PRA Group, Inc. — Q1 2022 Form 10-Q
Business and period: Global purchaser and collector of nonperforming-loan portfolios, with fee-based claims recovery and bankruptcy-account servicing. This unaudited filing covers the three months ended March 31, 2022; comparisons are with Q1 2021. Amounts below are in millions unless noted.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Total revenue | $240.6 | $289.5; down 16.9% |
| Operating income / margin | $72.0 / 29.9% | $110.8 / 38.2% |
| Net income attributable to PRA Group | $40.0; $0.98 basic EPS, $0.97 diluted | $58.4; $1.28 basic EPS, $1.27 diluted |
| Net interest expense | $31.7 | $31.6 |
| Cash collections | $481.0 | $555.9; down 13.5% |
| Operating cash flow | $(22.7) | $20.2 |
| Cash and cash equivalents at March 31 | $79.1 on balance sheet | $87.6 at December 31, 2021 |
| Borrowings, net of issuance costs | $2,539.5 | $2,608.7 at December 31, 2021 |
| Debt / LTM Adjusted EBITDA | 1.94x | 1.89x at December 31, 2021 |
| Total assets / stockholders’ equity | $4,257.8 / $1,346.2 | $4,366.2 / $1,324.8 at December 31, 2021 |
Consolidated net income was $34.6 million; the difference from PRA-attributable income reflects the noncontrolling-interest adjustment. The cash-flow statement reports $80.9 million of cash, cash equivalents and restricted cash at quarter-end, including $1.8 million of restricted cash held in other assets.
Material changes and drivers
- Portfolio revenue fell 15.7% to $237.4 million: portfolio income declined 10.4%, primarily attributed to lower portfolio purchasing, while changes in expected recoveries were $29.9 million versus $50.1 million.
- Cash collections declined mainly in Americas and Australia Core, down 22.3%; Europe collections increased slightly. Management attributed weaker U.S. collections in part to excess consumer liquidity and lower portfolio purchases during the pandemic.
- Operating expenses decreased 5.7% to $168.6 million, but fell less than revenue, contributing to lower operating margin. Compensation declined with reduced U.S. call-center costs and staffing; agency fees increased.
- Income tax expense was $4.6 million and the effective tax rate was 11.7%, versus 21.9% in Q1 2021; the filing cites lower pretax income and discrete items.
- Portfolio acquisitions were $147.5 million, compared with $159.0 million. Estimated remaining collections were $5.739 billion at March 31.
- The company repurchased 860,031 shares for approximately $39.5 million during the quarter. A new $150 million repurchase authorization was approved in February; $127.7 million remained at quarter-end.
Outlook, liquidity, risks and unusual items
- No specific financial guidance was provided. Management expected near-term portfolio supply constraints and pricing pressure to continue, while anticipating charge-offs and portfolio supply could increase later in 2022. Management said cash generation, existing cash, available facilities and capital-market access should fund operations and planned commitments for the next 12 months and beyond.
- Management cited elevated inflation, supply-chain constraints, energy-market effects from Russia’s invasion of Ukraine, and continuing COVID-19 uncertainty. It said the full impact was not predictable.
- Q1 changes in expected recoveries included a $20.5 million write-down on one Brazilian portfolio. The net positive $29.9 million adjustment also included $23.7 million of collections above forecast, largely in Europe; management continued to view much of the overperformance as accelerated timing rather than higher total collections.
- At March 31, available revolver capacity after borrowing-base and covenant restrictions was $571.1 million in total: $72.9 million in North America and $498.2 million in Europe. The company reported compliance with financing covenants.
- After quarter-end, the European facility extension became effective April 7, extending maturity to February 2024 while reducing aggregate borrowing limits by $600 million. On April 1, the company also entered into a new $800 million UK revolving facility, subject to a borrowing base.
- Forward-flow purchase commitments had a maximum remaining purchase price of $618.9 million, with $617.1 million due within 12 months. Estimated debt interest, unused fees and principal due in the next 12 months were approximately $110 million, including $10.3 million principal.
- Risks include portfolio recovery-estimate uncertainty, reduced supply or unfavorable acquisition pricing, consumer payment behavior and economic conditions, regulation and litigation, foreign-exchange and interest-rate movements, refinancing and covenant access, and cybersecurity or technology disruptions. The company reported routine legal and regulatory matters; estimated reasonably possible losses above accruals were not material where estimable. It stated there were no material changes to the risk factors in its 2021 Form 10-K.
Important facts for investors to verify
- Whether U.S. collection trends and portfolio supply improve as management anticipated, and the related effect on cash collections and purchases.
- How actual collections compare with ERC forecasts, including whether reported overperformance represents timing acceleration or durable higher recoveries; monitor the Brazilian portfolio write-down.
- Post-quarter European and UK facility terms, borrowing-base availability, refinancing costs and covenant headroom.
- Cash-flow conversion and liquidity, including the distinction between balance-sheet cash and cash plus restricted cash.
- Share repurchases, debt leverage and the upcoming 2023 convertible-note maturity and potential conversion conditions.