PRA Group Inc (PRAA) 2024 Q4 法說會逐字稿

Good evening, and welcome to the PRA Group's fourth-quarter and full-year 2024 conference call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the call over to Mr. Najim Mostamand, Vice President of Investor Relations for PRA Group. Please go ahead.

Thank you, operator. Good evening, everyone, and thank you for joining us. With me today are Vik Atal, President and Chief Executive Officer; and Rakesh Sehgal, Executive Vice President and Chief Financial Officer.

We will make forward-looking statements during the call, which are based on management's current beliefs, projections, assumptions, and expectations. We assume no obligation to revise or update these statements. We caution listeners that these forward-looking statements are subject to risks, uncertainties, assumptions, and other factors that could cause our actual results to differ materially from our expectations. Please refer to our earnings press release issued today and our SEC filings for a detailed discussion of these factors.

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

All comparisons mentioned today will be between Q4 2024 and Q4 2023, unless otherwise noted, and our Americas results include Australia. During our call, we will discuss debt to adjusted EBITDA for the 12 months ended December 31, 2024, and December 31, 2023, as well as return on average tangible equity. Please refer to the appendix of the slide presentation used during this call for a reconciliation of the most directly comparable US GAAP financial measures to these non-GAAP financial measures.

And with that, I'd now like to turn the call over to Vik Atal, our President and Chief Executive Officer.

Thank you, Najim, and thank you, everyone, for joining us this evening. We are excited to share with you the significant progress made in 2024, which resulted in one of the most transformational years in PRA's nearly three-decade history. At the beginning of the year, we laid out several financial and operational targets that signaled our expectations for 2024. As a result of the team's strong execution throughout the year, I am exceptionally proud of our performance against these targets.

To start, we achieved record portfolio purchases of $1.4 billion, up 22% year over year, as we invested with discipline globally, capitalizing on the strong portfolio supply in the U.S. This strong U.S supply, combined with continued pricing discipline, has led to meaningfully improved returns on our investments. In Europe, we finished the year on a high note with stronger market supply in the fourth quarter and healthy diversification across our markets. Further to the supply environment, we have continued to strengthen and expand our seller relationships globally, which contributed to the total investment volumes achieved in 2024 and positions us well to sustain this momentum in 2025. Cash collections of $1.9 billion for the year represented 13% year-over-year growth as we not only benefited from recent purchases, but more importantly, extracted added value from our existing portfolios through the cash-generating and operational initiatives we implemented, particularly in our US business. It's worth noting that the vast majority of our collections in any given year reflects collections from our existing portfolios versus portfolios purchased that same year. For instance, 89% of our total cash collections in 2024 was generated from portfolios purchased prior to 2024.

Our disciplined expense management resulted in a cash efficiency ratio of 59% for the year, even as we significantly increased investments in our legal collections channel, which we expect will continue to drive future cash collections. Net income attributable to PRA of $71 million translated to a return on average tangible equity of 10%, representing a substantial improvement from the negative 11% in 2023 and the 6% to 8% target we set at the start of 2024.

As we look back on the year, I would be remiss if I didn't take this opportunity to thank every team member of PRA who contributed to the results we achieved. Building on our exceptionally strong and seasoned group of leaders, we expanded our senior leadership team in 2024 with the appointment of a new Global Operations Officer, Chief Data and Analytics Officer, and a Chief Risk and Compliance Officer. Together, we have been undertaking a pivotal transformation across many fronts, executing initiatives with focus and speed to drive higher returns and cash collections while lowering the cost of doing business.

We have shared many of these initiatives on prior calls, and in a moment, I'll dive deeper into the progress and outlook on some of the key ones. But before I do, I wanted to spend a moment focusing beyond the U.S., starting with Europe.

Our European business continues to demonstrate its strong market position, excelling across multiple vectors and performance metrics. This past year, we expanded on our successful track record of disciplined growth, efficiency, and profitability across our pan-European footprint against a backdrop, where some of our European peers have experienced recent challenges. A large part of this long-standing success can be attributed to, again, our people, and I am incredibly proud of the organization we have developed across the pond, which is anchored by a tenured and experienced management team. This attribute, along with our deep seller relationships, highly efficient operating structure and disciplined approach to investments have defined our European business for the past decade, and I believe it will continue to do so in the future.

