PRA Group, Inc. (PRAA) Q4 2019 Earnings Report, Transcript and Summary

Good day, and welcome to the PRA Group Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Darby Schoenfeld, Vice President of Investor Relations. Please go ahead.

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 today will be between Q4 of 2019 and Q4 of 2018 unless otherwise noted. Additionally, you will find the Q1 2020 estimated revenue model based on the portfolio as of December 31, 2019 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, and thank you for joining our conference call. In less than a month, I will reach my 24 anniversary as a Founder and a Leader of PRA Group. My journey began with four people in a one-room office, operating on a single folding table. I am gratified that we have grown into one of the largest acquirers of non-performing loans in the world, conducting business over an expensive and expanding geographic footprint. And I am certainly excited to be with you today to talk about our 2019 results. Over the past several years, we have openly, directly and sometimes painfully provided our opinion on how we perceived the European market, and how we believe that pricing there was irrational and unsustainable. We also provided our opinions on appropriate industry leverage as well as the resulting tangible equity positions. We did so because the situation with something that we had seen multiple times in our past. As a result of that experience, coupled with our long-term focus, we chose to be patient. We took that time and concentrated on our operations and invested in our markets instead of scaling back or withdrawing. Being geographically diverse, we invested heavily in NPLs in markets such as the U.S., where pricing was appropriate, but also made selective investments in Europe to keep our data fresh and our people engaged. This brings us to 2019, where our focus in the long-term and our relentless discipline, delivered record results across the number of measures. The first, portfolio purchases were a record $1.2 billion. These results were led by our European business as many of our competitors reduced their NPL purchasing this year in order to achieve lower leverage positions on their balance sheets. In contrast, we were prepared with available funds and we capitalized on the opportunity there investing more and improving returns. Second, portfolio purchases along with collections generated by an increasingly efficient platform, produced record global cash collections for the full-year. Third, record cash collections drove our total revenues over the $1 billion mark for the first time in our history, and finally, Estimated Remaining Collections, or ERC finished the year at an all time high of $6.8 billion. I am very proud of what the PRA team has accomplished over the last three years and the transparency we provided along the way. I am confident the actions and investments we are making today will continue to benefit us in the long-term. Moving onto the fourth quarter results. In the Americas, cash collections in core and insolvency were $317 million. This is driven by increases in all of our core collection channels. In the U.S., we continue to increase efficiency with cash collected per hour paid increasing 23% from the fourth quarter of 2018 has been accomplished through investments and technology, training and digital. Going forward, we will remain focused on continued innovation and improvement. U.S. legal cash collections continued to grow as we invested at levels consistent with our past five prior quarters. Americas collections outside of the U.S., grew dramatically due to an acquisition earlier this year in Canada, as well as some larger portfolio purchases in South America. Total portfolio purchases in the quarter were $141 million. Looking forward, assuming charge-off rates hold steady and overall credit outstandings continue to increase, we expect to see stable supply and continued solid returns. However, with the new accounting standard, it remains to be seen if that will drive increased sale volumes or even be a catalyst for sellers to enter the market. We certainly remain hopeful that larger and earlier provisioning by creditors as a result of CECL will drive fresher and additional volumes to market. But regardless to what occurs, we are ready with capital, a respected compliance program and scalable operation. Moving onto Europe. Total cash collections in the quarter were a record $139 million. This was driven by strong portfolio purchases over the past five quarters and increasing efficiency. Portfolio purchases in the quarter were $262 million, bringing our European investment levels to almost $600 million for the year. Annual purchases were also more diversified geographically than last year as we bought portfolios or – and we bought portfolios in 2009 of our operating markets. In addition, investments were not driven by outsized portfolios, which indicates a broader more general market shift that bodes well for us in the future. The overall NPL market in Europe held steady this year and volumes in the fourth quarter were significant. Similar to the U.S., we see signs that there could be upward pressure on supply in 2020, particularly with some of the regulatory changes there. And similar to the Americas, our European operation has capital and efficient operations that are scalable and ready for volume. I'd now like to turn things over to Pete to go through our financial results. Pete?

