PRA Group, Inc. (PRAA) Q2 2022 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the PRA Group conference call. [Operator Instructions] Note, this event is being recorded. I would now like to turn the conference over to Ms. Lauren Partin, Senior Vice President of Finance and Investor Relations for PRA Group. Please go ahead.

Thank you. Good evening, 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 beliefs, projections, assumptions and 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, the slide presentation that we will use during today's call and our SEC filings can all be found on the Investors section of our website at www.pregroup.com. Additionally, a replay of this call will be available shortly after its conclusion, and the replay dial-in information is included in the press release. All comparisons mentioned today will be between Q2 2022 and Q2 2021, unless otherwise noted, and our Americas results include Australia. During our call, we will discuss adjusted EBITDA and debt to adjusted EBITDA for the 12 months ended June 30, 2022, and December 31, 2021. Please refer to today's earnings release and the appendix of the slide presentation used during this call for a reconciliation of these non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures. Before we begin, I would like to take a minute to welcome the Gen Mosman as our new Vice President of Investor Relations. As we announced via press release last month, he will report to me and lead our Investor Relations program. Najim has a wealth of IR experience and will play a critical role in expanding our investment story to new audiences while deepening our current investor and analyst relationships. We are very excited to have him join our team and meet you all. And with that, I'd now like to turn the call over to Kevin Stevenson, our President and Chief Executive Officer.

