PRA Group, Inc. (PRAA) Q1 2017 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 is being recorded. I would now like to turn the conference over to our host, Ms. Darby Schoenfeld, Director of Investor Relations for PRA Group. You may begin.

Thank you. Good afternoon, everyone, and thank you for joining us. With me today are Steve Fredrickson, Chairman and CEO; Kevin Stevenson, President; and Pete Graham, Executive Vice President and CFO. Tiku Patel, Chief Executive Officer of PRA Group Europe, will also be available to answer questions during Q&A. 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. Both 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 the first quarter of 2017 and the first quarter of 2016, unless otherwise noted. I'd now like to turn the call over Steve Fredrickson, our Chairman and Chief Executive Officer.

Thank you, Darby, and good afternoon, everyone. Thank you for joining us on our 2017 first quarter earnings conference call. 2017 is off to a good start. Cash collections exceeded expectations in our global insolvency business, Brazil and Canada and we're in line with expectations in core U.S. and Europe. Legal collections improved as the operational delays caused from last year's regulatory changes are now behind us. Our global collection operations remain efficient, generating $390 million in cash receipts during the quarter, driving a cash efficiency ratio of 61%. This ratio is steady with 2016, despite our increased collector FTE count, the higher cost from operating in today's regulatory environment and the continued fall from the peak of investment in our U.S. insolvency portfolio. Portfolio investment was also stronger at $228 million worldwide, an increase over the last 2 quarters. We saw a positive momentum on 3 of the 6 catalysts I mentioned on the last call. First was billing supply in U.S. core, driven by higher charge-off rates, which Kevin will provide detail about in a moment. Second, insolvency supply. Chapter 13 filing rates in the U.S. have moved up slightly in 2017. We had a nice pick up sequentially in both U.S. core and insolvency purchasing in Q1, and we see early signs of more of both varieties of paper coming to market in subsequent quarters. Third, in order to capitalize on these growing U.S. purchase opportunities, we amended and restated our North American credit facility, increasing the borrowing capacity by $267 million, giving us additional capital to put to work in the Americas. Historically, we benefited significantly by adding excess capital available as we entered periods of purchasing opportunity. We believe we're in such a moment. We've seen very little concrete movement in Washington as it relates to regulation. However, there have been some recent commentary on the TCPA by a Commissioner of the FCC, which gives us hope that they'll overturn the past misguided ruling and allow businesses to appropriately utilize today's technology to contact customers. We're awaiting a ruling from the D.C. circuit on the industry appeal that was filed and argued in 2016, but are hopeful that regardless of that outcome, the FCC will revisit the current interpretation of the TCPA. There's been no further definitive communication on debt collection rule making from the CFPB, but we anticipate that they'll continue to work with the industry in crafting rules that are fair to both consumers and business. As we mentioned last quarter, with almost a year having passed since we implemented new operating rules related to our consent order, we now feel our operations have stabilized and we're beginning once again to be able to fine-tune processes to improve efficiency. Investment in European core was $40 million. While supply looks strong for the next few quarters, we still see increased competition in many of our geographies. Our operations in the U.K. and Spain continue to benefit from analytics and performance there have been strong. The U.K. remains our largest European market with our biggest data set. And changes made there, informed by our operational analysis, have driven more collections with less operating expenses. Central Europe is also seeing particularly good performance. We continue to work on leveraging our business globally, ensuring analytics tools across all geographies in order to maximize our operational efficiencies. Italy remains on non-accrual, although we did collect almost $7 million there in Q1, all of which went through amortization. While our operational fixes continue to progress, we're still working to be able to reasonably model a very complex local legal environment, a required step before we can place pools back on yield. Although, overall, operations are performing generally as expected and we remain committed to the Italian market and the credit originators we serve there. Finally, Kevin and I have been working through the CEO transition process since the last earnings call and things have been going very smoothly. We're making good progress toward the June 1 hand-off date and expect everything to transition as planned. Now I'd like to turn the call over to Kevin, who will go through operational results in the Americas and global insolvency.

