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PRA Group Inc (NASDAQ:PRAA)
Q4 2020 Earnings Call
Feb 25, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the PRA Group Conference Call. [Operator Instructions] I'd now like to turn the conference over to Ms. Darby Schoenfeld, Vice President of Investor Relations for PRA Group. Please go ahead.

Darby Schoenfeld -- Vice President, Investor Relations

Thank you. Good afternoon, everyone, and thank you for joining us. With me today are Kevin Stevenson, President and Chief Executive Officer; and Pete Graham, 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 the earnings press release and our SEC filings for a detailed discussion of these factors. The earnings release, the slide presentation that we use on today's call and our SEC filings can be found on 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 information needed to listen is in the earnings press release.

All comparisons mentioned today will be between the fourth quarter of 2020 and the fourth quarter of 2019, unless otherwise noted. During our call, we will discuss adjusted total revenues for the fourth quarter of 2019, as well as adjusted EBITDA and debt to adjusted EBITDA for the 12 months ended December 31, 2020 and 2019. Please refer to the appendix of the slide presentation used during this call for a reconciliation of these non-GAAP financial measures to the most directly comparable U.S. GAAP financial measure. The slide presentation including the U.S. GAAP reconciliation can be found on the Investor Relations section of our website.

And now I'd like to turn the call over to Kevin Stevenson, our President and Chief Executive Officer.

Kevin Stevenson -- President, Chief Executive Officer

Well, thank you, Darby. I want to begin this evening as I have in each of our 2020 conference calls by taking just a moment to acknowledge this pandemic as a human tragedy. Something that was marked earlier this week, as United States passed a grim milestone measured by deaths due to COVID. We're extremely sensitive to the impact this is having on everyone globally and our thoughts to go out to all of those affected either directly or indirectly by COVID-19. As a company that was started to do the right things for the right reasons and where our customers and employees are valued and respected, I thought I would share some of what we're doing for our customers and employees during this difficult time.

Before I talk about the changes we made in 2020, I want to review some of our history as it relates to customer treatment. We've always tried to be especially sensitive to our customer situation. We often talk about our founding principles. And one way of demonstrating them is through patience and understanding. Prior to COVID, we had many consumer-friendly practices in place. U.S., for example, we do not charge interest or fees on our unsecured accounts. It's our goal to help assure our customers through their own personal difficult financial time instead of making it worse, whether that difficult time is driven by COVID or some of the struggle. We seek to work with our customers on their road to financial recovery, preferring voluntary and affordable payment arrangements, set up in our call center -- our call centers or through our website. We historically resorted to legal channel when we determined the customer has the ability to pay us, but will not engage with us otherwise. And remember, most of our legal collections still involve our customers making voluntary payments in order to resolve their debts and not via liens in garnishments.

This year we strengthened our commitments to our customers, ensuring through communication and training that our call center staff were reminded of our founding principles. We broadened our hardship policy, allowing more flexibility when placing people into hardship status and suspending our collection activities, COVID-related or not, giving our customers one less thing to worry about. In the U.S., we also paused moving customer accounts into legal eligible status early in the pandemic when things were the most uncertain. And while that process has resumed, we've not sought to enforce any judgment via garnishment in nearly a year. We stopped initiating new bank and wage garnishments back in March of 2020 and again have not resumed them.

In addition to taking care of our customers during this difficult time, our employees are of utmost importance to us as well. When I think about the key drivers of success during 2020, of course many things come to mind, and we're certainly prepared with capital, and we'd certainly structured the company soundly and conservatively, and we had strong and tested analytics. But more than ever, the most important factor in our success in 2020 was our employees. Without them embracing the operational changes, without them believing in our vision of how we as a company are more important than ever during times of economic stress, none of this would have been possible. We recognized that simple truth early on. At the very brink of this pandemic, we took many actions to make our employees lives just a little bit easier. But to share a few on this evening that we're focused on the U.S. as much of our operation staff remained in the office throughout the year.

