PRA Group, Inc. (PRAA) Q4 2021 Earnings Report, Transcript and Summary

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. Lauren Partin, Senior Vice President of Finance and Investor Relations for PRA Group. Please go ahead.

Thank you. Good evening, 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 this 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 and 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 Investors 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 Q4 2020 and Q4 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 December 31, 2021 and December 31, 2020. Please refer to today's earnings release and the appendix of the slide presentation on our website used during this call for a reconciliation of these non-GAAP financial measures to the most directly comparable U.S. GAAP financial measure. I'd now like to turn the call over to Kevin Stevenson, our President and Chief Executive Officer.

Well, thank you, Lauren, and thank you, everyone, for joining us this evening. I do have two comments to make, however, before we begin. Over the past few days, we've all watched the situation unfolding in the Ukraine with great concern. My thoughts are not only with the people of the Ukraine but also with our team members across Europe and especially Poland. To those members of the PRA family, I am deeply sorry for what you're going through and how you must be feeling right now and we're determined to support you. And while this is happening, we can't forget that we're 2 years into a pandemic, and it's ever changing. In the beginning of the fourth quarter, we were discussing vaccination rates and returning to office in many of our areas, and then Omicron hit. We continue to keep many of our employees in a work-from-home status while maintaining a strong workplace safety standards in our in-office employees. I'm certainly proud of how our team continues to adapt as the pandemic progresses. And while the pandemic has proven challenging to everyone, from a financial perspective, 2021 has been very successful for the company. We achieved record cash collections, record revenue record cash efficiency and record net income. In Q4, we collected $474 million globally. This is driven by strong European cash collections, which increased $20 million compared to the fourth quarter of 2020. This brings our year-to-date global cash collections to a record $2.1 billion, 3% ahead of our previous record from 2020. Net income attributable to PRA Group for the quarter was $34 million and a record $183 million for full year 2021, which was an increase of 23% over last year. Quarterly portfolio purchases were $202 million, bringing the total purchases for the year to $972 million. Our investments in 2021 reflect the importance of our geographic diversification as investments were split nearly evenly between Europe and the Americas. Reflecting on that just for a moment, in 2017, Europe represented about 25% of our global buying. Additionally, we've continued to focus on growing our market share, and our European purchases were less weighted towards the U.K. as compared to prior years. And then finally, during the quarter, we repurchased $139 million of our common stock. The $139 million deployment equated to 3 million shares at an average price of around $46. So in total, over the past 2 quarters, we've returned $213 million to shareholders or repurchasing 11% of our outstanding shares. In previous quarters, I've shared the 5 strategic objectives that guide our company. Throughout 2021, we built upon our prior success in each of these areas, and these objectives will continue to guide our efforts throughout 2022 and beyond. So first, we continue to expand products and market share. It's been a long-term goal of ours to be geographically diversified. And during 2021, we increased our presence in Northern Europe and South America. Our greenfield operation in Australia continues to grow as we've built out our team, locked in forward flows and successfully collected on the portfolios we purchased. Throughout 2021, we purchased test portfolios of new products in selected markets. We've gained valuable data in this process, which we believe will allow us to make more substantial purchases in the future, thus expanding our addressable market and providing opportunities for growth. As a further driver to expand market share in 2022 and beyond, we will continue to selectively evaluate M&A opportunities. We'll focus on companies that either enhance our existing footprint, give us new skills or capabilities, provide access to new credit originator relationships and data or allow us to enter a new market. The next 2 strategic objectives both focus on optimizing our business. We've made great strides to modernize collections with our investments in both digital and data and analytics. These improvements allow customers to interact with us using the medium in which they prefer while, at the same time, driving efficiency. Operationally, 2021 was a great year for us as evidenced by our record cash efficiency ratio. In the U.S., our digital platform continue to drive collections that are a significant part of total collections. Since the first quarter of 2019, our digital collections are up 83%. Domestic call center productivity remained high throughout the year as we recognize the benefits of recent improvements in scoring and analytics, allowing us to maximize the value of each collector hour. Cash collected per collector hour in Q4 2021 increased 14% over Q4 of 2020. Additionally, as more customers have paid digitally, we've had fewer accounts in our legal inventory. In the U.S., we've been executing a multiyear initiative to build out our internal legal capabilities, hiring the necessary attorneys and implementing software to help maximize efficiency. So for example, in 2019, internal legal placements represented less than 1/3 of our legal placements. In 2021, it represented over half of our placements. This represents a significant savings because we don't have to pay commission to the external attorneys on every dollar collected. In Europe, we continue to benefit from investments in