Thank you, Steve. As Steve mentioned, we were making good progress in the transition process, one step of that included visiting our U.S. call centers and 6 of our European locations over the past few weeks. We conducted dozens of group meetings with collectors and managers to have open conversations about the transition, the business and hear their ideas. We have a talented, motivated and energized team who I have great confidence in to continue to develop the business for the future challenges and opportunities. In Americas core and insolvency, we are progressing well. Investment in core Americas was $115 million in the quarter, which was up nicely from the past 2 quarters. Global insolvency invested $73 million during the quarter, $67 million of which was in the U.S. This is the largest quarter for global insolvency business since 2013 Q2. We've seen indications in the market that supply in core Americas is increasing. Many articles have been written recently, discussing the post-crisis build in consumer credit in United States, and the predictable result of increased charge-off volumes that are now showing. Federal Reserve data shows charge-off rates increased in the fourth quarter of 2016 by 50 basis points to 3.56% versus 3.03% in Q3 of 2016 and 2.94% in Q1 of 2016. Charge-off rates for some credit issuers are higher and expanding faster than this since these lenders also serve the mid-prime customer markets. Additionally, outstanding credit volumes continue to increase and we expect this combination of issuance and charge-off rate growth to provide increased supply into the sales market. Importantly, this supply increase is propelled by the increase in lending as well as normal, historical charge-off patterns and not an economic downturn like we've experienced during the global financial crisis. Our collector FTE count at the end of Q1 was almost 2,000 people in the U.S., a net increase of more than 600 since the end of Q2 2016 when we first announced our plan to increase staff. We continue to be pleased by the progress we've made in this front. Both our current staff and incoming collectors are operating well and they are working very hard to accomplish the goals we've set for them this year. On our multi-day trip to the U.S. sites, we experienced very positive attitudes and constructive feedback. Collectors and leadership are seeing growth. They have increasing number of accounts to work and are energized. We believe we're in a good place with our collector FTE count and plan to meet our goal of 2,100 by the end of Q2. However, to the extent we start to see supply in excess of current expectations, we may increase our FTE count again. Our current capacity is 2,200 seats and we could flex that higher with second shifts, but should we see a significant volume, amount of volume, we might look to either expand one or more of our current sites or add a new site. As expected, productivity declined from 2016 with adding so many new collectors in such a short period of time. However, cash collections and portfolio penetration are where we expected and consistent with our updated projections coming out of Q4, hence, the lower level of U.S. allowance charges in the quarter. Our current productivity continues to exceed our levels in 2013, 2014 and 2015. Our legal collections are no longer backlogged, as we've discussed in prior calls, and we continue to score and place accounts into this channel utilizing a targeted ROI. We made great progress over the last year in dealing with documentation and regulatory environment and want to congratulate all the teams who worked so diligently to get us up to this new normal. We have and will continue to adjust our targeted ROI to optimize the benefit of this channel. I want to remind everyone, as I did on the last call, we've been buying lower balance accounts in the past few years, which could decrease the proportion of collections coming from the legal channel going forward. Core Americas cash collections were up 3% year-over-year, breaking the declining trend we experienced over the past year. The increase was largely driven by collections in Brazil and Canada. U.S. legal collections did decline $7 million in the quarter, but to a lesser amount than they have over the past year. In global insolvency, collections declined $16 million or 22% versus the first quarter of 2016 as the business continues to move away from our peak of investment and the resulting cash collections. However, Europe insolvency cash collections more than doubled for the first quarter of 2016. Now I'd like to turn things over to Pete to go through our financial results.

