PRA Group Inc (PRAA) 2014 Q4 法說會逐字稿

Good afternoon, and welcome to the PRA Group Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time.

(Operator Instructions)

As reminder, this conference call is being recorded. I would now like to turn conference over to Ms. Darby Schoenfeld, Director of Investor Relations for PRA Group.

Thank you. Good afternoon, everyone, and thank you for joining us. With me today are Steve Fredrickson, our Chairman, President, and CEO, who will give you an overview of the quarter, and talk about the current market environment; Kevin Stevenson, Chief Financial Administrative Officer, Treasurer, and Assistant Secretary, who will take you through our financial results; and Neal Stern, Executive Vice President Operations, who will give you an update on our core operations. Geir Olsen, Chief Executive Officer of PRA Group Europe will also be available to answer questions during Q&A.

The press release announcing our fourth-quarter results was distributed this afternoon. The earnings release is available on the Investor section of our website at www.PRAGroup.com. A replay of this call will be available shortly after the conclusion. 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 Group 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 but not limited to, statements regarding PRA Group or its Management's intentions, expectations, plans, or projections for the future; receivable sellers returning to the market; future contributions of Aktiv Kapital, and the timing and amount of future integration expenses; or our ability to fully realize the expected benefits of the acquisition; any of PRA Group's subsidiaries' ability to contribute to earnings; our ability to increase market share or operational efficiency; potential impact of further law-making, rule-making, or regulatory activities on our industry's practices; our ability to grow our Canadian and European operations; future purchasing volumes; future revenue trends in our insolvency business; future gains and losses related to foreign currency exchange; future tax expense; PRA's growth prospects; or our ability to realize any tax benefit from restructuring our European business.

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 Group or its Management. These include the risk factors and other risks that are described from time to time in PRA Group's filings with the Securities and Exchange Commission, including PRA Group'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 time they are made. Except as required by applicable laws or regulations, PRA Group has no obligation to update any forward-looking statement to reflect events or circumstances that occur after the date they are made, whether as a result of new information, future events, or otherwise.

All comparisons mentioned today will be between Q4 2014 and Q4 2013, unless otherwise noted. We will be discussing certain financial information that includes non-GAAP financial measures in our call today. Certain financial figures are non-GAAP numbers, which exclude the cost associated with the Aktiv Kapital acquisition that were recorded during the three months ended December 31, 2014.

Please refer to our fourth-quarter 2014 earnings release issued earlier today, and our current report on Form 8-K filed with the SEC for the most directly comparable GAAP financial measure and a reconciliation to the non-GAAP financial measure discussed.

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

Thank you, Darby. I'd like to start out today giving you some high-level financial results and some quick general comments.

Operations were extremely strong. The bottom-line results of the quarter were impacted significantly by tax and foreign exchange, so Kevin will spend more time with you helping you understand that part of the income statement.

In Q4, PRA Group continued to produce strong operating results, and demonstrated the power of our geographic diversification, with a record investment performance. Specifically, cash collections were $373 million, up 34%.

Collections helped drive net finance receivable revenues up 32% to $223 million. Fee income increased 41% to $22.8 million, driven by an out-sized quarter from CCB. Combined, total revenues increased 36% to $251 million. Total investment across the PRA Group enterprise totaled $314 million during the quarter, contributing to a 2014 investment of $1.47 billion, including portfolios acquired in the Aktiv Kapital acquisition.

This quarter, our business leaders and employees produced the type of exceptional results that we seek. Operating income increased 40% to $110 million, from $78 million last year; and our operating margin was 43.8%, versus 42.4% in the same quarter last year.

Due to a combination of European tax and extraordinary FX movements, some related to the restructuring underway in Europe, and most of the impact non-cash, EPS grew by 2% in the quarter to $0.93 from $0.91. Our corresponding return on equity was 20.2%.

This call marks the one-year anniversary of our announcement of the Aktiv Kapital acquisition, the largest and most comprehensive acquisition we've done in the history of PRA.

