PRA Group, Inc. (PRAA) Q2 2020 Earnings Report, Transcript and Summary

Welcome to the PRA Group Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] Please note that this call is being recorded. I would now like to hand the conference over to Ms. Darby Schoenfeld, Vice President Investor Relations for the PRA Group. 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 assume no obligation to revise or update these statements. We caution listeners that these forward-looking statements are subject to risks, uncertainties, assumptions and other factors that could cause our 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 and the slide presentation that we will use during today's call 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 Q2 2020 and Q2 2019, unless otherwise noted. During our call, we will discuss total revenues for the second quarter of 2019 on an adjusted basis as well as debt-to-adjusted EBITDA for the 12 months ended June 30, 2020. Please refer to the appendix of the slide presentation utilized during this call for a reconciliation of these non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures and our rationale for providing them. The slide presentation, including the U.S. GAAP reconciliation, can be found on the Investors section – Investor Relations section of our 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 evening, everyone, and thank you for joining our call. I want to begin this evening just as I did last quarter. I'd like to acknowledge this pandemic is a human tragedy, the likes of which the world has not seen in a very, very long time. As a company that was started to do the right things for the right reasons, we are extremely sensitive to the impact this is having on everyone globally, and our thoughts continue to go out to all of those affected. But the world will get through this and our economies will recover. And it's in that recovery that this positive outlook we're sharing this evening for PRA is largely explained. We have a significant role to play, ushering people through financial challenges. We started this company almost 25 years ago with the singular purpose of buying nonperforming loans and helping people recover in a very professional, respectful and patient way. So today, everyone is focused on this crisis and how it impacts people's economic reality. But it's important to remember that PRA does not work with the average consumer. Yet banks are generally engaged with a nondelinquent customer who is at risk for deterioration in financial condition, moving from performing to delinquent and ultimately charge-off. We, on the other hand, have nothing but defaulting consumers. 100% of our customer base is charged-off or defaulted, nonperforming and whatever term you'd like to choose. Now after nearly 30 years of experience in distressed debt, I still find it sobering to think that even in good or booming economies, our customers are always experiencing their own downturn. It is just as impactful, and it's just as important and it's just as personal to them. In good economy or bad economy, dotcom-driven, mortgage-driven or virus-driven, from an economic standpoint, they are still experiencing their own downturn. Let's move on to the second quarter specifics. During the second quarter of 2020, I've been truly impressed by our employees' reaction to the challenges presented by this pandemic. They have embraced a very different work environment, and they seemed energized through this time. Their resilience and desire to remain connected and interactive with both their team members and management, regardless of their location, coupled with their drive to serve our customers and our clients' needs, it's been truly amazing. They really got the job done. With this hard work and determination from a really engaged workforce, we have improved upon the strong results we reported in the first quarter of 2020. So first and foremost, we set a new global cash collection record, beating our first quarter 2020 record results. Our global cash collections surpassed $0.5 billion mark for the first time in the company history. This was driven in part by an outstanding investment year in 2019 that delivered record portfolio purchases in Europe and one of our best years in the Americas. This is all made possible by our disciplined and long-term approach to buying. Contributing to this global record was record cash collections in the Americas with very strong results in the U.S. In the U.S., due to numerous circumstances, consumers had additional discretionary or net excess funds during this time. This is evidenced by significant growth in the U.S. personal savings rate as recorded in March, April, May and June. This data was reported by the U.S. Bureau of Economic Analysis, and the likes of which we've not seen since 1975. So I won't bore you this evening with a detailed description, and the litany of actions and programs and behaviors driving this, but let me provide a quick list. Work from home, lockdowns, business and public area closings, mortgage and other loan deferrals, federal government actions and programs, and of course, stay-at-home orders. We discussed all of these last quarter, and since then, most news outlets certainly have covered them very well. The simple fact is that many people have additional discretionary or net excess funds to spend or to save. We provided the savings rate changes. But on the spend side of the equation, I trust most of you have seen this yourselves. We've all seen robust spending on things such as home improvement, merchandising products, consumer electronics, durable goods or making car – down payments on cars, motorcycles, boats and campers. And of course, based on our data and our results, one of the other things they choose to spend their money on is voluntary resolution of debt, a very strong cash environment indeed. Moving on, quarterly portfolio purchases were $164 million. Our investment teams kept in close contact with sellers during the quarter and have worked tirelessly to answer questions, address concerns and adapt quickly to an ever-changing environment. Our data and analytics groups worked to incorporate COVID-related collections adjustments as well as include appropriate risk premiums into our pricing. In Europe, as we discussed last quarter, many sale processes were deferred until later in the year as the European banks sought to understand the environment. In the U.S., there were some delays, but most banks were business as usual. While purchase volumes were muted during the quarter, the volume appears to be returning to normal levels and this sets the stage for opportunity in coming quarters. We believe that some of the delayed volume could start coming to market later this year. And indeed, we started to experience improved investing conditions across our markets, allowing us to acquire more expected revenue and net income per dollar deployed. So you can see this if you review our 2020 purchase price multiples. In those disclosures, you will see that multiples have increased across all four product lines. So for example, in Americas Core, at the end of the first quarter, our purchase price multiple was 1.95x for the 2020 vintage. And as of Q1, this 2020 vintage reflected three months of investment volume. Then at the end of the second quarter, the 2020 vintage was 2.05x for the full six months of investment. Importantly, this move is not being driven by a mix shift, which can artificially impact purchase price multiples. This rather is a positive shift in pricing. Simply translated, we deployed fewer dollars in Americas Core during Q2 2020 in comparison to Q2 2019, but we expect more revenue and more net income from that investment. Moving on to the Americas. In the Americas, cash collections in core and insolvency were a record $382 million. In the U.S., cash collected per hour paid increased almost 60% from the peak second quarter efficiency, which was in 2016. Technological advances, increases in digital payments, trading, enhancements and data analytics, all helped improve this metric. Total portfolio purchases in the Americas during the quarter were $125 million. While U.S. sellers largely maintained their sales processes, we saw sellers in the South America pause portfolio sales, but we're hopeful they'll restart their sale process later in this year. On the operations front, the U.S. is operating at normal capacity with collectors in the office maintaining strict social distancing and cleaning standards. The majority of employees in support functions are still operating in a work-from-home status, and productivity remains strong. I think most of the world has experienced this productivity phenomenon. We continue to abide by the recommendations in each of the states in which we operate and work with the leaders there to comply with mandates. In the legal collections channel, after voluntarily pausing, moving new accounts into the legal process for two months, we largely returned to normal operations in June. However, while we began moving accounts in the legal eligible statuses, we are not seeking any new garnishments or leads, and we believe we are abiding by any local requirements that have been issued. Outside the U.S., we made a big push for digital in Brazil and have seen growth in this channel and collections have begun to increase. Moving on to Europe, total cash collections in the quarter were $128 million, which was our third highest quarter ever, behind the Q1 of 2020 and Q4 of 2019. We're very pleased with this result, considering many European countries had full lockdowns and some courts were closed, which even prevented them from remitting payments to us. Despite this, we grew cash collections 1% or 6% on a currency-adjusted basis, mainly driven by record portfolio purchases, and portfolio purchases this quarter were $39 million. From an operational perspective, just as in the U.S., our European business is operating largely at normal capacity, but in various stages of work-from-home and in-office status. So one difference between Europe and the U.S. is that the operation staff is still split between in-office and work from home, but with little to no impact to productivity. Most of the courts and bailiff processes returned to normal in June and July, but there are some backlogs in certain countries. I'd now like to turn the call over to Pete to go through the financial results.

