PRA Group Inc (PRAA) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Portfolio Recovery Associates Incorporated first quarter 2009 earnings conference call. I will be your coordinator for today's call. (Operator Instructions). As a reminder, this conference is being recorded. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session at the end of the presentation.

I would now like to turn the presentation over to Mr. Jim Fike, VP of Finance. Please proceed, sir.

Good afternoon, and thank you for joining Portfolio Recovery Associates fourth quarter 2009 earnings conference call. Speaking to you today will be Steve Fredrickson, our Chairman, President, and CEO; Kevin Stevenson, our Chief Financial and Administrative Officer; and Neal Stern, our Chief Operating Officer of Owned Portfolios. We will begin 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 would like everyone to please take notes of our Safe Harbor language. Statements on this call, which are not historical, including Portfolio Recovery Associates or Managements intentions, beliefs, expectations, representations, projections, plans, or predictions of the future, including with respect to the future of Portfolio's performance, opportunities, future space and staffing requirements, future productivity of collectors, expansion of the RDS, IGS and Muni Services business, and future contribution of the RDS, IGS and Muni Services businesses 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 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 the as of the date here of. 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 chang 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.

Thanks Jim, and thank you all for attending Portfolio Recovery Associates first quarter 2009 earnings call. On today's call, I'll begin by covering the Company's results broadly. Neal Stern will then talk to you in more detail about our operational strategies; and finally, Kevin Stevenson will discuss our financial results in details. After our prepared comments we'll open up the call to Q&A.

I'd like to begin by putting our first quarter results in context for you. Given the recession and the difficult collections environment it has created, I would characterize Q1 as a solid quarter for PRA, driven by strong efforts from employees across the Company. Cash collections were $89.9 million, up 13% from last year, and ahead of our internal forecasts.

Productivity improved nicely this quarter, as a result of our ongoing efforts in this area. We saw gains in call center and internal legal collections, as well as substantially increased collections from purchased bankrupt accounts. This was all achieved in an economic environment characterized by a lack of available consumer credit and significant job losses.

Indeed, our first quarter decline in net income was due entirely to a $6.2 million allowance charge, which reduced EPS by $0.25 a share. These allowance charges are a complicated bit of accounting, so I want to make sure everyone understands what they represent. Kevin will provide more detail during his prepared comments.

We account for revenue from our overall portfolio on a pool-by-pool basis. When pools underperform, as they are more likely to do in a recessionary environment, we do not lower their yields. Rather, we move relatively swiftly to take allowance charges, which show up right away as an expense on our income statement.

In contrast, when pools over-perform, that over-performance is not reflected right away. Only after there is sustained evidence of over-performance will we make an upward adjustment, and then we will raise the yield on that pool going forward. This adjustment of an increased yield will not show up on our income statement right away, but will only show up in the future and gradually over the pool's remaining life. The size of allowance charges is driven to a great extent by variability across our pools.

It worth noting that if we had accounted for our portfolio as one giant pool, we would have taken no allowance charges whatsoever in Q1. As we have said before, given what we believe to be the correct and conservative application of our accounting policies, some allowance charges are always going to be with us. However, we're working to minimize them by performing better and exceeding our expectations on every pool. We're confident that collections efficiency can continue to be improved going forward.

Now, let's focus on the solid performance of our core businesses. PRA acquired $52.4 million of defaulted debt during the quarter. We had record cash receipts of $106.8 million in the quarter, up 18% from $90.9 million in the same period a year ago. In addition to cash collections of $89.9 million, up 13% from $79.4 million in Q1 2008, we produced fee revenue of $16.9 million in the first quarter, representing 48% year-over-year growth.

The year- ago results included the operations of our now concluded Anchor Receivables management, but did not include either Muni services or the Broussard Partners contracts. Overall, PRA saw a 6% increase in revenue, to $68.2 million in Q1, despite the $6.2 million allowance charge. As I mentioned, EPS was down 15% from the year-ago quarter, coming in at $0.66 versus $0.78 a year ago.

Net income of $10.1 million was down 15.2% from $11.9 million. In terms of year-over-year comparisons, we booked net interest expense of $1.98 million, which was down about 21% from $2.5 million in the 2008 quarter, due to lower interest rates.

Operating expense to cash receipts continued to trend down from Q4 at 46.5%. In Q4, the ratio was 47.6%, and it was 46.5% in the same period last year. This occurred despite the shift toward more revenue and expense coming from our lower margin fee for service businesses.

We realized productivity of $147.45 per hour paid for Q1 2009, which compares with $131.29 for full year 2008. This includes an increase of one net collector to our Company-wide owned Portfolio Call Center staff from Q4 2008.

Lastly, in terms of our balance sheet, we slightly reduced debt outstanding, continuing the modest financial leverage we have employed over the past several years. Our debt-to-equity ratio at quarter end stood at 91%, down from 95% in Q4, while we maintained almost $100 million of availability under our lines of credit, up $2 million from the prior quarter.

Now, let's review our operations in detail, beginning with our first quarter portfolio purchases, and overall market conditions. During the quarter, we acquired 87 portfolios from 19 different sellers. The majority, about 93% of our first quarter purchase volume in terms of dollars invested, was a combination of Visa, Mastercard, and private label credit card asset classes. The remainder came from pools of Auto, Utility, and Installment loan accounts.

The majority of the bankrupt accounts acquired during the quarter are included in the Visa, Mastercard, and Auto categories. Bankrupt accounts accounted for about 43% of our purchase activity in terms of dollars invested.

In Q1, our bankruptcy purchases began shifting away from those accounts aged from their initial bankruptcy filing, and as a result already generating significant cash flows toward newly filed accounts that will now produce significant cash or revenue for 12 to 18 months. Although we've long purchased bankrupt accounts at any point in their life cycle, recently, we have seen more sales of fresh bankrupt filings. Since we buy a similar IRRs, regardless of the age of the account, we tend to see slightly higher collections-to-purchase price multiples from fresh filings and slightly lower multiples with more mature filings.

Portfolio pricing was slightly lower on an absolute basis during the quarter. However, we view pricing as steady relative to collectability. We saw moderate levels of portfolio sales and continue to witness very little activity in the resale market.

As we mentioned last quarter, in order to account for the weak economic environment, we've lowered our collection expectations for new purchases, and continue to book new purchases with cash collection expectations that are further discounted from our already discounted buying models. Over the longer run, we feel confident these moves will help us end the larger allowance charges we've been taking recently.

Moving on to Collections, as I mentioned already, Portfolio Recovery Associates recovered $89.9 million in the first quarter from owned portfolios, up 13% from $79.4 million dollars a year earlier. Offering a bit more detail, Call Center, and other collections were $50.9 million, up 13% from the same quarter last year. Cash collections from our purchased bankrupt accounts were a record $17.6 million, up 63% from Q1 2008.

As we've discussed for the past several quarters, our internal legal collection strategy in which we use our own staff attorneys, or in select cases use third parties working on a fixed price basis, were a record $3.5 million in Q1 2009, up 95% from the same quarter last year. We look to continue the aggressive growth of this new internal channel. External legal collections were 20% of total cash collections in Q1, 2009, at $17.8 million. This compares with 28% in Q1 2008, which was $21.9 million, representing a 19% year-over-year decline.

