Good afternoon and welcome to the PRA Group Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. Darby Schoenfeld, Vice President of Investor Relations for PRA Group.

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 CFO. We will make forward-looking statements during the call, which are based on management's current expectations. We caution listeners that these forward-looking statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. Please refer to the earnings press release and our SEC filings for a detailed discussion of these factors. The earnings release and the slide presentation that we will use during today's webcast and call and our SEC filings can be found on the Investor Relations section of our website at www.pragroup.com. Additionally, a replay of this call will be available shortly after its conclusion and the information needed to listen is in the earnings press release. All comparisons mentioned today will be between Q2, 2017 and Q2, 2016, unless otherwise noted. I'd now like to turn the call over to Kevin Stevenson, our President and Chief Executive Officer.

Thank you, Darby, and good afternoon, everyone. Thank you for joining us on our 2017 second quarter earnings conference call. Before we discuss the result of the quarter there are few items I would like to mention. First, I cannot begin my tenure as CEO without publically acknowledging the incredible job that Steve Fredrickson has done over these past 21 years. Sounding PRA was Steve's idea and none of us would be on this call this evening if we were not for his vision, hard work and determination. I worked side-by-side with Steve for over two decades and when I look back on those years I realize how fortunate I've been to have joined him on this gurney. Steve has now moved into the Executive Chairmen role and I want to take just a moment to thank him for his many years of leadership, vision, and hard work. Steve commented last quarter that it was his 58th and final earnings conference call as CEO. Today marks my 59th earnings conference call and my first as CEO. I thought it's appropriate at this time to reiterate just a few of PRA's long held philosophies. First, we do not name the company we purchased from, nor we identify companies that are generally in or out in the market. We held this philosophy since our IPO in 2002 for a host of reasons. One of which is that selling distressed assets is a strategic decision for the financial institutions and any color on that decision should come from them not us. Second, at our founding in 1996, we made a fundamental decision to take a long-term view of this industry. To create a company that would compete the right way for the right reasons and do it for the long-term. We believe this…

Thanks, Kevin. Cash collection as a whole were generally in line with expectations with increases from Americas and Europe Core and European Insolvency on a currency adjustment basis. Total cash collections for the quarter were $375 million, a decrease of $13 million compared to the prior year, but only $7 million when adjusting for currency. The decreased was driven by a $12 million decline in global insolvency collections as we continue to move away from the 2010 to 2013 timeframe, where we repurchased significant amount of U.S. insolvency accounts. This has been a constant headwind for us and we're very encouraged by the sequential increase in U.S. Insolvency cash collections from the first quarter, something that hasn't happened in three years. While the cash collections decline is lessening remember that the portfolios that are running off were higher yielding. So the revenue numbers may not move on a one-to-one basis with the cash. Americas Core collections were up $3 million versus the second quarter of 2016 at $217 million, driven by growth in Brazil and U.S. call centers. The impact of collector hiring was reflected in the increase in U.S. call centers collections of $3 million. We've been purchasing a record number of accounts with lower average balances and have improved the legal selection methodology. This is decreasing the overall number of accounts that have been placed in the legal collection shell resulting in legal collections being $5 million lower than the prior year. The trends we're seeing in cash collections in the call centers tells us that our staffing increases are starting to have the desired effect of increasing collections and building payment plans. Our focus is to ensure we have sufficient capacity to provide for our current portfolio and expected growth. Keep in mind that because we've had…

Thank you, Pete. As the first half of 2017 comes to an end, I want to remind everyone that our business has transformed over the last three years. Begin with guidelines on the OCC on net sales on 2014, in the beginning of the rule making progress from the CFPB we faced supply headwinds as many of the banks evaluated both of these and experienced historically low charge off rates. Later in 2014 we acquired active capital and significantly increased our business overnight. Truly thereafter in late 2015 the requirement for more comprehensive customer account documentation impacted the U.S. legal channel causing a delay on our ability to file law suits. Then in early 2016, we begin to feel the impact of our consent order at the same time there were additional enforcement actions with other companies that impacted our industry. During this time, we also pursued U.S. productivity too far and let our collector staff attract to levels were hindsight. We know the absolute profitability of our U.S. core portfolios had suffered. In Europe, we faced a different set of challenges with a competitive environment and the establishment of operations in Italy. I cannot be more proud of the work our team has accomplished in response to all of these challenges. We identify the issues begin to move forward with solutions, adjusted operations and even reset our portfolios for the new environment. Our legal channel operations were back up and running in a few short quarters. And we quickly work through the backlog of accounts. Our dispute team which completely built out worked overtime would find a process to be effective and efficient and is now adjusted to this new normal. Our HR team work nights and weekends to almost double the collector workforce, in just a little over…

[Operator Instructions]. Your first question comes from the line of Bob Napoli from William Blair. Your line is open.

