PRAA - NASDAQ

Good evening, and welcome to the PRA Group's First Quarter 2023 Conference Call. All participants will be in a listen-only mode through the duration of the call. [Operator Instructions] Please note that this event is being recorded today. I would now like to turn the call over to Mr. Najim Mostamand, Vice President, Investor Relations for PRA Group. Please go ahead, sir.

Thank you. Good evening, everyone, and thank you for joining us. With me today are Vik Atal, President and Chief Executive Officer; and Pete Graham, Executive Vice President and Chief Financial Officer. We will make forward-looking statements during the call, which are based on management's current beliefs, projections, assumptions and expectations. We assume no obligation to revise or update these statements. We caution listeners that these forward-looking statements are subject to risks, uncertainties, assumptions and other factors that could cause our actual results to differ materially from our expectations. Please refer to the earnings press release and our SEC filings for a detailed discussion of these factors. The earnings release, the slide presentation that we will use during today's call and our SEC filings can all be found on the Investor Relations section of our website at www.pragroup.com. Additionally, a replay of this call will be available shortly after its conclusion, and the replay dial-in information is included in the earnings press release. All comparisons mentioned today will be between Q1 2023 and Q1 2022, unless otherwise noted, and our Americas results include Australia. During our call, we will discuss adjusted EBITDA and debt-to-adjusted EBITDA for the 12 months ended March 31, 2023, and December 31, 2022. Please refer to today's earnings release and the appendix of the slide presentation used during this call for a reconciliation of the most directly comparable US GAAP financial measures to these non-GAAP financial measures. And with that, I'd now like to turn the call over to Vik Atal, our President and Chief Executive Officer.

Thank you, Najim, and thank you, everyone, for joining us this evening. It's a pleasure to be hosting my first earnings conference call as PRA's new President and Chief Executive Officer. Over the past 27 years, Steve Fredrickson and Kevin Stevenson, led PRA from its inception to becoming one of the leaders in our industry. I stepped into their shoes with humility and deep respect for all that they have accomplished. And I extend my deepest gratitude for the wisdom and insights they have shared to prepare me for this journey. I also want to thank everyone as a company for welcoming and supporting me, as I get settled into this new role on the other side of the boardroom table. It has been fantastic to engage with so many of our leaders and employees across the globe over the past few weeks. While these are still early days, I am developing a deeper understanding of the business as it stands today. And crucially, I'm gathering more insights into areas of opportunity and growth. My reviews and assessments continue to support the perspectives I had as a Board member that PRA's business is on a solid foundation. We enjoy an outstanding credibility and reputation among our customers, investors, legislators and other key stakeholders. We possess one of the industry's strongest balance sheet, which gives us significant flexibility to capitalize on our global presence and invest in geographies where we already have significant market share as well as in newer markets. We have an integrated global business with relationships with key sellers around the world and operating expertise in all the markets we operate in. We operate with a disciplined customer-centric focus that is supported by our strong compliance environment. And we have a strong base of deeply experienced employees, including our leaders who excel in their respective roles across every function and geography. I have already had the opportunity to collaborate with team members throughout the entire organization. And I can state with confidence that our talent positions us well for future success. This is a great position for me to be in as an incoming CEO, and particularly important as we position ourselves for the anticipated increase in the supply of non-performing loan portfolios. While I believe that our strategy is on target and our future is bright, we do face near-term challenges in our U.S. business due to a combination of the weaker economic environment, reduce consumer liquidity and the resulting impact on cash performance and margin. These realities are reflected in our quarter one financial results. Looking ahead, I am committed to driving performance and results across economic cycles, and we are working to address the aforementioned challenges with urgency and intensity. Already, we have implemented several initiatives, such as a reduction in force mainly in our U.S. operations to rightsize the organization. I have identified several near-term initiatives to drive additional efficiencies, including continuing to optimize our collection strategy mix with an expansion of our legal channel for accounts that score highly and are not responding in the call center. And we are also evaluating the possibility of outsourcing and leveraging third-parties for certain activities we are now doing internally. As we continue to assess these and other opportunities, I want to reiterate that our overall strategy remains intact. This includes building and deepening our seller relationships to boost our purchasing opportunities and drive market share growth, managing day-to-day performance as efficiently as possible, which is especially important in this challenging market environment, fostering a high-performing workforce, tensing our position as a recognized and trusted brand, and maintaining our capital allocation priorities leading with our core focus of purchasing nonperforming loans while seeking opportunities to expand our addressable. I am encouraged by the work we are doing to further refine our strategic focus, crystallize our business imperatives and identify and address barriers to future success. And I look forward to PRA's next exciting chapter and to doing everything I can to help us create long-term value for our shareholders. With that, let's turn to some highlights for quarter one. I am not satisfied with the results we announced today as quarter one presented several challenges, particularly in our US business. As we look ahead, we are examining our end-to-end processes to ensure we optimize cash generation and drive efficiencies. Looking at our results for the quarter, we delivered total cash collections of $411 million globally. The 14% year-over-year decrease or 12% decrease on a constant currency adjusted basis. was primarily driven by lower portfolio purchases in 2021 and 2022 due to the overall lower volumes of portfolios offered for sale. We also experienced a softer-than-expected tax season in the US this year, which impacted U.S. collections. Pete will go over this and the rest of our financials in more detail. But I wanted to quickly highlight one of the positives this quarter, which was our strong purchasing. Quarterly portfolio purchases were $230 million, up 56% year-over-year. This increase in purchasing reinforces our expectations for a gradually improving supply environment, and we continue to see leading indicators for shadowing additional volumes entering the market in 2023, and beyond, especially here in the US. Industry data shows active US credit card balances continue to climb, setting new records in hitting a trough in early 2021. Balances in quarter one, 2023 exceeded their pre-pandemic levels by 14%. Credit card delinquency and charge-off rates have also risen from their crops in 2021 and to 2.3% and 2.6%, respectively, exiting 2022, and we believe these metrics will continue to trend higher, especially in non-prime accounts. As supply builds, we will continue to practice prudent capital deployment. And with that, I'd now like to turn things over to Pete to go through the financial results in more detail.

