PRA Group, Inc.

Good evening and welcome to PRA Group's second quarter 2026 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 touchtone phone. To withdraw your question, please press star, then number two. Please note, this event is being recorded. I would now like to turn the call over to Mr. Najee Mostamant, Vice President, Investor Relations for PRA Group. Please go ahead.

Thank you, Operator. Good evening, everyone, and thank you for joining us. With me today are Martin Sjolund, President and Chief Executive Officer, and Rakesh Sehgal, Executive Vice President and Chief Financial Officer. We will make forward-looking statements during the call which are based on management's current beliefs, projections, assumptions, and expectations. We assume no obligation to revise or update these statements. We caution listeners that these forward-looking statements are subject to risks, uncertainties, assumptions, and other factors that could cause our actual results to differ materially from our expectations. Please refer to our earnings press release issued today and our SEC filings for a detailed discussion of these factors. The earnings release, the slide presentation that we will use during today's call, and our SEC filings can all be found in the investor relations section of our website at www.pragroup.com. Additionally, a replay of this call will be available shortly after its conclusion, and the replay dial-in information is included in the earnings press release. All comparisons mentioned today will be between Q2 2026 and Q2 2025, unless otherwise noted. During our call, we will discuss certain financial measures on an adjusted basis. Please refer to the appendix of the slide presentation used during this call for a reconciliation of the most directly comparable U.S. GAAP financial measures to non-GAAP financial measures. And with that, I'd now like to turn the call over to Martin.

