Webcast Transcript Exhibit 99.2
ASTA FUNDING, INCORPORATED
MODERATOR: STEPHEN AXELROD
DECEMBER 13, 2005
10:00 AM CT
Operator: Good morning. My name is (April) and I will be your
conference facilitator today. At this time, I would like
to welcome everyone to the Asta Funding, Inc. Year-End
Financial 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 session. If you would like to ask a question during
this time, simply press 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.
Stephen Axelrod: Thank you very much. Good morning all and thank you for
joining us for Asta Funding's Quarterly conference call to
discuss the results for the fourth quarter and 12 months
ended September 30, 2005.
By now all of you should have had the opportunity to
review the press release discussing the financial results
and the other releases that came out this morning but if
you have not, please call Wolfe Axelrod Weinberger
Associates, at 212-370-4500 and we will immediately send
it to you either by fax or e-mail as you request.
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 contained herein, the
matters set forth in this news release are forward-looking
statements as defined in the Private Securities Litigation
Reform Act of 1995.
Although Asta Funding, Inc. 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, Inc.'s expectations.
Factors that could contribute to such differences include
those identified in Asta Funding, Inc.'s Form 10-K for the
fiscal year ended September 30, 2004, and those described
from time to time in Asta Funding, Inc.'s other filings
with the Securities and Exchange Commission, news releases
and other communications, including that Asta may not be
able to purchase consumer receivable 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 out of the way, let me turn the discussion over
to Gary Stern, President and Chief Executive Officer of
Asta Funding. Gary?
Gary Stern: Thank you, Steve. Good morning, everyone, and thank you
for joining Asta's Quarterly conference call to discuss
the three and 12 months ended September 30, 2005.
Before I proceed with my formal remarks, I'd like to note
that Asta Funding has successfully completed the
implementation of the evaluation of internal controls over
financial reporting as required by the Sarbanes-Oxley Act
of 2002 for the year-ended September 30, 2005.
The Manager will include a report that is an Annual Report
on Form 10-K for the year-ended September 30, 2005, which
will be filed with the Securities and Exchange Commission
shortly, reporting on the effectiveness of internal
controls over financial reporting. In that report, Manager
represents that as of September 30, 2005, the company's
internal controls over financial reporting are effective
based on the evaluations performed. We would like to thank
our staffs for the effort during this process.
I am very pleased to report another quarter and fiscal
year with record results. Asta's revenue and net income
showed excellent growth for the fourth quarter of fiscal
2005, growing 35% and 38% respectively. This growth is a
direct result of the superior management of our book of
business, which we built especially over the last three
years. We will continue building upon our book of business
by adding more portfolios at attractive prices.
To that end, we have seen a lot of activity in our space
due to a variety of factors, including a change in the
bankruptcy laws and anticipated increases in minimum
payments on credit cards by the issuers. Both of these
have led to increase charge-offs and have enabled us to
make significant purchases during the first quarter of
fiscal year 2006 and have greatly increased our pipeline.
We also anticipate closing on more purchases in the year
future. As always, we will keep you informed of our
purchases.
During the fourth quarter ended September 30, 2005, Asta
purchased consumer receivables with aggregate charged-off
balances of face value of approximately $1.3 billion at an
aggregate cost of $33 million to a blended rate of 2.6%
that was financed primarily through cash flows from
operating activities and our credit facility.
For the fiscal year ended September 30, 2005, we purchased
at face value approximately $3.5 billion for a purchase
price of approximately $126 million or a blended rate of
3.5%. During the first quarter of fiscal 2006, we have
already purchased portfolios with a face value of $970
million for a purchase price of $47.7 million or a blended
rate of 4.9%. The higher blended rate is attributable to
us purchasing some fresher paper.
The purchases during the fourth quarter had a lower
blended rate than what Asta has traditionally purchased
because the paper where it was in one particular instance
a large one-on-one transaction due to an excellent
relationship we have with a major issuer.
Despite a lower blended rate for the quarter and fiscal
year, I'd like to take a moment and reiterate that Asta's
primary goal is to purchase paper at the right price that
will perform to its desired yields.
By gauging the blended rate of our purchases is by no
means a proven figure on how a portfolio will perform;
meaning, because we purchased the portfolio for a higher
price does not mean the returns or yields on such a
portfolio will be higher or lower than one purchase for a
much lower price - percentage price.
I would like to spend a moment talking about Asta's
philosophy on purchasing. Firstly, Asta typically bids on
larger portfolios to reduce competition and given the
larger size of the portfolios, it enables us the
flexibility to use our various strategies of collecting to
the maximum.
Secondly, every portfolio is different. We scrub or
analyze each portfolio prior to purchase and implement
proprietary techniques to estimate how well the portfolios
could perform. The bottom line, pricing a portfolio for
purchase is the number one key to successful profits in
our business.
And although our blended rates are not in a consistently
tight range, that does not mean we are struggling with our
purchases, actually, on the contrary. We find that our
success in the last several years is due to our
disciplined approach to purchasing our portfolios and
making sure that whatever we invest in has a solid chance
of returning superior results to our investors.
