PRA Group, Inc. (PRAA) Q3 2019 Earnings Report, Transcript and Summary

Good afternoon and welcome to the PRA Group Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Darby Schoenfeld, Vice President of Investor Relations for PRA Group. Please go ahead ma’am

Thank you. Good afternoon, everyone, and thank you for joining us. With me today are Kevin Stevenson, President and Chief Executive Officer and Pete Graham, Executive Vice President and Chief Financial Officer. 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. The earnings release, the slide presentation that we will use during today’s presentation and our SEC filings can be found on 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 information needed to listen is in the earnings press release. All comparisons mentioned today will be between Q3 2019 and Q3 2018 unless otherwise noted. Additionally, you will find the Q4 estimated revenue model as an appendix to the quarterly conference call slides on the website. I’d now like to turn the call over to Kevin Stevenson, our President and Chief Executive Officer.

Well, thank you, Darby, and good afternoon, everyone. Thank you for joining our conference call. Today I'd like to begin where I ended last quarter. I'm so proud of the discipline and focus we've shown, especially over the past few years that I look back over our past 24 years. It's clear that we've consistently operate in PRA by set of founding principles. Four most in our list, our long term focus, conservative capital structure, ethical codes and diversification, which includes both product and geography. And our willingness to hold these principles, especially and during difficult times, from my perspective has been key to our success. Today, we have a tenured and committed management team. And we're not here to generate results for a couple years, and then move on to the next thing. We're here to make a positive difference in this industry and generate profitable and appropriate returns, which brings me to the third quarter results. We reported another quarter of strong performance, which built on the positive trends we delivered during the first half of 2019 and the foundation we laid over the past few years. These results continue the validation of our philosophy of investing carefully with a long term view. We've always believed that to be a successful participants in a non-performing loan industry, you must be both and accurate and disciplined underwriter, as well as an efficient and compliant collector. Of course, being public and the third leg of that stool is robust disclosure framework, so that investors can verify our performance. Our deep experience in data set in both the American and European markets gives us the ability to be an accurate and disciplined underwriter. And this in turn allows us to intelligently deploy capital based on these principles, across geographies and prototype. Our constant desire to improve our operational capabilities and be an efficient and compliant collector has driven us to invest significantly and globally in our digital channels to invest in and improve our calling and legal channels and further develop our analytical capabilities worldwide. As a result, during the quarter, we reported double-digit growth with total cash collections of $453 million. This included record cash collections in Europe. This drove total revenues higher by double-digits as well. Our global cash efficiency ratio again outperformed our expectations and improved almost 60% for the first nine months of the year, helping to produce a 47% increase in income from operations. We are also continuing our strong portfolio investment trends in 2019 with $279 million in global portfolio purchases during the quarter. Focusing now on the Americas, cash collections in core and insolvency were $326 million during the third quarter of 2019. And this was once again driven by increases in all of our core collection channels, including U.S. digital, legal, and call centers as well as gains in Canada and South America. We maintained significant growth in the U.S. legal collections from the increase in investments we made late last year. We continue to pursue a number of initiatives in this area to increase efficiencies and decrease costs. With a goal of driving the cash efficiency ratio and ROI on this channel higher. In the U.S. call centers, increased productivity allowed us to collect 9% more, as compared to the third quarter of 2018 with 28% fewer collectors by quarter end. Investment volumes remain steady in the U.S., Brazil and Colombia has seen an uptick in investment volumes with good pricing. As a result, we invested a healthy $194 million in the quarter and are well placed in each of our markets in the Americas to continue to capitalize on these conditions. Moving onto Europe, total cash collections are record $128 million. This once again, driven by strong portfolio investment and was despite a significant foreign exchange headwind. On a constant currency basis, cash collections in Europe increased 23%. The markets in Europe where during 2017 and 2018 we reduce our volume due to high pricing has begun to normalize. During the first quarter of 2019, we invested in six of our nine operating markets. In the second quarter, it was seven and this quarter we were awarded a portfolio in our eighth market. As a result, we invested over $593 million during the last four quarters in Europe, more than double the preceding 12 month period. As I mentioned in the past few conference calls, Spain and Italy remain challenging as we continue to observe market pricing that we believe is resulting in a rational and low returns. In our opinion, the Spanish market is being driven by deal advisory firms. So first, the sellers can hire a deal advisory firm, who have proven adept at finding new and experienced buyers to support what we believe are lofty valuations. Second, if you're one of the new entrants in that market, you can also hire a separate advisory firm who may be incentivized to win the portfolio to provide data and age you and your underwriting. Predictably, one tends not to see many repeat buyers for many of the large Spanish transactions. Italy has some of this, but also has large several entrenched participants that are driving the irrational pricing in that location. The good news, the good news is, despite these issues, pricing is improved considerably in both markets, with deals trading closer to what we believe are minimally acceptable returns. And both markets continue to generate large buying volumes. So stay tuned, we'll see how this evolves over the next few quarters. Across Europe broadly, because we've held our principles and patiently waited for the demand side of the equation to abate, while concurrently investing in our operation or operations in our digital and analytic platforms, we are now in a position where we have significant capital, strong operations an increasing market share in geographies that continue to have a robust pipeline of portfolios. And this is critically important, as we've also avoided deploying capital against low returning, long lived assets over the past few years. Now, that'll turn things over to Pete to go through the financial results.