technology. These include investments in digital platforms, cloud-based dialers, infrastructure, robotic process automation and integration into supporting systems. We now have digital platforms in all countries where we have operations, enabling Q4 European digital cash collections to grow nearly 5x since the first quarter of 2019. Globally, we continue to invest in data and analytics to support our operational objectives. During 2021, we further improved our predictive scoring models used in underwriting. We tested new data sources, developed new machine learning solutions that added efficiency and approved our legal and outbound calling strategies. The fourth strategic objective is to be recognized as a trusted brand. Over the last few years, we've significantly increased our interactions with regulators and elected officials, making sure that we are in control of our narrative. We've seen tangible success in our work here, allowing us to build relationships, impact legislation and become valued partners to our industry and trade association colleagues. We've now taken this recipe for success to Europe where we just hired our first Head of Government Relations to lead our legislative work there. Our fifth strategic objective is fostering a high-performing workforce. I've always valued our employees and always recognize that they are the reason for our success, but I believe this objective is particularly important in today's job market. No company is immune from the Great Resignation. And while our turnover has increased since 2020, I'm proud to say that our 2021 statistics were better than our pre-pandemic levels. And I think this attributes to our strong brand and company culture. In 2021, we continued to embrace our DE&I strategy and launched our Be Yourself and Be Your Best campaign. We aspire to create an environment where every employee feels comfortable doing their best work and being themselves. We also introduced an Employee Staff Diversity and Inclusion Steering Committee, we launched our first ever company-wide diversity and engagement survey and we held our first Global Inclusion Week. Also, we established 3 new employee resource groups: Women in Business, Mental and Emotional Well-Being and Caregiver Allies. On the ESG front, I'm happy to announce we've hired a dedicated internal resource to manage our ESG efforts. During the fourth quarter, we announced a new operational hub at the Halo Enterprise & Innovation Center in Kilmarnock, Scotland. This is the first net zero carbon energy development project in Scotland. It's powered by renewable energy. This 15-year commitment reinforces PRA's dedication to enduring sustainability as we build career opportunities and prioritize energy efficiency. On to a personal passion of mine, charitable giving, I'm happy to say that PRA donated a record amount in 2021, and that included nearly 100 different nonprofits. We ran programs to keep employees engaged and allowed them to support the nonprofit of their choosing. Most notably, our $250,000 for 25th-year campaign allowed employees to nominate the charity of their choice which resulted in 10 nonprofits around the world being awarded $25,000 each. For those who haven't looked at our ESG tearsheet, please visit our website and view it. ESG will continue to be an important focus for us. I think it's evidenced by our hire of our first Director of ESG. Additionally, in the coming months, we'll be updating our tearsheet, and we look forward to some enhanced disclosures as well. From an investment perspective, we deployed $202 million in the fourth quarter. Throughout 2021, we invested broadly across the globe, allowing us to deploy $972 million in portfolio purchases, which is an increase of $67 million in 2020. This achievement clearly demonstrates the power of operating a geographically diverse enterprise. Combine that with our strong cash flows, our excellent underwriting, our balance sheet and ample access to funding, we believe we're in a great position to shift capital broadly across our markets where it can be best deployed. In the Americas, we invested $111 million during the quarter. In the U.S., we continue to see similar levels of marketed deals in the first 3 quarters of the year. Many economic indicators are porting to higher volumes on the horizon. So for example, according to Federal Reserve Bank of New York, credit card balances at the end of 2021 increased $52 billion from Q3. This marks the largest quarterly increase observed in the New York Fed's 22-year data history. This, coupled with decreased household savings rates and increased consumer spending, leads us to believe we are moving through a trough in supply in the U.S. We believe the volumes will build by the end of 2022. As we indicated earlier this year, the pipeline in Europe has been healthy. However, we did see competition increase during Q4. Certain markets are experiencing more competitive pricing than others. So if this continue into 2022, we'll stick to our long-term track record of remaining disciplined and only deploy capital returns where returns make sense. In Europe, we invested $90 million during the quarter, bringing the full year investment to $477 million. 2021 was the second highest year for European portfolio investments since entering the European markets broadly in 2014. We also believe that inflation, rising energy prices and rising interest rates could possibly be a catalyst for increased supply. Our maximum committed forward flow volume was $651 million at December 31, 2021. This is a meaningful year-end record for the company. It's also a substantial increase over last year. Looking back, we set our prior record of flow under contract as we entered 2021. But the current volume entering 2022 represents an increase of $149 million or nearly 30%. This includes $247 million in the Americas and $404 million in Europe. And while this number will fluctuate throughout the year based on a number of factors, the thing to focus on is the increase over prior Q4 number. We believe we are well positioned heading into 2022. I'd now like to turn things over to Pete to go through the financial results.