Thanks, Vik. The first quarter was definitely a challenging period, driven largely by the impact of lower-than-expected collections in the US business on the heels of lower buying in 2021 and 2022 and which I will address in more detail shortly. Total revenues were $155 million for the quarter. Total portfolio revenue was $151 million, with portfolio income of $188 million and changes in expected recoveries of negative $37 million. During the quarter, we collected $4 million in excess of our expected recoveries meeting our expectations on a consolidated level with Europe over performing by 3%. This is a smaller margin than what we have experienced in recent quarters. Therefore, we didn't feel it prudent to adjust our curves higher in Europe. Given uncertain economic conditions globally, and we intend to be cautious in terms of our ability to raise curves throughout the year. After a strong run of 11 consecutive quarters of positive changes in expected recoveries, we experienced a negative result in the first quarter, which was largely due to underperformance in the US business. We experienced a much softer tax season than we had anticipated with US collections missing our internal forecast by $10 million, which then prompted a reduction in forward-looking RC. This resulted in a negative $31 million net present value adjustment. Nearly half of this adjustment was related to the 2021 US core vintage that we have highlighted is underperforming in prior quarters. As a reminder, this vintage includes a large cohort of consumers whose accounts were charged off in peak stimulus periods during the pandemic. We believe this effect, along with inflation and other macroeconomic factors are the drivers of this underperformance. We believe our U.S. curves are appropriately set at this time. However, given the continuing weak economic conditions, there may be some near-term pressure on cash collections, which we're monitoring. It's worth reminding, though, that the factors that can cause near-term collections pressure are also typically name factors that historically have led to more portfolio supply, as consumers struggle to manage and pay down the debt. Operating expenses for the first quarter were $189 million, a $20 million increase, driven primarily by higher compensation and employee services, higher outside fees and services and higher legal collection costs. The higher compensation and employee services expense this quarter was mainly due to severance expenses of $7.5 million. Our legal collections costs of $24 million were in line with the mid-$20 million range we communicated last quarter, with the sequential increase being driven by higher volume of accounts placed into the legal channel. As a reminder, it's a timing lag when we invest in our legal channel. So clearly, there's an upfront cost paid to the courts when the lawsuit is filed, which is then followed several months later by cash collections starting to build. We expect legal collections costs for the second quarter to be in the low-$20 million range and approaching the mid-$20 million range per quarter by the end of the year. This reflects our anticipation of additional legal placement, relating to accounts that have underperformed in the call center. Outside fees and services were up $6 million for the quarter, due to a $7.6 million increase in corporate legal costs, primarily due to certain case-specific litigation expenses with a smaller contribution coming from truing-up our CFPB accruals following the previously announced settlement. Net interest expense for the first quarter was $38 million, an increase of $7 million, primarily reflecting increased interest rates. Our effective tax rate for the quarter was 26%. Net loss attributable to PRA was $59 million or negative $1.50 in diluted earnings per share. Cash collections for the quarter were $411 million, compared to $481 million in the first quarter of 2022. The decrease was primarily driven by lower levels of U.S. portfolio purchases as well as the impact from the strengthening U.S. dollar, which negatively impacted cash collections by $16 million. For the quarter, Americas cash collections were $254 million, a decrease of $52 million, driven primarily by the impact of lower levels of portfolio purchases in the U.S. over the last few years, as a result of the excess consumer liquidity of 2020 and 2021 which drove U.S. delinquency and charge-off rates to historic lows and reduce the amount and size of portfolios available for sale. In addition, the decrease was somewhat impacted by the muted tax season I mentioned earlier, which reduce the seasonal up-tick from fourth quarter to first quarter, that we had