Thanks, Kevin. I'll start with an overview of the third quarter 2019 results. The third quarter continued strong performance for PRA in 2019, as we maintain momentum from our prior investments. Total revenues were $250 million, an increase of $24 million, or 11%, primarily due to investment in portfolios and yield increases generating higher income on finance receivables. We invested record amounts in America's core in both 2017 and 2018 and has significantly increased our investment levels in Europe in the last 12 months. Yield increases occurred in both the Americas and Europe as a result of sustained performance in both geographies. The Americas performance was driven in part by an increase in the number of long-term payment plans and sustained performance in the legal collections channel that continued to impact our collection curves. Net allowance charges were $4 million. Operating expenses, which I'll address in more detail in a moment, where $181 million. Income from operations was $65 million, the $21 million or 47% increase. Below the operating income line, interest expense was $36 million an increase of $5 million, mainly due to higher borrowings used to fund portfolio investments. We also had a foreign exchange gain of $5 million primarily related to Brazil, where excess cash is invested in the US dollar linked fund. Our effective tax rate for the first nine months of 2019 was 19%. For the full-year, range of 16% to 20% is still our best estimate. Net income was $25 million, generating $0.55 in diluted earnings per share. Total cash collections in the quarter were $453 million, an increase of 16%. Growth in cash collections in the Americas was driven by a 35% increase in U.S. legal collections, a 9% increase in collections from us call center and other and a 51% increase in collections from other Americas. This continues the trend from the first half of this year, as we are seeing the impact of record portfolio investment in 2017 and 2018, as well as return on investments made in the legal collections channel. Europe cash collections during the quarter grew by 16% and on a constant currency basis were up 23%. The biggest driver of this was higher levels of portfolio purchases, and performance of recent vintages. Operating expenses were $181 million, an increase of 4%. Legal collection expenses were driven higher by legal collection fees related to the 53% increase in external legal cash collections. Legal collection costs have now evened out and we're fully realizing the related cash collections. Partially offsetting these increases was a decrease in compensation expense. As we continue to balance the call centers with legal collections. Our cash efficiency ratio was 60% for the third quarter, a 450 basis point improvement. The ratio was positively impacted by productivity improvements in cash collections from past investments that continue to deliver. We expect that this ratio will approach 60% for the full year. Estimated remaining collections at the end of the third quarter were $6.4 billion, with 54% in the U.S., and 40% in Europe. ERC increased nearly $600 million from the third quarter of 2018. Combined cash flow from operations and collections applied to principal on finance receivables, the business generated $721 million during the first nine months of the year. And at the end of the quarter, we also had capital available for portfolio purchasing amounting to $528 million in the Americas and $241 million in Europe, for a total of $770 million globally. Given our conservative capital position, as evidenced by our low leverage, and positive tangible common equity, we also have the ability to increase funding is necessary to take advantage of large portfolio purchasing opportunities as and when they arise. Now I'd like to turn things back to Kevin for some final thoughts.

