PRA Group Inc Aktie

Good evening, and welcome to PRA Group First Quarter 2026 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Mr. Najim Mostamand, Vice President, Investor Relations for PRA Group. Please go ahead.

Thank you. Good evening, everyone, and thank you for joining us. With me today are 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 Q1 2026 and Q1 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, Najim, and thank you, everyone, for joining us this evening. We are excited to be holding today's earnings call in our new Charlotte office, surrounded by some of our new colleagues who will help us transform our IT, AI and data analytics strategy.

I wanted to start by providing a quick overview of our financial results for the quarter. As you can see on this slide, we have had a strong start to 2026, building on the success we achieved last year. Let's start with cash. Cash collections grew 11% year-over-year, driven by the continued momentum of our operational initiatives, especially in the U.S. This was supplemented by our continued strong performance in Europe. Cash efficiency improved to 62% from 61% last year, and that's with a $15 million increase in legal collection costs. As seen recently, these legal investments have been generating significant cash collections in the quarters following our investment. We expect our investments in legal collections to continue to generate cash for years to come.

Turning now to portfolio purchases. Over the past 2 years, we've invested $2.6 billion in new portfolios, and this included our highest and third highest annual investment levels in company history. In Q1 of 2026, we purchased $221 million of portfolios globally as we remain disciplined with our buying and take a long-term approach focused on net returns rather than growth for growth's sake. This investment amount is in line with our expectations, both in terms of volume and expected returns. We did also take the opportunity to invest in some adjacent lower cost-to-collect segments where we saw good returns. This is part of our strategy of carefully investing into new segments that meet our net return thresholds.

Net income increased to $28 million, building on the strong momentum we have been generating over the past couple of quarters. Adjusted EBITDA for the last 12 months was up 14% to $1.3 billion, growing faster than cash collections once again. This suggests that we continue to gain operating leverage even as we increased investments in the legal channel. Due to the continued strong growth in adjusted EBITDA and our disciplined purchasing, our net leverage continued to tick down, ending the quarter at 2.7x. As you can see, we've started 2026 with solid momentum.

I wanted to provide some perspectives on the health of our customers, especially in light of the current macroeconomic and geopolitical backdrop that has led to elevated energy costs and gas prices. To start with, our customers remain stable in the U.S. and Europe and global cash collections in Q1 performed in line with expectations. Based on our analysis of call recordings, we haven't really been hearing customers cite gas prices or inflation as reasons for not being able to pay. While we can't predict what will happen, I can tell you that we are monitoring this very closely, and we can draw on lessons from what we've seen in the past based on our 30 years of data.

I've been in the company for 15 years. And across that time, I've seen many different situations play out from the war in Ukraine to Brexit to COVID. Here's my perspective. Number one, my observation is that historically, our customers have tended to be fairly resilient across multiple economic downturns. Many of them want to resolve their debt and are on payment plans that they can afford. Others are under court judgment to pay their debts. So, the proportion of paying customers has tended to remain fairly stable through various economic situations, and this is particularly true in many of our markets where we have a strong share of legal collections. At times of stress, we do sometimes see fewer large payments and settlements, which reduces the average payment size. This phenomenon tends to be temporary, and we would normally expect to recover the cash eventually as these customers have demonstrated their desire to clear their debt.

Second, customer dynamics vary greatly by market as do government responses. We operate across 18 different markets, and we have seen that macro changes can affect different markets in very different ways. In past energy cost dislocations, such as the start of the war in Ukraine in 2022, we saw that different countries were affected depending on where they source their natural gas from as well as the propensity of the government to intervene. It is impossible to predict exactly how markets will be affected. And ultimately, we benefit from the aggregation of many local market situations into a global pool, which helps protect us from single market risk. We have a long experience of dealing with economic cycles and customers who are experiencing difficult financial circumstances.

And thirdly, there's the other side of the coin to consider, as seen by the chart on the right of the slide. Economic stress tends to drive up charge-off rates, and we often observe charge-off rates rising by a larger factor than the impact on our collections, and this creates buying opportunities over time. We are well positioned to capitalize on this scenario should it occur. So currently, we believe that the situation is manageable, given our global diversification, but we're monitoring it with heightened awareness.

Let me now spend some time providing an update on our PRA 3.0 strategy, which we unveiled in March. This long-term strategy has 3 important vectors. The first vector is capital and investing. Here, we focus on leveraging our global scale and diversification to invest with discipline and allocate capital to the highest return opportunities. It also means delivering a strong financial profile through the cycle, one that generates more predictable net income and creates a more flexible cost profile. We intend to maintain our strong funding profile with a focus on reducing leverage to the mid-2x area over time, and we will maintain our thoughtful capital allocation strategy.

The second vector is operations, technology and data. This is all about becoming more flexible, tech-driven and leaner. It starts with balancing the benefits of our internal platform with flexible external capabilities. It also means modernizing and standardizing our technology, which is already happening in Europe and making significant progress in the U.S. We will continue to leverage our massive amounts of data, customer insights and AI to drive improved processes, cost savings and enhanced customer service. We will also remain disciplined in our cost management, shifting more toward a variable cost structure as we continue to grow our legal capabilities, call center offshoring and external debt collection agencies or DCAs, globally.

The third and final vector is people and culture. As I said last quarter, the strategy is only as good as the people who execute it, which is why we are focused on establishing a winning culture by nurturing our highly talented team of people. Together, these 3 vectors serve as our blueprint for transforming PRA into a high-performing technology-enabled global allocator of capital.

Let's now turn to some of the ways we have executed against this strategy in recent months. Starting with capital and investing. We remain disciplined in our portfolio investments with a focus on driving returns. We also successfully refinanced our European credit facility, which Rakesh will talk about later. Turning to our second vector. We continue to drive digital innovation to enhance our engagement with customers. Just a few weeks ago, we launched the first iteration of our new mobile app in the U.K. It was encouraging to see customers already starting to use and make payments through the app. As it relates to AI, we have been piloting a number of initiatives across the U.S. and Europe to drive better processes and greater automation in our call center, digital and legal channels. These initiatives and others that are currently in the pipeline are expected to generate value for PRA over time as we continue to discover and implement new solutions for modernizing and transforming our operations.

We see opportunities to leverage AI in a number of ways. This includes developing in-house capabilities, which can leverage external AI models to link our business processes and data. It also includes working with external partners to leverage off-the-shelf tools. We are on a multiyear journey to completely transform our U.S. technology platform. This will bring cutting-edge capabilities, make our processes more efficient, leverage AI and also reduce costs over time. We've been making good progress in our U.S. IT modernization road map and are on track to have one global cloud platform and cloud-based contact platform by the end of this year.

As I mentioned on the last earnings call, I see cost control as a mindset, not just a one-off project. We remain very focused on our cost base and are continuously looking at cost savings opportunities. In addition, we're shifting towards a more variable cost structure, leveraging more of our offshore and DCA capabilities. Finally, as it relates to people and culture, I'm excited to be sitting here with the team in Charlotte following the opening of the talent hub in Q1. Charlotte has a vibrant financial services sector and being here gives us access to a wider talent pool to supplement our great teams in other locations. We have communicated the new 3.0 strategy to the entire organization, and our teams are focused on execution. We have also reviewed our compensation schemes and made adjustments to create stronger alignment between management incentives and shareholder interest.

I'll now turn it over to Rakesh for a summary of our Q1 financial results.

Thanks, Martin. We purchased $221 million of portfolios during the first quarter with $119 million in the U.S., $92 million in Europe and $11 million in other markets. This was in line with our expectations as we continue to focus on driving higher returns and net income while balancing investments with leverage. Our global purchase price multiple remained steady in Q1 with a small downtick in the U.S., offset by an uptick in Europe. Our U.S. core purchase price multiple was slightly lower this quarter due to us investing in a higher portion of portfolios that have a lower cost to collect. These included some investments in adjacent product segments.

As a reminder, purchase price multiples measure gross dollars collected per dollar invested and are not on their own a measure of profitability. They can vary due to multiple factors such as product, geography, age of portfolio and collection channel used with each having a different level of cost to collect. Portfolios that have a lower cost to collect generally have a lower purchase price multiple. Our focus continues to be on net returns after taking into account the cost to collect, funding costs and timing of cash flows. Our investments in adjacent segments this quarter met our net return thresholds even though they have a lower purchase price multiple.

As we look ahead to the next 12 to 18 months, we expect portfolio supply to remain relatively stable in the U.S. and Europe. Credit card balances in the U.S. continue to hover around $1.1 trillion, while charge-off rates remain above 4%. ERC at quarter end was $8.5 billion, up 10% year-over-year, with the U.S. accounting for 43% of ERC and Europe accounting for 51%. This diversification helps mitigate risk from any single market and economic cycle. The replenishment rate defined as the amount we would need to invest over the next 12 months to maintain current ERC levels based on the average purchase price multiples in the first quarter of 2026 was $1 billion.

Cash collections for the quarter grew 11% year-over-year to $552 million, driven by the continued growth in our U.S. legal collections channel, coupled with strong performance in Europe across multiple markets. In addition, our digital channel continues to show significant momentum with global digital cash collections up 19% year-over-year. U.S. cash collections grew 11% in the first quarter. U.S. legal cash collections grew 27% to $141 million as we continue to benefit from investments made in the previous quarters. Legal is not the channel that we lead with, but in cases where we are not able to get customers to engage with us through other channels, we will eventually consider an account for legal collections.

The legal channel typically provides greater collections certainty and a higher overall amount of cash collected versus other channels. Legal accounted for 53% of U.S. core cash collections in Q1 compared to 46% in the prior year period. Europe's cash collections grew 15% in the first quarter with growth distributed across several of our core markets. Comparing cash collections versus expectations, globally, cash collections exceeded our expectations by 3% with the U.S. exceeding by 1% and Europe exceeding by 8%.

Moving to a summary of our income statement. Total revenues increased 17% during the quarter, driven primarily by the growth in portfolio income. Portfolio income, which is the more predictable yield component of our revenue, grew 12% in the quarter to $270 million. We expect portfolio income to continue growing and contributing to net income as we drive improved cash performance from our operational initiatives, especially in the legal and digital channels. Changes in expected recoveries were $44 million in the quarter. Of this amount, 52% or $23 million came from cash over performance or cash received above our expectations and the remaining 48% or $21 million was from changes in expected future recoveries or the net present value of changes to our ERC.

Turning now to the rest of the income statement. Operating expenses were $211 million for the quarter, up $16 million. Legal collection costs, which are variable, accounted for $15 million of the increase with the remaining OpEx items in aggregate staying flat while we delivered cash growth. Our investments in the legal channel are yielding strong cash collections and the growth in the legal collection cost is expected to moderate this year versus the last 2 years. Overall, we continue to gain operating leverage as we build a more variable cost structure.

Compensation and benefits expense was down $3 million this quarter. This was driven primarily by rightsizing our agent headcount, leveraging more external collections resources, including offshore agents and eliminating more than 115 corporate roles in Q4 last year. Communication expense was also down $1 million in Q1 after being down $7 million in all of 2025. These decreases were driven by a growing shift to lower-cost digital strategies instead of sending letters to customers. The work that we have been doing in the digital channel is starting to bear fruit with digital cash collections growing double digits while helping to lower costs.

Net interest expense was $64 million for the quarter, up $3 million year-over-year, primarily due to a higher debt balance. Our effective tax rate was 22% for the quarter. For the full year 2026, we expect our effective tax rate to be in the mid- to high 20s, depending on the income mix from various countries and other factors. We generated $28 million in net income for the quarter or $0.73 in diluted earnings per share, demonstrating the strength of the global franchise with improved performance in the U.S. and Europe. This was up $25 million year-over-year and follows the strong $35 million in adjusted net income we delivered in Q4. While there will be variability in our net income on a quarterly basis, our focus remains on growing the bottom line and improving returns.

You can see that on a 4-quarter average basis, our profitability is trending in the right direction as we continue to improve our core operations, reduce overhead and invest further in legal, digital and offshoring to transform the business. We are focused on building on this momentum by continuing to execute against our PRA 3.0 strategy. In addition to net income, we also focused on adjusted EBITDA, which we believe provides a more cash-driven perspective on our operating success. Adjusted EBITDA for the last 12 months was $1.3 billion, up 14% year-over-year, exceeding cash collections growth of 11%. Our net leverage, defined as net debt to adjusted EBITDA continued to tick down, ending the quarter at 2.71x compared to 2.73x as of December 31 and compared to 2.82x in the prior year period. This is due to the strong adjusted EBITDA growth, coupled with disciplined purchasing. In line with our 3.0 strategy, our goal is to have our net leverage continue to decline over the next few years as we aim to land in the mid-2x area.

In terms of our funding, we have ample liquidity and a strong capital structure that is well diversified between bank and bond debt. As of March 31, we had $3.1 billion in total committed capital under our credit facilities with total availability of approximately $1 billion, comprised of $714 million available based on current ERC and $282 million of additional availability that we can draw from subject to borrowing base and debt covenants, including advance rates. We continue to proactively strengthen our capital structure. Last month, we refinanced our $730 million European revolving credit facility. We are pleased that we completed the transaction well in advance of its maturity in November 2027. The new facility has a 5-year term, further staggering our debt maturity profile with no change to the commitment level and pricing. Our funding profile remains strong with ample liquidity and no maturities until 2028. We want to thank our lending partners for their continued support as we deliver on our strategy.

Lastly, we saw an opportunity to undertake another share buyback during the quarter and repurchased $10 million of our shares. This is in addition to the $20 million we repurchased in 2025. We will continue to evaluate share repurchases as part of our overall capital allocation strategy and consistent with covenant restrictions. Overall, Q1 was another solid quarter as we continue to execute our operational initiatives, improve our financial profile and deliver higher returns while reducing leverage.

I'll now turn it back to Martin.