experienced before the pandemic. We traditionally have experienced strong double-digit sequential increases in first quarter collections in the US due to the timing of tax returns. This year, we only experienced a single-digit increase. European cash collections for the quarter decreased 10%, but only 2% on a currency-adjusted basis. This represents over performance of approximately 3% compared to our internal expectations. Our cash efficiency ratio was 54.3% in the first quarter. The year-over-year decrease was largely due to increased legal collection costs as well as the severance and corporate legal expenses that I mentioned earlier. Excluding the severance and corporate legal expenses, our cash efficiency ratio would have been 58%, while the increased legal collection costs reduced the cash efficiency ratio at the time of investment. We anticipate the ratio will climb higher as we generate more collections. We expect to achieve a cash efficiency ratio of 60% on a quarterly run rate basis by the fourth quarter of 2023. Looking at our investments this quarter, we invested $133 million in the Americas, which represented a sequential increase in purchases for the fourth quarter in a row. In the US, in particular, pricing improved slightly during the quarter. In our existing forward flows of fresh paper, we experienced a sequential increase in volume from the fourth quarter of last year. The economic indicators we follow are continuing to move in the right direction, giving us confidence of more supply entering the market in 2023 and beyond. In Europe, we invested $98 million during the quarter which represents one of the largest first quarter purchasing levels for Europe in PRA's history. As a reminder, the first quarter is a seasonally low purchasing quarter in Europe. From what we can see, it appears that the rising cost of capital is beginning to impact the market. This is something we've talked about for the past few quarters now given the higher interest rate environment and the fact that many of the European players are still overlevered. We're seeing some evidence of improved pricing, although that's not consistent yet for every transaction across all markets. There have been an increased number of retrades by competitors, which is essentially when a competitor sells part of their book. In addition, several long-term forward flows have not been continued by the purchasers of those flows, causing that supply to return to the market. And lastly, we're seeing some sellers pull deals from market after failing to meet internal pricing guidelines, which we believe is another sign of pricing normalizing. ERC at March 31 was $5.7 billion with 37% in the US and 54% in Europe. ERC was roughly consistent with the end of 2022. We expect to collect $1.4 billion of our ERC balance during the next 12 months. Based on the average purchase price multiples we've recorded in 2023, we would need to invest approximately $848 million globally over the same timeframe to replace this runoff and maintain current ERC levels. With the expected build in US supply, we anticipate we will exceed this level of investment and begin to grow ERC as we close this year and move into 2024. Our capital position remains strong with our leverage ratio within our long-term target of two times to three times debt to adjusted EBITDA and considerably lower if you give effect to the use of net proceeds from our recent notes offering. At the end of the quarter, we had $1.6 billion available under our edit facilities, $437 million of which was available to borrow after considering borrowing base restrictions. Additionally, in the last 12 months, we generated $1 billion of adjusted EBITDA, which we believe is a good proxy for cash generation and shareholder value being created. During the quarter, we completed a $400 million offering of senior unsecured notes with the majority of the net proceeds being set aside for repayment of our convertible notes that mature in June and the remainder being used to pay down our revolving credit lines. This has caused a temporary increase in leverage as we don't net the restricted cash against our borrowings. As this chart illustrates, on a pro forma basis, our debt to adjusted EBITDA ratio would have been 2.55 instead of 2.89%. For the second quarter, we're expecting net interest expense in the mid-$40 million range. Going beyond that, once we repay our convertible notes, we would expect an effective interest rate in the high 6% range for the remainder of the year. Ultimately, we believe our funding position is strong, and we have ample capacity in all the markets where we invest. Now I'd like to turn things back to Vik.