Although pricing is the most important key to our success,
let us not forget the collections process. Asta mitigates
turnover risk and the risk of hiring and managing hundreds
of thousands of collectors by outsourcing a vast majority
of its collections with a network of collection agencies
and law firms that the company has developed over many
years. We have excellent relationships with these firms
and the results have been excellent whether it be credit
card or telecom paper.
While their job is to collect, let me emphasize that it is
our duty to continually monitor the collection process. We
are in touch with our network of servicers on a consistent
basis, making sure the process is going smoothly, and that
each and every firm is working the paper up to our
expectations.
Asta, due to its flexible business model, has the ability
to act quickly and move paper around. In the normal course
of business, we usually move paper from one group in our
network to another and continuously do that process in an
orderly fashion to maximize results. This moving usually
occurs within a six-month period and usually at around six
months, which is the industry norm.
Additionally, our model allows us to sell paper at prices
that are attractive to us and as important, sell the less
desirable accounts within our collective portfolios. We
remain very pleased with the level of portfolio purchases
during the quarter and fiscal year and into the first
quarter of our new fiscal year.
Pricing continues to remain at competitive levels but we
do see a significant supply of paper in the marketplace.
The price we are willing to pay for receivables is
strictly driven by our desired returns and yields and we
will continue with this disciplined approach. In addition,
the quality of the paper remains strong.
Asta's acquisitions going forward will be based on
portfolio availability and even more importantly, pricing.
We believe that the pipeline of available paper remains
strong as seen by our purchases during the quarter. We
continue to review possible purchases on a regular basis.
Credit card debt remains a bulk of our business but we
continue to review new opportunities that fit into our
disciplined purchasing criteria. During the fourth
quarter, the majority of the portfolio purchases were from
approximately 75% credit card receivables while telecom
was approximately 25% of total purchases.
I'd like to briefly discuss our position within the
telecom space. Asta purchased its first telecom portfolio
approximately three years ago. To date, the telecom
portfolios have met or exceeded our expectations. We will
continue to invest in telecom paper depending on price and
we'll also seek out additional types of asset classes to
leverage our flexible and scalable purchasing models as we
did with the telecom markets.
We feel very confident in the asset purchases made during
fiscal 2005 and for the purchases so far during our first
fiscal quarter of 2006. Asta makes purchases when seen
fit, not on a quarterly or weekly basis as the company
outsources a vast majority of its collections, leaving us
pressure-free of making acquisitions of portfolios for the
sake of feeding the system.
Asta will continue on this purchase path knowing that any
uses of capital can meet our expectations similar to
historical levels. Remember, by outsourcing most of our
collections, Asta does not take on the risk of turnover
issues as well as being driven to purchase paper to keep
an in-house function busy.
Let me briefly out - highlight our balance sheet, which
continues to be strong. At the end of the fourth quarter,
our capital structure remains very sound with $145.2
million in shareholders equity.
We believe assets adequately capitalized with
approximately $51 million of our committed $100 million
credit facility currently unused as of December 12, 2005
with the ability to go to $125 million giving us an
additional $49 million to invest in portfolios. This
leaves Asta with the necessary resources and flexibility
to move swiftly and opportunistically as may be necessary.
Although cash is a highly looked upon asset, we'd rather
place our cash flow into action by purchasing portfolios.
The accumulation of cash is a good thing but shareholders
invest in our company to put their money to work, not act
as a bank. If additional opportunities arise, we feel
highly confident that our credit lines could easily be
expanded to one-time shareholders equity.
In addition, if by chance we needed to act upon a
transaction that would exceed our capital ranges, Asta has
in place several relationships with large financial
companies that are willing to partner with Asta. They
remain eagerly on the sidelines as they too recognize our
excellent track record. Additionally, I am pleased to
inform you that we are increasing our dividend from 14
cents to 16 cents.
And now Mitchell Cohen, our CFO, will take you through
Asta's financial report. Mitchell?
Mitchell Cohen: Good morning, everybody, and thank you, Gary. I am
pleased to announce that Asta Funding has continued its
outstanding performance through its fiscal fourth quarter,
reporting record revenues and earnings for the quarter and
year-end at September 30, 2005.
Asta reported record revenues for the quarter of $20
million, a 35% increase over revenues of $14.8 million for
the fourth quarter of fiscal 2004. This was driven by
extremely strong net cash to (the likes) of $46.4 million
in the quarter, an increase of 61.6% from the prior year
quarter of $28.8 million. During the quarter, Asta sold
$18.5 million worth of paper versus $8.3 million of paper
in the same period last year.
Portfolio resales typically occur on a consistent basis
and will continue to remain a part of our business model
and remains yet another channel for us to maximize and
enhance our yields.
Gary Stern: Okay. Let me just mention something. You know, Mitch's
glasses actually broke a short while ago so he's having a
hard time reading. So I'm going to read and continue.