When we first announced the transaction, we said it would be transformative, and give us not only an increase in receivables, cash collections, and revenue, but also a platform and Management team to leverage growth and expansion in Europe. This has certainly proven to be true.

Investment in Europe since our acquisition in the third quarter, and including PRA's investment in Q1 and Q2, was $206 million. In the first six months of the year, prior to the acquisition by PRA, Aktiv Kapital purchased $98 million in portfolios.

This would have brought total annual European investment to $304 million, a very nice addition to bolster our previous purchasing opportunities.

Cash collections in Europe exceeded $167 million during the year. If you add the $183 million in cash receipts Aktiv Kapital collected in the first six months of the year prior to the acquisition by PRA, the annual amount would have been $350 million, another nice addition.

But what we were most enthusiastic about was the ability to leverage the platform, and utilize the skill of our European Management team to expand.

During the fourth quarter of 2014, that expectation came to fruition, when we were able to make an investment to purchase and collect on portfolios in Poland. This deal was specifically structured to help us mitigate the risk of entering a new market through the significant co-investment of two very experienced servicers, with whom we are delighted to be working.

We will continue to build upon this foundation we have in Europe, and it is our goal to not only increase market share in our current markets, but also continue to identify new markets for us to enter.

Our newly acquired UK IVA team facilitated a Q4 investment of $11.6 million in the European insolvency market. This provides additional evidence that our increased diversification is allowing us even more opportunities to invest capital globally. These types of acquisitions fit with our long-term strategy, and help position us to become the largest global debt buyer.

In North America, both the core and insolvency markets continue to be highly competitive. However, I'm very pleased to say that PRA Group deployed over $145 million in North America during the quarter, purchasing $120 million in core, and $25 million in insolvency portfolios.

Core purchasing continued to be strong, with the second-highest quarter of purchasing ever. Chris Graves and his team accomplished this in an environment of constrained supply, with increased regulatory requirements and historically low charge-off rates.

Insolvency purchasing is still challenging, as bankruptcy filings in the US remain depressed, and supply continues to be muted as a result. However, this market tends to be more cyclical than core, and the signs lead us to believe that we are likely approaching a trough.

The US bankruptcy market is still a very important part of our overall insolvency business, and we believe that our data set, diligent underwriting, and ultra-efficient in-house servicing allows us to operate profitably through any market condition.

The regulatory environment in the US remains at the forefront of our focus. The guidelines set forth by the OCC regarding debt sales have outlined changes that we believe many sellers are in the final stages of adapting to.

We anticipate further OCC clarification regarding a number of these guidelines, as sellers and buyers alike work to fully understand all aspects of these items.

PRA Group success is something that Kevin and I, as founders, are truly proud to be a part of. As we look ahead, the prospects are promising. We stand ready to take our fair share of the US core and insolvency markets when supply returns to normal ranges, and our European Management team is working hard to increase our market share and geographic reach.

Our focus has always been, and will continue to be to deliver long-term shareholder value.

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

Thanks, Steve. This was a strong quarter for PRA Group from a cash and operational perspective. As anticipated, we incurred some one-time expenses in the quarter associated with the restructuring effort I mentioned in the last call.

However, the costs within this quarter were less than we'd originally expected. Expenses associated directly with the Aktiv Kapital integration and restructuring effort were $2.4 million, or $0.03 per diluted share. We expect more of these expenses to occur in the first quarter of 2015 in an amount of approximately $2 million to $3 million.

We also incurred an unusual impact to our tax provision, driven primarily by the weakness of the Norwegian kroner against the euro. I'll provide some more information on this later, but the currency moves we've seen in the last several months created a situation where we incurred approximately $8 million US equivalent in additional tax expense in Norway.

This negatively impacted the EPS by approximately $0.16 per diluted share. However, we are not going to pro forma this from our EPS.

Importantly, we are currently in an NOL, or net operating loss, position in Norway from a tax perspective, so this is currently a non-cash item.

