Debt collection isn't a glamorous business but it can be profitable. PRA Group (NASDAQ:PRAA) has been a leader in the debt-collection industry, and recently, it's been stepping up its efforts to try to grow its portfolio of collection assets and put itself in position to dominate the industry during the next swing in the business cycle.

Coming into Thursday's fourth-quarter financial report, PRA Group investors had thought that earnings would likely take a hit, despite solid revenue growth. PRA Group was able to keep its bottom line healthy, and big investments have made it clear how optimistic the debt-collection specialist is about its future.

Logo for PRA Group with three squares in blue, yellow, and green.

Image source: PRA Group.

PRA Group gets aggressive

PRA Group's fourth-quarter results looked strong. Revenue of $236.7 million was up 12% from year-ago levels, and that was better than the $230 million that most of those following the stock had expected the company to report. GAAP net income fell because of one-time tax-related items in the year-ago quarter, but earnings of $0.33 per share were higher than both the adjusted figures from the fourth quarter of 2017 and the $0.30 per-share consensus forecast among investors.

PRA Group's fundamental growth accelerated during the period. Global cash collections climbed 7%, to $402.7 million, and the biggest growth area came from the core portion of the Americas region. A decline in insolvency-related collections reflected the relatively strong economic conditions during the period, but rising collections in Europe showed the value of PRA Group's geographical-diversification strategy.

PRA got a lot of value out of its legal collection and call center business units in the U.S. market. U.S.-based legal collections soared 24% from year-ago levels, and call center collections were higher by 12%. PRA didn't put as much investment into the insolvency area, especially overseas, and that contributed to the underperformance of the unit.

Investment levels soared during the quarter. PRA spent more than $490 million on finance receivables, with nearly half coming from the European core market. Spending levels across the board were higher, though, with only the Americas core business remaining at levels fairly consistent with its spending in past quarters.

CEO Kevin Stevenson gave more details. "During the fourth quarter," Stevenson said, "we invested nearly a half billion dollars, with substantial deployments in Americas Core and in European countries where we have extensive data and operational experience. This increased estimated remaining collections to an all-time high of $6.14 billion." The CEO called 2018 a "year of exceptional portfolio investment" and pointed to record collections levels as a sign of strength for the business.

Can PRA Group keep it up in 2019?

PRA has high hopes for continued expansion. In particular, the company boosted its credit facility to give it more ability to invest, and a partnership with Brazil's Banco Bradesco gives PRA more latitude in Latin America to pursue additional opportunities.

Yet there was an issue that came up that could weigh on PRA Group, at least in the short run. In reviewing contracts for accounting recognition, the company concluded that it should have used different rules in treating two contracts in Austria. As a result, PRA understated its revenue by a total of $5.5 million between 2016 and 2018, with $1.2 million that should have appeared in 2018. PRA is comfortable that the changes for any one year are immaterial, but the incident makes it clear that the recent accounting rule changes are keeping both companies and investors on their toes.

PRA Group investors didn't have a strong reaction to the news immediately, and the stock was unchanged in after-hours trading following the announcement. Nevertheless, the boost in PRA's business is a good thing if the company can continue to execute well and take advantage of the added investment opportunities that it's found across the globe.