Thanks, Rakesh. So, to summarize, we've started the year on the front foot, executing with rigor, discipline and speed across many parts of the business. We continue to gain momentum in the U.S., especially in legal and digital channels. Europe continues to deliver strong results and innovation, helping us diversify across many markets. And lastly, we believe that we're in a good position to execute on our new 3.0 strategy, deliver against our financial targets and generate value for our shareholders over the next few years.

Thank you, everyone, for tuning in and for your time, support and continued confidence in our future. And with that, we'll open it up for questions.

[Operator Instructions] And your first question comes from the line of Mark Hughes with Truist.

Martin, you talked about buying paper in kind of an adjacent or new area in keeping with your strategy of doing test buys and starting small. Is that an area that could potentially expand into something more meaningful?

Yes. So, what I talked about there was really part of our strategy, which is that we're -- overall, we're focused on disciplined purchasing in the core business, but that we will test our way into adjacent product segments. So, we're looking for areas where we can leverage our operating capability, our underwriting capability and so on, also our great seller relationships that we have. So, we did this quarter get into some areas that are adjacent. They're not hugely different, but they have a slightly different cost to collect structure, and that's what we called out in terms of the impact on the multiple mix there. And we are investing in areas where we think there could be future opportunity. But as I've been saying, we like to test into it to get data, learn the products and before we go large. But we do see bigger opportunities in the future in some of these areas.

And talking about your outlook for the balance sheet, you look for the debt leverage to decline over time. As you execute more on the 3.0 strategy, is it possible that you could be in a position where you'd accelerate again the purchasing activity if you're generating better returns based on your internal initiatives, could, in fact, you go in a different direction, keep your leverage as is and pick up the pace of portfolio buys?

Yes. I mean, as we laid out, our focus is really on being disciplined allocators of capital. So, we have -- in the first quarter, we ended up with a volume that met our plan and also our return thresholds. So, we are focused on that. If something were to really change in the market, we have a very strong funding profile and an ability to adjust that. And the targets we've laid out for our buying really are based on the market conditions that we see right now. So that is our plan, and that's what we've laid out in 3.0. But with things happening in the macro environment, if they were to continue to accelerate and there was a big change in the volume available, we would be in a position to consider that. But our basic plan based on our current outlook is the one that we've outlined in the 3.0 strategy.

Yes. And Mark, if I could add to that, we have ample liquidity, right? We've got $1 billion of liquidity, but we've also set a target out there that we want to get to the mid-2s leverage over the next few years. But as Martin said, should the opportunity arise where we are seeing portfolios that meet our thresholds, we would invest more. We put a target out there that we would be investing between 1 to 1.3 over the next few years as part of our 3.0 plan.

And then one more question. How would you characterize your progress on the 3.0 strategy, just thinking about the technology and the systems. And I think, Martin, your goal was to somewhat replicate the success you had in the international realm in Europe and bring that same sort of approach to the broader platform. How far along are you? How much time before you get to the place where you want to be?

Yes. That's a good question. We -- as we talked about, we've been investing in the technology platform in Europe for some time. So, we're on one common cloud. We have one common contact platform. We've streamlined our collection systems and so on. There's still more work to do there. And I mentioned earlier, we just launched a mobile app in the U.K. as an example of how we're trying to innovate. So that's in good place. On the U.S. side, this transformation has been going on for some time. So, it didn't just start last quarter when I laid out the strategy. But it has brought, I think, a heightened focus on the strategy. So, we expect to -- some elements of this will fall into place even later this year. So, we have -- for example, we expect to be in one cloud instance in -- one global cloud instance by the end of the year. We'll also have one common cloud-based contact platform. So that will also be in place in the U.S. market later this year. So, on those fronts, we're making really good progress.

And then there's a lot of like longer-term opportunities that we're also investing in ranging from AI to ways of improving our core platform. So, we're going to -- I think we're going to start to see some of the benefits even this year, but then there are other projects that will take longer time before we're fully in place. And that's kind of why we laid this out as a multiyear journey.

The next question comes from the line of Robert Dodd with Raymond James.

Kind of on the topic of unifying that global platform and the other IT investments you're making, et cetera. Is that what kind of is allowing expanding into the other adjacencies? Is a more uniform platform and a more uniform kind of use of data perhaps encouraging you to look at those other adjacent markets because you have the same tools, but the more the data is analyzed globally in uniformly, the more you can learn about additional adjacencies? And would you expand further into those other markets once all these IT investments are made? Or is it just coincidental that it's occurring at the same time?

Yes. No. I mean, in the European markets, we are already in, I would say, a broader set of segments than we are in the U.S. So, we've been doing it for some time there. And that's just been something we've developed over time is getting data, tuning our underwriting, building our operational confidence in a particular area and then scaling up if we see the opportunities. On the U.S. side, I do think that these investments that we're making will give us a more lean operating platform. We'll be able to provide better service to customers. We'll have more automation. We'll have better ways of leveraging the data and so on. So, it will be bringing improvements -- and I do think over time, it will make us more flexible in terms of handling other segments.

But it's not just the technology platform. There's other capabilities that we've put in place. For example, building up a network of external debt collection agencies. 2 years ago, that wasn't something we really did in the U.S. It's something over on the European side, we've been doing for a while. And that's just another way of creating capabilities. They don't all have to be in-house, but they would enable us to go after segments that we may not be focused on currently.

Got it. And if I can add one more. On the legal now in the U.S., I think it was 53% of collections, if I heard that right, it was 46% a year ago. I mean how -- there's been a number of steps on utilization of the legal channel you've taken over several years, optimizing the actual collections when there's a lean things like that. I mean how much of the growth is just you've spent more on that channel versus it's a consequence of the optimization steps themselves rather than just -- and I don't mean that in the wrong way, but putting more pure financial resources in terms of spending behind it.

Yes. I would say it's a combination there. I mean the first thing that we always point out is that we don't lead with legal. We do first work very hard to engage with customers through digital and through call centers and so on. But if people won't engage and if we conclude that they should be able to make repayments, we will pursue the legal channel. And over the past couple of years, we have made significant improvements in our capabilities all across the kind of legal collections chain.

So, on one hand, we've been doing that. That makes it more efficient for us to use that channel, and it just makes the returns better if we do it. But on the other hand, we've also been investing significantly in it, as you pointed out. And that kind of creates that, I would say, a virtuous cycle where we have more data, we're investing more. We're seeing better results as we build these capabilities. So really both sides come together. It's both a matter of investing. It's a matter of better scoring to understand the economics on an individual account basis, but also those capabilities, which are rooted in technology and other capabilities that help make us more efficient on legal.

Yes, Robert, it obviously starts with us improving our processes, the life cycle, and that's what's given us confidence to continue to invest. So, the growth in Legal was 40% going into '25. And then last year, it grew another 30%. And the important thing is that before we put that account into the legal channel, we obviously will score those accounts. They have to meet certain return thresholds and that's when we decide if it's meeting those return thresholds, the account will go into the legal channel. And keep in mind, there's greater certainty on the cash that we collect as well as the cash that we will collect. The amount is higher versus some of the other channels.

[Operator Instructions] I'm showing no further questions at this time. I would like to turn it back to Martin Sjolund for closing remarks.

Okay. Thank you. Well, as you can see, we're off to a good start in 2026. We've got good momentum on our 3.0 strategy. And we're going to be attending a few investor conferences over the next couple of weeks, including Barclays and Truist conferences. So, I hope to see some of you there. So, thank you very much.

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.

Good evening, and welcome to PRA Group's Fourth Quarter and Full Year 2025 Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the call over to Mr. Najim Mostamand, Vice President, Investor Relations for PRA Group. Please go ahead.

Thank you. Good evening, everyone, and thank you for joining us. With me today are 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 Q4 2025 and Q4 2024, 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, Najim, and thank you, everyone, for joining us this evening. 2025 was a year of significant progress for PRA as we focused on strengthening our U.S. platform, building on the strength and momentum of our European franchise, executing on our near-term priorities, and developing our longer-term strategy.

As you can see on the slide, the key financial and operational metrics are moving in the right direction. We purchased $1.2 billion of portfolios in 2025, in line with our target and our third highest investment year on record. These purchases, along with our numerous operational improvements, have driven our estimated remaining collections, or ERC, to a record $8.6 billion.

Cash collections of $2.1 billion were a new record, up double-digits for both the quarter and the year, primarily driven by the continued momentum of our operational initiatives, especially in the U.S. legal channel, supplemented by the continued strong performance in Europe. This also drove record revenue of $1.2 billion. Adjusted cash efficiency improved to 61% from 59% last year as we delivered on our cash efficiency target while investing $125 million in the U.S. legal collections channel in 2025. We expect these legal investments to generate significant cash collections in the years to come. Adjusted net income increased to $73 million in 2025, and adjusted EBITDA for the last 12 months was up 16% to $1.3 billion, growing faster than cash collections of 13% in the same period.

This suggests that we continue to gain operating leverage even as we increased investments in the legal channel. I think the results you see today demonstrate how far we have come as a company over the past 3 years and especially in 2025.

We've made solid progress across several key areas of our business. First, we've been increasing our purchase price multiples, both in the U.S. and Europe, as we continue to prioritize returns over volume. Purchase price multiples are a proxy for gross returns. On a net basis, we know that even lower multiples can still generate good returns if the costs are lower and the cash timing is faster. Both higher multiples and lower expense rates are the goal we're firmly focused on.

Second, we've made numerous enhancements to our capabilities, especially in the U.S. We revamped our legal collection process, introduced new call center strategies, and expanded digital collections. We also introduced offshore calling and built a network of external debt collection agencies, or DCAs, to give us flexibility. In fact, we now have more than 2 million accounts being serviced by DCAs in the U.S.

Third, we have also been making great progress in modernizing our IT platform. In Europe, we have all of our core markets on one common cloud platform and on one cloud-based omni-channel contact platform. In the U.S., we are well underway in our cloud migration and have initiated the transition to our new global contact platform.

At the same time, we're exploring and deploying new technologies globally, such as AI. We've already started testing a range of AI initiatives from processing documents to interactive chatbots, to using large language models to process massive unstructured data sets to help us inform our collection strategies. We see an opportunity for AI to create real value across a range of standardized processes and we are already running very interesting pilots in a number of markets. Our global footprint really helps here since we can test new AI applications in smaller markets and then scale up the ones that deliver real value. On the underwriting side, we have leveraged our top global talent to help us dial in our models and are seeing good performance on the most recent vintages.

Fourth, we continue to focus on cost. In the U.S., we made the difficult decision to eliminate more than 115 corporate and overhead roles in the fourth quarter, which resulted in total annualized gross savings of $20 million with around $3 million of these savings being offset by increased outsourcing costs. We have also continued to transition to lower cost call center offshoring, which now represents roughly 1/3 of our U.S. agent headcount. To demonstrate the growing operating leverage in our business, our U.S. call center headcount decreased by 548 agents, or 42%, since the start of 2025, while our 2025 U.S. core cash collections were up 20% versus the prior year.

And lastly, we maintained our strong and diversified capital structure with staggered maturities and leverage that has been declining steadily from a peak of 2.9x in 2024 to 2.7x at the end of 2025. We also returned capital to shareholders by repurchasing $20 million of our stock in 2025. The foundations of the business are strong, the future looks bright, and I'm very excited about the opportunities we have to build on this momentum.

I will come back to share more on this after Rakesh provides a summary of our Q4 and full year financial results.

Thanks, Martin. We purchased $315 million of portfolios during the fourth quarter, with $112 million in the U.S. and $157 million in Europe and $45 million in other markets. For the full year, we purchased $1.2 billion of portfolios, in line with our 2025 target as we continue to focus on driving higher returns and net income while balancing investments with leverage. This approach is having a positive impact as the returns from our purchases have increased meaningfully over the past 2 years. Our purchase price multiples, which are a proxy for gross portfolio yields, were 2.16x for U.S. core in 2025 compared to 2.11x in 2024, and higher than the 1.91x in 2023.

Similarly, we have seen an uptick in our Europe core purchase price multiples, with 2025 ending at 1.85x, up from 1.8x in 2024 and 1.69x in 2023. While our purchase price multiples have ticked up, we are ultimately focused on delivering higher net returns, which incorporate the cost to collect, the funding cost, and the timing of cash flows. As a reminder, our European portfolios in aggregate have lower purchase price multiples due to the lower cost to collect in certain countries.

ERC at quarter end was $8.6 billion, up 15% year-over-year. ERC is well-diversified, with the U.S. accounting for 42% and Europe accounting for 51% of our ERC. This diversification helps mitigate risk from any single market and economic cycles. The replenishment rate, defined as the amount we would need to invest over the next 12 months to maintain current ERC levels based on the average purchase price multiples in 2025, was $982 million.

As we look ahead to the next 18 months, we expect portfolio supply to remain stable. U.S. credit card balances are at $1.1 trillion, and industry-wide charge-off rates of 4%-plus are still higher versus pre-pandemic levels, with certain card issuers having charge-off rates north of that, providing significant supply opportunities.

Cash collections for the quarter were $532 million, reflecting a strong 14% growth year-over-year. For the full year, cash collections grew 13% to $2.1 billion, exceeding the high single-digit growth target we had for 2025. Cash collections were driven by continued growth in our U.S. legal collections channel and strong performance in Europe across multiple markets. In addition, our digital channel continues to show significant momentum, with global cash collections up 25% in 2025.

U.S. cash collections grew 17% in Q4 as well as in the full year 2025. U.S. legal cash collections for the full year grew 28% to $483 million, and were up approximately 83% since 2023 when we first started seeing the benefits from the improvements made in that channel. It's important to note that legal is not the channel that we lead with, but in cases where we are not able to get customers to engage with us through our other channels, we will eventually consider an account for legal collections.

The legal channel typically provides greater collections certainty and a higher overall amount of cash collected versus other channels. Legal accounted for 48% of U.S. core cash collections in 2025 compared to 39% 2 years ago. Europe cash collections grew 11% for the fourth quarter and 13% for full year 2025. We had strong cash collections this quarter relative to our expectations. Globally, cash collections exceeded our expectations by 7%, with the U.S. exceeding by 5% and Europe exceeding by 10%.