So, first, we provided up to 80 hours of liberal leave for COVID-related situations. Then during those very concerning first few months of the pandemic, we paid our hourly employees who are unable to work from home, an additional $100 a week. So thank you. Around mid-year we awarded bonuses to those who went above and beyond to help us respond to the challenges of COVID. As the year moved on, we increased base pay for many of our collectors in July. For those participating in the dependent care flexible spending account, we supplemented their pay up to $200 per pay period. This is especially important for employees who had school-aged children learning virtually.

We provided free telehealth benefits for both medical and mental. We expanded medical, dental and paid time-off benefits to part-time employees. Very importantly, we decided to bridge employee service or tenure for breaks of 12 months or less. In many cases, COVID challenges caused people to leave their jobs, but later, they were able to return and this step ensured they didn't lose their tenure. We increased our short-term disability benefits as well as life insurance benefits. And finally, earlier this month, we awarded a second bonus, much like we did at mid-year for those who went above and beyond.

I'm taking this time this evening to share these efforts concerning our employees in a little more detail than you might expect, and I do this because these are areas of our company we don't always highlight, but they go to the heart of who we are as a company. We started 2020 with great momentum across the globe. The competitive environment in Europe had shifted in our favor which signaled our ability to increase volume and market share. We've also saw market trends that indicated increased level of portfolio sales. In the U.S., supply and pricing were stable and we were maintaining our market share. We had a robust level of nonperforming loans on our balance sheet and had a significant flow volumes under contract. Our cash efficiency ratio is increasing due to the progress we made on the operational front and we had a roadmap to continue optimizing our business in COVID hit.

As the days, weeks, and months wore on, the impact of COVID unfolded, and I was truly amazed at the response from our team around the world. We treated customers fairly, managed our business well, and kept our staff safe. Our culture of teamwork and collaboration helped us not only cope with the pandemic but thrive in spite of it, and watched our teams make significant progress and delivered great results despite new challenges all around them. We made advancements on the technology front and continue rolling out digital initiatives and cloud computing advancements. We delivered strong results and production and all the while treating customers with dignity, patience and respect. And so I'm sure it's no surprise how proud I am of the hard work and dedication our employees showed in 2020. These are unprecedented times and our employees' willingness to hold to our accounting principles and core values is what makes PRA a leader in this industry.

Moving on to the fourth quarter. In Q4, we collected $482 million, which is more than any other fourth quarter in our history. This is driven by significant growth in U.S. core non-legal collections, as well as record Europe cash collections. Quarterly purchases were $290 million with over $200 million coming from Europe, where we continue to see some of the volumes that were paused earlier in the year make their way to market and we continued to increase our market share. And then, rounding out the quarter highlights, estimated remaining collections or ERC ended the quarter at $6.5 billion.

In the Americas, cash collections in Core and Insolvency were $323 million, which was a record Q4. The fourth quarter followed more typical seasonal trends in the U.S., but we're still seeing the shift away from legal toward call center and digital. Our operational capacity remained strong in the U.S. despite social distancing standards, which are rightly required to keep our offices open and productive. I've been extremely impressed by our U.S. operations team and their ability to navigate these difficult times. Frankly, I would have been proud of them as they had simply maintained productivity levels during 2020, but instead they produced productivity metrics that are well in excess of prior years.

Our support staff remains in work from home status, but they continue to deliver like never before and have weathered 2020 without missing a beat. Total portfolio purchases in the Americas during the quarter were $80 million. Similar to last quarter, this remains slightly depressed as a result of decreased charge-off rates and bankruptcy filings. However, we retained a healthy market share and are pleased with our pricing. As we move into 2021, we expect the current market conditions to persist in the first part of the year given the continued government actions such as extension of forbearance programs, the continued restrictions and stimulus or potential stimulus. However, we also believe that with these very same programs set to expire in coming months, we could see increased supply later in the year.

