Good afternoon, and welcome to the PRA Group conference call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Darby Schoenfeld, Vice President of Investor Relations. 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 beliefs, projections, assumptions and expectations. We assume no obligation to revise or update these statements. We caution listeners that these forward-looking statements are subject to risks, uncertainties, assumptions and other factors that could cause our actual results to differ materially from our expectations. Please refer to 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 during today's 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 you needed to listen is in the earnings press release. All comparisons mentioned today will be between Q1 2020 and Q1 2021, unless otherwise noted. During the call, we will discuss adjusted EBITDA and debt to adjusted EBITDA for the 12 months ended March 31, 2021 and December 31, 2020. Please refer to the appendix of the slide presentation on our website used during this call for a reconciliation of these non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures. I'd now like to turn the call over to Kevin Stevenson, our President and Chief Executive Officer.

Well, thank you, Darby. I want to begin this evening as I have for the past year, but once again, taking just a few moments to acknowledge that this pandemic is a human tragedy. And we're all extremely sensitive to the impact it's hailing on everyone globally. Today, many of us are starting to see what we hope is the end of this long journey, and I believe this is especially true here in the U.S. and in the U.K. As such, these areas of the world, I think, are cautiously optimistic and making plans for reopening their economies, bringing their lives back in order. That said, we must not forget there are many, many -- still a long way from the end. There are vaccine production and distribution problems across Europe, South America and Canada, surges of the virus in places such as India. Our thoughts continue to go out to all those affected either directly or indirectly by COVID-19. And while the environment remains challenging, our employees continue to amaze me. I remain extremely impressed by, not only their personal resilience during the pandemic, but also their commitment to our values. As a company, I believe we are more connected than ever before, even though we remain in a mix of in-office and work-from-home scattered across the globe. We've never felt more like 1 team and 1 company, and I credit this to our early and often outreach efforts over video conferencing, coupled with energetic acceptance and engagement of our employees. The hard work and resolution of our team during these challenging times gives me great faith in our capabilities and quite frankly, in human nature itself. It's our employees engaging with customers every day that defines who we are. They are the ones who treat the customers…

Thanks, Kevin. During the first quarter, we continued to see the strong cash collections performance we saw during 2020. Global cash collections were a record $556 million, increasing $61 million or 12%. This led to total revenues of $289 million, an increase of $38 million or 15%. Portfolio income was $232 million. Changes in expected recoveries were a net $50 million, consisting of 2 parts. First is the cash collected in the quarter compared to expected recoveries, which amounted to $103 million in excess of forecast. This was driven by a significant overperformance globally. The second part is the present value impact of changes in ERC. This quarter, that netted to a negative $53 million. We've again assumed that the majority of the overperformance is timing acceleration of collections rather than a betterment or increase to total expected collections. In the future, if we determine that there has been some betterment in the curves, we should see additional portfolio income. Operating expenses were $179 million, a $13 million decrease from the first quarter of 2020. Our operating expenses were reduced in the quarter due primarily to lower legal collection costs and fees. Net income attributable to PRA Group was $58 million, which generated $1.27 in diluted earnings per share. For the quarter, cash collections were a record $556 million. Cash collections in the Americas increased $34 million or 10%. This was driven by a 32% increase in U.S. nonlegal collections, which included a significant increase in digital collections. As Kevin mentioned, we've seen positive trends in productivity and increasing collections through our call centers and digital platforms. This shift was the primary driver of the 10% decrease in U.S. legal collections. Collections in other Americas decreased 5%. However, adjusting for currency translation, they would have increased as collection efforts and…