Thanks, Pete. While we experienced in quarter one, only our second quarterly net loss since we went public due to the items that Pete discussed, we continue to generate strong cash flow with adjusted EBITDA consistent with the level we generated in quarter four. Perhaps most encouragingly, we've repurchased $230 million of non-performing loan portfolios, capitalizing on what we believe to be a gradually improving supply environment. Looking ahead, we remain focused on accelerating our efforts to execute against our strategic objectives and deliver improved financial performance as we move through the year. I believe we are well positioned to benefit from more supply, and I'm encouraged by the opportunities that lie ahead. As we look beyond 2023, I am excited about where we are heading as a company. I am committed to guiding us there together as one team that is united by the core mission and strong values that have been central to our sustained performance. Over the next few months, we will be participating in several conferences and engaging with current and prospective investors. I look forward to interacting with each and every one of you as we maintain our focus on driving shareholder value and expanding our investor base. Thank you again for joining us and for your continued support of PRA. Operator, we are now ready for questions.

We will now begin the question-and-answer session. [Operator Instructions] At this time, we will take our first question, which will come from Bob Napoli with William Blair. Please go ahead with your question.

Thank you. Good afternoon. Vik, welcome to PRA

Thank you.

So maybe a big picture question first. I mean, what led you to accept this to take this opportunity? And what are the main things that you think you can add incrementally to the business?

Well, let me just go back and give some context. Kevin Stevenson served this company with great distinction for 25-plus years, right? And the Board and Kevin mutually agreed regarding stepping down and as part of that process, restart to me to step in as the CEO. And given my knowledge of the company, the fact I served on the Board for seven or eight years, the view I had about the talent in the organization, the opportunities for our business and understanding the situation, I readily accepted, and I'm all in.

And I guess what incrementally do you want to -- as you look at this, what I guess, do you want to do incrementally? Is it more M&A? Is it do you think that there's more efficiencies that--

That's a good question. Thank you, Bob. So, look, as part of the Board, obviously, we've had a -- I've had a long engagement with the company and stepping in here and I'm obviously at one level drinking from a firehose, right, trying to figure out everything that goes on here is one thing to serve on a Board and operate at 30,000 to 100,000 feet and other to land at ground zero. So, I'm at ground zero now. Strategy is intact and there is no change that I am looking at or exploring or working on with regard to strategy. I think what's happening is that the macro environment is complex, at some level, challenging at some level, it provides opportunities with regard to the future buying. I think the biggest item -- or the biggest item that I'm working on with regard to what I would call overall execution, right? How do we ensure that the pace and intensity and the speed at which we operate internally is aligned with both customer expectations and market expectations, right? Our customers -- each of us is wired for instantaneous sort of interaction, right, with whatever companies are dealing with, right? You sort of buy something and you get something back in a second. And how do we sort of take that prism and bring it back into the company and drive just sharper execution and drive better performance over time. So, that's really where I see -- I'm spending a lot of my time on that, and I see that's where the opportunities are for us in the sort of near-term and then obviously, we've got to make sure that we are optimizing ourselves against our addressable market, if there are opportunities to open up the market in terms of the geographies already in that freight. M&A, I'm not spending time on M&A, but we've done M&A transactions in the past, and they've been strategic and opportunistic. And if they come down the pike, of course, we'll take a look at that. But that's not that's not the main focus of myself at this time.