Thanks, Kevin. During the second quarter, we continued the strong cash collections performance we saw during the first quarter, particularly in the U.S. This led to record total revenues of $272 million, an increase of $20 million or 8%, primarily due to a significant overperformance versus expected collections during the quarter. Recall that under CECL, revenue has two components. First is portfolio income, the yield component, which was $248 million, roughly even with the second quarter of 2019. Second is changes in expected recoveries, which has two parts. First is cash that we collected in the quarter compared to expected recoveries. This amounted to $119 million in excess of expectations, primarily driven by significant overperformance in the U.S., which Kevin discussed earlier. The second part is the present value impact of any changes in future ERC. This quarter, that netted to a negative $100 million. We've assumed the majority of the overperformance in the U.S. is an acceleration in timing of collections rather than an increase to total expected collections. We believe this is an appropriate assumption given the current environment. However, if we see sustained performance over time, supporting an increase in our expectation of total collections, it will drive additional revenue in the future. Regardless, this is a positive since collecting cash earlier in the curve improves returns. Operating expenses were $161 million, a $27 million decrease from the second quarter of 2019. Our operating expenses were significantly reduced in the second quarter, due primarily to reduced levels of activity globally, particularly, legal collections. Income from operations was a record $111 million, a 76% increase compared to the second quarter of 2019. Net income was $58 million, generating $1.26 in diluted earnings per share. Cash collections in the quarter were a record $510 million, an increase of $40 million or 8% and an 11% increase on a currency-adjusted basis. Cash collections in the Americas increased $38 million. This was driven by a 37% increase in U.S. nonlegal collections, which included an over 90% increase in digital collections. These increases were partially offset by a 4% decrease in U.S. legal cash collections as we temporarily paused moving accounts into legal channel in April and May; and a 21% decrease in collections and geographies outside the U.S., primarily due to strengthening of the U.S. dollar. Europe cash collections during the quarter grew $2 million. The biggest driver of this growth was record portfolio purchasing in 2019, partially offset by foreign exchange rates going against us. And while we're not completely finished with consolidation of July results, early indications are that the trends from the second quarter have continued into July. Our cash efficiency ratio was 68.7% for the quarter, a dramatic improvement compared to the second quarter of 2019. This was driven by a $27 million decrease in operating expenses, while cash receipts were 8% higher. As we indicated during the first quarter conference call, this was to be expected. Since we temporarily paused placing U.S. accounts into the legal channel in courts and many of our European countries were closed. We had significantly lower legal collection costs, which at $20 million were $14 million lower than the second quarter of 2019. In the U.S., we resumed placements in June. In our European countries, courts have opened to varying degrees. It's our current expectation that legal collection costs in the second half will return to the quarterly levels we have been running at prior to the shutdown. We also saw a $9 million decrease in compensation expenses, driven primarily by a decrease in the number of U.S. collectors as we're realizing efficiencies in the call centers. We believe that this reduction in expense is likely to hold and that this quarter is materially close to where we expect it to be quarterly in the second half of the year. One additional comment I'll make on expenses is to mention that communication expenses were somewhat depressed in the quarter due to lower levels of activity. This quarter's results contribute to an increased expectation for the cash efficiency ratio to around 62% for the full year of 2020. ERC at the end of the quarter was $6.4 billion, with 52% in the U.S. and 43% in Europe. ERC decreased slightly from the second quarter of 2019. The decrease was driven primarily by record cash collections in the quarter as well as the assumption that the majority of the overperformance was an acceleration of future ERC. Coupled with lower levels of portfolio investment, resulting from the delay in portfolio sales by some sellers. This also contributed to us having a significant increase in cash flow from operations. And when combined with recoveries applied to negative allowance, the business generated $624 million in the first six months of the year. This brings the trailing 12-month cash generation to $1.1 billion. Our strong cash performance during the quarter drove improvement in our leverage ratios, and we ended the quarter with a trailing 12-month debt to adjusted EBITDA of 2.1x. We also had capital available for portfolio purchases at the end of the quarter, amounting to $933 million globally: $630 million in the Americas and $303 million in Europe. At the beginning of this week, we completed the retirement of our 2020 convertible notes and cash. This reduced the capital available on the North American facility by about $250 million from the end of the quarter. Even with this reduction, we maintain a significant amount of capital available for portfolio purchase. In addition to this strong cash flow and significant available capital, our conservative capital structure provides us with the flexibility to expand our funding capacity on favorable terms should we choose to do so in the future. We believe we will see increased supply of NPLs come to market and we have an incredible balance sheet to work with. Now I'll turn it back over to Kevin.

