PRA Group Inc (PRAA) 2019 Q4 法說會逐字稿

Good day and welcome to the PRA Group conference call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Ms. Darby Schoenfeld, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining us. With me today are Kevin Stevenson, President and Chief Executive Officer and Pete Graham, Executive Vice President and Chief Financial Officer.

We will make forward-looking statements during the call, which are based on management's current expectations. We caution listeners that these forward-looking statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. Please refer to the earnings press release and our SEC filings for a detailed discussion of these factors.

The earnings release, the slide presentation that we will use during today's presentation and our SEC filings can be found on the Investor Relations section of our Web site at www.pragroup.com. Additionally, a replay of this call will be available shortly after its conclusion and the information needed to listen is in the earnings press release.

All comparisons mentioned today will be between Q4 of 2019 and Q4 2018 unless otherwise noted. Additionally, you will find the Q1 2020 estimated revenue model based on the portfolio as of December 31, 2019, as an appendix to the quarterly conference call slides on the Web site.

I'd now like to turn the call over to Kevin Stevenson, our President and Chief Executive Officer.

Well, thank you, Darby, and good afternoon, everyone. And thank you for joining our conference call. In less than a month, I will reach my 24th anniversary as a founder and a leader of PRA Group. My journey began with four people in a one-room office operating a single folding table. I'm gratified that we have grown into one of the largest acquirers of non-performing loans in the world, conducting business over an expansive and expanding geographic footprint and I'm certainly excited to be with you today to talk about our 2019 results.

For the past several years, we have openly, directly and sometimes painfully provided our opinion on how we perceived the European market and how we believed that pricing there was irrational and unsustainable. We also provided our opinions on appropriate industry leverage as well as the resulting tangible equity position. We did so because this situation with something that we have seen multiple times in our past. As a result of that experience, coupled with our long-term focus, we chose to be patient. We took that time and concentrated on our operations and invested in our markets instead of scaling back or withdrawing.

Being geographically diverse, we invested heavily in NPL's in markets such as the U.S. where pricing was appropriate but also made selective investments in Europe to keep our data fresh and our people engaged. This brings us to 2019 where our focus on the long-term and our relentless discipline delivered record results across a number of measures. The first, portfolio purchases were a record $1.2 billion. These results were led by our European business as many of our competitors reduced their NPL purchasing this year in order to achieve lower leverage positions on their balance sheet. In contrast, we were prepared with available funds and we capitalized on the opportunity there investing more than improving returns. Second, portfolio purchases, along with collections, generated by an increasingly efficient platform, produced record global cash collections for the full year.

Third, the record cash collections drove our total revenues over the billion-dollar mark for the first time in our history. And finally, estimated remaining collections, or ERC, finished the year at an all-time high of $6.8 billion. I am very proud of what the PRA team has accomplished over the last three years and the transparency we provided along the way.

I'm confident the actions and investments we're making today will continue to benefit us in the long-term. Moving on to the fourth quarter results. In the Americas, cash collections in core and insolvency were $317 million. This is driven by increases in all of our core collection channels. In the U.S., we continued to increase efficiency with cash collected per hour paid increasing 23% from the fourth quarter of 2018. This has been accomplished through investments in technology, training and digital. Going forward, we will remain focused on continued innovation and improvement.

U.S. legal cash collections continue to grow as we invested at levels consistent with our past five prior quarters. Americas collections outside of the U.S. grew dramatically due to an acquisition earlier this year in Canada as well as some larger portfolio purchases in South America. Total portfolio purchases in the quarter were $141 million. Looking forward, assuming charge-off rates hold steady and overall credit outstanding's continue to increase, we expect to see stable supply and continued solid returns.

However, with the new accounting standard, it remains to be seen if that will drive increased sales volumes or even be a catalyst for sellers to enter the market. We certainly remain hopeful that larger, and earlier provisioning by creditors, as a result of CECL, will drive pressure and additional volumes to market, but regardless of what occurs, we are ready with capital, a respected compliance program and scalable operation.

