Portfolio Recovery Associates, Inc.’s (PRAA) first quarter earnings per share of 91 cents came in ahead of the Zacks Consensus Estimate of 86 cents and the year-ago quarter earnings of 66 cents. Net income increased 47.0% year-over-year to $14.8 million.
During the reported quarter, the company recorded an ongoing non-cash equity-based compensation expense of $0.88 million, equivalent to approximately $0.54 million after tax or 3 cents per share.
Overall, Portfolio Recovery’s results reflected higher-than-expected top-line growth due to record cash collections and cash receipts, which were partially offset by seasonal weakness in consumer collections and a $6.9 million allowance charge recorded in the reported quarter. Operating expenses increased 14.5% year-over-year to $56.9 million during the quarter.
Portfolio Recovery’s total revenue increased 22.0% to $83.4 million from $68.2 million in the year-ago period. While net income recognized on finance receivables increased 32.5% year-over-year to $68 million, commissions decreased by 8.9% to $15.4 million. During the reported quarter, the company utilized 43.0% of its cash collections to reduce the carrying basis of its owned debt portfolios against 42.9% in the year-ago period.
Cash collections for Portfolio Recovery increased 33.0% to $119.2 million from $89.9 million in the year-ago period. Call center and other collections increased 12.0%, internal legal collections grew 203.0%, purchased bankruptcy collections gained 88% and external legal collections increased 3%, compared with the prior-year quarter.
At Mar 31, 2010, Portfolio Recovery’s cash balances were $23 million as compared to $13.9 million at Dec 31, 2008. During the reported quarter, the company made net borrowings of $23 million on its line of credit, leaving it with $296.3 million in outstanding borrowings at the quarter’s end. At Mar 31, 2010, Portfolio Recovery had $68.7 million remaining under its line of available borrowing.
Business Update
During the reported quarter, Portfolio Recovery helped cement the foundation for long term growth by expending $102.6 million in portfolio acquisitions to purchase $1.9 billion of face-value debt. This debt was acquired in 84 portfolios from 8 different sellers to further improve the collector productivity and to initiate steps to strengthen the fee businesses.
In Feb 2010, Portfolio Recovery raised $72 million on successful completion of its common stock public offering of 1.25 million newly issued shares of common stock with its underwriters exercising their option of purchasing an additional 187,500 shares.
In Mar 2010, Portfolio Recovery acquired a 62% stake in the Claims Compensation Bureau, LLC (CCB), a company that specializes in recovering funds and processing payments due under class action claims settlement for clients. Further, the company also has attained the rights to purchase the remaining 38% share in future, depending on the market conditions and company interests.
Portfolio Recovery is expected to benefit from the CCB, which has expanded even beyond securities class action settlements and payment processing into anti-trust class action settlements. This is expected to be accretive to the earnings of Portfolio Recovery in the medium to long term. On the other hand, CCB is also expected to gain from the Portfolio Recovery’s already well-positioned business portfolio.
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