PRA Group, Inc. (PRAA), a global leader in acquiring and collecting nonperforming loans, discussed its first-quarter earnings for 2024, emphasizing a strategic turnaround and profit rebuilding.
The company reported a 7% increase in portfolio purchases, with significant growth in the Americas and the US. Total revenues reached $256 million, while operating expenses amounted to $189 million, inclusive of heightened legal costs. Cash collections saw a notable rise to $450 million, driven by performance in the US and Brazil.
Key Takeaways
- PRA Group's portfolio purchases rose by 7% year-over-year, with a 48% increase in the Americas and a 71% increase in the US.
- Total revenues for the quarter stood at $256 million, with portfolio income showing growth from the previous year.
- Operating expenses were reported at $189 million, including a rise in legal fees.
- The company achieved a 9% increase in cash collections, totaling $450 million, led by the US and Brazil.
- PRA Group expects to collect $1.6 billion of its ERC balance within the next 12 months and maintains its financial and operational targets.
Company Outlook
- PRA Group is focused on achieving double-digit growth in cash collections and a modest increase in costs by 2024, aiming for a significant improvement in net income.
- The company retains its return on average tangible equity target between 6% and 8%.
Bearish Highlights
- The company faced increased legal fees, contributing to the $189 million in operating expenses.
- Aggressive competition and low volumes were noted as challenges in the European market.
Bullish Highlights
- Strong performance in the Americas and Europe, with overperformance of 9% and 5% respectively.
- Positive outlook on the European market’s potential for increased supply and strong seller relationships.
- Diversification across 13 countries is seen as a significant strategic advantage.
Misses
- There were no specific financial misses reported in the earnings call.
Q&A Highlights
- Executives addressed inquiries regarding wage garnishments, legal expenses, and future efficiency targets.
- The attractiveness of the European market was emphasized, despite the current competitive landscape.
In the first quarter of 2024, PRA Group reported strides in its operational execution, including optimizing investments and managing expenses. The company's leverage ratio remains within the target range, with $3.1 billion in total committed capital.
Despite increased legal spend and consulting expenses, PRA Group managed to reduce compensation expenses by $9 million due to lower severance costs. Legal collection fees rose by $3 million, propelled by the US portfolio's higher collections and more lawsuits filed in Europe.
The Americas region was a standout performer, with cash collection initiatives and collections from older vintages showing improvements. The company's pricing strategy and improved multiples in the Americas Core market were also highlighted during the call.
President and CEO Vik Atal, along with executive Rakesh Sehgal, discussed the competitive European market, expressing confidence in its future despite current challenges.
PRA Group's commitment to disciplined market conduct and the leveraging of strong seller relationships in Europe was evident. The company's diversified presence in 13 countries provides a substantial edge in the face of competition.
Atal concluded the call by thanking supporters and expressing eagerness for ongoing dialogue throughout the year, reinforcing the company's dedication to its strategic goals and shareholder value.
InvestingPro Insights
PRA Group's first-quarter earnings for 2024 reflect a company in the midst of a strategic shift, with a focus on expanding its nonperforming loan portfolio and improving profitability. The InvestingPro data and tips provide additional context to these earnings and the company's financial health.
InvestingPro Data:
- Market Cap: PRA Group's market capitalization stands at approximately $996.79 million, indicating its size and significance in the industry.
- P/E Ratio: The company has a negative price-to-earnings ratio of -11.85, suggesting that it has been unprofitable in the recent past.
- Revenue Growth: Revenue has decreased by 16.96% over the last twelve months as of Q4 2023, highlighting recent challenges in generating sales growth.
InvestingPro Tips:
- Net Income Growth: Analysts predict that PRA Group will see its net income grow this year, which could signal a turnaround from the unprofitability suggested by the current P/E ratio.
- Liquidity: The company's liquid assets exceed its short-term obligations, providing it with a cushion to manage its debt and potentially invest in growth opportunities.
InvestingPro offers additional tips that could provide further insights into PRA Group's financials and projections. For instance, while the company has not been profitable over the last twelve months, analysts are optimistic about its profitability in the current year. Additionally, the company has experienced a large price uptick over the last six months, which could be indicative of investor confidence in its future prospects. It is also worth noting that PRA Group does not pay a dividend, which can be a consideration for income-focused investors.
