PRA Group, Inc. (NASDAQ:PRAA) 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. PRA Group has faced headwinds in recent years, reporting an annual net loss of $83.5 million in 2023 on revenues of $825.7 million and negative operating and free cash flows of $97.5 million and $100.4 million, respectively. However, the company's latest quarterly results suggest it is making progress in its turnaround efforts.
Recent Developments
In the first quarter of 2024, PRA Group reported total revenues of $255.6 million, a 64.4% increase from the prior year period. This was driven by a 67.7% increase in total portfolio revenue, which reached $253.7 million. Portfolio income, which reflects the yield component of the company's revenue, grew 7.3% to $202.1 million, while changes in expected recoveries, which account for the net present value of changes in estimated remaining collections, increased significantly from a negative $36.9 million in Q1 2023 to a positive $51.7 million in Q1 2024.
The company's geographic performance was mixed, with the Americas and Australia segment reporting a 9.3% increase in cash collections to $282.1 million, while Europe saw a 6.0% increase (3.0% on a constant currency basis) to $167.4 million. The stronger performance in the Americas was driven by a 9% increase in U.S. cash collections, which the company attributed to higher portfolio purchases and the positive impact of its cash-generating initiatives, supplemented by tax refund seasonality.
PRA Group's portfolio purchases totaled $245.8 million in Q1 2024, up 7% year-over-year. In the Americas, the company invested $197 million, a 48% increase, with the U.S. accounting for $187 million, a 71% jump and the second-highest Q1 investment level in the company's history. This reflects PRA Group's ability to capitalize on the significant growth in U.S. portfolio supply driven by credit normalization, as industry credit card balances and delinquency and charge-off rates have continued to rise.
In Europe, the company invested $29 million during the quarter, which was influenced by the low availability of market volumes. However, PRA Group noted an uptick in market volumes at the start of the second quarter, and it expects its purchases to be meaningfully stronger in Q2 compared to the first quarter. The company remains disciplined with its pricing and is strategically deploying capital in the markets where it sees the most attractive returns.
Financials
Operating expenses for the quarter were $189.2 million, relatively flat compared to the prior year period. This included $6 million in outsized corporate legal and consulting expenses, which the company believes are non-recurring in nature. Compensation and employee services expenses decreased $8.8 million, or 10.7%, primarily due to $7.5 million in severance expenses incurred in the prior year period. Legal collection fees and costs increased $3.3 million and $2.8 million, respectively, driven by higher external legal collections and a higher volume of lawsuits filed in Europe, as well as costs associated with the company's legal cash-generating initiatives in the U.S.
PRA Group's cash efficiency ratio, which measures the percentage of cash receipts retained after operating expenses, improved to 58.0% in Q1 2024 from 54.3% in the prior year period. Net interest expense increased $14.0 million, or 36.6%, reflecting higher debt balances and increased interest rates. The company's effective tax rate for the quarter was 16.9%, compared to a tax benefit rate of 25.7% in Q1 2023.
The company reported net income attributable to PRA Group of $3.5 million, or $0.09 per diluted share, in Q1 2024, compared to a net loss of $58.6 million, or $1.50 per diluted share, in the prior year period. This improvement was driven by the strong growth in portfolio revenue, which more than offset the increase in operating expenses and interest expense.
Liquidity
PRA Group's balance sheet remains solid, with $108.1 million in cash and cash equivalents as of March 31, 2024, and $1.2 billion in total available liquidity under its credit facilities. The company's leverage ratio, as measured by debt to adjusted EBITDA, was 2.83x as of March 31, 2024, within the company's target range of 2 to 3x.
Outlook
Looking ahead, PRA Group reiterated its financial and operational targets for 2024, including strong portfolio investments, double-digit cash collection growth, and a modest increase in expenses, resulting in a cash efficiency ratio of over 60% and a return on average tangible equity between 6% and 8%. The company expects to see additional momentum in the second half of the year as it scales its initiatives.
Conclusion
While PRA Group has faced challenges in recent years, the company's latest quarterly results suggest its turnaround efforts are gaining traction. By optimizing investments, driving operational execution, and managing expenses, the company is positioning itself to regain its position as a high-performing player in the debt buying and collection industry. Investors will be closely watching the company's progress in the coming quarters as it continues to navigate the evolving market landscape.