Okay. Well, thank you, Lori, and thank you, everyone, for joining us this evening. I want to start off things talking just briefly about what we're doing in the community. In June, we had the official grand opening of our new net zero carbon Taylor facility in Kilmarnock, Scotland. Many of our senior leadership team members from both the U.S. and Europe attended and what was truly a proud day for PRA. Members of Scotland's parliament and community leaders were attended for the celebration along with several banking institutions and consumer assistance charities with a great atmosphere, really reinforcing our values and working together and making a positive impact. To provide some more color on the Halo Building, it's the new center of our U.K. business, which is our second largest market globally. This not only demonstrates our commitment to Humenik where we are one of the largest employers. -- but also our commitment to the environment in ESG, all the while providing our employees a facility, which is cutting edge, both digitally and environmentally and one in which they can be excited to come to work each day. Along with the grand opening of Helo, we are continuing our long-standing tradition of charitable giving. Since our founding in 1996, we made it a priority to invest in communities where we work and live. 2021 was a record year for us in terms of charitable giving, and we are continuing to make these impactful contributions in 2022 despite all that's going on in the world these days. Shifting gates now to Q2. We had another solid quarter led by the performance of our European operations. Please keep in mind, though, that similar last quarter, prior year comparisons will be skewed given the global excess consumer liquidity that our industry as well as many other industries experienced during 2021. And -- this excess liquidity contributed to record collections for us in 2021. In Q2 of this year, total cash collections were $444 million globally, an 18% decrease year-over-year. However, it's important to be aware that we beat our expectations, which Pete will cover in more detail later. The U.S. is responsible for most of the decline, but this was largely driven by the normalization from 2021's excess consumer liquidity, which I've been talking about since about mid-2020. As a reminder, COVID-related government actions such as lockdowns, other restrictions and programs, led to excess consumer liquidity and savings, which in turn drove down loan balances and delinquency rates. For PRA, this meant that our cash collections were strongly in excess of our expectations during 2020 and 2021 and but it also resulted in reduced levels of supply and ultimately lower portfolio investments and, of course, fewer accounts for us to collect upon in 2022. As we review the market today, however, we're seeing most economic indicators point towards the coming increase in supply, which I'll get into more detail later. Our European cash collections increased on a currency adjusted basis, while decreasing on a GAAP or a U.S. dollar basis. European gas collections decreased approximately 9% on a U.S. dollar basis. But again, this includes the negative impact of the strengthening dollar that we saw in Q2. Excluding that foreign impact, we had another strong quarter in European cash collections increased 2%. This was driven by our strong investments in Europe, especially in Northern Europe. The dramatic strengthening of the U.S. dollar against the European currencies had a significant impact, creating a headwind of nearly $20 million in the quarter. Again, people provide more color on foreign exchange effects in his commentary. Net income attributable to PRA Group for the quarter was a strong $36 million, albeit down from last year for all the same reasons that drove the changes in cash collections year-over-year. Quarterly portfolio purchases were $231 million during the quarter. 54% of these were in Europe, including a sizable purchase in a Northern European market and importantly, a market that we had not purchased in since 2000. I'm sorry, 2020. During the quarter, we repurchased nearly $35 million of our common stock. And since we began purchasing shares last year, we reduced our total common shares outstanding by 14%. These share purchases continue to be an important part of our capital allocation strategy. From an operating perspective, we had another strong quarter as we continue to drive new efficiencies as well as benefit from those gains made over the past few years. Since prior year comparisons are distorted by the global pandemic effects, we benchmark internally to 2019 in an effort to remove that impact. Comparing our results to the second quarter of 2019, our cash efficiency ratio has improved by 90 basis points. This is driven by our emphasis on innovation, through investment in digital, data analytics, and it demonstrates the health and strength of our operations. We're always looking for new ways to improve our predictive scoring models, test new data and improve our legal and outbound colleague strategies. Several specific items drove our overall cash efficiency improvements. In the U.S., this includes our growing digital platforms, increasing domestic call center productivity and continued focus on shifting legal accounts into our internal legal attorneys and thus improving our expense margin and adding to our data knowledge. We've also invested heavily in technology in Europe, including investments in digital, cloud-based dialers, infrastructure, robotic process automation and integration into supporting systems. We believe all these efficiency gains really position us well to capitalize on increased supply that we expect in the coming months. As it relates to cash collection and inflation, we commented last quarter that we had not seen any evidence of inflation negatively impacting our cash collections. Anecdotally, we are hearing from customers that they are worried about inflation. But I'll reiterate what I said last quarter. We've not seen any evidence of inflation negatively impacting our cash collections. Additionally, we don't believe that inflation will have a material impact on our cash collections going forward based on our history. We have experienced varying levels of inflation and economic stress in past cycles. And during those times, we didn't see a material impact to near-term cash collections. It's important that I take a moment to explain how this has historically dovetailed into buying. And this will also be applicable to my later discussion related to a recession. So remember, from a cash collection standpoint, we're looking at 10 to 15-year curves and over our 25 years in business through good and bad macroeconomic times, we've done well, projecting that total area on the curve. We've seen variations in timing for sure, things like inflation or conversely, what we saw in 2020 and 2021 can have some impact on timing. But forecasting that total area has been a strength of ours. But stepping back and comparing that to the buying side of the equation, perhaps I should say, the selling side of the equation, the bank's perspective on this is another matter. What we did see during times of economic stress was increased charge-offs. The banks don't have a 10-year window driving charge-offs and they generally have 6 months. So historically, this has driven higher charge-offs, which then led to higher portfolio purchases. We'll, of course, continue to monitor inflation in all of our markets and provide updates as appropriate. Turning now briefly to Australia; an area that we believe will be a really important and growing market for us. So dining the market in 2020, we are very pleased with the team we've built, which now includes 50 full-time employees. Our operation is ready and has room to scale as we grow our market share. I cannot stress enough our long-term commitment to Australia and the fact that we are laser-focused on customer journey. Overall, we couldn't be happier with how we're positioned in Australia, and we look forward to sharing more details as they materialize. From an investment perspective, we deployed approximately $231 million in the second quarter. In addition to our strong balance sheet, one of our competitive advantages is our expansive global footprint and our ability to invest broadly across the globe. A great example of this occurred in Q2. We made a sizable purchase in Northern Europe. And as I mentioned earlier, we had not deployed capital in that country since 2020. And this was a great win for our local operations. In the Americas, we invested $106 million in the quarter. In the U.S., not much has changed on the supply front. We've seen similar volumes of marketed deals to what we saw last quarter, last year. These volumes are, of course, down from pre-pandemic levels for all the reasons we discussed previously. On the competitive front, not much has changed there either. Our competitor list remains consistent. Unfortunately, there are clear signs that indicate more supplies on the way, and I'll get into that in a moment. In Europe, we invested $125 million during the quarter. This represents the second largest amount we've ever invested in Europe in a second quarter, which is worth noting. As in Europe, typically, we see higher volumes in the latter part of the year. So supplies remain healthy in Europe and the competition was generally consistent with Q1. Looking ahead, the economic indicators we're seeing point to more supply in the way. Higher inflation causing pressure on the average consumer, who is battling with the rising cost of food, energy prices and interest rates. As seen on this slide, spending is picking up, and that's leading to higher credit card balances. But this trend is certainly not all about inflation. These card balances are naturally moving up as government actions that drove the balances down or removed and the broad competition for the consumer's wallet normalizes. Not surprisingly, these factors are also leading to lower savings with the savings rate dropping 5.1% as of June 2022, its lowest level since the global financial crisis. In fact, savings for the bottom 20% of U.S. earners or 26 million households declined 22% since the end of 2019. Of course, with lower savings rates and higher credit card balances, not all of those balances will be paid on time or even at all. And that's what's driving the higher delinquency rates for some cut issuers that we've been seeing over the past 3 quarters. These high delinquency rates haven't translated in higher charge-off rates, but is common sense and history would suggest higher charge-off rates appear to be on the horizon I'm no economist, but I've been in the industry for a very long time. And when you put all this together, you'll see that the trends should result in more supply and more portfolios for us to purchase as more consumers default on their obligations and debt sellers dispose of their portfolios. We've seen this happen across multiple credit cycles, and we believe a similar pattern will unfold here in the coming months. As we continue to -- continue to monitor credit trends in the U.S., we're also sharing data from the U.K. this quarter. It's been a tumultuous time in Europe since the Russian invasion of Ukraine, which has caused a spike in global fuel and food prices. code the U.K.'s Office for National Statistics economic data for Q1 found that households disposable income fell in real terms for the fourth quarter in a row, the longest it's run record. And as a result, more people are turning to credit and according to the Bank of England, credit card borrowing increased in June at the fastest annual rate since 2005. Ultimately, we remain disciplined, and we'll only deploy capital in markets and in portfolios that we believe will generate profitable returns. We're in our third decade of business. And coming this November, will have been publicly traded for 20 years. We've seen cycles come and go. Supply is certainly not where we'd like it to be today, but we believe will return is not a matter of when, it is a matter of when, not yet. And with that, I'll turn things over to Pete to go through the financial results.

