Good day, 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, VP of Investor Relations. Please go ahead.

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 Q2 of 2018 and Q2 of 2017, unless otherwise noted. I'd now like to turn the call over to Kevin Stevenson, our President and Chief Executive Officer.

Well, thank you, Darby, and good afternoon, everyone. Thank you for joining our second quarter 2018 conference call. The second quarter was another solid one for PRA Group characterized by some of the same positive things we've experienced since late last year. Increased cash collection, increased supply and appropriate staffing in U.S. while in Europe we remain focused with a disciplined approach to the buying market and dedication to improving operations. Global cash collections increased 9% to $407 million led by U.S. call center collections increasing 17%. Additionally U.S. legal cash increased quarter-over-quarter for the first time since 2014. Our total global investment and portfolios for the quarter was $221 million. We had another record quarter in Americas Core investing $183 million and this marks the third record in the last five quarters demonstrating good supply in the U.S. market. Income and finance receivables excluding allowance charges increased 13% when compared to the second quarter last year. This is driven by the aforementioned buying, along with having achieved targeted staffing levels in U.S. call centers and continued performance in the mature markets in Europe. And finally, estimated remaining collections or ERC were $5.73 billion and this represents less than a 1% decrease from last quarter, primarily due to changes in foreign exchange rates. U.S. supply continues to be good and pricing has held steady. Credit card charge-off rates continue to inch up and more institutions are seeing the value of selling accounts closer to charge-off. We continue to see a greater emphasis placed on compliance and customer treatment in the sale decision. Our compliance management system which I discussed last quarter positioned us well in this environment and allows us to benefit from the positive conditions domestically. Our Q2 2018 investment and global insolvency was $19 million. The traditional insolvency…

Thanks Kevin. I will start with a quick overview of our debt results and then move on to cash operations. Cash collections were $407 million and total revenues were $222 million both 9% increases over the second quarter of 2017. Operating expenses were $163 million and net income was $20 million generating $0.43 in diluted earnings per share. We’ve started presenting income recognized on finance receivables excluding allowance charges and showing allowance charges on a separate line item instead of netting them. This presentation change was made at the request of the SEC and has no impact on operating income or net income. Total cash collections for the quarter were $407 million, an increase of $32 million. Americas Core collections were $234 million, an increase of $17 million. This was led by a $21 million increase in U.S. call center and other cash collections, $3 million increase in legal cash collections. As Kevin mentioned, this continues the positive turn in cash collections that we expected as we reached targeted staffing levels in the U.S. These increases were partially offset by decreases in cash collections in Brazil reflecting several quarters of lower bonding coupled with the strengthening of the U.S. dollar versus the Brazilian real in the quarter. Europe Core cash collections increased $10 million to $109 million including $7 million of increased from favorable foreign exchange rates. Growth in the U.K., in the Nordics from significant purchases in the fourth quarter of 2017 outpaced run-off in other countries. Global insolvency cash collections increased $5 million driven primarily by record portfolio investments made during 2017 in the U.S. During the second quarter we returned portfolios in Poland to accrual status as we've made technological advances and operational improvements that have given us the confidence to reasonably project the cash collection curves.…

[Operator Instructions] Our first question will come from David Scharf with JMP Securities. Please go ahead.

Kevin I had a question on the European operations, it seems look I know you’ve been building up more stuff in Italy. But are the bulk of the collections in Europe still on an outsource basis?

I don’t have that data in front of me. I wouldn’t say the bulk of it’s on outsource basis. We’ve got our largest operation in U.K. We've operations in Spain, Norway a significant portion though is outsourced very different than United States, I don’t know Pete has anything to say.

And the reason I am asking is to the extent that - projected returns are going to be pressured for quite a while. It sounds like you still have a pretty big variable cost structure versus more fixed. If you decide to pull, is it fair to conclude that if you decide to pullback volumes in Europe for the foreseeable future that there's quite a bit of - variable cost that kind of goes away as well because I'm just trying to get a sense for ultimately how you're viewing that all those markets in aggregate, because it’s been quite a while now since we’re hearing that the returns are arguably in the single-digits. And if there's room to cut costs even further - if we continue to see purchasing at these levels?

Yes, I think that’s a good observation. I would kind of echo what Kevin had said in terms of the areas where we have the biggest scale. Primarily the U.K. that’s our largest market outside the U.S., that's where we have our largest in-house collection center, in Kilmarnock. And in the other countries where we have a significant sort of own collector footprint those are the areas where we've been making continued investments even in a tough market. But to the extent buying does not materialize we do have the ability to flex cost as well.

And then on the cost side in the U.S., I mean actually you address the uptick in legal spending in the second half. Is there anything and I might have missed it, we need to know about second half spend versus first half as it relates to getting the new call center up and running?