The U.S. core COVID vintages of '21, '22 and '23, which now comprise 9% of ERC, collectively performed in line with expectations in Q4. Our recent U.S. vintages have also performed well, with the 2024 vintage increasing relative to expectations driven by strong legal performance, and the 2025 vintage is performing to expectations. With respect to the consumer environment, our overall customer profile remains stable across the U.S. and Europe.

Moving to a summary of our income statement. Portfolio revenue increased 15% during the quarter and 8% in 2025, driven primarily by the growth in Portfolio income. Portfolio income, which is the more stable and predictable yield component of our revenue, grew 14% in the quarter to $263 million and 18% for the full year to $1 billion, a company record. Our Portfolio income increased by 34% compared to 2023, as we have continued to benefit from a healthy supply environment and improved purchase price multiples. Portfolio income has been growing faster than cash collections and is contributing more to net income, and we expect the Portfolio income contribution to net income, to increase as we move forward.

Changes in expected recoveries were $64 million in the quarter and $176 million in 2025. Of the $176 million, 68% or $121 million came from cash over-performance or cash received above our expectations, and the remaining $56 million or 32% was from changes in expected future recoveries or the net present value of the increase in our ERC.

Let me dive a little deeper into what is actually driving our Portfolio income. Some of the factors include: number one, higher purchase price multiples on our investments as we become more selective in our buying and more effective in our collection capabilities; number two, improved cash performance driven by operational initiatives such as legal and digital collections; and number three, when appropriate, increasing our future projections of ERC on existing portfolios to reflect higher levels of expected lifetime collections, leading to portfolio write-ups.

As you can see on the chart, we have a long track record of cash over-performance, especially in Europe. You may recall we did a deep dive on our U.S. vintages in the third quarter. We may do these deep dives from time to time across our global vintages.

Turning now to the rest of the income statement. Operating expenses were $208 million for the quarter and $1.2 billion for the full year. Excluding the non-cash goodwill impairment charge recorded in Q3, adjusted operating expenses were $819 million in 2025, up 6% from the prior year, primarily due to the continued investments in the legal collections channel.

Legal collection costs were $44 million this quarter, up $10 million from the prior-year period. For the full year, legal collection costs were $162 million, up $37 million, up 30% from the prior year. What is important is that when you look at the composition of our expenses, you'll see that our operating model is becoming more flexible and variable.

Over the past couple of years, our U.S. onshore agent headcount has declined by 42% in 2025. The percentage of offshore agents has grown from 0% to approximately 32%. The number of U.S. call centers has shrunk from 6 to 3. Our IT infrastructure is moving more to third-party cloud versus on-premise data centers, and we have been using more DCAs. This progress gives us greater optionality to flex up or down as needed, further supporting our business through different stages of the credit cycle.

Net interest expense was $64 million for the quarter and $252 million for the full year. The year-over-year increase for both periods primarily reflects an increase in debt balances due to new portfolio purchases.

Net income attributable to PRA for the quarter was $57 million. This reflects an effective tax rate of 4% for the quarter, driven by a number of factors impacting the year, including the non-cash goodwill impairment charge and the geographic mix of earnings during the fourth quarter. For the full year, net loss attributable to PRA was $305 million, which was driven by the non-cash goodwill impairment charge of $413 million we recorded in the third quarter. On an adjusted basis, after excluding the gain on sale of our equity investment in Brazil in Q2 and the non-cash goodwill impairment charge, net income was $73 million or $1.84 in adjusted diluted earnings per share, up 3% from the $71 million in 2024.

The adjusted net income in 2025 demonstrates the earnings power of our platform with a higher portion of net income from portfolio income as we continue to improve core operations, reduce overhead, and invest in legal, digital, and offshoring to transform the business. Ultimately, while there will be variability in our net income on a quarterly basis, our focus remains on growing the bottom line and improving returns with the goal of continuing the trends you have seen in 2025.

Although our Q4 results give a glimpse into the kind of earnings power that we can generate from our significant ERC and our improving operations, we are not yet at a point where that magnitude of earnings is a baseline. Q1, for example, tends to have higher operating expenses as we begin the year with enhanced marketing to our customers. Also, Q4 results were impacted by an unusually low effective tax rate. Due to the quarter-to-quarter variability that can occur, we believe it is more helpful to look at the business on an annual or rolling four-quarter average basis.

In addition to net income, we also focus on cash metrics, which we believe provides a more telling measure of our operating success. Cash efficiency ratio was 61% for the quarter and 42% for the full year. On an adjusted basis, excluding the goodwill impairment charge, cash efficiency was 61% for the full year, in line with our 60% plus target for the year. Adjusted EBITDA for the last 12 months was $1.3 billion, up 16% year-over-year, driven by our cash collections growth of 13% exceeding adjusted operating expense growth of 6%. Adjusted EBITDA was also up 31% compared to 2023.

Our net leverage, defined as net debt-to-adjusted EBITDA, was 2.7x as of December 31, compared to 2.8x in the prior year period and 2.9x at the peak in September 2024 as we continue to reduce leverage. You will note that not only is adjusted EBITDA increasing, but the quantum of debt has been fairly stable over the past 3 quarters as we generate higher cash flow. With adjusted EBITDA continuing to grow, we expect to further de-lever in the near-term.

In terms of our funding, we have ample liquidity and a strong capital structure that is well-diversified between bank and bond debt. As of December 31, we had $3.2 billion in total committed capital under our credit facilities, with total availability of $1.1 billion, comprised of $825 million available, based on current ERC and $274 million of additional availability that we can draw from, subject to borrowing base and debt covenants, including advance rates.

Over the past couple of years, we have taken numerous actions to further diversify and strengthen our capital structure, including most recently issuing our first ever Eurobond in late 2025. We have no debt maturities until November 2027 when our European credit facility matures. We are already in discussions with our long-standing partners to refinance the facility this year.

During the quarter, we also repurchased $10 million of our shares, bringing the total amount repurchased in 2025 to $20 million. We have approximately $50 million remaining under our Board authorization and will continue to evaluate share repurchases as part of our overall capital allocation strategy. As we have previously noted, the authorization remains subject to the discretion of our Board and repurchases are subject to restrictive covenants in our credit facilities and the indentures that cover our outstanding notes.

Overall, as our 2025 financial performance shows, we are moving in the right direction, improving our financial profile and delivering higher returns while reducing leverage.

I'll now turn it back over to Martin.

Thanks, Rakesh. PRA has come a long way in the past 3 years, and I want to share our strategy for the next few years. To set the stage and provide a little bit of context, we're celebrating PRA's 30th anniversary this year. And looking back at our history, we can see 3 distinct phases of our company's evolution. The first phase of PRA, or PRA 1.0, was when PRA grew from a startup into one of the leading players in the U.S. industry. We see PRA 2.0 as the period of global expansion into Europe, South America, and beyond, building one of the most globally diversified companies in the industry. And now PRA 3.0 is about how we evolve PRA into a high-performing, technology-enabled global allocator of capital.

This strategy has 3 important vectors: one, capital and investing; two, operations, technology, and data; and three, people and culture. The first vector is capital and investing, where we are focused on investing with discipline and allocating capital to the highest return opportunities. This vector has 4 main elements. Number one, we will make disciplined global NPL investments. We will do this by leveraging our global diversification, which allows us to allocate capital across a range of markets. We manage this through a global investment framework, prioritizing long-term returns over growth for growth's sake, and expanding carefully into new product opportunities that fit our return profile. On this point, we have been exploring the possibility of new asset classes that leverage our data and capabilities.

Number two, we're focused on delivering a strong financial profile, one that can generate more predictable net income, significantly grow cash flow, create a more flexible cost profile, and reduce our leverage to the mid 2x area over time.

Number three, we will maintain a conservative balance sheet with ample liquidity and well-diversified and staggered funding. We will also explore alternative funding mechanisms to create optionality and flexibility for the future.

And number four, we will continue to employ a prudent capital allocation strategy, prioritizing investments in the core business, whether that's through disciplined purchases of portfolios with attractive returns, or investments in our operations. In addition, we will evaluate opportunistic share repurchases when we believe that they can create incremental value. At the same time, we're focused on ensuring that all markets and segments are delivering the returns we need.

Turning now to the second vector, operations, technology, and data. Here we are focused on continuing to modernize the engine, becoming leaner, more flexible, and more tech-driven. The first subcomponent here is transforming our operations. We aim to balance a mix of in-house collections with a range of flexible external capabilities. The internal platform gives us cost benefits in the legal channel, good customer engagement, more visibility of data, and better predictability. On the external side, we will continue to leverage our U.S. offshore operations, which are still growing and provide a low cost and effective platform for certain types of collection activity.

Today, offshoring represents about 1/3 of our U.S. agents, and we will look to grow this mix in the coming years. We will also leverage our global network of DCAs to create flexibility to scale up and down and to leverage specialist capabilities. At the same time, we will also be using automation and scale across the business, specifically in the legal collections channel. Finally, we plan to continue driving digital innovation that makes it easier for customers to work with us in resolving their debts, while providing us with a very low-cost collection channel.

The second subcomponent is fully leveraging technology. We are driving scale benefits by leveraging technology standardization where it makes sense for us. This is already in place in Europe, and we expect to make significant progress on this in the U.S. in 2026. We're also planning to modernize our U.S. core system and data architecture. This should improve our ability to rapidly apply new technologies and save us significant cost over time.

The third subcomponent is enhanced data and analytics. This has long been a key part of what we do, and we are investing in talent and data to generate better customer insights. We also believe that AI has the potential to transform a company like ours. PRA has large data sets from the 70 million accounts we have acquired globally. We have hundreds of millions of documents and billions of call recordings. There's a significant opportunity to digitize workflows, serve customers digitally, and use virtual agents to transform customer service. This will take time, but with our data, our scale, and our continued investment in technology and talent, we see a big opportunity. In fact, we recently hired a senior AI leader into our new Charlotte office, and we are excited to see how he can help us accelerate our progress.

The final subcomponent is disciplined cost management. As I have said from day 1, cost is very important in a business like ours. Although we made a lot of progress last year, cost control is a mindset, not just a one-off project. So we will continue our drive to reduce our costs and create flexibility in our cost structure. This includes employing a bottoms-up approach of zero-based reviews, while driving synergies across existing overhead functions. We will also be shifting more toward a variable cost structure, leveraging external legal capabilities, call center offshoring, and DCAs globally.

The third and final vector of our 3.0 strategy is people and culture, where we're focused on establishing a winning culture by embedding a high-performance ownership mindset. I'm a strong believer in the importance of culture in an organization. We can develop the best strategy on paper, but at the end of the day, it's only as good as the teams of people across PRA who will execute this strategy. PRA has a highly talented team of people, many who have been with us for decades. We will focus on continuing to build on the strong culture we have in place, both leveraging the long experience of those who have been here for decades and integrating fresh perspectives from people who joined recently. but who bring critical external perspectives.

We want to create an environment where talented and successful people collaborate together to execute on our strategy, deliver for customers, and hit our targets. Some of the key elements here include talent hubs to ensure we can access the talent we need and company-wide objectives and key results, or OKRs, to ensure that we're executing on our plans. We will also continue to make sure that staff incentives are aligned with shareholders.

And lastly, our governance and values continue to be a source of strength. We maintain a strong compliance culture and operate under the guidance of a global Board with diverse and highly relevant experience. As a responsible corporate citizen, we remain committed to supporting the communities where we operate, an attribute that has defined us for the last 30 years.

Finally, I want to give a sense of our financial trajectory when we deliver on these 3 vectors. One, we will remain disciplined with our investments. As I mentioned, we will prioritize returns over growth for growth's sake, and hence will not chase investments that do not meet our return thresholds. Based on what we see today, we anticipate investments in the range of $1 billion to $1.3 billion per year, with 2026 projected to be at a similar level as 2025. Two, by driving cash initiatives and managing costs, we expect our adjusted EBITDA to continue to grow. Our aim is for adjusted EBITDA to continue growing faster than cash collections, even as we invest in legal collections, IT, and AI. Three, as I said at the start, we are very focused on our leverage. This strategy should see our net leverage continue to decline over the next few years, and we aim to land in the mid 2 times area.

And finally, returns. Ultimately, our goal is to deliver returns in line with what investors would expect from a specialty finance company like ours. As you can see on the slide, we made significant progress in these metrics over the past 3 years, and we expect to continue moving in the right direction. Overall, I feel confident in where PRA is and where we are heading. Our prospects for 2026 look good and the outlook beyond that is even better. We are confident that the actions we are going to take will continue to drive stronger financial results and unlock meaningful long-term value for our shareholders.

Thank you everyone for tuning in and for your time, support, and continued confidence in our future. Next week we will be participating at the Raymond James Conference, and we look forward to seeing many of you there.

And with that, we'll open it up for questions.

[Operator Instructions] Your first question comes from the line of David Scharf from Citizens Capital Markets.

I -- Martin, really appreciate all of the detail that was provided on all of these initiatives in the presentation. Maybe just kind of a bigger picture question. There's a lot to digest there. I mean it looks like you're really attacking every facet of the business. From an investor looking in from the outside, is there any maybe prioritization they should think about in terms of maybe what are the top 3 things that are outlined in all of the things on those 3 slides, whether it's more offshoring or more outsourcing? Just to maybe provide some guideposts that we should be paying most attention to?

Yes, thanks. As I've been saying for a while now, we wanted to lay out what our strategy was for the coming 3 years. We've really broken it down into these 3 vectors that I talked about. So on one hand, you have capital and investing. So making sure that we do that in a prudent way, that we are not chasing growth for growth's sake, but really focused on returns. And that we -- the other part of that is that -- making sure that we have a really strong funding structure. So we're in a strong position on funding today, and that's something that's very important to us.

The second vector is really around the whole operations. And so there, continuing to create this cost flexibility is very important. PRA, we're celebrating 30 years, and I've been here for 15 of those 30 years. And over time, that's something we've really learned is that it's important to have flexibility on the cost side and to constantly be working to creating a lean and efficient platform. So I would say that's the second part.

