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U.S. Foreign Corrupt Practices Act ("FCPA"), United Kingdom Bribery Act ("UK Bribery Act") and Similar Laws. Our operations outside the U.S. are subject to various U.S. and international laws and regulations, such as the FCPA and the UK Bribery Act, which prohibit corrupt payments to governmental officials and certain other individuals. The FCPA prohibits U.S. companies and their agents and employees from providing anything of value to a foreign official for the purposes of influencing any act or decision of these individuals in order to obtain an unfair advantage or help obtain or retain business. Although similar to the FCPA, the UK Bribery Act is broader in scope and covers bribes given to or received by any person with improper intent. •Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), which restructured the regulation and supervision of the financial services industry in the U.S. and created the CFPB. The CFPB has rulemaking, supervisory, and enforcement authority over larger consumer debt collectors. The Dodd-Frank Act, along with the Unfair, Deceptive, or Abusive Acts or Practices ("UDAAP") provisions included therein, and the Federal Trade Commission Act, prohibit unfair, deceptive, and/or abusive acts and practices. •International data protection and privacy laws, which include relevant country specific legislation in the UK and other European countries where we operate that regulate the processing of information relating to individuals, including the obtaining, holding, use or disclosure of such information; the Personal Information Protection and Electronic Documents Act, which aims to protect personal information that is collected, used or disclosed in certain circumstances for purposes of electronic commerce in Canada; and the GDPR, which regulates the processing and free movement of personal data within the European Union ("EU") and transfer of such data outside the EU. •Consumer Credit Act 1974 (and its related regulations), Unfair Terms in Consumer Contracts Regulations of 1999 and the Financial Conduct Authority's consumer credit conduct of business rules, which apply to our UK |
In addition, certain of our EU subsidiaries are subject to capital adequacy, liquidity and liquidity requirements.other requirements imposed by regulators, such as the Swedish Financial Supervisory Authority.
As of December 31, 2019,2022, we employed 4,412 3,277 full-time equivalents globally. globally across 18 countries, with approximately 73% of our workforce distributed across the Americas and Australia and 27% in Europe. Our employees share a common set of values and commitments that define how we treat each other, how we relate to our customers and the responsibilities we have to shareholders, regulators, clients and others. We refer to this shared set of values as C.A.R.E.S, which stands for Committed, Accountable, Respectful, Ethical and Successful. These values are intended to foster a high performing workforce and sense of belonging by working together to build an equitable and inclusive culture where employees can be themselves, to be their best.
In support of these values we offer comprehensive total rewards programs, which include competitive pay and bonus structures, health and wellness benefits, retirement plans and an employee assistance program. Additionally, we offer tuition reimbursement assistance and have a robust suite of training and development offerings, both in person and through virtual learning technology for employees across the globe, many available in multiple languages.
Management considers our employee relations to be good. While none of our North American employees are represented by a union or covered by a collective bargaining agreement, in Europe we work closely with a number of works councils, and in countries where it is the customary local practice, such as Finland and Spain, we have collective bargaining agreements.
Available Information
We make available on or through our website, www.pragroup.com, certain reports that we file with or furnish to the SEC in accordance with the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These include our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act ("SEC Filings"). We make this information available on our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC. The SEC maintains an Internet sitea website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at: www.sec.gov.
The information contained on, or that can be accessed through our website, is not, and shall not be deemed to be a part of this Form 10-K or incorporated into any of our other SEC Filings.
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Reports filed with, or furnished to, the SEC are also available free of charge upon request by contacting our corporate office at:
PRA Group, Inc.
Attn: Investor Relations
120 Corporate Boulevard, Suite 100
Norfolk, Virginia 23502
Item 1A. Risk Factors.Factors.
Operational and the value of, and return on, an investment in our Company.
Industry Risks related to our operations and industry
A deterioration in the economic or inflationary environment in the Americas or Europecountries in which we operate could have an adverse effect on our business and results of operations.
Our performance may be adversely affected by economic, political or inflationary conditions in any market in which we operate. These conditions could include regulatory developments, changes in global or domestic economic policy, legislative changes, theand sovereign debt crises experienced in several European countries and the uncertainty regarding the EU’s future as a result of the UK's departure from the EU.crises. Deterioration in economic conditions, or a significant rise in inflation could cause personal bankruptcy and insolvency filings to increase, and the ability of consumers to pay their debts could be adversely affected. This may in turn adversely impact our business and financial results. Deteriorating economic conditions could also adversely impact the businesses to which we provide fee-based services, which could reduce our fee income and cash flow.
If global credit market conditions and the stability of global banks deteriorate, it could negatively impact the generation of comprehensive receivable buying opportunities which could adversely affect our business, financial results, and ability to succeed in international markets. If conditions in major credit markets deteriorate, the amount of consumer or commercial lending and financing could be reduced, thus decreasingreducing the volume of nonperforming loans available for purchase, which could adversely affect our purchase.business, financial results and ability to succeed in the markets in which we operate.
Other economic factors associated with the economy that could influence our performance include the financial stability of the lenders on our bank loans and credit facilities and our access to capital and credit. The financial turmoil that adversely affectedFor example, deterioration in the banking system and financial markets, duringincluding as a result of a disease outbreak, such as the last domestic recession resulted in the tightening of credit markets. Although there has since been improvement, a worsening of current conditionsCOVID-19 pandemic, could have a negative impact on our business, including a decrease in the value of our financial investments andcontribute to the insolvency of lending institutions, including the lendersnotably those providing our bank loans and credit facilities, resulting in our difficulty in or inabilitythe tightening of credit markets, which could make it difficult or impossible for us to obtain credit.credit on favorable terms or at all. These and other economic factors could have an adverse effect on our financial condition and results of operations.
We may not be able to continually replace our nonperforming loans with additional portfolios sufficient to operate efficiently and profitably, and/or we may not be able to purchase nonperforming loans at appropriate prices.
To operate profitably, we must purchase and service a sufficient amount of nonperforming loans to generate revenue that exceeds our expenses. Fixed costsCosts such as salaries and other compensation expense constitute a significant portion of our overhead and, if we do not replace the nonperforming loan portfolios we service with additional portfolios, we may have to reduce the number of our collection and other administrative personnel. We wouldmay then, have to rehire collection staff if we subsequently obtain additional portfolios. These practices could lead to negative consequences, such as:including the following:
•low employee morale;
•fewer experienced employees;
•higher training costs;
•disruptions in our operations;
•loss of efficiency; and
•excess costs associated with unused space in our facilities.
The availability of nonperforming loan portfolios at prices that generate an appropriate return on our investment depends on a number of factors, both within and outside of our control, including the following:
•the continuation of high levels of consumer debt obligations;
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•sales of nonperforming loan portfolios by debt owners;credit originators; and
•competitive factors affecting potential purchasers and credit grantorsoriginators of receivables.nonperforming loans.
Furthermore, heightened regulation of the credit card and consumer lending industry or changing credit origination strategies may result in decreased availability of credit to consumers, potentially leading to a future reduction in nonperforming loans available for purchase from debt owners. Conversely, lower regulatory barriers with respect to debt buyers could lead to increased participants in the debt collection industry, which could, in turn, impact the supply of nonperforming loans available for purchase.credit originators. We cannot predict how our ability to identify and purchase nonperforming loans and the quality of those nonperforming loans would be affected if there were a shift in lending practices, whether caused by changes in the regulations or accounting practices applicable to debt ownerscredit originators or debt buyers,purchasers, a sustained economic downturn or otherwise.
Moreover, there can be no assurance that debt ownerscredit originators will continue to sell their nonperforming loans consistent with recenthistorical levels or at all, or that we will be able to bid competitively for those portfolios. Because of the length of time involved in collecting on acquired portfolios and the variability in the timing of our collections, we may not be able to identify trends and make changes in our purchasing strategies in a timely manner. If we are unable to maintain our business or adapt to changing market needs as well as our current or future competitors, we may experience reduced access to nonperforming loan portfolios at appropriate prices and, therefore, reduced profitability.
We may not be able to collect sufficient amounts on our nonperforming loans to fund our operations.
Our principal business consists of purchasing and liquidatingcollecting nonperforming loans that consumers or others have failed to pay. The debt ownerscredit originators have typically made numerous attempts to recover on their receivables,accounts, often using a combination of in-house recovery efforts and third-party collection agencies. These nonperforming loans are difficult to collect, and we may not collect a sufficient amount to cover our investment and the costs of running our business.
Our collections may decrease if certain types of insolvency proceedings and bankruptcy filings involving liquidations increase.
Various economic trends and potential changes to existing legislation may contribute to an increase in the amount of personal bankruptcy and insolvency filings. Under certain of these filings, a debtor's assets may be sold to repay creditors, but because most of the receivablesaccounts we collect through our collections operations are unsecured, we typically would not be able to collect on those receivables.accounts. Although our insolvency collections business could benefit from an increase in personal bankruptcies and insolvencies, we cannot ensure that our collections operations business would not decline with an increase in personal insolvencies or bankruptcy filings or changes in related regulations or practices. If our actual collection experience with respect to a nonperforming or insolvent bankrupt receivables portfolio isaccounts are significantly lower than the total amount we projected when we acquired the portfolio, our financial condition and results of operations could be adversely impacted.
•adverse changes in macroeconomic conditions, and reasonable and supportable forecasts. Furthermore, in November 2019, FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” (“ASU 2019-11”), which amends the Purchase Credit Deteriorated ("PCD") financial asset guidance in ASU 2016-13 to clarify that expected recoveries of amounts previously written offbusiness climate, or the market for the entity's products or services;
•significant variances between actual and expected financial results;
•negative or declining cash flows;
•lowered expectations of future results;
•failure to be written off should be included in the valuation account and should not exceed the aggregaterealize anticipated synergies from acquisitions;
•significant expense increases;
•a more likely-than-not expectation of amounts previously written off and expected to be written off by an entity. ASU 2019-11 clarifies that a negative allowance is recognized when an entity determines, after a fullselling or partial writeoff of the amortized cost basis, that it will recoverdisposing all, or a portion of, a reporting unit;
•the basis.loss of key personnel;
•significant increase in discount rates; or
•a sustained decrease in the price per share of our common stock.
Our goodwill impairment testing involves the use of estimates and ASU 2019-11 supersede ASC 310-30, "Loansthe exercise of judgment, including judgments regarding expected future business performance and Debt Securities Acquired with Deteriorated Credit Quality" ("ASC 310-30"), which we currently follow to account for income recognized onmarket conditions. Significant changes in our finance receivables,assessment of such factors,
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including the deterioration of market conditions, could affect our assessment of the fair value of one or more of our reporting units and are effective for the fiscal year beginning January 1, 2020. ASU 2016-13 and ASU 2019-11 represent a significant significant change from existing U.S. GAAP and are expected tocould result in material changes to the Company’s accounting for its finance receivables. Implementation efforts are nearly complete, including finalizing the accounting processes, fulfillment of additional data needs for new disclosures and reporting requirements, and drafting accounting and internal control policies and procedures. ASU 2016-13 and ASU 2019-11, amendments thereof, and amendments to new and existing accounting standardsa goodwill impairment charge in a future period.
A disease outbreak could have an adverse effect on our business, results of operations and financial results.
We cannot predict the extent to which a disease outbreak, including epidemics, pandemics or similar widespread public health concerns, will impact our business, results of operations and financial results. A disease outbreak, such as the COVID-19 pandemic, could adversely affect our business, results of operations and financial results if:
•political, legal and regulatory actions and policies in response to disease outbreak may prevent us from performing our collection activities or result in material increases in our costs to comply with such laws and regulations;
•consumers respond to a disease outbreak by failing to pay amounts owed to us as a result of factors that impact their ability to make payments;
•we are unable to maintain staffing levels necessary to operate our business due to the continued spread of a disease outbreak causing employees to be unable or unwilling to work;
•we are unable to collect on existing nonperforming loans or experience material decreases in our cash collections; or
•we are unable to purchase nonperforming loans needed to operate our business because credit originators become unable or unwilling to sell their nonperforming loans consistent with historical levels.
Our loss contingency accruals may not be adequate to cover actual losses.
We are involved in judicial, regulatory and arbitration proceedings or investigations concerning matters arising from our business activities. We establish accruals for potential liability arising from legal proceedings when it is probable that such liability has been incurred and the amount of the loss can be reasonably estimated. However, there can be no assurance as to the ultimate outcome. We may still incur legal costs for a matter even if we have not accrued a liability. In addition, actual losses may be higher than the amount accrued for a certain matter, or in the aggregate. An unfavorable resolution of a legal proceeding or claim could adversely impact our business, financial condition, and results of operations.operations, or liquidity. For more information, refer to the "Litigation and Regulatory Matters" section of Note 14 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.
International Operations Risks
Our international operations expose us to risks which could harm our business, results of operations and financial condition.
A significant portion of our operations is conducted outside the U.S. This could expose us to adverse economic, industry and political conditions that may have a negative impact on our ability to manage our existing operations or pursue alternative strategic transactions, which could have a negative effect on our business, results of operations and financial condition.
The global nature of our operations expands the risks and uncertainties described elsewhere in this section, including the following:
•changes in local political, economic, social and labor conditions in the markets in which we operate;
•foreign exchange controls on currency conversion and the transfer of funds that might prevent us from repatriating cash earned in countries outside the U.S. in a tax-efficient manner;
•currency exchange rate fluctuations, currency restructurings, inflation or deflation and our ability to manage these fluctuations through a foreign exchange risk management program;
•different employee/employer relationships, laws and regulations, union recognition and the existence of employment tribunals and works councils;
•laws and regulations imposed by international governments, including those governing data security, sharing and transfer;
•potentially adverse tax consequences resulting from changes in tax laws in the jurisdictions in which we operate or challenges to our interpretations and application of complex international tax laws;
•logistical, communications and other challenges caused by distance and cultural and language differences, each making it harder to do business in certain jurisdictions;
•volatility of global credit markets and the availability of consumer credit and financing in our international markets;
•uncertainty as to the enforceability of contract and intellectual property rights under local laws;
•the potential of forced nationalization of certain industries, or the impact on creditors' rights, consumer disposable income levels, flexibility and availability of consumer credit and the ability to enforce and collect aged or charged-off
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debts stemming from international governmental actions, whether through austerity or stimulus measures or initiatives, intended to control or influence macroeconomic factors such as wages, unemployment, national output or consumption, inflation, investment, credit, finance, taxation or other economic drivers;
•the presence of varying levels of business corruption in international markets and the effect of various anti-corruption and other laws on our international operations;
•the impact on our day-to-day operations and our ability to staff our international operations given our changing labor conditions and long-term trends towards higher wages in developed and emerging international markets as well as the potential impact of union organizing efforts;
•potential damage to our reputation due to non-compliance with international and local laws; and
•the complexity and necessity of using non-U.S. representatives, consultants and other third-party vendors.
Any one of these factors could adversely affect our business, results of operations and financial condition.
We operate on a global basis with offices and activities in a number of jurisdictions throughout the Americas, Europe and Australia. We face increased exposure to risks inherent in conducting business internationally, including compliance with complex international or domestic taxand U.S. laws and regulations that apply to our international operations, which could increase our cost of doing business in international jurisdictions. These laws and regulations include those related to taxation and anti-corruption laws such as the issuance of new tax guidance,FCPA and the UK Bribery Act. Given the complexity of these laws, there is a risk that we may inadvertently breach certain provisions of these laws, such as through the negligent behavior of an employee or our failure to comply with certain formal documentation requirements. Violations of these laws and regulations by us, any of our employees or our third-party vendors, either inadvertently or intentionally, could result in fines and penalties, criminal sanctions, restrictions on our operations and ability to offer our products and services in one or more countries. Violations of these laws could also adversely affect our business, brand, international expansion efforts, ability to attract and retain employees and results of operations could have an adverse tax effectoperations.
Additionally, new or pending international regulations, such as the EU Directive (2021/2167) on our financial condition.
Risks associated with governmental regulation and laws
Our ability to collect and enforce our nonperforming loans may be limited under federal, state and international laws, regulations and policies.
Failure to comply with government regulation of the collections industry could result in penalties, fines, litigation, damage to our reputation or the suspension or termination of our ability to conduct our business.
The collections industry throughout the markets in which we operate is governed by various laws and regulations, many of which require us to be a licensed debt collector. Our industry is also at times investigated by regulators and offices of state
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attorneys general, and subpoenas and other requests or demands for information may be issued by governmental authorities who are investigating debt collection activities. These investigations may result in enforcement actions, fines and penalties, or the assertion of private claims and lawsuits. If any such investigations result in findings that we or our vendors have failed to comply with applicable laws and regulations, we could be subject to penalties, litigation losses and expenses, damage to our reputation, or the suspension or termination of, or required modification to, our ability to conduct collections, which would adversely affect our business, results of operations and financial condition.
In a number of jurisdictions, we must maintain licenses to purchase or own debt, and/or to perform debt recovery services and must satisfy related bonding requirements. Our failure to comply with existing licensing requirements, changing interpretations of existing requirements, or adoption of new licensing requirements, could restrict our ability to collect in certain jurisdictions, subject us to increased regulation, increase our costs or adversely affect our ability to purchase, own and/or collect our receivables.nonperforming loans.
Some laws, among other things, also may limit the interest rate and the fees that a credit grantororiginator may impose on our consumers, limit the time in which we may file legal actions to enforce consumer accounts and require specific account information for certain collection activities. In addition, local requirements and court rulings in various jurisdictions also may affect our ability to collect.
Regulations and statutes applicable to our industry further provide that, in some cases, consumers cannot be held liable for, or their liability may be limited with respect to, charges to their debtdebit or credit card accounts that resulted from unauthorized use of their credit. These laws, among others, may limit our ability to recover amounts owing with respect to the receivables,nonperforming loans, whether or not we committed any wrongful act or omission in connection with the account.
If we fail to comply with any applicable laws and regulations discussed above, such failure could result in penalties, litigation losses and expenses, damage to our reputation, or otherwise impact our ability to conduct collections efforts, which could adversely affect our business, results of operations and financial condition.
Investigations, reviews or enforcement actions by governmental authorities may result in changes to our business practices; negatively impact our receivablesnonperforming loan portfolio acquisition volume; make collection of receivablesnonperforming loans more difficult; or expose us to the risk of fines, penalties, restitution payments and litigation.
Our debt collection activities and business practices are subject to review from time to time by various governmental authorities and regulators, including the CFPB, which may commence investigations, reviews or enforcement actions or reviews targeted at businesses in the financial services industry. These investigations or reviews may involve governmental authority consideration of individual consumer complaints or could involve a broader review of our debt collection policies and practices.practices generally. Such investigations or reviews could lead to assertions by governmental authorities that we are not complying with applicable laws or regulations. In such circumstances, authorities may request or seek to impose a range of remedies that could involve potential compensatory or punitive damage claims, fines, restitution payments, sanctions or injunctive relief, that if agreed to or granted, could require us to make payments or incur other expenditures that could have an adverse effect on our results of operations or financial position. The CFPB has the authority to obtain cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other kinds of affirmative relief), recover costs, and impose monetary penalties (ranging from $5,000 per day to over $1 million per day, depending on the nature and gravity of the violation). In addition, where a company has violated Title X of the Dodd-Frank Act or CFPB regulations implemented thereunder, the Dodd-Frank Act empowers state attorneys general and other state regulators to bring civil actions to remedy violations under state law. GovernmentGovernmental authorities could also request or seek to require us to cease certain of our practices or institute new practices. Negative publicity relating to investigations or proceedings brought by governmental authorities could have an adverse impact on our reputation, harm our ability to conduct business with industry participants, and result in financial institutions reducing or eliminating sales of receivablesnonperforming loan portfolios to us which would harm our business and negatively impact our results of operations. Moreover, changing or modifying our internal policies or procedures, responding to governmental inquiries and investigations and defending lawsuits or other proceedings could require significant efforts on the part of management and result in increased costs to our business. In addition, such efforts could divert management's full attention from our business operations. All of these factors could have an adverse effect on our business, results of operations and financial condition.
The CFPB has issued civil investigative demands ("CIDs") to many companies that it regulates, including PRA Group, and periodically examines practices regarding the collection of consumer debt. OnIn September 9, 2015, Portfolio Associates, LLC ("PRA"), our wholly owned subsidiary, entered into a consent order with the CFPB settling a previously disclosed investigation of certain debt collection practices of PRA (the "Consent Order"). Among other things,As further discussed in the "Litigation and Regulatory Matters" section of Note 14 to our Consolidated Financial Statements included in Item 8 of this Form 10-K, we are in discussions with the CFPB regarding CIDs and requests for information issued by the CFPB to us related to our compliance with the Consent Order required PRA to: (i) vacate 837 judgments obtained after theand applicable statute of limitations, refund $860,607 in payments received on account of such judgments and waive the remaining $3.4 million in judgment balances; (ii) refund $18.2 million in Litigation Department Calls Restitution, as defined in the Consent Order; and (iii) pay an $8.0 million civil money penalty to the CFPB.law. Although we believe we have implemented the requirements of the Consent Order,
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there can be no assurance that additional litigation or new industry regulations currently under consideration by the CFPB would not have an adverse effect on our business, results of operations and financial condition. In addition, the CFPB monitors our compliance with the Consent Order and could make a determination that we have failed to adhere to our obligations. Such a determination could result in additional inquiries, penalties or liabilities, which could have an adverse effect on our business, results of operations, and financial condition.
The regulation of data privacy in the U.S and globally could have an adverse effect on our business, results of operations and financial condition by increasing our compliance costs.costs or exposing us to the risk of liability.
In addition, laws and regulations relating to predict the effect of such rigorousprivacy, cybersecurity and data protection regulations over time. For example, the EUare quickly evolving, and UK adopted the GDPR, which impactsany such proposed or new legal frameworks could significantly impact our European operations. On May 25, 2018 the GDPR
We may incur significant costs complying with legal obligations and inquiries, investigations or any other government actions related to privacy, cybersecurity, and data protection.Such legal requirements and government actions also may impede our development of new products, services, or businesses, make existing products, services, or businesses unprofitable, increase our operating costs, require substantial management resources, result in adverse publicity and subject us to remedies that harm our business practices accordingly. Financialor profitability, including penalties or orders that we change or terminate current business practices. Our insurance policies may be insufficient to insure us against such risks, and future escalations in premiums and deductibles under these policies may render them uneconomical.
Changes in tax provisions or exposures to additional tax liabilities could have an adverse tax effect on our financial condition.
We record reserves for noncompliance withuncertain tax positions based on our assessment of the GDPR canprobability of successfully sustaining tax filing positions. Management exercises significant judgment when assessing the probability of successfully sustaining tax filing positions, in determining whether a tax liability should be significant. It is also the caserecorded and, if so, estimating that the U.S. federal governmentamount. Our tax filings are subject to audit by domestic and states within the U.S. have enactedinternational tax authorities. If our tax filing positions are successfully challenged, payments could be required that are in excess of reserved amounts or are considering legislation to enact data privacy protections. Data privacy regulations could result in increased costs of conducting business to maintain compliance with such regulations. Although we take significant steps to protect the security of our data and the personal data of our customers, we may be required to expendreduce the carrying amount of our net deferred tax asset, either of which could be significant resources to comply with regulations if third parties improperly obtainour financial condition or results of operations. Although we believe our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and usemay adversely or beneficially affect our financial results in the period(s) for which such data.determination is made.
Financial and Liquidity Risks associated with indebtedness
We utilize bankexpect to use leverage in executing our business strategy, which may adversely affect the return on our assets.
We may incur a substantial amount of debt in the future. Our existing indebtedness is recourse to us, and we anticipate that future indebtedness will likewise be recourse. As of December 31, 2022, we had total consolidated indebtedness of approximately $2.5 billion, all of which, except for $345.0 million outstanding principal amount of our 3.50% Convertible Notes due 2023 (the "2023 Convertible Notes"), $300.0 million outstanding principal amount of our 7.375% Senior Notes due 2025 (the "2025 Notes"), and $350.0 million outstanding principal amount of our 5.00% Senior Notes due 2029 (the "2029 Notes" and together with the 2025 Notes, the "Senior Notes"), was secured indebtedness. In addition, as of December 31, 2022, we had total committed revolving borrowing capacity of $1.6 billion available under our credit facilities, all of which if borrowed would be secured indebtedness. Considering borrowing base restrictions and other covenants, the amount available to be borrowed under our credit facilities would have been $465.1 million as of December 31, 2022. Our management team will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of any new indebtedness, including the purchase price of assets to be acquired with debt financing, the estimated market value of our assets and the ability of particular assets and the Company as a whole, to generate cash flow to cover the expected debt service.
Incurring a substantial amount of debt could have important consequences for our business, including:
•making it more difficult for us to satisfy our obligations with respect to our debt or to our trade or other creditors;
•increasing our vulnerability to adverse economic or industry conditions;
•limiting our ability to obtain additional financing to fund capital expenditures and acquisitions, particularly when the availability of financing in the capital markets is constrained;
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•requiring a substantial portion of our cash flows from operations and reducing our ability to use our cash flows to fund working capital, capital expenditures, acquisitions and general corporate requirements;
•increasing the amount of interest expense because most of the indebtedness under our credit facilities bear interest at floating rates, which, if interest rates increase, will result in higher interest expense;
•limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and
•placing us at a competitive disadvantage to less leveraged competitors.
We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us through capital markets financings, under credit facilities or otherwise, in an amount sufficient to enable us to repay our indebtedness, repurchase our 2023 Convertible Notes upon a fundamental change or settle conversions in cash, repurchase our Senior Notes upon a change of control or fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, at or before its scheduled maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. In addition, we may incur additional indebtedness in order to finance our operations or to repay existing indebtedness. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional debt or equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. We cannot assure you that any such actions, if necessary, could be effected on commercially reasonable terms or at all, or on terms that would be advantageous to our stockholders or on terms that would not require us to breach the terms and conditions of our existing or future debt agreements.
We may not be able to generate sufficient cash flow to meet our debt service obligations.
Our ability to generate sufficient cash flow from operations to make scheduled payments on our debt obligations will depend on our current and future financial performance, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. In the future, we may fail to generate sufficient cash flow from the collection of nonperforming loans to meet our cash requirements. Further, our capital requirements may vary materially from those currently planned if, for example, our revenues do not reach expected levels, we have to incur unforeseen expenses, we invest in acquisitions or make other investments that we believe will benefit our competitive position. If we do not generate sufficient cash flow from operations to satisfy our debt obligations, including interest payments and the payment of principal at maturity, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets or seeking to raise additional capital. We cannot provide assurance that any refinancing would be possible, that any assets could be sold, or, if sold, of the timeliness and amount of proceeds realized from those sales, that additional financing could be obtained on acceptable terms, if at all, or that additional financing would be permitted under the terms of our various debt instruments then in effect. Furthermore, our ability to refinance would depend upon the condition of the finance and credit markets. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms or on a timely basis, would materially affect our business, financial condition or results of operations and may delay or prevent the expansion of our business.
The agreements governing our indebtedness include provisions that may restrict our financial and business operations.
Our credit facilities and convertible notes to financethe indentures that govern our business activities, which could negatively impact2023 Convertible Notes and our liquidity and business operations if we are unable to retain, renegotiate, expand or replace our bank loans and credit facilities or raise the necessary funds to repurchase our convertible notes.
Failure to satisfy any one of these covenants could result in negative consequences, including the following:
•acceleration of outstanding indebtedness;
•exercise by our lenders of rights with respect to the collateral pledged under certain of our outstanding indebtedness;
•our inability to continue to purchase nonperforming loans needed to operate our business; or
•our inability to secure alternative financing on favorable terms, if at all.
A cybersecurity incident could damage our reputation and adversely impact our business and financial results.
Our business is highly dependent on our ability to process and monitor a large number of transactions across markets and in multiple currencies. We rely on information technology systems to conduct our business, including systems developed and administered by third parties. Many of these systems contain sensitive and confidential information, including personal data,
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our trade secrets and proprietary business information, and information and materials owned by or pertaining to our business customers, vendors and business partners. The secure maintenance of this information, and the information technology systems on which they reside, is critical to our business strategy as well as our operations and financial performance. As we are unableexpand geographically, and our reliance on information technology systems increases, maintaining the security of such systems and our data becomes more significant and challenging.
Although we take a number of steps to retain, renegotiate, expandprotect our information technology systems, the attacks that companies have experienced have increased in number, sophistication and complexity over the past few years.
Accordingly, we may suffer data security incidents or replaceother cybersecurity incidents, which could compromise our credit facilities,systems and networks, creating system disruptions and exploiting vulnerabilities in our products and services. Any such breach or other incident also could result in the personal data or other confidential or proprietary information stored on our systems and networks, or our vendors’ systems and networks, being improperly accessed, acquired or modified, publicly disclosed, lost, or stolen, which could subject us to liability to our customers, vendors, business partners and others. We seek to detect and investigate such incidents and to prevent their recurrence where practicable through preventive and remedial measures, but such measures may not be successful.
Should a cybersecurity incident occur, we may be required to expend significant resources to notify affected parties, modify our protective measures or investigate and remediate vulnerabilities or other exposures. Additionally, such cybersecurity events could cause reputational damage and subject us to fines, penalties, litigation costs and settlements and financial losses that may not be fully covered by our cybersecurity insurance. To date, disruptions to our information technology systems, due to outages, security breaches or other causes, including cybersecurity incidents have not had a material impact on our business. However, any such disruption could have significant consequences for our business, including financial loss and reputational damage.
The underperformance or failure of our information technology infrastructure, networks or communication systems could result in loss in productivity, loss of competitive advantage and business disruption.
We depend on effective information and communication systems to operate our business. We have also acquired and expect to acquire additional systems as a result of failure to satisfy the restrictive covenants contained in them, our liquidity and business operations could be impacted negatively.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters and primary domestic operations facilities are located in Norfolk, Virginia. In addition, at December 31, 2019,2022, we hadhad 15 operational centers in the Americas (13 leased and 3Australia (12 leased and three owned), and nine in Europe (12(all leased) and Australia (1 leased).
Item 3. Legal Proceedings.
We and our subsidiaries are from time to time subject to a variety of routine legal and regulatory claims, inquiries and proceedings, most of which are incidental to the ordinary course of our business. We initiate lawsuits against customers and are occasionally countersued by them in such actions. Also, customers, either individually, as members of a class action, or through a governmental entity on behalf of customers, may initiate litigation against us in which they allege that we have violated a state or federal law in the process of collecting on an account. From time to time, other types of lawsuits are brought against us.
16
Item 4. Mine Safety Disclosures.
Not applicable.
17
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Common Stock
Our common stock is traded on Nasdaq Global Select Market under the symbol "PRAA." Based on information provided by our transfer agent and registrar, as of February 14, 2020,21, 2023, there were 4644 holders of record.
Stock Performance
The following graph and subsequent table compare from December 31, 20142017 to December 31, 2019,2022, the cumulative stockholder returns assuming an initial investment of $100 in our common stock (PRAA), the stocks comprising the Nasdaq Financial 100 (IXF) and the stocks comprising the Nasdaq Global Market Composite Index (NQGM) at the beginning of the period. Any dividends paid during the five-year period are assumed to be reinvested.
| Ticker | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||||||
| PRA Group, Inc. | PRAA | $ | 100 | $ | 60 | $ | 68 | $ | 57 | $ | 42 | $ | 63 | ||||||||||||
| Nasdaq Financial 100 | IXF | $ | 100 | $ | 106 | $ | 135 | $ | 155 | $ | 142 | $ | 184 | ||||||||||||
| Nasdaq Global Market Composite Index | NQGM | $ | 100 | $ | 100 | $ | 96 | $ | 120 | $ | 112 | $ | 155 | ||||||||||||
| Ticker | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |||||||||||||||||||||||||||||||||||
| PRA Group, Inc. | PRAA | $ | 100 | $ | 73 | $ | 109 | $ | 119 | $ | 151 | $ | 102 | ||||||||||||||||||||||||||||
| Nasdaq Financial 100 | IXF | $ | 100 | $ | 92 | $ | 119 | $ | 123 | $ | 156 | $ | 119 | ||||||||||||||||||||||||||||
| Nasdaq Global Market Composite Index | NQGM | $ | 100 | $ | 94 | $ | 129 | $ | 213 | $ | 180 | $ | 100 | ||||||||||||||||||||||||||||
The comparisons of stock performance shown above are not intended to forecast or be indicative of possible future performance of our common stock. We do not make or endorse any predictions as to our future stock performance.
Dividend Policy
Our boardBoard of directorsDirectors sets our dividend policy. We do not currently pay regular dividends on our common stock and did not pay dividends induring the three years ended December 31, 2019;2022; however, our boardBoard of directorsDirectors may determine in the future to declare or pay dividends on our common stock. UnderOur credit facilities and the terms of Northern American Credit Agreement, cashindentures that govern our 2023 Convertible Notes, 2025 Notes and 2029 Notes contain financial and other restrictive covenants, including restrictions on how we operate our business and our ability to pay dividends may not exceed $20 million in any fiscal year without the consent ofto our lenders.stockholders. Any future determination as to the declaration and payment of dividends will be at the discretion of our boardBoard of directorsDirectors and will depend on conditions then existing, conditions, including our results of operations, financial condition, contractual restrictions, capital requirements, business prospects and other factors that our boardBoard of directorsDirectors may consider relevant.
18
Recent Sales of Unregistered Securities
None.
Share Repurchase Programs
On February 25, 2022, our Board of Directors approved a share repurchase program under which we are authorized to repurchase up to $150.0 million of our outstanding common stock. For more information, see
Item 6. Selected Financial Data.
We did not repurchase any common stock during the related notes thereto included in fourth quarter of the year ended December 31, 2022.
