Thanks, Brendan. My name is Martin Sjolund. I am the CEO of PRA Group. I have been in the CEO role here globally for a little over a year, but I have been with the company 15 years, and I was running our European business before this.
Rakesh Sehgal, CFO, been at PRA for four years, as CFO for three years. Prior to that, my experience has been broadly across specialty finance.
We are going to give you a little bit of an introduction of the industry, talk about PRA, our strategy for creating value, and then share some of our financials and what we see as catalysts for investment. Just to start with, just to explain for those of you who may not be familiar with it, a little bit about the non-performing loan ecosystem. Banks and consumer finance companies generate loans, obviously, into the economy, and a byproduct of that are non-performing loans. That happens everywhere in all countries. As some people are not able to repay their loans, they end up becoming delinquent and eventually becoming charged off in some cases. Generating loans that are non-performing. Collecting on these non-performing loans is really important for the whole financial ecosystem. The banks obviously take losses and need to take capital charges against the NPLs.
Selling portfolio, they basically have two options. They could either collect on the portfolios themselves, or they can sell the portfolios to debt buyers like us. What we do is invest in portfolios of these loans, and then we seek to recover the debt on those loans. If we can recover more than we paid for it, that is how we create value. We leverage scale, technology, and specialist capabilities to do this. In our case with PRA, we are celebrating our 30th anniversary this year, so we have been doing this for a long time. We have data for more than 50 million customers in the U.S., and also across much of Europe as well. We leverage data and analytics heavily to optimize collection strategies, also to underwrite the loans. We work with customers to try to resolve their debt and rehabilitate their credit scores.
They benefit from flexible repayment options, long-term repayment plans, discounts, things like that we try to set up to come up with amicable repayment agreements. If that doesn't work, if our data tells us that there's an opportunity that they should be able to pay, we'll consider using the legal system. That gives you a high-level overview of how the market works. Shifting over to the market itself, you can see here, PRA, by the way, is focused on, we're about 50/50 between the U.S. and the European markets. This slide here shows you the U.S. NPL market, and that's the largest in the world. The U.S. credit card balance stock right now is over $1 trillion. The charge-off rates you can see in that blue line have been fairly stable, even trending down a little bit.
That's kind of like the supply side of this, is that these are the non-performing loans that get charged off, and that's what we invest in. This is in the U.S., but it's a similar dynamic in Europe. We also have a very interesting through-the-cycle business model. When the economy is strong, we see good collections on the portfolios that we already own. We have a large portfolio. Our ERC, is the estimated remaining collections on that portfolio, is currently $8.9 billion. We expect to collect $8.9 billion on the portfolio that we own over the coming years ahead. That is a gross number. It's not the face value that's owed to us, it's the actual cash we expect to collect. In a weaker economy, we would see higher delinquencies and charge-off rates from the banks, and that would typically drive the NPL supply up.
That creates an interesting opportunity for businesses like ours in a situation where the economy turns down. Obviously, that could also affect the collections on the existing portfolio that we have. But historically, I've found our customers to be fairly resilient. Of course, they're affected by economic macro conditions, just like anybody. But people who are trying to repay their debts and improve their credit scores and so on, are typically able to continue to doing that to an extent, even if the economy turns down. People have already been through a personal financial difficulty, in order to end up in a portfolio like this. In any case, the bottom line is that there's an interesting opportunity both in a strong economy, but also if the economy were to weaken. If you continue on, just to talk a little bit about PRA specifically.
We're celebrating our 30th year anniversary. We have a very highly tenured management team. I think one of the things that sets us apart is the global scale and diversification. We're in 18 markets around the world with a pretty even split between the U.S. and Europe. Right now, the market dynamics are quite attractive in both the U.S. and Europe. The supply environment is pretty good. Both markets are competitive, I always say that, but it's, I would say, a decent supply environment. We're also executing on a new strategy, which I'll talk about later, to improve our performance. We have a strategy called PRA 3.0 that we're working on, and we're making good progress on executing against that strategy. We'll share that in a little while. Our European business has performed really well.
