PRA GROUP INC (PRAA) FY 2021 MD&A

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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 Part II, 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.

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.

COVID-19

Since March 2020, we have been, and continue to be, impacted by the COVID-19 pandemic and its variants in all countries in which we operate. The on-going effects of COVID-19, continue to be difficult to predict due to various uncertainties including transmissibility, new variants, severity and duration. The global spread of COVID-19 continues to disrupt normal business operations and has had a negative impact on the economy and contributed to an inflationary environment.

In an effort to control the spread of COVID-19, the countries in which we operate continue to consider governmental, legal and regulatory actions as well as health and safety measures. We continue to monitor the impact on our business, operations and financial results and have taken steps to mitigate adverse effects wherever possible. These steps include communicating with regulators and government officials concerning legislation and regulations, enabling employees to work remotely and implementing social distancing in the workplaces that remain open.

Specific impacts on our business, results of operations and financial condition included:

•a continued increase in cash collections, which we believe to be acceleration of future payments. In the second half of 2021, we started to see cash collections return to more normalized levels; and

•a continued decrease in portfolio purchases in the U.S due to lower levels of bankruptcy filings and charge-offs.

Funds generated from operations, cash collections on nonperforming loan portfolios, existing cash, available borrowings under our revolving credit facilities, the addition of our Senior Notes and access to the capital markets have been sufficient to finance our operations, planned capital expenditures, forward flow purchase commitments, debt maturities and portfolio purchases during the pandemic. We continue to monitor the need to expand our access to credit to fund the aforementioned business activities.

Our analysis of the current and future impact of the COVID-19 pandemic on our operations is based on management’s constant monitoring of key data and information, including (1) changes in laws, regulations and governmental actions, (2) trends in the macroeconomic environment, consumer behavior and key operational metrics such as cash collections and (3) conditions in the nonperforming loan market. However, we cannot predict the full extent to which the COVID-19 pandemic will impact our business, results of operations and financial condition due to the numerous evolving factors associated with the pandemic. See the "Risk Factors" in Item 1A of this Form 10-K.

Frequently Used Terms

We may use the following terminology throughout this 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 nonperforming loan portfolios.

•"Cash receipts" refers to cash collections on our nonperforming loan portfolios plus fee income.

•"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.

19

•"Estimated remaining collections" or "ERC" refers to the sum of all future projected cash collections on our nonperforming 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 nonperforming 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 IVAs, Trust Deeds in the UK, Consumer Proposals in Canada and bankruptcy accounts in the U.S., Canada, Germany and the UK.

•"Negative Allowance" refers to the present value of cash flows expected to be collected on our finance receivables.

•"Portfolio acquisitions" refers to all nonperforming loan portfolios acquired as a result of a purchase, but also includes portfolios added as a result of a business acquisition.

•"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 (as defined below) 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 2021, 2020 and 2019 are for the years ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively.

20

Results of Operations

The results of operations include the financial results of the Company and all of our subsidiaries. As of January 1, 2020 we adopted Accounting Standards Codification ("ASC") Topic 326 "Financial Instruments-Credit Losses" ("ASC 326") on a prospective basis. Prior period amounts were accounted for under ASC Topic 310-30 "Loans and Debt Securities Acquired with Deteriorated Credit Quality. The following table sets forth Consolidated Income Statement amounts as a percentage of total revenues for the periods indicated (dollars in thousands):

21

Year Ended December 31, 2021 Compared With Year Ended December 31, 2020

Cash Collections

Cash collections for the years indicated were as follows (amounts in millions):

(1) Cash collections adjusted refers to 2020 cash collections translated using 2021 exchange rates.