Item 8 of this Form 10-K. Certain prior year amounts have been reclassified for consistency with the current period presentation.6. [Reserved]
19
Consolidated Income Statements, Operating and Other Financial Data $ in thousands, except per share amounts | |||||||||||||||||||
| Years Ended December 31, | |||||||||||||||||||
| Income Statement Data: | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||
| Revenues: | |||||||||||||||||||
| Income recognized on finance receivables | $ | 998,361 | $ | 891,899 | $ | 795,435 | $ | 845,142 | $ | 894,491 | |||||||||
| Fee income | 15,769 | 14,916 | 24,916 | 77,381 | 64,383 | ||||||||||||||
| Other revenue | 2,951 | 1,441 | 7,855 | 8,080 | 12,513 | ||||||||||||||
| Total revenues | 1,017,081 | 908,256 | 828,206 | 930,603 | 971,387 | ||||||||||||||
| Net allowance charges | (24,025 | ) | (33,425 | ) | (11,898 | ) | (98,479 | ) | (29,369 | ) | |||||||||
| Operating expenses: | |||||||||||||||||||
| Compensation and employee services | 310,441 | 319,400 | 273,033 | 258,846 | 268,345 | ||||||||||||||
| Legal collection fees | 55,261 | 42,941 | 43,351 | 47,717 | 53,393 | ||||||||||||||
| Legal collection costs | 134,156 | 104,988 | 76,047 | 84,485 | 76,063 | ||||||||||||||
| Agency fees | 55,812 | 33,854 | 35,530 | 44,922 | 32,188 | ||||||||||||||
| Outside fees and services | 63,513 | 61,492 | 62,792 | 63,098 | 65,155 | ||||||||||||||
| Communication | 44,057 | 43,224 | 33,132 | 33,771 | 33,113 | ||||||||||||||
| Rent and occupancy | 17,854 | 16,906 | 14,823 | 15,710 | 14,714 | ||||||||||||||
| Depreciation and amortization | 17,464 | 19,322 | 19,763 | 24,359 | 19,874 | ||||||||||||||
| Other operating expenses | 46,811 | 47,444 | 44,103 | 39,466 | 68,829 | ||||||||||||||
| Total operating expenses | 745,369 | 689,571 | 602,574 | 612,374 | 631,674 | ||||||||||||||
| Income from operations | 247,687 | 185,260 | 213,734 | 219,750 | 310,344 | ||||||||||||||
| Other income and (expense): | |||||||||||||||||||
| Gain on sale of subsidiaries | — | 26,575 | 48,474 | — | — | ||||||||||||||
| Interest expense, net | (141,918 | ) | (121,078 | ) | (98,041 | ) | (80,864 | ) | (60,336 | ) | |||||||||
| Foreign exchange gain/(loss) | 11,954 | (944 | ) | (1,104 | ) | 2,564 | 7,514 | ||||||||||||
| Other | (364 | ) | (316 | ) | (2,790 | ) | (5,823 | ) | — | ||||||||||
| Income before income taxes | 117,359 | 89,497 | 160,273 | 135,627 | 257,522 | ||||||||||||||
| Income tax expense/(benefit) | 19,680 | 13,763 | (10,852 | ) | 43,577 | 89,391 | |||||||||||||
| Net income | 97,679 | 75,734 | 171,125 | 92,050 | 168,131 | ||||||||||||||
| Adjustment for net income attributable to noncontrolling interests | 11,521 | 10,171 | 6,810 | 5,795 | 205 | ||||||||||||||
| Net income attributable to PRA Group, Inc. | $ | 86,158 | $ | 65,563 | $ | 164,315 | $ | 86,255 | $ | 167,926 | |||||||||
| Net income per share attributable to PRA Group, Inc.: | |||||||||||||||||||
| Basic | $1.90 | $1.45 | $3.60 | $1.86 | $3.49 | ||||||||||||||
| Diluted | $1.89 | $1.44 | $3.59 | $1.86 | $3.47 | ||||||||||||||
| Weighted average number of shares outstanding: | |||||||||||||||||||
| Basic | 45,387 | 45,280 | 45,671 | 46,316 | 48,128 | ||||||||||||||
| Diluted | 45,577 | 45,413 | 45,823 | 46,388 | 48,405 | ||||||||||||||
| Operating and Other Financial Data: | |||||||||||||||||||
| Cash receipts | $ | 1,857,040 | $ | 1,640,121 | $ | 1,537,521 | $ | 1,569,367 | $ | 1,603,878 | |||||||||
Cash Efficiency Ratio (1) | 59.9 | % | 58.0 | % | 60.8 | % | 61.0 | % | 60.6 | % | |||||||||
Acquisitions of finance receivables, at cost (2) | $ | 1,289,327 | $ | 1,117,997 | $ | 1,108,959 | $ | 947,331 | $ | 963,811 | |||||||||
| Full-time equivalents at period end | 4,412 | 5,377 | 5,154 | 4,019 | 3,799 | ||||||||||||||
Key Balance Sheet Data Amounts in thousands | |||||||||||||||||||
| As of December 31, | |||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
| Cash and cash equivalents | $ | 119,774 | $ | 98,695 | $ | 120,516 | $ | 94,287 | $ | 71,372 | |||||||||
| Finance receivables, net | 3,514,165 | 3,084,777 | 2,776,199 | 2,309,513 | 2,202,113 | ||||||||||||||
| Total assets | 4,423,891 | 3,909,559 | 3,700,972 | 3,165,157 | 2,990,567 | ||||||||||||||
| Borrowings | 2,808,425 | 2,473,656 | 2,170,182 | 1,784,101 | 1,717,129 | ||||||||||||||
| Total equity | 1,227,013 | 1,123,969 | 1,140,717 | 918,321 | 839,747 | ||||||||||||||
Quarterly Income Statement Data Amounts in thousands, except per share amounts | |||||||||||||||||||||||||||||||
| Dec 31, 2019 | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | Dec 31, 2018 | Sep 30, 2018 | Jun 30, 2018 | Mar 31, 2018 | ||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||
| Income recognized on finance receivables | $ | 262,835 | $ | 247,471 | $ | 249,219 | $ | 238,836 | $ | 231,029 | $ | 223,228 | $ | 219,018 | $ | 218,624 | |||||||||||||||
| Fee income | 4,297 | 2,391 | 2,707 | 6,374 | 4,686 | 2,561 | 2,342 | 5,327 | |||||||||||||||||||||||
| Other revenue | 2,001 | 152 | 131 | 667 | 1,027 | 99 | 158 | 157 | |||||||||||||||||||||||
| Total revenues | 269,133 | 250,014 | 252,057 | 245,877 | 236,742 | 225,888 | 221,518 | 224,108 | |||||||||||||||||||||||
| Net allowance charges | (12,598 | ) | (4,136 | ) | (1,196 | ) | (6,095 | ) | (21,381 | ) | (8,285 | ) | (2,834 | ) | (925 | ) | |||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||
| Compensation and employee services | 75,671 | 75,317 | 79,808 | 79,645 | 79,123 | 78,350 | 80,690 | 81,237 | |||||||||||||||||||||||
| Legal collection fees | 13,822 | 14,083 | 14,297 | 13,059 | 11,501 | 10,428 | 10,343 | 10,669 | |||||||||||||||||||||||
| Legal collection costs | 34,411 | 31,395 | 33,121 | 35,229 | 33,281 | 30,769 | 18,695 | 22,243 | |||||||||||||||||||||||
| Agency fees | 15,979 | 12,788 | 13,013 | 14,032 | 9,088 | 8,350 | 8,138 | 8,278 | |||||||||||||||||||||||
| Outside fees and services | 15,239 | 16,733 | 16,293 | 15,248 | 17,068 | 15,701 | 14,565 | 14,158 | |||||||||||||||||||||||
| Communication | 9,722 | 10,310 | 10,824 | 13,201 | 10,645 | 10,240 | 10,782 | 11,557 | |||||||||||||||||||||||
| Rent and occupancy | 4,586 | 4,414 | 4,491 | 4,363 | 4,319 | 4,270 | 4,003 | 4,314 | |||||||||||||||||||||||
| Depreciation and amortization | 4,123 | 4,046 | 4,723 | 4,572 | 5,092 | 4,776 | 4,525 | 4,929 | |||||||||||||||||||||||
| Other operating expenses | 12,198 | 12,102 | 10,926 | 11,585 | 13,030 | 10,602 | 11,628 | 12,184 | |||||||||||||||||||||||
| Total operating expenses | 185,751 | 181,188 | 187,496 | 190,934 | 183,147 | 173,486 | 163,369 | 169,569 | |||||||||||||||||||||||
| Income from operations | 70,784 | 64,690 | 63,365 | 48,848 | 32,214 | 44,117 | 55,315 | 53,614 | |||||||||||||||||||||||
| Other income and (expense): | |||||||||||||||||||||||||||||||
| Gain on sale of subsidiaries | — | — | — | — | 26,575 | — | — | — | |||||||||||||||||||||||
| Interest expense, net | (36,046 | ) | (35,864 | ) | (36,027 | ) | (33,981 | ) | (33,549 | ) | (30,624 | ) | (31,124 | ) | (25,781 | ) | |||||||||||||||
| Foreign exchange gain/(loss) | 595 | 5,406 | (311 | ) | 6,264 | (4,553 | ) | 626 | 1,690 | 1,293 | |||||||||||||||||||||
| Other | (241 | ) | (19 | ) | 248 | (352 | ) | (381 | ) | 222 | (400 | ) | 243 | ||||||||||||||||||
| Income before income taxes | 35,092 | 34,213 | 27,275 | 20,779 | 20,306 | 14,341 | 25,481 | 29,369 | |||||||||||||||||||||||
| Income tax expense | 4,073 | 6,665 | 5,075 | 3,867 | 1,980 | 1,789 | 3,857 | 6,137 | |||||||||||||||||||||||
| Net income | 31,019 | 27,548 | 22,200 | 16,912 | 18,326 | 12,552 | 21,624 | 23,232 | |||||||||||||||||||||||
| Adjustment for net income attributable to noncontrolling interests | 3,678 | 2,577 | 3,581 | 1,685 | 3,384 | 2,625 | 2,036 | 2,126 | |||||||||||||||||||||||
| Net income attributable to PRA Group, Inc. | $ | 27,341 | $ | 24,971 | $ | 18,619 | $ | 15,227 | $ | 14,942 | $ | 9,927 | $ | 19,588 | $ | 21,106 | |||||||||||||||
| Net income per share attributable to PRA Group, Inc.: | |||||||||||||||||||||||||||||||
| Basic | $ | 0.60 | $ | 0.55 | $ | 0.41 | $ | 0.34 | $ | 0.33 | $ | 0.22 | $ | 0.43 | $ | 0.47 | |||||||||||||||
| Diluted | $ | 0.60 | $ | 0.55 | $ | 0.41 | $ | 0.34 | $ | 0.33 | $ | 0.22 | $ | 0.43 | $ | 0.47 | |||||||||||||||
| Weighted average number of shares outstanding: | |||||||||||||||||||||||||||||||
| Basic | 45,413 | 45,410 | 45,387 | 45,338 | 45,304 | 45,302 | 45,283 | 45,231 | |||||||||||||||||||||||
| Diluted | 45,748 | 45,645 | 45,495 | 45,419 | 45,394 | 45,440 | 45,449 | 45,370 | |||||||||||||||||||||||
Quarterly Balance Sheet Data Amounts in thousands | |||||||||||||||||||||||||||||||
| Dec 31, 2019 | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | Dec 31, 2018 | Sep 30, 2018 | Jun 30, 2018 | Mar 31, 2018 | ||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 119,774 | $ | 90,000 | $ | 105,496 | $ | 102,102 | $ | 98,695 | $ | 114,176 | $ | 71,570 | $ | 101,418 | |||||||||||||||
| Investments | 56,176 | 55,204 | 85,911 | 85,082 | 45,173 | 21,750 | 80,541 | 87,764 | |||||||||||||||||||||||
| Finance receivables, net | 3,514,165 | 3,238,813 | 3,230,949 | 3,177,229 | 3,084,777 | 2,823,622 | 2,734,673 | 2,771,408 | |||||||||||||||||||||||
| Other receivables, net | 10,606 | 15,808 | 13,770 | 18,082 | 46,157 | 9,067 | 14,688 | 14,308 | |||||||||||||||||||||||
| Income taxes receivable | 17,918 | 23,479 | 11,323 | 15,472 | 16,809 | 8,912 | 12,163 | 10,271 | |||||||||||||||||||||||
| Deferred tax asset, net | 63,225 | 60,697 | 66,401 | 61,619 | 61,453 | 63,724 | 60,944 | 59,377 | |||||||||||||||||||||||
| Property and equipment, net | 56,501 | 56,847 | 51,484 | 54,463 | 54,136 | 55,010 | 53,364 | 53,788 | |||||||||||||||||||||||
| Right-of-use assets | 68,972 | 70,723 | 72,817 | 70,550 | — | — | — | — | |||||||||||||||||||||||
| Goodwill | 480,794 | 465,572 | 489,293 | 480,518 | 464,116 | 519,045 | 519,811 | 544,293 | |||||||||||||||||||||||
| Intangible assets, net | 4,497 | 4,757 | 5,219 | 5,247 | 5,522 | 17,369 | 18,914 | 22,523 | |||||||||||||||||||||||
| Other assets | 31,263 | 36,380 | 32,751 | 35,970 | 32,721 | 27,296 | 31,650 | 37,639 | |||||||||||||||||||||||
| Total assets | $ | 4,423,891 | $ | 4,118,280 | $ | 4,165,414 | $ | 4,106,334 | $ | 3,909,559 | $ | 3,659,971 | $ | 3,598,318 | $ | 3,702,789 | |||||||||||||||
| Liabilities and Equity | |||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||
| Accounts payable | $ | 4,258 | $ | 3,469 | $ | 3,279 | $ | 5,682 | $ | 6,110 | $ | 3,773 | $ | 5,090 | $ | 2,330 | |||||||||||||||
| Accrued expenses | 88,925 | 84,753 | 74,950 | 77,838 | 79,396 | 81,445 | 78,852 | 85,137 | |||||||||||||||||||||||
| Income taxes payable | 4,046 | 624 | 372 | 389 | 15,080 | 13,408 | 466 | 23,872 | |||||||||||||||||||||||
| Deferred tax liability, net | 85,390 | 95,441 | 100,742 | 108,367 | 114,979 | 120,990 | 140,224 | 146,410 | |||||||||||||||||||||||
| Lease liabilities | 73,377 | 74,428 | 76,750 | 74,308 | — | — | — | ||||||||||||||||||||||||
| Interest-bearing deposits | 106,246 | 112,024 | 107,840 | 95,314 | 82,666 | 79,282 | 82,613 | 90,769 | |||||||||||||||||||||||
| Borrowings | 2,808,425 | 2,567,086 | 2,618,382 | 2,586,409 | 2,473,656 | 2,194,687 | 2,133,997 | 2,150,873 | |||||||||||||||||||||||
| Other liabilities | 26,211 | 29,607 | 27,307 | 25,789 | 7,370 | 8,474 | 8,061 | 15,146 | |||||||||||||||||||||||
| Total liabilities | 3,196,878 | 2,967,432 | 3,009,622 | 2,974,096 | 2,779,257 | 2,502,059 | 2,449,303 | 2,514,537 | |||||||||||||||||||||||
| Redeemable noncontrolling interest | — | 4,535 | 4,935 | 6,199 | 6,333 | 6,955 | 8,322 | 9,697 | |||||||||||||||||||||||
| Equity: | |||||||||||||||||||||||||||||||
| Common stock | 454 | 454 | 454 | 454 | 453 | 453 | 453 | 453 | |||||||||||||||||||||||
| Additional paid-in capital | 67,321 | 64,631 | 61,705 | 59,091 | 60,303 | 58,713 | 56,410 | 54,271 | |||||||||||||||||||||||
| Retained earnings | 1,362,631 | 1,335,290 | 1,310,319 | 1,291,700 | 1,276,473 | 1,261,531 | 1,251,604 | 1,232,016 | |||||||||||||||||||||||
| Accumulated other comprehensive loss | (261,018 | ) | (305,956 | ) | (252,124 | ) | (248,521 | ) | (242,109 | ) | (213,078 | ) | (209,167 | ) | (155,687 | ) | |||||||||||||||
| Total stockholders' equity - PRA Group, Inc. | 1,169,388 | 1,094,419 | 1,120,354 | 1,102,724 | 1,095,120 | 1,107,619 | 1,099,300 | 1,131,053 | |||||||||||||||||||||||
| Noncontrolling interests | 57,625 | 51,894 | 30,503 | 23,315 | 28,849 | 43,338 | 41,393 | 47,502 | |||||||||||||||||||||||
| Total equity | 1,227,013 | 1,146,313 | 1,150,857 | 1,126,039 | 1,123,969 | 1,150,957 | 1,140,693 | 1,178,555 | |||||||||||||||||||||||
| Total liabilities and equity | $ | 4,423,891 | $ | 4,118,280 | $ | 4,165,414 | $ | 4,106,334 | $ | 3,909,559 | $ | 3,659,971 | $ | 3,598,318 | $ | 3,702,789 | |||||||||||||||
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsOperations.
Objective
This discussion is from the perspective of management and is intended to help the reader understand our financial condition, cash flows and other changes in financial condition and results of operations. It should be read in conjunction with the financial statements and notes thereto included in .Item 8 of this Form 10-K. Additionally, this discussion includes material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of our future operating results or of our future financial condition.
Executive Overview
We are a global financial and business services company with operations in the Americas, Europe and Australia. Our primary business is the purchase, collection and management of portfolios of nonperforming loans. For the year ended December 31, 2022 we had:
•Total cash collections of $1.7 billion.
•Estimated remaining collections ("ERC") of $5.7 billion.
•Cash efficiency ratio of 61.0%.
•Diluted earnings per share of $2.94.
Leading financial industry publications have been reclassifiedindicated that excess consumer liquidity has resulted in lower levels of charge offs across most lending institutions, primarily in the U.S. As a result, this has caused a decrease in the supply of portfolios available for consistencypurchase in the U.S. during 2021 and 2022 resulting in a lower level of portfolio purchases and pricing pressures. We expect these trends to continue temporarily; however, consistent with our experience during previous economic cycles, we believe charge offs will increase. This should lead to a greater level of supply, which we anticipate could occur in the current period presentation.coming months.
Furthermore, the combination of robust demand for goods and services and lingering supply chain constraints continue to contribute to elevated levels of inflation, rising interest rates, foreign exchange rate fluctuations, and concerns of global recession. We cannot predict the full extent to which these items will impact our business, results of operations and financial condition. See Item 1A of this Form 10-K.
Frequently Used Terms
We may use the following terminology throughout this document:Form 10-K:
•"Buybacks" refers to purchase price refunded by the seller due to the return of ineligible accounts.
•"Cash collections" refers to collections on our owned finance receivablesnonperforming loan portfolios.
•"Cash receipts" refers to cash collections on our owned finance receivablesnonperforming loan portfolios, plus fee income.fees and revenue recognized from our class action claims recovery services.
•"Change in expected recoveries" refers to the differences of actual recoveries received when compared to expected recoveries and the net present value of changes in estimated remaining collections.
•"Core" accounts or portfolios refer to accounts or portfolios that are nonperforming loans and are not in an insolvent status upon acquisition. These accounts are aggregated separately from insolvency accounts.
•"Estimated remaining collections" or "ERC" refers to the sum of all future projected cash collections on our owned finance receivablesnonperforming loan portfolios.
•"Finance receivables" or "receivables" refers to the negative allowance for expected recoveries recorded on our balance sheet as an asset.
•"Insolvency" accounts or portfolios refer to accounts or portfolios of receivablesnonperforming loans that are in an insolvent status when we purchase them and as such are purchased as a pool of insolvent accounts. These accounts include Individual Voluntary Arrangements ("IVAs"),IVAs, Trust Deeds in the UK, Consumer Proposals in Canada and bankruptcy accounts in the U.S., Canada, Germany and the UK.
•"Principal amortization" refers to cash collections applied to principal on finance receivables.
•"Portfolio acquisitions" refers to all nonperforming loan portfolios addedacquired as a result of a purchase, but also includes portfolios added as a result of a business acquisition.
20
•"Portfolio purchases" refers to all nonperforming loan portfolios purchased in the normal course of business and excludes those added as a result of business acquisitions.
•"Portfolio income" reflects revenue recorded due to the passage of time using the effective interest rate calculated based on the purchase price of nonperforming loan portfolios and estimated remaining collections.
•"Purchase price" refers to the cash paid to a seller to acquire nonperforming loans.
•"Purchase price multiple" refers to the total estimated collections on our nonperforming loan portfolios divided by purchase price.
•"Recoveries" refers to cash collections plus buybacks and other adjustments.
•"Total estimated collections" or "TEC" refers to actual cash collections plus estimated remaining collections on our nonperforming loan portfolios.
Unless otherwise specified, references to 2019, 20182022, 2021 and 20172020 are for the years ended December 31, 2019,2022, December 31, 20182021 and December 31, 2017,2020, respectively.
21
Results of Operations
The results of operations include the financial results of the Company and all of our subsidiaries. Certain prior year amounts have been reclassified for consistency with the current year presentation. Fee Income is now included within Other revenue on our Consolidated Income Statements. The following table sets forth consolidated income statementConsolidated Income Statement amounts as a percentage of total revenues for the periods indicated (dollars in thousands):
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||
| Portfolio income | $ | 772,315 | 79.9 | % | $ | 875,327 | 79.9 | % | $ | 984,036 | 92.4 | % | |||||||||||||||||||||||
| Changes in expected recoveries | 168,904 | 17.5 | 197,904 | 18.1 | 69,297 | 6.5 | |||||||||||||||||||||||||||||
| Total portfolio revenue | 941,219 | 97.4 | 1,073,231 | 98.0 | 1,053,333 | 98.9 | |||||||||||||||||||||||||||||
| Other revenue | 25,305 | 2.6 | 22,501 | 2.0 | 12,081 | 1.1 | |||||||||||||||||||||||||||||
| Total revenues | 966,524 | 100.0 | 1,095,732 | 100.0 | 1,065,414 | 100.0 | |||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||
| Compensation and employee services | 285,537 | 29.5 | 301,981 | 27.6 | 295,150 | 27.7 | |||||||||||||||||||||||||||||
| Legal collection fees | 38,450 | 4.0 | 47,206 | 4.3 | 53,758 | 5.1 | |||||||||||||||||||||||||||||
| Legal collection costs | 76,757 | 7.9 | 78,330 | 7.1 | 101,635 | 9.5 | |||||||||||||||||||||||||||||
| Agency fees | 63,808 | 6.6 | 63,140 | 5.8 | 56,418 | 5.3 | |||||||||||||||||||||||||||||
| Outside fees and services | 92,355 | 9.6 | 92,615 | 8.5 | 84,087 | 7.9 | |||||||||||||||||||||||||||||
| Communication | 39,205 | 4.1 | 42,755 | 3.9 | 40,801 | 3.8 | |||||||||||||||||||||||||||||
| Rent and occupancy | 18,589 | 1.9 | 18,376 | 1.7 | 17,973 | 1.7 | |||||||||||||||||||||||||||||
| Depreciation and amortization | 15,243 | 1.6 | 15,256 | 1.4 | 18,465 | 1.7 | |||||||||||||||||||||||||||||
| Other operating expenses | 50,778 | 5.2 | 61,077 | 5.5 | 47,426 | 4.5 | |||||||||||||||||||||||||||||
| Total operating expenses | 680,722 | 70.4 | 720,736 | 65.8 | 715,713 | 67.2 | |||||||||||||||||||||||||||||
| Income from operations | 285,802 | 29.6 | 374,996 | 34.2 | 349,701 | 32.8 | |||||||||||||||||||||||||||||
| Other income and (expense): | |||||||||||||||||||||||||||||||||||
| Interest expense, net | (130,677) | (13.6) | (124,143) | (11.3) | (141,712) | (13.2) | |||||||||||||||||||||||||||||
| Foreign exchange gain/(loss), net | 985 | 0.1 | (809) | (0.1) | 2,005 | 0.2 | |||||||||||||||||||||||||||||
| Other | (1,325) | (0.1) | 282 | — | (1,049) | (0.2) | |||||||||||||||||||||||||||||
| Income before income taxes | 154,785 | 16.0 | 250,326 | 22.8 | 208,945 | 19.6 | |||||||||||||||||||||||||||||
| Income tax expense | 36,787 | 3.8 | 54,817 | 5.0 | 41,203 | 3.9 | |||||||||||||||||||||||||||||
| Net income | 117,998 | 12.2 | 195,509 | 17.8 | 167,742 | 15.7 | |||||||||||||||||||||||||||||
| Adjustment for net income attributable to noncontrolling interests | 851 | 0.1 | 12,351 | 1.1 | 18,403 | 1.7 | |||||||||||||||||||||||||||||
| Net income attributable to PRA Group, Inc. | $ | 117,147 | 12.1 | % | $ | 183,158 | 16.7 | % | $ | 149,339 | 14.0 | % | |||||||||||||||||||||||
22
| 2019 | 2018 | 2017 | ||||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Income recognized on finance receivables | $ | 998,361 | 98.2 | % | $ | 891,899 | 98.2 | % | $ | 795,435 | 96.0 | % | ||||||||
| Fee income | 15,769 | 1.5 | 14,916 | 1.6 | 24,916 | 3.0 | ||||||||||||||
| Other revenue | 2,951 | 0.3 | 1,441 | 0.2 | 7,855 | 0.9 | ||||||||||||||
| Total revenues | 1,017,081 | 100.0 | 908,256 | 100.0 | 828,206 | 100.0 | ||||||||||||||
| Net allowance charges | (24,025 | ) | (2.4 | ) | (33,425 | ) | (3.7 | ) | (11,898 | ) | (1.4 | ) | ||||||||
| Operating expenses: | ||||||||||||||||||||
| Compensation and employee services | 310,441 | 30.5 | 319,400 | 35.2 | 273,033 | 33.0 | ||||||||||||||
| Legal collection fees | 55,261 | 5.4 | 42,941 | 4.7 | 43,351 | 5.2 | ||||||||||||||
| Legal collection costs | 134,156 | 13.2 | 104,988 | 11.6 | 76,047 | 9.2 | ||||||||||||||
| Agency fees | 55,812 | 5.5 | 33,854 | 3.7 | 35,530 | 4.3 | ||||||||||||||
| Outside fees and services | 63,513 | 6.2 | 61,492 | 6.8 | 62,792 | 7.6 | ||||||||||||||
| Communication | 44,057 | 4.3 | 43,224 | 4.8 | 33,132 | 4.0 | ||||||||||||||
| Rent and occupancy | 17,854 | 1.8 | 16,906 | 1.9 | 14,823 | 1.8 | ||||||||||||||
| Depreciation and amortization | 17,464 | 1.7 | 19,322 | 2.1 | 19,763 | 2.4 | ||||||||||||||
| Other operating expenses | 46,811 | 4.6 | 47,444 | 5.1 | 44,103 | 5.3 | ||||||||||||||
| Total operating expenses | 745,369 | 73.2 | 689,571 | 75.9 | 602,574 | 72.8 | ||||||||||||||
| Income from operations | 247,687 | 24.4 | 185,260 | 20.4 | 213,734 | 25.8 | ||||||||||||||
| Other income and (expense): | ||||||||||||||||||||
| Gain on sale of subsidiaries | — | — | 26,575 | 2.9 | 48,474 | 5.9 | ||||||||||||||
| Interest expense, net | (141,918 | ) | (14.0 | ) | (121,078 | ) | (13.3 | ) | (98,041 | ) | (11.8 | ) | ||||||||
| Foreign exchange gain/(loss) | 11,954 | 1.2 | (944 | ) | (0.1 | ) | (1,104 | ) | (0.1 | ) | ||||||||||
| Other | (364 | ) | (0.1 | ) | (316 | ) | (0.1 | ) | (2,790 | ) | (0.3 | ) | ||||||||
| Income before income taxes | 117,359 | 11.5 | 89,497 | 9.8 | 160,273 | 19.4 | ||||||||||||||
| Income tax expense/(benefit) | 19,680 | 1.9 | 13,763 | 1.5 | (10,852 | ) | (1.3 | ) | ||||||||||||
| Net income | 97,679 | 9.6 | 75,734 | 8.3 | 171,125 | 20.7 | ||||||||||||||
| Adjustment for net income attributable to noncontrolling interests | 11,521 | 1.1 | 10,171 | 1.1 | 6,810 | 0.8 | ||||||||||||||
| Net income attributable to PRA Group, Inc. | $ | 86,158 | 8.5 | % | $ | 65,563 | 7.2 | % | $ | 164,315 | 19.9 | % | ||||||||
Cash Collections
Cash collections for the years indicated were as follows for the periods indicated:
| Year Ended December 31, | Variances | ||||||||||||||||||
| (Amounts in millions) | 2019 | 2018 | 2017 | 2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||
| Americas Core | $ | 1,141.5 | $ | 945.2 | $ | 860.9 | $ | 196.3 | $ | 84.3 | |||||||||
| Americas Insolvency | 180.9 | 207.8 | 222.5 | (26.9 | ) | (14.7 | ) | ||||||||||||
| Europe Core | 480.1 | 443.4 | 407.0 | 36.7 | 36.4 | ||||||||||||||
| Europe Insolvency | 38.8 | 28.8 | 22.2 | 10.0 | 6.6 | ||||||||||||||
| Total cash collections | $ | 1,841.3 | $ | 1,625.2 | $ | 1,512.6 | $ | 216.1 | $ | 112.6 | |||||||||
Cash collections adjusted (1) | $ | 1,841.3 | $ | 1,595.5 | $ | 1,518.7 | $ | 245.8 | $ | 76.8 | |||||||||
| Cash collections on fully amortized pools | 47.1 | 54.0 | 57.6 | (6.9 | ) | (3.6 | ) | ||||||||||||
| Cash collections on pools on cost recovery | 13.5 | 35.8 | 37.7 | (22.3 | ) | (1.9 | ) | ||||||||||||
| Net finance receivables on cost recovery at year-end | 33.7 | 48.0 | 166.6 | (14.3 | ) | (118.6 | ) | ||||||||||||
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||||||||||||
| Americas and Australia Core | $ | 946.1 | $ | 1,206.9 | $ | (260.8) | (21.6) | % | |||||||||||||||||||||||||||
| Americas Insolvency | 129.4 | 147.3 | (17.9) | (12.2) | |||||||||||||||||||||||||||||||
| Europe Core | 559.7 | 614.6 | (54.9) | (8.9) | |||||||||||||||||||||||||||||||
| Europe Insolvency | 93.9 | 92.9 | 1.0 | 1.1 | |||||||||||||||||||||||||||||||
| Total cash collections | $ | 1,729.1 | $ | 2,061.7 | $ | (332.6) | (16.1) | % | |||||||||||||||||||||||||||
Cash collections adjusted (1) | $ | 1,729.1 | $ | 1,986.9 | $ | (257.8) | (13.0) | % | |||||||||||||||||||||||||||
(1) Cash collections adjusted refers to 20182021 cash collections remeasuredtranslated using 2019 exchange rates and 2017 cash collections remeasured using 20182022 exchange rates.
Cash collections were $1,841.3 $1,729.1 million in 2019, an increase2022, a decrease of $216.1$332.6 million, or 13.3%16.1%, compared to $1,625.2$2,061.7 million in 2018.2021. The increasedecrease was largely due to our U.S. legal collections increasing $91.1a decrease of $229.5 million, or 30.6%, in cash collections in U.S. call center and other collections, which we believe was mainly due primarily to higher collections driven by excess consumer liquidity during 2021 coupled with lower levels of portfolio purchasing. Additionally, U.S. legal cash collections decreased $41.2 million, or 12.3%, mainly reflecting the increase inimpact from the numberlower volume of accounts placed in the legal channel and our U.S. call center and otherin the last few years. Europe cash collections increasing $48.6decreased by $53.9 million, or 8.5%7.6%, due primarily to higher Americas Core portfolio purchasing in 2018. Additionally, asreflecting a result$76.1 million impact from the strengthening of increased portfolio purchasing in South America and the acquisition of a business in Canada in the first quarter of 2019, Americas Core outside the U.S. cash collections increased $56.6 million or 73.8%. Furthermore, our Europe Core cash collections increased $36.7 million or 8.3%, due primarily to increased portfolio purchasing, the consolidation of a Polish fund in the third quarter of 2018, and operational improvements. These increases weredollar partially offset by a declinehigher levels of $26.9 million, or 13.0%, in Americas Insolvency cash collections caused mainly by investment volumesportfolio purchases in the U.S. not offsetting the runoff of our older portfolios.
Revenues
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Portfolio income | $ | 772,315 | $ | 875,327 | $ | (103,012) | (11.8) | % | |||||||||||||||
| Changes in expected recoveries | 168,904 | 197,904 | (29,000) | (14.7) | |||||||||||||||||||
| Total portfolio revenue | 941,219 | 1,073,231 | (132,012) | (12.3) | |||||||||||||||||||
| Other revenue | 25,305 | 22,501 | 2,804 | 12.5 | |||||||||||||||||||
| Total revenues | $ | 966,524 | $ | 1,095,732 | $ | (129,208) | (11.8) | % | |||||||||||||||
Total Portfolio Revenue
| 2019 | 2018 | 2017 | |||||||||
| Cash collections | $ | 1,841,271 | $ | 1,625,205 | $ | 1,512,605 | |||||
| Principal amortization | (842,910 | ) | (733,306 | ) | (717,170 | ) | |||||
| Income recognized on finance receivables | 998,361 | 891,899 | 795,435 | ||||||||
| Fee income | 15,769 | 14,916 | 24,916 | ||||||||
| Other revenue | 2,951 | 1,441 | 7,855 | ||||||||
| Total revenues | $ | 1,017,081 | $ | 908,256 | $ | 828,206 | |||||
Other Revenue
Other revenue was $3.0$25.3 million in 2022, an increase of $2.8 million, or 12.5%, compared to $22.5 million in 2019, an 2021. The increase of $1.6 million or 114.3% comparedwas primarily attributable to $1.4 millionsettlement timing in 2018, primarily reflecting the variability of our CCB business. Other revenue was $1.4 million in 2018, a decrease of $6.5 million or 82.3% compared to $7.9 million in 2017, primarily due to a decrease in revenue earned on our investments.
Operating Expenses
Total operating expenses were $745.4$680.7 million in 2019, $689.62022, a decrease of $40.0 million, or 5.6%, compared to $720.7 million in 2018, and $602.6 million in 2017.2021.
Compensation and Employee Services
Compensation and employee service expenses were $310.4$285.5 million in 2019,2022, a decrease of $9.0$16.5 million, or 2.8%5.5%, compared to $319.4$302.0 million in 2018.2021. The decrease in compensation expense was primarily attributable to lower levels of compensation accruals and a reductiondecrease in collector compensation expenses in the U.S. call center workforce, as we balance the volume between the legal collection channel and call centers and realize the impact of recent investments in technology.centers. Total full-time equivalents decreased 17.9%4.9% to 4,4123,277 as of December 31, 20192022 from 5,3773,446 as of December 31, 2018. Additionally, this category was impacted by the result of the sale of RCB operating platform in December 2018, which shifted certain expenses from fixed to variable and are now recorded as agency fees.2021 mainly reflecting natural attrition.
23
Legal Collection Fees
Legal collection fees represent contingent fees incurred for the cash collections generated by our independent third-party attorney network. Legal collection fees were $55.3$38.4 million in 2019, $42.92022, a decrease of $8.8 million, or 18.6%, compared to $47.2 million in 2018, and $43.4 million in 2017.2021. The increase of $12.4 million or 28.9% in 2019decrease was primarilymainly due to a 44.5% increase inlower external legal cash collections in the U.S.
Legal Collection Costs
Legal collection costs primarily consist of costs paid to courts where a lawsuit is filed for the purpose of attempting to collect on an account. Legal collection costs were $134.2$76.8 million in 2019, an increase of $29.2 million or 27.8%,2022, compared to $105.0$78.3 million in 2018. The increase was primarily due to additional court costs related to the expansion of the number of accounts placed in the legal channel in the U.S. This expansion was the result of a change in the nature of the accounts purchased, the regulatory environment and consumer behavior.
Agency Fees
Agency fees primarily represent third-party collection fees. Agency fees were $55.8$63.8 million in 2019, an increase of $21.9 million or 64.6%2022, compared to $33.9$63.1 million in 2018. The increase was primarily due to the sale of the RCB operating platform, which shifted certain expenses from fixed to variable and are now recorded as agency fees, the acquisition of a business in Canada in the first quarter of 2019, and higher volumes of servicing activity in areas where we utilize third-party collection agencies.
Communication
Communication expenses primarily represent postage and telephone related expenses incurred as a result of our collection efforts. Communication expenses were $44.1$39.2 million in 2019, $43.22022, a decrease of $3.6 million, or 8.4%, compared to $42.8 million in 2018, and $33.12021. The decrease mainly reflects a decrease in postage expenses due to lower portfolio purchasing in the U.S.
Other
Other expenses were $50.8 million in 2017. The $10.12022, a decrease of $10.3 million, increase in 2018 was driven primarily by higher letter and call volume associated with record portfolio purchasing of Americas Core portfolios in 2017 and 2018 and additional U.S. collectors operating during 2018.
Interest Expense, Net
Interest expense, net for the years indicated were as follows (amounts in thousands):
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Interest on debt obligations and unused line fees | $ | 71,108 | $ | 76,759 | $ | (5,651) | (7.4) | % | |||||||||||||||
| Interest on senior notes | 39,625 | 26,889 | 12,736 | 47.4 | |||||||||||||||||||
| Coupon interest on convertible notes | 12,075 | 12,075 | — | — | |||||||||||||||||||
| Amortization of loan fees and other loan costs | 10,097 | 9,508 | 589 | 6.2 | |||||||||||||||||||
| Interest income | (2,228) | (1,088) | (1,140) | 104.8 | |||||||||||||||||||
| Interest expense, net | $ | 130,677 | $ | 124,143 | $ | 6,534 | 5.3 | % | |||||||||||||||
Interest expense, net was $141.9$130.7 million in 2019,2022, an increase of $20.8$6.5 million, or 17.2%5.3%, compared to $121.1$124.1 million in 2018. The increase was primarily2021 primarily due to higher levels of average borrowings to fund increased portfolio acquisitions paired with slightly higher interest rates and the impact of changes in the fair value of our derivatives.rates.
Foreign Exchange Gain/(Loss), Net
| Twelve Months Ended December 31, | Variances | ||||||||||||||||||
| 2019 | 2018 | 2017 | 2019 vs. 2018 | 2018 vs. 2017 | |||||||||||||||
| Stated interest on debt obligations and unused line fees | $ | 94,841 | $ | 83,983 | $ | 71,656 | $ | 10,858 | $ | 12,327 | |||||||||
| Coupon interest on convertible debt | 20,700 | 20,700 | 15,870 | — | 4,830 | ||||||||||||||
| Amortization of convertible debt discount | 12,398 | 11,725 | 8,583 | 673 | 3,142 | ||||||||||||||
| Amortization of loan fees and other loan costs | 10,589 | 10,332 | 9,569 | 257 | 763 | ||||||||||||||
| Change in fair value on derivatives | 5,636 | (2,532 | ) | (2,025 | ) | 8,168 | (507 | ) | |||||||||||
| Interest income | (2,246 | ) | (3,130 | ) | (5,612 | ) | 884 | 2,482 | |||||||||||
| Interest expense, net | $ | 141,918 | $ | 121,078 | $ | 98,041 | $ | 20,840 | $ | 23,037 | |||||||||
Income Tax Expense/(Benefit)Expense
Income tax expense/(benefit)expense was $19.7 million, $13.8 million, and $(10.9)$36.8 million in 2019, 2018 and 2017, respectively. The increase from 20182022, a decrease of $18.0 million, or 32.8%, compared to 2019 was primarily driven by GILTI, which is included$54.8 million in the tax impact on international earnings disclosed in Note 13. The change from 2017 to 2018 was primarily attributable to a $73.8 million after-tax benefit recorded in 2017 as a result of the revaluation of2021. In 2022, our net deferred tax liability per the Tax Act.
Year Ended December 31, 2021 Compared To Year Ended December 31, 2020
Refer to Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of our 2021 Form 10-K for a discussion of our 2021 results compared to their respective prior years due to the revaluation of the deferred tax liability per the Tax Act. Our effective tax rate will vary from period to period due to these types of items.
24
Supplemental Performance Data
Finance Receivables Portfolio Performance
The purchase price multiple represents our estimate of bankruptcy procedures; however, for accounting purposes, these accounts remain intotal cash collections over the original Insolvency pool.
purchase price of the portfolio. Purchase price multiples can vary over time due to a variety of factors, including pricing competition, supply levels, paper type, age of the receivablesaccounts acquired, mix of portfolios purchased and changes in our operational efficiency.For example, increased pricing due to elevated levels of competition during the 2005 to 2008 periodor supply constraints negatively impactedimpacts purchase price multiples as we pay more to buy similar portfolios of our Corenonperforming loans.
Further, there is a direct relationship between the price we pay for a portfolio, compared to prior years. Conversely, during the 2009 to 2011 period, additional supply occurred as a resultpurchase price multiple and the effective interest rate of the economic downturn. This created uniquepool.When we pay more for a portfolio, the purchase price multiple and advantageous purchasing opportunities, particularly within the Insolvency market, relativeeffective interest rates are lower. The opposite tends to the prior four years. Purchase price multiples can also vary among types of finance receivables. For example,occur when we generallypay less for a portfolio. We incur lower collection costs on our Insolvency portfolio compared with our Core portfolio. This allows us, in general,certain types of accounts we purchase for which we are able to generally pay more for an Insolvency portfolio and experiencethese types of accounts.This typically results in lower purchase price multiples, while generating similar net income margins when compared with a Core portfolio.
other portfolio purchases.Within a given portfolio type, to the extent that lower purchase price multiples are the result of more competitive pricing, and lower net yields, this will generally lead to higher amortization rates and lower profitability. As portfolio pricing becomes more favorable on a relative basis, our profitability will tend to increase. Profitability within given Core portfolio types may also be impacted by the age and quality of the receivables,accounts, which impact the cost to collect those accounts. Fresher accounts, for example, typically carry lower associated collection expenses,costs, while older accounts and lower balance accounts typically carry higher costs and, as a result, require higher purchase price multiples to achieve the same net profitability as fresher paper.