We've had 26 quarters in a row of cash over-performing against our targets, and we have a strong balance sheet and ample funding. I think we're well-positioned to take advantage of opportunities. In terms of the metrics, in the second quarter, we purchased $297 million worth of portfolios. We collected $559 million of cash. Our ERC, as I said earlier, was $8.9 billion. We generated $58 million of net income. Our last 12 months adjusted EBITDA was $1.4 billion, and our net leverage was 2.67. We had our seventh consecutive quarter of deleveraging, which is something that we're very focused on. We continue. One of the key differentiators about PRA is our global platform. We really have a mix between the U.S. and Europe. As I said earlier, the U.S. is the largest NPL market globally.
It has a very complex regulatory environment, and this creates actually barriers to entry for the business. Even though it makes it a challenge to operate in the U.S., it's very complex with federal rules, state rules, in some cases even city-level rules. This is something we have to navigate, but that's also one of the barriers, I think, that has resulted in a handful of large players dominating the U.S. market. On the European side, we have a strong track record of disciplined investing. We've had many quarters of cash overperformance, as I said. We also operate one of the most cost-efficient platforms in the industry, and we've invested significantly over the years on IT, infrastructure and so on to improve the performance and leverage technology across the business.
The benefit of being in these two regions significantly is that it means that as cycles can go up and down a little bit in country to country, we're not so concentrated on one place, but we're able to deploy capital across these regions. If you think about the evolution of the industry and how it's moving, there are three main trends that I would identify. The first is just around data and analytics, so working to create better underwriting models, leveraging more advanced analytical capabilities, managing customer engagement, and really optimizing collection strategy to create value. On the technology side, it's obviously moving very quickly. We're moving towards modern cloud-based customer contact platforms. Just last quarter, we launched, we'd already launched this in Europe a few years ago, but we launched a new cloud-based customer contact platform in the U.S.
We're working on leveraging AI technology throughout many areas of the business, from whether it's from contact centers to our back-office operations. We're also building digital capabilities, so making it easy for customers to interact with us through their phones or through other digital methods. The final one is really just creating operational efficiency, so having a scalable operating model and a good mix of how we collect. This is something that we've been focused on building out in our U.S. market in recent years. So having a mix of resources, both onshore and offshore, and using external debt collection agencies. We service the collections ourselves on the portfolio, but we also use third parties to help us do that in cases where either for flexibility reasons or for specialist capability reasons, we look to partners to help us on the collections.
These are the same kind of agencies that do this work also for large banks. Last year, or earlier this year rather, we launched a new strategy for PRA. We call it PRA 3.0, and it has three main vectors. The first is capital and investing. That is around investing with discipline and allocating capital to the highest return opportunities. The second one is around operations, technology, and data. That is really around modernizing our engine, leveraging technology, and making ourselves more efficient. The third piece is around people and culture, so building a high-performing culture and making sure that management incentives are aligned with shareholder and other stakeholder interests. We wanted to give you an update on the progress we are making against these three vectors. If you go to the next slide.
On the first one, we have continued to be disciplined about our investments. We have had seven quarters in a row of delevering, and Rakesh will talk in a little while about our funding structure, which I think is in a very good place. We also increased our European ERC, so we took a significant write-up on our European portfolio last quarter. That is a demonstration of the confidence we have in the business, but also the long track record of overperformance that we have seen in that market. On the second vector, we have done two major cost restructurings in our U.S. business. We have eliminated 215 corporate and overhead roles. That is a 25% reduction in our overhead headcount. We have also reduced 575 call center roles.
All of that together will result in a $35 million annualized net savings once it hits run rate towards the end of next year. We closed two U.S. call centers and one offshore site in the second quarter as well. We have taken their U.S. footprint from seven call center sites down to just one today. We also launched this cloud-based contact platform, and we started building out an AI team to help us leverage technology there.