Revenues for the 12 months increased 35.8% to $69.5
million from $51.2 million. Cash collections during the 12
months ended September 30, 2005 were $168.9 million or
48.1% from $114 million in the prior year period. During
the fiscal year, Asta sold $64.7 million worth of paper
versus $40.3 million in the same period last year. Total
expenses excluding interest increased to $4.2 million, up
from $3.6 million in the same quarter one year ago.
The majority of the increased costs was from higher
administrative costs associated with a $26.7 increase in
the accounts acquired for liquidation, including court
costs, printing, postage, delivery costs, data processing
costs, salaries, payroll, taxes, and benefits, and
professional fees, including the implementation of
Sarbanes-Oxley Act of 2002 and telephone charges.
Asta continues to have tight cost controls as most
expensive - expenses remain relatively fixed, another
benefit to outsourcing the majority of our collections.
The expenses in the fourth quarter ran approximately $1.4
million per month and we do not expect these expense
levels to climb significantly during the next fiscal year.
Interest expense increased by $216,000 to $438,000 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 which stood at
$29.3 million at the quarter's end and was $51 million on
December 12, 2005.
As a result of excellent revenue growth and continued
expense controls, Asta's pre-tax income reached $15.3
million in the quarter, up 38.8% from the prior year
results of $11 million.
Asta's tax rate in the quarter was approximately 41%;
these rates were in line with our expectations and likely
will remain the same during the remainder of 2006.
Net income was $9 million during the quarter, increasing
38.3%, compared to $6.5 million in the fourth quarter of
fiscal 2004. We reported fully diluted earnings per share
of 62 cents, a 35.3% increase over the prior year
quarter's 46 cents per share.
As I mentioned earlier, Asta's balance sheet continues to
remain financially strong. At the year-end, Asta's
shareholders - the shareholders equity was $145.2 million,
up from $114.5 million one year earlier; tangible book
value per share was $10.68 at the end of the fourth
quarter and increased sequentially from $10.05 per share
at the end of the third quarter of fiscal 2005 and up from
approximately $8.52 per share at the end of the fourth
quarter of fiscal 2004.
Okay. Okay, that includes Mitch's remarks and my remarks.
Mitchell Cohen: Right.
Gary Stern: But I'm going to now - this is Gary now continuing. Okay.
I'm very pleased to announce Asta Funding has continued
its outstanding performance through its fiscal fourth
quarter, reporting record revenues and earnings for the
quarter and year ended September 30 or 2005.
Asta reported record revenues for the quarter - I'm sorry.
Okay. Okay. Asta's unique business model whereby we
outsource a vast majority of our receivables enables us to
maintain a streamlined infrastructure, affording us
tremendous operating leverage and flexibility as we
continue to grow. We believe strongly in this model as it
has proven worthy, especially as seen in today's reported
results.
Our disciplined approach continues to prove itself each
and every quarter. In fact, the return on average equity
during the quarter was approximately 27% on an annualized
basis.
We believe that our business model is highly successful
and will continue to remain patient with making portfolio
purchases. Our business model thankfully offers us the
flexibility to bid on portfolios of substance that will
continue to meet our yield and grant shareholders high
growth as experienced during fiscal 2005.
To summarize, I am very proud of the great strides we have
made over this fiscal year by producing record revenues
and record earnings, expanding our book of business by
purchasing $3.5 billion of face value, completing our
evaluation, or testing and audit of internal controls over
financial reporting required by Sarbanes-Oxley Section
404, issuing an increased regular quarterly dividend, and
keeping our capital structure properly positioned for
additional portfolio purchases that may arise.
Additionally, we will be disclosing sales, vintage
portfolio performance from 2001 and more in our 10-K,
which will be coming out shortly. I am very pleased with
the results to date and confident we can continue to grow
the company during fiscal 2006 and beyond.
That concludes our formal remarks. (Mitch) and I would
like to open the call for any questions.
Due to the enormous growth in interest in Asta Funding and
(unintelligible) to be able to take everyone's questions,
we please ask you limit your questions to one per person.
In addition, (Mitch) and I will be available immediately
after this call until 2:00 pm Eastern Time for any further
questions you may have. We can be reached at 201-567-(568)
extension 226.
Operator, could you please take over for questions.
Operator: Yes sir. Again I would like to remind everyone if you
would like to ask a question, press star then the number 1
on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster...
Your first question comes from the line of Joe Chumbler
with Stephens, Inc.
Joe Chumbler: Hey, good morning. Congratulations on a strong quarter,
Gary.
Gary Stern: Good morning. Thank you.
Joe Chumbler: My question is, you know, obviously deal flow is robust
but, you know, it sounds like pricing has increased in the
last couple of months. Given your disciplined approach,
how close are we to getting to an environment where Asta
could be priced out of the market?
Gary Stern: We do not think pricing has increased in the last
few months. We've been - and because we - our prices are
4.9 cents does not mean we're paying more for paper than
we did in the past.
Mitchell Cohen: These - Joe, this is (Mitch).
Joe Chumbler: Yeah.