Excluding bankruptcy collections, legal was 25% of collections in Q1 2009, versus 32% in Q1, 2008. We're not pleased with this performance, and the external legal channel remains an area where improvements are underway. As we have described during the last several quarters, we've been accelerating investment in suing legal accounts to make up for under-investment dating back to 2007.

The year-over-year legal collections decline is a direct result of this under-investment, combined with historically poor performance, from many of our third-party attorneys, as well as a change in collection strategy that seeks to push accounts to our Call Centers as opposed to legal, at least early in their post-purchase lives. Neal will provide additional details about our legal collections initiatives in a few's moments.

Overall, as you know, we track productivity in terms of recoveries per hour paid, the core metric that measures the average amount of cash each collector brings in. As I said earlier, this metric finished at $147.45 for Q1 2009, compared with $131.29 for full year 2008. Excluding the effect of trustee-administered purchased bankruptcy collections, PRA's productivity for Q1 2009 was $120.18, versus $109.82 for the full year 2008.

When excluding legal and trustee administered purchased bankrupt collections, productivity for Q1 2009 was $90.30 per hour paid, versus $75.47 for all of 2008. Please note that the full year 2008 statistics are slightly different than we reported on our Q4 call in February, as a result of a slight change in computational methodology.

During Q1 all of our Call Centers saw improved site-specific productivity per hour paid, both sequentially and year-over-year, even as we worked against the recession. As a reminder, this site-specific productivity figure looks only at hourly productivity by collection reps. It excludes not only legal and bankrupt collections, but also any non-collecter-assigned inbound generated collections, or collections coming from external activities, such as collection agencies.

Using this metric, we saw a consecutive quarterly productivity increase of 31% sequentially and 5% year-over-year. Productivity was up 36% sequentially and 29% year-over-year at Jackson, Tennessee; 21th% sequentially and 1% year-over-year in Hampton, Virginia; 31% sequentially and 15% year-over-year in Kansas; and 31% sequentially and 6% year-over-year in Norfolk.

The Philippines office had a 55% sequential improvement, and our newer office in Birmingham had 47% sequential improvement. Neither of the latter two offices had year-over-year comparables due to their age. Tennessee was able to increase its productivity substantially, even as it increased hours paid by 33% year-over-year.

On an absolute basis, Kansas remained our top Call Center. During the quarter, Jackson improved to about 71% of the Kansas standard, while Norfolk stayed flat at about 82.5%. Hampton fell somewhat to 76%, while the Birmingham office finished at 44% of the Kansas standard.

Productivity in the Philippines office remained disappointing, but improved further to 32% of the Kansas standard from about 27% in the prior quarter, and 20% in the quarter before that. We continue to experiment with strategies in the Philippines call center in an effort to make it work.

Company-wide at quarter's end, our owned portfolio collector headcount was 1,250, essentially flat from 1,249 at the end of December. As it relates to staffing, please remember that a significant amount of our recent buying has been related to pools of bankrupt accounts, which require relatively low levels of staff to handle. Please also note that our bankruptcy staff is not included in the collector headcount numbers I just shared with you.

Now let's turn to PRA's fee for service businesses and the collateral location skip tracing and government services arenas. Both our Government Services and Skip Tracing Asset Location businesses performed generally as expected in Q1, generating solid revenue and operating income. These fee-for-service businesses saw revenue increase 48% from the same period a year earlier, to $16.9 million. This growth rate, when compared to the same period one year ago, was negatively impacted by our decision to discontinue the Anchor Receivables Management business, but was positively impacted by the addition of the Muni services businesses and the contributions from the Broussard contracts.

Our Skip Tracing business saw modest sequential and year-over-year revenue growth, but due to capacity constraints at the existing 15,000 square foot facility in Las Vegas, would have had difficulty growing staff and revenue. For this reason, in April we moved the IGS operation to a new 30,000 square foot center in Las Vegas, which will permit us to house approximately 300 employees, and continue the long-term development and growth of the IGS business. In addition, this new center will permit us to locate owned portfolio or government services employees in Las Vegas if we so desire.

The integration of our various government services entities continues to progress well during the quarter. We feel both businesses are well positioned for growth in 2009, especially given the weak economy and the need for government entities to increase revenues without increasing taxes.

Before I turn the call over to Kevin Stevenson, PRA's Chief Financial and Administrative Officer, I'd like to have Neal Stern, our Chief Operations Officer of the Owned Portfolio Business, give you a summary of our operational strategies. Neal?

Thanks, Steve. In Q1, PRA's operational results reflected some typical seasonal strength, as well as a number of strategic initiatives that helped mute some of the impact of the difficult economy. Increased dialing capacity, which equated to our collectors making 40% more agent phone calls than in Q1 of 2008, and our dynamic scoring process, our term for re-scoring our entire portfolio nightly based on the day's activities, helped to drive cash collections to new highs on accounts we've owned for more than five years. We finished the quarter collecting $1.9 million, or 81% more than in Q1 2008 for those accounts.

Focused and targeted mailings during the tax season also paid dividends in the quarter. Using detailed analysis from the past year, we were able to accurately project our return on investment for these mailings. That, in turn, allowed us to significantly increase mail volumes at a time when others may have looked to cut back on that component. Incremental cash collections from these campaigns exceeded $5.6 million and delivered historically high returns on investment for mail campaigns.

As Steve mentioned, the results from our legal portfolio in Q1 were again disappointing in terms of cash collections, but there were some early signs of improvement from a return on investment standpoint, as we saw the percentage of our legal costs, recovered within the first three months after spending, improve by 36% over the prior quarter. That return metric still lags behind all periods prior to Q2 of 2008, but nonetheless has begun trending in the right direction.

Total legal inventories were down significantly, as a result of the strategy change we've discussed in prior calls. This strategy focuses on catching up our investment in legal collection costs, while simultaneously shifting volumes to our Internal Legal Collections group, and delaying our pursuit of legal collections when additional call center opportunities exist. The end product of this strategy, coupled with a generally weak set of vendor performances that reflect economic difficulty, resulted in legal cash collections falling well short of our goals. This result was partially offset by increases in Call Center cash collections and reduced legal fees, but our efforts to reverse this trend remain significant.

Efforts also continued to close the performance gap that exists between our Call Centers. We are closely tracking every action impacting performance from beginning to end, and providing incentives for our teams to close the gap on everything from attendance, to calls per hour, to returned check ratios. The level of detail and scrutiny being applied is not considerable, because we believe this gap represents significant opportunity.

If you took the hourly productivity from our top performing Call Center in Kansas and applied this to the hours from our other centers, we would have theoretically collected an incremental $3.3 million in March alone. However, if we apply that same math to our figures from March of 2008, we would have seen a gap that was $356,000 higher. While we're pleased with this progress, our very clear goal and expectation is to reduce and eliminate this performance gap altogether, while improving results across all of our centers.