Cash collections were $2,061.7 million in 2021, an increase of $55.9 million, or 2.8%, compared to $2,005.8 million in 2020. The increase was largely due to increased cash collections in Europe of $128.9 million, or 22.3%, primarily reflecting the impact from significant levels of portfolio purchases in the last few years. This increase was partially offset by a decrease of $40.1 million, or 10.7%, in U.S. legal cash collections reflecting a lower volume of accounts in the legal channel. Cash collections in our U.S. call center and other collections decreased by $14.3 million, or 1.9%, primarily due to the level of cash collections normalizing compared to elevated levels from the impact of excess consumer liquidity and government programs in response to the COVID-19 pandemic in 2020 and lower purchasing. Additionally, cash collections in Other Americas and Australia Core decreased $10.6 million, or 7.9%, and cash collections in Americas Insolvency decreased $8.0 million, or 5.2%, primarily due to the runoff of older portfolios.

Revenues

Revenue generation for the years indicated were as follows (amounts in thousands):

Total Portfolio Revenue

Total portfolio revenues were $1,073.2 million in 2021, an increase of $19.9 million, or 1.9%, compared to $1,053.3 million in 2020. The increase reflects cash collections overperformance mostly offset by the net impact of forecast adjustments and, to a lesser extent, lower purchasing. We assumed that the majority of the cash collections overperformance was acceleration of future collections. We also increased near-term expected cash collections in certain geographies to reflect recent performance and trends in collections, and made corresponding reductions later in the forecast period.

Fee Income

Fee income was $14.7 million in 2021, an increase of $5.0 million, or 50.8%, compared to $9.7 million in 2020. The increase is primarily attributable to higher settlements during 2021 in our claims processing company, CCB.

Other Revenue

Other revenue was $7.8 million in 2021, an increase of $5.5 million compared to $2.3 million in 2020. The increase reflects a gain on sale from certain other assets during the first quarter of 2021.

Operating Expenses

Total operating expenses were $720.7 million in 2021, an increase of $5.0 million, or 0.7%, compared to $715.7 million in 2020.

22

Compensation and Employee Services

Compensation and employee service expenses were $302.0 million in 2021, an increase of $6.8 million, or 2.3%, compared to $295.2 million in 2020. The increase was primarily attributable to higher costs associated with additional headcount in Europe, unfavorable foreign exchange rates and increased stock based compensation expense, partially offset by a reduction of costs associated with lower average headcount in the U.S. call center workforce. Total full-time equivalents decreased 9.8% to 3,446 as of December 31, 2021 from 3,820 as of December 31, 2020.

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 $47.2 million in 2021, a decrease of $6.6 million, or 12.3%, compared to $53.8 million in 2020. The decrease was mainly due to lower 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 $78.3 million in 2021, a decrease of $23.3 million, or 22.9%, compared to $101.6 million in 2020. The decrease was primarily due to lower levels of accounts placed into the legal channel in the U.S., primarily reflecting a shift in collections from the legal channel to our call centers and digital platforms. This decrease was partially offset by an increase in Europe reflecting higher recent purchases and muted levels of accounts placed into the legal channel during 2020 from the impact of the COVID-19 pandemic.

Agency Fees

Agency fees primarily represent third-party collection fees. Agency fees were $63.1 million in 2021, an increase of $6.7 million, or 11.9%, compared to $56.4 million in 2020 primarily reflecting an increase in agency fees outside of the U.S. during the first half of the year.

Outside Fees and Services

Outside fees and services expenses were $92.6 million in 2021, an increase of $8.5 million, or 10.1%, compared to $84.1 million in 2020. The increase was primarily due to higher legal expenses.

Communication

Communication expenses primarily represent postage and telephone related expenses incurred as a result of our collection efforts. Communication expenses were $42.8 million in 2021, an increase of $2.0 million, or 4.9%, compared to $40.8 million in 2020. The increase mainly reflects higher postage costs due to our decision to delay mailing in 2020 in response to the COVID-19 pandemic.

Other

Other expenses were $61.1 million in 2021, an increase of $13.7 million, or 28.9%, compared to $47.4 million in 2020. The increase was primarily driven by investments in digital operations and data and analytics as well as higher software expenses.

