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PRA Group (PRAA) Q2 2019 Earnings Call Transcript

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PRA Group (NASDAQ: PRAA)
Q2 2019 Earnings Call
Aug 08, 2019, 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] Please note this event is being recorded. I would now like to turn the conference over to Darby Schoenfeld, vice president of investor relations. Please go ahead.

Darby Schoenfeld -- Vice President of 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 expectations.

We caution listeners that these forward-looking statements are subject to risks, uncertainties and assumptions that could cause 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 will use during today's presentation, 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 second quarter of 2019 and the second quarter of 2018, unless otherwise noted. Additionally, you will find the third-quarter 2019 estimated revenue model as an appendix to the quarterly conference call slides on the website. I'd now like to turn the call over to Kevin Stevenson, our president and chief executive officer.

Kevin Stevenson -- President and Chief Executive Officer

Well, thank you, Darby, and good afternoon everyone. Thank you for joining our conference call this evening. I'd like to begin reflecting on our third quarter of 2018 conference call. I'll begin the call with a partial quote from a Wall Street Journal article, which is critical of short-term thinking.

In that Jamie Diamon and Warren Buffett stated, and I quote: "Companies frequently hold back on technology spending, hiring, research and development to meet quarterly earnings forecast." And of course, the article went on. I'll then discuss a significant number of investments we made over the last two years and in particular those in people, legal, data and digital. I mentioned this again, because it's important to understand the vision, the planning and the effort that goes into making PRA successful. This industry demand that level of focus, because while the premise of purchasing and collecting non-performing loans is relatively simple, successfully delivering results through a compliant, consistent and disciplined operation is complex.

This evening, I'd like to review each of these investments and tell you how they contributed to the record cash collection results, we are reporting. So first, our investment in people was focused on ensuring that we met the needs of our U.S. portfolios by increasing the number of domestic collectors. In addition, to the hiring we provided enhanced training, improved policies and procedures and had direct feedback sessions with all levels of the U.S.

organization. In Europe, we invested heavily in recruiting additional talent to further bolster our team and had similar direct feedback session. In all geographies, we invested in technology in order to increase productivity, while adhering to our PRA's core values in the high-level of compliance. This helped drive increases in cash collections globally and build or long-term payment plan base.

Next, our investment legal collections were focused along similar lines, as more U.S. counts were eligible and selected for the legal channel. We drove process improvements to ensure the accounts pass through efficiently and expeditiously. We did not shy away from expensing materially more in core cost in order to address the volumes.

In fact, when we had the opportunity to invest sooner, we did. We knew that expensing these costs would drive a reduction in net income during that quarter, but we viewed it as an investment in the future. In Q1 of this year, we saw the return on this investment begin. And this quarter it delivered even better growth.

Third, our investments in the data area created a collaborative team worldwide collectively responsible for our analytics. We added staff and explored additional data that we could use in predicting collection. This creates improved models, including those associated with portfolio pricing, our collection operation, predicting optimal staffing levels, and determining the accounts to qualify for legal collection. And finally, in the digital arena, we expanded the offerings and payment plan options at our U.S.

site. We launched improved site in a number of European countries and the results have been incredible. We continue to generate significant increases in cash collections, through this channel. Our continued focus on long-term results are planning and patience and our work effort, all have advanced our operation, and I'm extremely pleased with what we've accomplished.

And now some quarterly highlights. This quarter we reported record total cash collections of 470 million, on the heels of our record-breaking first quarter. This included records in Americas core and total Europe. Record cash collections generated record revenues and this drove a 15% increase in net operating income.

Second-quarter global purchases were $289 million and built on last quarter's solid investment levels. Importantly, this marked the third quarter in a row that we had significant portfolio investments in Europe. This level of buying increased estimated remaining collections, or ERC, to a record $6.4 billion globally. Focusing now on the Americas.

Cash collections were a record $294 million during the second quarter of 2019. This was driven by increases in all of our core collection channels, including U.S. digital, legal and call center, as well as gains in Canada and South America. In the legal collections channel, we are delivering a return on investment and legal collections, cost that matches are our historical performance.

We have maintained excellent returns despite processing significantly more volume. In fact, the average investment over the past four quarters was more than 25% larger than in any prior period. Our ability to maintain ROIs in excess of 200% was powered by investments in technology, combined with additional refinements with our models and selection process. As we said before, provided we select the correct accounts and do not overwork them in the call center, the legal collections channel can deliver similar margins, the call center collections channel over the life of the asset.

