Good evening and welcome to the PRA Group’s First Quarter 2025 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Mr. Najim Mostamand, Vice President, Investor Relations for PRA Group. Please go ahead.

Thank you. Good evening, everyone, and thank you for joining us. With me today are Vik Atal, President and Chief Executive Officer; Martin Sjolund, President of PRA Group, Europe; and Rakesh Sehgal, 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, and other factors that could cause our actual results to differ materially from our expectations. Please refer to our earnings press release issued today 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 all be found in 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 replay dial-in information is included in the earnings press release. All comparisons mentioned today will be between Q1 2025 and Q1 2024, unless otherwise noted, and our Americas results include Australia. During our call, we will discuss debt to adjusted EBITDA for the 12 months ended March 31st, 2025, as well as return on average tangible equity. Please refer to the appendix of the slide presentation used during this call for a reconciliation of the most directly comparable U.S. GAAP financial measures to non-GAAP financial measures. And with that, I’d now like to turn the call over to Vik.

Thank you, Najim, and thank you, everyone, for joining us this evening. I'm excited to have our incoming President and CEO, Martin Sjolund joining us for today's call. Before I introduce Martin, let me first recap our overall performance for the quarter and progress against our strategic pillars. Building on a successful 2024, we started the year with momentum and delivered another quarter of strong results. This was highlighted by a 19% growth in portfolio purchases, record ERC, our fourth consecutive quarter of double-digit cash collections growth, and a nearly 300 basis point improvement in cash efficiency. While net income was lower compared to prior quarters, given the moderated level of changes in expected recoveries, we still were able to maintain profitability, and perhaps more importantly, deliver 13% growth in trailing 12 months adjusted EBITDA. And this represents the seventh consecutive quarter of adjusted EBITDA growth. We continue to make progress across each of our three strategic pillars during the quarter. As it relates to the first pillar, optimizing investments, we deployed capital globally to capitalize on appropriate market opportunities and returns. This contributed to attractive pricing across our markets and higher investment levels in Europe this quarter, leading to a record total ERC. Moving on to the second pillar, operational execution. Within our U.S. legal collections channel, we remain focused on reducing cycle-times and optimizing our post-judgment activities. These actions, along with the increased level of recent portfolio purchases, have led to a notable uptick in U.S. legal cash collections over the past several quarters, increasing 33% year-over-year in Q1 to $111 million. As a reminder, we do not begin our collections activity within the legal collection channel, but consider using it, if and when, our customers do not engage with us voluntarily. In our U.S. non-dealer operations, we…

Thank you, Vik. It is a pleasure to connect with everyone today, many of whom I've already met over the years at prior conferences, road shows, and meetings. I just want to start by thanking Vik for all that he has done for PRA over the past decade. First, as a Board member and more recently, as President and CEO. He has done a tremendous job stabilizing the U.S. business, assembling a seasoned leadership team, and returning the company to profitability. I believe we're operating in a truly exciting time for PRA, underpinned by the numerous competitive strengths and opportunities in our business, including a strong leadership team with decades of industry experience and an opportunity to leverage global talent and scale; deep seller and lender relationships with a robust supply outlook in the U.S. and a more rational competitive dynamic in Europe compared to a few years ago; a diversified global footprint of customers, cash generation, and ERC across 18 markets; and finally, an opportunity to continue the operational transformation in the U.S. Throughout my time leading our European business, we have developed and shared important lessons and learnings and processes executing across the same themes as a three-pillar strategy that has been helping transform the U.S. business. I'm eager to continue the process of leveraging these best practices across our global business. As it relates to optimizing investments, we have developed a very strong track record in Europe of disciplined investments over the years. A great example is the 2016 to 2019 time period. We were very judicious in how we invested, avoiding aggressive M&A and the purchase of portfolios at subpar returns. Our diversification across multiple markets has served us well. When the environment was irrational, we pulled back in certain markets. Our patience, discipline, and long-term…