Thank you, Najeeb, and thank you everyone for joining us this evening. I wanted to start by providing a quick overview of our financial results for the quarter. As you can see from this slide, we continue to execute against our PRA 3.0 strategy introduced earlier this year to drive higher returns and long-term shareholder value. Let me start with cash. Cash collections grew 4% year over year to $559 million. We continue to generate healthy cash growth across the business Particularly in our U.S. legal and digital channels, as well as in Europe. Cash efficiency remains strong at 61%, despite the continued investment in future growth initiatives. This demonstrates disciplined cost management. Turning to portfolio purchases, we invested $297 million during the quarter, which was in line with our expectations. As we have discussed previously, we remain focused on net returns. and we continue to deploy capital in a disciplined manner toward opportunities that meet our return requirements. Adjusted EBITDA for the last 12 months increased to $1.4 billion, up 10% year over year. The increase helped drive net leverage down to 2.67 times at quarter end, reflecting continued cash collections growth and disciplined cost management. Finally, net income attributable to PRA increased to $58 million during the quarter, Our earnings this quarter benefited from a significant increase in our European ERC, reflecting more than six years of strong performance. We will discuss this in more detail later on the call. Overall, the second quarter represented another step forward for PRA. We are continuing to drive improved financial performance, strengthen our balance sheet, and execute against the strategic priorities we outlined earlier in the year. I'm encouraged by the progress we have made and confident in the direction of the business. As a quick reminder, our strategic plan is called PRA 3.0, and it's organized around three important vectors. The first is capital and investing, where we are focused on being disciplined allocators of capital. This includes investing in the highest net return portfolio opportunities globally, maintaining a strong financial profile, improving the predictability of our earnings, and deploying capital in ways that create value for shareholders. The second vector is operations, technology, and data. where we are focused on building a leaner, more flexible, and more technology-enabled business. This includes modernizing our technology infrastructure, leveraging data and AI, and continuing to improve efficiency and drive cost savings across the business as we shift to a leaner and more variable cost structure. The third is people and culture, where we are focused on investing in talent, strengthening our performance culture, aligning incentives with shareholder interests, and maintaining the strong governance and values that have long been important to PRA. Our team is making rapid progress on the execution of this strategy, and I'm excited to share a number of major milestones we achieved this past quarter. Starting with capital and investing. As we've shared before, our European business has developed a long track record of success, overperforming its cash targets for 26 quarters in a row, including a 9% overperformance in the past 12 months. This sustained overperformance, even with the ongoing portfolio write-ups over time, demonstrates that we have consistently collected more from our portfolios than we underwrote. These results reflect many years of disciplined investing, investments in technology, and solid operational execution by our European team. As part of our quarterly portfolio assessment, we performed a comprehensive review of our European portfolios in the second quarter. This review benefited from our extensive track record, deep data set, and enhancements we've made to our analytical processes and forecasting capabilities over time. As a result, we increased our European ERC by $349 million. Rakesh will discuss the financial implications in more detail, but I view this as an important milestone that better aligns our European ERC with the long trend of historical overperformance of the European portfolios. We also continue to maintain a disciplined capital allocation framework. We are focused on making portfolio purchases at attractive returns and investments that enhance our operating performance. We also undertake opportunistic share repurchases when we see an opportunity to drive shareholder value. During the quarter, we repurchased $10 million of our shares, bringing our total to approximately $40 million over the past 12 months. Recently, our board authorized a new share repurchase program for up to $150 million providing additional flexibility in how we deploy capital and reflecting our commitment to long-term shareholder value. The second vector of our 3.0 strategy is operations, technology, and data. We've made some very significant progress this quarter. As I've said before, I'm very focused on cost discipline, which is essential to long-term success. Our European business is already one of the most cost-efficient platforms in that region, and we've been working hard to continue improving our cost structure in our U.S. business as well. During the second quarter, we implemented a second wave of cost reductions to simplify the organization and drive further savings. We eliminated 100 U.S. corporate and overhead roles and 35 offshore roles while also completing other cost reduction initiatives. These actions are expected to generate approximately $20 million of annualized savings on a net basis After factoring in other offsetting costs. Since the start of 2025, which included the first wave of cost reductions taken in Q4 of last year, we have now eliminated more than 215 corporate and overhead roles, a reduction of more than 25%. This is in addition to reducing more than 575 call center roles. We expect the first and second cost reduction waves to generate in aggregate approximately $35 million of annualized savings on a net basis. I would also point out that we have continued to grow our cash collections and adjusted EBITDA throughout these reductions. These changes are never easy, and I want to recognize the staff who have contributed to PRA over many years. However, these actions were necessary to better align our cost structure with the needs of the business and to help us become a faster, more agile organization. During the quarter, we also continued to simplify our call center footprint, closing two additional US sites and transitioning those operations to a work-from-home model. We now have one remaining US call center versus seven in 2023, a significant achievement that will drive additional cost savings and simplify our setup. In addition, we consolidated our two offshore third-party collection sites to one location, which has been performing at our target levels. These actions demonstrate how our offshoring strategy is enabling flexibility and helping to make our cost structure more variable. Technology modernization also remains a key priority, helping us reduce cost and complexity. Last month, we successfully launched our cloud-based omni-channel contact platform in the U.S. This global platform has already been in place in Europe for several years. It allows us to manage customer interactions across voice, digital, chat, and email through a single modern platform while providing a more seamless customer experience and better insights for our call center agents. This was an important milestone because it means most of our global markets now operate on a common contact platform, creating greater operational consistency, enhancing our collection capabilities, and positioning us for further innovation in the future. AI also remains a significant area of focus. During the quarter, we centralized leadership and oversight of our global AI initiatives through a dedicated team led out of Charlotte. This team is focused on accelerating the deployment of AI-enabled solutions particularly around automation, analytics, and operational efficiency. We continue to focus on practical business applications that can improve productivity, reduce costs, and enhance decision-making. Finally, under people and culture, we continue to simplify the organization and reduce management layers, creating a more agile decision-making structure. At the end of the day, the PRA 3.0 strategy is only successful if we have the right people, culture, and accountability mechanisms in place. We recently launched a series of people initiatives designed to strengthen our performance culture. I've personally spent time this quarter touring offices and speaking with staff. We have a talented and hardworking team, and I continue to be encouraged by the engagement and commitment I see across the organization. We're building momentum across all three vectors and executing with pace and rigor. The initiatives we've implemented are beginning to translate into a simpler organization, a more flexible operating model, and improved financial results. With that, I'll turn the call over to Rakesh to discuss our second quarter financial results in more detail.