For readers interested in a deeper analysis, InvestingPro has more tips available. By using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking a wealth of financial data and expert insights to inform their investment decisions.
Full transcript - Portfolio Recover (PRAA) Q1 2024:
Operator: Good evening. And welcome to PRA Group’s First Quarter 2024 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 that this event is being recorded. I would now like to turn the call over to Mr. Najim Mostamand, Vice President, Investor Relations for PRA Group. Thank you. Please go ahead.
Najim Mostamand: Thank you. Good evening, everyone, and thank you for joining us. With me today are Vik Atal, President and Chief Executive Officer; and Rakesh Sehgal, 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 our earnings press release issued today 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 in 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 replay dial-in information is included in the earnings press release. All comparisons mentioned today will be between Q1 2024 and Q1 2023, 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 March 31, 2024, and December 31, 2023. Please refer to today’s earnings release and the appendix of the slide presentation used during this call for a reconciliation of the most directly comparable U.S GAAP financial measures to these non-GAAP financial measures. And with that, I’d now like to turn the call over to Vik Atal, our President and Chief Executive Officer.
Vik Atal: Thank you, Najim, and thank you everyone for joining us this evening. Building on the momentum from last year, we began 2024 on a positive note with the first quarter demonstrating continued progress on driving the turnaround and rebuilding profitability. As I will outline in a moment, the strategic initiatives in our U.S. business remain firmly on track. We also continue to strengthen our leadership team. Upon my appointment as CEO in March of last year, I assumed direct oversight of all U.S. operations to accelerate the company’s turnaround during an important transitional year. Building on the success to-date and focusing on the next stage of our journey toward operational excellence, I am pleased that Steve Macke has recently joined as our new Global Operations Officer. Steve is an experienced leader in the consumer finance industry, bringing more than three decades of operational expertise. I expect him to play an instrumental role in delivering against our strategic priorities. In addition, earlier this year, we appointed Keith Warren as our Global Chief Risk and Compliance Officer. Keith has more than 30 years of compliance, legal and operational risk leadership experience across multiple credit reporting and consumer banking enterprises I’d now like to spend a few minutes providing an update on our turnaround. As a reminder, our roadmap to enhance profitability is supported by three pillars. First, optimizing investments, which allows us to increase ERC and portfolio returns. Second, driving operational execution, which focuses on maximizing cash collected per dollar invested. And third, managing expenses, which is geared to optimizing our cost structure. First, optimizing investments. We continue to capitalize on the significant growth in U.S. portfolio supply driven by credit normalization. Industry credit card balances exceed $1 trillion today, up from $850 million pre-pandemic. Delinquency and charge-off rates have also climbed over the past couple of years, recently reaching 3.1% and 4.2%, respectively, compared to 2.7% and 3.7% pre-pandemic. As shown by the chart on the left of the slide, there is a strong correlation between U.S. credit card charge-off rates and our U.S. portfolio purchases. As supply in the U.S. continues to build, we expect another strong year for U.S. portfolio purchases. Moving to Europe, which Rakesh will expand on in his remarks, we did not see the normal volume of portfolios for sale during the first quarter. However, we have recently seen a sizable uptick in market volumes and we expect that our investments in the second quarter will align more closely with the long-term trends noted on the top right-hand chart. We remain disciplined with regards to pricing and are strategically deploying capital in the markets where we see the most attractive returns. In addition to pricing new purchases appropriately, we continue to realize year-over-year pricing improvements from the large forward flows that we repriced last year. As Rakesh will highlight later, the combination of increased purchases and improved pricing is positively impacting portfolio income. Turning now to the second pillar, driving operational execution. With regard to initiatives across our Core centers in the U.S., we have continued to refine and optimize diverse strategies, reconfigured offers to align with seasonal increases in customer liquidity, built capacity to support portfolio growth and driven expanded customer reach. Additionally, a new customer contact strategy that we rolled out in the fourth quarter of 2023 continues to deliver successful results. We have previously referenced a significant opportunity associated with our existing inventory of legal judgments, which is estimated to be in excess of $100 million of incremental cash collections in the 2024 to 2026-time period. These opportunities range across various stages of the U.S. legal process, but most significantly are being generated by the improved effectiveness of our wage garnishment processes. The chart on the slide indicates a relative volume of annual wage garnishment filed across our U.S. business and highlights our expectation that wage