Thanks Kevin. Cash collections as a whole were in line with expectations, with outperformance from Brazil, Canada and global insolvency. Total cash collections for the quarter were $380 million, a decrease of $5 million compared to the prior year, but up slightly after adjusting for currency movements. Americas core collections were up $7 million versus the first quarter of 2016 at $227 million, driven by growth in Brazil and Canada. This was partially offset by legal collections, which were $7 million lower than the prior year due to a lower volume of accounts being placed in the legal channel in 2016, due to the reasons Kevin noted earlier. Global insolvency collections declined $16 million versus the prior year's quarter. Allowance charges in the first quarter returned to a more maintenance level, as we expected. Of the total $2.7 million of allowances, only $630,000 were related to the U.S. and the remaining $2 million were outside the U.S. Amortization was 48.8% of cash collections in the quarter and was driven higher by the reduction in NFR balance in the fourth quarter, pools on non-accrual and outperformance versus level yield. NFR revenue in the first quarter was $195 million, a decrease of 6% from the first quarter of 2016. Fee income was $10 million in the first quarter, a decrease of 39% from the same period last year. This was the result of selling our government services business in January, which provided us with a capital windfall for monetizing in asset that yielded a substantial return on investment. Operating expenses were $153 million, down slightly from the previous year. Increases in compensation and employee expenses and legal collection expenses were offset by decreases in outside fees and services. Included in compensation expenses were non-recurring expenses of $2.1 million related to the completion of the government services transaction. Legal collection expenses were higher than the same period last year due to delays in early 2016 related to adjusting to new regulatory requirements. Operating expenses were 39.3% of cash receipts in the quarter compared to 38.4% in the first quarter of 2016 and 40.1% in the fourth quarter of 2016. Operating income for the first quarter was $53 million and our operating margin was 26%. Below the operating income line, we recorded a gain on sale from the government services business of $46.8 million. Adjusting for the additional $2.1 million in expenses I mentioned previously, the adjusted gain is $44.7 million. In utilizing the current quarter's effective tax rate, the post-tax gain would be $27.4 million. Our first quarter 2017 effective tax rate was 38.8% compared to 32.2% in the full year of 2016. The increase in rate is driven primarily by mix of earnings, with a much larger amount being earned in the U.S. due to the gain on sale of government services. Net income in the first quarter was $48 million compared to net income of $32 million in the same quarter last year. Moving to the balance sheet. Cash balances ended the quarter at $82 million compared with $79 million a year ago. The net finance receivable balance was $2.4 billion, almost flat to last year. Our estimated remaining collections were $5.1 billion at March 31, 2017. Net deferred tax liabilities were $259 million at quarter end compared to $269 million a year ago. Borrowings totaled $1.7 billion at quarter end and our debt-to-equity ratio was 184%. ROE for the first quarter of 2017 was 20.6%, this was driven higher by the gain on sale of the government services business. Finally, as Steve mentioned, we did amend and restate our North American credit facility, increasing the aggregate principal by $267 million to $1.2 billion, and extending the maturity to 5 years. We're extremely appreciative of our existing lenders and the significant commitments they've made and are pleased to have new members in the group who have also made sizable commitments. This gives us an immediate increase in capacity. In addition to the substantial free cash flow we generate from operations, we now have $1 billion to invest globally in NPLs, which puts us in a great competitive position for the opportunities we see on the horizon. Now, I'd like to turn things back to Steve for a few closing remarks.

Thanks Pete. With this as my 58th and final earnings conference call, I wanted to thank everyone who has followed us as an investor over the years. As I transition out of the CEO role between now and the next earnings call, I want to reiterate that I strongly believe Kevin is the ideal person to continue what he and I started more than 21 years ago. I'm extremely excited to see what the future holds and look forward to being a supportive part of that growth and success. Operator, we're now ready for questions.

[Operator Instructions] And our first question comes from [Technical Difficulty].

[Technical Difficulty] my questions. A lot of things to cover here. Steve, I'm curious about the BK market. Obviously, just like the charge-off supply, as you noted, Chapter 13 filings are up slightly, but is there any reinterpretation of some of the OCC guidelines or anything you're seeing from 1 or 2 big sellers [Technical Difficulty] substantially larger purchase volume than we've seen in quite a while.

I'd say we're hopeful on those fronts, David. But as importantly, we see different selling banks react to increasing charge-offs in different ways, and this quarter, we were just in a position to respond to somebody who had made a strategic call to sell down some of their bankruptcy book. So I think it's that type of opportunity that we talked about in that catalyst section that slowed this more than big sellers returning to market.