Thanks, Kevin. I'll start with an overview of our results for the fourth quarter of 2019. The fourth quarter capped a strong performance year in a number of metrics for PRA. Total revenues were $269 million, an increase of $32 million or 14%, primarily due to portfolio purchasing and yield increases broadly across all geographies. Net allowance charges in the quarter were $13 million compared to $21 million in the fourth quarter of 2018. Operating expenses, which I'll address in more detail in a moment, were $186 million. Income from operations was $71 million, more than double the fourth quarter of 2018. Below the operating income line, interest expense was $36 million, an increase of $2 million, mainly due to higher borrowings used to fund portfolio purchasing. Net income was $27 million, generating $0.60 in diluted earnings per share. For the full-year, total revenues were a record $1 billion, an increase of 12%. Net income was $86 million, an increase of 31%. This generated $1.89 in diluted earnings per share. Cash collections in the quarter were $457 million, an increase of $54 million or 13%. Cash collections in the Americas increased $36 million. This was driven by a 19% increase in U.S. legal collections, 4% increase in U.S. call center and other collections, and cash collections and other Americas almost doubling. Europe cash collections during the quarter grew by 15% and on a constant currency basis were up 18%. The biggest drivers of this growth were higher levels of portfolio purchasing and the performance of recent vintages. For the full-year, cash collections were $1.8 billion, an increase of $216 million with the Americas increasing $169 million and Europe increasing $47 million. Operating expenses in the quarter were $186 million slightly above the fourth quarter of 2018. Agency fees increased due to the shifting of some expenses from fixed to variable in Brazil as well as increases in cash collections primarily outside the U.S. where we utilized third parties to collect. Legal collection expenses were driven higher by legal collection fees related to the 24% increase in external legal cash collections. Remember that legal collection fees vary with the amount of external legal collections. The legal collection costs, which are primarily the costs associated with filing lawsuits, we believe that for the near-term, these will remain consistent with recent trends, which have been in the low-to-mid $30 million range per quarter. Partially offsetting these increases was a decrease in compensation expense in the U.S. as we continue to balance staffing in the call centers with legal collections. Our cash efficiency ratio was 59.7% for the fourth quarter, a 470 basis point improvement. The ratio was positively impacted by productivity improvements and cash collections from past investments that continue to deliver. For the full-year, operating expenses were $745 million and the cash efficiency ratio was just short of 60%. We expect continued improvement in our efficiency ratio this year and are targeting 61% for the full-year of 2020. Estimated Remaining Collections at the end of the fourth quarter were an all time high of $6.8 billion with 51% in the U.S. and 43% in Europe. ERC increased over $600 million from the fourth quarter of 2018. Combining cash flow from operations and collections applied to principal on finance receivables, the business generated almost $1 billion during the year. And at the end of the quarter, we also had $554 million available for portfolio purchasing globally with $431 million in the Americas and $123 million in Europe. Given our conservative capital position is evidenced by our low leverage and positive tangible common equity, we also have the ability to increase funding as necessary, take advantage of large portfolio acquisition opportunities as and when they arise. We now have final guidance regarding CECL accounting and we would like to provide you with some details on how that will impact our financial statements going forward. We've worked as an industry in consultation with the FASB and the SEC to develop the accounting methodology that best presents our primary business of acquiring and collecting non-performing loans. The fundamentals of the business haven't changed and we attempted where possible to maintain consistency with how we've historically presented our results. While there are still a few presentation disclosure items to finalize, we can share with you at a high-level how the accounting will work. First, what's not changing. On the balance sheet, while there will be a lot of additional accounting steps, the assets we are investing in haven't changed. They will continue to be titled Net Finance Receivables and still reflect the purchase price of the portfolio upon completion of the initial booking. We will still utilize the purchase price and our estimated collections to solve for an effective interest rate, which we currently refer to as the yield. This process remains similar to the one that banks use from creating a repayment schedule for a loan, banks utilize the loan value and set an interest rate to solve for the payment amount. We utilize the original purchase price and our forecasted cash collections to solve for an effective interest rate on the portfolio. Additionally, revenue recognition on the portfolios will still be calculated by multiplying the net finance receivables by the effective interest rate. So here is where the differences begin. First, while the calculation of revenue on the portfolio is not changing, it will now be titled Portfolio Income instead of Income Recognized on Finance Receivables. Second, the effective interest rate on the portfolios will not change regardless of performance. This is in contrast to our existing model where increases in ERC result in upward adjustments to the revenue recognition yield on the portfolio. Thirds, present value changes in ERC whether increases or decreases will now flow through an income statement line titled Changes in Estimated Recoveries. This is in contrast to our existing model where only decreases in ERC are recognized immediately as allowance charges. And the impact of increases is recognized as increased yield over time. This is the biggest change in the accounting and as a result, increases in ERC will be recognized more immediately as changes in our forecast are identified. This is similar to revenue recognition under IFRS and should result in more comparable results for our industry globally. On the balance sheet, these present value adjustments to ERC will be recorded as an increase or decrease to net finance receivables. Therefore, positive changes will increase the balance sheet value and less increase revenue in the future as we will apply the same effective interest rate to a larger asset. The opposite is also true for negative changes. In addition, if we collect more or less than what we expected in the current quarter, that difference will be recognized in the changes in estimated recoveries line as well. There are other differences, but these are the most significant. We intend to continue to provide a similar level of transparency and disclosure for our annual vintages. We also expect to continue to provide breakdowns by the same products and geographies. Since our calculation of revenue remains the same, the revenue model we currently present will still provide an estimate of the next quarter's portfolio income. As a reminder, it's only an estimate, shows what revenue would be if the portfolio and environment were held static and we collected exactly what we forecasted. It excludes revenue recognized on portfolios purchased during the quarter, any foreign exchange impact and cash collections on fully amortized pools not accounted for by the model. Keep in mind that the revenue model did not capture allowance charges and going forward, it will not include changes in estimated recoveries. Now I would like to turn things back to Kevin for some final thoughts.