Now, there is certainly the cash timing difference between legal and call center expense and collection. Consider that legal costs are expensed in full during the quarter when we file a lawsuit. That then drives cash collections over the next several years with little additional expense being recognized. Conversely, call center activities typically generate cash to date or in the near future.

Thus matching cash collections and cash expenses more closely. In light of this timing difference in the legal channel, our investment in data, which we find the decisioning of which customers have the ability to pay us, but are not inclined to do so was of the utmost importance to deliver these results. In the call centers advances in systems, processes and scoring contributed to productivity gains. Therefore, we were able to collect more and with a smaller workforce, while increasing the number of payment plans generated.

In fact, we collected 12% more compared to the second quarter of 2018, with 24% fewer collectors by quarter end. Portfolio investment during the second quarter was $122 million in Americas core and $26 million in Americas insolvency. We see stable supply in U.S. core with revolving consumer credit outstanding remaining high, charge-off rates are holding steady.

Moving on to Europe. Total cash collections were a record $126 million. This was driven by recent portfolio investments, as well as improved operations and despite significant foreign exchange headwind. On a constant currency basis, cash collections in Europe increased 15%.

I'm very pleased by the results in Europe and the operational improvements we've made and how the market has evolved. Three years ago, we voiced a strong opinion that we believe the European pricing environment was growing irrational. And our very vocal narrative did not change until late last year, when we saw slight improvement. During that time, we stay disciplined, we spent those years.

Investing in our core competencies, with the expectation and based on our experience in the U.S. during the late 90's and again in 2008 that the market would eventually exit the irrational cycle It was in. During the third quarter of 2018, we reported while the market was still competitive, we did start to see a small shift in pricing. Last quarter, we made investments more broadly than we had done in years, investing in six of our nine operating markets.

And this year, this quarter -- I'm sorry, our $141 million investment spread was over seven of our nine operational market. We remain disciplined in our pricing throughout and we are now investing more in portfolios in what we believe will be better return. Just to be clear, the market still competitive. Pricing does indeed vary by geography.

We also continue to see sellers seeking owner-seller friendly contracts. But overall, as you can glean from our level of investing, we're encouraged by the improvements we're seeing broadly. Similar to last quarter, Spain remains a challenge. Our team there is both knowledgeable and experience and the purchasing potential is significant.

However, as we discussed last quarter, we believe the heavy use of advisors in that market is keeping pricing irrational. We see buyers come and go as advisors continue to recruit new participants. From our standpoint, we do not see many repeat buyers at these levels. Our goal in Spain is that once again be vocal on this matter, while at the same time keeping our teams energized engaged and our operations running efficiently until we see a pricing shift.

Across Europe, the purchasing pipeline is very active. And keep in mind that European portfolios tend to be larger than those in the US. So one or two portfolios can materially change our investment for the entire year. I'd now like to turn things over to Pete to go through our financial results.

Pete Graham -- Executive Vice President and Chief Financial Officer

Thanks, Kevin. I'll start with a quick overview of our second-quarter 2019 results. Total revenues were a record $252 million. Net allowance charges were $1 million.

Operating expenses were $187 million and net income was $19 million, generating $0.41 in diluted earnings per share. Total cash collections in the quarter were a record $470 million. This was led by record cash collections in Americas core of $294 million, an increase of 26%. Typically, we see a decline in cash collections from the first to second quarter due to seasonality related to tax payments in the US, but this year the normal seasonality was more than offset our U.S.

legal cash collection, which increased 39% compared to the second quarter of 2018. This is a direct result of the increased number of accounts previously placed in the legal channel. Beginning in the third quarter of 2018, we began to accelerate our investment in the legal channel due to a favorable environment for our external firms at excess processing cap. We indicated at the time it was possible that collecting cash earlier in the curve could have a positive impact on yield.

We're clearly seeing net effect is part of the reason why we've been able to raise yields this quarter. U.S. call center and other cash flow increased 12% with a 7% increase in call center only in the 49% increase in digital. Cash collections and other Americas core increased 89%, driven primarily by the acquisition in Canada earlier in the year, as well as performance of portfolio investments made in Brazil in 2018.

Europe Core cash collections during the quarter grew by 8% and on the constant currency basis were up 14%. The biggest driver of this increase was performance of recent portfolio investments. Operational improvements that have been developing over the past few years have produced sustained performance and generated yield raises in several countries. Global insolvency cash collections in the quarter decreased 8%, driven primarily by investment volumes in the US, not offsetting the wind down of older vintage.

