Good day, everyone, and welcome to the PRA Group Conference Call. And please note that today’s event is being recorded. And I would now like to turn the conference over to Darby Schoenfeld. Please go ahead.

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 Chief Financial Officer. 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, the slide presentation that we will use today during the presentation 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 Q4 of 2018 and Q4 of 2017 unless otherwise noted. In addition all results detailed on this call reflect the adjustments made from the change in revenue recognition for certain portfolios as described in earnings press release. And now I’d like to turn the call over to Kevin Stevenson, our President and Chief Executive Officer.

Well, thank you Darby, and good afternoon everyone. Thank you for joining our fourth quarter and full year 2018 conference call. Last quarter I discussed some of the more recent investments we've made. I spoke about growth in our collector head count and our expansion of our call center footprint in the U.S. along with our operational improvements in Europe and investments in the legal channel and digital platforms. Looking back at 2018, I'm excited about these investments and I want to revisit them a little more deeply. I'll start with the investments I discussed in the last call. Purchasing in Americas core was a record $657 million, an increase of 23% from the prior year 2017. I mentioned this first because this was a key driver of our investments in new call centers and in the legal collections channel. In addition to the two new centers we opened last year in Burlington, North Carolina and Henderson, Nevada, we also announced plans to open a third. Thanks to the help and support of state and local officials, our newest call center will be located in Danville, Virginia just a few hours’ drive from our home office and about 40 miles due north of our Burlington office. I planned for these to be sister offices much like Norfolk and Hampton, which are about 35 miles apart. We consider many aspects of a region when determining where to locate our centers and all of them generally relate to a favorable business environment. It's my observation that when people say favorable business environment, we all tend to think about favorable tax policy, incentives, fee regulation and reasonable amounts of red tape and those are certainly significant parts of the definition, but these favorable environments also include physical infrastructure, workforce availability, higher education and…

Thanks Kevin. We’ll start with a quick overview of our fourth quarter and full-year 2018 GAAP results. In the fourth quarter, total revenues were $237 million. Net allowance charges were $21 million, operating expenses were $183 million and net income was $15 million, generating $0.33 in diluted earnings per share. For the full year total revenues were $908 million; net allowance charges were $33 million or 1% of the net finance receivables balance. Operating expenses were $690 million and net income was $66 million generating $1.44 in diluted earnings per share. Moving on to cash collections. America's core collections in the quarter were $234 million, an increase of $30 million or 15%. This was led by a $15 million or 24% increase in U.S. legal cash collections and a $14 million or 12% increase in the U.S. call center and other cash collections. Full year America's Core collections were a record $345 million, an increase of $84 million or 10%. This increase was primarily the result of record purchases in 2017 and 2018, as well as increases in call center staffing and investment in the legal channel. U.S. call center and other cash collections increased $77 million or 16%. Our U.S. legal cash collections increased $22 million or 8%. Europe Core cash collections in the quarter were $113 million, an increase of $6 million or 6%. The biggest driver of this increase was portfolio investment in 2018 and the consolidation of a Polish non-performing loan fund during the third quarter. For the full year of 2018, Europe Core cash collections were record $443 million, an increase of $36 million or 9%. Global Insolvency cash collections in the quarter decreased $9 million or 14% driven primarily by muted investment volumes in the U.S., not offsetting the wind-down of all the older…

[Operator Instructions] And our first questioner today will be David Scharf with JMP Securities. Please go ahead.

Kevin, maybe just a general open-ended question about the European market and as it relates to such large capital deployment. And the question is basically what's going on over there because it seems like every three months I rechecked my notes from 90 days or earlier, and it feels like you know it’s not necessity, the capital deployment isn't necessarily consistent with what I thought the themes coming out of your previous commentary were. And I'm wondering you know were there a couple really large portfolios that one or two banks had to specifically discourage or was this more broad-based because you know you’re the tone of your commentary on the market still seems to be very cautious and measured, and it was quite surprising how much capital you put to use?

