Good evening and welcome to PRA Group's Q1 2025 Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then the number one on your touch-tone phone. To withdraw your question, please press star, then the number two. Please note 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; Martin Sjölund, President of PRA Group Europe; 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 Q1 2025 and Q1 2024 unless otherwise noted, and our Americas results include Australia. During our call, we will discuss debt-to-adjusted EBITDA for the 12 months ended 31 March 2025, 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 US GAAP financial measures to non-GAAP financial measures. I would now like to turn the call over to Vik. Thank you, Najim, and thank you, everyone, for joining us this evening. I'm excited to have our incoming President and CEO, Martin Sjölund, joining us for today's call. Before I introduce Martin, let me first recap our overall performance for the quarter and progress against our strategic pillars. Building on a successful 2024, we started the year with momentum and delivered another quarter of strong results. This was highlighted by a 19% growth in portfolio purchases, record ERC, our fourth consecutive quarter of double-digit cash collections growth, and a nearly 300 basis point improvement in cash efficiency. While net income was lower compared to prior quarters, given the moderated level of changes in expected recoveries, we still were able to maintain profitability and, perhaps more importantly, deliver 13% growth in trailing 12 months' adjusted EBITDA. This represents the seventh consecutive quarter of adjusted EBITDA growth. We continued to make progress across each of our three strategic pillars during the quarter. As it relates to the first pillar, optimizing investments, we deployed capital globally to capitalize on appropriate market opportunities and returns. This contributed to attractive pricing across our markets and higher investment levels in Europe this quarter, leading to a record total ERC. Moving on to the second pillar, operational execution. Within our US legal collections channel, we remain focused on reducing cycle times and optimizing our post-judgment activities. These actions, along with the increased level of recent portfolio purchases, have led to a notable uptick in US legal cash collections over the past several quarters, increasing 33% year-over-year in Q1 to $111 million. As a reminder, we do not begin our collections activity within the legal collections channel, but consider using it if and when our customers do not engage with us voluntarily. In our US non-legal operations, we have enhanced our customer reach and engagement, implemented new dialer strategies, improved offer strategies to accommodate customer needs, and continued to gain traction in our digital efforts as we experience a significant increase in customer interactions through this channel. Lastly, our third pillar, managing expenses. Earlier this month, we completed the consolidation of three of our US call centers following the successful implementation of work-from-home protocols for our eligible US collectors, which has contributed to lower-than-expected attrition in our US collector base. Since our experience suggests that tenured collectors typically perform better than less-tenured collectors, this moderation in attrition has led us to grow our offshore headcount at a more measured pace this year. As we move forward, we will continue to balance the flexibility and cost advantages of our offshore collectors with the tenure and performance of our US collectors. As we reflect on the past two years, I am highly encouraged by all that we have accomplished as a company leveraging our three-pillar strategy. We enhanced our senior leadership team, continued to grow our European business, purchased record amounts of portfolios globally at attractive pricing, improved our US call center strategies, revitalized the US legal collections channel, launched and expanded offshoring, and strengthened our capital structure. All of this has translated into delivering accelerated growth in adjusted EBITDA of 13% in the trailing 12 months, from a modest 3% in the comparable prior period. Overall, I believe the work we have been doing has transformed the business and laid the foundation for Martin and the team to build on the recent progress and drive continued success. I'd now like to take a moment to introduce Martin and highlight how instrumental he has been in building our European business into one of the most efficient debt-buying operations in the region today. I am truly excited for him to take the reins and lead the company into its next phase of growth. Martin has been with the company for 13 years, following a highly successful strategy and consulting career at McKinsey. He currently serves not only as President of our European business, but also as a valued member of the senior leadership team and the Global Investment Committee, which oversees all major portfolio investments, both in the US and internationally. In addition to helping transform our European business, he has been a key partner to me across multiple areas of our US business, including investment oversight and IT