Amortization rate. excluding allowance charges was 47%. In the past few years, our amortization rate is turned it from the high 40s in the first quarter the mid to low 40's by the fourth quarter. Based on seasonality in the US, the mix of what we've been purchasing and recent trends in the portfolios, we expect this pattern to be similar for 2019.

Operating expenses were $187 million, an increase of $24 million from the second quarter of 2018. This is largely due to increases in legal collection cost and fees, as well as increased costs from our Canadian acquisition. Legal collection costs were $33 million, an increase of $14 million. Based on our latest view, we expect the remaining two quarters of this year to be in the same 30 to $35 million range per quarter, but there could be some timing differences between Q3 and Q4.

Legal collection fees, which consists of the contingent fees we paid firms increased $4 million as a result of higher external legal cash collection. Our cash efficiency ratio was 60% for the second quarter compared to 59% in the first quarter and 58% for the full year of 2018. Driven by record cash collections coupled with productivity improvement. This ratio continued to improve as we balance U.S.

collector workforce with the legal channel this cash collections from past investments continue to deliver. We expect that this ratio will approach, but likely not exceed 60% for the remainder of 2019. Below the operating income line, interest expense was $36 million, an increase of $5 million mainly due to higher borrowings used to fund portfolio investments, as well as higher interest rates, mostly in Europe. Our effective tax rate for the first six months of 2019 was 18.6% and for the full year of 2019 a range of 16 to 20% still are our best bet.

Estimated remaining collections at the end of the second quarter were a record $6.4 billion, with 55% in the U.S. and 41% in Europe. ERC increased nearly really $700 million in the second quarter of 2018 and almost $150 million from the first quarter of 2019. The sequential increase was driven primarily by portfolio purchasing and sustained performance that drove increases in our forecasted collection in certain pools in both the U.S.

and European portfolio. Combining cash flow from operations and collections applied to principal the business generated $474 million during the first half of the year. At the end of the quarter, we also had capital available for portfolio purchasing amounting to $555 million in the Americas and $198 million in Europe, for a total of $753 million globally. Additionally, given our conservative capital position, we have the ability to increase leverage as necessary, take advantage of portfolio purchasing opportunities as they may arise.

Now, I'd like to turn things back to Kevin for some final thoughts.

Kevin Stevenson -- President and Chief Executive Officer

Well, thank you, Pete. Our past investments continue to deliver excellent results. We reported another record for global cash collections with a 16% increase along with record ERC at $6.4 billion. Portfolio investment continues to be steady worldwide with improvements in Europe and an increase in win rate.

We delivered a cash efficiency ratio of over 60% in Q2 and expect a full year to approach 60%. I'm very pleased with the discipline and the focus we've shown over the past few years. If I look back, and we are in our 24th year of operation. We've always operated PRA by PRA founding principles.

Foremost on this list, our long-term focus, conservative capital structure, ethical code and diversification, which includes both product and geography. Our willingness to hold to these principles from my perspective as always, proven beneficial and contributed to our success. We are not here to generate results for a few years and then move on to the next thing. We have a tenured and committed management team globally, one that believes in our vision statement, which is PRA will be known as the industry leader and partner that is collectively responsible, compliant and solution-oriented, thereby changing the world's perception of the non-performing loan industry for the better.

With that, operator, we're now ready for questions.

Questions & Answers:


Operator

[Operator instructions] Our first question today will come from Hugh Miller with Buckingham Research Group. Please go ahead.

Hugh Miller -- Buckingham Research -- Analyst

Good afternoon. Thanks for taking my question. I guess, I wanted to start off one on the regulatory front. I was reading an article talked that about how the Fifth Circuit District Court, Texas had ruled that predictive dialers are outside of the scope of the TCPA.

I wanted to get your take and seeing if that would have any implication for the Company and your thoughts on that case?

Kevin Stevenson -- President and Chief Executive Officer

Yeah, thanks for the question Hugh. It's always dangerous that the CEO questions about that courts rule. So I will give you my best read on it. It's not going to be a lot, but as I recall that court case and I recall and I'll have to go on a limb here.

I think it's Ninth Circuit in California. I think there is some discrepancies across court about defining dialers or predictive dialers or ETPS's. And so, I don't -- I think it just shows the confusion that exists across courts, but do you have another opinion on that?

Hugh Miller -- Buckingham Research -- Analyst

It certainly is a different view there. But if that's the way the things stand. Does that change your ability to kind of use a dialer in Texas, does that really have much of an impact on the business?