Well, thank you Pete. This marks another quarter where PRA delivered excellent results. It also marks another period in time that holding to our accounting principles has benefited PRA. Here are just a few examples of our recent past. The first principle, maintain a conservative capital structure, and we remain prepared with substantial amounts of funds ready to capitalize on the pipeline of opportunities. In addition, given our leverage ratios and our strong cash flows, we have the ability to raise capital should the opportunity demand it. Historically, this focus has created multiple significant investment opportunities for us in the past. Most recently, you've seen it begin developed in Europe. The second principle, invest carefully with a long term view. While this is certainly a component of maintaining a conservative capital structure, goes far beyond that. The recent legal investments are good example. Since we expense legal collections costs when incurred, investing in the legal channel creates a short term drag on earnings, especially in the second half of 2018. But a year later, those investments continue to drive outstanding cash flows and contribute to yield increases in our more recent us portfolios. Third principle, focusing on profitable growth. For the past few years, we've been investing in people, digital, data and legal. And as a result, we are generating improved productivity along with digital channel improvements, and these are increasing our cash efficiency ratio. And the fourth principle is, set the bar for disclosure and transparency. We've always prided ourselves on our transparency, particularly around portfolio performance, and believe that our disclosures set the bar for the industry. And while the U.S. industry has robust voluntary disclosure framework, we believe it would be good for the larger global industry to adopt that as well. In closing, theory is in a great competitive position worldwide. And I continue -- I could not be more proud of this team and what they've accomplished. We've remained dedicated to our principles and our confident that based on our experience and discipline to continue to generate solid operational and financial performance. With that operator, I’d like to open the call up for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Mark Hughes of SunTrust. Please go ahead.

Yeah. Thank you. Good afternoon.

Hey, Mark.

Hey, Mark.

Pete, you gave the nine months $721 million that was cash from operations plus amortization. Give the just the cash flow piece of that for 3Q.

I do not have that off top my head. Let's see if I can do that before the end of the call.

I think I can back into the revenue model is pretty steady compared what you had for 3Q maybe even down just looking at it properly. Is there some impact? I know you incorporate some different basis collections into that, I think is that a seasonal factor? What would that be down sequentially given your purchasing?

That's a tough one. I mean, it's a rough -- gauge to try and calibrate the next quarter the main things that will impact that aren't in the model, again, any allowance charges, which was kind of around revenue now with the current presentation as well as purchases in the period and yield raises that we might have in the period. So, it's probably those last two that are causing variants from what you might have thought.

And then just commentary on supply and pricing in the US. You touched on the Europe I think, how about the U.S. anything on that?

Yeah, I think that again, supply tends to be fairly steady in the U.S.

Pricing similar?

Yeah, pretty steady.

Thank you very much.

And our next question will come from David Scharf of JMP. Please go ahead.

Hi. Good afternoon, and thanks for taking my questions. So, I mean, everything looked very impressive sort of all around. I guess I want to first maybe just a quick question echoing the last one and just the U.S. environment. Just curious, it's another earning season where all the consumer lenders are reporting very stable credit trends. So, the supply is coming more from portfolio seasoning and loss rates increasing, I would imagine. Just curious, is there any change in current issue or activity in terms of just how often they come to market to sell or how much they're coming with? Or is it just a very steady state predictable at a bidding calendar?