And the third part is really just around technology. We will continue to modernize this platform. There is a big opportunity for us as we do that. And things like AI, as I mentioned before, if you think of the tens of millions of customer accounts and hundreds of millions of documents, and the processes we run in different countries across the world, I really do believe that there's a significant opportunity for us to leverage technology and AI, in particular, to improve the business. So I'd say those are some of the main themes. But overall -- I know it's a lot to digest here, but we did want to give a thorough review of the initiatives that we're driving across the global company.

Got it. No, understood. Actually, that's very helpful to kind of zero in on those handful of initiatives. And then maybe just as a quick follow-up. I don't know if this is more on the confidential side, but are you able to share potentially what new asset classes you were considering looking at or experimenting with?

No, not really. I wouldn't be able to do that. What I can say is we look at things that are adjacent. And remember, we're in a lot of markets across the world, not just here in the U.S., but it's -- we clearly believe that there's attractive return opportunities in adjacent asset classes. What we typically do, though, is to approach those in a careful way. So we'll buy sample portfolios, we'll make investments, we'll start building data, improving underwriting models and making sure that we have the operational capabilities to execute. And then as we do that, we'll ramp up more quickly thereafter. So it's really just to signal that we think that there's an opportunity for us using our capabilities and our platform and our underwriting capabilities to move into more segments over the longer term.

Your next question comes from the line of Mark Hughes from Truist.

Martin, how should we think about the collections in 2026? You've given us some good guideposts around purchasing and EBITDA, net income. Anything you'd like to say about the collections?

No. Well, I think -- just to start, I think we entered 2026 with really strong momentum. We had really good cash performance in 2025. we're seeing, I think, all the key metrics ticking in the right direction. So we had growing cash EBITDA faster than cash. We have reducing our leverage. And on the funding side, we've been able to get the Eurobond out. And so I think we entered the year in a really strong way, and we'll continue to invest, as Rakesh mentioned earlier, in the U.S. legal channel. So I think that's an important part of what we're doing. I don't know, Rakesh, anything to add to that?

Yes. What I would add, Mark, is, look, we had a very strong 2025, where we delivered 13% cash collections growth. That's higher than the high-single digits that we had telegraphed. And a lot of that, I would say, number one, came from the higher buying that we had in 2024, where we bought $1.4 billion, our highest ever. And so that obviously played a big role in 2025. This past year, we had our third highest year of buying at 1.2. And so we are still going to see strong cash growth, albeit not at the levels that we saw in 2025. But importantly, it's not about just the cash growth. It's about delivering the bottom line. So we expect that ultimately, that cash is going to grow faster than our cost. And ultimately, we're going to drive higher cash EBITDA growth rates as well.

Very good. And then the competitive dynamic, kind of the supply/demand in Europe. I wonder if you could maybe just give a couple of quick thoughts on that?

Yes. I mean we see Europe in a fairly stable place. We have -- as we shared earlier, we saw the multiples in Europe for us in 2025 ticked up. So that shows, I think, on our part, good discipline in terms of our buying. The European market remains competitive. I think we've been saying that for some time. So it's a competitive market. And I think this is where we really benefit from our diversification. We are able to channel our investments to the markets where we see the best returns. And because we run lean markets, we can also hang back when we need to. So I think that's really the key thing for us. So we'll continue to allocate capital to markets where the returns are good.

Overall, in Europe, I think the supply environment is stable. It's competitive, but there's still enough opportunity for us to deploy the capital that we want to deploy. And there will be certain markets from time to time that become very stretched on pricing. But because we're in so many markets, we're able to channel the capital to the right place.

Martin, if you think about the improvement, say, over the last several quarters since you've taken over, collections have been quite strong. How much of that is kind of rebalancing collections between domestic and offshore? Was there some kind of refinement in your scoring system or your kind of systems that target particular consumers that made a difference here? I'm just sort of curious what, from your perspective, has been the biggest contributor to this improvement here lately?

I really think the results you're seeing are the result of several years of initiatives that have been made across the business here. So you've had a number of initiatives ranging from building out the DCA network, significant investments in legal collections and also strong growth on the digital channel as well. So I think all of these things are not -- that's not something that has happened overnight. They've been put in place, and we've really been able to, I think, tune them.

We've -- I mentioned AI earlier, just as an example, we've been able to use AI to address unstructured data in documentation. So we could go through millions of documents and identify cases that are suitable for legal, and that's one of the things that's driving this. So I think collections to me is really like an oil tanker. It's not easy to change it in -- on the short-term. But through these initiatives and just in a disciplined and structured way executing on these initiatives across a range of them, I think we've seen these improvements.

And then I think you talked about the -- your share repurchase authorization, looking to improve your leverage. It looks like EBITDA you expect to improve. Any early thoughts in terms of perhaps increasing the tempo of share buybacks?

Yes. Mark, look, we're always looking at opportunities to drive shareholder value and drive equity value. And for us, share repurchase is part of that toolkit. But number one, our priority is to continue to invest in the business, continue to buy portfolios at higher returns that create that sustainable growth in our net income. The second is to also invest in our business. So whether that's on the legal channel, the digital channel that Martin mentioned, but to the extent we see that there is an opportunity to do share buybacks given what we believe is the intrinsic value of the business and how the market is valuing us, we would absolutely look to do share buyback.

As I mentioned earlier on the call, we do have $50 million currently under our Board authorization, and that actually lines up now pretty well with what is available under the various covenants in our credit facilities as well as our notes. The good news is given the momentum that we have created in 2025 and delivering that $73 million of net income, that capacity actually has increased quite a bit versus where we were earlier in the year in 2025. So you should see us continuing to opportunistically undertaking share repurchases as we move into 2026 and recalibrate where the market thinks about our business today.

[Operator Instructions] Your next question comes from the line of Robert Dodd from Raymond James.

Congrats on the quarter. A lot to digest here. If I look at kind of the summary where all the vectors kind of come together with the financials because, well, that's what I did. The disciplined investment seems like you're not expecting an upward sloping to the right investment horizon. You want to be very careful about that. I get that. You are expecting adjusted EBITDA to grow though. So I think my 2 takeaways from that, you expect growth in collections faster than investments and you expect growth in expenses slower than collections. I think my takeaways, you can correct me if I'm wrong there.

On the growth in collections faster than investments, I mean, is this an expectation that with all these new technology tools, AI, searching documents, et cetera, that you can reach kind of more customers in a pool? Or do you expect to get more cash from the same number of customers in that pool, if -- how would you rank those kind of -- probably both, but the relative components there about how you think the technology is going to work on the collections versus investment side? And then I've got questions about expenses, obviously.

Okay. Yes, we'll come back to that. Yes. No, the -- it's really about pulling a number of levers here as we go. So on one hand, we are investing significantly in legal, in particular, in the U.S. And that is something that -- there's a bit of a catch-up effect there where we've identified opportunities to invest in legal, and we see a good performance on those legal collections from portfolios that we've had for some time. So that's one of the things driving it. We're improving our digital collections significantly. As we said earlier, that was up 25% last year. And we see that as we are able to tune that and improve that, we can also drive additional liquidation through that. So you have that.

On the other hand, you have the call centers where by using more offshore resources, it makes it more economical for us to call accounts where with a higher cost profile, it doesn't make sense. But when you have a lower cost, you're able to penetrate some of those portfolios more deeply. So there's a number of levers there. There's also the external debt collection agencies. This was something that in the U.S. we didn't really do before. But outside the U.S., it's always been an important part of how we operate. And certain DCAs have specialist capabilities. They might have certain trade capabilities. And so we're getting better about leveraging those capabilities and putting accounts out that maybe weren't being worked fully by us in the past, but there's still opportunity and value there. So all of those things together are helping to drive the cash.

And then I know you mentioned you wanted to come back to cost, but the other part of this, obviously, is the cost side. So we made significant adjustments to our cost base during last year, as we mentioned, over 500 call center agents reduction and also 115 on the corporate overhead side. So as those cost reductions start to work their way through over time, we see the benefit of that, too. So we're really working both to improve our cash on one side and to reduce our cost on the other. And as these things come together, that's why we think we have a good direction of travel on the key metrics, ultimately leading to higher returns, even though we're being cautious on the investing side. And that's why on the investments, as you said, we're not going to buy our way out of this. That's not our goal. We want to get -- generate returns, but really tune the platform so that we can get our returns up, and then we can think about pushing on beyond that.

Got it. Got it. Thank you for answering the question I was about to ask. One follow-up to that. I mean on the -- to your point, I mean, the DCAs, et cetera, and you moved to more variable and outsourced call centers, et cetera. How far do you think you can push the overall expense structure to fully variable, if you will? I mean, obviously, there's still -- you still got 3 call centers. You still got a lot of things, but you've gone cloud, et cetera. I mean how much of the in-house fixed cost infrastructure do you think you need to keep versus how much can you go to a fully variable expense structure?

Robert, it really -- I really see this as a trade-off. So we have markets where we have 0 people. We just have accounts and we place them with the debt collection agencies and there they go. So that is a completely variable model. We don't have a single person sitting there. Then we have other markets where we do every single thing ourselves in-house. And then a lot of markets are on a spectrum somewhere in between there. So I don't really think that there's a perfect model out there from running all these different countries. The benefits of in-house collections is that you often have a cost advantage because by definition, if you outsource to someone else, they need to make money, too.

So by doing it in-house, you can do it in a less expensive way. You can have more control of the accounts, you can have more control of the data and so on. So there's benefits to that. But on the other hand, as we know, it's harder to flex the cost if you're doing everything yourself. And if the volumes go up or the volumes go down, it's not easy to adjust your cost base to that.

So I think that really, it's about having a mix. And if I look across all of our countries, like I said, you will find some countries are on one absolute extreme and others are on the other. The biggest markets like the U.K. or the U.S., I think, are probably somewhere in between where I think a mix of variable collection channels with internal -- we have a big enough scale for internal in-house collections to be cost effective, but we can also leverage these external channels for the marginal collections, if you will. So that's really how I think about it.

There are no further questions at this time. I would like to turn the call back to Martin Sjolund, President and CEO, for closing comments.

Okay. Well, yes, I want to thank everyone for listening. Just to emphasize, I think we had a really, really strong Q4. We feel positive about the outlook ahead. I tried to lay out the -- what our strategy is going forward and how these 3 vectors of capital and investing, operations, technology and data and people and culture, are really going to come together, and I think put PRA on a really strong trajectory going forward. We look forward to attending the Raymond James conference next week, and we'll be getting into a little bit more detail on each of these vectors to talk about -- more about our plans. So thanks for listening.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.

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" Citizens JMP Securities, LLC, Research Division

" Truist Securities, Inc., Research Division

" Raymond James & Associates, Inc., Research Division

Good evening, and welcome to PRA Group's Third Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the call over to Mr. Najim Mostamand, Vice President, Investor Relations for PRA. Group, please go ahead.

Thank you. Good evening, everyone, and thank you for joining us. With me today are 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 Q3 2025 and Q3 2024, unless otherwise noted, and our Americas results include Australia.

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, Najim, and thank you, everyone, for joining us this evening. It's been great to meet so many of you during these past few months, both here in the U.S. and across Europe as I've stepped into the CEO role. I want to start by providing an update on our Q3 performance, followed by a review of how we're tracking against the strategic priorities I laid out on our last call.

On this slide, we present 4 key areas of our business that I think provide a good perspective on our performance. Let's start with portfolio purchases. While we were somewhat more selective this quarter as we sought to balance portfolio returns and leverage, we are still tracking towards our investment goal of $1.2 billion for the year. This will represent our third highest annual investment level ever. Cash collections grew 14% year-over-year to $542 million, reflecting strong recent purchases and the continued momentum of our operational initiatives.

Globally, we collected 8% above our expectations with the U.S. overperforming by 6% and Europe overperforming by 10%, a strong result in both regions. We've been ramping up our investments in the U.S. legal collections channel for some time now, which led to a 27% increase in U.S. legal cash collections for the quarter. As you can see on the slide, our cash-based metrics continue to improve. However, we recorded a nonrecurring noncash goodwill impairment charge of $413 million in the third quarter. This goodwill is related to a number of historical acquisitions that have been on our books for many years, primarily in Europe. The impairment was triggered by the sustained decline in our stock price.

I want to be absolutely clear that our underlying European business continues to perform well, and I believe we're well positioned for future success. Year-to-date, Europe has overperformed our cash expectations by 11%. And in Q3, we once again made positive adjustments to our European ERC. The net loss was $408 million for the quarter, but if you exclude the noncash impairment charge, we reported $21 million of adjusted net income, which translates into an adjusted ROACE of 9%. Adjusted EBITDA for the last 12 months continued to grow, up 15% to $1.3 billion. I'd like to point out that adjusted EBITDA grew faster than cash collections over the same period. This suggests that we are gaining operational leverage. Strong adjusted EBITDA growth, combined with moderated buying resulted in a reduction in our net leverage.

Overall, Q3 represented another step forward. We're heading in the right direction, although we do have a lot of work ahead of us to continue to improve the returns of our business. It has now been just over 100 days since I stepped into the CEO role, and my focus has been on accelerating what is working well and tackling areas of our business that need to be improved. On the last earnings call, I outlined 5 main priorities that we're focused on, and I'd like to report on the progress we're making against each.

My first priority has been cost efficiency. Our focus has been to ensure that we drive efficiency throughout our operations and that we address corporate and overhead costs. As a result, we have already implemented a cost reduction program in the U.S. aimed primarily at corporate and overhead roles. After a detailed review of our staff, we reduced our U.S. headcount by more than 115 employees. This is in addition to actions taken earlier in the year to cut headcount-related costs. Altogether, these initiatives will result in gross annualized cost savings of approximately $20 million, although around $3 million of those savings will be offset by increased outsourcing costs.