Getting to this point has been the result of many years of hard work and strategic positioning. This is true not only in Europe, but also in Brazil, where we have further demonstrated the strength of our expertise and capabilities on a global scale. As we close in on 10 years in this market, our profile in Brazil has expanded from that of a small new entrant to a leading player generating significant cash collections, growth, and profitability. Whereas others have retreated or found it difficult to succeed, we have leveraged highly experienced local operators and a major Brazilian bank to carve out a unique position that enables us to make significant investments in non-performing loans at highly attractive rates of return. In addition to making investments, we own an equity interest along with our partners in RCB, the servicing company for these investments. Capitalizing on the successful franchise we have created in Brazil with our local partners, we recently took advantage of a favorable opportunity to generate additional capital. Last month, we exercised our right to sell our equity interest in RCB, and we expect to record an after-tax gain of approximately $25 million in the first half of 2025. To be clear, this transaction does not impact our ownership of any portfolios in Brazil. Furthermore, we do not expect this transaction will impact our existing operations or future portfolio investment opportunities in Brazil. Brazil remains an important part of our business, and we will continue to pursue growth in that market.

Many of the accomplishments I have shared thus far are part of the three strategic pillars we unveiled at the start of 2024. As a reminder, the three pillars driving our enhanced profitability are: first, optimizing investments; second, driving operational execution; and third, managing expenses.

Starting with the first pillar, optimizing investments. Due to the record volume of portfolios purchased in 2024, we grew ERC to a record $7.5 billion in 2024. Looking ahead, we expect overall strong US portfolio supply in 2025, driven by rising credit card balances and elevated charge-off rates. In Europe, we expect relatively stable year-over-year volumes.

Moving on to the second pillar, operational execution. We implemented a wide range of strategic enhancements in our U.S. call center operations through 2024, including optimizing our dialer strategies, reconfiguring offers, building capacity and driving expanded customer reach. Within our legal collections channel, we are focused on three primary objectives: refining our end-to-end processes; reducing cycle time across the various stages of the legal process to drive cash collections more quickly; and third, optimizing our post-judgment activities.

Collectively, these actions have led to U.S. legal cash collections increasing 42% to $376 million from $264 million in 2023. We are not yet fully optimized and expect continued focus on this area during 2025, providing a further catalyst to cash collections growth. It's important to note that these enhancements not only benefit older vintages, but are also expected to benefit newer vintages through faster cash collection and improved performance as they flow through the legal collections channel. Over time, this should make us both more profitable and a more competitive buyer of portfolios.

Turning now to pillar number three, managing expenses, which is closely intertwined with pillar number two. Whereas operational execution initiatives may require cash outlays, particularly in the form of investments in the legal collections channel, managing expenses is focused on optimizing our cost structure. A major component of this pillar has been the development and expansion of our offshore teams in two low-cost locations in Asia. After having virtually no offshore presence in the years prior, we leveraged third-party vendors to roll out our first offshore call center at the end of 2023 and accelerated this expansion throughout 2024, launching a second call center and ramping up hiring in both locations.

In the second half of 2024, we launched a work-from-home initiative for our U.S. collectors. Along with providing greater flexibility for eligible collectors, this initiative, coupled with the performance of our offshore collectors, has enabled us to begin consolidating our U.S. call center footprint. And as previously noted, we are on track to reduce it from six to three operating sites by mid-2025.

The mix of onshore versus offshore collectors in the second half of 2025 will reflect a variety of factors, including U.S. investment levels, collector attrition trends, and overall performance of the respective teams. As of year-end, our offshore collectors account for more than 30% of our overall collector base supporting our U.S. business, and we anticipate this mix to approach 50% in the second half of 2025. In summary, our offshoring strategy is helping us create a more variable cost structure, enhance our calling strategies, and better navigate the ebbs and flows of the credit cycle. I believe we are operating in a truly exciting time with sharply improving financial results and clear catalysts for continued growth in the form of strengthening business fundamentals and attractive industry dynamics. We remain focused on continuing our transformation and believe that our future is bright. I'll now turn it over to Rakesh for a financial summary of our fourth-quarter and full-year results as well as our outlook and updated targets for 2025.

