital, please proceed.

Hi, thanks. How many—you might have mentioned this earlier in the call, I had to get off and on, how many collectors did you have at the end of the quarter?

I’ll give you that data, Charles. Total collectors, this is reps only, right?

Yes, just collectors.

Ok, collectors only for PRA were 675.

675, ok, so your productivity numbers are up nicely, will they continue to go up now that you lapped the December ’03 push-off that you gave some of your folks?

I think—he’s referring to the calling we did back in—

Yeah, the calling of the collector group back in Q4.

I think what Steve said really encapsulates that, you know, Q1 is definitely our seasonally strongest period and, historically, we have worked to—I just need to put it—defend that productivity. So that would be the goal for this year.

Yep. Would you say that your purchase--purchasing this quarter was evenly spread throughout the quarter or a lot of in the beginning, a lot of in the end, could you give a flavor?

[inaudible] just one minute because it effects, you know, some of my numbers, the amortization, etc. Could you ask the next question--

Yeah, while you’re thinking about that, you mentioned an expanded legal strategy, are you referring to the BKs that you bought?

No, in my piece of the script, I’m really referring to the concept we’ve been, for the past couple of year, where we were trying to get stuff into legal before they go out of stat and so on.

Ok.

And to answer your other question with regards to how it spread over the quarter, it looks pretty even to me in terms of purchase price.

Even, ok, great.

Maybe mid-quarter weighed in, but again, it looks pretty even without doing any kind of mathematical analysis on it.

Charles Trafton. Ok. Which is unusual for you.

Uh huh.

The uh, the uh, somebody asked about Auto recently, have you guys, you know, IGS, their clients are Auto lenders, have you been in to pitch IGS clients and vice versus at all? Is there any marketing synergy yet?

Well, our first step was to make sure that we had enough room and competence in terms of spare reps to be able to handle additional business. So, what we accomplished on the 18th in terms of getting IGS into the new center was really step one. We’ve been somewhat reluctant to market the IGS business, because we were to some degree concerned we’d get more business than we could effectively handle and in any client service business, you know, we may only get one shot at it. So, we want to make sure we do a good job the first time through.

Yep.

It is our plan though, to try to sell those products both ways. So people that we’re buying from, we want to talk to about IGS services and people that we’re working on the IGS side we’d like to talk to about the portfolio purchase opportunities.

Ok, I might have to wait until the 10-Q to get this answer, but do you have an inkling of what the purchase price multiple is going to look like for ’05 and then what your revision to ’04 might look like.

We’re going to be filing a Q here in a couple days, Charles, so—

Ok, I’ll look for it then, thanks.

Alright, very good.

Our next question comes from the line of John Neff of William Blair, please proceed.

Hey guys, a couple of quick questions here. The—what do you expect the incremental costs of the new IGS call center to be?

Ask your next question, I’ll see if I can dig that out.

CapX—kind of related, I guess, but, CapX expectations for 2005?

I think they’ll look fairly similar to 2004.

I would agree with that, yep.

Great, and then another question on your cash, a minor tweak probably, but your investments moved up into the cash equivalents line, I was just wondering why if any reason you’re getting more liquid?

Well, John, one issue, we re-classed after last balance sheet presentation in terms, you know, of buying auction rate certificates and classified them as short-duration investments, and we sold out of those because we wanted them to be classified as cash equivalents.

Ok.

You know, we might get back into them at some time, but right now that’s where we wanted the cash.

Ok, that’s great. Were you able to find anything on the IGS?

I’m just—I will find the number for you, I just, I don’t have the right report in front of me though. I’ll get it.

Ok, great, thanks guys.

Our next question comes from the line of Joe Chumbler of Stephens, Inc., please proceed.

Thank you and congratulations on a really strong quarter. Can you hear me?

Yep.

Yep.

Ok, I first wanted to ask about the collector productivity. Last year, I think your first year collector, monthly cash collections on first year collectors was up 10% to 15%, is that what’s driving a big part of the efficiency gains this year?

Well, it certainly—it certainly isn’t hurting. The other thing that we’ve done is continue to move people from those earlier buckets into the later period buckets where we see higher overall productivity. So, ten year—ten year shift has also continued to assist us.