Moving on to Europe, total cash collections in the quarter were a record $139 million. This was driven by strong portfolio purchases over the past five quarters and increasing efficiency. Portfolio purchases in the quarter were $262 million bringing our European investment levels to almost $600 million for the year. Annual purchases were also more diversified geographically than last year as we bought portfolios, and we bought portfolios, in all nine of our operating markets.

In addition, investments were not driven by outsized portfolios which indicates a broader more general market shift that bodes well for us in the future. The overall NPL market in Europe held steady this year and volumes in the fourth quarter were significant. Similar to the U.S., we see signs that there could be upward pressure on supply in 2020, particularly with some of the regulatory changes there. And similar to the Americas, our European operation has capital and efficient operations that are scalable and ready for volume.

I'd now like to turn things over to Pete to go through our financial results. Pete?

Thanks, Kevin. I'll start with an overview of our results for the fourth quarter of 2019. The fourth quarter capped a strong performance here in the number of metrics for PRA. Total revenues were $269 million, an increase of $32 million or 14% primarily due to portfolio purchasing and yield increases broadly across all geographies. Net allowance charges in the quarter were $13 million compared to $21 million in the fourth quarter of 2018. Operating expenses, which I'll address in more detail in a moment, were $186 million. Income from operations was $71 million, more than double the fourth quarter of 2018. Below the operating income line, interest expense was $36 million, an increase of $2 million, mainly due to higher borrowings used to fund portfolio purchasing.

Net income was $27 million, generating $0.60 in diluted earnings per share. For the full year, total revenues were a record $1 billion, an increase of 12%. Net income was $86 million, an increase of 31%. This generated $1.89 in diluted earnings per share. Cash collections in the quarter were $457 million, an increase of $54 million or 13%. Cash collections in the Americas increased $36 million. This was driven by a 19% increase in U.S. legal collections, a 4% increase in U.S. call center and other collections and cash collections and other Americas almost doubling.

Europe cash collections during the quarter grew by 15% and on a constant currency basis, we're up 18%. The biggest drivers of this growth were higher levels of portfolio purchasing and the performance of recent vintages. For the full year, cash collections were $1.8 billion, an increase of $216 million with the Americas increasing $169 million and Europe increasing $47 million.

Operating expenses in the quarter were $186 million; slightly above the fourth quarter of 2018. Agency fees increased due to the shifting of some expenses from fixed variable in Brazil as well as increases in cash collections primarily outside the U.S. where we utilize third-parties to collect. Legal collection expenses were driven higher by legal collection fees related to the 24% increase in external legal cash collections. Remember that legal collection fees vary with the amount of external legal collections.

Legal collection costs, which are primarily the costs associated with filing lawsuits, we believe that for the near-term, these will remain consistent with recent trends which have been in the low to mid-$30 million range per quarter. Partially offsetting these increases was a decrease in compensation expense in the U.S. as we continue to balance staffing in the call centers with legal collections.

Our cash efficiency ratio was 59.7% in the fourth quarter, a 470 basis point improvement. The ratio was positively impacted by productivity improvements and cash collections from past investment that continue to deliver. For the full year, operating expenses were $745 million, the cash efficiency ratio was just short of 60%. We expect continued improvement in our efficiency ratio this year and are targeting 61% for the full year of 2020.

Estimated remaining collections at the end of the fourth quarter were an all-time high of $6.8 billion with 51% in the U.S. and 43% in Europe. ERC increased over $600 million from the fourth quarter of 2018. Combining cash flow from operations and collections applied to principal and finance receivables, the business generated almost a billion dollars during the year. And at the end of the quarter, we also had $554 million available for portfolio purchasing globally with $431 million in the Americas and $123 million in Europe.

Given our conservative capital position, as evidenced by our low leverage and positive tangible common equity, we also have the ability to increase funding as necessary, take advantage of large portfolio acquisition opportunities as and when they arise. We now have final guidance regarding CECL accounting and would like to provide you with some details on how that will impact our financial statements going forward. We've worked as an industry in consultation with the FASB and the SEC to develop the accounting methodology that best presents our primary business of acquiring and collecting non-performing loans. The fundamentals of the business haven't changed and we attempted where possible to maintain consistency with how we've historically presented our results.

