Exhibit 99.2
ASTA FUNDING, INCORPORATED
MODERATOR: ADAM LOWENSTEINER
AUGUST 9, 2006
10:00 AM CT
Operator: Good morning. My name is (Shante) and I will be your
conference operator today.
At this time I would like to welcome everyone to the Asta
Funding Inc. 3rd Quarter 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 simply press the pound key. Thank you.
Mr. Adam Lowensteiner you may begin your conference.
Adam Lowensteiner: Thank you (Shante).
Good morning and thank you all for joining us for Asta
Funding's quarterly conference call to discuss the results
for the 3rd quarter and nine months' results ended June
30, 2006.
By now all of you should have had the opportunity to
review the press release discussing the financial results.
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 email.
On the call with me today is Mr. Arthur Stern Chairman of
Asta Funding, Mr. Gary Stern Chief Executive Officer and
Mr. Mitchell Cohen Chief Financial Officer.
Before I turn the call over to our hosts 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 conference call 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's Inc.'s form 10K for the
fiscal year ended September 30, 2005 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
(unintelligible) Asta Funding may not be able to purchase
consumer 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 Web site 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 Adam. Good morning everyone and thank you for
joining today's conference call to discuss Asta's
financial results for its fiscal 3rd quarter and nine
months ended June 30, 2006.
I'm pleased to report another quarter of record results.
Our revenue and earnings showed excellent growth and have
been fuelled by the increase of our book of business as
well as excellent cash collections, so much so that our
3rd quarter net collections were $60.8 million the best
performing quarter in Asta's history.
For the 3rd quarter ended June 30, 2006 we purchased
consumer receivables portfolios with an aggregate charged
of balances for face value of approximately $1.3 billion
at an aggregate cost of $34.2 million which was financed
primarily through cash flows from operating activities and
our credit facilities.
Purchases for the nine months amounted to approximately
$3.7 billion in face value and an aggregate purchase price
of approximately $155.4 million. Despite a continued
environment whereby price is competitive Asta has been
successful in finding portfolios due to its close
relationships and sound pricing discipline.
Asta will continue to reap the benefits of these close
relationships to seek opportunities to make additional
acquisitions which has helped the company in many
instances of not just finding (paper) to purchase but also
acquiring those that meet are strict pricing criteria
which is strictly - excuse me - driven by our desired rate
of returns.
This formula has breed success for shareholders in the
past. And we'll continue with this discipline and
opportunistic approach.
Our balance sheet continues to be strong. At the end of
the 3rd quarter our capital structure remained very sound
with $176.4 million in shareholders' equity and nearly
$110 million of unused credit facility thanks to our new
$175 million credit facility. We're pleased with this new
three year facility as it leaves Asta with the necessary
resources and flexibility to move swiftly and
opportunistically as may be necessary and is on better
terms than the prior facility.
As for our financial performance Asta reported record
total revenues for the corner of $26.4 million a 38.9%
increase over revenues of $19 for the 3rd quarter of
fiscal year 2005. This was driven by extremely strong net
collections of $60.8 million in the quarter an increase of
39.8% from the prior year quarter of $43.5 million.
Total revenues for the nine month period ended June 30,
2006 were $71.5 million up 44% from revenues of $49.5
million in the same period one year ago. Net cash
collections during the nine months ended June 30, 2006
were $162.6 million up 33% from $122.4 million in the
prior year period.
During the 3rd quarter collections represented by account
sales were $16.9 million with 28% of net collections as
compared to $21.7 million in the quarter ended June 30,
2005 or approximately 50% of net collections.
For the nine month period collections represented by
account sales totaled $43.4 million or 26.6% of total net
collections as compared to $46.3 million or 37.8% of net
collections in the same period a year ago. Sales of
inferior accounts continue to be an important part of our
successful this strategy.
Asta's general administrative expenses during the 3rd
quarter which exclude interest expense increased to $4.7
million up from $4.2 million in the same quarter one year
ago. This represents a 13% increase which is primarily due
to the substantial increase in our average outstanding
accounts acquired for liquidation as compared to the same
three month period one year ago.
Just as a reminder of Asta acquired consumer receivables
portfolios at a cost of $34.2 million with an aggregate
face value of $1.3 billion for the 3rd quarter up from
$20.2 million and $482.4 million in the same quarter one
year ago.
Items included in the higher general and administrative
cost are printing, postage, delivery cost, data processing
cost, salaries, payroll taxes and benefits, professional
fees including Sarbanes Oxley cost related to the
independent audit of the company's financial statements
and telephone charges.