Well, thank you, Pete. PRA has entered 2020 in a position of strength. We believe we have the industry wins at our back. In the U.S. market, we currently see steady supply. We see rational returns and a healthy market share. In Europe, we are seeing increasing supply, increasing returns, and increasing market share. We enlarged our Canadian footprint and continued to work to build relationships there. We had a successful purchasing year in South America and hope to continue that trend as well. Our capital position includes over $0.5 billion in funds available to acquire portfolio and we are generating almost another $1 billion in cash from the business. And with one of the lowest leverage positions in the industry, we also have the opportunity to raise more if necessary. I began today's call by mentioning that we conduct business over an expansive and expanding geographic footprint. Along those lines, we are currently in the process of expanding into Australia. We've been contemplating Australia for many years and when as far as creating a legal entity back in 2011. However, we've only recently begun to develop operations. The Australian market is going through changes, much of which is driven by the regulatory environment. Generally speaking, these stronger regulatory environments presented opportunity for us given our strong focus on the customer journey and compliance. We have hired a country leader there, who had worked for PRA Group, Europe in the past. We know him well. He knows our culture and lives our values. We've also hired IT and finance talent in country. We are hoping to make modest portfolio purchases in 2020, but caution that we are in very early stages and we will keep you apprised as 2020 unfolds. As the company continues to grow, we've made a few organizational changes. Chris Graves, who has served as Executive Vice President of the Americas is now a Global Investment and Analytics Officer. Chris led the responsibility of Global Core and Insolvency Portfolio Acquisitions and determining collection strategies through data and analytics. Steve Roberts, who served as Executive Vice President, Europe and Corporate Development, is now our Global Operations Officer. Steve will have responsibility for all of our Core and Insolvency operations. Both will continue to work very closely with Martin Sjolund, our President of PRA Group, Europe. And finally, on March 31, Steve Fredrickson will transition to Non-Executive Chairman of the Board of Directors. As a Founder and the original CEO of PRA Group, Steve led us in building an incredibly valuable company. His insight and his business acumen along with his commitment to the founding philosophies of PRA have helped develop the company into the global leader it is today. He has been a tremendous leader and visionary and has served as a mentor and friend to me and many others. I have worked with Steve since before PRA was created and I am thrilled that PRA will continue to benefit from his counsel. Operator, we are now ready for questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Mark Hughes with SunTrust.

