Good evening and welcome to PRA Group’s Second Quarter 2024 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the call over to Mr. Najim Mostamand, Vice President, Investor Relations for PRA Group. Please go ahead.

Thank you. Good evening, everyone, and thank you for joining us. With me today are Vik Atal, President and Chief Executive Officer; and Rakesh Sehgal, 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 our earnings press release issued today 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 all be found in 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 replay dial-in information is included in the earnings press release. All comparisons mentioned today will be between Q2 2024 and Q2 2023, unless otherwise noted, and our Americas results include Australia. During our call, we will discuss adjusted EBITDA and debt-to-adjusted EBITDA for the 12 months ended June 30, 2024, and December 31, 2023. Please refer to the appendix of the slide presentation used during this call for a reconciliation of the most directly comparable US GAAP financial measures to these non-GAAP financial measures. And with that, I’d now like to turn the call over to Vik Atal, our President and Chief Executive Officer.

Thank you, Najim, and thank you everyone for joining us this evening. The second quarter was another important step in demonstrating the turnaround in our US business, delivering against our financial and operational targets for 2024 and positioning the company for future growth. Our net income for the quarter reflects the progress we have made in executing the turnaround with speed across a broad set of initiatives. Perhaps most compelling is the fact that we delivered these results while absorbing both higher operational and funding costs to support portfolio growth. Additionally, our results reflect the increased investment we have made in our US legal collections channel, which we believe positions us well for future cash generation. We invested $379 million during the quarter, with pricing remaining attractive globally. Cash collections grew 13% year-over-year, primarily reflecting higher recent purchases and the positive impact of cash generating and operational initiatives in our US business, along with continued cash collections growth in our European business. With the stabilization of our US business in 2023 and the demonstrated progress on our turnaround efforts, we are focused on sustaining the business momentum through the balance of the year and driving growth as we transition into 2025. In a moment, I'll provide some updates on this front, but before I do, I wanted to share that we are celebrating the 10-year anniversary of our acquisition of Aktiv Kapital in 2014. This transformative acquisition elevated us from primarily a US-based player to a truly global enterprise with a diverse European footprint. Since then, our global presence has enabled us to shift capital across the world to respond to differing investment opportunities. It has also offered us critical geographic diversification so that we can hedge against local economic issues, consumer health and competition. In addition to the benefits…

Thanks, Vik. We purchased $379 million of portfolios during the quarter, up 16% year-over-year, representing our third highest quarterly level stretching back five years. In the Americas, we invested $225 million in the quarter, up 23% year-over-year. In the US, we deployed $207 million, up 42% year-over-year. The increase was primarily driven by higher portfolio supply as reflected in the monthly amounts purchased under our existing and renewed forward flow arrangements. This was supplemented by additional forward flow and spot purchases as we successfully expanded our seller relationships over the last 12 months. Looking at pricing during the second quarter, our 2024 Americas core purchase price multiple finished the first half of the year at 2.11 times. This is consistent with the end of the first quarter and reflects the attractive pricing in the US market today, along with our focus on improving net portfolio returns. Turning to Europe. We invested $154 million across every major market. Similar to the US, we have continued to expand seller relationships in Europe, which contributed to the robust investment volumes realized this quarter. Since Europe is primarily a spot driven market, volumes are dependent on seller strategies and timing. In the UK, which is our largest market outside the US, we continue to benefit from our longstanding seller relationships with stable forward flow volumes. We also have a strong presence in Poland and in the Nordics. In contrast, Southern Europe remains intensely competitive, and we are being selective with our investments, which is illustrated by the fact that these markets make up less than 5% of our total ERC. Overall, we continue to exercise discipline while also keeping an eye out for new opportunities. Moving onto our financial results. Total revenues were $284 million for the quarter. Total portfolio revenue was $283 million,…

Thanks Rakesh. As seen by our financial and operational results in the first half of this year, we are continuing to push the ball forward with our initiatives remaining well on track. We are highly encouraged by the overall progress thus far, recognizing that it will take some time to see the full fruition of our efforts. Looking ahead, our 2024 targets are outlined on this slide with the following additional commentary. First, we continue to expect portfolio investments to remain strong through the balance of this year. Cash collections in the first half of this year have already grown double-digits compared to the prior year period, and we expect to sustain this level for the full year. We are also expecting cash efficiency to be closer to the 60% mark for the full year. This reflects improved strategies and processes driving operational effectiveness as well as the increased investment in legal collection spend through the year to drive future cash growth. And lastly, we continue to expect ROATE to range between 6% to 8% for the full year. While it is still too early for us to precisely forecast how this metric will evolve through an entire business cycle, we expect to see additional uplift beyond this range as we move into 2025. In closing, I am really proud of our team and how we have been able to accomplish so much in such a short amount of time. We are working hard to drive positive momentum in our US business, continue to benefit from the strength of our European and Brazil business, and achieve greater profitability as we move into the future. Thank you as always for your continued support. And with that, we are now ready for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of David Scharf from Citizens JMP. Your line is now open.