Where there are still a few presentation and disclosure items to finalize, we can share with you at a high level how the accounting will work. First, what's not changing. On the balance sheet, while they'll be a lot of additional accounting steps, the assets we're investing in haven't changed. They will continue to be titled net finance receivables and still reflect the purchase price of the portfolio upon completion of the initial booking. We will still utilize the purchase price and our estimated collections to solve for an effective interest rate which we currently refer to as the yield.

This process remains similar to the one that banks use when creating a repayment schedule for a loan. Banks utilities the loan value and sudden interest rate to solve for the payment amount. We utilize the original purchase price in our forecasted cash collections to solve for an effective interest rate on the portfolio. Additionally, revenue recognition on the portfolios will still be calculated by multiplying the net finance receivables by the effective interest rate.

So here's where the differences begin. First, while the calculation of revenue on the portfolio is not changing, it will now be titled portfolio income instead of income recognized on finance receivable. Second, the effective interest rate on the portfolios will not change regardless of performance. This is in contrast to our existing model where increase in ERC result in upward adjustments of the revenue recognition yield on the portfolio.

Third, present value of changes in ERC, whether increases or decreases, will now flow through an income statement line titled: changes and estimated recoveries. This is in contrast to our existing model where only decreases in ERC are recognized immediately as allowance charges. And the impact of increases is recognized as increased yield over time.

This is the biggest change in the accounting and as a result, increases in ERC will be recognized more immediately as changes in our forecast are identified. This is similar to revenue recognition under IFRS and should result in more comparable results for our industry globally. On the balance sheet, these present value adjustments to ERC will be recorded as an increase or decrease to net finance receivables; therefore positive changes will increase the balance sheet value and less increased revenue in the future as we will apply the same effective interest rate to a larger asset. The opposite is also true for negative changes.

In addition, if we collect more or less than what we expected in the current quarter, that difference will be recognized in the changes and estimated recoveries line as well. There are other differences but these are the most significant. We intend to continue to provide a similar level of transparency and disclosure for our annual vintages, we also expect to continue to provide breakdowns by the same products and geographies.

Since our calculation of revenue remains the same, the revenue model we currently present will still provide an estimate of the next quarters portfolio income. As a reminder, it's only an estimate, shows what revenue would be if the portfolio and environment were held static and we collected exactly what we forecasted. It excludes revenue recognized on portfolios purchased during the quarter, any foreign exchange impact and cash collections on fully amortized [pools] not accounted for by the model. Keep in mind that the revenue model did not capture allowance charges and going forward it will not include changes in estimated recoveries.

I would like to turn things back to Kevin for some final thoughts.

Well, thank you, Pete. PRA has entered 2020 in a position of strength. We believe we have the industry wins at our back. In the U.S. market, we currently see supply. We see rational returns and a health market share. In Europe we're seeing increasing supply, increasing returns and increasing market share. We enlarged our Canadian footprint and continue to work to build relationships there. We had a successful purchasing year in South America and hope to continue that trend as well. Our capital position includes over half a billion in funds available to acquire portfolio and we are generating almost another billion in cash from the business. And with one of the lowest leverage positions in the industry, we also have the opportunity to raise more if necessary.

I began today's call by mentioning that we conduct business over an expansive and expanding geographic footprint. Along those lines, we are currently in the process of expanding into Australia. We've been contemplating Australia for many years and went as far as creating a legal entity back in 2011. However, we've only recently begun to develop operations. The Australian market is going through changes, much of which is driven by the regulatory environment. Generally speaking, these stronger regulatory environments present an opportunity for us given our strong focus on the customer journey and compliance.

We have hired a country leader there who had worked for PRA Group Europe in the past. We know him well, he knows our culture and lives our values. We've also hired IT and finance talent in-country. We are hoping to make modes portfolio purchases in 2020 but caution that we are in very early stages and we'll keep you apprised as 2020 unfolds.