Despite the increase the company has been very nimble in
managing expenses given its fixed cost structure which is
primarily benefiting from the company outsourcing the
majority of its collections. As a result the company can
continue to make portfolio purchases without the need to
add more personnel or infrastructure.
Asta recorded an impairment of $675,000 during the 3rd
quarter of fiscal year 2006. Based on lower than expected
cash collections on a certain portfolio we concluded that
an impairment charge should be recorded. There was no
impairment in the comparable period of the prior year.
Interest expense increased by $737,000 to $1.2 million
during the 3rd quarter as compared to the same period in
the prior year and was due slightly to higher interest
rates and an increase in the average outstanding
borrowings by Asta under its credit line which was $68.6
million during the quarter up from the average borrowings
of $44.4 million during the same quarter last year.
As a result of excellent revenue growth and continued
expense control Asta's pretax income reached $19.8 million
in the quarter up 38% from prior year results of $14.4
million. For the nine month period ended June 30, 2006
pretax income was $54.1 million an increase of 46.4% from
$37 million in the same period one year ago.
Asta's tax rate in the quarter was approximately 41%.
These rates were in line with our expectations and we
believe this rate will remain stable during the remainder
of fiscal 2006.
Net income was $11.8 million during the 3rd quarter
increasing 38% compared to 8.5 million in the 3rd quarter
of fiscal 2005. Net income for the nine month period was
$32.2 million up from $22 million or 46.4% for the same
period in 2005.
We reported fully diluted earnings per share of $.80 for
the 3rd quarter a 35.6% increase over the prior year
quarter's $.59 per share. For the nine month period ending
June 30, 2006 earnings per share was $2.20 up 43.8% from
$1.53 during the same period one year ago.
As previously mentioned Asta's balance sheet continues to
remain financially strong. At the quarter's end
shareholders' equity totaled $176.4 million up from $136.4
million last year. Tangible book value was $12.82 per
share at the end of the 3rd Quarter up 28% from $10.02 per
share at the end of the 3rd quarter of fiscal 2005.
Debt at the end of the quarter was $65.3 million down from
$72 million at the end of the prior quarter.
Again Asta recently signed a new 176 million - $175
million credit facility with a consortium of banks led by
Israel Discount Bank of New York and Merrill Lynch
Capital. This new three year credit facility includes an
expandable feature that allows the company to increase the
line to $225 million with approval by the bank group.
We are thankful to our lenders for this larger facility
which is on more favorable terms than the prior facility.
To summarize Asta's unique business model whereby we
outsource a 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 record
results.
Our disciplined approach continues to prove itself each
and every quarter. In fact the return on average equity
during the quarter was 28.3% on an annualized basis. We
believe that our business model is highly successful and
we continue to remain patient when making portfolio
purchases.
Our business model thankfully offers us the flexibility to
bid on portfolios of substance that will continue to meet
our internal goals and grant shareholders high growth as
experienced during the first nine months of fiscal 2006.
To summarize I am very proud of the accomplishments we
have made this fiscal year to date. We have produced
record revenues and record earnings each quarter. We have
expanded our book of business by purchasing $1.3 billion
of face value this quarter.
We have increased our credit facility to $175 million on
favorable terms. We continue to issue a regular quarterly
dividend. And we are keeping our capital structure
properly positioned for additional portfolio purchases
that may arise.
I am very pleased with the results and accomplishments to
date and would like to take this time to thank our
employees for their loyalty and effort.
That concludes our formal remarks. Now I would like to
open the call for future questions. In fairness to be able
to answer everyone's questions we would like to limit your
questions to one per person with one follow-up.
Operator we can open the call now for questions.
Operator: Yes sir. At this time I would like to remind everyone if
you like to ask a question simply press star then the
number 1 on your telephone keypad.
As the leader has stated everyone will be allowed to ask
only one question. We will pause for just a moment to
compile the Q&A roster.
And it the first question comes from (James Elman) with (C
class).
(James Elman): Hi there. Thanks a lot for taking my question.
Could you give us a little more detail on the impairment?
Could you give us an idea why you had to take an
impairment since you've increased your collections for
everything vintage - pretty much every quarter in the
past?
Mitchell Cohen: Well the - this is Mitch by the way.
The accounting pronouncements are kind of strict on this.
If you have an under collection on an estimate you should
take the impairment immediately.
So we recognize this - we still think this will work out
pretty well for us. It's just that it was purchased in '05
and it's been dragging for, you know, the past four
quarters. So it was time to write this one down.
(James Elman): My follow-up also is was this impairment netted against
revenues? I thought that's the way you're supposed to do
it under GAAP.