Thank you, Pete. So it certainly remains to be seen what happens with the overall economic environment. But as our clients increased loss provisioning signals, we should expect charge-off volumes to increase during the first half of 2021. As with the global financial crisis, we anticipate that a larger share of that increased volume will be sold, creating more supply at more attractive prices. As I mentioned during the first quarter call and this evening, a stressed economic environment is where we become more important, and it's one that we prepare for. We believe we have taken actions in the past which position us very well for this emerging opportunity. First, our proactive engagement with all of our sellers gives us a deeper understanding of their current and future needs. Second, as Pete just mentioned, after repaying our 2020 convertible notes in full, at the beginning of this week, we still have significant capital available to purchase portfolios, and we're generating significant amounts of cash. As one of the least-levered players in the market, we believe we're in a good position to raise additional funds, should the opportunity be right. We've worked hard to have a capital structure available which will provide our sellers with a partner that they can trust to help them with their nonperforming loans. And finally, we have a team that embodies the culture on which we built this company, doing things the right way, for the right reasons and for the long term. Our employees have arisen to the occasion, and I'm honored by their hard work and dedication. They remain committed to treating customers with dignity and respect, and providing them with flexible solutions to resolve their debts. They also, along with PRA, continue to be very giving towards the communities where they live, and they have supported local charities and nonprofits throughout. And once again, I urge each person and each company on this call to do the same. As we move forward into the back half of 2020, I believe PRA is in a very strong position globally. We've been disciplined with our investments. We have been disciplined in maintaining a conservative capital structure. The result of these preparations is extremely important as we enter an environment that should have increasing supply and improved pricing. And operator, we are now ready for questions.

