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Portfolio Recovery Associates Inc. (PRAA - Analyst Report) reported second-quarter 2013 income from continuing operations of $2.56 per share, surpassing the Zacks Consensus Estimate of $2.24. The results also exceeded the prior-year earnings of $1.87.

In the quarter under review, Portfolio Recovery’s net income came in at $43.6 million, up 36% from $32 million recorded in the second quarter of 2012. Earnings were primarily driven by a surge in revenues, which was attributable to the continuous improvement in income from finance receivables.

Portfolio Recovery’s total revenue in the reported quarter was $183 million, soaring 24% from $148 million in the year-ago period. Revenues also exceeded the Zacks Consensus Estimate of $175 million.

The boost in revenues was driven by an improvement of 25.5% in cash receipts to $310.8 million from $247.7 million in the prior-year quarter. Cash collections from finance receivables also jumped 28% year over year to $296 million from $218.0 million. Call center and other collections posted a 23% increase, external legal collections gained 21%, internal legal collections surged 20% and bankruptcy court trustee collections expanded 37%, compared with the prior-year quarter.

Additionally, Portfolio Recovery’s revenues from its finance receivables income were $168.6 million, up 27% from $132.6 million in the year-ago quarter. Fee income declined to $14.4 million from $15.3 million.

Operating expenses surged 17% year over year to $109.1 million, while operating income also increased 35% to $73.8 million. As a result, operating margin increased to 40.4% from the year-ago quarter level of 36.9%.

Balance Sheet and Capital Structure

As of Jun 30, 2013, Portfolio Recovery’s cash and cash equivalents increased to $43.5 million from $32.7 million recorded as of Dec 31, 2012. The company had $216.0 million outstanding under its line of credit as of Jun 30, 2013.

Portfolio Recovery exited the reported quarter with total assets of $1.46 billion, increasing from $1.29 billion as of Dec 31, 2012. Shareholder equity stood at $791.9 million as of Jun 30, 2013, compared with $633.4 million as of Jun 30, 2012.

Stock Split

On Jun 10, 2013, the board of Portfolio Recovery approved a 3:1 stock split, which will be conducted on or around Aug 1, 2013. The stock split will be structured as a stock dividend, to be paid to shareholders of record as of Jul 1, 2013. This is the first stock split being implemented by the company, which went public in 2002.

Our Take

Portfolio Recovery’s bottom-line results have shown steady improvement over the past few quarters. Strong cash collections drove revenues upward, while an increase in operating income drove operating margin higher.

Higher cash balance, total assets and shareholder equity strengthened the balance sheet as well. Although fee income witnessed an upward trend since the second quarter of 2012, it has been declining since the beginning of 2013. Overall, the second-quarter results were exceptionally good.

Portfolio Recovery carries a Zacks Rank #2 (Buy). Other business services outsourcing companies worth considering are Barrett Business Services Inc. (BBSI - Snapshot Report) – Zacks Rank #1 (Strong Buy), Cap Gemini S.A. – Zacks Rank #1 (Strong Buy) and Convergys Corporation (CVG - Snapshot Report) – Zacks Rank #2 (Buy).

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