And also what would you say are the chances that they're
going to be increased impairments going forward? Just
looking at (AACC), you know, they had their first
impairment last year for about the same amount as the one
you just took and then have had increasingly large ones
almost every quarter afterwards.
Mitchell Cohen: That side of our portfolio at 630 shows very strong
portfolio results I don't - at 630 I don't see any reason
- any future reason to see any impairments down the road
on any of our portfolios. We are watching a couple. But
this is a one time thing at the moment. It's just one
portfolio.
We are over collecting our portfolio - and again very
happy with the results. (Unintelligible) inventory of the
portfolios looks very good - very solid.
(James Elman): All right and netting against revenues?
Mitchell Cohen: GAAP is always an interpretive issue. We, you know, we
have the pronouncement - I have the pronouncement in my
hand and it says you can take the charge in G&A. And
that's how we took it.
(James Elman): All right very good. Thank you very much for taking my
question.
Mitchell Cohen: You're welcome.
Operator: The next question comes from (Ellen Cutler) from
(Avandale) Partners.
(Ellen Cutler): Good morning. Could you guys give me the gross collection?
Mitchell Cohen: Sure. For the quarter they were $93 million.
(Ellen Cutler): Okay. And then do you have at your fingertips the revenue
that came from the sales?
Gary Stern: Yes.
Mitchell Cohen: We sold - we had sales of $16.9 million. We realized about
$10.2 million.
(Ellen Cutler): Great. Thank you.
Mitchell Cohen: Let me say one thing to you, (Ellen). Our sales for the
year are $43 - $46.2 million, compared to last year of $43
million on a much larger collecting basis this year. It
seems to be very favorable to me.
(Ellen Cutler): Thanks, guys.
Operator: Your next question comes from (Kevin Shields) with
Deephaven Capital.
(Kevin Shields): Yeah. I have a question on your D&O insurance coverage,
could you please characterize the coverage level you have,
the premium, and the deductible?
Mitchell Cohen: I'd rather not question but I'd have to go check. I'll get
it for you.
(Kevin Shields): Thank you.
Operator: Your next question comes from (Mark Hughes) from (Star and
Trust).
(Mark Hughes): Thank you very much. Could you talk about the trend in
collections costs in the quarter relative to your
collections from the collectors?
Mitchell Cohen: Sure, (Mark). What we do is - you know, with dependent -
we're not dependent but when we buy large portfolios, we
have to spend some dollars to get them out the door such
as lettering the paper. So there's a lot of envelopes,
paper, postage. Our contingency rate is holding pretty
much where we think it's going to be at about 30%-32%.
(Mark Hughes): Okay. And then how much of finance revenue did you
recognize on the sales in this quarter last year?
Mitchell Cohen: In the last quarter, we recog - we had sales - well,
last...?
(Mark Hughes): Yeah, of the net collections of 21.7...
Mitchell Cohen: Right.
(Mark Hughes): ...in 3Q '05...
Mitchell Cohen: Yep.
(Mark Hughes): ...how much of that did you recognize as financed income?
Mitchell Cohen: Eight point eight.
(Mark Hughes): Okay. Thank you very much.
Mitchell Cohen: Sure.
Gary Stern: You're welcome.
Operator: Your next question comes from (James O'Brien) with
(Ryans Vic).
(James O'Brien): Yes, good morning. Can you tell us what the mix of paper
that you bought in the quarter was like?
Mitchell Cohen: Sure. We bought a lot of retail and (storming) contracts;
we bought a lot of consumer loans as well. That was a big
portion of this quarter's buys, probably about 84%, but
only about 5% telecom and about 11% credit card.
(James O'Brien): Okay.
Mitchell Cohen: And a little bit of (bother) in there.
(James O'Brien): Okay, thanks. And last quarter you wrote up the
'03 pool...
Mitchell Cohen: Yeah.
(James O'Brien): ...pretty significantly. Was that written up again this
quarter?
Mitchell Cohen: No. We only had one write-up on one pool this quarter.
(James O'Brien): Okay, what year was that?
Mitchell Cohen: Hold on a second; the collections on the '03 pools that we
have written up are tracking on or above their new
estimates.
(James O'Brien): Okay.
Mitchell Cohen: Was there a follow-up, I mean from...?
(James O'Brien): You said did you write - you said you wrote another one up
this quarter though?
Mitchell Cohen: Just one, yes.
(James O'Brien): And what year?
Mitchell Cohen: It was a '04 pool.
(James O'Brien): Okay. And, you know, I don't know if you have the exact
number or maybe you can ballpark it, how much do you think
it may have contributed revenue-wise in the quarter?
Mitchell Cohen: Well, the write-up of $2.5 million, as you are well
aware, probably that the impact of that is going to be
realized significantly in the future periods, I know in
the future years. I would probably guess in the
neighborhood of $400,000 to $500,000.