No, I think you hit it pretty much on the head. The issuers that our sellers are experiencing pretty, pretty stable delinquency in charge off rates. So in that kind of an environment, growth is going to be relative to overall growth and credit outstanding and in terms of the market dynamics the same mix of forward flows, the same sellers, all that kind of stuff is continue status quo.

Okay, great. Obviously, that's your visibility. Hey, and just the cash efficiency that the collection environment. A couple things, I guess number one, the comment about call center collections up 9% with a 28% headcount reduction. How are you able to do that? Was that all sort of a quarter end figure on collectors and we ought to maybe temper the next couple quarters call center growth due to that.

There isn't, there is a little bit of that sort of indie period, you know, measurement aspect. But I think there's also this dynamic of, you know, we continue to make technology improvements we've continued to build out, our digital capabilities, as well as continually improving our scoring in analytics to drive the activities of the call center. So all those things combined are allowing us to generate growth in that channel with fewer total headcount.

Yeah. I would also just for those who've been around – pardon me. Those have been around a long time, one of the things that you might recall is that during 2015, 2016, reduced headcount, probably the wrong time, and we talked a lot about that in our journey to rebuild. And so what I'll just tell you here is that, you know, we've got our eyes on that. We're not going to make that mistake again. And these headcounts reductions are much to what Peter said, as well as matching to our current inventory that we're purchasing.

Okay. You can kind of foreshadowed or preempted by my next question. Hey, lastly, just staying on this theme of kind of collection costs and margins. Can you kind of remind us that made as you see more higher balance accounts to qualify for legal collections? Just wondering, you know, how much more expensive is it now to collected power through that channel versus call center and does that imply any kind of inherent ceiling on your efficiency ratio?

No, again, it's all driven by mix of and type of paper that we're buying. So we're, we're, we're agnostic will price the appropriate collections strategy and costs associated with that to generate the similar IR. It's you know, small balance private label accounts or whether it's larger balance accounts that, tend to fit more in the legal channel. So I don't think it implies anything with regards to ability to generate higher level of cash efficiency.

I think the one opportunity we have right now is that a lot of the placements we've made over the past two years, yeah. It's been largely external attorneys. And we've got a pretty significant margin advantage to the extent we use our internal attorneys and will, you know, over time we'll start migrating back towards internal attorneys, even if you remember the conversation. The external attorneys just had the capacity to handle that volume that we needed to time at it.

Got it. Hey, just one last quick one. In the same vein, you know, your reference to digital investments in case is that basically the payment portal?

Yeah. It's a payment portal. It's the way where else, you know, drive the site efforts. You know, it's even to some degree, it's chat improvements and, and things like that, but to yes, that's it.

Okay. Great. Thank you.

And our next question will come from Eric Hagan of KBW. Please go ahead.

Hi, guys. Thanks. Maybe I can just follow-up on the revenue model question. I'm just trying to square together, you know, what was projected last quarter versus what you guys did during the quarter. I mean, you had 242, almost $243 million of projected revenue last quarter. And you guys did $247 or almost $248 million this quarter before the allowance reverse. I'm just trying to understand like was the model off in the last quarter or was the revenue on a new purchases during the quarter just some what we can if it's the latter just what kind of accounted for that?

Hey, Eric, its Darby that model tends to be dependent on a lot of different factors. So it's just an estimate based on our current portfolio at the end of the quarter, what it would be if everything was status quo the next quarter. There's so many things that can impact it, like Pete said, from cash on fully amortized pools, yield increases, buying in the quarter, so it can't – it's merely out there kind of as a guide, not necessarily a this is what it's going to be next quarter.

Yeah, yea, I didn't mean to imply that. The numbers were hard and fast numbers there. But I guess I was just maybe a little surprised that you know what it implied for the revenue on new purchases was just maybe low. I'm just trying to square it up. That's all.

I would say that our goal ultimately, now I'm not the CFO anymore. So you ought to bear with me a little bit. But theoretically, if you have all the yields that describe in a perfect world, that's going to -- it’s going to hit your existing portfolio then the only Delta, right, will be what, will be increases in a fully impact cash which is a new buying.

