Good day, ladies and gentlemen, and welcome to the second quarter 2012 Portfolio Recovery Associates Incorporated earnings conference call. My name is Melanie and I'll be your coordinator today. [Operator Instructions]. As a reminder, today's meeting will be recorded. I would now like to turn the call over to Mr. Jim Fike. Please proceed.

Good afternoon. I'm Jim Fike, Vice President of Finance and Accounting for Portfolio Recovery Associates. Thank you for joining our second quarter 2012 earnings call. Speaking to you today will be Steve Fredrickson, our Chairman, President and Chief Executive Officer; Kevin Stevenson, our Chief Financial and Administrative Officer; and Neal Stern, our Executive Vice President and Chief Operations Officer, Loan Portfolios. We will begin with prepared comments and then follow up with a question-and-answer period. Before we begin, I'd like everyone to please take note of our Safe Harbor language. Statements on this call which are not historical, including Portfolio Recovery Associates' or management's intentions, hopes, beliefs, expectations, representations, projections, plans or predictions of the future, including with respect to the future portfolio performance, opportunities, future revenue and earnings growth, future cash collection, future space and staffing requirements, future productivity of collectors, and future contributions of the subsidiaries to earnings are forward-looking statements. These forward-looking statements are based upon management's beliefs, assumptions and expectations of the company's future operations and economic performance, taking into account currently available information. These statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us. Actual events or results may differ from those expressed or implied in any such forward-looking statements as a result of various factors, including the risk factors and other risks that are described from time to time in the company's filings with the Securities and Exchange Commission, including but not limited to its annual reports on Form 10-K, its quarterly reports on Form 10-Q and its current reports on Form 8-K filed with the Securities and Exchange Commission and available through the company's website, which contain a more detailed discussion of the company's business including risk and uncertainties that may affect future results. Due to such uncertainties and risks, you are cautioned not to place undue reliance on any forward-looking statements which speak only as of the date hereof. The company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the company's expectations with regard thereto or to reflect any change in events, conditions or circumstances on which any such forward-looking statements are based in whole or in part. Now, here's Steve Fredrickson.

Thanks, Jim, and thank you all for joining us. Today I'm pleased to report record buying, cash collections, revenue and net income for a PRA quarter. I'll have our Q2 2012 highlights in a moment. Then I'll spend a few minutes on a midyear update of each of our fee-for-service businesses. Next, Neal Stern will comment on our operational strategies; Kevin Stevenson will discuss our key financials. Then we'll open the call to Q&A. Our Q2 results continued our strong performance this year, demonstrating the strength of our business model focused on diverse revenue and earnings from our bankruptcy, core and fee businesses, as well as our strategy to in-stores collection. Here are the highlights of our Q2 results. Cash collections, including those in the UK, were $232 million, up 32% from 2011. Domestic collections alone were $229.8 million, up 30% from a year ago. Revenue was up 29% year over year to $148 million. Net income increased 25% year over year to $32 million, translating into diluted earnings per share of $1.87 compared with $1.48 in the second quarter of 2011. Return on equity exceeded 20% in Q2, achieving the benchmark that we set as a long-term goal. We acquired a record $1.48 billion of face value domestic finance receivables for $123 million in the second quarter. These receivables were at 105 defaulted debt portfolios from 12 different sellers. Pricing continues to be quite sensitive but steady relative to Q1 2012 in both the direct-from-issuer and resale markets. With regard to expanded legal collections from those who can but won't pay their debts, I'm happy to report that we continue ahead of expectations to achieve both our two-to-one return and the six to 12-month recovery of court cost expenses. And we experienced a lower impact to earnings than expected…

