PRA Group, Inc.

Good evening, and welcome to PRA Group's first quarter 2023 conference call. All participants will be in a listen-only mode for the duration of the call, and should you need any assistance during that time, 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 touchtone phone. To withdraw your question, please press star, then two. Please also note that this event is being recorded today. I would now like to turn the call over to Mr. Najeeb Mostamand, Vice President, Investor Relations for PRA Group. Please go ahead, sir.

Thank you. Good evening, everyone, and thank you for joining us. With me today are Vik Atal, 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 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 2023 and Q1 2022, 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, 2023 and December 31st, 2022. Please refer to today's earnings release and 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, Najeeb, and thank you, everyone, for joining us this evening. It's a pleasure to be hosting my first earnings conference call as PRA's new president and chief executive officer. Over the past 27 years, Steve Fredrickson and Kevin Stevenson led PRA from its inception to becoming one of the leaders in our industry. I step into their shoes with humility and deep respect for all that they have accomplished, and I extend my deepest gratitude for the wisdom and insights they have shared to prepare me for this journey. I also want to thank everyone at the company for welcoming and supporting me as I get settled into this new role on the other side of the boardroom table. It has been fantastic to engage with so many of our leaders and employees across the globe over the past few weeks. While these are still early days, I am developing a deeper understanding of the business as it stands today, and crucially, I am gathering more insights into areas of opportunity and growth. My reviews and assessments continue to support the perspectives I had as a board member that PRA's business is on a solid foundation. We enjoy an outstanding credibility and reputation among our customers, investors, legislators, and other key stakeholders. We possess one of the industry's strongest balance sheets, which gives us significant flexibility to capitalize on our global presence and invest in geographies where we already have significant market share as well as in newer markets. We have an integrated global business with relationships with key sellers around the world and operating expertise in all the markets we operate in. We operate with a disciplined, customer-centric focus that is supported by a strong compliance environment. And we have a strong base of deeply experienced employees, including our leaders, who excel in their respective roles across every function and geography. I have already had the opportunity to collaborate with team members throughout the entire organization, and I can state with confidence that our talent positions us well for future success. This is a great position for me to be in as an incoming CEO, and particularly important as we position ourselves for the anticipated increase in the supply of non-performing loan portfolios. While I believe that our strategy is on target and our future is bright, we do face near-term challenges in our US business due to a combination of the weaker economic environment reduce consumer liquidity, and the resulting impact on cash performance and margin. These realities are reflected in our quarter one financial results. Looking ahead, I am committed to driving performance and results across economic cycles, and we are working to address the aforementioned challenges with urgency and intensity. Already, we have implemented several initiatives such as a reduction in force mainly in our U.S. operations to right-size the organization. I have identified several near-term initiatives to drive additional efficiencies, including continuing to optimize our collection strategy mix with an expansion of our legal channel for accounts that score highly and are not responding in the call center. And we are also evaluating the possibility of outsourcing and leveraging third parties for certain activities we are now doing internally. As we continue to assess these and other opportunities, I want to reiterate that our overall strategy remains intact. This includes building and deepening our seller relationships to boost our purchasing opportunities and drive market share growth, managing day-to-day performance as efficiently as possible, which is especially important in this challenging market environment, fostering a high-performing workforce, strengthening our position as a recognized and trusted brand, and maintaining our capital allocation priorities, leading with our core focus of purchasing non-performing loans while seeking opportunities to expand our addressable market. I am encouraged by the work we are doing to further refine our strategic focus crystallize our business imperatives, and identify and address barriers to future success. And I look forward to PRA's next exciting chapter and to doing everything I can to help us create long-term value for our shareholders. With that, let's turn to some highlights for quarter one. I am not satisfied with the results we announced today, as quarter one presented several challenges particularly in our US business. As we look ahead, we are examining our end-to-end processes to ensure we optimize cash generation and drive efficiencies. Looking at our results for the quarter, we delivered total cash collections of $411 million globally. The 14% year-over-year decrease or 12% decrease on a constant currency adjusted basis was primarily driven by lower portfolio purchases in 2021 and 2022 due to the overall lower volumes of portfolios offered for sale. We also experienced a softer than expected tax season in the US this year, which impacted US collections. Pete will go over this and the rest of our financials in more detail, but I wanted to quickly highlight one of the positives this quarter, which was our strong purchasing. Quarterly portfolio purchases were $230 million, up 56% year over year. This increase in purchasing reinforces our expectations for a gradually improving supply environment, and we continue to see leading indicators foreshadowing additional volumes entering the market in 2023 and beyond, especially here in the U.S. Industry data shows active U.S. credit card balances continue to climb, setting new records since hitting a trough in early 2021. Balances in Q1 2023 exceeded their pre-pandemic levels by 14%. Credit card delinquency and charge-off rates have also risen from their troughs in 2021 to 2.3% and 2.6% respectively, exiting 2022. And we believe these metrics will continue to trend higher, especially in non-prime accounts. As supply builds, we will continue to practice prudent capital deployment. And with that, I'd now like to turn things over to Pete to go through the financial results in more detail.