Before I move to Europe, I want to share our view on the regulatory environment in the U.S. Over the past three years, we've been working very hard to educate our public officials at both federal and state level about who we are as a company, how we do business and our operational practices, and what we do for our customers and employees. This included sharing with them the steps we took to enhance our customer-friendly practices and how we treat our employees which I discussed earlier. It's clear to me that especially during this challenging time, it's never been more important to ensure that legislators and regulators understand that we take pride in doing things in right way for the right reasons and our policies procedures and actions reflect that.

Moving on to Europe. Total cash collections in the quarter were a record $159 million. Growth in cash collections in the quarter were driven primarily by strong portfolio purchases made in 2019 and 2020. While many of the countries we operate in instituted additional lockdowns during the quarter, courts and essential businesses remained open. So operations were not as impacted as they were earlier in the year. Our European business is still operating at normal capacity, but has shifted back to majority work from home similar to earlier in the year. But to the credit of and strength and determination of our European team, we've seen very little impact to productivity.

Portfolio purchases in the quarter were $210 million as supply and market share improved. We continue to see portfolios that were delayed earlier in the year coming to market and we expect this to continue throughout 2021. Another factor that could provide additional supply is the NPL backstop rule, which went into effect in the EU in 2019. Under this rule, credit originators will have to fully provide for NPLs within three years of default as part of their capital adequacy. As creditors implement this rule, and as more loans are impacted by this regulation, they can make selling NPLs in more attractive option for European banks in the years to come. Additionally, we're seeing unemployment rates starting to increase in Europe. Government programs are focused on enabling employers to continue paying employees as compared to direct stimulus to consumers in the U.S. All told, it's likely that we'll see supply in Europe increased sooner than in the states. And as a result, we're optimistic about that pipeline.

And now I'd like to turn things over to Pete to go through our financial results.

Pete Graham -- Executive Vice President and Chief Financial Officer

Thanks, Kevin. During the fourth quarter, we continued to see the strong cash collections performance we saw during the rest of the year. Global cash collections were $482 million, increasing $25 million or 6%. This led to total revenues of $274 million, an increase of $17 million or 7% on an adjusted basis. We call that under CECL revenue has two components, first, is portfolio income, yield component, which was $233 million, second is changes in expected recoveries, which has two parts. First, the cash collected in the quarter compared to expected recoveries, which amounted to $66 million in excess of expectation. This was driven by significant overperformance globally. The second part is the present value impact of any changes in estimated remaining collections. This quarter that netted to a negative $29 million. We began assume that the majority of the overperformance seen in the U.S. is timing acceleration of collections rather than an increase to total expected collections. On some portfolios in Europe and other Americas, we have increased total estimated collections based on sustained performance.

Operating expenses were $185 million, a $1 million decrease from the fourth quarter of 2019. Our operating expenses were reduced in the fourth quarter due primarily to lower legal collections costs. Net income was $30 million, which generated $0.65 in diluted earnings per share. Cash collections in the Americas increased $5 million or 2%. This was led by our largest ever fourth quarter for Americas Core collections, driven by a 22% increase in U.S. non-legal collections, which included a significant increase in digital collections. U.S. legal collections decreased 16%, primarily due to our expanded consumer-friendly practices during COVID, as well as the shift in collections to the call centers and digital. Collections in other Americas decreased $7 million or 15%, largely driven by changes in foreign currency exchange rates.

Europe cash collections were a quarterly record, growing $20 million or 14%. The biggest driver of this growth was the record portfolio purchasing in 2019, followed by a strong purchasing year in 2020. For the full year, cash collections were a record $2 billion. It's exciting to see all the hard work by our employees payoff despite the challenges of 2020. As Kevin mentioned if we had just maintained it would have been impressive, but we generated results ahead of our expectations prior to adjusting for COVID. Globally, cash collections on portfolios owned at the end of 2019 were 105% of our ERC expectations for 2020, with the Americas at 105% and Europe at 104%.

Our cash efficiency ratio was 61.9% for the quarter, bringing the full year ratio to a record 64.5%. We're very pleased with the 460 basis point improvement in the ratio, and with our operational performance during the year. Legal collection fees and costs were the largest contributor to the decrease in operating expenses when compared to fourth quarter of 2019. This was partially offset by an increase in outside fees and services, compensation-related costs and other variable expenses. Outside fees and services increased due to a number of items that are individually immaterial. The largest component was related to IT initiatives in Europe associated with our continued efforts to enhance our operations.