As Steve mentioned, the economy and constricted consumer credit are creating an environment where more and more of our customers require payment plans, as opposed to being able to pay in full or settle and account. For instance, in Q1 2009, 64% of our cash collections came from payments, as opposed to balance in full or settlements. This compares favorably to 67% in Q4 2008, but unfavorably to Q1 of 2008, 2007, and 2006, when payments were 56%, 49%, and 47% respectively.

In Q1 2009, we had more than 534,000 pure payments at an average of $108.00. In the first quarter of prior years, the total number of payments were 386, 000, 273,000, and 247,000 respectively, with average payment sizes of $115.00, $121.00, and $112.00 for those years. Depending on the period, the typical individual settlement or balance in full payment would be four to 10 times as much as a single average pure payment. The positive aspect of this current phenomenon is a growing portfolio of paying accounts that should help drive strong future cash collections.

With that, I'll turn the call over to Kevin Stevenson, PRA's Chief Financial and Administrative Officer. Kevin?

Thank you, Neal. As Steve has mentioned, our first quarter 2009 financial performance shows a continued negative influence of allowance charges. Despite otherwise strong performance in productivity, especially considering the current economic climate, allowance charges moved our net income down substantially from where it would have been otherwise.

Net income in the quarter fell 15%, to $10.1 million, while EPS was $0.66 versus $0.78 in the year-ago period. While allowances were down 30% from their level in Q4 2008, let me be clear, and that we're extremely focused on addressing these continued allowance charges from multiple standpoints, including operational, statistical, and accounting.

Total revenue for the quarter was $68.2 million, which represents growth of 6.4% from the same period a year ago. Operating income was $18.5 million, down 15.4% from the year-earlier period, while net interest expense decreased from $2.51 million one year ago to $2 million in Q1.

Return on equity was, in our opinion, unacceptably low, at 14% for Q1, due to our continued allowance charges. We remain very focused on increasing that number back towards our historical 20%. Our weighted-average interest cost on the acquisition line during the quarter was 2.78%, down from 4.18% in Q4. At quarter end borrowing levels, each 100 basis-point swing in LIBOR either costs or saves us about $180,000 monthly.

Breaking our forecast revenue down into its three components, the majority of total revenue, or $51.3 million, came from income recognized on finance receivables. This is revenue generated by our own-to-debt portfolios.

Income on finance receivables is derived from the $89.9 million in cash collections we recorded during the quarter, reduced by an amortization rate including a $6.2 million allowance charge of 42.9%. This amortization rate compares with 39.3% in Q4 2008, 33.7% in Q1, 2008, and our full-year 2008 rate of 36.8%.

As I mentioned, during the quarter, PRA recorded allowance charges totaling $6.2 million, which compares to $8.9 million in Q4 2008, $3.8 million in Q3, $4 million in Q2, and $2.8 million in Q1 of 2008. Life-to-date reserves, since the changed to SOP 03-3, now stand at $29.8 million.

As I have done in the past, I'd like to take a few minutes to walk through these charges, once again providing additional granularity. Last quarter, I remind you that in Q2 2008, pools dating from 2004 on back were responsible for approximately $965,000 of that quarter's $4 million in total allowance charges. During Q3 2008, we finished with a net reversal of approximately $145,000. In Q4 2008, we ended with a net reversal of approximately $650,000, and now again in Q1 2009, we reversed an additional net $200,000 from these pools.

This was caused by a combination of stronger than expected cash flows coming from these deals, along with a fairly cautious cash collection outlook set in earlier periods. So in life to date we've taken approximately $2.4 million in gross reserves against normal yielding deals dating 2004 and prior, and released more than $1.4 million, for a net allowance charged life to date of $920,000.

The point I want to leave you with is that when we see under-performance we take the necessary allowance charge and move on. If future actual collections improve, we can always reverse the allowance charge, which is exactly what happened in this case.

With regards to purchased and bankruptcy portfolios, we incurred approximately $160,000 of net allowance charges during Q1. This is the second lowest net allowance charge that we've recorded during a quarter, since we took our first allowance charge on a bankruptcy portfolios in Q3 2007. Only the Q3 2008 amount of $145,000 was lower than the Q1 2009 charge.

As I stated last quarter, it's important for you to understand that all of the reserves, life to date, relating to bankruptcy portfolios, come from bankruptcy deals purchased in 2006 Q1 and prior. We've taken a total of $3.3 million and made allowances cumulatively relating to bankruptcy deals.

Additionally, had we kept to the original booked yields in place and not moved them up commensurate with early period over-performance, we would have experienced no allowances life to date on bankruptcy portfolios. As a result, as it relates to over-performing pools, we are now generally not adjusting yields upward on bankruptcy deals, and are simply allowing them to amortize with their original booked yields and original deal purchase price multiples. We are watching the performance of this policy closely.

Next I would like to address the 2005 normal core portfolios. Specifically, I mentioned on previous calls I would keep you apprised regarding allowances on the Q1 2005 pool. We have not experienced any additional allowance charges since Q1 2008.

This quarter, we did experience allowance charges relating to other 2005 pools. We incurred $575,000 in allowance charges relating to 2005 Q2 pool. During Q4, 2008, we had recorded no allowance charges relating to this pool and the only prior allowance was in Q3 2008 in the amount of $245,000.

We incurred no allowance charges on the 2005 Q3 pool, which was down from $90,000 in Q4 2008. And prior to that, we had only incurred one other charge in the amount of $80,000.

Lastly, the 2005 Q4 pool incurred its second ever allowance charge in the amount of $475,000, which was down from the Q4 2008 amount of $1.4 million. This was primarily attributable to cash flows that were less than expected, and concentrated mostly in January, and to a much less extent in February. March was materially as expected. This deal currently bears a yield that is more than 1.5 times what it was when it was booked.

As in prior quarters, I'd like to now turn our attention to the more recent core portfolios 2006 to current. In order to provide more granularity, as I mentioned at the onset of this allowance discussion, I'll step through each quarterly portfolio.

Again, remember these are core deals, not bankruptcy, medical, or cost recovery. 2006 Q1 has no reserves life to date. 2006 Q2 experienced $300,000 in reserves this quarter.

While this pool experienced no allowances in Q4 of 2008, the pool had experienced reserves for the past few quarters, ranging from a low of $190,000, to peak at $950,000 in Q2, 2008. Total reserves against this pool now stand at $2.3 million.

2006 Q3 experienced $560,000 in reserves, down slightly from $600,000 in Q4 2008. This pool has experienced reserves for the past few quarters of a similar amount. Life to date, this pool carries $2.4 million in allowances.

2006 Q4 experienced no new reserves this quarter, and this is a material improvement over the $1.6 million in reserves we took in Q4 2008. Besides the aforementioned Q4 charge, this deal experienced two other allowance charges in the past, $510,000 in Q2, and $90,000 in Q3.

2007 Q1 experienced $1 million in allowance charges, down from $1.2 million in Q4, and down from $1.6 million in Q3. Similar to the 2005 Q4 portfolio, the cash was short of projections by approximately $300,000, and this weakness was primarily focused in January and February, while March materially hit projections. Some dampening of near-term future collection expectations, however, drove the remainder of the allowance charge.