Thanks, Kevin. Again, this quarter, the prior year comparisons are tough, but we're performing in line with our expectations. Total revenues were $258 million for the quarter. Total portfolio revenue was $251 million with portfolio income of $194 million and changes in expected recoveries of $57 million. During the quarter, we collected $36 million in excess of our expected recoveries, which represented consolidated overperformance of 7%, with the Americas overperforming by 4% and Europe overperforming by 12%. We've now observed several quarters of more normalized collections with sustained overperformance in certain older vintages. This has given us the confidence to modestly increase our ERC forecast for those vintages, which drove a positive change in estimate of $21 million. Operating expenses were $175 million, a $7 million decrease driven primarily by decreases in compensation and employee services and legal collection fees as well as the strengthening of the U.S. dollar against European currencies. The effective tax rate for the second quarter was 26.6%, bringing the year-to-date tax rate to 20.3%, and we still expect the full year tax rate to be in the low 20% range. Net income was $36 million, which generated $0.91 in diluted earnings per share. Cash collections were $444 million compared to $544 million in the second quarter of 2021. Cash collections in the quarter were negatively impacted by $19 million due to the strengthening U.S. dollar. Americas collections were $279 million, a decrease of $84 million. This was driven by a combination of the excess consumer liquidity in the environment last year and the impact of lower levels of portfolio purchases in the U.S. European cash collections decreased 9%, but grew 2% on a currency-adjusted basis. The purchases we've made over the last few years, particularly in Northern Europe are driving the growth in our European business. Our cash efficiency ratio was 61.3% for the quarter. Although this was a decline from the 66.8% last year, it's a 90 basis point improvement over the second quarter of 2019. Operating efficiency improvements we've made over the last few years are responsible for this increase. We expect our full year cash efficiency ratio to be around 62%. ERC at the end of the quarter was $5.6 billion, with 41% in the U.S. and 52% in Europe. The decline from the second quarter of 2021 reflects the impact of lower buying combined with currency translation impact. The strengthening of the U.S. dollar during the second quarter reduced our ERC balance by nearly $300 million. If not for this translation impact, our ERC would have increased from the first quarter, which hasn't happened since the third quarter of last year. We expect to collect $1.5 billion of our ERC balance during the next 12 months. And based on the average purchase price multiples we've recorded this year, we would need to invest approximately $870 million globally over the same time frame to replace this runoff and maintain current ERC levels. I think this level is attainable, but it will be dependent on the normalization of the U.S. market. we expect to happen later this year and into next year. Our capital position remains strong with leverage ratios at the low end of our long-term target of 2x to 3x debt to adjusted EBITDA. At the end of the quarter, we had $1.6 billion available under our credit facilities. $453 million of which was available to borrow after considering borrowing base restrictions. Additionally, in the last 12 months, we generated $1.2 billion of adjusted EBITDA. With all the news focus on rising interest rates, I did want to provide some commentary on our interest rate hedging program, which we use to manage interest rate risk related to our funding. On a consolidated basis, we are 66% hedged. However, when looking at our exposure by currency, we're nearly 100% hedged in the U.S. dollar, a little over 50% hedged in Sterling and then less hedged in the other European currencies. We believe this allocation balances the cost of the hedging with where we are most exposed to interest rate increases. During the second quarter, we repurchased $35 million or approximately 808,000 shares of our common stock. At the end of the quarter, we had approximately $93 million of share repurchase authorization remaining. We believe our strong capital position, financial performance and conservative capital structure provide us considerable flexibility as we prepare to fund higher levels of portfolio investments, we anticipate coming to market in the months ahead. We believe it's only a matter of time before this will happen. And in the meantime, we will continue to evaluate other opportunities to drive meaningful growth and incremental value for our shareholders. Now, I'd like to turn things back to Kevin.