Additionally, assuming the existing structure of the organization that gave rise to this event remains as is, the event that led to the negative tax impact could continue or end up reversing themselves.

In other words, it's possible we could have a positive impact in the future if currencies move in the other direction.

But as I stated, the quarter was strong in terms of cash and operations. In summary, all on a GAAP basis with no adjustments, cash collections were up 34%, revenues were up 36%, net income -- income from operations were up 40%, income before taxes up 27%, and net income after taxes up just 3%.

Now let me provide you with some details on our financial results for the quarter. Note that when we talk about insolvency, this includes individual voluntary arrangements, or IVAs, and trust of deeds in the UK, consumer proposals in Canada, and bankruptcy accounts in the US, Canada, and the UK.

Cash collections for the quarter increased 34% to $373.4 million. North American core collections were $185.9 million. European core collections were $84.4 million. Insolvency collections in both North America and Europe were $103.1 million.

Collections on fully amortized pools were $17.8 million during the quarter, up slightly from $17.1 million in 2014 Q3, and $9.8 million in 2013 Q4.

Revenues increased 36% to $250.7 million, including $222.7 million in net financial receivables, or NFR revenue; $22.8 million in fee revenue; and $5.3 million in other revenue.

NFR revenue for the quarter was comprised of $177.3 million in core portfolio revenue, net of allowance charge of $1.9 million. Net core portfolio revenue increased 53%, mainly due to the addition of our European business. For the year, core NFR revenue was $597.7 million, an increase of 35% over last year.

NFR revenue also included insolvency portfolio revenue of $45.3 million net of an allowance reversal of $905,000. Net insolvency portfolio revenue decreased 14%.

For the year, insolvency NFR revenue was $209.8 million, a 5% decrease from the same period last year. We do anticipate a continuation of this trend throughout 2015.

Fee revenue increased 41% to $22.8 million, from $16.1 million. The increase is mainly due to the out-sized quarter from CCB business that I mentioned in the last call. This type of performance from CCB is made possible by our successful efforts to build a pipeline of clients and cases over the past several years.

Moving on to expenses. Operating expenses were $140.9 million, up $34.4 million or 32%, largely due to the addition of PRA Group Europe's expenses.

In addition to those expenses, compensation and employee services increased as a result of incentive compensation and normal pay increases. Our operating income was $109.9 million, up 40%, and our operating margin was 43.8%.

Below the operating expense line, we reported a foreign-exchange loss of $2.9 million. Although this line item is nominal, we would like to explain how currency changes can impact us. This will also help you understand what drove the additional $8 million in tax expense in Norway that I mentioned earlier.

First, at the end of any reporting period, the income statement is converted at the average exchange rate over the entire reporting period, and the balance sheet items are converted at a spot rate on the last day of the reporting period. The difference between the two is booked as a foreign-exchange gain or loss.

If this occurred because we have an entity that has operations in a currency that's different from its functional currency -- for example, collecting cash on a portfolio in Germany that's euro-denominated, but held by a UK entity with the pound as its functional currency, this gain or loss is called re-measurement, and would be reflected in the income statement.

If however the conversion occurs because we're simply combining financial statements for the purpose of reporting, the gain or loss is called translation, and is reflected on the balance sheet in other comprehensive income, or OCI.

Mitigating this effect is part of what restructuring that's been under way. Where feasible, we have moved or will move assets into entities that have the same functional currency as portfolios. This will allow us in most cases to borrow, purchase, and collected in the same currency -- the entity's functional currency -- thus mitigating some of the foreign-exchange gains and losses on the consolidated income statement.

Secondly, however, the relative strength or weakness of any of our reporting currencies will impact our financials. As we've experienced lately, the stronger the US dollar versus other currencies, the less revenue and expenses reported from PRA Group Europe, and vice versa.

