PRA Group, Inc. (PRAA) Q4 2014 Earnings Report, Transcript and Summary

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 a reminder, this conference call is being recorded. I would now like to turn the 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 and 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 facts are considered forward-looking statements, including but not limited to, statements regarding PRA Group’s or its management’s intentions, expectations, plans or projections for the future; receivable sellers referring to the market, future contributions of Aktiv Kapital and a timing and amount of future integration expenses or our ability to fully realize the expected benefits of the acquisition, any of PRA Group 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 growth prospect, or our ability to realize any type of benefit from restructuring our European benefits. 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 has no obligation to update any forward-looking statements 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 on our call today. Certain financial figures are non-GAAP numbers, which exclude the cost associated with the Aktiv Kapital acquisition that were recorded during 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 reconciliation to the non-GAAP financial measures with GAAP. I’d now like to turn the call over to Steve.

Thank you, Darby. I’d like to start off 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 help drive net finance receivable revenues up 32% to $223 million. Fee income increased 41% to $22.8 million driven by an outsized 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 2014 investments 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 see. 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 in management team to leverage growth and expansion in Europe. This was 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 received to Aktiv capital collected in the first six months of the year fired 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 the 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 to even more opportunities to invest capital globally. These types of acquisitions get with our long-term strategy and help to 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 in historically low charge-off rates. Insolvency purchasing is still challenging as bankruptcy filings in the U.S. 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 the trough. The U.S. bankruptcy market is still a very important part of our overall insolvency business and we believe that our data set, diligent underwriting, and alter efficient in-house servicing allows us to operate profitably through any market condition. The regulatory environment in the U.S. 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 of sellers and buyers alike worked to fully understand all aspects of designers. 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 U.S. core and insolvency markets when supply returns normal ranges and our European management team is working hard to increase our market share in geographic reach. Our focus has always been and will continue to be 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 is 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’ve 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 create a situation where we incurred approximately $8 million U.S. 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 raise to this event remains as is. The events that led to the negative tax impact could continue or end up reversing themselves, in other words just possible we could have a positive impact in the future of currency moving 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, 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-tax is up just 3%. Now let me provide you with some details on our financial results for the quarter. Note that when we talk by insolvency, this includes Individual Voluntary Arrangements or IVAs, and trusted deeds in the UK, consumer proposals in Canada and bankruptcy accounts in the U.S., 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 finance 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 a $177.3 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 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 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 outsized 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 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 competition 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’d like to explain how currency changes can impact us. This will also help you to understand what drove the additional $8 million in tax expenses 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 reporting period. The difference between the two is booked as a foreign exchange gain or loss. If this occurred because we have an entity it has operations and a currency that’s different from its functional currency, for example collecting cash from a portfolio in Germany, that’s Euro denominated but held by UK entity with the pound as its functional currency. This gain or loss is called re-measurement and will 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 losses called translation and it’s reflected in the balance sheet and other comprehensive income or OCI. Mitigating this effect is part of what restructuring that’s been underway. We’re 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 collect in the same currency – the entities functional currency. Thus mitigating some of the foreign exchange gain and losses on the consolidated income statement. Secondly, however, the relative strengthen or weakness of any of our reporting currencies will impact our financials. As we’ve experienced lately, the stronger the U.S. dollar versus the 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 relating 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 it taxed domiciled in Norway. In order to file taxes for this entity, we must re-measure the operations from Euro into Norwegian kroner or not and incur foreign exchange gain 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 increase in our tax liability of $8.2 million. However, since the gains are not reflected in our consolidated financial statements, this was done for tax purposes only. As I said in the beginning of my comment, the additional tax expense is currently a non-cash item, since we have significant NOLs in Norway. So far 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. Even 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 not could drive additional tax liabilities and conversely if the knock gained back loss ground these affects 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 balance at the end of the quarter at $39.7 million compared with $162 million a year ago and NFR balance was $2 billion, up from $1.24 billion at December 31, 2013. During the quarter, we repurchased $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 have repurchased $1.25 million shares of common stock at an average price of $52.85. This leaves approximately $20 million left on our existing share repurchase 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 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 of an average payment size can be impacted by a variety of short-term market and operational conditions, we believe the more insightful metric to track as 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 the 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 our core cost of $15 million was 22% lower than the same quarter last year. The reduction in core cost reflects lower inventory levels in part driven by improved call center performance and some operational issues related to newer requirements for choice court revenue and some incremental documentation. While, we expect the operational issues to resolve rather quickly, the inventory issue is expected to be longer term. Core costs in the coming quarters will likely to 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 consumers 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 of 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 favors the UK market relative to the other markets where fewer large payments were made via the legal collection process. Integration is going well and remains a tough priority. We’ve maintained good momentum across markets. Efforts to leverage scoring and segmentation insights along with the dialogue [ph] strategies that have been effective for PRA in the U.S. 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’d like to turn the call back over to Steve.

