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 Ms. Darby Schoenfeld, Vice President of Investor Relations for PRA Group. 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 beliefs, projections, assumptions and expectations. We assume no obligation to revise or update these statements. We caution listeners that these forward-looking statements are subject to risks, uncertainties, assumptions other factors that could cause our 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 call and our SEC filings can be found on the Investor 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 2020 and Q2 2021, unless otherwise noted. And our Americas results include Australia. During our call, we will discuss adjusted EBITDA and debt to adjusted EBITDA for the 12 months ended June 30 2021 and December 31 2020. Please refer to the appendix of the slide presentation on our website during this call for a reconciliation of these non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures. And now, I’d like to turn the call over to Kevin Stevenson, our President and Chief Executive Officer.

Well, thank you, Darby. I’d like to begin the call this evening like those of the last year and a half and send our thoughts out to those who’ve been impacted by COVID. It seems as though every day, there are additional challenges associated with this pandemic and it’s our hope that we can continue to address those challenges and move forward. I hope to see more acceptance of the vaccine and I’ll share that we plan to further our efforts to educate and promote and I hope everyone listening is doing the same. It’s become clear and clear these days as each day goes by, we find ourselves talking about two separate groups, those who are vaccinated and those who are not. We need vaccination rates to rise in order to move forward toward a more normalized life and I hope we can all work together to achieve that. Moving on to the second quarter overview. In Q2, we collected $544 million globally, this production was the second highest quarter in PRA’s history, just behind our record-setting first quarter of 2021. This is driven by record European cash collections, which increased more than $50 million compared to the second quarter of 2020 and more than $8 million compared to last quarter. Net income attributable to PRA Group for the quarter was $56 million. Portfolio purchases for the quarter were $220 million with Americas generating its largest quarter since the second quarter of 2020, and Europe recording its second largest Q2 since being acquired by PRA back in 2014. Our strong quarterly performance is yet another in the line about setting results that we’ve delivered in the past year and a half. But I believe that our past decisions in investments have contributed to our sustained positive performance. As I…

Thanks, Kevin. During the second quarter, we saw strong global cash collections of $544 million in total revenues of $286 million. Total portfolio revenue was $283 million, an increase of $15 million or 5%. We’ve again assumed that the majority of the $75 million in cash overperformance in the quarter was timing acceleration of collections rather than an increase to total expected collections. Additionally, this quarter we also made adjustments in some geographies to increase our near-term expected collections bringing them in line with recent performance and collection trends. The increase in the near-term expectations resulted in a positive adjustment, which partially offset the impact of acceleration adjustments this quarter. We expect these adjustments to reduce the amount of overperformance we will have in the second half of the year. Keep in mind that this is not an increase to total expected collections, rather an increase in the near-term forecast with corresponding reductions later in the forecast period. Operating expenses were $181 million or $21 million increase from the second quarter of 2020. This was driven primarily by higher levels of activity in 2021, compared to the pandemic suppressed prior year. Additionally, currency translation was a headwind of $4 million. The effective tax rate for the six-month ended June 30, was 19.3%, reflecting some discrete items in the second quarter. However, we still expect to be in the low 20% range for the full year. Net income was $56 million, which generated a $1.22 in diluted earnings per share. For the quarter, cash collections were $544 million. This is second only to the record set in the first quarter of this year. In order to normalize for outsized cash collections in the Americas during the second quarter of 2020, and record cash collections in the first quarter of this year,…