Thanks, Pete. We appreciate all of you attending this call and getting the latest updates on our company. And we know there was a lot to cover this quarter, but we believe the takeaways are clear. So first, Q3 was another great quarter for the company, masked somewhat by challenging comparisons against 2021 and the FX headwinds that are largely outside of our control. And then second, economic indicators point towards more NPL purchase volumes coming. I'll wrap and up by providing a bit of color on how we believe our business is positioned to perform in a recession, which has been a talking point recently. And this is also similar to the early discussion on inflation. So natural recessions generally lead to more charge-offs and more supply for us to purchase. But a common misconception is that our collections will be significantly impacted during these times. The trend, however, is that our paying customers have already been through what we call a personal recession. We've been talking about this publicly since our IPO in 2002. -- due to personal factors that are oftentimes unrelated to the health of the broader economy, they've fallen behind in their payments, and we are helping them on the road to financial recovery. When an economic recession occurs, these customers, for the most part, continue to pay as they've agreed to and collections aren't as impacted as some might expect. What is impacted, however, is the amount of new charge-offs that occur as an entirely new group of consumers running the financial difficulties. This eventually leads to higher charge-offs and higher amounts of portfolios for us to purchase, which is exactly what we saw in the years following the global finance crisis. As I said earlier, nearly all the economic data we're seeing points to more supply entering the market, and we're ready for it. We've built a high-performing, well-capitalized and profitable engine that is hungry for portfolios. We will always remain disciplined in how we allocate capital, but we're encouraged to see the purchasing pick up this quarter. Overall, this is an exciting time to be here at the company, and we look forward to connecting with all of you as we continue to demonstrate the value of investing in PRA. And with that, again, I thank you all for listening and putting your trust in us. Operator, we're now ready for questions.

[Operator Instructions] First question today comes from Bob Napoli with William Blair.

Thank you and good afternoon. So just a question on supply in Europe. Kevin, I mean, you certainly called out a strong quarter, but it can be somewhat lumpy. I mean, are you seeing a consistent uptick in supply in Europe that is sustainable where was this quarter affected by one-off larger purchases?

