PRA Group Inc (PRAA) 2014 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Portfolio Recovery Associates Earnings Conference Call.

(Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Darby Schoenfeld, Director of Investor Relations for PRA.

Thank you. Good afternoon, everyone, and thank you for joining us. Presenting on the call today are Steve Fredrickson, our Chairman, President, and CEO, who will give you an overview of the quarter and a quick update on our pending acquisitions; Kevin Stevenson, Executive Vice President and CFO, Chief Administrative Officer, Treasurer and Assistant Secretary, who will take you through our financial results; and Neal Stern, Executive Vice President and COO, who will review our operational results.

The press release announcing our first-quarter results was distributed this afternoon. The earnings release is available on the investor relations page of our website at www.portfoliorecovery.com

A replay of this call will be available shortly after the conclusion of the call. The information needed to listen to the replay is contained in the earnings press release.

I'd like to remind everyone that statements made by PRA on this call may constitute forward-looking statements under applicable securities laws. All statements, other than statements of historical fact, are considered forward-looking statements, including statements regarding PRA's or its Management's intentions, expectations, plans or projections for the future.

Statements with respect to the future contributions of Aktiv Kapital, or our ability to fully realize the expected benefits of the acquisition; our ability to satisfy closing conditions, or successfully, if ever, complete the acquisition; and the ability of Aktiv Kapital, or any of PRA's subsidiaries, to contribute to earnings.

Actual events or results could differ materially from historical results or those expressed or implied in any forward-looking statements as a result of various risks and uncertainties, some of which are not currently known to PRA or its Management. These include the risk factors and other risks that are described from time to time in PRA's filings with the Securities and Exchange Commission, including PRA's most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K.

Any such forward-looking statements speak only as of the date they are made. Except as required by applicable law or regulations, PRA has no obligation to update any forward-looking statements to reflect events or circumstances that occur after the date they are made, whether as a result of new information, future events, or otherwise.

I'd now like to turn the call over to Steve.

Thank you, Darby. Today we're pleased to announce that collections, revenues, and net income were all up year over year. Our operating results in the first quarter met our expectations, while we devoted a significant amount of time to planning and getting closer to completing the two acquisitions we announced recently.

In the first quarter, cash collections were $313 million, up 14% from the first quarter a year ago, with legal collections contributing $95 million to the total. Collections helped drive revenues up to $194 million in Q1, resulting in net income of $40.8 million, up 6%.

As anticipated, included in these results are $4.4 million of pretax, deal-related expenses for our pending acquisition of Aktiv Kapital. With that, in Q1, PRA generated diluted earnings per share of $0.81, up 8% from a year ago.

Also impacting the results in the quarter was incremental spending in legal costs; a move that we made as a result of an opportunity we identified due to sustained over performance from our legal collection strategy over the last two years. Legal costs were $26.5 million, up $6 million, 29% from Q1 2013. Due to continued positive results in each of the remaining quarters of this year, we continue to expect spending toward the upper end of our previous $20 million to $25 million per quarter estimate.

Costs associated with the Aktiv acquisition reduced Q1 earnings per share by $0.05. When combined with our additional legal cost spending, we did not meet our goal of a 20% return on equity for the quarter. Rather, GAAP return on equity was 18.2%.

Based on the continued strong results driven by our similar investment in legal costs back in 2012, we feel strongly that while depressing short-term earnings, this initiative should have a positive impact on both future earnings and cash flow, and is the right strategy for the Company long term. As we've always done, and will continue to do, we're managing PRA for the long run. Neal will have more information on our legal collections approach and our Q1 collections experience later in our call.

In the first quarter, PRA invested $153 million in defaulted debt, acquiring $151 million in North America and $2 million in the UK. 53% of the purchasing volume was invested in core portfolios, with the remaining 47% invested in bankruptcy account portfolios.

This included the purchase of a national capital management-owned portfolio that we were servicing and had invested in through a participation agreement. These claims are secured by automobile collateral, are cash flowing accounts, and are expected to liquidate relatively quickly with the majority of cash flow coming during the next 18 months.

