PRA Group, Inc.

Good afternoon and welcome to the PRA group conference call. All participants will be in 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 one on your telephone keypad. To withdraw your question, please press star then two. 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.

Darby Schoenfeld 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 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 31st, 2021 and December 31st, 2020. Please refer to the appendix of the slide presentation on our website used during this call for 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, by once again taking just a few moments to acknowledge that this pandemic is a human tragedy. We're all extremely sensitive to the impact it's having 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 US and in the UK. As such, these areas of the world, I think, are cautiously optimistic and making plans for reopening their economies and getting their lives back in order. That said, we must not forget that 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 one team and one 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 with professionalism, respect, and flexibility. We've spoken to many lawmakers over the past year, and one message seems clear to me. They expect consumers to pay their debts back, but they want it to be done in a fair, flexible, and affordable way. We deliver that, and our people deliver that. For all those employees listening, thank you. Thank you for all that you've done. Keep the focus, keep up the great work, and please just know that I am proud to work with you. Moving on to the first quarter overview. In Q1, we collected a record-breaking $556 million. This was driven by significant growth in U.S. core non-legal collections, as well as record European cash collections. Net income attributable to PRA Group with a quarter more than doubled to $58 million. Quarterly portfolio purchases were $159 million. An estimated rating of collections, or ERC, ended the quarter at a very strong $6.1 billion. This exceptional performance is yet another in the line of outstanding results we've delivered over the past five quarters. Over that time, we've not only delivered record operating performance, but also taken steps to solidify our competitive position despite the challenges of the pandemic on our workforce, our customers, and the industry. Here's some of the highlights from the past 15 months. We set four quarterly global cash collection records. We increased our cash efficiency ratio to record or near record levels. We grew our net income quarter over quarter by more than 30% in all but one of those quarters. We expanded and improved our digital platforms, resulting in strong digital performance across the globe. We improved leverage ratios, and they were already among the best in the industry, allowing us greater flexibility in the future. We obtained a bond rating that was also among the best in our industry and issued our first rated bond. We expanded our European credit facility and extended the maturity on both of our credit facilities, which now allows us to shift funds from the U.S. to Europe if necessary. And we invested at levels that maintained our ERC at a very strong 6.1 billion, which is down less than 5% from the average over the past two years, despite significantly over collecting our expectations and treating those collections largely as acceleration. And we accomplished all of this while adapting to work from home environment globally and engaging in a seamlessly endless effort focused on new policy, processes, and procedures, and focusing on employee safety for those who remained in the office. This included being awarded the Global BioRisk Advisory Council Star Facility Accreditation in the U.S. On the operational front, I want to start by taking you back to 2018. I spent a significant amount of time in our third quarter call reviewing the investments we'd made particularly in digital and data during the preceding years. Those investments were made at a pivotal point in time. And since then, we've continued to invest in these areas, and they've been key drivers of our success over the past five quarters when navigating a global pandemic. In our digital area, our focus has been to engage with customers in their preferred fashion and to make it easy and convenient for them. We built and continue to make improvements to all our payment sites with a goal of making them secure and intuitive. We also expanded our digital platform to enable accounts, including those in the U.S. legal channel, to self-service via web browser or mobile device 24-7. In today's world, particularly during the past year when person-to-person interaction was minimalized, the ability to interact with our consumers digitally and with less friction on their end has proven to be immensely popular. These efforts contributed to an impressive 80% increase in U.S. digital collections and a doubling of our European digital collections during the quarter when compared to the first quarter of 2020. While I've not disclosed specific dollars collected via our digital channel, I want to put this into at least some perspective for you. In Q1, payment dollars that came through our U.S. website were greater than our two largest, most productive call centers combined. These two centers employ around 400 account representatives. Also, since there are many definitions of what constitutes digital, I want to be very clear here on what we include. Our definition is simple. If a customer logs onto our website and enters their payment, we consider that a digital collections. We'll consider sharing more data with you as time moves on in the future. We utilize digital platforms not only to drive efficiency in our NPL operation, but also to educate everyone on who we are, what we do, and how we do it, even if those receiving the message are not our customers. Therefore, we've engaged in global digital marketing initiatives that complement our current strategies through online advertising, search engine marketing and optimization. We also took steps to create general public brand awareness through social media. I believe we have a great story to tell. I want to be sure everyone hears it. Moving on to data and analytics area, in the U.S., we've built out an expansive and experienced team of data engineers, scientists, and analysts who have helped us mine our 25 years of data and inform both our collection efforts and our portfolio evaluation process. This contributed to a record cash collected per hour paid of $279 in the US, more than 60% over the first quarter of 2020, and more than 6% over our previous high in the second quarter