Got it. And question on just the decision on where to deploy capital near-term. I mean, it's not the first quarter where you've noted the European market is quite competitive. As we think -- well, number one, I guess, the question is, are we starting to see a pretty noticeable divergence in expected returns for a dollar invested in the U.S. versus overseas, recognizing you're in a lot of different markets over there? And secondly, can you -- to the extent that you might deploy more capital, the mix might increase in the U.S., can you remind us about how much more variable the cost structure is in Europe versus the U.S.? Like how much more you use third-party agencies and so forth?

Sure. Well, I [Technical Difficulty] remember, the way that we've established our financing facilities over at least the short to medium term, we really aren't doing an either/or allocation. Both Europe and the U.S. or North America stand up on their own and so we're really looking at making independent pricing decisions, both in the U.S. and Europe.

Got it. Lastly, and then, I'll get back in queue, with respect to the TCPA, I mean, obviously, Chairman Wheeler stepped down back in December and there's been more positive commentary from the new chairman, as you noted. Can you give us a feel for how to quantify the impact on collector productivity and maybe even what kind of measures we ought to think about if you were suddenly able to use automated predictive dialers to reach cellphones? I mean, just...

David, this is Kevin. It would be an impact that we would certainly talk to you about. Assuming that happens tomorrow, we would have our dialers turned on within a couple days. But I think, it would be a fairly meaningful impact. And we've been talking about this for years and it would allow us not only to be more efficient with our reps but also continue to penetrate our portfolios more deeply because, to your point, we don't use dialing equipment for calling cellphones at all.

Well, is there anything -- and then, I'll get -- I'll hop in line, but is there anything in terms of, let's say, annual collections per FTE equivalent pre-2010, when the rules went into effect, that could help us perhaps quantify just how meaningful and impact this could be?

I don't. And that was just -- each world is a little different, so trying to think about dialer impact on portfolio in 2010 might not be a good comparison. But again, we'll be very open and try to give you as much color as possible. The one thing that might help actually, now that I think about it, if you think about dialing volumes either rough numbers [Technical Difficulty].

Look at your portfolio today, and I think, Steve, I've been on every one of the -- just about every one, if not every one of the calls that you've been on, so we'll miss you on the next call, but if you look at the internal rate of returns on your portfolio, historically, today, where the IRRs are well below average. I mean, you generated ROEs in the 20% range for a long period of time. And is the paper that you're putting on today, can you get back to historical average IRRs in your portfolio that would allow you to generate that -- bring that ROE back up to where it used to be, that could maybe -- I'll just leave it there on that question.

So it's been a long time, Bob. So, we've been buying portfolio now for 21 years. But to think about today's returns and to try to calc them as average or below average or above average is tough because you've got all these different environments. You've got the environment from late '90s, you've got the early '00s, you've got like all the hedge fund era and you've got the global financial crisis. So the average is kind of a meaningless number across that. I get your question though. From our perspective, we can talk a little bit about pricing internally. We do think pricing is improving. It's been improving now for quite some time. And I think there's opportunity for some further improvement. And our job will then be to convert that through becoming more efficient into, hopefully, some good ROEs for you.

So you believe that the paper that you've been buying is at higher IRRs than the average of the current portfolio?

Again, from a net IRR perspective, again, I think, it's important to think about the average in the past. It's been a lot of different eras. So you'd just have to take the color that from a net IRR perspective, we think we are moving nicely in the improvement range, let's put it that way.

Okay. And then, return on equity, do you think -- should we be thinking about return on tangible equity if we try to compare it to the past, or is it still your goal to get your return on book equity solidly into the double digits?

Well, tangible, so for instance, it's one of our stated goals to produce ROE. But again, I'm not going to be able to give any guidance on that as far as how the current ROEs and IRRs all kind of mesh together over the next several years.

Okay. I mean, is there something like the Board is being measured -- I think, you've been measured on ROE at times in the past. Are there measurements that you're looking to be held to?

Bob, we have a long-term incentive plan that contains ROE targets, which we publish every year. And so ROE is something that the Board is interested in and incents the management team upon.

