Good afternoon, and welcome to the PRA Group's Third Quarter 2022 Conference Call. All participants will be in a listen-only mode. Please note that this event is being recorded. Now I'd like to turn the conference over to Mr. Najim Mostamand, Vice President of Investor Relations for PRA Group. Please go ahead.

All right. Thank you, operator. Good evening, everyone and thank you for joining us. With me today are Kevin Stevenson, President and Chief Executive Officer; and Pete Graham, Executive Vice President and Chief Financial Officer. We will make forward-looking statements during the call, which are based on management's current beliefs, projections, assumptions and expectations. We assume no obligation to revise or update these statements. We caution listeners that these forward-looking statements are subject to risks, uncertainties, assumptions and other factors that could cause our actual results to differ materially from our expectations. Please refer to the earnings press release and our SEC filings for a detailed discussion of these factors. The earnings release, the slide presentation that we will use during today's call, and our SEC filings can all be found on the Investor Relations section of our website. 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 2022 and Q3 2021, unless otherwise noted. During our call, we will discuss adjusted EBITDA and debt to adjusted EBITDA for the 12 months ended September 30 2022 and December 31, 2021. Please refer to today's earnings release and the appendix of the slide presentation used during this call for a reconciliation of these non-GAAP financial measures to the most directly comparable US GAAP financial measures. And with that, I'd now like to turn the call over to Kevin Stevenson, our President and Chief Executive Officer.

