PRA Group, Inc.

Good evening and welcome to the PRA Group first quarter 2022 earnings 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 touch-tone phone. To withdraw your question, please press store then two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Lauren Parton, Senior Vice President of Finance and Investor Relations for PRA Group. Please go ahead.

Thank you. Good evening, 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 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 2022 and Q1 2021, unless otherwise noted, and our America's results include Australia. During our call, we will discuss adjusted EBITDA and debt to adjusted EBITDA for the 12 months ended March 31st, 2022 and December 31st, 2021. Please refer to today's earnings release and the appendix of the slide presentation on our website used during this call for a reconciliation of these non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures. I'd now like to turn the call over to Kevin Stevenson, our President and Chief Executive Officer.

Thank you, Lauren, and thank you, everyone, for joining us this evening. A couple of comments before we begin. Over the past few months, we've all watched the tragic situation in Ukraine. My thoughts are not only with the people of Ukraine, but also with our team members across Europe, especially our people in Poland. It's inspiring to hear the stories of our employees gathering supplies, volunteering at the border, and even opening their own homes to refugees. These actions are not only resonating in Poland and across Europe, but also back here on this side of the Atlantic. Our employees are energized and rallying to support each other. On the COVID front, we're starting to see some of our support staff voluntarily return to office, while we continue to offer many of our employees the flexibility to work from home. I have to say, it's nice to hold in-person meetings again and see people's faces around the office. However, I'm not going to assume that 2022 will start bringing some sort of normalcy back to our work lives. Spiking cases in different parts of the world and ever-changing government guidance, we will be prepared for the trials this year has in store for us. On to Q1. We had a strong quarter, led by the performance of our European operations. Keep in mind that prior year comparisons will be difficult, given the combination of COVID lockdowns, restrictions around the world, and government programs in the U.S., all of which put many consumers in a position of having excess liquidity during 2020 and 2021. In Q1, our cash collections were $481 million. a decrease of $75 million. The US led this decline for a number of reasons, which were largely related to the government actions I just mentioned. These actions drove strong consumer liquidity, coupled with increased consumer engagement in 2021, as well as 2020. Over time, this in turn drove lower levels of consumer debt outstanding, along with some of the lowest delinquency rates we've ever seen. This naturally resulted in reduced levels of supply and buying. This was partially offset by European cash collections, which increased 1% or 6% on a currency-adjusted basis. Our strong investments across the European footprint led to this increase. Additionally, Europe did not see the same sort of government actions that we saw here in the U.S. Net income attributable to PRA Group for the quarter was $40 million, a decrease of 32% over last year. One factor that led to the decline was our cash performance during the quarter was more in line with our updated CECL projections. And the excess collections over projections we experienced in 2021 did not recur in Q1 of 2022. Under CECL accounting, overperformance to your expectation is generally recognized as revenue in the current period. Portfolio purchases were $147 million. Purchases were split roughly. two-thirds in the Americas, and one-third in Europe. During the quarter, we repurchased $39 million, or 860,000 shares of our common stock. Since we began repurchasing last year, we repurchased approximately 5.7 million shares, reducing our common shares outstanding by 12%. Our stock buybacks continue to be an important part of our capital allocation strategy. From an operating perspective, we had a strong quarter, and we continue to benefit from the efficiency gains we drove over the past few years. Since prior year comparisons are tough, as I mentioned earlier, we benchmarked at 2019 globally in an effort to remove the impact COVID has had on our business. Comparing our results to the first quarter of 2019, cash efficiency ratios improved 590 basis points. This represents material progress. driven by constant focus on innovation. We continuously look for ways to improve our predictive scoring models, test new data sources, and improve our legal and outbound calling strategies. Several specific items are driving this improvement. In the U.S., our digital platform continues to drive collections that are a significant part of total collections. Since the first quarter of 2019, our digital collections have increased 105%. Domestic call center productivity increased as we recognized the benefits of recent improvements in scoring and analytics. Cash collected per hour paid has nearly doubled since Q1 2019, growing from $139 per collector hour to $261 per collector hour in Q1 of 22. Additionally, this quarter was not far from the peak level of $279 we reached in Q1 of last year. We are also continuing to focus on shifting legal accounts to our internal attorneys instead of placing them with external law firms. This saves fees paid to external attorneys, thus improving our expense margins and adding to our data knowledge. In Europe, over the past few years, we've invested heavily in technology, including investments in digital platforms, cloud-based dialers, infrastructure, robotic process automation, and integration into supporting systems. All of these improvements in efficiency have positioned us well. to handle the supply that we believe is coming. Given the current economic environment, we've had a number of discussions about inflation. Given our long history, we've experienced varying levels of inflation and economic stress in past cycles. But during those times, we did not see a sizable impact to cash collections. However, what we did see was an increase in charge-offs. We are monitoring inflation in all of our markets, but so far, we haven't seen anything negative impacting our cash collections. From an investment perspective, we deployed $147 million in the quarter. One of our competitive advantages that PRA has as a leader in this industry is our global footprint and our ability to invest broadly across geographies. We leverage this footprint and choose to purchase portfolios in one geography as the market improves, while refraining as it declines in another. That being said, we do not force portfolio purchases for quantity's sake. We remain disciplined and only deploy capital when we can do so profitably. In the Americas, we invested $100 million during the quarter. In the U.S., we've seen similar volumes of marketed deals as compared to what we saw last year, but still down from pre-pandemic levels. On the competitive front, the competitor list remains consistent, but pricing has increased, generally reflecting the current and past 24-month supply environment. I also want to make a comment regarding our purchase price multiples in Americas. A change in mix has contributed to a reduction in multiples. One particular type of paper that we've been investing in more so recently has a lower multiple than you might be used to seeing. The fact simply lowers the overall calculation to the Americas core. Keep in mind, the numbers published in our tables are gross multiples and do not reflect cost to collect. This particular paper has a low cost to collect, dictating a lower multiple, but not lower profitability. In Europe, we invested $48 million during the quarter. For some context, in Europe, Q1 is typically a seasonally slower quarter for us. Throughout Q1, we saw healthy supply in Europe. However, similar to the U.S., we saw a stable competitor list, along with increased pricing, which we generally believe reflects supply dynamics over the past 24 months. but coupled with competitors investing reduced amounts during their deleveraging programs over that same timeframe. I want to make a point. This level of competition is not what we saw in 2017 and into 2018, when sometimes half of the market at that time was trading for negative returns based on our analysis. Many of you were likely around during that timeframe, and I spoke of this often in our conference calls. Looking forward, we've been monitoring economic indicators in the U.S. over the past few quarters, as I'm sure you have as well. Many of these indicators appear to point to higher NPL volumes at some point in the future, which we anticipate means an increase in sales volumes coming to market by end of 2022. Many credit card originators are observing increases in their credit card balances and providing guidance supporting normalization. Data from the Board of Governors of the Federal Reserve System shows balances exceeding January 2020 levels and far above the trough observed in January of 2021. UK card balances are also increasing, moving closer to pre-pandemic levels. Since our founding, we've taken a long-term view when evaluating which portfolios to purchase. That's not changed. We remain disciplined and only deploy capital when we can do so profitably. We've been in business since 1996. We've seen cycles come and cycles go. Supply is certainly not where we'd like to see it today, but it will return. I'd like to turn things over to Pete to go through some of our financial results.