Exhibit 99.2
ASTA FUNDING, INCORPORATED
Moderator: Gary Stern
02-09-05/10:00 am CT
Confirmation # 3925512
Page 1
ASTA FUNDING, INCORPORATED
MODERATOR: GARY STERN
FEBRUARY 9, 2005
10:00 AM CT
Operator: Good morning. My name is (Natasha) and I will be your
conference facilitator today. At this time, I would like
to welcome everyone to the Asta Funding First Quarter
Results Conference Call.
All lines have been placed on mute to prevent any
background noise. After the speakers' remarks, there will
be a question-and-answer period. If you would like to ask
a question during this time simply pres star then the
number 1 on your telephone keypad. If you would like to
withdraw your question press the pound key.
Thank you. Mr. Axelrod, you may begin your conference.
Steve Axelrod: Thank you. This is Steve Axelrod of Wolf Axelrod
Weinberger & Associates, the IR agency working with Asta
Funding. Good morning and thank you all for joining us for
Asta Funding's quarterly conference call to discuss the
results for the first quarter ended December 31, 2004.
Hopefully, you have now all had the opportunity to review
the press release discussing the financial results but
once again, if you have not, please call our agency, Wolf
Axelrod Weinberger & Associates, at 212-370-4500 and we
will immediately send it to you either by fax or e-mail.
ASTA FUNDING, INCORPORATED
Moderator: Gary Stern
02-09-05/10:00 am CT
Confirmation # 3925512
Page 2
Before I ask our host, Gary Stern, CEO of Asta Funding, to
discuss the current results, let me take a few minutes to
read the forward-looking statement. Except for historical
information containing herein, the matters set forth in
this conference call are forward-looking statements as
defined in the Private Securities Litigation Reform Act of
1995. Although Asta Funding Incorporated believes the
expectations reflected in such forward-looking statements
are based upon reasonable assumptions; there can be no
assurance that its expectations will be realized.
Forward-looking statements involve certain risks and
uncertainties that could cause actual results to differ
materially from Asta Funding's expectations. Factors that
could contribute to such differences include those
identified in Asta Funding Incorporated's Form 10-K for
the fiscal year ended September 30, 2004 and those
described from time to time in Asta Funding Incorporated's
other filings with the Securities and Exchange Commission,
news releases and other communications, including that
Asta may not be able to purchase consumer receipt
portfolios at favorable prices or on sufficiently
favorable terms or at all and may not be able to continue
its quarterly dividend program. Asta Funding Inc.'s
reports with the Securities and Exchange Commission are
available free of charge through its Website at
www.AstaFunding.com.
With that accomplished, let me turn the discussion over to
Gary Stern, President and Chief Executive Officer of Asta.
Gary?
Gary Stern: Thank you Steve. Good morning, everyone, and thank
you for joining Asta's First Quarter Conference Call. I am
pleased to report record results for Asta's first quarter
of fiscal 2005, which is off to a great start. Our revenue
and earnings showed excellent growth and has been fueled
by the increase of our book of business over the last two
years.
ASTA FUNDING, INCORPORATED
Moderator: Gary Stern
02-09-05/10:00 am CT
Confirmation # 3925512
Page 3
For the first quarter ended December 31, 2004, we
purchased consumer receivable portfolios with an aggregate
charge-off balance or face value of approximately $1
billion at an aggregate cost of $36.5 million, which was
financed primarily through cash flows from operating
activities and our credit facility.
With that said, I'd like to briefly comment on how we view
the current state of the debt-buying marketplace as it
relates to Asta. Excuse me one minute. I am just battling
a cold, so please bear with me.
First, we're very pleased with the level of portfolio
purchases during the first quarter. We will continue to
reap the benefits of our close relationships to seek
opportunities to make additional acquisitions. The price
we are willing to pay for receivables is strictly driven
by our desired rate of returns, and we continue with this
disciplined approach.
While pricing is a significant issue for us and as the
environment continues to remain highly competitive, Asta
was able to purchase in excess of $1 billion of
receivables. We continue to distinguish ourselves by
having low overhead cost with our monthly expenses being
fairly fixed at approximately $1.1 to 1.3 million per
month.