Since secured bankruptcy accounts are typically purchased at much higher relative prices, the acquisition of these accounts drove our average purchase price paid higher in the quarter. As we do expect it on a purchase of mature cash flowing bankruptcy accounts, these accounts have a relatively low projected cash collections to purchase price multiple.

The supply of available debt for purchase in the US continues to be affected by three very large credit grantors who have sidelined their debt sale strategy. We believe these issuers are currently scrutinizing and enhancing their respective debt sale processes, and we expect each one to eventually return to the market.

Although these ongoing sales process we've used will continue to negatively affect the overall volume of debt sold in the US this year, we expect the sales strategy enhancements to ultimately prove beneficial to PRA, and we remain ready and able to capitalize on the resulting market opportunities. We are optimistic that at least one of the three credit grantors will start selling again this year, although that's simply an opinion.

The advantages issuers gain from selling debt are still firmly in place. So we're confident that in the long run, US debt sale market will provide ample opportunity for PRA to invest healthy amounts at attractive margins.

In the meantime, in the US, we face a competitive market with constrained supply and higher pricing. However, even with higher prices, the economics for purchasing debt were still compelling enough for us to deploy $153 million during the first quarter; a figure that we're very pleased with. For perspective, this is the fourth largest quarter of debt purchase ever, eclipsed only the extraordinary 3 quarters of Q4 2012 through Q2 2013.

Given the backdrop of the currently muted US debt sale market, our pending purchase of Aktiv Kapital, with its approximately $1.9 billion in ERC, and ability to invest across more than a dozen European markets, looks especially timely. With the closing of the Aktiv Kapital purchase, our ERCs will increase by a larger magnitude than in any year of our existence. In fact, our ERC account will increase on a net amount to a greater degree than we experienced over the 6 years from 2008 through year end 2013.

This significant influx of ERC, of course, will fuel cash collections, revenue, and earnings growth years into the future, and it's just one of the reasons why we're so excited about this transformative deal.

Despite the Aktiv deal and the significant capital commitment we're making there, we remain fully committed to servicing the needs of the US issuer market by helping sellers maximize the value of their distressed consumer debt. Our operational capabilities allow us to pay top price while maintaining appropriate profitability. Our strong balance sheet helps ensure that we have the capital to invest in a growing portfolio of acquired accounts both here in North America and Europe.

We continue to make good progress toward closing this transaction and Pamplona's UK-based IVA platform. Due to legal and competitive concerns, we have had only limited integration discussions with the Aktiv executive team, focusing on operations as opposed to investment in debt purchase. But these operational discussions have led us to believe we have more integration synergy opportunities than we had previously thought or modeled into our financial assumptions. Neal will provide a bit more color in a few minutes.

Financing is in place for both acquisitions at attractive pricing. As we wait for the remaining regulatory approvals, we judge both transactions as on track, and we expect to close both within the next several months. Please note, we anticipate approximately another $10 million in expenses related to the acquisition of Aktiv in Q2.

As a reminder, on a GAAP basis, we believe that the Aktiv acquisition will be accretive to earnings for 2014, and will help us drive to our target of 15% annual earnings per share growth and 20% return on equity.

With that, let me turn things over to Kevin who will take you through our financial results in more detail. Kevin.

Thank you, Steve. To discuss our financial results, the comparisons I make today will be between Q1 2014 and Q1 2013, unless otherwise noted.

Cash collections and revenues both increased 14% while operating expenses increased 18%. As Steve mentioned, we started off the year executing on additional legal investment strategy. So as anticipated, operating expenses in Q1 increased faster than revenues.

Q1 2014 expenses also include approximately $4.4 million of costs related to our planned acquisition of Aktiv Kapital. These items combined resulted in quarterly performance that was in line with our expectations, producing a 6% increase in net income and an 8% increase in earnings per share.