Thank you, Pete. Over the past year and a half, our employees have shown great resilience, dedication and a willingness to help others despite their own challenges. I believe this has been a huge contributor to the results we produced. Without their hard work and support, this would not have been possible. I ended last quarter’s call by saying that the advancements we’ve made over the past 25 years are nothing short of amazing to me. I talked about the transformation I’ve seen over that time, and now today, we are so much more than just a purchaser or servicer of nonperforming loans, we are also a data analytics company, a technology company, a digital outreach and marketing company and I do believe that we are just getting started. So, with that in mind, I’d like to share the five strategic objectives that we have and which will continue to guide our future. So first, we are working to expand both products and market share. While we have a strong share of the market in the U.S., we are not as large of a player in some of our European countries. We made great strides over the past few years and we believe we can continue this progress, particularly with our competitive position and conservative balance sheet. In a similar way, expanding products is very important to us. There are a number of nonperforming loan segments that we either do not currently purchase or have not traditionally been part of our portfolio or the market. Expanding our addressable market to include additional products would help us grow our portfolio and further diversify our revenue streams. Our second strategic objective is modernizing collections. We made significant progress since 2018 through the investments in digital and data and this effort will continue…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Bob Napoli with William Blair. Please go ahead.

Thank you and good afternoon. Nice job on the quarter, nice presentation there, I appreciate that. Number of questions, but just ask a couple. I guess, the first of all, just on the capital return, I guess maybe start there. I know you had – you’ve did a deep dive on strategy there beyond the $150 million. What is the long-term strategy on I guess maintaining leverage, ROE capital return. So what is – I mean, $150 million that’s nice, but that’s – what is the strategy, the overall strategy for capital returning back. If you said, Kevin, maybe charge offs are coming back. I don’t think they’re coming back any time too soon in a big way. So, I think you’re going to generate a lot of cash and continue to delever, but anyway just some thoughts on what the overall capital return strategy is?

Yes, hey Bob, it’s Pete. Thanks for the question. As we said previously, we’re going to evaluate all options. We did consider various alternatives and we felt like at this time that the buyback was the appropriate avenue. I think the sizing of it makes sense in the context of market cap, and we feel like we can operate this buyback in the context of our target leverage range, which you’ve been following us for a while. We tend to be kind of between two and three times and tend to gravitate toward the middle of that range. And so given where we are now, we feel like both with the opportunity for investment that we see coming, we can operate within that range.

All right. Okay. So, I would guess, I mean, it makes sense the $150 versus your market cap, and I guess, the rate you’re generating capital another year from today, maybe you do another $150 I would guess. It’s just the intent to buy this back on a steady consistent basis, so we expected to be in the market on a steady...

Yes, I’m not going to prejudge exactly how we’ll operate the program, but yes steady is a word that’s used to describe our company.

Okay, very good. Thank you. And then, Kevin on the digital data investment. Can you maybe highlight some of the advances that you feel like you’ve made over the years and what do you think is unique to PRA and maybe gives you a moat versus competition?

Yes, thanks. I think that if you’re looking, you can break it down into pieces, this is, think about digital portals. For example, I think I might have talked about this in prior calls, but I can’t remember. Simplicity and ease of use is one of the big things that we’re focused on, and I’m sure everyone listening has been on terrible websites where you can figure out what the click and most recently I was on the Virginia DMV site and that’s probably not one of the best design sites I have ever seen. And so, we really had this idea that trying to make it easy, low friction and very simple intuitive, and that’s – I know it sounds like – it almost sounds over simplistic, but it’s been very successful in that end. We – I talked about in my script about sharing of observations across Europe and United States, some of the – obviously some of the scale small over there and we were able to test different formats to see which one seem to have better take rates and so on. So, I think it’s not very granular for you, but that’s the strategy behind it and that’s the testing we did just around the design of these portals. And of course, we’ve got a whole marketing campaign around drive to site as you might imagine. On the data side, we did some really fundamental stuff in cloud computing, nothing earth-shattering there, but I think the big thing about data was bolstering our staff. We really hired some very talented people in Europe as well as in United States to make sense of. We’ve got a bunch of data, we’ve been in business for 25 years, we’ve got every scrap of data we’ve ever collected and that’s a very valuable asset for us. And so, the short answer is on the data side, I think it’s really about the talent we hired.