Thanks, Vic. The first quarter was definitely a challenging period, driven largely by the impact of lower than expected collections in the U.S. business. on the heels of lower buying in 2021 and 2022, which I will address in more detail shortly. Total revenues were $155 million for the quarter. Total portfolio revenue was $151 million, with portfolio income of $188 million, and changes in expected recoveries of negative $37 million. During the quarter, we collected $4 million in excess of our expected recoveries meeting our expectations on a consolidated level, with Europe overperforming by 3%. This is a smaller margin than what we have experienced in recent quarters. Therefore, we didn't feel it prudent to adjust our curves higher in Europe, given uncertain economic conditions globally, and we intend to be cautious in terms of our ability to raise curves throughout the year. After a strong run of 11 consecutive quarters of positive changes and expected recoveries, we experienced a negative result in the first quarter, which was largely due to underperformance in the U.S. business. We experienced a much softer tax season than we had anticipated, with U.S. collections missing our internal forecast by $10 million, which then prompted a reduction in forward-looking ERC. This resulted in a negative $31 million net present value adjustment. Nearly half of this adjustment was related to the 2021 US Core Vintage that we have highlighted as underperforming in prior quarters. As a reminder, this vintage includes a large cohort of consumers whose accounts were charged off in peak stimulus periods during the pandemic. We believe this effect, along with inflation and other macroeconomic factors, are the drivers of this underperformance. We believe our US curves are appropriately set at this time. However, given the continuing weak economic conditions, there may be some near-term pressure on cash collections, which we're monitoring. It's worth reminding, though, that the factors that can cause near-term collections pressure are also typically the same factors that historically have led to more portfolio supply, as consumers struggle to manage and pay down their debt. Operating expenses for the first quarter were $189 million, a $20 million increase driven primarily by higher compensation and employee services, higher outside fees and services, and higher legal collection costs. The higher compensation and employee services expense this quarter was mainly due to severance expenses of $7.5 million. Our legal collection costs of $24 million were in line with the mid-$20 million range we communicated last quarter, with the sequential increase being driven by higher volume of accounts placed into the legal channel. As a reminder, there's a timing lag when we invest in our legal channel. Typically, there's an upfront cost paid to the courts when a lawsuit is filed, which is then followed several months later by cash collections starting to build. We expect legal collections costs for the second quarter to be in the low $20 million range and approaching the mid $20 million range per quarter by the end of the year. This reflects our anticipation of additional legal placement relating to accounts that have underperformed in the call center. Outside fees and services were up $6 million for the quarter due to a $7.6 million increase in corporate legal costs, primarily due to certain case-specific litigation expenses, with a smaller contribution coming from truing up our CFPB accruals following the previously announced settlement. Net interest expense for the first quarter was $38 million, an increase of $7 million, primarily reflecting increased interest rates. Our effective tax rate for the quarter was 26%. Net loss attributable to PRA was $59 million, were negative $1.50 in diluted earnings per share. Cash collections for the quarter were $411 million, compared to $481 million in the first quarter of 2022. The decrease was primarily driven by lower levels of U.S. portfolio purchases as well as the impact from the strengthening U.S. dollar, which negatively impacted cash collections by $16 million. For the quarter, America's cash collections were $254 million, a decrease of $52 million driven primarily by the impact of lower levels of portfolio purchases in the U.S. over the last few years as a result of the excess consumer liquidity of 2020 and 2021, which drove U.S. delinquency and charge-off rates to historic lows and reduced the amount and size of portfolios available for sale. In addition, the decrease was somewhat impacted by the muted tax season I mentioned earlier, which reduced the seasonal uptick from fourth quarter to first quarter that we had