garnishment filings in 2024 will more than double from a pre-pandemic baseline. Furthermore, we are encouraged by the pace at which we are realizing cash from wage garnishment. The lift we are seeing from this specific process, along with the additional improvement across the overall legal collection processes, indicates that the overall sizing of the opportunities associated with our U.S. legal processes is likely to exceed our initial estimates. As a reminder, all of these initiatives, whether in the call center or in the legal channel, should impact not only the cash we can generate from our existing portfolios, but also from new portfolios that we purchase in the future. Over time, this should make us both more profitable and a more competitive buyer of portfolios. The third pillar to our business turnaround is managing expenses. The key to this pillar is reducing the marginal cost of doing business. On our last earnings call, I talked about the various factors that are expected to contribute to increased costs, including growth in account volumes, investment in our legal channel and inflationary impacts. Each of these remains a factor influencing the level of our expenses for the first quarter of 2024 and over the balance of the year. Our expenses in the first quarter reflect the impact of our cost management program, including tangible progress on working with well-recognized global service providers to outsource processes to low-cost locations and establish offshore call centers. As previously noted, we will be evaluating both the efficiency and effectiveness of these resources through the balance of the year so as to determine applicable further strategic action. In summary, each of the three pillars supporting our drive to enhance profitability is tracking to our expectations. And with that, I’ll turn it over to Rakesh for a financial summary of our first quarter results.
Rakesh Sehgal: Thanks, Vik. We purchased $246 million of portfolios during the quarter, up 7% year-over-year. In the Americas, we invested $197 million in the quarter, up 48% year-over-year. In the U.S., we deployed $187 million, which was up 71% year-over-year. This reflected our second highest Q1 U.S. investment level in company history. The year-over-year increase was primarily driven by the monthly amounts purchased under our forward flow arrangements. Pricing also continued to improve, as seen by our Americas Core Vintage, which was reported at 2.11 times at the end of Q1 2024, compared to 1.97 times for the full year 2023. Moving to Europe, we have an efficient, profitable and well-diversified business. In contrast to the challenges that some of our competitors are facing, our European operations remain strong and differentiated, with a long track record of healthy investments and ERC growth, a disciplined underwriting and purchasing approach, and a management team that has remained stable for years. During the quarter, we invested $49 million in Europe, which was influenced by the low availability of market volumes. As a reminder, the investment opportunities are less predictable in Europe, since the market is more spot-driven than the U.S. market. Total volumes in general are still below pre-pandemic levels and we haven’t seen large spot transactions similar to those that have come to market previously. What we are seeing is an uptick in market volumes at the start of the second quarter, with our purchases shaping up to be meaningfully stronger than the level we experienced in the first quarter. Moving on to our financial results, total revenues were $256 million for the quarter. Total portfolio revenue for the quarter was $254 million, with portfolio income of $202 million and changes in expected recoveries of $52 million. As a reminder, portfolio income is the yield component of our revenue. You can see on the chart on the left that the first quarter was the third quarter in a row that portfolio income has grown year-over-year, driven primarily by higher recent purchases and improved returns, especially in our U.S. business. We expect this trend to continue due to purchases and pricing changes already made, as well as additional projected investments that are expected to grow the portfolio. Turning to the chart on the right, in addition to portfolio income, our total portfolio revenue includes changes in expected recoveries, which encompasses a combination of cash overperformance or underperformance in the current period and the net present value of expected changes in our ERC. Looking at this quarter’s results, $36 million of the $52 million was attributable to cash overperformance. We experienced strong U.S. overperformance across most vintages this quarter, especially in some of our older ones, which reflect the impact of our cash generating initiatives. We also experienced strong overperformance in Brazil. The other $16 million of the overall $52 million came from changes in expected future recoveries. To the extent our strategic operational initiatives create incremental ERC, the impact would flow in large part through our income statement as changes in expected recoveries. During the quarter, our cash collections exceeded expectations on a consolidated basis by 8%, with the Americas overperforming by 9% and Europe overperforming by 5%. Operating expenses for the quarter were $189 million. This amount included $6 million related to our corporate legal spend and consulting expenses, which we believe are outsized in nature. Compensation and employee services expenses decreased $9 million, primarily due to the $7.5 million in severance expenses we incurred in the prior year period. After adjusting for the severance expense, our