Thanks, Vik. We purchased $433 million of portfolios during the quarter of which $204 million were in the Americas and $229 million were in Europe. For the full year, we purchased $1.4 billion globally, which is a record annual amount for the company.

In the U.S., we purchased $171 million of portfolios during the quarter, which is up 21% compared to the prior year period, though down sequentially due to a large spot purchase made in the third quarter. For the full year, we purchased $796 million, up 40% year over year, representing the second highest U.S. investment level in company history.

The year-over-year increase for both periods was primarily driven by higher portfolio supply with the full-year volumes also reflecting certain large spot transactions. We continue to capitalize on the strong levels of portfolio supply, driven by the growth in industry credit card balances as well as elevated delinquency and charge-off rates. Pricing remains attractive with our 2024 Americas Core purchase price multiple finishing the year at 2.11 times. This is higher than the 1.97 times recorded for our 2023 Americas Core purchase price multiple.

In Europe, portfolio purchases were $229 million for the quarter, up 86% year over year, with investments made in all our major markets. While Q4 is typically strong from a seasonality perspective, this year-over-year growth was exceptionally strong due in part to an increased volume of spot sales coming to market. For the full year, we purchased $508 million of portfolios in Europe.

Moving on to our financial results. Total revenues were $293 million for the quarter and $1.1 billion for the full year, up 32% and 39%, respectively. Total portfolio revenue was $285 million for the quarter, with portfolio income of $230 million and changes in expected recoveries of $55 million. For the full year, total portfolio revenue was $1.1 billion with $857 million in portfolio income and $241 million in changes in expected recoveries. Portfolio income, which is the yield component of our revenue, was up 18% for the quarter and 13% for the full year, reflecting an increased level of portfolio investments and higher purchase price multiples compared to 2023.

Changes in expected recoveries is an important component of our revenue, particularly as we continue to improve operational performance and increase collections from our cash-generating initiatives. Of the $55 million in changes in expected recoveries this quarter, $32 million, or 58%, was due to cash overperformance. The remaining $23 million, or 42%, reflects the net present value of changes in our ERC, the majority of which was attributable to our U.S. Core portfolios and driven in part by the impact of our cash-generating initiatives.

For the full year, 65%, or $156 million of the $241 million in changes in expected recoveries, was due to cash overperformance, while the remaining 35%, or $85 million, reflects the net present value of changes in our ERC. It is important to note that a significant portion of the total changes in expected recoveries for both periods was due to actual cash received above our previous expectations, as we executed on our cash-generating initiatives.

Operating expenses for the quarter were $199 million, which were up $23 million, or 13%, from the prior-year period.

Legal collection costs were up $11 million year over year, driven primarily by investments in our U.S. legal collections channel to drive future growth. While investments in the legal collections channel creates a near-term drag on earnings and cash efficiency due to the lag between when we invest in the upfront court costs and when we start collecting cash, we are confident that these investments will drive strong cash collections over the next several years. In fact, we are already starting to see a pay-off from prior investments, as Vik noted earlier. As a reminder, we do not begin our collections activity with the legal collections channel, but consider using it if and when our customers do not engage with us voluntarily.

Legal collection fees, which are backed by cash collections and, thus, variable in nature, increased by $6 million, driven primarily by higher external legal collections within our U.S. Core portfolio. Compensation and employee services expenses increased $4 million, primarily due to higher wage costs in the current year period.

We delivered a cash efficiency ratio of 58% for the fourth quarter, up from 57% in the prior-year period, while increasing our legal collections activity. For the full year, our cash efficiency ratio was 59% compared to 58% in 2023, even after absorbing an additional $36 million of legal collection costs versus the prior year that will drive future cash collections.

Net interest expense was $61 million for the quarter, an increase of $10 million, primarily reflecting higher debt balances due to increased portfolio investments. Our effective tax rate was 32% for the quarter and 19% for the full year. For full year 2025, we expect our effective tax rate to be in the mid-20s, depending on the income mix from various countries and other factors.