Thanks, Neal. There is 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 an investigation regarding our debt collection practices by providing documents and data to the CFPB and we have subsequently discussed with the CFPB of proposed resolution involving possible penalties, restitution in the adoption of new practices and controls and 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’re unable 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 would like to open the call for collection – for questions. Operator?

[Operator Instructions] The first question is from Bob Napoli of William Blair. Your line is open.

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

Right I think you’re assumption is right.

Right.

We are currently looking actually in the 35% to 37% range, somewhere in there. So it’s interesting if some of this event that we saw in Q4 reverses that would obviously have a downward impact and by first of knocking further weakened. But if your question was if all things remain equals so we are thinking more of the $35 to $37 range.

Okay. And then the purchases I guess those are moving in to the yield into Poland? What led to that opportunity and I think I know just looking at data in the market and it sounds like there was a significant purchase of which part of it was in December and part of it was in January is that right?

Yes, this is Geir here.

Hi Geir.

We had been looking at the markets for a period of time until that the pull and nice the market in Tulsa [ph] is interesting given its size and relative maturity in terms of debt persisting. So we’ve been involved in a couple of other transactions that will not materialized. 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 and we also structure the deal in a way that gives some downside protection. And yes there are two transits of it, the one that will happen now in Q4 and the next one then in this quarter.

Then where are you seeing the opportunities in Europe today. Your one competitor in U.S. made a large acquisition in Spain and which of their markets you are more interested in than others and what new markets would you have interest in?

We are now present in nine markets now with platforms around Europe and we follow those closely. And I think with the additional pool and Italy that we have now strengthened our presence over the year. We think we are present in most of than where there is a big opportunities are even so we will see more growth from existing markets where we’ve always been the outlook for a new markets entry where we’ve see the right opportunity and market that gives ourselves the long-term potential that we’re looking for.

Okay, and last question and Steve you may not be able to give me any answer, but just on the CFPB, I mean how long have these discussions, I mean, they had a paper out at the end of 2013, asking for comments and we’ve not heard anything much back since then obviously on core and new sales have been in discussions. What types of, I hopefully you can give some feelings and what types of disagreements and would you expect a lot of regulatory cost to be included in 2015, related to these discussion?

Well Bob, I think really, the only thing I can provide any color on is just, is that relates to the formal rule-making process, there were preliminary rules that were communicated and there was a request for input we along with a lot of industry providers, I think, provided input at that time, and at this point I think we all await anxiously that formal rule making to occur, with regards to tell the specifics of the other matter I mentioned, we just decide that we’re, not going get into it, at this point

Great, thank you.

Thank you. The next question is from Hugh Miller with Macquarie. Your line is open.

Hi good afternoon and thanks to taking my questions.

Welcome.

So wanted just start off, I guess one with the legal collection cost in the quarter. I think it 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 may be 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 gives us a little color on what’s going on there? How should we be thinking about that cost going forward and the level of placements?

Sure, so the call centre performance was up pretty significantly in the quarter, and based on what I’m seeing from consumer behaviors related how people are paying in terms of average payment size and relative to the acquisitions score to it, it looks pretty positive. So to the extent that people pay us in our call centers less accountable fall back into the legal channel and from our perspective that’s great news. We’ve much preferred to collect it in the call center so that 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 and so not all of this was an inventory problem some of this was operational in nature and we believe we’ve sort of straightened that out. So 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 – I’m seeing some news out of the Crawford case with Chapter 10 bankruptcy cases and some information about the communications with lawyers and any kind of potentially shifting towards the least sophisticated consumer role. I was wondering if you could just talk to us briefly about what type of influence you anticipate that might happen or have an impact on as you think about the PK market going forward?

