PRA Group's Q3 2025: Contradictions Emerge on Legal Channel Expenses, U.S. Core Paper Multiples, and Consumer Behavior Discrepancies

Date of Call: November 3, 2025

Financials Results

• Revenue: $310M portfolio revenue, up 12% YOY
• EPS: Adjusted diluted EPS $0.53 (adjusted net income $21M); GAAP net loss $408M (includes $413M noncash goodwill impairment)

Guidance:

• 2025 purchase target: $1.2 billion.
• Cash collections growth target for full-year 2025: high single digits.
• Cash efficiency target for full-year 2025: 60%+.
• Q4 legal collection costs expected to be approximately $40 million.

Business Commentary:

Portfolio Purchases and Cash Collections:* - PRA Group reported $542 million in cash collections for Q3, reflecting a 14% year-over-year increase, and globally exceeded cash expectations by 8%. - This growth was driven by higher levels of recent portfolio purchases and operational improvements in the U.S. legal collections channel, which grew by 27% year-over-year.

• European Business Performance:
• Europe overperformed cash expectations by 11% year-to-date, contributing positively to adjusted ERC.

• Positive developments in Europe are attributed to disciplined investments, improved collections, and operational efficiency.

• Noncash Goodwill Impairment:

• A nonrecurring noncash goodwill impairment charge of $413 million was recorded due to a sustained decline in the company's stock price.

• The charge primarily affected acquisitions made between 2012 and 2019, with the largest contributor being the Active Capital acquisition in 2014.

• Cost Efficiency and Restructuring:

• PRA Group implemented a cost reduction program in the U.S., resulting in a gross annualized savings of approximately $20 million.
• The restructuring included a reduction in U.S. headcount by over 115 employees and reduced U.S. core cash collections by 170 agents, aiming to increase operational efficiency.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management emphasized operational progress and momentum: "Cash collections grew 14% year-over-year to $542 million," "Adjusted EBITDA for the last 12 months... up 15% to $1.3 billion," and CEO: "we are heading in the right direction" despite a noncash $413M goodwill impairment.

Q&A:

• Question from David Scharf (Citizens JMP Securities, LLC): On the $50 million payment, are there other contracts you've entered into in which you would anticipate similar type modifications? Or should we view this as a kind of extremely rare event?
  Response: Management: It was a very unusual, one-off arrangement with a long-time seller and not something they expect to recur broadly.

• Question from David Scharf (Citizens JMP Securities, LLC): On the timeline for the 'journey' when portfolio income alone would support GAAP profitability (i.e., when yields/purchase pricing or write-ups get you to earnings power without changes in expected recoveries)?
  Response: Management: There is no fixed timeline; improvements materialize as proven operational gains (e.g., legal channel, better underwriting) and are recognized prudently once supported by data.

• Question from David Scharf (Citizens JMP Securities, LLC): Given tangible book is substantially above the share price, is there a level at which buybacks become compelling and are buybacks being considered given covenant constraints?
  Response: Management: Buybacks are in the toolkit but are secondary to investing in profitable portfolios and managing leverage; limited buybacks were done in Q2, none in Q3, $58M remaining authorization, covenants impose some restrictions.

• Question from Mark Hughes (Truist Securities, Inc.): The $15 million purchase-price adjustment shows as an expense this quarter — was there any offsetting increase in ERC or net benefit disclosed?
  Response: Management: There was an ERC benefit spanning multiple vintages; the arrangement is economically positive and should increase future portfolio income.

• Question from Mark Hughes (Truist Securities, Inc.): Was the goodwill charge tied to underlying operational performance or driven by the stock price decline?
  Response: Management: The $413M goodwill impairment is a noncash accounting write-off driven by the sustained decline in stock price from the annual goodwill test; operations and ERC were not impaired and Europe continues to perform well.

• Question from Mark Hughes (Truist Securities, Inc.): Your guidance for 'high single digits' collections — does that imply a Q4 deceleration versus Q3?
  Response: Management: Q4 typically runs slightly below Q3; they remain comfortable reaffirming full-year high-single-digit cash collections guidance.