(James O'Brien): Okay. Great, thank you.
Gary Stern: Sure.
Operator: Your next question comes from Audrey Snell with (Think
Equity).
Audrey Snell: Good morning. Can you give us some sort of overview on
what you're seeing in the industry in terms of pricing?
We've heard from some of your peers that pricing is a
problem; it doesn't seem to have been a problem for you in
the quarter. Can you comment on that, Gary?
Mitchell Cohen: I'll comment on that. You know, there's so many portfolios
available and we've been doing this for so long and I
don't want to come off as sounding, you know, pompous but
you have to pick and choose what you want to buy and we've
- we had some very long-term strong relationships and our
attitude is if it's not this portfolio, it will be another
portfolio.
So we've been very able to buy paper at our price on our
timeframe and we are under no pressure whatsoever, as I've
said before, to buy paper to feed all these collectors
because we don't have very many collectors, we have the
(stamp pad), we have, you know, the outsourcing in place
for significant portfolios and we're enjoying the ability
and have continued to be in a position to buy paper as we
deem is priced accordingly. So we've been able to buy
paper; we hope we can in the future.
And as I've said probably for the last two years, there
could be times that things are drying up only because we
don't see what we like but so far, we feel very, very
comfortable with what we're seeing out there and what
we're able to buy.
Audrey Snell: You...
Gary Stern: And one of the - I can share with you for was on the
(four), one of the portfolios we bought last quarter
was a retail and (storming) contract portfolio from a
trustee that we've had experience in this paper.
We purchased a good sized portfolio in 2000 - it was
either the end of 2001 or early 2002 that comprised of
predominantly performing, semi-performing, and a little
bit of charge-offs, and now we purchased a large portfolio
of all charge-offs; in addition to that, they had some
Chapter 13s in there. So we made a - we actually made two
purchases of Chapter 13s that came along with two
portfolios which were also priced very attractively
because they were part of an entire package.
So we've kept that relationship ongoing. So this is what
we believe is key to our success.
Mitchell Cohen: You got to move in and out of these asset classes where
they're being priced properly for us.
Gary Stern: Yeah.
Mitchell Cohen: You know, just because, you know, sometimes we find credit
card being on the mark, sometimes we find these retail and
(storming) contracts that were other asset classes that
we've been in before to be priced better.
Gary Stern: Right. And as you know, we didn't buy much telecom because
we felt the pricing was not - didn't fit our model and
that could change; it could change week to week, quarter
to quarter.
Audrey Snell: Gary, did you buy any new asset classes?
Gary Stern: We bought personal loans - we bought some personal loans
that I would classify because of where they're located,
they're not - they're located...
Mitchell Cohen: Outside of the United States.
Gary Stern: Outside of the U.S.; in U.S. we bought some personal
loans. So - because they're outside of the U.S. or
classified in a different - and we priced them
accordingly, otherwise, no, we did not buy any additional
assets (unintelligible), no.
Audrey Snell: And also, did you find that your liquidation rates were
stronger this quarter? Are you seeing consumers more
likely to payoff some debt as job growth continues?
Mitchell Cohen: Yeah. Well, I don't know if that - I don't know, is the
job growth really strong? But - I mean our collections
are strong, you know, that (unintelligible) the snapshot
is (6:30), you know, we collected a record - you know, a
record. Look at the gross amount, it's - you know, it's
263 plus million and that amount is 60.2 million in any -
in the quarter, which we consider to be not as strong as
other quarters.
Gary Stern: Right. The - you know, January, February, March are the
strongest quarters; this quarter is not as strong, next
quarter - you know, we don't know what it's going to be
but we - you know, next quarter tends to be a little bit
light although I'm not saying that our collections are
light.
Mitchell Cohen: We actually said that last quarter, and we turned out to
be...
Gary Stern: Right. So we're doing fine, you know, so far for the first
four weeks and, you know, we - as - I just want to
reiterate, Mitch mentioned that as of June 30th, we are of
the opinion that our portfolio is extremely strong. And
the write-down, and nobody has asked yet, the write-off we
had was on a credit card portfolio that had a little bit
of a different nature, there were much higher balances. So
we decided that we should, you know, compare it somewhat
but it will still work out fine; even after the
impairment, if we collect what we expect to collect, it
will be fine.
Audrey Snell: Are you implying it was paying slowly?
Gary Stern: It started out slowly and that's - and we spent more core
cost upfront because we accelerated the litigation
strategy. So it's our opinion that over time, this will
work out very well.
