PRA Group, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. PRA Group purchases, collects and manages nonperforming-loan portfolios, with operations in the Americas, Europe and Australia. Amounts below are in U.S. dollars; financial statement amounts are unaudited.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $285.6m | $271.9m | $575.1m | $523.7m |
| Income from operations | $104.2m | $111.3m | $215.0m | $171.8m |
| Operating margin | 36.5% | 40.9% | 37.4% | 32.8% |
| Net income attributable to PRA Group | $56.0m | $57.9m | $114.4m | $77.0m |
| Diluted EPS | $1.22 | $1.26 | $2.48 | $1.68 |
| Net interest expense | $30.8m | $35.4m | $62.4m | $72.6m |
For the six months, cash collections increased 9.5% to $1.10bn. Portfolio revenue rose 9.1% to $564.5m, including $113.7m of positive changes in expected recoveries. Q2 collections grew 6.6% to $543.8m, while portfolio revenue rose 5.4% to $282.7m. Q2 revenue growth was more than offset at the operating-income level by higher operating expenses.
- Cash flow: Six-month operating cash flow was $21.6m versus $122.5m in 2020. Investing cash flow was positive $240.7m, including $657.3m of recoveries applied to the negative allowance and $379.4m of portfolio purchases. Financing cash outflow was $301.4m.
- Balance sheet: At June 30, cash and cash equivalents were $76.0m, restricted cash $4.6m, finance receivables net $3.35bn, total assets $4.26bn and total equity $1.47bn.
- Debt and liquidity: Borrowings’ carrying amount was $2.41bn, down from $2.66bn at year-end 2020. Debt to Adjusted EBITDA, a company-defined non-GAAP measure, was 1.69x versus 1.99x at year-end. The company reported $1.16bn of facility availability without restrictions and $533.3m subject to borrowing-base and covenant restrictions; it was in covenant compliance.
- Margins and costs: Q2 operating margin contracted year over year, while the six-month margin improved. Six-month operating expenses rose 2.3%; lower U.S. legal collection costs were partly offset by higher compensation, agency fees and spending on digital operations and data analytics.
Changes, outlook and notable matters
- Management attributed stronger collections in Europe partly to 2020 portfolio purchases and favorable foreign exchange. U.S. collections benefited from consumer payment trends and digital channels; management said pandemic-related government programs had affected comparisons.
- The $113.7m first-half increase in expected recoveries included $178.4m of collections above forecast, offset by a $64.7m reduction in expected future recoveries. Management said much of the overperformance was an acceleration of future collections, with near-term forecast increases and later-period reductions; it should not be assumed to represent an equivalent increase in lifetime collections.
- Effective January 1, 2021, PRA Group early adopted ASU 2020-06 for its convertible notes. Adoption increased retained earnings by $12.0m and the notes’ net carrying amount by $19.8m; it reduced first-half interest expense by $4.0m and increased net income by $3.3m, or $0.07 per share.
- No formal financial guidance or quantified outlook is provided in the supplied filing text. Management said it expects operating cash generation, collections, cash, credit availability and capital-market access to fund operations and commitments over the next 12 months, while noting financing needs could rise with acquisitions or higher portfolio purchases.
- After quarter-end, the board authorized a share repurchase program of up to $150m. A July 30 amendment to the North American credit agreement extended maturity to July 2026 and reduced certain interest-rate margins and fees, while changing covenants and repurchase limits.
- Risks include uncertain COVID-19 effects, collection and portfolio-pricing performance, regulatory and legal exposure, foreign exchange and interest-rate movements, and access to credit. The CFPB investigation remained unresolved; the company said it could not predict the outcome and disagreed with CFPB positions on potential penalties, restitution and business practices. Management reported no material change to previously disclosed risk factors and no goodwill impairment trigger at June 30.
Investor verification priorities
- Assess whether collection outperformance is durable or primarily timing-related, and monitor subsequent changes to estimated recoveries and portfolio cash flows.
- Reconcile GAAP earnings and cash flow with collection economics, including the noncash recovery-estimate effects and the adoption-related reduction in convertible-note interest expense.
- Review debt maturities, restricted versus unrestricted facility availability, covenant headroom and the impact of variable rates and hedges.
- Track the CFPB investigation and other legal or regulatory matters, including any resulting financial or operational effects.
- Confirm the timing, amount and financing of any share repurchases under the authorized program, and whether the amended credit terms affect liquidity or capital allocation.