PRA GROUP INC [PRAA] Filings

10-Q 1 praa-20220630.htm 10-Q praa-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2022

☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________ to ________

Commission File Number: 000-50058

PRA Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware

75-3078675

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

120 Corporate Boulevard

Norfolk, Virginia 23502

(Address of principal executive offices)

(888) 772-7326

(Registrant's Telephone No., including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	PRAA	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

The number of shares of the registrant's common stock outstanding as of August 3, 2022 was 38,975,989.

Table of Contents


Part I. Financial Information

Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets	3
	Consolidated Income Statements	4
	Consolidated Statements of Comprehensive (Loss)/Income	5
	Consolidated Statement of Changes in Equity	6
	Consolidated Statements of Cash Flows	8
	Notes to Consolidated Financial Statements	9
	1. Organization and Business	9

	2. Finance Receivables, net	10
	3. Investments	15
	4. Goodwill	16
	5. Leases	16
	6. Borrowings	17
	7. Derivatives	21
	8. Fair Value	22
	9. Accumulated Other Comprehensive Loss	24
	10. Earnings per Share	26
	11. Income Taxes	27
	12. Commitments and Contingencies	27
	13. Recently Issued Accounting Standards	28

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 4.	Controls and Procedures	53

Part II. Other Information

Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3.	Defaults Upon Senior Securities	54
Item 4.	Mine Safety Disclosures	54
Item 5.	Other Information	54
Item 6.	Exhibits	54

Signatures		56

Part I. Financial Information

Item 1. Financial Statements (Unaudited)

PRA Group, Inc.

Consolidated Balance Sheets

June 30, 2022 and December 31, 2021

(Amounts in thousands)


	(unaudited)
	June 30, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	67,974	$	87,584
Investments	86,386		92,977
Finance receivables, net	3,183,632		3,428,285
Income taxes receivable	42,207		41,146
Deferred tax assets, net	63,810		67,760
Right-of-use assets	55,877		56,713
Property and equipment, net	54,182		54,513
Goodwill	437,032		480,263
Other assets	97,653		57,002
Total assets	$	4,088,753	$	4,366,243
Liabilities and Equity
Liabilities:
Accounts payable	$	4,689	$	3,821
Accrued expenses	97,139		127,802
Income taxes payable	15,575		19,276
Deferred tax liabilities, net	44,029		36,630
Lease liabilities	60,681		61,188
Interest-bearing deposits	114,383		124,623
Borrowings	2,481,622		2,608,714
Other liabilities	28,268		59,352

Total liabilities	2,846,386		3,041,406

Equity:
Preferred stock, $0.01 par value, 2,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.01 par value, 100,000 shares authorized, 39,639 shares issued and outstanding at June 30, 2022; 100,000 shares authorized, 41,008 shares issued and outstanding at December 31, 2021	396		410
Additional paid-in capital	—		—
Retained earnings	1,554,237		1,552,845
Accumulated other comprehensive loss	(347,821)		(266,909)
Total stockholders' equity - PRA Group, Inc.	1,206,812		1,286,346
Noncontrolling interest	35,555		38,491
Total equity	1,242,367		1,324,837
Total liabilities and equity	$	4,088,753	$	4,366,243

The accompanying notes are an integral part of these Consolidated Financial Statements.

PRA Group, Inc.

Consolidated Income Statements

For the Three and Six Months Ended June 30, 2022 and 2021

(unaudited)

(Amounts in thousands, except per share amounts)


	Three Months Ended				Six Months Ended
	2022		2021		2022		2021
Revenues:
Portfolio income	$	194,009	$	219,137	$	401,541	$	450,809
Changes in expected recoveries	56,567		63,548		86,481		113,684
Total portfolio revenue	250,576		282,685		488,022		564,493
Fee income	6,467		2,453		8,297		4,634
Other revenue	1,219		491		2,548		5,971
Total revenues	258,262		285,629		498,867		575,098



Operating expenses:
Compensation and employee services	74,137		79,632		145,233		153,616
Legal collection fees	9,554		12,289		20,427		25,215
Legal collection costs	17,746		18,469		34,303		39,781
Agency fees	14,826		15,908		32,214		31,499
Outside fees and services	27,493		20,973		46,871		41,733
Communication	9,528		10,594		22,111		23,257
Rent and occupancy	4,633		4,643		9,620		9,123
Depreciation and amortization	3,865		3,815		7,643		7,796
Other operating expenses	12,743		15,092		24,741		28,110