[Operator Instructions] The first question comes from Mark Hughes of SunTrust. Please go ahead.

Thank you. Good afternoon.

Hi Mark.

Pete, I wonder when you readjusted your assumptions after Q1 and you pushed out your collections expectations, how did the – I think, you had made the point that, that was pretty front-end loaded that your assumption was there would be softness in the short-term with the recovery. How did your assumptions about, say, Q3 compare to Q2, when we think about the – if you're running at relatively normal collections, what does that mean in terms of the potential overperformance versus your adjusted curves?

Well, the – what we did in the first quarter is not really all that relevant to where we sit now because we went through a full process at the end of the second quarter to close. What I would say about our future outlook is we're not assuming that overperformance continues into the future. So to the extent we continue to see elevated levels of collections, which as I said in my prepared remarks, July is trending similar to what we were seeing in the second quarter, then we'll have some over performance in those curves in the future.

And then I think some of the factors that helped the collections early on the right party contacts, the nothing else to do with your money, so to speak, any observation about those factors that were helpful, are still driving the business presumably? .

Yes. It's a good question. No. Again, those RPC rates continue at elevated levels. Inbound calls are up strongly. Of course, digital is up strongly. So all the things we talked about very early in this period are happening or happened during Q2. And as Pete said, we're seeing the same trends in July.

And then I don't know if you mentioned, I got on a couple of minutes late, but anything about pricing or expected collections multiples for the paper that you did acquire this quarter?

Yes. No, I had a whole section on that. But I'll go through it again. Just in rough terms, if you looked at the Q-on-Q, and focused on Americas Core, then you would see our deal multiple at about 1.95. And then as you look at the Q2, Americas Core tranche, that number is 2.05.

2.05 for the six months.

For the six months, that's correct. So clearly, the latter – I repeated it, so we're okay. Pete was on mute. 2.05 for the full 6 months, which obviously means that the second quarter's multiple had to be higher to drag up to 1.95. And what I also said was that, that's not a mix issue. And so as you know, you've been around a long time, mix can artificially move that. This is actually pricing improvements. .