Hi, good afternoon. Just a question first I guess on page 11 the 187 base that you show, you're suggesting that that 187 you then would add like you did in the page four the revenue from buying in the quarter and collections from fully amortized pools less allowances and then you would have yield rates on top of that is that the correct…

That's right. So I mean the way the model works, the way the accounting works is yield times NFR balance. And so everything that's going to happen this quarter is known when we file this quarter's Q except for those four things. So revenue that we would recognize on portfolios that we buy during the quarter which we won't know until we close the quarter as well as allowances or reversals that would happen during the quarter again we don't know that until we close the quarter and same for yield raises.

Okay, that's what I thought. And then just follow-up is on I guess on yields and your thoughts on the yields on the paper that you are currently buying. And then I don't - so you are suggesting from that earlier page that you didn't increase yields in the second quarter. So the yields on the paper you're putting on and then any yield - thoughts on yield raises or diminishment?

So, again I think given our discussion around collector capacity and record volume of accounts being purchased, we are displaying some caution in both how we book the deals that we're buying in the quarter as well as making sure that we don't raise yields too early. And so we're exhibiting a level of caution there, until we get our hiring program completed.

Your next question comes from the line of David Scharf from JMP Securities. Your line is open.

Hi, good afternoon and thanks for taking my questions. First, I guess, I wanted to just make sure I was interpreting the commentary on both the parts of the U.S. and European market. First on Europe, I was trying to reconcile, I think the initial comments were you are starting to see more flow deal or longer term flow deals so suggesting that maybe pricing might be stabilizing or at a peak, but I think you were also cautious that the near-term buying outlook is going to be lower than originally forecast. And I wasn't - they seem to be dwelling observations and I just want to ask how we should think about that market for the rest of the year relative to where it's been lately. Is your sense that it's still very, very competitive and causing some near-term restraint in your part are you feeling more confident that competition is peaking because of some of these longer term flow deals you're seeing?

Yes, so in Europe in our opinion is that it is very high pricing right now. And the example I gave was trying to describe that from our perspective we believe that banks are entering longer and longer forward flow agreements, because I think then they believe that pricing is high. So that's our read on that. So generally speaking, pricing is high to a rational in a lot of areas of Europe. Now, I'll tell you that we're watching this, we are watching all the results of all the public players and as well as anybody we can get our hands on the data. And looking to see if there is any financial cracks and just be aware that I'd love to help Europe out in their bad debt situation. Now I also want to say thought this is not uniform it's not uniform across Europe. This intense competition is everywhere, but I would say that in general if you look at the UK market for example with a little more mature regulatory environment it tends to be a little more mature and I would not couch it as irrational.

Got it, that's helpful. And then switching to the U.S., obviously the chapter 13 purchasing stood out and that was always one of your differentiated sort of core competencies. Were you trying to suggest that there were two unique very large transactions being worked on in the first half of the year and we should necessary draw conclusions about first half purchasing levels going forward? Or are you just seeing finally a big uptick in - not only in supply, but given those OCC issues that overhang that market. Are you seeing some loosening up there of supply?

So right now the signaling or the very direct communication from our part is that two quarters does not a trend make. These were indeed two spot transactions from a seller. The seller had experienced before selling and they made an evaluation and we brought a sharp pencil and a good relationship to the deal. So I would say that we're capable our insolvency or BK as they call in the states that operation is ready and willing to purchase more of bankrupt 13 paper and they're highly scalable and very motivated. But I'm not necessarily counting on it for the rest of the second half of '17.

Your question comes from the line of Mark Hughes from SunTrust. Your line is open.

Yes, thank you. Good afternoon. Could you provide the specific numbers on allowances for the quarter?

It will be in the queue tomorrow when it's filed. But the total allowances for the quarter was little over $3 million globally.

And then Kevin you'd talked about part of the reason you're adding capacities because you see a supply on the horizon. Is that essentially the rising credit card charge-offs is there something you're hearing from sellers that gives you confidence of they'll be selling more of the charge-offs or just sort of curious what you look at when you describe plenty on the horizon?