Okay. The $1 billion of dry powder that you have, is there -- I mean, do you see near-term opportunities? I mean, that's a lot of dry powder and that can include corporate acquisitions or just looking at it -- just seeing big buying opportunities in Europe or the U.S. What are your thoughts around where you would expect to put a chunk of that dry powder to work at this point? Is it still kind of what we saw this quarter? Do you see more opportunities in Europe? I mean, your Europe buying was relatively low in this quarter while the U.S. and North America was very healthy.

As I remarked, we tended to be paid well in the past for having dry powder available as markets change and as buying opportunities increase. And one of the lessons that we've learned is that's a situation that you take care of ahead of time as opposed to behind the curve. So we think we've acted preemptively in both Europe and the U.S. We think that we see opportunities certainly increasing, as Kevin remarked, in the short term in the U.S. And although we don't anticipate putting everything to work immediately, we do think that opportunity set for go-forward acquisitions is quite attractive for us, especially in North America. In Europe, there's certainly no lack of large deals, but at this point, there's also no lack of competitors. And as I've remarked repeatedly, I think, people are in a bit of a race for geography there and we've got a lot of folks in new geographies that, from our view, may be underwriting a little on the aggressive side. And so we think this is a time when it's -- you're paid to be prudent and you're paid to play the long-term game and let other people rush into making pricing mistakes. The capital that we've raised, I would say, is primarily thought about for portfolio acquisitions. As you know, we've done some M&A work over the years, but our feeling is that, right now, the wave has turned more toward buying portfolios and we think the biggest opportunity at the present is in buying additional portfolios.

Thank you. Appreciate it.

And our next question comes from Mark Hughes of SunTrust. Mark, your line is open.

Yes. Thank you. Good afternoon. The legal collections process sounds like it's back up to speed. Is the actual cash flow from that process, how much is that kind of back to full strength there? Is there a delay of a quarter or 2 before the actual cash starts coming in the door?

Well, any delay is going to cause some delay in the cash flow. But again, I think you listened correctly. We're caught up from a filing perspective when there certainly was a delay. It's likely caught up at this point. I mean, folks around the table are shaking their heads yes, so...

Right. So you're caught up in the filing perspective, but maybe not caught up in the collections process?

No. I think that's worked through there. Again, I don't have any batch track in front of me, but I think you should just expect to see the legal collection flow from those filings that we just have done in the past several quarters.

Okay. And then, any estimated expense drag from the additional staff? You added 600 year-over-year. That's pretty meaningful. Any way to gauge what that might have meant in terms of expenses compared to this time last year?

Well, I think, in terms of where we sit now in terms of compensation cost as a percentage of cash collections, we feel like that's pretty much fully loaded and what we would expect on a kind of a run-rate basis.

Kevin, you had mentioned that or maybe Steve, 90% of calls in and out were on dialers. And now, what was the number you provided that it is now?

10% to 15%.

Okay. And then, Pete, the $27.4 million post-tax gain, does that include the effect of the operating expenses, the $2.1 million?

That's netting off the extra compensation expense that I referenced.

Right. Okay. Thank you very much.

Mark, also, just to clarify, just remember, everybody, when you're modeling these things, these collectors are revenue-generating folks, right? And so if you look at the overall expense ratios for the quarter, we're around 39%. And it's almost spot on what our ratios were in 2015 and 2016. I'd additionally say, the salary line is a fairly similar kind of pacing. So, just remember that as you're working through your models.

And since you mentioned that, I'll ask this question then, the legal collection, is it a case where you probably incurred a few more upfront expenses due to the filings and get things back on track and that would be ahead of the cash coming in the door?

That's right. So I was, as you think about legal cash collection, the cost especially to file those suits, I think that number was around 5% of cash collection this quarter, which is a little bit higher than kind of our historical average, but not by a lot.

Okay. Thank you.

And our next question comes from John Rowan of Janney. Your line is open John.

Good evening guys. Just one quick question. Is there any way you can quantify how the pricing environment has changed? And your Encore has done so. And I was just curious if you could give us some type of metrics as to what you're seeing as far as pricing?