Thanks, Kevin. We continued strong performance with total revenues of $257 million for the fourth quarter and a record $1.1 billion year-to-date, which represents 3% growth on top of last year's record revenue. Total portfolio revenue was $252 million, with portfolio income of $212 million and changes in expected recoveries of $40 million. During the quarter, we collected $36 million in excess of our expected recoveries, bringing the year-to-date total to $251 million. Operating expenses were $174 million, a $10 million decrease from the fourth quarter of 2020. This was driven primarily by decreases in legal collection costs and compensation and employee services. The effective tax rate for the year was 22%, and we expect 2022 to be in the low to mid-20s. Net income was $34 million, which generated $0.79 in diluted earnings per share for the fourth quarter. And net income for the full year was $183 million, generating $4.04 in diluted earnings per share, an increase of 24%. For the quarter, cash collections were $474 million. For the full year of 2021, the Americas collections were $1.4 billion and were ahead of our expectations. We continue to see solid operating metrics in our digital collections as more customers utilize these platforms during this period of increased consumer liquidity. As a result, compared to 2020, Americas digital collections increased, while call center and legal collections decreased. European cash collections grew almost $20 million or 12% in the quarter. For the full year of 2021, European cash collections grew $129 million or 22%, which was a record for Europe. The strength of our pan-European operation has allowed us to invest at favorable levels over the last few years, and this is driving the growth in our European business. For reference, our investment levels in 2017 were split about 75% in the Americas and 25% in Europe. And over the next few years, the split was closer to 55-45. And in 2021, the investment was split nearly 50-50. And as a result, we're seeing very strong growth in the business in Europe. Our cash efficiency ratio was 63.5% for the fourth quarter and 65.3% for the full year. Although we experienced some expected normalization of the efficiency ratio in the latter part of the year, we achieved record cash efficiency in 2021. Looking forward into 2022, we expect the fourth quarter trend to be more indicative of the level we could attain. Even with some downward pressure on our cash efficiency ratio, it will still be significantly improved over our pre-COVID levels. While we do not expect the same levels of consumer liquidity we've seen over the last 2 years, we believe the efficiency gains we've achieved on the operational side are here to stay. ERC at the end of the quarter was $6 billion, with 41% in the U.S. and 52% in Europe. While this is a slight decline from last quarter, we're encouraged about our improved diversification over the past year. Within Europe, the proportion of ERC coming from Northern Europe increased as well as the proportion coming from other Americas. This validates our diversification strategy and our ability to deploy capital in any market as opportunities become available. We expect to collect $1.6 billion of our ERC balance during the next 12 months. And based on the average purchase price multiples we recorded in 2021, we would need to invest approximately $900 million globally over the same time frame to replace this runoff and maintain current ERC levels. I think this level is attainable, but it will be dependent on the normalization of the U.S. market we're expecting to happen during 2022. Our capital position remained strong, with our leverage ratios remaining below our long-term target of 2 to 3x debt to adjusted EBITDA. We ended the year with $1.4 billion available for portfolio investment. And additionally, in 2021, we generated $1.4 billion of adjusted EBITDA, an increase of over $40 million when compared to the full year 2020. We believe that having the ability to fund larger deals as they come available gives us a competitive advantage, and we will continue to evaluate our funding profile and mix of secured and unsecured debt and look for opportunities to expand our investor base. During the fourth quarter, we repurchased $139 million or 3 million shares of our common stock at an average price of around $46 per share, bringing the total for the year to $213 million or 11% of our outstanding shares. Additionally, during 2022, we repurchased the remaining $17 million authorized under the program. And last week, our Board of Directors approved a new $150 million share repurchase program. Our strong cash and financial performance, conservative capital structure provide considerable flexibility for balanced capital deployment across portfolio acquisitions, share repurchases and other growth initiatives. Now I'd like to turn things back to Kevin.