Mitchell Cohen: We've purchased a different type of paper in this
particular quarter, in the '06 quarter, than we did in the
fourth quarter of '05, okay. (Most of) this is a lot
fresher than we typically buy.
Gary Stern: Right. It's fresher and there's also some uniqueness in
some of the credit card paper that we bought that we have
experience in.
So, you know, because - to reiterate, because we pay 4.9%
does not mean we pay any higher than we have in the last
year, year and a half. And we will not be priced out of
the market.
Mitchell Cohen: And Joe, I just feel the need to hammer the point home. We
are not paying more. This is a little different type of
paper than we've been purchasing in the past.
Gary Stern: A different mix.
Joe Chumbler: Okay. I was really - I wasn't referring to your
year-to-date purchases. I have been hearing that, you
know, freshly charged-off accounts were going for over 12
cents on the dollar, which is up pretty significantly from
just even a few months ago, and that had trickled down to
secondary and tertiary paper.
So I guess I was just thinking in general it sounds like,
you know, prices have gone up recently and are we getting
to a point where, you know, disciplined could be priced
out. But it sounds like you guys are still able to
maneuver around that.
Mitchell Cohen: Well, again, we are very comfortable with the purchases
we've made. I don't think you're exactly accurate on the
price of paper in the market, you know. We're seeing it,
and Gary's going to jump in here any second, (you know).
But we're happy with our buys and tertiary paper is going
for around the same that it has been going for.
Gary Stern: Joe, let me mention something to you. There is fresh paper
that trades at 15 cents. We have bought some over the last
six to nine months. And I - not a lot but I want to
reiterate something.
We're very experienced in predicting liquidation rates and
we have quite a bit of experience (and) knowing the
difference between what paper to buy and what paper not to
buy.
And while 15 cents for some fresh paper may sound to you
as high, we know the liquidation rates on the table. We
know for several reasons - because we have relationships
with agencies that work similar paper.
So one (issue) that - issuer that may sell paper for 15
cents, and there is a small piece of this business at 15
cents, it's worth it. Another issuer might sell fresh
paper for 9 cents and we wouldn't buy it. So we know
exactly what we're doing if we pay 15 cents for fresh
paper.
And that is only a small piece of what we bought. We have
bought some fresh paper that (have) certain nuances that
are well below 12 cents by the way. And we would rather
not get into those nuances because of competitive reasons.
But we also have experience in those specific assets.
So we pride ourselves in being - in management doing this
for over 40 years and buying many, many portfolios in all
cycles, and all types of assets.
Now as far as the seconds and (tert), it's issuer
specifics. There are some issuers that we have bought from
in the past that we haven't bought from in a year and a
half or two because of pricing.
However, there are other issuers that we have bought from
in the past where we're able to buy at similar prices that
we have in the last year. So we have not experienced
whatsoever any increase on our part in purchases that
we're paying more money today than we did six months ago.
And (in fairness), Joe, just want to keep everybody on the
same playing field, we would gladly after this call speak
to you as long as you need to. We just really want to
limit it to one question because I think in the past the
conference calls have gone on for a long time and other
people sit there waiting. We don't think it's fair.
But we will be available after the call to speak with you
for as long as you want.
Mitchell Cohen: And Joe, you know you can call us.
Joe Chumbler: (Yep). All right, that's helpful. Thanks, guys.
Man: All right, bye.
Operator: Your next question comes from the line of Steve Delaney
with Ryan Beck, I'm sorry.
Steve Delaney: Good morning, gentlemen.
Gary, could you comment on the capacity within your chosen
vendors, your collection agencies that you use to
outsource, you know, you're buying all this paper and you,
you know, you've been steadily buying paper.
Do you see any issue there as far as using the proven
people that, you know, that have worked for you in the
past? Are you going to have to look to develop new
relationships there to handle all this new paper that's
coming in in the first quarter and what you might announce
shortly?
Gary Stern: Steve, we are - we select the people we do business with.
Actually all of our people, all of the services, law firms
and agencies, constantly ask us for more paper. They have
excess capacity.
With that being said, (there are) probably another 30
groups that we know of that have - we've known for a long
time that would love to do business with us. It's our
choice and we pick and choose who we do business with.
We've been doing this for many, many years. And we're also
loyal to the people that do a good job for us. And, you
know, we set the standards on how they should collect. We
try to be open minded with them and we constantly monitor
them.
So they're constantly asking. The emphatic answer is
there's much more capacity than we could ever buy and we
expect that to continue for a long, long time. We're not
concerned about how much paper we buy.
We have in place a system where it comes in-house, we do
what we need to do, we know where the paper's going, we
move the paper around. Usually every six months, could be
a little earlier, a little later, depending on what's
going on. But that's (a) industry norm.
And that we expect to continue. So we are very, very
pleased with all of our services and we don't see a need
to increase.
Mitchell Cohen: And Steve, since you know I like to talk, it really speaks
to the flexibility of the model. You know, we wouldn't
have to increase our overhead at all or, you know, just
insignificantly.