The fact that Asta has such scalability to its business,
especially when it comes to cost control, is of utmost
importance. It allows Asta to continue to collect
aggressively on its current book of business, which will
open even more capital faster to be prepared to react once
paper that meets Asta's strict criteria becomes available.
The Company is currently not under any pressure to
purchase paper and will remain focused, disciplined and
selective on any paper it will review. Excuse me, I
apologize. We will continue to cultivate our sourcing
capabilities and strengthen our financial wherewithal.
ASTA FUNDING, INCORPORATED
Moderator: Gary Stern
02-09-05/10:00 am CT
Confirmation # 3925512
Page 4
Although credit card debt has been a bulk of our business,
during the first quarter, we saw a different mix, paying
approximately $25.2 million for credit card debt and $11.3
million for telecom debt. We will not shy away from new
opportunities that fit into our disciplined purchasing
criteria. In fact, as we continue to see pricing
competition across all classes of portfolios, Asta has
been very nimble to acquire other classes, particularly in
the telecom area.
To add to this point, we've bolstered the Asta management
team by recently adding Nan Beilinson as our National
Sales Manager. Nan has hit the ground running and will be
focusing on the purchase and sale of distressed assets, as
well as positioning and promoting Asta to new faces at
financial institutions who are potential source of their
distressed consumer receivables. We've worked with Nan for
many years, especially from her days at Manufacturers
Hanover Trust and Chemical Bank. It's great to have her on
our side of the business.
Our balance sheet continues to be strong. At the end of
the first quarter, our capital structure remained very
sound with $121.3 million in shareholders' equity and $37
million owed under our credit facility, leaving Asta with
the necessary resources and flexibility to move swiftly
and opportunistically as may be necessary. As of
yesterday, we only owed our bank $31 million.
Now Mitchell Cohen, our CFO, will take you through Asta's
financial report.
ASTA FUNDING, INCORPORATED
Moderator: Gary Stern
02-09-05/10:00 am CT
Confirmation # 3925512
Page 5
Mitchell Cohen: Thank you, Gary. I am very pleased to announce that Asta
Funding has continued its outstanding performance through
its first fiscal quarter, reporting record revenues and
earnings for the quarter ended December 31, 2004.
Asta reported record revenues for the quarter of $13.8
million, a 21% increase over revenues of $11.5 million for
the first fiscal quarter of '04. This was driven by strong
collections of $36.8 million in the quarter, an increase
of 27.3% from the prior quarter of $28.9 million. Of these
collections, $3.1 million were from fully amortized pools
or approximately 8% of total collections.
Total expenses, excluding interest, increased slightly to
$3 million as compared to the year-ago quarter, up
slightly from $2.5 million in the same quarter one year
ago. This does not include $862,000 for third-party
servicing and interest expense, which is now absent in the
current quarter. Interest expense increased by $236,000 to
407,000 during the quarter, as compared to the same period
in the prior year, and was due to an increase in the
average outstanding borrowings by Asta under its line of
credit.
Asta continues to have tight controls, as most expenses
remain relatively fixed, another benefit to our
outsourcing a majority of our collections. We expect these
levels -- expense levels to remain around $1.1 million to
1.3 million per month during fiscal 2005.
As the result of excellent revenue growth and continued
expense control, Asta's pre-tax income reached $10.4
million in the quarter, up 31.7% from the prior-year
results. Asta's tax rate in the quarter was approximately
41%. This rate is in line with our expectations and we
believe it will be similar throughout the remainder of
fiscal 2005.
ASTA FUNDING, INCORPORATED
Moderator: Gary Stern
02-09-05/10:00 am CT
Confirmation # 3925512
Page 6
Net income was $6.2 million during the quarter, increasing
31.7%, compared to $4.7 million for the first quarter of
fiscal 2004. We reported fully diluted earnings per share
of 43 cents, an increase of 30.3% and an increase over the
prior year's quarter of 33 cents per share.
As Gary mentioned, Asta's balance sheet continues to
remain financially strong. At fiscal year end,
stockholders' equity totaled 120 million -- 121 million,
excuse me -- up from 97.3 million last year. Annual book
value per share was 8.95 at the end of the first quarter
and increased sequentially from $8.52 per share at the
fiscal 2004 year-end, and up approximate 7.32 per share at
the end of the first quarter of 2004.
