Welcome to the Raymond James Institutional Investor Conference. Next up, we have PRA Group, Martin Sjolund, their CEO. PRA is one of the world's leading, charged-off recovery specialists, and they just unveiled their new 3 Vectors strategy last week, and Martin's gonna go through that in more detail. Thank you.
Great. Thanks, Robert. Yeah, my name is Martin Sjolund. I'm CEO of PRA Group. I've been CEO for the past 14 years, but I've been in the company for 14 years. I've been running the European business for many years, and I recently stepped into the global CEO role. The first thing we wanted to do is just give you a sense for those of you who may not know give a sense of the PRA. This year we're celebrating our 30th anniversary, so we've been in this industry for a long time. We've got significant global scale and diversification, so we operate in 18 markets around the world. The U.S. is our biggest market, but our overall business is roughly split evenly between the United States and outside the United States.
Currently we're looking at attractive market dynamics both in the U.S. and in Europe. We have strong momentum in our U.S. business. We've been on a journey in the U.S. to improve our operations but we're seeing good traction there, especially on legal, digital, and also moving to a more offshore-based model which I'll talk about later. Our European business has been doing really well. For more than seven years, we've been hitting or beating our targets there and delivering strong returns back into the company. The final point is we have a strong and diversified capital structure, so our funding situation is in a good place, and Rakesh our CFO, will talk about that in a few minutes. In terms of numbers, the headlines, last year we invested $1.2 billion in NPL portfolios around the world.
That was our third highest year ever although it was down a bit from the year prior as we focused more on returns. We collected $2.1 billion in cash. That was up 13% on the year before. Our estimated remaining collections that's basically the cash we expect to collect from the portfolios that we own, rose to $8.6 billion, that was up 15%. Finally, we're very diversified, so I'll talk about that in a little while. We're in 18 markets. On the financials we released our earnings last week. I already talked about purchases and cash, you can see here on this slide here, our cash efficiency, which is basically When we collect a dollar how much of it do we get to keep, increased to 61%.
We're seeing improving operational leverage and an improving cost position as we make improvements in the business. On the net income side, you can see on the bottom left, the -$305 was a non-cash goodwill write-down that we took in Q3. If you put that aside, our adjusted net income was $73 million last year, so it was up on $24. It's still not where we aspire to be. We still have work to do there, but we're pleased that we're making solid progress, and we have a plan that I'm gonna talk about to continue to improve this. The final point is really our EBITDA. You can see here the rolling 12-month EBITDA grew by 16%, so that's growing faster than cash.
That also means that our leverage declined from 2.83 down to 2.73 last year. We peaked earlier the year before at around 2.9. We've made improvements in our leverage rate, and that's been a priority for us to get that down. Before I talk about the strategy, just to talk a little bit about the global market for NPLs. On the left, you can see our portfolio purchases over the last couple of years. You can see how we're diversified between Europe and the U.S. and also other markets, which ranges from Australia to Canada to Latin America.
It shows some of the cyclicality that we have in the market, and the plan that I'm gonna talk about is really designed to help us make sure that we can deliver returns both in up cycles and down cycles. When we look at our data over many years, what's interesting, I think, is that PRA as a company and our industry actually has an interesting dynamic where when macroeconomic times are good we have good collections on our back book. That's the ERC I talked about. We usually collect well there. That means the banks are collecting well on their portfolios, and that means that the supply of NPLs could be more muted when the economic times are good.
When economic times turn down, however, it creates an interesting opportunity because obviously then that's when the bank charge-off rates start to go up and the supply of NPL portfolios tends to rise. We have sort of an interesting dynamic here where there's opportunities for us both in a good economy but also in a weaker economy. One interesting observation that we've had is that the the bank charge-off rates tend to go up faster than our payer rates decline. What that means is that our customers tend to be fairly resilient even in an economic downturn because they're on long-term repayment plans that they can afford. I think this creates an interesting market for us, but it's also important to navigate it in the right way.