Thanks Martin. We purchased $292 million of portfolios during the quarter, of which $178 million were in The Americas and $113 million were in Europe. In the U.S, we purchased $161 million of portfolios. Our 2025 Americas core purchase price multiple finished the quarter at 2.18 times, which is higher than in the recent past, reflecting the mix of portfolios purchased in the quarter. Keep in mind that purchase price multiples are the cash we expect to collect per dollar invested and are influenced in part by the types of portfolios we buy and the markets in which we buy them. In Europe, portfolio purchases were $113 million with investments across most of our markets. As a result of the strong buying, we grew ERC to a record $7.8 billion at the end of the quarter. This is up 20% year-over-year and up 5% on a sequential basis. We expect to collect approximately $1.8 billion of our current ERC balance during the next 12 months. Based on the average purchase price multiples recorded so far in 2025, we would need to invest approximately $920 million globally over the next 12 months to replace this runoff and maintain current ERC levels. Looking to the rest of 2025, we expect portfolio supply to remain at elevated levels in the U.S. and to be relatively stable in Europe. Cash collections for the quarter were $497 million, up 11% from the prior year period, with U.S. core cash collections up 20%. The increase in global cash collections was driven by both higher levels of recent portfolio purchases and the positive impact of our cash-generating initiatives. Similar to previous quarters, roughly half of our total collections in Q1 came from outside the U.S. Within the U.S, nearly half of the collections came from the legal…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of David Scharf from Citizens Capital Markets. Your line is now open.

Hi, good afternoon. Thanks for taking my questions and welcome aboard, Martin. So, listen, first question is really, I think, what's been on a lot of people's minds during this reporting season thus far, which is obviously just the state of the consumer and I'm wondering, we have not heard from too many consumer lenders thus far that they saw a tax refund season being notably maybe lower than prior years, maybe modestly. But as you reflect on sort of the seasonal modeling you referred to, which I assume refers to tax refund season in the U.S., do you -- I mean, at this point, and based on kind of also what you're seeing in April and into May, did you feel like the variance relative to your modeling is entirely refund-driven? Or are there other behavioral patterns you're seeing in consumer payments lately that suggests maybe some weakening of the consumer?

Great question, David and very pertinent relative to our results and the commentary we made. This is Vik, I'll take that and Rakesh can supplement as applicable. Look, from an external perspective, in terms of the level of tax refunds that were provided by Treasury, they were, I think, relative to prior years, would be regarded as fairly normal, right, and nothing unusual in the volume of refunds that were given. Internally, with regard to our interactions with consumers, as we mentioned in our remarks, we are seeing a positive level of engagement with consumers. They are maintaining their -- establishing plans and maintaining their plans. And so we are not seeing at this point in time and a little bit through the first few weeks of the second quarter, nothing at this point in time that would suggest a falloff in consumer activity with us. That said, clearly, we had a mismatch between our expectations for cash collection in the quarter and the actual cash that came in, albeit, it was a very strong quarter with regard to the quarter-on-quarter increase as well as the year-on-year increase in cash. Clearly, we had a disconnect with regard to the expectations in our business and that just flowed through, right? So, we don't see this linked as a consumer-driven issue in our business or externally at this point in time. It really was around the modeling that we had for the seasonality, which was, I guess, in retrospect, higher than the actual trends. And Rakesh, I think we've taken a view on the causality of this and the implications, maybe you could just add to that, right?

Yes. David, good question. Look, as Vik said, from a cash perspective, we had a very strong quarter you look at the key metrics, whether it's cash collections growth, cash EBITDA, and cash efficiency. We talked about the 11% growth in cash collections on the call. But even quarter-over-quarter, cash EBITDA grew 17% and then cash efficiency was up 300 basis points. And this is after $7 million of higher legal spend. So, look, it goes back to, as Vik said, where we had modeled. And so on the U.S. side, look, the core cash collections were up 20%, which was very strong and this is on top of 22% growth that we had in all of 2024 versus 2023. However, our U.S. core cash collections had a 4% shortfall relative to the accounting CECL expectations. In other words, the 4% cash underperformance that we saw this quarter. And it really was an anomaly this quarter after seven straight quarters of positive cash overperformance. As you know, the U.S. accounts for about 50% of the cash. So, at 4% underperformance, it equates to roughly about $10 million shortfall versus the CECL expectations. And what really happened is that the Q1 cash collections, they did exceed the Q4 cash collections in terms of the growth rate, we've always seen that uptick, but it did not exceed to the same magnitude as was reflected in our models. And so we really believe that this shortfall is timing. If you look at our press release with respect to the purchase price multiples for the Americas vintages, you'll see that they are essentially unchanged as we believe we can collect the full amount of the total estimated collections. As Vik said, and I want to reiterate, our customers, both in Europe and in the U.S. remain engaged and we continue to see payment plans being established.