Moving on, interest expense was $13.5 million, an increase of $8.6 million versus the same period last year. Non-cash interest expense related to our convertible debt was approximately $1 million in the quarter. Our effective tax rate was 49.7% for the quarter, significantly higher than last quarter, and our expectations for this quarter.

Some of our European operations conduct business in one country but file and pay taxes in another. For example, we have a Swedish entity whose functional currency is the euro, but is tax domiciled in Norway.

In order to file taxes for this entity, we must re-measure the operations from euro into Norwegian kroner, or NOK, and incur foreign-exchange gains or losses in taxable income for this entity, according to the process that I explained before.

In Q4, this type of situation created a significant foreign-exchange gains, causing an increase in our tax liability of $8.2 million. However, since the gains are not reflected in our consolidated financial statements, since this was done for tax purposes only.

As I said in the beginning of my comments, the additional tax expense is currently a non-cash item, since we have significant NOLs in Norway. For now, no cash will change hands in this matter. It will simply reduce some of our NOLs, which may or may not have been used otherwise.

Given the current structure of our European entities and owned portfolios, the situation that drove this still exists, although to a lesser degree since we moved assets to align currencies in the restructuring.

As a result, more weakness in the Norwegian kroner, or NOK, could drive additional tax liabilities. Conversely, if the NOK gained back lost ground, these effects would be in reverse.

Moving on from the tax discussion, our GAAP net income margin was 18.7%. Net income margin for the full year was 20%, compared with 24.1% for the full year 2013, and 21.3% for the full year 2012.

Moving on to the balance sheet, cash balances ended the quarter at $39.7 million, compared with the $162 million a year ago. NFR balance was $2 billion, up from $1.24 billion at December 31, 2013.

During the quarter, we re-purchased $33.2 million, or approximately 574,000 shares of common stock, at an average price of $57.79. From January 1 through February 27, we re-purchased 1.25 million shares of common stock, at an average price of $52.85. This leaves approximately $20 million left on our existing share re-purchase program.

Net deferred tax liabilities were $255.6 million at quarter end, compared with $210.1 million a year ago. The increase was largely the result of accounts acquired from Aktiv. Borrowings totaled $1.48 billion at quarter end.

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

Thanks, Kevin. In the fourth quarter, our domestic call center collection staff increased their cash collected per paid hour by 1% over the prior year, as we collected just under 2.6 million domestic payments.

This was a 2.4% increase over the prior-year payments, and our average payment size increased by 3%. This was the largest year-over-year increase in average payment size in several years.

Because average payment size can be impacted by a variety of short-term market and operational conditions, we believe the more insightful metric to track is the amount of cash collected per acquisition score point, which increased by more than 15% over the fourth quarter of 2013.

The increase was driven by purchases made over the last few years, and a 30% increase in collection performance from our call centers.

Total legal cash collections were up by $4.8 million, or 6% over last year. External legal collections represented 55% of that total, and cash collections were 2% higher than last year.

Internal legal collections were 45% of the total, as cash increased by 12%. Our total spending on court costs of $15 million was 22% lower than the same quarter last year. The reduction in court cost reflects lower inventory levels, in part driven by improved call-center performance, and some operational issues related to newer requirements for choice of court venue and some incremental documentation.

While we expect the operational issues to be resolved rather quickly, the inventory issue is expected to be longer term.

Court costs in the coming quarters will likely be higher than they were in the fourth quarter, but remain just below prior-year levels. Obviously having an increase in call-center collections is our strong preference.

Legal collections remains our option of last resort, and only occurs after customers have not responded to letters or calls, but appear to have the means to pay us.

Examining our collection metrics in Europe is more difficult to do in aggregate, because the individual countries have such different mixes of legal and call-center collection contributions.

Across the European countries where we have servicing platforms, total cash collections per full-time employee increased by 7%. The total number payments was up by 19%, and average payment size decreased by 10%.

These last two metrics were most heavily impacted by a mix change that favored the UK market relative to the other markets where fewer large payments are made via the legal collection process.