Revenue recognition under ASC 310-30 is driven by estimates of the amount and timing of collections as well as the timing of thosefuture cash collections. We record new portfolio acquisitions based on our best estimate ofat the cash flows expected at acquisition,purchase price, which reflects the uncertainties inherentamount we expect to collect discounted at an effective interest rate. During the year of acquisition, portfolios are aggregated into annual pools, and the blended effective interest rate will change to reflect new buying and new cash flow estimates until the end of the year. At that time, the purchase price amount is fixed at the aggregated amounts paid to acquire the portfolio, the effective interest rate is fixed at the amount we expect to collect, discounted at the rate to equate purchase price to the recovery estimate and the currency rates are fixed for purposes of comparability in future periods.Depending on the acquisitionlevel of nonperforming loansperformance and expected future impacts from our operations, we may update ERC and TEC levels based on the results of our underwriting process. Subsequentcash forecasting with the correlating adjustment to the purchase price multiple.We follow an established process to evaluate ERC.During the first years following purchase, we typically do not increase our purchase price multiples. Following the initial booking,years, as we gain collection experience and confidence with a pool of accounts we regularly update ERC. As a result,may begin to adjust our estimate of total collectionspurchase price multiples.Over time, our TEC has often increased as pools have aged. These processes have tended to causeaged resulting in the ratio of ERC to purchase price for any given year of buying to gradually increase over time.increase. Thus, all factors being equal in terms of pricing, one would typically tend to see a higher collection to purchase price ratio from a pool of accounts that was six years from acquisition than a pool that was just two years from acquisition.
The numbers presented in the following tables represent gross cash collections and do not reflect any costs to collect; therefore, they may not represent relative profitability. Due to all the factors described above, readers should be cautious when making comparisons of purchase price multiples among periods and between types of receivables.
25
Purchase Price Multiples as of December 31, 2019 Amounts in thousands | |||||||||||||||||
| Purchase Period | Purchase Price (1)(2) | Net Finance Receivables (3) | ERC-Historical Period Exchange Rates (4) | Total Estimated Collections (5) | ERC-Current Period Exchange Rates (6) | Current Estimated Purchase Price Multiple | Original Estimated Purchase Price Multiple (7) | ||||||||||
| Americas Core | |||||||||||||||||
| 1996-2009 | $ | 930,026 | $ | 9,279 | $ | 42,102 | $ | 2,885,906 | $ | 42,102 | 310% | 238% | |||||
| 2010 | 148,193 | 3,485 | 28,669 | 535,684 | 28,669 | 361% | 247% | ||||||||||
| 2011 | 209,602 | 7,707 | 48,551 | 739,158 | 48,551 | 353% | 245% | ||||||||||
| 2012 | 254,076 | 16,011 | 60,711 | 680,352 | 60,711 | 268% | 226% | ||||||||||
| 2013 | 390,826 | 33,648 | 94,733 | 931,194 | 94,733 | 238% | 211% | ||||||||||
| 2014 | 405,169 | 55,033 | 152,639 | 929,179 | 150,012 | 229% | 204% | ||||||||||
| 2015 | 443,779 | 93,385 | 226,865 | 965,671 | 226,755 | 218% | 205% | ||||||||||
| 2016 | 453,158 | 139,380 | 354,399 | 1,081,376 | 349,699 | 239% | 201% | ||||||||||
| 2017 | 533,442 | 242,129 | 521,715 | 1,167,831 | 519,181 | 219% | 193% | ||||||||||
| 2018 | 655,548 | 460,797 | 852,246 | 1,338,876 | 848,727 | 204% | 202% | ||||||||||
| 2019 | 578,281 | 533,933 | 1,048,207 | 1,191,940 | 1,053,332 | 206% | 206% | ||||||||||
| Subtotal | 5,002,100 | 1,594,787 | 3,430,837 | 12,447,167 | 3,422,472 | ||||||||||||
| Americas Insolvency | |||||||||||||||||
| 1996-2009 | 397,453 | — | 917 | 835,958 | 917 | 210% | 178% | ||||||||||
| 2010 | 208,942 | — | 1,181 | 546,872 | 1,181 | 262% | 184% | ||||||||||
| 2011 | 180,432 | — | 973 | 370,103 | 973 | 205% | 155% | ||||||||||
| 2012 | 251,395 | — | 953 | 392,377 | 953 | 156% | 136% | ||||||||||
| 2013 | 227,834 | — | 2,143 | 354,923 | 2,143 | 156% | 133% | ||||||||||
| 2014 | 148,689 | 756 | 3,598 | 218,044 | 3,578 | 147% | 124% | ||||||||||
| 2015 | 63,170 | 5,783 | 9,917 | 87,773 | 9,917 | 139% | 125% | ||||||||||
| 2016 | 92,264 | 17,433 | 22,491 | 116,896 | 22,501 | 127% | 123% | ||||||||||
| 2017 | 275,257 | 95,421 | 121,498 | 348,811 | 121,498 | 127% | 125% | ||||||||||
| 2018 | 97,879 | 74,459 | 93,120 | 127,257 | 93,120 | 130% | 127% | ||||||||||
| 2019 | 123,039 | 114,892 | 144,228 | 157,675 | 144,279 | 128% | 128% | ||||||||||
| Subtotal | 2,066,354 | 308,744 | 401,019 | 3,556,689 | 401,060 | ||||||||||||
| Total Americas | 7,068,454 | 1,903,531 | 3,831,856 | 16,003,856 | 3,823,532 | ||||||||||||
| Europe Core | |||||||||||||||||
| 2012 | 20,409 | — | 875 | 40,542 | 709 | 199% | 187% | ||||||||||
| 2013 | 20,334 | — | 431 | 24,995 | 343 | 123% | 119% | ||||||||||
| 2014 | 796,762 | 188,892 | 823,116 | 2,278,261 | 704,192 | 286% | 208% | ||||||||||
| 2015 | 419,909 | 161,210 | 345,214 | 748,127 | 314,643 | 178% | 160% | ||||||||||
| 2016 | 348,270 | 190,927 | 333,375 | 578,421 | 332,857 | 166% | 167% | ||||||||||
| 2017 | 246,752 | 157,850 | 232,858 | 351,216 | 229,035 | 142% | 144% | ||||||||||
2018 (8) | 345,256 | 269,292 | 407,945 | 522,374 | 413,728 | 151% | 148% | ||||||||||
| 2019 | 512,702 | 488,468 | 730,704 | 779,136 | 739,345 | 152% | 152% | ||||||||||
| Subtotal | 2,710,394 | 1,456,639 | 2,874,518 | 5,323,072 | 2,734,852 | ||||||||||||
| Europe Insolvency | |||||||||||||||||
| 2014 | 10,876 | 306 | 1,061 | 18,155 | 941 | 167% | 129% | ||||||||||
| 2015 | 19,226 | 3,083 | 5,970 | 29,294 | 5,262 | 152% | 139% | ||||||||||
| 2016 | 41,858 | 12,507 | 18,160 | 60,651 | 18,272 | 145% | 130% | ||||||||||
| 2017 | 38,409 | 24,417 | 28,931 | 47,604 | 28,707 | 124% | 128% | ||||||||||
| 2018 | 45,586 | 39,424 | 46,969 | 56,199 | 47,240 | 123% | 123% | ||||||||||
| 2019 | 75,588 | 74,258 | 93,518 | 98,439 | 95,509 | 130% | 130% | ||||||||||
| Subtotal | 231,543 | 153,995 | 194,609 | 310,342 | 195,931 | ||||||||||||
| Total Europe | 2,941,937 | 1,610,634 | 3,069,127 | 5,633,414 | 2,930,783 | ||||||||||||
| Total PRA Group | $ | 10,010,391 | $ | 3,514,165 | $ | 6,900,983 | $ | 21,637,270 | $ | 6,754,315 | |||||||
Purchase Price Multiples as of December 31, 2022 Amounts in thousands | |||||||||||||||||
| Purchase Period | Purchase Price (2)(3) | Total Estimated Collections (4) | Estimated Remaining Collections (5) | Current Purchase Price Multiple | Original Purchase Price Multiple (6) | ||||||||||||
| Americas and Australia Core | |||||||||||||||||
| 1996-2012 | $ | 1,541,897 | $ | 4,798,281 | $ | 42,398 | 311% | 238% | |||||||||
| 2013 | 390,826 | 905,829 | 17,025 | 232% | 211% | ||||||||||||
| 2014 | 404,117 | 872,066 | 26,384 | 216% | 204% | ||||||||||||
| 2015 | 443,114 | 905,285 | 55,162 | 204% | 205% | ||||||||||||
| 2016 | 455,767 | 1,081,751 | 93,292 | 237% | 201% | ||||||||||||
| 2017 | 532,851 | 1,208,081 | 156,253 | 227% | 193% | ||||||||||||
| 2018 | 653,975 | 1,464,612 | 225,935 | 224% | 202% | ||||||||||||
| 2019 | 581,476 | 1,294,519 | 288,207 | 223% | 206% | ||||||||||||
| 2020 | 435,668 | 948,088 | 337,470 | 218% | 213% | ||||||||||||
| 2021 | 435,846 | 811,328 | 553,876 | 186% | 191% | ||||||||||||
| 2022 | 406,082 | 726,523 | 659,290 | 179% | 179% | ||||||||||||
| Subtotal | 6,281,619 | 15,016,363 | 2,455,292 | ||||||||||||||
| Americas Insolvency | |||||||||||||||||
| 1996-2012 | 1,038,222 | 2,146,283 | 285 | 207% | 165% | ||||||||||||
| 2013 | 227,834 | 355,578 | 142 | 156% | 133% | ||||||||||||
| 2014 | 148,420 | 218,674 | 392 | 147% | 124% | ||||||||||||
| 2015 | 63,170 | 87,891 | 279 | 139% | 125% | ||||||||||||
| 2016 | 91,442 | 117,449 | 612 | 128% | 123% | ||||||||||||
| 2017 | 275,257 | 355,272 | 4,406 | 129% | 125% | ||||||||||||
| 2018 | 97,879 | 137,315 | 16,401 | 140% | 127% | ||||||||||||
| 2019 | 123,077 | 168,002 | 46,299 | 137% | 128% | ||||||||||||
| 2020 | 62,130 | 89,698 | 46,704 | 144% | 136% | ||||||||||||
| 2021 | 55,187 | 72,934 | 50,407 | 132% | 136% | ||||||||||||
| 2022 | 33,442 | 46,651 | 43,464 | 139% | 139% | ||||||||||||
| Subtotal | 2,216,060 | 3,795,747 | 209,391 | ||||||||||||||
| Total Americas and Australia | 8,497,679 | 18,812,110 | 2,664,683 | ||||||||||||||
| Europe Core | |||||||||||||||||
| 2012 | 20,409 | 43,718 | — | 214% | 187% | ||||||||||||
| 2013 | 20,334 | 26,909 | — | 132% | 119% | ||||||||||||
2014 (1) | 773,811 | 2,365,317 | 406,593 | 306% | 208% | ||||||||||||
| 2015 | 411,340 | 728,250 | 153,190 | 177% | 160% | ||||||||||||
| 2016 | 333,090 | 567,637 | 189,769 | 170% | 167% | ||||||||||||
| 2017 | 252,174 | 358,816 | 119,854 | 142% | 144% | ||||||||||||
| 2018 | 341,775 | 540,246 | 220,787 | 158% | 148% | ||||||||||||
| 2019 | 518,610 | 798,429 | 373,658 | 154% | 152% | ||||||||||||
| 2020 | 324,119 | 557,983 | 305,148 | 172% | 172% | ||||||||||||
| 2021 | 412,411 | 699,520 | 498,755 | 170% | 170% | ||||||||||||
| 2022 | 359,447 | 660,999 | 546,522 | 184% | 184% | ||||||||||||
| Subtotal | 3,767,520 | 7,347,824 | 2,814,276 | ||||||||||||||
| Europe Insolvency | |||||||||||||||||
2014 (1) | 10,876 | 18,611 | — | 171% | 129% | ||||||||||||
| 2015 | 18,973 | 28,950 | 125 | 153% | 139% | ||||||||||||
| 2016 | 39,338 | 56,990 | 1,500 | 145% | 130% | ||||||||||||
| 2017 | 39,235 | 50,905 | 4,673 | 130% | 128% | ||||||||||||
| 2018 | 44,908 | 52,582 | 11,526 | 117% | 123% | ||||||||||||
| 2019 | 77,218 | 110,515 | 35,296 | 143% | 130% | ||||||||||||
| 2020 | 105,440 | 153,006 | 66,106 | 145% | 129% | ||||||||||||
| 2021 | 53,230 | 71,526 | 45,007 | 134% | 134% | ||||||||||||
| 2022 | 44,604 | 61,057 | 56,551 | 137% | 137% | ||||||||||||
| Subtotal | 433,822 | 604,142 | 220,784 | ||||||||||||||
| Total Europe | 4,201,342 | 7,951,966 | 3,035,060 | ||||||||||||||
| Total PRA Group | $ | 12,699,021 | $ | 26,764,076 | $ | 5,699,743 | |||||||||||
Portfolio Financial Information For the Year Ended December 31, 2019 Amounts in thousands | |||||||||||||||||||||
| Purchase Period | Purchase Price (1)(2) | Cash Collections (3) | Gross Revenue (3) | Amortization (3) | Net Allowance Charges/(Reversals) (3) | Net Revenue (3)(4) | Net Finance Receivables as of December 31, 2019 (5) | ||||||||||||||
| Americas Core | |||||||||||||||||||||
| 1996-2009 | $ | 930,026 | $ | 19,178 | $ | 15,005 | $ | 4,173 | $ | (3,700 | ) | $ | 18,705 | $ | 9,279 | ||||||
| 2010 | 148,193 | 9,202 | 8,090 | 1,112 | 40 | 8,050 | 3,485 | ||||||||||||||
| 2011 | 209,602 | 16,637 | 14,670 | 1,967 | 755 | 13,915 | 7,707 | ||||||||||||||
| 2012 | 254,076 | 17,866 | 13,930 | 3,936 | (370 | ) | 14,300 | 16,011 | |||||||||||||
| 2013 | 390,826 | 36,855 | 26,477 | 10,378 | 6,325 | 20,152 | 33,648 | ||||||||||||||
| 2014 | 405,169 | 55,340 | 37,701 | 17,639 | 8,317 | 29,384 | 55,033 | ||||||||||||||
| 2015 | 443,779 | 83,592 | 52,469 | 31,123 | 9,247 | 43,222 | 93,385 | ||||||||||||||
| 2016 | 453,158 | 140,590 | 88,200 | 52,390 | 3,364 | 84,836 | 139,380 | ||||||||||||||
| 2017 | 533,442 | 256,520 | 128,559 | 127,961 | 265 | 128,294 | 242,129 | ||||||||||||||
| 2018 | 655,548 | 361,899 | 196,082 | 165,817 | 254 | 195,828 | 460,797 | ||||||||||||||
| 2019 | 578,281 | 143,828 | 96,841 | 46,987 | 34 | 96,807 | 533,933 | ||||||||||||||
| Subtotal | 5,002,100 | 1,141,507 | 678,024 | 463,483 | 24,531 | 653,493 | 1,594,787 | ||||||||||||||
| Americas Insolvency | |||||||||||||||||||||
| 1996-2009 | 397,453 | 652 | 652 | — | — | 652 | — | ||||||||||||||
| 2010 | 208,942 | 663 | 663 | — | — | 663 | — | ||||||||||||||
| 2011 | 180,432 | 743 | 743 | — | — | 743 | — | ||||||||||||||
| 2012 | 251,395 | 1,870 | 1,870 | — | — | 1,870 | — | ||||||||||||||
| 2013 | 227,834 | 2,862 | 2,862 | — | — | 2,862 | — | ||||||||||||||
| 2014 | 148,689 | 15,785 | 9,476 | 6,309 | 310 | 9,166 | 756 | ||||||||||||||
| 2015 | 63,170 | 16,657 | 6,221 | 10,436 | — | 6,221 | 5,783 | ||||||||||||||
| 2016 | 92,264 | 19,918 | 5,299 | 14,619 | (1,460 | ) | 6,759 | 17,433 | |||||||||||||
| 2017 | 275,257 | 80,906 | 20,754 | 60,152 | — | 20,754 | 95,421 | ||||||||||||||
| 2018 | 97,879 | 27,438 | 8,210 | 19,228 | — | 8,210 | 74,459 | ||||||||||||||
| 2019 | 123,039 | 13,449 | 5,264 | 8,185 | — | 5,264 | 114,892 | ||||||||||||||
| Subtotal | 2,066,354 | 180,943 | 62,014 | 118,929 | (1,150 | ) | 63,164 | 308,744 | |||||||||||||
| Total Americas | 7,068,454 | 1,322,450 | 740,038 | 582,412 | 23,381 | 716,657 | 1,903,531 | ||||||||||||||
| Europe Core | |||||||||||||||||||||
| 2012 | 20,409 | 1,450 | 1,450 | — | — | 1,450 | — | ||||||||||||||
| 2013 | 20,334 | 901 | 820 | 81 | — | 820 | — | ||||||||||||||
| 2014 | 796,762 | 172,885 | 121,450 | 51,435 | (1,846 | ) | 123,296 | 188,892 | |||||||||||||
| 2015 | 419,909 | 66,074 | 32,821 | 33,253 | (3,353 | ) | 36,174 | 161,210 | |||||||||||||
| 2016 | 348,270 | 57,989 | 28,594 | 29,395 | 2,911 | 25,683 | 190,927 | ||||||||||||||
| 2017 | 246,752 | 44,085 | 14,239 | 29,846 | 1,815 | 12,424 | 157,850 | ||||||||||||||
2018 (6) | 345,256 | 88,699 | 27,309 | 61,390 | 664 | 26,645 | 269,292 | ||||||||||||||
| 2019 | 512,702 | 47,976 | 17,736 | 30,240 | 45 | 17,691 | 488,468 | ||||||||||||||
| Subtotal | 2,710,394 | 480,059 | 244,419 | 235,640 | 236 | 244,183 | 1,456,639 | ||||||||||||||
| Europe Insolvency | |||||||||||||||||||||
| 2014 | 10,876 | 1,547 | 907 | 640 | — | 907 | 306 | ||||||||||||||
| 2015 | 19,226 | 3,904 | 1,889 | 2,015 | (72 | ) | 1,961 | 3,083 | |||||||||||||
| 2016 | 41,858 | 10,664 | 4,161 | 6,503 | (42 | ) | 4,203 | 12,507 | |||||||||||||
| 2017 | 38,409 | 9,240 | 2,300 | 6,940 | 522 | 1,778 | 24,417 | ||||||||||||||
| 2018 | 45,586 | 8,422 | 2,552 | 5,870 | — | 2,552 | 39,424 | ||||||||||||||
| 2019 | 75,588 | 4,985 | 2,095 | 2,890 | — | 2,095 | 74,258 | ||||||||||||||
| Subtotal | 231,543 | 38,762 | 13,904 | 24,858 | 408 | 13,496 | 153,995 | ||||||||||||||
| Total Europe | 2,941,937 | 518,821 | 258,323 | 260,498 | 644 | 257,679 | 1,610,634 | ||||||||||||||
| Total PRA Group | $ | 10,010,391 | $ | 1,841,271 | $ | 998,361 | $ | 842,910 | $ | 24,025 | $ | 974,336 | $ | 3,514,165 | |||||||
| (1)Includes |
(2)Includes the acquisition date finance receivables portfolios that were acquired through our business acquisitions.
(3)Non-U.S. amounts are presented at the exchange rate at the end of the year in which the portfolio was purchased. In addition, any purchase price adjustments that occur throughout the life of the portfolio are presented at the year-end exchange rate for the respective year of purchase.
(4)Non-U.S. amounts are presented at the year-end exchange rate for the respective year of purchase.
(5)Non-U.S. amounts are presented at the December 31, 2022 exchange rate.
(6)The Original Purchase Price Multiple represents the purchase price multiple at the end of the year of acquisition.
26
Portfolio Financial Information For the Year Ended December 31, 2022 Amounts in thousands | |||||||||||||||||
| Purchase Period | Cash Collections (2) | Portfolio Income (2) | Changes in Expected Recoveries (2) | Total Portfolio Revenue (2) | Net Finance Receivables as of December 31, 2022 (3) | ||||||||||||
| Americas and Australia Core | |||||||||||||||||
| 1996-2012 | $ | 23,470 | $ | 12,731 | $ | 10,208 | $ | 22,939 | $ | 10,343 | |||||||
| 2013 | 12,526 | 4,728 | 6,476 | 11,204 | 7,438 | ||||||||||||
| 2014 | 14,998 | 6,106 | 7,433 | 13,539 | 10,541 | ||||||||||||
| 2015 | 19,542 | 12,818 | (3,411) | 9,407 | 21,250 | ||||||||||||
| 2016 | 38,350 | 28,246 | (16,381) | 11,865 | 31,464 | ||||||||||||
| 2017 | 76,269 | 41,197 | (4,578) | 36,619 | 68,396 | ||||||||||||
| 2018 | 146,106 | 55,912 | 49,297 | 105,209 | 125,682 | ||||||||||||
| 2019 | 177,717 | 76,857 | 21,872 | 98,729 | 159,586 | ||||||||||||
| 2020 | 192,001 | 88,284 | 1,918 | 90,202 | 195,163 | ||||||||||||
| 2021 | 177,340 | 112,434 | (45,560) | 66,874 | 298,645 | ||||||||||||
| 2022 | 67,735 | 44,054 | 1,401 | 45,455 | 381,914 | ||||||||||||
| Subtotal | 946,054 | 483,367 | 28,675 | 512,042 | 1,310,422 | ||||||||||||
| Americas Insolvency | |||||||||||||||||
| 1996-2012 | 1,066 | 572 | 494 | 1,066 | — | ||||||||||||
| 2013 | 535 | 232 | 305 | 537 | — | ||||||||||||
| 2014 | 718 | 717 | (87) | 630 | 46 | ||||||||||||
| 2015 | 596 | 165 | 354 | 519 | 140 | ||||||||||||
| 2016 | 1,810 | 299 | 932 | 1,231 | 481 | ||||||||||||
| 2017 | 20,751 | 2,489 | 1,941 | 4,430 | 3,970 | ||||||||||||
| 2018 | 24,627 | 3,282 | 3,301 | 6,583 | 15,207 | ||||||||||||
| 2019 | 37,815 | 5,933 | 4,770 | 10,703 | 42,207 | ||||||||||||
| 2020 | 20,361 | 5,830 | 3,386 | 9,216 | 39,299 | ||||||||||||
| 2021 | 17,904 | 6,699 | (753) | 5,946 | 40,900 | ||||||||||||
| 2022 | 3,186 | 1,778 | 1,239 | 3,017 | 32,797 | ||||||||||||
| Subtotal | 129,369 | 27,996 | 15,882 | 43,878 | 175,047 | ||||||||||||
| Total Americas and Australia | 1,075,423 | 511,363 | 44,557 | 555,920 | 1,485,469 | ||||||||||||
| Europe Core | |||||||||||||||||
| 2012 | 870 | — | 871 | 871 | — | ||||||||||||
| 2013 | 481 | — | 481 | 481 | — | ||||||||||||
2014 (1) | 122,232 | 73,843 | 41,828 | 115,671 | 114,254 | ||||||||||||
| 2015 | 40,701 | 19,278 | 7,740 | 27,018 | 83,984 | ||||||||||||
| 2016 | 36,912 | 17,962 | 2,616 | 20,578 | 112,355 | ||||||||||||
| 2017 | 25,151 | 8,750 | 3,081 | 11,831 | 82,457 | ||||||||||||
| 2018 | 50,702 | 17,202 | 8,425 | 25,627 | 146,171 | ||||||||||||
| 2019 | 89,820 | 27,307 | 18,949 | 46,256 | 255,401 | ||||||||||||
| 2020 | 69,045 | 26,602 | 5,300 | 31,902 | 188,109 | ||||||||||||
| 2021 | 89,938 | 39,653 | 2,889 | 42,542 | 301,235 | ||||||||||||
| 2022 | 33,867 | 12,051 | 5,727 | 17,778 | 341,819 | ||||||||||||
| Subtotal | 559,719 | 242,648 | 97,907 | 340,555 | 1,625,785 | ||||||||||||
| Europe Insolvency | |||||||||||||||||
2014 (1) | 238 | 14 | 211 | 225 | — | ||||||||||||
| 2015 | 649 | 182 | (4) | 178 | 104 | ||||||||||||
| 2016 | 2,710 | 634 | 104 | 738 | 1,131 | ||||||||||||
| 2017 | 6,499 | 593 | 1,371 | 1,964 | 4,325 | ||||||||||||
| 2018 | 9,828 | 1,218 | 863 | 2,081 | 10,512 | ||||||||||||
| 2019 | 21,020 | 3,458 | 7,268 | 10,726 | 30,837 | ||||||||||||
| 2020 | 34,086 | 6,011 | 14,364 | 20,375 | 57,627 | ||||||||||||
| 2021 | 14,417 | 4,637 | 1,312 | 5,949 | 36,707 | ||||||||||||
| 2022 | 4,452 | 1,557 | 951 | 2,508 | 42,511 | ||||||||||||
| Subtotal | 93,899 | 18,304 | 26,440 | 44,744 | 183,754 | ||||||||||||
| Total Europe | 653,618 | 260,952 | 124,347 | 385,299 | 1,809,539 | ||||||||||||
| Total PRA Group | $ | 1,729,041 | $ | 772,315 | $ | 168,904 | $ | 941,219 | $ | 3,295,008 | |||||||
(1)Includes finance receivables portfolios that were acquired through the acquisition of Aktiv Kapital AS in 2014 (as described in Item 1 of this Form 10-K).
(2)Non-U.S. amounts are presented using the average exchange rates during the current reporting period.
(3)Non-U.S. amounts are presented at the December 31, 2022 exchange rate.
27
Cash Collections by Year, By Year of Purchase (1) as of December 31, 2022 Amounts in millions | ||||||||||||||||||||||||||||||||||||||||||||
| Cash Collections | ||||||||||||||||||||||||||||||||||||||||||||
| Purchase Period | Purchase Price (3)(4) | 1996-2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | Total | |||||||||||||||||||||||||||||||
| Americas and Australia Core | ||||||||||||||||||||||||||||||||||||||||||||
| 1996-2012 | $ | 1,541.9 | $ | 2,962.4 | $ | 554.9 | $ | 412.5 | $ | 280.4 | $ | 179.0 | $ | 118.0 | $ | 83.8 | $ | 62.9 | $ | 41.5 | $ | 29.8 | $ | 23.5 | $ | 4,748.7 | ||||||||||||||||||
| 2013 | 390.8 | — | 101.6 | 247.8 | 194.0 | 120.8 | 78.9 | 56.4 | 36.9 | 23.2 | 16.7 | 12.5 | 888.8 | |||||||||||||||||||||||||||||||
| 2014 | 404.1 | — | — | 92.7 | 253.4 | 170.3 | 114.2 | 82.2 | 55.3 | 31.9 | 22.3 | 15.0 | 837.3 | |||||||||||||||||||||||||||||||
| 2015 | 443.1 | — | — | — | 117.0 | 228.4 | 185.9 | 126.6 | 83.6 | 57.2 | 34.9 | 19.5 | 853.1 | |||||||||||||||||||||||||||||||
| 2016 | 455.8 | — | — | — | 138.7 | 256.5 | 194.6 | 140.6 | 105.9 | 74.2 | 38.4 | 948.9 | ||||||||||||||||||||||||||||||||
| 2017 | 532.9 | — | — | — | — | — | 107.3 | 278.7 | 256.5 | 192.5 | 130.0 | 76.3 | 1,041.3 | |||||||||||||||||||||||||||||||
| 2018 | 654.0 | — | — | — | — | — | — | 122.7 | 361.9 | 337.7 | 239.9 | 146.1 | 1,208.3 | |||||||||||||||||||||||||||||||
| 2019 | 581.5 | — | — | — | — | — | — | — | 143.8 | 349.0 | 289.8 | 177.7 | 960.3 | |||||||||||||||||||||||||||||||
| 2020 | 435.7 | — | — | — | — | — | — | — | — | 133.0 | 284.3 | 192.0 | 609.3 | |||||||||||||||||||||||||||||||
| 2021 | 435.8 | — | — | — | — | — | — | — | — | — | 85.0 | 177.3 | 262.3 | |||||||||||||||||||||||||||||||
| 2022 | 406.1 | — | — | — | — | — | — | — | — | — | — | 67.8 | 67.8 | |||||||||||||||||||||||||||||||
| Subtotal | 6,281.7 | 2,962.4 | 656.5 | 753.0 | 844.8 | 837.2 | 860.8 | 945.0 | 1,141.5 | 1,271.9 | 1,206.9 | 946.1 | 12,426.1 | |||||||||||||||||||||||||||||||
| Americas Insolvency | ||||||||||||||||||||||||||||||||||||||||||||
| 1996-2012 | 1,038.2 | 1,021.6 | 417.3 | 338.8 | 208.3 | 105.3 | 37.7 | 8.3 | 4.0 | 2.2 | 1.4 | 1.1 | 2,146.0 | |||||||||||||||||||||||||||||||
| 2013 | 227.8 | — | 52.5 | 82.6 | 81.7 | 63.4 | 47.8 | 21.9 | 2.9 | 1.3 | 0.8 | 0.5 | 355.4 | |||||||||||||||||||||||||||||||
| 2014 | 148.4 | — | — | 37.0 | 50.9 | 44.3 | 37.4 | 28.8 | 15.8 | 2.2 | 1.1 | 0.7 | 218.2 | |||||||||||||||||||||||||||||||
| 2015 | 63.2 | — | — | — | 3.4 | 17.9 | 20.1 | 19.8 | 16.7 | 7.9 | 1.3 | 0.6 | 87.7 | |||||||||||||||||||||||||||||||
| 2016 | 91.4 | — | — | — | — | 18.9 | 30.4 | 25.0 | 19.9 | 14.4 | 7.4 | 1.8 | 117.8 | |||||||||||||||||||||||||||||||
| 2017 | 275.3 | — | — | — | — | — | 49.1 | 97.3 | 80.9 | 58.8 | 44.0 | 20.8 | 350.9 | |||||||||||||||||||||||||||||||
| 2018 | 97.9 | — | — | — | — | — | — | 6.7 | 27.4 | 30.5 | 31.6 | 24.6 | 120.8 | |||||||||||||||||||||||||||||||
| 2019 | 123.1 | — | — | — | — | — | — | — | 13.4 | 31.4 | 39.1 | 37.8 | 121.7 | |||||||||||||||||||||||||||||||
| 2020 | 62.1 | — | — | — | — | — | — | — | — | 6.5 | 16.1 | 20.4 | 43.0 | |||||||||||||||||||||||||||||||
| 2021 | 55.2 | — | — | — | — | — | — | — | — | — | 4.5 | 17.9 | 22.4 | |||||||||||||||||||||||||||||||
| 2022 | 33.4 | — | — | — | — | — | — | — | — | — | — | 3.2 | 3.2 | |||||||||||||||||||||||||||||||
| Subtotal | 2,216.0 | 1,021.6 | 469.8 | 458.4 | 344.3 | 249.8 | 222.5 | 207.8 | 181.0 | 155.2 | 147.3 | 129.4 | 3,587.1 | |||||||||||||||||||||||||||||||
| Total Americas and Australia | 8,497.7 | 3,984.0 | 1,126.3 | 1,211.4 | 1,189.1 | 1,087.0 | 1,083.3 | 1,152.8 | 1,322.5 | 1,427.1 | 1,354.2 | 1,075.5 | 16,013.2 | |||||||||||||||||||||||||||||||
| Europe Core | ||||||||||||||||||||||||||||||||||||||||||||
| 2012 | 20.4 | 11.6 | 9.0 | 5.6 | 3.2 | 2.2 | 2.0 | 2.0 | 1.5 | 1.2 | 1.2 | 0.9 | 40.4 | |||||||||||||||||||||||||||||||
| 2013 | 20.3 | — | 7.1 | 8.5 | 2.3 | 1.3 | 1.2 | 1.3 | 0.9 | 0.7 | 0.7 | 0.5 | 24.5 | |||||||||||||||||||||||||||||||
2014 (2) | 773.8 | — | — | 153.2 | 292.0 | 246.4 | 220.8 | 206.3 | 172.9 | 149.8 | 149.2 | 122.2 | 1,712.8 | |||||||||||||||||||||||||||||||
| 2015 | 411.3 | — | — | — | 45.8 | 100.3 | 86.2 | 80.9 | 66.1 | 54.3 | 51.4 | 40.7 | 525.7 | |||||||||||||||||||||||||||||||
| 2016 | 333.1 | — | — | — | — | 40.4 | 78.9 | 72.6 | 58.0 | 48.3 | 46.7 | 36.9 | 381.8 | |||||||||||||||||||||||||||||||
| 2017 | 252.2 | — | — | — | — | — | 17.9 | 56.0 | 44.1 | 36.1 | 34.8 | 25.2 | 214.1 | |||||||||||||||||||||||||||||||
| 2018 | 341.8 | — | — | — | — | — | — | 24.3 | 88.7 | 71.2 | 69.1 | 50.7 | 304.0 | |||||||||||||||||||||||||||||||
| 2019 | 518.6 | — | — | — | — | — | — | — | 47.9 | 125.7 | 121.4 | 89.8 | 384.8 | |||||||||||||||||||||||||||||||
| 2020 | 324.1 | — | — | — | — | — | — | — | — | 32.4 | 91.7 | 69.0 | 193.1 | |||||||||||||||||||||||||||||||
| 2021 | 412.4 | — | — | — | — | — | — | — | — | — | 48.4 | 89.9 | 138.3 | |||||||||||||||||||||||||||||||
| 2022 | 359.5 | — | — | — | — | — | — | — | — | — | — | 33.9 | 33.9 | |||||||||||||||||||||||||||||||
| Subtotal | 3,767.5 | 11.6 | 16.1 | 167.3 | 343.3 | 390.6 | 407.0 | 443.4 | 480.1 | 519.7 | 614.6 | 559.7 | 3,953.4 | |||||||||||||||||||||||||||||||
| Europe Insolvency | ||||||||||||||||||||||||||||||||||||||||||||
2014 (2) | 10.9 | — | — | — | 4.3 | 3.9 | 3.2 | 2.6 | 1.5 | 0.8 | 0.3 | 0.3 | 16.9 | |||||||||||||||||||||||||||||||
| 2015 | 19.0 | — | — | — | 3.0 | 4.4 | 5.0 | 4.8 | 3.9 | 2.9 | 1.6 | 0.6 | 26.2 | |||||||||||||||||||||||||||||||
| 2016 | 39.3 | — | — | — | — | 6.2 | 12.7 | 12.9 | 10.7 | 7.9 | 6.0 | 2.7 | 59.1 | |||||||||||||||||||||||||||||||
| 2017 | 39.2 | — | — | — | — | — | 1.2 | 7.9 | 9.2 | 9.8 | 9.4 | 6.5 | 44.0 | |||||||||||||||||||||||||||||||
| 2018 | 44.9 | — | — | — | — | — | — | 0.6 | 8.4 | 10.3 | 11.7 | 9.8 | 40.8 | |||||||||||||||||||||||||||||||
| 2019 | 77.2 | — | — | — | — | — | — | — | 5.1 | 21.1 | 23.9 | 21.0 | 71.1 | |||||||||||||||||||||||||||||||
| 2020 | 105.4 | — | — | — | — | — | — | — | — | 6.1 | 34.6 | 34.1 | 74.8 | |||||||||||||||||||||||||||||||
| 2021 | 53.3 | — | — | — | — | — | — | — | — | — | 5.4 | 14.4 | 19.8 | |||||||||||||||||||||||||||||||
| 2022 | 44.6 | — | — | — | — | — | — | — | — | — | — | 4.5 | 4.5 | |||||||||||||||||||||||||||||||
| Subtotal | 433.8 | — | — | — | 7.3 | 14.5 | 22.1 | 28.8 | 38.8 | 58.9 | 92.9 | 93.9 | 357.2 | |||||||||||||||||||||||||||||||
| Total Europe | 4,201.3 | 11.6 | 16.1 | 167.3 | 350.6 | 405.1 | 429.1 | 472.2 | 518.9 | 578.6 | 707.5 | 653.6 | 4,310.6 | |||||||||||||||||||||||||||||||
| Total PRA Group | $ | 12,699.0 | $ | 3,995.6 | $ | 1,142.4 | $ | 1,378.7 | $ | 1,539.7 | $ | 1,492.1 | $ | 1,512.4 | $ | 1,625.0 | $ | 1,841.4 | $ | 2,005.7 | $ | 2,061.7 | $ | 1,729.1 | $ | 20,323.8 | ||||||||||||||||||
(1)Non-U.S. amounts are presented using the average exchange rates during the cash collections, bycollection period.
(2)Includes finance receivables portfolios that were acquired through the acquisition of Aktiv Kapital AS in 2014 (as described in Item 1 of this Form 10-K).
(3)Includes the nonperforming loan portfolios that were acquired through our business acquisitions.
(4)Non-U.S. amounts are presented at the exchange rate at the end of the year on our portfolios.in which the portfolios were purchased. In addition, any purchase price adjustments that occur throughout the life of the pool are presented at the year-end exchange rate for the respective year of purchase.