Ok, so that would suggest, I guess, that it’s sustainable going forward, not just a 1st quarter event?

Well, we also have in the whole backdrop of feasible strength, so whether you’re a three-year collector or whether you’re a new person, during Q1 there is more collect-ability in the market frequently because of income tax returns. And so, what we intended to see year-over-year is that our productivity comes close to or peaks in Q1 and then depending on what our hiring rate is and how well our various initiatives are working we trend to try and defend that high level of productivity for the remainder of the year.

Ok, and then, let me just ask about the healthcare opportunity. You know, we keep hearing that it’s a large opportunity and maybe purchasers are beginning to pick away at the market a little bit. How far out do you see that opportunity and can you talk about what you’re doing today to be ready for the supply when it begins to ramp up.

What we—as we remarked last quarter, we have bought a healthcare deal. So, we do have some experience with it. We have gone through HIPPA certification with our collection force, so we feel as though we understand that and that our collectors understand the issues, and that we have the work force in shape to deal with those issues. And, you know, we are, I’d say, doing all the things that you would expect we would in terms of trying to prepare our ability to more effectively market [inaudible] in that area.

Do you think it’s a one-year or two to three-year opportunity?

Well, in terms of when the paper might start flowing in larger numbers, it’s difficult to say. Penetrating any new market and trying to determine, and again this really isn’t the onesie, twosie, you’re trying to predict, this is when bad debt sales are going to be more completely accepted by the market. And there are, we think, some significant reputational concerns that the healthcare market has that are probably to a greater degree than other markets that have been converted over time. So, I think it’s probably a year anyway and maybe it will be longer depending on how good of a job is done in convincing these healthcare operations that bad debt sales makes sense.

It’s my understanding that non-resale agreements are important to the sellers, does that create a greater obstacle when you’re bidding on that paper that you can’t’ resale it?

Well it depends on who you’re asking the question of, we love it! We think that’s one of our strengths; we, as you can tell by sitting in these calls every quarter, we aren’t a reseller, we’ve really built our collection strategy around not reselling and we feel like that one of our real strengths, being able to go to someone who’s got significant reputational concerns and say, “you know what, we don’t resell and we’re happy—we’re happy to enter into a deal that has that kind of restraint in it”.

Alright, thank you.

You bet.

Our next questions comes from the line of James O’Brien of Brean Murray, please proceed.

James O’Brien: Yes, this is James O’Brien from Brean Murray. Not to get too hung up on the 269 number, but I was wondering if you could maybe talk generally about the pricing environment and what you’re seeing from your competitors. I mean, have we plateaud here or—and, if not, when do you think you might see the turn? I’m not holding your feet to the fire to give us an exact estimation of when, but just kind of curious like I said, more of a 40,000 foot view of the pricing environment and when you think these undisciplined buyers may retreat from the market? Thanks.

Well the pricing environment continues to be tough. There are certainly a lot of examples where we think we’ve seen prices plateau, but there are also a fair amount of examples where it looks like pricing is continuing to go up in some segments. So, you know what, mixed results I guess would be the observation there. There does continue to be more antidotal evidence of a buyer here, a buyer there exiting the market and we can only assume where we don’t know the facts that people just can’t make a go of it any longer. And, as I commented in my prepared remarks, you know, we really feel that as people make pricing errors here, over time they’re going to be weeded out and that’s why we feel sticking with our guns, number one, but becoming an ever better collector number two is going to allow us to be as competitive as anybody and weather the pricing storm.

James O’Brien: Ok, I—just following on that a little bit, I was wondering if you’d maybe speak generally then—what was some of the segments that maybe saw some pricing pressure and some maybe that abated in a little bit, just like I said, generally?

I don’t think you can generalize about pricing being better or worse in a particular segment. It’s really a deal by deal level and we saw really in most segments examples of both pretty sane and completely crazy pricing. So, I would say it’s much more independent by transaction than perhaps whose looking at it than it is necessarily by simply product type.

James O’Brien: Ok, great, thanks so much.

Ok.