And then for Pete, I think you -- typically, when we go through cycles like this where you go through a credit cycle. The IRRs on paper, you're able to buy picks up significantly. Just wondered if you seeing that yet today? And then I think you had suggested that the cash collections in the second quarter has started off a little bit slower, and is that already built into your changes in expected recoveries?

Yes, I guess on the first point, I'd say we've seen some modest improvement in pricing as we came through the back part of last year and continuing into the first quarter. The overall collections environment in the US, in particular, this quarter was challenging. As I said in my prepared remarks, we normally -- going back pre-pandemic, we normally would have had a strong double-digit increase Q4 to Q1, easily high-teens, if not in the high 20s percentage increase quarter-over-quarter, and that was a single-digit increase this year. And so, we're attributing that to the kind of the softer tax season. There was a lot of public commentary around lower refunds, et cetera, this year as well as just the overall economic backdrop. And we set our curves every quarter with our best outlook. And we did that here in the first quarter. I think we're optimistic that things are going to perform well. But with the challenging environment, we just want to highlight that there's always a potential for more there. Not that we see anything immediately on the horizon.

Thank you. Appreciate it.

And our next question will come from Robert Dodd with Raymond James. Please go ahead with your question.

Hi guys, and thanks for taking the question. Pete, when you talked about the cash collection efficiency ratio getting up to a 60% run rate by Q4. Obviously, you also talked about legal expenses maybe ramping up into Q4 and there's also a work on reduction in force in the US. I mean, is Q4 going to be kind of the peak for the year, or are all the moving parts for -- again, maybe exit at a 60% cash efficiency ratio but potentially, it's not at that level high all...

Yes. Obviously, with the start we've had, we're not likely to hit 60% for the full year. We were just trying to give some sort of trend guidance that we thought by the fourth quarter we'd be at a run rate that would generate a 60% cash efficiency ratio. So, kind of by fourth quarter we'll be there. And then my expectation is that would be kind of the floor as we move into 2024 and beyond.

Got it. Thank you. And then on that pricing point, I think in your prepared remarks, I think you mentioned that a couple of sellers have pulled portfolios from the market because it wasn't hitting their pricing expectations. That tends to imply there's some resistance in the market to pricing moving much, much more in your favor. Could you tell us, I mean, how broad based is that risk that pricing moves meaningfully, the sellers just pull back. Obviously, there's a little bit of dynamic in terms of what they want to achieve in terms of the cash proceeds for these portfolios that they're selling?

Yes. That comment was directed primarily at the European market.

Okay.

Just recall that Europe tends to be kind of lumpier transaction-wise. Banks might go for a year or more and aggregate portfolios before they come to market, so some of those processes in the quarter. We observed banks bringing a deal to market and hadn't been in the market for a period of time and their expectations just need to get readjusted to pricing reality. And so that happens over time. Just at the margins that's an indication for us that there's some discipline in the competitive landscape in those markets. We weren't an outlier in terms of our bid expectations and it just didn't meet an internal pricing threshold for a bank or two here and there.

Just to supplement that, I think in the US feat, we have a reasonable view on what the seller community is thinking about. And we've got active engagement with each of them, right? We're seeing nothing here that would suggest that the volumes that we're anticipating to pick up through the rest of the year will not be part of the market opportunity for us.

Got it. Thank you.

And our next question will come from Mark Hughes with Truist. Please go ahead with your question.