2007 Q2 experienced $700,000 in allowance charges, down from $2.1 million in Q4, 2008, and down from $750,000 in Q3, 2008. Much like the aforementioned pools, 2007 Q2 was short of expectations by only approximately $125,000, but it was focused almost exclusively in January. While February and March beat expectations, we did make a small additional downward adjustment of the near term curve that drove the $700,000 allowance.

2007 Q3 incurred an allowance charge for the second time in the amount of $600,000, down from $1 million in Q4 2008. Cash for the quarter was approximately $200,000 more than expected. The $600,000 charge was a result of some buffering of future collection expectations, due to the depressed economy. This was much like the prior pools, in that January drove the negative results, while February and March exceeded expectations.

2007 Q4 has no reserves life to date. 2008 Q3 and Q4 have no reserves life to date. 2008 Q1 had its first allowance charge this quarter in the amount of $1.2 million. Q1 was short of expectations by approximately $900,000, which was driven by a January and March shortfall. February exceeded expectations.

2008 Q2 experienced a second allowance charge in the amount of $850,000, which was up from Q4 amount of $600,000. Cash was short of expectations by approximately $500,000, and much like the 2008 Q1 pool, it was comprised of a weak January and March, while February exceeded expectations.

I now want to spend a minute to talk about the seemingly substantial disconnect between growing revenues, improving productivity, and declining EPS. As we've explained repeatedly, our operating expenses are closely tied to cash collections. As our cash collections increased in Q1 to record levels, our operating expenses increased likewise.

Approximately $1.4 million of the operating expense increase was due to non-cash equity compensation that was booked in January for vested shares. There are no ongoing expenses related to the aforementioned grant. However, exclusive of this equity expense, expenses did move up commensurate with cash collections. This combined with the growth of our lower margin fee business, and the allowance charges we incurred, drove up our operating expenses relative to revenue, and therefore, reduced our net income and EPS.

The increased Call Center productivity was simply not enough though overcome the downward pressure. In addition, although cash collections were a record, so was amortization, when looking at both payments applied to principle and allowance charges, so recognized revenue was proportionately much less than in a year-ago period.

During the first quarter, cash collected on fully amortized pools was $5.9 million, compared to $5.1 million in Q4 2008, and $6.3 million in Q1 2008. In referring to the fully amortized pools, I mean purchased pools with no remaining basis on our balance sheet. Eliminating those pools from our amortization calculation gives us a core amortization rate for Q1 of 46.0%, up from the 36.6% we saw in the first quarter of 2008, and up sequentially from 42.0%.

During Q1, a seasonally strong period for our Skip Tracing business, but a weaker period for our Government Services group, total commissions and fees generated by our fee-for-service businesses were $16.9 million. This compares with $11.5 million in the year-ago quarter. Our fee-based businesses accounted for 25% of the Company's overall revenue.

Our fee income was impacted this quarter, when compared to the same period last year, with the closing of Anchor Receivables Management in Q2 2008, as well as the acquisition of Muni Services, and the purchase and of the assets of Broussard Partners, both during Q3, 2008. Additionally, related to Muni Services, we recognized $1.6 million in revenues from cash collected on previously billed but not recognized contract revenue.

The purchase of Muni Services and the Broussard asset purchase together, increased our quarterly amortization expense related to acquired intangibles by about $361,000, to $668,000 for Q1. This number is estimated to be $668,000 quarterly for the remainder of 2009. The third component of total revenue, cash sales of financial receivables, was once again zero for the quarter as it has been in every quarter since our IPO in late 2002.

On the operating expense side, we were up by about 17.7% when compared to Q1 2008. This was primarily driven by compensation and employee services growing $5.5 million, depreciation and amortization growing over $800,000, and communications expense increasing by $600,000, primarily as letter campaigns increased.

The increase in compensation expenses during Q1 included the aforementioned $1.4 million in non-cash equity compensation expense, and additionally, included $220,000 in non-cash equity expense related to the accrual of the 2009 long-term incentive plan. Again, the $1.4 million non-cash equity compensation event from Q1 was fully expensed into Q1. There will be no future period expenses related to that grant.

Operating margins during Q4 were 27.1%, compared with 30.3% in Q4, 2008, and 34.1% in Q1 2008. Without the margin dilution caused by the fee businesses, the operating margin would have been about 355 basis points higher, at 30.7% in Q1. Without the amortization of intangibles, the operating margin would have been 28% in Q1 2009, versus 34.7% in Q1 2008.

Operating expense to cash receipts, as I mentioned before, is perhaps a more insightful efficiency ratio, since it removes the effect of variations in purchase price amortization rates, as well as allowance charges. Operating expenses as a function of cash receipts during Q1 2009 were 46.5%.

This is unchanged from the 46.5% in Q1 2008, and it is down from the 47.6% in Q4 2008. This is a critical endorsement of our operating strategies, that despite the very tough economic environment, this ratio is actually flat from last year.

Our balance sheet remains stronger in the quarter, despite significant purchases of new finance receivable portfolios in the amount of $52.4 million. As of quarter end, the outstanding balance of our line of credit was $266.3 million, down $2 million during the quarter. Our total credit facility line amount is $365 million, leaving us with $98.7 million of availability.

Cash balances increased sequentially during the quarter to $16.5 million. While our leverage has increased dramatically from zero two years ago, on a relative basis, it remains quite low, at 91% of equity. We are producing strong internal cash flow and are well capitalized.

We are very focused on long-term growth of PRA. While we're interested in driving all key metrics that measure our progress, we will not substitute short-term goals for long-term goals. At the same time, I also want to make it clear that a long-term view will not be used as an excuse for poor short-term execution.

We've been patiently building a well diversified portfolio of both charged off and bankrupt accounts, acquired from a variety of sellers across many years and through a variety of recall levels. Our recent allowance charges have been a disappointment, to be sure, but are part of a high-priced environment, especially when combined with a dramatic economic downturn, such as we now face.

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

Thank you. (Operator Instructions). The first question comes from the line of Bill Carcache with Fox-Pitt. Please proceed.

Hi, can you talk about how much of the sequential decline in commission revenues was driven by seasonality, given the seasonal boost last quarter versus just weaker performance potentially in the current quarter?

I would say the majority of it was driven by seasonal forces, particularly with some of our audit discovery work, we didn't have billings and collections perhaps as timely as they could have been in the first quarter, although they tend to be seasonal and more weighted toward year-end, as well as a lot of our business license fee revenue that comes in toward year-end. So, again, I would say the majority of it was seasonality driven.

Okay. And can you share your thoughts on how you're thinking now about, clearly the BK business performance remains strong on the basis of cash collections, but can you just share your thoughts on whether you feel better or worse now, in terms of your level of perceived risk for that business relative to last quarter, in light of the risks associated with the administration's actions, if you could just speak to that?

Sure. We remain very, very cautious in our underwriting assumptions, and believe that through primarily underwriting assumptions, to some degree, through contractual terms as well, that we are properly mitigating what could happen in the bankruptcy legislation. So we believe we understand what the possibilities are, and that we're covering ourselves in the underwriting process.

And when you say covering yourselves, I guess in terms of risks, what risks do you see looking out into the future for that business? And what kinds of things are you doing to mitigate those?