Got it. Understood. No, I appreciate all that color. More of a technical question coming out of that, Rakesh. I know it wasn't explicitly quantified, but the reduction in the earnings guidance this year from 12% to something below that. Does that represent just the flow-through of the first quarter coming in lower than expected or are you making inherent in that assumptions about further in the year?

Not an explicit assumption, David. I'll take that. I think, look, obviously, the first quarter came in light, right, relative to what we would have modeled, right? We've stated that pretty clearly. As we look out at the rest of the year, just given the macroeconomic environment that we see today and the relative degree of uncertainty vis-à-vis what would have been expected three, four months ago, we just felt it was appropriate to signal, right, that the level of cash generation that might be expected through the next nine months, the ability to influence the net present value of future value of initiatives that we've got, we just need to be cautious with regard to that, right? And so we felt that we were reasonably comfortable restating our views with regard to the other vectors that we had pointed out a few months ago. But certainly, on the return calculation, we felt that we should signal the appropriate level of commentary on that, right, rather than be reaffirming at that level. And the rest of the year will demonstrate how the world sort of turns out and how our business operates.

Yes. And David, if I could add to that, look, buying remains strong, as you saw in the numbers that I mentioned, Europe had a strong quarter. So, buying continues to be at elevated levels. And we also had a very strong 2024. We bought $1.4 billion globally with $800 million in the U.S. So, if you think about the revenue, the two components, portfolio income as well as the change in expected recoveries, we had a 19% growth this quarter in portfolio income, and this is on top of a 13% growth. So, we expect that line to continue to grow as the purchases that were made at significantly higher multiples than, say, in 2023 as that flows through our P&L. And as Vik said, we are taking a more judicious, cautious, prudent approach with respect to any changes in net present value of ERC increases just given the current macro environment.

Got it. Understood. Great, I'll get back in queue. Thanks very much.

Thank you.

Your next question comes from the line of Mark Hughes from Truist. Your line is now open.

Yes, thank you. Good afternoon. Welcome Martin. The efficiency ratio was quite good in the quarter. I think your guidance, which I assume is still relevant, 60% plus, but you did better than that. Was there anything unusual in terms of the expenses this quarter? Any one-timers that helped or is this just the result of the initiatives you've undertaken?

No, no one-timers that artificially inflated that ratio. In fact, as Rakesh mentioned, we absorbed a little bit higher legal cost. I think it was $7 million, right? Maybe higher. So, if you -- that would be about probably 100 basis points plus, right, in terms of normalizing that. So, nothing unusual, Mark. And I think we signaled at the beginning of the year that we'd be 60% plus. And just given the way we're operating the business, the efficiencies we continue to identify, the work that's going on globally in the business, we felt comfortable suggesting that we were still comfortable with that 60% plus ratio.

Yes. And Mark, if you go down some of the line items, you'll actually see some improvement in some of those cost line items. As we've spent a lot of time talking about initiatives on the cash side, but we've also been very clear that our focus has been on having a marginal cost of running the business that's lower than the growth of cash. And so you'll see that even though our total expenses are up, that's really to drive the growth in the business, but some of those line items have actually started to reduce now as the initiatives get implemented.

Yes. Yes, I was just looking at compensation costs. In the U.S., the purchases were down a little bit year-over-year. The multiples were up. Why didn't you buy a little bit more in the U.S. under the circumstances?

It really is a good signal, Mark, about how we run a global investment franchise, right? And I'll let Martin speak to some of the activity that he's seen in Europe over the last few months, Martin, and what we're seeing from a supply dynamic there, right?

Yes. No, we had a good quarter for buying in Europe. Overall, the market is fairly stable, I would say, in Europe, but we've seen -- I think the competitive intensity has normalized to a level that we're more comfortable with compared to where it was a couple of years ago. So, overall, I think it's -- we're off to a good start for this year.

Yes. And I think -- look, I think we take a view on ensuring that we are optimizing our level of investment globally, depending on where we're seeing the supply emanate from and that's just the way it turned out this quarter, right? So, we really do run a global investment view on this thing, right? And so quarter-to-quarter, we'll likely see movements across that. Nothing unusual.