No, overall, the supply has been as expected. It's been strong. But don't get confused. It's definitely -- supply in Europe is lumpy. The deals are bigger than they are in the United States. But no, I would say it's consistent and as we expected.

Then the cash efficiency ratio, 60.7% this quarter. What is your view on the sustainable level of cash efficiency ratio as consumer cash collections have normalized?

Again, I said on the prepared remarks, Bob, that I think we're going to be around 62% for the full year. There's always some sort of seasonality to that quarter-by-quarter as we move through the year, but I think 62% is a good sort of benchmark for the full year. And I think that's probably the neighborhood of where we'll be on a go-forward basis. We continue to look for ways to drive efficiency into the operation and believe we've got some built-in advantage as we start to put more portfolio on.

Great. And then, one last one for me. Just I think, Kevin, I mean, you had sounded a little more excited, I think, in the last call about M&A potential. Just any updated thoughts on what you're looking for or kind of if you're building a pipeline and just overall thoughts on what that -- if you progressed on the thoughts around M&A?

Yes. Thanks for asking that. I was and am excited about the prospect. I think I might have said this last quarter, but I think now is a great time for us in our evolution. We’ve got a great new hire on board who reports to Pet Graham. And so yes, we are – I would say we’re in the flow as we like to call it. And looking around for something that makes sense from either a tangentially related business or again, something that makes sense for us. So, I guess I’ll leave it at that, but we’ll certainly let Pete wants to add something from this area.

No. I think as always, we're being very methodical about how we approach things. And when we have something more to share, we'll certainly let you know.

Pete, Kevin, appreciate it. Thanks.

The next question comes from Mark Hughes with Truist.

Thanks. It looks like there was a big uptick in the forward flow numbers, particularly in Europe, that I seeing that properly? And anything you can tell us about that?

Yes. We always update that with the most recent sort of contractual obligations. You'll recall, we had last year, talked about a multiyear flow that we had picked up. And the primary driver of that increase is just sort of looking out another year with regard to that commitment.

How much of that would be within 12 months?

I'm sorry.

How much of the total would be, say, within 12 months or if I'm hearing you, and you're saying it's a multiyear of the total, how much might you expect within 12 months?

I think that's likely looking out 12 months from here.

Okay.

But keep in mind that yes. Just keep in mind, though, that's a contractual commitments disclosure. So it's the maximum contributor -- or maximum committed volume over the entirety of the contract. So it's not our best estimate of the likely flows. It's the contractual commitment.

Okay. And then when we think about the cost, your costs were down $7 million when your collections were down about $100 million. How do we think about variable versus fixed costs with the business as it stands now?

Well, some of that is related -- well, a lot of that is related to the top line liquidity that we had in the environment in '20 and '21. On a cash efficiency basis, we're benchmarking against 2019 to kind of normalize for that top line liquidity. And so we've got improvement over 2019 in terms of cash efficiency. I think in terms of overall expense levels, we're kind of we've kind of plateaued in terms of we're at the lowest number of collectors that we're really comfortable with here in the U.S., and we probably have some pent-up capacity to scale as more portfolio comes to market without a dramatic increase in costs. I think in terms of near term, the overall level of expense, the total OpEx that we're at right now for the quarter is probably a good benchmark for how we're going to be trending here in the next couple of quarters. There might be some puts and takes among the different line items. But I think in terms of total OpEx, we're probably about the right size.

Okay. And then, you want to say about your appetite to buy back. If you anticipate that supply is going to be increasing, are you still just as likely to be buying back stock in the market now?

I think that's -- as we get closer to the point where we think that portfolio is going to come to market, we might throttle back a little bit, but it's always going to be a part of our toolkit. We still have $93 million of authorization available at the end of the quarter.

Yes. Then one more question, the sizable purchase in Northern Europe, if you hadn’t bought since 2020, what makes you feel good about your visibility around the collections performance for the portfolio.

It's a unique market, and we have a lot of data in that market. And to your point, though, it is a little older, but it's a more legal is not the right word.

The ball system really is a large part of how the collections happen in the Nordics.

And we've been in that market for a long time. So we're pretty confident with the purchase. And we're doing well on the 2020 deal.

