PRA Group, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. PRA Group purchases, collects and manages nonperforming-loan portfolios across the Americas, Europe and Australia; it also provides certain fee-based services. Figures below are unaudited.
Financial results and key metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $216.4m | $244.8m | $581.1m | $743.7m |
| Operating income | $43.0m | $70.8m | $55.0m | $226.5m |
| Net income (loss) attributable to PRA Group | $(12.3)m | $24.7m | $(74.7)m | $101.2m |
| Diluted EPS | $(0.31) | $0.63 | $(1.91) | $2.52 |
| Cash collections | $419.6m | $412.3m | $1,250.2m | $1,337.4m |
| Portfolio purchases | $311.2m | $183.1m | $869.2m | $561.9m |
- Q3 total portfolio revenue fell 9.4%, as lower collection overperformance and prior-year increases to estimated recoveries more than offset higher portfolio income. Other revenue declined 59.4%, mainly due to the timing of claims-processing settlements.
- Nine-month portfolio revenue decreased 21.2%. Changes in expected recoveries were $6.4m, versus $134.8m in 2022; the 2023 amount included $47.3m of collections above forecast, offset by a $40.9m reduction in expected future recoveries. Management attributed the latter largely to U.S. collection performance and reported a $25.6m net present value reduction for U.S. Core portfolios, more than half related to the 2021 vintage.
- Interest expense, net rose 52.4% in Q3 to $49.5m and 36.6% for the nine months to $130.8m, reflecting higher average debt and interest rates. Nine-month operating expenses increased 1.7% to $526.2m; Q3 included a $5.0m real-estate impairment.
- Cash efficiency ratio was 58.9% for Q3 and 58.2% for the first nine months. Estimated remaining collections were $6.0bn at September 30.
Cash flow, balance sheet and debt
- At September 30, cash and cash equivalents were $105.2m; restricted cash of $13.2m was included in other assets, bringing cash, cash equivalents and restricted cash to $118.4m. Finance receivables were $3.46bn and total assets were $4.33bn.
- Borrowings were $2.83bn, up from $2.49bn at December 31, 2022. Debt to Adjusted EBITDA was 2.84x, compared with 2.25x at year-end 2022. Adjusted EBITDA and this leverage ratio are non-GAAP measures.
- Nine-month operating cash flow was $(118.3)m and investing cash flow was $(179.6)m; financing cash flow was $328.3m. Cash paid for interest was $111.3m. Financing included issuing $400m of 8.375% Senior Notes due 2028 and retiring $345m of 3.50% convertible notes at maturity.
- Committed revolving facilities showed $1.33bn total availability, including $277.8m based on current estimated remaining collections and $1.05bn subject to covenants and advance rates. The company reported compliance with financing covenants at quarter-end.
Management outlook, risks and unusual items
- No specific earnings or revenue guidance is provided. Management said cash, collections, available revolver capacity and capital-market access should be sufficient for operations, planned investment, forward-flow commitments and debt obligations over the next 12 months and beyond.
- Management cited elevated inflation, rising rates, foreign-exchange volatility and global-recession concerns, with near-term collection pressure in some markets. It said U.S. portfolio volumes and pricing were improving and U.S. investment had increased for a fourth consecutive quarter; Europe remained competitive but investment volumes were stable. Management also noted softer-than-expected U.S. tax-season collections earlier in 2023.
- Goodwill was not considered more-likely-than-not impaired at September 30, but management identified heightened future impairment risk for its Debt Buying and Collection reporting unit, citing macroeconomic conditions, higher discount rates, recent performance and the share-price decline. A quantitative annual test was scheduled for October 1, 2023; its outcome is not provided in this filing text.
- The company recorded a $5.0m impairment after deciding to cease operations at a U.S. regional call center; the property was being marketed for sale or lease. Forward-flow agreements could require up to $538m of portfolio purchases, dependent on seller deliveries.
- Legal and regulatory matters are described as routine; management said the estimated aggregate reasonably possible losses above accrued amounts were not material where estimable, while noting actual losses could exceed estimates. No new material legal proceedings were reported for Q3. The filing states there were no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Whether subsequent U.S. collection trends support or further reduce estimated recoveries, particularly for the 2021 Core vintage.
- The outcome of the October 1, 2023 goodwill impairment test and any sensitivity to discount rates or operating assumptions.
- Future interest costs, floating-rate exposure and refinancing needs, including the 2025 and 2026 debt maturities; the filing estimates a 50-basis-point rate increase would add about $5.1m to interest expense over the following 12 months.
- Whether portfolio purchases and resulting collections can improve while maintaining liquidity and covenant compliance; confirm availability that is subject to borrowing-base and covenant limits.
- How the $538m maximum forward-flow commitment, foreign-exchange movements, regulatory matters and collection-law changes affect cash flows and results.