PRA GROUP INC

Previous wording

•the impact of a disease outbreak on the markets in which we operate and our inability to successfully manage the challenges associated with a disease outbreak, including epidemics, pandemics or similar widespread public health concerns;

Current wording

•the impact of a disease outbreak on the markets in which we operate and our ability to successfully manage the challenges associated with a disease outbreak, including epidemics, pandemics or similar widespread public health concerns;

Previous wording

•our ability to retain, expand, renegotiate or replace our credit facilities and our inability to comply with the covenants under our financing arrangements;

Current wording

•our ability to retain, expand, renegotiate or replace our credit facilities and our ability to comply with the covenants under our financing arrangements;

Previous wording

•our ability to manage effectively our capital and liquidity needs, including as a result of changes in credit or capital markets or adverse changes in our credit ratings, whether due to concerns about our industry in general, the financial condition of our competitors, or other factors;

Current wording

•our ability to manage our capital and liquidity needs effectively, including as a result of changes in credit or capital markets or adverse changes in our credit ratings, whether due to concerns about our industry in general, the financial condition of our competitors, or other factors;

Previous wording

•"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.

Current wording

•"Changes 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.

Previous wording

•Total portfolio purchases of $245.8 million.

Current wording

Total portfolio purchases of $379.4 million during the quarter represented our third-highest quarterly level of purchases over the past five years. Cash collections increased 13.0% compared to the second quarter of 2023, reflecting higher recent purchasing levels and the positive impact of cash-generating initiatives in the U.S., as well as continued collections growth in our European business.

Previous wording

(1)Calculated by dividing cash receipts less operating expenses by cash receipts. Cash receipts refers to cash collections on our nonperforming loan portfolios, fees and revenue recognized from our class action claims recovery services.

Current wording

(1)Calculated by dividing cash receipts less operating expenses by cash receipts.

Previous wording

(4)Calculated by dividing annualized net income income/(loss) attributable to PRA Group by average total stockholders' equity - PRA Group for the period.

Current wording

(3)Calculated by dividing annualized net income income/(loss) attributable to PRA Group by average Total stockholders' equity - PRA Group for the period.

Previous wording

(5)Return on average tangible equity ("ROATE") is a non-GAAP financial Measure. Average tangible equity ("ATE") is also a non-GAAP financial measure. Refer to section"Non-GAAP Financial Measures" for a reconciliation of Total stockholders' equity - PRA Group, the most directly comparable financial measure calculated and reported in accordance with GAAP, to ATE.

Current wording

(4)Return on average tangible equity ("ROATE") is a non-GAAP financial measure. Average tangible equity ("ATE") is also a non-GAAP financial measure. Refer to section"Non-GAAP Financial Measures" for a reconciliation of Total stockholders' equity - PRA Group, the most directly comparable financial measure calculated and reported in accordance with GAAP, to ATE.

Previous wording

Cash collections were as follows (amounts in thousands):

Current wording

Cash collections were as follows for the periods indicated (amounts in thousands):

Previous wording

(1)Cash collections adjusted refers to Q1 2023 foreign currency cash collections remeasured at Q1 2024 average U.S. dollar exchange rates.

Current wording

(1)Cash collections adjusted refers to prior year period foreign currency cash collections remeasured at average U.S. dollar exchange rates for the current year period.

Previous wording

Cash collections were $449.5 million in Q1 2024, an increase of $38.2 million, or 9.3%, compared to $411.3 million in Q1 2023. The increase was primarily due to an increase in U.S. Core collections of $21.4 million, driven largely by higher recent purchasing levels and the impact of our cash-generating initiatives, which were supplemented by tax refund seasonality. Also contributing to the increase were higher cash collections in Europe and Brazil of $9.8 million and $6.7 million, respectively, primarily due to higher recent purchasing levels.