I will provide you some additional detail on our operating results for the quarter. Cash collections for the quarter increased 14% to $313.4 million. Payments from our bankruptcy accounts were up 10% to $120.7 million, or 39% of cash collections. Call center and other collections were $97.7 million, up 10%. And legal collections were $94.9 million, up 23%.

Revenues increased 14% to $193.9 million, including $178 million in net finance for receivables, or NFR revenue, and $15.9 million in fee revenue.

NFR revenue for the quarter was comprised of $120.9 million in core portfolio revenue, net of an allowance reversal of $1.7 million. Net core portfolio revenue increased 18%.

NFR revenue also included bankruptcy portfolio revenue of $57.1 million, net an allowance reversal of $250,000. Net bankruptcy portfolio revenue increased 8%.

During the quarter, yields were increased on several quarterly pools in the domestic core portfolio. This included 2009 Q1 and Q3, 2011 Q4, all quarters in 2012, and all quarters in 2013 except for Q3. For the bankruptcy portfolio, yields increased on all quarterly pools from 2009 Q3 through 2011 Q4 vintages.

Fee revenue increased 8% to $15.9 million from $14.8 million as higher revenue generated by CCB and government services offset a decline in our location services business.

Moving on to expenses. Operating expenses were $122.3 million, up $18.7 million or 18%, which included $4.4 million in cost associated with our planned Aktiv acquisition, as well as increased legal collection costs relating to the updated strategy we talked about last quarter.

Additionally, compensation and employee services expenses moved higher as a result of our new call center in Texas, coupled with increased incentive compensation paid to our collectors in connection with growth in cash collections over Q1 2013. As a result, our operating income increased 9% to $71.6 million, and operating margin was 36.9%.

Our effective tax rate was 38.8% for the quarter, and our net income margin was 21.1%.

Moving on to the balance sheet. Cash balance at end of the quarter at $191.8 million, compared with $39.1 million a year ago. These balances increased due to cash generated from operations, as well as funds received from our issuance of convertible notes in August. Cash balances at the end of 2013 were $162 million.

The NFR balance increased to $1.25 billion, up from $1.17 billion. The NFR balance is the amount of unamortized purchase price for acquired debt portfolios recorded on our balance sheet.

Also, while the purchase accounting process is not yet complete, it's likely the NFR amount related to the Aktiv transaction will be approximately $700 million. Again, things can change, but assuming that number is materially correct, the combined NFR balance for PRA would be $1.9 billion to $2 billion. That would represent more than a 50% increase year over year.

Principal amortization of financed receivables, otherwise known as payments applied to principal, including net allowance reversals, was 43.2% of cash collections as compared with 43.8%.

Collections on fully amortized pools were $16.5 million during the quarter, up sharply from $9.8 million in 2013 Q4 and $6.3 million in 2013 Q1.

Lastly, like my earlier commentary regarding post-acquisition NFR, we would like to provide similar color on ERC. Our current ERC for PRA is $2.7 billion. The ERC related to the Aktiv transaction that we discussed last quarter was $1.9 billion. Now, that number will likely change to some degree based on purchase accounting process, but assuming that number is materially accurate, our combined ERC will be around $4.5 billion.

Turning to liabilities. Our debt to equity ratio at period end was 49%, up slightly year over year and down sequentially from 52%. The debt to equity ratio, including net deferred tax liabilities, was 74%.

Borrowings totaled $450.3 million at quarter end, and consisted of $257.8 million in convertible senior notes and $192.5 million in other long-term debt.

Net deferred tax liabilities were $220.9 million at quarter end, compared with $185.8 million a year ago.

Following quarter end on April1, we increased the availability of our revolving credit facility by $214.5 million. This brings total availability of our revolving facility to $650 million, and was accomplished by adding 3 new lenders, along with 7 of our existing banks increasing their commitment amounts.

We had no balances outstanding under our revolving credit facility at quarter end, and all of the $650 million is currently available to be drawn as we continue to move forward with the Aktiv acquisition.

Now, let me turn the call over to Neal for review of our first-quarter collections and operations results.