Yes. What prompted the change just that you've been bidding consistently and you just hit it this time? Or did a competitor back out of the market? Just curious.

Yes. No, so that's a good question. No, it wasn't that because we have had that happen before where a competitor backed out of a bid, and we came in and bought it but that was not the case this time. We just -- we hit on the deal.

Okay. Thank you very much.

The next question comes from Robert Dodd with Raymond James.

Just one on OpEx. First in following up a little bit, Mark. But you had a pretty sizable tick up in outside fees and expenses this quarter. The press release seems -- it indicates higher corporate legal expenses. Was there any one time or is that level going to be sustained? And is there anything are we going to see a disclosure in the Q about and you lawsuit on anything like that? I mean, could you give us any color on that?

War, it's we -- each quarter, we have to evaluate the myriad of cases that we've got and adjust our accruals accordingly. So it's a little bit higher on that line this quarter. again, I would say for the near-term future, I think our total OpEx is probably about at the right level, and we'll probably have some puts and takes amongst the different line items.

Okay, got it. I appreciate that. On -- if I can -- what -- the outlook for the U.K., I mean, there does seem to be a lot more stress on a typical U.K. British consumer than maybe the U.S. consumers right now. And obviously, we're heading into the back half of the year where things are getting pretty tough across Europe with energy bills and things like that. So -- but at the same time, I mean, on a constant currency basis, the cash collections seem to do pretty well in the European geography. So can you give us any more -- how conservative have you been on -- a tough question on the curve in Europe with a pretty tough environment, but you're still outperforming.

Yes. Thanks for that. I’ll feel a part of that and turn some over to Pete. But I just wanted to reiterate what you said. In the U.K., especially as you enter the colder seasons with some of the energy costs, that’s a big deal for those guys, and we think about that all the time. So we’re buying paper that we’ve been buying for a long time in the U.K. especially. We’re in – and obviously, we’re in a couple large forward flows and not just one. And we’re, again, one of the strongest players in the U.K. And so our data backs this up. We’re certainly thinking about all the things you talked about. I’ll let Pete maybe go a little more in the curve setting with that if he wants to.

Yes. Again, we take each quarter as it comes and we make our best outlook for what's going to happen not only in the near term, but over the course of these forecast periods, which are quite long. I would say the U.K. performance, some of that being driven by the type of paper that we predominantly have bought there, which tends to be books that are in long-term payment plans, and we go through a formal process of evaluating the customers' ability to afford those payment plans. So they're longer-term plans that are affordable for the consumer and tend to be sticky even in an environment when the consumer is under pressure.

Got it. I appreciate that. And one more, if I can. On the digital front, I mean, obviously, there’s been some – you’ve been working on a long time, but you talked about a lot more to say, over the last 2 years, but not this quarter. I can’t recall if you did last quarter. I presume that’s still doing quite well. But is the investment there still – is it still outperforming kind of where your initial expectations were? Or is it kind of settled into something that’s more predictable now that to your point, some of the excess liquidity at the consumer is not quite the…

Yes. No, it's a great question. So obviously, during 2020 and 2021, it materially outperformed our expectations. But I look back to when we really launched this process and digital was a very, very small piece of our business back in the day. And I remember, we don't disclose this, but I'll just make a comment about -- we set our internal goal as to what percentage we'd like to have. And even now that we're past that excess liquidity time frame, we are bumping up right against that goal. And that goal I'll just seemed almost unattainable to us when we said it. And so we're obviously in the process of now setting new goals, something new to stretch for in digital. And so we're excited about it. And if you look at some of the productivity numbers, like headcount for collectors, for example, hasn't been this low since what, 2007, somewhere in there. And we're collecting more in a quarter than we collected in a year back then with the same headcount. So a lot of that is coming from digital, from different scoring methodologies and different access to legal and so on. So it's been quite a journey. So don't -- I didn't talk too much about it this quarter, but don't take my silence as lack of enthusiasm on the matter.

Understood.

The next question comes from David Scharf with JMP Securities.