On the third vector, we reduced management layer, we have strengthened our performance culture, we have opened a talent hub in Charlotte to be able to attract more of the kind of talent that we need for the future, and we have made adjustments to our incentive programs to try to have better alignment to shareholder interests. I think in the first nine months of this year, we have made very good progress on execution against the strategy, and we will start to see the result of that coming into the numbers over the coming years. Rakesh will talk a little bit about the financials.
Yeah. Thanks, Martin. Moving on to the financials on slide 10. I want to provide you a historical perspective of our financials. In summary, we've had good momentum over the last couple of years since 2023. On the top left, you can see portfolio purchases. We have had a healthy supply across the markets, and we've been benefiting from that. In 2024, we invested $1.4 billion, which was a company record. In 2025, we invested $1.2 billion, which was our third highest year. We continue to invest across all markets, being very disciplined, focused on the highest returning opportunities. As we look to the rest of 2026, our focus is in line with the PRA 3.0 strategy to continue to be a disciplined investor and focus on net returns, with a focus then subsequently on profitability.
As we look to the top right, it's cash collections and cash efficiency. Cash collections are up 32% since 2023, and this is on the heels of strong buying, as I mentioned, in 2024, but also the improvements we've continued to make in our business. Cash efficiency, which is the inverse of OpEx to cash ratio, is up 200-plus basis points. Importantly, that is up despite a significant increase in our legal court costs. We've been making a concerted effort around the court costs because of underinvestments that we had during the COVID years, as well as the increased buying in 2024 as those accounts now become eligible for the legal channel. Legal is not the channel that we lead with, but if our model suggests that customers have the ability to pay but don't want to engage with us voluntarily, we will then pursue the legal channel.
If you go to the bottom left, you'll see cash EBITDA, which is the same as adjusted EBITDA. That is up 35%, and it's outpacing cash collections, demonstrating the operating leverage that we have in the business. As Martin mentioned, net leverage is down to 2.67 as of June 30th of this year, from a peak of 2.9 times in 2024. To the bottom right, you'll see net income, which is our adjusted net income. After a portfolio write-down that we had in 2023, we delivered low $70 million of net income in each of 2024 and 2025. This is against a backdrop of $100-plus million that we had in 2022. Keep in mind that the LTM number is elevated because of the one-time write-up that we had with respect to our European business that is performing really well that Martin alluded to earlier.
If we go to the next slide talking about funding, we have a strong and well-diversified funding profile. We have no maturities until 2028 and have ample liquidity of about $1 billion. The way we fund ourselves is through a combination of bank debt and bonds, and we actually also have a small deposit base. As it relates to our bank debt, we have $3 billion of commitments across three facilities in North America, U.K., and Europe with a consortium of 15-plus banks. Some of those relationships go back decades. We recently refinanced our European credit facility in April of this year at the same commitment level, same pricing with our same banks, and just testament to the relationship we have with our banking partners. In addition, the bonds that we have, we have about $1.6 billion. These are both U.S. dollar-denominated as well as EUR-denominated.
Last year in 2025, we did our inaugural bond issuance in euros, and what that demonstrates is the global access to funds that we have to continue to invest in our business. As it relates to capital allocation to the top right, we have a three-pronged strategy. Number one, being a disciplined investor in portfolios, so making sure that our investments meet our net return thresholds. That is after taking into account the cost to collect, funding costs, as well as the timing of the cash flows. Number two is to invest in initiatives to continue to improve the business, such as legal, digital tech modernization, some of which we discussed earlier. Lastly, it is about opportunistic share repurchases. Over the last 15 months, we have undertaken $40 million of share repurchases as we look at where our stock is trading as well as valuation.
Recently, our board authorized a $150 million new share buyback program, and that just provides additional flexibility from a capital allocation perspective as we seek to enhance shareholder value.
Thanks, Rakesh. Just to conclude the catalysts as we see them, we have got a 30-year track record, and we are a leading debt buyer in the U.S. and have a very strong European presence as well. We have a strong liquidity and funding profile, as Rakesh just outlined, and we are right now at a pretty attractive phase in the industry dynamics. We are in a kind of industry where if things were to turn down, it could actually create opportunities for further supply in the future. We have also laid out a really clear vision for the future, and I think the team has demonstrated, through some of the examples I shared, a good execution against this strategy with a lot more to do, but I think we are making good progress. It is starting to drive the financial metrics.