These are some of the factors that I think about that we need to navigate when it comes to just the market, and then I'll talk about what we're doing. The first is just the cyclicality. Because the markets can go up and down, it's important to build highly efficient operations and a flexible cost model. We also work with our customers to try to arrange long-term payment solutions that they can afford. On the capital side it's capital intensive obviously as we invest in these portfolios, so having diversified funding, staggered maturities, and alignment on both FX and the duration of the portfolios is important. Rakesh will talk about that. Our goal is to have a strong balance sheet with moderate leverage. On the competitive side these markets can get very competitive from time to time, and it varies a lot by market.
I think discipline and capital allocation is a critical success factor as well as a long-term perspective. For us also, we think that having access to a global pool of markets is very important because we do see the competitive trends and the supply trends change from time to time. What we do is try to think about where can we allocate the capital to get the best return for PRA, and that can vary. Having a range of markets to invest in has been an important tool for us. On the customer side, there's an ever-evolving trend here of the customer requirements changing. We need to move fast to build insight based on data, leverage technology, and have an omnichannel model that meets the customer where they wanna engage with us.
We also need accurate underwriting based on the proprietary data that we have. Finally, it's the regulatory environment. The regulatory environment can be very complex, and I think in some ways that creates a bit of a moat around the industry because it's really only the largest players that can manage this in a, in a large, complicated market like the U.S. in particular. For us, a strong compliance culture and also a strong control infrastructure are really important elements. How we're gonna navigate this market is really down to this plan that Robert mentioned it earlier. We called it PRA 3.0. PRA 1.0 was kind of like when the company was founded and became a leader in the U.S. 2.0 is when PRA expanded and became a global company.
For us, 3.0 is really about building the high-performing technology-enabled global allocator of capital. That's how I think about the business. There's three vectors here which we're gonna talk about. The first is capital and investing, the second is operations technology and data, and the third is people and culture. Rakesh, our CFO, is gonna talk about the first one, capital and investing.
Great. Thanks, Martin. Rakesh Sehgal, CFO. Been at PRA for a little over three years. Back to Vector 1, as Martin mentioned, it capital and investing. Our strategy is to continue to be a highly disciplined investor focusing on the highest returns that we can get from our portfolio investments. We're also going to be very patient with respect to our investments. We're not going to grow just for growth's sake, and that's really important because ultimately what we are focused on are returns. By returns it's not about just the Gross Purchase Price Multiples, but ultimately it's the net returns.
That means looking at really driving value and enhanced profitability. It starts with looking at what is the cost to collect, what is our funding cost, the timing of the cash flows, and then other elements like the contract terms that we have. Ultimately, what we are trying to do is to create a platform that can deliver sustained financial overperformance over the long term. We have a global investment framework. Irrespective of product, irrespective of geography, all our investments have to deliver certain return metrics, and therefore we're able to allocate capital to those highest return opportunities. Talking about geography, and this is important to us, we are globally very diversified. We're in 18 markets. You know, 50% of our ERC is outside the U.S.
What that means is we can pick and choose where we invest our important dollars, but also it helps us mitigate any concentration risk we have in any market as well as across economic cycles. Increasingly, over the last few quarters, what we've been telegraphing is we're very focused on becoming more variable in our cost structure. Why is that? It's to create that flexibility with respect to flexing up and down depending on market volumes. Lastly, we're also being very strategic. We see enormous opportunity in the asset classes that we're in, but we're also looking at adjacencies that may deliver good returns. So we've been building capabilities, we've been testing portfolios, building out data, so we can invest in those opportunities as we move forward. Moving to the next slide.
You know, we wanna be very prudent with our capital allocation, but that just starts with, us having a strong and diversified balance sheet. We believe our balance sheet is very strong. We fund ourselves through a combination of bank debt, bonds, and to a smaller extent, with deposits. We believe that our maturities are very well staggered. We have no maturities in 2026. We have ample liquidity of $1.1 billion under our three RCFs. We've got long-standing relationships with our bank lenders. Also we've got access to the capital markets in U.S. as well as Europe. Last year we tapped the Euro market, and we've got bonds outstanding, both sides of the pond now. We continue to explore alternatives to further diversify funding.
