Good afternoon and welcome to the PRA Group Earnings Conference Call. At this time all participants are in a listen only mode. [Operator Instruction] As a reminder this conference call is being recorded. I would now like to turn the conference over to Ms. Darby Schoenfeld, Director of Investor Relations for PRA Group.

Thank you. Good afternoon everyone and thank you for joining us. With me today are Steve Fredrickson, Chairman and CEO; Kevin Stevenson, President; Pete Graham, Executive Vice President and CFO; and Tiku Patel, Chief Executive Officer of PRA Group Europe, will also be available to answer questions during Q&A. During our call we will reference certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures are included in the earnings press release we issued earlier today and the related Form 8-K filed with the SEC. Both the press release and 8-K can be found on the Investor Relations section of our website at www.PRAGroup.com. A replay of this call will be available shortly after its conclusion. The information needed to listen to the replay is contained in the earnings press release. We will also 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. All comparisons mentioned today will be between Q3 of 2016 and Q3 of 2015 unless otherwise noted. I would now like to turn the call over to Steve Fredrickson, our Chairman and CEO.

Thank you, Darby. Today I will be leading off the call with some macro observations on our performance and strategy and then provide some thoughts on our performance in Europe. Kevin will be covering operational performance in the Americas and global insolvency. Finally, we would like to welcome, Pete Graham, to his first earnings call with PRA and he will be covering our financial results. In Q3 we continued to produce solid GAAP results with strong profitability and modest leverage. We are holding to our philosophy of being a disciplined long-term focus purchaser of nonperforming loans that aims to maintain high profit margins while seeking to responsibly grow the top and bottom line. We believe we are making the kinds of investments in NPL portfolios, our people and processes, and our capabilities to drive reaccelerated growth in the future. Globally we continue to operate well and make strides in the areas where we have had a few challenges. The regulatory environment in the U.S. has been an operational headwind especially over the last few years but it has helped drive the substantial consolidation we've seen in the U.S. market, creating what we believe is now a significant competitive advantage for PRA. It has been fulfilling to see our diversification strategy that included a number of significant strategic moves over the past few years or so, allow us to deploy capital globally directing it to opportunities where we see the most attractive returns. Now more than ever we feel geographic and product diversification are absolutely necessary for our long-term success. As demonstration of the success of the strategy our third-quarter results show the increasing importance our non U.S. investments. Today we report good growth in Europe and global insolvency and substantial growth in Brazil. But it has been the case over…

Thank you, Steve. Core investment was 5% ahead of third quarter of last year. And while we feel good about the loss rate indicators we are seeing on the supply side from existing sellers we have seen relatively little movement from the sellers who are currently on the sidelines. We continue to be selective with our portfolio acquisitions and are buying to model the IRRs that are up from a year ago. For competitive reasons were not offering any further details on IRR levels. Not much has changed with the bankruptcy supply in the U.S. as filings are still low, competition is still high and there are still sellers out of the market. However, in the broader geography of North America we have been able to invest $73 million in the insolvency asset class thus far in 2016 beyond our full year 2015 investment amount of $65 million. Globally our insolvency asset class investment year to date is $111 million compared to $85 million in the full year 2015. As Steve said, diversifying across geographies has been a significant focus of ours for years. The results you see in insolvency are the direct product of that effort and more specifically related to the acquisition of Aktiv Kapital and Pamplona coupled with our subsequent investment and growth of each of these platforms. We continue to look for ways to successfully grow the segment globally. In the Americas cash collections were $271 million down 7% year over year. The decline was largely driven by a 31% decline in U.S. insolvency collections and a 21% decline in U.S. legal collections. This was partially offset by strong collection growth in Brazil and Canadian insolvency. As you can see by the minority interest adjustment in our income statement which increased more than five times this…

