PRA Notches Record Buying Year, Looks Offshore for Collections

Debt purchaser and collector Portfolio Recovery Associates bought more debt in 2007 than in any other year as revenues and earnings rose for the year, the company reported in its financial filing for the fourth quarter and full year 2007. PRA also discussed initiatives for 2008, including offshore collections and an emphasis on legal collections.

Norfolk, Va.-based Portfolio Recovery Associates, Inc. (Nasdaq: PRAA) announced earnings late Thursday punctuated by a 6 percent decline in net income for the fourth quarter to $10.7 million on revenues of $57.3 million, an increase of 17 percent from the fourth quarter of 2006. The company’s per share earnings — $0.70 — missed analysts’ consensus estimate of $0.75. PRA’s stock was down more than 2 percent in early trading Friday.

But PRA reported solid growth in earnings for 2007, with net income up more than 8 percent to $48.2 million. Revenue in the year rose more than 17 percent to $220.7 million.

The company also reported that its debt buying exploded in the fourth quarter, with $3.7 billion in face value accounts purchased for $103.8 million, a record for a single quarter. PRA said for the full year, it spent $263.8 million on portfolio purchases, also a record.

Calling the debt purchasing sector “a very different world now,” CEO Steven Fredrickson said in a conference call Thursday that while the majority of the portfolios consisted of credit card accounts, a huge purchase of specialty bankrupt accounts put the company over the top for the quarter. In the quarter, PRA purchased 84 portfolios from 24 different sellers.

“[Debt purchasing] market conditions improved slightly in the fourth quarter,” said Fredrickson. “Supply was up and prices were a bit softer.”

Fredrickson said that a weak economy is driving the improvements in market conditions. He also noted that the credit crunch is hitting some of PRA’s competitors in their access to capital to fund purchases. The company has $102 million available to it under its current line of credit.

On the conference call, Kevin Stevenson, the company’s chief financial and administrative officer, said that PRA is in the “very early stages of evaluating offshore collections.” Stevenson said that the company will start collecting with a partner in the Philippines in the second quarter of this year, but did not provide any further detail.

At the end of the year, Fredrickson said that PRA counted 1,240 “front-line” collection employees — 1,058 of which were collectors — on its payroll. He said that the company added a net of 85 collectors in the fourth quarter, as PRA slowed hiring at its new call center in Jackson, Tenn.

Fredrickson also said that the company is “very focused on increasing the growth rate of legal collections.” For the year, legal collections grew at a 6 percent rate, compared with a 14 percent growth rate for call center collections.

PRA said that its fee-for-service business grew 44 percent in 2007, generating $36 million in revenue for the year. The fee-for-service business includes government revenue administrator and collector Revenue Discovery Systems (RDS), collateral locator IGS Nevada and contingency collection agency Anchor Receivables Management.