PRA GROUP INC Q1 FY2025 earnings call

Management Statement and Operational Highlights:

• Optimizing investments: Deployed capital globally, achieved attractive pricing in markets, and increased investments in Europe leading to a record ERC.
• Operational execution: In U.S. legal collections, reduced cycle-times and saw 33% year-over-year growth in cash collections to $111 million. In U.S. non-dealer operations, enhanced customer reach, implemented new dialer strategies, and digital efforts saw increased customer interactions. In Europe, used technology and standardized processes, moved infrastructure to cloud, ramped up digital capabilities, and developed data analytics.
• Managing expenses: Completed consolidation of U.S. call centers, lower-than-expected attrition in U.S. collector base, and growing offshore head count at a measured pace.

Segment Performance:

• Americas (including Australia): Purchased $178 million of portfolios. U.S. core cash collections grew 33% year-over-year in Q1 2025 to $111 million.
• Europe: Purchased $113 million of portfolios. European business has invested over $3 billion in portfolios in the last seven years with attractive returns, and ERC grew at a CAGR of 6%. Total ERC reached a record $7.8 billion at the end of Q1 2025, up 20% year-over-year and 5% sequentially. Portfolio revenue for the quarter was $269 million, with portfolio income up 19% and changes in expected recoveries at $28 million.

Guidance:

• Not changing previously provided financial targets except for return on average tangible equity, which is likely lower than the target of ~12%.
• Expect portfolio supply to remain elevated in the U.S. and stable in Europe.
• Portfolio income expected to continue growing as purchases made at higher multiples flow through the P&L.
• Cautious approach with respect to changes in net present value of ERC increases due to macroeconomic environment.

Risks:

• Macro-economic uncertainties in the U.S. could impact cash collections.
• Uncertainty around the impact of changes in consumer behavior and macro conditions on collections.
• Fluctuations in debt levels and leverage ratios depending on portfolio purchases.

Question and Answer: Q: David Scharf asked about the state of the consumer and tax refund season impact.

A: Vik and Rakesh responded that the variance was due to modeling seasonality, not a consumer-driven issue, and consumer engagement remains positive.

Q: David Scharf asked about guidance revision.

A: Vik and Rakesh said they are being cautious due to macro uncertainty, especially on return calculation, but buying remains strong.

Q: Mark Hughes asked about efficiency ratio and legal costs.

A: Vik and Rakesh said no one-timers, legal costs will moderate, and legal spend is due to prior year purchases with a time lag.

Q: Unidentified Analyst asked about emerging trends and Capital One/Discover merger.

A: Vik and Martin said no major consumer behavior shifts in Europe, and they don't comment on specific M&A impacts.

Q: Mark Hughes asked about legal collections costs normalization.

A: Rakesh and Vik said legal costs will moderate, with investments in legal for future growth but at a lower pace than 2024.

Q: Mark Hughes asked about non-controlling interest.

A: Rakesh explained it's related to the Brazil investment, with a gain expected in Q2 from exiting a stake.