As it relates to our U.S.-focused call centers, our headcount reduced by 170 agents during the quarter as we rightsize capacity needs, balance onshore with offshore and drive towards a higher-performing organization. As of September 30, our total agent head count had declined by 25% compared to last year, while our U.S. core cash collections grew by 21%. We now have around 1/3 of our calling capacity offshore. We expect offshoring to become a bigger part of the overall mix next year, but we're taking a gradual approach with a focus on delivering on our cash targets.

The second priority that I announced last quarter was reorganizing our U.S. operations to create a more empowered and agile team with greater visibility and accountability. This was based on my experience successfully managing 15 markets across Europe, Canada and Australia. By creating a cross-functional U.S. team and empowering leaders, we will increase focus on collections and costs while speeding up decision-making. We have now fully implemented the new structure, which will be led by our Global Operations Officer, who has more than 30 years of collections experience at Citigroup. The team has talented leaders from across the company, and I'm confident that they will deliver for PRA.

The third priority I talked about was the importance of accessing top talent, especially in specialist areas like technology and analytics. Based on the success we've had with talent hubs in places like London, we decided to set up a second hub in the U.S. beyond Norfolk, where we're headquartered. After assessing several options, we selected Charlotte, North Carolina to be our second hub. We think this is an ideal location based on its vibrant financial services industry and strong talent pool. In fact, we've already started hiring specialized talent at this location, and we expect to open a new office space in early 2026.

The fourth priority I talked about was bringing our headquarters, corporate, and support staff back to the office, which we implemented right after Labor Day. It's great to arrive at our headquarters and see the parking lot full of cars and the office buzzing with people. I believe this will create a longer-term performance culture, and it's been encouraging to see the increased collaboration both within and across departments.

And finally, the fifth priority was modernizing our IT platform. During the quarter, we spent time assessing our entire technology stack and considering how technology will evolve in the future. The team met with both external technology providers as well as a number of large bank partners across the world to understand how they are approaching technology. We want to ensure that we're taking full advantage of the rapidly evolving technology opportunity. We're also leveraging our experience in building a modern platform for our European business.

For example, we have all the European markets on one common cloud platform and one cloud-based omnichannel contact platform. We've been on a multiyear journey of consolidating collection systems in order to simplify our operations while retaining the local entrepreneurial drive. Our U.S. business had already started a similar journey and is making good progress. Globally, we have been piloting AI applications for areas like document processing, call monitoring and coding. We see a lot of opportunity in the future and are exploring a range of AI use cases.

Overall, I'm very pleased with how the team has responded and how fast we have been executing against all the priorities I outlined. As you can see from the progress being made, we are focused on building a foundation for long-term success and creating value for all our stakeholders.

Along with those 5 priorities, the team has also made significant progress in other areas. For example, in addition to our quarterly reforecasting process, I had the team perform a deep dive analysis of our U.S. vintages after I stepped into the CEO role. This included an evaluation of the impact from our legal and other initiatives now that they have had time to season.

Overall, we had positive changes in expected future recoveries even while absorbing some negative adjustments in our challenging U.S. core vintages of '21, '22, and '23. We refer to these internally as the COVID vintages since they were underwritten as we came out of COVID. As we move forward, the U.S. COVID vintages, which currently accounts for around 10% of our global ERC, will continue to comprise a smaller percentage of the global ERC. After having gone through this process, I'm confident with where our global ERC stands.

The final point I wanted to make was to congratulate our team in Poland on their 10-year anniversary. I personally attended the celebrations in Warsaw a few weeks ago, which included a dozen Polish banks as well as senior representatives from a number of major global banks. Poland is a competitive market, and our team has done a fantastic job in establishing PRA as a leading player there.

I'll now turn it over to Rakesh for a summary of our Q3 financial results before returning to provide some closing remarks.

Thanks, Martin. We purchased $255 million of portfolios during the quarter, of which $154 million or 60% were in the Americas and $101 million or 40% were in Europe. The total $255 million amount is lower on a year-over-year basis as it reflects our heightened focus on prioritizing net returns over volumes purchased while balancing investments versus leverage.

Looking to the remainder of 2025, we expect portfolio supply to remain at elevated levels in the U.S. and to be relatively stable in Europe. We expect U.S. supply to continue to benefit from elevated credit card balances of approximately $1.1 trillion. On a year-to-date basis, our 2025 purchase price multiple was 2.14x for Americas Core and 1.88x for Europe Core. This compares to 2.11x in 2024 for Americas Core and is significantly higher from the levels seen in early 2023 when the Americas Core multiple was 1.75x.

Keep in mind that the purchase price multiples are determined in part by the age of the nonperforming loans that come to market and the cost to collect, resulting in our European multiples being lower, primarily due to a lower cost to collect in certain countries. However, what we are ultimately focused on are the net returns, which incorporates the cost to collect and funding cost. We implemented an enhanced global investment framework a couple of years ago that continues to help us improve returns as we seek to achieve minimum return thresholds on our investments, irrespective of product, geography and other vectors.

As we move forward, we intend to continue operating with an increased focus on portfolio returns to ultimately drive net income.

ERC at quarter end was $8.4 billion, up 15% year-over-year and up 1% on a sequential basis. Based on the average purchase price multiples we recorded year-to-date, we would need to invest $952 million globally over the next 12 months to replenish and maintain current ERC levels. Total cash collections for the quarter grew a healthy 14% year-over-year to $542 million. This is on top of the 14% growth we experienced last year. The cash collections growth was driven by both higher levels of recent portfolio purchases and the uplift in cash generation from the investments and process improvements we have been making in the U.S. legal collections channel.

Globally, our cash collections exceeded our expectations by 8% this quarter. In the Americas, cash collections exceeded expectations by 6%. U.S. legal cash collections grew 27% year-over-year to $125 million. This is up approximately 90% since year-end 2023 when we first began benefiting from the improvements made in the legal collections channel, including reducing cycle times, leveraging specialized third parties and adding new legal collection capabilities. It's important to note that legal is not the channel that we lead with, but when appropriate, it typically provides greater collections certainty and a higher overall amount of cash collected versus other channels.

In Q3 2025, the legal collections channel represented 46% of cash collected in Americas core compared to 38% 2 years ago. We also were able to drive strong growth this quarter in our U.S. digital collections, which continues to be an important channel for us.

Turning to Europe. Europe collections exceeded our expectations by 10%. We continue to deliver strong performance across our core markets in the region. We also had good performance across the U.K., Nordics and Central Europe and are starting to see signs of market stabilization and healthy performance in Southern Europe. Regarding Southern Europe, we also witnessed more opportunities this year to invest in those markets that met our return thresholds.

Moving on to a summary of our income statement. Portfolio revenue for the quarter increased 12% year-over-year to $310 million. Portfolio income, which is the most stable and predictable yield component of our revenue, grew 20% year-over-year to $259 million. Over the last 2 years, we have continued to benefit from a healthy supply environment and improved returns, resulting in our portfolio income growing 36% compared with Q3 2023.

Changes in expected recoveries was $51 million this quarter. This was comprised of recoveries collected in excess of forecast, which represents cash overperformance of $27 million and changes in expected future recoveries, which is the net present value of changes to our ERC of $24 million. The cash overperformance of $27 million is net of a $15 million onetime payment we made to a long-time selling partner for previously purchased portfolios. Both parties agreed to modify the terms and conditions of certain portfolios we had previously purchased. This enables us to enhance the use of legal collections and increase our estimate of remaining cash collections versus what we had previously expected for these portfolios.

While the agreement is economically positive for us, the accounting guidance requires us to record the $15 million onetime payment as a purchase price adjustment that reduces revenue, given it is a modification of an existing investment. This is in contrast to a new portfolio purchase that would be capitalized on our balance sheet. Excluding this onetime payment, the recoveries collected in excess of forecast would have been $42 million. Changes in expected future recoveries was $24 million this quarter and was primarily due to additional ERC we expect to collect in both the U.S. and Europe. We are benefiting from the continued performance of our European business, resulting in positive adjustments to our ERC.

In the U.S., the increase included the impact of the arrangement we made with the seller, which I mentioned previously. In addition, there were puts and takes across the vintages with our pre-2021 and our 2024 U.S. vintages seeing an increase in ERC, while our U.S. COVID vintages of 2021, 2022 and 2023 being negatively impacted. The overall impact is that we have increased the ERC in the U.S., resulting in a positive NPV adjustment this quarter. This increase in our ERC should lead to higher portfolio income moving forward. Turning now to the rest of the income statement summary.

As Martin mentioned, we recorded a nonrecurring noncash goodwill impairment charge of $413 million in the third quarter, which was triggered by the sustained decline in our stock price. We made a number of acquisitions between 2012 and 2019, leading to an accumulation of goodwill, the largest contributor being Active Capital, which we acquired in 2014 with a total enterprise value of $1.3 billion. Active Capital is our highly successful European business as evidenced by its strong track record of disciplined investments, cash collections growth and profitability.

Overall, despite the impairment charge, we are pleased with the momentum we are generating in our global business as we execute on our strategic priorities.

Operating expenses for the quarter were $627 million. Excluding the goodwill impairment charge, adjusted operating expenses were $214 million, up 12% from the prior year period, primarily due to the continued investments in the legal collections channel, which has been generating strong cash collections in recent quarters. Legal collection costs were $47 million this quarter, up $18 million from the prior year period. We expect legal collection costs to be in the $40 million area in Q4. Cash efficiency ratio was negative 15% for the quarter. Excluding the goodwill impairment charge, adjusted cash efficiency was 61% in Q3, essentially stable with the prior year period, even though we had higher legal collection costs this quarter.

Net interest expense was $64 million, an increase of $3 million from the prior year period, primarily reflecting an increase in debt balances from a year ago. Our effective tax rate was negative 6% for the quarter. Excluding the goodwill impairment charge, our adjusted effective tax rate was 25% for the quarter. Net income attributable to PRA was negative $408 million. Excluding the goodwill impairment charge, adjusted net income attributable to PRA was positive $21 million or $0.53 in diluted earnings per share.

Our focus remains on growing the bottom line and improving returns, but we continue to monitor other metrics as well. Given the variability in the industry's accounting, we believe it is also important to look at adjusted EBITDA in addition to net income. Adjusted EBITDA for the last 12 months was $1.3 billion, up 15% year-over-year. Looking at the longer-term trend, adjusted EBITDA has grown for the last 9 quarters in a row. When reviewing our adjusted EBITDA generation, we also keep an eye on total capital invested used to generate that adjusted EBITDA. This is to ensure we are optimizing our returns on capital invested. As we continue to deliver increased adjusted EBITDA while becoming more selective with our purchases, we expect to calibrate between investments and leverage levels.

This quarter, our net leverage, defined as net debt to adjusted EBITDA was 2.8x as of September 30 compared to 2.9x in the prior year period. When excluding the $15 million onetime cash payment mentioned earlier, our net leverage would have been 2.7x. In terms of funding capacity, we have ample capacity and financial flexibility under our current debt structure. As of September 30, we had $3.2 billion in total committed capital under our credit facilities with total availability of $1.2 billion, comprised of $301 million available based on current ERC and $889 million of additional availability that we can draw from, subject to borrowing base and debt covenants, including advance rates.

During the quarter, we issued our first euro-denominated bond in Europe. We want to thank our investors who supported us during the offering. We raised EUR 300 million with a 7-year term with proceeds used to pay down our bank debt. Approximately half of our business is outside the U.S., and we believe it is prudent for us to access capital markets beyond the U.S. The bond offering enabled us to expand our investor base, access new pockets of capital, stagger maturities, better match currencies and rebalance our mix of secured and unsecured debt.

Over the last 18 months, we have taken numerous actions to diversify and strengthen our capital structure and provide ample liquidity for capital deployment. We have no debt maturities until November 2027 when our European credit facility matures, enabling us to continue supporting the growth of the European business and transforming our U.S. business.

Looking ahead, we continue to monitor the consumer environment, especially in the U.S. While there has recently been an uptick in headlines around the bifurcation between higher and lower-end U.S. consumers, our overall customer profile continues to be stable. We believe our global diversification and increased investment in the legal channel helped to lessen the financial impact of any near-term pressures on U.S. consumers. It's important to remember that approximately 50% of our global cash collections comes from outside the U.S.

In addition, 43% comes from our global legal collections channel, which is less impacted by near-term consumer pressure given the longer time period over which we collect cash. Overall, we believe we are moving in the right direction as we continue to improve our financial profile, further strengthen our capital structure and stay focused on delivering higher returns while reducing leverage.

We are reaffirming our key financial targets for 2025. We expect to deliver on our 2025 purchase target of $1.2 billion, cash collections growth target of high single digits and cash efficiency target of 60% plus for the full year.

I'll now turn it back over to Martin.

Thanks, Rakesh. In summary, the third quarter was about execution and delivery on the near-term priorities I set out a few months ago. We restructured our U.S. operations, eliminated more than 250 roles, drove $20 million in gross annualized cost savings, began to establish our new talent hub, brought our headquarter staff back to the office and made progress in developing our IT modernization road map. We also continue to improve our financial results while lowering our leverage and strengthening our capital structure.

As I mentioned last time, we are also reviewing our longer-term strategy and are looking at themes like cost efficiency, capital allocation, operational execution and our technology road map. I expect to provide more updates on this early next year. Ultimately, I'm very encouraged by how far we've come in these first 100 days. We have a great team, a 30-year track record and one of the most globally diversified footprints in the industry. We are focused on executing our strategy and improving our business. And I am confident that if we stay disciplined and focused, we will deliver on the full potential of PRA. Thank you, everyone, for tuning in and for your continued support.

And with that, we'll open it up for questions.

[Operator Instructions] Your first question comes from the line of David Scharf from Citizen Capital Markets.

A lot to digest. I guess I'll start off with just on the $50 million payment, I understand the mechanics. Just curious, are there other contracts you've entered into in which you would anticipate similar type modifications? Or should we view this as a kind of extremely rare event?