As the company continues to grow, we've made a few organizational changes, Chris Graves, who has served as executive Vice President of the Americas, is now a Global Investment and Analytics Officer. Chris will have the responsibility of global core and insolvency portfolio acquisitions and determining collection strategies through data and analytics.

Steve Roberts, who served as Executive Vice President Europe in corporate development, is now our Global Operations Officer. Steve will have responsibility for all of our core and insolvency operations. Both will continue to work very closely with Martin Sjolund, our President of PRA Group Europe. And finally, on March 31, Steve Frederickson will transition to Non-Executive Chairman of the Board of Directors. As a founder and the original CEO of PRA Group, Steve led us in building an incredibly valuable company. His insight and his business acumen as long with his commitment to the founding philosophies of PRA have helped develop the company into the global leader it is today.

He has been a tremendous leader and visionary and has served as a mentor and friend to me and many others. I worked with Steve since before PRA was created and I'm thrilled that PRA will continue to benefit from his counsel. Operator, we are now ready for questions.

We will now begin the question and answer session. (Operator Instructions) Our first question will come from Mark Hughes with SunTrust.

You talked about productivity improvement, your cash efficiency guidance through 2020 is the -- (inaudible) improvement as well, patient expenses were down, can you talk about any structural changes in the business, this idea of transitioning to digital collection. Is this incremental improvement in cost or do you see something more fundamental going on?

No, when I think about collector productivity, and maybe even a larger question, I may just choose to answer here as well, but it's really about collector staffing. As we look at staffing and productivity, we're trying to solve for a number of variables and I -- I think about things like our inventory. So what's our inventory doing, are we buying larger balance accounts, are we buying smaller balance accounts, are we buying, again, whether it's major line credit card or some sort of installment based product. I think about consumer behavior and of course technology and data and so all of these things are coming together to, today, advise us on how many reps that we need to have on the floor and how to route calls to them. That's kind of a long-winded answer, but I would say, what you're seeing today is really a function of some technology deployments and as well as our -- our scoring and data improvements.

Yes. I think one other thing I would add too is don't forget that last year's ramp of legal investment kind of had a depressive affect and we've also seen, as we indicated we would, you know movement up in that ratio as the -- as the legal investments stabilized and the cash collection from those past investments came through.

What was your point about the pressure and additional volume, I think you were talking about the lethal accounting standards, maybe motivating sellers? Are you seeing that or are you perhaps hoping for that?

Yes, I'm hoping for that. We have not seen that, but I think from our perspective, Pete's certainly the CECL expert so he can chime in here if he wants but I think that the banks will have to likely provision more and sooner in their process and so to the extent that they want to capture that sooner, hopefully they could think about selling fresher paper and selling it soon in their cycle as opposed to the agency pipeline process that many of them still use.

And again, I think it could shake loose. Who knows? I hope it could shake loose sellers. So none of that we've seen, and I'm just giving you my opinion. And we'll see how it plays out in 2020 and 2021. Pete, do you have anything to add?

No, I'd just say, in terms of the high level, the sort of the approach, they're going to have to provision upfront and to the extent they can demonstrate a track record of generating recovery value at the backend of the process through debt sale, programmatic debt sale, I think that will potentially allow them to provision less upfront.

Interesting. Do you have the cash flow from operations number for the quarter or the year?

I'll get it for you, just a second.

You can move to another question if you have another one, Mark, while he's looking that up.

I'll go ahead and get back in the queue. Appreciate it.

Our next question comes from Eric Hagen with KBW.

A couple of questions. One, on the movement to Australia, what -- what led you to decide to build the portfolio from scratch as opposed to buying an operation that was already embedded in the market? And number two, some of your peers have talked about the attractiveness of co-investing in receivables with other financial buyers, which, I think they apparently like because it's less balance sheet intensive, they can capture fee income on top of that from servicing a [pool] and just managing illiquidity a little bit more optimally. I'm just curious how you interpret that business strategy versus potentially what you're currently doing?

Well, thank you. I was actually hoping I would get that question about Australia. So one of the things that I mentioned in my script is that we actually looked at Australia back in 2011 and I'll jus share with you, back then, we were thinking about potentially acquiring a company down there and ended up not doing it obviously.