Thanks, Martin. We purchased $297 million of portfolios during the quarter, which was in line with our expectations. Purchases in Europe totaled $174 million, while purchases in the U.S. were $109 million. Our global diversification and capital allocation framework provide us the flexibility to deploy capital where we see the most attractive returns. Supply remains healthy in both the US and Europe as we focus on portfolios that meet our return thresholds. In the US, credit card balances remain elevated and charge-off rates continue to support portfolio supply. In Europe, portfolio supply has seen an uptick and we benefited from this dynamic in the second quarter. Global purchase price multiples remained steady in the second quarter. Our Europe core purchase price multiple remained stable on a sequential basis at 1.86 times while our U.S. core purchase price multiple increased to 2.17 times. ERC at quarter end increased to a record $8.9 billion Up 7% year-over-year. Europe represented 54% of ERC, while the U.S. represented 40%, giving us a highly diversified portfolio across markets and economic cycles. Based on the average purchase price multiples for the first half of 2026, we would need to invest $1 billion over the next 12 months to maintain current ERC levels. Cash collections in the second quarter grew 4% year-over-year to $559 million, with the U.S. growing 6% and Europe growing 4%. U.S. cash growth was driven by our legal and digital channels. Legal cash collections grew 26% to $150 million and now represents more than half of all U.S. core cash collections. The increase in legal cash collections reflects investments made in prior periods as accounts move through the legal channel. We continue to see strong performance from those investments and remain on pace for another strong year of legal cash collections. The legal channel remains an important component of our collection strategy, but it is not the channel we lead with or prefer. Before accounts are considered for the legal process, We make extensive outreach efforts over an extended period of time through numerous other channels, providing customers multiple opportunities to voluntarily engage with us. For the subset of customers who do not engage with us voluntarily but have an ability to pay, we will consider using the legal channel when our model suggests that the investment in upfront court costs is economical. Our U.S. digital collections continue to experience healthy growth as we expanded customer engagement through the channel. In fact, nearly half of the new payment plans created during the quarter came from the digital channel. Europe cash growth of 4% in the second quarter was distributed broadly across our markets. Based on the internal and external metrics, we continue to monitor Our customer profile remained stable across both the U.S. and Europe. Total cash collections performed 4% above our expectations, with the U.S. performing on target and Europe once again exceeding expectations, overperforming by 9%. Europe has consistently exceeded cash expectations for the past six years. Given this sustained cash overperformance, and enhancements we have made to our analytical processes and forecasting capabilities, we performed a comprehensive review of our European portfolios as part of our quarterly portfolio assessment. The review covered the majority of vintages across our European markets and resulted in $349 million increase in European ERC. This significant increase in ERC will support higher portfolio income going forward, which is the more predictable component of our revenue. We expect approximately $216 million of additional portfolio income to be recognized over the remaining life of the European cash curves, which extend more than 10 years from the time of purchase. This translates to an average annualized increase in portfolio income of approximately $25 million in the near term. As a result of the increase in ERC, we expect more moderate levels of changes in expected recoveries over the long term. Total revenues increased 29% to $372 million. The increase was primarily driven by higher changes in expected recoveries largely reflecting the increase in Europe ERC this quarter. Portfolio income grew 7% in the quarter to $268 million. Portfolio income represents the largest component of our revenue stream, and we were pleased to see portfolio income growth exceed cash collections growth again this quarter. Changes in expected recoveries totaled $97 million this quarter, Approximately $23 million or 23% of this amount came from recoveries collected in excess of forecast or cash received above our expectations. The remaining $74 million or 77% came from changes in expected future recoveries or the net present value of changes to our ERC. Total operating expenses were $219 million for the quarter, up $16 million year over year. $15 million of this increase was driven by continued investment in the legal channel to support future cash collections growth. Another $5 million was due to one-time costs related to the reorganization of our US operations. Let me start by going over the reorganization expenses. The $5 million of reorganization costs was comprised of $2 million of severance expenses related to the corporate and overhead headcount reduction in the second quarter and $3 million related to site consolidation of our onshore owned and leased call center facilities. Once the impacted owned facilities are sold and leases terminated, We will have realized approximately $4 million of gross annualized reduction in operating expenses. We have reduced our call center footprint to one onshore site from seven sites in 2023. Legal collection costs are expected to increase as more accounts flow through the legal channel and deliver more cash collections. However, we expect the growth rate of our legal collection costs for full year 2026 to be more moderate than the growth rates we experienced over the past couple of years. Compensation and benefits expenses decreased 7%, primarily reflecting the workforce reduction actions implemented over the past year. Communication expenses were down 19% this quarter, as we continue to benefit from our shift towards digital engagement strategies and reduce reliance on traditional letter-based communications. Our digital initiatives continue to deliver positive results with digital cash collections growing while also helping to lower costs. Moving below the operating line, net interest expense was $64 million for the quarter, up $2 million year-over-year. primarily due to a higher debt balance. Our effective tax rate was approximately 33% during the quarter and for full year 2026, we expect our effective tax rate to be 30% depending on income mix from various countries and other factors. Net income increased to $58 million during the quarter or $1.51 per diluted share Reflecting strong revenue growth and continued cost discipline across the organization. As shown on the right side of the slide, adjusted net income and adjusted return on average tangible equity have both continued to trend in the right direction. We are starting to see the benefits of the operational initiatives and cost actions we have implemented across the business. In addition to net income, we also focus on adjusted EBITDA which provides a more cash-oriented view of the business. Adjusted EBITDA for the last 12 months was $1.4 billion, up 10% year over year. This increase reflects continued cash collections growth, disciplined cost management, and the execution against our PRA 3.0 strategy. Our borrowings have largely been in a narrow range of the past several quarters, while our adjusted EBITDA continues to grow, helping drive lower net leverage. Net leverage at quarter end declined to 2.67 times from 2.71 times in the first quarter and from a peak of 2.87 times in the third quarter of 2024. This is consistent with our objective of continuing to move toward the mid two times area over time. Turning to funding and capital allocation, We continue to maintain a strong funding profile with ample liquidity and a well-diversified capital structure supported by both bank and bond debt. As of June 30, we had $3.1 billion in total committed capital under accredited facilities with total availability of approximately $1 billion, comprised of $733 million available based on current ERC, and $265 million of additional availability that we can draw from subject to borrowing base and debt covenants, including advance rates. During the quarter, we also completed the refinancing of our 730 million European credit facility, maintaining the same commitment level and pricing while extending the maturity by an additional five years. We want to thank our lending partners who have continued to support us over the years. We have no debt maturities until February 2028, and our debt maturity profile remains well staggered. Our capital allocation priorities remain unchanged. First, we will continue to make disciplined portfolio investments that meet our return requirements. We will continue to invest in initiatives that enhance the operating performance of the business, including legal collections, digital capabilities, and technology modernization. Finally, we will continue to view opportunistic share repurchases as part of our overall capital allocation strategy to drive shareholder value. During the second quarter, we repurchased $10 million of shares bringing total repurchases over the last 12 months to $40 million. As Martin mentioned, our board also authorized a new share repurchase program for up to $150 million, providing additional flexibility as we evaluate future capital allocation opportunities to enhance value for our shareholders. As a reminder, the amount and timing of share repurchases depend on several factors, including our capital allocation priorities, financial performance, market conditions, valuation, leverage, liquidity, and the terms of our existing debt agreements. Overall, we believe our improving financial profile, strong capital structure, and disciplined capital allocation strategy provide significant flexibility as we continue executing against PRA 3.0. I'll now turn it back to Martin.