Kevin Stevenson -- President and Chief Executive Officer

That's a good, that's a good way to ask it. Well, I'll tell you that some of the technology we're using today, obviously not using an ATDS, but we are approaching productivity standards that we haven't seen is 2015. So I guess, my position is we would certainly love to use a predictive dialer. However, we've been combating that headwind for years and we are almost flat to Q2 of '15 production number.

So it would be upside for us to whatever happen.

Hugh Miller -- Buckingham Research -- Analyst

And then, I appreciate the commentary that you've been giving along the way in terms of Europe, pricing returns, but it did look as well like you took the gross money multiples for the core paper in 2Q ahead of where you were looking at 1Q '19. One of your peers kind of mentioned, I guess in IRR term, the improvement in the '19 Vintage relative to the '18 and I was wondering if you kind of agreed with that view in terms of the improvement that they were talking about in IRRs for purchases made this year, whether or not there were any geographic regions where you were seeing kind of progressive improvements in pricing?

Kevin Stevenson -- President and Chief Executive Officer

Sure, I'll start and then I'll hand it off to Pete to talk a little bit about deal multiples and IRRs, I guess. From my perspective, the first thing I wanted to say was, we're going to hold and fast to our bidding strategies and we're just winning more deals. And that's interesting to us. As I mentioned in my script, we went from six of nine operational markets last quarter to seven of nine.

I would say, UK and Poland are probably the strongest volume wise. Pete do you have something to add to that?

Pete Graham -- Executive Vice President and Chief Financial Officer

I think just looking at the money multiples, first quarter was fairly consistent with the full year of last year, like 1.5 on the round and we're almost 10 points better than that in second quarter. So that's because the second quarter was much better. Again, I would say, Poland and the UK are probably the two areas. I would highlight where that multiples change significantly.

Hugh Miller -- Buckingham Research -- Analyst

And then, I guess one last from me. On the U.S. side, are you hearing any difference in languages you speak to the credit issuers out there about a willingness and propensity to sell accounts relative to placements or anything like that?

Kevin Stevenson -- President and Chief Executive Officer

I can't say that I have anything off the top of my head that's materially different. So I think it's more steady as you go right now. Obviously, I think that to the extent recessionary winds blow, I think that can change people's minds. I know you've been around long time and I know that if you think, if you think about the model, if you think about agency placement models and my guess is, if you ask some of my competitors, buyers in the United States we would say we could probably beat the bank's NPV on that flow of cash from that agency pipeline.

And I also think that from a customer journey standpoint having someone like ourselves by the paper and hold is a much, much better experience for people than placing that one, one or two or three agencies. So, and again I think that the real shake out will probably occur when there is more upward pressure on charge-off rate.

Hugh Miller -- Buckingham Research -- Analyst

Certainly understandable. Thanks, Kevin. I appreciate

Operator

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

Bob Napoli -- William Blair and Company -- Analyst

Thank you. Congratulations. Nice to see the industry performing well and you guys certainly have made a lot of progress. So it's nice really great to see that.

Kevin, just the question, I mean the forward flow has increased pretty dramatically, I guess almost doubled quarter over quarter or it has doubled to 700 million from 351 million. Is that essentially coming out of the same areas where you are talking about the UK and Poland or maybe a little bit of color on the forward flow?

Kevin Stevenson -- President and Chief Executive Officer

Yeah, I mean, I think in general that number can swing around just based on where we are in renewals of the flows because the sellers tend to stagger those, so that they don't come all do at one time. So just depending on where we are in the mix that can move around. I will also say that the forward flow contract is heavily weighted typically toward the U.S., but we are starting to see more prevalence of flow contracts in Europe as well.

Bob Napoli -- William Blair and Company -- Analyst

Now the efficiency ratio -- the improvement in efficiency ratio and I think Kevin used the word incredible for digital collections. So wondering maybe if you could give a little more color on where you see the efficiency ratio improving too. If he gave a metric on the amount of collections relative to 25% less collectors and how the digital collections are helping? And any sign or anything you can give us to quantify that?

Kevin Stevenson -- President and Chief Executive Officer

Yeah, that's something we'll do going forward. We still haven't broken it out, but it's a good question and it's a strongly growing piece of our business. So that's something we will indeed break out for you later. But let me also give you some color on some of the commentary, I mean by, I'll put a little finer point on it when it comes to these payment plan builds.