Integration is going well and remains a top priority. We've maintained good momentum across markets. Efforts to leverage scoring and segmentation insights, along with the Daiwa strategies that have been effective for PRA in the US, are showing very positive initial effects on collection results in Canada, the UK, and Spain. We expect to continue to realize those benefits in the coming year.

Now I would like to turn the call back over to Steve.

Thanks, Neal. There's one final topic I want to address today in regards to regulation. The CFPB has issued civil investigative demands to many companies that it regulates, and is currently examining practices regarding the collection of consumer debt.

We are currently responding to such investigation regarding our debt-collection practices by providing documents and data to the CFPB. We have subsequently discussed with the CFPB a proposed resolution involving possible penalties, restitution, and the adoption of new practices and controls in the conduct of our business.

We have provided comments and engaged in discussions which have included a number of face-to-face meetings with the CFPB staff. In these discussions, the CFPB has taken positions with respect to legal requirements applicable to debt collection practices with which we disagree.

If we are unable to resolve these differences through ongoing discussions, we could become involved in litigation. Due to the ongoing discussions, we will not be able to comment any further on this topic.

We remain committed to setting the highest possible standard for compliance in the collection industry, and we look forward to successful conclusion of our discussions with the CFPB.

Now I'd like to open the call for collection -- for questions. Operator?

Thank you.

(Operator Instructions)

Bob Napoli, William Blair

Thank you, and good afternoon. Kevin, the tax rate for 2015 -- what would you expect that to be, and assuming exchange rates are stable?

Right that's the big assumption, right?

Right.

We are currently looking in the -- actually in the 35% to 37% range, somewhere in there. It's interesting, if some of this event that we saw in Q4 reverses, that would obviously have a downward impact, and vice versa if the NOK came -- further weakened.

But your question was if all things remain equal, so we're thinking more the 35% to 37% range.

Okay. Then the purchases. The move into Poland, what led to that opportunity? I think just looking at data in the market, and it sounds like there was a significant purchase, of which part of it was in December, a part of it was in January? Is that right?

This is Geir here. We have been looking at the market for a period of time, and saw that Poland as a market in itself is interesting, given its size and relative maturity in terms of debt purchasing.

We've been involved in a couple of other transactions that did not materialize. In this particular one, we worked with two other investors that also service our portfolio, and invested together with them, so we were all incentive-aligned.

We also structured the deal in a way that gave some down-side protection. Yes, there are two tranches of it -- one that happened now in Q4, and the next one in this quarter.

Where are you seen the opportunities in Europe today? Your one competitor in the US made a large acquisition in Spain. What -- are there markets you're more interested in than others, and what new markets would you have interest in?

We are now present in eight markets, nine markets now, with platforms around Europe. We follow those closely. I think with the addition of Poland and Italy that we have now strengthened our presence over the year. We think we are present in most of the -- where the biggest opportunities are, so we will see more growth from existing markets.

However, we will always been in the outlook for new markets entry where we see the right opportunity and a market that gives us the long-term potential that we're looking for

Okay. Last question, and Steve you may not be able to give me an answer, but just on the CFPB. How long have these discussions -- they had a paper out at the end of 2013 asking for comments, and we've not heard anything, or much back since then obviously. Encore and yourselves have been in discussions.

What types of -- I don't know if you can give some feeling on what types of disagreements. Would you expect a lot of regulatory costs to be included in 2015 related to these discussions?

Well Bob, I think really the only thing I can provide any color on is just as it relates to the formal rule-making process. There were preliminary rules that were communicated. There was a request for input. We, along with a lot of industry providers, I think provided input at that time.

At this point, I think we all await anxiously that formal rule-making to occur. With regards to the specifics of the other matter, I mentioned we just decided that we are not going to get into it at this point.

Great, thank you.

Hugh Miller, Macquarie.

I wanted to start off one with the legal collection costs in the quarter, I think came in at around $15 million. I think you guys had mentioned anticipation of closer to $25 million, which would, if I'm looking at it correctly, would indicate that you guys maybe placed less accounts into the legal channel this quarter than you may have been anticipating previously.