modernization. These efforts, coupled with his leadership role across 15 of the 18 markets we operate in, have provided Martin with a strong global perspective. Prior to his current role, Martin was a Chief Operating Officer for Europe, where he developed a highly successful operations playbook that is fully aligned with our global three-pillar strategy. He has already hit the ground running, working very closely with me and our Co-founder and Executive Chairman, Steve Fredrickson, to ensure a seamless transition and to sustain momentum in the continued transformation of the US business. I'll now turn it over to Martin to share some of his perspectives and insights from leading the European business and how they will apply to his new role leading PRA globally. Thank you, Vik. It is a pleasure to connect with everyone today, many of whom I've already met over the years at prior conferences, road shows, and meetings. I just want to start by thanking Vik for all that he has done for PRA over the past decade, first as a board member and, more recently, as President and CEO. He has done a tremendous job stabilizing the US business, assembling a seasoned leadership team, and returning the company to profitability. I believe we're operating in a truly exciting time for PRA, underpinned by the numerous competitive strengths and opportunities in our business, including a strong leadership team with decades of industry experience and an opportunity to leverage global talent and scale, deep seller and lender relationships with a robust supply outlook in the US and a more rational competitive dynamic in Europe compared to a few years ago, a diversified global footprint of customers, cash generation, and ERC across 18 markets, and finally, an opportunity to continue the operational transformation in the US Throughout my time leading our European business, we have developed and shared important lessons, learnings, and processes, executing across the same themes as the three-pillar strategy that has been helping transform the US business. I'm eager to continue the process of leveraging these best practices across our global business. As it relates to optimizing investments, we have developed a very strong track record in Europe of disciplined investments over the years. A great example is the 2016 to 2019 time period. We were very judicious in how we invested, avoiding aggressive M&A and the purchase of portfolios at subpar returns. Our diversification across multiple markets has served us well. When the environment was irrational, we pulled back in certain markets. Our patience, discipline, and long-term approach have enabled us to take advantage of attractive opportunities as they presented themselves. This has resulted in our European business successfully investing more than $3 billion in portfolios in the last seven years with attractive returns while growing ERC at a compounded annual growth rate of 6%. With respect to operational execution, our strategy has been to use technology and standardized processes to create scale across multiple markets. For example, we moved the entire European infrastructure onto a common cloud platform several years ago. We also ramped up our digital capabilities and implemented a pan-European cloud-based contact platform that has created cost efficiencies and the sharing of best practices. We continue to test and implement other technology enhancements and to further improve our operations. Not to mention, we have developed our data and analytics capability by building talent hubs and attracting highly capable individuals, which has helped us leverage dynamic scoring strategies that optimize the cash collected in our portfolios. Finally, as it relates to managing expenses, I've always had an intense focus on cost management, and we've been able to leverage technology and rigorous processes to create one of the most cost-efficient platforms in Europe. These are just some of the many processes and perspectives that we will be executing to drive our strategy across the company. I'm really excited about the opportunities that lie ahead. With that, I'll turn it over to Rakesh for a summary of our Q1 financial results. Thanks, Martin. We purchased $292 million of portfolios during the quarter, of which $178 million were in the Americas and $113 million were in Europe. In the US, we purchased $161 million of portfolios. Our 2025 Americas Core Purchase Price Multiple finished the quarter at 2.18 times, which is higher than in the recent past, reflecting the mix of portfolios purchased in the quarter. Keep in mind that purchase price multiples are the cash we expect to collect per dollar invested and are influenced in part by the types of portfolios we buy and the markets in which we buy them. In Europe, portfolio purchases were $113 million, with investments across most of our markets. As a result of the strong buying, we grew ERC to a record $7.8 billion at the end of the quarter. This is up 20% year-over-year and up 5% on a sequential basis. We expect to collect approximately $1.8 billion of our current ERC balance during the next 12 months. Based on the average purchase price multiples recorded so far in 2025, we would need to invest approximately $920 million globally over the