So we have a record ERC of $8.9 billion. We are seeing our adjusted EBITDA growing faster than cash. Leverage has declined seven quarters in a row. Our cash efficiency ratio has improved by over 200 basis points, and earnings are starting to head in the right direction. So it is going to take time to continue to improve this, but I think things are heading in the right direction. That is really the story of PRA. Happy to take questions if we have time.
Fantastic. Thank you, Martin and Rakesh, for the overview and the information. We can now open the floor here for Q&A. As a reminder, if anybody has a question, feel free to just type it in the Q&A tab at the bottom of the screen. Just wanted to start off on the competitive environment across your end markets. Can you talk about how charge-off trends have been, I guess, trending across the U.S. and Europe, and what are the competitive dynamics there? How many other buyers are out there that you compete with?
Yeah. The overall supply environment is at a pretty good level, as I described earlier, both in Europe and the U.S., if you just look at the overall supply of NPL portfolios that are available for us to bid on. The supply is good. Both markets are competitive. We compete against different players in European markets and in the U.S. market, but the dynamics are reflective of the regulatory environment and how easy it is to come in and start buying portfolios. The U.S. is a market where it's pretty difficult to get in because of the complexity of the regulation, and the banks are very selective about who they'll sell to. That's created one dynamic. Then in European markets, it tends to vary.
The U.K. is the biggest market that's more similar to the U.S., but there are some other European markets that are easier to enter. Overall, I think we're at a good stage in terms of the supply and at a reasonable stage in terms of the competitiveness of the market.
Understood, and how do you ultimately aim to outcompete there? Is it more on pricing?
Well, pricing is important, but contract terms and relationship with the seller also matters a lot. The banks come in and audit us, and they expect us to treat their customers the way they would themselves. They are very selective in that sense. That is one. The other thing that I think sets us apart is the global diversification. We are not reliant on one single market for our investments, and we are able to shift capital depending on where we see the best opportunities between European and U.S. market.
That makes sense. Obviously, collection efficiency is a big part of the business, but what do you view as the most relevant key macroeconomic indicators for the business?
Yeah, good question. The unemployment rate is usually a very important health indicator. But we do closely also watch things like the price of gasoline and so on, which we know affects customers. Interest rates can play out a little differently in different countries, but all of those factors do impact customers. We are looking at it both from the perspective of the collections of the portfolios that we own, but also the potential for triggering additional supply in the future. We look at it from both perspectives.
That makes sense. As you mentioned, the PRA 3.0 strategy, what are you most optimistic about there, and ultimately, how do you quantify success of that strategy longer term?
Yeah, I think the most exciting part of it really is around technology. We are investing in technology. I think we have had good traction on technology investments in our European business, and as we roll some of those things into the U.S., I think we have a real opportunity to improve. The most cutting-edge technology around AI and so on is obviously a big buzzword for everybody, but for a company like ours that runs call centers and very standardized paper-heavy processes at large scale, I think there is a lot of opportunity to leverage AI over time. So I think that is going to be very exciting to see in the next four or five years how it is going to change the business.
Understood. Are there any performance metrics, whether it be cash collection efficiency, that you aim to reach improvement on with that strategy?
The main thing is we want to improve our returns, so we are looking at the net income and the return on equity targets. The cash efficiency is important there, but the cash efficiency also does reflect the mix of what we buy. So it could happen that we buy a certain kind of portfolio that requires a lot of legal investments. That would make it look like it is less efficient, but it might still be generating a really good return. So operating efficiency is very important. Performance against underwriting curves is really important. Investment volumes are very important. But at the end of the day, it is the return that we are really focused on.
Understood, and across your different markets, which margin profile is relatively or I guess, which has a higher margin profile? Maybe you can tie in expenses, primarily legal costs, which I know can be meaningful but also can improve returns on the back end as well.
