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 is being recorded. I would now like to turn the conference over to Ms. Darby Schoenfeld, Vice President of Investor Relations for PRA Group. You may begin, please.

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 Q3, 2017 and Q3, 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 third quarter earnings conference call. PRA Group had exciting third quarter. We produced good cash results, increasing collections 3%. We invested significant capital $211 million, up 31% versus the third quarter of last year, increased estimated lean collections by $174 million, executed well operationally, and expanded capacity for collectors in multiple locations. We're well underway with construction of our new call centers in Henderson, Nevada, and Burlington, North Carolina. And we have additionally expanded in new space in our corporate headquarters in Norfolk and in our Hampton locations. In each of these expansion areas, we've already began hiring and training, and we will continue to hire and train in Q4, with a goal of preparing all employees to be productive and ready for the first quarter of 2018 which has seasonally strong cash collections. Portfolio purchases in the quarter across all geographies were $211 million as we continue to see good product flow especially in United States. Over the next 12 months across all geographies we have committed maximum forward flow invested amounts of $414 million. In Core Americas we invested $116 million during the quarter and year-to-date we've invested $376 million. Since the beginning of PRA, we believe that our commitment to compliance in the customer journey has made us a better choice for sellers, especially when they compare the customer experience of selling to sophisticated buyers with that of cycling accounts through rounds and rounds of contingency debt collection agencies commonly referred to as DCAs. In U.S. PRA doesn't sell accounts, we don't outsource call center collections, and we are patient collectors. We want to work with our customers to develop a plan that fits their needs and helps them resolve their debt.…

Thanks Kevin. Total cash collections for the quarter were $382 million, an increase of $10 million compared to the prior year. The increase was driven by growth in U.S. call centers and Europe Core cash collections. This was partially offset by decreases in Americas Core legal cash collections. Americas Core collections increased to $213 million up $2 million versus the third quarter of 2016. This was driven by an increase of $8 million in U.S. call center cash collections primarily from increased staffing and portfolio acquisitions. The previously purchased U.S. core portfolios have benefited from the increased staffing levels and as a result we raised yields on 2015 and 2016 vintages. Europe Core cash collections were $103 million, up $7 million from the previous year. As Kevin mentioned, we've made operational improvements in Europe, including legal capabilities, scoring methodologies, in-house collections, and technology. As a result, we started to see overperformance in the curves. We monitored the cash collections to determine whether the overperformance was acceleration or based on sustained overperformance for several quarters, we feel confident that these operational enhancements are indeed driving improvement in the curves. And as a result, we increased yields on pools in the UK, Spain and several other countries. Global insolvency cash collections increased $1 million versus the third quarter of 2016. Americas insolvency grew slightly year-over-year and grew dramatically, 14% or $7 million from the second quarter of 2017. These cash indications are extremely encouraging. This is the first quarter since 2014 that insolvency collections grew year-over-year and the continued sequential quarter growth is a good trend. The large portfolio purchases for each of the last three quarters is driving this increase in insolvency cash collections. Net allowances remain at maintenance levels and were $3.4 million in the quarter, $2.4 million in the…

Thank you. [Operator Instructions]. And our first question comes from Robert Dodd from Raymond James. Your line is open.

Hello.

Mr. Dodd, please check your mute button.

Okay. On that NFR as you tell me, so the new indication is not showing on the presentational online the $191 million, that's just NFR that does not include any collections that you get into now fully amortized 2012 vintage; is that right?

That's correct.

Okay.

Correct.

Got it. And then just on pricing and I really appreciate you use extra tables in the press release instead of having to wait for Q, the estimated pricing on 2017 kind of states $193 million just the U.S. core was $195 million last quarter, obviously that's a very small change. But is that still being limited by headcount capacity or has -- have competitive factors in the U.S. ramped up a little bit more?