Thank you, Najim. And thank you everyone for joining us this evening. It's great to be providing another update on the PRA Group, especially as we move further into the next phase of the consumer credit cycle. Companies of all sizes in virtually every sector are preparing for an economic downturn, and we are doing the same. We've talked about this many times before, but it's worth reminding everyone that an economic downturn is where we actually become more important. We've seen this throughout our 26-year history and regardless of whether that downturn was dotcom-driven, mortgage-driven, or inflation-driven. We are also preparing for such an environment with a continued focus on deploying capital profitably, maintaining a strong and conservative balance sheet, and remaining committed to delivering long-term results. Turning now to Q3, which represented another solid quarter, driven once again by the performance of our European operations. Total cash collections were $412 million globally, a 16% decrease year-over-year, as we're seeing the impact of lower volumes of portfolios offered for sale and thus lower purchases. We are also experiencing significant impacts from foreign currency changes. On a constant currency adjusted basis, that decrease in collections was about 11%. Despite this, we beat our internal expectations again this quarter. It's no surprise that with the dollar continuing to strengthen against other currencies, global companies like PRA Group are focusing more on constant currency results. On a GAAP basis, European cash collections declined 11% year-over-year. The stronger dollar created a headwind of $26 million during the quarter. However, excluding the foreign exchange impact, we had another strong quarter with European cash collections increasing 4%. This is driven by our strong investments in Europe over the past couple of years, especially in Northern Europe. Net income for the quarter was a healthy $25 million. Quarterly portfolio purchases were $183 million, and 40% of these were in Europe. We've gained many operational efficiencies over the years that we expect to further leverage as supply builds and buying increases. In the US, we've become more efficient with our account scoring, our digital initiatives, and our call center productivity. These have resulted in us needing fewer collectors over the past couple of years. We're currently at a collector headcount that we're comfortable with, albeit somewhat heavy based on our models. However, we'll likely remain at this level since we need to have adequately trained collectors in place for the upcoming tax season. We continue to build out our internal legal capabilities, shifting more accounts from external attorneys to our internal legal department. This decreases our legal costs to collect and adds to our data knowledge. We've also established digital platforms in all of our operational markets. Digital is a less costly and more efficient method of collection, and we believe it's more appreciated by many of our customers, especially those who previously managed their accounts digitally. We're continuing to set new goals with our digital initiatives and are pleased with the progress we're making on that front. Last but certainly not least, we continue to utilize data analytics to identify the most efficient ways to optimize our various collection channels. As it relates to cash collections and inflation, we've been commenting for the last couple of quarters that we have not seen evidence of inflation negatively impacting our cash collections, and that continued to be the case during the third quarter. Even though we do hear anecdotally from some of our customers that they are worried about inflation. As we addressed extensively last quarter, we believe that the effect of inflation on our business is more of a supply story rather than a collection story. The banks have a short-term horizon to evaluate charge-offs, which is measured in months. However, we have a long-term focus on collections, which is measured in years. What we've seen in prior economic times of stress is an increase in charge-offs, which led to higher portfolio purchases, and we believe a similar dynamic will occur in this cycle, especially if we enter another recession. Speaking of recession, it's worth revisiting something we've talked about since our IPO in 2002. We've long described how our customers have already gone through what we call their own personal recession or their own personal downturn. This is due to factors that are sometimes unrelated to the health of the broader economy. They are already on the road to recovery, as compared to performing accounts that are starting to deteriorate and eventually become non-performing, then need to begin their recovery journey. In our experience, we believe our customers are generally better able to meet their obligations compared to consumers who have not yet gone through any financial difficulties. Again, in prior cycles, this dynamic has translated into a smaller collections impact along with a significant increase in charge-offs in portfolio supply. That all being said, we will continue to monitor the situation and its impact on the economy, our customers, and our business. Then we'll compare those results to our past experience and provide updates accordingly. From an investment perspective, we deployed approximately $183 million in the third quarter. Given our strong balance sheet, access to funding, and the fact that we are a truly global debt buyer, we have been able to successfully invest broadly across the globe, which we believe has been a key competitive advantage for us. In the Americas, we invested $110 million during the quarter, which is up slightly from Q2. In the US, it's practically the same story as last quarter. While supply has remained fairly consistent over the past couple of quarters, these volumes are still down materially from pre-pandemic levels, really due to the excess consumer liquidity in late 2020 and 2021 that reduced credit card balances, delinquency rates, and charge-offs. This liquidity was a function of government-related actions that I've talked about for nearly the past three years. On a competitive front, the makeup of who's buying and who's selling, as well as overall pricing has also remained largely consistent. However, we believe there are continued economic signs that point to meaningful supply increases on the horizon. In Europe, we invested $73 million during the quarter. Now Europe has had some interesting developments, and I believe it would be helpful for me to provide some color from my perspective given how long I've seen these markets unfold. I've spoken about similar situations in the past and most recently in mid-2018. But as I sit here today, we are starting to see some cracks around the edges in some of the European markets. As I said, I've seen these cracks in pricing before and I'd like to share some of the more recent examples to help paint a better picture. In Central Europe, we are seeing improvements in pricing and deal flow. In one of the markets where we have historically seen robust competition, we purchased two portfolios since Q4 started. In another Central European market, where there has been very low deal flow, we're starting to see banks return to selling. In Northern Europe, deal flow remains strong. We recently won an agreement in that market on top of a sizable spot deal we won near the end of Q2. This is again in a market where we had not won a deal since 2020. Then in Southern Europe, importantly, a market that I've been very vocal about, concerning irrational pricing. We've remained disciplined and have refrained from chasing paper irresponsibly. But just in the past few weeks, we've successfully won a few deals there. While some of these portfolios are not large on an individual basis, we hope they may collectively be pointing to some normalization of the markets again if history repeats itself. Turning now to some of the economic indicators we are monitoring that really point towards the normalization of supply in the US. We've been sharing some variation of these slides for the past several quarters to illustrate their trajectory of various leading indicators for supply. Just looking at these indicators gives us more confidence that higher supply is coming. One of the biggest indicators is that card balances in the US are continuing to build. In fact, they have now exceeded 2019 levels by roughly 9%. Savings balances overall are now below their 2019 levels. Savings for the bottom 20% of US earners, or about 26 million households, declined 75% since the end of 2019. This is something we're watching very closely, especially as that begins to translate to higher delinquency rates. Credit card delinquency rates are also starting to rise, with a notable uptick from the bottom in 2021. As we move further away from the COVID-related government actions of 2020 and 2021 that contributed to driving down delinquency rates, we believe there's naturally going to be a reversion to the mean with these delinquency rates rising again. Additionally, if you listen to some of the banks' earnings calls, you'll hear them talk about building their reserves, which indicates their view of the stress they anticipate. We believe these rising delinquencies and reserve buildings will ultimately translate into more supply. This brings us to the final economic data slide we have, which puts all this together. As you can see, these trends are gaining momentum and increasingly suggesting supply is coming. We've seen this narrative play out across several different credit cycles over the past 26 years, and we believe a similar pattern will unfold. We're of course also monitoring what's happening in the UK, which is facing its economic challenges. Inflation has returned to double digits, matching a 40-year high, as households struggle with cost-of-living increases exacerbated by rising energy prices. Finally, a question that we've been getting a lot lately is, if the debt-buying industry needs another global financial crisis to see material supply. My personal response is no, I don't think so. We need a normalization of charge-offs, similar to what we saw before COVID emerged and disrupted the credit cycle in 2020. In fact, a recent analyst report predicted that supply in the US alone could more than double if charge-off rates simply return to 2019 levels. As we come out of this low supply environment, we believe our strong balance sheet and global presence will be a key competitive advantage for us.