Okay. And then last question from me, I’ll turn it over. Just, I mean you mentioned nonperforming loan segments that you’re not in and getting you are small in other countries. Just some thoughts around expanding products and market share in other countries. What products are you not in, that you would like to be, that you think you should be in, we should see you in over the next year or two, and what markets do you think you have, market share opportunities without obviously being too aggressive on pricing to get that share?

Well, that’s a thing though, right. So let’s start with that. Let’s start with countries in Europe. I mean we are a strong player in the U.K., I think that’s pretty clear. But if you look at some of the market shares in areas like Norway, Spain, Italy, Poland, which are very big markets, they’re are very big investment opportunity markets, we are not on the same scale as we are in the U.K. or certainly at the United States. And so our goal has been to keep picking off portfolios to make sure we know what we’re talking about, to make sure that when I tell you that – if I tell you, the pricing is a rational at some point in time, you can trust me that I’ve got the data to be able to talk about that. So one of the things that we do with our strategic objectives is to create a roadmap, and so if you were to – if I were to unveil this product we’ve got, you would see each country and then investment targets for what we call a roadmap deals and picking off things that don’t, to your point, doesn’t pose too much risk, but are big enough to be material and give us data we need. So that’s an ongoing effort. We’ve actually done a really nice job in Poland, I’ll say that. We went from almost nothing in Poland to, we’re not where we want to be yet, but we’re a much bigger player in Poland than we were 18 months ago. So that’s the idea on markets and I think we can – we’ve got internal goals of what market share we want to be of each country. On the product side, a lot of these products that we’re currently not buying, we had purchased before, say in the United States, we’ll focus on the United States for now, but things like telecoms, utility things we haven’t purchased out in quite a long time and I think it’s time to start revisiting some of those asset classes. Things like peer-to-peer lending, we’re not a big player in, of course, the hot topic of Q1 was BNPLs, right buy now pay later and those are all targets of ours as well. One more in Europe all throughout is the SME loans, a small and medium enterprise loans. We’ve dabbled in that from time to time in various countries, not a big player in it, it’s a very big asset class and it’s something that we’d be interested in if we make sense. So there are a few examples for you. So that makes sense or do you have other questions about that.

No, no, that’s – that does make sense. The industry has been pretty tricky and some of those asset classes. But maybe with the data – the improvement in data analytics we have, you can make those work. Thank you.

Thanks.

The next question is from Mark Hughes with Truist. Please go ahead.

Yes, thank you. Good afternoon.

Hi, Mark.

Hi, I’m sorry if I missed the first few minutes of the call. In Europe, you clearly had strong purchasing, there is some one of your competitors in Europe talked about the increasing pricing, could you address that?

I could. Sure. Yes, we had our largest Q2 – our second largest Q2 since we’ve been in Europe. So it was a pretty successful quarter for us. Pricing is certainly up from 2020 and that’s to be expected and I think it’s interesting if you think about Europe, you missed the first part of the call, volumes in Europe are very strong. So they were much stronger than we had anticipated going into the year, so that’s the good news. I think the driver of some of the pricing is simply the competitors in Europe, if you think back to 2016, 2017, 2018, they pulled back a little bit in 2019 and 2020 and lot of them had targets to delever and so on. And they did that to varying degrees and then I think now they’re back in the market. So, if I could paint a picture of Europe broadly, which as well as I do is different by country, but I can paint a picture of it, it’s generally competition driven and supply strong over there. But I would couch – I would couch the pricing, probably not too different than it was in 2019, and I think we all liked 2019 and of course there is always – there are always those deals where you shake your head and scratching going, I don’t know how someone paid down for that deal, but that’s kind of the nature of our industry.

Yes. And then in the U.S., I don’t know if you touched on pricing there, the purchase multiple that looks like year-to-date at 2.12 in Americas Core versus. So that’s what it was through Q1, now it’s 1.98, is that a decent reflection of the pricing dynamic?

Yes, you know that the deal multiples always can be impacted by mix. But I think that in general the pricing is a little more competitive in the U.S. than it was last year and as Kevin said and it’s pretty steady for the most part in Europe, maybe a little elevated over what we saw last year, so...