Well, thank you, Pete. Looking back on 2021, I'm extremely proud of our employees and their accomplishments despite the ongoing challenges of the pandemic. We faced many obstacles and rose again just as we did in 2020, and we've achieved multiple records: record cash collections, record revenue, record cash efficiency ratio and record net income. Our success was directly attributable to our exceptional team and our focus on our strategic objectives. In my 25 years at PRA, many things have changed in the financial services industry, especially recently. As we move to a world of digital payments, digital wallets, cryptocurrencies, buy now, pay later and A2A banking, it's interesting and exciting to see this kind of overhaul of the industry. We've not seen this magnitude and velocity of change in quite some time. We've successfully reacted to these changes through the development and evolution of our digital platforms and improving and leveraging our data and analytics. We're utilizing these capabilities as a way of better understanding our customers and enabling them to pay through the channel that they prefer. Very proud of our team and the significant progress they've made. But throughout this transformative time and in the industry, there are a few things that remain unchanged. We are committed to delivering long-term results. We maintain a strong conservative balance sheet. We treat our customers with dignity and respect. We give back to the communities where we live and work. Looking ahead to 2022, we will continue to deliver on our strategic priorities. We will continue to share our progress with you. We will continue to adapt to the ever-changing needs of the customer. We will continue to deploy capital profitably and efficiently collect on our portfolios. We'll continue to provide additional value to shareholders, whether that be through organic growth, M&A or share repurchases. We do the right things for the right reasons. We have a proven track record of sticking to our long-term view. As I said before, not just words, not just hope, but a proven and demonstrated track record over decades of business. Operator, we are now ready for questions.

[Operator Instructions]. Our first question comes from Bob Napoli with William Blair.

Nice job on the quarter, on the year. So I guess my first question would just be the comment you made, Kevin, around testing, purchases of new products selectively and in different markets. With all the change, obviously, we've seen in financial services with new products like buy now, pay later and different types of consumer loans, can you give a little color around what you're testing or where you see opportunities for new products?

Just generically, historically, we have largely stuck to credit card, private label and those kind of products. And I guess I don't want to be too cute about it, so don't get me wrong here, but I just don't want to talk too much about specifics on the kind of products we purchase. I'll tell you that it's, again, stuff that we generally haven't purchased in the past, and it's in both the U.S. and in Europe. So as it gets larger, we'll expand on that a little bit over time.

