Good evening, and welcome to the PRA Group’s Fourth Quarter and Full Year 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 this event is being recorded. I would now like to turn the call over to Mr. Najim Mostamand, Vice President of Investor Relations for PRA Group. Please go ahead.

Thank you, Operator. 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 Q4 2024 and Q4 2023, unless otherwise noted and our Americas results include Australia. During our call, we will discuss debt-to-adjusted EBITDA for the 12 months ended December 31, 2024, and December 31, 2023, as well as return on average tangible equity. Please refer to the appendix of the slide presentation used during this call for a reconciliation of the most directly comparable U.S. 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. We are excited to share with you the significant progress made in 2024, which resulted in one of the most transformational years in PRA’s nearly three-decade history. At the beginning of the year, we laid out several financial and operational targets that signaled our expectations for 2024. As a result of the team’s strong execution throughout the year, I am exceptionally proud of our performance against these targets. To start, we achieved record portfolio purchases of $1.4 billion, up 22% year-over-year, as we invested with discipline globally, capitalizing on the strong portfolio supply in the U.S. This strong U.S. supply, combined with continued pricing discipline, has led to meaningfully improve returns on our investments. In Europe, we finished the year on a high note with stronger market supply in the fourth quarter and healthy diversification across our markets. Further to the supply environment, we have continued to strengthen and expand our seller relationships globally, which contributed to the total investment volumes achieved in 2024 and positioned us well to sustain this momentum in 2025. Cash collections of $1.9 billion for the year, represented 13% year-over-year growth, as we not only benefited from recent purchases but, more importantly, extracted added value from our existing portfolios through the cash generating and operational initiatives we implemented, particularly in our U.S. business. It’s worth noting that the vast majority of our collections in any given year reflects collections from our existing portfolios versus portfolios purchased that same year. For instance, 89% of our total cash collections in 2024 was generated from portfolios purchased prior to 2024. Our disciplined expense management resulted in a cash efficiency ratio of 59% for the year, even as we significantly increased investments in our legal collection channel,…

Thanks, Vik. We purchased $433 million of portfolios during the quarter, of which $204 million were in the Americas and $229 million were in Europe. For the full year, we purchased $1.4 billion globally, which is a record annual amount for the company. In the U.S., we purchased $171 million of portfolios during the quarter, which is up 21% compared to the prior year period, though down sequentially due to a large spot purchase made in the third quarter. For the full year, we purchased $796 million, up 40% year-over-year, representing the second highest U.S. investment level in company history. The year-over-year increase for both periods was primarily driven by higher portfolio supply, with the full year volumes also reflecting certain large spot transactions. We continue to capitalize on the strong levels of portfolio supply, driven by the growth in industry credit card balances, as well as elevated delinquency and charge-off rates. Pricing remains attractive, with our 2024 America’s Core purchase price multiple finishing the year at 2.11 times. This is higher than the 1.97 times recorded for our 2023 America’s Core purchase price multiple. In Europe, portfolio purchases were $229 million for the quarter, up 86% year-over-year, with investments made in all our major markets. While Q4 is typically strong from a seasonality perspective, this year-over-year growth was exceptionally strong, due in part to an increased volume of spot sales coming to market. For the full year, we purchased $508 million of portfolios in Europe. Moving on to our financial results. Total revenues were $293 million for the quarter and $1.1 billion for the full year, up 32% and 39%, respectively. Total portfolio revenue was $285 million for the quarter, with portfolio income of $230 million and changes in expected recoveries of $55 million. For the full year, total…

Thank you. [Operator Instructions] Your first question comes from the line of David Scharf from Citizens JMP. Your line is now open.

Hi. Good afternoon. Thanks for taking my questions today. Terrific performance, obviously. I’m wondering, Vik, just honing in on Europe for a moment. You had mentioned a stronger supply of spot sales because that was a very big capital deployment quarter for you. Is there anything else going on competitively that’s helping supply? I mean, obviously, there’s some pretty well publicized bankruptcies and restructurings among big competitors. Is the competitive environment possibly aiding in the supply available to you and might that continue for a few more quarters?