All right. Thank you, Pete. It certainly was a remarkable quarter. And to emphasize just how incredible in the last 15 months have been, I do want to reiterate the statistics I quoted at the beginning of the call. For quarterly global cash records, increased cash efficiency ratio at record levels, net income growth of more than 30% in all but one of those quarters, expanded and improved digital platforms, improved leverage ratios that were already among the best in the industry. We obtained bond rating as also among the best in our industry, and issued our first bond. We expanded our European credit facility and extended the maturity of both of the credit facilities. And we invested at levels that maintained our ERC at a very strong $6.1 billion despite significantly over collecting expectations and treating those collections largely as acceleration. I'm very proud of what PRA has become. And we're so much more than a purchaser of nonperforming loans and so much more than a servicer of nonperforming loans. We are a data analytics company that focuses on distressed debt. We evaluate, price, optimize and liquidate portfolios of loans. NPLs are a sophisticated asset class. May require smart, deep and timely analytics and I look forward to further leveraging our expertise in this area. We're also a digital outreach company and a marketing company. I believe this is an area of exciting growth as we continue to educate the world broadly on who we are and what we do and how we do it. We are a provider of capital to creditors, which then make and recycle it back in the economy. We provide great jobs for thousands of people who I believe know that we value them. And we provide customers patient, fair and affordable payment options that help them resolve their debt with us and can hopefully put them on a path to financial recovery. We celebrated the 20th day anniversary of our founding on March 20. And over those 25 years, I have thought and I continue to think back often on how we started this company. I've shared this with you many times in the past in conference calls and written documents. We started this company to do something different in this industry to change it. And looking back, while that may have been a wonderfully naive idea, it was still our goal. We had a very simple premise that we followed to do things the right way, for the right reasons for the long term. And while those are somewhat abstract concepts, they are important ones, nonetheless. They are important because that is the foundation of what we created 25 years ago, and I work every day to remind everyone of that value. Advances we made over 25 years and nothing short of amazing to me. And when I look back at PRA's transformation, one thing occurs to me, that we're just getting started. So with that, operator, we're ready for questions.

[Operator Instructions] And our first question comes from Mark Hughes of Truist Securities.

Pete, the efficiency ratio, obviously quite strong this quarter. You gave us the full year outlook. Does that contemplate additional costs layering in to the expense structure? Or is that just the strong leverage on the seasonally good collections in Q1? How do we think about that?

Yes. Good question, Mark. Thanks. We're really focused on efficiency, and I think our expenses are likely at a good run rate where we sit now. So that impact, as we go through the year, is really more of the second part of your premise, which is the seasonally high in collections in the first quarter here. And that's really going to be what'll drive that over the course of the year.

Kevin, did you talk about collections on a monthly basis and maybe a little insight around the month of April in thinking about the trend or what does that expense level mean relative to collections. Are you still seeing strong results here early in 2Q?

I didn't share anything in this call. I would say that we've done that before, so I'll go ahead and give you some insight to it. I mean, so April looks pretty strong as well. So April has got a good strong start to it. Well, it's over now but -- no, so I would agree with you that April still was strong. But again, I think as the year goes on, we're going to be competing for cash. I talked about this pent-up demand earlier and it'll be there. And as people open up, they'll start spending money, and it'll be modestly more difficult. I think that's just human nature.

I don't think the pattern is any different this year than a normal seasonality, right? We had maybe a couple of day delay in start of the traditional tax season. And that last year was the odd one where we didn't have a full tax season. It normally trails into April. So in the current environment with additional stimulus dollars sitting in the first quarter, we would expect that to tail off as we go in the second quarter.

And can you give us the formulation you used about the purchasing and kind of rebuilding ERC or maintaining ERC. What was that again?

Yes. We're just trying to give some indication of, for lack of a better term, a replenishment rate. So if you consider the average purchase price multiple for the book globally in the first quarter. You can do the math to figure out how much we'd have to buy in order to replace the amount of ERC that we projected to run off during the year.

And did you give some numbers when you went through that?

Yes. It earned around...

What were they, I'm sorry.

Approximately $825 million.

Would be what you would need to purchase in order to replenish the book.

Correct. Correct.

Okay. And then just final question. Along those lines, purchase multiples, I assume -- I don't know if the Q is out but purchase multiple, how do they compare with the full year 2020 in the important categories?

Pretty consistent. The tables in the press release are pretty consistent in U.S. core. Actually, up a little bit in Europe core. So those are the 2 big categories that are going to be the drivers.

Next question comes from Bob Napoli of William Blair.