Total operating expenses	174,525		181,415		343,163		360,130

Income from operations	83,737		104,214		155,704		214,968
Other income and (expense):

Interest expense, net	(31,562)		(30,836)		(63,310)		(62,388)
Foreign exchange gain/(loss)	1,319		(1,079)		787		(1,105)
Other	(181)		183		(671)		209
Income before income taxes	53,313		72,482		92,510		151,684
Income tax expense	14,177		11,921		18,756		29,243
Net income	39,136		60,561		73,754		122,441
Adjustment for net income/(loss) attributable to noncontrolling interests	2,652		4,565		(2,702)		8,039
Net income attributable to PRA Group, Inc.	$	36,484	$	55,996	$	76,456	$	114,402
Net income per common share attributable to PRA Group, Inc.:
Basic	$	0.92	$	1.22	$	1.90	$	2.50
Diluted	$	0.91	$	1.22	$	1.88	$	2.48
Weighted average number of shares outstanding:
Basic	39,779		45,807		40,278		45,738
Diluted	39,900		46,059		40,602		46,051

The accompanying notes are an integral part of these Consolidated Financial Statements.

PRA Group, Inc.

Consolidated Statements of Comprehensive (Loss)/Income

For the Three and Six Months Ended June 30, 2022 and 2021

(unaudited)

(Amounts in thousands)


	Three Months Ended				Six Months Ended
	2022		2021		2022		2021
Net income	$	39,136	$	60,561	$	73,754	$	122,441
Other comprehensive (loss)/income, net of tax:
Currency translation adjustments	(115,536)		19,087		(103,266)		(5,444)
Cash flow hedges	5,837		1,355		24,417		13,678
Debt securities available-for-sale	(242)		(142)		(402)		(142)
Other comprehensive (loss)/income	(109,941)		20,300		(79,251)		8,092
Total comprehensive (loss)/income	(70,805)		80,861		(5,497)		130,533
Less comprehensive (loss)/income attributable to noncontrolling interests	(3,177)		6,648		(1,041)		5,698
Comprehensive (loss)/income attributable to PRA Group, Inc.	$	(67,628)	$	74,213	$	(4,456)	$	124,835

The accompanying notes are an integral part of these Consolidated Financial Statements.

PRA Group, Inc.

Consolidated Statements of Changes in Equity

For the Six Months Ended June 30, 2022

(unaudited)

(Amounts in thousands)


	Common Stock			Additional Paid-In		Retained		Accumulated Other Comprehensive		Noncontrolling		Total
	Shares	Amount		Capital		Earnings		(Loss)		Interest		Equity
Balance at December 31, 2021	41,008	$	410	$	—	$	1,552,845	$	(266,909)	$	38,491	$	1,324,837
Components of comprehensive income, net of tax:
Net income	—	—		—		39,972		—		(5,354)		34,618
Currency translation adjustments	—	—		—		—		4,780		7,490		12,270
Cash flow hedges	—	—		—		—		18,580		—		18,580
Debt securities available-for-sale	—	—		—		—		(160)		—		(160)
Vesting of restricted stock	262	3		(3)		—		—		—		—
Repurchase and cancellation of common stock	(860)	(9)		4,527		(43,972)		—		—		(39,454)
Share-based compensation expense	—			3,891		—		—		—		3,891
Employee stock relinquished for payment of taxes	—	—		(8,415)		—		—		—		(8,415)
Balance at March 31, 2022	40,410	$	404	$	—	$	1,548,845	$	(243,709)	$	40,627	$	1,346,167
Components of comprehensive income, net of tax:
Net income	—	—		—		36,484		—		2,652		39,136
Currency translation adjustments	—	—		—		—		(109,707)		(5,829)		(115,536)
Cash flow hedges	—	—		—		—		5,837		—		5,837

Debt securities available-for-sale	—	—		—		—		(242)		—		(242)
Distributions to noncontrolling interest	—	—		—		—		—		(3,494)		(3,494)
Contributions from noncontrolling interest	—	—		—		—		—		1,599		1,599


Vesting of restricted stock	37	—		—		—		—		—		—
Repurchase and cancellation of common stock	(808)	(8)		(3,835)		(31,092)		—		—		(34,935)
Share-based compensation expense	—	—		3,849		—		—		—		3,849

Employee stock relinquished for payment of taxes	—	—		(14)		—		—		—		(14)

Balance at June 30, 2022	39,639	$	396	$	—	$	1,554,237	$	(347,821)	$	35,555	$	1,242,367

The accompanying notes are an integral part of these Consolidated Financial Statements.