Is that the case, and if so, can you just give us a little color on what's going on there, and how should we be thinking about that cost going forward and the level of placements?

Sure. The call center performance was up pretty significantly in the quarter. Based on what I'm seeing from consumer behaviors related to how people are paying in terms of average payment size and relative to the acquisition score, it looks pretty positive.

To the extent that people pay us in our call centers, less accounts will fall back into the legal channel. From our perspective, that's great news. We would much prefer to collect it in the call center, so that's good.

During the quarter during Q4, we did have a couple of bumps in the road related to choice of venue and some incremental documentation, so not all of this was an inventory problem. Some of this was operational in nature.

We believe we've sort of straightened that out. We would expect, as I said in the script, that we would be probably just below prior-year levels, but certainly up from where we were in Q4.

Okay, that's helpful. Another question, just with regard to -- we're seeing some news out of the Crawford case with Chapter 13 bankruptcy cases, and some information about the communications with lawyers, and potentially shifting towards the least-sophisticated consumer role.

I was wondering if you could talk to us briefly about what type of influence you anticipate that might happen, or have an impact on, as you think about the BK market going forward?

Hugh, I'm not going to dance on that one. I don't have an intelligent answer for you. I'll pass, and we will work through Darby to try to get an appropriate answer to the investment community out through her.

Sure. I appreciate that. That's not a problem at all.

Then the other question I had was just with regard to -- we were hearing a little bit, as well, from a credit issuer out there with an issue with vicarious liability them being held accountable for the actions of one of the third-party contingent collectors.

I wanted to know if you guys were hearing anything about any difference in preference between placing versus selling, or the number of partners that these issuers are working with, either from a sale or a placement standpoint? Have there been any changes there, or is it status quo?

I think that?s too soon to tell in terms of that decision trickling through to behavior. But certainly as somebody on the debt purchase side of things, our interpretation is, and we hope that the issuers share this with us, is that it's going to be safer for them from a vicarious liability perspective to sell them than to place.

Okay, that's helpful. Just one last one question I had. We were hearing about a credit issuer who has been sidelined in talking about circling around to do some audits, which isn't something that they had done prior.

Was wondering if that has been the case for you guys, and if you've been contacted about preparing for an audit on the horizon, and what that might mean?

I think it's safe to say that for those parties that have been out of the market, that for some time, and it certainly includes current times, we have seen those parties take significant action that would indicate that they are preparing to get back into the market. Whether it is audits and purchaser reviews, or other types of engagement, we continue to see that.

Okay. Appreciate your time, thank you.

Thanks.

Mark Hughes, SunTrust.

Thank you very much. When you talked about the parties coming back to the market, is that plural parties?

Yes. Our anticipation is that we hope to see one, if not two, come back into the market this year.

Right. And so multiple parties are taking concrete steps to move forward?

Yes, I think everyone is taking some type of action that would make it appear as though they are headed back into the sale market.

Then the fee business was quite strong this quarter. Could you maybe give us sort of the incremental margin or EPS impact from that fee business, whether that's recurring, whether any -- maybe I'll phrase it this way. Were there any non-recurring benefits or gains that happened this quarter that you might not expect to continue, and what the fee pass impact of that might have been?

Sure, Mark. I've been waiting a long time to say this. Actually, our fee businesses, believe it or not we are modestly accretive to our operating margin this quarter. The CCB business really had a great quarter. Again, I actually included that in my script just because Steve Roberts runs that group. He and a gentleman that works for him named [Bob Reya] have done a really good job building the pipeline.

But CCB's always good to be lumpy. It's just the nature of that business. Hopefully what Steve and Bob are accomplishing is fulfilling some of the gaps between those lumps. I think I talked about that a few quarters ago.