Thanks, Kevin. As I discuss first-quarter results in operations, I'll be making comparisons with US results from the first quarter 2013, unless otherwise noted.

We've seen sustained empirical evidence that accounts we purchased over the last several years are more valuable than similar accounts acquired in earlier years. Stricter original creditor or underwriting, and a modestly improving economy are likely explanations.

As the financial health of our customer seems to be improving, and the returns from our incremental legal spending continue to meet or exceed expectations, we hope to put continued upward pressure on our productivity metrics.

We received 2.6 million payments in the quarter which was up by almost 12% over the prior year. Collector productivity also improved by 12%.

Our average payment size decreased by 1%, which although very small, was our first decrease in payment size since Q3 of 2012.

We've spent a fair amount of time trying to better understand changes in the financial condition of our customer base and whether or not their financial condition can be observed in average payment size. The challenge with this measurement is that tactical changes, like revised scoring models and differences in purchasing activities, can impact the result more than the changes in the credit quality of our customer base. Because these events have not been isolated variables, this kind of analysis is somewhat speculative.

However, we've observed some encouraging data. For example, when we examined the performance of customers having the same score at the point of acquisition, over time we found that we're collecting more from these customers now than we have in years' past. More importantly, you can see that improvement in payment rate as being driven primarily by accounts purchased during the last two years. While these accounts have had a generally higher purchase price, the improvement has outstripped the increase in pricing.

We are also seeing similar improvements in payment rates in the call center collection channel, which helps us to eliminate the incremental legal spend as a variable driving this change. And in fact, we again observed that among people we contact, more are making a promise to pay us than did during the same period last year.

Payment rates viewed in this same manner are increasing in our legal channel at an even steeper rate. These results were obviously being influenced by our taxable changes like the increased spending on court costs. But again, the pace of improvement suggests improved customer financial health.

First-quarter court costs of $26.5 million were in line with our expectations, both in terms of dollars spent and the return criteria of recouping our costs over 6 to 12 months, and delivering a 200+% return over the next 14 to 16 months.

Again, the increased spending is being driven by improved collection results. Our return goals have not changed since Q1 of 2012. The sustained over performance is necessitating more volumes to bring us in line with our goals, and is a very good problem to be solving for.

As a result, we anticipate spending about $25 million in each of the remaining quarters of 2014, which as Steve said, is at the upper end of the range we gave last quarter, but will also be a smaller increase on a rate basis year over year as legal spending in 2013 was higher in quarters 2 and 4 than it was in Q1.

Legal collections remains our option of last resort and only occurs after customers have not responded to letters and calls, but appear to have the means to pay us. This has effectively confined our legal collection efforts to less than 5% of our account base.

In total, our first-quarter legal collections increased by 23%, external legal collections finished 6% higher, and internal legal collections were up almost 50%.

Internal legal collections now represent just under half our total legal collections, and we expect that percentage to continue to grow as the inventory of legacy judgments begins to more closely reflect placement allocations made over the last several years.

The move toward an internal legal effort reflects our desire to exert greater compliance controls and capture margin, but the smaller subset of external collection law firms we now have will continue to play an important role for us for the foreseeable future.

Finally, I'd like to comment on the very preliminary work with Aktiv. Although the discussions have been necessarily high level, we believe we've identified several items to leverage post-close. These include some complimentary collection skills from the UK, utilizing key technical staff; melding some of the models and analytical approaches between the companies; and broadly implementing PRA's cost reporting methodology. Both teams are eager to learn from each other and will be doing everything they can post-closing to make sure best practices are widely understood and used.

Now some final thoughts from Steve.

Thanks, Neal. A final comment on two executive appointments that we made recently.

Our new Chief Compliance Officer, Laura White, will oversee operational compliance across our company in North America and Europe. Laura joins us from Allianz Global Assistance where she was Chief Risk and Compliance Officer across countries in the Americas. We expect Laura's experience to help PRA set new standards for global compliance. Laura reports directly to me.