One of the things that you would have seen back in 2015 and 2016 as we, if you recall that period, we went through where we reduced headcount probably not matched with our portfolio, We were actually reducing payment plan sizes. So I guess, I used the word cannibalizing it for consuming it. Today as we drive collector headcount down and inefficiency up, we're building those long-term payment plan. So part of what you're seeing, I think is almost like a layering effect, if you think back to some of the early days of PRA being public.

We talked about the layering effect of portfolio purchasing, same kind of thing happened when you're layering on payment plans that are very sticky. So I think that's also part of this equation.

Pete Graham -- Executive Vice President and Chief Financial Officer

Yeah, I think the -- Bob the other thing I have to add there is -- when we started ramping legal costs in the back half of last year that had a depressive effect on And we said, as we moved into this year, we thought that that would improve just from a pure dynamic of the legal costs sort of leveling out quarter by quarter and the top line cash starting to deliver and we certainly did see that topline cash come through in a big way in the second quarter as I highlighted in my remarks. I mean, typically in the U.S., we'd have a decline in cash collections from first quarter to second quarter because of seasonality and we actually went up and that's on the back of the legal cash.

Bob Napoli -- William Blair and Company -- Analyst

Last question is kind of a broader question. Kevin, having involved in this company for a long time and the for many years PRA delivered return on equities in the mid to high teens even over 20% consistently and I know there is a goodwill in the equation now, but when I look at the amortization rate, it's in higher 40's, the cash efficiency ratio. Are you seeing, the industry seems a lot more rational certainly in the U.S. and now incrementally in Europe? Do you think getting back to historical levels of returns is feasible or how do you think about returns today?

Kevin Stevenson -- President and Chief Executive Officer

Yeah, it a better question. So your observations are strong. You know [Inaudible] now what you five -- from some of our more normal periods of 5 percentage points. Our expense ratios are actually approaching old historical norms.

We are also thinking a lot about tangible equity inside the wall as a PRA. I think we'll probably talk a little bit more about that in the next call once we get some good solid thoughts around it. But that's one of the things that we're seeing globally is if you look at, especially focus in Europe, a lot of them have negative tangible common equity. And so, ours is pretty strong positive numbers.

So other things will start talking about as time moves on. But, but that's how we're looking at how we're generating returns and of course a return to generate EPS as well.

Bob Napoli -- William Blair and Company -- Analyst

OK. Thank you.

Operator

Our next question will come from Eric Hagen with KBW. Please go ahead.

Eric Hagen -- KBW -- Analyst

Hey, thanks, and congrats on a solid quarter. What percentage of the acquisitions made in 2Q were selected for the legal channel?

Pete Graham -- Executive Vice President and Chief Financial Officer

Yeah, typically, investments, when we book those on, we'll spend some amount of time getting to know the account, so to speak and working them in the call centers and otherwise lettering and other things together, more information on the portfolio to inform the scoring that will then push that into legal. So the underwriting does have some assumptions over the life of the portfolios to how much we'll be eligible for legal, but typically it's call it six months or so working accounts before you really start to select and identify the accounts that are going to, actually go to it --

Kevin Stevenson -- President and Chief Executive Officer

And that's actually really good question, because I think there are -- there have been -- and we all say have been participants to immediately do a kindness first model and we don't have that. Pete's right, it's six-plus months to get accounts through that process and understand, which ones again have the ability, but not the inclination to pay.

Eric Hagen -- KBW -- Analyst

So maybe we'll follow up on that in the next couple of quarters. Can you talk about changes in the level of pricing since the start, just call it the start of this year? And can you also just give us a snapshot just because I think it would be maybe a useful reference point on what the price per dollar is that you're paying roughly speaking on fresh charge-offs today?

Pete Graham -- Executive Vice President and Chief Financial Officer

So, we don't disclose it anywhere anymore, tight. We've stopped that long time ago and I'll tell you why we stopped it, and I know your question is specifically toward fresh. But people used to talk a lot about how much they paid on average per dollar and it really didn't matter which paid for dollars, when your turn is going to be. So we stopped there a long time ago.

Most people are using just shifts in multiple tables, but I guess, what I'll tell you is obviously from Q2 of last year, we've had a decent move as we talked about in the earlier Q&A between -- in both the United States, as well as in Europe.

Eric Hagen -- KBW -- Analyst

And then just the domestic bankruptcy purchases continue to be somewhat light. I mean, is that mostly a result of weak volume out there for bid or is it pricing that you just don't find very attractive?