Thanks for the question, David. You're right, and shame on me for not making that clear, and you're correct. There were a couple of large portfolios, and it was not, it was not broadly distributed around Europe, very localized and again large. But an area that we feel comfortable with, we have good data on it and good operational expertise. My markets my comments on and on Europe are very broad though and talk about the returns. I'll get a, I'll get a little matrix of the deals we won, deals we lost. And again it's based on our analysis and I'll look at it and you know as I said it's about 40% of the deals we're looking at we think traded for most to say you know five - on down through the negative zone. And that 40% really based on capital to deploy. So purchase price allocations, so not number of accounts not number of deals. So it’s again from our perspective it’s a fair read, it’s been to your point it’s been very consistent. It’s improved a little in the past couple of quarters. But we've been talking about this I think since late 2016 somewhere in there. So the other question is what's going on in Europe, I don't know.

Well you pretty much just answered it.

Yes.

I mean it sounds like it's a consistent theme and I guess the follow up and that would be. Are there still regulatory capital actions that are going to force this bank partner or some others that you're close with to have to score a lot of NPLs in the first quarter or do you get a sense that there was a lot of kind of end of 2018 actions by its sellers?

Well, it's very lumpy in Europe we've talked about that for years and that again in just the last couple of years it happen to be really lumpy in Q4. More broadly I guess I'll share with you are seeing a lot of deal activity right now in Europe, even as we sit here day. So I don't know exactly, like I can't tell exactly what's driving that, but what we are seeing increased deal activity.

Shifting to maybe just a little help and how to think about revenue this year? When we just do a simple gross yield calculation on the whole consolidated portfolio and obviously it come down sequentially partly due to the allowance charge and I suspect partly due to just how large the Q4 capital deployment and you probably booking that recent vintage a little more cautiously. Should we be thinking should we be thinking I mean based on taking everything into consideration, should we be thinking about yields throughout this year being close to where you ended 2018 at or is there anything that you put any more downward pressure on that?

Yes. Again I don't think the revenue model that we posted doesn't obviously forecast allowance charges. So I think that's a good proxy for the run rate level in the business. That's probably the best guidance I could give you.

And then just last question and I know it's sort of lumpy, but you've highlighted a few times the - an investment in sort of the Chapter 13, the auto deficiencies, are more of this - is this just one seller that you've been purchasing from over the last 18 months or so when they've come to market or are you starting to see more of these being bid out?

Well, I wish I saw a lot more of them being offered in the market. That would be I'd like to buy them all. Generally though this is a single seller. However, they were purchasing from and - but again we’re marketing hard, I think it's a big asset class. It's something we really like. We know it really well. I think to your point, I’d like to see more sellers get it off at books.

And our next questioner today will be Eric Hagen with KBW. Please go ahead.

So a sort of a follow-up on Europe and I guess the general question of what’s going on over there. I mean, who is it exactly that’s actually buying portfolios for a single digit or even a negative yield. I mean I guess the way I think about Capital Markets transactions like this generally is that the market will soon correct or readjust to a level of that would allow financial buyers to essentially turn effectively a better profit for somewhat of a risky business. Can you just help me bridge the gap between what's creating the better yield for you and who exactly is buying those single-digit yields? Thank you.

Well I don't - I'll be happy to fill the question, I’m not going to say who's buying yields, don’t know who’s doing that. It’s only start somewhere. So first of all, our read of the 40% low-single digit negative that's from our perspective. And I always make that a disclaimer. So I'm looking at some data that we don't have that, I have to be fair about that. I think we're pretty good collectors over there. So it's at least directional. I could probably keep you busy for an hour just throwing different ideas around, but I feel like you know the accounting over there especially is you know it's you can use it in different ways and you can state. So as Pete put out in his prepared comments, if you, you can actually book games on upward revisions of ERC. It's a powerful tool, and again they have it in Europe, they've had it for years You could again theoretically - and again I'm not saying I'm doing this, but theoretically you could have a curve that has a fixed rear end on it, the tail like a hockey stick and over perform early, book some games, and then at some point thought your point, it has to stop. And so I guess my narrative is either that's going on or we need to learn something. And both of those things are possible, and we're as I said in my prepared comments, we are running hard to make sure that we're a great collector over there, and we know what we're doing. But - but that's my read on it right now.

