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Portfolio Recovery Associates Inc. (PRAA - Analyst Report) reported its first-quarter income from continuing operations of $23.1 million or $1.34 per share, surpassing the Zacks Consensus Estimate of $1.29 and the prior-year earnings of $14.8 million or 91 cents.

The strong earnings were primarily driven by higher-than-expected top-line growth attributable to continuous improvement in cash collections on portfolios of defaulted consumer debt.

The amortization rate in the quarter included a $4.0 million net allowance charge, against pools of finance receivables accounts. Portfolio Recovery also witnessed a non-cash, equity-based, compensation expense of $1.7 million.

Business Update

Portfolio Recovery’s total revenue increased 34% to $111.8 million, exceeding the Zacks Consensus Estimate of $108.0 million. The results also favorably increased from $83.4 million in the year-ago period.      

This was driven by a growth of 36.0% in cash receipts in the reported quarter from $134.6 million in the prior-year quarter. Portfolio Recovery applied 42.4% of its cash collections to reduce its owned debt portfolios.

Cash collections jumped 40% year over year to $166.7 million from $119.2 million in the year-ago period. Call center and other collections posted an 18% increase, external legal collections gained 39%, internal legal collections grew 46% and purchased bankruptcy collections rose 76%, compared with the prior-year quarter.

Balance Sheet

During the reported quarter, Portfolio Recovery spent $108 million on portfolio acquisitions to purchase $1.49 billion of debt. This debt was acquired in 79 portfolios from 9 different sellers to further improve collector productivity and strengthen the fee businesses.

As of March 31, 2011, cash balances were $35.4 million, down from $41.1 million as of December 31, 2010. During the reported quarter, Portfolio Recovery had net repayments of $10 million on its line of credit, leaving it with $290 million in outstanding borrowings at quarter end. The remaining borrowing availability under the line was $117.5 million as of March 31, 2011.

As on March 31, 2011, Portfolio recovery had total assets of $1.02 billion and shareholders’ equity of $515.7 million.

Our Take

Overall, Portfolio Recovery’s results have been showing great improvement with higher revenues. The company also benefits from long-term investments made over the past several years. We expect these investments to benefit its core portfolio and help the company overcome the economic volatility.

Besides, the new credit facility has further enhanced the company’s liquidity auguring well for Portfolio Recovery’s long-term growth plans.

Founded in 1996 and headquartered in Norfolk, Virginia, Portfolio Recovery provides outsourced receivables management and related services in the United States. The company serves financial services, auto, retail, utility, health care and government sectors. Its competitor is Asta Funding Inc. .

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