Current wording

Cash collections were $473.9 million in Q2 2024, an increase of $54.6 million, or 13.0%, compared to $419.3 million in Q2 2023. The increase was primarily due to an increase in U.S. Core cash collections of $42.4 million, mainly due to the impact of higher recent purchasing levels and our cash-generating initiatives, particularly in the legal collections channel. Also contributing to the increase were increased cash collections in Europe of $11.0 million, primarily due to higher recent purchasing levels.

Previous wording

Total portfolio revenue was $253.7 million in Q1 2024, an increase of $102.4 million, or 67.7%, compared to $151.3 million in Q1 2023. This increase was primarily due to the increase in changes in expected recoveries, driven mainly by cash collections overperformance in the U.S., Brazil and Europe, and a net increase to the ERC of certain pools in Q1 2024 compared to a net decrease in the prior year period. The increase in portfolio income was primarily due to the impact of higher purchasing and improved returns in the U.S. beginning in 2023.

Current wording

Year-to-date portfolio revenue increased by $179.6 million, or 50.3%, primarily due to an increase of $140.8 million in changes in expected recoveries, driven mainly by a net increase to the ERC of certain pools in the U.S., Europe and Brazil compared to a net decrease in the prior year period, as well as cash collections overperformance in the U.S. and Europe. The $38.8 million increase in portfolio income was primarily due to the impact of higher purchasing and improved pricing in the U.S. and Europe beginning in 2023.

Previous wording

Legal collection fees were $12.1 million in Q1 2024, an increase of $3.3 million, or 37.3%, compared to $8.8 million in Q1 2023. Legal collection fees represent contingent fees incurred for the cash collections generated by our third-party attorney network. The increase mainly reflects higher external legal collections within our U.S. Core portfolio.

Current wording

Legal collection fees represent contingent fees incurred for cash collections generated by our third-party attorney network. Q2 2024 fees increased $4.2 million, or 44.1%, mainly reflecting higher external legal collections within our U.S. Core portfolio. Increased external legal collections in the U.S. were also the primary driver of the $7.5 million, or 40.7%, increase for the year-to-date period.

Previous wording

Legal collection costs were $26.7 million in Q1 2024, an increase of $2.8 million, or 11.7%, compared to $23.9 million in Q1 2023. Legal collection costs consist primarily of costs paid to courts where a lawsuit is filed for the purpose of attempting to collect on an account. The increase primarily reflects higher volumes of lawsuits filed in Europe, as well as the costs associated with our legal cash-generating initiatives in the U.S.

Current wording

Legal collection costs consist primarily of costs paid to courts where a lawsuit is filed for the purpose of attempting to collect on an account. Q2 2024 costs increased $13.8 million, or 63.9%, primarily due to increased activity in our U.S. legal collections channel, as well as the expansion of legal collection activities in Europe. The growth in legal collections activity also drove the $16.5 million, or 36.3%, increase for the year-to-date period.

Previous wording

Communication expense was $12.6 million in Q1 2024, an increase of $2.1 million, or 19.9%, compared to $10.5 million in Q1 2023. Communication expense relates mainly to correspondence, network and calling costs associated with our revenue generating activities. The increase was primarily due to the expansion in account volumes.

Current wording

Communication expense relates mainly to correspondence, network and calling costs associated with our cash-generating initiatives. An expansion in account volumes drove both the Q2 2024 increase of $1.5 million, or 14.4%, and the $3.5 million, or 17.0%, increase for the year-to-date period.

Previous wording

Income tax expense was $2.4 million in Q1 2024 compared to a tax benefit of $18.7 million in Q1 2023. The increase was primarily due to higher income before taxes. In Q1 2024, our effective tax rate was 16.9% compared to an effective tax benefit rate of 25.7% in Q1 2023, due mainly to higher income before taxes, as well as changes in the mix of income from different taxing jurisdictions and the timing of discrete items.