You know we'd love to purchase as much paper as we can
buy.
Steve Delaney: Okay. Thanks very much. I'll respect the one question
thing. And...
Man: (Call us)...
Steve Delaney: ...(Mitch), maybe you'll get one of those Lasik deals in
your Christmas stocking and you can get rid of those
glasses.
Mitchell Cohen: Good idea. Thank you.
Steve Delaney: Sure.
Operator: Your next question comes from the line of Barry Lass with
Goldman Lass (Security).
Barry Lass: Congratulations Gary on a blockbuster year.
Gary Stern: Thank you.
Barry Lass: The question I have is does Asta have any thoughts of
going for the IRS defaults?
Gary Stern: You know, we have not disclosed that in the past and we
can not comment on that.
Mitchell Cohen: But we - having said that, we do look at other asset
classes and the IRS will be one, medical paper will be
another, utilities. Whatever's out there that we can
liquidate at similar rates will be something high on our
list.
Barry Lass: Thank you.
Man: You're welcome.
Operator: Your next question comes from the line of Charles Trafton
with Americas Growth Capital.
Charles Trafton: Hi, thanks. In 1999, you - sales were $16 million of your
$51 million of collections and then the next several years
you didn't disclose it until just now. You - when we said
sales were $64 million out of your $168 million of
collections. So it's 38% of collections.
Man: Yes.
Charles Trafton: Can you walk me through how the accounting works when you
sell paper and how much of it becomes profit versus what
expense there might be associated with it? And why does -
why did you decide to disclose that now?
Man: Well, the accounting treatment for sales is similar to any
other collection. And remember, Charles, our collections
are net, not gross.
Charles Trafton: Right.
Man: So any money that we collect via the sales route goes into
the mix of predictability of cash flows over the five
years and the sale revenue is recorded the same way as any
other collection.
Charles Trafton: Right. But what expense is associated with it?
Man: Well, I'll answer and then we have to move on. But
Charles, the - (ours) are net, so...
Charles Trafton: There's no expense.
Man: Well, (unintelligible) collection of 30%.
Charles Trafton: Right. So of the $64 million of sales this year, what
expense did you have associated with it?
Man: Well, I think what you're asking is what is the gross
collections. And those were in excess of - total were in
excess - well, we are going - we do not - will not answer
that. It will be in the 10-K.
Man: Yes.
Man: And I don't want to be rude either, Charles, you know,
you've asked several questions. We will gladly, you know
speak offline. But we want to be fair to everybody.
But there will be a disclosure as far as gross
collections.
Charles Trafton: Right. But the sales of $64 million, that is a net number?
Man: Excuse me?
Charles Trafton: The $64 million of sales is a net number?
Man: That's the - that's our net sales off of our net
collections. If we were to gross up the collections,
they'd be in excess of...
Man: We haven't disclosed.
Man: We will disclose it.
Man: It's a large number.
Man: It's a large number and that will be disclosed in the
10-K.
Charles Trafton: Okay. I may be completely confused.
Man: Okay, well...
Charles Trafton: ...when you say sales, you mean resale, selling old paper
out of the portfolio?
Man: Charles, we sell paper out of the portfolio. And we will
talk to you offline. I think we've answered the question
and we do not want to be rude. We will talk to you like
everyone else, (be) happy to do so.
Charles Trafton: Offline.
Man: Well, in fairness to everybody, we've given everybody the
same treatment. The same response.
Operator: Your next question comes from the line of James O'Brien
with Brean Murray.
James O'Brien: Yes, good morning.
On your telecom purchases, can you give us your thoughts
on pricing there going forward and what the collection
curves look like and is it a different type of collection
say from credit card? Maybe you can give us a little
overview on that.
Mitchell Cohen: Well, we find that the strategy is very similar and the
liquidation rates are very similar. I don't know. Gary, do
you want to talk about the price of the (unintelligible).
Gary Stern: Yeah, there's some paper that's priced - like anything
else, in credit card paper, there's some paper that in
telecom that's priced too high in our opinion, (there are)
others that's attractively priced.
So far we bought some attractively priced paper. That
could change like anything else over time. We don't know.
However, do deploy a legal strategy and we - there is less
paper in telecom paper than one would have as a total
percentage of the population that would qualify as legal
because of the nature of the (balances).
So we're not going to litigate on an account where someone
owes $300 because it's not cost effective. But with that
being said, there is a decent amount of paper in there
that would qualify and does qualify for a legal channel.
The agencies that collect on the lower balance paper, you
know, need to be equipped, which they are, to collect low
balance paper. So we specifically target groups that are
experienced in telecom and that are experienced in small
balance paper.
James O'Brien: Okay.
And could you just give us what the percentage of paper
you bought is out of (stat) paper?
Man: We do not buy out of stat paper.
James O'Brien: Okay.
Man: We - by and large, let me quantify that. When we buy a
portfolio, if the portfolio has some out of stat, we will
buy it. But we will not just buy an out of stat portfolio.
We will just - for the vast majority, if not almost all
(of it) is in stat when we buy it.