And that's ahead of – because I think the charge-offs, actual charge-offs are still fairly modest. Is that fair? Is this just kind of positioning for what is likely to come? And so buyers and sellers are aware of that impending dynamic? Or is it the current supply and demand?

I think, it's current supply and demand, if I understood your question right. But it's – I also talked about in my prepared comments about the amount of work our data and analytics group were doing, not only trying to price in a COVID curve, as we call it, but also at a reasonable risk premium. I don't think that's an unreasonable thing to think about in this kind of environment.

Thank you.

Our next question is from David Scharf of JMP Securities. Please go ahead.

So maybe just following up on the last few questions. Obviously, it's been an interesting earnings season, right? I mean, all the lenders are sort of living in this suspended reality, while forbearance and stimulus kind of delays the eventual rules of delinquencies into losses. And you seem to be benefiting from it, too, as you highlighted all the excess household liquidity. But I'm wondering, Kevin, as we think about sort of normalized kind of that cash efficiency ratio, I understand that's an unsustainably high percentage because legal hit the pause button for a few months. But even your comp expense was down sequentially, despite record collections. I mean, can you give us a sense for where you kind of see the company exiting the year? Or if in your mind, there's sort of a sweet spot of spending too much or too little for the ideal amount of collections? Like what is that ultimate kind of optimal cash efficiency ratio when everything is working?

Yes. Maybe I'll hit that first. David, this is Pete. One of the hard things about cash efficiency ratio in this kind of an environment is with the overperformance in cash, depending on what assumption you make about that, that can certainly skew the number. And so that's why, I think, in this current sort of environment, utilizing cash efficiency as a way to gauge expense levels is going to be a little bit difficult. That's why in my prepared remarks, we tried to give a little bit more color on some of the bigger line items. I talked about legal expenses getting back to kind of preshutdown levels. I did highlight comp expense, and I said that I think that our quarter number this time is materially in line with what we think we're going to see in the next couple of quarters. And then kind of broadly, there's some additional items, communications being the biggest one of them that's sort of depressed in the second quarter, and I'd expect a little bit increased level of expenses in the other line items. But the big items, I think, we've addressed.

Got it. And by the way, are you – because I know most lenders in terms of the allowance rates, they took it June 30, they were not factoring in a second stimulus package. Is that factored into any of your curves near term?

We have not made any assumption of continued robustness in our collections as a result of the – all the things that Kevin went through.

Got it. Got it. Just the one follow-up, maybe switching gears. In terms of the debt sale environment in Europe. I mean, it sounds like a lot of those banks are also providing forbearance and there's some government assistance. In terms of kind of the pace of recovery for when eventually we do see NPLs come to market over there, do you think it's going to coincide with when credit card issuers domestically start to bring more charge-offs to market? Or is it going to be a little more of a delayed recovery in volumes?

Yes. No, that's a good way to phrase the question. So yes, you've got the U.S. with all the – those actions that we've all talked about, and you've got the forbearance to being a bigger deal over in Europe. So I – let's just put it this way. I think we can all agree that COVID impact is going to generate additional NPLs, at least I hope we can agree to that. And I think that largely, it's going to be in the first half of 2021 and end of 2021. Now with the exception in Europe. Remember, the banks pumped the brakes pretty hard in Europe. And so I think that, that volume that already exists today on their balance sheets, that's going to be rolled into probably the second half of 2020. So that would be the difference between, I think, U.S. and Europe.

Got it. Got it. Terrific job. Thank you.

Thank you.

Our next question is from Eric Hagen of KBW. Please go ahead.

Hey guys. Thanks and nice quarter. A follow-up on Europe. As a result of the slower pace of deployments, am I hearing you essentially imply that your ERC might go down a little in the near-term across the portfolio, but you'll also likely delever the portfolio a little bit? But the stronger IRRs on new purchases domestically will essentially kind of offset that impact to slightly weaker European revenue? As an add-on to that, I think, you guys noted that the cash efficiency ratio would be around 62% for the full year. I'm curious if you can tease apart how that ratio is in the U.S. versus Europe.