Well, I think the primary risks include dividend rates changing over time, crammed down legislation that could skew payments away from unsecured creditors potentially, and also fallout rates potentially increasing as customers are less able to completely fulfill a plan. And we are, again, attempting to quantify worst case or reasonable worst case scenarios for each of those three, factor them into our underwriting assumptions, and using assumptions like that, price portfolios to what we think is an appropriate level.

Okay. And finally, last question is your cash collections are at record levels but your amortization rate is at record levels, and so it seems that you're being as cautious or as conservative also as you've ever been. Can you just talk about whether the amortization rate is something that you think about each quarter, or whether it's a result to something that kicks out? And if you could speak to where you see it going from here, that would be helpful. Thanks.

Bill, this is Kevin.

Hi, Kevin. It is a result, obviously.

What we do is try to set initial yields on portfolios so that we try to kind of target our lower water marks, so to speak. We do, however, look at them after the fact and try to look at where they might be going. We don't give any guidance, so I tell you what - - I've jotted some notes down here for the call, I was simply looking at our core rates, ex the reserve, our core rates with the reserve, and looking back all the way to back to 2002, and looking at core amortization rates, again, core portfolios, about 31.8 for the quarter.

Looking back into '04, it was at 30.7. So I think there certainly is a move upwards that isn't too inconsistent, so to speak, with earlier periods, say '02, '03, '04. And again, I think right now what we're all really focused on is the allowances that we're trying to deal with.

So I think from your standpoint, I'd go back and try to model some of the older numbers and try to look at the deal multiples. And I know that we're going to be kind of sticky on moving yields and deal multiples up. So that might help you out a little bit.

Okay, thanks very much.

The next question comes from the line of Mark Hughes with SunTrust. Please proceed.

Thank you very much. The Government Service group, you talked about a little more seasonality in Q1. Would that be something that you wouldn't see as much seasonality in Q2, would the growth rates perhaps be more comparable to what you saw in the fourth quarter, year-over-year growth rates, that is?

Our seasonality in the Government Services space really hits Q1. And then I would say Q1 is probably the lowest of the remaining quarters, and Q2 and Q3 would be slightly stronger than Q1, but not nearly the bump we see in Q4. So I would say you'd see a moderation in the growth rate for those mid quarters, as it were, and then kind of back into that same cycle once we hit Q4 '09.

And then the collector productivity statistics you gave a slightly different number. Do you have that slightly different comparison if we just look at 1Q '08 versus 1Q '09?

You know what, I don't have it in my fingertips, but we will try to pull that up as we go through the call.

Okay. And then just one more. You talked about adopting a strategy of not adjusting the yields upward in BK. Have you done that elsewhere in non-BK paper, and is there any way you can give us kind of the magnitude of the effect of that in the first quarter?

Right. Well, we've been very cautious moving the multiple up for a long time, but yes, starting in Q4, we're not going to move the multiple or the yield up. Again, we have to be cautious there, because they can't get too out of sync either. To the extent that cash collections are, I think the word the SOP would pick would be significantly exceeding expectations, we'd have to move that up. So again, it's a policy, it's not set in stone. I can't get too disconnected from that.

And yes we are applying a similar policy on the core side as well, and so I just think what you're going to find, as I mentioned to Bill earlier, was we're just going to be more sticky as we go through this thing. Because again the SOP talks about that it's probable; that there's going to be significantly more cash than expected. So again, given the economic environment we face, we think that's the prudent approach. I don't really have a projection for you, but I think you'll have to use the cash flows and multiples you've got publicly to estimate that, I think.

Thank you.

Okay.

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

Thank you, good afternoon. Question on, I think, first with the cash collection trends on purchased bankruptcy. The quarter-over-quarter trend for purchased bankruptcy was nowhere near as impressive as the Call Center collections. The Call Center collections, it didn't look like a recession was in play, and I guess some of that is the productivity, a lot of that is the productivity improvements. Should the purchased bankruptcy, is that far less seasonal in - - of a channel than the Call Center collections is, and therefore, would you expect it to - - it's still relatively new, and you've grown a lot in that, but would you expect that to grow sequentially through the year?

I mean, first is the bankruptcy cash flow as susceptible to seasonality as the non-bankruptcy, the answer is no. You know, these are people that are adhering to pre-determined plans and are making payments on those plans. So regardless of typically whether they're getting an income tax refund or not, the payments would remain relatively the same.

So we don't seat same magnitude of seasonality that we see in the non-bankruptcy portfolio. To the extent that that bankruptcy piece of our overall portfolio continues to grow, I think you will see some muting of the seasonality that we used to see prior to starting that business up.

Okay. Question maybe on the ERC, that would be one that [we'll have the] 10-Q in probably a few days or a week. But given the way the GAAP accounting works, where you're taking charges but not moving up, you don't write up a pool that is over-performing, should we see, were the ERC's stable this quarter despite the impairments or does the fact that you're not, I guess, adjusting yields up, does that mean that we'll see a reduction in the ERC moreso than we have in the past?

Well, the Q should be out here hopefully shortly. I've got some insight at my fingertips. The ERC, again, you said a reduction in ERC, holding a yield multiple constant - -

I'm sorry, take out the R, total estimated collections of the pools.

The TEC, okay.

Yes, TEC.

Right, so I would say that again, using a policy like that, again, we've been doing a lot of that for the BK side for a while, wouldn't horribly affect the older deals. Is your question how are we putting the new ones on for '09.

Well I mean you have taken a lot of impairment over the last year, but your TEC for the most part is hardly moved, which would mean that as you're taking writedowns in some pools, you're having over-performance in other pools, I would think.

I think these numbers are hard enough to talk about, you think so? So I think that what you're going to end up seeing here is looking at the 2006 tranche, 2006 on tranches, the TEC multiple is going to be about 217, and then going on to 2007, 218; 2008, 218; again, this is ex-BK, by the way. And then 2009, I believe right now is going to come in at about 226 at this point in Q1. Okay. 226. Right.

And let's see, so '06, '07, and '08, 217, 218 and 218.

Right, and then 228.

So we have a little bit of a move-down.

Right because those were 218, 219.

And 220.

Right.

So like a basis point, a basis point, and 2 basis points.

So I think the effect of that simply was that we took those allowances and nothing moved up.

Right. Now the 2009 is at a little higher multiple, and therefore, given your increased conservatism, you must feel like you're paying a fair amount less for the assets, or the IRRs for the assets are a little higher.

Probably so.

Question on the month of April. Just the tax refunds were very strong in the first quarter, but there were some suggestions that, and we haven't seen obviously the credit card pools yet, but the cash collections in the month of April tailed off as the tax refunds diminished, moreso maybe than normal. Is that a fair characterization? That's a general market characterization that we've seen.

The month isn't done, and we do get even with these last few days, a fair amount of variability. But I would say with that commentary, your market observation is probably accurate.

Okay. And the return on equity as an important focus, I guess if you didn't have impairments, your return on equity would be up a lot. But I'm not sure you can - - that's the other way with your leverage low, would be to gradually buy back some stock, I mean, half a million shares of stock is a significant percentage. Is there any thought in having some modest buyback program to help raise the ROE or is the focus to get it - - when do you want to see that ROE back to 20%?