PRA Group, Inc.

Consolidated Statements of Changes in Equity

For the Six Months Ended June 30, 2021

(unaudited)

(Amounts in thousands)


	Common Stock			Additional Paid-In		Retained		Accumulated Other Comprehensive		Noncontrolling		Total
	Shares	Amount		Capital		Earnings		(Loss)		Interest		Equity
Balance at December 31, 2020	45,585	$	456	$	75,282	$	1,511,970	$	(245,791)	$	31,609	$	1,373,526
Effect of change in accounting principle (1)	—	—		(26,697)		12,008		—		—		(14,689)
Balance at January 1, 2021	45,585	456		48,585		1,523,978		(245,791)		31,609		1,358,837
Components of comprehensive income, net of tax:
Net income	—	—		—		58,406		—		3,474		61,880
Currency translation adjustments	—	—		—		—		(20,108)		(4,423)		(24,531)
Cash flow hedges	—	—		—		—		12,323		—		12,323






Distributions to noncontrolling interest	—	—		—		—		—		(3,933)		(3,933)

Vesting of restricted stock	214	2		(2)		—		—		—		—

Share-based compensation expense	—	—		4,113		—		—		—		4,113

Employee stock relinquished for payment of taxes	—	—		(5,460)		—		—		—		(5,460)

Balance at March 31, 2021	45,799	$	458	$	47,236	$	1,582,384	$	(253,576)	$	26,727	$	1,403,229
Components of comprehensive income, net of tax:
Net income	—	—		—		55,996		—		4,565		60,561
Currency translation adjustments	—	—		—		—		17,004		2,083		19,087
Cash flow hedges	—	—		—		—		1,355		—		1,355
Debt securities available-for-sale	—	—		—		—		(142)		—		(142)
Distributions to noncontrolling interest	—	—		—		—		—		(13,120)		(13,120)
Vesting of restricted stock	38	—		—		—		—		—		—
Share-based compensation expense	—	—		4,040		—		—		—		4,040
Employee stock relinquished for payment of taxes	—	—		(70)		—		—		—		(70)
Balance at June 30, 2021	45,837	$	458	$	51,206	$	1,638,380	$	(235,359)	$	20,255	$	1,474,940

(1) Reflects adjustments recorded for the January 1, 2021 adoption of an accounting update. Refer to the Company's 2021 Annual Report on Form 10-K for more information.

The accompanying notes are an integral part of these Consolidated Financial Statements.

PRA Group, Inc.

Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2022 and 2021

(unaudited)

(Amounts in thousands)


	Six Months Ended
	2022		2021
Cash flows from operating activities:
Net income	$	73,754	$	122,441
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation expense	7,740		8,153
Depreciation and amortization	7,643		7,796


Amortization of debt discount and issuance costs	5,098		4,647
Changes in expected recoveries	(86,481)		(113,684)

Deferred income taxes	484		(246)
Net unrealized foreign currency transactions	(22,597)		948
Fair value in earnings for equity securities	(148)		307
Other	(614)		(180)

Changes in operating assets and liabilities:
Other assets	(490)		5,901

Accounts payable	1,288		(18)
Income taxes payable, net	(5,941)		(1,724)
Accrued expenses	(16,505)		(11,142)
Other liabilities	(5,382)		(1,598)
Right of use asset/lease liability	387		36

Net cash (used)/provided by operating activities	(41,764)		21,637
Cash flows from investing activities:
Purchases of property and equipment, net	(8,212)		(4,098)

Purchases of finance receivables	(378,798)		(379,406)
Recoveries applied to negative allowance	535,537		657,344
Purchases of investments	(2,292)		(63,730)
Proceeds from sales and maturities of investments	775		31,220
Business acquisition, net of cash acquired	—		(647)


Net cash provided by investing activities	147,010		240,683
Cash flows from financing activities:
Proceeds from lines of credit	1,262,320		219,416
Principal payments on lines of credit	(1,267,470)		(496,700)