Current wording

Income tax expense was $8.7 million in Q2 2024 compared to $1.6 million in Q2 2023. In Q2 2024, our effective tax rate was 25.7% compared to 57.6% in Q2 2023. Year-to-date income tax expense was $11.1 million in 2024 compared to a tax benefit of $17.1 million in the prior year period. The 2024 year-to-date effective tax rate was 23.1% compared to an effective tax benefit rate of 24.5% in the prior year period. Higher income before taxes drove increased income tax expense in both the second quarter and year-to-date periods, and the effective tax rate comparison was impacted by higher income before taxes in the current year periods, as well as changes in the mix of income from different taxing jurisdictions and the timing and amount of discrete items.

Previous wording

Further, there is a direct relationship between the price we pay for a portfolio, the purchase price multiple and the effective interest rate of the pool. When we pay more for a portfolio, the purchase price multiple and effective interest rates are generally lower. The opposite tends to occur when we pay less for a portfolio. Certain types of accounts have lower collection costs, and we generally pay more for these types of accounts, resulting in a lower purchase price multiple but similar net income margins when compared with other portfolio purchases. Within a given portfolio type, when lower purchase price multiples are the result of more competitive pricing, this generally leads to lower profitability. As portfolio pricing becomes more favorable, our profitability will tend to increase. Profitability within given Core portfolio types may also be impacted by the age and quality of the accounts, which impact the cost to collect those accounts. Fresher accounts, for example, typically carry lower associated collection 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.

Current wording

Further, there is an inverse relationship between the price we pay for a portfolio, the purchase price multiple and the effective interest rate of the pool. When we pay more for a portfolio, the purchase price multiple and effective interest rates are generally lower. The opposite tends to occur when we pay less for a portfolio. Certain types of accounts have lower collection costs, and we generally pay more for these types of accounts, resulting in a lower purchase price multiple but similar net income margins when compared with other portfolio purchases. Within a given portfolio type, when lower purchase price multiples are the result of more competitive pricing, this generally leads to lower profitability. As portfolio pricing becomes more favorable, our profitability will tend to increase. Profitability within given Core portfolio types may also be impacted by the age and quality of the accounts, which impact the cost to collect those accounts. Fresher accounts, for example, typically carry lower associated collection 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.

Previous wording

Revenue recognition is driven by estimates of the amount and timing of future cash collections. We record new portfolio acquisitions at the purchase price, which reflects the amount 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 level of performance and expected future impacts from our operations, we may update ERC and TEC levels based on the results of our cash forecasting with a correlating adjustment to the purchase price multiple. We follow an established process to evaluate ERC, and we typically do not adjust our ERC and TEC until we gain sufficient collection experience and confidence with a pool of accounts. Over time, our TEC has often increased as pools have aged resulting in the ratio of TEC to purchase price for any given year of buying to gradually increase.

Current wording

Revenue recognition is driven by estimates of the amount and timing of future cash collections. We record new portfolio acquisitions at the purchase price, which reflects the amount 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 level of performance and expected future impacts from our operations, we may update ERC and TEC levels based on the results of our cash forecasting with a correlating adjustment to the purchase price multiple. We follow an established process to evaluate ERC, and we typically do not adjust our ERC and TEC until we gain sufficient collection experience with a pool of accounts. Over time, our TEC has often increased as pools have aged resulting in the ratio of TEC to purchase price for any given year of buying to gradually increase.

Previous wording

(1)Non-U.S. amounts are presented using the average exchange rates during the cash collection period.

Current wording

(1)Non-U.S. amounts are presented using the average exchange rates during the cash collections period.

Previous wording

The following chart shows our ERC of$6.5 billion as of March 31, 2024 by geography (amounts in millions).

Current wording

The following chart shows our ERC of$6.8 billion as of June 30, 2024 by geography (amounts in millions).