Ultimately, what we are looking to do is to deliver more equity value for our shareholders, and that starts with really focusing on our business. Number one, it's prioritizing our investments, as I mentioned earlier, and delivering higher returns on our investments. Number two, it's about the investments we make in our business. Whether that's our operations in legal digital, our IT platform because again the goal is to create a very efficient platform that can deliver superior returns over the long term. Lastly, we're gonna continue to be opportunistic around buybacks to drive shareholder value. We did undertake $20 million of buybacks in 2025, and we have about $15 million remaining under our board authorization. Over to you, Martin.
Thanks, Rakesh. I wanted to talk a little bit about our operating model. This is how I think about it. In the middle, you have data-driven insights. We're trying to understand our customer's journey through the debt cycle, and we're trying to optimize the channel mix to create the most optimal mix that we can for our customers and our portfolio. On the upper left you have building flexible legal capabilities. We've been spending a lot of effort on this over the past couple of years. We have a mix here of internal legal capabilities, where we're using our own platform and our own people to do this. This creates opportunities for automation, lower costs typically and more control as the accounts move. We also have an important external capability.
There are channels where there are certain jurisdictions where because the volumes are smaller, it makes sense to work with partners. It gives us flexibility to scale up and down. Our legal model is really a matter of optimizing this mix and trading off the flexibility of the external partners with the cost benefits of doing this internally. On the upper right, you have the mix between onshore and offshore. Two years ago in the U.S., we didn't have any offshore capability at all, but we've worked hard to build that up. As of now as much as a third of our U.S. call center agents are based offshore. Having people offshore obviously creates a cost opportunity, and that enables us to penetrate the portfolios more deeply than we would have been able to before.
We're also retaining a significant onshore presence too. We have very experienced collectors who've been around for a long time. They're good at complex cases. They're good at establishing a connection with customers. It's not an easy job, and we believe that they bring a lot of value to the business as well. This is something that we're using to kind of tune in what we think is the right mix for us. On the bottom left you have digital. This is something we focus a lot on, and it's actually the preferred channel, both because customers like to use the digital channel and it's also less expensive for us. Our digital cash collections grew by 25% last year.
We're focused on rolling out omnichannel capability, by which we mean that we can connect with customers and interact with them in many different ways. We're testing new things like rich communication services in Europe, and also we have a mobile app under development in one of our European markets. In the U.S., we're investing in enhancing our digital marketing capability. On the bottom right, you have the mix of internal collections versus external DCAs or debt collection agencies. In the U.S., we haven't had a tradition of using external DCAs up until recently, but outside the U.S., we've been doing this for many years. We have dozens and dozens of DCAs across many markets.
I have markets where we have 100% in-house collections, and I have markets where we don't have a single person, and we rely only on external partners. What I've found is there's no one silver bullet here. The markets tend to evolve, and being able to strike a balance between these two has worked, I think, been the most effective way to manage it. Internal collections gives you a cost advantage because you're not paying for someone else's margin. It gives you control of the data and a better ability to control the offers that you're making. On the other hand, using external DCAs can bring you specialist capabilities, it can help us benchmark our own performance, and it can also give us flexibility, in particular on cost if we can scale up and down the marginal portfolios using these external DCAs.
This gives you a sense of the leverage. There's actually trade-offs across all of these, and what we try to do is to find the optimal balance of these different channels you know solving for cost, how we can control the data, and also the flexibility that the model gives us. If I shift over to technology, our goal here is really to create simplification, flexibility, and efficiency. In our European market we've already come a long way on this. We've already got all of our European markets on one common cloud. We've gone through a multi-year consolidation and simplification of our core collection systems. We're nearly there on that one.
We've already rolled out one cloud-based omnichannel solution for dialing, texting, and chat across all the European countries, and we've consolidated our data in a way that allows us to have central business intelligence for all of our European countries. I can go in now and see every portfolio we have, exactly what was collections yesterday, how is it tracking? That's an important capability to have. On the U.S. side, this modernization has also been underway for a few years we still have more of i would say, a longer way to go there. We're transitioning from physical data centers into the cloud. We expect that to be complete this year. We're looking at how we can simplify our legacy system in the U.S., moving to a more modern collection platform.