Thanks for squeezing me in. I'll apologize in advance. I've been bouncing between calls, so I'm assuming most of these have been asked. But maybe a few quick ones. Kineret, I'm curious, the designation of the footnote about the forward flow and the maximum, are there any minimums though, like guaranteed minimums that you were locked in? I mean that obviously provides the MAX, but is there some metric on the downside that sense for visibility into those volumes?

Yes. The flow contracts have -- typically will have contractual minimums and maximums built into the contract. But the way the disclosure is structured is only the maximum because it's a commitment contingency type disclosure that we were required to make.

Are you not permitted to provide the minimum? Is that it?

We're permitted. We just choose not to.

Okay, that makes it easy. Secondly, as credits normalizing and obviously some other macro factors weigh, the sellers have obviously been raising their provisions and we're monitoring delinquency roll rates. Just curious, is there any -- do you get any windows into sort of their channel preferences? And what I mean is when losses finally start to tick up, do they tend to outsource the third parties first? Or is it just every month, they're making a calculated decision between working in-house, sending the collection agencies versus selling? Like is there anything about that channel mix and from their perspective that could delay some of the paper flowing your way?

I would say it depends on the seller. They all have their different preferences. And I guess I'll go out on a limb and say when they have a rolling batch of charge-offs coming through, I would say they're either going to stick to their old strategies or again, doing a global financial crisis, it felt like to me they were selling sooner. But again, I think it's really about bank preference so it depends on which one you're talking about. So probably can't generalize that.

Got it. Got it. And then lastly, sure somebody kind of inquired about just the magnitude of the collection upside in the quarter. I mean I imagine we're always setting these curves cautiously enough so that hopefully that number at its lowest is 0. But just based on the macro commentary and bouncing back and forth on consumer lender calls that are all becoming a lot more cautious. I mean, should we -- I mean, just based on directionally what's going on with consumer payments and inflation and whatnot. Should that be a figure that is materially lower going forward if we had to get just for our forecasting purposes?

I've said all along when we talk about this accounting model that you got to look at it holistically and you can't separate the portfolio yield component from this change in estimate component because keep in mind, we're locking in that yield on day 1, and we don't ever change it. So the change in estimates line is akin to yield raises under the old accounting. And over time, we tend to have expansion of multiple as we move through time and we see how these deals perform. We tend to unbalance raise curves more than we lower curves. And that's why I think there'll always be something there, not too dissimilar from when we had the allowance charge component. We couldn't tell you which quarter or when it was going to happen in order of magnitude, but you could always bet that there was going to be a certain level of that year after year. I would say the same thing applies here to this. And on balance, I think it's going to be biased more towards positive just based on how our codes develop overtime. And David, just one more thing for the folks listening. I know you've been around it to start almost. But our industry, you mentioned you're listening to consumer credit calls. It's just very different. It's a very different environment. And we're dealing with consumers who are already distressed. They're already at that point rather the consumer lenders are dealing with that progression. And it's just an industry that just works that way. And you tend to get these folks that have gone through their own personal recessions. And I know you didn't catch all the script. That's why I'm saying it to you here now. And they tend to be stickier because again, we're working with them. They're -- again, just -- if everybody knows this or not, we don't charge interest and fees in the United States and the balance is static and they're chipping away at it. So just a very different environment than consumer lenders.

Sorry, I just want to -- yes, that's helpful. And for portfolio income, we've been modelling some fairly consistent yields going forward. But that change in expected recovery. I guess maybe a different way to phrase it was, that's -- that was the second highest figure in 6 quarters, and maybe it's something that we would think would be narrowing a bit, I guess, on an absolute basis if [ph].

Remember, we made significant adjustments in the 2020 and 2021 related to acceleration. And we because of the uncertainty in the environment, we essentially held on all of our vintages on all of our businesses held our purchase price multiples constant and didn't allow any of that natural expansion that we normally see in a portfolio over time to occur. And so we've had continued further performance on some of the older vintages. And that gave us the confidence this quarter to modestly increase our outlook for ERC.

Great. Okay, that's all I got.

Thanks, David.

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

Well, thank you very much. Again, it's a great time to be here at PRA. And we're just, again, thankful everybody, for attending the call to get caught up on us, and we look forward to talking to you next quarter. Thank you.

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