That concludes my formal remarks. Now, I'd like to turn it
back to Gary.
Gary Stern: Thank you, Mitchell.
As most of you know, Asta's unique business model, where
we outsource 95% of our receivables, enables us to
maintain a streamlined infrastructure, affording us
tremendous operating leverage and flexibility as we
continue to grow. We also recognize that we need to have
the highest quality infrastructure and sufficient
resources to support future growth while maximizing
returns.
During the first quarter, we have continued to build our
book of business, but I'm also proud of the great strides
we've made over this period by purchasing $1 billion of
face value, which brings our total portfolio of purchases
to approximately $11 billion since 1999.
Expanding our resources and relationships to new sources
of business, especially with our new hire of Nan
Beilinson, with credit card issuers and sellers of other
charged-off consumer receivables, including utilities and
telecommunications companies, and committing to having the
best possible management information and operational
systems in the industry.
ASTA FUNDING, INCORPORATED
Moderator: Gary Stern
02-09-05/10:00 am CT
Confirmation # 3925512
Page 7
In addition, Asta is fully prepared for new accounting
rule SOP 203-03, which became effective for portfolios
acquired after December 15, 2004. We believe our
accounting methods remain the most conservative in the
industry, and we don't expect any material impact from the
adoption of these new rules. I am confident that the
fruits of our labor will be reflected in fiscal 2005 and
beyond.
Now, I would like to open the discussion to any questions
that anyone may have.
Operator: At this time I would like to remind everyone if you would
like to ask a question, press star and the number 1 on
your telephone keypad. We will pause for just a moment to
compile the Q&A roster. Your first question comes from
(Joe) Chumbler.
(Scott Nelson): This actually Scott Nelson filling in for (Joe). How are
you doing?
Gary Stern: Good morning.
(Scott Nelson): Gary, a first question -- you stated in the last
conference call that you felt that credit card prices had
plateaued. Is this still the case today? Have you
experienced any possible, meaningful price increases in
the nontraditional market that would cause your purchasing
growth to slow down any?
Gary Stern: I think we saw a little bit more of an increase in credit
card prices. We are buying telecom paper at very
attractive prices. We still were able to purchase credit
card paper at attractive prices, and we are hoping to be
able to buy a significant amount of paper. We can't
predict the future. However, you know, there are
opportunities and we are hoping that the pricing levels
off, but I just, you know we have certain portfolios that
are available to us at attractive prices and we are
continuing to buy those.
ASTA FUNDING, INCORPORATED
Moderator: Gary Stern
02-09-05/10:00 am CT
Confirmation # 3925512
Page 8
But we're not sure what the future will bring but we're
certainly in a great position, because of our scalability
of our business, low overhead and we're really not under
pressure to buy paper. We have always run this company
that way, when the market was not competitive at all and
when it is competitive. So we will continue to just stay
focused and buy the right opportunity, the right portfolio
at the right time.
(Scott Nelson): Okay. Secondly, can you talk about any other
nontraditional debt classes outside of telecom that you
guys may pursue and just kind of the overall market
outlook for the nontraditional sector?
Gary Stern: We are not really sure what other markets we're
going to go after. We have some ideas, which we would
rather not publicize, because I think they are markets
that other people are not going after at the present time.
But presently, we've just been purchasing telecom and
credit card paper.
(Scott Nelson): I think, if my math is correct -- can you discuss
your available liquidity at -- I think you have about 20
million left on your revolver. Then where do you guys
stand quarter end with cash? And do you think these funds
will be appropriate?
Gary Stern: I'm sorry, I was coughing in the middle. Can you repeat
it? I apologize. I have a bad cold and I couldn't hear the
whole question.
ASTA FUNDING, INCORPORATED
Moderator: Gary Stern
02-09-05/10:00 am CT
Confirmation # 3925512
Page 9
(Scott Nelson): Understandable. In regards to your liquidity position, can
you update us? I think you probably have about 20 million
left on your revolver that's unused. Can you let us know
where cash stands at quarter end and if you think those
funds are appropriate to fund future portfolios?
Gary Stern: Well, as of last night, we have about $31 million
available under that line.
(Scott Nelson): Okay.
Gary Stern: The cash we keep on hand is kind of small.
(Scott Nelson): Okay, so the cash flow from operations and your unused
capacity should be plenty for 2005?