Okay. And then the forward flow portfolio that you have, how are the IRRs and that forward flow versus, say, a year ago? I mean I know you did call out some additional competition in Europe. Are the IRRs in line with historical levels for the forward portfolio?

Yes. The returns, with any supply and demand equation, they have come in a little bit, I guess I would say that, but they're still at levels we like. We'd all love to buy at 2020 levels for a long time, but we're happy with these.

Great. And I guess with flow picking up towards the end of the year, that might be helpful to returns.

I agree. Yes.

The cash efficiency ratio, so I guess the 63.5%, I mean is that a reasonable target for you on go-forward basis for '22 and forward?

Yes. As I said, I think that's probably indicative of where we go into next year. We're always looking to improve efficiency. It's one of our kind of core objectives, but we know we're going to have some pressure just given we're not going to have the top line liquidity that we've had in the last year or so. So I think that more recent trend is more indicative of what we're going to carry into next year.

Our next question comes from David Scharf with JMP Securities.

Kevin, I wanted to maybe get a little more color on the U.S. market. I apologize if this is a rambling question. Ultimately, what I'm hoping to get some better understanding of is whether you think banks are going to behave the same way they have in prior cycles. And the reason I ask this is we see the same external data that you do in terms of delinquencies rising, loss rates rising in the New York Fed data. But ultimately, it's a really weird credit cycle in the sense that it's not losses going to kind of peak levels, it's really just credit normalization, the return to pre-pandemic loss rates. And it's also a unique cycle because it's really sort of the first rising loss rate cycle post Dodd-Frank where banks are much more well capitalized. I mean not sure if they don't feel as compelled to shore up capital and sell charge-offs to the extent they have in, well, prior cycles. So excluding just the same loss data that we see, do you get any sort of qualitative or strategic feedback from your sellers about whether they're going to sell as much as loss rates go up as they have in prior cycles because things have shifted a little bit?

That wasn't rambling, David. That was okay. I'm not hearing anything that would lead me down the road that there would be some shift away from where they're at. You think about just this year, as I mentioned in my script, the volumes we see in the U.S. are pretty consistent with the prior 3 quarters. A number of years ago, people were talking about bringing stuff internally, if you remember some of that, I don't hear anything like that. And in Europe, the volumes are strong in Europe. So it's not high on my list of things that I'm either concerned or thinking about. Now I guess you've been around long enough, is it enough to maybe shake loose some people who aren't selling today? I don't know if that's the case or not. But we'll certainly keep working on those trees as well.

Got it. Got it. And then maybe as a follow-up, shifting from the U.S. to Europe, as it relates to the comment about becoming a little more competitive than the last few quarters, can you just maybe put that into historical context? Because a few years ago, obviously, it was excessively competitive, and you bided your time and, obviously, that discipline paid off very, very well. As you use the term more price competitive this past quarter, should we still view that as just relative to the last couple of quarters but nowhere near sort of the frothiness of a few years ago?

Thank you for asking that question because I'm ready for it, and I think it's a great way to lead in. So let me tell you what this is not. And I'll focus on Europe for a second. This is not 2017 and 2018. And I actually went back, in preparation for the call, I looked at some of my old notes from a conference back in June of '19. And I referenced in that conference that kind of the irrational pricing in Europe started, really, we started talking about it in Q3 of '16, called it a land grab. And then I gave some data, I think it was in the Q1 of '18 call, where 60% of the deals in Europe were trading for low single-digit negative returns. So we are not there. So we're no way near that. So that's the message I'll give you guys. Good volume in Europe, the returns have certainly come in from where they were, but we're hoping that will be a little bit of a transition period as we enter 2022.

Our next question comes from Mark Hughes with Truist.

The share repurchase, what's your sense on how motivated you're going to be? Should we expect that, that $150 million should be pursued pretty aggressively? How might you frame that up?

