Debt collection is a tough business, and PRA Group (NASDAQ:PRAA) has had to roll with the punches in its search for growth. Even as it continually looks for good assets on which to collect, PRA Group has also looked at major strategic alternatives for parts of its operations, looking to optimize what it has and focus on the best opportunities available.

Coming into Tuesday's first-quarter financial report, PRA Group investors were prepared to see considerable declines in revenue and earnings from year-ago levels. For the most part, that's what PRA Group reported, albeit with the one-time gains from the sale of its government services business providing a boost to the bottom line. Let's take a closer look at PRA Group to see what its results say about the debt-collection company's future.

PRA Group logo.

Image source: PRA Group.

PRA Group makes a sale

PRA Group's first-quarter results reflected the tough industry conditions as well as the positive impact from the business sale. Revenue was down 8% to $206.6 million, which was actually somewhat less severe than the 13% drop that most investors were looking to see. Net income came in at $48.2 million, which was up by more than half and worked out to $1.03 per share, and that was far better than the $0.45-per-share consensus forecast among those following the stock.

The first thing to note about the report was that the sale of the government services business had a huge upward impact on PRA Group's bottom line. The company posted a $46.8 million pre-tax gain on the sale, and even accounting for a big increase in income taxes that resulted from the sale, the boost to net income was considerable. By contrast, operating income, which excluded the sale proceeds, were down by almost a quarter, reflecting higher legal collection expenses and big declines in fee income and recognition of receivables income.

Elsewhere, PRA Group managed to sustain its fundamental performance fairly well. Cash collections were down just over 1% from year-ago levels, with weakness centered in the insolvency business in the Americas region. Growth in Europe was modest, and cash collections in the core Americas unit also contributed to overall gains. Moreover, with adverse currency moves in Europe, PRA Group's cash collections would have risen modestly on a constant-currency basis.

Also, PRA Group boosted its estimated remaining collections backlog. Despite being down from year-ago levels, total remaining collections of $5.14 billion was up by nearly $100 million from where the figure ended 2016, and adjusted figures suggested an even higher amount of more than $5.2 billion. Returns on average equity and assets were markedly higher from year-ago levels.

New investment opportunities also arose for PRA Group. The company spent $227.8 million on new receivables, with half coming from the core Americas segment. Purchases in Europe were down sharply from year-ago levels, suggesting a shift back toward the U.S. market.

What's next for PRA Group?

CEO Steve Fredrickson focused on fundamentals. "We are pleased with the progress made in increasing our collector workforce in the U.S. to the appropriate level," Fredrickson said. The CEO also pointed to strong cash efficiency ratios as a mark of internal success.

Yet one source of uncertainty will come from turnover in the CEO role. Fredrickson noted that this will be his 58th and final conference call, transitioning out of his position as CEO to make room for Kevin Stevenson. Given Fredrickson's long experience with the company, filling his shoes will be a tough assignment, especially under circumstances that aren't entirely ideal from an industry standpoint.

PRA Group investors didn't immediately react to the report, leaving the stock unchanged in after-hours trading following the announcement. In the long run, what's important is that PRA Group keep finding lucrative sources of debt collection assets and then work hard operationally to make the most of those assets as efficiently as possible. 

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