Mitchell Cohen: We believe so.
Gary Stern: We believe so and the reason we leave very little
cash on hand is we are consistently paying down the bank
line because we are cost-conscious and we don't want to
pay interest unless we have to.
(Scott Nelson): Sure. Okay guys, thank you.
Gary Stern: Thank you.
Operator: Your next question comes from David Chamberlain.
David Chamberlain: Hi, thanks, can you give any idea -- if I look at the
paper you bought this quarter, you know, the cents on the
dollar and kind of where -- what level that was --
tertiary, secondary, and then kind of maybe a breakout of
-- between credit card. You know you had said that you had
bought more telecom paper this quarter, you know, what
kind of pricing you're seeing there right now?
ASTA FUNDING, INCORPORATED
Moderator: Gary Stern
02-09-05/10:00 am CT
Confirmation # 3925512
Page 10
Gary Stern: Yes, we purchased about $370 million in telecom paper for
approximately $11.5 million and purchased $665 million in
credit card paper for about $25 million. It's all across
the board. I would say it's mainly secondary and tertiary.
I'm trying to recall if we bought any fresh. We may have
bought a very small fresh package, but an insignificant
amount.
David Chamberlain: Okay. Thank you.
Gary Stern: You're welcome.
Operator: Your next question comes from (Ted Price).
(Ted Price): Are you seeing, because you outsource everything, any
pressure to pay more for your collections?
Gary Stern: Absolutely not. We've been in this business for many, many
years and we know many people that would love our business
and there is excess capacity -- we believe there will
always be excess capacity for us to outsource, so we price
-- what we try to do is be fair to our outsourcers. We
don't want to just force them to take pricing, you know,
contingency paper where it's not profitable for both
parties. We do ask them to lower their margins somewhat
because of the volume that we give them but we're not
having to pay more at all. It's quite the contrary. We
actually are using more of a legal strategy, which we've
discussed recently, so we are more oriented towards
sending them to legal network and individual attorneys
that we've worked with for many years. We do use a
collection agency and legal strategy on our telecom.
ASTA FUNDING, INCORPORATED
Moderator: Gary Stern
02-09-05/10:00 am CT
Confirmation # 3925512
Page 11
(Ted Price): Okay.
Mitchell Cohen: In fact, it works to our advantage because we are able to
pay the same amount but keep the same low-cost
infrastructure.
(Ted Price): And the fact that you're doing more on the legal side is
not more expensive?
Gary Stern: No, absolutely not. It's actually a little bit less
expensive, I would say, and it's much more effective
because we have very good systems. We pride ourselves on
our systems and our ability to decide what accounts are
the right accounts to sue. So if you're careful in what
you're doing and you know what you're doing and you know
you can predict with some reason who the most likely
candidates are to pay, you can really control your own
destiny. We've been able to do that very successfully.
There's also a longer tail when you sue people; there's a
longer tail on collections, so collections go out over
more than a 5-year period because by the time you obtain a
judgment and liens on houses and garnishments, etc., etc.,
there's a longer process but also a longer tail on
collections.
(Ted Price): I got you. Okay.
Operator: At this time I would like to remind everyone if you would
like to ask a question press star and the number 1 on your
telephone keypad. Your next question comes from (Ted
Price).
(Ted Price): Yeah, let me circle back one more time on the whole issue
of pricing. I know you said you can't really project it,
but I don't recall hearing you talk about it in quite the
same way you put it in the press release this morning. It
sounded to me like you are more concerned than you were in
the past. Is that the case?
ASTA FUNDING, INCORPORATED
Moderator: Gary Stern
02-09-05/10:00 am CT
Confirmation # 3925512
Page 12
Gary Stern: As far as pricing?
(Ted Price): Yes.
Gary Stern: I would say -- I would characterize it that we are
a little bit more concerned on the credit card side, not
really concerned on the telecom side. You know, maybe the
wording -- I don't know what wording are you referring to?
(Ted Price): I don't have it in front of me but I think you said you
saw there were some pressure on prices, and I forget
exactly how you put it -- that the growth of the portfolio
could wane in the future.