Pete Graham -- Executive Vice President and Chief Financial Officer

No, that's a good question. It's mostly the volume. The volume just been, it's been low for a number of years. It's something we've talked about especially if you're looking at coming down off of, I think our peak with summer was it 2013 or 2014 off top of my head and if you look into the '15, '16 timeframe, we were running in terms of cash flow $100 million reduction year after year really as a result of less purchasing and so we love to cultivate more buyers.

A couple of years ago, we cultivated sellers, cultivating more buyers. We cultivated new seller who were selling auto secured paper and we bought a bunch of that. So we're still rummaging around that area, trying to drum up more business. It's a great business for us.

We've got a great operation, highly scalable, but I would say mostly it's around volume more than pricing.

Eric Hagen -- KBW -- Analyst

One last one from me. You talked about raising yields, what was the amount of reclassification that you guys booked in the quarter?

Pete Graham -- Executive Vice President and Chief Financial Officer

A little over 100 million, 113 million, and that was roughly spread sort of the way ERC is spread, distributed U.S. versus Europe.

Eric Hagen -- KBW -- Analyst

Interesting. OK. Thanks for that color.

Pete Graham -- Executive Vice President and Chief Financial Officer

Yeah, you're welcome.

Operator

Our next question will come from Mark Hughes with SunTrust. Please go ahead.

Mark Hughes -- SunTrust Robinson Humphrey -- Analyst

Yeah, thank you. Pete, could you repeat again the amortization pattern you described? How did you phrase that when we think about the back half of the year?

Pete Graham -- Executive Vice President and Chief Financial Officer

Yeah. So, it's typically given the pattern of cash collections, it's typically highest in the first quarter and then we'll sort of moderate through the year. And so, the last couple of years, if you look at the actual pattern quarter by quarter, it was in the high 40's in the first quarter and then in the low-to-mid 40's by the fourth quarter and all indications are -- will likely repeat that pattern this year as well.

Mark Hughes -- SunTrust Robinson Humphrey -- Analyst

And then when you think about the legal spending, it's clearly has been a big success this year and it's going to continue in Q3 and Q4. Notionally, how should we think about next year -- how should we think about next year?

Pete Graham -- Executive Vice President and Chief Financial Officer

Sorry, I pushed the button off. I think there is a possibility that it trends down slightly from these levels, but again the portfolio will be placing next year is the portfolio, we bought this quarter and will buy the likely next quarter and maybe a little bit into the fourth quarter and we will, as I stated earlier, in the, in the Q&A, we have to work the portfolio a little bit to be able to precisely predict or more precisely predict the overall placement level.

Mark Hughes -- SunTrust Robinson Humphrey -- Analyst

Is it right to think of your level lately, it's a little bit of -- was it catch-up after under investment in legal or are you kind of came to the point we recognize more, should be placed in legal, would a normal run rate be lower than the current level?

Kevin Stevenson -- President and Chief Executive Officer

Well, the catch-up piece really is around the portfolio we were buying, So we started talking about that several quarters in advance of actually ramping up our legal investment the fact that we were shifting the mix of what we were buying had shifted from lower balance paper, which typically doesn't fit well in the legal channel to a higher average balance paper, and so again, the mix of what we, what we actually buy will dictate that.

Pete Graham -- Executive Vice President and Chief Financial Officer

So now, you've got the collection matched against the expenses a little better is the point also, I guess?

Mark Hughes -- SunTrust Robinson Humphrey -- Analyst

And I wanted to be clear, I got Pete here next to me. Some of Mark's question was notional amount, so you answered that question correctly. You think the notional amount going into 2020 will be level or lower?

Pete Graham -- Executive Vice President and Chief Financial Officer

Yeah, by notional I assume you meant the dollar amount. So hopefully, as we grow cash collections. Hopefully, that percentage will start trending downwards.

Mark Hughes -- SunTrust Robinson Humphrey -- Analyst

And Kevin, I like how you're aiming high with your analogy between the Warren Buffett, and the PRA management team.

Kevin Stevenson -- President and Chief Executive Officer

Yeah, we're kind of the same folks. So I think that would be a good analogy.

Mark Hughes -- SunTrust Robinson Humphrey -- Analyst

There you go. Thank you.

Operator

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

Robert Dodd -- Raymond James -- Analyst

Hi, guys. Just going back to the pricing in Europe, I mean obviously you gave UK versus Poland. Can you just give us a color on kind of the range across the nine geographies you operating or the seven you are buying in. The range of differences in the multiples.

Obviously, we see it in the U.S. where I get insolvencies at lower purchase multiples in core because that's less expenses, etc. So it all relates to the IRR, but obviously we can see the purchase multiple. Can you give us any color on just how wide that range is across geographies?