Our next question comes from the line of Chris Dion of Atlanta Capital Management, please proceed.

Hi guys, how are you?

Good.

Doing good.

My questions are, first of all, the $135.62 on the cash collection side. You know, just looking back historically, looking at things in my office and, you know, that—the increase that you guys had had, you know, in ‘02 year that was a productivity increase of like 24% and then it went down to 12% in ’03, and then it was like 9% last year, and I guess, you know, the Q1 number that you put up clearly is an acceleration over that and I guess—I guess, I know you guys talked a little bit about some of the things that had gone into that with graduating one year collectors, but, I mean, it’s a pretty big change over sort of, let’s call it a three-year change, that you know, you guys made the shift here and I ‘m just sort of wondering if I can get anymore color as to sort of what’s making that happen?

Well, certainly the pieces we talked about already are segments of it. You know, the other thing that we’ve been mentioning all along and that, you know, Kevin and I are real pleased as we see the results come through is this notion of more intense portfolio management. We have long been guys who have been very focused on portfolio segmentation and, historically, we would be very comfortable recommending a portfolio and going after only those segments where we thought we really needed to work to make the kind of returns that we wanted.

Over the last year, you know, really in response to a more competitive pricing environment, but also very smart competitors that we’ve had to deal with, we have really been turning up what we think the talent that we throw against and the ma—the systems that we throw against trying to do a better job in wringing out collection dollars from portfolio segments that previously were under-worked. And, we have done that, as Kevin mentioned in his prepared comments, with an eye on profitability. So, we’re not doing it abandoning the concept of looking at our margins. But, we do feel as though historically we left some dollars on the table that we can wring-out and, you know, this really affects, not only newly bought portfolios, but also our old lazy portfolios, stuff that’s been laying around and we feel that we’re just doing a better job in wringing dollars out of segments that we hadn’t done that good of a job on historically.

So it’s fair to say then, I mean, the—in your 10-Qs you guys put a estimated, you know, cash collections versus purchase price table in there from all the years purchased and, you know, generally once you get past year four, into year five, you know, it’s sort of, you know, takes on a pretty stable number, although always generally increasing, but the rate of change sort of slows. Is it fair to say then that those actually might move around a little bit more given, sort of, what you guys—what you just talked about?

I would say you’re going to see, again, think about when I talk about those tables and I talk about you can watch ERC being turned into cash and I think what’ll be fun to watch over the next year or so, or two years is to watch us just drive more cash out of those trenches. So, I would say yeah, you might—you might see some change there.

Ok. On the 42% of non-credit card, you know, purchases in the quarter, is—given that it’s, you know, sort of the highest you guys have ever done is that just, I guess that implies you guys are getting more confident in collecting that paper or is it just that that’s where some of the better pricing is?

This quarter that’s where we saw some of the better pricing. We have been collecting the product types that I talked about earlier, certainly Auto dating back to probably ’98, Telcom back to probably 2000. The consumer finance paper back to ’96, ’97. We’ve been collecting that paper a long time, so I don’t want to suddenly signal that we’re just now getting comfortable with it.

Sure.

It’s really—it’s really a matter of where we saw better pricing just on a deal-by-deal basis than happen to fall into those [inaudible].

Yeah, I was only saying—I was only saying the confident side given that, you know, the majority of your purchases historically have been in the [inaudible] space, not that you haven’t done it, but, you know, it hasn’t been—it hasn’t been quite to that percentage, I guess.

Right.

And the last one, Kevin, for you. SOP0303, I mean, you said there’s been no disruptions, no surprises, I just wonder if there’s any effects in terms of they way you’re sort of looking at things when you’re buying a new portfolio versus the way you were doing it before, just any sort of changes from that regard?

No, I think, you know, we’ve know about this a long time. I’ve been working on this thing since, literally, 1998. I think that might surprise people, but it’s been around a long time in various forms. So, you know, I think the planning we did, you know, someone asked me a couple quarters ago whether it would affect how we buy things and I said this isn’t an accounting issue. So, from my standpoint, it makes the deals, we do aggregate deals according to 0303, it makes it all the more predictable. So, from my standpoint I’m pretty pleased with how it all came out.