James O'Brien: Okay.
Man: So that there could be a caveat with 10% or 20% might be
out (but)...
James O'Brien: Mm-hm.
Man: ...generally (unintelligible).
James O'Brien: Okay. Thank you very much.
Man: Thank you, (unintelligible) call us later.
Operator: Your next question comes from the line of Brian Gonick,
Corsair Capital.
Brian Gonick: Hi, good morning.
Man: (Morning).
Brian Gonick: Could you tell us what the estimated future collections
are going to be out of your (current) portfolio?
Man: Excuse me? I didn't hear the question.
Brian Gonick: I know you're going to have more disclosure in the 10-K
but I'm thinking maybe you can tell us now what the
estimated future collections are out of your existing
portfolio.
Man: We can't.
Brian Gonick: Okay.
Man: But the disclosure won't be as detailed as that. It'll be
actual collections.
Brian Gonick: So you're not going to provide estimated future
collections in the 10-K?
Man: It's too forward looking and with (03-03), we feel that
it's a fluctuation, there's a lot of fluctuation that
could be in that number.
Brian Gonick: Okay.
Man: Up and down.
Man: Yeah right.
Brian Gonick: Okay. Okay.
Man: (Unintelligible).
Brian Gonick: (Mitch), can you tell us what zero basis revenues?
Mitchell Cohen: (I have) the paper in front of me. For '05 it was
approximately $2.4 million for the quarter. And last year
it was approximately $2 million. For the year it was
approximately $14.4 million versus about $14 million last
year.
Man: Cash basis revenue.
Mitchell Cohen: Cash basis revenue I'll got - that's not included. That
was just zero based.
Man: Right.
Mitchell Cohen: In cost recovery for the year we collected about $5.4
million in this year versus $5.3 million last year. And
for the quarter we collected about $1.5 million versus $1
million last year.
Man: I hate to give you one more but can you tell us what on
the cash flow statements the line item that reads
principle collected on receivables acquired for
liquidation for the year is going to look like?
Mitchell Cohen: I can't. I'd love to but...
Man: That'll be in the K.
Man: Yes.
Man: Okay thank you.
Man: Absolutely in the K.
Man; Thank you.
Man: Thank you.
Operator: Your next question comes from the line of Bob Cochran with
Morgan Stanley.
Bob Cochran: Hey, Gary and (Mitch), how are you?
Mitchell Cohen: How are you?
Man: How are you?
Bob Cochran: Congratulations. What percentage of the receivables are
sent for collection for via lawsuit? Can you break that
out or no?
Man: Well it's an interesting question but it goes through a
process first so they'll send it out to a collection
agency for a pass.
Bob Cochran: Okay so it's based more on the amounts and the season
involved as far as the collection.
Man: We try to get it though the level lever as best as
possible.
Bob Cochran: Okay.
Man: We first try to pick off whatever, you know, the low
hanging fruit as you guys like to hear.
Bob Cochran: Okay and all right. That's it. I can ask offline the other
questions I have. Thank you.
Man: Thank you.
Operator: Your next question comes from the lie of Audrey Snell with
Bank Equity.
Audrey Snell: Good morning. Can you tell us how you decide how much to
sell, what to sell and when following a purchase and do
you anticipate that you'll maintain that ratio at 40% or
thereabouts of cash collections in any given year?
Man: A difficult number to quantify because we go through a
series of events before a sale actually happens generally.
We work the paper and then we try to sell off the inferior
part of the portfolio. So we leave ourselves with the
superior part and highly collectible part of the
portfolio. And that's generally after a decent amount of
time. We do have services however that have a different
strategy and they sell some paper, you know, after three
or four or five months. And, you know, that's their
strategy and we don't buck their strategy but they're
doing exactly what we do. They may be doing it a little
faster but at the end of the day and if you looked at one
specific portfolio you'd have, you know, the bottom part
would be gone. We're not selling the good stuff.
Now just as an example I think we had a judgment attached
to a particular debtor and we was selling that account it
might be going for, Gary, what three or four times?
Gary Stern: Yes.
Man: But we wouldn't sell that account. We're keeping that
because we don't want three or four times. We want the
full boat so to speak. Does that answer your question,
(Audrey)?
Audrey Snell: Yes, thank you.
Man: Okay thank you. Call us later.
Operator: Your next question comes from the line of Edward
Hemmelgarn with Shaker Investment.
Edward Hemmelgarn: Yeah I just have a question regarding your - some of your
older years of portfolio purchases, what's the percentage
that you'll tip or net collections that you'll typically
collect as a percentage of your purchase price.
Man: That's a good question. We try and we strive to get 1-1/2,
1.7 and in some cases 2 times our money on our investment.
Sometimes we exceed that and sometimes we don't hit that
but in general I'm comfortable to say that we look for a
1-1/2 to above 1-1/2 on our return of our money.
Edward Hemmelgarn: Right.
Man: Which is a net number?
Man: Is most importantly as Gary is saying.
Gary Stern: Right, which I want to make clear.