23

Interest Expense, Net

Interest expense, net for the years indicated were as follows (amounts in thousands):

(1) Excludes interest related to our Convertible Notes.

Interest expense, net was $124.1 million in 2021, a decrease of $17.6 million, or 12.4%, compared to $141.7 million in 2020 primarily due to lower levels of average outstanding borrowings under our debt obligations and the 2021 change in accounting related to our convertible notes. See Note 1 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

Foreign Exchange (Loss)/Gain

Foreign exchange losses were $0.8 million in 2021 compared to foreign exchange gains of $2.0 million in 2020. In any given period, we may incur foreign currency exchange gains or losses from transactions in currencies other than the functional currency.

Income Tax Expense

Income tax expense was $54.8 million in 2021, an increase of $13.6 million, or 33.0%, compared to $41.2 million in 2020. The increase was primarily due to higher income before income taxes, which increased $41.4 million, or 19.8%, and a change in the mix of income between countries of operation. These increases were partially offset by a decrease in uncertain tax positions. In 2021 our effective tax rate was 21.9% compared to 19.7% in 2020.

Year Ended December 31, 2020 Compared To Year Ended December 31, 2019

Refer to Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of our 2020 Form 10-K for a discussion of our 2020 results compared to our 2019 results.

24

Supplemental Performance Data

Finance Receivables Portfolio Performance

We purchase nonperforming loans from a variety of credit originators and segregate them into two main portfolio segments: Core or Insolvency, based on the status of the account upon acquisition. In addition, the accounts are further segregated into geographical regions based upon where the account was purchased. The accounts represented in the Insolvency tables below are those portfolios of accounts that were in an insolvency status at the time of purchase. This contrasts with accounts in our Core portfolios that file for bankruptcy/insolvency protection after we purchase them, which continue to be tracked in their corresponding Core portfolio. Core customers sometimes file for bankruptcy/insolvency protection subsequent to our purchase of the related Core portfolio. When this occurs, we adjust our collection practices to comply with bankruptcy/insolvency rules and procedures; however, for accounting purposes, these accounts remain in the original Core pool. Insolvency accounts may be dismissed voluntarily or involuntarily subsequent to our purchase of the Insolvency portfolio. Dismissal occurs when the terms of the bankruptcy are not met by the petitioner. When this occurs, we are typically free to pursue collection outside of bankruptcy procedures; however, for accounting purposes, these accounts remain in the original Insolvency pool.

Purchase price multiples can vary over time due to a variety of factors, including pricing competition, supply levels, age of the accounts acquired, and changes in our operational efficiency. For example, increased pricing competition during the 2005 to 2008 period negatively impacted purchase price multiples of our Core portfolio compared to prior years. Conversely, during the 2009 to 2011 period, additional supply occurred as a result of the economic downturn. This variance created unique and advantageous purchasing opportunities, particularly within the Insolvency market, relative to the prior four years. Purchase price multiples can also vary among types of finance receivables. For example, we generally incur lower collection costs on our Insolvency portfolio compared with our Core portfolio. This allows us, in general, to pay more for an Insolvency portfolio and experience lower purchase price multiples, while generating similar net income margins when compared with a Core portfolio.

When competition increases and/or supply decreases, pricing often becomes negatively impacted relative to expected collections, and effective interest rates tend to trend lower. The opposite tends to occur when competition decreases and/or supply increases.

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 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 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.

Revenue recognition under ASC 326 is driven by estimates of the amount and timing of 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, the annual pool is aggregated 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 effective interest rate is fixed at the amount we expect to collect discounted at the rate to equate purchase price to the recovery estimate. During the first year following purchase, we typically do not allow purchase price multiples to expand. Subsequent to the initial year, as we gain collection experience and confidence with a pool of accounts, we regularly update ERC. As a result, our estimate of total collections has often increased as pools have aged. These processes have tended to cause the ratio of ERC to purchase price for any given year of buying to gradually increase over time. 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 categories of portfolio segments and related geographies.