Yes. Is U.S. supply still increasing? Or is it stabilized?

I think we've just had actually -- in fact, we had conversations in the last week, right? Our Head of Investments, Owen was meeting with a number of our senior seller counterparts. And the signals coming back to us is that they're not increasing, but they're going to remain at an elevated rate for a period of time. That's what we're hearing from them, right? So, we'll see how that shakes out, but it remains elevated. And look, you're as close to the overall market as we are, right? But balances keep growing and charge-off rates remain high, right? So, I think supply should remain persistent and elevated for the near-term for sure.

Thank you very much.

[Operator Instructions] Your next question comes from the line of Robert Dodd from Raymond James. Your line is now open.

Hey everyone. This is [indiscernible] on for Robert. Thanks for the question. I know you mentioned earlier that consumers are continuing to remain engaged and the cash collection flow-through this quarter was primarily driven by seasonality. Are you seeing any other emerging trends or macro changes outside of seasonality in consumer behavior that could have contributed?

Not at all. I think we -- obviously, as a consumer-driven business, both here and in Europe, we have -- we try to have a reasonable beat on the level of interaction with consumers on a daily basis, right, to see the plans that are being established, the level to which they are being maintained and sort of come through, the average payment size that is being established in the plans. Martin, maybe you could speak to what you're seeing in Europe, right?

Yes, we haven't seen any major shift in the European consumer behavior, at least among our customers. So, 2025, Q1 is off to a decent start there, too. Cash came in a bit higher than we originally expected. So, at the moment, at least, it's consistent with what we expected.

Understood. Thanks. And just a quick follow-up here. With the recent approval of the Capital One and Discover merger, considering Discover has historically never been a seller, can you speak to or quantify some of the long-term impacts you expect to see on the business from that?

We don't discuss or cover and disclose who we buy from and the impact. Obviously, we are close to the market with regard to the M&A activity. And to the extent that M&A activity provides more supply into the system, that will be sort of positive for us, right? But that will be a question for really to be asked of the Cap One and Discover, right, with regard to their perspectives on this whole marketplace.

Got it. Thanks for the color.

Your next question comes from the line of Mark Hughes from Truist. Your line is now open.

Yes, thank you. The legal collections costs, are they going to continue to be elevated or does that normalize at some point here?

Yes, Mark, I think like we said back in February, we do expect the legal collection costs to increase, but at a much lower level than what we saw in 2024. So, in 2024, just to remind you, you had the number get to $125 million versus $89 million in 2023 and so that was a 40% increase. We expect that number to be much lower than that increase. Look, we've been investing heavily in legal. That's not how we like to start. It depends on the ability of the customers to pay. And that's when we make decisions whether or not to put folks into the legal channel. So, we think that we are investing in this business for future cash growth, but you should see those levels in legal spend start to moderate in 2025.

And to some extent, Rakesh, the legal spend that we're going to see this year will be a result of not as -- it won't be a -- we haven't made strategy changes with regard to putting more people into legal. It's really the amount we bought last year. There's a time lag between when we buy it and when it may be appropriate or qualifying for legal, right? And that will be coming through this year a little bit. So, that's what's going to going to be driving the increase year-on-year. But it's going to be at a much more moderated pace, Mark, relative to what you saw as an increase in 2024 versus 2023.

Understood. And then the non-controlling interest, how should we model that or at least how should we think about it, the drivers there?

Yes. So, Mark, this is the investment we have in Brazil. And so as I've mentioned in the past, we've had a partnership there for 10 years. It has done really well for us, both on the investment side and on the servicing side. We had an opportunity to exit the stake in the servicer that we partnered with and that obviously resulted in a gain that will be recognized in Q2 that I mentioned on the call was $28 million based on the FX in April on an after-tax basis. And the other NCI is really the income from the investments that we're making there. And you should just assume that, let's say, it's a 50/50 partnership and so given the profitability there in the business coming out of those investments, 50% of the share comes to us, 50% of the share goes to the partner, and that's the NCI line item.

Thank you.

[Operator Instructions] There are no further questions at this time. I will now turn the call over to Mr. Vik Atal. Please continue.

Thank you, everybody, for joining us today. Thank you for your support and we look forward to meeting with you in a few months' time talking about our second quarter results. Appreciate it.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.