Our new Director of Investor Relations, Darby Schoenfeld, has an extensive background in IR and is a securities analyst. Darby will help Kevin and I keep in touch with our growing universe of investors.

On behalf of my Management Team and all PRA employees, I thank you for your continued investment in PRA, and your continued confidence in our ability to grow and deliver long-term value to you.

Operator, we're ready for questions.

Thank you, Mr. Fredrickson. (Operator Instructions) Hugh Miller, Sidoti.

I guess first question with just housekeeping on the fee-based business margin dilution in the quarter.

I actually have that in front of me for you. I knew you'd ask that question. It was 296 basis points.

296. Okay, great. And just a couple of questions on the purchasing dynamics. You guys mentioned how you acquired the bankruptcy portfolio that was serviced by NCM. Can you give us a sense of how large that was relative to the overall BK purchasing?

Well first of all, just to be clear, we were servicing that portfolio on behalf of NCM. And we've never gotten into disclosing individual portfolio purchase sizes. It was larger than a typical portfolio purchase, Hugh, but we're not going to drill down further than that.

Okay, that's fine. Good color. And as we kind of look at some of the commentary you talked about where pricing is still somewhat high, the environment's still competitive, and that the supply is still constrained a bit, can you just help us wrap around, our arms around why purchasing relative to 4Q was so much more meaningful domestically here? Did you see, relative to 4Q, just more supply coming, or did the pricing environment improve, or were you just kind of getting more deals won than you normally would on a number of deals you've been on? Or any sense there would be great.

I think it was a combination this quarter primarily between the last point you brought up; just maybe getting a little more than our fair share this quarter as opposed to Q4. And then when you threw on top of that the NCM transaction, which was a little out of the typical norm for us, that's how we got to where we did.

And would you then categorize you winning more than your fair share, are you getting a sense that maybe the competitive landscape is easing a bit at all?

No. I would say it's just one of those things. Some quarters you win a couple more than you had previously, and other quarters it goes the opposite way. So, the supply continues to be constrained, and competition for deals continues to be high.

Okay. And you gave us some color for Aktiv around the NFR balance and ERC. Can you give us any sense as to what they deployed capital-wise for purchasing in the first quarter?

Given that we don't have our audited numbers with them and we're in the middle of the transaction, we just thought it better to wait on that.

Okay. And then the last question I had was as we think about the pro forma company post the deal close, how should we be thinking about the blended tax rate going forward once that does get finalized?

Much like Steve's answer, we haven't gotten through all that work yet. But it certainly should be south of where we're at today, but I just don't have a good number to give you.

Okay. We'll revisit it in the future. Thanks a lot.

Bob Napoli, William Blair.

Just anything that -- you've been studying, obviously, the European market and the Aktiv market for some time. Over the last few months, anything you've learned that's made you more or less excited about the Aktiv transaction?

No. I think we stand by the comments that we made just a couple of months ago when we announced the transaction. I think that there's a lot of exciting opportunities in many of the markets there, really across the board geographically. We see a lot of deals, even at present, in play. And so I think 2014 overall should be a real interesting year to be a player in Europe.

The timing of the transaction, I think you said over the next several months -- and I know the Pamplona deal was, you were targeting a July 1. With Aktiv, would you hope to close Aktiv sooner than that?

Yes. We would hope to close Aktiv prior to the end of the quarter. And as you said, the Pamplona deal has a hard close date of July 1.

Okay. And then did you see more flow of paper in the US in the first quarter than you did in the fourth quarter? So were there more opportunities? And where are you seeing, with the three big players out, are you seeing paper out of any unusual areas besides the, obviously the bankruptcy that you pointed out, the bankruptcy paper?

No, I would say that we're seeing paper supply from generally the same sources that we see typically. I don't know how much more color I can provide than that.

Now how about competitively and why you said the competition remains pretty firm. Are there portfolios of competitors possibly for sale? Would you expect to see more consolidation in the industry this year?