experienced before the pandemic. We traditionally have experienced strong double-digit sequential increases in first quarter collections in the U.S. due to the timing of tax returns. This year, we only experienced a single-digit increase. European cash collections for the quarter decreased 10%, but only 2% on a currency-adjusted basis. This represents overperformance of approximately 3% compared to our internal expectations. Our cash efficiency ratio was 54.3% in the first quarter. The year-over-year decrease was largely due to increased legal collection costs, as well as the severance in corporate legal expenses that I mentioned earlier. Excluding the severance and corporate legal expenses, our cash efficiency ratio would have been 58%. While the increased legal collection costs reduced the cash efficiency ratio at the time of investment, we anticipate the ratio will climb higher as we generate more collections. We expect to achieve a cash efficiency ratio of 60% on a quarterly run rate basis by the fourth quarter of 2023. Looking at our investments this quarter, we invested $133 million in the Americas, which represented a sequential increase in purchases for the fourth quarter in a row. In the U.S. in particular, pricing improved slightly during the quarter. In our existing forward flows of fresh paper, we experienced a sequential increase in volume from the fourth quarter of last year. And the economic indicators we follow are continuing to move in the right direction, giving us confidence of more supply entering the market in 2023 and beyond. In Europe, we invested $98 million during the quarter, which represents one of the largest first quarter purchasing levels for Europe in PRA's history. As a reminder, the first quarter is a seasonally low purchasing quarter in Europe. From what we can see, it appears that the rising cost of capital is beginning to impact the market. This is something we've talked about for the past few quarters now, given the higher interest rate environment and the fact that many of the European players are still over levered. We're seeing some evidence of improved pricing, although that's not consistent yet for every transaction across all markets. There have been an increased number of retrades by competitors, which is essentially when a competitor sells part of their book. In addition, several long-term forward flows have not been continued by the purchasers of those flows, causing that supply to return to the market. And lastly, we're seeing some sellers pull deals from market after failing to meet internal pricing guidelines, which we believe is another sign of pricing normalizing. ERC at March 31st was $5.7 billion, with 37% in the U.S. and 54% in Europe. ERC was roughly consistent with the end of 2022. We expect to collect $1.4 billion of our ERC balance during the next 12 months. Based on the average purchase price multiples we've recorded in 2023, we would need to invest approximately $848 million globally over the same timeframe to replace this runoff and maintain current ERC levels. With the expected build in US supply, We anticipate we will exceed this level of investment and begin to grow ERC as we close this year and move into 2024. Our capital position remains strong, with our leverage ratio within our long-term target of two to three times debt to adjusted EBITDA, and considerably lower if you give effect to the use of net proceeds from our recent notes offerings. At the end of the quarter, we had $1.6 billion available under our credit facilities, $437 million of which was available to borrow after considering borrowing-based restrictions. Additionally, in the last 12 months, we generated $1 billion of adjusted EBITDA, which we believe is a good proxy for cash generation and shareholder value being created. During the quarter, we completed a $400 million offering of senior unsecured notes. with the majority of the net proceeds being set aside for repayment of our convertible notes that mature in June and the remainder being used to pay down our revolving credit lines. This has caused a temporary increase in leverage as we don't net the restricted cash against our borrowings. As this chart illustrates on a pro forma basis, our debt to adjusted EBITDA ratio would have been 2.55 instead of 2.89. For the second quarter, we're expecting net interest expense in the mid $40 million range. Going beyond that, once we repay our convertible notes, we would expect an effective interest rate in the high 6% range for the remainder of the year. Ultimately, we believe our funding position is strong and we have ample capacity in all the markets where we invest. Now I'd like to turn things back to Vic.