Mitchell Cohen: The fruits to those losses that we filed that were
numerous, you know, should start to show up in the
following year.
Gary Stern: Yeah. And there's going to be a much longer tail on this
because these are higher balances. So the paper with - you
know, it would take longer but it will still be a good
deal.
Audrey Snell: Okay, thanks a lot.
Gary Stern: You're welcome.
Operator: You're next question comes from (Steve Delaney) from
(Flatphone Securities).
(Steve Delaney): Good morning.
Gary Stern: Hi, (Steve).
Mitchell Cohen: Hi, (Steve).
(Steve Delaney): Gary, when we - we had a conversation back in
April of 2005 when the Bankruptcy Bill was originally
passed by Congress. And at that time, you were somewhat
cautiously optimistic. I mean I think you saw some minor
benefits but you certainly weren't, you know, kind of
jumping up and down and saying this was a windfall.
I guess in retrospect now, you know, more than a year
later, can you give us an update on your thoughts as to,
you know, how has the Reform affected your existing pools,
how do you think it's, you know, effected the way credit
issuers or, you know, are - you know, are they having more
viable accounts available to sell because of the fewer
Chapter 7s, and do you think, I guess as part of that, the
Chapter 13 business is going to become a bigger part of
your overall portfolio? Thanks.
Gary Stern: Okay, thank you, (Steve). The Bankruptcy Reform Act has
helped Asta because there are less consumers in our
portfolio that are filing Chapter 7s and they're not
filing - well, they're filing Chapter 13s although we get
a small percentage still that file Chapter 7s. And as far
as - you know, I'm not answering it necessarily in order
so if I miss something, please...
(Steve Delaney): No problem.
Gary Stern: ...ask again. And in the - we view the 13 market as
competitive. And the two portfolios that we purchased were
purchased at very attractive prices because they were part
of an overall portfolio. If they were separated, they
would have traded at a much higher level. But the
purchases we made in the 13s were not significant in this
quarter.
So we're watching the 13 market and we're trying to, you
know, pick 13s that are - you know, that meet our return
requirements. But I wouldn't expect that we're going to
buy a significant amount of 13s unless we find that
they're part of an overall package where we would have a
competitive advantage by buying everything in one - or
unless there's a unique situation where we actually find a
portfolio that's not competitively - very competitively
priced; I'm talking about some of the players, you know,
pay up for these portfolios and I'm not referring
necessarily to the public companies.
Did I answer everything for you?
(Steve Delaney): Yeah, that's helpful. Gary, I guess the one follow-up is,
do you think as far as if I'm a credit - a national credit
card issuer, because of the fewer 7s that are taking
place, does that mean that I have more viable charge-off
accounts that I can put into the trouble debt market?
Gary Stern: Yes. I believe by and large there's more paper and it's
(spice) that times where paper slows down a little bit and
based on, you know, circumstances there could be (spike)
and increase but overall, it's my opinion that there's
more paper in the credit card market and in general,
there's more paper available to (bill).
(Steve Delaney): Thank you, Gary.
Gary Stern: You're welcome.
Operator: Your next question comes from (Chuck Greech) from
(Brueline Capital).
(Chuck Greech): Good morning. I was wondering if you could just speak a
little bit to the other income line and...?
Gary Stern: Sure.
(Chuck Greech): ...and give us a little color as to what's in that line
item since we haven't really seen it before?
Mitchell Cohen: Sure, this is Mitch again. We purchased a company out of
Sugar Land, Texas and we deemed the amount of revenue from
that service to be immaterial. It was $250,000 of revenue
from our (beta) acquisition and about - and the rest was
from interest income, a small amount of interest income.
(Chuck Greech): And...
Mitchell Cohen: Sorry, it's not (sectioning) than that but that's
what it is.
(Chuck Greech): So you just purchased a company?
Mitchell Cohen: Yeah, in February, yeah, we announced that.
(Chuck Greech): Okay.
Mitchell Cohen: It's a Chapter 13 servicing company.
(Chuck Greech): Thank you.
Gary Stern: You're welcome.
Operator: Your next question comes from (Corrina Petry) from
(Collections and Credit).
(Corrina Petry): Yes, good morning, gentlemen. I just wanted to
double-check the numbers on both of the purchases and the
collections quarter-to-quarter - quarter-over-quarter;
cash collections in the third quarter was $60.8 million
and you said that's 39.8% above a year ago, what was that
total dollar a year ago?
Mitchell Cohen: Forty-three point four, $43.5.
(Corrina Petry): Okay. And on the nine months...
Mitchell Cohen: Yep.
(Corrina Petry): ...you had purchased $162.6 million, is that correct?
Mitchell Cohen: No.