next 12 months to replace this runoff and maintain current ERC levels. Looking to the rest of 2025, we expect portfolio supply to remain at elevated levels in the US and to be relatively stable in Europe. Cash collections for the quarter were $497 million, up 11% from the prior year period, with US Core Cash collections up 20%. The increase in global cash collections was driven by both higher levels of recent portfolio purchases and the positive impact of our cash-generating initiatives. Similar to previous quarters, roughly half of our total collections in Q1 came from outside the US. Within the US, nearly half of the collections came from the legal collections channel, which has a much longer collection timeframe versus other channels. Let's turn now to total portfolio revenue, which was $269 million for the quarter, with portfolio income of $241 million and changes in expected recoveries of $28 million. Portfolio income was up 19% for the quarter, reflecting an increased level of portfolio investments and improved returns in recent quarters. Of the $28 million in changes in expected recoveries, $17 million was due to cash overperformance, while the remaining $11 million reflects the net present value of changes in our ERC, which reflects increases in our expectations for future cash collections. On a consolidated basis, our overall business overperformed by 2%, with Europe exceeding expectations by 10%. US Core cash collections were up a strong 20% year-over-year, representing the fifth consecutive quarter of double-digit growth, but were 4% below our expectations. Historically, our Q1 cash collections in the US have experienced seasonality increases, typically driven by consumer tax refunds that did not materialize this quarter to the extent that we modeled. Our curves are realigned each quarter and reflect our best estimate for future cash collections. Given the current macroeconomic environment in the US, we have continued to be judicious with respect to ERC increases. Notwithstanding the uncertainty in the external environment, our customers remain engaged, as reflected in the level of payment plans being established and the associated cash collections in our business. To the extent any macro-driven consumer stress becomes evident within our business, we believe the continued positive impact from our strategic initiatives should be able to provide a meaningful offset. Total revenues were $270 million for the quarter, up 5% year-over-year. Operating expenses were $195 million, up 3% from the prior year period. Legal collection costs were up $7 million, driven primarily by investments in our US legal collections channel, which is expected to continue driving growth in future cash collections. Our cash efficiency ratio was 61%, up from 58% in the prior year period. This increase is even after absorbing the additional $7 million of legal collection costs. Net interest expense was $61 million, an increase of $9 million, primarily reflecting higher debt balances due to increased portfolio investments. Our effective tax rate was 32% for the quarter. For the full year 2025, we expect our effective tax rate to be in the mid-20s, depending on income mix from various countries and other factors. Net income attributable to PRA was $4 million, or $0.09 in diluted earnings per share. This was lower than in recent quarters, largely due to the moderated level of changes in expected recoveries mentioned earlier. This is a cash-driven business, and our adjusted EBITDA growth has accelerated over the past 12 months, enabling us to capitalize on strong portfolio supply while maintaining stable leverage. Our debt-to-adjusted EBITDA ratio was 2.93 times as of 31 March, which is within our long-term target of two to three times and well below our debt covenant limits. The leverage ratio would be expected to trend to the higher end of our target range during periods of rising portfolio purchases. In terms of our funding capacity, we had $3.1 billion in total committed capital under our credit facilities as of 31 March. We had total availability of $919 million, comprised of $538 million available based on current ERC, and $381 million of additional availability that we can draw from, subject to borrowing base and debt covenants, including advance rates. We have no debt maturities until November 2027 when our European facility matures. We believe the cash generated from our business, the capital available under our credit facilities, and access to capital markets in both the US and Europe position us to further capitalize on the strong portfolio supply environment. We believe we have one of the most globally diversified debt purchase businesses in the world. We have built our capabilities carefully over the past 25 years, seeking out specific markets, partners, and platforms that allow us to profitably deploy capital judiciously and opportunistically. As an example, after more than 10 years of building and investing in Brazil, last month we completed the sale of our equity interest in RCB, the servicing company for our investments in that market. This sale will generate an estimated after-tax gain of approximately $28 million, considering the foreign exchange rate in April. Importantly, the ownership structure