Gary Stern: Yes, I mean the growth could. We are of the opinion we
will be able to buy our fair share of paper. We're not
going to do anything foolish. If people are overpaying now
and they have been for quite awhile, in our opinion, some
people, some groups -- we don't know who they are because
we are not privy to that -- we're going to stay
disciplined. And invariably what usually happens is people
get a rude awakening eventually and then pricing come back
down.
Now, we have always structured this company and will
continue to structure this company to have fixed overhead.
We've never been of the opinion that it makes sense to
have many collectors. We have, obviously, the skills and
the wherewithal to hire 1,000 or 2,000 collectors as
needed, but we always believe and feel very firmly that
the best policy is to have lower overhead to basically
manage your outsourcing groups and manage them at an
effective rate.
And, you know, I'm not terribly concerned about our
ability to buy paper at the right price, but we're not
going to do anything foolish. And the credit card market
is a little bit tougher than it was last quarter, but we
think it will come down eventually.
ASTA FUNDING, INCORPORATED
Moderator: Gary Stern
02-09-05/10:00 am CT
Confirmation # 3925512
Page 13
We are enjoying the ability to buy telecom paper at
attractive, very attractive prices, because of certain
relationships we have. We are going to look at some other
markets, which we're not going to discuss on the call
because we feel that we are better off keeping that
confidential. But we will go with the flow, and that's
exactly how we feel.
(Ted Price): Okay.
Gary Stern: And I'd like you to be aware -- if indeed we don't spend
as much money, I don't think this should be a bad sign and
we're not predicting the future, but I think one should
look at this company as being extremely disciplined with a
significant amount of paper that's being in the proper
hands, whether it's collection agencies or law firms
that's being managed properly. We also probably are going
to try to continue, as we always do, to resell paper. But
I think you ought to view us as someone that's a long-term
equity play, and we're very conscious of doing the right
thing with our money. If it means accumulating cash, we
will do that, and if it means, you know, buying paper, we
will do that, but so far, we're pretty comfortable with
what we have.
(Ted Price): I think that's always been the case. I'm not sure that
that's so widely known now by the Streets. I wanted to
hear you say it again.
Gary Stern: Without coughing and having to blow my nose, so maybe I'm
batting 1000 instead of striking out with the
interruptions with blowing my nose.
(Ted Price): Thanks.
ASTA FUNDING, INCORPORATED
Moderator: Gary Stern
02-09-05/10:00 am CT
Confirmation # 3925512
Page 14
Operator: Your next question comes (Tom Levin).
(Tom Levin): Yes, my questions -- I'm not so sure if you do this or
not, but are you giving any guidance for the next fiscal
or at all in terms of topline?
Gary Stern: No, we really haven't given any guidance at all, ever.
(Tom Levin): Okay. The second question then is with regards to -- which
I just want to be clear so I understand, with regards to
margins, if you will. The margin question is you talked
about the outsourcing. Would you say that, going forward,
you feel that you'll be able to maintain, because of the
low fixed costs, the same type of profitability in the
future?
Gary Stern: Yes, yes, yes. We don't expect any material increase in
our fixed overhead, and we will not accept any increase in
our outsourcing expense, which is all contingency based.
So, we don't really -- we feel we can maintain our
margins.
(Tom Levin): Okay.
Mitchell Cohen: That is what is unique about our business, is that (it's
not really) competitive.
(Tom Levin): Thank you.
Gary Stern: You're welcome.
Operator: Your next question comes from (Matt Varnette).
Matt Varnette: Hi Gary, hi (Mitch). This is (Matt) how are you
doing? First of all, thanks for a good quarter. Second of
all, I might have missed one of your answers. You
mentioned that you were looking at other markets, and I
know you may not want to say what they are for competitive
reasons, but can you answer maybe two things then? One,
are they meaningful sized markets that you're looking at?
Second of all, do you think, within the next couple of
years, you may enter one of these markets that you are
looking at?
ASTA FUNDING, INCORPORATED
Moderator: Gary Stern
02-09-05/10:00 am CT
Confirmation # 3925512
Page 15
Gary Stern: They could be meaningful. We're not sure; we're testing it
right now. And yes, if we enter the market, it will be
within a year, or less than a year. It will be very
quickly. We are trying to enter the market as we speak. We
don't know how easy it will be, but it's not very
competitive in our opinion.