Net income attributable to PRA for the quarter was $18 million, or $0.47 in diluted earnings per share. For the full year, net income attributable to PRA was $71 million, or $1.79 in diluted earnings per share.

Cash collections for the quarter were $468 million, up 14% from the prior-year period. For the full year, cash collections were $1.9 billion, an increase of 13% year over year, with a U.S. core cash collections up by 22%. The increase in total cash collections for both the quarter and full year was primarily driven by higher levels of recent portfolio purchases in the U.S. and Europe as well as the positive impact of our cash-generating initiatives in the U.S.

During the quarter, cash collections exceeded our CECL expectations on a consolidated basis by 6% with the Americas overperforming by 2% and Europe overperforming by 13%. Our full-year cash collections versus our expectations at December 31, 2023, overperformed by 9% on a consolidated basis with the Americas overperforming by 8% and Europe overperforming by 12%.

We continue to monitor in the indicators of consumer health in the U.S., which remain relatively benign, as seen on this slide. That said, one of our biggest competitive advantages is our global portfolio and the diversification it provides. It's important to remember that more than 50% of our global cash collections in Q4 came from geographies outside the U.S. Within the U.S., the legal collections channel is less impacted by near-term consumer pressure, given the longer time period over which we collect cash. Our other U.S. Core collection channels, which are most susceptible to near-term US consumer pressure, accounted for less than 25% of our global cash collections, demonstrating that our collections aren't entirely dependent on near-term U.S. macroeconomic factors.

In addition, unlike credit issuers who generally need to address and resolve consumer delinquencies over a relatively short period of time, our business model has a much longer time horizon, allowing us to work with customers and tailor payment plans according to their evolving financial situations. This gives us the ability to work closely with our customers, especially during times when they are experiencing financial difficulties, and enables us to continue generating cash over the long term.

To summarize, the combination of the longer collections period, the geographic mix of our portfolio and the number of strategies at our disposal creates a resilient business model. We believe our platform enables us to effectively navigate short-term impacts to consumer liquidity or economic pressures without a material impact to our overall cash collections.

ERC at December 31, 2024, was $7.5 billion, representing a company record and up 17% compared to $6.4 billion at December 31, 2023. On a sequential basis, total ERC increased $167 million, which included an adverse foreign exchange impact of approximately $300 million due to the strengthening dollar in the fourth quarter.

We expect to collect approximately $1.8 billion of our ERC balance during the next 12 months. It's important to note that this number only reflects the amount we expect to collect on our existing portfolio. It does not include the cash we expect to collect from new purchases made over the next 12 months. Based on the average purchase price multiples we recorded in 2024, we would need to invest approximately $907 million globally over the same timeframe to replace this run-off and maintain current ERC levels. We expect to exceed this investment level and continue growing ERC during 2025.

Our debt to adjusted EBITDA ratio was 2.92 times as of December 31. While down sequentially, our leverage is up slightly versus a year ago, primarily due to the significant increase in portfolios purchased in 2024.

Our leverage ratio remains within our long-term target of 2.0 times to 3.0 times and well below covenant limits. The leverage ratio would be expected to trend to the higher end of our range during periods of rising portfolio purchases. As we progress through 2025 and generate incremental cash collections from the portfolios purchased recently, we would expect that ratio to decline from existing levels.

In terms of our funding capacity, we had $3.1 billion in total committed capital to draw under our credit facilities as of December 31. We had total availability of $1 billion comprised of $564 million available based on current ERC and $462 million of additional availability that we can draw from, subject to borrowing base and debt covenants, including advance rates.

During the fourth quarter, we successfully amended and extended our North American and UK credit facilities by five years, increasing our financial flexibility. In addition, we were able to capitalize on a favorable capital markets environment to issue an additional $150 million of our 2030 Senior Notes, the net proceeds of which were used to pay down outstanding borrowings under our North American credit facility.

These recent actions further strengthened our capital structure. We have ample availability under our credit facilities and no debt maturities until November 2027 when our European facility matures, and we look forward to working with our longstanding lenders at the appropriate time. We believe the cash generated from our business, the capital available under our credit facilities and access to capital markets in both the U.S. and Europe position us to further capitalize on this strong portfolio supply environment.

