PRA GROUP INC
For the period ended Dec 31, 2024. Filed Feb 27, 2025.
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FY2024 · Filed Feb 27, 2025
Contents
Note
- Income Taxes:
Income tax expense/(benefit) for the years ended December 31, 2024, 2023 and 2022 was as follows (amounts in thousands):
| Federal | State | International | Total | |
|---|---|---|---|---|
| Current tax expense/(benefit) | $(2,169) | $210 | $25,129 | $23,170 |
| Deferred tax expense/(benefit) | 6,250 | 177 | (8,565) | (2,138) |
| Total income tax expense | $4,081 | $387 | $16,564 | $21,032 |
| Current tax expense | $160 | $1,697 | $17,953 | $19,810 |
| Deferred tax benefit | (25,921) | (7,956) | (2,066) | (35,943) |
| Total income tax expense/(benefit) | $(25,761) | $(6,259) | $15,887 | $(16,133) |
| Current tax expense | $8,797 | $385 | $26,998 | $36,180 |
| Deferred tax expense/(benefit) | (2,848) | (386) | 3,841 | 607 |
| Total income tax expense/(benefit) | $5,949 | $(1) | $30,839 | $36,787 |
The following table provides a reconciliation of the Company's expected tax expense/(benefit) at the U.S. statutory federal tax rate to actual tax expense/(benefit) for the years ended December 31, 2024, 2023 and 2022 (amounts in thousands):
| 2024 | 2023 | 2022 | |
|---|---|---|---|
| Income tax expense/(benefit) at the statutory federal rate | $23,017 | $(17,406) | $32,505 |
| State tax expense/(benefit), net of federal tax benefit | 387 | (4,886) | (18) |
| Tax impact on international earnings, excluding uncertain tax positions | (2,630) | 2,058 | 1,175 |
| Nondeductible legal settlement expenses | — | 3,017 | — |
| Nondeductible compensation | 1,181 | 117 | 3,025 |
| Other | (923) | 967 | 100 |
| Total income tax expense/(benefit) | $21,032 | $(16,133) | $36,787 |
| Effective tax rate | 19.2% | 19.5% | 23.8% |
As of December 31, 2024 and 2023, the components of deferred tax assets and liabilities were as follows (amounts in thousands):
| 2024 | 2023 | |
|---|---|---|
| Deferred tax assets: | ||
| Net operating loss carryforward | 164,070 | 159,699 |
| Employee compensation | $6,758 | $6,044 |
| Interest | 6,626 | 11,959 |
| Lease liability | 6,087 | 8,615 |
| Other | 746 | 6,315 |
| Valuation allowance | (52,418) | (70,245) |
| Total deferred tax asset | 131,869 | 122,387 |
| Deferred tax liabilities: | ||
| Finance receivable revenue recognition - domestic | (22,970) | (6,197) |
| Finance receivable revenue recognition - international | (22,116) | (31,538) |
| Deferred income | (11,625) | (8,230) |
| Intangible assets and goodwill | (6,983) | (6,053) |
| ROU asset | (5,314) | (7,775) |
| Foreign exchange - statutory | (4,540) | (4,951) |
| Total deferred tax liability | (73,548) | (64,744) |
| Net deferred tax asset | $58,321 | $57,643 |
As of December 31, 2024, $49.9 million of the valuation allowance related to the Company's federal, state and foreign net operating loss carryforwards. The decrease in the valuation allowance from the prior year was primarily due to changes in future income expectations and audit settlements in 2024. The federal net operating loss carryforward has an indefinite carryforward period, while the state and foreign net operating losses generally have afive to 20 year carryforward period and will expire if not utilized.
As of December 31, 2024, the cumulative unremitted earnings of the Company's international subsidiaries were approximately$209.2 million. The Company intends for predominantly all international earnings to be indefinitely reinvested in its international operations; therefore, no deferred tax liabilities were recorded for such unremitted earnings. If international earnings were repatriated or deemed repatriated due to intercompany loans, the Company may need to accrue and pay taxes, although foreign tax credits and exemptions may be available to partially reduce or eliminate income and withholding taxes. Any deemed repatriations from intercompany loans would be expected to have little or no tax impact. It is impracticable to determine the total amount of unrecognized deferred taxes with respect to these indefinitely reinvested earnings.