Thanks, Pete. While we experienced in quarter one only our second quarterly net loss since we went public due to the items that Pete discussed, we continue to generate strong cash flow with adjusted EBITDA consistent with the level we generated in quarter four. Perhaps most encouragingly, we've repurchased $230 million of non-performing loan portfolios, capitalizing on what we believe to be a gradually improving supply environment. Looking ahead, We remain focused on accelerating our efforts to execute against our strategic objectives and deliver improved financial performance as we move through the year. I believe we are well positioned to benefit from more supply, and I am encouraged by the opportunities that lie ahead. As we look beyond 2023, I am excited about where we are heading as a company. I am committed to guiding us there together as one team that is united by the core mission and strong values that have been central to our sustained performance. Over the next few months, we will be participating in several conferences and engaging with current and prospective investors. I look forward to interacting with each and every one of you as we maintain our focus on driving shareholder value and expanding our investor base. Thank you again for joining us and for your continued support of PRA. Operator, we are now ready for questions.

We will now begin the question and answer session.

To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then two. At this time, we will take our first question, which will come from Bob Napoli with William Blair. Please go ahead with your question.

Thank you. Good afternoon. Vic, welcome to PRA. Thank you. So maybe a big-picture question first. I mean, what led you to accept this, to take this opportunity, and what are the main things that you think you can add incrementally to the business?

Well, you know, let me just go back and give some context. You know, Kevin Stevenson served this company with – with great distinction for 25 plus years, right? And the board and Kevin mutually agreed regarding his stepping down. And as part of that process, reached out to me to step in as a CEO. And given my knowledge of the company, the fact I'd served on the board for seven or eight years, view I had about the talent in the organization, the opportunities for our business, and understanding the situation, I readily accepted and I'm all in.

And I guess what incrementally do you want to, as you looked at this, what I guess do you want to do incrementally? Is it more M&A? Is it Or do you think that there's more efficiencies that are missing?

Yeah, that's a good question. Thank you. Thank you, Bob. So, look, as part of the board, you know, obviously we've had a long – I've had a long engagement with the company. And stepping in here, and I'm obviously at one level drinking from a fire hose, right, trying to figure out everything that goes on here. It's one thing to serve on a board and operate at 30,000 to 100,000 feet and another land at ground zero. So I'm at ground zero now. Strategy is intact and there is no change that I am looking at or exploring or working on with regard to strategy. I think what's happening is that, you know, the macro environment is complex, at some level challenging, at some level it provides opportunities with regard to the future buying. I think the biggest item or the biggest items that I'm working on are with regard to what I would call overall execution, right? You know, how do we ensure that the pace and intensity and the speed at which we operate internally is aligned with both customer expectations and market expectations, right? You know, our customers, each of us, is wired, you know, for instantaneous sort of interactions, right, with whatever... whatever companies we're dealing with, right? You sort of buy something and you get something back in a second. And how do we sort of take that prism and bring it back into the company and drive just sharper execution and drive better performance over time? So that's really what I see. I'm spending a lot of my time on that, and I see that's where the opportunities are for us in the sort of near term. And then obviously we've got to make sure that we are optimizing ourselves against our – are addressable market. If there are opportunities to open up the market in terms of the geographies we're already in, that's great. M&A, I'm not spending time on M&A, but we've done M&A transactions in the past, and they've been strategic and opportunistic. And if they come down the pike, of course, we'll take a look at that. But that's not the main focus of myself at this time.