Thanks, Robert. We do get that question from time-to-time. So let me address it kind of in backwards order. We do continue to see good pricing in the United States, we've been talking about that for some time, we're buying a better yields today than we have over the past few years, that really hasn't changed. And I think it's all kind of very understandable in terms of increasing charge-off rates, high balances in terms of consumer credit, and then some of the stuff I talked about in terms of banks choosing to sell versus place into agency pipelines. But the second thing, I'll talk about is there is some haircut or some bit of a caution there, we're using today because of staffing. Hopefully as Pete talked about in his part of presentation, we've certainly released some of those yields as staffing gets closer and closer to where we need to be. Now hopefully once we get these new sites running, we’ll be able to extract some of that out of there. The other thing I would remind everybody I know I do every time I talk about this but the tables that we're talking about are something that we started to put out just after IPO 15 years ago and they were really designed to give you guys a feel for, what cash collections, what tranche looks like, how revenue can be computed, and you can see where the revenue comes from. They're gross multiples, they’re not net and I always encourage everyone to think about the experience of looking at our bankruptcy asset class over a decade ago, we started buying bankruptcy assets and people quickly got the hang of the idea that a lower multiple at lower expenses can still drive a great return and conversely a high multiple at high expenses could actually drive a worse return. So just keep in mind what we're experiencing today is that we're buying core paper today to generally lower multiples because the expense base for us is lower and paper is more liquid and there are some purchase issues, so it's again that's a long-winded answer to your question but I wanted to fully address it.

I appreciate the answer. If I can get one more quick one when you're looking at how long do you think you would need to deserve the average balance increase before making a decision whether to move a material number of accounts into the legal collection channel?

There won't be any observation so to speak. That's a good question. It's really a factor of kind of getting back to what we've done in all of our lives, as we experience collections, we identify an account that's as we call it a won't pay, we'll just be able to move those accounts more readily into legal channels as opposed to not being able to because the balances don't make sense.

Thank you. And our next question comes from John Rowan with Janney. Your line is open.

Yes congrats. Can you just update us on what the cost to collect and the purchase price multiples were in the quarter?

Yes the table in the press release would give you the multiple in the quarter. So for Core that was $193 million. We don't separately disclose cost to collect on the different types of papers. So we've given sort of guidance around overall level of expenses and our cash efficiency ratio that's about the limit of what we will disclose on costs.

Okay. And then just obviously you came in well ahead of your guidance for NFR revenue for the quarter a lot of that goes back to cash collections on pools you fully amortized. And currently are you seeing the table that you referenced for the fourth quarter guidance, you said it was $191 million, I mean any change you want to estimate what the same type of differentials you mean the fourth quarter over and above that number not necessarily for impairment reversals but for this revenue recognized on fully amortized pools?

Yes, that's a difficult one. That's why we said when we first published the revenue model that it was a base estimate and those four items that we highlighted as drivers of potential variance are ones that it's difficult for us, we won't know until we actually close the books for the quarter. So it's very difficult for us even to know what that's going to be. I think the best I could tell you is what we told you last quarter which is you could use the current quarter's amounts as a proxy for what might happen in the subsequent quarter.

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

Thank you. Good afternoon. You talked about the cash efficiency ratio, I think 61% for the full-year, I'm right in thinking that's right in line with what you said for the nine months; is that correct?

Yes, that's about what our nine month number is.

Right. So even with the ramp-up in expenses it's not particularly different than what you've been doing year-to-date?

Yes, again as I had highlighted, the increased staffing costs that we expected to see has really been offset primarily by lower investment in legal. But again as this mix starts to shift and we're buying higher balance accounts that will translate into more accounts going into the legal collection channel potentially as early as the fourth quarter.

Right. But at this point you don't see that nor do you see that the ramp up in the collector costs is really going to change the expense profile?

Yes, right exactly. So my point that I was trying to make maybe simplifying the point was our efficiency ratio for the third quarter was closer to 62% and I wanted to caution you not to just take that and run rate it, that we think for the full-year will be closer to our ratio that we've experienced for the full nine months.

And just one more on the secured bankruptcy, Kevin, you said -- you talked about that as $30 billion opportunity, did you say you are starting to see some of that come to market getting -- you're getting more confident that that's going to be something that develops in a meaningful way?

No. Yes so it's a good question. So no we've got, we purchased really one big deal every quarter and it's not a sea change at this point. But for us any crack into that market is nice and you can see what it did for us just this year. So what I hope to do is just try to get in front of these folks and say I know historically not a lot sold but there are some people doing it and so that's all I'm trying to tell you is right now I'm -- I don't see this as the trend yet, I don't -- I'm not confident it will be but be confident that I’m going to try.

Thank you. And we have a question from Brian Hogan with William Blair. Your line is open.

Question on I guess IRRs versus historical levels is the essence of my question. But you mentioned fresher paper improved efficiency if you will and current purchase model at 193. But you also mentioned in your prepared remarks haircuts if you will and I know you're facing those staffing shortage right now, is it your anticipation that the IRRs would increase maybe back towards historical levels as you right size your staffing and then and may be optimistic scenario that TCPA releases I mean is that kind of a good way to think about it?