So as we look at it today though, so much has changed, at least in our -- from our perspective and the Australian market, the -- the rules changes have increased the regulators and the banks are just totally focused on the customer journey. Well, that's -- that's our business line. That's what we do. And so the idea from our perspective is right now the plan is to go in and Greenfield it. Our plan is to build it from scratch, to your point, because we want to build it, and again don't take this the wrong way, but we want to build it the right way. I don't want to inherit any bad practices. We've got a core set of values here and that's why I'm so happy that we've hired a country leader that we've worked with. He knows how we operate.

So again, if something popped up, can't say I wouldn't look at it but at the end of the day it's really about building something brand new and taking our time getting to that market. So that's, at least our position on that. In terms of co-investing, I'll -- I've been around a long time so -- okay, so Pete -- Pete's been flagging me down. He wants to make a comment on it but, let me just give you my history on it. My history on it, I've been in this business a long time and it just -- it hasn't worked out for folks historically as well as I think folks would have liked. Now it could be designed differently today, and I get all of that, but I am -- I personally am a little bit jaded negatively on that structure, not that we'd never look at it, and I will never say never. So Pete's chomping at the bit to say something. Go ahead.

Yes. I think the capital aspect of that's all relevant to where your starting point is. And so for us, our current leverage position and availability to raise more capital as needed, it's not as attractive of a proposition for us. It's not to -- to Kevin's point, not to say we would never do it, potentially it might be useful if big chunky portfolios came to market outside of the normal course; it could be an interesting way to be able to take those down and in terms of the servicing fee revenue, our view consistently has been that it's ultimately low margin revenue even though it's capital light.

One more thing just popped into my head here. I think about what we're good at and what our core competencies are and some of those things are, besides the collection operation, but it's sourcing deals, it's gaining trust of the sellers, providing that conduit. It's certainly an under-riding analytics. And letting -- letting someone inside the tent has always been problematic for us. So again, that's a little baggage I carry around and I'll just tell you guys, you're in a public conference call that I would certainly entertain all options, but that's just our position.

Our next question comes from Jeff Zhang with JMP Securities.

I just have a quick one. So was there anything in the quarter that were one time in nature or any [pronounced] seasonality that would lead us to not consider annualizing the Q4 earnings number as a starting point or projecting our earnings for 2020?

Yes, there's no real -- nothing really material that stands out in the quarter. I just did -- as long as you understand the seasonality that -- that's present in the business, certainly from a revenue perspective I think that's probably a relatively safe place to start.

Our next question comes from Brian Hogan with William Blair.

Quick question on the purchases. U.S. purchases down quarter over quarter and I know that can be lumpy and all that -- but I -- and obviously European (inaudible) were really strong. Was it more of just a -- put more into Europe, more attractive returns, or was it, I can't remember if it was supply, I thought you said supply in the U.S. was pretty stable. So I guess, just go through rational, where you're seeing the most attractive return and what led to the purchase mix during the quarter?

Sure. I'll take that -- that question. So it's one of the things that's really interesting, Brian, it would be more fun if Bob were on the call so I could harass him a little bit but this is one of those questions that we've gotten for a long time and sometimes you fall a few basis points short on a deal and sometimes a great quarter is because you were a few basis points over in the bidding. So it can be a tight market. That's why I gave the commentary that the U.S. market is stable and it is rational. So it's just the vagaries of how we bid on deals.

Okay. And would you say Europe is more attractive from a return perspective currently or the U.S. from your perspective?

Well, I don't have -- from -- it would be a gut reaction from me. I -- they're both attractive markets, I don't have to choose because my -- the line of credit is separated between the U.S. and Europe. I wouldn't hold back in the United States to invest more in Europe unless I -- something strange happened.

So no, we like to -- right now, we like the returns in both and it's one of the things, hopefully, that gives you guys some confidence because we've been pretty vocal for a bunch of years about what we thought about the European market and I'll tell you, if the U.S. market ever moves south, I'll do the same thing. I'll tell you that as well.