The multiple on those purchases in the Europe core, I'm calculating it at slightly less than one and a half - 150%. Can you just confirm that or either you leave me in a different direction if I'm incorrect?

Yes. No - so one of the things we do, I mean, a little bit echo on my - my - my speakers here. Some of the deals we're purchasing first in the larger ones are - they're still charged up debt, but they've got some payment history behind them so to speak. And so they - they trade a little more closely to say a piece of insolvency debt than they do a piece of plain old non-performing loan debt. So that's why the ratio is lower and correspondingly the expense ratio is lower associated with you as well.

And then on the U.S. side, just the chart - the allowance charge, you mentioned there was CFPB consent order related but, can you just give us a little color around exactly what is driving that?

Yes, so the consent order that we and other large market participant here in the United States generally makes the world, the requirements in that consent order retroactive to deals we bought prior to the consent order. And so it kind of change the way requests are taken care of, it changes the way we deal with the accounts. Again it has changed the playing field so to speak. And it caused the drop in collections and I can go into further but you can probably download the consent order and take a look at it yourself and just imagine that it really did change the landscape. So, as we got, as we move further away from the consent order time and again these deals that over performed so strongly out of the gate and their yields raised and when we found that the consent order was impacting the cash. We had to take these allowance charges. So if you think about from IRR perspective, because that cash is so accelerated, the IRRs are really strong on those deals. So we cannot get into too much detail about the consent or itself that's the general landscape.

Thanks for the comments, appreciate it.

And then I guess I'll add for a second that you're still there, I'll add for the sake of the audience. Is it, once we get past that the deals past consent order all took that stuff into consideration. So that's different, everything is fine with those deals.

And the next questioner today will be Brian Hogan with William Blair. Please go ahead.

Sort of the commentary on the 2019 cash efficiency ratio Maybe I understand I heard your commentary correctly. Did you say it’s supposed to move back towards the 60%. So not exactly there in 60% in 2019, was that your commentary or is it was going to be 60% in 2019?

It's Pete here. What I said was our goal was to move it over 60% and 2019 be part of that journey. So we're moving in that direction. You know a lot of things affect the cash efficiency ratio mix of portfolio we buy and so on. So it'll be a general trend but we're not going to get the appointment estimate.

And then, what is your purchase outlook for the year? Do you expect to buy more in 2019 than 2018 and you obviously have the forward flow agreements and you have some insight in that. And so lumpy and you know it especially in Europe. I mean I can appreciate your uncertainty around that. But I mean what are your overall expectations for the year?

Well, we always going to buy more and just like I was talking about in Europe you know I'd like to buy more over there and then like to buy more, Chapter 13 secured auto as well. But yes, we don't provide any guidance on that, that projection we can make whatever number we wanted. We talked about that for a long time, I can buy, I could deploy as much capital as I wanted to. But you might not like the returns. So you know again, we always strive to buy more year after year after year.

So there you seen enough opportunities, those are they acceptable and attractable - attractive returns?

No, in the - so in the U.S. we talked about it that the U.S. has good supply, the U.S. has good returns and I think as I mentioned in the past number of calls is that we've got to get a pretty rational buying environment here in the States. It's healthy, it's competitive. We've got good competitors and it's just a healthy environment I think for everybody. The Brazil transaction is going to be interesting to watch to see how much volume we can increase there and then I think I talked about Europe at great length so and Europe is very lumpy. So, it's kind of an unpredictable market for us.

What exactly did you buy in Europe? Which markets did you focus on and I think you said it was kind of early days paying papers. So obviously a lower yield but where did you…

So the big transactions were in the U.K. Again, a market we know really well and we had a smattering of deals around different places in Europe as well. But the real needle movers would be U.K.

Does that include the SME paper or is it just strictly consumer?