Fully impact cash.

A new buying. I think that context just recall when we first started publishing that revenue model, most of the analysts models were significantly I would say double, but were significantly higher than what the revenue was that we were producing. So it was really intended to be a broad gauge for you to calibrate your models, not necessarily predictive of what our next quarter was going to be.

Fair enough. And I should have preempted by saying the revenue model is extremely helpful. And to your point on disclosure, I think you guys do a great job of that. So thank you. Just the nature of the write-downs though in the U.S. during the quarter, can you just give us a little context there?

Yeah, again, it's the similar vintages that we continue to sort of have to trim the curves on. I wouldn't read really any anything into it. Last quarter there were allowance reversals in other pools that were largely dampening the allowance charges in the U.S. Again, I've said this on many occasions for a portfolio our size and complexity. $3 million to $5 million of allowances in any given quarter is not going to be ordinary, and again to reiterate this quarter and next quarter is all we've got left under that model. So we'll have symmetry after that.

Yeah. Yeah. Thanks for that. And then forward flow commitments. Any color there I mean, what's the number? What was the number at the end of the quarter?

725 of forward flow.

Super. Thank you, guys. Okay, Great. Thank you.

Before we go to the next caller, Mark, 39,745 is your three-month number. Okay. We can go to the next caller.

Our next question will come from Hugh Miller of Buckingham. Please go ahead.

Hi. Thanks for taking my questions. And yeah I certainly agree with the prior comments about how helpful the revenue model is. I just had one follow-up on that one. Certainly, I understand the variable factors, seem like purchasing activity was strong in the third quarter. So was there any difference in either the pace of yield write-ups in 3Q relative to maybe the first half of the year or the pace at which you were collecting zero basis revenue in 3Q relative to the first half of the year that may have been a bit slower, either one of those being notable items?

No, neither of those.

Okay. Okay. Moving on then. Question just about, I guess, in the U.K. as we think about kind of the FCA regulation around persistent debt, what impact would you expect in U.K. charge-offs in 2020 to potentially have as issuers are required to kind of work and engage with consumers to achieve faster repayments, if they're only paying the minimum for an extended period?

Yeah, no. That's a good one. Regulators in U.K. are definitely focused on persistent debt. What I think is interesting about it is kind of reminds me of I think it was what 2009 on the correct time when U.S. regulators were all concerned about minimum payments. And if you remember that period and that's when all the customers were required to actually almost double their payments. Now I think it was hard to see, because it was -- if it was -- if my days right, it was in 2009, it was on the precipice of the global financial crisis. So it was probably a little math. But -- so it does remind me a very similar thing and I would feel strongly that it will increase charge offs. I think that also coupled with new regulations to have to write NPLs down the zero after what is it two or three years I forget. Yeah, and so that's going to certainly increase supply over there. And at the end of the day it’s going to be from customer journey perspective, we're ready for that. I think our folks especially in the U.K. do a fantastic job with customer journey and can ushering them through a very difficult time. So I would agree with that.

Okay, that's helpful. Thank you. And then in Europe, we've been hearing about large transactions coming to market in Italy and Poland in fourth quarter. I mean, can you comment at all about what you're seeing there in terms of volumes, and yeah the purchasing competition you're seeing in those jurisdictions?

Sure. But -- I mentioned, Italy, and Italy and Spain, I would say, Italy, Spain, Poland, I don't have the numbers off the top of my head right here. I didn't bring that. But all three of those markets, though are robust from Poland, Italy, and Spain. We are -- we're doing really well in Poland right now. And from an operational perspective this period in time that we've invested in Poland has been really well spent. And ever since, again you feel you’ll get back that really disrupted the Polish market, and we've been buying strongly there. So that's all color I have for you this evening now.

Would you say though, that the level of purchase competition is rational and what are you seeing – anything, any color you can draw there?