(Matt Varnette): Okay and thanks again for a good quarter and being
consistent with everything you've said from to the day of
the roadshow.
Gary Stern: You're welcome. Thank you.
Operator: Your next question comes from David Chamberlain.
David Chamberlain: Just a follow-up question -- when you think about the
telecom paper and the earn-out and how you collect the
paper, versus is credit card, are there any significant
differences there? I mean, is it a similar process and a
similar collection period or can you give me kind of more
color there?
Gary Stern: I think, depending on the mix of telecom, because some
portfolios we buy have smaller balances, which will
liquidate out faster, and others have a mix of larger
balances and smaller balances and on the larger balances
we're starting to use the litigation strategy, so that
could be longer-term but overall, I think that the paper
probably will behave somewhat similar to our credit card
paper if you look at our legal strategy on our credit card
paper.
ASTA FUNDING, INCORPORATED
Moderator: Gary Stern
02-09-05/10:00 am CT
Confirmation # 3925512
Page 16
David Chamberlain: Given the way you're pricing, you expect kind of similar
return?
Gary Stern: Yeah, absolutely. We're not buying any paper without our
hope to attain similar returns. You know, we can't always
be right but knock on wood, most of the time, we have been
correct. So we're not going to lower our expectations to
buy a portfolio for the sake of putting on business.
And that speaks to my fact of -- that I articulated
earlier, that if you see a quarter or a month where things
are slow, I don't think anybody should be concerned. They
should just view us as smart buyers and are not doing
anything foolish. Then we will accumulate cash or pay our
bank debt down. So we're going to continue with our
approach to acquire portfolios at the necessary yields
because we think it's pretty foolish to buy paper and
lower your expectations and just chase other buyers. We're
not affected at all by what other people do; we are
affected by what our team and our focus is, which is to
buy paper at the right price and to focus on maximizing
recovery for ourselves and for shareholders.
David Chamberlain: Right that makes sense. I guess, secondarily, just on the
telecom opportunity -- and this has been a recent start-up
purchasing -- do you feel that all the players that now
own the paper kind of know that you and others are out
there willing to collect on it? Second, just kind of --
can you give some kind of top 10,000-feet picture of kind
of the opportunity there in the telecom space versus the
current credit card space, just in terms of paper
outstanding?
Gary Stern: I think there are opportunities in telecom, and I
think it's widely known and we aren't really that new.
Approximately two years ago, we purchased about $0.5
billion in telecom paper, so we do have some experience.
Before we jump into something and really spend a lot of
money into an asset class, we are going to test the
waters.
ASTA FUNDING, INCORPORATED
Moderator: Gary Stern
02-09-05/10:00 am CT
Confirmation # 3925512
Page 17
So prior to that $0.5 billion purchase, I believe we spent
$0.5 million on a similar purchase just to test how it was
coming out of the gate. And that's what we will do with
any new asset class. So you know, I think there are
opportunities in telecom. One needs to be selective. Some
paper trades, in our opinion, at very high price, and some
paper trades at very attractive prices, so we're very
selective and we are not chasing deals.
So it is a competitive market but if you know what you're
doing and you know who to buy from and you stay
disciplined, you know our attitude is there will always be
another deal and that has always been our attitude. So we
are not going to have buyer's remorse and wish we didn't
pay X dollars for a portfolio. The only time we would have
buyer's remorse is if we chased a transaction.
David Chamberlain: Thank you so much.
Gary Stern: You're welcome.
Operator: Your next question comes from (James Leonard).
(James Leonard): Good morning, guys. I just want to pursue the rate of
return differential, or the similar returns in telecom and
credit card paper a little bit. There is a cost
differential. Is the quality the same? I'm trying to
reconcile the cost differential. Is the quality the same,
or does it cost more to collect one than the other? Is the
timing different? Because you're indicating you're getting
the same rate of return on both but you're cost is
different. Can you kind of reconcile those for us?
Gary Stern: The cost is somewhat different. It's not that much --
there's not that much of a difference in what we're paying
for credit card debt and what we're paying for telecom
debt. It's somewhat different. The average, I would say,
was around -- if you look at the 370 million, somewhere in
3 cent range on telecom. And, you know, just doing the
math, it's probably a little bit higher on the credit card
paper but it's not really material.