All right. Regulatory environment, can you give any of your updated thoughts on like the -- obviously we're waiting to see the rules but they also put out a kind of a supplemental disclosure on the time [of our debt] and obviously the states talking about mini CFAB's like California and New York was even tossing it around. Can you kind of talk about the regulatory environment that are on state levels, please?

Sure. Well, CFAB, I think we all know, the -- where that's at. They're in that rulemaking process. There's a lot of really interesting things in there, how we communicate and limited content messaging and all of that. The -- the more recent thing, I don't have any timeline available to me right here on what we think about when that might happen. The thing you mentioned the other day was interesting. I guess I'll put it in a nutshell that we currently give a similar disclosure that they're talking about, do the consent order, so any one who is under the consent order is generally giving that disclosure anyway but that's point one.

Point two, uniform rules are always preferable and so while the folks are -- who are under consent orders are doing that, it could be that other people aren't. And so that's -- that would be advantageous, I think, for us. But the devil is always in the details. How it actually comes out and what the verbiage actually is, so we'd have to wait and see how that works. I think there's also plenty of time for us to be involved in giving commentary on that.

As far as states go, I think you're right. I think states have talked a lot about revving up mini CFPB's and I don't really have a lot to add to that but, so nothing to report on that yet.

Sure. And then I guess the bigger-picture perspective, what are your thoughts on -- what is the right ROE for your business, like a long time ago you were 20%, currently you're in the maybe low teens and, by our forecast, kind of moving higher. What is the -- do you target an ROE, do you have one in mind? What is the right return metric?

Yes. Again, we're focused on growing, growing our income year-over-year, not necessarily focused on an ROE target. Again, we've got a big E as a result of all of those profitable years to the global financial crisis vintages. So -- we're just -- we're just focused more on steady -- steady growth year-over-year as opposed to trying to pick a number in terms of return hurdle.

thank you.

Our next question comes from Dominic Gabriele with Oppenheim.

We were expecting to take advantage of the European market but the supporters purchases were very large versus what we were expecting. Was there a larger than normal portfolio that you bought or was it really just you taking advantage of the competitive landscape given that some competitors are delevering?

No. In fact, we take a lot of care preferring our script, but we didn't -- we did not have an outside portfolio and that actually has been something that's occurred in the past few years. I think about last year, our buying was pretty light in 2018 up until the last fourth quarter. So no, it was very broad this year. There were no outsized deals and we bought in all nine of our markets. So that's what I was trying to get across is it was a healthier more diversified broader market this year.

Great. Great. And as you look at your peers in the Australian market or through your own research, how does that profitability stack up versus the U.S. -- or EU, I'm not as familiar with that market, based on either cash cost to collect or ROE, whatever profitability metric you think is most relevant when you enter a new market. How does that compare versus the U.S. and Europe?

Well, I think it compares favorably or at least comparably with the U.S. and Europe. I think we're probably getting better returns in Brazil right now, quite frankly, but nevertheless, you look at it from an IRR perspective and from what we've seen, IRR's are in excess of what we're doing in the U.S. and in Europe. So we're looking forward to it. It's not a -- I mean it's a -- it's always dangerous to estimate market size but it's probably in the -- between $300 million and $400 million purchase price, U.S., so kind of in the $400 million to $500 million purchase price Australian, roughly. And so hopefully we can get in there and take our time, do it right and be a good competitor.

Great. And then if I can just ask 1 or 2 more, the cash collection -- the cash collections rate for the pools less than 1 year old in 2019 was a bit better, actually, than recent vintages. Can you talk about the legal collections and how this is affecting that and could we see the less than -- the current years cash collection rate actually be higher in 2020 versus 2019 and 2018 given some of the spend that you've put in -- the investment that you've put in and the legal channel showing up in your collection rates under 1 year?

Yes, the legal -- typically, we're -- we're in -- we're working the portfolios for at least 6 months to a year before we know enough about which accounts are going to score for legal. So not -- I'm not sure that that's necessarily a thing in terms of your analysis.