Thanks, Rakesh. To summarize, we're executing strongly against our PRA 3.0 strategy and our teams are moving with pace and rigor. In capital and investing, we completed a comprehensive review of our European portfolios, recognizing the business's long track record of performance. In operations, technology, and data, we have significantly reduced costs, further consolidated our call center footprint, and successfully launched our new omnichannel contact platform in the U.S. In people and culture, we have continued to simplify the organization, reduce management layers, strengthen our performance culture and further aligned incentives with shareholder interests. If we take a step back and look at the bigger picture, we're seeing the benefits of these actions reflected in our results. ERC is at a record level, adjusted EBITDA is near an all-time high, forecasting accuracy has improved, Leverage has continued to decline from its peak in 2024, and we maintain a strong funding profile. Looking ahead, our priorities remain clear. We will continue executing against our PRA 3.0 strategy and believe the actions we are taking today position us to deliver higher returns, stronger financial performance, and long-term shareholder value. While markets and operating conditions will evolve, I'm confident that we will continue to see the benefits of our investments and operational improvements flow through to the financial results. Finally, I would like to thank our employees around the world for their hard work and commitment. The progress we have discussed today is a direct result of their efforts and dedication. Thank you everyone for your time, support, and continued confidence in PRA. And with that, we'll open it up for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. To join the question queue, you may press star then one on your touchtone phone. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then the number 2. We will pause for a moment to compile the Q&A roster. Our first question comes from the line of David Sharpe from Citizen Capital Markets. Your line is open.