ASTA FUNDING, INCORPORATED
Moderator: Gary Stern
02-09-05/10:00 am CT
Confirmation # 3925512
Page 18
The costs really are similar. We are outsourcing the paper
to various groups at similar costs that we are outsourcing
the credit card paper. Then again, you know, one has to
know who to outsource telecom paper to. There are
certainly companies that are set up to handle telecom or
small-balance paper, and there are certain companies that
are set up to handle the larger-balance telecom paper, so
we use various strategies. Therefore, an agency that can
handle small balances can handle it at an effective rate
for both parties. So, by having great knowledge of the
industry and great knowledge of where to outsource, we see
the same returns at similar cost.
(James Leonard) I guess I'm just looking at the cost differential is about
25% and it looked like you were paying about 25% more for
credit card paper than you were for telecom paper. If your
rate of return is the same, there should be something to
equalize that 25% I guess is what I'm...
Gary Stern: Let me just go over the math. The average on credit card
paper probably is what, 3.6, or 3.7.
(James Leonard): About 3 cents and about 3.8 cents on...
Gary Stern: Okay. I see what you're saying. I don't think you
should read into that because there was probably a mix of
some better credit card paper in there. When I better, you
know, a little bit fresher paper than telecom paper, so I
think the costs are going to be similar. We may be able to
even buy paper at lower costs than telecom paper. We are
negotiating a transaction now to buy some telecom paper at
a lower cost than what we've paid in the past.
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(James Leonard): But if the mix -- if there's a higher mix in the credit
card paper that was sort of due to the cost I guess I
could conclude that the cost differential is basically due
to quality then?
Gary Stern: Yeah, absolutely. We feel the economics are similar. They
may be even a little bit better depending on what we pay
for telecom paper in the future, because they might even
be a little bit better in the telecom market.
(James Leonard): Okay. Did you wholesale any portfolios this quarter?
Gary Stern: Yes, we always do. We always sell paper.
(James Leonard): Can you indicate how much -- how many wholesale...
Gary Stern: We've never talked about that and we really don't
disclose that but we always, as a general basis, will sell
paper as we feel people are buying it at our indifference
point. So, many people that want to buy paper we sell to a
select few as we see we are hitting an indifference point.
(James Leonard): Is there any consistency there, whether, you know, say, if
we look at a percentage of revenues or a percentage of
cash inflow? Is there any consistency there on a
quarter-to-quarter basis or annual basis? Do you sell
about the same amount of wholesale or is there big
fluctuations?
Gary Stern: You know, I don't, you know, Mitch can answer that because
we don't -- I haven't really focused on it. We just sell
as we feel it makes sense. There may have been some
fluctuations.
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Mitchell Cohen: Right, there might be some fluctuations up and down
quarter-to-quarter, but it wouldn't be material.
(James Leonard): It wouldn't influence profit margins is what you're
saying?
Mitchell Cohen: Exactly. If we're going to get the same type of rate of
return on a sale, we will do that.
(James Leonard): Can you indicate what your -- what your revenues, what
percent was interest-based and what percent was cash-based
on the two kind of -- the two quarters?
Mitchell Cohen: We would prefer not to. It's forward-looking and backward
looking and information that's not public right now.
James Leonard: What were your cash receipts on the two quarters?
Gary Stern: Well, the total cash, including sales, were close to 37
million this quarter. Last quarter, I believe they were
what 29? Twenty-nine last quarter.
(James Leonard): Okay. Okay. Thank you, guys.
Gary Stern: You're welcome.
Operator: Your next question comes from (Gerry Kahn).
(Gerry Kahn): Over the last two years -- I don't have the numbers
here -- but you spent, I don't know, $2 or 300 million
buying I think over $3 billion worth of receivables. How
would you characterize your present backlog? Let's assume
you didn't purchase anything. It seems to me you have a
portfolio now that could sustain this sort of revenue for
some time, being conservative and not buying paper that
doesn't need your standards, which always makes sense. It
really shouldn't have much of an impact in the near term.