That's something that's gonna be an ongoing project for the next couple of years. On the contact platform side, we're transitioning from a legacy contact platform to this cloud-based omnichannel solution. Again, we'll have one platform across the world, that's something that we expect to have in place in 26. Overall, we're investing in building, I would say, a flexible and modern technology platform that's gonna i think, allow us to connect better with customers, it's also gonna save us cost in the future. This leads me to AI. I think AI has a lot of potential for a business like ours. If you think about it, we've got an enormous proprietary data set. You know, PRA has acquired more than 70 million customers over the years. We have hundreds of millions of documents. We have billions of call recordings.
The opportunity to mine all this data and to make sense of it and leverage it is, I think, a big opportunity. We also run massive scale, repetitive, and standardized processes. You know, we make hundreds of millions of calls, we do hundreds of thousands of legal filings, and we process enormous volumes of customer interactions. Again, because these things are standardized, there's i think, an opportunity between the proprietary data that we have and the massive scale of these processes to really leverage some of these AI tools. How we're doing that already, one is we're leveraging our global footprint. You have different capabilities, but also different regulatory environments in different countries. The nice thing about that for us is it allows us to try things in certain countries that are more flexible.
Some examples of use cases that we're already piloting is involves using large language models to mine legal documents, to mine unstructured data. If you imagine we have all these customers interactions, there's notes on the system from every call we've made, there's documents sitting in all kinds of different databases. Some of it is structured, some of it is unstructured. Before AI it was complicated for us to go in there and make sense of that's something we're now able to do. We're piloting interactive chatbots starting in some of our European markets. The final piece is talent. In order to get anywhere on AI, we need to have people who know what they're doing. We've started recruiting the people that we need.
An example of that, we recently set up a Charlotte office, we did that because we felt that would give us access to a wider talent pool than we had in our headquarters in Norfolk. Sure enough, we've been able to hire a senior AI leader there from one of the big banks who I believe is gonna help us take this to the next level. In terms of the question is obviously, well, what value is this gonna bring? These are some of the ways that I think about it. There's additional customer insights to inform the collection strategy, customer engagement. You know, we can run these chatbots 24/7, whereas the call center isn't open 24/7. Supporting different types of collection activities from compliance.
You know, calls have to be scored for compliance, that's a manual exercise. We'll be able to leverage these tools to do that. It can also help us reduce the manual labor for these standardized processes and optimize our underwriting, and finally, to also help us accelerate the delivery of some of these technology projects that I talked about. Already today, we're seeing that the software developers can use this for coding for example to speed it up. I think there's a real opportunity here. It's not gonna happen overnight, but I think that over time we're gonna see that AI is gonna make a significant difference in a company like ours. The other thing I wanted to talk about is cost. You know it's in our business it's extremely important to run a cost-effective and lean model.
The first piece there is really having a cost control mindset. When I took over as CEO, we started looking at cost, and last year we started making reductions. We took out 115 corporate and overhead roles which was a difficult thing to do but it was necessary to make the operating model more lean. We also started reducing our onshore agents. Reducing our onshore agents. We've reduced that by 548. As we shift to offshore and reduce the onshore, the net number of reduced by 42%, but we saw our cash collections continue to grow. The.
As we think about the future, we're gonna continue to bring, try to use different techniques to make sure that we're running the model in as lean of a way as we can. That's very important because you have a cycle, as I said at the start, we need to be able to make returns both when the cycle's in a good place, but also if it turns down. The second point is really about building this variable cost structure to handle that. I've talked about a few of these things already, but having a network of DCAs here in the U.S. enables us to have more flexibility in our capacity. We're also leveraging standardized technology. I talked about the omnichannel platform and so on.
That allows us to invest in technology and deploy that across multiple smaller markets, and that's how we get the scale benefit in a place like Europe, where we're fragmented across a lot of small markets. Any one of which may not have been worth it to invest in this technology, but we're able to move it across these markets and get scale. The final piece then is really around people and culture. I think any strategy is really only as good as the people who are gonna execute on it. We've had a big focus on creating talent hubs. I mentioned this Charlotte office. We need to make sure that we're in locations where we have the kinda talent that we need.