of 2020. Our data group also informs our legal collection strategies. During the current quarter, U.S. legal collections were 90% of legal collections in our highest quarter ever. Considering that when the pandemic started, we paused filing new lawsuits for approximately three months beginning in late March 2020, and our total filings during 2020 were down around 35% versus 2019. This is an incredible result. These targeted efforts were driven in part by our data team, and their analysis regarding which accounts qualify for legal channel. These results are even more impressive since at the same time, we also paused new bank and wage garnishments to enforce legal judgments, all of which would have contributed to legal collections. I've referred to this on prior calls as pausing new involuntary collections. Importantly, While we resumed placing accounts in the legal channel after having paused them for three months last year, we have not resumed these garnishment activities as well as repossessions. We believe we're the only major debt buyer still abstaining from garnishments. And based on our channel checks, we believe there are only a couple of banks that are not engaging in these involuntary actions. In Europe, our data analytics team held steadfast when we saw our competition pay what we believe were irrational prices in 2016 to 2018. As a result of focusing on the math and keeping a steady hand, we were in an excellent capital position and invested record amounts in 2019 when it appears that competitors dealt with the impact of their earlier pricing mistakes. We then followed with a strong investment volume in 2020. Also, similar to the U.S., the data teams inform our legal collection strategies across Europe. Our European legal collections were very strong during the quarter since courts remained open and customers are engaging with us. Portfolio purchases were $159 million during the quarter. In the Americas, we invested $98 million, an investment level that exceeded our fourth quarter 2020 purchases and was consistent with the third quarter of 2020. In the US, the market remains stable, as does our market share. We've seen little change in seller behavior. However, our forward flow volumes have been trending towards the lower end of the contracted range due to lower volumes of charge-offs and bankruptcy filings. We expect that sale volumes in the US will begin to build either later this year or in early 2022. This is due to an expected turnaround in delinquency rates, which we expect in the second half of this year. and the inevitable charge-offs and bankruptcy filings that would follow that trend. From our perspective, there are a number of coming changes to the U.S. consumer that we believe will drive this. So first, at the end of March, according to the U.S. Census Bureau's Household Pulse Survey, more than 7 million households are behind on their rent. The CDC's moratorium preventing landlords from evicting tenants was scheduled to expire at the end of June. However, just yesterday, A federal judge invalidated his moratorium. Second, according to the same survey, over 8 million households are not current on their mortgage payments. And the most recent estimates from the Mortgage Bankers Association indicated at the end of April, 2.2 million are in forbearance. Federal moratorium on foreclosure and forbearance is also currently scheduled to expire at the end of June. Third, according to Experian, in late 2020, Seventy-two percent of student loans were in forbearance or deferral. The federal moratorium is currently set to expire at the end of September. And finally, in early 2021, the U.S. Bureau of Economic Analysis reported that consumer spending has started to grow, with credit cards generally being used for things such as travel, shopping, and purchases of services, much of which was restricted during COVID. We expect to see a bit of pent-up demand, causing balances to increase. Our belief is that as these events occur, we may start to see the true impact of the pandemic on the US consumer. And while the US has seen a huge increase in savings rate, that increase has largely been in wealthier households. This could cause added pressure on other households, since research suggests they've been using their savings during the pandemic. This could very well mean increased delinquencies, followed by charge-offs and bankruptcies. And this is when PRA becomes the most important. We act as a partner to credit originators to aid their charge-off consumers on a path to recovery. In Europe, portfolio purchases in the quarter were $61 million, a good start to a year in what is normally a lower-volume quarter from a seasonal perspective. And while the headline number is lower than Q1 of 2020, we were awarded a portfolio that we'd expected to close in the first quarter whose funding slipped into April. Had this funding happened as we expected in Q1, our investment level would have been similar to the first quarter of 2020. I share this with you just to give you additional color on the European market where volumes are strong. Looking at the European pipeline, we're expecting a healthy level of portfolio offerings in the second quarter, and we do expect the market in 2021 will exceed that of 2020. Normal portfolio offerings are being boosted by supply that was held in 2020 returning to market. Finally, we closed our first portfolio purchase in Australia. And since it was a forward flow, we will purchase additional volumes under this contract in 2021. We've opened an office in Brisbane, and we're looking forward to building our market share there. Now, before I turn the call over to Pete, I'd like to comment on capital allocations. This is a significant point of discussion during last quarter's call, and I imagine you want to hear our updated position on the matter. As I've discussed this evening, we do expect volumes and delinquency rates to move in our favor in the latter half of 2021 and into 2022 and likely beyond. But the fact remains that we've had an amazing 15 months, especially as it relates to free cash flow and debt reduction. We have a strong platform, great analytics, and we continue to drive productivity. And we listen to you. So after our last quarter, we engaged an external consultant to advise us on capital allocation. Not simply about buybacks, but a fulsome and disciplined review of all the possibilities and their impact. That review should be completed during Q2, and we plan to have an internal deep dive into the results at that time. I look forward to sharing more with you in the future. possibly as soon as next quarter's call. Now, I'd like to turn things over to Pete to go through the financial results.