Yeah, in Poland, yes. I like to talk about competitors name their names, I figured I could get back because that's pretty well known. The post market, I think is fairly rational now and again -- but Italy and Poland, Italy and Spain are different stories,

All right. That’s very helpful. Thanks. And then one of the U.S. side, I guess as we think about credit issuers who have either been out of the market or haven't sold in the past, as they think about where we are in the cycle right now. Are you seeing any changes in dialogue and have you engaged at all with people who may not have bought from in the past or in the recent past in terms of dialogue about a willingness to consider debt sales at some point, anything kind of changing on that front?

Since -- boy, what has it been? I would say if you talk about the three major sellers that left the market, it was somewhere around 2013. And that's -- there was no uniform date, but that was about the time that they exited. So, if you recall, we've long talked about that it's predicting when they might come back is probably -- your time is spent doing something else, probably. But I would say that over all those years, we've been engaged with them on and off and whether people are out of the market temporarily, whether they have never been in the market, whatever those rational, whatever the rationale is or their behavior, we generally been in communication with folks, we're always marketing to them. So we have a conversation. I'm not going to comment on whether we think they're imminently ready or not, I think that their story to tell. And if you see our volumes pop up, because we've been buying from somebody new, then we'll disclose some of that information.

All right. That’s it. Helpful. And then I guess one more, just for me if I may. On the U.S. side, obviously, returns there relative to maybe some other regions are strong. And we've seen maybe players that are in other international markets that -- or maybe smaller participants in the U.S. space that have been buying more paper, ramping up collector headcount. Can you just talk about maybe the competitive dynamics in the U.S. market? And have you seen any creep there just in terms of an uptick in purchasing competition, or has it been relatively steady?

So, there's been at the margins some other folks they're not, I wouldn't call them small player over time. There's been players in the market for years that pop in and out from time to time. But I think our -- we're getting more than our fair share of the market and we keep our eyes on it. And if returns are great here we lean in and if returns are great in the UK, we lean in there and or Brazil, or anywhere else. So I'm fairly again, my comments were there, I think the U.S. market is fairly steady and I think Pete’s commentary about credit losses is a solid one. Care to add some to that, Pete.

No, I think that’s right. I mean, I think that's the power of our geographic diversity is in capital positions, the ability to do that be patient -- flex from one place to the other as we see fit.

Great, well, thank you very much for taking my questions.

Absolutely.

And our next question will come from Robert Dodd of Raymond James. Please go ahead.

Hi, guys. Just one more on the revenue model if I can before I move to collections. I mean, the difference this quarter in actual versus what the model said, when you give it to us last quarter was probably the smallest in, I guess almost two years. It was also a quarter where you had the biggest whether a pretty large FX headwind. So I don't know if you have the number. But you know how much impact the actual, in terms of FX for this quarter, would have impacted that model versus what the FX was when you when you put the model together?

I think, that's a good question, Robert, Pete is digging through some paper on his desk to see and find that.

Okay. So I'll move on to some other things. Thank you. On the collectors obviously as you said in your prepared remarks given that the 60% cash collections ratio exceeded expectations. So it sounds like some of the lower expenses were a little surprising. So can I presume from that and maybe that the 20% decline in collector headcount wasn't necessarily a desired outcome this quarter? And I mean, you mentioned keeping an eye on it. But would we expect does that headcount and some of maybe the efficiency gains that you collected this quarter from that? Would reverse course and you'll be adding collectors again during the course or in the third quarter or next year?

That's another good question, Robert. So I'll take in pieces. I would say no that the headcount position we ended up in was not undesirable from our position. Again what we're trying to do is match. We're trying to match inventory. The inventory of accounts the amount that has to go to legal versus the amount has gone to the call center. So it's a great question. There was a bunch of other movements on the income statement that I think surprised to able to get to the 60% cash efficiency ratio. So that's what I'd say about that. And then, for going forward, I actually think, there's probably downward pressure on collector headcount. Actually, as you as you look forward. Again, anything can change. As you ramp up towards Q1, there might there may be like to be a pop up at the end of the year to get people prep for Q1. But by enlarge I think there was anything is a downward pressure at this point in our inventory maturity.