We haven't disclosed cash efficiency, except for on a global basis. So I can't do that for you. And if you could, could you try to rephrase the first part of the question, again? I want to make sure I understand what you're after, so I can answer it.

Sure. I mean, I think, you guys noted there's a slower pace of deployments in Europe, and that's a significant chunk of the portfolio. So am I kind of hearing you imply that your ERC across the portfolio might kind of go down a little bit in the near term, but the makeup for that or what the offset for that will be somewhat stronger IRRs on new purchases domestically?

That's a reason – yes, I think that's a reasonable assumption. And they're – globally ERCs went down modestly, right, Pete?

Yes, I mean, it didn't grow at the rate it otherwise would have, right? And part of that, as I said in my prepared remarks, is because we've made an assumption of acceleration on this overperformance. So that has a effect of pulling down the ERC curves, right?

Got it. Great. Yes, just wanted to clarify that. Hey, Kevin, you noted that you expect a wave of charge-offs to come to market as soon as next year. I don't think – I wouldn't disagree with that at all. But in a scenario where we do get that volume and cheaper pricing, how much flexibility do you think you'll have to kind of pick and target the kind of credit you want in the portfolio? And maybe you do pay a little bit more for that control or quality over what you're buying versus simply being a price taker in the market, if you will, which could still give you that potential to generate a strong return because pricing is cheap, but you might not have the same kind of control over the credit in the portfolio itself.

So we're talking about our ability to participate in pricing and buying new deals, right?

Correct.

Or are you talking about – okay. All right. So that's something that clearly I've been through for almost, well, 27 years, actually. So it's always a dance, right? You're always working with the competition. And so let me step back and talk about that, if I could. So just interrupt me if I'm on the wrong track. Because I sometimes I'll formulate an answer that doesn't answer your question, I don't want to do that. So if you think about the U.S., the U.S. has a very, I would call it, stable and rational market still. So we've got good strong competition across the United States. And I think that we are certainly competing head-to-head with a number of U.S. competitors. And remember, we're also competing with the bank's optionality in terms of pricing – placing accounts at a contingent fee agency. So we're always doing that dance to figure out what we can pressure on and what we have to take. So that's something we've done over and over again. And there was a little bit of price discovery, right, in the past few months. Then there's Europe. The thing about Europe is that lenders are, maybe to your point, a little bit willing to pump the brakes, but they can only do that so long, I think. And I do think, at the risk of going too far in the answer to this question, a lot of the European competitors are under pressure to delever. And so if you've listened to our calls for the past few years, and really starting probably in 2016 and then heavily in 2017 and 2018, we talked about this irrational pricing market in Europe. And there's not a lot I can do about an irrational competitor. But again, I think with this pressure on deleveraging, I think, maybe some of the European competitors have paid quite a bit too much for portfolio, especially in 2016, 2017, 2018. I think they potentially paid too much for M&A deals, and some of them have billions of dollars of goodwill on their books. I think that – I think it's going to rationalize the U.S. market. I really do. I'm sorry, the European market. The U.S. market is already rational. I think it will help rationalize the European market. And so those are my thoughts on it. Does that get close to answering your question?

I think it does. I mean, I was really looking for, in an environment of very high supply, do you have the ability to tailor the kind of credit you put in the portfolio? Or are you really just kind of buying what's essentially coming out of the bank pipeline and your...

Oh yes...

I don't want to use the word price taker, but you're sort of taking what the market will give you.

Yes. So I understand. Yes. So we try to tailor it. I think anyone that's been in this for the long term as long as we have, we're trying to tailor it. But just remember, we're always competing against other people with a checkbook. And so that's something that we're very accustomed to doing.

Got it. Thanks for the comments Kevin. I appreciate it.

Our next question is from Robert Dodd of Raymond James. Please go ahead.