of our Brazilian investment entities remains intact, and we will continue making portfolio investments there through our ongoing relationship with RCB and our long-time local investing partners. Overall, the Q1 represented a positive start to the year with encouraging results in key financial metrics, including portfolio investment levels and pricing, cash collections, adjusted EBITDA, and cash efficiency ratio. At this time, we're not changing our previously provided financial targets, except for the return on average tangible equity, which is likely to be at a lower level than our target of approximately 12%. As we move through the coming quarters, we will affirm, raise, or lower these targets as appropriate. In closing, we are excited to enter this new chapter in PRA's nearly three-decade history and believe we are well-positioned to execute on our strategy to drive continued growth, profitability, and shareholder value. Thank you, as always, for your continued support. We are now ready for questions. Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from the line of David Scharf from Citizens Capital Markets. Your line is now open. Hi, good afternoon. Thanks for taking my questions and welcome aboard, Martin. First question is really, I think, what's been on a lot of people's minds during this reporting season thus far, which is obviously just the state of the consumer. I'm wondering, we have not heard from too many consumer lenders thus far that they saw a tax refund season being notably maybe lower than prior years, maybe modestly. As you reflect on sort of the seasonal modeling you refer to, which I assume refers to tax refund season in the US, I mean, at this point, based on kind of also what you're seeing in April and into May, do you feel like the variance relative to your modeling is entirely refund-driven, or are there other behavioral patterns you're seeing in consumer payments lately that suggest maybe some weakening of the consumer? Great question, David, and very pertinent relative to our results and the commentary we made. This is Vik. I'll take that. Rakesh can supplement as applicable. Look, from an external perspective, in terms of the level of tax refunds that were provided by Treasury, they were, I think, relative to prior years, would be regarded as fairly normal, right, and nothing unusual in the volume of refunds that were given. Internally, with regard to our interactions with consumers, as we mentioned in our remarks, we are seeing a positive level of engagement with consumers. They are maintaining their establishing plans and maintaining their plans. We are not seeing, at this point in time and a little bit through the first few weeks of the Q2, nothing at this point in time that would suggest a falloff in consumer activity with us. That said, clearly, we had a mismatch between our expectations for cash collection in the quarter and the actual cash that came in, albeit it was a very strong quarter with regard to the quarter-on-quarter increase as well as the year-on-year increase in cash. Clearly, we had a disconnect with regard to the expectations in our business, and that just flowed through, right? We do not see this linked as a consumer-driven issue in our business or externally at this point in time. It really was around the modeling that we had for the seasonality, which was, I guess, in retrospect, higher than the actual trends. Rakesh, I think we have taken a view on the causality of this and the implications. Maybe you could just add to that, right? Yes. David, good question. Look, as Vik said, from a cash perspective, we had a very strong quarter. You look at the key metrics, whether it's cash collections growth, cash EBITDA, and cash efficiency. We talked about the 11% growth in cash collections on the call, but even quarter-over-quarter, your cash EBITDA grew 17%, and then cash efficiency was up 300 basis points. This is after $7 million of higher legal spend. Look, it goes back to, as Vik said, where we had modeled. On the US side, the core cash collections were up 20%, which was very strong. This is on top of 22% growth that we had in all of 2024 versus 2023. However, our US core cash collections had a 4% shortfall relative to the accounting CECL expectations. In other words, the 4% cash underperformance that we saw this quarter. It was not an anomaly this quarter after seven straight quarters of positive cash overperformance. As you know, the US accounts for about 50% of the cash. At 4% underperformance, it equates to roughly about $10 million shortfall versus the CECL expectations. What really happened is that the Q1 cash collections did exceed the Q4 cash collections in terms of the growth rates. We have always seen that uptick, but it did not exceed to the same magnitude as was reflected in our models. We really believe that this shortfall is timing. If you look at our press release with respect to the purchase price multiples for the Americas vintages, you will see that they are essentially unchanged, as we believe we can collect the full amount of the total estimated collections. As Vik said, and I want to reiterate, our customers both in Europe and in the US remain engaged, and we continue to see payment plans being established. Got