You know, there's nothing that we're seeing, aside from I would say much smaller competitors that may be putting up a portfolio here and there. It seems like the consolidation and quick portfolio sales, at least that we were seeing throughout the last 18 months or so, seem to be a little bit more benign at this point in time.

And then last question just on the regulatory front. If you can give us any update of what you are seeing in the --. Are the expectations from the CFPB and regulators getting any more clear to you and to the debt sellers? I think that's really important to get clarity, to get these big sellers back into the market. What are you hearing? Are you getting more clarity? And in what direction? Where do you see the biggest changes in the industry from a regulatory perspective over the next year or two?

Well, I think the first issue deals more with the sellers, and that revolves around the OCC and the interpretation of the OCC's best practice guidelines by the various selling banks. And in our opinion, we've seen quite a variety of interpretation to those guidelines. And I think if those guidelines were turned into pools with less room for interpretation, that it would be helpful for everyone. Because quite honestly, we've seen a wide variety of interpretation, and it's causing I think some additional work on everybody's part as we try to deal with the various people with the various perspectives.

In our world, as it relates to the CFPB, and primarily that rule making process that's underway, that would be the process that we would anticipate would give us a solid understanding of exactly what the rules will and won't be for the debt purchase and collection industries.

Although, given the approach that they've been taking, and the steps that have been advertised, we anticipate that that rule making process is definitely going to stretch out through, our expectation would be the majority of 2014.

And once we get some clarity from the rule making, I think we'll all be in a better position to assess exactly what it means operationally to the industry.

Thank you.

Mark Hughes, SunTrust.

The receivables balance of $700 million for Aktiv that you're looking at, relative to the collections of $1.9 billion, that seems like a pretty healthy collections multiple. Am I looking at that the correct way?

No, that's why I said -- I gave you the [overview] $1.9 billion was that we reported last quarter. And I made some commentary, that's probably -- it's likely to change. The $700 million number we think is a decent one, and both are probably materially correct.

Right. We're almost at 3 times collection multiple. Would you anticipate that additional purchases by Aktiv post-close would be as -- you'd be as optimistic on collections?

All I can tell you right now, again, is the process isn't done. I'm just trying to give you guys some color on this. So the numbers kind of are what they are. Again, if you're doing some modeling with it, you might want to expect somewhere in that $700 million for NFR. And again, ERC number, again, might float south, but we'll see how that goes.

Right. You may have the same answer for this question, but any sense you can give us on amortization? How much, or what the buckets are going to be for that remainder of the purchase price? What the profile in terms of time and magnitude of the amortization?

No, we don't have that yet.

Okay. Neal, in talking about the payment dynamics, any change in terms of the consumers that are stopping payments or breaking the payments? Any difference there?

So the stuff I went through we thought was the best way to equalize across time and all kinds of different operational and purchasing dynamics. So we just looked at, what was this person's [fourth] point of acquisition and how much have we extracted from that? Same score across all of these different time periods.

And that's the data that we thought looked most encouraging, and the one that probably provides the most insight. Because all of these things we do operationally and from a purchasing perspective have so much sway on all that payment activity.

And I'm sorry if you said this, but any commentary on the pricing on portfolios in the quarter, or what you saw in Q1, say, compared to the later in 2013 either on the BK or non BK front?

I don't think that pricing during the quarter changed materially. It continued to be very competitive. But I think it looked much the same way it did in Q4.

Any possibility that it's stabilized here?

Well, I guess if one quarter a trend makes, that we have the beginnings of stabilization, although at very competitive level.

Thank you.

Robert Dodd, Raymond James.

Just following on from that question on stabilization. If we look at the BK side, 125, 125%, however you want me to describe it, versus 130 for last year in terms of the purchase price multiple. And that includes a secure portfolio, which I heard you say normally takes -- comes in on at long multiples. So, 4% decline compared to I think was it 7% or 11% -- 7% on the non BK side.

So would it be fair to say that you see maybe more stabilization on the BK side than you are on the core? And if that's the case, should we expect that to have -- for you to be deploying more capital on that side of the business and that having a positive effect on the cash collection issue?