In closing, we are pleased with our performance against our 2024 targets, which has given us a strong foundation for 2025. Based on the progress made in 2024, we are updating our 2025 targets, which reflect the current macroeconomic and FX environment. First, we are raising our target for portfolio purchases to $1.2 billion from the $1 billion-plus previously disclosed. Second, building on our 2024 performance, we expect high-single-digit cash collections growth. Third, cash efficiency is expected to be above 60% for the full year, incorporating the increased spend in our legal cash collections activity, which should drive future cash growth. And finally, we anticipate achieving a return on average tangible equity of approximately 12% in 2025, up from the 10% achieved in 2024, which represents another solid step forward for the business. Please note that these targets exclude the impact of the previously mentioned Brazil transaction.

In summary, 2024 was a transformational year for PRA with significantly improved results. We are still in the early innings of this journey, but there is great promise in where we are headed, the opportunities to drive enhanced value across our business, and the momentum that we are carrying forward in our execution.

Thank you for your continued support and for the opportunity to be responsible and disciplined stewards of capital. And with that, we are now ready for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions)

David Scharf, Citizens JMP.

Hi, good afternoon. Thanks for taking my questions today. Terrific performance, obviously. I'm wondering, Vik, just honing in on Europe for a moment, you had mentioned stronger supply of spot sales because that was a very big capital deployment quarter for you.

Is there anything else going on competitively that's helping supply? I mean, obviously, there's some pretty well-publicized bankruptcies and restructurings among big competitors. Is the competitive environment possibly aiding in the supply available to you, and might that continue for a few more quarters?

Good to catch up with you, David. This call is -- before I answer that question, this call is testing our nimbleness because I'm hanging out by the beach, but unfortunately, it's covered with about 4 inches of snow, right? We're operating a little remotely today.

No. I think we've been wondering ourselves as to whether the competitive environment in Europe will evolve with the challenges faced by many competitors there. But that's not what we are seeing yet, David. There was just a unusually large volume of market supply coming across the pan-European sector in the fourth quarter, and we obviously are well positioned in all the markets to take advantage of that. We are not seeing competition either abating or changing meaningfully in our market there.

Got it. And switching to just expenses. I appreciate all of the color on both the legal channel investments and offshoring and other initiatives. I'm wondering, can you maybe provide us with your thoughts on whether or not there's just an inherent ceiling in the cash efficiency ratio through cycles.

Obviously, it's going to be a little depressed if there's a challenging collection environment. But as you think about the business through the cycle and once these initiatives are all in place and up and running as you would imagine, how should we think about the margin upside in this business?

I would say, David, we could take a short-term view and a longer-term view. I would say in the short-term view, obviously, as we get more efficient with the offshoring, we leverage that to an appropriate extent. We get sharp with regard to how we deploy our expenses today. We should see sort of improvements in our cash efficiency ratio, which Rakesh signaled in the commentary.

In the longer term, I think the impact that will possibly benefit us and others will be technology, the digital migration globally. AI could have an influence, but that's obviously far away from where we are today. So I would say I would expect the business to continue over the next several years to have improved cash efficiency ratios. How high it gets, I think, will be a matter of time.

Got it. Understood. And then lastly, maybe just -- it's been quiet on the regulatory front. Obviously, the CFPB is pretty much closed for business these days. We haven't heard much at the state level on any new regulatory initiatives.

But I'm wondering, as the regulatory landscape becomes more forgiving, and there's even talk of consolidating bank regulators which have obviously kept some of the card issuers on the sidelines, is there any sense that new competitors after 15 years of being on the outside are starting to form capital to enter this business? Or -- and this is just in the US -- or are the card issuers still pretty firm -- and, hey, here are the five or six people we'll sell to and the flood gates are not going to open?

Firstly, I think -- obviously, we're all watching what's happening in D.C. and then beyond. But given the unpredictability of the political and the general environment, it's sort of a little premature for us to go too far ahead on our skis on this.