Yes, thanks for the question Mark. Yes from our perspective, both to service our existing portfolio and with the forecasted buying certainly for the rest of '17 and on into '18, we think we are going to make this move. Even more pointedly, if you look at the collector headcount we are now over 2,200 and I don't know I didn't mentioned it on this call but I've mentioned it before that we have a seating capacity for 2,200. So we're probably at about 105% of capacity and just trying to coming around here some after new when those people are come in and out of parking lots it's hard to find a parking space. So we are - we've been dedicated to a concept forever since our inspection that we think collector should have their own real estate, they should have their own desk. Real estate prices and where we located call centers are not prohibitive. And so we don't like people to as we call hot seating. And so, based on the volume of existing accounts, based on the volumes we're seeing for the rest of '17 and '18, we think that opening two new call centers is the right decision.

Your next question comes in the line of Robert Dodd from Raymond James. Your line is open.

Hi, guys. Just looking at the revenue yield and I appreciate the charts and the guidance and obviously you made the comment that some of the stuff that's rolling off is lower yield, given you know how those portfolios and the vintages age much better than we do? Timing wise not from level, but just kind of timing where would you expect those gross revenue yields to bottom out in terms of like next quarter, two quarters, five quarters given you know how those vintages age? I'm not asking for a level of the yield, but just kind of based on the mix of vintages today, what's the timing of where that hit the bottom?

I guess one thing I would say is I'm not if you intentionally misspoke, but the roll off of the portfolio is higher yielding portfolios…

Right, I did misspeak but…

Not lower yielding. There is a lot of moving parts in that mix between the bankruptcy portfolios, between some of the acquisition portfolios in Europe and also the peak core buying. It's really hard to say exactly when that inflection point will happen.

Okay, thank you.

Your next question comes from the line of [indiscernible] from Sterling Capital. Your line is open.

Looks like he might have gotten disconnected.

I apologize, I had the mute button, can you all hear me?

Yes, we hear you now.

Yes, I apologize for that. Just curious, first question if you could give just around any color whether on purchase multiples or pricing trends that you are seeing year-to-date especially given the increased purchases you all foresee in the next quarter or two?

I can give you some color on what we've seen over the past call it 18 months, and we can kind of go from there. So, we've been talking about increasing or improving pricing, it's been kind of a steady melt up overtime. And again this is nothing unusual, really nothing unexpected given this particular environment we're in. And so, we've just been on kind of a steady March along the way trying to stay in constant dialog with the sellers by the way and let them know what's going on. You're going to - that's driven by a couple of things, one is this again the volume issues and also the quality accounts. And as Pete mentioned, when you get the 10-Q though, you'll probably find that from a deal multiple standpoint. Pete book them with little bit of a haircut really in line with what he has talk about earlier in the call.

Got you. Okay, thanks. And then just a quick follow-up on Europe, you talked about things getting more competitive, I'm curious just on color with some of the markets that have been smaller addressable market to-date that have potential longer term, curious if you've seen any movements from the sellers in terms of their propensity to sell on the one hand. And on the other hand, on the other side of the market in the harder market, where you've seen some consolidation, I'm curious on the effect if any that you've seen on deal pricing as some of these markets begin to consolidate players? Thanks.

So, I think your question trying to piece it apart and take couple of notes here while you're talking. The question is I guess what I'll do is say is it a more Pan European pricing environment are there still pockets from smaller sellers in Europe. I don't have that data, Tiku actually made - Tiku is actually on the call as well, our CEO from Europe and he might have some comment on that. Tiku?

Hi there, yes I'd say that there are some pockets where the pricing is different and the returns are different because there are opportunities where sellers want to play to a particular proposition that we offer and that's on advanced repairing in the breath of countries and dealing with the breath of vendors that we've dealt with over the past 15 to 20 years in Europe. So, we try and place that wherever we can. So certainly do see some of those opportunities, but generally the market is much more competitive right across the marketplace.

Your next question comes in a line of Bob Napoli from William Blair. Your line is open.

Thank you. Just I guess a question on the amount of buying we have done and the capacity, the lack of capacity and the kind of the timing of running your capacity that tight where the increases, you're not going be able to - I think you said until October increase. So the paper that you bought and I know you collect over a longer time but just what was the thought process and not having - doing the buying that you did without the capacity?