I don't think that we see enough of a difference in the behavior of the bankruptcy in core markets to say that. I think that both remain highly competitive. Pricing trends in both I would say are roughly the same from Q4 to Q1.

There are some moving pieces there between the observation points that you describe. Each portfolio has different age and cash flow dynamics. And especially this most recent purchase that was included in the bankruptcy acquisitions for Q1 had a lot of very mature cash flowing accounts in it. So I don't think -- I think it's probably premature to make a statement like you suggested.

That's fair. If we look at obviously the bankruptcy trends now, it was back up at 47% of purchases in the first quarter, but again, that was an abnormal -- a larger than average acquisition at the BK side. But that's up, obviously, from the share that it had been in the back half of 2013. And obviously, as you disclosed before, the cost to collect on the timing being an issue, obviously, is significantly lower.

Can you give us any color -- I mean not quantitative -- on where you expect that mix to shake out? Because obviously it does affect pretty significantly what we'd anticipate for deltas in cash collection cost. They'll be on the internal legal, which obviously you're investing significantly in.

No, I understand your modeling challenge there. But of the markets that we're in, bankruptcy tends to trade in larger chunks. Mike Petit, who runs that business, continually describes it as very lumpy. And whether we win or lose a couple of transactions in the quarter can really change our outcome over the ensuing period.

It's really all going to come down to a deal-by-deal basis and what we win and what we lose over the course of 2014. And I wish I had more clarity for you than that, but it's really just the way it's playing out.

Thank you. I've got one more on kind of the Europe. Not Aktiv specifically, but you give some color before -- when we look at the UK versus other areas of Europe, there has been, or had been, some more flow of capital into some of the regions. Basically, people chasing some of the returns that were available over there versus in the US.

Has anything changed on that front? Has there been more flow into, say, the UK? Is that -- has the competitive dynamic in that market shifted relative to some of the others? Any color there would be useful, thanks.

I think that the markets that Aktiv has been participating in there for the most part are all competitive. And we see multiple qualified, both in terms of operating experience and in terms of checkbook, bidders on virtually every deal that would be looked at. So, there's no lack of competition over there. I don't know that the competition dynamics have shifted measurably over the last few quarters.

Okay, thank you.

David Scharf, JMP Securities.

Thank you. Good afternoon. I apologize if some of this has been asked already. I hopped on later.

First was more just quantitative. I think there was a discussion surrounding average payment size and some of the scoring metrics. Did you actually give a figure for the increase in average payment size? I think you provided that.

I did. It actually went down by a percent, which is the first time since Q3 of 2012 we had the decrease. So even though it was only 1%, it was directionally different. But again, we thought the better measurement was to go through this, how the same score of people look across time, and that would take out some of the noise and that looked pretty encouraging.

Got it, got it. Steve, it's a tougher question to answer, but as we think about how much so-called pent up supply is residing with the banks in the US while they rate some regulatory clarity, I'm just curious what you're hearing either anecdotally from the sellers, or just industry professionals, about whether the banks have pared back outsourcing to third party contingency collection agencies as much as they've pared back from debt sales.

And maybe in a sort of a follow on, have they actually increased the amount of outsourcing to the point where a lot of the liquidations that otherwise would have gone your way are actually already being absorbed.

I don't think we're in a position to give a good call on that. I think that some of the issues that are preventing debt sale are also causing concern with placing accounts for agency collection. But we're simply not, I would say, in that intelligence loop to have a fantastic read on it. And it's, in our particular situation probably made a little bit more opaque by the fact that we use no collection agencies, and so our relationships there aren't particularly strong.

Right, right. Okay, thank you.

Bob Napoli, William Blair.

I just wanted to get a little color on your Texas call center, the transition of accounts from the Philippines to that call center. How has the transition of the accounts gone? Has there been any issues with that? And then how is the productivity?

And then separately, just on a collector's side, has there been any change in turnover rates?