Hi guys. Yes, congratulations on the quarter. If I can – this might be getting down a little in the weeds, but can you give us any color on when you presume these collections – excess collections in Q2 got pulled forward, can you give us any idea of – essentially from when? Because obviously, the net effect of the cash over collection versus the NPV of the adjustment, it matters where they came from, obviously. If you over collect something this quarter you thought you're going to get next quarter, the impact is much more modest than if you thought – because of the discount rate, if you thought it was something that was going to happen a year from now. . So can you give us any idea on kind of the scale of hypothetically, if the cash over like collection did continue, which July trends seem to indicate it is at the same scale, would the pull forward then be assumed to be coming from further out and have a greater net impact positive to gross – to the revenue recognition?

Yes. So largely, I would say the assumption around pull forward is back half of this year and 2021 in general. Particularly, for the U.S. portfolios, the first quarter of 2021. But other – it really just depends on the vintage. Some of the curve adjustments were longer term than that. It's kind of hard to generalize because we look at by product, by geography, by vintage as we're making these adjustments. But in general terms, yes.

Got it. I appreciate that. And then the second one on kind of efficiency. Obviously, I mean, the collections per collector hour or whatever, up substantially again, digital's continued to outperform. I mean, you – I know, I think, it was last quarter you shutting the – shuttering the call center in Las Vegas. Has there been – despite the fact that we talked about two years – for two years about you needed to grow headcount, but now you're actually in reverse. Has there been any thought to rationalizing the headcount down? Maybe even fast – given how productive, how increased productivity is the playing now?

Okay. So that's a little bit different question I thought you're going to ask me. So that's great. Thanks for that. So no, no, I think, we're in a good position right now in terms of FTE. We're about 1,430? Yes. 1,430 collector heads in the U.S. They are really, really productive right now, but again, some of that's been driven by all these – the programs and stuff that I've talked about. So I think we all feel good about where we're at right now. The whole discussion about why we went from 1,500 to 3,000 back to 1,500 roughly is a whole different discussion about our investment. If you guys remember, over the past couple of years, I've been talking about investments in people, data, digital. And then additionally, coupled with that, part of that ramp down has been about the type of accounts we've been buying since really the latter half of 2017. So there's a whole formula around that, but that's that. We could talk about that at some time if they may want to. But where we're at today, I think, we feel really strong about – and I don't think you're not going to see us at 1,000 reps anytime soon. Or you're probably not going to see us at 1,800 or a few thousand either. So I think we're in a good spot right now.

Got it. I appreciate it. Thank you.

Dominick Gabriele of Oppenheimer. Please go ahead.

Hey everybody. Thanks for taking my question. When we think about unemployment rising, I would have expected that you would see a slowdown in collections. Yet this time, we're seeing them actually speeding up in some instances. Could you – could this really smooth out this cycle's collection levels versus previous cycles and what we would expect when they had less direct stimulus and less discretionary spending in other categories?

No. Yes. So yes. So I don't know if I smooth out is the word. I mean, we have – we'd saw spike in collections, clearly. And it's right along the nature of your question, though, to be sure. And it's just about all of the stuff that I talked about. Again, from work from home, lockdowns, business closings and all that stuff. And so yes, it could have a bridging effect. So if you think about cash going into the global financial crisis, there was this dip, and that's probably what you're getting at, right? There is this dip. And then that was being supplemented by portfolios being purchased to a large degree, and you didn't notice it as much. But here, we've got this incredible ramp up. And again, people net remaining cash or discretionary cash, whichever one – how you want to call it, leading up to a period where we think there'll be more volume in a market. So I think it's a good observation.

And if we could just talk about how the collections have been coming in differently over the last, call it, three to six months versus a typical period, is there more full payoffs coming in? Are people paying – is there more people paying more portion of their monthly payments? So maybe they're putting two months' worth of payment in than they usually do? What's the split of that? How does that matter as we look forward as far as the total collections curves? And what are some of the implications of how they're spending? What are you seeing as the payments are changing? .

