Portfolio Recovery Associates Reports Big Jumps in Collections, Revenue and Profit in Q3

NORFOLK, VA — Portfolio Recovery Associates, Inc. (NASDAQ: PRAA), a company that purchases, collects and manages portfolios of defaulted consumer receivables and provides a broad range of receivables management and payments processing services, today reported net income of $18.5 million for the quarter ended September 30, 2010. Net income increased 83% from $10.1 million in the same period a year earlier. Earnings were $1.08 per diluted share for the third quarter of 2010 compared with $0.65 in the third quarter of 2009, representing an increase of 66%.

In the third quarter of 2010, total revenue was up 39% from the year-earlier period to a record $95.5 million. Total revenue consists of cash collections reduced by amounts applied to principal on the Company’s owned debt portfolios, plus fee income earned from its fee-for-service businesses. During the third quarter of 2010, the Company applied 41.8% of cash collections to reduce the carrying basis of its owned debt portfolios, compared with 41.2% in the third quarter of 2009. The third quarter 2010 amortization rate included a $6.5 million net allowance charge, equivalent to approximately $4.0 million after tax, or 23 cents per diluted share, against certain pools of finance receivables accounts.

"Portfolio Recovery Associates has had a very strong year thus far, even in the face of a continued weakened economy," said Steven D. Fredrickson, chairman, president and chief executive officer. "In the third quarter, we produced record cash collections, record cash receipts and record revenue. At the same time, net income and earnings per share both demonstrated strong growth. This fine performance was due to long-term initiatives in a number of areas, including the continued success of our bankruptcy business, our ongoing search for greater operational efficiencies, the expansion of our internal legal collections channel, and the continued contributions of our fee-based businesses."

Fredrickson continued: "I am extremely pleased with PRA’s performance across all of our businesses. The credit, of course, goes to our staff, which has continued to work smarter and more efficiently than ever."

Financial and Operating Highlights

– Cash collections increased 49% to a record $137.4 million in the third quarter of 2010, up from $92.4 million in the year-ago period.  Call center and other collections increased 6%, external legal collections increased 32%, internal legal collections grew 96%, and purchased bankruptcy collections gained 140% when compared with the year-earlier period.

– Up 96% from the prior year, internal legal collections grew to $12.1 million in the third quarter of 2010.  Internal legal collections, in which the Company uses its own staff attorneys or in select cases, third-party attorneys working on a fixed price basis, represent an important, emerging collections channel the Company has been developing over the past four years.

– Productivity finished at a record $190 for the first nine months of 2010 vs. $145 for all of 2009.  Productivity is measured by cash collections per hour paid, the Company’s key measure of collector performance. Excluding the impact of trustee remittances from purchased bankrupt accounts, the comparison is $129 for the first nine months of 2010, compared with $113 for all of 2009.  Excluding trustee remittances on purchased bankrupt accounts and external legal collections, the comparison is $101 for the first nine months of 2010 and $87 for all of 2009.

– In the third quarter, revenue was a record $95.5 million, up 39% when compared with the same period a year ago, driven by record cash receipts of $152.9 million, up 43.4% from $106.6 million a year earlier.  Cash receipts are comprised of both cash collections and revenue from the Company’s fee-based businesses.

– The Company’s net allowance charge totaled $6.5 million in the third quarter, representing 0.81% of net finance receivables at period-end and 4.75% of cash collections.

Acquired in 68 portfolios from nine different sellers, the Company purchased $1.38 billion of face-value debt during the third quarter of 2010 for $92.5 million.

– The Company’s fee-for-service businesses generated revenue of $15.5 million in the third quarter of 2010, up 9% from $14.2 million in the same period a year ago, due primarily to the acquisition of CCB earlier this year.  These businesses accounted for 16.2% of the Company’s overall revenue in the third quarter of 2010, down from 20.8% in Q3 2009.

– During the third quarter of 2010, the Company recorded ongoing non-cash equity-based compensation expense of $1.0 million, equivalent to approximately $612,000 after tax, or 4 cents per diluted share.

– The Company’s cash balances were $20.3 million as of Sept. 30, 2010. During the third quarter, the Company made net repayments of $1.0 million on its line of credit, leaving it with $288.5 million in outstanding borrowings at quarter’s end.  Remaining borrowing availability under the line was $76.5 million at Sept. 30, 2010.

Kevin P. Stevenson, chief financial and administrative officer, said: "The third quarter of 2010 was another strong one for Portfolio Recovery Associates. A number of factors drove this performance, including the continued maturation of our sizeable investments in bankruptcy portfolios and steady improvements in call center and legal collections. Reflecting these improvements, recoveries per hour paid, our core measure of productivity, finished the first nine months of the year at a record $190. Taken together, these factors allowed us to overcome a $6.5 million allowance charge, additional significant investments in our legal pipeline, and a still-weak U.S. economy."

The Company’s nine-month 2010 earnings totaled $52.8 million, or $3.15 per diluted share, compared with $31.9 million, or $2.07 per diluted share, for the first nine months of 2009. First-nine month 2010 revenue was $272.0 million, compared with $207.9 million in the first nine months of 2009.

Conference Call Information

The Company will hold a conference call with investors tonight, 5:30 p.m. EDT, Wednesday, Oct. 27, 2010, to discuss its third-quarter results. Investors can access the call live by dialing 888-713-4213 for domestic callers or 617-213-4865 for international callers using the pass code 82740845. Investors may also listen via webcast at the Company’s website, www.portfoliorecovery.com.

Following the live call, investors may listen to the call via a taped replay, which will be available for seven days, by dialing 888-286-8010 for domestic callers and 617-801-6888 for international callers using the pass code 91118122. The replay will be available approximately two hours after today’s conference call ends. There will also be an archived webcast available at the Company’s website.

For the fourth consecutive year, Portfolio Recovery Associates has been named to the Forbes 100 Best Small Companies in America annual rankings list, as announced in the Nov. 8, 2010, edition of the business magazine. PRA is ranked 56 among the top 100 small businesses listed.

About Portfolio Recovery Associates, Inc.
Portfolio Recovery Associates’ business revolves around the detection, collection, and processing of both unpaid and normal-course receivables originally owed to credit grantors, governments, retailers and others. The Company’s primary business is the purchase, collection and management of portfolios of defaulted consumer receivables. These are the unpaid obligations of individuals to credit originators, which include banks, credit unions, consumer and auto finance companies, and retail merchants. Portfolio Recovery Associates also provides fee-based services, including collateral-location services for credit originators via its IGS subsidiary, revenue administration, audit and debt discovery/recovery services for government entities through both its RDS and MuniServices businesses and class action claims recovery services and related payment processing through its CCB subsidiary.