Compensation and employee benefits increased due to a combination of factors that were mostly offset by a decrease in the number of full-time U.S. collectors. Our effective tax rate for the full year was 19.7% and came in at the high-end of our expected range of 16% to 20%. The fourth quarter rate was elevated due to a combination of factors, including revenue mix, discrete items and the catch-up of the full year to the higher rate. In 2021, it's our expectation that the rate for the full year will likely be in the low-20% range.

In 2021, we'll continue to focus on improving the efficiency of our operations, but do not expect to repeat this year's record cash efficiency given that we generated record cash collections, combined with the reduced operating expenses as a result of the environment during 2020. We believe the fourth quarter ratio is more indicative of what the ratio will be for the full year of 2021. ERC at the end of the fourth quarter was $6.5 billion with 46% in the U.S. and 49% in Europe. This marks the first time in company history that the ERC in Europe exceeds that of the U.S. Although ERC decreased from the fourth quarter of 2019, it increased $143 million from last quarter.

Our continued strong cash and financial performance has driven significant improvement in our leverage position. For the 12 months ended December 31st, we generated $1.3 billion of adjusted EBITDA, an increase of over $200 million when compared to the full year of 2019. As a result, we ended the quarter with a debt to trailing 12-month adjusted EBITDA ratio of just under 2 times compared to just over 2.5 times at the end of 2019. Significant investment levels in the fourth quarter cause this metric to tick up slightly from the end of the third quarter, but it is well within levels that we're comfortable with. Our capital position is strong with nearly a $1 billion available for portfolio investment in addition to the adjusted EBITDA generated by the business.

Now I'd like to turn things back to Kevin.

Kevin Stevenson -- President, Chief Executive Officer

All right. Thank you, Pete. When I look back at PRA in 2020, I'm so proud of our employees and all they accomplished despite the global pandemic. We faced challenging times and road -- rose to the occasion globally. PRA employees remained empathetic in understanding when interacting with our customers. To protect our employees, we immediately shifted our support functions and some of our operations team to a work from home status. We put enhanced cleaning and social distancing measures in place and kept those who're in the office safe. In this effort, PRA was awarded the Global Biorisk Advisory Council STAR Certification. This is the cleaning industry's accreditation for outbreak prevention, response and recovery for facilities in the U.S.

Communication was also more important than ever in 2020. I personally kept in contact with many employees over video conference throughout the year. I listen to their concerns, answer their questions and assured them that we get through this challenge and I shared our strategies and our thoughts. To give you some perspective, since March, I'd held approximately 60 meetings general -- generally lasting an hour or more reaching 1,400 people globally in fairly small personal groups with just over 20 people on average in a meeting. I plan to continue these calls in '21 and I plan to increase the total number of employees reached by 50%.

Despite all the challenges presented by COVID, we produced record results in 2020. We collected record cash with successive records in Q1, Q2, Q3. We generated the best cash efficiency ratio in company history. We received ratings from Moody's and Fitch, issued our first unsecured bond and retired our maturing convertible bond. Our leverage metrics are well within our covenants and put us in a good position to buy more portfolios.

It sometimes hard for me to believe as one of the four people who literally started this company on a folding table in a windowless office that we are beginning our 25th anniversary year. I'm extremely confident that no matter what challenges we encounter, the PRA team can adapt as we always have. We do the right things for the right reasons and have a proven track record of sticking to our long-term view, not just words, not just hope, but a proven and demonstrated track record over decades of business. All of this helps our customers recover, our employees thrive and a the same time, drive exceptional results. These are not mutually exclusive things, rather over time they enhance each other.

And operator, with that, we are ready for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question will come from Bob Napoli with William Blair. Please go ahead.