I think given the environment we're in now and the fact that we think that we're going to have portfolio opportunities, particularly in the U.S., as the year builds, we're probably not going to be as hard on the gas with the program as we were in the latter part of last year. But beyond that, I can't really give you a specific guidance.

You talked about the efficiency ratio being not quite as good, in part because of the liquidity, probably lower liquidity, which makes sense. But I'm just sort of curious if you can describe what you've seen lately. Obviously, you had, as COVID kind of ramped up, and is now receding with some of the government spending or other support transitioning, let's say. Anything you can say about that liquidity, about the collections environment as you see it shaping up this year.

Well, I think we've kind of talked through the last couple of quarters about the fact that we expected things to start to normalize the farther and farther we got away from lockdowns and stimulus, and we are seeing that. So as we go into 2022, we're expecting a more normalized level of collections in line with our ERC forecasts. And as a result, I think the most recent trending of cash efficiency is, as I said in my prepared remarks, what we expect to kind of carry into 2022.

Mark, if I could add to that, Pete's prepared comments, just to put a pin in it a little bit, the numbers we're forecasting are still quite a bit higher than our pre-COVID levels. And I think that this idea of all this that we've learned and developed over the past couple of years is going to stick with us, and that's going to benefit us down the road.

Understood. And then M&A, do I hear slightly more enthusiasm in your voice about potential M&A? And could you give us a little more on what you might be looking at?

Yes. I thought I laid it out pretty good in the script. But yes, you hear a little more enthusiasm for M&A, that's for sure. I think it's an interesting time for it. I talked about adding new skill sets, new capabilities. That's one thing. And I talked about kind of the normal blocking and tackling of getting new data. It's always a big thing in our industry, getting new seller relationships to some degree or potentially new geographies. So it covers most of the areas that we're thinking about right now.

Yes. And then just one final one, you're talking about pursuing new asset classes. It sounds like your penetrating or you're in a new asset class and you're waiting for it to build before giving some additional disclosures. Is that the right way to think about it?

Absolutely. Yes. We call them tuition investments, and we'll pick off these asset classes to see what we know about them and how they track and step our way into them. It's a pretty consistent approach we've taken over the years. But if you think about -- again, much like I said, M&A, timing is good. The timing is also good for this kind of exploration as well. I don't know that 2020 and 2021 would have necessarily been that time during COVID, but we're at that point, and we're excited about it.

Our next question comes from Robert Dodd with Raymond James.

Congratulations on the year and all the efficiency improvements over the last couple of years. One question first, on the buyback, I presume the amount is more or less dictated by the covenants in the credit facility. A, is that the case? And b, do those covenants limit any of your flexibility on either M&A or are there other new product portfolios that you're acquiring? Are those eligible to the credit facility? Or are there any restrictions that come into play in terms of how you might allocate capital beyond just a buyback? A - Peter Graham Sure. So first part of your question around the covenant limits, the new program is well within the covenant limits, which are broadly $150 million plus 50% of the prior year's net income, so that would have put us actually a little higher than the levels that we had in the program last year. So we've got ample room if the situation develops and makes sense for us to do more, we've got plenty of flexibility within the covenant limits in the credit facility. In terms of M&A, there's buckets within the credit facility that sort of outlined those availability as well as some incurrence-based things with the unsecured bonds that we have out. But they're all manageable. And given the low leverage position that we're at, conservative nature of the balance sheet, we've got plenty of flexibility to, as I said in my prepared remarks, deploy capital in a pretty balanced way across all 3 of those avenues.

Got it. On the cost to collect, I mean you've been very clear that the Q4 number is probably a sustainable number. I mean I presume there's still improvements you can generate from digital efficiency, et cetera. I mean I think sort of your cash per collector was up 14%, but some of that's the enhanced consumer liquidity that may be in the rearview mirror. I mean is the 63.5% because you've kind of reached steady-state efficiency? Or is it do you think there are tools to increase efficiency, but then they're offset by the fact that consumer liquidity and excess collections, you may not be generating the same level of excess collections into 2022?