No, I think in terms of the call centers that’s typically going to be - most of the spend there is going to be CapEx and so that would be cash flow required in the second half the year, but wouldn't start to impact the P&L until the call center opens and now that we’re getting amortized over a number of years so that's something that would really stand out. We had previously given a view of our cash efficiency ratio as a way to target overall expense levels. As we updated, I think only significant can change that prior view is this increased legal spend in the back half of the year.

David you ask something that John - something on my head. I talked about in my script, I said we’re going to try to just rebalance call centers I just want to reiterate that. Last year when we added some 1100 people and then put about 350 on in Q1 net new we did that with those two new call centers primarily. So let’s not with this one for, this one is to take the heel off the current centers and rebalance a little bit.

And just lastly just housekeeping because I wasn't writing down quickly enough - the tax rate guidance, Pete was that for the full year or the 18%?

Yes, I mean that’s our best view as of right now the 18% is what we've booked for the six-month period and borrowing changes and mix are other developments around guilty that we’re still waiting some final clarifying guidance to come out maybe in the third quarter. We think that’s our best view as of right now.

And the cash efficiency ratio below 60, was that a full year or a second half?

That’s for the full year.

The next question comes from Bob Napoli with William Blair. Please go ahead.

Thank you. Just I guess on the international business and the fact you guys are buying close to nothing there at the moment. How do you keep the purchase organization engaged and excited as we go through this period. I mean your competitors there, I mean have obviously followed you guys long enough to know that being disciplined is a hallmark in patients as well. But your competitors - some of your competitors dispute the returns that are available on the paper over there. So the sales organization I guess are the underwriting the purchase group how do you keep that together when you're buying so little. And what do you think is the difference between your view and that of some of your competitors that are based in Europe?

That’s a great question, Bob thank you for that. Trying to keep the folks motivated and engaged and filling valued is absolutely one of my areas of focus right now especially exactly as you put it that. We’re buying a lot less than we hope to buy. So I will tell you that there are pretty engaged folks they are - it’s not a dower bunch of people over there. They look at a lot of deals so that's the thing. It’s not like just waiting for a deal to stroll by. They are engaged almost every hour they’re working, they are looking at deals and spending up through with all the investment committees and the global investment committees. So, a lot of people working, we do indeed lose a lot of deals and but you have taken for me I think we've done a decent job at keeping them engaged. And importantly they understand what we’re doing and I have these fireside chats with people and I'll do it with kind of cobbled together folks from different levels or I’ll do with entire departments. And I did one not long ago with the entire investment crew over in Europe and they not only accept but they like what we’re doing and they agree with it. And I think they have seen so many train wrecks in the past that they're not interested in being part of that. So that’s the best I can tell you, it's one of my javelins for me and I’ll keep moving forward on that. The other one is about why is our view potentially different I put that in my script I think you’re hearing a lot more of people saying in the market that the pricing is elevated. So, I feel like the…

And then I guess in North America, I think a comment you said in your script was more institutions are selling accounts, more institutions than last year are, some people that were selling - they were not selling are selling.

I know, the comment was about - they're seeing the value in selling count closer to charge off, and I could have probably phrased that better fresher accounts. So, folks are moving from selling trash paper to fresh paper or secondary. They're moving it sooner EMEA in the sales pipeline.

So not necessarily more of the percentage of charge-offs being sold that's just sold sooner.

The good news about that is that there's some collection being harvested by that pipeline that we now have a shot in U.S. market have a shot in buying. And I would say that it's being driven by - I think the realization by some of these banks that the folks do participate in this U.S. market right now offer a great NPV versus the alternatives.

And last question, any - the TCPA, lots of noise on auto dialing and where do you stand on turning on the auto dialers?

We're in listen - we're kind of in listen only mode on that. And that's one of the things I want to engage with, so it's been long time talking about our Government outreach, and I am passionate about doing this and really having this suite of table. So - but we're nowhere right now. But I want to get out there and tell our story, and I think today was a good start publicly.

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

Of the $219 million in revenue, can you just maybe tease apart for us the revenue that came from yield increases, and the revenue that's associated with the new purchases during the quarter?

That's not something that we've ever really disclosed. So you can see when - in the tables you can see sort of by vintage and geography where the revenues are coming from but components like that we haven't disclosed that.

And Pete I think I heard you say $2.8 million on fully amortized pools - I just may have misheard you, I just wanted to clarify.

Yes, that's the amount that was not accounted for in the model and in terms of the fully amortized cash for the quarter that was $14.6 million.

And then I'll just try my hand at some Europe questions as well. Can you just maybe give us a sense for what the expenses were that we're associated with Europe? I guess I'm trying to sort of back into an EBITDA number for just the Europe operation in general. I mean, we can see where the revenue was. But if you can just help me back into what the costs were associated with Europe, that will be very helpful.