25

(1)Includes the acquisition date finance receivables portfolios that were acquired through our business acquisitions.

(2)For our non-U.S. amounts, purchase price is 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.

(3)For our non-U.S. amounts, TEC is presented at the year-end exchange rate for the respective year of purchase.

(4)For our non-U.S. amounts, ERC is presented at the December 31, 2021 exchange rate.

(5)The Original Purchase Price Multiple represents the purchase price multiple at the end of the year of acquisition.

26

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

(2)For non-U.S. amounts, net finance receivables are presented at the December 31, 2021 exchange rate.

27

(1)For our non-U.S. amounts, cash collections are presented using the average exchange rates during the cash collection period.

(2)Includes the nonperforming loan portfolios that were acquired through our business acquisitions.

(3)For our non-U.S. amounts, purchase price is 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 pool are presented at the year-end exchange rate for the respective year of purchase.

28

Estimated Remaining Collections

The following chart shows our ERC of $6,006.6 million at December 31, 2021 by geographical region (amounts in millions).

The following chart shows our ERC by year as of December 31, 2021. 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, 2021 exchange rate.

Seasonality

Although the years ended December 31, 2021 and 2020 deviated from usual seasonal patterns due to the impact of COVID-19, typically cash collections in the Americas tend to be higher in the first half of the year due to the high volume of income tax refunds received by individuals in the U.S., and trend lower as the year progresses. Customer payment patterns in all of the countries in which we operate can be affected by seasonal employment trends, income tax refunds, and holiday spending habits.

29

Cash Collections

The following table displays our quarterly cash collections by geography and portfolio type, for the periods indicated (amounts in thousands).

The following table provides additional details on the composition of our Core cash collections for the periods indicated (amounts in thousands).

Collections Productivity (U.S. Portfolio)

The following table displays a collections productivity measure for our U.S. Portfolios.

(1)Represents total cash collections less internal legal cash collections, external legal cash collections and Insolvency cash collections from trustee-administered accounts.

Cash Efficiency Ratio

The following table displays our cash efficiency for the periods indicated.

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

30

Portfolio Acquisitions

The following graph shows the purchase price of our portfolios by year since 2011. It also includes the acquisition date nonperforming loan portfolios that were acquired through our business acquisitions.

The following table displays our quarterly portfolio acquisitions for the periods indicated (amounts in thousands).

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 59 million customer accounts in the U.S. (amounts in thousands).

31

(1)Fresh accounts are typically past due 120 to 270 days, charged-off by the credit originator and sold prior to any post-charge-off collection activity.

(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.

Non-GAAP Financial Measures

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;

•loss on sale of subsidiaries (or less gain on sale of subsidiaries);

•recoveries applied to negative allowance less changes in expected recoveries for the years ended December 31, 2021 and 2020; and

•collections applied to principal on finance receivables for the year ended December 31, 2019.

The following table is 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, 2021, 2020 and 2019 (amounts in thousands).

32

(1) Other (income)/expense 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, 2021 and 2020 (amounts in thousands).

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, 2021, cash and cash equivalents totaled $87.6 million. Of the cash and cash equivalents balance as of December 31, 2021, $61.9 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, 2021, we had the following borrowings outstanding and availability under our credit facilities (amounts in thousands):

(1) Available borrowings after calculation of borrowing base and debt covenants as of December 31, 2021.

(2) Includes North American revolver and the Colombian revolver. For more information, see Note 6 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

33

In 2021, we completed the private offering of $350.0 million in aggregate principal amount of its 5.00% Senior Notes due October 1, 2029. The funds received from these notes were used to repay borrowings outstanding under our North American revolver.

Interest-bearing deposits. Per the terms of our European credit facility, we are permitted to obtain interest-bearing deposit funding of up to SEK 1.2 billion (approximately $132.6 million as of December 31, 2021). Interest-bearing deposits as of December 31, 2021 were $124.6 million.