No. I think, other than Kevin's points that we believe we're buying the higher IRRs than we were a quarter ago or a year ago, we're buying a wide variety of quality of paper and we also win deals at a fairly large range of IRR. And so it's very difficult. I'd say it's impossible to say that pricing has moved by X percent. This is not an efficient market. This is not a commodity market. And we believe that there's a fair amount of inefficiency in pricing. And so other than to say we think the pricing has moved in a meaningful way, I'm not going to make a guess as to what percentage it might be.

Okay. Thank you.

And our next question comes from Robert Dodd of Raymond James. Your line is open.

Basically following up immediately on that one, maybe if not focusing on IRRs a second, which have a lot of other inputs as well and can move if, say, TCPA does and things like that. But just your purchase price multiple, obviously, we'll see the data when we get the Q, but we don't have it right now. If we look at purchase, obviously, 2014 and 2015 was of 204, 205, 2016 got more competitive, it's 201. Can you give us the number for where that stood in the first quarter 2017? Obviously, it'll be in the Q, but again, we don't have it yet. And that might give us a feel on the gross pricing, how things would move. And then, I'll probably have a follow-up from that.

Yes, I guess, one caveat I would make is that, that purchase price multiple is an aggregation of all the different types of things we buy during the quarter. So it's a rough gauge, at best, in terms of pricing. But when you see the Q filed, it will be 2.0 is the level that will be posted for the quarter.

Okay. Got it. And I understood that there's variation depending whether that's fresh or tertiary or whatever. Historically, you've given us that breakdown as how much of the mix came from those various sources. So, kind of from that perspective and you might not have this handy, but on a mix adjusted basis, we've been able to make some estimates about that in the past. Is that data going to be available to do that again because I don't think it was in the K? And if not, just kind of what's your sense on that mix adjusted on the gross number, whether there's been any meaningful improvement, again, that step up from IRR, which obviously has a lot of other moving parts?

There's a table in the 10-K as well as in the first quarter Q that breaks down our purchasing by quarter into those sort of categories of fresh, primary, secondary, et cetera.

Okay. Thank you.

And our next question comes from David Scharf of JMP Securities. Your line is open.

Yes. Thanks. It just a few more. I guess, for old times' sake, Steve, 1 more year of trying to box you in to some guidance. If I exclude, obviously, the gain from the sale of the services business and maybe the FX gain of $2.1 million kind of cancels out the one-time expense of $2.1 million as well. It was about kind of $0.41, $0.42 of sort of operating earnings. And as I look forward, I'm trying to get a sense for using that as a base. If there are any expenses that I should think about going throughout the year, ignoring seasonality, that maybe we're artificially elevated. I think it may have been asked if there was a little more upfront court filing cost. Just trying to think about, a) whether legal expenses may have peaked in the quarter. Should we think about just on an aggregate dollar basis modeling that a little lower going forward? And in addition, the comment about more low-balance accounts suggests that there's going to be a bigger mix of your collections will be call center-based versus legal. Should that inherently cause us to be thinking about operating margins improving as the year goes on?

So, if I can start off, David. I know you wanted Steve to answer it for old times' sake to get some guidance out of him. But, I'd go back to the comment I made earlier that once you model out the cash collections, which I know you've done for years, but the cash expense ratios have been very steady from a number of years now. Something like for the last 7 years, 4 of those years, they've been right around 39%. And that's with all the fluxes between different categories. And additionally, again, you'll be able to look at it more closely when you have time. But, the legal cost side for the quarter was around the 5% number, and that's not a lot higher than it has been. In non-accelerated years, you think back to 2012 through 2014, we had acceleration certainly there. So, I think for modeling perspective, you're probably best off looking at those cash ratios.

In terms of things potentially changing, the one thing that I think you need to understand is, in particular, these cases where we have deals on non-accrual or cost recovery, it's a significant impact, especially on the revenue line item. So, the situation in Italy certainly is a drag for us that's zero revenue, and obviously, all the expenses are continuing to accrue there. So once we're able to normalize that on a go-forward basis, you will see some tipping of results in cases like that.