• Question from Robert Dodd (Raymond James & Associates, Inc.): On the $15 million payment, was this the only portfolio eligible for adjustment or are there meaningful portions of the book ineligible for legal collections?
  Response: Management: Seller terms vary and are priced into bids; this was a unique partner-specific opportunity — not indicative of a broad, repeatable reclassification across the portfolio base.

• Question from Robert Dodd (Raymond James & Associates, Inc.): The COVID vintages ('21-'23) show material negative adjustments while '24 is positive — what explains the divergence?
  Response: Management: COVID-era reference data and stimulus created selection bias; after a deeper CECL review some older U.S. COVID vintages were reduced while recent vintages are performing better; U.S. COVID vintages are ~10% of global ERC and global diversification cushions results.

• Question from Robert Dodd (Raymond James & Associates, Inc.): Southern Europe commentary — are return dynamics improving enough to expect increased deployments there?
  Response: Management: Competitive dynamics in Southern Europe have stabilized versus prior years, enabling disciplined, opportunistic deployments when return hurdles are met, but not expecting dramatic market shifts.

Contradiction Point 1

Legal Channel Expense and Growth Expectations

It involves the company's strategy and expectations regarding the role of the legal channel in operations and its impact on expenses, which are crucial factors in financial and operational planning.

How should we think about expenses, especially the legal channel's role and the 60% cash efficiency ratio ceiling? - David Scharf (Citizens JMP Securities, LLC, Research Division)

2025Q3: The company typically does not consider legal collections to be as material an impact on the kind of cash efficiency ratio target that you're trying to set. - Rakesh Sehgal(CFO)

How should we assess expenses, particularly the legal channel's role and the 60% cash efficiency ratio cap? - David Michael Scharf (Citizens JMP Securities, LLC, Research Division)

2025Q2: PRA leads with amicable customer interactions before considering legal. Legal channel is important for maximizing value with sophisticated analysis balancing cost and potential. - Martin Sjolund(CEO)

Contradiction Point 2

2025 U.S. Core Paper Multiples and Returns

It involves the company's explanation of purchase price multiples and returns, which are critical indicators for investors in assessing the company's investment strategy and financial performance.

Is the $15 million payment an isolated case or indicative of broader trends in the book? - Robert Dodd (Raymond James & Associates, Inc., Research Division)

2025Q3: The balance between return and leverage is key. PRA aims for a target that optimizes value without chasing volume for volume's sake. - Martin Sjolund(CEO)

Why did U.S. core paper multiples decrease while European ones increased? - Mark Douglas Hughes (Truist Securities, Inc., Research Division)

2025Q2: Purchase price multiples vary due to mix of primary/secondary/tertiary paper. Our global investment framework aims for net returns, considering cost to collect. The headline multiple doesn't always imply higher returns. - Rakesh Sehgal(CFO)

Contradiction Point 3

Consumer Behavior and Cash Collections

It involves differing explanations for cash collections underperformance and consumer behavior, which are critical for understanding the company's financial health and future outlook.

Are there other contracts similar to the $50 million payment contract, and is this a one-time occurrence? - David Scharf (Citizens JMP Securities, LLC, Research Division)

2025Q3: We do not see a falloff in consumer activity. The mismatch between expectations and actual cash collections was due to higher than actual seasonality trends. - Martin Sjolund(CFO)

Was the underperformance relative to your modeling entirely due to refunds, or are there other consumer payment trends indicating weakening demand? - David Scharf (Citizens Capital Markets)

2025Q1: The cash collections underperformance was mainly a timing issue, with no reflection on expected collections. Our customers remain engaged, and we continue to see payment plans established. - Vik Atal(CEO)

Contradiction Point 4

U.S. Core Purchase Price Multiple

It involves differing statements about the stability and expectations of the U.S. Core purchase price multiple, which impacts the company's financial strategy and investor perceptions.

Are there similar contracts to the one resulting in the $50 million payment, and is this a one-off event? - David Scharf (Citizens JMP Securities, LLC, Research Division)

2025Q3: We have definitely come a long way from where we were in 2023, stabilizing the U.S. Core purchase price multiple at around 2.1. - Rakesh Sehgal(CFO)

Is U.S. pricing stable for Q4? - Mark Hughes (Truist)

2024Q4: We have seen a big improvement from where we were a year ago. The U.S. Core here is a buying multiple, which is in the high teens. - Rakesh Sehgal(CFO)