Thank you. Good afternoon.

Hey, Mark.

Good afternoon.

You talked about the productivity improvement, your cash efficiency guidance for 2020 is a point to improvement as well. Compensation expenses were down. Could you talk about any structural changes in the business, the idea of transitioning to digital collection? Is this just incremental improvement in costs or do you see something more fundamental going on?

No. If I think about collector productivity and maybe even a larger question I may just choose the answer here as well, but it’s really about collector staffing. As we look at staffing and productivity, we're trying to solve for a number of variables and I think about things like our inventory. So what's our inventory doing? Are we buying larger balance accounts? Are we buying smaller balance accounts? Are we buying, again, whether it's a major line credit card or some sort of installment-based product? I think about consumer behavior, and then, of course, technology and data. And so all these things are coming together today, advice us on how many reps that we need to have on the floor and how to route calls to them. So that's kind of a long-winded answer, but I would say what you're seeing today is really a function of some technology deployments and as well as our scoring and data improvements.

Yes. I think one other thing I would add too is don't forget that last year's ramp of legal investment kind of had a depressive effect. And we've also seen, as we indicated, we would. Movement up in that ratio as the legal investments stabilized and the cash collection from those past investments came through.

What was your point about the pressure and additional volume? I think you're talking about the CECL accounting standards, maybe motivating some sellers. Are you seeing that or you perhaps hoping for that?

Yes, I'm hoping for that. We have not seen that. But I think from our perspective, Pete, certainly the CECL expert so he can chime in here if he wants. But I think that the banks will have to likely provision more and sooner in their process, and so to the extent they want to capture that sooner. Hopefully they could think about selling fresher paper, and selling it sooner in their cycle as opposed through the agency pipeline process that many of them still use. And again, I think you could shake loose, who knows. I hope it could shake loose seller. So none of that we've seen. And I'm just giving you my opinion and we'll see how it plays out in 2020 and 2021.

I'd just say in terms of the high leveled sort of the approach they're going to have to provision upfront and to the extent they can demonstrate a track record of generating recovery value at the back end of the process through debt sale, programmatic debt sale, I think that will potentially allow them to provision less upfront.

Very interesting. Do you have the cash flow from operations number for the quarter or the year?

I'll get it for you just a second.

Moving to another question, if you have another one Mark, while he's looking that up.

I'll go ahead and get back in the queue. Appreciate it.

Our next question comes from Eric Hagen with KBW.

Hi, guys. Thank you. A couple of questions. One, on the moment to Australia, what led you to decide to build the portfolio from scratch as opposed to buy an operation that was already embedded in the market? And number two, some of your peers have talked about the attractiveness of co-investing and receivables with other financial buyers, which I think they apparently liked because its less balance sheet intensive, they can capture fee income on top of that from a [indiscernible] and just managing their liquidity a little bit more optimally. I'm just curious how you interpret that business strategy versus essentially what you're currently doing? Thanks.