So yes, to answer your question, it was actually accretive to margin modestly. There was a larger transaction in the quarter. Hopefully, just actually all the (inaudible). Look at government services, for example. Steve's done a really nice job with that one, as well, moving margin up. He's forecasting it to increase modestly as well next year. I think the fee businesses are humming along pretty well right now.

And then you don't want to quantify how much is the unusual [events] in the quarter versus what might be more sustained, just the performance?

The thing to think about on that CCB business is we have a very low fixed expense. As these cases pay off, we bring in cash and revenue. The payouts are very difficult for us to predict in a precise manner. We do a better job of it on a year-over-year basis.

Kevin talked about that pipeline-filling exercise that we've been working on. What we'd like to see is steady, if not steadily growing year-over-year revenue out of CCB. It's always, though, going to have substantial quarterly swings, one way or the other.

Can you talk about the portfolio pricing and supply in the US market? You obviously did quite well this quarter. Was your -- you just happened to win more? Was there more opportunity, more flow of opportunities? How did you perceive pricing?

I think we continued to perceive pricing as competitive. The fact that we bought more didn't signal that we saw a fall-off in pricing. It was just one of those things that we've explained year after year.

Some quarters we just hit on a few incremental deals and some quarters we hit on a few less, and obviously that shows up in our buying numbers.

The other thing is, though, the longer-term trend in the US is definitely toward a consolidation in the market and fewer competitors. We believe we're going to be able to continue to inch up our market share as a result.

Would you say there was more supply this quarter?

I'd say it was difficult to tell. It was probably, compared to Q3, it was probably steady to maybe it was up a little bit.

Kevin, you had made some point about the trend in insolvency. It was part of your script. I did not quite catch exactly what you were saying the trend in insolvency that you expected to persist. What was that exactly?

We've had a -- year over year we had a 5% reduction in revenue from the insolvency group. I just felt that we should throw it out there. We probably figure that trend's going to continue into next year.

Okay. I think that's it. Thank you very much.

Thanks.

[Doug Reiner], JMP Securities.

Can you give us a sense of where active operating margins performed this quarter versus when you bought it?

I actually don't have that data in front of me. Do you want to talk about that if I can dig it out?

Fairly steady.

I would say it's fairly steady, but again, I didn't bring that data with me for the call.

Okay. Then principal amortization included a net allowance charge this quarter.

It did, yes.

Can you talk about what drove that?

Yes, it's been in a reversal situation for quite some time. Just in general -- again, I didn't bring it by portfolio in front of me -- but just in general we've got situations where some of the older pools have really, really out-performed.

When that happens, these yields get very high, and they become very sensitive. Just a little bit of trimming of cash collections here and there can generate allowance charges. I think that take-away, maybe the point of your question is, the take-away is that these are very profitable portfolios that I actually booked allowance charges on. It's because of the asymmetrical nature of the accounting.

Again, take away nothing bad there. It's just that the yields got very high.

Got it. Then last one. You mentioned the $0.16 EPS impact from FX head winds on the tax line; but would it be fair to also give you some credit for the foreign-exchange loss on the other income section? Or is there some cross-over benefits there between that line and the tax impact (inaudible)?

Actually, that's a really good question. I didn't call it out. In my discussion of FX rates, I went through the first item and then the second one. The second one was just the general strength of the US dollar.

On the tax matter, it was very specific, very identifiable, and I felt comfortable talking to guys about that, that $0.16. There is another amount of money that I feel less comfortable just talking about, but it's the general strength of the dollar.

What you've seen is that from an NOI perspective, the euros and the NOKs and everything else earned over in Europe just translated to less dollars here in the states. You're correct, there was additional head wind of some cents inside our Q4 earnings from that head wind, as well.

Great, thank you.

Yes.

Bob Napoli, William Blair.

Thank you. I just wanted to follow up. First of all, what is the size of the NOL that you have in Norway?

I don't have that in front of me. It's probably in our 8-K. It?s probably in the -- right? It would be in the pro forma, buried in there. You think so?