Hi, good afternoon. This is Zach on for David. Thanks for taking our questions. So obviously good dynamics coming out of the quarter in the European segment, but wanted to see if we can get a little bit more color on the competitive environment there and kind of where competitors are moving and kind of what the activity level is that they're seeing from other buyers in the market.

Yeah, hi, Zach. Overall, I would say the supply environment right now is looking pretty stable, both in the US and Europe. We think that volumes generally look pretty good. In terms of the dynamics there, as I've always said, both for the US and Europe, the markets are competitive. So that's why I think it's so important for us to be disciplined in our buying and to have the global diversification that we've got. So I've said on these calls before, we don't want to grow for growth's sake. We really want to make sure we allocate capital in a disciplined way. And that's what we did this quarter. So if I reflect on the quarter, we basically invested according to our plan. Our multiples ticked up. Our leverage ticked down. And that was exactly the plan we'd laid out. So overall, the supply environment remains pretty good. But both markets, both regions remain competitive, I would say.

Got it. Thank you.

That's a helpful caller. I wanted to just squeeze in one more question just on the legal side. Yeah, so it sounds like legal will be up a little bit moderately year over year, but it's still not the primary driver of the business. I guess I wanted to kind of see if there's a natural kind of ceiling or kind of a way to think about the share that legal could represent in the business.

Yeah. Hey, Zach.

It's Rakesh. I'll take that. Look, as we said, legal is not the channel that we lead with. We make extensive efforts to engage with our customers through other channels, such as calling, texting, emailing, and we do that over an extended period of time where we make offers to our customers. But in cases where the customers do not engage with us voluntarily, but our models and our data, they all show that the customers have an ability to pay, we will consider and account for the legal channel. Keep in mind that legal costs, they're really driven by the mix of portfolios we buy. And also secondly, by the increase in the accounts that our models are determining that accounts are eligible for the legal channel as we continue to improve our legal processes. And that's really important given some of the underinvestment we had made in the channel some years back. The investments in the legal channel that we've been making recently, they've continued to generate really strong cash collections. And we saw that this quarter earlier. I mentioned that U.S. cash collections in the legal channel grew by 26%. And so you're right. As we look ahead, total legal costs are expected to continue to increase as more of these accounts move through the channel. However, what's really important to note is that the growth rate should moderate relative to the prior years. So keep in mind, Zach, in 2024, our growth rate was 40% on legal costs. Last year in 25, that was 30%. And as we look out to 2026, we believe that that growth rate would moderate and would be lower than what we saw in the last two years.

Got it. And then if I can just squeeze in one last question, just on the, I guess, you know, kind of a pull forward of the upside in the ERC. So obviously, you know, it seems like there should be more moderate European kind of changes and recoveries going forward. Is there kind of a sense of the magnitude of that? You know, maybe they should be kind of half of what was previously projected. Any kind of, yes, metrics in that sense would be helpful. Thank you.

As we talked about earlier, the European business has a long track record of significant overperformance. The core drivers of that are really good operational execution, discipline investing over time, and technology investments that we've made.

We've also improved our underwriting and our analytical capabilities over time as well.

As we came into the quarter, I'd asked our European underwriting team to leverage these tools and do a deep dive on the portfolio. That's where we came out with this $349 million ERC increase. And that's going to drive an increase in the portfolio income going forward as well. So I think it's really just reflective of the long track record of performance that we've had.

Got it. Thank you very much.

Our next question is from Mark Hughes from Truist. Your line is open.

