Encore Capital Group Inc (ECPG) 2004 Q4 法說會逐字稿

Thank you. Good afternoon, ladies and gentlemen. And welcome to the Encore Capital Group fourth quarter 2004 conference call. At this time all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session.

If anyone needs assistance at any time during the conference, please press star the followed by the zero. As a reminder, this conference is being recorded today, Thursday, March 3, 2005.

I would now like to turn the conference over to Ms. Moira Conlon (ph).

Good afternoon. Thank you, operator. We'd like to welcome everyone to Encore Capital Group's fourth quarter and year end conference call. Due to some technical difficulties, our press release just crossed the wire a few moments ago. It is, however, available now.

Today's webcast is being accompanied by a slide presentation. The presentation is available on our website at www.EncoreCapitalGroup.com on the events calendar, under the investors' page. With us today from management are Carl Gregory, Vice Chairman and Chief Executive Officer, Barry Barkley, Chief Financial Officer, and Brandon Black, President and Chief Operating Officer. Management will discuss the results for the quarter and year end, and some Company developments and will then open the call up to your questions.

Earlier today Encore Capital Group filed its 10-K for the for the year ended December 31, 2004. This is a complete report of Encore's results and I encourage you to read it thoroughly, because it contains a great deal of useful information.

Before we begin, I'd like to refer you to slide 2 of our slide presentation, which addresses forward-looking statements. I would also like to note that certain statements in this conference call and slide show constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve risks, uncertainties and other factors which may cause actual results, performance or achievements of the Company and its subsidiaries, to be materially different from any financial results, performance or achievements expressed or implied by such forward-looking statements. For a discussion of these factors we refer you to the Company's annual report, on form 10-K for the year ended December 31, 2004, filed with the SEC.

Forward-looking statements speak only as of the date the statement was made. The Company will not undertake and specifically declines any obligation to publicly release the results of any revision to forward-looking statements to reflect events or circumstances after the date of such statements, or to reflect the occurrence of anticipated or unanticipated events. With that I would now like to turn the call over to Carl Gregory. Carl?

Thank you, Moira. Good afternoon. Our fourth quarter performance capped an excellent year for Encore, in which we generated record levels of collections, revenue, and earnings per share. Our fourth quarter highlights compared to the fourth quarter of 2003 included the following. Net income was up 48 percent to $5.7 million. Earnings per fully diluted share came in at $0.24. 50 percent higher than the same quarter last year. Revenue increased 46 percent. Collections increased 12 percent to $53.4 million and pre-tax operating cash flow was up 64 percent to $14.5 million.

It's notable that we achieved this strong growth despite scaling back on our purchases of new portfolios for the better part of 2004, because of a less attractive pricing environment. As we have mentioned many times, one of our competitive advantages is our varied business model that makes use of several different collection channels. During the fourth quarter we continued to see increased production out of our legal channel and our contingent agency outsourcing channel, which was developed earlier in 2004. For the full year, our collections through alternative channels, with the exception of the sales channel, more than doubled.

Turning to the purchasing market, our purchases for the first three quarters of the year were relatively modest, because of what we deemed to be a lack of opportunities that met our high standards. The market continues to be highly competitive, and it's looking like it could remain that way for quite a while. Accordingly, we have adjusted our strategy to reflect the current environment. We determined that we should not bypass profitable opportunities simply because they could not generate the high level of returns we have typically demanded, there are sufficient opportunities to purchase portfolios that can be nicely profitable for the Company. And in the current environment, it's in our best interest to acquire these portfolios rather than waiting for prices to come down.

With that being said, we invested $46.1 million in new portfolios in the fourth quarter, at an average purchase price of 3.86 percent of face value. Almost all of these purchases were credit card portfolios and that's where we found the most attractive opportunities in the fourth quarter. These purchases were made with our former credit facility that expired at the end of the year. We were able to modify the terms of that credit facility during the fourth quarter, to put a ceiling on the total interest that we will have to pay on these portfolios. The lower interest expense associated with these portfolios will help offset the higher prices, and the resulting lower collection multiples and enable these portfolios to still generate nice profits for the Company.