it. Understood. No, I appreciate all that color. More of a technical question coming out of that, Rakesh. I know it was not explicitly quantified, but the reduction in the earnings guidance this year from 12% to something below that, does that represent just the flow-through of the Q1 coming in lower than expected, or are you making inherent in that assumptions about further in the year? Not an explicit assumption, David. I'll take that. I think, look, obviously, the Q1 came in light, right, relative to what we would have modeled, right? We've stated that pretty clearly. As we look out at the rest of the year, just given the macroeconomic environment that we see today and the relative degree of uncertainty vis-à-vis what would have been expected three, four months ago, we just felt it was appropriate to signal, right, that the level of cash generation that might be expected through the next nine months, the ability to influence the net present value of future value of initiatives that we've got, we just need to be cautious with regard to that, right? We felt that we were reasonably comfortable restating our views with regard to the other vectors that we had pointed out a few months ago. Certainly, on the return calculation, we felt that we should signal the appropriate level of commentary on that, right, rather than be reaffirming at that level. The rest of the year will demonstrate how the world sort of turns out and how our business operates. David, if I could add to that, look, buying remains strong. As you saw the numbers that I mentioned, Europe had a strong quarter. Buying continues to be at elevated levels. We also had a very strong 2024. We bought $1.4 billion globally with $800 million in the US If you think about the revenue, the two components, portfolio income as well as the change in expected recoveries, we had a 19% growth this quarter in portfolio income, and this is on top of a 13% growth. We expect that line to continue to grow as the purchases that were made at significantly higher multiples than, say, in 2023, as that flows through our P&L. As Vik said, we are taking a more judicious, cautious, prudent approach with respect to any changes in net present value of ERC increases, just given the current macro environment. Understood. Great. I'll get back in queue. Thanks very much. Thank you. Your next question comes from the line of Mark Hughes from [Truist]. Your line is now open. Yeah. Thank you. Good afternoon. Welcome, Martin. The efficiency ratio was quite good in the quarter. I think your guidance, which I assume is still relevant, 60% plus, but you did better than that. Was there anything unusual in terms of the expenses this quarter, any one-timers that helped, or is this just the result of the initiatives you've undertaken? No, no one-timers that artificially inflated that ratio. In fact, as Rakesh mentioned, we absorbed a little bit higher legal cost. I think it was $7 million, Rakesh, right? Yeah, maybe higher. That would be about probably 100 basis points plus, right, in terms of normalizing that. Nothing unusual, Mark. I think we signaled at the beginning of the year that we'd be 60% plus. Just given the way we're operating the business, the efficiencies we continue to identify, the work that's going on globally in the business, we felt comfortable suggesting that we were still comfortable with that 60% plus ratio. Yeah. Mark, if you go down some of the line items, you'll actually see some improvement in some of those cost line items. We've spent a lot of time talking about initiatives on the cash side, but we've also been very clear that our focus has been on having a marginal cost of running the business that's lower than the growth of cash. You'll see that even though our total expenses are up, that's really to drive the growth in the business. Some of those line items have actually started to reduce now as the initiatives get implemented. Yeah. Yeah. I was just looking at compensation costs. In the US, the purchases were down a little bit year over year. The multiples were up. Why did you not buy a little bit more in the US under the circumstances? It really is a good signal, Mark, about how we run a global investment franchise, right? I will let Martin speak to some of the activity that he's seen in Europe over the last few months, Martin, and what we're seeing from our supply dynamic there, right? Yeah. No, we had a good quarter for buying in Europe. Overall, the market is fairly stable, I would say, in Europe. I think the competitive intensity has normalized to a level that we're more comfortable with compared to where it was a couple of years ago. Overall, I think we're off to a good start for this year. Yeah. Look, I think we take a view on ensuring that we are optimizing our level of investment globally, depending on where we're seeing the supply emanate from. That is just the way it turned out this quarter, right? We really do run a global investment view on this thing, right? Quarter- to- quarter, we'll likely see movements across that. Nothing unusual. Yeah. Is US supply still increasing, or is it stabilized? I think we've just had, in fact, we had conversations in the last week, right? Our Head of Investments, Owen, was meeting with a number of our senior