Thanks, Steve. Continuing Steve's commentary on a record quarter, I'm pleased to report that PRA collected more than 2 million US payments in a single quarter for the first time in our company's history. This milestone represented a 30% increase over Q2 2011. It's a strong testament to our staff's ability to find workable solutions to the financial difficulties that many US consumers continue to manage. As was the case in the first quarter, our average payment size was consistent with Q2 2011, reversing the declining trend we've experienced for the last several years. We expect our average payment size to remain stable or increase and remain coupled with a four-year running trend of double-digit increases in the number of monthly payments. The result, cash collections will continue to be strong. In Q2, our strong performance was again driven by significant increases in collections from our purchased bankruptcy portfolio and from our legal channel and benefited from continued seasonal strength this quarter. Purchased bankruptcy portfolio collections increased $23.6 million or 35% over the second quarter of 2011, while legal collections increased $23.5 million or 54%. External legal collections were 52% higher and the internal legal collections were up 58%. Internal legal collections accounted for 38% of our total legal collections compared with 37% at the same quarter last year. This strong legal collections performance continues to be above what we expected from the incremental increase in court costs invested over the prior two quarters. Cash collections resulting from our incremental increase in Q1 court costs are now more than 30% above our internal expectations. Collections from Q2 investments finished almost 10% ahead of our expectations. Even with these six months of performance results to examine, it's still difficult to assess whether or not these incremental cash collections represent acceleration or…

Thanks, Neal. Hopefully you've had an opportunity to review our earnings results that were released earlier today. I'm going to run through the key items and try to leave additional time for Q&A. I'm going to note, the comparisons I'm about to make are between second quarter 2012 and second quarter 2011 unless otherwise noted. Total revenues grew 29% to $147.9 million, up from $114.8 million. Revenue was comprised of $132.6 million in net finance receivables, or NFR revenues, and $15.3 million in fee revenues. The $132.6 million in finance receivable revenue for the quarter included $88.3 million in core portfolio revenue, including an allowance reversal of $260,000, and $43.1 million in bankruptcy portfolio revenue net of an allowance charge of $2.5 million. Net core portfolio revenues increased 35% while net bankruptcy portfolio revenues increased 23%. Fee revenue of $15.3 million increased 6% and accounted for 10% of the company's overall revenue. Fee revenue from our UK operation offset a year-over-year decline in fee revenue from our domestic fee-for-service subsidiaries. During the quarter we generated approximately $1.1 million in finance receivable revenue from our UK operation and approximately $3.4 million in fee revenue. Operating expenses for the quarter increased 32%. Operating expenses were impacted by a planned $8.3 million increase in legal costs related to our expanded focus on legal collections. Operating expenses were also impacted by a $7.7 million increase in compensation and employee services expenses, as well as other expense increases primarily related to growth in collection activities. We continue to anticipate court and document costs of $16 million to $18 million for the third quarter and then $14 million in the fourth quarter. Operating income was $54.6 million compared with $45.5 million or a 20% increase. Our operating margin was 36.9% for the quarter, down from 39.7%.…

Yes, sir. [Operator Instructions]. And our first question comes from the line of Hugh Miller with Sidoti. Hugh Miller – Sidoti & Co.: Hi, good afternoon.

Hey there. Hugh Miller – Sidoti & Co.: Hi. I guess one question I had was with regards to some of the markup you guys took in the quarter on the '09, '10 and '11 traditional vintages. Obviously, collections were very strong in the quarter, but was just wondering, as you look at where they stand now relative to kind of the underwriting process you did when you bought the paper, I guess, are they start to come more in line with how you are looking at them at the beginning, the accounting versus the underwriting forecast?

Well, to tell you the truth, Hugh, at this point, from an accounting perspective, we're running off of revised curves. Hugh Miller – Sidoti & Co.: Right.

So, generally what we'll do, I know you know this, but just for the group's satisfaction, we'll get every quarter updated projections from Neal Stern and the operations bunch, and then we'll also get new projections from the acquisitions group. So we're going to track into those numbers. But certainly we continue to perform substantially better than underwritten. Hugh Miller – Sidoti & Co.: Just wondering, you know, how conservative do you feel as though these new numbers? Just because I guess -- you've always done a great job of forecasting, but when I look at it relative to some peers, you know, it's just that they happened to be a bit higher. I'm just looking to get a sense of the level of conservativeness.