Yes, what you – I'm not going to dance on that one, I don’t have a intelligent answer for you and so, I’ll pass and we will, I guess work through Darby to try to get an appropriate answer to the investment community about through her.

Yes, sure and I appreciate that that’s not a problem at all. And then the other question I had was just with regard to, we were hearing a little bit as well from credit issue out there and with an issue with vicarious liability than being held accountable for the actions to one of the third party contingent collectors. And so 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 replacement standpoint, has there been any changes there or that’s kind of status quo?

Yes, I think that’s kind of 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 issue were shared this with us is that, it’s going to be safer for them from a vicarious liability perspective to sell then to place.

Okay, that’s helpful. And then one last question I had, we were hearing about a credit issuer who has been sidelined and talking about circling around to do some audits, which isn’t something that they’ve done prior. Was wondering if that has been the case for your guys and if you’ve been contacted about preparing for an audit on the horizon and what that might be?

I think it’s safe to say that for those parties that have been out of the market, that for sometime 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. So whether it’s audits and purchaser reviews or other types of engagement we continue to see that.

Okay. Appreciate your time. Thank you.

Thanks.

Thank you. And the next question is from Mark Hughes of SunTrust. Your line is open.

Thank you very much. And when you talked about the party – parties coming back to the market is that plural party?

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

Right and so local parties are taking the concrete steps to move forward?

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

And then the fee business was quite strong this quarter, could you maybe give us a sort of the incremental margin on EPS impact from that fee business whether that’s recurring, whether or any or maybe fair to say with it whether any sort of non-recurring benefits or gains that happened this quarter that you not might not expected and you and what the EPS impact of that might be or either [ph]?

Sure. Mark, I’ve been waiting a longtime to say this. So actually our fee business is believe or not we’re actually modestly accretive to our operating margin, I think I can clear my throat for a second, actually modestly accretive to our operating margin this quarter. The CCB business really had a great quarter and again I actually include that in my script just because Steve Roberts runs that group and he and gentlemen works for me and Bob Ray has done a really good job building the pipeline. So but CCB is always going to be a lumpy, it’s just the nature of that business hopefully what Steve and Bob are accomplishing is they’re filling some of the gaps between those lumps. I think I talked about that a few quarters ago. So yes, in order to answer your question it was actually accretive to margin modesty there was kind of a larger transaction in the quarter. And but hopefully just by actually all the subjects, look at government services, for example, Steve has done a really nice job with that one as well moving margin up and he’s forecasting it to increase modestly as well next year or so. I think that fee businesses are humming [ph] along pretty well right now.

Then you don’t want to quantify how much is sort of the – usual benefit in the quarter versus what might be in more sustained just in the performance?

Well, that the thing to think about it on that CCB business is we have a very low fixed expense.

Right.

And as these cases pay off we bring in cash and revenue. And so 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. And Kevin talked about that pipeline filling exercise that we’ve been working on, what we’d like 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.

Kevin, could you talk about the portfolio of pricing and supply in the U.S. market you obviously did quiet well this quarter. Was your – you just happen to win more, was there are more opportunity, more flow of opportunities, how did you proceed pricing?

I think we continued to proceed pricing as competitive, so the fact that we bought more that didn’t signal that we saw a fall off in pricing, it’s just one of those things that we’ve explained here year-after-year, you know some quarters we just hit on a few incremental deals and some quarters we hit on the few less. And obviously that that shows up in our buying numbers. The other thing is though the longer-term trend in the U.S. is definitely toward a consolidation in the market and fewer competitors. And so we believe we’re going to be able to continue to inch up our market share as a result.

Would you say there is more supply this quarter?

I’d say is difficult to tell, it was probably – compared to Q3 it was probably steady to maybe it was up a little bit.

And then Kevin you’ve made some point about the trend and insolvency was part of your script and I did not quite catch exactly what you're saying the trend in insolvency that you expected to persist, what was that exactly?

Well, it’s just, you know, we’ve had a – year-over-year we had a 5% reduction in revenue from insolvency group and I just felt that we should throw it out there. We probably figure that trend is going to continue into next year.