Secondly is building a high-performance culture with more of an entrepreneurial mindset, having clear metrics and objectives. I know this sounds really obvious and trivial, but it's actually difficult to implement. We've been successful with this in our European markets and having a framework that's called OKRs, objectives and key results. We're really deliberate about measuring the initiatives that we're planning and the results that we expect, and it allows us to track progress very clearly. The final point here is really around shareholder aligning incentives to shareholder interests. In our industry, this is very important because we buy long-term cash flows but have short-term incentives. Finding the right alignment there i think is an important element, and it's something that I've been focusing on, and we can talk more about that later.
In terms of how this all comes together into our plan, the first part is around being disciplined about investments. What we've said is we don't wanna grow for the sake of growth. Our focus is to focus on returns. We've said that we're planning to invest somewhere between $1 billion-$1.3 billion per year in 2026. Right now as it looks, we think it'll be similar to 2025. As a result, we expect to grow our Adjusted EBITDA. We've had a good trajectory on this over the past couple of years, and we expect the trajectory to continue. Our goal is for Adjusted EBITDA to grow faster than cash, meaning that we're getting operating leverage from all of these initiatives. We have a lot of focus on leverage. I mentioned that earlier.
It ticked down to 2.73 at the end of last year. We're planning for that to trend down to the mid 2x area based on the plan that we have. Finally, we wanna grow our returns. All of this is ultimately about returns. Our goal is to continue to grow our annualized returns. I say annualized because of the way the accounting works, individual quarters sometimes can have some volatility due to the accounting. Overall what we're focused on is making sure that our annual returns are progressing in the right direction. We wanna get to a return on equity that you would expect to have from a specialty finance company like ours. We believe we have a plan here to get us to that place. That's really our plan.
Thank you, Martin and Rakesh. We do have time for some questions, if anybody's got any questions in the audience. I mean, I have some. On one at a time. On the technology front, you mentioned obviously AI and a lot of that for the data analysis, it's kinda the back end, and then also you've run the chatbots. AI's capable of video, audio, et cetera. I mean how do you expect to use those technologies in direct interfacing with the customer? Also how does that play into the regulatory rules given they're evolving on the AI front?
Yeah, good question. I mean, here in the U.S., you need consent in order to proactively go out to the customer. That's something we need to work out how that would work here. There are markets in Europe where you don't necessarily require that. We think that using AI is a way to make it easy for the customers to engage with us, whether it's through chatbots or through voice bots. One of the examples that we're piloting is doing payment reminders. Before, we would have the agents calling out doing payment reminders, but now we can have the AI voice bots doing that. We're starting with simple applications that already save us cost on the people side.
There's a lot of opportunity, I think, to leverage this in more and more ways as we go forward. I tried to outline there's really a whole range here. In some ways, we've been using AI for a long time. If you consider machine learning to be AI, we've been using that for underwriting for a long time. It's moving so fast that I think there's going to be big potential here. We have the ERC that we have. It was underwritten based on the cost model we had at the time when we bought it. If you look at the future i think that some of these tools and techniques are gonna be opportunities for us to create more value.
Got it. Thank you. Then on kind of... How do you feel about your headcount, right? I mean, AI tools, et cetera. I mean, you've grown cash collections even with the headcount coming down. I mean, do you expect that headcount to be level and the operating leverage to come from just continued you know same headcount growth, if you will? You know, how do you expect that to be a component of this increasing efficiency over the next couple years?
Yeah. I mean you know as this slide here tried to show, it's really a matter of balancing this with different levers and channels that we have available. There are accounts that we can place with external DCAs that we may not have been able to work ourselves previously. There's a balance between onshore and offshore collectors that we can, that we can operate, and also the digital channel. The more we can engage with customers through a digital channel, the more that takes away the need to be making calls. That said, I think we're still gonna need all the elements of that mix. It's just a matter of fine-tuning those proportions. Also depending on the volume of accounts we buy and the types of accounts we buy.
Got it. Thank you. I think that's all we have time for right now, and there is a breakout in Cordova Three downstairs. Thank you.
Thank you.