Well, I get asked this question a lot and I think every quarter I say the same thing. We feel like we're in a good spot right now and we'll have to let the numbers in the next couple of quarters guide us. But I think we continue to get, I guess maybe in general terms, we continue to get increasing percentages or projections from everyone basically that provides us projections. So I think we're in a good spot right now. Hugh Miller – Sidoti & Co.: Okay. Okay. I guess as you look out on the competitive landscape, you gave us a little bit of color there. But I continue to hear about the potential for some other competitors to potentially exit the business. Do you foresee an environment where we could possibly see pricing come down in the next year or two, or do you think best case scenario is that it kind of just stays relative to where it is, steady?

I think it would probably be optimistic to look for declining prices. I would say that it's probably more likely that even if people exited, we'd continue to see a fair amount of competition in the market and pricing would remain relatively steady. But I guess that's all going to be dependent on the magnitude of supply we’d see coming out and what happens on the competitive front. Hugh Miller – Sidoti & Co.: Okay. And as I look at the blended interest rate that you guys had in the quarter, it came in a bit lower than I was looking for, obviously despite the strong purchasing. Was the quarter's purchases fairly backend-loaded or was there anything unusual on this particular quarter?

Maybe the, you know, if you look at our financials, we had a fixed-rate tranche of $50 million that rolled into our floating base. So that probably had the delta you're looking at. I think that interest rate was 6.7%.

Six-point-eight.

Six-point-eight percent on that $50 million tranche. Hugh Miller – Sidoti & Co.: And so that should be then floating --

Yeah, it's normal floating with LIBOR, yeah. Hugh Miller – Sidoti & Co.: Right. Okay. That's probably the difference there. And the other thing I noticed too was the stock-based comp, I guess in the first half of the year, I think you guys made a quick comment about it. This tends to be running substantially higher. Is there any particular reason why it's accruing at that rate? Should we see kind of a drop-off from the first half's levels as we think about that in the second half of the year?

No, we definitely made an adjustment to that, the long-term incentive program. That's what you're seeing this quarter. Hugh Miller – Sidoti & Co.: Yeah.

And it just depends on the performance of the stock and all of our computations for all the components of LTI. Hugh Miller – Sidoti & Co.: Okay. And last question I had was with regards to, you know, you made some commentary about the getting some decisions on the CFPB about who they may include as a large participant. Do you guys anticipate that they will kind of ratchet up that threshold and kind of oversee far fewer participants, or any thoughts there?

Well, we're certainly rooting for as many people to be participating in this as possible. Some of the early commentary the CFPB had put out in writing suggested that the number of 50 is fairly low, and we would get -- I think estimates were closer to 200 participants. So we'll wait and see what that number ultimately is, but naturally we're hoping that it's fairly expansive. Hugh Miller – Sidoti & Co.: Okay. Thank you.

Our next question comes from the line of Bob Napoli with William Blair. Go ahead. Bob Napoli – William Blair & Co.: Thank you. And I missed some of your opening comments, so I apologize if you did talk, discuss this in more depth. But the -- I guess I would like to get a little bit more color on your strategy in the UK and how it's progressing. I know you've taken best practices over there and you say, and I've heard it, you've improved productivity. But at what point do you -- I mean, how much work do you need to do over there before you start to look to grow that business? I mean, do you have PRA-ed yet or, you know, what else needs to be done?

I think that we're -- we feel good about where the business is and what we're really waiting on in terms of the increasing investment is how our portfolios are performing, just getting comfortable with the market dynamics there. And that's just a matter of quarter by quarter. Bob Napoli – William Blair & Co.: And so this may be, I mean you may watch that business for a year or so -- obviously with the results you're driving, there's no hurry to ramp that business up. But I mean, will it take, say, a year of watching portfolios perform before you get more comfortable with growing that business more quickly, something like that?

No. It all depends on the type of performance that we see over time, Bob, and we'll just kind of follow that carefully. But again, the move to the UK was a long-term move for us and we'll go about this in an even pace. Bob Napoli – William Blair & Co.: Is your one big competitor that suggested they would be out of the market for a quarter or so, are they out of the market?

