PRA Group Q3 Earnings Call Highlights

Key Points

• PRA Group reported $15 million in third-quarter net income, with lower operating costs supporting earnings. Cash collections reached $536 million, 1% above expectations, and net leverage fell for the eighth consecutive quarter to 2.6 times adjusted EBITDA.
• PRA invested $229 million in portfolios and is shifting more capital toward Europe, where management sees better relative returns than in a more competitive U.S. market. The company remains selective and is on track to invest $1 billion to $1.3 billion this year.
• U.S. legal cash collections rose 19% to $148 million, while PRA expects annual legal collection costs to decline in 2027. Cost-cutting included eliminating more than 215 corporate and overhead roles, and adjusted operating expenses fell 6% year over year.

PRA Group NASDAQ: PRAA reported $15 million in third-quarter net income as lower operating costs helped increase adjusted earnings and reduce leverage, even as the company continued investing in legal collections and technology.

Cash collections totaled $536 million, exceeding the company’s expectations by 1% globally. Collections in the U.S. were roughly in line with expectations, while Europe exceeded its target by 3%, Chief Financial Officer Rakesh Sehgal said on the earnings call.

Trailing 12-month adjusted EBITDA rose 9% from a year earlier to $1.4 billion. Net leverage declined to 2.6 times adjusted EBITDA from 2.67 times in the prior quarter, marking the company’s eighth consecutive quarter of deleveraging.

Portfolio buying shifts toward Europe

PRA invested $229 million in portfolios during the quarter, including $92 million in the U.S. and 130 million euros in Europe. Sehgal said U.S. supply remained healthy but competition had increased, while select European markets offered better relative returns. European portfolio volumes continued to trend toward pre-pandemic levels, a trend the company expects to continue in the fourth quarter.

Chief Executive Officer Martin Sjolund said PRA had remained selective about purchases and shifted more capital toward Europe. “We are just trying to be really selective about which ones we go after,” he said, adding that the company was willing to pass on opportunities that did not meet its return thresholds.

Sjolund said PRA remained on track for full-year portfolio investments of $1 billion to $1.3 billion. Estimated remaining collections, or ERC, rose 5% year over year to $8.8 billion at quarter-end. Sehgal said the company would need to invest approximately $1 billion over the next 12 months to maintain current ERC levels, based on purchase price multiples in the first nine months of 2026.

Legal collections rise as costs are expected to ease

U.S. legal cash collections grew 19% to $148 million, representing 58% of U.S. core cash collections. Legal collection costs were roughly flat at $46 million, while global legal cash collections from investments made in prior quarters rose 11%, Sehgal said.

PRA expects annual legal collection costs to decline in 2027 from 2026 levels as it works through a backlog of accounts, although that outlook depends on its current buying expectations. Sjolund said the investment reflected both the lag following a large portfolio-buying year in 2024 and efforts to address accounts on which the company had previously underinvested.

Sehgal said legal action is not PRA’s preferred initial collection channel. The company considers it after extended outreach when customers have not engaged voluntarily, have an ability to pay and the company has appropriate documentation, he said.

Cost reductions support earnings

Third-quarter revenue was $286 million, including $271 million in portfolio income, which rose 5% year over year. Changes in expected recoveries totaled $14 million. PRA recorded a $349 million upward revision to its European portfolio in the second quarter; Sjolund said the resulting higher collection targets contributed to a more moderate level of subsequent outperformance.

Total operating expenses were $200 million. Adjusted operating expenses declined 6% year over year, excluding a $413 million noncash goodwill impairment recorded in the prior-year quarter. Compensation and benefits expenses fell 11% to $66 million.

Sehgal said PRA had eliminated more than 215 corporate and overhead roles, a reduction of more than 25%, through workforce actions that included cuts in October 2025 and June 2026. He expects compensation and benefits expenses to run at approximately $70 million per quarter.

Sjolund said the rollout of a cloud-based customer contact platform in the U.S. was improving agent productivity and engagement. The company expects to complete its U.S. cloud data migration by year-end and anticipates spending less than $10 million on IT modernization over the next few years.

Funding and capital allocation

PRA issued $400 million of senior notes due in 2033 in early October. At September 30, the company had approximately $1 billion in total credit facility availability, including amounts subject to borrowing-base requirements and debt covenants.

The company did not repurchase shares in the third quarter. Sehgal said $150 million remained under a share repurchase program approved by the board in August. PRA’s longer-term leverage objective remains around 2.5 times, although management said leverage could rise in some quarters if attractive portfolio purchasing opportunities emerge.

About PRA Group (NASDAQ:PRAA)

PRA Group, Inc is a global financial services company that purchases and manages portfolios of defaulted consumer accounts. The company works with individuals to help resolve outstanding obligations and provides account management, customer service and debt recovery solutions for acquired portfolios.

The company serves consumers and financial institutions across North America, Europe and Australia. Its activities include acquiring nonperforming consumer debt from banks, credit card companies and other financial institutions, as well as servicing portfolios on behalf of third parties in selected markets.

PRA Group was founded in 1996 and is headquartered in Norfolk, Virginia.

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