28
Cash Collections by Year, By Year of Purchase (1) as of December 31, 2019 Amounts in thousands | |||||||||||||||||||||||||||||||||||||||
| Cash Collections | |||||||||||||||||||||||||||||||||||||||
| Purchase Period | Purchase Price (2)(3) | 1996- 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | Total | ||||||||||||||||||||||||||
| Americas Core | |||||||||||||||||||||||||||||||||||||||
| 1996-2009 | $ | 930,026 | $ | 1,647,666 | $ | 295,679 | $ | 253,544 | $ | 201,640 | $ | 146,383 | $ | 101,829 | $ | 71,173 | $ | 45,734 | $ | 30,452 | $ | 23,272 | $ | 19,178 | $ | 2,836,550 | |||||||||||||
| 2010 | 148,193 | — | 47,076 | 113,554 | 109,873 | 82,014 | 55,946 | 38,110 | 24,515 | 15,587 | 11,140 | 9,202 | 507,017 | ||||||||||||||||||||||||||
| 2011 | 209,602 | — | — | 61,971 | 174,461 | 152,908 | 108,513 | 73,793 | 48,711 | 31,991 | 21,622 | 16,637 | 690,607 | ||||||||||||||||||||||||||
| 2012 | 254,076 | — | — | — | 56,901 | 173,589 | 146,198 | 97,267 | 59,981 | 40,042 | 27,797 | 17,866 | 619,641 | ||||||||||||||||||||||||||
| 2013 | 390,826 | — | — | — | — | 101,614 | 247,849 | 194,026 | 120,789 | 78,880 | 56,449 | 36,855 | 836,462 | ||||||||||||||||||||||||||
| 2014 | 405,169 | — | — | — | — | — | 92,660 | 253,448 | 170,311 | 114,219 | 82,244 | 55,340 | 768,222 | ||||||||||||||||||||||||||
| 2015 | 443,779 | — | — | — | — | — | — | 116,951 | 228,432 | 185,898 | 126,605 | 83,592 | 741,478 | ||||||||||||||||||||||||||
| 2016 | 453,158 | — | — | — | — | — | — | — | 138,723 | 256,531 | 194,605 | 140,590 | 730,449 | ||||||||||||||||||||||||||
| 2017 | 533,442 | — | — | — | — | — | — | — | — | 107,327 | 278,733 | 256,520 | 642,580 | ||||||||||||||||||||||||||
| 2018 | 655,548 | — | — | — | — | — | — | — | — | — | 122,712 | 361,899 | 484,611 | ||||||||||||||||||||||||||
| 2019 | 578,281 | — | — | — | — | — | — | — | — | — | — | 143,828 | 143,828 | ||||||||||||||||||||||||||
| Subtotal | 5,002,100 | 1,647,666 | 342,755 | 429,069 | 542,875 | 656,508 | 752,995 | 844,768 | 837,196 | 860,927 | 945,179 | 1,141,507 | 9,001,445 | ||||||||||||||||||||||||||
| Americas Insolvency | |||||||||||||||||||||||||||||||||||||||
| 1996-2009 | 397,453 | 204,343 | 147,101 | 156,704 | 145,418 | 109,259 | 56,980 | 7,617 | 3,629 | 2,234 | 1,103 | 652 | 835,040 | ||||||||||||||||||||||||||
| 2010 | 208,942 | — | 39,486 | 104,499 | 125,020 | 121,717 | 101,873 | 43,649 | 5,008 | 2,425 | 1,352 | 663 | 545,692 | ||||||||||||||||||||||||||
| 2011 | 180,432 | — | — | 15,218 | 66,379 | 82,752 | 85,816 | 76,915 | 35,996 | 3,726 | 1,584 | 743 | 369,129 | ||||||||||||||||||||||||||
| 2012 | 251,395 | — | — | — | 17,388 | 103,610 | 94,141 | 80,079 | 60,715 | 29,337 | 4,284 | 1,870 | 391,424 | ||||||||||||||||||||||||||
| 2013 | 227,834 | — | — | — | — | 52,528 | 82,596 | 81,679 | 63,386 | 47,781 | 21,948 | 2,862 | 352,780 | ||||||||||||||||||||||||||
| 2014 | 148,689 | — | — | — | — | — | 37,045 | 50,880 | 44,313 | 37,350 | 28,759 | 15,785 | 214,132 | ||||||||||||||||||||||||||
| 2015 | 63,170 | — | — | — | — | — | — | 3,395 | 17,892 | 20,143 | 19,769 | 16,657 | 77,856 | ||||||||||||||||||||||||||
| 2016 | 92,264 | — | — | — | — | — | — | — | 18,869 | 30,426 | 25,047 | 19,918 | 94,260 | ||||||||||||||||||||||||||
| 2017 | 275,257 | — | — | — | — | — | — | — | — | 49,093 | 97,315 | 80,906 | 227,314 | ||||||||||||||||||||||||||
| 2018 | 97,879 | — | — | — | — | — | — | — | — | — | 6,700 | 27,438 | 34,138 | ||||||||||||||||||||||||||
| 2019 | 123,039 | — | — | — | — | — | — | — | — | — | — | 13,449 | 13,449 | ||||||||||||||||||||||||||
| Subtotal | 2,066,354 | 204,343 | 186,587 | 276,421 | 354,205 | 469,866 | 458,451 | 344,214 | 249,808 | 222,515 | 207,861 | 180,943 | 3,155,214 | ||||||||||||||||||||||||||
| Total Americas | 7,068,454 | 1,852,009 | 529,342 | 705,490 | 897,080 | 1,126,374 | 1,211,446 | 1,188,982 | 1,087,004 | 1,083,442 | 1,153,040 | 1,322,450 | 12,156,659 | ||||||||||||||||||||||||||
| Europe Core | |||||||||||||||||||||||||||||||||||||||
| 2012 | 20,409 | — | — | — | 11,604 | 8,995 | 5,641 | 3,175 | 2,198 | 2,038 | 1,996 | 1,450 | 37,097 | ||||||||||||||||||||||||||
| 2013 | 20,334 | — | — | — | — | 7,068 | 8,540 | 2,347 | 1,326 | 1,239 | 1,331 | 901 | 22,752 | ||||||||||||||||||||||||||
| 2014 | 796,762 | — | — | — | — | — | 153,180 | 291,980 | 246,365 | 220,765 | 206,255 | 172,885 | 1,291,430 | ||||||||||||||||||||||||||
| 2015 | 419,909 | — | — | — | — | — | — | 45,760 | 100,263 | 86,156 | 80,858 | 66,074 | 379,111 | ||||||||||||||||||||||||||
| 2016 | 348,270 | — | — | — | — | — | — | — | 40,368 | 78,915 | 72,603 | 57,989 | 249,875 | ||||||||||||||||||||||||||
| 2017 | 246,752 | — | — | — | — | — | — | — | — | 17,894 | 56,033 | 44,085 | 118,012 | ||||||||||||||||||||||||||
2018 (4) | 345,256 | — | — | — | — | — | — | — | — | — | 24,326 | 88,699 | 113,025 | ||||||||||||||||||||||||||
| 2019 | 512,702 | — | — | — | — | — | — | — | — | — | — | 47,976 | 47,976 | ||||||||||||||||||||||||||
| Subtotal | 2,710,394 | — | — | — | 11,604 | 16,063 | 167,361 | 343,262 | 390,520 | 407,007 | 443,402 | 480,059 | 2,259,278 | ||||||||||||||||||||||||||
| Europe Insolvency | |||||||||||||||||||||||||||||||||||||||
| 2014 | 10,876 | — | — | — | — | — | 5 | 4,297 | 3,921 | 3,207 | 2,620 | 1,547 | 15,597 | ||||||||||||||||||||||||||
| 2015 | 19,226 | — | — | — | — | — | — | 2,954 | 4,366 | 5,013 | 4,783 | 3,904 | 21,020 | ||||||||||||||||||||||||||
| 2016 | 41,858 | — | — | — | — | — | — | — | 6,175 | 12,703 | 12,856 | 10,664 | 42,398 | ||||||||||||||||||||||||||
| 2017 | 38,409 | — | — | — | — | — | — | — | — | 1,233 | 7,862 | 9,240 | 18,335 | ||||||||||||||||||||||||||
| 2018 | 45,586 | — | — | — | — | — | — | — | — | — | 642 | 8,422 | 9,064 | ||||||||||||||||||||||||||
| 2019 | 75,588 | — | — | — | — | — | — | — | — | — | — | 4,985 | 4,985 | ||||||||||||||||||||||||||
| Subtotal | 231,543 | — | — | — | — | — | 5 | 7,251 | 14,462 | 22,156 | 28,763 | 38,762 | 111,399 | ||||||||||||||||||||||||||
| Total Europe | 2,941,937 | — | — | — | 11,604 | 16,063 | 167,366 | 350,513 | 404,982 | 429,163 | 472,165 | 518,821 | 2,370,677 | ||||||||||||||||||||||||||
| Total PRA Group | $ | 10,010,391 | $ | 1,852,009 | $ | 529,342 | $ | 705,490 | $ | 908,684 | $ | 1,142,437 | $ | 1,378,812 | $ | 1,539,495 | $ | 1,491,986 | $ | 1,512,605 | $ | 1,625,205 | $ | 1,841,271 | $ | 14,527,336 | |||||||||||||
Estimated Remaining Collections
The following chart shows our ERC of $5,699.7 million at December 31, 2022 by geographical region (amounts in millions).
The following chart shows our ERC by year, by geography as of $6,754.3 million at December 31, 20192022. The forecast amounts reflect our current estimate of how much we expect to collect on our portfolios. These estimates are translated to U.S. dollars at the December 31, 2022 exchange rate.
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The following table displays our ERC by geographical regionyear, by geography as of December 31, 2022 (amounts in millions)thousands).
| ERC By Year By Geography | |||||||||||||||||||||||||||||
| Americas and Australia Core | Americas Insolvency | Europe Core | Europe Insolvency | Total | |||||||||||||||||||||||||
| 2023 | $ | 803,547 | $ | 91,220 | $ | 490,519 | $ | 77,755 | $ | 1,463,041 | |||||||||||||||||||
| 2024 | 574,765 | 60,606 | 402,824 | 60,744 | 1,098,939 | ||||||||||||||||||||||||
| 2025 | 355,894 | 34,161 | 334,508 | 40,250 | 764,813 | ||||||||||||||||||||||||
| 2026 | 236,037 | 16,262 | 284,296 | 23,346 | 559,941 | ||||||||||||||||||||||||
| 2027 | 161,312 | 6,238 | 242,470 | 11,359 | 421,379 | ||||||||||||||||||||||||
| 2028 | 113,141 | 891 | 208,568 | 4,612 | 327,212 | ||||||||||||||||||||||||
| 2029 | 80,370 | 13 | 178,287 | 1,440 | 260,110 | ||||||||||||||||||||||||
| 2030 | 58,309 | — | 148,153 | 292 | 206,754 | ||||||||||||||||||||||||
| 2031 | 39,943 | — | 125,803 | 245 | 165,991 | ||||||||||||||||||||||||
| 2032 | 27,557 | — | 107,326 | 206 | 135,089 | ||||||||||||||||||||||||
| Thereafter | 4,417 | — | 291,522 | 535 | 296,474 | ||||||||||||||||||||||||
| $ | 2,455,292 | $ | 209,391 | $ | 2,814,276 | $ | 220,784 | $ | 5,699,743 | ||||||||||||||||||||
Cash Collections
The following table displays our quarterly cash collections by geography and portfolio type, for the periods indicated.indicated (amounts in thousands).
Cash Collections by Geography and Type Amounts in thousands | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash Collections by Geography and Type | Cash Collections by Geography and Type | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Americas Core | $ | 276,639 | $ | 279,902 | $ | 294,243 | $ | 290,723 | $ | 233,937 | $ | 231,253 | $ | 233,752 | $ | 246,237 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Americas and Australia Core | Americas and Australia Core | $ | 205,619 | $ | 225,775 | $ | 244,377 | $ | 270,284 | $ | 257,705 | $ | 276,691 | $ | 324,845 | $ | 347,638 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Americas Insolvency | 40,801 | 45,759 | 49,770 | 44,613 | 48,000 | 48,518 | 56,063 | 55,280 | Americas Insolvency | 27,971 | 31,911 | 34,278 | 35,209 | 36,851 | 37,464 | 37,768 | 35,253 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Europe Core | 126,649 | 118,917 | 117,635 | 116,858 | 113,154 | 102,780 | 109,359 | 118,109 | Europe Core | 134,016 | 132,072 | 142,470 | 151,162 | 155,853 | 151,625 | 157,637 | 149,486 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Europe Insolvency | 12,520 | 8,639 | 8,626 | 8,977 | 7,618 | 6,731 | 7,460 | 6,954 | Europe Insolvency | 24,051 | 22,586 | 22,935 | 24,325 | 23,262 | 22,574 | 23,579 | 23,510 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Cash Collections | $ | 456,609 | $ | 453,217 | $ | 470,274 | $ | 461,171 | $ | 402,709 | $ | 389,282 | $ | 406,634 | $ | 426,580 | Total Cash Collections | $ | 391,657 | $ | 412,344 | $ | 444,060 | $ | 480,980 | $ | 473,671 | $ | 488,354 | $ | 543,829 | $ | 555,887 | |||||||||||||||||||||||||||||||||||||||||||||
The following table provides additional details on the composition of our U.S. Core cash collections for the periods indicated.indicated (amounts in thousands).
| Cash Collections by Source - Core Portfolios Only | |||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||||||||||||||||
| Call Center and Other Collections | $ | 216,182 | $ | 235,832 | $ | 260,764 | $ | 291,266 | $ | 283,606 | $ | 298,717 | $ | 338,022 | $ | 355,043 | |||||||||||||||||||||||||||||||
| External Legal Collections | 48,925 | 49,243 | 50,996 | 55,179 | 55,760 | 54,445 | 61,836 | 65,613 | |||||||||||||||||||||||||||||||||||||||
| Internal Legal Collections | 74,528 | 72,772 | 75,087 | 75,001 | 74,192 | 75,154 | 82,624 | 76,468 | |||||||||||||||||||||||||||||||||||||||
| Total Core Cash Collections | $ | 339,635 | $ | 357,847 | $ | 386,847 | $ | 421,446 | $ | 413,558 | $ | 428,316 | $ | 482,482 | $ | 497,124 | |||||||||||||||||||||||||||||||
30
U.S. Core Portfolio Cash Collections by Source Amounts in thousands | |||||||||||||||||||||||||||||||
| 2019 | 2018 | ||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||
| Call Center and Other Collections | $ | 139,399 | $ | 149,782 | $ | 160,479 | $ | 169,753 | $ | 134,543 | $ | 137,325 | $ | 143,527 | $ | 155,448 | |||||||||||||||
| External Legal Collections | 58,831 | 64,301 | 63,490 | 57,419 | 47,410 | 41,935 | 40,631 | 38,891 | |||||||||||||||||||||||
| Internal Legal Collections | 33,944 | 35,679 | 38,065 | 37,018 | 30,724 | 32,064 | 32,532 | 33,423 | |||||||||||||||||||||||
| Total U.S.-Core Cash Collections | $ | 232,174 | $ | 249,762 | $ | 262,034 | $ | 264,190 | $ | 212,677 | $ | 211,324 | $ | 216,690 | $ | 227,762 | |||||||||||||||
Collections Productivity (U.S. Portfolio)
The following table displays certaina collections productivity measures.measure for our U.S. portfolios for the periods indicated.
| Cash Collections per Collector Hour Paid U.S. Portfolio | |||||||||||||||||||||||||||||
Call center and other cash collections (1) | |||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||||||||||||
| First Quarter | $ | 261 | $ | 279 | $ | 172 | $ | 139 | $ | 121 | |||||||||||||||||||
| Second Quarter | 226 | 270 | 263 | 139 | 101 | ||||||||||||||||||||||||
| Third Quarter | 210 | 242 | 246 | 124 | 107 | ||||||||||||||||||||||||
| Fourth Quarter | 186 | 232 | 204 | 128 | 104 | ||||||||||||||||||||||||
Cash Collections per Collector Hour Paid U.S. Portfolio | |||||||||||||||||||
Call center and other cash collections (1) | |||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
| First Quarter | $ | 139 | $ | 121 | $ | 161 | $ | 168 | $ | 143 | |||||||||
| Second Quarter | 139 | 101 | 129 | 167 | 141 | ||||||||||||||
| Third Quarter | 124 | 107 | 125 | 177 | 145 | ||||||||||||||
| Fourth Quarter | 128 | 104 | 112 | 153 | 139 | ||||||||||||||
The following table displays our cash efficiency ratio for the periods indicated.
Cash Efficiency Ratio (1) | |||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2019 | 2018 | |||||||||||||||||||||||||||||||||||||
| First Quarter | 65.1% | 68.0% | 61.5% | 59.2% | 60.7% | ||||||||||||||||||||||||||||||||||||
| Second Quarter | 61.3 | 66.8 | 68.7 | 60.4 | 60.1 | ||||||||||||||||||||||||||||||||||||
| Third Quarter | 58.4 | 62.4 | 65.6 | 60.2 | 55.7 | ||||||||||||||||||||||||||||||||||||
| Fourth Quarter | 58.6 | 63.5 | 61.9 | 59.7 | 55.0 | ||||||||||||||||||||||||||||||||||||
| Full Year | 61.0 | 65.3 | 64.5 | 59.9 | 58.0 | ||||||||||||||||||||||||||||||||||||
(1) Calculated by dividing cash receipts less operating expenses by cash receipts.
Portfolio Acquisitions
The following graphchart shows the purchase price of our portfolios by year since 2009.2012. It also includes the acquisition date finance receivable portfolios that were acquired through our business acquisitions.
* 2014 includes portfolios acquired in connections with the acquisition of Aktiv Kapital AS in 2014 (as described in Item 1 of this Form 10-K).
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The following table displays our quarterly portfolio acquisitions for the periods indicated.indicated (amounts in thousands).
Portfolio Acquisitions by Geography and Type Amounts in thousands | |||||||||||||||||||||||||||||||
| 2019 | 2018 | ||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||
| Americas Core | $ | 118,153 | $ | 168,185 | $ | 121,996 | $ | 169,189 | $ | 172,511 | $ | 170,426 | $ | 182,768 | $ | 131,427 | |||||||||||||||
| Americas Insolvency | 22,650 | 26,311 | 26,092 | 48,243 | 52,871 | 17,151 | 16,651 | 13,436 | |||||||||||||||||||||||
| Europe Core | 218,919 | 64,728 | 136,344 | 94,283 | 231,810 | 45,754 | 19,403 | 18,000 | |||||||||||||||||||||||
| Europe Insolvency | 42,613 | 19,772 | 4,715 | 7,134 | 33,661 | 4,159 | 2,577 | 5,392 | |||||||||||||||||||||||
| Total Portfolio Acquisitions | $ | 402,335 | $ | 278,996 | $ | 289,147 | $ | 318,849 | $ | 490,853 | $ | 237,490 | $ | 221,399 | $ | 168,255 | |||||||||||||||
| Portfolio Acquisitions by Geography and Type | |||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||||||||||||||||||||
| Americas and Australia Core | $ | 118,581 | $ | 100,780 | $ | 99,962 | $ | 90,639 | $ | 90,263 | $ | 162,451 | $ | 98,901 | $ | 88,912 | |||||||||||||||||||||||||||||||
| Americas Insolvency | 8,967 | 8,988 | 6,369 | 9,118 | 21,183 | 9,878 | 14,642 | 9,486 | |||||||||||||||||||||||||||||||||||||||
| Europe Core | 140,011 | 59,426 | 123,814 | 38,764 | 60,430 | 212,194 | 106,134 | 44,095 | |||||||||||||||||||||||||||||||||||||||
| Europe Insolvency | 20,535 | 13,910 | 1,202 | 8,929 | 29,820 | 7,424 | — | 16,468 | |||||||||||||||||||||||||||||||||||||||
| Total Portfolio Acquisitions | $ | 288,094 | $ | 183,104 | $ | 231,347 | $ | 147,450 | $ | 201,696 | $ | 391,947 | $ | 219,677 | $ | 158,961 | |||||||||||||||||||||||||||||||
Portfolio Acquisitions by Stratifications (U.S. Only)
The following table categorizes our quarterly U.S. portfolio acquisitions for the periods indicated into major asset type and delinquency category. Since our inception in 1996, we have acquired more than 54 60.0 million customercustomer accounts in the U.S. (amounts in thousands).
| U.S. Portfolio Acquisitions by Major Asset Type | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Major Credit Cards | $ | 10,242 | 11.7 | % | $ | 10,236 | 15.8 | % | $ | 20,673 | 26.7 | % | $ | 18,160 | 23.0 | % | $ | 50,017 | 51.4 | % | |||||||||||||||||||||||||||||||||||||||
| Private Label Credit Cards | 60,380 | 69.0 | 44,727 | 68.8 | 52,368 | 67.4 | 46,195 | 58.6 | 28,293 | 29.1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer Finance | 16,366 | 18.7 | 9,396 | 14.4 | 2,062 | 2.7 | 13,968 | 17.7 | 4,617 | 4.8 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Auto Related | 515 | 0.6 | 630 | 1.0 | 2,443 | 3.2 | 514 | 0.7 | 14,319 | 14.7 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 87,503 | 100.0 | % | $ | 64,989 | 100.0 | % | $ | 77,546 | 100.0 | % | $ | 78,837 | 100.0 | % | $ | 97,246 | 100.0 | % | |||||||||||||||||||||||||||||||||||||||
| U.S. Portfolio Acquisitions by Delinquency Category | |||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | |||||||||||||||||||||||||||||||||||||||||||
Fresh (1) | $ | 55,117 | 70.2 | % | $ | 30,510 | 54.5 | % | $ | 28,235 | 39.7 | % | $ | 29,077 | 41.7 | % | $ | 17,096 | 22.5 | % | |||||||||||||||||||||||||||
Primary (2) | 511 | 0.7 | 587 | 1.0 | 369 | 0.5 | 11,445 | 16.4 | 557 | 0.7 | |||||||||||||||||||||||||||||||||||||
Secondary (3) | 21,620 | 27.5 | 19,886 | 35.5 | 28,148 | 39.5 | 26,748 | 38.4 | 54,915 | 72.2 | |||||||||||||||||||||||||||||||||||||
Other (4) | 1,288 | 1.6 | 5,018 | 9.0 | 14,425 | 20.3 | 2,449 | 3.4 | 3,495 | 4.6 | |||||||||||||||||||||||||||||||||||||
| Total Core | 78,536 | 100.0 | % | 56,001 | 100.0 | % | 71,177 | 100.0 | % | 69,719 | 100.0 | % | 76,063 | 100.0 | % | ||||||||||||||||||||||||||||||||
| Insolvency | 8,967 | 8,988 | 6,369 | 9,118 | 21,183 | ||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 87,503 | $ | 64,989 | $ | 77,546 | $ | 78,837 | $ | 97,246 | |||||||||||||||||||||||||||||||||||||
(2) Primary accounts are typically 240 to 450 days past due, charged-off and have been previously placed with one contingent fee servicer.
(3) Secondary accounts are typically 360 to 630 days past due, charged-off and have been previously placed with two contingent fee servicers.
(4) Other accounts are 480 days or more past due, charged-off and have previously been worked by three or more contingent fee servicers.
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U.S. Portfolio Acquisitions by Major Asset Type Amounts in thousands | |||||||||||||||||||||||||||||
| 2019 | 2018 | ||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | |||||||||||||||||||||||||
| Major Credit Cards | $ | 30,337 | 24.3 | % | $ | 50,500 | 40.1 | % | $ | 39,468 | 28.2 | % | $ | 43,440 | 27.0 | % | $ | 65,025 | 32.5 | % | |||||||||
| Private Label Credit Cards | 85,351 | 68.4 | % | 72,714 | 57.7 | % | 70,536 | 50.4 | % | 84,515 | 52.6 | % | 100,633 | 50.3 | % | ||||||||||||||
| Consumer Finance | 2,046 | 1.7 | % | 2,090 | 1.7 | % | 28,649 | 20.4 | % | 2,424 | 1.5 | % | 2,619 | 1.3 | % | ||||||||||||||
| Auto Related | 6,991 | 5.6 | % | 638 | 0.5 | % | 1,407 | 1.0 | % | 30,358 | 18.9 | % | 31,892 | 15.9 | % | ||||||||||||||
| Total | $ | 124,725 | 100.0 | % | $ | 125,942 | 100.0 | % | $ | 140,060 | 100.0 | % | $ | 160,737 | 100.0 | % | $ | 200,169 | 100.0 | % | |||||||||
We report our financial results in accordance with U.S. generally accepted accounting principles ("GAAP"). However, management uses certain non-GAAP financial measures, including adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"), to evaluate our operating and financial performance as well as to set performance goals. We present Adjusted EBITDA because we consider it an important supplemental measure of operations and financial performance. Management believes Adjusted EBITDA helps provide enhanced period-to-period comparability of operations and financial performance, as it excludes certain items whose fluctuations from period to period do not necessarily correspond to changes in the operations of our business, and is useful to investors as other companies in the industry report similar financial measures. Adjusted EBITDA should not be considered as an alternative to net income determined in accordance with GAAP. In addition, our calculation of Adjusted EBITDA may not be comparable to the calculation of similarly titled measures presented by other companies.
Adjusted EBITDA is calculated starting with our GAAP financial measure, net income attributable to PRA Group, Inc. and is adjusted for:
•income tax expense (or less income tax benefit);
•foreign exchange loss (or less foreign exchange gain);
•interest expense, net (or less interest income, net);
•other expense (or less other income);
•depreciation and amortization;
•net income attributable to noncontrolling interests; and
•recoveries applied to negative allowance less changes in expected recoveries.
The following table provides a reconciliation of net income attributable to PRA Group, Inc., as reported in accordance with GAAP, to Adjusted EBITDA for the years ended December 31, 2022, 2021 and 2020 (amounts in thousands).
| Reconciliation of Non-GAAP Financial Measures | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net income attributable to PRA Group, Inc. | $ | 117,147 | $ | 183,158 | $ | 149,339 | |||||||||||
| Adjustments: | |||||||||||||||||
| Income tax expense | 36,787 | 54,817 | 41,203 | ||||||||||||||
| Foreign exchange (gains)/losses | (985) | 809 | (2,005) | ||||||||||||||
| Interest expense, net | 130,677 | 124,143 | 141,712 | ||||||||||||||
Other expense/(income) (1) | 1,325 | (282) | 1,049 | ||||||||||||||
| Depreciation and amortization | 15,243 | 15,256 | 18,465 | ||||||||||||||
| Adjustment for net income attributable to noncontrolling interests | 851 | 12,351 | 18,403 | ||||||||||||||
| Recoveries applied to negative allowance less Changes in expected recoveries | 805,942 | 988,050 | 968,362 | ||||||||||||||
| Adjusted EBITDA | $ | 1,106,987 | $ | 1,378,302 | $ | 1,336,528 | |||||||||||
(1) Other expense/(income) reflects non-operating related activity.
Additionally, we evaluate our business using certain ratios that use Adjusted EBITDA, including Debt to Adjusted EBITDA, which is calculated by dividing borrowings by Adjusted EBITDA.The following table reflects our Debt to Adjusted EBITDA at December 31, 2022 and 2021 (amounts in thousands).
| Debt to Adjusted EBITDA | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Borrowings | $ | 2,494,858 | $ | 2,608,714 | |||||||||||||
| Adjusted EBITDA | 1,106,987 | 1,378,302 | |||||||||||||||
| Debt to Adjusted EBITDA | 2.25 | x | 1.89 | x | |||||||||||||
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U.S. Portfolio Acquisitions by Delinquency Category Amounts in thousands | |||||||||||||||||||||||||||||
| 2019 | 2018 | ||||||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | |||||||||||||||||||||||||
Fresh (1) | $ | 35,330 | 34.6 | % | $ | 27,600 | 27.1 | % | $ | 33,288 | 29.3 | % | $ | 51,212 | 45.6 | % | $ | 61,730 | 42.0 | % | |||||||||
Primary (2) | 5,796 | 5.7 | % | 17,658 | 17.3 | % | 40,027 | 35.1 | % | 19,725 | 17.5 | % | 39,690 | 26.9 | % | ||||||||||||||
Secondary (3) | 52,899 | 51.8 | % | 50,082 | 49.2 | % | 34,920 | 30.6 | % | 35,857 | 31.9 | % | 45,878 | 31.1 | % | ||||||||||||||
Tertiary (3) | 4,409 | 4.3 | % | 6,483 | 6.4 | % | 5,733 | 5.0 | % | 4,435 | 3.9 | % | — | — | % | ||||||||||||||
Other (4) | 3,641 | 3.6 | % | — | — | % | — | — | % | 1,265 | 1.1 | % | — | — | % | ||||||||||||||
| Total Core | 102,075 | 100.0 | % | 101,823 | 100.0 | % | 113,968 | 100.0 | % | 112,494 | 100.0 | % | 147,298 | 100.0 | % | ||||||||||||||
| Insolvency | 22,650 | 24,119 | 26,092 | 48,243 | 52,871 | ||||||||||||||||||||||||
| Total | $ | 124,725 | $ | 125,942 | $ | 140,060 | $ | 160,737 | $ | 200,169 | |||||||||||||||||||
Liquidity and Capital Resources
We actively manage our liquidity to help provide access to sufficient funding to meet our business needs and financial obligations.
Sources of Liquidity
Cash and cash equivalents. As of December 31, 2019,2022, cash and cash equivalents totaled $119.8 million. Of the cash and cash equivalent balance as$83.4 million, of December 31, 2019, $109.7which $75.3 million consisted of cash on hand related to international operations with indefinitely reinvested earnings. See the "Undistributed Earnings of International Subsidiaries" section below for more information.
Borrowings. At December 31, 2019,2022, we had approximately $2.8 billion inthe following borrowings outstanding with $474.6 million ofand availability under all of our credit facilities (subject to the(amounts in thousands):
| Outstanding | Available without Restrictions | Available with Restrictions (1) | ||||||||||||||||||
Americas revolving credit (2) | $ | 186,867 | $ | 888,957 | $ | 191,221 | ||||||||||||||
| UK revolving credit | 453,528 | 346,472 | 105,362 | |||||||||||||||||
| European revolving credit | 419,856 | 401,134 | 168,543 | |||||||||||||||||
| Term loan | 450,000 | — | — | |||||||||||||||||
| Senior Notes | 650,000 | — | — | |||||||||||||||||
| Convertible Notes | 345,000 | — | — | |||||||||||||||||
| Less: Debt discounts and issuance costs | (10,393) | — | — | |||||||||||||||||
| Total | $ | 2,494,858 | $ | 1,636,563 | $ | 465,126 | ||||||||||||||
(1) Available borrowings after calculation of borrowing base and applicable debt covenants). Considering borrowing base restrictions,covenants as of December 31, 2019, the amount available to be drawn was $271.1 million. Of the $474.6 million of borrowing availability, $122.5 million was available under our European2022.
(2) Includes North American revolving credit facility and $349.2Colombian revolving credit facility.
On February 6, 2023, we completed the private offering of $400.0 million was availablein aggregate principal amount of our 8.375% Senior Notes due February 1, 2028 ("2028 Notes"). We deposited $345.0 million of the net proceeds from the offering into a newly-formed segregated deposit account and will use such proceeds to retire all or any portion of our 2023 Convertible Notes or to satisfy any other obligations with respect to our 2023 Convertible Notes. We used the remainder of the net proceeds from the offering to repay a portion of our outstanding borrowings under our North American revolving credit facility. Of the $271.1 million available considering borrowing base restrictions, $121.8 million was available under our European credit facility, and $146.5 million was available under our North American credit facility. For more information, see Note 6 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.
Uses of Liquidity and Material Cash Requirements
Forward Flows. Contractual obligations over the next year are primarily related to debt maturities and purchase commitments. Our North American credit facility expires in May 2022. Our European credit facility expires in February 2021. Of our $425.0 million in long-term debt outstanding atAs of December 31, 2019, $10.0 million in principal is due within one year. Additionally, the $287.5 million principal amount of the 3.00% Convertible Senior Notes due 2020 is due August 1, 2020. Based upon our current availability considering borrowing base restrictions in North America ($146.5 million), our cash on hand, our current ability to negotiate extensions or renew our lines of credit and to secure additional financing in the open market, and our strong operating cash flows, we believe that 2022, we have the ability to settle this instrument in cash at maturity.
Borrowings. Of our $2.5 billion of borrowings at December 31, 2022, estimated interest, unused fees and principal payments for the next 12 months are approximately $489.7 million, of which, $345.0 million relates to principal payment due on our 2023 Convertible Notes, which, as discussed above, we will retire using the funds from the offering of our 2028 Notes that we deposited in the segregated deposit account. Beyond 12 months our principal payment obligations related to debt maturities occur between one and seven years. Many of our financing arrangements include restrictive covenants with which we must comply. As of December 31, 2022, we determined that we were in compliance with these covenants. For more information, see Note 6 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.
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Share Repurchase.On May 10, 2017,February 25, 2022, we reachedcompleted our $230.0 million share repurchase program. Also on February 25, 2022, our Board of Directors approved a settlementnew share repurchase program under which we are authorized to repurchase up to $150.0 million of our outstanding common stock. Repurchases may be made from time-to-time in open market transactions, through privately negotiated transactions, in block transactions, through purchases made in accordance with trading plans adopted under Rule 10b5-1 of the Internal Revenue Service (“IRS”) in regardExchange Act, or other methods, subject to market and/or other conditions and applicable regulatory requirements. The new share repurchase program has no stated expiration date and does not obligate us to repurchase any specified amount of shares, remains subject to the IRS assertion that tax revenue recognition usingdiscretion of our Board of Directors and, subject to compliance with applicable laws, may be modified, suspended or discontinued at any time. During the cost recovery method did not clearly reflect taxable income. In accordance with the settlement,year ended December 31, 2022, we repurchased 2,331,364 shares of our tax accounting method to recognize finance receivables revenue changed effective with tax year 2017. Undercommon stock for approximately $99.4 million. As of December 31, 2022, we had $67.7 million remaining for share repurchases under the new method, a portionprogram.
Leases. The majority of our leases have remaining lease terms of one to 14 years. As of December 31, 2022, we had $59.4 million in lease liabilities, of which $10.8 million matures within the annual collections amortizes principalnext 12 months. For more information, see Note 4 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.
Derivatives. Derivative financial instruments are entered into to reduce our exposure to fluctuations in interest rates on variable rate debt and foreign currency exchange rates. As of December 31, 2022, we had $19.1 million of derivative liabilities, all of which mature within the remaining portion is taxable income. The revenue relatednext 12 months. For more information, see Note 9 to the differenceour Consolidated Financial Statements included in timing between the new method and the cost recovery method will be included evenly into our tax filings over four years effective with tax year 2017. We estimate the related tax payments to be approximately $9.3 million per quarter through the year 2020. No interest or penalties were assessed as partItem 8 of the settlement.this Form 10-K.
We believe that funds generated from operations and from cash collections on finance receivables,nonperforming loan portfolios, together with existing cash, and available borrowings under our revolving credit facilities, including recent modifications to the terms of those facilities, and access to the capital markets will be sufficient to finance our operations, planned capital expenditures, forward flow purchase commitments, debt maturities and additional portfolio purchases during the next twelve months.12 months and beyond. We may seek to access the debt or equity capital markets as we deem appropriate, market permitting. Business acquisitions adverse outcomes in pending litigation or higher than expected levels of portfolio purchasing could require additional financing from other sources.
Cash Flows Analysis
The following table summarizes our cash flow activity for the years ended December 31, 2019, 20182022 and 20172021 (amounts in thousands):
| 2019 | 2018 | 2017 | 2022 | 2021 | Change | |||||||||||||||||||||||||||
| Total cash provided by (used in): | Total cash provided by (used in): | |||||||||||||||||||||||||||||||
| Operating activities | $ | 133,388 | $ | 80,866 | $ | 15,475 | Operating activities | $ | 21,592 | $ | 84,925 | $ | (63,333) | |||||||||||||||||||
| Investing activities | (441,190 | ) | (387,251 | ) | (294,960 | ) | Investing activities | 120,453 | 160,376 | (39,923) | ||||||||||||||||||||||
| Financing activities | 339,523 | 294,926 | 295,698 | Financing activities | (121,342) | (262,812) | 141,470 | |||||||||||||||||||||||||
| Effect of exchange rate on cash | (6,609 | ) | (10,362 | ) | 10,016 | Effect of exchange rate on cash | (25,017) | (14,464) | (10,553) | |||||||||||||||||||||||
| Net increase/(decrease) in cash and cash equivalents | $ | 25,112 | $ | (21,821 | ) | $ | 26,229 | |||||||||||||||||||||||||
| Net decrease in cash and cash equivalents | Net decrease in cash and cash equivalents | $ | (4,314) | $ | (31,975) | $ | 27,661 | |||||||||||||||||||||||||
Operating Activities
Net cash provided by operating activities increased $52.5decreased $63.3 million or 65.0% in 2019during the year ended December 31, 2022, mainly driven by higher netlower cash collections recognized as portfolio income, lower cash paid for income taxes, and the impact of $21.9 million and a $26.6 million gain on sale in 2018 of RCB.foreign exchange.
Investing Activities
Cash provided by investing activities mainly reflects recoveries applied to our negative allowance. Cash used in investing activities is normally driven bymainly reflects acquisitions of nonperforming loans and purchases of investments. Cashnet investment activity.
Net cash provided by investing activities is mainlydecreased $39.9 million during the year ended December 31, 2022, primarily driven by cash collectionsa decrease of $211.1 million in recoveries applied onto negative allowance partially offset by decreases in purchases of finance receivables and proceeds from the saleinvestments of investments$127.5 million and subsidiaries.$47.9 million, respectively.
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Financing Activities
Cash forprovided by financing activities is normally provided by draws on our lines of credit and proceeds from debt offerings. Cash used in financing activities is primarily driven by principal payments on our lines of credit and long-term debt.
Cash provided byused in financing activities increased $44.6decreased $141.5 million or 15.1%during the year ended December 31, 2022, primarily from a $603.2 million increase indue to net proceeds from our lines of credit a $36.1of $8.5 million increase from interest bearing deposits, and a $32.3 million increase in 2022 compared to net contributions from noncontrolling interests, partially offset by a $628.1 million increase in payments on our lines of credit of $393.2 million in 2021. Additionally, proceeds from debt issuance decreased $350.0 million and long term debt.repurchases of our common stock decreased $89.5 million.
Undistributed Earnings of International Subsidiaries
We intend to use predominantly all of our accumulated and future undistributed earnings of international subsidiaries to expand operations outside the U.S.; therefore, such undistributed earnings of international subsidiaries are considered to be indefinitely reinvested outside the U.S. Accordingly, no provision for income tax or withholding tax has been provided thereon. If management's intentions change and eligible undistributed earnings of international subsidiaries are repatriated, we could be subject to additional income taxes and withholding taxes. This could result in a higher effective tax rate in the period in which such a decision is made to repatriate accumulated or future undistributed international earnings. The amount of cash on hand related to international operations with indefinitely reinvested earnings was $109.7$75.3 million and $78.6and $61.9 million as of December 31, 20192022 and 2018,2021, respectively. Refer to the Note 13 to our Consolidated Financial Statements included in Item 8 of this Form 10-K for further information related to our income taxes and undistributed international earnings.
| Payments due by period | ||||||||||||||||||||
| Contractual Obligations | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | |||||||||||||||
| Operating leases | $ | 95,373 | $ | 11,846 | $ | 20,702 | $ | 13,411 | $ | 49,414 | ||||||||||
Revolving credit (1) | 1,936,402 | 83,533 | 1,847,611 | 3,535 | 1,723 | |||||||||||||||
Long-term debt (2) | 1,260,070 | 337,161 | 571,871 | 351,038 | — | |||||||||||||||
Purchase commitments (3) | 506,907 | 497,503 | 9,404 | — | — | |||||||||||||||
| Employment agreements | 7,988 | 7,927 | 61 | — | — | |||||||||||||||
| Derivatives | $ | 23,663 | $ | 10,294 | $ | 10,222 | $ | 3,047 | $ | 100 | ||||||||||
| Total | $ | 3,830,403 | $ | 948,264 | $ | 2,459,871 | $ | 371,031 | $ | 51,237 | ||||||||||
Critical Accounting Estimates
Our Consolidated Financial Statements have been prepared in accordance with GAAP. Some of our significant accounting policies are fundamental to understanding our results of operations and financial condition because they require that we use estimates, assumptions and judgments that affect the reported amounts of revenues, expenses, assets and liabilities. For a discussion of our significant accounting policies refer to Note 1 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.
of operations.We base our estimates on historical experience, current trends and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If these estimates differ significantly from actual results, the impact on our consolidated financial statementsConsolidated Financial Statements may be material.