Yes. Not, not SME paper now. Again, that's a great - it's a great question I'd love to be the expert in SME paper. We're looking at it and we're trying to figure out how to be the experts at it. Steve Roberts is spending a lot of time over in the Europe with Martin and it's one of their goals but now primarily it was the in U.K. paper as I explained earlier it has some payment patterns to it. So, we call it paying but it's still charged off.

And I heard your earlier commentary on the regulatory - are your working with the regulators and what have you - having those conversations. But do you see anything on the regulatory front and that gives you any concern, are you seeing anything the overall commentary on the regulatory environment.

Well from a regulatory environment we’re, as I said in my script we’re really - we’re thinking about proposed rules my script we’re really - we are thinking about proposed rules, I think about the web of rules we have around the country from federal rules to state rules and sometimes rules and it would be really wonderful to have one uniform set I don't know what the odds are pre-emption, again I'm not an expert, some of these things. But the most important thing I think is uniform rules and again uniform enforcement of them across all market participants.

And then, have you seen any impact from the Southeast lower tax season to date on your business or how would you describe that?

I would say that it's like clockwork, you're talking about the delay of the earned income tax credit and the child tax credit, but I think the government that they're going to release some yesterday and we saw the impact, so for me it's like clockwork and so it's a big deal. I think this whole industry with some folks that have potential difficulty have these kind of things and we close the deal yesterday, it was a big day for us.

And then, one last one, can you talk broadly about your plans on - for a [indiscernible] implementation come in 2020 and then its impact?

Yes, Pete, I'll take that one. We have been making pretty good progress as an industry both the two big publicly traded companies as well as some of the private companies in moving with our auditors and advisors around an accounting model there we all submitted comments to the FASB on their exposure draft for recoveries. They had a meeting just this week on Wednesday where we made some comments that wouldn’t necessarily be favorable to the accounting model we were pushing forward. So, we're regrouping as an industry and anticipate going and talking to them in the near future.

And our next questioner today will be Robert Dodd with Raymond James. Please go ahead.

Just on the allowance charge again. I mean you mentioned obviously tied to the consent decree, but that obviously that occurred a while ago. So, what really happened because obviously you review the collectability et cetera on a quarterly basis? What really was the decision to take that charge in Q4. I mean was there something that happened in the fourth quarter an assessment or is it more related to the fact that hey, as you end order you do a double square with the numbers?

No, we've continued to have cash shortfalls in these vintages over the course of this year and we've taken allowance charges along the way. And it was just a full assessment of the cash projections on these curves including a pretty level of robust analysis as a result of it being kind of the final time before we follow it in cash. So again, it's the best view that we've got on these portfolios as we sit right now. And again they're over performing original. They're fairly high yield, so they are generating significant amount of revenue that we're booking as well. So it's just an adjustment within the accounting framework that we've got here on deals that are otherwise performing very well.

On Europe, I guess, not the purchases obviously which are very strong, but operationally, obviously, about half of your EIC do have stall in the U.K. and as the competitor of yours is yesterday, but Brexit may or may not occur a month from now. So what have you got in hand or are there any additional complications operationally or consumer wise in the U.K. that you think could come up or be exacerbated depending on what happens?

Terry, we've obviously been watching the same thing that you've been watching. So we think about things, we spend a lot of time looking at portfolio stresses. I saw some work that our guys in Europe did because the important thing to remember is that, while we entered Europe in 2014 by purchasing Aktiv Kapital, they've been there a long time and so we've got a bunch of data. And so we were looking at like stresses, the global financial crisis in Europe, and trying to figure out what kind of impact it might have. So we're rummaging around that. We talk about the FX volatility that's going to be an issue, but hopefully, Pete and his team have a good handle on that protecting us from some of those fluctuations. Clearly, within the EU, data can move fairly, freely around the EU, if there's a sort of hard Brexit as well, it's going to create difficulty in moving data around. I don't know how material that's going to be, but it is a thing for sure. There's some push and pulls around how it might affect the economy. It may make it more difficult for people who move in and out across borders and so that can have both a positive or negative impact on at least our client base or our customer base in the U.K. So I could probably spin it one way and say it's actually positive for our client base or I could say it’s negative. So it's high on our radar screen and those are just some things what we're thinking about.