I think that right now, given the state of the buying market, we believe the best way to get that return on equity up is to deploy our capital on new portfolios of accounts.

And last question, have you seen, I guess card companies maybe have for at least the last several months, as prices have come down, have held back on selling pools. Are you seeing more or less pools in the market, or is the bid asked coming closer together?

Well, I think there continues to be an awful lot of charge-off inventory that's going into the collection agency pipeline. Okay.

But so you're saying the bid ask rate is not narrowing?

I think there's just an awful lot of volume, Bob, that needs to be sopped up.

Okay.

It's probably, you know, a little bit more of a stretch for everything to clear in the sale market.

Thank you.

And also, to answer the prior question, the comparable on the productivity without the bankruptcy and without legal, the $90.30 of Q1 '09 performance would compare to $79.05 of Q1 2008 performance.

And the next question comes from the line of Hugh Miller with Sidoti & Company. Please proceed.

I know you guys have talked about the seasonality in the government businesses and talked about that we should see a modest improvement in 2Q and 3Q with a significant increase in the fourth quarter. Can you just talk a little bit about the overall business there is and what kind of drives that seasonality and the adjustments from quarter to quarter?

Sure. Well, a big part of what drives the fourth quarter is we administer a lot of occupational licenses for municipalities, and as those are typically renewed at year-end for the upcoming new year, we get a big influx of revenue off of those. And that's really kind of the largest non-repeat seasonal piece of that business overall.

Okay. Great color there. And in the past you guys have given us a little bit of color, especially in the fourth quarter, about the outbound dials and connects, the significant increase in Q4 relative to Q3, I was wondering if you could talk a little bit about that and how that compared in the first quarter? And any productivity benefits and statistics with the predictive dialer system and the usage by the collectors. Are you using the system with even more collectors now?

The collector count was essentially unchanged, I think we said were up one collector over Q4. Dials in a year-over-year comparison, Q1 to Q1, as I mentioned were up 44%. So a good number more dials. But I think the thing that really juiced the productivity number here is, one, these settlement letters that I mentioned. We collected $5.6 million incremental from that mailing campaign, and the other is this dynamic scoring piece.

We can make lots more dials, we can make infinitely more dials, but if they're not well-directed then it's all for naut. So I'm very excited about what I've seen from our re-scoring process and how it's concentrating our efforts. If we can collect 90% of our potential dollars from 30%, 40% of our accounts, that's a huge win for us.

Okay. And I'm sure you mentioned it, but I didn't catch it. What percentage of the purchases were in bankruptcy paper in the quarter?

43%.

Okay. Thanks so much.

And the next question comes from the line of Rick Shane with Jefferies. Please proceed.

Hey guys, thanks for taking my questions. First, I want to follow up on what you guys were chatting about with Bob and ask a question in a different way. What is the actual estimated remaining collections on the portfolio as of end of Q1?

Let's see if I've got that.

Thank you.

These aren't - - total estimated, ERC?

Yes.

126, Jim.

I don't have a total here.

So TEC is going to be 2.707. And that's broken up by actual 1.58, and then plus 1.126. Again, those aren't inked yet, but I have high confidence that they're accurate.

Okay, thanks. Here's what I'm trying to figure out. One of the interesting things here is how you capitalize the estimated remaining collections. And it's trended up, roughly for every dollar of ERC you capitalize about $0.50 in assets. And that's actually trended up over the last year, despite the lower collection multiples and the impairments or the allowances that you've taken. And again, it's not a criticism, I just don't understand how that actually works, what the process is taking $1.00 of DRC and putting [a number] on the balance sheet, how you come to that determination?

I'm having a hard time following your question. What's on the balance sheet is what we paid for a pool. Has nothing really to do with ERC. So again, you buy a pool for a million bucks and again, just for easy math, you're going to collect $3 million on it, you think. The difficult part is determining, as those dollars come in, cash being a debit, right, so where the credits go, whether the credit's revenue or whether the credit pays down your balance sheet investment. That's the SOP 03-3 interest method entry we all work with.

So the capitalization part really is what you pay for a deal on the balance sheet.

But doesn't it ultimately reflect what your yield assumptions are and what allowances you take over time?

Well, so what you do basically, is once you pay that million dollars for a portfolio, you've got to estimate a yield on it, so you've got a projected cash flow and you calculate a yield. It's gross cash on cash, not net after expenses. And then is to the extent that your cash comes in weaker than expected, you can never lower that yield, under PB6, so back to 2004 on back, you could lower that yield. But now what you have to do is these allowances, you have to remove enough NFR, net finance receivables, enough of that purchase price, unamortized, off of your balance sheet so that that initial yield can still work on the amortization table. And then to the extent that that yield has been increased, as we learned with the bankruptcy paper I think is a good example of it, as that yield is increased, that's the new beverage mark. And you're always looking at is will that, those cash flows you've got at that yield amortize your balance sheet to zero at the end of the life, and if the answer's yes, you're fine. If the answer's no, you must take some allowance and write off part of the balance sheet to hold that yield.

Okay. Maybe we should pick this up off-line, I think we're getting into an accounting discussion that's going to bore most folks to tears.

You can Google SOP 03-3 and have lots of fun with it.

And we have, and like I said, maybe we have to talk about this in the reverse way. Let's pick it up off-line. But the other question is this. Purchase volumes on a year-over-year basis have actually been declining on an invested the dollar basis for the last three quarters. Given what's available and given your available capital, why not be a little bit more aggressive at this point?

It's our view that, given kind of the market share that we're winning, the number of deals that we're winning, what's going on with inventory flowing out of what we believe our cash requirements are going to be, that we're kind of in a nice comfort zone at this pace right now. We don't want to end up with a extraordinary buying opportunity ahead that we can't capitalize on.

Of course neither do we want to sit and wait and think we can perfectly predict what the future may bring and not buy only to find that the market moves on us. So we think we're buying more collectability per dollar invested right now than we have been, so purchasing money goes a little bit further at this point. But we're pleased with the amount that we're putting out.

Okay. Great. Thank you, guys, very much. Appreciate it, and I'll circle back off-line.

All right, sounds good.

The next question is from the line of Sameer Gokhale with Keefe, Bruyette, and Woods. Please proceed.

Thanks, just one thing I wanted to clarify was in terms of the increase in collector productivity, I think a few things were mentioned. One of them I believe was an increase in payment plans, if I'm not mistaken. What I was trying to get at understanding of was if a customer, if a debtor, goes on a payment plan, doesn't that imply that you're going to collect less of a lump sum amount and more over a period of time, so shouldn't that have a negative impact potentially on collections in any given period, as opposed to being a benefit? Could you try to talk about that dynamic a little bit?

Well, I think our reference to a benefit is kind of using the lens of a long-term owner of a pool, so we would tend to see on payments plans more money come in over the longer term. It just takes us a little bit longer to get there, than especially in the case where we're settling with someone.

Obviously if we've got the choice of getting a payment in full, that's always where we'd rather be. We're getting all our money and we're getting it immediately. But really the decision we're making is to stick pretty tight with our average global settlement amount.