There's a couple of things sort of wrapped up in there. So part of the challenge we've got is moving past the sort of pandemic-induced consumer liquidity. And so we want to get some time under our belts with regards to performance in a post-pandemic world. That's one. I think the other factor here is we're down pretty significantly in terms of total collectors in the U.S. We've still got a good amount of slack in the system, but we're not really interested in going much lower in terms of total collectors even though we've had kind of lower levels of portfolio investment over the last year or so. So I think there's capacity for us to build as investment opportunity comes through 2022 for us to build and layer those portfolios on without significantly impacting the cost base. And that will obviously drive additional impact on the cash efficiency ratio.

Got it. One housekeeping one, if I can. On your sensitivities to rising rates, I think from what I can recall looking at the last year, I mean you hedged the vast majority of your floating rate exposure. So would you say that I should expect the rate sensitivity to be minimal? Is that fair?

Yes. I mean, we largely historically have been funded through the secured credit facilities, which are all floating rate. We've done some interest rate hedging over time. We've now layered in fixed rate debt exposure in the context of the unsecured bonds. I'd say our sort of natural posture is neutral, so call it 50%. But at times, we'll be hedged higher than that, probably won't be much lower than that. At the end of the year, we were roughly 68% effectively hedged, the combination of those fixed rate debt issuances as well as the hedging program.

[Operator Instructions]. The next question is a follow-up from Bob Napoli with William Blair.

Just to be clear, the sanctions that are flying around over the last couple of days, is there any effect on your business from any of those sanctions on payments in any way? And maybe taking it a step further, I mean, you called out your employees in Poland. Is there any disruption within your organization in any way at this point?

So I guess I'll say that on the sanctions, I don't think there's any impact to us. We wouldn't have any involvement in any of those kind of things. And the Poland situation is just that there are so many refugees coming across the border. I think I heard 600,000-ish, and about half are coming into Poland. I guess I'll share with you, some of our employees personally have taken in folks from Ukraine. So that's the sensitivity I have in that. It's really about the, I would say, personal impact from our employees. But that's it. Nothing on the financial side.

And then just you had given out a stat, and I'll make sure I got this right, $1.6 billion in cash collections. That's from the ERC that you had at the end of the year. That is what you're suggesting: 2022 cash collections, $1.6 billion, from ERC; and then obviously, collections from purchases would be on top of that.

Yes. And then to the extent we have any overperformance against the projections that would be additive as well. So it's basically just the back book, the next 12 months of the ERC projection of $6 billion is $1.6 billion.

Okay. And then I think you had, Pete, maybe suggested some tweaks to your debt structure. I mean your leverage is relatively low. Are you looking at converts? Or is there a way to give you more permanent or long-term capital to gives you more flexibility for either M&A or share repurchases or debt purchases?

Yes. We've been on kind of a long-term multiyear journey of rebalancing our funding profile. Started with getting rated in 2020, and we've done now 2 unsecured issuances in the U.S. market. And so we'll continue to work down that journey. And the European market is one that is, for our sector, actually a very liquid market and a lot of investor interest. So that's probably a logical sort of place for us to look next.

Would you take up your target leverage ratio slightly?

It doesn't really have an impact on the leverage ratio per se. It gives us an ability to term out the maturity profile and, at the margins, increasing our level of unsecured funding versus secured funding will be credit enhancing from perspective of the rating agencies.

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

Yes. Thank you, operator, and thanks, everyone, for joining us the call this evening. And I really do want to end here where I started. These are trying times for the world from COVID to what's happening in Ukraine. These are times that we really got to pull together as a global community and support those who need the most. And I just urge you, I urge everyone on the call, don't sit on the sidelines. Get involved, show your support, send your support and help those folks in need. And with that, of course, we look forward to talking to you next quarter. Thank you.

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