Pra Group's Q3 2025 Earnings Call Reveals Key Contradictions in U.S. Core Multiples, Legal Costs, and Southern Europe Strategy

Date of Call: November 3, 2025

Financials Results

• Revenue: Portfolio revenue $310M, up 12% YOY; total cash collections $542M, up 14% YOY
• EPS: GAAP net loss $408M; adjusted net income $21M, adjusted diluted EPS $0.53 (excluding $413M noncash goodwill impairment)

Guidance:

• Reaffirming 2025 purchase target of $1.2 billion.
• Reaffirming full-year cash collections growth target of high single digits.
• Reaffirming full-year cash efficiency target of 60%+.
• Expect elevated U.S. portfolio supply and relatively stable supply in Europe for the remainder of 2025.
• Expect U.S. legal collection costs to be in the ~$40M area in Q4; funding capacity and liquidity remain ample.

Business Commentary:

* Portfolio Performance and Investment Strategy: - PRA Group purchased $255 million of portfolios in Q3 2025, with 60% in the Americas and 40% in Europe, reflecting a focus on prioritizing net returns over portfolio volumes. - The company exceeded cash collections expectations by 8% globally, with the U.S. overperforming by 6% and Europe by 10%. - The strategic focus on investing only when achieving minimum net return thresholds has led to sustained strong portfolio performance and an increase in cash collections.

• Goodwill Impairment and Financial Health:
• PRA Group recorded a nonrecurring, noncash goodwill impairment charge of $413 million, primarily related to historical European acquisitions, triggering due to a sustained decline in the stock price.

• Despite the impairment, Europe overperformed cash expectations by 11% year-to-date, indicating strong underlying business performance and operational leverage.

• Operational Efficiency and Cost Management:

• The company implemented cost reduction measures, reducing U.S. headcount by over 115 employees and U.S. core cash collections by 170 agents, resulting in $20 million in gross annualized cost savings.

• This restructuring reflects a focus on efficiency and corporate overhead cost management, aligning with strategic priorities.

• European Business and Market Outlook:

• Europe experienced positive adjustments to its expected future recovery, contributing to a 15% year-on-year increase in its ERC.
• Market stabilization and healthy performance in Southern Europe are opening investment opportunities, reflecting a disciplined capital allocation strategy.

Sentiment Analysis:

Overall Tone: Neutral

• Management repeatedly framed Q3 as progress: "Q3 represented another step forward" and "heading in the right direction." Key metrics: cash collections +14% YOY to $542M, adjusted EBITDA LTM +15% to $1.3B. Counterbalancing this, company recorded a $413M noncash goodwill impairment producing a GAAP net loss of $408M, though adjusted net income was $21M ($0.53).

Q&A:

• Question from David Scharf (Citizens JMP Securities, LLC): On the $15M one-time payment/purchase-price adjustment, should we view this as a one-off or are similar contract modifications likely?
  Response: Management: It was a unique, one-off arrangement with a long-time selling partner — economically positive and increased ERC; not expected to be a common occurrence.

• Question from David Scharf (Citizens JMP Securities, LLC): Can you outline a timeline for when portfolio income alone will drive GAAP profitability (the 'journey')?
  Response: Management: No specific timeline provided — trajectory depends on underwriting, operational improvements (notably legal channel) and demonstrated data; CECL accounting remains conservative and improvements are recognized as proven.

• Question from David Scharf (Citizens JMP Securities, LLC): Given the discount to tangible book, at what point would buybacks be considered versus deploying capital into portfolios?
  Response: Management: Priority remains investing in profitable portfolios; buybacks are in the toolkit (Q2 limited buybacks, none in Q3), $58M authorization remains, covenants limit flexibility; will pursue buybacks when they’re the best use of capital.

• Question from Mark Hughes (Truist Securities, Inc.): The $15M purchase-price adjustment looks like an expense in the quarter; was there any offsetting increase in ERC?
  Response: Management: Yes — the $15M shows as a purchase-price adjustment expense but was accompanied by an increase in ERC spanning multiple vintages; net effect is positive in nominal and NPV terms.

• Question from Mark Hughes (Truist Securities, Inc.): Was the $413M goodwill charge tied to underlying asset performance or driven by the stock price/other factors?
  Response: Management: The impairment is noncash and triggered by a sustained decline in the stock price per the required goodwill test; it does not reflect operational deterioration — Europe continues to perform well and ERC/collections are unaffected.

• Question from Mark Hughes (Truist Securities, Inc.): Your high-single-digit collections guidance implies Q4 deceleration versus Q3; is that the right read?
  Response: Management: Yes — Q4 typically runs slightly below Q3; they reaffirm the full-year high-single-digit cash collections target and feel comfortable with it.

• Question from Robert Dodd (Raymond James & Associates, Inc.): Is the $15M adjustment one-off because this was the only contract adjustable, or are other existing contracts ineligible for legal collections?
  Response: Management: Seller contract terms vary and are normally priced into bids; this adjustment arose from unique circumstances with this partner and is not broadly applicable.