Great. Good to catch up with you, David. This call is -- before I answer that question, this call is testing our nimbleness because I’m hanging out by the beach, but unfortunately, it’s covered with about four inches of snow, right? We’re operating a little remotely today. I think we’ve been wondering ourselves as to whether the competitive environment in Europe will evolve with the challenges faced by many competitors there, but that’s not what we are seeing yet, David. There was just an unusually large volume of market supply coming across the pan-European sector in the fourth quarter and we obviously are well positioned in all the markets to take advantage of that. We are not seeing competition either abating or changing meaningfully in our market there.

Got it. Got it. And hey, switching to just expenses, I appreciate all of the color on both the legal channel investments and offshoring and other initiatives. I’m wondering, can you maybe provide us with your thoughts on whether or not there’s just an inherent ceiling in the cash efficiency ratio through cycles? Obviously, it’s going to be a little depressed if there’s a challenging collection environment, but as you think about the business through the cycle and once these initiatives are all in place and up and running, as you would imagine, how should we think about the margin upside in this business?

I would say, David, we could take a short-term view and a longer-term view, right? I would say the short-term view, obviously, as we get more efficient with the offshoring, we leverage that to an appropriate extent. We get sharp with regard to how we deploy our expenses today. We should see improvements in our cash efficiency ratio, which Rakesh signaled in the commentary, right? In the longer term, I think, the impact that will possibly benefit us and others, right, will be technology, the digital migration globally, AI could have an influence, right? But that’s obviously far away from where we are today. So, I would say, I would expect the business to continue over the next several years to have improved cash efficiency ratios. How high it gets, I think, will be a matter of time, right?

Got it. Understood. And then lastly, maybe just, it’s been quiet on the regulatory front. Obviously, the CFPB is pretty much closed for business these days. We haven’t heard much at the state level on any new regulatory initiatives. But I’m wondering, as the regulatory landscape becomes more forgiving, and there’s even talk of consolidating bank regulators, which have obviously kept some of the card issuers on the sidelines, is there any sense that new competitors, after 15 years of being on the outside, are starting to form capital to enter this business or this is just in the U.S. or the card issuers are still pretty firm and, hey, here are the five or six people we’ll sell to, and the floodgates are not going to open?

I think, firstly, I’d say, obviously, we’re all watching what’s happening in D.C. and then beyond, right? But given the unpredictability of the political and the general environment, it’s sort of a little premature for us to go too far ahead, I want to ask you on this. I think, David, it’s also not just the CFPB, which you mentioned, or the states, right, from a regulatory standpoint. There is a plethora of regulations covering our industry that’s codified in law and in various orders that have been passed over time. Just as an example, I think we mentioned before, right, the thousands of jurisdictions that you’ve got to navigate when you’re managing a legal process, right? And so just for competitors coming in here, setting up a capability that will allow them to do that is a multiyear effort and not for the faint of heart, right? So what we are seeing in the relationships we have with the seller community is that they are very disciplined on who they invite onto their panels. They are very rigorous with regard to their evaluation of folks like ourselves on a regular basis to make sure that we are complying with their expectations. So I think, look, who knows what happens in the long-term, right? But in the foreseeable future that we are managing against now, I don’t see that as a particular impact that we think is going to be material to us, right?

Just one quick clarification. Did you mention the gain on sale in Brazil? That was excluded from the return on tangible equity guidance, correct?

Yes. Well, it wasn’t 2024, but it will be -- when it -- when we receive it, which will be in the first half of 2025, it will not be factored into the targets that Rakesh was referencing.

Got it. Got it. Thank you very much.

Thanks.

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

Yeah. Thank you. Good afternoon.