Thank you. And then for Pete, I think typically when we go through cycles like this where you go through a credit cycle, the IRRs on paper you're able to buy picks up significantly. Just wondered if you're seeing that yet today. And then I think you had suggested that the cash collections in the second quarter has started off a little bit slower. And is that already built into your changes and expected recoveries?

Yeah, I guess on the first point, I'd say we've seen some modest improvement in pricing, you know, as we came through the back part of last year and continuing into the first quarter. You know, the overall collections environment in the U.S. in particular this quarter was challenging and As I said in my prepared remarks, you know, we normally, going back pre-pandemic, we normally would have had a strong double-digit increase, Q4 to Q1, you know, easily high teens, if not, you know, in the high 20s percentage increase quarter over quarter. And that was a single-digit increase this year. And so, you know, we're attributing that to the kind of the softer tax season. There was a lot of public commentary around lower refunds, et cetera, this year, as well as just the overall economic backdrop. And, you know, we set our curbs every quarter with our best outlook. And, you know, we did that here in the first quarter. I think We're optimistic that things are going to perform well, but with the challenging environment, we just want to highlight that there's always a potential for more there, not that we see anything immediately on the horizon.

Thank you. Appreciate it.

And our next question will come from Robert Dodd with Raymond James. Please go ahead with your question.

Hi, guys, and thanks for taking the question. When you talked about the cash collection efficiency ratio getting up to a 60% run rate by Q4, obviously you also talked about legal expenses maybe ramping up into Q4, and there's also work on reduction in force in the U.S. I mean... Is Q4 going to be kind of the peak for the year or are all the moving parts for the year going to be like maybe an exit at a 60% cash efficiency ratio but potentially it's not at that level higher or lower?

Obviously with the start we've had we're not likely to hit 60% for the full year. We were just trying to give some sort of trend guidance that we thought by the fourth quarter, we'd be at a run rate that would generate a 60% cash efficiency ratio. So kind of by fourth quarter, we'll be there. And then my expectation is that would be kind of the floor as we move into 24 and beyond.

Got it. Thank you. And then on that pricing point, Pete, I think in your prepared remarks, I think it was your You mentioned that a couple of sellers had pulled portfolios from the market because it wasn't hitting their pricing expectations. That tends to imply that there's some resistance in the market to pricing moving much more in your favor. Could you tell us, I mean, how broad-based is that risk that if pricing moves meaningfully the sellers just pull back. Obviously there's a little bit of dynamic in terms of what they want to achieve in terms of the cash proceeds for these portfolios that they're selling.

Yeah, that comment was directed primarily at the European market. Just recall that Europe tends to be kind of lumpier transaction-wise banks might go for a year or more and aggregate portfolios before they come to market. So some of those processes in the quarter, we observe banks bringing a deal to market and hadn't been in the market for a period of time and their expectations just need to get readjusted to pricing reality. And so that happens over time. Just sort of at the margins, that's an indication for us that there's some discipline in the competitive landscape in those markets. You know, we weren't an outlier in terms of our bid expectations, and it just didn't meet an internal pricing threshold for a bank or two here and there.

Got it.

And I think just to supplement that, I think in the U.S., Pete, you know, we have a reasonable view on you know, what the seller community is thinking about. And we've got active, you know, engagement with each of them, right? And we're seeing nothing here that would suggest that the volumes that we're anticipating to pick up through the rest of the year will not be part of the market opportunity for us.

Got it. Thank you. And our next question will come from Mark Hughes with Truist. Please go ahead with your questions.

Yeah, thank you. Good afternoon. Hey, Mark. Hi. Pete, you had suggested that the 31 million NTV adjustments, I guess with the other 6 million in the changes in the expected recoveries, is that underperformance in the quarter? Was that a U.S. number? Do I have that right?