(Corrina Petry): For the nine months.
Gary Stern: (Unintelligible).
(Corrina Petry): I'm sorry, not purchased, cash collections is what
I'm asking about.
Mitchell Cohen: The nine months?
(Corrina Petry): Yes.
Mitchell Cohen: It was 162.5 - (156.6) yes.
(Corrina Petry): And that was up 33% from what...?
Mitchell Cohen: It was 122.4.
(Corrina Petry): Say that one more time, I'm sorry.
Mitchell Cohen: $122.4 million.
(Corrina Petry): Thank you very kindly.
Mitchell Cohen: Sure, you're welcome.
Operator: Your next question comes from Justin Hughes from
Philadelphia Financial
Justin Hughes: Good morning. Thanks for taking my question.
Mitchell Cohen: Hi Justin. Good morning.
Justin Hughes: One thing I just wanted to clarify when someone was asking
about the impairment, did you say there are a couple more
portfolios you're watching.
Mitchell Cohen: Well, it's top to bottom, the portfolio is very sound. I
said that there's a couple that, you know, are if anything
just on a somewhat of a watch list - two or three.
Justin Hughes: Okay.
Mitchell Cohen: But even though - I'm trying to give you the worse case.
There's two or three that are, you know, not damaging in
any way.
Justin Hughes: Okay. What kind of paper would that be? Is that telecom?
Mitchell Cohen: No. It's old credit card paper -- old, old credit card
paper. By the way the three portfolios I'm talking about
will have a very small impact on our overall financial
statements, and I don't think we'll have any impairment
charge on those going forward. I'm a conservative worried
guy.
Justin Hughes: Okay. And then, you say you bought some retail installment
contracts and some personal loans outside the U.S. Are any
of those Payday loans that you're purchasing?
Mitchell Cohen: Oh no. We will not buy Payday loans.
Justin Hughes: Okay. Where outside of the U.S. have you moved to because
I hadn't heard anything about that before?
Gary Stern: For competitive reasons, we would prefer not to
say. And I just want to comment that this is Gary speaking
about one other thing. Our telecom portfolios are
performing as well if not better than our credit card
papers. So I want to make that very clear. We are
extremely happy with all the telecom paper we purchased.
Justin Hughes: Okay. And then lastly, on that other revenue line that you
spoke about, with that be recurring going forward, or is
this the only time we'll see it?
Mitchell Cohen: No, it should be recurring. I can't give you a prediction
of what it might be. It's a brand new purchase for us, and
it was able to contribute to our - it's a small purchase
as you know. The company cost us $1.4 million to buy, and
so we got $250,000 of revenue so far.
Gary Stern: I would like to just comment for those of you who
were not on our call last - when we announced the
acquisition, but we bought this company to handle our own
13, so we find this much more cost-effective to do that
and we now have the ability to buy 13's and gradually get
into that market as we see portfolios at attractive
prices.
Justin Hughes: Okay. Thank you.
Gary Stern: You're welcome.
Operator: You have a follow-up question from (James Ailman).
(James Ailman): Hi there. Could you give us an idea about the dollar
amount of sales? I notice it was in the press release last
quarter, but not this quarter.
Mitchell Cohen: The dollar amount of sales? How much paper we sold
this quarter?
(James Ailman): Correct.
Gary Stern: From cash collections?
Mitchell Cohen: I'm confused by the question, I'm sorry.
(James Ailman): Right, paper that was sold.
Mitchell Cohen: $16.9 million.
(James Ailman): All right, and do you expect that to increase going
forward.
Mitchell Cohen: We don't have any expectations one way or the other
on paper. We don't sell or buy paper because - we do it
because we can. We have the ability of not having a big
infrastructure of employees, so as paper turns inferior we
have an opportunity to sell that type of paper. It's not
predictable what we're going to sell.
Gary Stern: In addition, when you do a comparison of the cash
collections, I would greatly appreciate if you would not
compare our sales, the net cash collections, and look at
the gross number. The gross collections are extremely
significant not to minimize our net collections.
(James Ailman): All right, and just to follow up on something you just
mentioned that when paper starts to deteriorate you would
prefer to try and sell it on the market rather than have
to hold and take an impairment on it. Is that correct?
Gary Stern: No, that is absolutely not correct. Absolutely not
correct. Please don't put words in Mitch's mouth. Let me
just explain something to you. Our portfolio is excellent.
We don't anticipate; don't have a crystal ball, but the
two or three portfolios Mitch has been talking about if at
all they'll be very small impairments on credit card
paper. We're over-collecting significantly on most of the
portfolio, so Mitch is trying to be as conservative and
upfront as possible to say that we're watching these
three. And we, candidly, might every well not have a write
down if there is its (unintelligible) compared to the
whole business.