Yes, unfortunately that's not something that we've disclosed.

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

The incremental expense for legal collections would be a most useful approach to assume sort of the 60% efficiency ratio than tech on $10 million on top of that, any offsetting factors in the model?

No, I don't think so. I think that's a reasonable way to think about it, if you look at the level of expense that we've had in the first hall, we expect it's going to be around $20 million more on that legal collection expense line. And that's going to push that cash efficiency for the full-year a little bit below the 60% that we had previously targeted.

And then any carryover from that into 2019, do we drop back to sort of the earlier run rate or is that same higher level?

I mean, I think a lot of that is going to depend on buying in the second half of the year, but our expectation is that those trends are probably going to continue at the level we've seen. So whether it's at that same level that we're going to experience in third and fourth quarter, but I don't think it's going to drop back down to the run rate that we've had for the first half.

And presumably that'll be at least - some are offset by higher collection from the flow through the initial investments?

I think that's a reasonable assumption.

And then talking about that, still good supply growth, we've seen some of the broader charge-off metrics they're still definitely out - of double digits but it decelerated a little bit. Do you see any impact of that in the marketplace? Is the supply growth different now than it was six months ago or back into 2017?

So, I think the supply remains good, it remains strong and then I put in my script applied to you remain good remain strong and then I put my script that the pricing has remained fairly steady. I think the - the thing I pointed to my script again, I mentioned earlier was folks selling a little closer to the charge-off period. So moving things up in their pipeline, I think that's contributed to more - some more volume to the U.S. market. Just be the primary things that I'm thinking about at this point.

The next question comes from Robert Dodd with Raymond James. Please go ahead.

On the legal expense to the point of flowing through into '19, off the $20 million that's coming in the second half, can you give us roughly - is any of that related to kind of catching up with spend that arguably, and I'd say, whatever you would've spent in the first half, that maybe the increases in a 10 to 15 on kind of go-forward basis, and five catch up. And is that kind of how to think about it in terms of some of it will occur, some of it is catch up for or maybe should've been spent earlier but you're waiting to see how the trend is played out?

No, again, we've had sort of a steadily building inventory of legal accounts starting in around the back half of last year, and that trend is continuing. So that just been a build that we anticipated is going to continue into the second half of the year, and potentially into the year after.

And then just on timing of that, right to the question of when does - what's the lead time of legal expense versus cash collections starting to materialize? Is there bit of a lag, but can you give us some viewpoint on the spends really kind of picks up in the third quarter just the cash starts come in Q1, Q2, a year from now, what is it?

I think it's generally - I mean, as a rough rule of thumb, three to six months sort of payback time period. So I think if we start investing that higher level in the third quarter and fourth quarter we'll certainly start to see an impact of that in the first quarter. And then, again, our expectation is that these trends in the legal accounts will continue and so we probably will stabilize at a higher level than what we've had in the first half of this year.

The next question is a follow up from Bob Napoli with William Blair. Please go ahead.

Just on the Poland - what was the amount that was on nonaccrual for Poland, the dollar amount? And what is left on nonaccrual? I think it's Italy and I'm not sure what else.

So if you look at what we had disclosed last quarter, I think off the top of my head it was around $17 million of cash from nonaccrual pools, and we're down by $10 million, probably half of that was due to the Poland pools, and the rest of that's volatility in those pools that are on nonaccrual net. And I just recall that's one of the reasons they're on nonaccrual is because there's a level of volatility that we can't predict. Italy is probably the biggest area that we have significant nonaccrual remaining, but keep in mind we also employ nonaccrual for new areas like SMEs. So we’ve got SME pools in Europe that are on nonaccrual. Those are probably the biggest areas, I'd say.

And -- I'm sorry, the dollar amount of NFR that was associated with Poland?

I don't have it off the top of my head. Why don't you give me a second, it's in the cue, I can look it up for you.

And my last question just on the new call center - what is, what are your thoughts around the location of the new call center and when do you hope to have it up and running?

We haven't talked about the location yet. I want to keep a little bit of my back pocket, so to speak, but probably a niche in time, so I'll give you that much. But timing wise, I would say that hopefully while the deal done with the area, I'd say late '18, maybe will be some hiring in mid '18. But certainly by the first part of '19 that building should be set out and ready to go. And also add, it's going to be a pretty decent size center from a square foot perspective. It could be one of our larger centers and we're kind of excited about it quite frankly.

How many collectors do you expect it would hold approximately?