Pete Graham -- Executive Vice President and Chief Financial Officer

I don't have anything here in front of me, but off memory, I would say probably on the low-end, it's still at 1.2 and on the high end, maybe a 1.8, and kind of blending from there. And again, depending on the volumes we're buying --

Kevin Stevenson -- President and Chief Executive Officer

Countries have an impact on that. If you're buying something in Norway or you're buying something in the UK, it's paying UK NPL. What I would consider, I was called true NPLs versus paying versus Poland versus Italy, it varies a lot. We don't have any cadence in front of us right now.

Robert Dodd -- Raymond James -- Analyst

And if I can, one more kind of housekeeping. On the minority our line look was a little larger, than I was expecting this quarter. Is this kind of any, for lack of a better term rule of thumb that we should be using. I mean you gave us guidance on tax rate, any rule of thumb on kind of the minority rate as that flows through the year going forward?

Pete Graham -- Executive Vice President and Chief Financial Officer

Now, again, that's a tough one, because it's really driven by the areas where we have sort of joint venture partners predominantly that's going to be South America. But then also there is a couple of quirky structures in Poland in particular, where there is some outside investment money in that as well. So it's really difficult to predict that one from a forecasting perspective.

Robert Dodd -- Raymond James -- Analyst

Understood. Thank you.

Operator

Our next question will come from Dominick Gabriele with Oppenheimer. Please go ahead.

Dominick Gabriele -- Oppenheimer and Company -- Analyst

Thanks. Thanks for taking my questions. Just a reminder, does the revenue model at the end of the presentation taking into consideration the acceleration of legal collection?

Pete Graham -- Executive Vice President and Chief Financial Officer

Yeah, I think it would reflect everything through the activity we did this quarter. So to the extent we raised yields and net impacts, sort of reported book yield in the tables, that are in the press release and will be in the 10-Q then it would be in there as well.

Dominick Gabriele -- Oppenheimer and Company -- Analyst

And then do you still -- given that the seasonality kind of shifted because of legal collections from first quarter to the second quarter. Do you expect the same seasonality that we usually see going from the second to third as a step down or could have stayed flat or you expecting a ramp in collection still to occur moving from the second, third to fourth in legal.

Kevin Stevenson -- President and Chief Executive Officer

Well, it just overall cash. I'll just address that. So this is the first quarter on time. Yeah, probably 2014 that Q2 cash exceeded Q1 and I would also say probably run that same time was first time that expense ratios went down Q1 to Q2.

So it was a nice start nice Q2 for us. Let's put it this way, Q3 is definitely a harder time to collect. It's seasonally -- it's always been seasonally harder in the U.S. and of course in Europe.

We know how August works in Europe. So in July in the Nordics. Thank you, Pete for that. So I would say -- I'll just tell you that it's harder to collect, so our ability to be able to push through cash collections and try to keep growing that, and to keep down expenses will be harder in Q3.

Now, I think your question is, it really good win relating to legal, because to the extent our models are working correctly and we are indeed doing people who can pay us that will help buffer that headwind. So how about if we leave it with that? Does that get you what you need?

Dominick Gabriele -- Oppenheimer and Company -- Analyst

Perfect, yes. And then do you think -- is there any internal guideline or sort of target where you expect your ERC waiting to Europe, because that really obviously gets affected by the purchases and there's obviously been a lot more purchases than in Europe versus the U.S. this quarter than I was expecting. And do you have an internal target where you would not like Europe to be over some percentage of the total mix of the ERC, or is it really -- there is no limit there because it's really based on return?

Pete Graham -- Executive Vice President and Chief Financial Officer

So thank you for that. It's all based on return. And so, if Europe went to 60%, I wouldn't care and I would also say, it's a similar question, people often ask us do like fresh paper? Do you like primary, secondary, tertiary paper? Same there, I don't really have a preference. It's all about return.

Dominick Gabriele -- Oppenheimer and Company -- Analyst

And then just you mentioned the nominal rate of legal collections. I see it as about 47 for the quarter of a total legal collections -- expense rather, you said that that nominal rate roughly could be flat to down and the percentage will be done. I can see where you're going with that. Can you talk about the relationship between legal collections expense total and the compensation and benefits expense and how those two can move maybe with or against one another as you target various types of the collections? Is there a seesaw method there?

