PRA Group, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; quarterly figures below are included only where the filing provides them. PRA Group purchases, collects and manages nonperforming loan portfolios across the Americas, Europe and Australia, and also provides certain fee-based services.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $1,095.7 million | $1,065.4 million |
| Operating income | $375.0 million; 34.2% margin | $349.7 million; 32.8% margin |
| Net income | $195.5 million | $167.7 million |
| Net income attributable to PRA Group | $183.2 million; diluted EPS $4.04 | $149.3 million; diluted EPS $3.26 |
| Operating cash flow | $84.9 million | $141.7 million |
| Cash and cash equivalents at year-end | $87.6 million | $108.6 million |
| Borrowings, net of discounts and issuance costs | $2,608.7 million | $2,661.3 million |
Revenue rose 2.8% year over year. Total portfolio revenue increased 1.9% to $1,073.2 million: portfolio income declined 11.0% to $875.3 million, while changes in expected recoveries rose to $197.9 million from $69.3 million. Operating expenses were nearly flat at $720.7 million. Net interest expense fell 12.4% to $124.1 million; the effective tax rate increased to 21.9% from 19.7%.
Cash collections increased 2.8% to $2,061.7 million. Europe collections grew 22.3%, largely reflecting portfolio purchases in prior years; this was partly offset by lower U.S. legal and call-center collections. Fourth-quarter collections were $473.7 million, versus $481.9 million in Q4 2020. The full-year cash efficiency ratio was 65.3%, compared with 64.5%.
Portfolio purchases/acquisitions totaled $972.3 million in 2021, versus $905.1 million in 2020. Estimated remaining collections (ERC) were $6,006.6 million at year-end. Management said most collection outperformance represented acceleration of future payments, rather than an increase in total expected collections; near-term forecasts were raised in certain geographies with corresponding reductions later in the forecast period.
Liquidity, debt and capital allocation
- Year-end cash was $87.6 million; investments were $93.0 million. The company reported $1,298.2 million of revolving capacity available without restrictions and $624.7 million available after borrowing-base and covenant limits.
- Gross principal borrowings were $2,622.8 million. Debt included $345 million of 3.50% convertible notes due 2023, $300 million of 7.375% senior notes due 2025, and $350 million of 5.00% senior notes due 2029, as well as revolving facilities and a term loan.
- In September 2021, PRA Group issued $350 million of 2029 notes and used the proceeds to repay North American revolver borrowings. The company reported compliance with financing covenants at year-end.
- Forward-flow purchase commitments had a maximum remaining purchase price of $650.6 million, of which $650.0 million was due within 12 months. Management stated operating cash generation, collections, cash, revolver capacity and capital-market access were expected to fund operations, commitments, debt maturities and purchases over the next 12 months and beyond.
- The company repurchased 4.84 million shares for approximately $212.9 million in 2021. The $230 million authorization was completed on February 25, 2022; the board then approved a new $150 million repurchase program. No regular common-stock dividend was paid.
Material changes, outlook and risks
- COVID-19 effects included elevated collections that began normalizing in the second half of 2021, and reduced U.S. portfolio purchases amid lower bankruptcy filings and charge-offs. Management said the pandemic’s continuing effects remained difficult to predict.
- FY2021 operating cash flow declined 40.1% to $84.9 million. Net cash decreased $32.0 million during the year, with financing cash outflows including share repurchases.
- Adoption of convertible-instrument accounting guidance in 2021 increased net income by $6.4 million and diluted EPS by $0.14, according to the filing. This accounting change also affected the year-over-year interest expense comparison.
- Key risks include uncertainty in collection forecasts and portfolio recoveries; availability and pricing of portfolios; economic, inflationary and pandemic-related effects; substantial leverage and refinancing needs; variable interest rates and the LIBOR transition; foreign exchange exposure; regulatory, privacy and litigation risks; and cybersecurity or technology disruption.
- Regulatory matters include ongoing CFPB discussions concerning its investigation of compliance with a 2015 consent order and applicable law. The company said it could not predict the outcome. It also disclosed a multi-state investigation and pending litigation, including TCPA matters; the reasonably possible aggregate loss in excess of accruals was described as not material where estimable, while some individual matters could not be estimated.
- The principal accounting estimate is expected recoveries on purchased portfolios. The auditor identified this estimate as a critical audit matter because it involves significant uncertainty and judgment. The filing reports an unqualified audit opinion and effective internal control over financial reporting.
Important facts for investors to verify
- Whether actual collections and recoveries support management’s ERC estimate and the assumption that much of the outperformance was timing-related.
- How cash generation and borrowing-base availability support the $650.0 million of near-term forward-flow commitments and debt service.
- Developments in the CFPB investigation, multi-state inquiry and material litigation, including any changes to accruals or business practices.
- How portfolio supply, purchase pricing, U.S. bankruptcy and charge-off trends, and collection performance evolve as pandemic-related effects normalize.
- Exposure to floating-rate debt, refinancing—particularly the European facility maturing in 2023—and currency movements.