Robert Napoli -- William Blair & Company -- Analyst

Thank you, and good afternoon, Kevin, Pete, Darby. Nice job on the year.

Kevin Stevenson -- President, Chief Executive Officer

Thanks, Bob.

Robert Napoli -- William Blair & Company -- Analyst

Thanks. Do you hear...

Kevin Stevenson -- President, Chief Executive Officer

A little bit. Yeah, keep going.

Robert Napoli -- William Blair & Company -- Analyst

Okay. So the balance sheet obviously is in great shape, and the portfolio purchases are not -- they are low for now, I guess like you said they'll pick up, but any thoughts around how their utilization of the capital that you're generating, either returning capital or strategically are you interested, are you searching for acquisitions of -- in the U.S. or Europe on tangential businesses or similar types of businesses? So, any thoughts just on what you're going to do with a really strong balance sheet?

Kevin Stevenson -- President, Chief Executive Officer

Let me take the second half that piece first and I'll let Pete, CFO, talk about the balance sheet. So obviously, our number one priority is to buy NPLs. I mean that that probably goes without saying. Everybody realizes that. One of the things you mentioned M&A, sort of the problem we view with an M&A is that we've got a really comprehensive platform in Europe. We're in -- over the world, we're in 18 countries and largely where we want to be. I think about places in Europe, we're not in France or Greece, for example. I don't think there's any rush to go there. And so you'd have to find something that has the right value. So would we consider M&A? Yeah, sure, but it would generally be to acquire NPLs unless there was some platform that we didn't have, which I really can't think of right now, because I don't -- I'm not a guy that wants to put a bunch of goodwill on our books. I like to have good strong tangible common equity. So if you found the company that was in trouble I guess and the value is such that you can generally attribute that to NPLs, then I would say that would be something we'd look at. But I don't see anything at this point in time. Pete you want to talk about equity section?

Pete Graham -- Executive Vice President and Chief Financial Officer

Yeah. I think the first part of that was really focused on the portfolio purchasing. And our view is that it's not a if, but when and we've spent considerable effort to get our balance sheet in shape for that wave and we're looking to probably back half of this year, where we think that higher levels of portfolio will start to come. I think that probably starts to occur in Europe maybe a little sooner, but that's our primary focus for deployment of capital.

Robert Napoli -- William Blair & Company -- Analyst

Then follow-up on Europe, what areas of Europe are you finding most attractive today? And now that Europe is actually larger on an ERC basis than the U.S., just any thoughts around the returns of the European business versus the Americas business.

Kevin Stevenson -- President, Chief Executive Officer

Sure. I would say broadly Europe's returns are very strong. Certainly areas like the U.K., right, it's a very mature market. Some of the more difficult areas remain, a place like Italy, it's just a complicated place to do business. And our market share is lower in say Italy and Spain, actually even in Poland than something more like the U.K. But we do love all the markets we're in. And I would say we're certainly looking at yields and comparing them kind of net after tax to the United States and they are very strong. I don't really have any more to say about that unless Pete wants to add something.

Pete Graham -- Executive Vice President and Chief Financial Officer

Yeah. I think just a thing to keep in mind because a lot of times folks are looking at gross purchase price multiples in the tables that we disclose. The curves in Europe or longer curves. And they are a more stable profile and generally a lower cost to collect than the U.S. So again, we're pricing on kind of a net return after cost to collect after sort of factoring in taxes and cost of funding etc. And we believe we're putting money to work there on an equivalent basis what we do in other geographies.

Robert Napoli -- William Blair & Company -- Analyst

Thank you. Appreciate it.

Operator

Our next question will come from David Scharf with JMP. Please go ahead.

David Scharf -- JMP Securities -- Analyst

Yeah. Good afternoon.

Kevin Stevenson -- President, Chief Executive Officer

Hi, David.

Pete Graham -- Executive Vice President and Chief Financial Officer

Hey, David.