Thanks, Kevin. To better analyze our ongoing operations we have adjusted our reported results for a few items that are nonrecurring which do not relate to our normal operations. For the quarter these adjustments included expenses of $200,000 related to the acquisition of DTP and eGov, legal costs not associated with normal operations of about $1.5 million, and a onetime tax item related to a unique foreign intercompany transaction that resulted in current period tax expense with almost no corresponding income. We do not anticipate any other transactions like this one so we have included it in our non-GAAP adjustments. Lastly, we have adjusted to reflect constant currency with the third quarter of 2015. I will specifically refer to non-GAAP re-currency adjusted when discussing these results otherwise all metrics will be GAAP. Total cash collections for the quarter were $372 million a decrease of 2%. Currency adjusted cash collections were $377 million a decrease of about 1%. Core collections in the Americas were $211 million, flat to last year. Collections outside legal of recovery grew 15% largely due to performance in Brazil. On a currency adjusted basis America's core collections were $209 million. Global insolvency collections were $65 million, a decline of 23%. While this expected decline continues collections in the quarter were better than anticipated. Currency adjusted global insolvency collections were $66 million. European core collections were $96 million an increase of 12%. This is attributable to the increased buying we have done in Europe over the past year or so. Currency adjusted core collections in Europe were $103 million growth of 20%. Portfolio amortization including allowance charges was 45.5% for cash collections in the quarter. We continue to have the same two pools in Italy on nonaccrual, meaning the total cash collections of $6 million on these pools…

[Operator Instruction] And our first question comes from the line of Hugh Miller with Macquarie. Your line is now open.

Wanted to maybe start with a couple over in Europe, you gave some really interesting color there about the competitive environment, your focus on returns or just growing for the sake of growth. First could you just give us a sense as to, are there certain jurisdictions where you are seeing more aggressive pricing competition than others?

Hello Hugh. This is Tiku Patel. I think the whole of Europe is quite competitive. What we have seen is that there are a number of large competitors of ours who have been active in terms of consolidating the industry and buying up both platforms and portfolios in a number of markets. So I do not think it is easy to single out a very particular market. What we do see is opportunity however through some of our geographic spread and by using that we are able to pick and choose opportunities for us to invest in at reasonable returns and that is what we're looking to do.

That's helpful, and maybe a more specific question or two on one or two areas. First in Italy we've certainly been hearing about an uptick in financial buyer interest in that area. Is that a region where despite really strong growth and supply there could be risk of unprofitable net returns? And any color on Spain in terms of, we're hearing the opposite there where players are exiting the space in terms of financial players and reselling portfolios. Are you seeing better returns there and better supply opportunities in 4Q?

Well we don't talk about returns specifically in these markets. Both Italy and Spain have been, as I said, competitive for a while, although there is, continues to be good supply in both of those markets. We have certainly seen funds less active in Spain recently and indeed, some of the funds that came into the Spanish market a few years ago have been re-trading out and moving away. But what we continue do what we've always done, which is a price on our data and our experience and always look to be profitable on all these deals. That is our approach in all these markets. So we hope that there's no prospects of us making a profitable investments. We think that the right thing to do for the long-term.

Hugh, this is Steve. I would add that between the two businesses we see or between the two geographies we have a higher confidence level currently in Spain, and so we are buying there on a more active basis. Although long-term, as I stated in my section of the script, we feel really good about the opportunities in Italy and there are many NPL portfolios for sale. I would say while we get our operating platform in exactly the situation that we want it to be on a go-forward basis, we are being very careful about layering on new investments, at least in this interim period.

Got it. That's helpful. I will jump back in the queue.

Thank you. And our next question comes from the line of Mark Hughes with SunTrust. Your line is now open.

Thank you very much. You had referred to the potential loss of value or actual loss of value in the U.S. because of some of the delayed collections. Do you think you have seen the worst of that, is it fairly steady state now or is there potentially more to come?

That's a very good question. I would say that, if I could go out on a limb and say, I would say we have probably seen the worst of it. We have improved our processes, we are working through old portfolio and we're doing of those things you might imagine. And so, at the risk of being wrong, I think we have seen the worst of it at this point. I think our processes are in pretty decent chip right now. We are still spending a lot of money to do it though, we have a lot of people working those dispute accounts. But yes.

[Indiscernible] figure you're still spending a lot of money. Has that peaked, of the run rate of expenses, did we get whole sense of that in the third quarter already?

I would think so. I would think that the opportunity now is going be to start paring that down. That is going to be the effort. But it is going to hang it these levels for a while yet. But that is the opportunity. So the answer is yes, I think that it probably peaked and again, the opportunity is to move them down.

Two questions, the supply in the U.S., I think you said you're putting money to work at higher IRRs. Any more details on supply of paper that's coming available? And then you also suggested there was relatively little movement from the sellers on the sidelines. Is that suggesting there is some movement?