Thanks, Kevin. Total revenues were $245 million for the quarter. Total portfolio revenue was $234 million, with portfolio income of $186 million and changes in expected recoveries of $48 million. During the quarter, we collected $28 million in excess of our expected recoveries, which represented consolidated overperformance of 6%, with the Americas overperforming by 3% and Europe by 12%. We continue to observe more normalized collections with sustained overperformance in certain vintages. This has given us the confidence to modestly increase our ERC forecast for those vintages, which drove a positive change in estimate of $20 million. Fee income, in combination with other revenue, was a little higher than normal this quarter, driven by the timing of settlements of purchased claims for a case handled by our subsidiary. This is a solid business for us, but we do experience upticks in revenues in periods when settlements are completed and distributed. Operating expenses were $174 million, a $12 million decrease driven primarily by decreases in outside fees and services, compensation, and employee services, as well as the strengthening of the US dollar against European currencies. Net interest expense for the third quarter was $32 million, an increase of $3 million compared to the third quarter of 2021, primarily reflecting increased interest rates. I talked last quarter about our interest rate hedging program, which is worth repeating in light of the continued rising interest rates we're seeing globally. On a consolidated basis, we're approximately 69% hedged. So we've mitigated roughly two-thirds of the impact of interest rate increases, but we will feel some impact from higher interest costs going forward. The effective tax rate for the quarter was 29%, and we still expect the full-year rate to be in the low 20% range. The higher rate this quarter was largely due to timing of discrete items and changes in the mix of income from different taxing jurisdictions. Net income was $25 million, which generated $0.63 in diluted earnings per share. Cash collections were $412 million compared to $488 million in the third quarter of 2021. Cash collections in the quarter were negatively impacted by $26 million due to the strengthening US dollar. Americas collections were $258 million, a decrease of $56 million. This was driven primarily by the impact of lower levels of portfolio purchases in the US. European cash collections decreased 11%, but grew 4% on a constant currency adjusted basis. The purchases we've made over the last few years, particularly in Northern Europe, are driving the growth in our European business. Our cash efficiency ratio was 58.4% for the third quarter and 61.7% year-to-date. The year-over-year decrease was largely due to lower cash receipts. We now expect our full-year cash efficiency ratio to be between 60% and 61%. We believe we have some pent-up capacity in our US collection operations and that we can increase purchases to some degree without increasing the number of collectors. We expect supply to gradually ramp up. In turn, we expect cash efficiency to climb higher again as we generate more cash and build on the operating efficiency improvements we've made over the last few years. ERC at the end of the quarter was $5.3 billion, with 41% in the US and 50% in Europe. The decline from the third quarter of 2021 was a result of collections in excess of purchased ERC, combined with currency translation. The continued strengthening of the US dollar over the past 12 months has reduced our ERC balance by approximately $577 million. Additionally, compared to last quarter, ERC would have remained level on a constant currency basis. We expect to collect $1.4 billion of our ERC balance during the next 12 months. Based on the average purchase price multiples we've recorded this year, we would need to invest approximately $807 million globally over the same time frame to replace this runoff and maintain current ERC levels. We believe this level is attainable but it continues to depend on the normalization of the US market we expect to happen in the coming months. Our capital position remains strong with leverage ratios at the low end of our long-term target of two times to three times debt to adjusted EBITDA. At the end of the quarter, we had $1.7 billion available under our credit facilities, $455 million of which was available to borrow after considering borrowing base restrictions. Additionally, in the last 12 months, we generated $1.2 billion of adjusted EBITDA, which we use as a good proxy of cash generation and shareholder value being created. During the third quarter, we repurchased $25 million or 663,000 shares of our common stock. At the end of the quarter, we had approximately $68 million of share repurchase authorization remaining. Overall, we're very pleased with our capital position and our ability to fund more purchases as supply builds. Purchasing portfolios continues to remain our number one priority. But as we prepare for higher supply to arrive, we will continue to evaluate other opportunities to enhance shareholder value.

Thank you, Pete. Q3 was another solid quarter for PRA Group. We produced strong revenue and net income, and we continued to execute on our strategic objectives. Our balance sheet remains strong. We are prepared for a meaningful increase in supply. We remain disciplined in how we allocate capital, which has contributed to our success for more than two decades. Speaking of our long history, we're excited to be celebrating our 20th anniversary as a NASDAQ-listed company this upcoming Monday in New York City. Our leadership team will be participating in the ringing of the closing bell, commemorating the special milestone in our history. Over the past 26 years, we have a proven track record of success, effectively navigating the company through many different economic environments, including the global financial crisis and the COVID-19 pandemic. Since we went public in 2002, we have grown ERC from $200 million to over $5 billion today, while growing revenues from $56 million to over $1 billion last year, which was a record year for us in terms of collections revenue, cash efficiency, and net income. We look forward to celebrating many more milestones such as these, and we believe that our best days are still ahead of us. Regardless of where we find ourselves in this journey, we will continue to deliver on our strategic objectives: deploy capital profitably, efficiently collect on our portfolios, and deliver incremental value to our shareholders. With that, I thank you all for listening and for putting your trust in us to guide PRA Group in this next chapter of evolution. Operator, we're now ready for questions.

Kevin Stevenson: Well, again, thank you very much everyone for attending the call today. No questions is a little unusual for us, but we're pleased that our prepared comments, hopefully answered all the questions, and we look forward to speaking to you on the next call. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.