compensation and employee services expenses still declined year-over-year, even though we have added to our U.S. call center employee base to service the larger volume of accounts driven by higher portfolio purchases. Legal collection fees increased $3 million, driven mainly by higher external legal collections within our U.S. portfolio. Legal collection costs also increased $3 million, driven by a higher volume of lawsuits filed in Europe, as well as costs associated with our legal cash generating initiatives in the U.S. As a reminder, there is a timing lag when we invest in our legal channel. Typically, there is an upfront cost paid to the courts when a lawsuit is filed, which is then followed several months later by cash collections starting to build. Agency fees, which are variable and largely driven by our cash collections in Brazil, were up $2 million this quarter, reflecting continued strong cash collections growth in that market. Outside fees and services were relatively flat, which included the previously mentioned $6 million outsized expenses incurred during the quarter. In the first quarter of last year, we incurred $7.6 million for certain case-specific litigation expenses that largely did not recur this year. Communication expenses were up $2 million this quarter, primarily due to expanded account volumes. As you can see, most of the increase in our operating expense line items this quarter, whether from legal fees and costs, agency fees or communication expenses, is tied to growth in our portfolio and the investment we’re making to support our cash generating initiatives. Our cash efficiency ratio was 58% for the first quarter, compared to 54.3% in the prior year period. Net interest expense for the first quarter was $52 million, an increase of $14 million, reflecting higher debt balances and increased interest rates. Our effective tax rate for the quarter was 17%. We continue to expect our effective tax rate to be in the low 20% range for 2024, depending on income mix and other factors. The $8 million adjustment for net income attributable to non-controlling interests was higher this quarter due to the strong performance in Brazil. Net income attributable to PRA was $3 million or $0.09 in valuated earnings per share. Cash collections for the quarter were $450 million, up 9% from the prior year period and up 7% on a constant currency basis. America’s cash collections increased 11% or 10% on a constant currency basis, driven primarily by higher collections in the U.S. and Brazil. U.S. cash collections increased 9% for the quarter due to higher portfolio purchases and the positive impact of our cash generating initiatives. On a sequential basis, U.S. Core cash collections increased 23% in Q1 2024, compared with single-digit sequential growth in Q1 2022 and Q1 2023. The strong double-digit sequential increase is due to higher portfolio purchases and the positive impact of our cash generating initiatives, which were supplemented by tax seasonality. European cash collections increased 6% or 3% on a constant currency basis. At this time, the consumer environments in both the U.S. and Europe are largely similar, reflecting key economic factors including inflation. Although we are seeing fewer large one-time payments in the U.S. and some markets in Europe, our level of customer engagement and the proportion of customers paying us both remain fairly steady. ERC at March 31 was $6.5 billion, which was up 15%, compared to $5.7 billion at March 31 last year. On a sequential basis, ERC increased $100 million. We expect to collect $1.6 billion of our ERC balance during the next 12 months. It’s important to note that this number only reflects the amount we expect to collect on our existing portfolio. It does not include cash we expect to collect from new purchases made over the next 12 months. Based on the average purchase price multiples we recorded in the first quarter, we would need to invest approximately $791 million globally over the same time frame to replace this runoff and maintain current ERC levels. Keep in mind that this replenishment amount decreased over recent quarters because our multiples have improved. In this environment of increasing supply in the U.S., we expect that we can exceed this investment level and continue growing ERC during 2024. Our leverage ratio remains within our target range with a debt-to-adjusted EBITDA of 2.83 times as of March 31. Our long-term goal is to have our sustained leverage be in the 2 times to 3 times range, and as you can see on the slide, we have successful -- we have been successful in doing so, even with portfolio investments growing over the past several quarters. In terms of our funding capacity, we have $3.1 billion in total committed capital to draw under our credit facilities. In all three of our credit facilities, we have deep banking relationships, most of which stretch back over a decade. Our bank lines have margins ranging from 235 basis points to 380 basis points over benchmark that provide an attractive cost of capital. As of March 31, we have total availability of $1.2 billion, comprised of $367 million based on our current ERC and $855 million of additional availability that we can draw from, subject to borrowing base and debt covenants, including advance rates. Lastly, given we have our 2025 senior notes maturing in the fall of next year, we are actively monitoring the capital markets. We believe the capital available under our credit facilities, the cash generated from our business and access to capital markets in both the U.S. and Europe position us to take advantage of the continued build in portfolio supply. With that, I’ll turn it back to Vik.