Okay. Then the flow through the AOCI on the balance sheet, just trying to understand how that -- that's the net effect -- the change in the AOCI of the balance sheet versus the -- but all that didn't run through the income statement?

No. What went through OCI, think of it -- and I know all of us accountants on the call are going to hate this, but think of it as equity ownership. If I own a Company like we own PRA Europe, once I've got a statement over there, I'm going to translate that into US dollars.

When I do that -- again, as long as there's no -- I don't see cash coming back from Europe, there's some additional tax rules in the United States. But once I -- again, we don't forecast that right now -- when I take that European income statement and balance sheet and translate it to the United States, that goes through OCI.

Okay.

I can -- if that's not a great accounting primer, I can walk you through it at some point.

Then just are there things -- I know you can't talk Steve about the CFPB, but I just wondered if you can say if the things that are discussing, and the way they look at things versus the way the industry looks at things, if that has -- if it?s just -- it can have a material effect on how the business is operated going forward, or is it really down to the any some type of a penalty they want to charge on a look-back?

But are the changes that you would expect to come out of any discussions on an operating basis on a go-forward basis, are they reasonable and manageable?

Bob, without going back on my original statement about getting too granular on this, I would say that there are many items that the large, more sophisticated debt buyers can implement on an operational basis, really without missing a beat, and it would be good for everybody. There's probably other things that we're discussing where we're having a harder time finding a meeting of the minds.

Okay. The IVA business, the $11 million of purchases. Is this a business where it's going to be -- I know that Europe itself can be very lumpy. You had a very large purchase out of Poland. It affects last quarter and next quarter.

Is the IVA business that way, as well? Is it going to be very lumpy? Is $11 million something you would expect is like an average quarter that you expect in the future, or is that a lot more than you had lumpy favorable?

Geir can correct me if I'm wrong, but I think for both core and insolvency buying in Europe, I think we're going to be much more comfortable talking about how we come out on a year-over-year basis than a quarter-over-quarter basis, given the size of the markets and the size of the deals that are there.

Literally there's some markets where we may only see one or two sizable deals in a year. You can get these very substantial swings on a quarterly basis, but that's one of the reasons why we're in eight or 10 or 12 countries. It tends to diversify itself out over a longer period of time

What is the market? Geir, maybe you could talk about what the volume, the flow in the market is? What do you see as far as debt coming to market in 2015?

Do you expect, if you would -- I know it's not a perfect science, but do you think there will be as much or more than you had in 2014, or some of the pressure on the banks causing an acceleration in debt coming to market? Would you expect more flow in 2015 than you saw in 2014? What would cause that?

First of all, it is a -- it is hard ?- and there's no exact science to this. There's no official statistics. As we've discussed many times, it is very bulky.

Having that said, we're expecting volumes in similar size as what we've seen this year. Now I'm talking more the investment volume. We're seeing a shift in mix to more higher-quality debt coming to market.

While the face value may be a little bit lower, you see more higher-quality debt coming in, in most markets that they sold off some of the older stuff, and they're moving up the food chain in some of these markets. So similar sizes to what we're seeing this year.

Is there more or less competition? Obviously that probably varies by market?

Yes, it is across all markets in Europe, it is quite competitive. You have a mix of competitors in different markets. You will have some pan-European players. You will have a few local players in each market. Then you will have some funds that go in and out as they see the opportunity. With easier access to capital, we're seeing continued strong competition across all markets.

Thank you, and then last question. Steve, does the discussions with the CFPB make you pause until you get some kind of a conclusion as far -- or slow down the amount of purchases that you would make over the next several months?

No, not in the least.

Great. Thank you very much.

Mark Hughes, SunTrust.

I think Bob just asked my question, so I'm all set. Thank you.

Thank you. There are no further questions in queue at this time. I'll turn the call back over to Steve for closing remarks.

Great. Thank you all for joining us for our full-year 2014 earnings call. We look forward to speaking with you again next quarter.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.