Furthermore, we have the ability to slow the purchase of nonperforming loans if necessary, and use the net cash flow generated from our cash collections from our portfolio of existing nonperforming loans to temporarily service our debt and fund existing operations. For example, we invested $972.3 million in portfolio acquisitions in 2021. The portfolios acquired in 2021 generated $143.3 million of cash collections, representing only 7.0% of 2021 cash collections.

Uses of Liquidity and Material Cash Requirements

Forward Flows. Contractual obligations over the next year are primarily related to purchase commitments. As of December 31, 2021, we have forward flow commitments in place for the purchase of nonperforming loans with a maximum purchase price of $650.6 million, of which $650.0 million is due within the next 12 months. The $650.6 million includes $246.7 million for the Americas and Australia and $403.9 million for Europe. We may also enter into new or renewed forward flow commitments and close on spot transactions in addition to the aforementioned forward flow agreements.

Borrowings. Of our $2.6 billion borrowings at December 31, 2021, estimated interest, unused fees and principal payments for the next 12 months are approximately $107.3 million, of which, $10.3 million relates to principal. Beyond 12 months our principal payment obligations related to debt maturities occur between one and eight years. Many of our financing arrangements include restrictive covenants with which we must comply. As of December 31, 2021, 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.

Share Repurchase. On July 29, 2021, our Board of Directors approved a $150.0 million share repurchase program. On October 28, 2021, the Board of Directors approved an increase of $80.0 million to the Company's existing share repurchase program for a total of $230.0 million. Repurchases may be made from time-to-time in open market transactions, through privately negotiated transactions, through block transactions, or other methods subject to market and/or other conditions and applicable regulations. Repurchases are made using cash on hand and shares repurchased are retired. We are not obligated to repurchase any specified amount of shares and, at our discretion and subject to compliance with applicable laws, the repurchase program may be modified, suspended or discontinued at any time. During the year ended December 31, 2021, we repurchased 4,841,313 shares of our common stock for approximately $212.9 million.

Leases. The majority of our leases have remaining lease terms of one to 14 years. As of December 31, 2021, we had $61.2 million in lease liabilities, of which $11.2 million matures within the next 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, 2021, we had $26.0 million of derivative liabilities, of which $17.7 million are due with 12 months. For more information, see Note 9 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

Employment Agreements. We have entered into employment agreements with certain executive officers for approximately $13.0 million, of which $6.5 million is payable if executed within the next 12 months. Our U.S. executive officer agreements mature in December 2023, while executive officer agreements entered into outside of the U.S. are pursuant to local country regulations and typically do not have expiration dates. For more information, see Note 14 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

We believe that funds generated from operations and from cash collections on nonperforming loan portfolios, together with existing cash, 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 12 months and beyond. We may seek to access the debt or equity capital markets as we deem appropriate, market permitting. Business acquisitions or higher than expected levels of portfolio purchasing could require additional financing from other sources.

34

Cash Flows Analysis

The following table summarizes our cash flow activity for the years ended December 31, 2021 and 2020 (amounts in thousands):

Operating Activities

Cash provided by operating activities mainly reflects cash collections recognized as revenue partially offset by cash paid for operating expenses, interest and income taxes. Key drivers of operating activities were adjusted for (i) non-cash items included in net income such as provisions for unrealized gains and 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.

Net cash provided by operating activities decreased $56.8 million, or 40.1%, during the year ended December 31, 2021 mainly driven by lower cash collections recognized as portfolio income and lower cash paid for income taxes, partially offset by the impact of unrealized foreign currency transactions and higher cash paid for operating expenses.

Investing Activities

Cash provided by investing activities mainly reflects recoveries applied to our negative allowance. Cash used in investing activities mainly reflects acquisitions of nonperforming loans and net investment activity.

Net cash provided by investing activities increased $45.4 million during the year ended December 31, 2021, primarily driven by higher cash collections applied to our negative allowance partially offset by higher purchases of finance receivables. Additionally, investing activities were impacted by our purchase of additional government securities during the second quarter.