Revenue Recognition - Finance Receivables
accounts. We implement the accounting for income recognized on finance receivables under ASC 310-30 as follows:
Significant changes in either mayour cash flow estimates could result in yield increasesincreased or allowance charges if necessarydecreased revenue as we immediately recognize the discounted value of such changes using the constant effective interest rate of the pool. Generally, adjustments to estimated cash forecasts for the pool's amortization period to fall within a reasonable expectation of its economic life.
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Income Taxes
We are subject to income taxes throughout the income tax laws of the various jurisdictionsU.S. and in which we operate, including U.S. federal, state, local, andnumerous international jurisdictions. These tax laws are complex and are subject to different interpretations by the taxpayer and the relevant government taxing authorities. When determining our domestic and internationalnon-U.S. income tax expense, we must make judgments about the application of these inherently complex laws.
We follow the guidance of FASB ASC Topic 740 "Income Taxes" ("ASC 740") as it relates to the provision for income taxes and uncertainty in income taxes. Accordingly, we record a tax provision for the anticipated tax consequences of the reported results of operations. In accordance with ASC 740, theThe provision for income taxes is computedestimated using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carry-forwards.carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled. The evaluation of
We exercise significant judgment in estimating the potential exposure to unresolved tax matters and apply a more likely than not criteria approach for recording tax positionbenefits related to uncertain tax positions in accordance with the guidance is a two-step process. The first step is recognition: the Company determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical meritsapplication of the position. In evaluating whether acomplex tax position has metlaws. While actual results could vary, we believe we have adequate tax accruals with respect to the more-likely-than-not recognition threshold, the Company should presume that the position will be examined by the appropriate taxing authority that would have full knowledgeultimate outcome of all relevant information. The second step is measurement: asuch unresolved tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.matters. We record interest and penalties related to unrecognizedunresolved tax benefitsmatters as a component of income tax expense.expense when the more likely than not standards are met.
For a summary of recent accounting pronouncements and the anticipated effects onfurther information regarding our consolidated financial statements see uncertain tax positions, refer to Note 113 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our activities are subject to various financial risks including market risk, currency and interest rate risk, credit risk, liquidity risk and cash flow risk. Our financial risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on our financial performance. We may periodically enter into derivative financial instruments, typically interest rate and currency derivatives, to reduce our exposure to fluctuations in interest rates on variable-rate debt, fluctuations in currency rates and their impact on earnings and cash flows. We do not utilize derivative financial instruments with a level of complexity or with a risk greater than the exposure to be managed nor do we enter into or hold derivatives for trading or speculative purposes. Derivative instruments involve, to varying degrees, elements of non-performance, or credit risk. We do
not believe that we currently face a significant risk of loss in the event of non-performance by the counterparties associated with these instruments as these transactions were executed with a diversified group of major financial institutions with an investment-grade credit rating. Our intention is to spread our counterparty credit risk across a number of counterparties so that exposure to a single counterparty is minimized.
Interest Rate Risk
We are subject to interest rate risk from outstanding borrowings on our variable rate credit facilities. As such, our consolidated financial results are subject to fluctuations due to changes in the market rate of interest. We assess this interest rate risk by estimating the increase or decrease in interest expense that would occur due to a change in short-term interest rates. The borrowings on our variable rate credit facilities were approximately $2.2$1.5 billion as of December 31, 2019.2022. Based on our current debt structure at December 31, 2022, assuming a 50 basis point decrease in interest rates, for example, interest expense over the following 12 months would decrease by an estimated $7.2$4.6 million. Assuming a 50 basis point increase in interest rates, interest expense over the following 12 months would increase by an estimated $7.4$4.6 million.
To reduce the exposure to changes in the market rate of interest and to be in compliance with the terms of our European and our UK revolving credit facility,facilities, we have entered into interest rate derivative contracts for a portion of our borrowings under our floating rate financing arrangements. Further, effective in the second quarterAs of 2018,December 31, 2022, we began toare 65% hedged on a notional basis. We apply hedge accounting to certain of our interest rate derivative contracts. By applying hedge accounting, changes in market value are reflected as adjustments in Other Comprehensive Income.comprehensive (loss)/income. All derivatives to which we have applied hedge accounting were evaluated and remainremained highly effective at December 31, 2019.2022. Terms of the interest rate derivative contracts require us to
37
receive a variable interest rate and pay a fixed interest rate. The sensitivity calculations above consider the impact of our interest rate derivative contracts.contracts and zero interest rate floors on revolving loans under our North America, UK and European credit facilities.
Currency Exchange Risk
We operate internationally and enter into transactions denominated in various foreign currencies. In 2019,2022, we generated $343.8$445.8 million of revenues from operations outside the U.S. and used eleven functionalused 12 functional currencies, excluding the U.S. dollar. Weakness in one particular currency might be offset by strength in other currencies over time.
As a result of our international operations, fluctuations in foreign currencies could cause us to incur foreign currency exchange gains and losses, and could adversely affect our comprehensive income and stockholders' equity. Additionally, our reported financial results could change from period to period due solely to fluctuations between currencies.
Foreign currency gains and losses are primarily the result of the re-measurement of transactions in certain other currencies into an entity's functional currency. Foreign currency gains and losses are included as a component of otherOther income and (expense) in our consolidated income statements.Consolidated Income Statements. From time to time we may elect to enter into foreign exchange derivative contracts to reduce these variations in our consolidated income statements.Consolidated Income Statements.
When an entity's functional currency is different than the reporting currency of its parent, foreign currency translation adjustments may occur. Foreign currency translation adjustments are included as a component of otherOther comprehensive (loss)/income in our consolidated statementsConsolidated Statements of comprehensive incomeComprehensive Income and as a component of equity in our consolidated balance sheets.Consolidated Balance Sheets.
We have taken measures to mitigate the impact of foreign currency fluctuations. We have organized our European operations so that portfolio ownership and collections generally occur within the same entity. Our European and UK credit facility is afacilities are multi-currency facility,facilities, allowing us to better match funding and portfolio purchasingacquisitions by currency. We actively monitor the value of our finance receivables by currency. In the event adjustments are required to our liability composition by currency we may, from time to time, execute re-balancing foreign exchange contracts to more closely align funding and portfolio purchasingacquisitions by currency.
38
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
39
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of PRA Group, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of PRA Group, Inc. (the “Company”) as of December 31, 2022, the related consolidated income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 27, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
40
| Estimate of expected future recoveries on purchased credit deteriorated assets | ||||||||
| Description of the Matter | As of December 31, 2022, the Company’s Finance Receivables, net balance was $3.3 billion, and the resulting changes in expected future recoveries for the year ended December 31, 2022 was $62.2 million as disclosed in Note 2. As more fully described in Note 1 and Note 2 to the consolidated financial statements, the Company accounts for Finance Receivables, net under the guidance of ASC Topic 326 "Financial Instruments – Credit Losses" and develops its estimates of expected recoveries in the Consolidated Balance Sheets by applying a discounted cash flow methodology to its estimated remaining collections (ERC) and recognizes income over the estimated life of the pool at the constant effective interest rate of the pool. Subsequent changes (favorable and unfavorable) in the expected cash flows are recognized within Changes in expected recoveries in the Consolidated Income Statements by adjusting the present value of increases or decreases in ERC. Management’s estimate of ERC is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Development of the Company’s forecasts rely on both quantitative and qualitative factors. Qualitative factors can include both external and internal information and consider management’s view on available facts and circumstances at each reporting period. Auditing the qualitative factors used by management in their forecast of ERC required a high degree of audit effort, due to significant measurement uncertainty, specifically for assumptions around historical collection trends, actual performance compared to past projections, and the evaluation of the impact that external factors will have on the amount and timing of ERC. | |||||||
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over management’s process to develop their estimates of ERC, including, management review controls over key subjective assumptions and judgments used in management’s estimate. Our test of controls included testing the completeness and accuracy of objective data relied upon by management when estimating ERC and the observation of certain key governance meetings where subjective assumptions were subject to effective challenge by senior management. We involved EY specialists in testing management’s assumptions for setting subjective qualitative factors, including evaluating whether those methods were in compliance with U.S. generally accepted accounting principles. We tested management’s measurement of ERC by testing the completeness and accuracy of objective collections data used in the estimation process, reperforming key calculations, comparing the current estimate to prior periods and historical trends, and reviewing external evidence, including economic data, peer data, and industry research. | |||||||
We have served as the Company’s auditor since 2021.
/s/ Ernst & Young LLP
Richmond, Virginia
February 27, 2023
41
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
PRA Group, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheetssheet of PRA Group, Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018,2021, the related consolidated income statements, statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-yeartwo‑year period ended December 31, 2019,2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018,2021, and the results of its operations and its cash flows for each of the years in the three-yeartwo‑year period ended December 31, 2019,2021, in conformity with U.S. generally accepted accounting principles.
Change in Accounting Principle
As discussed in NotesNote 1 and 4 to the consolidated financial statements, the Company has changed its method of accounting for leasesconvertible instruments as of January 1, 20192021 due to the adoption of Accounting Standards Codification (ASC) Topic 842,Update (ASU) 2020-06, Leases.Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2007.from 2007 to 2022.
Norfolk, Virginia
42
PRA Group, Inc.
Consolidated Balance Sheets
December 31, 20192022 and 20182021
(Amounts in thousands, except per share amounts)
| 2019 | 2018 | ||||||
| Assets | |||||||
| Cash and cash equivalents | $ | 119,774 | $ | 98,695 | |||
| Investments | 56,176 | 45,173 | |||||
| Finance receivables, net | 3,514,165 | 3,084,777 | |||||
| Other receivables, net | 10,606 | 46,157 | |||||
| Income taxes receivable | 17,918 | 16,809 | |||||
| Deferred tax asset, net | 63,225 | 61,453 | |||||
| Right-of-use assets | 68,972 | — | |||||
| Property and equipment, net | 56,501 | 54,136 | |||||
| Goodwill | 480,794 | 464,116 | |||||
| Intangible assets, net | 4,497 | 5,522 | |||||
| Other assets | 31,263 | 32,721 | |||||
| Total assets | $ | 4,423,891 | $ | 3,909,559 | |||
| Liabilities and Equity | |||||||
| Liabilities: | |||||||
| Accounts payable | $ | 4,258 | $ | 6,110 | |||
| Accrued expenses | 88,925 | 79,396 | |||||
| Income taxes payable | 4,046 | 15,080 | |||||
| Deferred tax liability, net | 85,390 | 114,979 | |||||
| Lease liabilities | 73,377 | — | |||||
| Interest-bearing deposits | 106,246 | 82,666 | |||||
| Borrowings | 2,808,425 | 2,473,656 | |||||
| Other liabilities | 26,211 | 7,370 | |||||
| Total liabilities | 3,196,878 | 2,779,257 | |||||
| Redeemable noncontrolling interest | — | 6,333 | |||||
| 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, 45,416 shares issued and outstanding at December 31, 2019; 100,000 shares authorized, 45,304 shares issued and outstanding at December 31, 2018 | 454 | 453 | |||||
| Additional paid-in capital | 67,321 | 60,303 | |||||
| Retained earnings | 1,362,631 | 1,276,473 | |||||
| Accumulated other comprehensive loss | (261,018 | ) | (242,109 | ) | |||
| Total stockholders' equity - PRA Group, Inc. | 1,169,388 | 1,095,120 | |||||
| Noncontrolling interests | 57,625 | 28,849 | |||||
| Total equity | 1,227,013 | 1,123,969 | |||||
| Total liabilities and equity | $ | 4,423,891 | $ | 3,909,559 | |||
| 2022 | 2021 | ||||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 83,376 | $ | 87,584 | |||||||
| Investments | 79,948 | 92,977 | |||||||||
| Finance receivables, net | 3,295,008 | 3,428,285 | |||||||||
| Income taxes receivable | 31,774 | 41,146 | |||||||||
| Deferred tax assets, net | 56,908 | 67,760 | |||||||||
| Right-of-use assets | 54,506 | 56,713 | |||||||||
| Property and equipment, net | 51,645 | 54,513 | |||||||||
| Goodwill | 435,921 | 480,263 | |||||||||
| Other assets | 86,588 | 57,002 | |||||||||
| Total assets | $ | 4,175,674 | $ | 4,366,243 | |||||||
| Liabilities and Equity | |||||||||||
| Liabilities: | |||||||||||
| Accounts payable | $ | 7,329 | $ | 3,821 | |||||||
| Accrued expenses | 111,395 | 127,802 | |||||||||
| Income taxes payable | 25,693 | 19,276 | |||||||||
| Deferred tax liabilities, net | 42,918 | 36,630 | |||||||||
| Lease liabilities | 59,384 | 61,188 | |||||||||
| Interest-bearing deposits | 112,992 | 124,623 | |||||||||
| Borrowings | 2,494,858 | 2,608,714 | |||||||||
| Other liabilities | 34,355 | 59,352 | |||||||||
| Total liabilities | 2,888,924 | 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, 38,980 shares issued and outstanding at December 31, 2022; 100,000 shares authorized, 41,008 shares issued and outstanding at December 31, 2021 | 390 | 410 | |||||||||
| Additional paid-in capital | 2,172 | — | |||||||||
| Retained earnings | 1,573,025 | 1,552,845 | |||||||||
| Accumulated other comprehensive loss | (347,926) | (266,909) | |||||||||
| Total stockholders' equity - PRA Group, Inc. | 1,227,661 | 1,286,346 | |||||||||
| Noncontrolling interests | 59,089 | 38,491 | |||||||||
| Total equity | 1,286,750 | 1,324,837 | |||||||||
| Total liabilities and equity | $ | 4,175,674 | $ | 4,366,243 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.Consolidated Financial Statements.
43
PRA Group, Inc.
Consolidated Income Statements
For the years ended December 31, 2019, 20182022, 2021 and 20172020
(Amounts in thousands, except per share amounts)
| 2019 | 2018 | 2017 | |||||||||
| Revenues: | |||||||||||
| Income recognized on finance receivables | $ | 998,361 | $ | 891,899 | $ | 795,435 | |||||
| Fee income | 15,769 | 14,916 | 24,916 | ||||||||
| Other revenue | 2,951 | 1,441 | 7,855 | ||||||||
| Total revenues | 1,017,081 | 908,256 | 828,206 | ||||||||
| Net allowance charges | (24,025 | ) | (33,425 | ) | (11,898 | ) | |||||
| Operating expenses: | |||||||||||
| Compensation and employee services | 310,441 | 319,400 | 273,033 | ||||||||
| Legal collection fees | 55,261 | 42,941 | 43,351 | ||||||||
| Legal collection costs | 134,156 | 104,988 | 76,047 | ||||||||
| Agency fees | 55,812 | 33,854 | 35,530 | ||||||||
| Outside fees and services | 63,513 | 61,492 | 62,792 | ||||||||
| Communication | 44,057 | 43,224 | 33,132 | ||||||||
| Rent and occupancy | 17,854 | 16,906 | 14,823 | ||||||||
| Depreciation and amortization | 17,464 | 19,322 | 19,763 | ||||||||
| Other operating expenses | 46,811 | 47,444 | 44,103 | ||||||||
| Total operating expenses | 745,369 | 689,571 | 602,574 | ||||||||
| Income from operations | 247,687 | 185,260 | 213,734 | ||||||||
| Other income and (expense): | |||||||||||
| Gain on sale of subsidiaries | — | 26,575 | 48,474 | ||||||||
| Interest expense, net | (141,918 | ) | (121,078 | ) | (98,041 | ) | |||||
| Foreign exchange gain/(loss) | 11,954 | (944 | ) | (1,104 | ) | ||||||
| Other | (364 | ) | (316 | ) | (2,790 | ) | |||||
| Income before income taxes | 117,359 | 89,497 | 160,273 | ||||||||
| Income tax expense/(benefit) | 19,680 | 13,763 | (10,852 | ) | |||||||
| Net income | 97,679 | 75,734 | 171,125 | ||||||||
| Adjustment for net income attributable to noncontrolling interests | 11,521 | 10,171 | 6,810 | ||||||||
| Net income attributable to PRA Group, Inc. | $ | 86,158 | $ | 65,563 | $ | 164,315 | |||||
| Net income per share attributable to PRA Group, Inc.: | |||||||||||
| Basic | $ | 1.90 | $ | 1.45 | $ | 3.60 | |||||
| Diluted | $ | 1.89 | $ | 1.44 | $ | 3.59 | |||||
| Weighted average number of shares outstanding: | |||||||||||
| Basic | 45,387 | 45,280 | 45,671 | ||||||||
| Diluted | 45,577 | 45,413 | 45,823 | ||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Revenues: | |||||||||||||||||
| Portfolio income | $ | 772,315 | $ | 875,327 | $ | 984,036 | |||||||||||
| Changes in expected recoveries | 168,904 | 197,904 | 69,297 | ||||||||||||||
| Total portfolio revenue | 941,219 | 1,073,231 | 1,053,333 | ||||||||||||||
| Other revenue | 25,305 | 22,501 | 12,081 | ||||||||||||||
| Total revenues | 966,524 | 1,095,732 | 1,065,414 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Compensation and employee services | 285,537 | 301,981 | 295,150 | ||||||||||||||
| Legal collection fees | 38,450 | 47,206 | 53,758 | ||||||||||||||
| Legal collection costs | 76,757 | 78,330 | 101,635 | ||||||||||||||
| Agency fees | 63,808 | 63,140 | 56,418 | ||||||||||||||
| Outside fees and services | 92,355 | 92,615 | 84,087 | ||||||||||||||
| Communication | 39,205 | 42,755 | 40,801 | ||||||||||||||
| Rent and occupancy | 18,589 | 18,376 | 17,973 | ||||||||||||||
| Depreciation and amortization | 15,243 | 15,256 | 18,465 | ||||||||||||||
| Other operating expenses | 50,778 | 61,077 | 47,426 | ||||||||||||||
| Total operating expenses | 680,722 | 720,736 | 715,713 | ||||||||||||||
| Income from operations | 285,802 | 374,996 | 349,701 | ||||||||||||||
| Other income and (expense): | |||||||||||||||||
| Interest expense, net | (130,677) | (124,143) | (141,712) | ||||||||||||||
| Foreign exchange gain/(loss), net | 985 | (809) | 2,005 | ||||||||||||||
| Other | (1,325) | 282 | (1,049) | ||||||||||||||
| Income before income taxes | 154,785 | 250,326 | 208,945 | ||||||||||||||
| Income tax expense | 36,787 | 54,817 | 41,203 | ||||||||||||||
| Net income | 117,998 | 195,509 | 167,742 | ||||||||||||||
| Adjustment for net income attributable to noncontrolling interests | 851 | 12,351 | 18,403 | ||||||||||||||
| Net income attributable to PRA Group, Inc. | $ | 117,147 | $ | 183,158 | $ | 149,339 | |||||||||||
| Net income per share attributable to PRA Group, Inc.: | |||||||||||||||||
| Basic | $ | 2.96 | $ | 4.07 | $ | 3.28 | |||||||||||
| Diluted | $ | 2.94 | $ | 4.04 | $ | 3.26 | |||||||||||
| Weighted average number of shares outstanding: | |||||||||||||||||
| Basic | 39,638 | 44,960 | 45,540 | ||||||||||||||
| Diluted | 39,888 | 45,330 | 45,860 | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
44
PRA Group, Inc.
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2019, 20182022, 2021 and 20172020
(Amounts in thousands)
| 2019 | 2018 | 2017 | |||||||||
| Net income | $ | 97,679 | $ | 75,734 | $ | 171,125 | |||||
| Other comprehensive (loss)/income, net of tax: | |||||||||||
| Currency translation adjustments | (6,359 | ) | (63,505 | ) | 67,858 | ||||||
| Cash flow hedges | (13,132 | ) | 44 | — | |||||||
| Debt securities available-for-sale | 39 | (83 | ) | — | |||||||
| Other comprehensive (loss)/income | (19,452 | ) | (63,544 | ) | 67,858 | ||||||
| Total comprehensive income | 78,227 | 12,190 | 238,983 | ||||||||
| Less comprehensive income attributable to noncontrolling interests | 10,978 | 10,129 | 1,332 | ||||||||
| Comprehensive income attributable to PRA Group, Inc. | $ | 67,249 | $ | 2,061 | $ | 237,651 | |||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Net income | $ | 117,998 | $ | 195,509 | $ | 167,742 | |||||||||||
| Other comprehensive (loss)/income, net of tax | |||||||||||||||||
| Currency translation adjustments | (105,292) | (56,219) | 20,056 | ||||||||||||||
| Cash flow hedges | 33,175 | 27,978 | (20,261) | ||||||||||||||
| Debt securities available-for-sale | (16) | (348) | 171 | ||||||||||||||
| Other comprehensive loss | (72,133) | (28,589) | (34) | ||||||||||||||
| Total comprehensive income | 45,865 | 166,920 | 167,708 | ||||||||||||||
| Less comprehensive income attributable to noncontrolling interests | 9,735 | 4,880 | 3,141 | ||||||||||||||
| Comprehensive income attributable to PRA Group, Inc. | $ | 36,130 | $ | 162,040 | $ | 164,567 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
45
PRA Group, Inc.
Consolidated Statements of Changes in Equity
For the years ended December 31, 2019, 20182022, 2021 and 20172020
(Amounts in thousands)
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive (Loss)/Income | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 45,416 | $ | 454 | $ | 67,321 | $ | 1,362,631 | $ | (261,018) | $ | 57,625 | $ | 1,227,013 | ||||||||||||||||||||||||||||
| Components of comprehensive income, net of tax: | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 149,339 | — | 18,403 | 167,742 | ||||||||||||||||||||||||||||||||||
| Currency translation adjustment | — | — | — | — | 35,317 | (15,261) | 20,056 | ||||||||||||||||||||||||||||||||||
| Cash flow hedges | — | — | — | — | (20,261) | — | (20,261) | ||||||||||||||||||||||||||||||||||
| Debt securities available-for-sale | — | — | — | — | 171 | — | 171 | ||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (30,276) | (30,276) | ||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interest | — | — | — | — | — | 1,118 | 1,118 | ||||||||||||||||||||||||||||||||||
| Vesting of restricted stock | 169 | 2 | (2) | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | 14,387 | — | — | — | 14,387 | ||||||||||||||||||||||||||||||||||
| Employee stock relinquished for payment of taxes | — | — | (3,299) | — | — | — | (3,299) | ||||||||||||||||||||||||||||||||||
| Other | — | — | (3,125) | — | — | — | (3,125) | ||||||||||||||||||||||||||||||||||
| 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 | — | — | — | 183,158 | — | 12,351 | 195,509 | ||||||||||||||||||||||||||||||||||
| Currency translation adjustment | — | — | — | — | (48,748) | (7,471) | (56,219) | ||||||||||||||||||||||||||||||||||
| Cash flow hedges | — | — | — | — | 27,978 | — | 27,978 | ||||||||||||||||||||||||||||||||||
| Debt securities available-for-sale | — | — | — | — | (348) | — | (348) | ||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (21,411) | (21,411) | ||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interest | — | — | — | — | — | 23,413 | 23,413 | ||||||||||||||||||||||||||||||||||
| Vesting of restricted stock | 264 | 2 | (2) | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Repurchase and cancellation of common stock | (4,841) | (48) | (58,531) | (154,291) | (212,870) | ||||||||||||||||||||||||||||||||||||
| Shared-based compensation expense | — | — | 15,940 | — | — | — | 15,940 | ||||||||||||||||||||||||||||||||||
| Employee stock relinquished for payment of taxes | — | — | (5,992) | — | — | — | (5,992) | ||||||||||||||||||||||||||||||||||
| 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 | — | — | — | 117,147 | — | 851 | 117,998 | ||||||||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | — | (114,176) | 8,884 | (105,292) | ||||||||||||||||||||||||||||||||||
| Cash flow hedges | — | — | — | — | 33,175 | — | 33,175 | ||||||||||||||||||||||||||||||||||
| Debt securities available-for-sale | — | — | — | — | (16) | — | (16) | ||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (6,691) | (6,691) | ||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | — | — | — | — | — | 17,554 | 17,554 | ||||||||||||||||||||||||||||||||||
| Vesting of restricted stock | 303 | 4 | (4) | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Repurchase and cancellation of common stock | (2,331) | (24) | (2,399) | (96,967) | — | — | (99,390) | ||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | 13,047 | — | — | — | 13,047 | ||||||||||||||||||||||||||||||||||
| Employee stock relinquished for payment of taxes | — | — | (8,472) | — | — | — | (8,472) | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 38,980 | $ | 390 | $ | 2,172 | $ | 1,573,025 | $ | (347,926) | $ | 59,089 | $ | 1,286,750 | ||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) | Noncontrolling Interests | Total Equity | |||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||
| Balance at December 31, 2016 | 46,356 | $ | 464 | $ | 66,414 | $ | 1,050,525 | $ | (251,944 | ) | $ | 52,862 | $ | 918,321 | ||||||||||||
| Components of comprehensive income, net of tax: | ||||||||||||||||||||||||||
| Net income | — | — | — | 164,315 | — | 6,587 | 170,902 | |||||||||||||||||||
| Currency translation adjustment | — | — | — | — | 73,337 | (7,202 | ) | 66,135 | ||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (2,085 | ) | (2,085 | ) | |||||||||||||||||
| Vesting of restricted stock | 145 | 1 | (1 | ) | — | — | — | — | ||||||||||||||||||
| Repurchase and cancellation of common stock | (1,312 | ) | (13 | ) | (44,896 | ) | — | — | — | (44,909 | ) | |||||||||||||||
| Share-based compensation expense | — | — | 8,678 | — | — | — | 8,678 | |||||||||||||||||||
| Excess income tax benefit from share-based compensation | — | — | (3,022 | ) | — | — | — | (3,022 | ) | |||||||||||||||||
| Employee stock relinquished for payment of taxes | — | — | 44,910 | — | — | — | 44,910 | |||||||||||||||||||
| Component of convertible debt | — | — | (18,213 | ) | — | — | — | (18,213 | ) | |||||||||||||||||
| Balance at December 31, 2017 | 45,189 | $ | 452 | $ | 53,870 | $ | 1,214,840 | $ | (178,607 | ) | $ | 50,162 | $ | 1,140,717 | ||||||||||||
Cumulative effect of change in accounting principle - equity securities (1) | — | — | — | (3,930 | ) | — | — | (3,930 | ) | |||||||||||||||||
| Balance at January 1, 2018 | 45,189 | $ | 452 | $ | 53,870 | $ | 1,210,910 | $ | (178,607 | ) | $ | 50,162 | $ | 1,136,787 | ||||||||||||
| Components of comprehensive income, net of tax: | ||||||||||||||||||||||||||
| Net income | — | — | — | 65,563 | — | 10,171 | 75,734 | |||||||||||||||||||
| Currency translation adjustment | — | — | — | — | (63,463 | ) | (42 | ) | (63,505 | ) | ||||||||||||||||
| Cash flow hedges | — | — | — | — | 44 | — | 44 | |||||||||||||||||||
| Debt securities available-for-sale | — | — | — | — | (83 | ) | — | (83 | ) | |||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (33,271 | ) | (33,271 | ) | |||||||||||||||||
| Vesting of restricted stock | 115 | 1 | (1 | ) | — | — | — | — | ||||||||||||||||||
| Share-based compensation expense | — | — | 8,521 | — | — | — | 8,521 | |||||||||||||||||||
| Employee stock relinquished for payment of taxes | — | — | (2,087 | ) | — | — | — | (2,087 | ) | |||||||||||||||||
| Purchase of noncontrolling interest | — | — | — | — | — | 1,829 | 1,829 | |||||||||||||||||||
| Balance at December 31, 2018 | 45,304 | $ | 453 | $ | 60,303 | $ | 1,276,473 | $ | (242,109 | ) | $ | 28,849 | $ | 1,123,969 | ||||||||||||
| Components of comprehensive income, net of tax: | ||||||||||||||||||||||||||
| Net income | — | — | — | 86,158 | — | 11,521 | 97,679 | |||||||||||||||||||
| Currency translation adjustments | — | — | — | — | (5,816 | ) | (543 | ) | (6,359 | ) | ||||||||||||||||
| Cash flow hedges | — | — | — | — | (13,132 | ) | — | (13,132 | ) | |||||||||||||||||
| Debt securities available-for-sale | — | — | — | — | 39 | — | 39 | |||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (6,877 | ) | (6,877 | ) | |||||||||||||||||
| Contributions from noncontrolling interest | — | — | — | — | — | 24,675 | 24,675 | |||||||||||||||||||
| Vesting of restricted stock | 112 | 1 | (1 | ) | — | — | — | — | ||||||||||||||||||
| Share-based compensation expense | — | — | 10,717 | — | — | — | 10,717 | |||||||||||||||||||
| Employee stock relinquished for payment of taxes | — | — | (1,609 | ) | — | — | — | (1,609 | ) | |||||||||||||||||
| Other | — | — | (2,089 | ) | — | — | — | (2,089 | ) | |||||||||||||||||
| Balance at December 31, 2019 | 45,416 | $ | 454 | $ | 67,321 | $ | 1,362,631 | $ | (261,018 | ) | $ | 57,625 | $ | 1,227,013 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
46
PRA Group, Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2019, 20182022, 2021 and 20172020
(Amounts in thousands)
| 2022 | 2021 | 2020 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income | $ | 117,998 | $ | 195,509 | $ | 167,742 | |||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Share-based compensation expense | 13,047 | 15,940 | 14,387 | ||||||||||||||
| Depreciation and amortization | 15,243 | 15,256 | 18,465 | ||||||||||||||
| Amortization of debt discount and issuance costs | 10,097 | 9,508 | 21,063 | ||||||||||||||
| Changes in expected recoveries | (168,904) | (197,904) | (69,297) | ||||||||||||||
| Deferred income taxes | 607 | 6,803 | (58,503) | ||||||||||||||
| Net unrealized foreign currency transactions | 34,970 | 29,003 | 15,240 | ||||||||||||||
| Fair value in earnings for equity securities | 437 | (386) | 977 | ||||||||||||||
| Other operating activities | (191) | (211) | (893) | ||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Other assets | 7,096 | 195 | (4,644) | ||||||||||||||
| Accounts payable | 3,960 | (1,323) | 914 | ||||||||||||||
| Income taxes payable, net | 13,709 | (30,824) | 22,001 | ||||||||||||||
| Accrued expenses | (2,449) | 19,586 | 7,767 | ||||||||||||||
| Other liabilities | (24,492) | 23,691 | 6,496 | ||||||||||||||
| Right of use assets/lease liabilities | 464 | 82 | (11) | ||||||||||||||
| Net cash provided by operating activities | 21,592 | 84,925 | 141,704 | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Purchases of property and equipment, net | (13,251) | (11,212) | (17,230) | ||||||||||||||
| Purchases of finance receivables | (844,255) | (971,708) | (903,588) | ||||||||||||||
| Recoveries applied to negative allowance | 974,846 | 1,185,954 | 1,037,659 | ||||||||||||||
| Purchase of investments | (63,000) | (110,915) | (45,229) | ||||||||||||||
| Proceeds from sales and maturities of investments | 66,113 | 68,904 | 43,391 | ||||||||||||||
| Business acquisition, net of cash acquired | — | (647) | — | ||||||||||||||
| Net cash provided by investing activities | 120,453 | 160,376 | 115,003 | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Proceeds from lines of credit | 1,607,108 | 769,903 | 1,290,799 | ||||||||||||||
| Principal payments on lines of credit | (1,598,608) | (1,163,075) | (1,557,186) | ||||||||||||||
| Payments on convertible senior notes | — | — | (287,442) | ||||||||||||||
| Proceeds from senior notes | — | 350,000 | 300,000 | ||||||||||||||
| Proceeds from long-term debt | — | — | 55,000 | ||||||||||||||
| Principal payments on long-term debt | (10,000) | (10,000) | (10,000) | ||||||||||||||
| Repurchases of common stock | (111,371) | (200,887) | — | ||||||||||||||
| Payments of origination costs and fees | (15,550) | (9,479) | (17,218) | ||||||||||||||
| Tax withholdings related to share-based payments | (8,472) | (5,992) | (3,301) | ||||||||||||||
| Distributions paid to noncontrolling interest | (6,691) | (21,411) | (30,276) | ||||||||||||||
| Contributions from noncontrolling interest | 17,554 | 23,413 | 1,118 | ||||||||||||||
| Net increase in interest-bearing deposits | 4,688 | 4,716 | 9,591 | ||||||||||||||
| Other financing activities | — | — | (3,185) | ||||||||||||||
| Net cash used in financing activities | (121,342) | (262,812) | (252,100) | ||||||||||||||
| Effect of exchange rate on cash | (25,017) | (14,464) | (7,367) | ||||||||||||||
| Net decrease cash and cash equivalents | (4,314) | (31,975) | (2,760) | ||||||||||||||
| Cash and cash equivalents, beginning of the year | 89,072 | 121,047 | 123,807 | ||||||||||||||
| Cash and cash equivalents, end of year | $ | 84,758 | $ | 89,072 | $ | 121,047 | |||||||||||
| Supplemental disclosure of cash flow information: | |||||||||||||||||
| Cash paid for interest | $ | 116,932 | $ | 112,277 | $ | 117,986 | |||||||||||
| Cash paid for income taxes | 21,860 | 77,817 | 80,856 | ||||||||||||||
| Cash, cash equivalents and restricted cash reconciliation: | |||||||||||||||||
| Cash, cash equivalents per Consolidated Balance Sheets | $ | 83,376 | $ | 87,584 | $ | 108,613 | |||||||||||
| Restricted cash included in Other Assets per Consolidated Balance Sheets | 1,382 | 1,488 | 12,434 | ||||||||||||||
| Total cash, cash equivalents and restricted cash | $ | 84,758 | $ | 89,072 | $ | 121,047 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 97,679 | $ | 75,734 | $ | 171,125 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Share-based compensation expense | 10,717 | 8,521 | 8,678 | ||||||||
| Depreciation and amortization | 17,464 | 19,322 | 19,763 | ||||||||
| Gain on sale of subsidiaries | — | (26,575 | ) | (48,474 | ) | ||||||
| Amortization of debt discount and issuance costs | 22,987 | 22,057 | 18,152 | ||||||||
| Impairment of investments | — | — | 1,745 | ||||||||
| Deferred tax benefit | (37,561 | ) | (56,208 | ) | (130,138 | ) | |||||
| Net unrealized foreign currency transactions | (4,543 | ) | 5,730 | (1,098 | ) | ||||||
| Fair value in earnings for equity securities | (5,826 | ) | (3,502 | ) | — | ||||||
| Net allowance charges | 24,025 | 33,425 | 11,898 | ||||||||
| Other operating activities | (234 | ) | — | (4,033 | ) | ||||||
| Changes in operating assets and liabilities: | |||||||||||
| Other assets | 3,313 | (2,180 | ) | (460 | ) | ||||||
| Other receivables, net | 6,300 | (4,269 | ) | (3,461 | ) | ||||||
| Accounts payable | (2,070 | ) | 1,321 | 2,743 | |||||||
| Income taxes (payable)/receivable, net | (12,375 | ) | 9,390 | (22,715 | ) | ||||||
| Accrued expenses | 11,632 | (1,334 | ) | (5,752 | ) | ||||||
| Other liabilities | 1,149 | (566 | ) | (2,498 | ) | ||||||
| Right of use asset/lease liability | 731 | — | — | ||||||||
| Net cash provided by operating activities | 133,388 | 80,866 | 15,475 | ||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property and equipment | (18,033 | ) | (20,521 | ) | (22,840 | ) | |||||
| Acquisition of finance receivables | (1,231,351 | ) | (1,105,759 | ) | (1,086,029 | ) | |||||
| Collections applied to principal on finance receivables | 842,910 | 733,306 | 717,170 | ||||||||
| Business acquisition, net of cash acquired | (57,610 | ) | — | — | |||||||
| Cash received upon consolidation of Polish investment fund | — | 17,531 | — | ||||||||
| Proceeds from sale of subsidiaries, net | 31,177 | 4,905 | 93,304 | ||||||||
| Purchase of investments | (83,291 | ) | (42,622 | ) | (6,688 | ) | |||||
| Proceeds from sales and maturities of investments | 75,008 | 25,909 | 10,123 | ||||||||
| Net cash used in investing activities | (441,190 | ) | (387,251 | ) | (294,960 | ) | |||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from lines of credit | 1,340,700 | 737,464 | 1,260,161 | ||||||||
| Principal payments on lines of credit | (728,282 | ) | (403,348 | ) | (1,549,833 | ) | |||||
| Principal payments on notes payable and long-term debt | (313,165 | ) | (10,000 | ) | (15,021 | ) | |||||
| Proceeds from long-term debt | — | — | 310,000 | ||||||||
| Proceeds from convertible debt | — | — | 345,000 | ||||||||
| Repurchases of common stock | — | — | (44,909 | ) | |||||||
| Tax withholdings related to share-based payments | (1,609 | ) | (2,087 | ) | (3,022 | ) | |||||
| Payments of origination costs and fees | — | (2,260 | ) | (18,240 | ) | ||||||
| Cash paid for purchase of portion of noncontrolling interest | (1,255 | ) | (1,664 | ) | — | ||||||
| Distributions paid to noncontrolling interest | (6,877 | ) | (14,486 | ) | (1,429 | ) | |||||
| Contributions from noncontrolling interest | 24,675 | — | — | ||||||||
| Net increase/(decrease) in interest-bearing deposits | 27,427 | (8,693 | ) | 12,991 | |||||||
| Other financing activities | (2,091 | ) | — | — | |||||||
| Net cash provided by financing activities | 339,523 | 294,926 | 295,698 | ||||||||
| Effect of exchange rate on cash | (6,609 | ) | (10,362 | ) | 10,016 | ||||||
| Net increase/(decrease) in cash and cash equivalents | 25,112 | (21,821 | ) | 26,229 | |||||||
| Cash and cash equivalents, beginning of year | 98,695 | 120,516 | 94,287 | ||||||||
| Cash and cash equivalents, end of year | $ | 123,807 | $ | 98,695 | $ | 120,516 | |||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for interest | $ | 119,424 | $ | 97,475 | $ | 79,825 | |||||
| Cash paid for income taxes | 68,979 | 73,483 | 144,341 | ||||||||
| Cash, cash equivalents and restricted cash reconciliation: | |||||||||||
| Cash and cash equivalents per Consolidated Balance Sheets | $ | 119,774 | $ | 98,695 | $ | 120,516 | |||||
| Restricted cash included in Other Assets per Consolidated Balance Sheets | 4,033 | — | — | ||||||||
| Total cash, cash equivalents and restricted cash | $ | 123,807 | $ | 98,695 | $ | 120,516 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
47
PRA Group, Inc.