Yeah, thank you. Good afternoon.

Hey Mark.

You had suggested that the $31 million NPV adjustment, I guess, would the other $6 million and the changes in the expected recoveries. Is that underperformance in the quarter? Was that a US number? Why is that range?

Yeah. So we had a $10 million underperformance in the US, which then led us to adjust our forward-looking ERC downward. In total, on a consolidated level, we're $37 million negative change in estimates. The US is about $40 million negative. So we -- on a net basis, slight overperformance in Europe and some of the other geographies to claw back.

Okay. And then when you think about the underwriting of the 2021 paper, your evaluation of it, was there maybe as you look back on it, some judgment that the excess liquidity at that time might persist? Do you think it was just a -- was that a meaningful contributor to what we're seeing happening here, or is it -- do you think really the -- because I think you've pointed out that it's been pretty soft for some time. But was it a change that you observed in the quarter a very recent as driving that?

No. I mean, I think it's just the magnitude of the continued underperformance that we've experienced life to date. And the fact that it really didn't perform any differently in the tax season, as you would expect. I'd say with regards to the underwriting of that vintage, we were underwriting with pre-pandemic data. So we weren't taking into account performance during that peak liquidity period. My commentary on the consumer there is that there's potential that there was some adverse selection, it just happened naturally because of the excess liquidity and the people that charged off during that peak liquidity period maybe were less inclined to be payers. And so that's something we'll work on as we continue to work this -- the accounts that came in that cohort. Those that score appropriately as we've indicated in the commentary, those that score appropriately that haven't responded in the call centers. We'll start to move that into more of a legal collection channel. And look to build the collections over time.

You had mentioned -- thank you for that -- the case-specific litigation accounted for most of the higher legal costs. What is that about? And would there a kind of a high-level decision, let's just get this cleaned up this quarter, or would it – yes…

As we work through the variety of ongoing litigation that we have, as and when it gets to a point where the accounting rules require us to make an accrual, we will do that. And we did have some case-specific accruals that were increased during the year just based on activity on those cases. And then we had a smaller piece of that, which was kind of final true-up versus the accrual we had at year-end for the CFPB settlement.

Was there some case, perhaps it set a precedent or a benchmark that you then had to reflect that through other cases?

No. It's just – the ongoing back and forth on any given litigation activity, but it was related to us hitting that threshold in the quarter for accrual. So we wanted to call that out, so you didn't bake it into run rate going forward.

Then one final question, if I might. The collections multiple, the US core looks like it's 1.75 times, what sort of expected return would you anticipate with that kind of collections multiple?

Well, you know that we don't disclose our IRRs. So that maybe…

I can wonder is that sufficient to achieve your target IRRs

If we hit the underwriting curve, it will hit our expectations for returns, yes.

Very good. Thank you.

[Operator Instructions] Our next question here will come from David Scharf with JMP Securities. Please go ahead with your question.

Hi, good afternoon. Thanks for taking my questions. Most have been asked. But first off, welcome aboard, Vik.

Thank you.

And I was wondering maybe a follow-up to the very first question about strategic priorities. It sounds like maybe some just minor modifications around the edges, but I am curious, at the beginning of your prepared remarks, I think you made references to some of the actions that you're taking place to address some of the cyclical challenges in the US business, reduction in force, perhaps some additional outsourcing of certain activities. There was one-third I couldn't tied fast enough. Can you expand on those a little bit? Maybe just provide a little more detail

