PRA Group, Inc. 2026 Q2 Earnings Call

Good evening, everyone, 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.

A replay of this call will be available shortly after its conclusion, the replay dial-in information is included in the earnings press release. All comparisons mentioned today will be between Q2 2026 and Q2 2025, unless otherwise noted. During our call, we will discuss certain financial measures on an adjusted basis. Please refer to the appendix of the slide presentation used during this call for a reconciliation of the most directly comparable U.S. GAAP financial measures to non-GAAP financial measures. With that, I'd now like to turn the call over to Martin.

Thank you, Najim. Thank you everyone for joining us this evening. I wanted to start by providing a quick overview of our financial results for the quarter. As you can see from this slide, we continue to execute against our PRA 3.0 strategy introduced earlier this year to drive higher returns and long-term shareholder value. Let me start with cash. Cash collections grew 4% year-over-year to $559 million. We continue to generate healthy cash growth across the business, particularly in our U.S. legal and digital channels as well as in Europe. Cash efficiency remains strong at 61%, despite the continued investment in future growth initiatives. This demonstrates disciplined cost management. Turning to portfolio purchases, we invested $297 million during the quarter, which was in line with our expectations.

As we have discussed previously, we remain focused on net returns. We continue to deploy capital in a disciplined manner toward opportunities that meet our return requirements. Adjusted EBITDA for the last 12 months increased to $1.4 billion, up 10% year-over-year. The increase helped drive net leverage down to 2.67 times at quarter end, reflecting continued cash collections growth and disciplined cost management. Finally, net income attributable to PRA increased to $58 million during the quarter. Our earnings this quarter benefited from a significant increase in our European ERC, reflecting more than six years of strong performance. We will discuss this in more detail later on the call. Overall, the second quarter represented another step forward for PRA. We're continuing to drive improved financial performance, strengthen our balance sheet, and execute against the strategic priorities we outlined earlier in the year.

I'm encouraged by the progress we have made and confident in the direction of the business. As a quick reminder, our strategic plan is called PRA 3.0. It's organized around three important vectors. The first is capital and investing, where we are focused on being disciplined allocators of capital. This includes investing in the highest net return portfolio opportunities globally, maintaining a strong financial profile, improving the predictability of our earnings, and deploying capital in ways that create value for shareholders. The second vector is operations, technology, and data, where we are focused on building a leaner, more flexible, and more technology-enabled business. This includes modernizing our technology infrastructure, leveraging data and AI, and continuing to improve efficiency and drive cost savings across the business as we shift to a leaner and more variable cost structure.

The third is people and culture, where we are focused on investing in talent, strengthening our performance culture, aligning incentives with shareholder interests, and maintaining the strong governance and values that have long been important to PRA. Our team is making rapid progress on the execution of this strategy. I'm excited to share a number of major milestones we achieved this past quarter. Starting with capital and investing. As we've shared before, our European business has developed a long track record of success, over-performing its cash targets for 26 quarters in a row, including a 9% over-performance in the past 12 months. This sustained over-performance, even with the ongoing portfolio write-ups over time, demonstrates that we have consistently collected more from our portfolios than we underwrote. These results reflect many years of disciplined investing, investments in technology, and solid operational execution by our European team.

As part of our quarterly portfolio assessment, we performed a comprehensive review of our European portfolios in the second quarter. This review benefited from our extensive track record, deep data set, and enhancements we've made to our analytical processes and forecasting capabilities over time. As a result, we increased our European ERC by $349 million. Rakesh will discuss the financial implications in more detail. I view this as an important milestone that better aligns our European ERC with the long trend of historical over-performance of the European portfolios. We also continue to maintain a disciplined capital allocation framework. We are focused on making portfolio purchases at attractive returns and investments that enhance our operating performance. We also undertake opportunistic share repurchases when we see an opportunity to drive shareholder value.

During the quarter, we repurchased $10 million of our shares, bringing our total to approximately $40 million over the past 12 months. Recently, our board authorized a new share repurchase program for up to $150 million, providing additional flexibility in how we deploy capital and reflecting our commitment to long-term shareholder value. The second vector of our 3.0 strategy is operations, technology, and data. We've made some very significant progress this quarter. As I've said before, I'm very focused on cost discipline, which is essential to long-term success. Our European business is already one of the most cost-efficient platforms in that region, and we've been working hard to continue improving our cost structure in our U.S. business as well. During the second quarter, we implemented a second wave of cost reductions to simplify the organization and drive further savings.

We eliminated 100 U.S. corporate and overhead roles and 35 offshore roles while also completing other cost reduction initiatives. These actions are expected to generate approximately $20 million of annualized savings on a net basis after factoring in other offsetting costs. Since the start of 2025, which included the first wave of cost reductions taken in Q4 of last year, we have now eliminated more than 215 corporate and overhead roles, a reduction of more than 25%. This is in addition to reducing more than 575 call center roles. We expect the first and second cost reduction waves to generate, in aggregate, approximately $35 million of annualized savings on a net basis. I would also point out that we have continued to grow our cash collections and Adjusted EBITDA throughout these reductions.

These changes are never easy, and I want to recognize the staff who have contributed to PRA over many years. However, these actions were necessary to better align our cost structure with the needs of the business and to help us become a faster, more agile organization. During the quarter, we also continued to simplify our call center footprint, closing two additional U.S. sites and transitioning those operations to a work-from-home model. We now have one remaining U.S. call center versus seven in 2023, a significant achievement that will drive additional cost savings and simplify our setup. In addition, we consolidated our two offshore third-party collection sites to one location, which has been performing at our target levels. These actions demonstrate how our offshoring strategy is enabling flexibility and helping to make our cost structure more variable. Technology modernization also remains a key priority, helping us reduce cost and complexity.

Last month, we successfully launched our cloud-based omnichannel contact platform in the U.S. This global platform has already been in place in Europe for several years. It allows us to manage customer interactions across voice, digital, chat, and email through a single modern platform while providing a more seamless customer experience and better insights for our call center agents. This was an important milestone because it means most of our global markets now operate on a common contact platform, creating greater operational consistency, enhancing our collection capabilities, and positioning us for further innovation in the future. AI also remains a significant area of focus. During the quarter, we centralized leadership and oversight of our global AI initiatives through a dedicated team led out of Charlotte. This team is focused on accelerating the deployment of AI-enabled solutions, particularly around automation, analytics, and operational efficiency.

We continue to focus on practical business applications that can improve productivity, reduce costs, and enhance decision-making. Finally, under people and culture, we continue to simplify the organization and reduce management layers, creating a more agile decision-making structure. At the end of the day, the PRA 3.0 strategy is only successful if we have the right people, culture, and accountability mechanisms in place. We recently launched a series of people initiatives designed to strengthen our performance culture. I personally spent time this quarter touring offices and speaking with staff. We have a talented and hardworking team, and I continue to be encouraged by the engagement and commitment I see across the organization. We're building momentum across all three vectors and executing with pace and rigor. The initiatives we've implemented are beginning to translate into a simpler organization, a more flexible operating model, and improved financial results.

With that, I'll turn the call over to Rakesh to discuss our second quarter financial results in more detail.