Thank you. Good afternoon and thanks for taking my questions. Hey, notwithstanding what was clearly some very strong collection performance, and obviously you exceeded expectations. I'm kind of obligated to focus on the state of the US consumer just based on market sentiment right now. First off, Rakesh, I just wanted to clarify your qualifier regarding some stress from inflation and high rates on the US consumer. Was that a new comment? Was this something incremental? I can't recall because obviously we've been hearing that from lenders we cover for the better part of the last year. Was that incremental versus Q1, or is that just kind of a reiteration and a cautionary disclosure?

Yeah. Look, David, good to hear your voice again. It is a reiteration of what we mentioned previously. So, what we're seeing is that we have different strategies to counter any stress that consumers may be facing, and there's a cumulative impact of the inflation that's been building up over time. We believe that the cash generating initiatives that we've been undertaking, both in the call center as well as in the legal channel, those are strategies that we can employ to counter and mitigate some of the pressures that the consumer may be impacted by. What we are also very encouraged by in the US in particular, I mentioned in my comments, is that we're seeing that the number of payment plans are increasing, and that is a positive from our perspective. And if I just switch to Europe for a second, we're starting to see some positive news. In the past, I'd always said that the proportion of paying customers has remained stable, and we continue to see that. But one of the positive trends that we've seen in this past quarter was that the larger payments that had previously been impacted was starting to show signs of improvement. So, overall, what I would say is that the data that's come out in the market, you're seeing it real time as we are. It's just a few data points in the last few days here, but overall, we're taking a much longer term view. We'll continue to monitor the new data that's come out just like you would, David. But overall, sitting here today, we've seen some positive impact in Europe with our consumers and in the US. We're taking advantage of all the cash generating activities to mitigate any pressure. But at the end of the day, we take a very long-term view in terms of our cash collections. As you know, it goes out over 10-plus, 15 years, perhaps in certain countries in Europe even longer.

Got it. No, no, that's very helpful, Rakesh. I mean, it sounds like you're not really signaling that you've seen any leading indicators of increased stress yet in the US. Hey, maybe as a follow up, switching to the expense side and specifically kind of collector productivity. It's a pretty remarkable statistic. Now that over a quarter of US collections are being serviced offshore, is there any way you can help quantify or at least frame for us on a relative basis what the cost is to collect a dollar from your offshore sites versus what it is in the US, as well as what your plans are ultimately for what percentage of your US collections will come from overseas collectors?

I'll take that. David. This is Vik. I think taking the second half of your question, we're building up our overseas and our offshore collections. The general learning in the industry is that it takes between six and 12 months, maybe nine to 12 months, for a collector to get seasoned, right? So, none of the collectors that we have in our offshore locations have had nine months of experience. Right? So, we're going to watch and track effectiveness and full performance and stability of those relationships over certainly the balance of this year before we decide how much further to ramp that up. Directionally, though, I think we would like to see continued build in our overseas proportions over time. TBD [ph], as to where that normalize it out. In terms of the cost differential, we don't disclose that, but I would say to you it's a meaningful differential, which is what led us to evaluating this alternative, right?

Got it. Understood. Thanks so much.

Your next question comes from the line of Mark Hughes from Truist. Your line is now open.

Yeah. Thanks. Good afternoon.

Hey, Mark.

Hello. When we think about pricing here -- can you hear me?

Yep, sure.

Excellent. Very good. When we think about pricing, the collections multiple in the US was steady, Q1 to Q2, at the 2.11 times. Are we at kind of a stable point, do you think, in terms of pricing? Or if supply continues to increase for the balance of the year, and I think you described into next year, then do you think that pricing is the opportunity to improve?

I think, it's difficult for us to opine on forward pricing. Obviously, in the US, we have, as you know, a finite, or up to now, a finite set of buyers, right, with significant access to capital rights. So, in that regard, if there's a further change in the supply/demand equation that might naturally need to improve pricing. But at this point in time, it depends really on what files are coming to market. The age of the files, the mix of the files, I think it's we -- I would be hesitant to project changes in the multiples or signal that changes in the multiple would be a part of our equation going forward till we see it happening.

And Mark, what I would just add is, look, we're winning our fair share of the deals. It's a function of supply/demand. As Vik mentioned, it's also mixed that comes into play. But look, we're very encouraged. If you just look at the trend over the last couple of years, we've gone from a multiple of 1.75 times in '22 to 1.97 at the end of '23. And we're continuing to build on that. So, more to come as we see the supply story unfold in the second half of this year.

Understood. And then, just the overall level of supply in Europe. I think you talked about your expanded seller relationships. It's more spot driven. But did you comment on kind of what you're seeing in terms of just the volume of deals that are out there?

