Pra Group Inc Q4 FY2025 Earnings Call

Good evening, and welcome to PRA Group's Fourth Quarter and Full Year 2025 Conference Call. 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, or 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.

Your first question comes from David Scharf from Citizens Capital Markets.

I 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 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?

Thank you. As I've mentioned previously, we wanted to outline our strategy for the next three years, broken down into three key areas. First, we focus on capital and investment, ensuring we make prudent decisions and prioritize returns over mere growth. A robust funding structure is crucial for us, and we feel strong in that aspect right now. The second area revolves around operations, where creating cost flexibility is essential. Celebrating PRA's 30th anniversary, I've been here for half of that time and learned that maintaining flexibility in costs and continuously working towards a leaner, more efficient platform is vital. The third area concerns technology. We will keep modernizing our platform, and I believe there are significant opportunities to harness technology and AI, especially with our vast number of customer accounts and the multitude of documents and processes we handle globally. These are some main themes of our strategy. I realize it's a lot to process, but we wanted to provide a comprehensive overview of the initiatives we are pursuing throughout the 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 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. To start, I think we entered 2026 with strong momentum. We had excellent cash performance in 2025. All the key metrics are improving. Our cash EBITDA is growing faster than cash, and we are reducing our leverage. On the funding side, we successfully issued the Eurobond. I believe we entered the year on a strong note and will continue to invest in the U.S. legal channel, which is an important part of our strategy. Rakesh, do you have anything to add?

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?

We see Europe as being in a fairly stable position. As we mentioned before, the multiples in Europe for us in 2025 have increased, indicating good discipline in our purchasing strategy. The European market remains competitive, which we have noted for some time. This competitive landscape is where our diversification provides an advantage. We can direct our investments to markets that offer the best returns. Additionally, since we operate in lean markets, we can take a step back when necessary. That flexibility is crucial for us. Moving forward, we will continue to allocate capital to markets with favorable returns. Overall, the supply environment in Europe is stable; it is competitive but still presents opportunities for us to invest. Occasionally, some markets may experience high pricing pressure, but because we are present in many markets, we can direct our capital effectively.

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 believe the results you are seeing are the outcome of several years of initiatives implemented throughout the business. There have been various initiatives, including expanding the DCA network, making significant investments in legal collections, and experiencing strong growth in the digital channel. These changes did not happen overnight; they have been progressively established and refined over time. For example, we have utilized AI to manage unstructured data in documentation, allowing us to analyze millions of documents to identify suitable legal cases, which is instrumental in driving this improvement. Collections, in my view, operate like an oil tanker; it's not easy to turn quickly. However, by executing these initiatives in a disciplined and structured manner across a variety of areas, we have witnessed these enhancements.

You mentioned your share repurchase authorization and the goal of improving your leverage. It seems you expect EBITDA to grow. Do you have any initial thoughts on potentially increasing the pace 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.

Your next question comes from Robert Dodd from Raymond James.

Congratulations on the quarter. There’s a lot to unpack here. When I look at the overall picture of the financials, it appears that while you are being disciplined with investments, you are not anticipating an upward trend in the investment horizon, which makes sense. You do expect adjusted EBITDA to increase. My main takeaways are that you foresee collections growing faster than investments, and expenses growing at a slower rate than collections. Please correct me if I'm mistaken. Regarding the faster growth in collections compared to investments, are you anticipating that the new technology tools, such as AI and document searching, will enable you to reach more customers? Or do you expect to generate more cash from the existing customer base? How would you prioritize these aspects regarding how technology will impact collections versus investments? I also have questions about expenses.

We'll address that. We are pulling several levers to enhance our efforts. On one hand, we are making substantial investments in legal, particularly in the U.S., where we've recognized opportunities to boost legal collections from existing portfolios that have shown good performance over time. This is one factor driving our results. Additionally, we are significantly improving our digital collections, which rose by 25% last year. As we enhance this area, we expect to drive further liquidation. On the other hand, we are optimizing our call centers by utilizing more offshore resources, which makes it more cost-effective to reach accounts that are not viable with a higher cost structure. This allows us to dive deeper into some portfolios. We are also engaging with external debt collection agencies in the U.S., a practice we've traditionally employed outside the U.S. These agencies possess specialized capabilities that we can leverage for accounts we haven't fully addressed in the past, presenting further opportunities. All these factors are contributing to our cash generation. Regarding costs, we made notable reductions in our cost base last year, cutting over 500 call center agents and 115 corporate overhead positions. As these reductions take effect, we expect to see benefits in our financials. We are focusing on boosting cash flow while simultaneously cutting costs. As these strategies align, we believe our key metrics are heading in a positive direction, leading to improved returns, although we are cautious about investments. We’re not aiming to simply buy our way out of the situation; instead, we want to produce returns and optimize our platform for future growth before considering further expansion.

Thank you for addressing the question I was about to ask. As a follow-up, regarding the move to more variable and outsourced call centers, how far do you believe you can take the overall expense structure to make it fully variable? While you still maintain some call centers and other fixed costs, you've transitioned to a cloud-based model. How much of the in-house fixed cost infrastructure do you feel is necessary to keep, and how much can shift to a fully variable expense structure?

Robert, I see this as a trade-off. In some markets, we have no personnel and simply manage accounts through debt collection agencies, which creates a completely variable model. In other markets, we handle everything in-house. Many fall somewhere in between. There isn't a one-size-fits-all model across different countries. The advantage of in-house collections is often cost-related, as outsourcing requires the providers to generate profit, whereas handling it ourselves can be more cost-efficient, allowing greater control over accounts and data. However, managing everything internally makes it difficult to adjust costs when volumes fluctuate. It's really about finding the right balance. Looking at our countries, some lean entirely one way or the other. The largest markets, like the U.K. and U.S., likely sit in the middle, where we can combine variable collection channels with internal resources. We have enough scale for in-house collections to remain cost-effective while also utilizing external channels for additional collections. That's how I view the situation.

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, I want to thank everyone for listening. I think we had a really strong Q4 and we feel positive about the outlook ahead. I talked about our strategy moving forward and how our focus on capital and investing, operations, technology and data, and people and culture will come together to place PRA on a strong trajectory. We look forward to attending the Raymond James conference next week, where we will provide more details on each of these areas and discuss our plans further. Thank you for listening.

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