Yes. Thanks. As you say, it's been a busy quarter. So on that one, as Rakesh was saying, this was an opportunity that we developed together with one of the partners that we buy from to make modifications to the terms around portfolios we'd already bought some time ago. I would say this is a very unusual situation and a one-off. We invested -- we assessed it the way we would any other investment. We needed to run it through the P&L the way Rakesh described there. The benefit of that investment is spread across a couple of different vintages, and it's quite unusual. Normally, these things would be priced in when we bid or buy on a portfolio segment. And this just for a number of reasons that are between us and that partner, it ended up being booked in this way. Anything else, Rakesh?

Yes. And I think -- and David, good to hear your voice. Look, I think this also exemplifies the unique relationships we have and the length of relationships with our sellers. This is, as Martin said, a unique one-off situation, and this was developed over multiple weeks and months talking to a partner that we have bought from for years. And so it's an opportunity that is economically positive for us. And as a result, we saw the increase in ERC, as I mentioned on the call earlier.

And I was going to ask about kind of the macro in the U.S. and any early indicators on consumer health or changes, but you addressed that at the end, Rakesh. So maybe I'll shift to -- I guess, a question that gets asked every quarter, maybe I'll try to phrase it a little differently. You've often used the term journey to talk about how all of the operational changes and improvements over time will ultimately get the company to a point in which think GAAP profitability would -- can flow entirely from just regular portfolio income, not a change in expected recoveries.

I'm wondering if there's a way that you could help investors, maybe understand your thinking of the timeline. I think there's 10 quarters in a row of that change in expected recovery line, both components combined being positive, I think, 15 of the last 16 quarters. So we're multiple years into the journey. And is there sort of a number of quarters or years going forward that an investor can think about in which either the yields at which you're purchasing or the write-up of the assets currently on the books will get us to the point where portfolio income alone kind of gets you to the earnings power that you're showing now?

Yes. I mean that's a good question. And as you say, it comes up. I mean we tried today in the comments earlier to illustrate the breakdown of those components and showing the proportion of the revenue that's coming from cash overperformance versus increases in the future expectations. So that's one, trying to be more clear about that. The other thing is some of the things, you're right that there is, I guess, a journey is the word that you used -- we are going through that. We did show a chart earlier where you could see the purchase price multiples over time. And you can see that the purchase price multiples have been generally increasing on average. There's been a few vintages here and there that didn't. Those were the COVID vintages that I talked about. But other than that, they've been going up. And I think there's a few reasons for that, that I would mention.

One is the way we do the underwriting, we do that based on reference data at the time when we underwrite them. So if we then see operational improvements or changes in how we operate or additional investments in legal channel, in all of those examples, those could create higher collections than what was originally underwritten. So that's one dynamic that could increase the future expectations. And I would say that we're quite prudent in baking in those assumptions that are -- when their assumptions. Once they're proven out through data, we'll typically start taking them, and that's where you see those things going up.

The other one is just on the overperformance as such. If we overperform our underwriting targets, it always raises the question, is that overperformance an acceleration of cash, i.e., cash that was expected in the future that we now collected faster? Or is it a betterment of the overall ERC in a given portfolio. And so again, we're prudent that we do the CECL accounting on this. And the combination of those factors and the fact that I think we've had good performance over a long period of time are some of the factors that result in those increases.

And maybe just one last one. I'm sure others will ask about more of the intricacies of the goodwill write-down. But with or without the goodwill write-down, your tangible book is still at a level that's substantially above your share price. And I wanted to ask about kind of capital allocations and how covenants impact that. I mean in terms of share buybacks, I know the usual response is you're in the business of purchasing portfolios that generate a strong ROI, and that's kind of always going to be first and foremost. But you're trading at about a 40% discount to tangible book. And is there any level at which allocating some capital to buybacks is almost too hard to not consider?

I mean that's a good question and a fair question. We did -- we laid out our capital allocation framework in our investor presentation a few months ago. And as you said, our primary goal is to invest in profitable portfolios, especially at a time when we have a healthy supply environment. We're always looking at trade-offs between different uses of capital, be it portfolio investments, our overall debt and leverage level or investing in legal collections, for example, which is something we've been doing. And clearly, buybacks, especially given where the share price is, is a very important consideration. And we do hear that from investors, and we recognize that.

We did do some limited buybacks in the second quarter. We did not do any buybacks in the third quarter. That was just based on our overall assessment of the various opportunities that we had for using our capital and also keeping an eye on the leverage. We're very focused on making sure that we're prudent on managing our leverage levels as well. We do have a remaining authorization of $58 million that was authorized by the Board a couple of years ago. That's still there. We have some restrictions related to debt covenants that are in place. But buybacks is definitely something that is, I would say, in our arsenal. And when we feel that that's the best use of capital for value creation for shareholders, we'll consider doing that.

Congratulations on all the operational improvements.

Your next question comes from the line of Mark Hughes from Truist.

The $15 million purchase price adjustment, that is -- I hear you that it has a positive long-term economic benefit. But in the quarter itself, it shows up only as an expense. There was not any offsetting increase or change in expected recoveries.

Yes. So Mark, it's Rakesh. You actually have a benefit as well. So it does show up as a $15 million change in expected recoveries line item as an expense, but also there is an ERC benefit that we recorded. It spans multiple vintages. And so we're actually very happy with the arrangement that we had because that increase in ERC is we know going to be real, and it's derived from our continued emphasis on the legal channel. And as a result, going to the earlier question around portfolio income, that should continue to drive increased portfolio income as we move forward as well.

And so the net-net, did you disclose the net-net the $15 million expense and then the benefit? Is it a net positive benefit when you take the--

Yes, Mark, we haven't. But the way you should just think about it is just like in any new deal where you have a purchase price multiple, there is a purchase price multiple associated with this. And it is positive, both from nominal dollars as well as from an NPV perspective.

Yes. Very good. The goodwill charge, was there any part of that, that was tied to the underlying financial performance of the assets? I heard you saying that it has an impact on ERC, et cetera. But is it maybe just kind of a reduced level of business activity that could trigger some of that? Or is it entirely just this public equity?

Yes, I can take that. So as we said, it's a nonrecurring, noncash balance sheet adjustment. And as Rakesh said, it's primarily related to acquisitions that were done in Europe, the biggest of which was Active Capital, which is more than 10 years ago. The European business continues to perform really well. We delivered 10% overperformance against cash in the third quarter.

Year-to-date, Europe is up 11% against target. Europe contributed again to the upward revision in the expected future recovery. So that's a sign that it's overperforming. If you saw that table we showed earlier, Europe has had 6 consecutive years of overperformance against underwritten targets. So generally speaking, Europe has contributed very positively to PRA's results and continues to do so. So this goodwill charge, it's really just a mechanical accounting adjustment. Rakesh, you can maybe describe that a little bit more, but I really think it's important to make that point that the European business continues to perform well.

Yes. And I'll just start by saying, first of all, there is no impact to our operations, to our portfolios, to our ERC from the goodwill charge. It is completely noncash, as Martin said. And Mark, the goodwill amount, it's basically writing off the entire amount of the goodwill that is associated with our debt buying business. So what you will see is a slight amount of $27 million left on our balance sheet. That is related to our claims servicing business that is servicing securities and non-securities claims. And so from our perspective, this charge -- we took it this quarter. It's really driven by the goodwill impairment test that you're required to do annually. And we had a trigger just given the sustained decline in our stock price.

So given that, we had to undertake an assessment of our goodwill. And based on the assessment, we made a determination just given where our stock level is relative to the fair value of the business, we had to make a comparison and then that analysis led to a write-off of the goodwill.

And I hear you clearly that you've been outperforming in Europe, but has no impact on the ERC or collections, anything like that. Rakesh, the guidance for high single digits collections growth. If I look at your strength through the first 3 quarters, that implies a bit of a deceleration in the fourth quarter, maybe down into the mid-single digits in terms of year-over-year growth. Is that the message we should take? Or is this just kind of keeping the guidance in place, but not necessarily giving us any strong message about Q3 versus Q4 growth?

Yes. So Mark, good observation. I would say that it's the latter, which is we didn't want to change our target. But as you highlighted, we've been delivering growth that is north of 10%. We do expect typically, Q4 tends to be slightly lower than Q3, and we would expect that Q4 would be slightly lower, but we feel very comfortable with the target that we have put out there. And to the point you made, we expect that we would continue to hit or meet -- continue to hit or exceed that target for the full year.

[Operator Instructions] Your next question comes from the line of Robert Dodd from Raymond James.

At the risk of beating the dead horse, on the $15 million payment, and I think you've been very clear, but one-off related to purchase some time ago. But the question is, is it one-off because it was the only one that you could figure out how to adjust? Or another way of putting it, like what percentage of your book as it exists today is ineligible because of contracts to go through the legal collections channel. I mean, was this the only one? Or is there more, but you think it's not worth making the change? I mean, obviously, legal collections have been performing really well. So is there some meaningful chunk of the book that's just ineligible for the channel?

Yes. I would say that this was just a unique set of circumstances that were related to this particular partner. When we price portfolios, we know upfront if there are any criteria around legal collections. So some sellers will have certain thresholds for face values. Some will have certain thresholds for a proportion that they want us to go legal. There are some sellers that don't want us to do legal at all, and there are others that have no restrictions whatsoever. So we would always price -- we would price into our curves an expectation around that. And normally, it doesn't change. Once we've set that upfront, that's the way it is. But it does happen from time to time that the sellers revise their own criteria. So it's not like we're taking more risk or anything like that, but they might -- there are cases where they decide that actually, we had a certain threshold and now we're going to change that. And so when and if that happens, we can go back and review that.

So it's -- I would say it's -- all of those things are priced into the ERC of the portfolios. And this was just an unusual case where we determined by working together with this partner that there was an opportunity to make this adjustment. And as Rakesh said, I think it reflects a good relationship, but it's not something that I would expect to happen very often, and it hasn't happened very often either in the past.

I mean if I can -- on the COVID vintages. I mean, when I look at the '23 to '24, for example, I mean, when year-to-date, the '23 -- and this isn't a new issue. Obviously, we've been aware that '21 in the COVID vintage for a while. But it just the discrepancy between how the '23s are performing in the '24 seems just so pronounced to me. So can you give us any more -- in the change in expected recoveries on the '23 so far this year, it's a negative 33%. And the '24 it's a positive 27%. I mean, are there real material differences in type of client who you purchased for in '23 to '24? I mean it just seems that the trends are so different but it's less than 12 months between many of those portfolios within those vintages. I mean, how is the mix still so different for those vintages? I mean it's not like the '23s are kind of leveling out. It's 33% negative now. It was negative 20. So it's continuing to deteriorate, but the '24s are continuing to accelerate is what it looks like. They're becoming further and further apart. Can you help me understand kind of what's going on there?

Yes. So first of all, the -- what we did this quarter was to do a an additional deep dive, as I described it. Every quarter, we do review and assess our forward-looking expectations on all the curves. That's the CECL process. And even if we make minor adjustments on the ERC, those can have a significant impact on a given quarter. So that's what creates this dynamic of the shifting around of the revenue sometimes in a given quarter. That's just one of the dynamics. We did this additional deep dive.

So in addition to the normal process, we brought in additional analysts who are strong underwriters. We leveraged people from a few different markets, and we went through it in more depth than we normally would. And this is what led us to these revisions that we have done here. Every portfolio and every vintage has its own story, I would say. A lot of it is a matter of the shape of the cash flow curves, the underwriting data that was used at the time and so on. So some of these adjustments here just reflect that. And that's why we call the COVID vintages kind of like loosely, but it was just coming out of the COVID period, we had reference data that was affected by the stimulus that went on. So that had to be adjusted for. You had sort of a selection bias in the kinds of customers that flowed through and charged off in that environment as well.

So all of those things created an environment that, for us, made those vintages struggle. So I think we're on firmer footing there. And that the -- as you point out, the performance so far on the more recent vintages is looking better. And we obviously monitor very closely where we are by months on book. So at this stage in the curve, how is it performing? So on that basis, we're more comfortable with where those things sit. And the last thing I'd say is just to keep in mind the global diversification here. These U.S. vintages get a lot of focus on these calls. They're only 10% of the global ERC right now. And we benefited from the global diversification of having really strong performance in Europe over many years, including during the COVID period. And it was just that the COVID dynamics played out differently there and didn't affect the data in the same way. And so on a global level, we've had that stability and benefited from the diversification of the ERC.

One more, if I can. In Europe, to your point, and then in prepared remarks, I mean, it sounds like Southern Europe, you seem to reach the standard for you to call it out particularly in terms of performance and also more opportunity to purchase. I mean are the return dynamics in Southern Europe really shifting significantly in your favor in terms of like should we expect greater deployments into that geographic area? And if so, I mean, does that change any of the dynamics about how you go about your outsourcing efforts, et cetera, et cetera? I mean does that -- is it really -- am I reading too much into that? Or has it really changed? Or how does that play out over the next year or so?

Yes. So I'm answering -- next month will be my 14th year in the company. And so I've sat on our investment committee in Europe for 14 years. And if I look at Southern Europe, it's gone through an evolution. Coming out of the global financial crisis, there were quite, I think, quite good opportunities there. However, there also was a flurry of competitors flooding into those markets. And so for many years, we struggled to invest there. And it's not like we've wildly changed our investment hurdles. It's just that the market went into a situation where we just couldn't win anything at our investment criteria. And we tried to be very disciplined, and we just sort of stand it out. We bid on all the portfolios. We always would do that, but we struggled and we struggle to win. So we went as much as -- we went over 1 year, in one case, 2 years without buying a single account. And that's tough to maintain a business.

You may remember those years. And then -- if I fast forward a bit, I would say that over the -- our observation over the past year or so has been that the competitive dynamic in Southern Europe has sort of stabilized. It's still competitive. So don't get me wrong. It still remains competitive. But we've gotten into a situation where -- we went from a situation where we couldn't even make it to the second round on most of the bids. Even though we have not changed our return hurdles all that much, we've been able to successfully deploy more capital there. And this goes back to the point I was making earlier. We do have a global capital allocation framework. So if a window of opportunity opens up in a market, we'll be ready to move there. But we also have to be really disciplined about it.