Well, thank you. I was actually hoping I would get that question about Australia. So one of the things that I mentioned in my script is that we actually looked at Australia back in 2011, and I'll just share with you back then, we were thinking about potentially acquiring a company on there and ended up not doing it obviously. So as we look at it today though so much has changed at least from our perspective in the Australian market. The rules changes have increased. The regulators and the banks are just totally focused on the customer journey. Well that's our business line. That's what we do. And so the idea from our perspective is right now the plan is to go in and greenfield it. Our plan is to build it from scratch to your point, because we want to build it, and again don't take this the wrong way, but we want to build the right way. I don't want to inherit any bad practices. We've got a core set of values here and that's why I'm so happy that we've hired a country leader that we've worked with. He knows how we operate. So again, if something popped up, you can't say I wouldn't look at it. But at the end of the day, it's really about building something brand new and taking your time getting into that market. So that's at least our position on that. In terms of co-investing, I've been around a long time, okay, so Pete has been flagging me down. He wants to make a comment on it, but let me just give you my history on it. My history on it, I've been in this business a long time and it hasn't worked out for folks historically as well as I think folks would have liked. It can be designed differently today and I get all that, but I personally a little bit jaded negatively on that structure not that we'd never look at it, I will never say, never. So Pete is chomping at the bit to say something. Go ahead.

Yes. I think the capital aspect of that all relevant to where your starting point is. And so for us with our current leverage position and availability to raise more capital as needed, it's not as attractive of a proposition for us. To Kevin's point, not to say we would never do it. Potentially it might be useful if big chunky portfolios came to market outside of the normal course could be an interesting way to be able to take those down. And in terms of the servicing fee revenue, our view consistently has been that – it's ultimately low margin revenue even though it's capital light.

One more thing just popped into my head here. I think about what we're good at and what our core competencies are. And some of those things are besides the collection operation. But it's sourcing deals. It's gaining trust to the sellers providing that conduit certainly in underwriting and analytics. And letting someone inside the tent has always been problematic for us. So again, that's a little baggage I carry around, and I'll just tell you guys here, in a public conference call that I would certainly entertain all options, but that's just our position.

Great. Thank you for that detail. I appreciate it.

Our next question comes from David Scharf with JMP Securities.

Hi. Good afternoon, guys. Thanks for taking my question. I just had a quick one. So was there anything in the quarter that were one-time in nature or any pronounced seasonality that would lead us to not consider annualizing the Q4 earnings number as a starting point for projecting our earnings for 2020?

Yes. There is no real – nothing really material that stands out in the quarter. As long as you understand the seasonality that it's present in the business certainly from a revenue perspective, I think that's probably a relatively safe place to start.

Okay. Got it. That's helpful. Thank you.

Our next question comes from Brian Hogan with William Blair.

Good afternoon.

Good morning, Brian.

Hey, Brian.

Hey. I have a quick question on purchases. U.S. purchases down quarter-over-quarter, I know that can be lumpy and all that, and obviously European purchases were really strong. Was it more of just a – let's put more into Europe more attractive returns, or was it a kind of more or less flat? And you said supply in the U.S. was pretty stable. So I guess just go through rationale where you're seeing the most attractive returns and what led to the purchase mix during the quarter.

Sure. I'll take that question. So it's one of the things that's really interesting Brian, it would be more fun if Bob run the call, so I could harass him a little bit, but yes, this is one of those questions we've gotten for a long time. And sometimes you fall a few basis points short on a deal and sometimes a great quarter is because you were a few basis points over in the bidding. So it can be a tight market. That's why I gave the commentary that the U.S. market is stable and it is rational. So it's just the vagaries of how we bid on deals.

Okay. And would you say Europe is more attractive from a return perspective currently or U.S. from your perspective?

Well, I don't have. It would be a gut reaction for me. They're both attractive markets. I don't have to choose because my – the line of credit is separated between U.S. and Europe. I wouldn't hold back in the United States to invest more in Europe unless something strange happened. So no, right now we like the returns in both. And it's one of the things hopefully that gives you guys some confidence, because we've been pretty vocal for a bunch of years about what we thought about the European market. And I'll tell you if the U.S. market ever move South, I'll do the same thing. I'll tell you that as well.

All right. Regulatory environment, can you give any of your updated thoughts on like the – obviously we're waiting to see it could be rules, but they also put out kind of a supplemental disclosure on a time-barred debt, and obviously the states talking about mini CFPB like California, and I think New York was even tossing it around. Just kind of talk about the regulatory environment on federal and state levels please?