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02-09-05/10:00 am CT
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Gary Stern: Okay, we've purchased, in the last two years -- I don't
have the numbers in front of me but I believe, last fiscal
year, we spent approximately $104, 105 million and the
year before $110 million and so far this quarter, you
know, 35 million, $35.5 million. But you know, there's a
much longer tail on legal, so if we wouldn't buy any
paper, we feel there's significant cash flow continually
coming in and that will continue to come in over along
period of time, especially since the last 6 to 12 months
we've targeted more legal, more of a legal strategy than a
collection-agency strategy, with the exception of telecom,
it's both. So we think that if we didn't buy any paper for
a while, there should be a good amount of cash coming in.
(Gerry Kahn): Was there any reason you couldn't assume that it would be
at the present level?
Gary Stern: Well, it could be at the present level.
Mitchell Cohen: It could be higher.
Gary Stern: It could be at the present level, it could be higher...
(Gerry Kahn): Yes, I understand. You have enough backflow; you are not
dependent on current purchases if the prices in one
category went up a little bit.
Gary Stern: Yes, I mean, we have a lot of paper out there. We have a
lot of paper that's producing, and there are new people
that are starting to pay every day. So if we didn't buy
paper for a while, you know, it's not going to really hurt
us short-term in my opinion. That's not the case, by the
way. We are buying paper, so I don't want to give anybody
the wrong impression.
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(Gerry Kahn): You bought quite a bit in the last quarter.
Gary Stern: Last quarter and we're continuing to buy paper. We are not
disclosing how much at this point, but we are buying a
certain amount of paper at very attractive prices. So, if
things dry up over a short period of time, it's not going
to -- would it bother us? Yes. It would bother us from the
business point of view of trying to buy as much as we can
but we're not going to be overly concerned because we have
this big backflow and we know we're doing the right thing
to protect our shareholders and ourselves.
(Gerry Kahn): The statement that that gentleman referred to probably was
where you said "Even while the number of portfolios that
meet our disciplined purchasing guidelines may wane".
Mitchell Cohen: I think you have to focus on the word "may" there.
(Gerry Kahn): I'm just saying that's (unintelligible), isn't it? The
stock market has -- maybe there's other things I don't
know but the stock is down almost $4.
Gary Stern: Yes, it's down $4 though.
(Gerry Kahn): Someone didn't like it. 3.90 to be exact. I don't know.
Gary Stern: It's unfortunate but...
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(Gerry Kahn): But no, I think you are sticking to doing the right
things and being conservative and not buying other stuff,
and I echo the sentiments that the gentleman made before
that were positive. Thank you.
Gary Stern: Okay, thank you.
Operator: Your next question comes form (Brandon Frank).
(Brandon Frank): Yes, three quick questions -- first, do you generally
expect the mix of telecom and credit card purchases to be
the same in the future? Second, with the telecom
purchases, is that mostly wireless or is that fixed-line
telecom? Then thirdly, have you seen any changes in the
prices for telecom receivables, given the changes recently
in the telecom market? Consolidation?
Gary Stern: To answer the first question, we don't know what the mix
will be but we certainly think we'll buy a little bit more
telecom than credit card paper. We're not going to respond
because whether it's wireless or landline. Last but not
least, yes, there are some pricing issues with certain
sellers of telecom but like anything else, we pick and
choose who we buy from, so there are some portfolios we
bought debt that we were nowhere near where we were told
portfolios traded at, and there are others that we are
successful.
(Brandon Frank): Okay, thanks.
Gary Stern: You're welcome.
Operator: Your next question is from (Joe) Chumbler.
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02-09-05/10:00 am CT
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(Scott Nelson): This is (Scott Nelson). Just a quick follow-up -- what
were total collections in the period? Can you break those
out between 0 basis portfolios and the legal channel?
Gary Stern: You know, I'm responding for (Mitch). We can get back to
you. We don't have the total breakout on legal channel
versus non-legal channel, but if you'd like, we can get
that to you.
(Scott Nelson): I'll call you after the call. Thanks.
Operator: At this time, there are no further questions. Mr. Axelrod,
are there any closing remarks?
Steve Axelrod: The closing remarks, if any, will be done by Gary Stern.
Gary Stern: Steve, you can do it.
Steve Axelrod: Well, we wish to thank all of you for joining us again for
the conference call. If you need any further information,
you can contact the Company at their number or at Wolf
Axelrod at 212-370-4500. Thank you all for joining us.
Have a great day.
Gary Stern: Thank you very much, everyone. Have a great day.
END