Principal payments on long-term debt	(5,000)		(5,000)
Repurchases of common stock	(86,371)		—
Payments of origination cost and fees	(7,727)		(260)
Tax withholdings related to share-based payments	(8,428)		(5,529)
Distributions paid to noncontrolling interest	(3,493)		(17,052)
Contributions from noncontrolling interest	1,599		—

Net increase in interest-bearing deposits	4,326		3,715


Net cash used in financing activities	(110,244)		(301,410)
Effect of exchange rate on cash	(14,958)		(1,313)
Net decrease in cash and cash equivalents	(19,956)		(40,403)
Cash and cash equivalents beginning of period	89,072		121,047
Cash and cash equivalents, end of period	$	69,116	$	80,644

Supplemental disclosure of cash flow information:
Cash paid for interest	$	59,487	$	58,648
Cash paid for income taxes	24,127		31,093

Cash, cash equivalents and restricted cash reconciliation:
Cash and cash equivalents per Consolidated Balance Sheets	$	67,974	$	76,013
Restricted cash included in Other assets per Consolidated Balance Sheets	1,142		4,631
Total cash, cash equivalents and restricted cash	$	69,116	$	80,644

The accompanying notes are an integral part of these Consolidated Financial Statements.

PRA Group, Inc.

Notes to Consolidated Financial Statements

1. Organization and Business:

Nature of operations: As used herein, the terms "PRA Group," the "Company," or similar terms refer to PRA Group, Inc. and its subsidiaries.

PRA Group, Inc., a Delaware corporation, is a global financial and business services company with operations in the Americas, Europe and Australia. The Company's primary business is the purchase, collection and management of portfolios of nonperforming loans. The Company also provides fee-based services on class action claims recoveries and by servicing consumer bankruptcy accounts in the United States ("U.S.").

Basis of presentation: The Consolidated Financial Statements of the Company are prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The accompanying interim financial statements have been prepared in accordance with the instructions for Quarterly Reports on Form 10-Q and, therefore, do not include all information and Notes to the Consolidated Financial Statements necessary for a complete presentation of financial position, results of operations, comprehensive income/(loss) and cash flows in conformity with GAAP. In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the Company's Consolidated Balance Sheets as of June 30, 2022, its Consolidated Income Statements and Statements of Comprehensive (Loss)/Income for the three and six months ended June 30, 2022 and 2021, and its Consolidated Statements of Changes in Equity and Statements of Cash Flows for the six months ended June 30, 2022 and 2021 have been included. The Company's Consolidated Income Statements for the three and six months ended June 30, 2022 may not be indicative of future results.

These unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Form 10-K").

Consolidation: The Consolidated Financial Statements include the accounts of PRA Group and other entities in which the Company has a controlling interest. All significant intercompany accounts and transactions have been eliminated.

Entities in which the Company has a controlling financial interest, through ownership of the majority of the entities’ voting equity interests, or through other contractual rights that give the Company control, consist of entities which purchase and collect on portfolios of nonperforming loans.

Investments in companies in which the Company has significant influence over operating and financing decisions, but does not own a majority of the voting equity interests, are accounted for in accordance with the equity method of accounting, which requires the Company to recognize its proportionate share of the entity’s net earnings. These investments are included in Other assets, with income or loss included in Other revenue.

The Company performs on-going reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with an entity cause the Company’s consolidation conclusion to change.

Segments: The Company has determined that it has two operating segments that meet the aggregation criteria of Accounting Standards Codification ("ASC") 280, Segment Reporting ("ASC 280") and, therefore, it has one reportable segment, accounts receivable management. This conclusion is based on similarities among the operating units, including economic characteristics, the nature of the products and services, the nature of the production processes, the types or class of customer for their products and services, the methods used to distribute their products and services and the nature of the regulatory environment.

The following tables show the amount of revenue generated for the three and six months ended June 30, 2022 and 2021, and long-lived assets held at June 30, 2022 and 2021, both for the U.S., the Company's country of domicile, and outside of the U.S. (amounts in thousands):


	As of and for the				As of and for the
	Three Months Ended June 30, 2022				Three Months Ended June 30, 2021
	Revenues (2)		Long-Lived Assets		Revenues (2)		Long-Lived Assets
United States	$	136,852	$	82,927	$	168,689	$	90,423
United Kingdom	45,880		12,105		42,459		2,299
Other (1)	75,530		15,027		74,481		12,241
Total	$	258,262	$	110,059	$	285,629	$	104,963

PRA Group, Inc.