Notes to Consolidated Financial Statements
1. General and Summary of Significant Accounting Policies:Policies:
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 of consumer bankruptcy accounts in the United States ("U.S.").
Basis of presentation: The consolidated financial statementsConsolidated Financial Statements of the Company are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and include the accounts of all of its subsidiaries. All significant intercompany accounts and transactions have been eliminated.. The preparation of the consolidated financial statementsConsolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures. Realized results could differ from those estimates and assumptions.
Change in accounting principle: Beginning January 1, 2021, the Company implemented Accounting Standards Update ("ASU") 2020-06 Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06") using a modified retrospective method.
Reclassification of prior year presentation: Certain prior year amounts have been reclassified for consistency with the current year presentation. Fee income is now included within Other revenue on the Consolidated Income Statements.
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 that 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 whether changes in the facts and circumstances regarding the Company’s involvement with an entity cause the Company’s consolidation conclusion to change.
Foreign currency: Assets and liabilities have been translated to the reporting currency using the exchange rates in effect on the consolidated balance sheetConsolidated Balance Sheets dates. Equity accounts are translated at historical rates, except for the change in retained earnings during the year, which is the result of the income statement translation process. Revenue and expense accounts are translated using the weighted average exchange rate during the period. The cumulative translation adjustments associated with the net assets of international subsidiaries are recorded in accumulatedAccumulated other comprehensive (loss)/income (loss) in the accompanying consolidated statementsConsolidated Statements of changesChanges in equity.Equity.
Segments: Under the guidance of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") ASC Topic 280 "Segment Reporting" ("ASC 280"), theThe Company has determined that it has severaltwo operating segments that meet the aggregation criteria of Accounting Standards Codification ("ASC") 280, Segment Reporting ("ASC 280,280"), and, therefore, it has 1one reportable segment, accounts receivable management. This conclusion is based on similarities among the operating units,segments, including economic characteristics, the nature of the products and services, the nature of the production processes, the types or classclasses of customercustomers for their products and services, the methods used to distribute their products and services and the nature of the regulatory environment.
48
PRA Group, Inc.
Notes to Consolidated Financial Statements
Revenues and long-lived assets by geographical location: Revenue for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, and long-lived assets held at December 31, 20192022 and 2018,2021, both for the U.S., the Company's country of domicile, and outside of the U.S. were (amounts in thousands):
| Years Ended December 31, | As of December 31, | ||||||||||||||||||
| 2019 | 2018 | 2017 | 2019 | 2018 | |||||||||||||||
| Revenues | Long-Lived Assets (2) | ||||||||||||||||||
| United States | $ | 673,264 | $ | 619,172 | $ | 560,278 | $ | 112,233 | $ | 48,581 | |||||||||
| United Kingdom | 120,377 | 99,817 | 81,322 | 3,553 | 1,543 | ||||||||||||||
Others (1) | 223,440 | 189,267 | 186,606 | 9,687 | 4,012 | ||||||||||||||
| Total | $ | 1,017,081 | $ | 908,256 | $ | 828,206 | $ | 125,473 | $ | 54,136 | |||||||||
| 2022 | 2021 | 2020 | 2022 | 2021 | |||||||||||||||||||||||||
Revenues (2) | Long-Lived Assets | ||||||||||||||||||||||||||||
| United States | $ | 520,747 | $ | 651,991 | $ | 677,234 | $ | 79,865 | $ | 87,881 | |||||||||||||||||||
| United Kingdom | 181,725 | 175,383 | 132,749 | 12,141 | 7,264 | ||||||||||||||||||||||||
Others (1) | 264,052 | 268,358 | 255,431 | 14,145 | 16,081 | ||||||||||||||||||||||||
| Total | $ | 966,524 | $ | 1,095,732 | $ | 1,065,414 | $ | 106,151 | $ | 111,226 | |||||||||||||||||||
(1)None of the countries included in "Others" comprise greater than 10% of the Company's consolidated revenues or long-lived assets.
(2) 2019 includes right-of-use assetsBased 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 the adoption of ASU 2016-02 on January 1, 2019. Refer to Note 4.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.right-of-use assets. The Company reports revenues earned from nonperforming loan acquisitions and collection activities on finance receivables, fee-based services and investments. For additional information on the Company's investments, see Note 3. It is impracticable for the Company to report further breakdowns of revenues from external customers by product or service.3.
Cash and cash equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Restricted cash: Cash that is subject to legal restrictions or is unavailable for general operating purposes is classified as restricted cash and included in Other assets on the Company's Consolidated Balance Sheets.
Concentrations of credit risk: Financial instruments, which potentially expose the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, investments, derivative instruments and finance receivables.
Accumulated other comprehensive loss: The Company records unrealized gains and losses on certain available-for-sale investments and foreign currency translation adjustments in other comprehensive income.income ("OCI"). Unrealized gains and losses on available for sale investments are reclassified to earnings as the gains or losses are realized upon sale of the securities. Translation gains or losses on foreign currency translation adjustments are reclassified to earnings upon the substantial sale or liquidation of investments in international operations. For the Company’s financial derivative instruments that are designated as hedging instruments, the change in fair value of the derivative is recorded in other comprehensive income.OCI.
Investments:
Debt Securities.Securities: The Company accounts for its investments in debt securities under the guidance of ASC Topic 320, "Investments-Debt Securities" ("ASC 320"). The Company determines the appropriate classification of its investments in debt securities at the time of purchase and reevaluates such determinations at each balance sheet date. Debt securities are classified as held to maturityheld-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are carried at amortized cost. Debt securities for which the Company does not have the intent or ability to hold to maturity are classified as available for sale. Held-to-maturity securities are carried at amortized cost. Available for saleavailable-for-sale. Available-for-sale securities are carried at fair market value. Fair value is determined using quoted market prices. Unrealized gains and losses are included in comprehensive income and reported in stockholders' equity. The Company evaluates debt securities for impairment. When there has been a decline in fair value below the amortized cost, the Company recognizes an impairment if: (1) it has the intent to sell the security; (2) it is more likely than not that it will be required to sell the security before recovery of the amortized cost; or (3) it does not expect to recover the entire amortized cost of the security. If the Company identifies that the decline in fair value ofhas resulted from credit losses, the investment falls below its carrying amount andcredit loss component is recognized as an allowance on the decline is deemed to be other than temporary, the investment is written down,Consolidated Balance Sheets with a corresponding charge to earnings.Other expense on the Consolidated Income Statements. The non-credit loss component remains in Other comprehensive loss until realized from a sale or subsequent impairment.
Equity SecuritiesSecurities:. The Company accounts for its investments Investments in equity securities in accordance with ASC Topic 321, “Investments-Equity Securities” (“ASC 321”), which requires that investments in equity securities beare measured at fair value with changes in unrealized gains and losses reported in earnings. The Company's investment in equity securities have historically been carried at cost with income recognized in Other Revenue in the consolidated income statements when distributions, up to reported income, were received from the partnerships. As of first quarter of 2018, "Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01"), requires that investments in equity securities be measured at fair value with changes in unrealized gains and losses reported in earnings. See Note 3 for additional information.
Equity Method Investments.Investments: Equity method investments that are not consolidated, but over which the Company exercises significant influence, are accounted for under theas equity method of accounting.investments. Whether or not the Company exercises significant influence with respect to an investee company depends on an evaluation of several factors including, among others, representation on the investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the investee company. Under the equity method of accounting, an investee company’s accounts are not reflected within the Company’s consolidated balance sheetsConsolidated Balance Sheets and income statements;Income Statements; however, the Company’s share of the
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PRA Group, Inc.
Notes to Consolidated Financial Statements
earnings or losses of the investee company is reflected in the caption ‘‘Other revenue’’ in the consolidated income statements.Consolidated Income Statements. The Company’s carrying value in an equity method investee company is reflected in the caption ‘‘Investments’’ in the Company’s consolidated balance sheets.Consolidated Balance Sheets.
When the Company’s carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company’s consolidated financial statementsConsolidated Financial Statements unless the Company guaranteed obligations of the investee company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.
Finance receivables and income recognition: The Company accounts for its investment in finance receivables underCompany's financial assets (or a group of financial assets) are measured at amortized cost and presented at the guidance of ASC Topic 310-30, "Loans and Debt Securities Acquired with Deteriorated net amount expected to be collected.
Credit Quality" ("ASC 310-30").quality information: The Company acquires portfolios of accounts that have experienced deterioration of credit quality between origination and the Company's acquisition of the accounts. The amount paid for a portfolio reflects the Company's determination that it is probable the Company will be unable to collect all amounts due according to an account's contractual terms. At acquisition,The Company accounts for the portfolios in accordance with the guidance for purchased credit deteriorated ("PCD") assets. The initial allowance for credit losses is added to the purchase price rather than recorded as a credit loss expense. The Company has established a policy to write off the amortized cost of individual assets when it deems probable that it will not collect on an individual asset. Due to the deteriorated credit quality of the individual accounts, the Company reviewsmay write off the unpaid principal balance of all accounts in a portfolio at the time of acquisition. However, when the Company has an expectation of collecting cash flows at the portfolio level, a negative allowance is established for expected recoveries at an amount not to exceed the amount paid for the financial portfolios. The negative allowance is recorded as an asset and presented as Finance receivables, net on the Company's Consolidated Balance Sheets.
Portfolio segments: The Company develops systematic methodologies to determine its allowance for credit losses at the portfolio segment level. The Company’s nonperforming loan portfolio segments consist of two broad categories: Core and Insolvency. The Company’s Core portfolios contain loan accounts that are in default, which were purchased at a substantial discount to face value because either the credit originator and/or other third-party collection agencies have been unsuccessful in collecting the full balance owed. The Company’s Insolvency portfolios contain loan accounts that are in default and the customer is involved in a bankruptcy or insolvency proceeding and the accounts were purchased at a substantial discount to determine whether there is evidenceface value. Each of deteriorationthe two broad portfolio segments of credit quality since origination,purchased nonperforming loan portfolios consist of large numbers of homogeneous receivables with similar risk characteristics.
Effective interest rate and if it is probable thataccounting pools: Within each portfolio segment, the Company will be unable to collect all amounts due according topools accounts with similar risk characteristics that are acquired in the loan's contractual terms. If both conditions exist,same year. Similar risk characteristics generally include portfolio segment and geographic region. The initial effective interest rate of the Company then determines whether each such accountpool is to be accounted for individually or whether such accounts will be assembled into pools based on common risk characteristics. The Company considers expected prepayments and estimates the amount and timing of undiscounted expected principal, interest and other cash flows (expected at acquisition) for each acquired portfolioestablished based on the Company's proprietary models,purchase price and expected recoveries of each individual purchase at the purchase date. During the year of acquisition, the annual pool is aggregated, and the Company subsequently aggregates portfoliosblended effective interest rate will adjust to reflect new acquisitions and new cash flow estimates until the end of accounts into quarterly pools.the year. The effective interest rate for a pool is fixed for the remaining life of the pool once the year has ended.
Methodology: The Company determinesdevelops its estimates of expected recoveries in the excess of the pool's scheduled contractual principalConsolidated Balance Sheets by applying discounted cash flow methodologies to its estimated remaining collections ("ERC") and contractual interest payments over all cash flows expected at acquisition as an amount that should not be accreted (nonaccretable difference). The remaining amount, representing the excess of the pool's cash flows expected to be collectedrecognizes income over the amount paid, is accreted into income recognized on finance receivables over the remaining estimated life of the pool (accretable yield). ASC 310-30 requires thatat the excess of the contractual cash flows over expected cash flows, based on the Company's estimates derived from proprietary collection models, not be recognized as an adjustment of revenue or expense or on the balance sheet.
The measurement of expected cash flowsrecoveries is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that would otherwise require a reduction inaffect the stated yieldcollectability of the reported amount. Development of the Company’s forecasts rely on a pool of accounts. Factors that may contribute to the recording of valuation allowancesboth quantitative and qualitative factors. Qualitative factors can include both external and internal factors. Externalinformation and consider management’s view on available facts and circumstances at each reporting period. More specifically, external factors that may have an impact on the collectability, and subsequently on the overall profitability of acquired poolsportfolios of nonperforming loans, would include new laws or regulations relating to collections, new interpretations of existing laws or regulations, and the overall condition of the economy. Internal factors that may have an impact on the collectability, and subsequently the overall profitability of acquired poolsportfolios of nonperforming loans, would include necessary revisions to initial and post-acquisition operational scoring and modeling estimates, non-optimal operational activities, expected impact of operational strategies and decreaseschanges in productivity related to turnover and tenure of the Company's collection staff.
50
PRA Group, Inc.
Notes to Consolidated Financial Statements
Portfolio income: The Company capitalizes certain fees paidrecognition of income on expected recoveries is based on the constant effective interest rate established for a pool.
Changes in expected recoveries: The activity consists of differences between actual recoveries compared to third parties relatedexpected recoveries for the reporting period, as well as the net present value of increases or decreases in ERC at the constant effective interest rate.
Agreements to the direct acquisition of a portfolio of accounts. These fees are added to the acquisition cost of the portfolio and accordingly are amortized over the life of the portfolio using the interest method.
Fees paid to third parties other than the seller will replacerelated to the returneddirect acquisition of a portfolio of accounts with new accounts in lieu of returning the purchase price. In that case, the old account is removed from the pool and the new account is added.are expensed when incurred.
Fee income recognition: The Company recognizes revenue from its class action claims recovery services when there is persuasive evidence that an arrangement exists, delivery has occurred or services have been rendered, the amount is fixed or determinable, and collectability is reasonably assured. This revenue is included within Other revenue in the Company's Consolidated Income Statements.
Property and equipment: Property and equipment, including improvements that significantly add to the productive capacity or extend useful life, are recorded at cost. Maintenance and repairs are expensed as incurred. Property and equipment are depreciated over their useful lives using the straight-line method of depreciation. Software and computer equipment are generally amortized or depreciated over three to five years. Furniture and fixtures are depreciated over five to ten years. Equipment is depreciated over five to seven years. Leasehold improvements are depreciated over the lesser of the useful life, which ranges from three to ten years, or the remaining term of the lease.lease. Building improvements are depreciated straight-line over ten to thirty-nine39 years. WhenWhen property is sold or retired, the cost and related accumulated depreciation are removed from the balance sheet and any gain or loss is included in the income statement.Company's Consolidated Income Statements.
Convertible senior notes:Notes: The Company accounts for its 3.00% Convertible Senior Notes due 2020 (the "2020 Notes") and itshas outstanding 3.50% Convertible Notes due 2023 (the "2023 Notes" and, together with the 2020 Notes, the "Notes"or "Convertible Notes") in accordance with ASC 470-20, "Debt with Conversion and Other Options" ("ASC 470-20"). ASC 470-20 requires that, for convertible debt instruments that must be settled fully or partially in cash upon conversion, issuers must separately account for the liability and equity components in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The excess of the principal amount of the liability component over its carrying amount is amortized to interest expense over the expected life of a similar liability that does not have an associated equity component, using the effective interest method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification under ASC 815-40, "Derivatives and Hedging - Contracts in an Entity's Own Equity." Transaction costs incurred with third partieswhich are allocated to the liability and equity components in proportion to the allocation of proceeds and accounted for as debt issuance costs and equity issuance costs, respectively.
Income taxes: The Company follows the guidance of ASC Topic 740 "Income Taxes" ("ASC 740") as it relates to the provision for income taxes and uncertainty in income taxes. Accordingly, the Company records a tax provision for the anticipated tax consequences of the reported results of operations. The provision for income taxes is estimated using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carry-forwards.carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled.
The evaluationCompany is subject to income taxes throughout the U.S. and in numerous international jurisdictions. The Company recognizes the financial statement benefits of a tax position in accordance with the guidance is a two-step process. The first step is recognition: the enterprise determines whetherif it is more-likely-than-not that a tax position willmore likely than not to be sustained upon examination, including resolutionin the event of any related appeals or litigation processes,challenges by relevant taxing authorities based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the enterprise should presume that the position will be examined by the appropriate taxing authority that would have full knowledge of all relevant information.merit. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amountamounts of benefit to recognize in the financial statements. The tax position is measured asstatements are the largest amount of benefitbenefits that ishave a greater than 50 percent likelylikelihood of being realized upon ultimate settlement. Tax positions that previously failed to meetsettlement with the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognizedrelevant tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.authorities. The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense when positionsthe more likely than not standards are not met.
In the event that all or partpreparation of the deferredConsolidated Financial Statements, the Company exercises significant judgment in estimating the potential exposure to unresolved tax assets are determinedmatters and applies a more likely than not criteria approach for recording tax benefits related to be realizableuncertain tax positions in the future, a valuation allowance would be established and charged to earnings in the period such determination is made. Ifapplication of complex tax laws. While actual results could vary, the Company subsequently realizes
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PRA Group, Inc.
Notes to Consolidated Financial Statements
The Company, establishes a valuation allowance in the period in which it determines that part or all of the deferred tax asset is not realizable. If the Company subsequently realizes deferred tax assets that were previously determined to be unrealizable, the respective valuation allowance would be reversed, resulting in a positive adjustment to earnings.
Leases: The Company accounts for leases in accordance with the provisions of FASB issued ASU 2016-02, "Leases (Topic 842) Section A - Leases: Amendments to the FASB Account Standards Codification" ("ASU 2016-02"). ASU 2016-02 requires that a lessee should recognizerecognizes a liability to makefor future lease payments and a right-of-use ("ROU") asset representing its right to use the underlying asset for the lease term on the balance sheet. The Company adopted ASC 842 on January 1, 2019 using the alternative method which resulted in the recording of operating lease right-of-use ("ROU") assets and lease liabilities of $72.1 million and $75.8 million, respectively. The Company's balance sheets for reporting periods beginning on or after January 1, 2019 are presented under the new guidance, while prior periods amounts are not adjusted and continue to be reported in accordance with previous guidance.
The Company's operating lease portfolio primarily includes corporate offices and call centers. The majority of its leases have remaining lease terms of one year to twenty14 years, some of which include options to extend the leases for up to five years, and others include options to terminate the leases within one year. Exercises of lease renewal options are typically at the Company's sole discretion and are included in its ROU assets and lease liabilities based upon whether the Company is reasonably certain of exercising the renewal options. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The Company used its incremental borrowing rate as of January 1, 2019 to calculate the present value of the lease payments of its existing leases at adoption.
Share-based compensation: The Company accounts for share-based compensation in accordance with the provisions of ASC Topic 718 "Compensation-Stock Compensation" ("ASC 718"). ASC 718 requires that compensationCompensation expense associated with share equity awards beare recognized in the income statement. The Company determines stock-based compensation expense for all share-based payment awards based on the measurement date fair value. The Company has certain share awards that include market conditions that affect vesting. The fair value of these shares is estimated using a lattice model. Compensation cost is not adjusted if the market condition is not met, as long as the requisite service is provided. The Company estimates a forfeiture rate for most equity share grants based on historical experience. Time-based equity share awards generally vest between one and three years from the grant date and are expensed on a straight-line basis over the vesting period. Equity share awards that contain a performance metric, are expensed over the requisite service period, generally three years, in accordance with the performance level achieved at each reporting period. See Note 11 for additional information.
Derivatives: The Company periodically enters into derivative financial instruments, typically interest rate swap agreements, interest rate caps, and foreign currency contracts to reduce its exposure to fluctuations in interest rates on variable-rate debt and foreign currency exchange rates. The Company does not utilize derivative financial instruments with a level of complexity or with a risk greater than the exposure to be managed nor does it enter into or hold derivatives for trading or speculative purposes.
liabilities and unrecognized firm commitments are reported currently in earnings along with changes in the fair values of the hedged items. Changes in the effective portions of the fair values of instruments used to reduce or eliminate adverse fluctuations in cash flows of anticipated or forecasted transactions are reported in equity as a component of accumulatedAccumulated other comprehensive income.loss. Amounts in accumulatedAccumulated other comprehensive incomeloss are reclassified to earnings when the related hedged items affect earnings or the anticipated transactions are no longer probable. Changes in the fair values of derivative instruments that are not designated as hedges or do not qualify for hedge accounting treatment are reported currently in earnings. The Company realizes gains and losses from derivative instruments in the same financial statement line item as the hedged item/forecasted transaction. Changes in unrealized gains and losses for derivatives not designated in a hedge accounting relationship are recorded directly in earnings each period and are also recorded in the same financial statement line item as the hedged item/item or forecasted transaction. Cash flows from the settlement of derivatives, including both economic hedges and those designated in hedge accounting relationships, appear in the consolidated statementsConsolidated Statements of cash flowsCash Flows in the same categories as the cash flows of the hedged item.
For derivative financial instruments accounted for as hedging instruments, the Company formally designates and documents, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective, and the manner in which effectiveness of the hedge will be assessed. The Company formally assesses, both at inception and at each reporting period thereafter, whether the derivative financial instruments used in hedging transactions are effective in offsetting changes in fair value or cash flows of the related underlying exposures. Any ineffective portion of the change in fair value of the instruments is recognized immediately in earnings.
The Company discontinues the use of hedge accounting prospectively when (1) the derivative instrument is no longer effective in offsetting changes in fair value or cash flows of the underlying hedged item; (2) the derivative instrument expires, is
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PRA Group, Inc.
Notes to Consolidated Financial Statements
sold, terminated, or exercised; or (3) designating the derivative instrument as a hedge is no longer appropriate. See Note 9 for additional information.
Use of estimates: The preparation of the consolidated financial statementsConsolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statementsConsolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates have been made by management with respect to the timing and amount of future cash collections of the Company's finance receivables portfolios. Actual results could differ from these estimates making it reasonably possible that a change in these estimates could occur within one year.
Commitments and contingencies: The Company is subject to various claims and contingencies related to lawsuits, certain taxes and commitments under contractual and other obligations. The Company recognizes liabilities for contingenciescommitments and commitmentscontingencies when a loss is probable and estimable. The Company expenses related legal costs as incurred. ForSee Note 14 for additional information, see Note 14.information.
Estimated fair value of financial instruments: The Company applies the provisions of ASC Topic 820 "Fair Value Measurements and Disclosures" ("ASC 820"). ASC 820 defines fairFair value asis the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also requires theThe Company takes into consideration of differing levels of inputs in the determination of fair values. Disclosure of the estimated fair values of financial instruments often requires the use of estimates. See Note 8 for additional information.
Recent accounting pronouncements:
Recently Issuedissued accounting standards adopted:
Reference Rate Reform
In January 2021, the Financial Accounting Standards Adopted:
In February 2016,December 2022, the FASB issued ASU 2016-02 which requires that a lessee should recognize a liability to make lease payments and a ROU representing its right to use the underlying asset for the lease term on the balance sheet. In July 2018, FASB issued ASU 2018-10, "Codification Improvements to Topic 842, Leases" and ASU 2018-11, "Leases2022-06, "Reference Rate Reform (Topic 842) Targeted Improvements" which among other things, allowed for an alternative transition method which eliminated the requirement to restate the earliest prior period presented in an entity's financial statements. Entities that elected this transition option, including the Company, were required to adopt the new lease standard using the modified retrospective transition method required by the standard, but recognized a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. The Company adopted the new leasing standard on January 1, 2019 and as a result recorded operating lease ROU assets and lease liabilities of $72.1 million and $75.8 million, respectively. The adoption848): Deferral of the standard did not have any other material impact on the Company's consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted:
The Company does not expect that any other recently issued accounting pronouncements will have a material effect on its consolidated financial statements.Consolidated Financial Statements.
2. Finance Receivables, net:
| 2022 | 2021 | ||||||||||
| Amortized cost | $ | — | $ | — | |||||||
Negative allowance for expected recoveries | 3,295,008 | 3,428,285 | |||||||||
| Balance at end of year | $ | 3,295,008 | $ | 3,428,285 | |||||||
| 2019 | 2018 | ||||||
| Balance at beginning of year | $ | 3,084,777 | $ | 2,776,199 | |||
Acquisitions of finance receivables (1) | 1,274,317 | 1,105,423 | |||||
| Addition relating to consolidation of Polish investment fund | — | 34,871 | |||||
| Foreign currency translation adjustment | 22,006 | (64,985 | ) | ||||
| Cash collections | (1,841,271 | ) | (1,625,205 | ) | |||
| Income recognized on finance receivables | 998,361 | 891,899 | |||||
| Net allowance charges | (24,025 | ) | (33,425 | ) | |||
| Balance at end of year | $ | 3,514,165 | $ | 3,084,777 | |||
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PRA Group, Inc.
Notes to Consolidated Financial Statements
| 2020 | $ | 831,769 | |
| 2021 | 672,699 | ||
| 2022 | 500,597 | ||
| 2023 | 368,332 | ||
| 2024 | 263,785 | ||
| 2025 | 193,831 | ||
| 2026 | 156,456 | ||
| 2027 | 135,238 | ||
| 2028 | 125,673 | ||
| 2029 | 116,008 | ||
| Thereafter | 149,777 | ||
| Total ERC expected to be applied to principal | $ | 3,514,165 | |
| 2019 | 2018 | ||||||
| Balance at beginning of year | $ | 3,058,445 | $ | 2,927,866 | |||
| Income recognized on finance receivables | (998,361 | ) | (891,899 | ) | |||
| Net allowance charges | 24,025 | 33,425 | |||||
| Additions from portfolio acquisitions | 943,887 | 876,112 | |||||
| Reclassifications from nonaccretable difference | 205,464 | 194,992 | |||||
| Foreign currency translation adjustment | 6,671 | (82,051 | ) | ||||
| Balance at end of year | $ | 3,240,131 | $ | 3,058,445 | |||
| 2022 | |||||||||||||||||
| Core | Insolvency | Total | |||||||||||||||
| Balance at beginning of year | $ | 2,989,932 | $ | 438,353 | $ | 3,428,285 | |||||||||||
Initial negative allowance for expected recoveries - portfolio acquisitions (1) | 771,977 | 78,019 | 849,996 | ||||||||||||||
| Foreign currency translation adjustment | (156,795) | (20,536) | (177,331) | ||||||||||||||
Recoveries applied to negative allowance (2) | (795,489) | (179,357) | (974,846) | ||||||||||||||
Changes in expected recoveries (3) | 126,582 | 42,322 | 168,904 | ||||||||||||||
| Balance at end of year | $ | 2,936,207 | $ | 358,801 | $ | 3,295,008 | |||||||||||
| 2021 | |||||||||||||||||
| Core | Insolvency | Total | |||||||||||||||
| Balance at beginning of year | $ | 3,019,477 | $ | 495,311 | $ | 3,514,788 | |||||||||||
Initial negative allowance for expected recoveries - portfolio acquisitions (1) | 863,379 | 108,901 | 972,280 | ||||||||||||||
| Foreign currency translation adjustment | (68,544) | (2,189) | (70,733) | ||||||||||||||
Recoveries applied to negative allowance (2) | (1,002,400) | (183,554) | (1,185,954) | ||||||||||||||
Changes in expected recoveries (3) | 178,020 | 19,884 | 197,904 | ||||||||||||||
| Balance at end of year | $ | 2,989,932 | $ | 438,353 | $ | 3,428,285 | |||||||||||
(1) Initial negative allowance for expected recoveries - portfolio acquisitions
Portfolio acquisitions for the years ended December 31, 2022 and 2021 were as follows (amounts in thousands):
| 2022 | |||||||||||||||||
| Core | Insolvency | Total | |||||||||||||||
| Face value | $ | 5,174,974 | $ | 455,644 | $ | 5,630,618 | |||||||||||
| Noncredit discount | (541,686) | (28,279) | (569,965) | ||||||||||||||
| Allowance for credit losses at acquisition | (3,861,311) | (349,346) | (4,210,657) | ||||||||||||||
| Purchase price | $ | 771,977 | $ | 78,019 | $ | 849,996 | |||||||||||
| 2021 | |||||||||||||||||
| Core | Insolvency | Total | |||||||||||||||
| Face value | $ | 5,917,827 | $ | 508,868 | $ | 6,426,695 | |||||||||||
| Noncredit discount | (696,983) | (37,202) | (734,185) | ||||||||||||||
| Allowance for credit losses at acquisition | (4,357,465) | (362,765) | (4,720,230) | ||||||||||||||
| Purchase price | $ | 863,379 | $ | 108,901 | $ | 972,280 | |||||||||||
The initial negative allowance recorded on portfolio acquisitions for the years ended December 31, 2022 and 2021 were as follows (amounts in thousands):
| 2022 | |||||||||||||||||
| Core | Insolvency | Total | |||||||||||||||
| Allowance for credit losses at acquisition | $ | (3,861,311) | $ | (349,346) | $ | (4,210,657) | |||||||||||
| Writeoffs, net | 3,861,311 | 349,346 | 4,210,657 | ||||||||||||||
| Expected recoveries | 771,977 | 78,019 | 849,996 | ||||||||||||||
| Initial negative allowance for expected recoveries | $ | 771,977 | $ | 78,019 | $ | 849,996 | |||||||||||
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PRA Group, Inc.
Notes to Consolidated Financial Statements
| 2021 | |||||||||||||||||
| Core | Insolvency | Total | |||||||||||||||
| Allowance for credit losses at acquisition | $ | (4,357,465) | $ | (362,765) | $ | (4,720,230) | |||||||||||
| Writeoffs, net | 4,357,465 | 362,765 | 4,720,230 | ||||||||||||||
| Expected recoveries | 863,379 | 108,901 | 972,280 | ||||||||||||||
| Initial negative allowance for expected recoveries | $ | 863,379 | $ | 108,901 | $ | 972,280 | |||||||||||
Recoveries applied to the Company's valuationnegative allowance account, all of which relates to loans acquired with deteriorated credit quality, for the years ended December 31, 2019, 20182022 and 20172021 were as follows (amounts in thousands):
| 2022 | |||||||||||||||||
| Core | Insolvency | Total | |||||||||||||||
Recoveries (a) | $ | 1,521,504 | $ | 225,657 | $ | 1,747,161 | |||||||||||
| Less - amounts reclassified to portfolio income | 726,015 | 46,300 | 772,315 | ||||||||||||||
| Recoveries applied to negative allowance | $ | 795,489 | $ | 179,357 | $ | 974,846 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Beginning balance | $ | 257,148 | $ | 225,555 | $ | 211,465 | |||||
| Allowance charges | 38,662 | 48,856 | 13,826 | ||||||||
| Reversal of previous recorded allowance charges | (14,637 | ) | (15,431 | ) | (1,928 | ) | |||||
| Net allowance charges | 24,025 | 33,425 | 11,898 | ||||||||
| Foreign currency translation adjustment | 122 | (1,832 | ) | 2,192 | |||||||
| Ending balance | $ | 281,295 | $ | 257,148 | $ | 225,555 | |||||
| 2021 | |||||||||||||||||
| Core | Insolvency | Total | |||||||||||||||
Recoveries (a) | $ | 1,818,635 | $ | 242,646 | $ | 2,061,281 | |||||||||||
| Less - amounts reclassified to portfolio income | 816,235 | 59,092 | 875,327 | ||||||||||||||
| Recoveries applied to negative allowance | $ | 1,002,400 | $ | 183,554 | $ | 1,185,954 | |||||||||||
(a) Recoveries includes cash collections, buybacks and other cash-based adjustments.
(3) Changes in expected recoveries
Changes in expected recoveries for the years ended December 31, 2022 and 2021 were as follows (amounts in thousands):
| 2022 | |||||||||||||||||
| Core | Insolvency | Total | |||||||||||||||
| Changes in expected future recoveries | $ | 48,806 | $ | 13,405 | $ | 62,211 | |||||||||||
| Recoveries received in excess of forecast | 77,776 | 28,917 | 106,693 | ||||||||||||||
| Changes in expected recoveries | $ | 126,582 | $ | 42,322 | $ | 168,904 | |||||||||||
| 2021 | |||||||||||||||||
| Core | Insolvency | Total | |||||||||||||||
| Changes in expected future recoveries | $ | (35,432) | $ | (16,816) | $ | (52,248) | |||||||||||
| Recoveries received in excess of forecast | 213,452 | 36,700 | 250,152 | ||||||||||||||
| Changes in expected recoveries | $ | 178,020 | $ | 19,884 | $ | 197,904 | |||||||||||
In order to estimate future cash collections, the Company considered historical performance, current economic forecasts, short-term and long-term growth and consumer habits in the various geographies in which the Company operates. The Company considered recent collection activity in its determination to adjust assumptions related to ERC for certain pools. Based on these considerations, the Company’s estimates incorporate changes in both amounts and in the timing of expected cash collections over the forecast period.
For the year ended December 31, 2022, Changes in expected recoveries were a net positive $168.9 million. The changes were the net result of recoveries received in excess of forecast of $106.7 million reflecting cash collections overperformance during the year and a $62.2 million net positive adjustment to changes in expected future recoveries. The changes in expected
55
PRA Group, Inc.
Notes to Consolidated Financial Statements
future recoveries reflects the Company's assessment of certain pools, where continued strong performance has resulted in a net increase to the Company's forecasted ERC.
For the year ended December 31, 2021, Changes in expected recoveries were a net positive $197.9 million. The changes were the net result of recoveries received in excess of forecast of $250.2 million from significant cash collections overperformance during 2021 reduced by a $52.2 million net negative adjustment to changes in expected future recoveries. The changes in expected future recoveries included the Company's assumption that the majority of the overperformance was due to acceleration of future collections. The Company also increased near-term expected collections in certain geographies to reflect performance trends in collections, and made corresponding reductions later in the forecast period.
3. Investments:
Investments consisted of the following at December 31, 20192022 and 20182021 (amounts in thousands):
| 2019 | 2018 | ||||||
| Debt securities | |||||||
| Available-for-sale | $ | 5,052 | $ | 5,077 | |||
| Equity securities | |||||||
| Private equity funds | 7,218 | 7,973 | |||||
| Mutual funds | 33,677 | 21,753 | |||||
| Equity method investments | 10,229 | 10,370 | |||||
| Total investments | $ | 56,176 | $ | 45,173 | |||
| 2022 | 2021 | ||||||||||
| Debt securities | |||||||||||
| Available-for-sale | $ | 66,813 | $ | 77,538 | |||||||
| Equity securities | |||||||||||
| Exchange traded funds | — | 1,746 | |||||||||
| Private equity funds | 4,373 | 5,137 | |||||||||
| Mutual funds | — | 508 | |||||||||
| Equity method investments | 8,762 | 8,048 | |||||||||
| Total investments | $ | 79,948 | $ | 92,977 | |||||||
Debt Securities
Available-for-Sale
Government bondssecurities:The Company's investments in government instruments, including bonds and treasury securities, are classified as available-for-sale and are stated at fair value. As of December 31, 2022, maturities for these securities are $62.5 million due within one year and $4.3 million due within one to five years.
The amortized cost and estimated fair value of investments in debt securities at December 31, 20192022 and 20182021 were as follows (amounts in thousands):
| December 31, 2019 | |||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Aggregate Fair Value | ||||||||||||
| Available-for-sale | |||||||||||||||
| Government bonds | $ | 5,095 | $ | — | $ | 43 | $ | 5,052 | |||||||
| December 31, 2018 | |||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Aggregate Fair Value | ||||||||||||
| Available-for-sale | |||||||||||||||
| Government bonds | $ | 5,160 | $ | — | $ | 83 | $ | 5,077 | |||||||
| 2022 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Aggregate Fair Value | ||||||||||||||||||||
| Available-for-sale | |||||||||||||||||||||||
| Government securities | $ | 67,049 | $ | 1 | $ | 237 | $ | 66,813 | |||||||||||||||
| 2021 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Aggregate Fair Value | ||||||||||||||||||||
| Available-for-sale | |||||||||||||||||||||||
| Government securities | $ | 77,757 | $ | — | $ | 219 | $ | 77,538 | |||||||||||||||
Equity Securities
Private equity funds: Investments in private equity funds represent limited partnerships in which the Company has less than a 3%1% interest. In the first quarter of 2018, the Company adopted ASU 2016-01. Upon adoption of ASU 2016-01, the investments are carried at the fair value reported by the fund manager. The Company recorded a cumulative effect adjustment of $3.9 million, net of tax,
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PRA Group, Inc.
Notes to beginning retained earnings for the unrealized loss on the investment.Consolidated Financial Statements
Mutual funds:The Company invests certain excess Mutual funds represented funds held in Brazil in a Brazilian real denominated mutual fund benchmarked to the U.S. dollar that invests principallyprimarily in Brazilian fixed income securities. The investments arewere carried at fair value based on quoted market prices. Gains and losses from this investmentthese investments are included as a foreign exchange component of otherOther income and (expense) in the Company's consolidated income statements.