Yeah, thanks. Good afternoon. Martin, you had talked about or mentioned an uptick in Europe. I know in the last question you said it continues to be healthy, didn't elaborate on Europe, but what was driving the uptick? Any particular end markets or different behavior or just random variations?

Well, I guess it depends which uptake we're talking about. There are a couple of things here. One was on the multiple, which ticked up, but also on the overall supply environment. So Q2, we had a record investment quarter actually for Europe, and I wouldn't pin it down to any particular one-off event. It was just a generally decent supply environment, and we were successful in the bidding that we had there. As you know from prior calls, the European market is more spot-driven, so sometimes the investment quantum can vary a little bit because there are more spot deals there.

Yeah. Did that motivate you to perhaps be a little more conservative in your bidding in the U.S.?

You know, overall, we try to think...

I was just going to elaborate just to be more clear that having some success in Europe and wanting to have kind of a budget target in mind, you backed off a little bit on the U.S. I was just curious if that was the trajectory of the quarter.

I mean, you know, we think about capital allocation on a global basis and we're solving for, you know, certain return hurdles that we're trying to achieve. So it really does depend as the quarter progresses how the bidding is evolving. So, you know, we have our return hurdles, I would say, and we don't necessarily set out to say we're going to hit a certain volume in a given market. It depends a little bit on how the bidding plays out. So, you know, as I said earlier, we ended up investing what we had planned to invest for the quarter and We met the return hurdles that we had planned for, and we were satisfied with the outcome of the quarter from a buying perspective.

Mark, if I could just add, I think it's the global diversification really works to our benefit. We put out targets. As you know, that long-term target is to invest between 1 to 1.3, and we said that for this year, we would be pretty much in line with what we had achieved last year. but really what we do is we look at the opportunities and the supply coming to market irrespective of the country and we will deploy capital. And it's not that there is a certain target that we have within each country and we gotta meet it and we're not gonna just grow for growth sake.

Those portfolios have to meet our return thresholds.

Yeah, very good. I was gonna ask you about the target, the one to 1.3. Sounds like that is unchanged.

Yeah, that's still the range we've laid out.

Given we have markets where we have a lot of spot activity too, we're not going to put an exact number out there, but that's still the range that we're targeting looking forward.

Yeah. When I look at your other operating expenses and personnel expenses, Is this a pretty good run rate? I know we run into some seasonality, but I think collections are usually seasonally, well, I guess pretty consistent in the back half relative to the front half. But this level of expense, and I'm looking particularly at compensation and employee costs and then other operating expenses, Is this a good level when we think about the back half of the year?

I'll let Rakesh comment on the outlook there. But what I would mention is just the cost restructuring that we did. We're starting to see now the benefits of the cost restructuring we did back in Q4 of last year. But in Q2, we've done an additional wave of cost reduction. Where, as I mentioned, we've reduced 100 corporate roles, overhead roles here in the U.S. and additional 35 offshore roles. So there's an additional net savings that we're expecting from that. And I mentioned $20 million there. So I would say that over time, you'll start to see these working their way into the number. Rakesh, you could probably give more color on that.

Yeah, what I would say is, first of all, keep in mind, Mark, that this quarter is We had $5 million of one-time expenses in that $219 million number. And so when you look at the back half, we're going to continue to invest in the business. And so for the second half, you should just assume that we would have on a quarterly basis expenses that are pretty much fairly in line with this quarter, excluding those one-time charges.

Yeah, where did the $5 million, where did that fit in terms of the line items?

Yeah, so as I mentioned, there are two big items.

One is $2 million related to severance, and so that would be in our compensation and employee services line. And then we have another $3 million that's related to asset impairments.

and so that's further in the other OPEX line.

Okay. Which even including those numbers looked pretty good, all observed. Okay.

I think that was it for me. Appreciate it. Thank you. Okay. Thanks, Mark.

Again, if you would like to ask a question, simply press star, then the number one on your touchstone phone. Our next question is from Robert Dodd from Raymond James. Your line is open.