Yeah. We're investing heavily in legal in the U.S. right now. That is obviously weighing on our OpEx and on our returns. But we're doing that because we expect to see good cash flows out of those investments going into the future. That's really a matter of taking a long-term perspective on the value of the portfolio. Otherwise, if you compare to different regions, the gross money multiples in the U.S. are higher than they are in Europe, but that's also because the cost to collect tends to be higher in the U.S. than it is in Europe. When we allocate capital, we have a framework that normalizes for that, and we look at the net returns to the business after things like cost to collect, funding costs, et cetera, and also the time value of money. That's how we make our capital allocation decisions.
Understood. Can you share how regulatory trends look both in the U.S. and Europe?
Yeah, it's very interesting and quite different. On the European side, the EU regulators have put in place new rules that actually encourage banks to sell non-performing loans. There's something called the EU Consumer Credit Directive and the NPL Backstop. The European regulators actually want the banks to sell NPLs. The U.S. has been a different dynamic. The regulatory environment's been quite complex with having federal-level regulation, state-level regulation, and there's even some cases of city-level regulation in the U.S. It's quite complex to operate there. We have obviously seen with the current administration, some changes in how the CFPB and so on is operating. We still focus on making sure that we're fully compliant with all the rules and regulations that are in place.
We see that the onus can shift a little bit from a federal level to a state level, but what's important to us is to continue to operate in a compliant way. The banks who sell to us come in and audit us for that as well. We're under constant scrutiny by whether it's states or the banks that sell and so on. Having our ship in order on that side is extremely important.
Got it. Can you discuss the development of the talent hub and what we could ultimately see there?
Yeah. Our headquarters is in Norfolk, Virginia, which is a really nice place, but it's not really a financial hub. In order to make sure that we can recruit the kind of talent that I think we need for the future, we decided to open what we call a talent hub in Charlotte, which does have a strong, vibrant financial services sector. We set an office up there earlier this year. We've started hiring people, and we're finding really talented teams there, who have a background in financial services. That's where we're really laying the seeds for the future technologies and capabilities that we're trying to build up.
Understood. Are there any particular European markets that look more attractive for growth and why?
The European markets, just like the U.S., tend to move up and down in cycles depending on the supply of portfolios, which the supply normally has a very local flavor, depending on what's going on in that economy and with the banks in that particular place. It also depends on the selling strategy of the banks. It's not just the macro environment, but certain banks may decide that they want to sell portfolios earlier, that increases the amount that we can invest. You also have different competitive dynamics in different European markets. So I wouldn't say there's one market in particular that is particularly interesting. The U.K.'s the biggest by far. So the U.K. is our second-biggest market globally. That's a very important market for us.
Otherwise, we look to allocate the capital depending on where we see the opportunity, and that can shift around a little bit from year to year.
In the U.S., what does the geographic footprint look like in the U.S.? Is there any regional concentration or are there any areas that are maybe more attractive for growth than others?
We tend to buy portfolios from national-scale banks and consumer finance companies. So the portfolio we have is pretty reflective of where they do business, which is really spread across the main economic and population centers in the U.S. that you would imagine. So our portfolio would be pretty linked to where you would see consumer concentration in different places. So the states that are more sparse, we would have less accounts, and the very dense states, we'd see more accounts.
Got it. One last question. I know, obviously, supply is pretty strong on the NPL side. What do you see as the key risks to the outlook in the next 12-24 months?
The supply outlook looks pretty good. I guess the risks would be the competitive intensity. That is something I have seen in the past that even in a decent supply environment, if the competition heats up too much, it can become more difficult to invest. The way we think about that is just making sure that we are really clued into the opportunities across all these markets and that at every, in fact, we review it every week. We look at where the opportunities are, and we look to deploy capital to where the best return opportunities are.
Great. Well, Martin, Rakesh, we really appreciate the time and the overview, and the information as well. We will conclude the conference there.
Okay, great. Thanks, Brendan. Good talking to you.
Thanks, everybody. Take care.
Okay. Bye-bye.