Yes, maybe I'll address the haircut comment first, and then I'll let Kevin talk about TCPA relief and other things. So the comment on the haircut really is to the shape of the curve in the first part of the deal and the relative ramp of expected cash collections in the near-term just a commentary around the fact that we're acknowledging our existing staffing levels in how we're booking those deals and how revenue will ramp in the early part of the deal. Nothing more than that, it doesn't get to overall profitability of the deals or anything.

Yes. And as far as TCPA, we're waiting like you guys are to hear something out of the DC Circuit or potentially from the FCC. But as I said last quarter worst case scenario if we all woke up the first of the year and we had TCPA reform, what we would probably end up doing is just running our call centers a little less of an occupancy factor. Now today in some of our centers, one of them particularly were like 110% staffed and if you would ever come to our sites during shift change or peak periods, you have a very difficult time finding a parking space and so it's not a great way to run a call center. So I'm optimistic that should I have TCPA relief, that to your point I think that's going to have an impact on yields, I'm very optimistic to that and I think that our ability to probably right size our buildings is easily doable. So hope that answers your question?

Yes. As a follow-up question, European purchases very light and of course you mentioned the seasonality, that's also very competitive over there and in your prepared remarks you also mentioned a lot of things you're doing to maybe enhance your competitive position. I guess can you address what's your overall strategy in Europe let’s extremely competitive valuations over there, very lofty. And just what are you doing maybe to even improve your competitor position where you can actually maybe buy more than the four Ts so that means you're Pan-European versus some of those being single markets players? Can you just kind of address with European operations please?

Sure. Yes we can. So to your point we are Pan-European, we love our acquisition of that to capital and the diversification that it affords us. But as I said in my prepared remarks, there are a significant portion of deals that we think and I stress that last quarter as well that we think are trading for irrational prices in a lot of cases negative IRRs from our perspective. So what I've asked the folks, our European management team to do is make sure that our view on that is accurate. So I want to be fair on these comments that it's our view and might not be others view. But so what we're doing is continuing to push as hard as we can on operational changes, push more into the legal channels in Europe, as I addressed in my prepared comments, and push into scoring and efficiencies and do all the things that we've done here in the States for 20 years. And then to the extent that our read has been correct that pricing is irrational in a lot of the cases, that's not sustainable. So in that scenario I will hopefully wait those guys out. To the extent that we are thinking and there's less of that irrationality that exists then my goal would be to take market share of that.

Thank you. And our next question comes from Bose George with KBW. Your line is open.

Hey good afternoon. Actually one of the card issuers stated or as you may guys suggested at the conference a couple of months ago that one of the reasons they were doing more in-house was because the regulatory rules that were put in place on third-party debt collectors has impacted pricing but those rules don't impact first party debt collectors. So the question is do you think card issuers have any advantage from a regulatory standpoint doing their own collections?

So I get that question is well from time-to-time and I guess the first part of the answer is I really don't see that as a trend, so that's where I'll start with. Second the commentary about originators not following debt collection rules, I didn't hear that comment, I think technically if you look at things like the FTCPA it's probably an accurate statement but I'm not aware and I don't know all the insights of about how the banks operate but I'm not aware of banks violating FTCPA or something like that. So I don't really know where that comments coming from. But I don't see it as a trend and quite frankly the opposite is as I mentioned in my prepared comments we're seeing some signs of people actually liquidating their agency pipelines in other words placing less at contingent DCAs and selling more. So I'm seeing a little more of that and kind of less of what you're talking about.

Okay great, that's helpful. And then actually one more regulatory question, any, have you hearing any updates from when the CFPB might or might not do anything in terms of final rule?

No, if my date is right, I think they were slated to come out with rules sometime at the end of September and that didn't happen. And so I really I have not heard any insight from it. I don't know what's going on there but we're certainly interestingly waiting to see that and it certainly has its pros and cons to the extent that our marginizes efforts. That would be interesting to the extent they had some sort of curveball so to speak inside the rules that might be challenging a deal. But I think by and large just kind of feeds back into your other question by and large people are following a similar debt collection processes, I think they're generally following consent orders issued out through the market. I know that other people's consent orders say that law firms impact us, so I know I think that the market from regulatory standpoint is operating pretty well right now, so I don't know how that would change post CFPB new rules.

Thanks. Thank you. And I'm showing no further questions at this time. I'd like to turn the call back to Mr. Kevin Stevenson for any closing remarks.

All right. Well thank you very much, thanks everyone for joining us today. We look forward to speaking to you again next quarter.

Thank you.

Thank you. Ladies and gentlemen for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.