Hi, Mark.

Hi, Mark.

Is it fair to say that the pricing in the U.S. is relatively stable? I think your purchase multiples you put on this quarter were pretty consistent. And I think last quarter you talked about stability between 2Q and 3Q. How would you characterize it for 4Q?

Rakesh, why don’t you take that?

Yeah. Sure. So, yeah, Mark, great observation. Look, we’ve definitely come a long way from where we were in 2023. So, as I mentioned, we did that 1.97 for the U.S. Core business. But the last few quarters, we’ve really stabilized from our perspective at the 2.1 level. But keep in mind, Mark, as we mentioned previously, right now we are undertaking a big transformation at the company and really focusing on a cash generating initiative, and those multiples currently do not take into account the higher multiple we could potentially achieve when we reflect those multiples into our cash expectations. So, the flip side is this is why you’re continuing to see a pretty big change in expected recoveries on our side as well. And as I mentioned earlier, for the full year we had 65% of the change in expected recoveries was actually true cash that we received above our expectations.

Very good. When we think about the efficiency ratio, will the legal spending taper a bit? And so, maybe it contributes to improvement in the efficiency ratio or would you expect it to stay at about the same level relative to collections?

Yeah. Look, as Vik mentioned a bit earlier and what I mentioned my target that I outlined, we do expect that efficiency ratio we had mentioned for 2024 to be approximately 60%. We expect that to move up in 2025. From a legal perspective, look, it is, in our view, an investment in the business that drives future cash. It’s also dependent on the portfolio mix, what we buy, what is eligible for the legal channel. It is not the channel that we lead with. But the upside is also that there is greater certainty when we make that upfront investment in the Core cost that we collect the cash. So from our perspective, it is another lever that we pull as we try to drive more cash depending on what kind of portfolios come to market. And the good news is in all of this, look, we have better processes that are much more efficient. We reduce the cycle time. So from a legal process perspective, we are much, much more nimble than we were previously and we want to continue to leverage that as we move forward.

Then one more question. Vik, you talked about some, you gave some numbers on the percentage of headcount that is international. What would you say about the productivity and cost of those international collectors?

Well, first on the cost front, I think we’ve shared it with you before. Last time, we didn’t mention it this time, but last time we mentioned that based on the number of collectors we had offshore and the annualized savings that we attributed to them of about $10 million, the basic match was it’s about $30 per collector saving, right. So productivity-wise or dollar-wise, expense-wise, it’s a meaningful save if we can move stuff there. From a productivity standpoint, absolutely on track, Mark, relative to expectations. Obviously, we sort of benchmark them against an equivalent tenured collector in the U.S., right, because obviously collectors’ performance generally improves and correlates to the level of tenure they have here. So if you look at collectors that have got a tenure of less than one year, because that’s the average tenure of our folks overseas, our collectors are performing on top of that.

No issues there. Vik, I was in a loud spot there, but I appreciate your answer. Thank you very much.

Okay.

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

Hi, Vik. To follow on to that, actually, in terms of you are comparing them to a similarly tenured U.S. collector and I know it’s obviously early, early days, but any indication of how much churn you expect, of what you could expect from churn in offshore collectors versus kind of similarly tenured U.S. collectors, if you go back? I mean, U.S. churn was, it’s significant in any kind of call center or operation, but any thoughts there?

Yeah. Yeah. We are actually experiencing a dampened attrition in our offshore collectors relative to the attrition rates that we experience in our onshore collectors, so that’s encouraging as well.

Got it. Thank you. Moving on to, when you look at the, there was a lot of color on you monitoring the health of the U.S. consumer and things seem relatively benign right now, but are you seeing any emerging signs? I wouldn’t call it odd data, the preliminary data from the IRS, there’s a lot more refunds, but a lot less returns, but it’s only a couple weeks of data, but any trends you’re seeing either in Q4 or this year at the beginning of tax season that may change your color from benign to better than benign or worse than benign?