Vik Atal: Thanks, Rakesh. Taking into account our recent performance and outlook for the remainder of the year, we reiterate each of the financial and operational targets outlined on the slide. Strong portfolio investments, double-digit cash collection growth and modest expense growth, resulting in 60% plus cash efficiency, and a return on average tangible equity between 6% and 8%. It’s important to remind everyone that this ROATE target is weighted to be generated towards the second half of 2024, reflecting the additional momentum we expect to gain through the year as we scale our initiatives. While it remains premature for us to forecast how this metric will evolve through an entire business cycle, we do expect to continue to see additional uplift beyond this range as we move past this year. In closing, I am encouraged by the speed with which the team is extracting the value embedded within our existing business, investing efficiently and with discipline, and executing on initiatives to optimize operational performance. There will be no let-up in the drive and the urgency with which we are working to regain our position as a high performing company. Thank you, as always, for your continued support. And with that, we are now ready for questions.
Operator: Thank you. [Operator Instructions] Your first question comes from the line of David Scharf from Citizens JMP. Please go ahead.
David Scharf: Great. Good afternoon and thanks for taking my questions. I’d actually like to start out with a topic that doesn’t get a lot of focus in most of these calls, but the non-controlling interest expense is well over half of pre-tax and after-tax. Can you just remind us about the ownership structure in Brazil, whether there are any ability to take complete ownership of that entity? And maybe just a recap of why it’s performing so well and whether there was anything one-time in nature, because it really impacted the results this quarter?
Rakesh Sehgal: Yes. Thanks, David, for that question. So, look, we’ve been very happy with our Brazil investment. We’ve been there for quite a while and the structure that we have has been a joint venture and we get a little over half the income from that joint venture and that’s why you have that NCI line item. Look, that market has evolved. We’ve got really good partners who have managed that business in conjunction with us. In the past, it was more of a consumer market. We’ve been focused lately much more so on the auto market. And that’s a very concentrated market from both a buyer and seller perspective with very healthy economics. But we’ve also been very disciplined in our investments in that market. So, overall, it is something that we’ve been very pleased with. And with respect to consolidation, look, it is something that we’ve been working with our partners for years. And at this point in time, we continue to work in conjunction with them to evaluate all opportunities in that market. And Vik, is there something else that you want to add around Brazil as well?
Vik Atal: No. I think you’ve covered it adequately.
David Scharf: Got it. Thank you. And maybe just to follow up, shifting to Europe, I understand the commentary about the second quarter activity picking up meaningfully from Q1. Just kind of understand what the broader message is. Is it that you’re starting to see a lot more visibility into spot deals for the rest of the year and that activity -- some of the non-performing loans for sale from banks is starting to increase or were you just making a very isolated comment about the second quarter activity?
Vik Atal: I can’t speak to expectations for the full year, David, because obviously, as you know, it’s a spot-driven market that varies across time. What we did see in the first quarter, as we reflected in our remarks, both myself and Rakesh, is that there was a relatively muted level of market supply. So it wasn’t that we pulled back from the market, it was really a muted market supply and we got our appropriate share of what was available. But we are seeing a tangible pickup in supply that we are evaluating as we speak and that gives us the confidence to indicate where we think our second quarter purchase volumes will land, which is more in line with the, you see the line across the chart that’s probably in the $110 million range, right? So somewhere $100 million, $110 million is, where we have line of sight with this time and then we’ll see how the year progresses beyond that.
David Scharf: Got it. And maybe just a quick follow-up on that comment, Vik. Given sort of some of the well-publicized headwinds that some of the large competitors in Europe have been facing and are reflected in their public debt prices, are you seeing just as robust bidding processes in this second quarter in addition to the supply or are you starting to see a little more lenient competitive backdrop?