We're looking at about 60,000 square foot building. So it's a big place, and that would hold, based on the way we put desks in, it would certainly be our largest physical building in our network. But again, I am not looking to - necessarily sell it up right away, there's also some opportunity for us to provide little bit of diversity of functions such as, as you look at disputes and complaints department, customer service groups, also moving to this area to give us some geographic expansion and our diversity.

And coming back on your question on nonaccrual pools, so, I don't have the prior quarter number, but the - we had $80 million remaining on nonaccrual after putting Poland back on. You'd be able to compare that to the chart from the prior quarter.

The next question is also a follow-up from David Scharf with JMP Securities. Please go ahead.

Wanted to revisit the legal collection - the discussion. Kevin, did you say that the primary reason you're seeing more accounts qualifying for that channel is the average size of accounts increasing? Because I know there's a breakeven, because it costs more to sue people. I mean, is that increased from 1100 to 1450 or 1475? Is that pretty much the reason why it looks like there's a reason to allocate more to that channel?

Yes, there is a - that balance component is part of it, as well as - we're buying fresher paper, that's also a component and as you kind of work through the lag of the deal but those would be the two things I'd pick from the sake of the call.

And the reason I'm asking is trying to get a sense as we move deeper into the cycle. If you would anticipate legal collections being a bigger part of the overall collection mix because they tend to be lower margins than call center collections. Do you typically find that as lost rates go up and you move deeper in the cycle by definition the average size of the account you buy is typically larger? I mean should we assume that the 60% cash efficiency that as you move deeper into the cycle and there's more larger accounts, more legal collections, that we should hold the efficiency ratio below 60% for a while or am I mistaken?

No, you're - it's a good question. You're testing my memory though. I would say that your logic is interesting - I don't have average balance stuff in front of me, but I feel - if I look back at the data, I'm going to find that the kind of the aberration was the stuff we're buying at that $1100 balance as opposed to where we’re at today that will be my first comment. I think though to the extent that we have to protect from, say, shortening statutes things like that as we entered a down cycle. I would say we would probably see more legal I can't let my claim go just because someone took a statue limitations from five years to three years. And so I got to take action on that. And so that would be I think your hypothesis is sound but I can’t back up it with data on the call.

And then just since more is being allocated legal channel just a couple more questions on it. Is any change in just the upfront costs to sue somebody in the largest states is there any - I mean you gave us the 20 million will plug it in. But just as we think about trend lines is it a pretty static kind of business where you know the cost to file a claim and go through the process doesn't change much from year to year.

The process and all that doesn’t change a lot. It's an ever evolving process if you go back 10 year is a different ballgame, we’re the way you sue people today is completely different post CFPB, a lot of new documents required. But it's a good thing because I think more documents help everybody helps consumer understand what’s going on, helps records through their processes and sellers have been great as they have been required to give us more documents and they have been very efficient at it. The filing fees anecdotally I hear people - courts raising the fee but I don't on top of my head I don't have that data but I would say anecdotally courts probably tend to tweak their fees up overtime.

And then the last question on the legal collection process. My understanding has always been that the bulk if not all of legal collections is basically default judgments. The debtor doesn't show up in court. Just given all the - whether the CFPB actions in recent years just education so forth, is there any change to the behavioral element of the rate of default judgments. Did you find more cases actually being contested or is it pretty similar to the way it's always been?

Another good question, I have not heard much about that I think the - unless someone stops me after the call and tell me I'm not listening to what they are telling me. I haven’t heard anybody talking about more people showing up the court. I think the CFPB specifically knows OCC, they have done good job in this area by the way of requiring sellers to provide documents. I think it's a much, again I think it’s much improved process. And I feel great about it and I think if consumers get this stuff and I hope I think the same propensity to show up or not show up is probably still there. So, I don't know of any short answer to your question. I don't know of any increased appearances in court. Again I’ll reiterate I think the CFPB has done a nice job with laying out the geography of what needs be presented to a judge.

The next question comes from Mark Hughes with SunTrust. Please go ahead.

I’m curious the impact of the increased legal spend assuming it does translate and the legal collections. How does that influence the yield you clearly have a forecast about the future collection. Do you need the legal collections in order to drive the yields higher if you do get the legal flowing through it boost collections but how much does it influence revenue?

Yes, it certainly is part of the mix generally when we we're underwriting to buy the portfolios we have a view on what the strategies that will be employed are and they will be legal component to that. And what we’re seeing now is just sort of manifestation of what we have purchased in the past and that translating now and to an inventory that could kind of move through that channel. But certainly the expectation for cash collections coming from these suits that we’re going to put in process is key to us realizing the investment value that we anticipated would be there.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Kevin Stevenson for any closing remarks.

Thank you, Operator, and thanks everyone for listening to our call today. We appreciate your attention. We certainly look forward to speaking with you next quarter. Operator, you may disconnect.