Yes, certainly, David, and delighted to start our relationship here. And I think I've mentioned in my remarks, not in the section that you're referencing, but I think later on that over the last -- and I've been here -- I think today is like six weeks of the dot, right, over the last six weeks, I've been asking and engaging with all of our senior team on end-to-end processes across the entire franchise, right? And that work is ongoing. And you can imagine that for our enterprise as broad as ours, it will take a while for me to get to the bottom of that credit. But as we go through that exercise, I pointed out sort of two examples among many that we're working on internally that came to mind, right? So one is that we -- every company goes back and forth with regards to the decision about how vertically integrated they are. And we, for example, have I think, spoken in the past, I believe, repeat about how much of our legal activity is done externally versus internally, right? We've been sort of bringing that on internally. And I've just been asking the question about what processes and activities are we doing inside the company that might be done at high quality at a variable cost base and give us some flexibility by external parties. So that's one of them that I pointed out. The other is the whole notion of ensuring that we are sort of optimized across what I would call an omni-channel type of approach. So we have phone contact, we have digital. We have legal. And I think as Pete mentioned, I believe that for a vary of reasons, we are going to be looking at expanding out our legal channel. And then I can spend the mine now but the payoff comes in time. And so if you take a longitudinal view of that, that's actually going to lift the overall efficiency and effectiveness of our business, right? So those are two examples. And then as we go forward in quarters to come, we will certainly point out progress on these items as well as talk about other processes at that we’re looking at, right.

Got it. That's very helpful. And I guess following up on that, I guess, for Pete, the -- clearly expanding legal collections raises the denominator or just the dollars collected, but it's a much higher cost channel historically than call center. Is the -- should we -- I know you're not trying to pin you down on guidance going out a full year, but that mid-$20 million level of legal -- upfront legal collections per quarter sounds like in the back half of the year. I mean, should we view that as an upfront investment or probably a floor even in an improving supply environment expect to spend?

Yes. I think you're accurately pointing out that, as we increase the level of portfolio we're purchasing we will naturally have an increase in the overall amount of legal spend that we've got on a quarterly basis. That will tend to lag somewhat the ramp in purchasing. We will tend to work a portfolio for six months or more in the call centers and digital before scoring for the legal channel. So that guidance for the sort of remainder of this year is really more around the investment that we already -- the portfolio we already have in the book and primarily around that addressing that underperformance we've seen early on in these recent vintages. In terms of the longer-term I think that, that will naturally increase. And so you could probably look at that as a floor going into next year with regard to the overall legal investment. And then coming back to your initial in there that it's a higher cost channel. Again, if we're scoring appropriately, there is still good return on investment for that incremental cost investment in the legal channel so -- response to your points.

Understood. Got it. Maybe one last one, sort of more on the macro front. I mean, we've been hearing, obviously, for a number of months about the prospects of a lighter tax fund season and we still have a pretty robust or tight labor market, at least among kind of a lot of color payment sectors. What's your sense of the US performance, like how much is related to unique aspect of this year's refunds versus broader macro environment. I mean, it's not like the last three months, we learned about stimulus drying up and household savings. But I mean, as you reflect on kind of decreasing the forward expected ARC is it related, are you starting to see or speculate the impact of higher borrowing costs on consumers? Are there other factors? And does it incorporate certain assumptions near term about unemployment? Because clearly, this earnings season, the people you're buying from – they're hoping -- they're all baking in various year-end unemployment forecast that they share with investors that's behind their reserve rates. And curious if kind of -- since the shapes of your curve matter as much as the aggregate amount of collections, if you have a certain expectation for maybe 6 to 12 months unemployment as it impacts your yields?

Yes. We have -- I mean we're not -- we don't use macroeconomic factors in the modeling. It's more trend-based modeling current throughput and expectations for the results of recent activities that we've taken through, whether that's legal placements or lettering, et cetera. But I would say that, the overall environment is a challenging one in the US right now in prior cycles when we've gone into this part of the cycle, we have had some softness in cash collections, elongation of the collections curves, lower levels of onetime payments and more longer-term payment plans, and those are things that we are experiencing in the current environment. In terms of the adjustments we've made to the curve, yes, we again, we've focused on the near term, call it, rest of this year and into next year and making those adjustments. And our expectation is that we should be able to hit those curves if things perform the way we think they're going to, but time will tell.

Got it. Great. Thank you.

And this concludes our question-and-answer session. I'd like to turn the conference back over to Vikram Atal for any closing remarks.

Thanks, everybody, for your listening in and for your questions and your engagement, and we look forward to seeing you in the coming weeks and months. Take care. Thanks.