Equity Method Investments
4. Leases:
The Company leases office space and equipment under operating leases. The components of lease expense for the yearyears ended December 31, 2019 was2022 and 2021 were as follows (amounts in thousands):
| December 31, 2019 | |||
| Operating lease cost | $ | 12,008 | |
| Short-term lease cost | 2,973 | ||
| Total lease cost | $ | 14,981 | |
| 2022 | 2021 | ||||||||||
| Operating lease expense | $ | 11,981 | $ | 12,256 | |||||||
| Short-term lease expense | 2,374 | 2,986 | |||||||||
| Sublease income | (486) | (196) | |||||||||
| Total lease expense | $ | 13,869 | $ | 15,046 | |||||||
Supplemental cash flow information and non-cash activity related to leases for the yearyears ended December 31, 20192022 and 2021 were as follows (amounts in thousands):
| 2022 | 2021 | ||||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 11,852 | $ | 12,034 | |||||||
| ROU assets obtained in exchange for operating lease obligations | $ | 8,882 | $ | 13,525 | |||||||
| December 31, 2019 | |||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 11,438 | |
| ROU assets obtained in exchange for operating lease obligations | $ | 80,725 | |
Lease term and discount rate information related to operating leases were as follows as of the date indicated:
| 2022 | 2021 | ||||||||||
| Weighted-average remaining lease terms (years) | 8.0 | 8.6 | |||||||||
| Weighted-average discount rate | 4.5 | % | 4.5 | % | |||||||
Maturities of lease liabilities at December 31, 2019,2022, are as follows for the years ending December 31, (amounts in thousands):
| Operating Leases | |||
| 2020 | $ | 11,846 | |
| 2021 | 11,378 | ||
| 2022 | 9,324 | ||
| 2023 | 7,132 | ||
| 2024 | 6,279 | ||
| Thereafter | 49,414 | ||
| Total lease payments | $ | 95,373 | |
| Less imputed interest | (21,996 | ) | |
| Total | $ | 73,377 | |
| Operating Leases | |||||
| 2023 | $ | 10,827 | |||
| 2024 | 10,086 | ||||
| 2025 | 9,845 | ||||
| 2026 | 8,740 | ||||
| 2027 | 5,905 | ||||
| Thereafter | 25,725 | ||||
| Total lease payments | 71,128 | ||||
| Less: imputed interest | 11,744 | ||||
| Total present value of lease liabilities | $ | 59,384 | |||
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PRA Group, Inc.
Notes to Consolidated Financial Statements
| 2019 | $ | 11,470 | |
| 2020 | 11,451 | ||
| 2021 | 10,809 | ||
| 2022 | 7,287 | ||
| 2023 | 6,189 | ||
| Thereafter | 7,866 | ||
| Total future minimum lease payments | $ | 55,072 | |
The following table represents the changes in goodwill for the years ended December 31, 20192022 and 20182021 were as follows (amounts in thousands):
| 2019 | 2018 | ||||||
| Goodwill: | |||||||
| Balance at beginning of period | $ | 464,116 | $ | 526,513 | |||
| Changes: | �� | ||||||
| Acquisition | 18,831 | — | |||||
| Sale of subsidiary | — | (36,053 | ) | ||||
| Foreign currency translation adjustment | (2,153 | ) | (26,344 | ) | |||
| Net change in goodwill | 16,678 | (62,397 | ) | ||||
| Balance at end of period | $ | 480,794 | $ | 464,116 | |||
| 2022 | 2021 | ||||||||||
| Balance at beginning of year | $ | 480,263 | $ | 492,989 | |||||||
| Change in foreign currency translation adjustment | (44,342) | (12,726) | |||||||||
| Balance at end of year | $ | 435,921 | $ | 480,263 | |||||||
| 2019 | 2018 | ||||||||||||||
| Gross Amount | Accumulated Amortization | Gross Amount | Accumulated Amortization | ||||||||||||
| Client and customer relationships | $ | 12,072 | $ | 8,242 | $ | 11,806 | $ | 6,993 | |||||||
| Non-compete agreements | 439 | 183 | — | — | |||||||||||
| Trademarks | 400 | 362 | 400 | 345 | |||||||||||
| Technology | 1,679 | 1,306 | 1,548 | 894 | |||||||||||
| Total | $ | 14,590 | $ | 10,093 | $ | 13,754 | $ | 8,232 | |||||||
| 2020 | $ | 1,402 | |
| 2021 | 880 | ||
| 2022 | 750 | ||
| 2023 | 707 | ||
| 2024 | 758 | ||
| Thereafter | — | ||
| Total | $ | 4,497 | |
6. Borrowings:
The Company's borrowings consisted of the following as of the dates indicatedDecember 31, 2022 and 2021 (amounts in thousands):
| 2022 | 2021 | |||||||||||||||||
| December 31, 2019 | December 31, 2018 | |||||||||||||||||
| Americas revolving credit | $ | 772,037 | $ | 598,279 | ||||||||||||||
Americas revolving credit (1) | Americas revolving credit (1) | $ | 186,867 | $ | 372,119 | |||||||||||||
| UK revolving credit | UK revolving credit | 453,528 | — | |||||||||||||||
| Europe revolving credit | 1,017,465 | 561,882 | Europe revolving credit | 419,856 | 795,687 | |||||||||||||
| Term loans | 425,000 | 740,551 | ||||||||||||||||
| Convertible senior notes | 632,500 | 632,500 | ||||||||||||||||
| Term loan | Term loan | 450,000 | 460,000 | |||||||||||||||
| Senior Notes | Senior Notes | 650,000 | 650,000 | |||||||||||||||
| Convertible Notes | Convertible Notes | 345,000 | 345,000 | |||||||||||||||
| 2,847,002 | 2,533,212 | 2,505,251 | 2,622,806 | |||||||||||||||
| Less: Debt discount and issuance costs | (38,577 | ) | (59,556 | ) | Less: Debt discount and issuance costs | (10,393) | (14,092) | |||||||||||
| Total | $ | 2,808,425 | $ | 2,473,656 | Total | $ | 2,494,858 | $ | 2,608,714 | |||||||||
The following principal payments are due on the Company's borrowings at December 31, 20192022 for the years ending December 31, (amounts in thousands):
| 2020 | $ | 298,603 | |
| 2021 | 1,028,568 | ||
| 2022 | 1,174,831 | ||
| 2023 | 345,000 | ||
| 2024 and thereafter | — | ||
| Total | $ | 2,847,002 | |
| 2023 | $ | 355,251 | |||
| 2024 | 10,251 | ||||
| 2025 | 310,000 | ||||
| 2026 | 1,059,893 | ||||
| 2027 | 419,856 | ||||
| Thereafter | 350,000 | ||||
| Total | $ | 2,505,251 | |||
The Company believesdetermined that it was in compliance with the covenants of its financing arrangements as of December 31, 2019.2022.
North American Revolving Credit and Term Loan
58
PRA Group, Inc.
Notes to Consolidated Financial Statements
•the ERC of domestic or Canadian, as applicable, insolvency eligible asset pools, plus 75% of domestic or Canadian, as applicable, eligible accounts receivable;
•the Company's consolidated senior secured leverage ratio cannot exceed 2.25 to 1.0 as of the end of any fiscal quarter;
•subject to no default or event of default, cash dividends and distributions during any fiscal year cannot exceed $20.0 million; and
•the Company must maintain positive consolidated income from operations during any fiscal quarter; and
The outstanding balances and weighted average interest rates by type of borrowing under the credit facility as of the dates indicated areDecember 31, 2022 and 2021 were as follows (dollar amounts in thousands):
| 2022 | 2021 | ||||||||||||||||||||||
| Amount Outstanding | Weighted Average Interest Rate | Amount Outstanding | Weighted Average Interest Rate | ||||||||||||||||||||
| Term loan | $ | 450,000 | 6.38 | % | $ | 460,000 | 2.10 | % | |||||||||||||||
| Revolving credit facilities | 186,365 | 6.33 | 371,220 | 2.14 | |||||||||||||||||||
| December 31, 2019 | December 31, 2018 | ||||||||||||
| Amount Outstanding | Weighted Average Interest Rate | Amount Outstanding | Weighted Average Interest Rate | ||||||||||
| Term loan | $ | 425,000 | 4.30 | % | $ | 435,000 | 5.02 | % | |||||
| Revolving credit facilities | 768,800 | 4.31 | % | 598,279 | 4.97 | % | |||||||
On April 1, 2022, PRA Group Europe Holding I S.a r.l ("PRA Group Europe"), a wholly owned subsidiary of the Company, entered into a credit agreement (the "UK Credit Agreement") with PRA Group UK Limited ("PRA UK") and the Company, as guarantors, the lenders party thereto and MUFG Bank, Ltd., London Branch, as the administrative agent (the "Administrative Agent").
The UK Credit Agreement is secured by substantially all of the assets of PRA UK, all of the equity interests in PRA UK and PRA Group Europe, certain bank accounts of PRA Group Europe and certain intercompany loans extended by PRA Group Europe to PRA UK. The UK Credit Agreement contains events of default and restrictive covenants, including the following:
•the borrowing base equals the sum of up to: (i) 35% of the ERC of PRA UK’s eligible asset pools; plus (ii) 55% of PRA UK’s Insolvency eligible asset pools; minus (iii) certain reserves to be established by the Administrative Agent;
•the Company's consolidated leverage ratio not to exceed 3.50 to 1.0 as of the end of any fiscal quarter;
•the Company's consolidated senior secured leverage ratio cannot exceed 2.25 to 1.0 as of the end of any fiscal quarter; and
•the Company must maintain positive consolidated income from operations during any fiscal quarter.
59
PRA Group, Inc.
Notes to Consolidated Financial Statements
The outstanding balance and weighted average interest rate by type of borrowing under the UK Credit Agreement as of December 31, 2022 were as follows (dollar amounts in thousands):
| 2022 | |||||||||||
| Amount Outstanding | Weighted Average Interest Rate | ||||||||||
| Revolving credit facility | $ | 453,528 | 5.54 | % | |||||||
European Revolving Credit Facility
On OctoberNovember 23, 2014, European subsidiaries2022, the Company's wholly-owned subsidiary, PRA Group Europe Holding S.a r.l. ("PRA Group Europe Holding"), and its Swiss Branch, PRA Group Europe Holding S.à r.l. ("PRA Group Holding"), Luxembourg, Zug Branch (together, the "Borrowers"), along with certain of its affiliates and the Company, ("PRA Europe") entered into aas guarantors, replaced the prior $750.0 million multicurrency revolving credit agreement (the "Prior Facility Agreement") with a €730.0 million revolving credit facility (the "European Credit Agreement") with the lenders party thereto and DNB Bank ASA for a Multicurrency Revolving Credit Facility (such agreement as later amended or modified, the "European Credit Agreement"facility agent and security agent (the "Agent"). In the first quarter of 2019, the Company entered into the Fifth Amendment and Restatement Agreement to its
The European Credit Agreement which, among other things, merged the term loan facility with the revolving credit facility and increased all applicable marginsprovides borrowings for the interest payable under the multicurrency revolving credit facility by 5 basis points.
The European Credit Agreement is secured by the shares of mosta first perfected security interest in all of the Company's Europeanequity interests in certain operating subsidiaries and allof the Borrowers, certain intercompany loans receivable in Europe.and certain shareholder loans extended by the Company to the Borrowers. Further, the Company guarantees all obligations and liabilities under the European Credit Facility. The European Credit Agreement contains event of default and restrictive covenants and events of default including the following:
•the LTVERC Ratio cannot exceed 75%45%;
•the gross interest-bearing debtCompany's consolidated total leverage ratio in Europe cannotnot to exceed 3.253.50 to 1.0 as of the end of any fiscal quarter;
•the Company's consolidated senior secured leverage ratio not to exceed 2.25 to 1.0 as of the end of any fiscal quarter;
•the Company must maintain positive consolidated income from operations at the end of any fiscal quarter;
•interest bearing deposits in AK Nordic AB cannot exceed SEK 1.2 billion; and
•PRA Europe's cash collections must meet certain thresholds, measured on a quarterly basis.
The outstanding balances and weighted average interest rates by type of borrowing under the European Credit Agreement and the Prior Facility Credit Agreement as the dates indicated areof December 31, 2022 and 2021, respectively, were as follows (dollar amounts in thousands):
| December 31, 2019 | December 31, 2018 | ||||||||||||
| Amount Outstanding | Weighted Average Interest Rate | Amount Outstanding | Weighted Average Interest Rate | ||||||||||
| Term loan | $ | — | — | % | $ | 305,551 | 3.75 | % | |||||
| Revolving credit facility | 1,017,465 | 4.31 | % | 561,882 | 4.10 | % | |||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Amount Outstanding | Weighted Average Interest Rate | Amount Outstanding | Weighted Average Interest Rate | ||||||||||||||||||||
| Revolving credit facilities | $ | 419,856 | 5.94 | % | $ | 795,687 | 3.48 | % | |||||||||||||||
On September 17, 2019, PRA Group Colombia Holding SAS ("PRA Colombia"), entered into a credit agreement with Bancolombia in an aggregate amount of approximately $6.0 million. As of December 31, 2019, the outstanding balance under the credit agreement was approximately $3.2 million, with a weighted average interest rate of 7.13%. The outstanding balance accrues interest at the Indicador Bancario de Referencia rate ("IBR") plus a weighted average spread of 2.74%, is payable quarterly in arrears, amortizes quarterly, and matures on October 17, 2022 (per the credit agreement, maturity represents three years from the last draw). This credit facility is fully collateralized using time deposits with Bancolombia which are subject to certain limitations regarding withdrawal and usage and are included within other assets on the consolidated balance sheet. As of December 31, 2019, the unused portion of the Colombia Credit Agreement was $2.8 million.
60
PRA Group, Inc.
Notes to Consolidated Financial Statements
Agreement, subject to certain exceptions. Interest on the 2020 Notes is payable semi-annually, in arrears, on FebruaryOctober 1 and AugustApril 1 of each year.
On or after October 1, 2024, the Notes may be redeemed, at the Company's option in whole or in part at a price equal to 102.50% of the aggregate principal amount of the 2029 Notes being redeemed. The applicable redemption price changes if redeemed during the 12-months beginning October 1 of each year beginningto 101.25% for 2025 and then 100% for 2026 and thereafter.
In addition, on Februaryor before October 1, 2014. Prior2024, the Company may redeem up to February 1, 2020,40% of the 2020aggregate principal amount of the 2029 Notes will be convertible only uponat a redemption price of 105.00% plus accrued and unpaid interest, subject to the rights of holders of the 2029 Notes, with the net cash proceeds of a public offering of common stock of the Company, provided, that at least 60% in aggregate principal amount of the 2029 Notes remains outstanding immediately after the occurrence of specified events. Assuch redemption and that such redemption will occur within 90 days of December 31, 2019, the date of the Company did notclosing of such public offering.
In the event of a change of control, each holder will have the right to redeem the 2020 Notes andrequire the Company did not believe thatto repurchase all or any part of the conditions allowing holderssuch holder's 2029 Notes at an offer price equal to 101% of the 2020 Notes to convert their notes had occurred. All conversions occurring on or after February 1, 2020, shall be settled using the Settlement Method as defined in the indenture.
Senior Notes due 2025
On August 27, 2020, the Company completed the private offering of $300.0 million in aggregate principal amount of its 7.375% Senior Notes due September 1, 2025 (the "2025 Notes" and together with the 2029 Notes, the "Senior Notes"). The 2025 Notes were issued pursuant to an Indenture dated August 27, 2020 (the "2020 Indenture"), between the Company and Regions Bank, as a trustee. The 2020 Indenture contains customary terms and covenants, including certain events of default after which the 2025 Notes may be due and payable immediately. The 2025 Notes are senior unsecured obligations of the Company and are guaranteed on a senior unsecured basis by all of the Company's common stockexisting and future domestic restricted subsidiaries that guarantee the North American Credit Agreement, subject to certain exceptions. Interest on the 2025 Notes is payable semi-annually, in arrears, on September 1 and March 1 of each year.
The 2025 Notes may be redeemed, in whole or in part, at a combination of cash and sharesprice equal to 103.688% of the Company's common stock, at the Company's election, for the remainder). As a result, and in accordance with authoritative guidance related to derivatives and hedging and earnings per share, only the conversion spread is included in the diluted earnings per share calculation, if dilutive. Under such method, the settlementaggregate principal amount of the conversion spread has2025 Notes being redeemed. The applicable redemption price changes if redeemed during the 12-months beginning September 1 of each year to 101.844% for 2023 and then 100% for 2024 and thereafter.
In the event of a dilutive effect whenchange of control, the average share priceCompany must offer to repurchase all of the Company's common stock during any quarter exceeds $65.72.
Convertible Senior Notes due 2023
On May 26, 2017, the Company completed the private offering of $345.0 million in aggregate principal amount of its 3.50% Convertible Senior Notes due June 1, 2023 (the "2023 Notes" and, together with the 2020 Notes, the "Notes").2023. The 2023 Notes were issued pursuant to an Indenture, dated May 26, 2017 (the "2017 Indenture"), between the Company and Regions Bank, as trustee. The 2017 Indenture contains customary terms and covenants, including certain events of default after which the 2023 Notes may be due and payable immediately. The 2023 Notes are senior unsecured obligations of the Company. Interest on the
2023 Notes is payable semi-annually, in arrears, on June 1 and December 1 of each year, beginningyear.
The holders of the 2023 Notes have the right to convert all, or a portion of, the 2023 Notes upon occurrence of specific events prior to the close of business on December 1, 2017. Prior tothe business day immediately preceding March 1, 2023, including:
•if during any calendar quarter, the last reported sales price of the Company's common stock is greater than 130% of the conversion price for at least 20 trading days during the period of 30 consecutive trading days;
•if the trading price of the 2023 Notes will be convertible only uponis less than 98% of the occurrenceproduct of specified events. the last reported sales price of the Company's common stock and the conversion rate for a 10 consecutive trading day period;
•the Company elects to issue to all, or substantially all, holders of its common stock any rights, options or warrants entitling them, for a period of more than 45 calendar days, to subscribe for or purchase shares at a price per share that is less than the average of the last reported sales price for the 10 consecutive trading day-period ending on the trading day immediately preceding the date of announcement of such issuance;
61
PRA Group, Inc.
Notes to Consolidated Financial Statements
•the Company elects to distribute to all, or substantially all, holders of its common stock the Company’s assets, debt securities or rights to purchase securities of the Company, which distribution has a share value exceeding 10% of the last reported sale price on the trading day preceding the announcement of such distribution; or
•a transaction occurs that constitutes a fundamental change (as defined in the 2017 Indenture) or, the Company is party to a consolidation, merger, binding share exchange, or transfer or lease of all, or substantially all, of the Company’s assets.
On or after March 1, 2023, the 2023 Notes will be convertible at any time. TheAs of December 31, 2022, the Company does not believe that any of the conditions allowing holders of the 2023 Notes to convert their notes has occurred.
Furthermore, the Company has the right, at its election, to redeem all or any part of the outstanding 2023 Notes at any time on or after June 1, 2021 for cash, but only if the last reported sale price (as defined in the 2017 Indenture) of the Company's common stock exceeds 130% of the conversion price on each of at least 20 trading days during the 30 consecutive trading days ending on and including the trading day immediately before the date the Company sends the related redemption notice. As of December 31, 2019, the Company does not believe that any of the conditions allowing holders of the 2023 Notes to convert their notes had occurred.
The conversion rate for the 2023 Notes is initially 21.6275 shares per $1,000 principal amount of 2023 Notes, which is equivalent to an initial conversion price of approximately $46.24 per share of the Company's common stock and is subject to adjustment in certain circumstances pursuant to the 2017 Indenture. Upon conversion, holders of the 2023 Notes will receive cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's election. The Company's intent isCompany has made an irrevocable election to settle conversions through combination settlement (i.e., by paying holders of the 2023 Notes would be convertedinto cash up to the aggregate principal amount of the 2023 Notes and shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's election, for the remainder). As a result, and inremaining amounts owed, if any.
In accordance with authoritative guidance related to derivatives and hedging and earnings per share,EPS, only the conversion spread is included in the diluted earnings per shareEPS calculation, if dilutive. Under such method, the settlement of the conversion spread has a dilutive effect when the average share price of the Company's common stock during any quarter exceeds $46.24.market conversion criteria is met.
The Company determined that the fair value of the 2023 Notes at the date of issuance was approximately $298.8 million and designated the residual value of approximately $46.2 million as the equity component. Additionally, the Company allocated approximately $8.3 million of the $9.6 million issuance cost as debt issuance cost and the remaining $1.3 million as an equity issuance cost.
The balances of the liability and equity componentscomponent of the Company's Convertible Notes outstanding as of December 31, 2022 and 2021 were as follows as of the dates indicated (amounts in thousands):
| December 31, 2019 | December 31, 2018 | 2022 | 2021 | |||||||||||||||
| Liability component - principal amount | $ | 632,500 | $ | 632,500 | Liability component - principal amount | $ | 345,000 | $ | 345,000 | |||||||||
| Unamortized debt discount | (31,414 | ) | (43,812 | ) | ||||||||||||||
| Unamortized debt issuance costs | Unamortized debt issuance costs | (748) | (2,476) | |||||||||||||||
| Liability component - net carrying amount | $ | 601,086 | $ | 588,688 | Liability component - net carrying amount | $ | 344,252 | $ | 342,524 | |||||||||
| Equity component | $ | 76,216 | $ | 76,216 | ||||||||||||||
The Company amortizes debt discount is being amortized into interest expenseissuance costs over the remaining life of the 2020 Notes and the 2023 Notesdebt using thean effective interest rate which is 4.92% and 6.20%, respectively.of 4.00%.
Interest expense related to the Company's Convertible Notes was as follows for the years ended December 31, 2019, 20182022, 2021 and 20172020 was as follows (amounts in thousands):
| 2022 | 2021 | 2020 (1) | |||||||||||||||
| Interest expense - stated coupon rate | $ | 12,075 | $ | 12,075 | $ | 17,064 | |||||||||||
| Interest expense - amortization of debt discount | — | — | 10,811 | ||||||||||||||
| Interest expense - amortization of debt issuance costs | 1,727 | 1,660 | 1,989 | ||||||||||||||
| Total interest expense - Convertible Notes | $ | 13,802 | $ | 13,735 | $ | 29,864 | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Interest expense - stated coupon rate | $ | 20,700 | $ | 20,700 | $ | 15,870 | |||||
| Interest expense - amortization of debt discount | 12,398 | 11,725 | 8,583 | ||||||||
| Total interest expense - convertible senior notes | $ | 33,098 | $ | 32,425 | $ | 24,453 | |||||
62
PRA Group, Inc.
Notes to Consolidated Financial Statements
Interest Expense, Netnet
The Company incurs interest expense on its borrowings, interest-bearing deposits, and interest rate derivative agreements. The Company earns interest income on certain of its cash and cash equivalents, restricted cash and its interest rate derivative agreements. Interest expense, net, was as follows for the years ended December 31, 2019, 20182022, 2021 and 20172020 (amounts in thousands):
| 2019 | 2018 | 2017 | |||||||||
| Interest expense | $ | 144,165 | $ | 124,208 | $ | 103,653 | |||||
| Interest (income) | (2,247 | ) | (3,130 | ) | (5,612 | ) | |||||
| Interest expense, net | $ | 141,918 | $ | 121,078 | $ | 98,041 | |||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Interest expense | $ | 132,905 | $ | 125,231 | $ | 142,727 | |||||||||||
| Interest income | (2,228) | (1,088) | (1,015) | ||||||||||||||
| Interest expense, net | $ | 130,677 | $ | 124,143 | $ | 141,712 | |||||||||||
7. Property and Equipment, net:
Property and equipment, at cost, consisted of the following as of December 31, 20192022 and 20182021 (amounts in thousands):
| 2019 | 2018 | ||||||
| Software | $ | 62,758 | $ | 64,670 | |||
| Computer equipment | 20,847 | 22,153 | |||||
| Furniture and fixtures | 16,324 | 16,061 | |||||
| Equipment | 13,869 | 12,390 | |||||
| Leasehold improvements | 16,709 | 16,556 | |||||
| Building and improvements | 7,900 | 7,431 | |||||
| Land | 1,296 | 1,296 | |||||
| Accumulated depreciation and amortization | (93,207 | ) | (92,877 | ) | |||
| Assets in process | 10,005 | 6,456 | |||||
| Property and equipment, net | $ | 56,501 | $ | 54,136 | |||
| 2022 | 2021 | ||||||||||
| Software | $ | 71,775 | $ | 69,549 | |||||||
| Computer equipment | 24,685 | 25,457 | |||||||||
| Furniture and fixtures | 17,751 | 20,034 | |||||||||
| Equipment | 15,819 | 15,297 | |||||||||
| Leasehold improvements | 22,486 | 17,606 | |||||||||
| Building and improvements | 19,931 | 19,456 | |||||||||
| Land | 1,407 | 1,407 | |||||||||
| Accumulated depreciation | (123,141) | (117,420) | |||||||||
| Assets in process | 932 | 3,127 | |||||||||
| Property and equipment, net | $ | 51,645 | $ | 54,513 | |||||||
Depreciation and amortization expense relating to property and equipment for the years ended December 31, 2019, 20182022, 2021 and 20172020 was $15.9$14.9 million, $15.1 million and $15.4$15.6 million, respectively.
8. Fair Value:
As defined by ASC Topic 820, "Fair Value Measurement and Disclosures" ("ASC 820"), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also requires the consideration of differing levels of inputs in the determination of fair values.
Those levels of input are summarized as follows:
•Level 1: Quoted prices in active markets for identical assets and liabilities.
•Level 2: Observable inputs other than Level 1 quoted prices, such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
•Level 3: Unobservable inputs that are supported by little or no market activity. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques as well as instruments for which the determination of fair value requires significant management judgment or estimation.
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
Financial Instruments Not Required To Be Carried at Fair Value
In accordance with the disclosure requirements of ASC Topic 825, "Financial Instruments" ("ASC 825"), the table below summarizes fair value estimates for the Company's financial instruments that are not required to be carried at fair value. The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company.
PRA Group, Inc.
Notes to Consolidated Financial Statements
The carrying amounts in the table arewere recorded in the consolidated balance sheetsConsolidated Balance Sheets at December 31, 20192022 and December 31, 20182021 (amounts in thousands):
| December 31, 2019 | December 31, 2018 | ||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||
| Financial assets: | |||||||||||||
| Cash and cash equivalents | 119,774 | 119,774 | $ | 98,695 | $ | 98,695 | |||||||
| Finance receivables, net | 3,514,165 | 3,645,610 | 3,084,777 | 3,410,475 | |||||||||
| Financial liabilities: | |||||||||||||
| Interest-bearing deposits | 106,246 | 106,246 | 82,666 | 82,666 | |||||||||
| Revolving lines of credit | 1,789,502 | 1,789,502 | 1,160,161 | 1,160,161 | |||||||||
| Term loans | 425,000 | 425,000 | 740,551 | 740,551 | |||||||||
| Convertible senior notes | 601,086 | 648,968 | 588,688 | 557,122 | |||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 83,376 | $ | 83,376 | $ | 87,584 | $ | 87,584 | |||||||||||||||
| Finance receivables, net | 3,295,008 | 3,167,813 | 3,428,285 | 3,317,658 | |||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||
| Interest-bearing deposits | 112,992 | 112,992 | 124,623 | 124,623 | |||||||||||||||||||
| Revolving lines of credit | 1,060,251 | 1,060,251 | 1,167,806 | 1,167,806 | |||||||||||||||||||
| Term loan | 450,000 | 450,000 | 460,000 | 460,000 | |||||||||||||||||||
| Senior Notes | 650,000 | 580,433 | 650,000 | 673,366 | |||||||||||||||||||
| Convertible Notes | 345,000 | 341,926 | 345,000 | 406,607 | |||||||||||||||||||
Disclosure of the estimated fair values of financial instruments often requires the use of estimates. The carrying amount and estimates of the fair value of the Company's debt obligations outlined above do not include any related debt issuance costs associated with the debt obligations. The Company uses the following methods and assumptions to estimate the fair value of financial instruments:
Cash and cash equivalents: The carrying amount approximates fair value and quoted prices for identical assets in active markets. Accordingly, the Company estimates the fair value of cash and cash equivalents using Level 1 inputs.
Finance receivables, net: The Company estimates the fair value of these receivables using proprietary pricing models that the Company utilizes to make portfolio acquisition decisions. Accordingly, the Company's fair value estimates use Level 3 inputs as there is little observable market data available and management is required to use significant judgment in its estimates.
Interest-bearing deposits: The carrying amount approximates fair value due to the short-term nature of the deposits and the observable quoted prices for similar instruments in active markets. Accordingly, the Company uses Level 2 inputs for its fair value estimates.
Revolving lines of credit: The carrying amount approximates fair value due to the short-term nature of the interest rate periods and the observable quoted prices for similar instruments in active markets. Accordingly, the Company uses Level 2 inputs for its fair value estimates.
Term loans:loan: The carrying amount approximates fair value due to the short-term nature of the interest rate periods and the observable quoted prices for similar instruments in active markets. Accordingly, the Company uses Level 2 inputs for its fair value estimates.
Senior Notes and Convertible senior notes:Notes: The fair value estimates for the Senior Notes and Convertible Notes incorporate quoted market prices whichthat were obtained from secondary market broker quotes whichthat were derived from a variety of inputs including client orders, information from their pricing vendors, modeling software, and actual trading prices when they occur. Accordingly, the Company uses Level 2 inputs for its fair value estimates. Furthermore, in the table above, carrying amount represents the portion of the Notes classified as debt, while estimated fair value pertains to the face amount of the Notes.
64
PRA Group, Inc.
Notes to Consolidated Financial Statements
Financial Instruments Required To Be Carried At Fair Value
The carrying amounts in the following table are measured at fair value on a recurring basis in the accompanying consolidated balance sheetsConsolidated Balance Sheets at December 31, 20192022 and 20182021 (amounts in thousands):
| Fair Value Measurements as of December 31, 2019 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: | |||||||||||||||
| Available-for-sale investments | |||||||||||||||
| Government bonds | $ | 5,052 | $ | — | $ | — | $ | 5,052 | |||||||
| Fair value through net income investments | |||||||||||||||
| Mutual funds | 33,677 | — | — | 33,677 | |||||||||||
| Derivative contracts (recorded in other assets) | — | 875 | — | 875 | |||||||||||
| Liabilities: | |||||||||||||||
| Derivative contracts (recorded in other liabilities) | — | 23,663 | — | 23,663 | |||||||||||
| Fair Value Measurements as of December 31, 2018 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: | |||||||||||||||
| Available-for-sale investments | |||||||||||||||
| Government bonds | $ | 5,077 | $ | — | $ | — | $ | 5,077 | |||||||
| Fair value through net income investments | |||||||||||||||
| Mutual funds | $ | 21,753 | $ | — | $ | — | $ | 21,753 | |||||||
| Derivative contracts (recorded in other assets) | — | 3,334 | — | 3,334 | |||||||||||
| Fair Value Measurements as of December 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Government securities | $ | 66,813 | $ | — | $ | — | $ | 66,813 | |||||||||||||||
| Derivative contracts (recorded in Other assets) | — | 37,792 | — | 37,792 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivative contracts (recorded in Other liabilities) | — | 19,120 | — | 19,120 | |||||||||||||||||||
| Fair Value Measurements as of December 31, 2021 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Government securities | $ | 77,538 | $ | — | $ | — | $ | 77,538 | |||||||||||||||
| Exchange traded funds | 1,746 | — | — | 1,746 | |||||||||||||||||||
| Mutual funds | 508 | — | — | 508 | |||||||||||||||||||
| Derivative contracts (recorded in Other assets) | — | 9,785 | — | 9,785 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivative contracts (recorded in Other liabilities) | — | 25,978 | — | 25,978 | |||||||||||||||||||
Government bonds:securities: Fair value of the Company's investment in government bondsinstruments is estimated using quoted market prices. Accordingly, the Company uses Level 1 inputs.
Exchange traded funds: Fair value through net income investmentsof the Company's investment in exchange traded funds was estimated using quoted market prices. Accordingly, the Company uses Level 1 inputs.
Mutual funds: Fair value of the Company's investment in mutual funds iswas estimated using quoted market prices. Accordingly, the Company uses Level 1 inputs.
Derivative contracts: The estimated fair value of the derivative contracts is determined using industry standard valuation models. These models project future cash flows and discount the future amounts to a present value using market-based observable inputs, including interest rate curves and other factors. Accordingly, the Company uses Level 2 inputs for its fair value estimates. Effective in the second quarter of 2018, the Company began to apply hedge accounting to certain of its derivative contracts. By applying hedge accounting, changes in market value are reflected as adjustments in other comprehensive income. The hedges were evaluated and remained highly effective at December 31, 2019 and have initial terms of two to seven years.
Investments measured using net asset value ("NAV")
Private equity funds: This class of investments consists of private equity funds that invest primarily in loans and securities including single-family residential debt; corporate debt products; and financially-oriented, real estate-rich and other operating companies in the Americas, Western Europe, and Japan. These investments are subject to certain restrictions regarding transfers and withdrawals. The investments cannot be redeemed with the funds. Instead, the nature of the investments in this class is that distributions are received through the liquidation of the underlying assets of the fund. The investments are expected to be returned through distributions as a result of liquidations of the funds' underlying assets over one to sixfive years. The fair value of these private equity funds following the application of the NAV practical expedient was $7.2$4.4 million and $8.0and $5.1 million as of December 31, 20192022 and December 31, 2018,2021, respectively.
65
PRA Group, Inc.
Notes to Consolidated Financial Statements
9. Derivatives:
The following table summarizes the fair value of derivative instruments in the consolidated balance sheetsCompany's Consolidated Balance Sheets as of December 31, 2022 and 2021 (amounts in thousands):
| December 31, 2019 | December 31, 2018 | |||||||||||
| Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||
| Derivatives designated as hedging instruments: | ||||||||||||
| Interest rate contracts | Other assets | $ | 323 | Other assets | $ | 44 | ||||||
| Interest rate contracts | Other liabilities | 17,807 | Other liabilities | — | ||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||
| Foreign currency contracts | Other assets | 552 | Other assets | 2,555 | ||||||||
| Foreign currency contracts | Other liabilities | 5,856 | Other liabilities | — | ||||||||
| Interest rate contracts | Other assets | — | Other assets | 735 | ||||||||
| 2022 | 2021 | |||||||||||||||||||||||||
| Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||||||||||||||||
| Derivatives designated as hedging instruments: | ||||||||||||||||||||||||||
| Interest rate contracts | Other assets | $ | 37,305 | Other assets | $ | 6,251 | ||||||||||||||||||||
| Interest rate contracts | Other liabilities | — | Other liabilities | 14,879 | ||||||||||||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||||||||||||||||
| Foreign currency contracts | Other assets | 487 | Other assets | 3,534 | ||||||||||||||||||||||
| Foreign currency contracts | Other liabilities | 19,120 | Other liabilities | 11,099 | ||||||||||||||||||||||
Derivatives designatedDesignated as hedging instruments:Hedging Instruments:
Changes in the fair value of derivative contracts designated as cash flow hedging instruments are recognized in other comprehensive income ("OCI").OCI. As of December 31, 20192022 and December 31, 2018,2021, the notional amount of interest rate contracts designated as cash flow hedging instruments was $959.0$719.7 million and $260.8$869.1 million, respectively. Derivatives designated as cash flow hedging instruments were evaluated and remained highly effective at December 31, 20192022 and have initialinitial terms of twoone to seventhree years. The Company estimates that approximately $3.4approximately $14.9 million of net derivative loss includedgain included in OCI will be reclassified into earnings within the next 12 months.
The following table summarizestables summarize the effects of derivatives designated as cash flow hedging instruments on the consolidated financial statementsConsolidated Financial Statements for the years ended December 31, 2019, 20182022, 2021 and 20172020 (amounts in thousands):
| Gain or (loss) recognized in OCI, net of tax | ||||||||||||
| Derivatives designated as cash flow hedging instruments | 2019 | 2018 | 2017 | |||||||||
| Interest rate contracts | $ | (14,311 | ) | $ | 44 | $ | — | |||||
| Gain or (loss) reclassified from OCI into income | ||||||||||||
| Location of gain or (loss) reclassified from OCI into income | 2019 | 2018 | 2017 | |||||||||
| Interest expense, net | $ | (1,457 | ) | $ | — | $ | — | |||||
| Gain or (loss) recognized in OCI, net of tax | |||||||||||||||||||||||||||||||||||
| Derivatives designated as cash flow hedging instruments | 2022 | 2021 | 2020 | ||||||||||||||||||||||||||||||||
| Interest rate contracts | $ | 32,650 | $ | 17,961 | $ | (28,101) | |||||||||||||||||||||||||||||
| Gain or (loss) reclassified from OCI into income | |||||||||||||||||||||||||||||||||||
| Location of gain or (loss) reclassified from OCI into income | 2022 | 2021 | 2020 | ||||||||||||||||||||||||||||||||
| Interest expense, net | $ | (976) | $ | (12,722) | $ | (10,027) | |||||||||||||||||||||||||||||
Derivatives not designatedNot Designated as hedging instruments:Hedging Instruments:
The following table summarizes the effects of derivatives not designated as hedging instruments on the Company’s consolidated income statementsConsolidated Income Statements for the years ended December 31, 2019, 20182022, 2021 and 20172020 (amounts in thousands):
| Amount of gain or (loss) recognized in income | ||||||||||||||||||||||||||
| Derivatives not designated as hedging instruments | Location of gain or (loss) recognized in income | 2022 | 2021 | 2020 | ||||||||||||||||||||||
| Foreign currency contracts | Foreign exchange gain/(loss), net | $ | 38,808 | $ | 12,160 | $ | 24,009 | |||||||||||||||||||
| Foreign currency contracts | Interest expense, net | (364) | 406 | (2,475) | ||||||||||||||||||||||
| Amount of gain or (loss) recognized in income | ||||||||||||||
| Derivatives not designated as hedging instruments | Location of gain or (loss) recognized in income | 2019 | 2018 | 2017 | ||||||||||
| Foreign currency contracts | Foreign exchange gain/(loss) | $ | (7,008 | ) | $ | 4,011 | $ | — | ||||||
| Foreign currency contracts | Interest expense, net | (3,875 | ) | (549 | ) | — | ||||||||
| Interest rate contracts | Interest expense, net | (492 | ) | 2,082 | — | |||||||||
66
PRA Group, Inc.