We're not, in our view, cannibalizing our portfolio to try to accelerate cash flow. We're trying to direct customers into the payment plan, and by that, I don't mean specifically payments versus settlements or balance in full, but we're directing them into the, I guess, tranche that is going to maximize our recoveries over time.

Okay. And then in terms of the settlements that you might have had in the quarter, can you give us some sort of metric which shows what the settlement percentage was as a percentage of the debt outstanding this quarter versus the same quarter a year ago, is that some sort of metric that you have handy?

Well, I can tell you long term it's tended to bounce around between, and this is the amount we take, not the amount we settle, between 60% and 66%. And that's just a band that in strong economic times will probably get more to the top end of it, and in tougher economic times will get more to the bottom. But we manage it very aggressively, as opposed to something that may fluctuate from 80% in great times to 20% in poor times. We'd much rather put somebody on a payment plan than compromise our receivable to too great a degree.

It sounds like when you're saying that the benefit, the collector productivity to the extent that it was linked to the payment plans was more a function of the growth you've had in accounts on payment plans since over the last year or two, and then that's why you had a more steady deferred but more steady and growing flow of cash coming in from that strategy, as opposed to anything you did in this quarter in particular. Is that the right way to think about it?

Yes, that's absolutely correct. Overall we feel as though we're suffering from the decline in what we would normally see in settlement in full and payment in fulls. But as we build up this portfolio of pairs, it does tend to mitigate that over time.

Okay, that's helpful.

Sameer, this is Kevin. Again, I'll speak up from an accounting perspective, I think one of the things that we might be able to look forward to would be that to the extent that the curve, provided to us in the financial world, to amortize these deals, to the extent that the curve had the settlement monies in it currently, and to the extent that we're not getting it, but replacing that with payers, that could be obviously driving some of the allowances today. The thing we have to look forward to is if those payers continue, what will happen is the curve will start dropping off at a steeper pace and the actual collections start floating out there further, and that will be nice for us to see down the road, and could result in allowance releases.

Okay. That makes sense. And then in terms of the tax refund, I know maybe Bob had asked this question, and you were giving some color about the collections in April relative to March, but I know for example in the used car market, there has been a benefit because tax refunds were stronger year-over-year this tax season. So is it possible few to quantify perhaps with a kind of benefit you might have had in terms of the productivity from tax refunds, or is that just something that's a little too difficult to quantify?

I think it would be difficult for us to accurately quantify it. I can tell you from an impression standpoint, I don't think we felt as though we were seeing a disproportionate benefit of tax payments in this first quarter versus prior first quarters by any stretch.

Okay. And then, you know, I heard from some folks and they look at the sequential trend in cash collections, Q4 to Q1, there are obviously seasonal factors, but if you strip out seasonality and then you strip out tax refunds or any - - that would be part of the seasonality, but if you look at the actual cash collections that came in, on an underlying basis, stripping out any sort of seasonal element to it, is it your sense fundamentally that maybe cash collections were a little bit better in Q1 relative to Q4? Because I've heard some people say adjusting for seasonality in Q4 was just a very tough quarter, and Q1 may have been better than people had expected. So is that your experience as well stripping out seasonality?

I think that's right, and I think it's more that Q1, the consumer world breathed again. Q4 was more the abnormal quarter where sentiment was just so very negative. I think Q1 saw more of a return to relative normalcy. Obviously there's a lot of economic hardship still going on, but relatively speaking, it feels a little bit more normal than Q4.

I would just add, so we started this dynamic re-scoring process last August, I believe it was, and as we have more data and more history, it allows us to do more with it.

So I mentioned that we sent out an abnormal number of settlement letters this tax season. That's not a function of us thinking that this tax season was going to be exceptionally rich, as much as it was a function of us having a greater comfort level and allowing us to take some more chances with those bunch of dollars. So that is something that I would not project as seasonal, so our comfort level and our level of insight is improving over time.

Okay. That's perfect. And then just two last ones. In terms of your purchases, Rick had asked the question also, and you had answered that, and one of the things I was curious about was, that is the level of purchasing activity and the fact that you actually paid down some debt. How much does that have to do with your debt-to-EBITDA covenants and your need to feel more comfortable with being well under the covenant where it might reach? Is that kind of your primary driver of why you're a little bit cautious about purchasing, or would you say it's more just trying to wait for some better opportunities.

We're not even closing the covenant, I think the covenant is like 127, like that, 125. Remember, the EBITDA covenant includes portfolio amortization add back, so payment is applied to principle. So it's a pretty big road to drive down. But that wasn't part of it at all.

Okay. And then this last question, in terms of anchor, you wound up those operations and it seems like the contingency collectors are very capacity constrained right now and I don't know if you agree with this, but maybe in terms of the contingency fees, if there's some economic surplus to be had between the card issuer, for example, versus the contingency collector, it seems like the economic surplus should be captured by the contingency agency just given capacity constraints. Do you have any regrets about winding up Anchor; do you have any plans of getting back into that business again? It was a very small part of your business, I realize that, but any kind of thoughts there, after the fact looking at what's going on in the contingency collection space?

I do a little jig every morning that I come in and don't have to deal with Anchor, so I would agree with your observation regarding capacity constraint, and frankly if the industry ever exercises its pricing power, it may become an interesting business again. But we saw no evidence of that the entire time we were in it, and I don't know that we really have a feel that it's shifting at this point either. So we're very pleased we're not there, and I don't look to return any time son.

Okay. That's great. Thank you all for the color and comments, I appreciate it.

Sure.

And the next question comes from the line of John Neff with William Blair. Please proceed.

Hi, thanks, I didn't think I was going to get in, so appreciate it. Couple of questions on fee-for-service. Can you give us a sense, was the IGS capacity constraint, did that cost you any revenue in Q1? And on the Government Collections side, how many states are you operating in currently versus last quarter?

On the IGS side, we've been somewhat cautious in our marketing efforts over the last couple quarters, just knowing that we're coming up to some physical capacity issues, and not wanting to get into a situation where we negatively impact our ability to perform for our existing clients, that's goal number one. So it might have been a little bit of a modest impact in terms of opportunity cost. But I think very modest. I think we ended up getting into that space just in time, and and we'll continue to grow that business as aggressively as opportunities allow.

The other nice thing is it is a nice multipurpose open modern Call Center, and so to the extent we have more capacity there than we end up needing with that particular business, as we mentioned in the script, we can drop Neal's own portfolio collectors in there. We can also put some of our government services people in there if need be.

On the government services space, we've got contracts in a number of states and our goal is slow and steady expansion, and we're widening our state-by-state footprint, although that widening is tending to happen with some fairly small contracts, but hopefully they're a kind of foot in the door type thing that will demonstrate to other municipalities in that state that we have a real viable service and will allow us to sell more aggressively in future periods.

Thank you. And then a question on impairments and seasonality, is there any impact on impairments given seasonality in collections, or are the impairments sort of independent of the seasonal strength or weakness in a given quarter?

Well, I'd say that the impairment's are obviously driven by weakness in a quarter. As long as there is seasonality built into the curves, then it's really kind of outside the calculation. It's a simple on off question for me, was the cash short, yes or no, and what do I think about the future.