I think, David, it's also not just the CFPB which you mentioned and the States from a regulatory standpoint. There is a plethora of regulations covering our industry that's codified in law and in various sort of orders that have been passed over time. Just as an example, I think we mentioned before, the thousands of jurisdictions that you've got to navigate when you're managing a legal process. And so just for competitors coming in here, setting up a capability that will allow them to do that is a multi-year effort and not for the faint of heart.

So what we are seeing in the relationships we have with the seller community is that they are very disciplined on who they invite onto their panels. They are very rigorous with regard to their evaluation of folks like ourselves on a regular basis to make sure that we are complying with their expectations. So I think -- look, who knows what happens in the long term. But in the foreseeable future we are managing against now, I don't see that as a particular impact that we think is going to be material to us.

Just one quick clarification. Did you mention -- the gain on sale in Brazil, that was excluded from the return on tangible equity guidance, (technical difficulty) ?

Yes. It wasn't 2024, but it will be -- when we receive it, which will be in the first half of 2025, it will not be factored into the targets that Rakesh was referencing.

Mark Hughes, Truist.

Yeah. Thank you. Good afternoon. Is it fair to say that the pricing in the U.S. is relatively stable? I think your purchase multiples you put on this quarter were pretty consistent. And I think last quarter, you talked about stability between 2Q and 3Q. How would you characterize it for 4Q?

Rakesh, why don't you take that?

Yeah, sure. So yeah, Mark, great observation. Look, we've definitely come a long way from where we were in 2023. So as I mentioned (technical difficulty) was at 1.97 times for the U.S. Core business. But the last few quarters, we've really stabilized from our perspective at the 2.1 times level.

But keep in mind, Mark, as we've mentioned previously, right now, we are undertaking a big transformation at the company and really focusing on our cash-generating initiatives. And those multiples currently do not take into account the higher multiple we could potentially achieve when we reflect those multiples into our cash expectations.

So the flip side is, this is why you're continuing to see a pretty big change in expected recoveries on our side as well. And as I mentioned earlier, for the full year, we had 65% of the change in expected recoveries was actually true cash that we received above our expectations.

Very good. When we think about the efficiency ratio, will the legal spending taper a bit and so maybe it contributes to improvement in the efficiency ratio? Or would you expect it to stay at about the same level relative to collections?

Yeah. Look, as Vik mentioned a bit earlier and what I mentioned in my targets that I outlined, we do expect that efficiency ratio we have mentioned for 2024 to be approximately 60%. We expect that to move up in 2025.

From a legal perspective, look, it is, in our view, an investment in the business that drives future cash. It's also dependent on the portfolio mix, what we buy, what is eligible for the legal channel. It is not the channel that we lead with, but the upside is also that there is greater certainty when we make that upfront investment in the court cost that we collect the cash.

So from our perspective, it is another lever that we can pull as we try to drive more cash, depending on what kind of portfolios come to market. And the good news is, in all of this, look, we have better processes that are much more efficient. We've reduced the cycle time. So from a legal process perspective, we are much, much more nimble than we were previously, and we want to continue to leverage that as we move forward.

And then one more question. Vik, you talked about some -- you gave some numbers on the percentage of headcount that is international. What would you say about the productivity and cost of those international collectors?

Well, first on the cost front, I think we've shared it with you before. Last time -- we didn't mention it this time, but last time, we mentioned that based on the number of collectors we had offshore and the annualized savings that we attributed to them of about $10 million, the basic math was it's about $30,000 per collector savings. So dollar-wise, expense-wise, it's a meaningful save if we can move up there.

From a productivity standpoint, absolutely on track, Mark, relative to expectations. Obviously, we sort of benchmark them against an equivalent tenured collector in the U.S., because obviously, collectors' performance generally improves and correlates to the level of tenure they have here. So if you look at collectors that have got a tenure of less than one year, because that's the average tenure of our folks overseas, our collectors are performing on par. No issues there.

Robert Dodd, Raymond James.

Just a follow-on on to that actually. In terms of your comparing them to a similarly tenured U.S. collector. And I know it's obviously really early days, but any indication of how much churn you expect -- over what you could expect from churn in offshore collectors versus kind of similarly tenured U.S. collectors if you go back, U.S. churn was -- if it's significant in any kind of call center operation? But any thoughts there?