Thank you for that. And if I count on another one on that 20, you've talked before over the course of the year or 18 months even the difference in performance between a new collector versus a 10 years collector. Given the amounts that cash collections went up even with a headcount, could we presume that the majority or the bulk of the headcount reduction occurred in your collectors may be rotating out rather than your more tenured staff, which is where you get most of fee collections anyway?

Yeah. I don't have the data in front of me. But you can assume that. I would tend to agree. I would agree with that position. And I'm looking through my notes here. I think productivity levels are top of my head here is by $124 per hour paid. As you go back to 2014 it was 112. So in 2017 it was 125. So we're got some good productivity a year ago is $107. And so that accounts for some of that cash different.

Got it, got it. Thank you.

And then just following-up on your question on, currency around $3 million of revenue headwind related to currency.

Got it, thank you.

And our next question will come from Dominick Gabreile of Oppenheimer. Please go ahead.

Hey, thank you so much for taking my questions. Is there any anything on the funding side, where you can refinance or either dead or renegotiate some other revolver given where rates have gone and now they come back up a little bit lately. But is there opportunity to reduce the interest expense that you're showing on your liability in the company?

Well predominantly floating rate both the credit facilities or excuse me LIBOR base credit facilities I want to say are sort of fixed profile between hedging and the converts which are both fixed rate coupons. Little bit over 50%, probably on the notional basis. So, again as I said in my prepared remarks, most of the increase in interest expenses is just driven by higher borrowings outstanding rather than rate movements.

Okay, great. Thank you. And if we think about how you've turned -- been turning to the legal channel from call center lately, what are some likely scenarios or what are the maybe the top two scenarios you could see that could unexpectedly bring your collection mix back to call center, kind of the current strategy?

That's, that's a great question. So as I think about it, the easy one would be inventory mix. So let's just say that starting first point in 2020, we start buying balances more in the – and I think our average balance in 2016 was something like $1300 or $1500 bucks average balance, something like that. And so we started buying lower balance accounts, hence they're less legal eligible. And so -- that would manifest itself over the year. It would start changing the weighting of that and we shift that more towards call center. Simple things like, you know, it's one of the reasons we like to keep a – like the real estate under our belts is that if -- someone asked earlier, if a seller comes back to market? Well, it would certainly be nice to have some extra real estate, if I see headcount pop up service that and then -- but likely ramp back down as well. Yeah, I think also -- I think as we move forward, I think about the CFPB rules. I think about those rules are really, if I can put it in a nutshell, trying to modernize collections. And so, if they were able to give us a path to, I'll say worry free email people and text people and that would actually have a -- probably a downward pressure on headcount. So there's a number of moving factors from inventory to customer responses to customer preferences. So I'm thinking about right now.

Okay, great. Well, I really appreciate it. Thanks so much.

And our next question will come from Brian Hogan of William Blair. Please go ahead.

Good afternoon.

Hey Brian.

First question is on the legal investment. How much more do you have left to invest in and legal channel, is there more to do there to dive deeper, just kind of your thoughts around that?

Brian, I think in terms of the inventory and pipeline, the level that we've been placing is – and that we've been sort of guiding to for the for the back half of this year still holds. As we begin to put around the corner into next year, we'll take a look and see if we see anything that would change that. But as we sit right now -- as I said in my prepared remarks, we've kind of leveled-off in terms of placement volumes and we're you know, delivering the top line cash that we had anticipated.

And then, pretty substantial increase in your productivity I guess, what is – what all you’re doing to drive the improvement in productivity, its better scoring, digital collections and their payment plans. I would kind of going to go into the details was driving that -- the increases in productivity?

