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Strong 1Q Earnings for PRAA

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Portfolio Recovery Associates Inc. (PRAA - Free Report) reported first-quarter 2013 income from continuing operations of $2.26 per share, surpassing the Zacks Consensus Estimate of $2.09. The results also exceeded the prior-year earnings of $1.47.

In the quarter under review, Portfolio Recovery’s net income came in at $38.6 million, up 52% from $25.5 million recorded in the first 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 $169.6 million, soaring 21% from $140.1 million in the year-ago period.  Revenues also exceeded the Zacks Consensus Estimate of $162 million.

The boost in revenues was driven by an improvement of 60% in cash receipts to $228.0 million from $142.5 million in the prior-year quarter. Cash collections from finance receivables also jumped 26% year over year to $275.5 million from $218.0 million. Call center and other collections posted a 12% increase, external legal collections gained 37%, internal legal collections surged 25% and bankruptcy court trustee collections expanded 37%, compared with the prior-year quarter.

Additionally, Portfolio Recovery’s revenues from its finance receivables income were $154.8 million, up 25% from $124.2 million in the year-ago quarter. Fee income declined to $14.8 million from $15.9 million.

Operating expenses surged 8% year over year to $103.7 million, while operating income also increased 48% to $65.9 million. As a result, operating margin increased to 38.9% from the year-ago quarter level of 31.7%.

Balance Sheet and Capital Structure

As of Mar 31, 2013, Portfolio Recovery’s cash and cash equivalents increased to $39.1 million from $28.1 million recorded as of Mar 31, 2012. The company had $172.0 million outstanding under its line of credit as of Mar 31, 2013.

Portfolio Recovery exited the reported quarter with total assets of $1.38 billion, increasing from $1.29 billion as of Dec 31, 2012. Shareholder equity stood at $751.0 million as of Mar 31, 2013, compared with $620.7 million as of Mar 31, 2012.

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.

Although fee income witnessed an upward trend since the second quarter of 2012, it declined in the reported quarter. Higher cash balance and increased shareholder equity strengthened the balance sheet as well. Overall, the first-quarter results outperformed expectations.

Portfolio Recovery carries a Zacks Rank #2 (Buy). Other business services outsourcing companies worth considering are Barrett Business Services Inc. (BBSI - Free Report) , Automatic Data Processing, Inc. (ADP - Free Report) and Paychex, Inc. (PAYX - Free Report) . All these companies carry a Zacks Rank #2 (Buy).

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