Vik Atal: I wish it was getting more lenient. Obviously, it’s a highly competitive market, lots of competitors there. We are not, to the best of my knowledge, seeing a -- seeing an impact, right, from any competitors having to pull back because of their internal challenges.
David Scharf: Got it. Got it. One can only hope. Thank you.
Operator: Thank you. And your next question comes from the line of Mark Hughes from Truist. Please go ahead.
Mark Hughes: Yeah. Thanks. Good afternoon.
Vik Atal: Hi, Mark.
Mark Hughes: Rakesh, you had mentioned the performance by area, 9% overperformance in the Americas, 5% in Europe. Could it be overperformance or the performance in the U.S. specifically?
Rakesh Sehgal: Yeah. So, I just want to clarify that you’re looking at the right line item. So, when you’re looking at the 9%, that one was a quarter-over-quarter. So, when you compare to the accounting curves, we have total consolidated 8% overperformance, America is 9%...
Mark Hughes: Yeah.
Rakesh Sehgal: … U.S. 5%. So, look, this is obviously a lot healthier than what we have seen in the past with respect to U.S. and it really leads us to believe that our cash initiatives are starting to bear fruit. And one of the things that I mentioned also is our older vintages, typically the older vintages tend to run-off, Mark, and what we saw this quarter is that we’re starting to collect more from those older vintages that we had in the past. And that just gives us confidence that the various initiatives that we have been implementing are starting to have a positive impact on our results.
Mark Hughes: Understood. And then -- and you may not want to disclose at this level of detail, but I’m just sort of curious in the U.S. how the performance was there between the Americas and Europe number, or how would you say?
Rakesh Sehgal: Yeah. Look, cash performance in the U.S., even in that Core business, I would say, it was healthy. Definitely better than what we have seen in the past and in line with what we have said in terms of how our revenues would flow, that the initiatives that we’re implementing will flow through that change in expected recovery line item. And so in the Americas, for example, we had very healthy recoveries received in excess of forecast. So that $36 million that we mentioned in the Americas, including in the U.S., we were looking at double digits from our U.S. Core business in terms of cash overperformance.
Mark Hughes: Very good. Thank you for that. You mentioned that the important driver of the better collection multiple for the 2024 paper so far is improvements in your forward flow pricing. How has that trend been lately as these have been renegotiated and you’re renewing them? What would you say is the rate of improvement still going up? Is it somewhat stabilized?
Rakesh Sehgal: I think I take that in two parts, Mark. One is that when we’re comparing first quarter this year to first quarter last year, you need to factor in that through the latter half of 2023, we took the perspective of repricing a number of our forward flows, both short-term and medium-term forward flows. So you’re seeing the impact of those pricing changes flowing through in our results. And secondly, as I think we reiterated through our conversations in 2023, we have ensured that we have a dynamic pricing framework and that we reflect the appropriate market conditions as we sort of renew or enter into new forward flows and that perspective is continuing into 2024. So we see with expanded supply, the demand in terms of the debt buyer universe in the U.S. is fairly constant and that provides us the opportunity to make sure that our pricing is appropriately reflective of market competition and market conditions.
Vik Atal: Yeah. And Mark, if I could just add to that, like I just mentioned earlier, that the multiples we’re seeing in Americas Core was 2.11, and as you know, that the U.S. is more of a forward flow market. And if you go back just to 2023 and last quarter, that 2.11 is higher than what we saw in the previous couple of quarters. So continued improvement as we move in through 2024.
Mark Hughes: And then the wage garnishments. Can you talk a little bit more about that? Does it present any kind of regulatory risk perhaps? Are these -- I assume these garnishments are pretty standard or well-established. Is there any reason to be concerned on that front?
Rakesh Sehgal: No. There’s nothing, no regulatory concern on that. It’s a standard, well-established element of the U.S. legal process and we’ve just been working hard on that, as well as other cash initiatives to ensure that we are optimizing where we need to be optimizing. So no, no issues on that.
Mark Hughes: Yeah. And one final question, the 60% efficiency target. I hear you that it sounds like there’s maybe $7 million, or I’m sorry, $6 million that I think you described as outsized in nature, perhaps not recurring. Given that we started at 58% and I think the goal is 60% for the full year back end loaded, would one then say that the trajectory of the run rate when we get into 2025 is going to be above that 60%, and therefore, one would think about 2025 as being improved off of a 60% level?