I would agree with that. The legal is a little more delayed. If you're noticing an uptick in our collections in that vintage, that's just going to simply be as a result of what Mark Hughes -- I talked to Mark Hughes about, is really about scoring in some of our technology that we're using towards -- it sounds like it's accelerating our cash, so that's good news.

Yes, definitely. And then does the 61% cost to collect take into consideration some perhaps investment to roll out this other Australian business for 2020?.

Yes. Dominick, the 61% is the efficiency ratio. So it's more of an inverse, just to make sure you're clear on that. And then again, we're starting up a new business and starting small. So it -- it's not going to be likely big enough for anybody to notice until we get some portfolio there and start to generate collection expense.

Our next question comes from Mark Hughes with SunTrust.

Yes. Pete, could you give any details on the allowance in the quarter? What pools -- what was the...

It's the similar sort of ones that we've been kind of chipping away at over the -- over the last year or so, those core portfolios in the U.S. From kind of 2013 through 2015. Again, they're still above their original underwritten targets but just the vagaries of the current accounting. The good news is, this is the last quarter under [31030]. So to the extent there's adjustments into the future, there'll be other adjustments that aren't just allowance charts adjustments.

And the -- the line you're going to have on the income statement, the change in estimated recovery, would you say that includes both the MPV of the change in future collection plus the outperformance or underperformance in the period?

Correct.

Could you look at what that would have meant, say in 2019 or 2018 if you had been doing the income statement that way?

It's always a little dangerous to do what if's on that kind of thing but if you think about it in the context of we had a total allowance charges for the year of say $24 million, our accretable yield write-up was probably $200 million-ish for the year. Again, that's not apples and apples because you would be doing an NPV on the $200 million but even if you say the, I don't know, gross portfolio yields 30% or something like that you're still going to have a fairly sizable NPV number that you would be reflecting positively. So at the minimum, I would say it would have been flat as a result of that.

And then the -- to that line, if you have a good performance and the over-performance is reflected in the current period, the NPV of the expected future performance is reflected in the current period and then you end up -- you apply the same yield but you're applying it to a higher balance in the future.

Correct. Correct. Correct. So you kind of like capture back the NPV of the discounting through your revenue line as yield.

Yes. And vise versa, of course, the tax rate for 2020, what's your best look at that?

I think it's probably the same range that we talked about all year this year, kind of 16% to 20%-ish. We came in kind of on the low end of that range when all was said and done for this year and yes, a lot of that depends on mix of business and a variety of things.

And sorry if you said this, but the cash from operations for the year? Were you able to...

Yes, I was going to wait until you were done asking questions and give it to you as a parting gift, $133 million.

I'm sorry. Say that again?

$133 million for the full year.

$133 million cash from operations?

Net cash provided by operating activity.

Our next question comes from Robert Dodd with Raymond James.

On the cash efficiency ratio, obviously you're up to 61, [protecting better] improvement, can you give us any color on -- the -- the sources for that? I mean, I'm not asking -- obviously, there's scale. There's the fact that you made the legal investments and they're starting to pay off. Is there anything else in that, like any embedded hope on rapid growth in digital or TCPA working out in your favor or any other factors that are going to contribute to that or is it just kind of the scale and the legal timing?

It's -- I think my perspective on that is I think the rebound we've had this year has been the leveling out related to the legal and mixed in there was efficiency initiatives that we had undertaken as key focus area, digital being a component of that, and I think over time, we're going to continue to be focused on efficiency of the operation and that's what's going to kind of drive -- drive us from here forward. I think the legal impact has sort of evened itself out.

Yes, and it's something, Robert, we talked about in the last few calls talking about this idea of we're trying to balance out how many collectors we have versus our legal spend. And I addressed it a little bit earlier with Mark, was that our collector productivity was up quite a bit this year and so some of that is baked in to that, but, no -- to -- to Robert's point, no -- no -- no shock to the system from like a TCPA.

Certainly not a TCPA.

Yes.

This concludes our question and answer session. I would like to turn the conference back over to Mr. Kevin Stevenson for any closing remarks.

Well, thank you, operator, and thank you, everyone, for joining us here this evening. I look forward to speaking to you next quarter. You may disconnect.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.