Hi, guys. Obviously, lots of big numbers moving around with the curve adjustments, etc. So if I can dig into that a little bit more, and I mean, you kind of addressed it partly in the first question, but So Europe outperformed in cash collections by 9%, so 109. If I look at your total ERC adjustment for primarily Europe, it looked like it was about 8% of last quarter's ERC, right? So can I read into that that the curve adjustments essentially embed all of The outperformance that we've seen out of Europe, if the curves had been what they are now and the ESA had been what it is now, Europe would have performed in line with expectations. Does that make sense? Is that how it shakes out in terms of these adjustments? You factored everything in rather than left yourself something in the back pocket?

Overall, I would say that, as I mentioned before, we had our team sit down and review this. We've gone through market by market, and in some cases, vintage and portfolio by portfolio. This now represents our best estimate going forward on what we expect to see. There's always a little bit of volatility on these things because we're predicting the future, but we feel confident with the projection that we have now looking forward.

Yeah, and Robert, what I would add is keep in mind that 9% this quarter was an overperformance relative to a target that was set back in March. And then the comprehensive review that we did was part of the quarterly assessment at the end of Q2, so as of June. So as we move forward, what you're going to announce...

Sorry, go ahead. No, no, go ahead. Sorry, sorry. Yeah.

Yeah, and so what you're now going to see is given this increase in ERC, you're going to see higher portfolio income, which is the more predictable part of our revenue line item as we move forward. And when you look at just 2026, you're going to have a very nominal impact to our net income because on an annualized basis, we're going to see a $25 million uptick in portfolio income. And you can take a run rate for the next six months in terms of how much of an uptick we expect from these European portfolio ERC increases in the second half. And so when you look at also just the ERC balance this quarter, remember it is dependent on purchase as cash collected and what those multiples are with respect to the cash that was collected. and then also what the write-ups were. So a significant portion of this ERC increase this quarter was because of the ERC uplift from the European ERC review that we did.

Yeah, yeah, understood, understood. Thank you. Yeah, I think I've got, yeah, and I've got the 25 million a year, 216 incremental over the life of the adjustment, et cetera. So got that, understood, thank you. Yep. On the pricing in the U.S., so, I mean, the multiple in the U.S. for 26, I think you said it went up to 2.17 in the second quarter. Obviously, for the first half, it's 2.08, right? So, obviously, I can't remember what it was in the first quarter, but it was obviously lower than that, right, with the 2.17. So, is there, I mean, has there been any, is that just mix and random things, or has there been an incremental shift in how attractive and many more. Thank you.

As I described to an earlier question, we think globally in terms of how we allocate capital and we solve for the best returns that we're able to get. So we're trying to be disciplined about that. Having been in this business for 15 years, I think that long-term discipline and focus on return is really important. So the way you see our mix shaping up is a result of the diversification that we have.

Yeah, yeah, I understood. Multiple isn't the whole story for return, obviously. On digital, I think you said, I wrote this down and it may not have been what you said, but I think you said you've expanded in the digital channel. This was after the comment about legal. Expanded customer engagement and nearly half of new payment plans were from the digital channel this quarter. Can you give us any more color on what's changed? If anything, is this a function of more implementation of the technology and the AI, or is it just what exactly has changed to enhance that engagement? And now nearly half, and it's obviously a lot lower cost to do digital than it is mail and letter these days.

Yeah, so that's right. What you just mentioned there is right.

So we have seen a healthy growth in the digital channel. You know, we've been investing in digital both in Europe and the U.S. in different ways. So we really believe that, you know, in the longer term that there's a shift to the business and digital and in the future AI tools are going to become more and more important. You know, the results we're seeing reflect that we're able to leverage a more broad range of digital channels in an integrated way. We've got a really good digital team that's testing different campaigns and approaches. And I think customers more and more come from an environment where they like to interact digitally as opposed to speaking on the phone with each other. So I think this is where things are going. I'd also mention that, as I said earlier, we did also implement our new contact platform in the U.S. this quarter. So that's a very big project. That also enables, it integrates calling with other digital channels. So things like SMSing or emailing and so on, or chat. We now have the possibility of having an integrated contact platform that's omnichannel. So that's a big milestone. We've been using this platform for years in Europe, and now we're rolling it out here in the US as well. So I think that's what's going to continue this push that we're making on modernizing the technology and leveraging digital.

Got it. Thank you.

Our next question comes from the line of David Sharpe from Citizens Capital Market. Your line is open.