It's difficult for us to establish exactly who's in the market and for how much. So I'd say at this point it's kind of difficult to tell. Bob Napoli – William Blair & Co.: Your allowance, $89 million, your reserve, what are your thoughts around that reserve over the next several years? Do you think you'll recover a meaningful portion of that reserve or not?

Oh, I'm sorry. Total allowance number. Bob Napoli – William Blair & Co.: Yes.

Dear. All right. I [inaudible] this quarter reserve, [of our own] numbers you're looking at. Bob Napoli – William Blair & Co.: Yeah.

You know, so again, here we are, you know, we reversed all 350,000. Bob Napoli – William Blair & Co.: Right.

It is actually interesting, a couple of deals, I'll give you a little bit of insight, a couple of older deals in '05 and '07 had reversed off all their allowance last quarter. Of course, we didn't do anything in regard to yield there. But again, second quarter, and again this couple of deals came in so strong that we did actually increase the interest rate, the yield on one of those deals. So there's an evidence that some of those vintages in '05 and '07 especially are showing some signs of reversing allowances, and a couple of them for the first time ever, and then in a couple of cases expanding yield. So we're going to be very cautious still, Bob. When you have a deal that's got allowance on it, last thing you want to do is reverse it off and rebook it. So we're trying to be careful about that. Bob Napoli – William Blair & Co.: Right. Congratulations on a nice job.

Thank you.

Thank you.

Our next question comes from the line of Mark Hughes with SunTrust. Go ahead. Mark Hughes – SunTrust Robinson Humphrey: Thank you very much.

Hey, Mark. Mark Hughes – SunTrust Robinson Humphrey: Hello. The collections in the quarter, any stab you can make at how much contribution you got from the extra legal spending or expenditures in -- that you've done through the first six months?

I mean, you know, when you think about the legal curve, we just talk about getting our money back within six to 12 months, so you know we expense an incremental $14 million or so in the Q, and you can imagine how that comes back over that six to 12-month time period. But we're really not in [a midi] part of the curve yet, so these first six months are still very early in terms of what we would realize from that spend. Mark Hughes – SunTrust Robinson Humphrey: Would you say it's small, maybe a few points of total collections.

Yeah. Yeah, right. Mark Hughes – SunTrust Robinson Humphrey: Kevin, the 2010 vintage, to the earlier discussion, and actually the collections increased year over year, which is very unusual, anything happening there? Any strange steps you've taken that target that 2010 paper, or is that just indicative of good collections overall?

We just wanted you think a victory lap on your prediction early on that 2010 was going to be a great year for us. But no, seriously, this question came up last quarter and I gave you credit for identifying that early on. But, no, tranches definitely performing very well; there's nothing Neal did out of the ordinary on that tranche. And so we're considering to move those projections upward. Mark Hughes – SunTrust Robinson Humphrey: Okay, great. And then one more question, the payables and accrued liabilities, I can't remember whether you'd made a comment on this in Q1, but the dampening cash flow, what is going on there? And does that reverse at some point?

What name are you looking at? Mark Hughes – SunTrust Robinson Humphrey: Out of the cash flow, I think it's payables and accrued liabilities, and then a negative for you through six months on the cash flow statement. Looking at negative $19.7 million, if I'm reading this properly.

All right. It's a negative number, right. I mean we're certainly looking at some additional accruals there. Mark Hughes – SunTrust Robinson Humphrey: I think a lot of that was -- happened in Q1, so, I'm just curious if there's anything unusual or whether that's just a timing issue that[had on a] reverse in --

Yeah. So you can tell by our delay here, it's probably nothing unusual that kind of hit our radar screens. So we can take that apart and take a look at it. But nothing unusual coming to mind on that. Mark Hughes – SunTrust Robinson Humphrey: Okay. All right. Thank you. Good quarter.

Thanks.

Thank you.

Ladies and gentlemen, that does conclude the time that we have available for questions. We'd like to thank you for your participation in today's conference. That does conclude the presentation. You may disconnect. Have a wonderful day.