Previous wording

The following table also displays our ERC by year, geography and portfolio for the 12 months ending March 31, for each year presented (amounts in thousands):

Current wording

The following table displays our ERC by geography, year and account type for the 12 months ending June 30, for each year presented (amounts in thousands):

Previous wording

The following table displays our quarterly cash collections by geography and portfolio (amounts in thousands):

Current wording

The following table displays our cash collections by geography and account type for the periods indicated (amounts in thousands):

Previous wording

Portfolio Acquisitions by Asset Type and Delinquency Category (U.S. Only)

Current wording

Portfolio Acquisitions by Major Asset Type and Delinquency Category (U.S. Only)

Previous wording

The following tables categorize our quarterly U.S. portfolio acquisitions by asset type and delinquency category. Since our inception in 1996, we have acquired nearly 63.6 million customer accounts in the U.S. (amounts in thousands).

Current wording

The following tables categorize our U.S. portfolio acquisitions by major asset type and delinquency category for the periods indicated (amounts in thousands):

Previous wording

The following table provides a reconciliation of Net income/(loss) attributable to PRA Group, Inc. as reported in accordance with GAAP to Adjusted EBITDA for the last 12 months ("LTM") as of March 31, 2024, and for the year ended December 31, 2023 (amounts in thousands):

Current wording

The following table provides a reconciliation of Net income/(loss) attributable to PRA Group, Inc. as reported in accordance with GAAP to Adjusted EBITDA for the periods indicated (amounts in thousands):

Previous wording

We use ROATE, which is a supplemental measure of performance that is not required by, or presented in accordance with, GAAP, to monitor and evaluate operating performance relative to the Company's equity. Management believes ROATE is a useful financial measure for investors in evaluating the effective use of equity, and is an important component of our long-term shareholder return. Average tangible equity ("ATE") is defined as average Total stockholders' equity - PRA Group, Inc. less average goodwill and average other intangible assets. ROATE is calculated by dividing annualized Net income/(loss) attributable to PRA Group, Inc. by ATE. The following table displays our ROATE and provides a reconciliation of Total stockholders' equity - PRA Group, Inc. as reported in accordance with GAAP to ATE for the periods indicated (amounts in thousands, except for ratio data):

Current wording

We use ROATE, which is a supplemental measure of performance that is not required by, or presented in accordance with, GAAP, to monitor and evaluate operating performance relative to the Company's equity. Management believes ROATE is a useful financial measure for investors in evaluating the effective use of equity, and is an important component of our long-term shareholder return. Average tangible equity ("ATE") is defined as average Total stockholders' equity - PRA Group, Inc. less average goodwill and average other intangible assets. ROATE is calculated by dividing annualized Net income/(loss) attributable to PRA Group, Inc. by ATE.

Previous wording

Cash and cash equivalents. As of March 31, 2024, cash and cash equivalents totaled $108.1 million, of which $96.6 million consisted of cash on hand related to international operations with indefinitely reinvested earnings. For additional information about the unremitted earnings of our international subsidiaries, refer to Note 13 to our Consolidated Financial Statements in the 2023 Form 10-K.

Current wording

Cash and cash equivalents. As of June 30, 2024, cash and cash equivalents totaled $118.9 million, of which $103.1 million consisted of cash on hand related to international operations with indefinitely reinvested earnings. For additional information about the unremitted earnings of our international subsidiaries, refer to Note 13 to our Consolidated Financial Statements in the 2023 Form 10-K.

Previous wording

Borrowings. As of March 31, 2024, we had the following committed amounts, amounts outstanding and availability under our credit facilities (amounts in thousands):

Current wording

Borrowings. As of June 30, 2024, we had the following committed amounts, borrowings and availability under our credit facilities (amounts in thousands):

Previous wording

Interest-bearing deposits. As of March 31, 2024, interest-bearing deposits totaled $113.3 million. In Q1 2024, the interest-bearing deposit limit under our European credit facility was increased from SEK 1.2 billion to SEK 2.2 billion, and as of March 31, 2024, our limit was $206.3 million in U.S. dollars.