So in terms of Southern Europe going forward, I'm not -- I don't really know what the dynamic is going to be. I think right now, if it remains at a competitive level like it is now, we'll win some, we'll lose some, and those could be decent markets. So I'm glad looking back that we hung in there in those markets. I don't expect huge needle-moving dramatic shifts there. But I think the commentary we put in was just to explain a little bit about why after having such a low share of our ERC in Southern Europe, did we -- are we looking -- have we been deploying more capital there? And it's really a matter of us taking the opportunity that the market has, in our view, stabilized to the point where we're able to make investments there.

[Operator Instructions] There are no further questions at this time. I would like to turn the call back to Martin Sjolund for closing comments. Sir, please go ahead.

Yes. Thank you. So thanks, everyone, for getting on and for listening and for good questions. Just looking back, I think this was a quarter of real execution on a range of areas. I think we continue to make good progress. And as I said, I think we have a great team, a good opportunity, and we look forward to continuing to deliver results for PRA. So thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.

Good evening, and welcome to PRA Group's Second Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference call over to Mr. Najim Mostamand, 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 2025 and Q2 2024, unless otherwise noted, and our Americas results include Australia. During our call, we will discuss net debt to adjusted EBITDA for the 12 months ended June 30, 2025. 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, Najim, and thank you, everyone, for joining us this evening. It's only been 7 weeks, since the middle of June, that I took on the role of President and CEO, and we've gotten off to a good start, and the entire team is working with urgency to continue improving our performance. During this time, I've been in ongoing active dialogue with leaders across the organization, credit issuers who sell nonperforming loans, our rating agencies and, of course, our investors. In fact, I've had dozens of engaging and insightful investor meetings in this short span, and I look forward to many more in the months ahead.

Having been with the company for 13 years now, including the last 7 as part of the global senior leadership team, I have a clear perspective on how we can best deliver value for our shareholders. This perspective has been significantly shaped by the transformation I helped implement in our European business. As a reminder, over the past decade, I served as Europe's Chief Operating Officer prior to stepping into the role of President of Europe.

When I became President in 2018, we faced a challenging and highly competitive market in Europe. At the same time, internally, we had a patchwork of systems and limited digital, IT and analytical capabilities. Under my leadership, the team laid out a clear strategy to transform the European business that included upgrading our technology platform, bolstering our digital capabilities, investing in talent and standardizing key processes and technologies across markets.

As a result, we established a proven multiyear track record of performance in Europe, driven by a long-term orientation and 4 main themes:

Number one, the leadership team. We have an experienced and tenured leadership team supported by a strong performance management culture.

Number two, underwriting. We have a disciplined underwriting approach, leading to ERC from the European business growing to half of PRA's total ERC in recent years.

Number three, operational execution. We also have a long track record of cash overperformance and cash collections growth, supported by a modern technology platform and strong digital capabilities.

And number four, cost efficiency. Over the past 7 years, we have developed one of the most cost-efficient platforms in the region.

This success gives me confidence in our ability to drive change and deliver value, and I will bring many of these learnings to the global business, including our U.S. business, which is well underway in its transformation journey. What's perhaps most encouraging is that PRA operates from an incredibly strong foundation built through decades of experience, scale and deep operational and compliance expertise.

Starting from the top, we have a highly seasoned leadership team with decades of experience, not only in the debt buying industry, but also in strategy, financial services and operations. I'm confident that we have a strong team in place to drive improved performance.

In addition, we have presence across 18 countries, giving us a healthy level of global diversification. This reinforces the resilience of our business model and enables us to take advantage of unique opportunities as seen by our operations in Brazil. We entered Brazil through a joint venture in 2015 that encompassed investments in a servicing platform and making portfolio investments. Over the past 10 years, we have developed a strong local franchise together with our local partners, collecting more than $1 billion, and we still have more than $200 million in ERC.

This past quarter, we completed the previously announced sale of our equity interest in RCB, the servicing platform for our investments in Brazil, generating a $30 million after-tax gain while still maintaining our portfolios and operations in that market. I would especially like to thank our Brazilian partners, and I look forward to continued opportunities there in the future. This case illustrates how PRA can bring our capital and experience into new markets and create value in a variety of ways.

We also have deep seller relationships globally with an attractive supply environment in the U.S. and a more rational competitive dynamic in Europe compared to a few years ago. Markets are always competitive, but at the moment, we see fewer new entrants overpaying for portfolios than we have in the past. We remain focused on higher return opportunities and maintaining a disciplined approach to purchasing.

Our European business continues to deliver strong results, and I'm excited about the path forward under the new leadership of Owen James, who recently succeeded me as President of PRA Group, Europe. Owen has also been in the company for 13 years now and most recently served as our Global Investments Officer, where he was instrumental in strengthening our seller relationships, improving our purchase price multiples and achieving record portfolio purchases of $1.4 billion in 2024. This promotion is another great example of how we are leveraging the strengths of our global business and team to drive results.

While I see opportunities to further strengthen our European business, I believe the biggest opportunity for us today is accelerating the transformation of our U.S. business. We've made great strides over the past couple of years, particularly in our Legal, Digital and Call Center operations, but I still see areas to improve and strengthen.

Additionally, I want to mention our capital structure. I have met with many of our major global creditors and bondholders over the past few weeks, and I'm encouraged by the strong creditor relationships and ample funding we have in place with no debt obligations maturing until 2027. This funding position enables us to continue capitalizing on the portfolio supply environment while investing further to improve our operating platform.

As you can see, there's a lot to be excited about, and I see significant potential in developing PRA into the global leading player in our industry. The work to achieve this is well underway as we focus on making the changes necessary to drive a meaningful improvement in our financial and operational results.

I'll now spend some time going through my priorities for the second half of this year. As I mentioned on the last call, I remain focused on our 3 core strategic pillars of optimizing investments, operational execution and managing expenses.

Starting with optimizing investments. We are committed to remaining disciplined and strategic in our allocation of capital. This means executing on our global investment framework and staying focused on higher return opportunities. We can deploy capital where we see the best returns for PRA, and we have shown in the past that we are willing to hold back when we feel pricing is overheated. That said, while there are local variances from time-to-time, the overall market volumes and competitive intensity are tracking as we expected.

Turning to operational execution. We are focused on continuing to improve the overall productivity and efficiency of the U.S. business. Regarding our call centers, I regularly spend time with our frontline agents, and I'm always reminded by what a challenging and important role they have. And I want to acknowledge and thank them for their hard work and contribution to our overall success.

We recently revamped our Performance Management System, which should lead to a better reward structure for our highest performers. We also successfully consolidated our site footprint from 6 to 3 call centers in the U.S. Combined with our work-from-home initiative for eligible agents, this has translated into a higher retention of our most tenured and productive staff.

Within the legal collections channel, we've made great strides in reducing the overall time to collect cash. We also continue to see growth in the number of wage garnishment filings, which has been recently supplemented by other activities in post-judgment execution. These actions have resulted in a significantly revamped legal channel that is becoming more efficient and productive in driving cash collections.

Despite all of this progress in the call center and legal channel, we must go beyond what we are already doing, and this includes taking a different approach on how we are organized and track performance and how we use technology, data and analytics.

To support this, we are reorganizing the structure of our U.S. operations to create a U.S.-focused operational team led by our Global Operations Officer, Steve Macke. Steve brings more than 3 decades of industry experience, having spent his career leading all aspects of collections operations for Citigroup. He played a key role in driving operational execution and improving efficiency across our U.S. business and his new team will now be measured on a single P&L. I believe this will result in more accountability and faster decision-making.

As a way to elevate our standards, we have also announced a return-to-office initiative for our corporate and support staff, which we expect to lead to better teamwork, performance and collaboration across functions. But we also need to ensure that we can attract the best talent when it comes to analytics, technology and beyond. Therefore, we will be setting up an office in Charlotte later this year. To be clear, we are not moving our headquarters, but we acknowledge the need to access specialist talent and having access to a significantly larger market will help us achieve this goal. It's the same playbook we have been using in Europe to access and retain top talent.

As it relates to our technology, we are performing a deep dive analysis on how we can best accelerate the modernization of our U.S. IT platform. In Europe, we have already deployed a state-of-the-art cloud-based contact platform across all the markets, and our infrastructure there is on one common cloud. We have also consolidated our collection systems to simplify the data sources and leverage expertise across markets. These moves have resulted in significant efficiencies in Europe, and I'm looking at opportunities for how we can apply those learnings and improve our technology platform in the U.S.

Finally, turning to managing expenses. I'm focused on other ways to further improve our efficiency. While there is an opportunity to continue leveraging our offshore capabilities, we must also supplement that with a comprehensive review of our overhead costs. It is important that we manage the business with maximum efficiency. In Europe, there are numerous markets where we have had to consolidate or restructure in order to improve efficiencies or withstand downturns in the market cycle, and there's already a strong blueprint within the company for making these adjustments.

And have already started working closely with our leaders in the U.S. to identify cost savings opportunities. These actions will take time, and I don't expect to see a significant impact in the near term, but we will structure our business to support the most productive cash-generating activities.

So to summarize, the 5 main priorities we have focused on for the second half of the year are: number one, building on the momentum of our cash-generating initiatives; number two, restructuring our U.S. operations; number three, implementing return to office for our corporate and support staff; number four, performing a deep dive analysis on modernizing our U.S. technology platform; and number five, kicking off a comprehensive review of our overhead costs.

We are tackling all these priorities with urgency, and we'll introduce additional initiatives as the year progresses and we enter 2026. Overall, I'm excited by the opportunity to truly transform our business and to make impactful changes that better position PRA to deliver substantial and sustainable value.

And with that, I'll turn it over to Rakesh for a summary of our Q2 financial results before returning to provide some closing remarks.

Thanks, Martin. We purchased $347 million of portfolios during the quarter, of which $199 million were in the Americas and $147 million were in Europe. On a year-to-date basis, our 2025 purchase price multiple was 2.14x for Americas Core and 1.82x for Europe Core. Both represents a continuation of the upward trend in purchase price multiples we have experienced in the past couple of years.

As comparison, the Americas core purchase price multiple was 1.75x at the start of 2023. This trend reflects both the strong portfolio supply, especially in the U.S. as well as our disciplined approach to investing in portfolios with higher returns globally. We will maintain this discipline and the high return focus to drive cash collections, portfolio income and ultimately, net income.

Primarily as a result of strong buying this quarter, we grew ERC to another record of $8.3 billion at the end of Q2. This is up 22% year-over-year and up 6% on a sequential basis. Looking to the second half of 2025, we expect portfolio supply to remain at elevated levels in the U.S. and to be relatively stable in Europe.

Cash collections for the quarter were $536 million, up 13% from the prior year period. This is on top of the double-digit growth we experienced last year. The increase for this quarter was driven by both higher levels of recent portfolio purchases and the continued investments we have been making in the U.S. legal channel. Q2 U.S. legal cash collections grew 24% year-over-year to $119 million. As a reminder, legal is an important channel for us, but it is not the channel that we lead with.

We will consider using it if and when customers do not choose to engage with us voluntarily. While there is an upfront investment required in the form of Court costs, the legal channel typically provides greater collections certainty and a higher overall amount of cash collected versus other channels. We look at all our collection strategies from a net present value perspective. And because of its strong relative performance and value, we will be looking to further strengthen our legal collections channel.

Let's turn now to total portfolio revenue, which was $284 million for the quarter, up 1%. Portfolio income, which is the yield component of our portfolio revenue and the more predictable revenue line item was $251 million, up 20% for the quarter. This year-over-year growth has accelerated from the growth we saw in Q2 last year, reflecting an increased level of portfolio investments at higher purchase price multiples.

The other portfolio line item is changes in expected recoveries, which was $33 million this quarter and included cash overperformance of $40 million. On a consolidated basis, our overall business overperformed by 7%, with Europe exceeding expectations by 14% and the Americas exceeding by 3%. This $40 million in overperformance was partially offset by negative $7 million in changes in expected future recoveries, which primarily reflects ERC adjustments we have made in the U.S.

Overall, the U.S. vintages exceeded expectations by 3%, with the recent U.S. core vintages performing in line with expectations this quarter. However, based on our latest estimates, we have adjusted our forecast for cash collections over the life of the vintages, primarily on the 2023 vintage.

As a reminder, GAAP accounting requires us to make our best and most accurate estimate each quarter for each vintage, which often introduces volatility in changes in expected recoveries, even if cash collections meet or beat expectations for that vintage in the current quarter. It's important to note that our cash curves span many years as evidenced by the fact that we are still collecting on vintages that are 10 years old or more.

]Operating expenses were $203 million, up 4% from the prior year period. This was primarily driven by increases in professional and outside services expenses and legal collection costs. Professional and outside services expenses were up $3 million, primarily due to increased investment in call center offshoring to provide greater operating flexibility as that channel ramps up. Our U.S.-focused offshore agent headcount grew 34% year-over-year and now makes up more than 35% of our overall U.S.-focused agent headcount.

Legal collection costs were up $2 million, driven primarily by investments in our U.S. legal channel, which is expected to continue driving growth in future cash collections. While the growth in legal collection costs was somewhat muted this quarter, we expect the growth to be higher next quarter.

Our cash efficiency ratio was 62%, up from 59% in the prior year period. Net interest expense was $62 million, an increase of $7 million, primarily reflecting higher debt balances due to increased portfolio investments. Our effective tax rate was 25% for the quarter. For full year 2025, we expect our effective tax rate to be in the mid- to high-20s, depending on the income mix from various countries and other factors.

Net income attributable to PRA was $42 million or $1.08 in diluted earnings per share. This includes the approximately $30 million after-tax gain from the previously announced sale of our equity interest in RCB, our servicing provider in Brazil. Excluding this onetime gain, our net income attributable to PRA was $13 million or $0.32 in diluted earnings per share. This transaction demonstrates our ability to be opportunistic and continue to deliver economic value for our shareholders.