Now, we sell paper regularly. We have 130 employees here,
60 collectors give or take a few at any give time. We
don't have 1000 or 2000 mouths to feed, so we clearly can
sell paper when we want to sell paper. We don't have to
sell paper, but we do not want to keep paper in servicer's
hands or internally.
If we had 1000 collectors we might be saying to ourselves
hey wait a minute, let's just keep these bodies there
because we add then we don't want to let them go and
rehire them, so why no just keep the paper and just
continue to collect on it. We do not have to do that. We
absolutely are in great shape. Our model works and we're
very, very happy with it.
(James Ailman): Very good. Thank you.
Operator: Your next question comes from (James Leonard).
(James Leonard): Good morning gentlemen. I just have a couple of questions.
One is it on your impairment portfolio that you wrote off
this quarter. Was there any incise gain from that that
might change your purchasing habits, or where you
distribute these portfolios to be collected from? And the
other question is on your other income, with that
$336,000, could you give us some sense of was there any
profits in that, that went to the bottom line, or is that
basically a wash type income?
Mitchell Cohen: I'll answer the last part first. It's pretty much a wash.
(James Leonard): Thank you.
Mitchell Cohen: We've set up some systems down in Sugarland and hired a
few more bodies and it's about a net net wash.
Gary Stern: James, I'll answer the second question. This is
Gary speaking. What we learned on this one portfolio with
this specific type credit card paper, with the higher
balances that we need to - I think we probably would have
priced it the same, but we probably would set our
expectations to be a little less the first and second
year, more geared to the third, fourth and fifth year.
Because what we found out was that these larger balances,
these consumers who have these larger balances do not have
the ability to pay a large amount of money, you know, on a
monthly basis or up front, so you work out payment plans
over time. So we would most likely price it at a similar
price, but we would put our expectations somewhat lower.
It still would be a good piece of business. However, as
I'm saying it would probably go to year, you know, three,
four and five when more of the collections would come in.
(James Leonard): Does that also infer to a comment you made
earlier that some of these portfolios, or some of these
credits, might go through the litigation process rather
than the normal collection process.
Gary Stern: Are you referring to the one portfolio that
(unintelligible) your balances?
(James Leonard): Yes. Yes.
Gary Stern: Yeah, absolutely. The majority of that is in the
litigation process and it takes more time than the normal
credit card debt because of the nature of the balances.
(James Leonard): Okay. Thank you.
Gary Stern: You're welcome.
Operator: Your next question comes from Peter Brotchie from Union
Trust.
Peter Brotchie: Yes, hi Gary.
Gary Stern: Good morning.
Peter Brotchie: I was wondering if you could give me a little
bit of color on why it is that your collections don't seem
to have been affected by the decline in mortgage
applications, and I may be inferring something in that
question that I shouldn't? But, I'm assuming that over the
last two or three years that that's been a healthy way for
you to collect on perhaps even some of these larger
balances that you took the impairment on and I'm wondering
if the two are related at all.
Gary Stern: Well the larger balances, and by the way we have
one portfolio that we bought that has larger balances, so
it's not prevalent throughout our portfolio. And I want to
reiterate it will work out fine. The mortgage applications
would not necessarily pay off a larger balance and yes we
do collect on people applying for mortgages, but that is
not the main driver of our collections.
As I mentioned before and in the past I'm called, we're
very strict on settlements. So when we get applications on
mortgages, we try for 100 cents on a dollar, unless they
show us a (respra). You know, there are times that I'm
sure that someone is applying for a mortgage and we're
just not going to settle for a very, very low amount
unless there is a really good reason too, such as illness
- we try to be sympathetic - or someone really not having
much equity. So, I don't think there's that much of a
correlation between the mortgage applications going down
and a major impact on our business. We collect through
other avenues.
You know, payment plans - we're very big on payment plans;
longer term pay outs; strict on settlements, although we
do settle; garnishments; wage garnishments and salaries;
liens on homes. It's great when we sue somebody and they
want to work out a payment plan or we garnish them, or we
have liens on homes that are sitting there, you know, with
interest accruing. So, we're not dependant on mortgage
applications. It's nice, but it's not a key driver.
Peter Brotchie: Great. Thanks.
Gary Stern: You're welcome.
Operator: Okay, in queue we have three follow up questions. Would
you like to take those questions?
Gary Stern: Follow up?
Operator: Yeah, they're follow up.
Gary Stern: Okay. We're here.
Operator: Okay. Your next follow up question would be from Mark
Hughes.