Current wording

Interest-bearing deposits. As of June 30, 2024, interest-bearing deposits totaled $115.0 million. Under our European revolving credit facility, our interest-bearing deposit funding is limited to SEK 2.2 billion (the equivalent of $207.5 million in U.S. dollars as of June 30, 2024).

Previous wording

As of March 31, 2024, we have forward flow agreements in place with an estimated purchase price of approximately $473.9 million over the next 12 months. This total is comprised of $375.8 million for the Americas and Australia and $98.1 million for Europe. These amounts represent our estimated forward flow purchases over the next 12 months based on projections and other factors, including sellers' estimates of future flows sales, and are dependent on actual delivery by the sellers. Accordingly, amounts purchased under these agreements may vary significantly. In addition to these agreements, we may also enter into new or renewed forward flow commitments and/or close on spot purchase transactions.

Current wording

As of June 30, 2024, we have forward flow agreements in place with an estimated purchase price of approximately $385.6 million over the next 12 months. This total can vary significantly based on the remaining terms and renewal dates of the agreements and is comprised of $272.1 million for the Americas and Australia and $113.5 million for Europe. These amounts represent our estimated forward flow purchases over the next 12 months under the agreements in place, based on projections and other factors, including sellers' estimates of future flow sales, and are dependent on actual delivery by the sellers. Accordingly, amounts purchased under these agreements may vary significantly. In addition to these agreements, we may also enter into new or renewed forward flow commitments and/or close on spot purchase transactions.

Previous wording

Borrowings. As of March 31, 2024, we had $3.0 billion in borr owings. The estimated interest, unused fees and principal payments for the next 12 months are $204.5 million, of which$10.0 million relatesto principal on our term loan. After 12 months, principal payments on our debt are due from betweenone andsix years. Many of our financing arrangements include covenants with which we must comply, and as of March 31, 2024, we determined that we were in compliance with these covenants.

Current wording

Borrowings. As of June 30, 2024, we had $3.1 billion in outstanding borr owings. The estimated interest, unused fees and principal payments for the next 12 months are $223.8 million, of which $10.0 million relatesto principal on our term loan. After 12 months, principal payments on our debt are due from betweenone andsix years. Many of our financing arrangements include covenants with which we must comply, and as of June 30, 2024, we determined that we were in compliance with these covenants.

Previous wording

The share repurchase program has no stated expiration date and does not obligate us to repurchase any specified amount of shares, remains subject to the discretion of our Board of Directors and, subject to compliance with applicable laws, may be modified, suspended or discontinued at any time. 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 Securities Exchange Act of 1934, as amended (the "Exchange Act"), or other methods, subject to market and/or other conditions and applicable regulatory requirements. As of March 31, 2024, we had $67.7 million remaining for share repurchases under the program.

Current wording

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 Securities Exchange Act of 1934, as amended (the "Exchange Act"), or other methods, subject to market and/or other conditions and applicable regulatory requirements. Repurchases are also subject to restrictive covenants contained in our credit facilities and the indentures that govern our senior notes. There were no repurchases during the second quarter of 2024, and as of June 30, 2024, we had $67.7 million remaining for share repurchases under the program.

Previous wording

Leases. Our leases have remaining terms from one to 12 years. As of March 31, 2024, we had $48.6 million in lease liabilities, of which $9.9 million is due within the next 12 months. For additional information about our leases, refer to Note 5 to our Consolidated Financial Statements in the 2023 Form 10-K.

Current wording

Leases. Our leases have remaining terms from one to 12 years. As of June 30, 2024, we had $46.7 million in lease liabilities, of which $9.2 million is due within the next 12 months. For additional information about our leases, refer to Note 5 to our Consolidated Financial Statements in the 2023 Form 10-K.