Rakesh, I know [Technical Difficulty] we track tax refund trends along with obviously everybody else in the industry. Maybe you can speak to that in terms of what we’re seeing. I think it’s very early days generally, right?

Yeah. I agree. Look, folks start submitting their taxes at the end of January, takes about three weeks, so it’s just early days. We’re seeing the same data that you are seeing in terms of trends of the last three years. I think the key is also the earned income tax credit. We really focus on that because a number of our customers benefit from that, and as you know, the date just came out that that would be released early March, March 3rd to be exact, so we’ll be monitoring that as well, and then I think we’ll have a better idea as to how the tax season would flow into our business.

Got it. Got it. Thank you. And then going back to, jumping around a little bit, on the efficiency, and you mentioned a number of things in terms of long-term, the digitization, AI maybe someday with chatbots, et cetera. Any new efforts that you’re starting up on that front? Obviously, you’ve done a lot of work on the digital front and that paid off, right? But -- so, is there going to be a further investment, further expansion of that or just kind of steady as she goes or are you looking to accelerate anything on that front to drive digital efficiency?

Nothing in our business is steady, Robert. It’s hard and fast and furiously, right? So, I would expect nothing dramatic, meaning like there’s no new sort of whiz-bang tool that we’re developing, but we are making sure, as Rakesh talked about and I did too, across our entire enterprise, we are still in the, what we refer to as the early innings of just making sure we are dusting the covers of everything and moving quickly. So, there’s nothing, there’s no whiz-bang initiative that I’ve got to share similar to the offshoring that’s going to be dramatic changes, but we are moving fast, right, and -- on all fronts.

Got it. Thank you.

[Operator Instructions] Your next question comes from the line of John Rowan from Janney. Your line is now open. Once again, John Rowan, your line is now open.

Sorry, I had my phone on mute. So, most of my questions have been answered. Just on the other revenue line item, the $8.3 million, is there anything unusual in that? It was obviously a lot higher than the prior quarter. Can you just explain why that was up?

Rakesh?

Yeah. Nothing unusual. Look, a lot of that fee income comes from our CCB business, which is our Securities and Antitrust Claims business. We were able to benefit from a transaction that we undertook in that quarter, but it’s normal for our business. Nothing unusual.

Okay. And then, obviously, you came in the efficiency ratio a little bit lower than you had got it to for 2024. Again, I think it’s pretty clear. It’s a lot in the legal expenses. But again, do we -- maybe just answering the same question, but do we expect legal expenses to trend down a little bit or is that going to be a further hindrance to meeting that plus 60% efficiency goal for 2025?

No. I think, Rakesh, you can supplement. But my view would be that we had, as we’ve signaled, John, a meaningful step up in the legal activities over the last year in 2024 relative to where we were in 2023. So, that obviously shaped the final numbers that we’re reporting. And as I’ve signaled before, we are running the business for overall value creation, trying not to be sort of tied into a particular vector or metric. So -- but that said, when we signaled our cash efficiency expectations for 2025, we’re fairly confident at this point in time that that incorporates our expected legal spend that we would have to incur in 2025. So, Rakesh, I don’t know if you want to add to that in any regard.

Yeah. I think, John, the way to also think about it is, we just invested $1.4 billion also. And so, it’s early days for some of those accounts, especially what we bought in Q4 to have the legal costs. So, we are going to see some elevated levels of those costs. But as Vik said, we’re taking that into account plus the target that we put out for this year in 2025. So, you’re going to have the legal costs move up and down relative to some of the buying that we do and the type of account. So, it’s not just the dollar amount, but whether those accounts that we buy are legally eligible.

Okay. Thank you very much.

There are no further questions at this time. I will now turn the call back to Mr. Vik Atal. Please continue.

Thank you so much for joining us this evening and we look forward to continuing our conversation over the next several quarters. Thank you again.

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