Just second I was just having a sidebar with Pete still on your legal question. So one of the things that I want to go back to the other one, if I could? So what we're thinking about here is, you know, any Brian is talking about, the acceleration of legal that occurred. I think that from a notional dollar amount placement amount those dollars will probably remain fairly steady because that's the placement levels. Yeah. But as we grow cash, its going to become less and less and less driving it back down to going to be older levels of percentage of legal costs to cash collections.

Fair enough. So I think that's, I think that kind of wraps it up in a bow. Does that make sense? Brian?

Yes. Yeah.

All right, so I'm sorry. If you wouldn't know I was scattered probably that pushes again, I think everyone had appreciated it.

So the next one is actually a question on productivity, and what is driving the improvement in productivity? Is it scoring, is it payment plans, what are all the factors that are -- that you've done to enhance your productivity

You hit around the nose. That's exactly it. So we've made fairly significant changes to our scoring bands toward 20 twin tiles I think what they are calling them. Lot of changes to those and then we are building really steady, sustainable payment plans as well to your point. And, you know, where -- it's like a broken record, but it is a very good customer journey to the extent I can get folks on the phone or engage with them digitally, either one, and have them set up longer term plans with you know, things that they can actually afford. And then if they're sticky. It's a great thing. I spent some time in DC and some of the state capitals talking to regulators and lawmakers. And it's a good story to tell and I would share, you know, from the unsecured side of our business, we don't charge interest and fees and all that stuff. So that really gets the – I think it surprises lawmakers and it very well received.

Right. Next question is actually any updates on CECL, and its impact and expected impact I guess?

Yeah, we're still at this juncture waiting on the final release. But, you know, our implementation is well underway. And you know, nothing really new to share other than sort of the high level commentary that we've given prior. We will look to get more specific color, guidance, whatever you want to call that. Once we're sure that the rules aren't going to change with any final pronouncements.

And then last one for me is like, from your eyes into both Europe and United States, the health of the consumer is there any noticeable changes or are status quo or in your eyes, obviously I understand you're dealing with a distressed consumer. I understand that but have you seen any incremental changes?

Need to go on my answer. Brian. So I will tell you that, that, you know, we go through, exhaustive, customer journeys we go through, what we call quarterly business reviews. And I'll just share with you that no one has brought any changes to my attention. So my answer to you is, you know, I think to your point, we're dealing with very distressed customer one that's in some financial troubles, and I haven't seen a lot of behavioral difference that I can point to.

All right, thank you.

The next question will come from Dominick Gabreile of Oppenheimer. Please go ahead.

Hey, thanks. Just one quick follow up actually. Have you seen, you guys have been around for a really long time and seeing different cycles. Have you seen through the cycle the trend and the type of card that balance that goes first and a downtime – and a downturn, so is it a large balance from a retail store card that goes first maybe a small balance from a general purpose card. Any sort of dynamics you've seen over the last x years that you guys have been around if you've seen any continuity at that would be awesome? Thanks.

That's another fabulous question. And I'm, you're right. I've been around a long time and I'm trying to figure out why everybody looks older and I don't. That’s a joke, people laugh in the room. So you know what, I think if you can, maybe Darby can text some more folks and see if we get an answer for that. That's a good one. Off top of my head I can't answer it. I do certainly remember entering the global financial crisis. And everybody started to you know, when they started to look the house go first. That was a surprise everybody. So we'll see if there's any kind of -- any kind of signs that we've seen over the past 24 years. Hopefully, we can get it before the call is over.

Okay, great. Thanks so much.

This concludes our question-and-answer session.

Okay, sorry about that. I didn't realize the call is over, I apologize for that. We'll see, we'll dig that out and connect somewhere. Go ahead, operator. I'm sorry.

Fine. This concludes our question-and-answer session. I would like to turn the conference back over to Kevin Stevenson for any closing remarks. Please go ahead, sir.

Well, thank you very much. Appreciate everyone joining the call this evening. And we certainly look forward to speaking to you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may disconnect.