Given that we are a cash-on-cash business, we believe it is also important to look at adjusted EBITDA in addition to net income, which is susceptible to quarterly fluctuations because of how this industry's revenue accounting works.

Adjusted EBITDA represents what we believe to be a better view of our operational and financial progress and performance. As a result of our strong cash collections growth and disciplined expense management in recent quarters, we have been able to accelerate adjusted EBITDA growth, which grew 20% this quarter versus the 13% growth in cash collections. Our net leverage defined as net debt-to-adjusted EBITDA was 2.81x as of June 30. We continue to operate within our long-term leverage target of 2x to 3x.

In terms of our funding capacity, we have ample capacity and financial flexibility under our current debt structure. We have $3.2 billion in total committed capital under our credit facilities as of June 30. We had total availability of $841 million comprised of $522 million available based on current ERC and $319 million of additional availability that we can draw from subject to borrowing base and debt covenants, including advance rates.

We have no debt maturities until November 2027 when our European facility matures, enabling us to continue supporting the growth of the European business and transforming our U.S. business. We believe the cash generated from our business, the capital available under our credit facilities and access to capital markets in both the U.S. and Europe position us well to finance our operations, forward flow commitments, debt maturities and additional portfolio purchases.

During the second quarter, we saw another opportunity to enhance shareholder value and repurchased $10 million of our stock. Ideally, we would have repurchased more shares, but were constrained by limitations under our debt covenants though we expect these constraints to ease somewhat as we move forward. We are always evaluating opportunistic ways to deploy capital with the highest returns to shareholders and we'll continue to do so going forward.

Looking ahead, we expect to see more progress in our cash-based metrics through the back half of 2025, putting us on track to deliver on our purchase target of $1.2 billion, cash collections growth target of high-single digits and cash efficiency target of 60%-plus for the full year. As we head into the next planning cycle, we will be reviewing our longer-term strategic outlook and expect to provide more substantial updates early next year.

I'll now turn it back to Martin.

Thanks, Rakesh. In summary, I'm excited about the road ahead. As we look out beyond the coming months and quarters, I see a tremendous opportunity to build on our positive momentum over the past couple of years to drive shareholder value. I recognize that our financial performance is not yet where we want it to be, but the team and I are committed to implementing the changes necessary to realize the company's full potential.

Thank you for your continued support, and I look forward to engaging with all of you and hearing your input as we work to transform PRA. And with that, we'll open it up for questions.

[Operator Instructions] Your first question comes from the line of David Scharf from Citizens Capital Markets.

Martin, I wonder if you could just provide some color in the U.S. on supply and opportunity, not from the macro sense, we're obviously all aware of the elevated debt levels and the charge-offs that are rolling off. But can you just remind us how we ought to be thinking about the company's both volume of seller relationships and whether or not there are any new sellers in the pipeline that could impact purchase volumes as well as whether there are new asset classes or noncredit card asset classes that might be growing that we should think about?

Yes. Thanks, David. I can make a few comments about that. As you kind of alluded to, the overall buying environment in the U.S., we've described as elevated compared to sort of the longer-term baseline. So we see attractive opportunities to deploy capital here in the U.S.

We have a global capital allocation framework that we use. So we are a global company, obviously, and we do look to optimize how we allocate capital between markets, so often balancing between Europe and the U.S. But generally speaking, the outlook for us is positive. You can see that in some of our multiples, and you can see that in the comments that Rakesh made about our target for the year.

You also asked about alternative segments and relationships. My sense is that we have strong seller relationships here in the U.S. that go back, in some cases, decades. So we continue to work closely with those large sellers in the core areas where we have good data and good experience.

We are always looking for opportunities to expand as well, and we're aware that there are more segments out there and asset classes that could be interesting to us. And what we would typically do is to start small in those areas and carefully test our way in there to build data, build operational capability, et cetera. So I definitely think that for the longer term, there's an opportunity there for PRA. But I would say in the near term, our focus is really on the core business, deploying the capital towards the targets that we have set for ourselves and just making sure that the operational execution against that is where it needs to be.

Got it. Understood. And maybe just as a follow-up, I'll let others dig into the revenue side. But on the expenses, can you give us a sense for how we should think about kind of longer term, where you want the legal channel to be in terms of collection mix and how that factors into the sort of the ceiling on the cash efficiency ratio. Obviously, it's kind of a channel you only want to deploy after you determine an account has some ability to repay, but it is more expensive than the primary call center outreach.

How should we be thinking about kind of that 60% level as a ceiling within the context of legal growing as a percentage of the mix?

Yes. I mean, as you pointed out, legal -- we would never lead with legal. We would always try first, over a longer period of time, to settle -- set up account repayment options with customers in an amicable way. That's always our first option. However, as you know, over time, if our data tells us that there is opportunity there and the customers aren't engaging with us, then we will go to the legal channel. The legal channel is important in all countries. I've been running Europe for the past 7 years, and legal is a very important channel in those countries as well.

In terms of your question for the U.S., we would always look to maximize the value of the legal investments that we make. So we have a very, I think, very sophisticated legal analysis that we do to understand the legal potential of an account, but also weighing that against the cost. And in terms of a ceiling, I don't really have a target in mind there. And you have to remember, a lot of this is about timing. So you typically incur significant legal costs earlier in the cycle, but then you can have a longer tail of cash collections over time. So we will always be weighing those 2 factions.

So the legal investments depends both on the portfolio we have, the -- what we -- our attempt to maximize the value of each account, and then to implement that over time. So I think maybe, Rakesh, you can comment on the trajectory where legal OpEx at the moment is trending, but that's what I would say.

Yes. David, to add to what Martin said, first of all, I would say, whenever we look at an account, we look at it on an NPV basis and whether it is in the legal channel or it's in the call center channel, it has to work from an economic perspective, on a net present value perspective. So we're always doing that analysis before we put accounts into the legal channel.

Second, as Martin mentioned, we have significantly over the last year plus, improved our processes, and we know that we're delivering greater value in terms of cash collections from the legal channel. And if you just look at where we were pre-COVID, that's a good data point. We were in the low-30s in terms of the cash we collected from the legal channel. And today, we are in the low-40s. As we have continued to optimize that channel and investing in it, we expect to continue driving more cash from that channel.

Now as it relates to the OpEx side, if we were at total across PRA at $89 million, growing to $125 million between '23 and '24, we expect, as I've mentioned on previous calls that, that growth rate of about 40% to moderate starting in 2025. And since you brought up the legal OpEx, this quarter, legal OpEx was up only $2 million. That was a 7% year-on-year growth. When you look at it sequentially, it grew 12% versus the previous quarter. And as you look out to the rest of 2025, we expect that growth to be somewhere between 15% and 20%.

And one of the reasons is we had a very strong buying environment in 2024. So you're starting to see all those accounts either going into now the legal channel or into the call center channel.

Your next question comes from the line of Mark Hughes from Truist Securities.

The collections overperformance, 7% overall was a nice improvement from Q1, both in Europe and the Americas. Can you talk about what drove that? Was that just more appropriate forecast going into the quarter? Or did you see some improvement in the overall market? Or was it internal efforts were bearing more fruits?

Yes. Thanks, Mark. I agree that we are happy with the overperformance that we saw in Q2. Generally speaking, the European performance has been really strong for quite a period now. So I think there, we're seeing, generally speaking, across most of the markets that cash is coming in stronger than we had originally projected. So I think that probably reflects a number of things, both operational initiatives that the teams are running, but also, I think, in some markets, a strong position of the consumer in those markets. And then finally, I think just it's a signal of the underwriting, which has been maybe in some cases, conservative, and we're seeing a strong performance there.

In the U.S., we're also pleased with the performance to be 3% above. I wouldn't attribute that necessarily to any specific thing around the forecast. But I would say that we're seeing strong performance from the various initiatives that have been rolled out here in the U.S. In particular, legal cash was up 24%. And I think that's a sign that the investments that we've been making in legal are bearing fruit and that the initiatives that the team here has been pushing are starting to generate results.

A couple of percentage points up and down in a quarter is -- there's going to be fluctuation. But generally speaking, I think we're in a good place.

Yes. Martin, you talked about reorganizing the structure in the U.S. Could you expand on that a little bit more? And are there any financial targets you've got associated with that?

Yes. So in the U.S., I mean, I'm only 60 days in or something, but obviously, I've been a member of the global team here for a long time. And one of the observations I've had is that the way we organize some of our European markets is different from the U.S. So the U.S. had on the operational side, a more functional setup, I would say, whereas in the European markets, we tended to have a more focus around the operation. And so one of the things after discussing with the teams here, I concluded that there was an opportunity in our U.S. structure to create a more empowered U.S. operational team so that we have the different functions rolling up to the U.S. operational leader.

As I mentioned earlier, we have a very experienced leader here in the U.S. And by giving him different levers ranging from IT to Data and Analytics to the other functions, I think we'll be able to create more accountability for cash performance, but also more accountability for cost. So this team is going to be measured on a single P&L. And I'm looking for speed in decision-making and speed in execution.

In terms of specific metrics for that P&L, that's something we'll have to come back on internally later. We're just in the process of rolling this out now.

Then on the 2025 multiples in the U.S. and the core paper ticked down just a little bit from -- I think it was 2.18 to 2.14. (sic) [ 2.18x to 2.14x ] In Europe, on the other hand, it ticked up. Anything to think about? Was the U.S. market a little more competitive? Or is that just a mix issue?

Yes, I'll let Rakesh comment on that. The only thing I would say is that money multiples are obviously an important proxy for how we're investing, but it doesn't necessarily always imply that a higher multiple is better. If we -- there's obviously a lot of other factors, including our efficiency and the time value of money that play in there. So that a multiple ticking up and down, again, it doesn't necessarily imply that. Mix is a big factor here, too, but I'll let Rakesh comment on the specifics.

Yes. Mark, you're right. Look, it all comes down to mix, depending on whether we are buying more primary or secondary, tertiary paper, that can have an impact. There are other demand-supply variables. But to Martin's point, at the end of the day, we are also taking into account the cost to collect and looking to drive net returns.

We have a global investment framework. And whether it's a deal in Europe or different deals in the U.S., depending on type of paper, we're all looking at certain thresholds that they have to meet. So the headline number of purchase price multiple can vary depending on what it is that sellers are bringing to market also.

[Operator Instructions] Your next question comes from the line of Robert Dodd from Raymond James.

Just kind of tied to that point, I mean, when we look at the purchase environment, if you look at the U.S. market, obviously, versus, say, '23, the multiple is higher. The volume this year versus '24, obviously, '24 was a very strong year in the U.S. Volumes are down.

So I mean, is it fair to say -- I mean, you're focused on those higher multiple opportunities. So would it be fair to say that like your peak purchasing is now in the rearview mirror? Is it that the focus on the higher multiples now is such that deployed volumes might be lower this year, next year versus obviously the peaks of '23, '24, but the multiple mix is going to, in your view, more than make up for that. Is that -- any thoughts there?

Yes, thanks. No, I would say that the -- I wouldn't read too much into that. We're obviously trying to strike a balance here between our leverage, the amount that we invest for the business, the multiples that we can get, et cetera. So there's a number of factors that are being traded off there.

We had set out a plan that was based around these numbers that we talked about earlier, $1.2 billion. We felt that, that was a good target for us, and that would allow us an opportunity to strike the right balance between returns and volumes. We never want to just chase volumes for the sake of chasing volumes. It's easy to deploy capital if all you do is chase the volumes in this business.

But I can tell you, after 10 years plus of managing our European business, there have been times where we've had to sit back and watch and just let other people take the volume because they haven't been able to meet our return thresholds. And it's always a mystery what other people are doing. We only can account for what we are doing. But I think it's healthy to set ourselves a target that allows us to strike that balance. And our goal is to maximize value really and -- for ourselves and our shareholders.

Got it. Got it. And then on kind of the 5 indicators of focus, right? I mean 3 of those seem to me to be, well arguably for -- to be very cost focused, right, restructure the U.S. business, cost of operations, technology improvements, et cetera, review the overhead. I mean, if you were -- and I'm not asking you for cash efficiency guidance or anything. But I mean, are the kind of cost-saving initiatives and components of that?

I mean, is that 50 basis points of efficiency improvement over some long period of time, obviously, cash with legal and things move around. But is it 50 basis points? Is it 200 basis points? How much cost do you think and restructuring and efficiency, how much is in there that you think you can take out over the longer period? I mean, is this -- is it going to be some talking points? Or are we going to see it in the numbers?

Yes. Thanks, Robert. I wouldn't necessarily say that they're all cost focused. The U.S. restructuring is more about speed of execution and operational execution capability really. So I wouldn't necessarily say that cost is driving that one. The -- but obviously, the one that is -- and the other one, sorry, is the technology side. Of course, we're looking to leverage technology to help us with cost, but there are also other operational capabilities that we need to invest in on the technology side.

So -- but coming to the last point around the cost side, as I said in the script earlier, the -- this is going to take time, and we're not going to -- we're not expecting to see immediate impact on the numbers. And I think it's worth calling out also the way I think about it is there's 2 main dimensions to cost really in our business. One is the operational cost, and that's things like optimizing our automation of legal, for example, or leveraging offshore call centers to reduce that cost. That's like operational cost. But the other side of it is the overhead and corporate costs. And so the initiative that I mentioned earlier as a specific focus is really focused on the second one of those, the overhead and corporate costs.

That cost as a percent of the overall cost is relatively small. The bulk of our cost is for the actual collections cost. So I think it's too early to put a number. And I don't -- wouldn't put massive expectations on this initiative as such. But I did want to call it out because it shows the importance that I place on cost. I've always done that in our European business. We think we've built one of the most cost-efficient platforms in the industry there, and I will certainly be focusing on cost here in the U.S. as well.

[Operator Instructions] There are no further questions at this time. I will now turn the call over to Martin Sjolund. Please continue.

Yes. Thank you. So all I'd say is that I'm very excited about the road ahead for PRA. I think we have a great opportunity. I'm excited about the team. And I just want to thank everybody for your continued support, and I look forward to working with you all going forward. So thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.