PRA (PRAA) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In 2025, the company purchased $1.2 billion of portfolios, marking the third highest investment year on record, and driving estimated remaining collections (ERC) to a record $8.6 billion, up 15% year-over-year [4][12] - Cash collections reached a new record of $2.1 billion, reflecting a 13% growth for the year, exceeding the high single-digit growth target [5][14] - Adjusted net income increased to $73 million in 2025, with adjusted EBITDA rising 16% to $1.3 billion, outpacing cash collections growth [5][25] Business Line Data and Key Metrics Changes - U.S. legal cash collections grew 28% to $483 million in 2025, significantly contributing to overall cash collections [14][16] - Portfolio income, a stable revenue component, grew 18% for the full year to $1 billion, a company record, and increased by 34% compared to 2023 [17][22] - Legal accounted for 48% of U.S. core cash collections in 2025, up from 39% two years ago, indicating a shift towards more legal collections [16] Market Data and Key Metrics Changes - The U.S. accounted for 42% of ERC, while Europe accounted for 51%, showcasing a well-diversified portfolio that mitigates risks from economic cycles [12] - The replenishment rate needed to maintain current ERC levels was $982 million, with U.S. credit card balances at $1.1 trillion and industry-wide charge-off rates above 4% [13] Company Strategy and Development Direction - The company is evolving into a technology-enabled global allocator of capital, focusing on disciplined investments, operational efficiency, and leveraging technology [29][30] - The strategy includes modernizing operations, enhancing data analytics, and utilizing AI to improve collection processes and customer engagement [34][35] - The company aims to maintain a conservative balance sheet with ample liquidity and explore alternative funding mechanisms [31][32] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in entering 2026 with strong momentum, driven by good cash performance and operational improvements [50] - The competitive landscape in Europe remains stable, with opportunities for capital deployment despite pricing pressures in certain markets [55][56] - The focus remains on improving cash collections while managing costs effectively, with expectations for adjusted EBITDA to continue growing [64][68] Other Important Information - The company repurchased $20 million of its stock in 2025, with an additional $50 million remaining under board authorization for future buybacks [27][61] - The net leverage ratio decreased from 2.9x in 2024 to 2.7x at the end of 2025, indicating a reduction in debt levels [10][25] Q&A Session Summary Question: What are the top three initiatives to focus on? - Management highlighted the importance of disciplined capital investment, creating cost flexibility, and leveraging technology, particularly AI, as key initiatives [42][45] Question: Can you share details on new asset classes being considered? - Management refrained from specifics but indicated interest in adjacent asset classes that align with their capabilities and operational strengths [46][47] Question: How should collections be viewed in 2026? - Management noted strong momentum entering 2026, with expectations for cash collections to grow, albeit at a slower rate than in 2025 [50][51] Question: What is the competitive dynamic in Europe? - Management described the European market as competitive but stable, with opportunities for capital deployment based on diversification [55][56] Question: What has driven recent improvements in collections? - Management attributed improvements to several years of initiatives, including investments in legal collections and digital channels, as well as the use of AI for data processing [57][59] Question: How far can the expense structure be made variable? - Management indicated a mixed approach, balancing in-house collections with external debt collection agencies to maintain flexibility and cost-effectiveness [70][72]