David Scharf -- JMP Securities -- Analyst

Couple of questions. Before that, Kevin, it wasn't lost on me that you spent much more time and went into much greater detail than really any company I've listened to, discussing all the steps you've taken to protect your employees, and I think -- listen, there are over 500,000 reasons why that observational loan is notable. So just want to sort of offer up that acknowledgment after such a challenging year.

Kevin Stevenson -- President, Chief Executive Officer

Thank you. I appreciate that.

David Scharf -- JMP Securities -- Analyst

Hey, two things, one on Europe. I just want to, I guess, better understand what's going on there. And specifically, I can recall for a while you kept making references to how a lot of the competitors were being sort of prodded or forced by bondholders and otherwise delever. You're sitting on the sidelines during what you observed to be a very aggressive pricing environment, biding your time, and particularly, I think in the third quarter, you really saw sort of that market now kind of open up and come back to you, and that your patience paid off. But it's been a while, it's been a good year and half of those competitors delevering. So can you kind of bring us up-to-date on what the competitive environment is now? I mean, do you still feel like you've got a lot of competitors on the sidelines or if they returned I'm just trying to get some better context on one, why the volumes are influencing?

Kevin Stevenson -- President, Chief Executive Officer

Well, that's right down the fairway, David. Thank you for that. So a little bit of history in the call. There was a time certainly in 2016, 2017 or 2018, and we were very open and honest about what we thought about yields in Europe actually letting folks know on calls like this. What we thought yields were doing and how many of the deals traded for negative returns and how many -- what percentage traded for low single-digit returns, and it was just unsustainable market. And we long talked about this thing -- this concept how patient we are, which David brought up, and I think about that time. And I think a lot of companies would have downsized. They would have cut costs. They would have done all sorts of, again, cost cutting measures, and instead we almost did the opposite.

And during the 2016 to 2018 timeframe, we invested in the company, we invested in new collection platforms, we invested in digital, we invested in data, we hired new people, because we believed that that was a temporary blip. It is just was unsustainable. And we were right. And if you look at -- it wasn't until the first part of 2019, maybe at last quarter of '18, but certainly 2019 was a record buying year for us in Europe, and that was the result of all those investments in '16 to '18, and of course, the competition kind of pulling their horns in.

And then, of course, 2020 was a great year for us and certainly the second half was better than the first because of the delays in selling, but that is the kind of environment that we are dealing with in Europe. So the question about what our competitors doing. I don't want to spend too much time talking about them, but there is certainly some churn, I would say, in Europe, in management teams. We do watch the competitors in Europe. There is some Board turnover. There is a number of CEOs rotating around, CFOs, COOs. So to me when management turns like that it doesn't generally support the idea that things are going well. So I guess I'll leave it at that. As far as leverage goes, I don't know that what have delevered to a great degree, and maybe Pete could add something to that.

Pete Graham -- Executive Vice President and Chief Financial Officer

Yeah. I think that's correct. I mean, I think there's probably really only one of the European competitors that's actually made meaningful progress in their deleveraging and the others are pretty much where they were when they started the journey. They're well above the targets they'd set for themselves. And those targets that they are trying to attain are above the levels that we normally operate at. So I think that's going to be a continuing pressure point for them as we move forward. I mean, certainly this year with lower volumes being purchased that's given them some reprieve, but I think it's still be a gating factor for competition in Europe.

David Scharf -- JMP Securities -- Analyst

Okay. No, it's very helpful. One follow-up. Switching to the domestic side. In the guidance, Pete, on how to think about the efficiency ratio this year was helpful looking at Q4 is a benchmark. But I'm wondering, this has to do with legal and maybe the long-term margin structure. Whether it's just regulatory actions or potential regulatory climate going forward? Is the legal channel going to become a dinosaur in this industry do you think? I mean it's obviously...

Kevin Stevenson -- President, Chief Executive Officer

I think.

David Scharf -- JMP Securities -- Analyst

Kind of channel, and it just feels like the channel shift should naturally be lowering your cost to collect and I'm wondering if there is anything that may accelerate that further.