Sure. Well, CFPB, I think we all know where that's at. They're in that rule making process. There's a lot of really interesting things in there. How we communicate limited content messaging and all that. The more recent thing, again, I don't have any timeline available to me right here on what we think about when that might happen. The thing you mentioned the other day was interesting. I guess I'll put it in a nutshell that we currently give a similar disclosure that they're talking about to do the consent orders. Anyone that's under the consent orders generally giving that disclosure anyway. So that's point one. Point two, uniform rules are always preferable. And so while the folks who are under consent orders are doing that, it could be that other people, aren't. And so that would be advantageous I think for us. But the devil is always in details. How it actually comes out and what the verbiage actually is, so we have to wait and see how that works. I think there's also plenty of time for us to be involved in giving commentary on that. As far as States go, I think you're right. I think States have talked a lot about revving up mini CFPBs, and I don't really have a lot to add to that, but – so nothing to report on that yet.

Sure. And then I guess a bigger picture perspective. What are your thoughts on – what is the right ROE for your business? I think long time ago, you were 20%, currently you're in the maybe low teens and by our forecast kind of moving higher, I mean, what is the – do you have target an ROE? Do you have one in mind or what is the right return to inventory?

Yes. Again, we're focused on growing our income year-over-year, not necessarily focused on ROE target. Again, we've got a biggie, as a result of all those profitable years, so the global financial crisis vintages. So we're just focused more on steady growth year-over-year as opposed to trying to pick a number in terms of return hurdle.

All right. Thank you.

Our next question comes from Dominick Gabriele with Oppenheimer.

Hey, how are you doing? Thanks so much for taking my questions. We were expecting you to take advantage of the European market, but this quarters purchases were very large versus what we were expecting. Was there a larger than normal portfolio that you bought or is it really just you taking advantage of the competitive landscape giving that some competitors are delevering?

No. In fact we take a lot of care preferring our script. But we didn't – we did not have an outsized portfolio and that actually has been something that's occurred in the past few years. I think about last year, our buying was pretty light in 2018 up until the last fourth quarter. So no, it was very broad this year. There were no outsized deals and we bought in all nine of our market. So that's what I was trying to get across. It was a healthier, more diversified broader market this year.

Great. And as you look at your peers in the Australian market through your own research, how does that profitability stack up versus the U.S. or EU? I'm not as familiar with that market. Based on either cash cost to collect or ROE, whatever profitability metric you think is most relevant when you enter a new market, how does that compare versus the U.S. and Europe?

Well I think it compares favorably or at least comparably with the U.S. and Europe. I think we're probably getting better returns in Brazil right now, quite frankly. But nevertheless, you look at it from an IRR perspective and from what we've seen IRRs in access of what we're doing in the U.S. and in Europe. So we're looking forward to it. I mean, it's always dangerous to estimate market size, but it's probably between $300 million and $400 million purchase price, U.S. so kind of in the $400 million to $500 million purchase price to Australian roughly. And hopefully we can get in there and take our time, do it right and be a good competitor.

Great. And then if I can just ask one or two more. The cash collections rate for the pools less than one-year old in 2019 was a bit better actually then recent vintages, you talked about the legal collections and how this is affecting that. Could we see the less than the current year's cash collection rate to actually be higher in 2020 versus 2019 and 2018 given some of the spend that you've put in – the investment you've put in and the legal channel showing up in your collection rates under one-year?

Yes. The legal typically, we're working the portfolios for at least six months to a year before we know enough about which accounts are going to score for legal. So I'm not sure that that's necessarily a thing in terms of your analysis. I would agree with that. The legal is a little more delayed. If you're noticing uptake in our collections in that vintage, that's just going to simply be as a result of what Mark Hughes – I talked to Mark Hughes about, is really about scoring in some of our technology that we are using towards – it sounds like it's accelerating our cash. So that's good news.