Yeah, so we had – a 10 million underperformance in the U.S., which then led us to adjust our forward-looking ERC downward. In total, on a consolidated level, we're 37 million negative change in estimates. The U.S. is about 40 million negative. So on a net basis,

slight overperformance in europe and some of the other geographies to kind of claw back okay and then uh when you think about the underwriting of the uh 2021 paper you know your evaluation of it was there um maybe if you look back on it some judgment that the excess liquidity at that time might persist do you think it was uh just a Was that a meaningful contributor to what we're seeing happening here? Because I think you've pointed out that it's been pretty soft for some time. But was it a change that you observed in the quarter or very recently that's driving this?

No, I mean, I think it's just the magnitude of the continued underperformance that we've experienced life to date. And the fact that you know, it, it really didn't, uh, perform, you know, any differently in, in, uh, in a tax season, uh, as, as you would expect. Um, I'd say with regards to the underwriting of that vintage, um, we were underwriting with pre pandemic data. So we weren't taking into account performance during that peak liquidity period. My commentary on, you know, the consumer there is that, um, you know, there's potential that there was some adverse selection, you know, that just happened naturally because of the excess liquidity and the people that charged off during that peak liquidity period maybe were less inclined to be payers. And so that's something we'll work on, you know, as we continue to work this, you know, the accounts that came in that cohort, you know, those that score appropriately, as we kind of indicated in the commentary, those that score appropriately that haven't responded in the call centers, we'll start to move that into more of a legal collection channel and look to build the collections over time.

You had mentioned, thank you for that, the case-specific litigation accounted for most of the higher legal costs. What is that about? Was there a kind of a high-level decision, let's just get this cleaned up this quarter? No.

As we work through the variety of ongoing litigation that we have, as and when it gets to a point where the accounting rules require us to make an accrual, we will do that. And we did have some case specific accruals that were increased during the year just based on activity on those cases. And then we had a smaller piece of that which was kind of final true up versus the accrual we had at year end for the CFPB settlement.

Was there some case perhaps that set a precedent or benchmark that you then had to reflect that through other cases?

No, it's just the ongoing back and forth on any given litigation activity. But it was related to us hitting that threshold in the quarter for accrual. So we wanted to call that out so you didn't bake it into run rate going forward.

And one final question, if I might. The collections multiple US core looks like it's 1.75 times What sort of expected return would you anticipate with that kind of collections multiple?

You know that we don't disclose our IRRs.

Maybe I can wonder, is that sufficient to achieve your target IRRs?

If we hit the underwriting curve, it will hit our expectations for returns, yes.

Very good, thank you. And again, as a reminder, to join the queue, you may press star, then one.

Our next question here will come from David Sharf with JMP Securities. Please go ahead with your question.

Good afternoon. Thanks for taking my questions. Most have been asked. But first off, welcome aboard, Vic.

Thank you.

I was wondering maybe a follow-up to the very first question about strategic priorities. It sounds like maybe some just minor modifications around the edges, but I am curious. At the beginning of your prepared remarks, I think you made references to some of the actions. that you're taking place to address some of the cyclical challenges in the U.S. business, reduction in force, perhaps some additional outsourcing of certain activities. There was a third I couldn't type fast enough. Can you expand on those a little bit, maybe just provide a little more detail?

Yeah, certainly, David, and delighted to start our relationship here. I think I've mentioned in my remarks, not in the section that you're referencing, but I think later on that over the last, and I've been here, I think today is like six weeks to the dot, right? Over the last six weeks, I've been asking and engaging with all of our senior team on end-to-end processes across the entire franchise, right? And that work is ongoing, and you can imagine that for an enterprise as Broad as ours, it'll take a while for me to get to, you know, the bottom of that, right? But as we go through that exercise, I pointed out sort of two examples among, you know, many that we're working on internally, you know, that came to mind, right? So one is that, you know, every company goes back and forth with regard to its decision about, you know, how vertically integrated they are. And we, for example, have, I think, spoken in the past, I believe, Pete, about, you know, how much of our legal activity is done externally versus internally, right? And we've been sort of bringing that on internally. And I've just been asking the question about, you know, what processes and activities are we doing inside the company that might be done, you know, at high quality, at a variable cost base, and give us some flexibility by external parties. So that's one of them that I pointed out. The other is the whole notion of ensuring that we are sort of optimized across what I would call an omni-channel type approach, right? So we have phone contacts, we have digital, we have legal, and I think as Pete mentioned, I believe that for a variety of reasons, you know, we are going to be looking at expanding out our legal channel, right? And that we spend the money now, but the payoff comes in time. And so if you take a, you know, longitudinal view of that, that's actually going to lift the overall efficiency and effectiveness of our business, right? So those are two examples. And then, you know, as we go forward in quarters to come, we will certainly point out, you know, progress on these items, as well as talk about other processes that we're looking at, right?