Kevin Stevenson -- President, Chief Executive Officer

I think that's a great question, David, and it's something that we talk about internally a lot. So I addressed in my script, we certainly prefer to engage with people in our call centers and over digital, and we're very flexible. We can take really small payments from folks, but there is just a group of folks who don't -- who won't engage with us, and that's always been the case. But during 2020, it's been fascinating, because we've talked about this on past calls, whether it's because they can't fly somewhere, they can go out to dinner where they couldn't shop at the mall, all the things we've talked about, whether it's stimulus money, whatever it might be, they've chosen to engage with us on a voluntary basis.

Now one of the things I think about is that I'd love that to continue. I would love nothing more than legal to become a dinosaur, but I don't think it is. And now whether it's '21, '22 whatever it might be, but I think about things like there will be -- this will end right, this whole thing will end, this lockdown thing will end and people who bust out of their houses and want to fly everywhere and want to go -- never want to eat in their homes again, and our customers are probably no different, and that's going to cause a stress on their willingness to or ability to pay our debt, their debt off.

So I think about that a lot and I think you could certainly paint the scenario where things goes -- go back to where they were. We're going to try hard to get people to understand how flexible we are, and were actually pretty easy to deal with it. But if we are unsuccessful I would say that the legal channel ramp back up at some point. You have more to add on Pete?

Pete Graham -- Executive Vice President and Chief Financial Officer

No, I think that's right. In terms of trending I think probably the fourth quarter level is probably a good way to think about it somewhere in that seems they've got at least for the near-term.

David Scharf -- JMP Securities -- Analyst

All right. Well, thank you very much.

Kevin Stevenson -- President, Chief Executive Officer

Yeah. Thanks, David.

Operator

Our next question will come from Robert Dodd with Raymond James. Please go ahead.

Robert Dodd -- Raymond James -- Analyst

Hi, guys. And I concur with David on the comments about the things you've done to take care of your employees. On the European purchase volume. I mean this quarter, I mean, a very big number in Insolvency. I mean, it does tend to be seasonal, it tends to be lumpy, it's a good number last year as well, but it's a much tougher environment. I mean you talked about more supply kind of that had been pent-up coming, but is there a change? Should we expect more of that Insolvency type activity to continue coming in Europe or is it just the seasonal randomness that kind of produced a really good number in that one, particularly this quarter?

Kevin Stevenson -- President, Chief Executive Officer

Yeah. I would love for it can do. We love that asset class. We love that asset class in United States as well. But I wouldn't read anything into it. I wouldn't read anything into it.

Robert Dodd -- Raymond James -- Analyst

Fair enough. I'll keep that simple.

Kevin Stevenson -- President, Chief Executive Officer

Yeah.

Robert Dodd -- Raymond James -- Analyst

On the efficiency, I mean, and I appreciate the guidance as well on fourth quarter time being and run rate. If eventually supply is going to come, like whether it's second half of '21 in various geographies or '22 whatever is going to happen, is this level of efficiency sustainable if there's more supply or is it -- could we see efficiency improve as you get more ERC to work? And maybe this level or something between the fourth, I'm talking about the fourth quarter and the full year, being achievable if the sufficient ERC to be worked at maximum efficiency, because obviously you've done a great job on improving efficiency at this time.

Kevin Stevenson -- President, Chief Executive Officer

Yeah, look, I think our long-term focus is on continuing to improve the efficiency of the operation. That's one of the key metrics that the management team measures themself on, and we've been kind of on a journey of improving that year-in and year-out here for some period of time. The level we hit this year had some exogenous factors that help boost that. But I think certainly over time we would aspire to sort of climb back to that level, but I can't say with any clear certainty that that's going to happen in 2021, which is why we gave sort of the more moderate guidance on that point.

Robert Dodd -- Raymond James -- Analyst

Thank you.

Operator

Our next question will come from Bob Napoli with William Blair. Please go ahead.

Robert Napoli -- William Blair & Company -- Analyst

Thank you. Just a follow-up on, Pete, on the non-controlling interest the $6.8 million this quarter. Can you give some color on that and it has such a big effect on earnings obviously, but just some thoughts on what that will be in the 2021 and the drivers?