Previous wording

Derivatives. We enter into derivative financial instruments to reduce our exposure to fluctuations in interest rates on variable rate debt and foreign currency exchange rates. As of March 31, 2024, we had $8.4 million of derivative liabilities, of which $1.4 million matures within one year. The remaining$7.0 million matures in 2028. For more information, see Note 6 to our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report.

Current wording

Derivatives. We enter into derivative financial instruments to reduce our exposure to fluctuations in interest rates on variable rate debt and foreign currency exchange rates. As of June 30, 2024, we had $5.9 million of derivative liabilities, of which $0.5 million matures within one year. The remaining$5.4 million matures in 2028. For additional information, see Note 6 to our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report.

Previous wording

Investments. As of March 31, 2024, we held $47.1 million in Swedish treasury securities to meet the liquidity requirements of the Swedish Financial Services Authority for our banking subsidiary, AK Nordic AB.

Current wording

Investments. As of June 30, 2024, we held $47.9 million in Swedish treasury securities to meet the liquidity requirements of the Swedish Financial Services Authority for our banking subsidiary, AK Nordic AB.

Previous wording

The following table summarizes our cash flow activity for the first quarter of 2024 compared to the prior year period (amounts in thousands):

Current wording

The following table summarizes our cash flow activity for 2024 year-to-date compared to the prior year period (amounts in thousands):

Previous wording

Net cash used in operating activities mainly reflects cash collections recognized as revenue and cash paid for operating expenses, interest and income taxes. To calculate net cash used in operating activities, net income/(loss) was adjusted for (i) non-cash items included in net income such as unrealized foreign currency transaction gains, changes in expected recoveries, depreciation and amortization, deferred taxes, fair value changes in equity securities, and stock-based compensation, as well as (ii) changes in the balances of operating assets and liabilities, which can vary significantly in the normal course of business due to the amount and timing of payments.

Current wording

Net cash used in operating activities mainly reflects cash collections recognized as revenue and cash paid for operating expenses, interest and income taxes. To calculate net cash used in operating activities, net income/(loss) was adjusted for (i) non-cash items included in net income such as unrealized foreign currency transaction gains/(losses), changes in expected recoveries, depreciation and amortization, deferred taxes, fair value changes in equity securities, and stock-based compensation, as well as (ii) changes in the balances of operating assets and liabilities, which can vary significantly in the normal course of business due to the amount and timing of payments.

Previous wording

Net cash used in operating activities was $73.0 million in Q1 2024 compared to $47.5 million in Q1 2023. This was primarily driven by higher cash paid for interest and lower accrued expenses, partially offset by higher cash collections recognized as income.

Current wording

Cash used in operating activities was $102.5 million 2024 year-to-date compared to $80.8 million in the prior year period. Higher cash paid for interest and operating expenses was partially offset by higher cash collections recognized as income and a lower impact from foreign currency transactions.

Previous wording

Net cash provided by investing activities increased $6.2 million in Q1 2024. An increase of $26.0 million in recoveries applied to the negative allowance and a $7.2 million net decrease in investment purchase/disposal activity were partially offset by a $26.8 million increase in purchases of nonperforming loan portfolios.

Current wording

Net cash used in investing activities increased $2.2 million compared to the prior year period. An increase of $65.6 million in purchases of nonperforming loan portfolios was partially offset by an increase of $57.0 million in recoveries applied to the negative allowance and a $7.2 million increase in net cash flow from purchases and disposals of investments.

Previous wording

Net cash provided by financing activities decreased $373.0 million in Q1 2024. A decrease of $400.0 million in proceeds from senior notes due to the issuance of our 2028 Notes in Q1 2023 was partially offset by a $22.7 million increase in net draws on our lines of credit.

Current wording

Net cash provided by financing activities decreased $4.7 million compared to the prior year period. A net decrease of $8.1 million in proceeds from lines of credit and senior notes and a $16.2 million increase in distributions to noncontrolling interests were partially offset by a $14.9 million increase in interest-bearing deposits.