• Question from Robert Dodd (Raymond James & Associates, Inc.): Why are COVID vintages (e.g., 2021–2023) deteriorating while 2024 vintages are improving — how can mixes differ so much?
  Response: Management: After a deeper CECL vintage review, differences stem from distorted reference data during stimulus/COVID-era selection bias and portfolio-specific cash-flow curve shapes; recent vintages look stronger and U.S. COVID vintages are a smaller portion (~10%) of global ERC.

• Question from Robert Dodd (Raymond James & Associates, Inc.): Southern Europe is cited as having more opportunities — are return dynamics materially shifting and will this change deployment or operating approach?
  Response: Management: Southern Europe’s competitive landscape has stabilized, enabling selective deployments under existing return hurdles; no major strategic change expected — will opportunistically allocate capital where it meets thresholds.

Contradiction Point 1

U.S. Core Multiple Decrease and Market Competitiveness

It involves differing explanations for the decrease in U.S. core multiple, which can impact investor perceptions of market competitiveness and investment strategies.

Can you explain the $15 million purchase price adjustment and its impact on earnings? - Mark Douglas Hughes (Truist Securities)

2025Q3: The decrease in the U.S. multiple might be due to mix or demand-supply variables, not necessarily market competitiveness. - Martin Sjolund(CEO)

Why did the U.S. core multiple decrease, and does it signal a more competitive market? - Mark Douglas Hughes (Truist Securities)

2025Q2: The decrease in the U.S. multiple might be due to mix or demand-supply variables, not necessarily market competitiveness. PRA's investment framework considers cost-to-collect and net returns, balancing volume and returns. - Martin Sjolund(CEO), Rakesh Sehgal(CFO)

Contradiction Point 2

Macroeconomic Impacts and Consumer Health

It involves differing perspectives on the macroeconomic impacts and consumer health, which are critical for understanding the company's financial outlook and investment strategies.

What is your outlook on the macroeconomic impact on consumer health and the timeline to achieve earnings power solely from portfolio income? - David Scharf (Citizens JMP Securities, LLC, Research Division)

2025Q3: We're focused on improving portfolio purchase price multiples and operational efficiency. The journey is gradual, with increases in future expectations driven by operational improvements. - Rakesh Sehgal(CFO)

Does the earnings guidance cut reflect only Q1 performance or year-long assumptions? - David Scharf (Citizens Capital Markets)

2025Q1: We continue to believe that the 2025 financial model remains the best estimate based on current information of what happens going forward. - Vik Atal(CEO)

Contradiction Point 3

Legal Collections Costs

It involves differing expectations regarding legal collections costs, which impact operational expenses and profitability.

What caused the performance difference between '23 and '24 vintages in the U.S.? - Robert Dodd (Raymond James & Associates, Inc., Research Division)

2025Q3: Legal costs will moderate compared to last year's increase. The increase is due to 2024 purchases, not strategy changes. - Rakesh Sehgal(CFO)

Will legal collection costs normalize or remain elevated? - Mark Hughes (Truist Securities, Inc., Research Division)

2025Q1: It's more of a lagged effect of last year's purchases. It's not a change in strategy. - Vik Atal(CEO)

Contradiction Point 4

Portugal and Southern Europe Market Dynamics

It involves differing descriptions of the market conditions and capital deployment strategies in Portugal and Southern Europe, which could impact investment decisions and regional performance.

Is Southern Europe's shift significantly affecting PRA's strategy? - Robert Dodd (Raymond James & Associates, Inc., Research Division)

2025Q3: Southern Europe's market dynamics have stabilized, allowing for more capital deployment. Opportunities arise when market competition stabilizes, but we maintain disciplined investment standards. - Rakesh Sehgal(CFO)

In Europe, was the rise in portfolio purchases driven by high spot sales volume or other competitive factors? - David Scharf (Citizens JMP)

2024Q4: In Portugal, our market share increased slightly, and we maintained our leadership position. This was consistent with the country's more stable regulatory environment. - Vik Atal(CEO)

Contradiction Point 5

Legal Channel's Role and Cash Efficiency Ratio

It involves the role and expectations of the legal channel in collections and its impact on cash efficiency, which can affect operational strategies and financial forecasting.

What are the macroeconomic impacts on consumer health and how does this align with the timeline for earnings power from portfolio income alone? - David Scharf (Citizens JMP Securities)

2025Q3: Legal is not the first choice for collections but is important when customers aren't engaging. A sophisticated analysis weighs legal potential against costs. - Martin Sjolund(CEO)

How should we assess the long-term legal channel's impact on collection mix and cash efficiency ratio? - Mark Douglas Hughes (Truist Securities)

2025Q2: Legal is not the first choice for collections but is important when customers aren't engaging. A sophisticated analysis weighs legal potential against costs. The mixed legal performance depends on timing and cash collection over time. - Martin Sjolund(CEO)