Yes. I understand, I understand your question. So we don't disclose a lot of that data, but I can give you a color on it, for sure. And so if you think about – let's talk about payments and payment build or – and let's talk about settlements in full and payments in full kind of as one group. So as you look at payment build, and that's definitely building, it's definitely increasing. So we're not cannibalizing in any way payment streams. And so that's great news, right. So that speaks well for the future. Now – and then additionally, we are seeing – if you looked at payments in full and settlement in full on our chart, you'd definitely see a move up. So there are – there is a significant amount of change in that, coupled with steady-to-increasing payment plans being put on our books. So it's a – it's just an overall really strong environment cash-wise.

And then if you could – and then what do you think the bigger factor is overall? If you had to try to put these things into kind of a box, do you think it's staying at home has helped your collection rate and people not spending on their next trip and then not paying you instead? Or do you think it's the stimulus? How would you rate those two, one against the other? Thanks so much.

And boy, you can ask me for a – but let's not forget things like mortgage deferrals, too. Because, I think, that's a thing. One of the things I've been talking about now for three months or so is what we saw during the global financial crisis. And we saw people who just – they just kind of gave up on their homes. So they said, "Well, I'm so underwater, I can't – I'm not going to pay this mortgage." And they used that money to do other things with it, and a lot of that was to pay off debt. So I honestly don't know that I could pick one. At the end of the day, I think, because people have all this cash and what – because not everybody is unemployed, right? So there are people that are still employed. There are people that are on employment, but they are locked down, and they can't just go out and spend it or they're afraid to go out, even if you're in a Phase 2 or Phase 3 position in your state. So I can't pick one, and I'd be guessing, but just to remember that it's all those things I talked about working in concert. It's almost like a perfect storm from a cash perspective. Okay?

Great. Thank you very much. I really appreciate it.

Mark Hughes from SunTrust. Please go ahead.

Yes. Pete, you had given some thoughts on some of the expense items. Did you happen to talk about agency fees? Yes.

I didn't talk about them specifically, but if you're...

Yes, I'm sorry. I was distracted. Agency fees is what I was at.

Yes, but if you think about our model, we try and be vertically integrated where we can. And so the places where we're heavily reliant on agency fees are sort of like the South American operation. To a lesser degree, certain pockets in Europe. Those were down in the period. And as those places start to pick back up in terms of cash collections and those agency line will go sort of in tandem with those units. So...

So it's personnel that's where you have a little more permanent improvement, perhaps, other line items there should be more in line with that historical norm?

Sorry, say that again?

I was just summarizing for myself. Seeing if you agree that the – I think you made the point that personnel expenses are probably lower, maybe permanently because of more efficiency. But the other line items are more likely to move in tandem with collections and therefore, recover as things open back up. Is that a fair way to put it?

Yes, particularly agency fees because those are contingency. So there's a top line component. When that number goes up, it's because we're getting more cash through that channel.

And then your interest expense, is this a pretty good level? Any resets or anything like that as the interest rates have declined?

We actually benefited from the declining environment in the first part of the year. I think the thing that's been most impactful, though, is the sort of over collection in the curves and pay down of debt. I highlighted our leverage metrics. We're really positive at the end of the quarter. So less borrowing means less interest costs.

Yes, the $624 million in cash flow that you shared earlier in the first half, what was the year ago comparison for that number by your calculation?

I don't know it off the top of my head. Good question, though.

Okay. I am sure that there is taking a easier route by asking you.

Thank you very much.

And there are no further questions at this time. I'd now like to hand the call back to Kevin Stevenson for closing comments.

And before I do that, we did a really quick calculation on the Mark Hughes question, and it was $475 million. Okay. Great. So hopefully, you guys didn’t heard that. But I just want to thank everybody for joining the call. Everybody, please stay safe, support your local charities, and we look forward to speaking to you next quarter. Thank you.

Thank you. Today's call – thank you for joining us. You may now disconnect your lines.