Notes to Consolidated Financial Statements


	As of and for the				As of and for the
	Six Months Ended June 30, 2022				Six months ended June 30, 2021
	Revenues (2)		Long-Lived Assets		Revenues (2)		Long-Lived Assets
United States	$	288,277	$	82,927	$	346,870	$	90,423
United Kingdom	89,834		12,105		90,636		2,299
Other (1)	120,756		15,027		137,592		12,241
Total	$	498,867	$	110,059	$	575,098	$	104,963

(1) None of the countries included in "Other" comprise greater than 10% of the Company's consolidated revenues or long-lived assets.

(2) Based on the Company’s financial statement information used to produce the Company's general-purpose financial statements, it is impracticable to report further breakdowns of revenues from external customers by product or service.

Revenues are attributed to countries based on the location of the related operations. Long-lived assets consist of net property and equipment and right-of-use assets. The Company reports revenues earned from collection activities on nonperforming loans, fee-based services and investments. For additional information on the Company's investments, see Note 3.

2. Finance Receivables, net:

Finance receivables, net consisted of the following at June 30, 2022 and December 31, 2021 (amounts in thousands):


	June 30, 2022		December 31, 2021
Amortized cost	$	—	$	—
Negative allowance for expected recoveries (1)	3,183,632		3,428,285
Balance at end of period	$	3,183,632	$	3,428,285

(1) The negative allowance balance includes certain portfolios of nonperforming loans for which the Company holds a beneficial interest representing approximately 0.9% of the balance.

Three Months Ended June 30, 2022 and 2021

Changes in the negative allowance for expected recoveries by portfolio segment for the three months ended June 30, 2022 and 2021 were as follows (amounts in thousands):


	Three Months Ended June 30, 2022
	Core		Insolvency		Total
Balance at beginning of period	$	2,902,321	$	408,426	$	3,310,747
Initial negative allowance for expected recoveries - portfolio acquisitions (1)	223,776		7,570		231,346
Foreign currency translation adjustment	(143,630)		(14,132)		(157,762)
Recoveries applied to negative allowance (2)	(211,028)		(46,238)		(257,266)
Changes in expected recoveries (3)	43,322		13,245		56,567
Balance at end of period	$	2,814,761	$	368,871	$	3,183,632


	Three Months Ended June 30, 2021
	Core		Insolvency		Total
Balance at beginning of period	$	2,891,474	$	481,192	$	3,372,666
Initial negative allowance for expected recoveries - portfolio acquisitions (1)	205,035		14,642		219,677
Foreign currency translation adjustment	20,512		1,420		21,932
Recoveries applied to negative allowance (2)	(282,240)		(46,545)		(328,785)
Changes in expected recoveries (3)	60,182		3,366		63,548
Balance at end of period	$	2,894,963	$	454,075	$	3,349,038

PRA Group, Inc.

Notes to Consolidated Financial Statements

(1) Initial negative allowance for expected recoveries - portfolio acquisitions

Portfolio acquisitions for the three months ended June 30, 2022 and 2021 were as follows (amounts in thousands):


	Three Months Ended June 30, 2022
	Core		Insolvency		Total
Face value	$	1,108,890	$	36,076	$	1,144,966
Noncredit discount	(145,332)		(3,250)		(148,582)
Allowance for credit losses at acquisition	(739,782)		(25,256)		(765,038)
Purchase price	$	223,776	$	7,570	$	231,346


	Three Months Ended June 30, 2021
	Core		Insolvency		Total
Face value	$	1,275,628	$	60,316	$	1,335,944
Noncredit discount	(172,655)		(5,515)		(178,170)
Allowance for credit losses at acquisition	(897,938)		(40,159)		(938,097)
Purchase price	$	205,035	$	14,642	$	219,677

The initial negative allowance recorded on portfolio acquisitions for the three months ended June 30, 2022 and 2021 was as follows (amounts in thousands):


	Three Months Ended June 30, 2022
	Core		Insolvency		Total
Allowance for credit losses at acquisition	$	(739,782)	$	(25,256)	$	(765,038)
Writeoffs, net	739,782		25,256		765,038
Expected recoveries	223,776		7,570		231,346
Initial negative allowance for expected recoveries	$	223,776	$	7,570	$