And our next questioner today will be a follow up from David Scharf with JMP Securities. Please go ahead.

Just wanted to follow up on the previous question regarding CECL. Peter, my understanding was that CECL would have upon implementation arguably gotten rid of the asymmetry between rating up yields, taking the revenue over time, but then also being able to no longer have allowance charges in taking the lower yield over time. Is that the industry's position that you said FASB isn't embracing or is there some other value accounting they're embracing?

No, no it's really more a nuanced point around how to get to the final accounting answer. Our expectation is that that for the symmetry that’s present in the income statement on an IFRS 9 basis is likely where we'll end up under U.S. GAAP. It’s really just working through the process of how we get there and some of the comments that we made in this - we use the Tellvoice, as we board meeting that our council like to watch on YouTube because it's riveting.

Okay.

But we need to regroup as an industry with our advisors and go talk to them about it.

So, it sounds like on 2020 we'll finally be spared of all these allowances. But is it already - in terms of issues of getting there is that more upon whether there’s a book value hit upon conversion…

No, again the transition provisions to [indiscernible] sort of anticipate and think about it like a yield reset in the book whatever our book value is at the end of the year and whatever our ERC curve is at the end of the year that the yield would be reset accordingly.

Got it.

And get it from that point forward increases in cash estimates or decrease in cash estimates would be done on a present value basis through - on the adjustment to the allowance.

Got it.

And again it's just - as we sit right now we thought we had a pretty clear path to how we got to the final accounting conclusion and the FASB in their deliberations do a little bit of a wrench into that that we need to spend some time to digest and figure out how we perhaps go as an industry and have a discussion with them to plead our case or if that is not fruitful then what's our alternative approach.

And our next questioner today will be Hugh Miller with Buckingham. Please go ahead.

Thanks for taking my questions and I apologize for any background noise here, but just I had one quick one on the impact to revenue and earnings that we should be thinking about in terms of the sales and service business in Brazil, I think you could share some color there, that’s be very helpful?

Yes, as we try to highlight in the in the prepared remarks. No impact to the revenue profile on track. We think it's enhanced. So, we sold a majority stake in the master servicing platform, but we didn't change any of the ownership or the investment portfolio we already have there. And the new portfolio structures that we'll buy make new investments through we maintain the same ownership percentage of those as well. So, it's really all about creating value in a servicing platform that has a greater value to Bradesco is they'll be able to leverage that over a larger NPL base. And then having additional potential investment opportunity through this strategic relationship with Bank of Bradesco. So again we think it's a revenue enhancer for the company.

I understand that you still have portfolio as you still own and then you can still deploy capital in the markets. Was there servicing revenue that you guys were providing to certain clients that you now no longer will be accruing revenue forward or is that just the case of the function of the buyers buying it and going to leverage the servicing asset across your own assets?

No, when we first entered into the joint venture the RCB team did had some third-party servicing. But over time as we did may expanded the debt buying operation we had wound that part of the operation down and RCB was solely servicing our own portfolio which they will continue to do. And as Kevin said we've essentially shifted fixed cost to variable cost. And then, we do maintain a minority ownership position in the master servicer. So as they expand the use of that we’ll pick up some economics there, but remains to be seen what that look like.

And then, just in terms of in I assume which we should be thinking about in terms of now you are using an external servicer in your portfolio. Is there any difference then in terms of the margin profile of future purchases by doing it external versus in-house?

No, it's a - technically it's an external but we own the minority share in that servicer and it's part of a strategic relationship between us Bradesco and the original founders of RCB. So the rates that we'll be paying for servicing our own portfolios is similar to the rates that we have been paying.

And this will conclude our question-and-answer session, as well as today's conference call. I just want to thank you all for attending today's presentation and you may now disconnect your lines.