Hi. Good afternoon. Thanks for squeezing me in. I've been hopping between calls, so I missed the prepared remarks, so I apologize if this has been addressed already. You know, I was wondering, you know, Martin, When I see the presentation on the areas of operations, tech, and data, kind of the continued investments, I guess a two-part question, and I'm referencing sort of the advances in IT modernization, operating efficiencies, expanding AI-enabled solutions. Is the bulk of the kind of investing, is the bulk of it completed by the end of 26? Is this sort of, is there more of an annualized kind of expense rate over the next three years we should think about? Just trying to get a sense for With all the changes and improvements and investing and reconfiguring and offshoring, if maybe there's kind of a report card you can provide us about how far along you would characterize the plan.

Yeah. Hey, David.

So first of all, I mean, on the cost side, as we discussed earlier, we did undertake a significant cost savings exercise this quarter. So that was in addition to what we did back in Q4. So when it comes to that side of it, which is just kind of like overhead cost, I think we've made a big push there. We will always continue to look for efficiencies, you know, if we're able to leverage new technologies. You know, to your question on where we are on the roadmap, you know, this has been going on for some time. And so there's, you know, the, what do you call it, the contact platform, the Omnichannel contact platform was a significant milestone this quarter. We also in Europe launched a mobile app, which was the milestone. We have other projects, though, that are continuing on. So we're in the process of migrating into the cloud. We expect to have that done by the end of the year. And then we have other important technology projects that are going to span multiple years as we continue to modernize the technology. On the cost side, though, these aren't, I don't think they're massive investments. I mean, the technology investments are in the Low tens of millions spread across several years. So it's not hugely material if I compare to the legal investments that we're making and so on. So what you're going to see going forward is a reduction in the compensation line as we become more efficient and more lean there. Rakesh talked earlier about our legal investments, but those are obviously direct investments and activities that we expect to generate cash going forward. And then the technology roadmap is really continuing on in the background where we've achieved a couple of big milestones this first half of the year. We expect some more by the end of the year. And then there's a couple of projects that continue beyond that. So that's how I would think about it.

Got it. No, that's helpful. And maybe just one follow-up, kind of same topic. A few years ago, there was obviously a lot of discussion about more offshoring, whether it was certain outsourced processes or just seats. As you think about the increase in the digital channel, as well as this omnichannel platform, that you brought to the U.S. Is this an industry that five years from now or three years from now is going to be less, the cost structure is going to be less determined by location, where the seats are? Is it going to be less of a labor-intensive business? Just trying to get a sense for what some of the other factors are that can increase cash efficiency or reduce collection costs.

Yeah, that's a good question.

And I think it's really interesting to think about the long-term trend in the industry. I mean, having been here for 15 years myself, it used to be an industry where you had call centers in the cheapest location you could find, and you called as much as you could, and you sent a lot of letters. I think things have moved on from there. I see it as a technology-enabled data and analytics industry. Thank you for having me. I think there's a lot of opportunity to enhance productivity, in particular of back office functions and things like that. And in the future, I think we can provide greater customer support as well using those tools. So I do think that this trend will continue. And the investments that we're making on the technology side are all geared at enabling us to do this in the future. So I think there'll always be an important role for calling and customer contact You know, people have complex situations and so on. And we deal with customers who some of whom are in financially challenging situations. And there are calls that, you know, you're always going to want to have a person take those calls. And we have very skilled and experienced agents, too, I should say. So I think there will always be a role there. But I do think that over time, you'll see more and more productivity coming, being enabled by these technology investments.

Got it. Great. Thank you.

There are no more questions at this time. I would now like to turn the conference back to Martin.

Yeah, thank you. Well, thanks, everyone, for listening. Just to sum up, I think we're really executing on the strategy that we've laid out. If we take a step back, we are starting to see the benefits of this in our results. So our ERC is at a record level. Adjusted EBITDA is near an all-time high. Our forecasting accuracy has improved. Our leverage has continued to decline and we maintain a really strong funding profile. So I think we're making really good progress and I think we're in good shape.

So thank you for listening.

This concludes today's conference call. Thank you for participating. You may now disconnect.