Pete Graham -- Executive Vice President and Chief Financial Officer

Yeah, there really is and that's something that we've been trying to communicate for a couple of quarters now. This whole idea of balancing between salary line and legal cost line. So let's parse it out just for a second. As we look at it, there is legal expense, but there is legal contingency fees and that's what we -- to the extent we use a third party attorney, outside attorneys we pay them a commission.

Now if I use my internal attorneys, I don't, obviously that goes to the salary line. And then the cost line is who we choose to in any given quarter, So that's kept the ground rules down on that one.

Kevin Stevenson -- President and Chief Executive Officer

And so, what Pete actually alluded to earlier was, if you look back into, again, I think it's 2015, 2016 early part of '17, we were buying, what I would consider more call center centric account for smaller balance. They lend themselves more toward telephone or digital collections and less toward legal because, it's hard to receive a small balance account. And so, as we ramped up that to service that portfolio and then in the back half of '17, we started to buy larger balance accounts, which would be more again historically legal centric component to them. We started work on balancing out those numbers, but we had a catch up to do if you are around back then.

We had some short-staffing that we had to catch up on certainly during the 2018-time frame. So what I think about is, again, it's about portfolio management and to the extent that I'm suing more people because they may not have the willingness to pay us, then what we have to do is flip over and match that from a collector headcount perspective. And so, back of the envelope, I'd like to look at averages. On average, we were down on 150 routes for something like that for the quarter.

The notional end of period, numbers were bigger than I thought. That's one of the things you'll probably see. You'll probably see some trending down on head count throughout the rest of the year and that balance will sit over there in legal costs. So, that's how we think about it.

Dominick Gabriele -- Oppenheimer and Company -- Analyst

And if I may just one more and maybe I'm getting out of myself with 2020 here, but is there something to be said with, if you're pulling the collections forward, let's say almost out of the next, let's say two years as you ramp up the legal collections now because you had mentioned that maybe the pie hasn't grown, is really pulling some collections forward. Is there a chance that the gross cash collections could be at a similar level of in 2020-year end as 2019 year-end? I mean barring -- with similar purchase levels, let's say that we see today is there a reason that it could be perhaps similar to '19 just because you pulled forward.

Kevin Stevenson -- President and Chief Executive Officer

That's a good question. I don't think so, Pete did allude to the idea that we are possibly accelerating some of our cash in that legal channel, but remember the timing component of this. We're talking about back of the envelope, we're still in 2018 account probably now, and so you're going to see, hopefully good buying from us for the rest of the year globally and then in 2020. Pete may want -- he's ready to push the button and say something.

Did you want to add --

Pete Graham -- Executive Vice President and Chief Financial Officer

No, I think that's right. It's just continuing to build obviously purchasing a big piece of that. And yes there might have been some acceleration in the back half of last year, but we're now sort of suing the right amount of accounts for the portfolio we own and again, that's why I couldn't give a precise number on what we think is going to happen with legal costs in the first part of 2020, because we probably won't know that until we get into the fourth quarter and have a view on what portfolio has been through the pipeline enough to be placed in the first quarter.

Kevin Stevenson -- President and Chief Executive Officer

And if I could also add to that, it's one of the things that I'm excited about. If you look at the evolution of PRA, before the global financial crisis through the financial crisis and then exiting out the other side of it, what we're trying to build today is a diverse income line, a diverse opportunity to invest in all sorts of markets around the planet. And it just allows us to kind of just follow the investments around and avoid any kind of irrationality that might exist in a place like Spain today and hopefully capitalize on a place like Poland or the UK or the Nordics. And so, I really like that ability and hopefully, we'll be able to create really sustainable, really interesting platform.

Dominick Gabriele -- Oppenheimer and Company -- Analyst

Great, Pete. Thanks so much, and thanks for taking my question.

Operator

This concludes our question-and-answer session. I would now like to turn the conference back to Kevin Stevenson, president and CEO, for any closing remarks.

Kevin Stevenson -- President and Chief Executive Officer

All right. Well thank you everyone for joining our call this evening. We look forward to speaking to you again next quarter.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Darby Schoenfeld -- Vice President of Investor Relations

Kevin Stevenson -- President and Chief Executive Officer

Pete Graham -- Executive Vice President and Chief Financial Officer

Hugh Miller -- Buckingham Research -- Analyst

Bob Napoli -- William Blair and Company -- Analyst

Eric Hagen -- KBW -- Analyst

Mark Hughes -- SunTrust Robinson Humphrey -- Analyst

Robert Dodd -- Raymond James -- Analyst

Dominick Gabriele -- Oppenheimer and Company -- Analyst

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