Yeah. We are actually experiencing dampened attrition in our offshore collectors relative to the attrition rates that we experienced in our onshore collectors. So that's encouraging as well.

Moving on to -- when you look at the -- and there was a lot of color on you monitoring the health of the U.S. consumer, and things seem relatively benign right now. But are you seeing any emerging signs? There's some -- I wouldn't call it odd data, but preliminary data from the IRS. There's a lot more refunds, but a lot less returns, but it's only a couple of weeks of data.

But any trends you're seeing either in Q4 of this year at the beginning of tax season that may change your color from benign to better than benign or worse than benign?

We track tax refund trends along with obviously everybody else in the industry. Maybe you can speak to that in terms of what we're seeing. I think it's very early days generally, right?

Yeah, I agree. Look, folks start submitting their taxes at the end of January. It takes about three weeks. So it's just early days. We are seeing the same data, Robert, that you are seeing in terms of trends over the last three years.

I think the key is also the earned income tax credit. We really focus on that because a number of our customers benefit from that. And as you know, the date just came out that that would be released early March, March 3 to be exact. So we'll be monitoring that as well. And then I think we'll have a better idea as to how the tax season would flow into our business.

Got it, thank you. And then going back to -- sorry, jumping around a little bit. On the efficiency, you mentioned a number of things in terms of long term, the digitization, AI maybe someday with chatbots, et cetera. Any new efforts that you're starting up on that front?

Obviously, you've done a lot of work on the digital front, and that paid off. So is there going to be a further investment, further expansion of that, or just kind of steady as she goes? Or are you looking to accelerate anything on that front to drive digital efficiency?

Nothing in our business is steady, Robert. It's hard and fast and furious. So I would expect nothing dramatic, meaning like there's no new sort of whiz-bang tool that we're developing. But we are making sure, as Rakesh talked about and I did too, across our entire enterprise, we are still in the -- what we refer to as the early innings of just making sure we are dusting the covers of everything and moving quickly.

So there's nothing -- there's no whiz-bang initiative that I've got to share similar to the offshoring that's going to be dramatic changes, but we are moving fast and on all fronts.

(Operator Instructions)

John Rowan, Janney.

So most of my questions have been answered. Just on the other revenue line item, the $8.3 million, is there anything unusual in that? It was obviously a lot higher than the prior quarter. Can you just explain why that was up?

Yeah. Nothing unusual. Look, a lot of that fee income comes from our CCB business, which is our securities and anti-trust claims business. We were able to benefit from a transaction that we undertook in that quarter, but it's normal for our business. Nothing unusual.

Okay. And then just obviously, you came in the efficiency ratio a little bit lower than you had guided to for 2024. Again, I think it's pretty clear it's a lot in the legal expenses. But again, do we -- maybe just kind of answering -- asking the same question -- do we expect legal expenses to trend down a little bit? Or I mean, is that going to be a further hindrance to kind of meeting that 60%-plus efficiency goal for 2025?

No, I think -- Rakesh, you can supplement, but my view would be that we had, as we've signaled, John, a step-up -- a meaningful step-up in the legal activities over the last year in 2024 relative to where we were in 2023. So that obviously shaped the final numbers that we're reporting.

And as I've signaled before, we are running the business for overall value creation, trying not to be sort of tied into a particular vector or metric. But that said, when we signaled our cash efficiency expectation for 2025, we are fairly confident at this point in time that that incorporates our expected legal spend that we would have to incur in 2025.

So Rakesh, I don't know if you want to add to that in any regard.

Yeah. I think, John, the way I also think about it is we just invested $1.4 billion also. And so it's early days for some of those accounts, especially what we bought in Q4, to have the legal cost. So we are going to see some elevated levels of those costs.

But as Vik said, we're taking that into account plus the target that we put out for this year in 2025. So you're going to have the legal costs move up and down relative to some of the buying that we do and the type of accounts. So it's not just the dollar amount, but whether those accounts that we buy are legally eligible.

There are no further questions at this time. I will now turn the call back to Mr. Vik Atal. Please continue.

Thank you so much for joining us this evening, and we look forward to continuing our conversation over the next several quarters. Thank you again.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.