Financing Activities

Cash provided by financing activities is normally provided by additional borrowings under our revolving credit facilities and proceeds from debt offerings. Cash used in financing activities is primarily driven by principal payments on our revolving credit facilities, long-term debt and other debt.

Cash used in financing activities increased $10.7 million during the year ended December 31, 2021, primarily due to cash used to repurchase common stock mostly offset by lower net cash used related to borrowings activity, including the payment on convertible notes in the third quarter of 2020 and higher net contributions from noncontrolling interests.

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 $61.9 million and $97.0 million as of December 31, 2021 and 2020, 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.

Critical Accounting Estimates

Our Consolidated Financial Statements have been prepared in accordance with GAAP. Some of our significant accounting policies require that we use estimates, assumptions and judgments that affect the reported amounts of revenues,

35

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.

We consider accounting estimates to be critical if (1) the accounting estimates made involve a significant level of estimation uncertainty and (2) has had or are reasonably likely to have a material impact on our financial condition or results 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 Statements may be material.

We have determined that the following accounting policies involve critical estimates:

Revenue Recognition - Finance Receivables

Revenue recognition for finance receivables involves the use of estimates and the exercise of judgment on the part of management. These estimates include projections of the amount and timing of future cash flows and economic lives of our pools of accounts. We review pools for trends, actual performance versus projections and curve shape (a graphical depiction of the timing of cash flows). We then re-forecast future cash flows by applying a discounted cash flow methodology to our ERC.

During 2020, we made assumptions that the majority of cash collections overperformance was due to acceleration of future collections rather than an increase to total expected collections. As a result, we reduced cash flow forecasts by the amount of the overperformance. During 2021, this assumption remained relatively consistent with the exception of certain adjustments we applied to near-term forecasted cash collections. In the most recent quarters, we adjusted the next three to six month forecast to reflect the most recent actual results with corresponding reductions to the collection forecast later in the forecast period.

Significant changes in such estimates could result in increased or decreased revenue as we immediately recognize the discounted value of such changes using the constant effective interest rate of the pool. Generally, adjustments to reduce estimated cash forecasts for overperformance experienced in the current period result in a negative adjustment to revenue at an amount less than the impact of the overperformance due to the effects of discounting. Additionally, cash flow forecast increases will generally result in more revenue being recognized. Based on historical data, we determined there was no evidence to suggest that the overperformance in cash was improvement to the total estimated collections instead of acceleration. This assumption resulted in offsetting reductions in future cash flow expectations across most of our geographies. As we continue to perform against these revised expectations, performance may vary, which could result in additional adjustments to our cash flow forecasts with a corresponding adjustment to total portfolio revenue.

Income Taxes

We are subject to income taxes throughout the U.S. and in numerous 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 non-U.S. income tax expense, we make judgments about the application of these inherently complex laws.

We record 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 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.

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 benefits related to uncertain tax positions in the application of the complex tax laws. While actual results could vary, we believe we have adequate tax accruals with respect to the ultimate outcome of such unresolved tax matters. We record interest and penalties related to unresolved tax matters as a component of income tax expense when the more likely than not standards are met.

If all or part of the deferred tax assets are determined not to be realizable in the future, we would establish a valuation allowance and charge to earnings the impact in the period such a determination is made. If we subsequently realize deferred tax assets that were previously determined to be unrealizable, the respective valuation allowance would be reversed, resulting in a positive adjustment to earnings. The establishment or release of a valuation allowance does not have an impact on cash, nor does such an allowance preclude the use of loss carryforwards or other deferred tax assets in future periods. The calculation of

36

tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations and financial position. For further information regarding our uncertain tax positions, refer to Note 13 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.

Recent Accounting Pronouncements

For a summary of recent accounting pronouncements and the anticipated effects on our Consolidated Financial Statements see Note 1 to our Consolidated Financial Statements included in Item 8 of this Form 10-K.