And then you mentioned that cash collections were ahead of internal expectations in the quarter, is there any sense you could provide on the impact that had on the amortization rate in the quarter?

Well, you know, the issue with that statement is that was in a macro level, so if you look at the entire pool, we were ahead of expectations. The challenge with allowances is you look at the accounting pool level, and so with the accounting pool level you can't offset the goods with the bads. You need to take allowances on the under-performers, and that's where we saw the allowances.

Okay. And last question, Kevin, and I can take the rest off-line, but collector headcount in the quarter, including supervisors, the number here for the fourth quarter was 1,477?

1496.

Thanks very much.

Yes.

And the next question comes from the line of Edward Hemmelgarn with Shaker Investments. Please proceed.

Yes, I have just two questions. One is, Kevin, on the calculation of the interest rate, I thought that your rate was like, it was the one with LIBOR and 140 basis points.

Right, that's correct. I mean, LIBOR was generally running about between 40.4 and 40.5%, so that would have been, I guess I was expecting a lower interest expense rate of somewhat a little less than 2%. Right, well, we've also got a fixed rate tranche don't forget; out of the total bid outstanding there's a $50 million fixed rate tranche, I think that's at 6.5.

Okay. All right. I'd forgotten about that, thanks.

We fixed it in; we thought rates were kind of low.

Yes. Okay. All right. Then the other thing is on your purchased bankruptcy, it seems like some of the more recent purchases are not coming in quite as fast as, admittedly, some of the earlier years, from a collections standpoint. I mean, they seem to collect pretty quickly, and then run off pretty quickly. I know it's a little difficult to tell yet, because it's still too early, but are you finding out, is it the payment periods in these bankruptcy collection plans are longer than - - ?

Actually, I had some commentary on that. We had been buying more recent filings, just as you look at the mix of business, than we had in most historical periods, so a unsecured Chapter 13 Bankruptcy plan typically won't have substantial cash flow into maybe, until maybe 12 to 18 months after that plan has begun. Historically we have done a fair amount of buying of fairly mature portfolios where there was a lot of cash flow day one post-acquisition. And we have been shifting our buying, really not out of any specific strategy, but more out of what has been available in the market, to more recent filings, and so cash flows are a little bit less.

But does that apply, though, to, I understand if it applies for what you did this quarter, but does it also apply to, you had a big purchase in the fourth quarter of '07 that was purchased bankruptcy, and then all throughout '08 you were pretty heavy buyers of purchased bankruptcy, but you generally indicated that, in those quarters on the conference calls, that you said it was more paying stuff already. So is it just the when you've gone back and looked at it, that that wasn't the case even for the Q4 '07 or - - ?

I don't know specifically what you're referring to. The bankruptcy cash flows in virtually all cases are at or above expectations. So to the extent you're seeing deceleration, that's the normal anticipated behavior of those particular pools.

Well, not that I'm seeing decelerations, but rather it's just that they haven't ramped up quite as, from those basically five quarters, it appears in looking at the data, that they didn't ramp up as rapidly as, for example, your purchases in, let's say, I think you started in like '04, '05 and '06, where it seemed as, you can go back and look at what you were collecting by year, but it seems as if those years were collecting a greater percentage of it early on than what we seem to be seeing from the '07, '08.

Again, it's going to end up being a very specific set of circumstances related to the pools that were purchased in any particular period, and we've bounced around between where in the bankruptcy life cycle that we've been buying, and so unlike the charge-off world where regardless of the type of receivables that we collect, you tend to see this fairly consistent curve shape that's not the case with bankruptcy. And so I think bankruptcy is probably going to be a little bit more difficult business for the investment community to accurately model out.

Okay. Thanks.

You bet.

The next question comes from the line of David Scharf with JMP Securities. Please proceed.

My questions have been answered, thank you. Thanks, David. Thanks, David.

And our last question is from the line of David Zorub, with Hawkshaw Capital Management. Please proceed.

Good evening, I was about to hang up the phone. I'd like to circle back to some of the earlier questions that were asked around amortization. Looking at your estimated remaining collection balance, the vast majority of it comes from the pools, '06, '07, '08, and I guess '09 now. And in your public disclosure and presentations and whatnot, you've indicated that the required remaining amortization on those portfolios will need to be in sort of the low 50s. And given how they represent very large, or are almost all really, of the remaining collections, it seems reasonable to conclude that amortization ultimately will get to those levels. We saw a pretty big step-up this quarter. I'm just wondering how quickly you would expect it to get to that level?

Well, again, David, we don't give any guidance, but that's what I was trying to refer to in the early commentary, is that you can do the math pretty simply, and you and I have talked I think about that. So that given the ERC for those deals, and given the amount on the balance sheet, they would indicate that the amortization would need to go up over time. Again, that's life time going forward, so there will be a ramp-up. To the extent though that those deal multiples expand, there will be pressure downward. To the extent they don't expand, you're right, they would head up towards that 50% number. It's mathematics, correct.

I guess what I'm trying to understand a little bit better is the step-up was pretty significant in this quarter, moreso than I would have thought, and so I'm wondering if it's the case where whatever you're seeing in the business suggests that you're going to get there sooner rather than later?

No, again, if you look at Q1, Q1 is historically had a little bit higher amortization rate than Q4.

So I'm looking at, as I was explaining earlier, I had some notes jotted down here, if you look at the charge-off amortization rate ex-reserve, because that really makes it difficult to compare going backward, but looking at just the charge-off amortization rate ex-reserve, it was 31.8, from my notes here in Q1, 27% for '08, 25.5% for '07, 26% for '06. Then in '05, it was 29.5%, almost 31% in '04, almost 30% or more in '03, and 32% in '02. But there's some seasonality noise in the amortization rate, too, to the extent you're over-collecting in Q1, you'll amortize more.

So again,we don't give guidance, I'm trying to maybe advise you to take a look at the multiples like you have, how much is on the books and how much ERC is there, and then look back historically and look at the variances Q to Q.

Okay. Separate question, can you give us a sense for what percentage of collections in the quarter came from paper that was purchased in the quarter, and how that might have compared to the prior periods?

I think it was a pretty tiny number, but I believe we've got it here. Just a second. Yes, 1.9 million.

Okay. So pretty small.

Yes. Came from the quarter. Great.

Thank you very much.

Okay.

Appreciate you letting me slide in at the end here. Absolutely.

And ladies and gentlemen, that concludes our question-and-answer session. I would now like to turn the meeting 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 some key points about our first quarter. The recession we find ourselves in has created a difficult collections environment for PRA. While this impacted our first quarter results, we're working hard to swim against the tide.

We're focusing on improving the efficiency of our collections operations, demonstrating improved productivity this quarter with gains in our Call Center, and internal legal collections, as well as substantially increased collections from purchased bankrupt accounts. In addition, we're committed to both conservative underwriting and very cautious level yield administration. Looking beyond the allowance charge recorded in the quarter, our core businesses turned in another solid performance, and we continue to strive for more of the same in the quarters and years to come. Thank you 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. This concludes the presentation, and you may now disconnect. Have a good day.