Bob, that's a great question. So, I'll tell you I am getting some feedback from someone. So, from our perspective our capacity issues are not only accounts we have in-house today, but also projected buying, so make sure that's out there. What we're doing is we are trying to change some of our scoring a bit in our dialing and if you going to imagine, when the challenges that it presents us and I think you've hit it on the head, is that as you're buying new portfolio and you've got a certain amount of capacity from a score perspective a lot of times what happen is the newer accounts might score better and they kick out the older ones. So, we're making a very, very contras effort to make sure we're getting fair representation of dialing throughout the portfolio. At the same time then piece is taking a bit of hair cut in a bit of a changing in curve shape for the accounting models to make sure that we are dealing with from accounting perspective. Chris Graves's acquisitions group they see this, you got to make sure you know that when we price something, we're looking at these current capacities. So, I don't know if that's answered question or not.

Okay, that's…

We might have Chris do you want to add to that. Chris is here as well.

Hey, Bob. One thing to think of that too the absolute size of our portfolio is so significant now that we've get pretty good attraction just by collecting it in totality. So that's opens up for available capacity. So, if you think about, how much we need to buy just to replace that attrition based on the size of the portfolio. We get some nice benefit for handling our future capacity and realized that we're not obviously collecting to Kevin's point the entirety of our new buyers our data set is so large and our models allow us to get pretty surgical to pick out the top tiles of accounts to collect and every time those models get better and better and more and more surgical too.

Okay, thank you. And just to be clear, the revenue yield on the older bankruptcy is higher, like and you go back several years, then what you're putting on today from those very high yields. But then the America Core that you're buying today should be comfortably above the average yields on the portfolio, today. Is that correct or not?

So, I might take first crack at this. You're absolutely spot on with the bankruptcy or U.S. Insolvency portfolio. Some of those yields were truly exceptional I think most of us on the call probably remember the history of the came down legislation thread that drove some of that. Core though, I'd say core, I don't have the analysis in front of me but since I was deep into level yield accounting for so many years I would say that we are indeed running of higher yielding portfolios. And so Pete, you want to add to that.

Yes, I think there is a nuance there to keep in mind is that there is a difference between underwritten yield and the revenue recognition yield. So, naturally as the portfolio ages, the yield goes up because of expansion overtime. And so, the yield that we're recognizing revenue on some of those older portfolios are significantly higher than the base underwritten yield would have been. And the offset to that being newer portfolio that we're putting on and again as using my words not Kevin's booking in a more cautious nature in the near-term. So, booking at a lower level.

Your next question comes from the line of David Scharf from JMP Securities. Your line is open.

Thanks, just couple of follow-ups. One real quickly on the tax rate going forward with the catch-up item the 1.9 or based on the geographic mix of income going forward, should we be looking at the consolidated rate moving above that 36%, 37% prior guidance?

Yes, so if you look at our year-to-date tax rate, it's 39.9%. And so, that onetime impact that we highlighted for the quarter was us readjusting and taking a half year adjustment in the second quarter. And so that's kind of how you get to that item that we called out. What I would say in terms of overall tax rate, our base U.S. tax rate wants to be call it 42%, 43% when you factor in state tax on top of the federal. So, as we shift to having a higher proportion of our earnings coming from the U.S. business, that's going to tend to trend in that direction.

Got it. And then maybe little bit follow-up on Bob's questions, regarding the call center ramp. Should we be thinking about any sort of step functioning into fixed expenses sometime in Q3 or overall second half as you build out these centers or is it just pretty modest a lot of it's capitalized and as soon as people are in their seats it's mostly variable expense?

Yes, David, that's correct. So, I think just roughly speaking it cost us about $2.5 million this summer there to open a call center and most of that's capitalized from TIs, attend improvement through furniture and computers and so on. So, that's the only the Pete talked about some more sluggishness in terms of cash efficiency ratio simply because you're ramping up all those people and that's kind of on your point to on average we're diluting our workforce since we're adding so many folks and we need those guys to mature. The rent itself isn't a big deal, we're not paying New York City rental rates, we tend to be in areas where rent is very affordable and again one of our key premises is we want to give collectors a nice place to work out in their own space and that we're able to do that.

Your next question comes from the line of Bob Napoli from William Blair. Your line is open.

Just a quick last one. What's going on in Brazil, have you buying much paper in Brazil, can you give us some idea of what's the buying that you are doing and the outlook for the Brazilian market?