Edward Hemmelgarn: I understand. It's your net of all (unintelligible)
because you don't have any cost of collection in there so
you're just...
Man: So if we're collecting 1-1/2 times as an example and you
gross that up we would be collecting a little bit over 3
times our investment.
Edward Hemmelgarn: So when you...
Man: Apples-to-apples.
Edward Hemmelgarn: When you report your number interest revenue...
Man: Financing.
Edward Hemmelgarn: Of that's 19.95 $9 million that is your - basically your
collections less amortization - net collections less the
amount that you amortized the cost of the portfolio.
Man: I just want to clear it up a little bit. It's the
amortized portion of the portfolio that goes to income and
the rest goes to amortized pool down. I think that's what
you meant but I just wanted to clarify that for everybody
else. In other words a percentage of the revenue that goes
- sends to the collections that go to revenue. The rest
goes to reduce the pool.
Edward Hemmelgarn: Well that's what I meant.
Man: I just wanted to make sure everybody else did. I knew you
did.
Edward Hemmelgarn: Oh okay, all right. And so in general I mean your - the
rate at which you - so we could get the amount that you've
amortized by just taking your net collections, the total
amount you've collected less your revenue recognized.
Man: Can you repeat that? I'm sorry.
Edward Hemmelgarn: If - we could determine the amount that you've amortized
by just the difference between your net - your cash
collected and your revenue recognized.
Man: Yes, basically yes. We also stated and it will state in
our 10-K and our 10-Q is always at what percentage of it
is revenue overall for the year in the quarter.
Edward Hemmelgarn: All right thanks.
Man: I - can I just mention something that I want to make this
crystal clear which I think is important for everyone to
hear. If we're collecting 1.5 times our initial purchase
so if we invest $1 million and we net $1-1/2 million our
cost structure here is very low on a quarterly basis. If
you take the $4.9 million number quarterly, if you combine
that together with the results versus grossing up the
collections with large infrastructures I think you should
look at the comparison between us and, you know, grossing
up numbers because grossing up numbers could mean 2-1/2, 3
or a higher number depending on portfolio vintage. But we
are not grossing the numbers up. We are netting them out,
all right, so and low overheard. So in comparison and when
you look at the industry you would find that we're below
other peers but those are on a gross basis versus net.
We get there in the same way - in a little different way.
Man: Right, with us having low fixed overhead.
Operator: Your next question comes from the line of Kara Murphy with
Chilton Investment Company.
Kara Murphy: Hi, thanks for taking my call. Just on the portfolio
resale it looks like what you sold as somebody mentioned
earlier about 40% of the growth collection and then 50% of
what you brought during the year. Is that a fair way to
look at it and going forward does that mean that you have
to replenish 50% of your inventory every year?
Man: Not necessarily no. But what we're doing, (Kara), again is
selling out the bottom of the portfolio so we wouldn't
replace that with - we wouldn't replace bad stuff with bad
stuff so to speak. What we're looking to do is replace it
with better stuff.
Kara Murphy: Right so, I mean, if we could look at say the purchases
that you did this quarter or in the fourth - fiscal fourth
quarter would it be safe to say that maybe 1/3 of that is
bad stuff that needs to be sold off?
Man: Well no, not at all. Yeah this is after we have gone
through a process so, you know, if we take the paper and
give it to a service and after three months we give to
another servicer and after another six months we give it
to somebody else, you know, internally here what we try to
do is when our efforts are exhausted then we try to sell
the paper. It's not a three-month, six month, nine-month
deal. It's going to be exhausted our internal efforts.
Kara Murphy: And would it be safe to say that you also try t take
advantage of pries in the market? I mean presumably if
prices are going up n the retail market it would make more
sense for you to sell more paper, is that correct?
Man: No.
Man: No. And that speaks to the very point I was making before.
If we have paper that's got a value to it or a better
value to it we're not going to sell that paper. The resale
market has always been after this company. The company has
been selling paper for `99 and we stopped selling it and
we started picking up selling paper again in '03, '04,
'05. It's a business strategy that works very well for
this company by not having a large overhead. It gives us
another avenue to let the paper go rather than just keep
recycling it with collectives.
Kara Murphy: So would it be safe to say in '06 then that you would
expect to have like the same proportion of sales to
purchase this?
Man: I honestly couldn't tell you that. You know, again we'll
look at the portfolios and analyze them and see how old
they are, how many times they've been worked and whether
or not it makes sense to sell the paper, if it's
opportunistic or not. Price certainly does fit into that
because we don't give this stuff away. But again we are
getting prices that we feel are acceptable to us and it's
for paper that we really don't want.
Operator: Your next question comes from the line of Jeff Nevins with
First Analyst.
Jeff Nevins: You made the comment that the quality of the portfolio you
see as being pretty much unchanged. What do you look at
and how do you measure that number and my question is what
gives you the comfort level that, you know, you're not
seeing any change in that today?