That's good question, Mark. Email, I would not read too much into that. There's always dialogue between us and them, but I would not bring too much into it past that. Then on the supply side, we are seeing our share of deals. Obviously the competitive environment remains limited, so to speak. I think the most interesting thing that we are looking at right now is the loss metrics, as I mentioned in my script, and lending amounts. I think that bodes well for at some point in the future and again, that's going to put pressure on banks' bottom line. I think that's we are an excellent source for them to help mitigate that.

Thank you. And the next question comes from Bob Napoli with William Blair. Your line is now open.

Thank you. On the dispute levels, the increased dispute volumes and the adjustments that you've made on collections. It sounds like you have made some adjustments on collection curves for those dispute volumes. You talked about 2012 and 2013, but it sounds like, how you feel, how confident are you when you said some of this is not temporary, some of it is permanent. Because you look at what you have booked for 2014, 2015, 2016, what you have been putting, the returns you have been booking. Is there some risk to those from this point or do you feel like you have been putting these on conservatively enough given the uncertainty in the market? Had there been an incremental change based on the disputes volume from as you sit here today versus three months ago? Do you have a different view on how material the dispute volumes are to your business?

No. I would say that it is wonderful because Chris Graves is very intimately involved in both sides of this equation. I know Chris is listening now, but he's involved in the pricing of it and involved in working through dispute matters with his department, as well as compliance department now. So, I would say that that would mean that he is very aware and from a pricing perspective we're thinking about those things. Remember these disputes, especially as you talk about newer portfolios where sellers are so good at providing documents, it's really, again, Mark had asked the question, do you think you're past the peak? And I think the answer is yes. The sellers have been really good as supplying documents. We're answering the dispute, we're giving the consumers a dispute package, we're giving them all their documents, but it is causing this delay and again, to some degree it is destroying value. Certainly any delay does that. So I think every quarter goes by we're readjusting our curves on our older portfolios, and I think we're taking a pragmatic approach. I don't like the word conservative, even though I'm not CFO any more. But a pragmatic approach to those projections. But we will see. We're still building data. This is interesting territory for us. We're building the data that we did not have before.

Okay. And then we are halfway through the, just about the current quarter, and on the purchase side, can you give us any color on what you may want to purchase to date? It sounds like in the big pipeline but as we know that may or may not close. But if you can you give any color on how active you have been quarter to date?

Well, Bob, I'd say that although we are a month into the new quarter, there is a lot more that is unbaked than baked. So we have fresh commentary out there and that we believe the European pipeline in particular is going to be very strong in Q4. And as we have commented, really constantly since we acquired active capital, we tend to see large deals in Europe and whether we win a couple or lose a couple, it can really swing our buying numbers. So other than commenting that we do believe we're going to see robust pipeline there, I just do not know where buying will come in. In the U.S., our buying has been a little bit more steady, and we would hope that we would win our fair share. And as Kevin commented, it is a fairly small competition set these days. So there is just less places to lose that flow these days.

Then Brazil, Kevin, as you pointed out, the non-controlling interest shows pretty strong earnings. Can you give any color on cash collections or purchases out of the Brazilian market for the third quarter?

Yes, we don't break that data out, but at the end of the day we --it's pretty clear to look at those minority interest numbers and understand how well things are going. And let me just talk about why that is. That's really a product of the returns that we're seeing down there, and I just have got to give credit where credit is due. The folks at RCB that are doing such a good job underwriting and managing those processes, so again I am so is ecstatic about that acquisition and I expect lots out of those guys going forward.

The legal collections in the U.S., I'm just trying to understand, the last question for me. The legal fees, the contingency payments were way down. You did invest legal costs, new in line with what we were looking for. But then so the contingency fees would suggest that your external legal collections were down a lot more from the second quarter to the third quarter. We do not have your 10-Q yet to be able to tell what the total legal collections. I think you had given a number of the level of decline of legal. Can you give some color there, what were legal collections in the quarter that, it will be in the 10-Q?

I understand the question. First of all, and this may be some overlap on Pete's territory, but there was a re-class in Q3 between fees and legal costs. So it is basically a little hard to describe. But it's how the fees are coming out of Europe and they have been historically, there's been costs embedded inside the fee line historically, and we fix that. It's not nearly what you think when you look at the numbers. There's about $5 million re-class, Pete, right in that area?

Yes, that's correct.

And so based on our $40 million estimate, just ballpark, our fee number was probably down $1 million. But it wasn't down what you think it was.

Okay. And then, I'm sorry, one last question. On the adjusted EPS, the currency adjustment. How much of that is from, you had a $5 million foreign currency benefit that went through the P&L in the quarter. That's tied to some hedging or was it also calculating constant currency movements?