So, we're happy. It's gone very smoothly and very well. So kind of a seamless transition. Hiring went very well, and we're pleased with productivity.

We normally would look at the productivity relative to other call centers who started up and make sure that they're sort of on that same path. Dallas is ahead of the other startups we've had, but I'm not sure that's indicative of anything other than they're working the Spanish portfolio, which may have been worked in a lighter manner prior to them taking it over.

So, we're not altogether positive, but we're certainly pleased. The numbers look [good] according to [new standpoint].

From an attrition standpoint, things just continue to trend the right direction.

Is there anything you're doing to improve -- that has been helping improve attrition?

We work very hard at creating a great environment that people want to show up to every day and that they're going to be enthused about working in. So that's an ongoing work in progress.

Okay. And then just, Steve, I know you guys have a lot on your hands with closing two acquisitions, but I just, given -- and you're going into a lot of new markets. But are there additional -- I mean at this point, are you even considering looking at additional products or markets, or are you just totally focused on making sure that these acquisitions get done and are executed?

Well, our first mission, obviously, is to get these deals closed and integrated effectively. But, as you would potentially suspect, not every individual that's here would be the same individual working on getting these deals closed as those that are working on business development concepts.

And because of the long lead time involved in looking at new things, be it a geography or a product type, we're hopefully moving the ball forward on all these things. Getting the deals closed and still keeping an iron in the fire as it relates to being able to assess future growth opportunities.

But as far as really committing the organization and putting it behind something substantial, the vast majority of our efforts are going to closing and integrating these two existing deals.

Then just last question. The paper that you purchased this quarter, is it then -- last quarter/this quarter -- clearly it is a more competitive market. You are paying more. Your operating efficiency is improved. Are you confident that the paper that you've purchased in the last few quarters hits your IRR targets or allows you to meet your ROE targets? Or are you comfortable having a slightly lower target than you've had historically? So just wondered if you could answer that, please.

I think the answer is yes. Over the course of the last 12 to 18 months, we have accepted marginally lower IRRs over time. We think that, again, over time, we're going to be able to peel back some of that, the difference between as-underwritten and as-realized, because of some of the operational strategy changes that we've put in place, including the expanded use of legal collections. But also just the normal enhancements that Neal and his team have generally been able to make over time. We think we're going to be able to continue to push on things that way.

Great, thank you.

(Operator Instructions) Hugh Miller, Sidoti.

I just had two quick follow-up questions. The first one with regards to, previously on the last call, you guys had indicated, aside from the longer-term view of achieving 15% earnings growth, that excluding the Aktiv merger cost, you felt that though still the potential for the Company to deliver on their earnings growth in 2014, but that the timing of the deal closing could obviously sway things.

As you get a little bit deeper into the closing process, do you still feel confident in the Company's ability to deliver 15% earnings growth pro forma this year?

It's still our goal. We are still maintaining that goal of 15% growth for this year. I'll just tell you internally, we're trying to hit that even on a GAAP basis. But if you give it to us pro forma, then that's going to be great.

And then as we look at -- your purchasing activity has obviously gone for one month of the second quarter. But the trend of you guys winning more of your fair share of the deals, any color you can provide and if that's extended into April?

Again, I would not characterize it as a trend. I would characterize it more as a random event that occurs as the result of blind bids, and sometimes you win and sometimes you lose, and we had a little more successful than usual quarter in Q1. I would characterize Q4 as one of those where we had a little less successful bidding experience.

I don't think it signifies anything other than we were on the right side of a few basis points a couple more times in Q1 than we were in the prior quarter.

Okay. And then was there any noticeable difference in the yields on those purchases for Q4 relative to Q1?

No. I think that you characterize them as both competitive, but not changing dramatically from Q4 to Q1.

Okay, understood. Thank you.

I'm showing no further questions at this time. I'd like to turn the call back to Mr. Fredrickson for closing remarks.

Okay, if there's no further questions, that's all we have. I want to thank everybody for joining us this quarter, and we look forward to speaking with you again three months from now.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.