Yes.

Yes, I’d say mix is impacting the U.S. multiple in addition to some of the competitive dynamics.

How about any observations around progression and collections through the quarter, everything is moving so fast these days with the change in government supports perhaps when you think about that earlier in the year or even April, May, June and even July if you want to comment on it. Anything you’ve noticed about collectability?

Yes, I think what we’re experiencing is, you know, the first quarter obviously with normal tax seasonality in the U.S. plus additional stimulus and that kind of carried through into the second quarter. We’re anticipating more normal seasonality as we come into the second half of the year. And as I said in my prepared remarks, I don’t know if you were on for that part. We did make some adjustments as we went through our closing process to make upward adjustments in the second half of the year to our forecasts in certain geographies and still holding our total expected collections constant as we have been doing, but raised the near-term forecast and took it out further out in the forecast period.

Probably that can say you’re less likely to have the outperformance.

Yes, that was our – that was also in my prepared remarks. Our expectation is, we’ll hopefully have a lower degree of overperformance in the second half of the year because of those adjustments we made.

Thank you.

Your next question is from Robert Dodd with Raymond James. Please go ahead.

Hi guys, and congratulations on the collections quarter. One sort of follow up to that question. When we look at the collections efficiency in the first half of the year, obviously very high, high 60s, which has had a tailwind because of the cash over and then – the cash over collection. And then, when we look at the shift on curves that would ideally shrink the overperformance like you just said. What would that do or where do you expect collections efficiency to go as if – if your new curve estimates are closer to reality if you will.

Yes. Again, we updated our full-year forecast at 64% for the full year, and that’s an indication of we’re expecting kind of normal seasonal slide as we go into the second half of the year with lower levels of overall collections and – or expense is kind of trending as they are currently.

I understood. I mean, I guess, there is a point and this is, if you are at 64 for the year, the outlook kind of implied base case would be in the low 60s, long leg going forward beyond this year maybe.

Again, we’re always working on increasing our efficiency of the operation, it certainly would be our goal to maintain our level of efficiency that we’ve obtained this year. So...

Understood. Thank you. And then, on the other one, if it’s – obviously the intent is mentioned here, expand geographies, expand products. Should we expect that to be greenfield type initiatives or would it be given you are under-levered value do have excess capital you’re generating a lot of cash, what would the weighting of the probability or willingness to do M&A to fill in those geographies or product sets, what would the willingness be there?

Yes, sure. So it’s a good question, because generally speaking at least for the foreseeable maybe nearer term we want to expand our market share in areas that we are already in, and if we found a company who gave us, especially data, and I’m thinking about especially Europe, right. I wouldn’t hesitate to do some sort of strategic M&A deal to do that. I wouldn’t hesitate at all. We chose to go into Australia, more of a greenfield deal that was just given the circumstances down there, but Poland is an example, that’s a good – it’s a good example. We did a good job expanding that. We did acquire a small company in Europe – I mean in Poland and that gave us a nice leg up, so, I wouldn’t be afraid to do that again.

I appreciate. I just remember, obviously I think McKenzie Hall and you guys accumulating data with a greenfield approach can be, could you still process. Thank you.

It can be slow and the McKenzie Hall is a great example. It was a very small acquisition in Scotland, and it was really a test – from my perspective, it was a test of, there’s anything we do and the states translate to the U.K. and plus we acquired some data and some process and so on, and it was a good stepping stone, which ultimately led to the active capital acquisition.

Yes, understood. Thank you.

Yes.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Kevin Stevenson for any closing remarks.

Well, thank you very much. Thank you, operator and thank you everyone for attending. I just want to just to – end the call like I started it. Please – If you are in a position to influence people, please promote and educate people on this vaccine. It’s the way that we can get back our lives back to a more normal position. So, with that, we look forward to talking to you next quarter. And that’s it, and good evening.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.