Notes to Consolidated Financial Statements
10. Accumulated Other Comprehensive Loss:
| Gains and (losses) on cash flow hedges | 2022 | 2021 | Affected line in the Consolidated Income Statements | |||||||||||||||||||||||
| Interest rate swaps | $ | (976) | $ | (12,722) | Interest expense, net | |||||||||||||||||||||
| Income tax effect of item above | 451 | 2,705 | Income tax expense | |||||||||||||||||||||||
| Total losses on cash flow hedges | $ | (525) | $ | (10,017) | ||||||||||||||||||||||
| Gains and losses on cash flow hedges | 2019 | Affected line in the consolidated income statement | ||||
| Interest rate swaps | $ | (1,457 | ) | Interest expense, net | ||
| Income tax effect of item above | 278 | Income tax expense/(benefit) | ||||
| Total losses on cash flow hedges | $ | (1,179 | ) | Net of tax | ||
| Debt Securities | Currency Translation | Accumulated Other | |||||||||||||
| Available-for-Sale | Cash Flow Hedges | Adjustments | Comprehensive Loss (1) | ||||||||||||
| Ending balance December 31, 2016 | $ | — | $ | — | $ | (251,944 | ) | $ | (251,944 | ) | |||||
| Other comprehensive loss before reclassifications | — | — | 73,337 | 73,337 | |||||||||||
| Reclassifications, net | — | — | — | — | |||||||||||
| Net current period other comprehensive loss | — | — | 73,337 | 73,337 | |||||||||||
| Ending balance December 31, 2017 | $ | — | $ | — | $ | (178,607 | ) | $ | (178,607 | ) | |||||
| Reclassification of unrealized loss on debt securities | (22 | ) | — | — | (22 | ) | |||||||||
| Other comprehensive loss before reclassifications | (61 | ) | 44 | (63,463 | ) | (63,480 | ) | ||||||||
| Reclassifications, net | — | — | — | — | |||||||||||
| Net current period other comprehensive loss | (83 | ) | 44 | (63,463 | ) | (63,502 | ) | ||||||||
| Ending balance December 31, 2018 | $ | (83 | ) | $ | 44 | $ | (242,070 | ) | $ | (242,109 | ) | ||||
| Other comprehensive loss before reclassifications | 39 | (14,311 | ) | (5,816 | ) | (20,088 | ) | ||||||||
| Reclassifications, net | — | 1,179 | — | 1,179 | |||||||||||
| Net current period other comprehensive loss | 39 | (13,132 | ) | (5,816 | ) | (18,909 | ) | ||||||||
| Ending balance December 31, 2019 | $ | (44 | ) | $ | (13,088 | ) | $ | (247,886 | ) | $ | (261,018 | ) | |||
| Debt Securities Available for Sale | Cash Flow Hedges | Currency Translation Adjustment | Accumulated Other Comprehensive Loss 1 | ||||||||||||||||||||
| Balance at December 31, 2019 | $ | (44) | $ | (13,088) | $ | (247,886) | $ | (261,018) | |||||||||||||||
| Other comprehensive gain/(loss) before reclassifications | 171 | (28,101) | 35,317 | 7,387 | |||||||||||||||||||
| Reclassifications, net | — | 7,840 | — | 7,840 | |||||||||||||||||||
| Net current period other comprehensive gain/(loss) | 171 | (20,261) | 35,317 | 15,227 | |||||||||||||||||||
| Balance at December 31, 2020 | $ | 127 | $ | (33,349) | $ | (212,569) | $ | (245,791) | |||||||||||||||
| Other comprehensive (loss)/gain before reclassifications | (348) | 17,961 | (48,748) | (31,135) | |||||||||||||||||||
| Reclassifications, net | — | 10,017 | — | 10,017 | |||||||||||||||||||
| Net current period other comprehensive (loss)/gain | (348) | 27,978 | (48,748) | (21,118) | |||||||||||||||||||
| Balance at December 31, 2021 | $ | (221) | $ | (5,371) | $ | (261,317) | $ | (266,909) | |||||||||||||||
| Other comprehensive (loss)/gain before reclassifications | (16) | 32,650 | (114,176) | (81,542) | |||||||||||||||||||
| Reclassifications, net | — | 525 | — | 525 | |||||||||||||||||||
| Net current period other comprehensive (loss)/gain | (16) | 33,175 | (114,176) | (81,017) | |||||||||||||||||||
| Balance at December 31, 2022 | $ | (237) | $ | 27,804 | $ | (375,493) | $ | (347,926) | |||||||||||||||
11. Share-Based Compensation:Compensation:
The Company has ana stockholder approved Omnibus Incentive Plan (the "Plan") that is intended to assist the Company in attracting and retaining selected individuals to serve as employees and directors, who are expected to contribute to the Company's success and to achieve long-term objectives that will benefit stockholders of the Company. The Plan enables the Company to award shares of the Company's common stock to select employees and directors, not to exceed 5,400,0004,300,000 shares as authorized byless one share for every one share granted under the Plan.2013 Omnibus Incentive Plan after December 31, 2022.
Total share-based compensation expense was $10.7$13.0 million, $8.5$15.9 million and $8.7$14.4 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively. The Company recognizes all excess tax benefits and tax deficiencies in the income statement when the awards vest or are settled.settled. The total tax benefit realized from share-based compensation was approximately $1.2$6.0 million, $1.7$3.9 million and $3.2$2.4 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively.
Nonvested Shares
As of December 31, 2019,2022, total future compensation expense related to grants of nonvested share grants to employeesindividual employee plans and directors (not including nonvested shares granted under the Long-Term Incentive ("LTI") program)program discussed below), is estimated to be $8.6$14.4 million with a weighted average remaining life for all nonvestedlife of 1.5 years. For these shares, of 1.6 years. Grants made to key employees and directors of the Company were assumed to have no forfeiture rates, associated with them due to the historically low turnover among this group. With the exception of the grants made pursuant to the LTI program and a few employee and director grants, the nonvested shares vest ratably generallyratable vesting over one to three years and are expensedexpense recognition over their vesting period.
67
PRA Group, Inc.
Notes to Consolidated Financial Statements
The following summarizes all nonvested share activity, excluding those relatedpursuant to the LTI program, from December 31, 20162019 through December 31, 20192022 (amounts in thousands, except per share amounts):
| Nonvested Shares Outstanding | Weighted-Average Price at Grant Date | |||||
| December 31, 2016 | 303 | $ | 38.19 | |||
| Granted | 195 | 33.70 | ||||
| Vested | (173 | ) | 37.49 | |||
| Canceled | (27 | ) | 43.05 | |||
| December 31, 2017 | 298 | 35.25 | ||||
| Granted | 254 | 36.39 | ||||
| Vested | (151 | ) | 35.13 | |||
| Canceled | (22 | ) | 35.02 | |||
| December 31, 2018 | 379 | 34.85 | ||||
| Granted | 329 | 28.47 | ||||
| Vested | (167 | ) | 34.81 | |||
| Canceled | (9 | ) | 31.01 | |||
| December 31, 2019 | 532 | $ | 30.97 | |||
| Nonvested Shares Outstanding | Weighted-Average Price at Grant Date | ||||||||||
| Balance at December 31, 2019 | 532 | $ | 30.97 | ||||||||
| Granted | 256 | 38.69 | |||||||||
| Vested | (219) | 31.56 | |||||||||
| Canceled | (14) | 33.95 | |||||||||
| Balance at December 31, 2020 | 555 | 34.23 | |||||||||
| Granted | 312 | 38.14 | |||||||||
| Vested | (320) | 33.80 | |||||||||
| Canceled | (37) | 36.06 | |||||||||
| Balance at December 31, 2021 | 510 | 36.76 | |||||||||
| Granted | 351 | 41.64 | |||||||||
| Vested | (269) | 35.41 | |||||||||
| Canceled | (36) | 40.85 | |||||||||
| Balance at December 31, 2022 | 556 | $ | 40.23 | ||||||||
The total grant date fair value of shares vested, excluding those granted under the LTI program, during the years ended December 31, 2019, 20182022, 2021 and 2017,2020, was $5.8$9.5 million, $5.3$10.8 million and $6.5$6.9 million, respectively.
Long-Term Incentive Program
Pursuant to the Plan, the Compensation Committee may grant time-vested and performance-based nonvested shares. All shares granted under the LTI program were granted to key employees of the Company.
The following table summarizes all LTI share activity from December 31, 20162019 through December 31, 20192022 (amounts in thousands, except per share amounts):
| Nonvested LTI Shares Outstanding | Weighted-Average Price at Grant Date | |||||
| December 31, 2016 | 425 | $ | 39.57 | |||
| Granted at target level | 192 | 33.50 | ||||
| Adjustments for actual performance | 5 | 60.00 | ||||
| Vested | (51 | ) | 40.80 | |||
| Canceled | (99 | ) | 20.91 | |||
| December 31, 2017 | 472 | 41.06 | ||||
| Granted at target level | 121 | 39.40 | ||||
| Adjustments for actual performance | (74 | ) | 52.47 | |||
| Vested | (19 | ) | 52.47 | |||
| Canceled | (46 | ) | 32.31 | |||
| December 31, 2018 | 454 | 33.27 | ||||
| Granted at target level | 168 | 28.28 | ||||
| Adjustments for actual performance | (172 | ) | 28.98 | |||
| Vested | — | — | ||||
| Canceled | (3 | ) | 35.87 | |||
| December 31, 2019 | 447 | $ | 33.03 | |||
| Nonvested LTI Shares Outstanding | Weighted-Average Price at Grant Date | ||||||||||
| Balance at December 31, 2019 | 447 | $ | 33.03 | ||||||||
| Granted at target level | 118 | 39.04 | |||||||||
| Adjustments for actual performance | (131) | 34.44 | |||||||||
| Vested | (36) | 33.50 | |||||||||
| Canceled | (6) | 33.77 | |||||||||
| Balance at December 31, 2020 | 392 | 34.30 | |||||||||
| Granted at target level | 148 | 37.45 | |||||||||
| Adjustments for actual performance | (10) | 39.40 | |||||||||
| Vested | (99) | 39.40 | |||||||||
| Canceled | (24) | 35.31 | |||||||||
| Balance at December 31, 2021 | 407 | 34.01 | |||||||||
| Granted at target level | 127 | 44.90 | |||||||||
| Adjustments for actual performance | 64 | 28.28 | |||||||||
| Vested | (222) | 28.28 | |||||||||
| Canceled | (21) | 40.45 | |||||||||
| Balance at December 31, 2022 | 355 | $ | 40.07 | ||||||||
The total grant date fair value of LTI shares vested during the years ended December 31, 2019, 20182022, 2021 and 2017,2020, was $0.0$6.3 million, $1.0$3.9 million and $2.1$1.2 million, respectively.
68
PRA Group, Inc.
Notes to Consolidated Financial Statements
At December 31, 2019,2022, total future compensation expense, assuming the current estimated performance levels are achieved, related to nonvested shares granted under the LTI program is estimated to be approximately $4.5 $3.8 million. The Company assumed a 15.0%5.0% forfeiture rate for these grants and the remaining shares have a weighted average remaining life of 1.2 years atat December 31, 2019.2022.
12. Earnings per Share:
Basic earnings per share ("EPS")EPS are computed by dividing net income available to common stockholders of PRA Group, Inc. by weighted average common shares outstanding. Diluted EPS are computed using the same components as basic EPS with the denominator adjusted for the dilutive effect of the conversion spread of the Convertible Notes and nonvested share awards, if they are dilutive. There has been no dilutive effect of the Convertible Notes since issuance through December 31, 2019.2022. Share-based awards that are contingent upon the attainment of performance goals are included in the computation of diluted EPS if the effect is dilutive. The dilutive effect of nonvested shares is computed using the treasury stock method, which assumes any proceeds that could be obtained upon the vesting of nonvested shares would be used to purchase common shares at the average market price for the period.
On February 25, 2022, the Company completed its $230.0 million share repurchase program and the Board of Directors approved a new share repurchase program under which the Company is authorized to repurchase up to $150.0 million of its outstanding common stock. During the year ended December 31, 2022, the Company repurchased 2,331,364 shares of its common stock for approximately $99.4 million, at an average price of $42.63 per share. The Company's practice is to retire the shares it repurchases.
The following table provides a reconciliation between the computation of basic EPS and diluted EPS for the years ended December 31, 2019, 20182022, 2021 and 20172020 (amounts in thousands, except per share amounts):
| 2019 | 2018 | 2017 | ||||||||||||||||||||||||||||||
| Net Income Attributable to PRA Group, Inc. | Weighted Average Common Shares | EPS | Net Income Attributable to PRA Group, Inc. | Weighted Average Common Shares | EPS | Net Income Attributable to PRA Group, Inc. | Weighted Average Common Shares | EPS | ||||||||||||||||||||||||
| Basic EPS | $ | 86,158 | 45,387 | $ | 1.90 | $ | 65,563 | 45,280 | $ | 1.45 | $ | 164,315 | 45,671 | $ | 3.60 | |||||||||||||||||
| Dilutive effect of nonvested share awards | — | 190 | (0.01 | ) | — | 133 | (0.01 | ) | — | 152 | (0.01 | ) | ||||||||||||||||||||
| Diluted EPS | $ | 86,158 | 45,577 | $ | 1.89 | $ | 65,563 | 45,413 | $ | 1.44 | $ | 164,315 | 45,823 | $ | 3.59 | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income Attributable to PRA Group, Inc. | Weighted Average Common Shares | EPS | Net Income Attributable to PRA Group, Inc. | Weighted Average Common Shares | EPS | Net Income Attributable to PRA Group, Inc. | Weighted Average Common Shares | EPS | |||||||||||||||||||||||||||||||||||||||||||||
| Basic EPS | $ | 117,147 | 39,638 | $ | 2.96 | $ | 183,158 | 44,960 | $ | 4.07 | $ | 149,339 | 45,540 | $ | 3.28 | ||||||||||||||||||||||||||||||||||||||
| Dilutive effect of nonvested share awards | — | 250 | (0.02) | — | 370 | (0.03) | — | 320 | (0.02) | ||||||||||||||||||||||||||||||||||||||||||||
| Diluted EPS | $ | 117,147 | 39,888 | $ | 2.94 | $ | 183,158 | 45,330 | $ | 4.04 | $ | 149,339 | 45,860 | $ | 3.26 | ||||||||||||||||||||||||||||||||||||||
There were no antidilutive options outstanding, antidilutive or otherwise, as of December 31, 2019, 20182022, 2021 and 2017.2020.
13. Income Taxes:
The income tax expense/(benefit) recognized for the years ended December 31, 2019, 2018 and 2017 is comprised of the following (amounts in thousands):
| Federal | State | International | Total | ||||||||||||
| For the year ended December 31, 2019: | |||||||||||||||
| Current tax expense | $ | 41,391 | $ | 6,390 | $ | 9,460 | $ | 57,241 | |||||||
| Deferred tax (benefit) | (27,311 | ) | (6,030 | ) | (4,220 | ) | (37,561 | ) | |||||||
| Total income tax expense | $ | 14,080 | $ | 360 | $ | 5,240 | $ | 19,680 | |||||||
| For the year ended December 31, 2018: | |||||||||||||||
| Current tax expense | $ | 23,444 | $ | 9,026 | $ | 37,501 | $ | 69,971 | |||||||
| Deferred tax (benefit) | (19,527 | ) | (15,268 | ) | (21,413 | ) | (56,208 | ) | |||||||
| Total income tax expense/(benefit) | $ | 3,917 | $ | (6,242 | ) | $ | 16,088 | $ | 13,763 | ||||||
| For the year ended December 31, 2017: | |||||||||||||||
| Current tax expense | $ | 77,656 | $ | 16,543 | $ | 25,087 | $ | 119,286 | |||||||
| Deferred tax (benefit) | (112,118 | ) | (2,051 | ) | (15,969 | ) | (130,138 | ) | |||||||
| Total income tax (benefit)/expense | $ | (34,462 | ) | $ | 14,492 | $ | 9,118 | $ | (10,852 | ) | |||||
69
PRA Group, Inc.
Notes to Consolidated Financial Statements
| Federal | State | International | Total | ||||||||||||||||||||
| For the year ended December 31, 2022: | |||||||||||||||||||||||
| Current tax expense | $ | 8,797 | $ | 385 | $ | 26,998 | $ | 36,180 | |||||||||||||||
| Deferred tax (benefit)/expense | (2,848) | (386) | 3,841 | 607 | |||||||||||||||||||
| Total income tax expense | $ | 5,949 | $ | (1) | $ | 30,839 | $ | 36,787 | |||||||||||||||
| For the year ended December 31, 2021: | |||||||||||||||||||||||
| Current tax expense | $ | 30,659 | $ | 5,397 | $ | 11,958 | $ | 48,014 | |||||||||||||||
| Deferred tax benefit | (3,056) | (323) | 10,182 | 6,803 | |||||||||||||||||||
| Total income tax expense | $ | 27,603 | $ | 5,074 | $ | 22,140 | $ | 54,817 | |||||||||||||||
| For the year ended December 31, 2020: | |||||||||||||||||||||||
| Current tax expense | $ | 48,223 | $ | 12,416 | $ | 39,067 | $ | 99,706 | |||||||||||||||
| Deferred tax benefit | (32,699) | (8,921) | (16,883) | (58,503) | |||||||||||||||||||
| Total income tax expense | $ | 15,524 | $ | 3,495 | $ | 22,184 | $ | 41,203 | |||||||||||||||
A reconciliation of the Company's expected tax expense at the U.S. statutory federal tax rate to actual tax expense/(benefit) for the years ended December 31, 2019, 20182022, 2021 and 2017 is2020 was as follows (amounts in thousands):
| 2019 | 2018 | 2017 | |||||||||
| Income tax expense at statutory federal rates | $ | 24,645 | $ | 18,794 | $ | 56,095 | |||||
| State tax expense/(benefit), net of federal tax benefit | 161 | (5,098 | ) | 9,072 | |||||||
| Tax impact on international earnings | (7,326 | ) | 206 | (4,953 | ) | ||||||
| Federal rate change | — | (719 | ) | (73,779 | ) | ||||||
| Other | 2,200 | 580 | 2,713 | ||||||||
| Total income tax expense/(benefit) | $ | 19,680 | $ | 13,763 | $ | (10,852 | ) | ||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Income tax expense at statutory federal rates | $ | 32,505 | $ | 52,568 | $ | 43,878 | |||||||||||
| State tax expense, net of federal tax benefit | (18) | 4,303 | 2,449 | ||||||||||||||
| Tax impact on international earnings, excluding uncertain tax positions | 1,175 | (4,449) | (29,992) | ||||||||||||||
| Uncertain tax positions on international earnings | — | — | 23,917 | ||||||||||||||
| Nondeductible compensation | 3,025 | 2,212 | — | ||||||||||||||
| Other | 100 | 183 | 951 | ||||||||||||||
| Total income tax expense | $ | 36,787 | $ | 54,817 | $ | 41,203 | |||||||||||
The Company recognized a net deferred tax liabilityasset of $22.2$14.0 million and $53.5and $31.1 million as of December 31, 20192022 and 2018,2021, respectively. The components of the net deferred tax liability are as follows (amounts in thousands):
| As of December 31, | |||||||
| 2019 | 2018 | ||||||
| Deferred tax assets: | |||||||
| Employee compensation | $ | 6,085 | $ | 4,670 | |||
| Net operating loss carryforward | 93,068 | 24,210 | |||||
| Accrued liabilities | — | 1,850 | |||||
| Interest | 10,477 | 10,559 | |||||
| Finance receivable revenue recognition - international | 21,343 | 37,005 | |||||
| Right of use asset | 16,045 | — | |||||
| Other | 12,009 | 2,721 | |||||
| Valuation allowance | (80,739 | ) | (14,512 | ) | |||
| Total deferred tax asset | 78,288 | 66,503 | |||||
| Deferred tax liabilities: | |||||||
| Property and Equipment | (5,362 | ) | (5,556 | ) | |||
| Intangible assets and goodwill | (2,999 | ) | (5,435 | ) | |||
| Lease liability | (15,107 | ) | — | ||||
| Convertible debt | (7,843 | ) | (10,998 | ) | |||
| Finance receivable revenue recognition - IRS settlement | (36,959 | ) | (74,296 | ) | |||
| Finance receivable revenue recognition - domestic | (32,183 | ) | (23,744 | ) | |||
| Total deferred tax liability | (100,453 | ) | (120,029 | ) | |||
| Net deferred tax liability | $ | (22,165 | ) | $ | (53,526 | ) | |
A valuation allowance for deferred tax assets is recognized and charged to earnings in the period such determination is made, if it is determined that it is more likely than not that the deferred tax asset will not be realized. If the Company subsequently realizedrealizes deferred tax assets that were previously determined to be unrealizable, the respective valuation allowance would have to be reversed, resulting in a positive adjustment to earnings in the period such determination iswas made. The determination for a valuation allowance is made on a jurisdiction by jurisdictionjurisdiction-by-jurisdiction basis. The components of the net deferred tax were as follows (amounts in thousands):
70
PRA Group, Inc.
Notes to Consolidated Financial Statements
| 2022 | 2021 | ||||||||||
| Deferred tax assets: | |||||||||||
| Employee compensation | $ | 5,177 | $ | 8,609 | |||||||
| Net operating loss carryforward | 126,549 | 121,035 | |||||||||
| Interest | 11,042 | 10,160 | |||||||||
| Finance receivable revenue recognition - international | — | 2,351 | |||||||||
| Lease liability | 10,667 | 11,811 | |||||||||
| Other | — | 4,873 | |||||||||
| Valuation allowance | (68,929) | (75,375) | |||||||||
| Total deferred tax asset | 84,506 | 83,464 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Property and equipment | (4,178) | (5,075) | |||||||||
| Intangible assets and goodwill | (5,118) | (4,185) | |||||||||
| ROU asset | (9,731) | (10,884) | |||||||||
| Finance receivable revenue recognition - international | (12,074) | — | |||||||||
| Finance receivable revenue recognition - domestic | (27,181) | (32,189) | |||||||||
| Other | (12,234) | — | |||||||||
| Total deferred tax liability | (70,516) | (52,333) | |||||||||
| Net deferred tax asset | $ | 13,990 | $ | 31,131 | |||||||
At December 31, 20192022 and 2018,2021, the valuation allowance, relating mainly to net operating losses, capital losses and deferred interest expense in Norway, Poland, Luxembourg, Sweden and Luxembourg, Switzerland was $80.7$68.9 million and $14.5and $75.4 million, respectively. The increasedecrease in the valuation allowance is primarily duerelated to recordingthe recognition of net operating losses in Luxembourg that were interpreted to be restricted by law.Luxembourg. The Company believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the remaining net deferred tax assets.
As of December 31, 2019,2022, the cumulative unremitted earnings of the Company's international subsidiaries were approximately $52.3approximately $159.8 million. TheThe Company intends for predominantly all international earnings to be indefinitely reinvested in its international operations and, therefore, the recording of deferred tax liabilities for such unremitted earnings is not required. It is impracticable to determine the total amount of unrecognized deferred taxes with respect to these indefinitely reinvested earnings.
ASC 740 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Under ASC 740, an entity should recognize a financial statement benefit for a tax position if it determines that it is more likely than not that the position will be sustained upon examination.
The balance for unrecognized tax benefits (before tax effect) at December 31, 2022 and 2021, was $101.7 million and $114.3 million, respectively. The tax impact of the unrecognized tax benefits recorded in 2022 are included in the provision for income taxes. The following is a reconciliation of gross unrecognized tax benefits for the year ended December 31, 2022 and 2021 (amounts in thousands):
| 2022 | 2021 | ||||||||||
| Balance at beginning of year | $ | 114,294 | $ | 110,425 | |||||||
(Deductions)/additions, based on tax positions related to prior year (1) | (12,591) | 3,869 | |||||||||
| Balance at end of year | $ | 101,703 | $ | 114,294 | |||||||
(1) The 2022 deductions relate to international transactions, primarily due to foreign exchange rate fluctuations.
71
PRA Group, Inc.
Notes to Consolidated Financial Statements
14. Commitments and Contingencies:Contingencies:
Employment Agreements:
The Company has entered into employment agreements mostwith each of its U.S. executive officers, which expire on December 31, 2020, with all of its U.S. executive officers and with several members of its U.S. senior management group.2023. Such agreements provide for base salary payments as well as potential discretionary bonuses that take into considerationconsider the Company's overall performance against its short and long-term financial and strategic objectives. The agreements also contain confidentiality and non-compete provisions. As of December 31, 2019,2022, estimated future compensation under these agreements was approximately $8.0 $6.8 million. The agreements also contain confidentiality and non-compete provisions. Outside the U.S., the Company has entered into employment agreements are in place with certain employees pursuant to local country regulations. Generally, these agreements do not have expiration dates and thereforedates. As a result it is impractical to estimate the amount of future compensation under these agreements. Accordingly, the future compensation under these agreements is not included in the $8.0$6.8 million total above.
Forward Flow Agreements:
The Company is party to several forward flow agreements that allow for the purchase of nonperforming loans at pre-established prices. The maximum remaining amount to be purchased under forward flow agreements at December 31, 20192022 was approximately $506.9approximately $792.2 million.
Finance Receivables:
Certain agreements for the purchase of finance receivables portfolios contain provisions that may, in limited circumstances, require the Company to refund a portion or all of the collections subsequently received by the Company on particular accounts. The potential refunds as of the balance sheet date are not considered to be significant.
Litigation and Regulatory Matters:Matters:
The Company and its subsidiaries are from time to time subject to a variety of routine legal and regulatory claims, inquiries and proceedings and regulatory matters, most of which are incidental to the ordinary course of the Company'sits business. The Company initiates lawsuits against customers and is occasionally countersued by them in such actions. Also, customers, either individually, as members of a class action, or through a governmental entity on behalf of customers, may initiate litigation against the Company in which they allege that the Company has violated a state or federal law in the process of collecting on an account. From time to time, other types of lawsuits are brought against the Company. Additionally, the Company receives subpoenas and other requests or demands for information from regulators or governmental authorities who are investigating the Company's debt collection activities.
The Company accrues for potential liability arising from legal proceedings and regulatory matters when it is probable that such liability has been incurred and the amount of the loss can be reasonably estimated. This determination is based upon currently available information for those proceedings in which the Company is involved, taking into account the Company's best estimate of such losses for those cases for which such estimates can be made. The Company's estimate involves significant judgment, given the varying stages of the proceedings (including the fact that many of them are currently in preliminary stages), the number of unresolved issues in many of the proceedings (including issues regarding class certification and the scope of many of the claims), and the related uncertainty of the potential outcomes of these proceedings. In making determinations of the likely outcome of pending litigation, the Company considers many factors, including, but not limited to, the nature of the claims, the Company's experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood of resolving the matter through alternative mechanisms, the matter's current status and the damages sought or demands made. Accordingly, the Company's estimate will change from time to time, and actual losses could be more than the current estimate.
The Company believes that the estimate of the aggregate range of reasonably possible losses in excess of the amount accrued for its legal proceedings outstanding at December 31, 2019,2022, where the range of loss can be estimated, was not material.
PRA Group, Inc.
Notes to Consolidated Financial Statements
In certain legal proceedings, the Company may have recourse to insurance or third-party contractual indemnities to cover all or portions of its litigation expenses, judgments, or settlements. Loss estimates and accruals for potential liability related to legal proceedings are typically exclusive of potential recoveries, if any, under the Company's insurance policies or third-party indemnities. During the year ended December 31, 2019, theThe Company has not recorded $1.0 million inany potential recoveries under the Company's insurance policies or third-party indemnities which is included in other receivables, net atas of December 31, 2019.2022.
The matters described below fall outside of the normal parameters of the Company's routine legal proceedings.
Consumer Financial Protection Bureau ("CFPB") Investigation
In response to requests and civil investigative demands from the CFPB, the Company has provided certain documents and data regarding its debt collection practices to the CFPB. In December 2020, the CFPB advised the Company that the CFPB believes the Company may have violated certain provisions of the Company's Consent Order with the CFPB and applicable law and provided the Company with the opportunity to respond. The Company has discussed with the CFPB the possible resolution of the investigation. During the Company's discussions with the CFPB, the CFPB has taken positions with which the Company disagrees, including positions related to penalties, restitution and/or the adoption of new practices in the conduct of the Company's business. At this time, the Company believes accruals recorded reflect the anticipated outcome of the investigation.
Multi-State Investigation
On November 17, 2015, the Company received civil investigative demands from multiple state AttorneyAttorneys General offices ("AGOs") broadly relating to its U.S. debt collection practices. The Company believes that it has fully cooperated with the investigations and discussed potential resolution of the investigations with the AGOs. In these discussions, the AGOs have taken positions with which the Company disagrees, including positions related to penalties, restitution and/or the adoption of new practices and controls in the conduct of the Company's business. If
Although the Company has settled certain claims with one of the states, it is possible that one or more of the remaining individual state AGOs may file claims against the Company if the Company is unable to resolve its differences with the AGOs, it is possible that one or more individual state AGOs may file claims against the Company.
Iris Pounds v. Portfolio Recovery Associates, LLC
On November 21, 2016, Iris PoundsPlaintiffs filed suita putative class action against the Company in Durham County, North Carolina alleging violations of the North Carolina Prohibited Practices by Collection Agencies Act. The purported class consists of all individuals against whom the Company had obtained a judgment by default in North Carolina on or after October 1, 2009. On December 9, 2016, the Company removed the matter to the United States District Court for the Middle District of North Carolina (the "District Court"). On March 28, 2018, the District Court entered an order remanding the matter to the North Carolina state court, whichcourt; the United States Court of Appeals for the Fourth Circuit Court of Appeals affirmeddenied the Company’s request for discretionary review on May 17, 2018. On January 11, 2019, the Company filed motions to compel arbitration with the North Carolina state court, which waswere denied. The Company is seeking reviewNorth Carolina Court of Appeals affirmed the denial of the North Carolinas state court's decision to deny the Company'sCompany’s motion to compel arbitration. Thereafter, the matter was stayed pending a decision by the North Carolina Supreme Court in a related case, Pia Townes v. PRA, which raised issues of first impression regarding interpretation of a number of provisions of the statute at issue. The North Carolina Supreme Court affirmed the decision in Pia Townes v. PRA by an equally divided court, thereby rendering the decision of the Court of Appeals of no precedential value. Discovery in this matter is ongoing, and the Company is defending the matter vigorously. The range of loss, if any, cannot be estimated at this time due to the uncertainty surrounding liability, class certification, ultimate class size, and the interpretation of the statute, including statutory damages.
Telephone Consumer Protection Act ("TCPA") Litigation
On January 25, 2017, the Company resolved the matter of In Re Portfolio Recovery Associates, LLC Telephone Consumer Protection Act Litigation, which consisted of a number of class actions and single plaintiff claims consolidated by order of the Panel for Multi-District Litigation ("MDL"). While the settlement disposed of a large number of claims, several hundred class members opted out ("Opt-Out Plaintiffs") of that settlement. Many of these Opt-Out Plaintiffs have been consolidated before the MDL appointed court, which is the United StatesU.S. District Court for the Southern District of California, and are pending a determination on cross-motions for summary judgment. TheOn April 1, 2021, the U.S. Supreme Court defined "automatic telephone dialing system" in its Facebook v. Duguid decision, which the Company expects to be dispositive of most or all of the Company's currently pending TCPA matters. However, the Company does not have certainty regarding such dispositions. As a result, the range of loss, if any, cannot be estimated at this time due to the uncertainty surrounding liability.
PRA Group, Inc.
Notes to Consolidated Financial Statements
15. Retirement Plans:
The Company sponsors defined contribution plans primarily in the U.S. and Europe. The U.S. plan is organized as a 401(k) plan under which all employees over eighteen18 years of age are eligible to make voluntary contributions to the plan up to 100% of their compensation, subject to IRS limitations, after completing six months of service, as defined in the plan. The Company makes matching contributions of up to 4% of an employee's salary. For the defined contribution plans in Europe, the Company pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. Total compensation expense related to the Company's contributionscontributions was $5.9$7.2 million, $6.3$6.5 million and $5.2$6.4 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively.
16. Redeemable Noncontrolling Interest:Subsequent Event:
74
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. We conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-K. Based on this evaluation, the principal executive officer and principal financial officer have concluded that, as of December 31, 2019,2022, our disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of our internal control over financial reporting based on the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on its assessment under this framework, management has determined that our internal control over financial reporting was effective as of December 31, 2019.2022. Our independent registered public accounting firm, KPMGErnst & Young LLP, has issued an audit report on the effectiveness of our internal control over financial reporting as of December 31, 2019,2022, which is included herein.
Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting that occurred during the quarter ended December 31, 20192022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
75
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
of PRA Group, Inc.:
Opinion on Internal Control Overover Financial Reporting
We have audited PRA Group Inc. and subsidiaries’ (the Company)’s internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control - IntegratedControl-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.Commission (2013 framework) (the COSO criteria). In our opinion, the CompanyPRA Group, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheetssheet of the CompanyPRA Group, Inc. (the “Company”) as of December 31, 2019 and 2018,2022, the related consolidated income statements, statementsstatement, statement of comprehensive income, statement of changes in equity and statement of cash flows for each of the years in the three-year periodyear ended December 31, 2019,2022, and the related notes, (collectively, the consolidated financial statements), and our report dated March 2, 2020February 27, 2023 expressed an unqualified opinion on those consolidated financial statements.thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also includedrisk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMGErnst & Young LLP
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Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by Item 10 is incorporated herein by reference to the sections labeled "Executive Officers," "Security Ownership, of Certain Beneficial Owners and Management," "Our Board and Its Committees," "Election of Directors," "Corporate Governance-CodeGovernance Board Committees," "Proposal 1: Election of Directors" and "Corporate Governance – Code of Conduct," and "Report of the Audit Committee" in our definitive Proxy Statement for use in connection with the Company's 20202023 Annual Meeting of Stockholders (the "Proxy Statement").
Item 11. Executive Compensation.
The information required by Item 11 is incorporated herein by reference to the sections labeled "Compensation Discussion and Analysis"Analysis," "Compensation Tables and Information," "Corporate Governance – Director Compensation" and "Compensation Committee Report" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners andAnd Management And Related Stockholder Matters.
The information required by Item 12 is incorporated herein by reference to the section labeled "Security Ownership of Certain Beneficial OwnersOwnership" and Management""Compensation Tables and Information – Securities Authorized for Issuance Under Equity Compensation Plans" in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by Item 13 is incorporated herein by reference to the sections labeled "Policy"Corporate Governance –Policy for Approval of Related Party Transactions" and "Director"Corporate Governance-Director Independence" in the Proxy Statement.
Item 14. Principal Accountant Fees and Services.
Our independent registered public accounting firm for the year ended December 31, 2022 is Ernst & Young LLP, Richmond, VA, Auditor Firm ID: 42. Our previous independent registered public accounting firm for years prior to the year ended December 31, 2022 was KPMG LLP, Norfolk, VA Auditor Firm ID: 185.
The information required by Item 14 is incorporated herein by reference to the section labeled "Fees Paid to KPMG"Independent Registered Accounting Firms" and "Audit Committee Pre-Approval Policies and Procedures" in the Proxy Statement.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a)Financial Statements.
The following financial statements are included in Item 8 of this Form 10-K:
77
(b)Exhibits.
82
84
78
| 101.INS | Inline XBRL Instance Document | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
* Denotes management contract or compensatory plan or arrangement in which directors or executive officers are eligible to participate.
Item 16. Form 10-K Summary.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PRA Group, Inc. | ||||||||||||||||||
| (Registrant) | ||||||||||||||||||
| By: | /s/ Kevin P. Stevenson | |||||||||||||||||
| Kevin P. Stevenson | ||||||||||||||||||
| President and Chief Executive Officer | ||||||||||||||||||
| (Principal Executive Officer) | ||||||||||||||||||
KNOW ALL MENPERSONS BY THESE PRESENTS, that each of the undersigned whose signature appears below constitutes and appoints each of Kevin P. Stevenson and Peter M. Graham, his true and lawful attorneys-in-fact, with full power of substitution and resubstitution for him and on his behalf, and in his name, place and stead, in any and all capacities to execute and sign any and all amendments or post-effective amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof and the registrant hereby confers like authority on its behalf.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| February 27, 2023 | By: | ||||||||||||||||
| /s/ Kevin P. Stevenson | |||||||||||||||||
| Kevin P. Stevenson | |||||||||||||||||
| President, Chief Executive Officer and Director | |||||||||||||||||
| (Principal Executive Officer) | |||||||||||||||||
| February 27, 2023 | By: | ||||||||||||||||
| /s/ Peter M. Graham | |||||||||||||||||
| Peter M. Graham | |||||||||||||||||
| Executive Vice President and Chief Financial Officer | |||||||||||||||||
| (Principal Financial and Accounting Officer) | |||||||||||||||||
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| February 27, 2023 | By: | /s/ Steven D. Fredrickson | |||||||||||||||
| Steven D. Fredrickson | |||||||||||||||||
| Director | |||||||||||||||||
| By: | /s/ Vikram A. Atal | ||||||||||||||||
| Vikram A. Atal | |||||||||||||||||
| Director | |||||||||||||||||
| By: | /s/ Danielle M. Brown | ||||||||||||||||
| Danielle M. Brown | |||||||||||||||||
| Director | |||||||||||||||||
| By: | /s/ Marjorie M. Connelly | ||||||||||||||||
| Marjorie M. Connelly | |||||||||||||||||
| Director | |||||||||||||||||
| By: | /s/ John H. Fain | ||||||||||||||||
| John H. Fain | |||||||||||||||||
| Director | |||||||||||||||||
| By: | |||||||||||||||||
| /s/ James A. Nussle | |||||||||||||||||
| James A. Nussle | |||||||||||||||||
| Director | |||||||||||||||||
| By: | /s/ | ||||||||||||||||
| Director | |||||||||||||||||
| By: | /s/ Scott M. Tabakin | ||||||||||||||||
| Scott M. Tabakin | |||||||||||||||||
| Director | |||||||||||||||||
| By: | /s/ Peggy P. Turner | ||||||||||||||||
| Peggy P. Turner | |||||||||||||||||
| Director | |||||||||||||||||
| February 27, 2023 | By: | /s/ Lance L. Weaver | |||||||||||||||
| Lance L. Weaver | |||||||||||||||||
| Director | |||||||||||||||||
81