Okay and then – I think that’s it. Thank you very much.

Thanks.

Thank you. The next question is from Doug Greiner of JMP Securities. Your line is open.

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

I actually don’t have that data in front of me. We are not going to talk about that, so leave it up.

Fairly steady.

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

Okay. And then principle amortization included net allowance charge this quarter?

It did.

Can you talk about what’s 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 older pools have really, really outperformed. And when that happens, these yields get very high and it became very sensitive. So just a little bit of trimming of cash collections here and there can generate allowance charges. So I think the takeaway maybe – part of your question is the takeaway is that these are very profitable portfolios that I actually put the allowance charges on it because of the asymmetrical nature of the accounting. So, again, takeaway nothing bad there it’s just the yields got very high.

Got it. And then last one, you mentioned that $0.16 EPS impact from FX headwinds 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 crossover benefits there between that line in the tax impact?

Well, that’s just really – it’s a really good question. I didn’t call it out. So in my discussion of FX rates, I went through the first item and then the second one – the second one which is the general strength of the U.S. dollar. So on the tax matter, it was very specific, very identifiable, and I felt comfortable talking to you 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 dollar and what you’ve seen is that from an NOI perspective the Euros and the NOX and everything else earned over in Europe just translate into less dollars here in the States. So you’re correct. There was additional headwind of some sense inside our Q4 earnings from that headwind as well.

Great, thank you.

Yes.

Thank you. The next question is from Bob Napoli of William Blair. Your line is open.

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

No, I don’t have that in front of me. It’s probably in our 8-K. It’s probably in the – right at the end of pro forma…

Okay. And 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, no, no. So when – went through OCI, I think of it – and I know all those accounts on the call are going to hit this, but think of it as equity ownership, okay. 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 U.S. dollars. When I do that again as long as there is no – I don’t see cash coming back from Europe, there is some additional tax rules in the Unites States, but once I – again we don’t forecast that right now, so when I take that European income statement and balance sheet and translate that into the United States that goes through OCI.

Okay.

Okay and I can – if that’s not a great accounting primmer, I can walk you through at some point.

And then just are there things – and I know you can’t talk Steve about the CFPB, but I guess wondered if you can’t say if the things that are discussed – discussing and the way they look at things versus the way the industry looks at things, if that has – if it’s just – if that has a – it can’t 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 that there are many items that the large more sophisticated debt buyers can implement on an operational basis really without missing a beat and that would be good for everybody and there is probably other things that we’re discussing where we’re having a harder time, finding a meeting of the minds.

Okay, just the IBA 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, with a very large purchase out of Poland affects last quarter and next quarter. And is IBA business that way as well as it is going to be very lumpy is $11 million kind of a something you expect is like an average quarter that you would expect in the future or is that a lot more than you would have found lumpy favorable?

Well, I mean, Geir can correct me if I am 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 are some markets where we may only see one or two sizable deals in a year. And so you can get these very substantial swings on a quarterly basis, but that’s one of the reasons why we’re in 8 or 10 or 12 countries and it tends to diversify itself out over a longer period of time.

And then, I mean, 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 know it’s not a perfect science, but 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, more flow in 2015 than you saw in 2014? What would cause that?

First of all it is a – it is hard to -- and has no exact time for this. There is no official statistics and as we’ve discussed many times, it is very, very bulky. Having that said, I guess, we’re expecting volumes in similar size of what we’ve seen this year. And then now I am talking more than investment volume. We’re seeing a shift in mix to more higher quality debt going to market. So while the face value maybe a little bit lower. You see more high quality debt coming in most markets that they sold off some of the oldest stuff and then moving up the food chain in some of these markets. So similar size to what we’re seeing this year.

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

It is across all markets in the Europe. It is – it’s quite competitive and the other mix of competitor in the different markets, you would have some pan-European players, you would have a few low players in each market and then you will have some funds that go in and out as they see the opportunities. So – with easier access to capital, we’re seeing continued strong composition 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 slowdown the amount of purchases that you would make in the – over the next several months?

No, not in the least.

Thank you, very much.

Thank you. The next question is from Mark Hughes of SunTrust. Your line is open.

I think Bob just asked my question, I’m off that. 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.