So, Bob, just in general from a color perspective, we're doing well in Brazil, we like the market, we love our partners down there. And - but the buying is not huge and it's lumpy. So, right now, I think we see any more flow of capital down there. And because we injected the capital initially I think they still got decent amounts to invest and when they send me a deal number I would like to approve it generally.

Great. Thank you, that's it.

The next question comes from the line of [indiscernible] from Sterling Capital. Your line is open.

Hi guys. Just a quick follow-up for either Kevin or Pete. Just curious because as you said Kevin you guys are keeping a sharp pencil and I need from what I understand about the culture very metric focused. But I'm looking at a press release which gives us less information than we've kind of long had specifically regarding kind of return on equity, returns on assets used to have returns on equity displayed at the top of the release and the table doesn't appear in the most recent release. So just curious what signal if any to read from that and the thinking going behind that if there is a focus away from those types of metrics hence forth? Thanks.

That's a good question. No, that was mydoing. What I have tried to do is the data that very busy table in the back of the press release is all data from our 10-Qs and 10-Ks. So, we instead, we try to give you guys a little more color in the press release and commentary more in line of what we're talking about here this evening. So, we're to morph the press release, more into something that's interesting maybe to read in a little less forensic. So don't take anything away from that, our focus on data and analytics, underwriting and all that remains unchanged, but we're just trying to make the press release a little more I think from my perspective little more helpful. And then when the 10-Q or 10-K is filed you have all that data.

Your next question comes from the line of David Scharf from JMP Securities. Your line is open.

Hi, just one more. Staying on the call center productivity theme obviously compensations your biggest expense line item. How was - just curious how call center turnover is currently maybe in comparison to 12 and 24 months ago we are at obviously 4.3% on unemployment, arguably full employment, any increases there stresses or is it been pretty stable throughout the cycle?

David, I actually have that data for you, I was counting on someone to ask that one. So, the answer to your question it is that definitely up when you're hiring as many people, you expect turn over to be up. What I think interesting, and I'm going to give you the numbers in a second. But I think interesting is the country turnover rate and again this is simple math from our human resource department is about 68% turnover rate and that's for call center collectors and that's from day one of hiring. That is not an unusual rate for us by the ways historically. So, you've been around long enough, you remember those rates 60% to 70% nothing unusual. What I think is fastening about it, is that we've talked for the past year that we let our collector force a - and what you end up doing is keeping your very best collectors generally. And so our turnover rate actually went - I have got it here from 2014 on. So, in 2014 is about 52%, in '15 it went to 38% and then it went to 42% in 2016 and now it's back up to 68%. And at the same time collector productivity is in round numbers when in 2014 it was about $84 bucks an hour paid then it spike to $115 to $143 and now it's at about $94 these are round numbers. So, it's an interesting study, but I'd say what I'm pleased about rate now is that our turnover rate is nothing unusual compared to our historical numbers.

Got it. And then lastly, as we think about margins going forward giving that legal collections from a more expensive option, if you don't collect out of the call center. Is the greater placement - is the channel mix shifting more weighted towards call center, is that just a function of where we're in the cycle with a healthy consumer, you don't have to sue as much. Or is there more of a consorted effort to not rely as much on the legal channel just because of the new documentation requirements and the margins and so forth?

Well, so let's take that one and I think it's a good question. So, first of all whether you ended it was the new documentation requirements, again the documentation requirements are coming from the OCC and the CFPB not necessarily the courts. So, we have more documents today than we ever have. So theoretically you would argue that actually legal is easier for us because I've got these documents I don't have to order them they're already in house. So, and I will just also say this I think about that constantly and I think about all these docs are in my hand, I've got consent order, I've got other consent orders, I have got requirements and I always think about any unintended consequences that might be buried inside those. So, let's just say that the book is always open looking at these returns. But back to your question, the reason that we see these accounts moving more into the call center as oppose to legal is really balance driven, it's legal ROI driven, if you think about your investment in an account. So, remember we want to file a law suit against people who are won't pay. And so to the extent that you have to invest double down so to speak invest in court filings and everything else to process a law suit that balance is smaller it give you less room for any kind of error. So, just all things being equal, lower balance tend to drive less legal and try to push it more towards the call center. Again I always backpedal just let you know that we're always looking at that legal score. And that legal ROI because again we're trying to file law suit against people who won't it's not can pays.

I'm showing no further question at this time. I would now like to turn the conference back to Mr. Kevin Stevenson.

Thank you very much, thank you everyone for attending the call. We look forward to speaking with you next quarter.