This is Spencer on for Bob. Can you guys hear me?

Hey, Spencer. Sound good.

So I just wanted to follow up briefly on the benefits you've seen from digital. Do you expect to give any of those benefits back over the remainder of the year? Or are those benefits that will persist and even grow into '22 and '23, gradually, of course.

I think digital is going to grow.

Okay. And then one quick follow-up. Why the Australian market? What makes that attractive relative to your 2 larger markets?

No, it's just a middle market. It's an established, well-established market. I think I've shared in the past, but we've been looking to get into Australia. I'll get -- I won't get this exactly right, but we set up a company somewhere around 2011, kind of a shell company down there looking to get into there, and it just never materialized. It's kind of a long-term goal of ours. And of course, last year was just -- it seemed like the right time to do it. And we did it. So yes, no, we like the market. We've got some great people down there. Hopefully, they're listening to the call as well, but we like that market.

The next question comes from Robert Dodd of Raymond James.

I mean, first one, just a housekeeping question. The fee income and other revenue, I mean, particularly the other revenue was up a bunch. Was that just the one of those kind of spikes from those -- I forgot the name of the business. So is there something that's changed there in terms of servicing or something like that? Basically, is that sustainable or kind of under the -- to more than normal?

Nothing real huge there. We -- during the quarter, we sold some of the PCI claims in the CCB business just to kind of derisk the settlement in that portfolio, and that came through as other income. So you kind of lump those -- I would lump those 2 together. But yes it's more an anomaly in the quarter as opposed to a run rate thing.

Got it. And then this one is a little obscure. When I look at your -- where the revision changed in expected recoveries came, right? And I like the disclosures of the peso, right? Obviously, a large revision, net revision up in the U.S. and Europe. Americas insolvency was -- I mean, basically net to 0, I mean, it's 41,000. Any -- is that related to the suspension of garnishments et cetera, on insolvency claims or repossession on the solvency claims? Or is there something about a different, if you will, demographic in the people in the insolvency segment, which is small versus the core set?

Yes, it's really around what we've experienced during COVID. The insolvency portfolios really haven't had the same sort of shock as we've experienced in the core portfolios. And so it's really just kind of normal variation that you're seeing there in the insolvency book compared to some real outsized performance versus expectations that's occurred as consumers have gotten liquidity in the core books.

Got it. Got it. And I've got one more, and this one's an unfair question. If I look at the cash efficiency ratio, if I were to take out, hypothetically, the $103 million in excess cash collections over and above what you were planning for in the quarter. Obviously, the cash -- I can calculate the cash efficiency ratio with that extracted, but then it would be down year-over-year, which I don't think is correct because obviously, those extra collections also came with extra expenses. But can you give us an idea of what that would have been without that extra cash? Because obviously, that goes to pointing towards the guidance for 63, which is a lot lower than the Q1, but also Q1, obviously, you had $103 million extra cash collections above plan.

Yes. I -- you've asked a question that's sort of unknowable. I guess, what I would say is in terms of looking forward, we think our expenses, as we sit now, are kind of a good run rate. And there's a potential for us to have additional overperformance as we go through this year. And if we do, that'll be -- start to be an indication of maybe betterment versus acceleration. So that's why we expect that to trail down more as we go through the year. It's still up versus what we originally thought for the year. We always have a seasonal high impact in the first quarter, anyway, just given seasonality of U.S. collections. So not sure I can dissect it really any more for you than that.

This concludes our question-and-answer session. I would like to turn the conference back over to Kevin Stevenson for any closing remarks.

Great. Thank you, operator. And I do have one more thing to say this evening. Hopefully, you have seen the press release. Penny Kyle is retiring from our Board. Penny is a long, long time Board member, having joined us in 2005, and I am so thankful for all of her contributions. Penny was a huge supporter of the culture at PRA and all of our efforts around doing things the right way for the right reasons, really all of our founding principles. And we wouldn't be the company we are today without her. So Penny, thank you very much for all you've done for us. And for everybody else on the call, thank you for joining this evening, and I look forward to speaking to you next quarter.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.