Mark Hughes: Thank you, just two questions. The growth cash collections
in this quarter last year, can you refresh me on that
number.
Mitchell Cohen: Last year?
Mark Hughes: Yeah.
Mitchell Cohen: The quarter, I'm sorry Mark. For the quarter last year?
Mark Hughes: Yeah, exactly. The 3Q05.
Mitchell Cohen: .6
Mark Hughes: I'm sorry, say again?
Mitchell Cohen: 5.6
Mark Hughes: Did you say 5.6?
Mitchell Cohen: 55.6
Mark Hughes: 55 okay. Great. And then it looked like the collection
costs were a bit higher than your normal model - the 30 to
32 or so - in this quarter. Anything in particular - I
think you'd mentioned you had some up front costs with the
large portfolio purchases - anything else standout?
Mitchell Cohen: Yeah, one of the things that's in that line is
advancing of court costs. So while our contingency will
remain around 30-32%, what influences that line a little
bit is that we advance court costs and get them back
first. So, in a quarter where we buy a lot of portfolios
and we're suing a lot of people, it's going to be in that
line and influence that line a little bit. But the
contingency should remain constant at 30-32%.
Mark Hughes: Thank you.
Operator: Your next follow up question is from Chuck Greech with
Blue Line Capital.
Chuck Greech: Hi. I was wondering if you could talk a little bit about
your cash flow in the quarter. Hello?
Mitchell Cohen: Yes. Our cash flow was excellent for the quarter. You
know, we purchased - yeah, we spent $34.2 million we
started the quarter at $72 million on our debt and we
ended up at $65 million. So, our cash flow was great.
Chuck Greech: Low 40s?
Mitchell Cohen: Excuse me, low 40's? No, it's... Right now?
Chuck Greech: Yeah. Your cash flow from operations in the quarter?
Mitchell Cohen: It was about a $4 million increase in the nine months.
Chuck Greech: In the absolute dollar amount in the quarter.
Mitchell Cohen: Well I can back into it. We can back into it. We spent $34
and we got back $60.2.
Chuck Greech: Okay.
Mitchell Cohen: So it's $26.2.
Chuck Greech: And year to date its up $4 million?
Mitchell Cohen: Yeah. That's on net cash. That's really an operating cash
flow statement that's up $4 million. I can do the same
quick analysis of it; I just did for you on the quarter.
Yeah, it's much higher.
Gary Stern: Significantly higher.
Mitchell Cohen: If you want me to do that, I can do that for you. Give me
a second. If somebody wants to sing. We'll get it for you,
hang in there. So, it's about $7 million plus.
Gary Stern: So we collected net of $162.6 million, and we spent
$155.4 million. And our expenses for the nine months were
- they're low, you know, we're just looking up the numbers
so bear with us for a minute.
Mitchell Cohen: Expenses for the nine months were $19 million.
Gary Stern: Right.
Mitchell Cohen: Including interest.
Gary Stern: Right so, $19 million including interest, $162.6 in cash
collections $155.4 in investment and portfolio whose face
value is $3.7 billion.
Chuck Greech: Okay. Thank you very much.
Gary Stern: You're welcome.
Operator: Your next question is from Audrey Snell from Think Equity.
Mitchell Cohen: Audrey hold on one second, I just want to go back to that
question. You know in the quarter we started the quarter
with debt of $65 million, we spent $33 on purchases and we
ended the quarter at $65 million in debt, so the cash is
turning over rather quickly. We're very happy with that
though. Okay, sorry Audrey. Hello, Audrey?
Audrey Snell: Yes. The growth collections in the quarter were
$93 million, you said?
Mitchell Cohen: Yes.
Audrey Snell: Okay. The other quick question is any zero basis
portfolios in the quarter?
Mitchell Cohen: Yup.
Audrey Snell: Can you elaborate?
Mitchell Cohen: Yeah, hold on I'm just getting my various notes.
$1.9 million for the quarter. There's one little thing
about this Euro basis that everybody on the call should
know. A couple of the portfolios that we wrote up would
have turned into zero basis, but because of the accounting
literature we elected to write them up rather than let
them run off. So we would have had a lot larger zero
basis, but for the accounting literature.
Audrey Snell: Okay. Thank you.
Gary Stern: You're welcome.
Operator: At this time we have no further questions.
Gary Stern: Thank you for participating in our third quarter
conference call. As always, should you have any additional
questions, please feel free to call Mitch or myself. We
thank you for your interest and support and look forward
to speaking with all of you again later this year to
discuss Asta's fourth quarter and year end results. Have a
great day.
Operator: Ladies and gentlemen, this concludes today's conference.
You may now disconnect.
END