Pete Graham -- Executive Vice President and Chief Financial Officer

Yeah. Again that's driven primarily by our joint venture structure down in South America. So the Brazil had a big quarter and as a result that they share their portion of the results. I'd like for the South American business continue to grow and contribute. And as that happens we'll have sort of proportional increases to that non-controlling line item.

Robert Napoli -- William Blair & Company -- Analyst

Is that, I mean, is this a new level or would there -- is this -- is it the returns in Brazil where they seasonal such that this is and how does this flow through the income statement?

Pete Graham -- Executive Vice President and Chief Financial Officer

It's fully consolidated. So it's a part of every line item in the income statement. The one nuance being because of the fact that we sold our master servicer down there in 2019, the cost to collect comes through the agency line. And so that's -- that line will move around as Brazil is one of the primary drivers of where we're using kind of a quote unquote external party to do collections. So that's kind of I guess what I would say about how those JVs flow through. And then obviously we get to net income and we have to share the portion back with the JV partners.

Robert Napoli -- William Blair & Company -- Analyst

And again, is that $6.8 million is that number, I mean, is that a predictable number, because we don't really have any details on what's going on in Brazil in your presentations?

Pete Graham -- Executive Vice President and Chief Financial Officer

Yeah. I think it's going to -- I mean they're the bulk of other Americans. So if you think about it in that way, we give disclosures on other Americas. Yeah. Again, I would hope that that number grows over time as the South America earnings grow over time.

Robert Napoli -- William Blair & Company -- Analyst

And then just for Kevin, we get question all the time on buy now, pay later and what that means for the credit card industry if there is some market share shift to the buy now, pay later space. And I just wondered what your thoughts were on that and if that is an asset class that you would take a look at and that makes any sense for PRA to get involved in?

Kevin Stevenson -- President, Chief Executive Officer

Sure. It's an asset class, again, we had purchased years and years and years ago, probably measured by decades ago at this point. It's something like it. And it's really about the documentation. What's it's really about? It's really about have those folks mature to the point where they can supply strong, what we call OALD, original account level documentation that qualifies under CFPB scrutiny. I quite frankly, I want to make sure that it's well viewed by regulators. I don't -- like, for instance, I'm not interested in buying medical debt, right. So that's I think everybody probably is shaking their heads on that one. So as long as it's -- it kind of viewed as a good solid thing, it's good for consumers, and they can provide good documentation. I would certainly think about buying, yes. And well, by the way, I'll add one of our strategic priorities is to expand products and market share. So I mean we have five strategic priorities and that's one of them so.

Robert Napoli -- William Blair & Company -- Analyst

And any more color on those products and any thoughts on targeted market share, I guess.

Kevin Stevenson -- President, Chief Executive Officer

No, but no more thoughts on it. I have got some stuff internally. But the stuff on the products though follows what I just told you. I just -- we want to keep everything clean, everything clear. We're not interested in, again, using it as an example of buying medical debt. It's not something that I want to get right. I want to go at, yeah.

Robert Napoli -- William Blair & Company -- Analyst

Thank you. Appreciate it.

Kevin Stevenson -- President, Chief Executive Officer

Thanks, Bob. Yeah.

Operator

This will conclude our question-and-answer session. I would like to turn the conference back over to Kevin Stevenson for any closing remarks.

Kevin Stevenson -- President, Chief Executive Officer

Yeah. Thank you very much. Thanks everybody for joining the call this evening. Again everybody please stay safe, keep your family and your friends safe and we do look forward to speaking to you next quarter. So, thank you.

Operator

[Operator Closing Remarks]

Duration: 47 minutes

Call participants:

Darby Schoenfeld -- Vice President, Investor Relations

Kevin Stevenson -- President, Chief Executive Officer

Pete Graham -- Executive Vice President and Chief Financial Officer

Robert Napoli -- William Blair & Company -- Analyst

David Scharf -- JMP Securities -- Analyst

Robert Dodd -- Raymond James -- Analyst

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