I don't know if you've ever commented on when you're projecting it to get it fully amortized and then will become all revenue. How far out is that? How many quarters or years?

Yes. Well, we haven't said specifically, although, I think, I provided some commentary on it in my script. And we talked about the magnitude of cash collections there being almost $7 million. And the fact that the real hurdle for us is to be able to reliably forecast these cash flows and they're related to this rather complicated legal process that exists in Italy. And I would say that as each month goes by, we feel like we're getting closer. But as to when we're finally going to get to the point where we say, yes, as we look back month after month, we've really done a great job of nailing these forecasts. I can't say exactly when that's going to occur.

Got it. And then, just last question, this may be really far-fetched on the regulatory front. Obviously, we're in wait-and-see mode on the CFPB's collection rules, whether they ever get formalized. I'm curious, since the new administration, have you had any discussions with the Bureau and is there any precedent for company-specific consent decrees like you entered into actually being modified or reversed because it seems like you and your partner, other public partner, are still being forced to play by a higher standard than others?

I mean, we would love to see uniform industry-wide rules be promulgated that are, as I've said, fair to consumer and businesses. And that's our hope. We're doing what we can do with our conversations with lawmakers and regulators to try to make that result come about. But, I think it's a fool's error to make a guess on what's going to happen on the regulatory front, so other than saying we're hard at work to try to influence what we can. Ultimately, what comes out of it, we can only try to influence and then wait and watch.

Got it. Thank you, Steve.

And our next question comes from Bob Napoli of William Blair. Your line is open.

Any update on the IRS case, any -- on timing, any changes? Or are we on track this year to actually go to court?

No. We're scheduled to go to court Monday. So I will probably head to DC on Sunday and meet all the shining faces in court right in early Monday morning.

Okay. All right. And then what are your thoughts on how this proceeds and the timing and any thoughts you can give on that?

Not any more than I have. It's been one of our lives for a long time. The hearing itself is scheduled to last for two weeks. And then, you can do some research itself, but in a nutshell, I'll kind of summarize it for you, but it's really a hearing, it's really a finding of fact and what happens then is somewhere in the 90 to 120 days later, the actual case is argued, I put that in my own terminology and to the judge on paper. And then, she, in this case, has an extended period of time to analyze those and write an opinion and come up with a ruling. It can take a long time. So one to two years is not unusual.

And then, whatever the outcome is, either side would then probably, if they didn't like the outcome, take it another step, is that right?

That's correct. And certainly, either side, if they lose they can appeal it and run up the chain that way as well. Yes.

Okay. Let's see, just what would you expect for tax rate for this year?

We had previously -- so that we thought we would be 34% to 37% and kind of trending towards the higher end of that range. I think that probably is still a good number. Maybe the low end of that probably comes up a little bit, but for first quarter, but it's on the right range.

The fee income this quarter, $10 million, is there anything unusual in there? Is that $10 million going to -- is that going to be a very volatile number? I mean, obviously, you have one business that's pretty volatile.

We had some income in January from the government services business prior to the sale consummation. But other than that, it's sort of the normal things that you would expect in that line item.

Okay. And then, just any -- are there new competitors in the U.S.? Are you seeing -- I think, Concorde mentioned that there were some more aggressive buyers outside of yourselves in Encore?

Hey, Bob. This is Chris Graves. I just jumped in. And no, I don't think we've seen any substantial overt, new competitor activity. It's always hard to see behind the scenes from the seller's perspective of what their list look like. But nothing signifies that there's anybody material to be concerned with.

Okay. And then, just maybe as a follow on to David Scharf's question on kind of run-rate earnings. I mean, this is more of a comment than a question. Obviously, your amortization rate historically has been in the low 40s, maybe high as the mid-40s, 50s. Is it fair to think that over time over the next few years, if you're buying the papers generating the returns that you think it is, that amortization rate should trend down towards historical levels, all else equal?

Yes. I think that's a fair assumption.

Okay. That would be a really good thing. Thank you very much.