The EPS adjustment would be to get, to non-GAAP would totally be related to retranslating the financial statements at the prior year's currency rates. The two are not related at all. The current period foreign exchange gain was driven by non-functional currency items in our European balance sheet not by translation of reported results.

Okay. So then if exchange rates did not change from where they are today a year from today you not see that. You'd see zero in that adjustment.

Yes that's correct. So if you adjust for foreign currency movement, if you hold it flat year over year you are not going to to your reported earnings related to currency, nor will you have any foreign exchange gain or loss flowing through your P&L. But as you know currency rates do tend to change. So it is kind of a theoretical exercise.

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

Hello, guys. First question, going back to your commentary about Europe where price is aggressive and in some cases unprofitable levels. Sounds reminiscent of what you were saying about the U.S. two or three years ago, really, though technically you were saying irrational pricing back then rather than unprofitable levels. That in the U.S. obviously has taken a long time to play out in terms of starting to rationalize with your IRRs on new purchase receivables starting to tick up the last couple of quarters. Can you give us more color? Does the environment in Europe feel kind of like the environment in the US that we were seeing three years ago? Or is there something different where you would expect it to resolve much faster to more rational competition?

I think a great deal that drives how things would play out is really related to the sources of funding, both debt and equity in the two different situations. Right? So, to the extent more debt is being used to finance some of the build that we have seen in European competitors and things go off the rails there, potentially we could see players impacted there very quickly. Again, this is coming with fairly robust pipelines so the extent the demand side get crimped at all, I think we're going to see a positive impact on the market. If not for I think an awful lot of capital chasing deals in Europe right now it would be a different pricing situation.

Okay. Got it, thank you for that. On the legal, we get back to Q1 and you have given commentary about that there were some disruption in world changes, etcetera. In your commentary said that there were two states that have shifted the walls around on lawsuits. It seems like there are some regulatory shifts in the state level, CFPB, etcetera, that are potentially going to contribute to additional difficulties in that area and perhaps drag out the time line where as you can say you can catch back up with where you think the legal channel is. So the question is any color on that? Secondly, on two states have already changed, are there any other bills on a dockets in other states that you are aware of to do the same kind of thing and change those rules?

Thanks. Two of the states that changed some requirements were documentation requirements. That is the process of getting the docs and conforming all of your suit packages to include what they want. I am not aware, and I am just not aware of any states right now that are talking about more of that stuff, but I am not following it that closely. But again, these two states, we're adapting to it, and it's going to take some time, to your point. The other state which moved to an e-file process is actually slowing us shockingly from a production standpoint. We used to be able to batch upload the stuff and now we have to send them up one by one. There's a lot of that stuff going on in this legal process, things that were a little more productionalized in the past has gotten a little more manual. It is our task over time to figure that out and see if we can reproductionalize that. Does that answer your question?

It does. Thank you.

Thank you. The next question comes from the line of Manu Srivarira with Janney. Your line is now open.

Good afternoon guys. Just one question here. Can you remind us what your excess borrowing capacity looks like? For example how much room do you have on your revolvers?

Yes. I think you have to look at that separately in the Americas versus Europe. We recently last quarter did some refinancing within Europe and so we have got a significant buffer on capital availability in Europe. And in the U.S. at the period end we had available U.S. cash of about $16 million and borrowing capacity in the U.S. revolver of 63 million. So call it $80 million in total at the end of the quarter.

Okay. Do you see any liquidity constraints in terms of your ability to purchase new portfolio, anything like that?

No. I think in terms of our current forecasts for the fourth quarter and going into first quarter we don't see any issues with that. We've started dialogue around lining up sources of capital for the eventuality when maybe some of the big sellers that have been out of the market return. But if they do return it's not going to be it two-week turnaround time, we'll have some advance notice of that.

Okay. Great, thank you very much.

And I would add to that just, I know most people are aware of it, but we generate pretty significant cash flow every quarter. So on top of the dollars that Pete's hopefully going to raise and the ones we have currently available, we'll generate a bunch of cash flow as well.

I am not showing any further questions at this now. I would now like to turn the call over to Mr. Steve Fredrickson Chairman and CEO for any closing remarks.

Thank you, operator. Thank you all for joining us for PRA Group's Q3 2016 earnings call. We look forward to speaking with you again next quarter. Good evening.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.