Yes, definitely. And then does the 61% cost to collect take into consideration some perhaps investment to rollout this Australian business for 2020? And thanks so much for taking all my questions. I really appreciate it.

Yes. Dominick, the 61% is the efficiency ratio so it's more of an inverse. Just to make sure you're clear on that. And then again, we're starting up a new business and starting small, so it's not going to be likely big enough for anybody to notice until we get some portfolio there and start to generate collection expense.

Great. Thanks so much.

Our next question comes from Mark Hughes with SunTrust.

Yes. Pete, did you give any details on the allowance in the quarter? What pools? What was the…

It's the similar sort of ones that we've been kind of chipping away at over the last year or so those core portfolios in the U.S. from a kind of 13 through 15. Again they're still above their original underwritten targets, but just the vagaries of the current accounting. The good news is just the last quarter under [310.30]. So to the extent there's adjustments in the future. There will be other adjustments that aren't just allowance charge adjustments.

The line you're going to have on the income statement, the change in estimated recoveries, did you say that includes both the NPV of the change in future collection plus the outperformance or underperformance in the period?

Correct.

Did you look at what that would have meant, say in 2019 or 2018, if you'd been doing the income statement that way?

It's always a little dangerous to do what if so and that kind of thing. But if you think about it in the context of – we had total allowance charges in the year, say $24 million are accretable yield write-up was probably $200 million-ish for the year. Again that's not apples-and-apples because you would be doing an NPV on the $200 million, but even if you say the – I don't know, gross portfolio yield is 30% or something like that, you're still going to have a fairly sizable NPV number that you would be reflecting positively. So at a minimum, I would say it would have been flat as a result of that.

And then to that line if you have a good performance and the overall performance is reflected in the current period, the NPV of the expected future performance is reflected in the current period, and then you end up – you apply the same yield, but you're applying it to a higher balance in the future.

Correct. So you kind of like capture back the NPV of the discounting through your revenue line as yield.

Yes, and vice versa, of course.

Correct.

The tax rate for 2020, what's your best look at that?

I think it's probably the same range that we talked about all year. This year, kind of 16% to 20%-ish. We came in kind of on the low end of that range when all was said and done for this year. And a lot of that depends on mix of business and a variety of things.

And I’m sorry if you said this, but the cash from operations for the year, are you able to…

Yes, I was going to wait until you’re done asking questions, give it to you as a parting gift, $133 million for the full-year.

I’m sorry, say it again.

$133 million for the full-year.

$133 million cash from operation?

Net cash provided by operating activities.

Got it. Okay. Great. Thank you very much.

Our next question comes from Robert Dodd with Raymond James.

Hi, guys. On the cash efficiency ratio, obviously EU up to 61, projecting a bit of improvement. Can you give us any color on – the sources for that? I mean, I'm not asking EU, and obviously the scale that the fact that you made the legal investments and they're starting to payoff. Is there anything else in that like, any embedded hope on rapid growth in digital or TCPA working out in your favor or any other factors that are going to contribute to that? Or is it just kind of the scale and the legal timing?

I think my perspective on that is I think the rebound we've had this year has been the leveling out related to the legal, and mixed in there was efficiency initiatives that we had undertaken as a key focus area, digital being a component of that. And I think over time, we're going to continue to be focused on efficiency of the operation and that's what's going to kind of drive us from here forward. I think the legal impact is sort of evened itself out.

Yes. Robert, we talked about in the last few calls, talking about this idea, we're trying to balance out how many collectors we have versus our legal spend. And I addressed it a little bit earlier with Mark was that our collector productivity was up quite a bit this year. And so some of that's baked into that. But no, to Robert's point, no shock to the system from like a TCPA…

Certainly not a TCPA.

Yes, right.

Got it. Okay. Appreciate it. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Kevin Stevenson for any closing remarks.

Well, thank you, operator, and thank you, everyone for joining us here this evening. I look forward to speaking to you next quarter. You may disconnect.

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