Rakesh Sehgal: I want to be careful, Mark, that we don’t get ahead of ourselves with regard to outlining a particular ratio for 2025. I think candidly myself and the entire team is very focused on making sure we are delivering against the operational financial targets we sort of signal to the market for 2024, and as we get through the rest of this year, we will certainly come back to you as soon as we have a view on 2025. But we feel at this point quite comfortable with regard to what we’ve signaled on the improvement in cash efficiency as a metric through the balance of this year.
Mark Hughes: Very good. Thank you.
Rakesh Sehgal: Thank you.
Operator: Thank you. [Operator Instructions] And your next question comes from the line of Robert Dodd from Raymond James. Please go ahead.
Robert Dodd: Hi, guys. Congrats on the quarter. On the legal, I mean, you spelled it out on the call. It’s in the press release. I mean, you spend -- there’s a higher number of lawsuits in Europe and it can be front-end, right? So should we read that a lot of catching up, so to speak, was done in Q1 and legal expenses also might not stay at that level or is this kind of the new base number in terms of how much you’re willing to invest in legal on kind of a quarterly basis?
Vik Atal: Yeah. Look, I would say that in Europe, there was a little bit of a catch up to do because we had some of the courts that were closed last quarter, Robert. So that’s why we had the European commentary around higher volume this quarter in Europe. But look, other than that, I think you should look at the fact that in the U.S., we continue to invest more in the legal channel. But I want to be cautious in how we portray that, because as we said, the cash comes in over a longer period of time. The way we run it is, we look at that legal cost investment and that cash efficiency really is an output of the investments we’re making to drive higher cash. And so we’re going to reiterate what we mentioned last quarter and this quarter, which is the way to think about our business and where we’re headed in 2024 with our target is double-digit growth in cash collections with a modest growth in our cost space resulting in just a marginal increase in our cost. So you should then deliver that significant improvement into that net income line item that we’ve been talking about driving to that 6% to 8% ROATE. And so I just want to make sure not to get caught up in one line item but that’s how we think about our business.
Robert Dodd: Understood. Understood. Thank you. Oh! Flipping back, you kind of addressed this at the beginning of the Q&A. In Europe, I mean, the volumes are low. I think you said pretty clearly that competition is still pretty aggressive. Should we expect Europe to remain de-emphasized somewhat? I mean, if volumes, even in Q2, if they’re off, they’re probably going to be down still pretty substantially year-over-year. And it kind of sounds like the competition is still as aggressive, if not more so, if supply is a little tight. Is that just something where the ROE -- the ROICs, even with all your initiatives, is it a more marginal market than you would have thought a couple of years ago?
Rakesh Sehgal: Not at all, Robert. Not at all. Europe is a very attractive market for us. We have great seller relationships across the region. We have talked about our business in different markets in the past. It -- really the first quarter was purely a result of a very muted level of market supply and we believe over the balance of the second quarter, hopefully for the rest of the year, but going forward, we see it as a very attractive market space for us, notwithstanding challenges that might be faced by other participants in the market.
Robert Dodd: Got it.
Vik Atal: Yeah. And Robert…
Robert Dodd: Yeah.
Vik Atal: …the question…
Robert Dodd: Go ahead.
Vik Atal: The question of Europe has come up a couple of times. Look, that market is very fragmented. You’ve got regional players, local players and they always provide stiff competition for us. So with respect to the market, we continue to remain disciplined. The diversification across the 13 countries that we’re in is a significant differentiator in our view. And the other thing around just supply, one data point that we look at also is just some Level 2 loans that are sitting on the balance sheet of banks or Stage 2 loans that are sitting on the balance sheet of the banks, and they’re double of what they were from a pre-pandemic level. And so that gives us some confidence that at some point, there should be greater supply coming to market. But it’s just hard to predict because it’s more of a spot market as we’ve said.
Robert Dodd: Got it. Thank you.
Operator: Thank you. This concludes our question-and-answer session. I’d like to turn the conference back to President and CEO, Vik Atal, for closing remarks.
Vik Atal: Thank you everybody for supporting us and looking forward to our continued conversation through the balance of this year. Thank you again.
Operator: That concludes our conference for today. Thank you all for participating. You may all disconnect.
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