Man: Quality of purchase. Well we look at assets. We try to up
front know as much as possible how many homeowners there
are, at times depending on the data we receive whether -
how many jobs there are in the portfolio. WE look at the -
we of course analyze the stay concentration, balance
concentration. We get updates on whether issuers have
changed their guidelines and if they have changed them
when and what their, you know, settlement criteria has
been and if that's changed. So we generally look at the
quality of assets that are there and the mix of the
portfolio.
Man: But, you know, it's one of those things where nothing is
different today than it was 8 months ago or 2 years ago.
We're just seeing a lot more charge-offs. So what we do
now is exactly what we did a year ago and we just analyze
and look for identifiable assets, homes, jobs and do our
evaluation from there.
Man: Yeah we try to figure out the strategy up front on how to
liquidate this portfolio by whatever means and I believe
that part of the reason why there's been a great influx in
charge-off pipelines has to do with somewhat to do the
bankruptcy reform act.
Jeff Nevins: Right.
Man: Which is far, by the way, with - I've spoken on
(thestreet.com) and talked a while back about the
bankruptcy, you know, act and things of that nature but I
personally never expected the amount of charge-offs coming
from marketplace at this pace.
Jeff Nevins: Right, you and everybody else. Okay thank you very much.
Man; Okay, you're welcome.
Operator: Your next question come from the line of Justin Hughes
with Philadelphia Financial.
Justin Hughes: Good morning. Thanks for taking my question. On the 64
million of sales this year, can you break down that for us
by quarter?
Man: I can't.
Justin Hughes: Will it be in the 10-K?
Man: The fourth quarter will be in the 10-K and then going
forward you'll see the numbers evolve as the quarters roll
out.
Justin Hughes: Okay.
Operator: Your next question comes from the line of Jerry Kahn with
William Harris Investors.
Jerry Kahn: By the way, I couldn't get on the regular telephone line.
They never would answer.
Man: Oh sorry, (Jerry).
Jerry Kahn: I got through Canada and...
Man: Hi, (Jerry).
Jerry Kahn: Hi. Would you repeat the telephone number you gave to get
to because I don't think it's the same one I had written
down.
Man: Two zero one five six seven.
Jerry Kahn: Right.
Man: Five six four eight.
Jerry Kahn: Okay I got that right.
Man: Extension 226.
Man: Yeah extension 226.
Jerry Kahn: Okay thank you.
Man: (Unintelligible) Jerry by the way.
Jerry Kahn: I may have missed this from the beginning so I apologize.
Can you describe what's been the effect that you so far of
this bankruptcy law and how it's affected your purchases.
Man: It's been (unintelligible). Much better than expectations.
We did not expect the influx of portfolios being brought
to market as quickly as they have been. That's part of the
reason why we've been able to step up this quarter's
purchases to its, you know, that the level we have an
anticipate closing on some other material transactions
shortly. That's why we increased our credit facility.
Man: I mean, (Jerry), I don't know if you read the other
releases we put out today. We've purchased to date for
this quarter alone $970 million worth of face value paper.
Jerry Kahn: Yeah I did. That's why I was asking you what
happened. So evidently these companies are doing this
because they probably took a big wrap and they're trying
to reduce the hit to the earnings I guess. Is there any
other explanation?
Man: We can't speak for the issuers but I would draw the same
conclusion that you are.
Man: Uh huh yeah. And as far as risk going forward the
portfolios that we have are less risky as far as people
filing Chapter 7 versus a 13 (unintelligible).
Man: That's great.
Man: It hasn't.
Man: That we know. And I don't want to hog my one question
which I heard expanded.
Man: (Unintelligible).
Man: But I want to congratulate you on a very good quarter and
(unintelligible).
Man: Thank you. I think we should limit this maybe to one more
call if it's okay and then we'll field calls to this -
almost 12:00.
Operator: Your last question comes from the line of Richard Smith,
Private Investor.
Richard Smith: Good morning guys. Great quarter, great year.
Man: Thank you very much.
Man: Thank you.
Richard Smith: Since the first quarter is almost over, could you give us
an indication of how this first quarter is going so far?
Is it meeting or exceeding your expectations?
Man: We don't give any forward-looking statements other than
the one that we gave you about purchasing which really
doesn't show up in the first quarter and that you buy
something but we don't give any forward guidance at all.
Richard Smith: Okay thank you.
Man: All right.
Operator: Ladies and gentlemen, we've reached the allotted time for
questions and answers. Mr. Stern, are there any closing
remarks?
Gary Stern: There should be. I'd like to thank all of you for
participating in our fourth quarter and fiscal 2005
conference call. As always, as we mentioned earlier, we
will be available for calls at 201-567-5648, extension
226. We'd like everybody to hopefully be patient. We'll be
taking one call at a time but we will be taking these
calls until 2:00.
We look forward to speaking with all of you again shortly
to discuss Asta's first quarter results. We appreciate
your interest and support and on behalf of everyone here
at Asta, I'd like to wish all of you a happy holiday
season.
Thank you for joining us.
Operator: This concludes today's conference call. You may now
disconnect.
END