Got it. Very helpful. And I guess following up on that, I guess for Pete, clearly expanding legal collections raises the denominator or just the dollars collected, but it's a much higher cost channel historically than call center. Is the Should we – I know you're not – I'm not trying to pin you down on guidance going out a full year, but that mid-$20 million level of legal, upfront legal collections per quarter sounds like in the back half of the year. I mean, should we view that as an upfront investment or probably a floor even in an improving supply environment?

Yeah, I think – I think you're accurately pointing out that as we increase the level of portfolio we're purchasing, we will naturally have an increase in the overall amount of legal spend that we've got on a quarterly basis. That will tend to lag somewhat the ramp in purchasing. we will tend to work a portfolio for six months or more in the call centers and digital before scoring for the legal channel. So that guidance for the sort of remainder of this year is really more around the investment that we already, the portfolio we already have in the book and primarily around that, addressing that you know, underperformance we've seen early on in these recent vintages. In terms of, you know, the longer term, you know, I think that that will naturally increase. And so you could probably look at that as a floor going into next year with regard to the overall legal investment. And then coming back to your initial lead in there, that it's a higher cost channel. Again, if we're Scoring appropriately, there is still good return on investment for that incremental cost investment in the legal channel. That would be my response to your points.

Got it. Maybe one last one, sort of more on the macro front. We've been hearing, obviously, for a number of months that about the prospects of a lighter tax refund season. You know, and we still have a pretty robust or tight labor market, at least among kind of a lot of blue-collar employment sectors. What's your sense of the U.S. performance, like how much is related to unique aspect of this year's refunds versus broader macro environment. It's not like the last three months we learned about stimulus drying up and household savings. As you reflect on decreasing the forward expected ERC, are you starting to see or speculate the impact of higher borrowing costs on consumers, other factors, and And does it incorporate certain assumptions near term about unemployment? Because clearly discerning season, the people you're buying from have all been, you know, they're all baking in various year end unemployment forecasts that they share with investors that's behind their reserve rates. And I'm curious if kind of, you know, since the shapes of your curve matter as much as the aggregate amount of collections, if you have a certain expectation for maybe six to 12 month unemployment as it impacts your yields?

Yeah, we have, I mean, we're not, we don't use macroeconomic factors in the modeling. It's more, you know, trend-based modeling of current throughput and expectations for the results of recent activities that we've taken through, whether that's, you know, legal placements or lettering, et cetera. But I would say that you know, the overall environment is a challenging one in the U.S. right now. In prior cycles when we've, you know, gone into this part of a cycle, we have had some softness in cash collections, elongation of, you know, of the collections curves, you know, lower levels of one-time payments and more longer-term payment plans. And those are things that you know, we are experiencing in the current environment. You know, in terms of the adjustments we've made to the curbs, yeah, we, you know, again, we've focused on the near term, call it, you know, rest of this year and into next year and making those adjustments. And our expectation is that, you know, that, you know, we should be able to hit those curbs if things perform the way we think they're going to. But time will tell. Got it.

Great. Thank you.

And this concludes our question and answer session. I'd like to turn the conference back over to Vikram Atal for any closing remarks.

Thanks, everybody, for your listening in and for your questions and your engagement, and we look forward to seeing you in the coming weeks and months.

Take care. Thanks.

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.