Unrecognized tax benefits
Aggregate changes in the balance of unrecognized tax benefits for the years ended December 31, 2024, 2023 and 2022 were as follows(amounts in thousands):
| 2024 | 2023 | 2022 | |
|---|---|---|---|
| Balance as of the beginning of year | $105,704 | $101,703 | $114,294 |
| Increase related to tax positions taken during a prior year (1) | 978 | 4,001 | — |
| Decrease related to tax positions taken during a prior year (1) | — | — | (12,591) |
| Balance as of the end of year | $106,682 | $105,704 | $101,703 |
(1)Relates to international transactions and is primarily due to foreign exchange rate fluctuations.
As of December 31, 2024 and 2023, the total amount of after-tax unrecognized tax benefits that, if recognized, would affect the effective tax rate, was $20.7 million and $20.5 million, respectively. As of December 31, 2024 and 2023, the Company had accrued for potential interest and penalties related to unrecognized tax benefits in the amounts of $4.8 million and $3.9 million, respectively.
The Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The Internal Revenue Service and other tax authorities routinely audit the Company's tax returns, and these audits can involve complex issues that may require an extended period of time to resolve. The Company records income tax liabilities based on estimates of the additional income taxes that may be due upon the conclusion of these audits. Due to the uncertain and complex application of income tax regulations, the ultimate resolution of such audits may result in liabilities that are materially different from those estimates, and the Company records additional income tax expense or income tax benefit in the period in which the matter is resolved.
As of December 31, 2024, tax years under examination in certain international jurisdictions include 2014 and subsequent years. The Company has received tax assessments from the Norwegian Tax Administration related to certain intercompany transactions that took place during the 2014 and 2015 tax years. The Company filed appeals for these assessments and believes that it is more-likely-than-not that its position will be sustained, and therefore, has not recorded tax liabilities in relation to these assessments.
The Company believes that it has sufficient accrued liabilities as of December 31, 2024 for its tax exposures and the related interest expense for all open tax years in each jurisdiction, however, it is reasonably possible that these accruals could increase or decrease during the next 12 months.
- Commitments and Contingencies:
Forward flow agreements:
The Company enters into forward flow agreements for the purchase of nonperforming loans. These agreements typically have terms ranging from six to 12 months, or they can be open-ended, and establish purchase prices and specific criteria for the accounts to be purchased. Some of the agreements establish a volume reference for the contract term in the form of a target or maximum, however, very few agreements establish a minimum contractual obligation, and many of the contracts contain early termination provisions allowing either party to cancel the agreements in accordance with a specified notice period. The amounts purchased are also dependent on actual delivery by the sellers, and in some cases, the impact of foreign exchange rate fluctuations, and while purchases under these agreements comprise a significant portion of the Company's overall purchases, as of December 31, 2024, the estimated minimum contractual purchase obligation under forward flow agreements was not significant.
Litigation and regulatory matters:
The Company and its subsidiaries are from time to time subject to a variety of legal and regulatory claims, inquiries and proceedings and regulatory matters, most of which are incidental to the ordinary course of its 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 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, 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 claim, 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 exceed 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, 2024, where the range of loss can be estimated, was not material.
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.
The matter described below falls outside of the normal parameters of the Company's routine legal proceedings.
Multi-State Investigation
On November 17, 2015, the Company received civil investigative demands from multiple state Attorneys 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 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. The Company and the AGOs are in continued negotiations to resolve the matter, and the Company has accrued for the estimated loss on this matter.
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 them.
Consumer Financial Protection Bureau ("CFPB") Investigation
In April 2023, Portfolio Recovery Associates, LLC ("LLC"), the Company’s wholly owned subsidiary, entered into an order with the CFPB settling a previously disclosed investigation of certain debt collection practices (the "2023 Order"). As of December 31, 2024, the Company was executing both its redress plan and compliance plan as required by the 2023 Order.
Iris Pounds v. Portfolio Recovery Associates, LLC
The plaintiff filed a putative class action on November 21, 2016, against the Company alleging violations of certain North Carolina statutes pertaining to debt collection practices. The Company executed a settlement agreement for this matter, which was pre-approved by the North Carolina General Court of Justice on January 12, 2024. As of December 31, 2024, the total amount of funds owed by the Company under the settlement agreement had been transferred to a third-party administrator.
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"). The MDL was closed on November 29, 2023, and the individual cases were remanded to their originating jurisdictions for dismissal of the TCPA claims and adjudication or resolution of any non-TCPA claims. As of December 31, 2024, the class action suits had been settled, and there were a small number of individual cases pending resolution.
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