Look, I think that, as we've said, and you -- I'm sure, very familiar with this, Mark, right? We have better visibility to the ongoing supply trends in the US than we have in Europe just because of the very high propensity of Europe to be spot driven. And that's what really drove a meaningful uptick in volumes coming to market in the second quarter versus what we'd seen. I think Rakesh was a much softer number in the first quarter, right? So, I and Rakesh are not have got limited visibility to being able to predict what's going to happen in the spot market in the third quarter and certain even less in terms of what's going to happen in the fourth quarter.

Look, I agree with you, Vik. If I can just add to the point around Q1, we were at $49 million versus $154 million this quarter. Again, it depends on seller strategies also, and we know it's a spot driven market. But Mark, where we get always encouraged is we know that we're in dozen plus countries in Europe. There are so many moving pieces. Our goal is to ensure we are engaging with all the sellers and ensuring that we're winning the fair share of deals coming to market.

Yeah. And then, your guidance on the efficiency ratio. I think last quarter you talked about 60 plus and I think here you're talking about approximately 60%. It was pretty striking that you increased your spending in the legal channel and definitely understand that there's a delay on that, on the cash collections. Is the change in the efficiency outlook. I mean, is that essentially stepped up investment versus what you had previously anticipated. Is that the right way to look at it?

Yes. I think, in general, it is linked to, principally to the larger volume of investment we made in our legal channel. And that's not due to any change in strategy with regard to what we have determined qualifies for legal. It's really a function of the volume of accounts that have flown into a channel. The speed at which we are managing the accounts through all of the different stages of the legal funnel, so to speak, as well as relative to our prior projections. The mix of accounts that we believe qualify for legal placement in terms of our legal placement strategy is higher than we had originally projected. That's just a function of the mix of what we have happened to abort. So all of those have put a -- have been parlayed in to our view with regard to where the efficiency metric will net out for this year. But I think, as we point out, that's a function of spending now for tangible cash collections to come in the future.

Yeah, Mark. All these investments that we're making, they have to meet our internal return threshold. So, we're obviously taking that into account. And just for context, also, as you think about the targets and the metrics that we have, the six to eight on ROATE, that takes into account these expenses, we haven't changed that. And you look at the 60 plus versus 60 target, when you look at just our cash collections annualized in first half, it's about $900 million. You annualize that 1.8, 1% change in cash efficiency would have like an $18 million impact. And that's the investment that we're making into our legal channel. So, at the end of the day, and we mentioned this previously, the cash efficiency is really an output of all the investments that we're making. And we think that it's the appropriate action for us to invest in the legal channel, given the value that we get from those investments.

Understood. Thank you.

[Operator Instructions] Your next question comes from the line of Sean-Paul Adams from Raymond James. Your line is now open.

Hey, guys. Good evening. Circling back to Europe, I know you guys mentioned that a lot of the supply is driven by the spot market. But last quarter, you kind of talked about a little bit about stage two loan levels on bank balance sheets. If you could share a little bit of color on that for this quarter, as well as the level of competition related to the pricing, what kind of value you guys are getting in relation to the pricing? I know you guys said that it was a very competitive market in Europe.

Yeah. Look, we obviously monitor the stage two level loans, but at the end of the day, though, they have to -- the sellers have to focus on what they think is appropriate for them to bring to market. We obviously are still encouraged by what we saw this quarter. We continue to engage with them, but at the end of the day, it's their decision when they bring to market. So, our goal is to ultimately ensure that we are pricing deals that come to market appropriately. We know that from a competition perspective, your competition continues to be pretty healthy. Notwithstanding some of the pressures that we are seeing some of our peers under, we continue to see a pretty healthy competitive environment. And Vik, if you want to add something to that.

No, I think from a forward flow standpoint, I think you mentioned, Rakesh, in your remarks that the forward flow volumes remain pretty stable, right? So, I think, we're not seeing any change in strategy from our perspective or from the competition, and we just got to wait and see when the supply comes to market.

Got it. Thank you. That's very helpful. Additionally, can you share any additional color on cash collection characteristics between the individual portfolio vintages in the US market? And has there been a decline in proportions of customers voluntarily repaying debt, specifically between individual vintages?

I don't think we've disclosed that, and we haven't talked about it. I think you can -- there is information that you can see in our materials about the cash trends on different.

I think -- yeah, look, what I would just say, Sean, is just focus on a couple of things we mentioned around our older vintages. We've been seeing significant overperformance in our older vintages, which leads us to believe that our cash initiatives are bearing fruit. So that's one piece. And then the other piece that I mentioned just in my comments is that we're seeing customers pay over a longer period of time. That's not vintage specific, but our view is that's more a timing issue. Just that the payments are coming in over a longer period of time.

Got it. Thank you so much. Yeah, I've seen that there's been differences in the income for consumers, the income brackets, and issues regarding repayment among the different income brackets. So that's -- that was the source of the question. Thank you very much for the color.

Thank you.

There are no further questions at this time. I will now turn the call over to Mr. Vik Atal for final comments. End of Q&A:

Thank you everybody for joining us today. And obviously, thank you for your support and a lot more to look forward to in the second half of this year. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.