Alright. As always, thanks for your time, guys.

Once again, ladies and gentlemen, if you wish to ask a question, please key star followed by one on your touchtone telephone.

Our next question comes from the line of David West of Davenport & Co., please proceed.

Hey, good evening. To start off with, I guess, a suggestive question. I wondered what your responses were to the new bankruptcy legislation and how you think that could conceivably impact PRA over the long-term?

I think, over the long term, it’s going to be a positive thing. Anything that pushes our customers from a Chapter 7 bankruptcy filing which typically is a zero recovery for us into a Chapter 13 where we’re getting something is a good thing. Not only that, but it will keep alive more receivables for the sellers and so, ultimately, it should create more volume for the backend sale markets. So, we think, you know, all things being equal, it’s going to be good for the market long-term.

Have you ever disclosed what percentage of the accounts you own subsequently go bankrupt?

Well, it varies pretty dramatically based on the age of the accounts at the time we purchase it. For older paper, so if we buy something that maybe a secondary or tertiary recall when we get it, we see lifetime bankruptcy rates in the, oh you could say, 10% to 20% range while we own that portfolio. If we buy fresher paper or fresh paper, we could see bankruptcy rates and, again, this is 7—Chapter 7 and 13 combined, we could see bankruptcy rates there in the 30% to 40% range. So, pretty dramatic differences based on how old these accounts are folks charge off what—when they’re brought on.

Ok, great. Another kind of higher level question; the IRS has talked about outsourcing collection of past due tax bills. Does PRA have any interest in pursuing that business?

We do and we are. We have not historically worked government paper, so I would suspect realistically that’s going to be something for us to overcome, but the team at Anchor is working on that and we very much would like to be included.

Ok, great. And then, one numbers questions, Kevin, I think you gave total collectors was 675, did you get the number for your collectors to have tenure of one year or more?

I did not. We’re going to file our Q in a couple days.

Ok.

But, I might have that data right here as well and I’ll promise if I find that I’ll give that to you, and if I could real quickly, John Neff, if you’re still out there, the incremental costs of what the new IGS facility is going to be in the, you know, $15,000 a month range if that helps you out in your model building, there you go. And, actually, I do have that one year plus data, David; up 319.

Ok, up nicely, great. Thanks so much.

Ok.

Our last question comes from the line of Bob Napoli of Piper Jaffray, please proceed.

Hi, just two quick follow-ups. One, could you—numbers question, what percentage of, of—did you purchase of cash paid last—for the full year of ’04 was non-credit card?

I—I don’t know, Bob, we don’t have that one-we don’t have that one in front of us and the way our information is in front of us it’s going to be tough to come up with while we’re on the call.

Ok. The second question just would be the collections from fully amortized pools, I just wondered if you—do you have, I guess the goal is to have that be as close to zero as possible the way the accounting works, but it’s just not the way it can possibly turn out. Do you have an estimation or can you talk generally about what would you expect to see the collections from fully amortized pools continue to grow at a good pace or level off from here.

Well, you know, it’s hard to say. The pools that are currently fully amortized are fully amortized. It sounds funny, but I thought I could say that out loud. So, you know, they’ll continue to turn cash out and—and you’re absolutely right, my goal is indeed to have that last dollar of cash collections, amortize off that last dollar of portfolio and, you know, I try to get better and better as time moves on, but that’s all the guidance I’m going to be able to give you on that one.

Ok, thanks.

Alright.

Ladies and gentlemen, this does conclude the question and answer portion of today’s conference call. I’d like to turn the presentation back over to Mr. Steve Fredrickson for 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 1st quarter performance.

Net income grew substantially, increasing by 48% to $8.9 million. First year earnings grew to 55 cents on a diluted basis; total revenue rose 42% in the quarter to $35.8 million; this was driven by a 39% increase in cash receipts to $51.4 million. Our cash and investment balances finished at $61.1 million, this of course positions PRA extremely well to react to market opportunities as they present themselves.

Our performance in Q1, 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, thanks for participation in today’s conference call. This does conclude your presentation. You may now disconnect, good day.