seller counterparts. The signals coming back to us is that they're not increasing, but they're going to remain at an elevated rate for a period of time. That's what we're hearing from them, right? We'll see how that shakes out. It remains elevated. Look, you're as close to the overall market as we are, right? Balances keep growing, and charge-off rates remain high, right? I think supply should remain persistent and elevated for the near term, for sure. Thank you very much. As a reminder, if you have a question, please press star one on your telephone keypad. Your next question comes from the line of Robert Dodd from Raymond James. Your line is now open. Hi everyone. This is Haley on for Robert. Thanks for the question. I know you mentioned earlier that consumers are continuing to remain engaged, and cash collection flow-through this quarter was primarily driven by seasonality. Are you seeing any other emerging trends or macro changes outside of seasonality in consumer behavior that could have contributed? Not at all. I think we, obviously, as a consumer-driven business, both here and in Europe, we try to have a reasonable bead on the level of interaction with consumers on a daily basis, right, to see the plans that are being established, the level to which they are being maintained, and sort of come through the average payment size that is being established in the plans. Martin, maybe you could speak to what you're seeing in Europe, right? Yeah. We haven't seen any major shift in the European consumer behavior, at least among our customers. 2025 Q1 is off to a decent start there too. Cash came in a bit higher than we originally expected. At the moment, at least, it's consistent with what we expected. Understood. Thanks. Just a quick follow-up here. With the recent approval of the Capital One and Discover merger, considering Discover has historically never been a seller, can you speak to or quantify some of the long-term impacts you expect to see on the business from that? We do not discuss or cover and disclose who we buy from and the impact. Obviously, we are close to the market with regard to the M&A activity and to the extent that M&A activity provides more supply into the system. That would be sort of positive for us, right? That will be a question for really to be asked of Capital One and Discover, right, with regard to their perspectives on this whole marketplace. Got it. Thanks for the color. Your next question comes from the line of Mark Hughes from [Truist]. Your line is now open. Yeah. Thank you. The legal collections costs, are they going to continue to be elevated, or does that normalize at some point here? Yeah, Mark, I think, like we said back in February, we do expect the legal collection costs to increase, but at a much lower level than what we saw in 2024. In 2024, just to remind you, you had the number get to $125 million versus $89 million in 2023. That was a 40% increase. We expect that number to be much lower than that increase. Look, we've been investing heavily in legal. That's not how we like to start. It depends on the ability of the customers to pay. That's when we make decisions whether or not to put folks into the legal channel. We think that we are investing in this business for future cash growth. You should see those levels in legal spend start to moderate in 2025. To some extent, Rakesh, the legal spend that we're going to see this year will be a result of not a—it won't be a—we haven't made strategy changes with regard to putting more people into legal. It's really the amount we bought last year. There's a time lag between when we buy it and when it may be appropriate or qualifying for legal, right? That will be coming through this year a little bit. That's what's going to be driving the increase year on year. It's going to be at a much more moderated pace, Mark, relative to what you saw as an increase in 2024 versus 2023. Understood. And then the non-controlling interest, how should we model that, or at least how should we think about it, the drivers there? Yeah. Mark, this is the investment we have in Brazil. As I've mentioned in the past, we've had a partnership there for 10 years. It has done really well for us, both on the investment side and on the servicing side. We had an opportunity to exit the stake in the servicer that we partnered with. That obviously resulted in a gain that will be recognized in Q2. That I mentioned on the call was $28 million based on the FX in April on an after-tax basis. The other NCI is really the income from the investments that we're making there. You should just assume that, let's say, it's a 50/50 partnership. Given the profitability there in the business coming out of those investments, 50% of the share comes to us, 50% of the share goes to the partner. That's the NCI line item. Thank you. Once again, as a reminder, if you have a question, please press star one on your telephone keypad. There are no further questions at this time. I will now turn the call over to Mr. Vik Atal. Please continue. Thank you, everybody, for joining us today. Thank you for your support. We look forward to meeting with you in a few months' time talking about our Q2 results. Appreciate it. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.