On another note, I am very pleased to say that we have completed our Sarbanes-Oxley 404 compliance efforts and our independent auditors have positively affirmed management's conclusion that our system of risk control is effective as of December 31, 2004. Despite having our deadline for compliance moved up by one year because our status changed to that of an accelerated filer during 2004, Barry and his team were able to meet the tight timeframe for compliance. Our shareholders can have confidence in the integrity of our financial reporting. Now to discuss the fourth quarter numbers in detail, I'll you turn the call over to Barry.

Slide 2 as Carl indicated, gross collections in the fourth quarter of 2004 increased by 5.7 million, or 12 percent. The 53.4 million as compared to the 47.7 million collected in the same quarter of the prior year The majority of this growth came from noncredit card asset categories which increased from $1.7 million last year to $6.1 million this year. We also experienced a further increase in productivity during this quarter, as average monthly collections per total employee, increased by 13.9 percent to 25.4 thousand from 22.3 thousand in the prior year's quarter. This is particularly notable given the sales declined as a percent of gross collections from 15.2 percent last year, to 6.1 percent this year.

In looking at collections by channel on slide 3, we see that the $5.7 million increase quarter-over-quarter reflects an $8.2 million increase in the external legal collection channel and a $4.3 million increase in our new contingent agency channel. This increase in total collections was achieved despite reducing sales by $4 million. Total operating expense increased by $8.1 million to $27.9 million in the fourth quarter of 2004. As a percent of gross collections, they increased from 41.6 percent in the fourth quarter of 2003 to 52.3 percent in the fourth quarter of 2004. As in the third quarter, there were two primary factors that contributed to the increase.

The first factor is the change in the mix of our collections. Sales, which is one of our lowest cost channels were down by $4 million. We were able to offset that decrease by increasing throughput from our legal and contingent agency outsourcing, which generated an additional $12.5 million in collections. However, the next impact was an increase in our cost per dollar collected.

The second factor is the increase in costs that are for the most part, not volume related. These include approximately $0.8 million in expenses related to our Sarbanes-Oxley compliance effort, as well as 0.1 million in SEC reporting and legal fees related to our secondary offering that was completed in January of this year. We have provided some guidance relative to our operating expenses going forward.

In all, we incurred approximately $1.2 million in expenses in 2004 related to our Sarbanes-Oxley compliance effort. While there will be some permanent increases in expenses that will be necessary to ensure that we remain in compliance, we expect about half of these expenses will not reoccur in the future.

We would also like to remind investors that we will begin expensing stock options in the second half of 2005 pursuant to the new accounting rules. Given the number of options outstanding at the present time, we would estimate that our pre-tax earnings per share would be reduced by $0.7 million per quarter, when we begin expensing the options. We will provide an updated estimate of the impact of any additional equity awards in our future conference calls. Our earnings continue to be impacted by the contingent interest feature of our legacy funding relationship.

Slide 4 shows the $0.19 per share of contingent interest was deducted before arriving at the $0.24 per share earned by the Company While we did modify the terms of our former credit facility in the fourth quarter, it will not have a material impact on the guidance we have previously provided, for the runoff of our contingent interest expense. We continue to expect that 2005 and 2006 contingent interest expense will be approximately 65 percent and 35 percent respectively, of the 2004 expense. With a continuing reduction beyond 2006.

Finally, pre-tax cash flow grew 64 percent to $14.5 million in the fourth quarter of 2004 from the $8.9 million generated during the prior year's quarter. We exhausted our net loss carry forward in the fourth quarter of 2003. And in addition moved into a higher tax rate throughout 2004. Going forward, we should no longer have increases in our effective tax rate to offset our earnings growth. I would now like to turn the call over to Brandon.

Thanks, Barry.

I'd like to take a minute to talk about a significant addition to our growth plans for the Company. After a number of years of material increases in revenue and income, we are now in a very strong financial position. At the end of 2004, we had almost $50 million in cash and cash equivalents, and full access to our new $75 million credit facility with J.P. Morgan. The new credit facility provides much less expensive funding, for a variety of business purposes and is expandable to $100 million at our option.

Given our financial strength and flexibility, we are now in a position to begin pursuing acquisition opportunities that can expand our footprint into additional asset classes or collection channels. This is a highly fragmented market, which provides a great pool of prospects with expertise in bankruptcy, secured collections, health care debt, and other areas that we currently don't participate in.

The opportunity we see on the acquisition front is one of the reasons we brought in Paul Greenberg last year as our Senior Vice President of Finance. Paul brings a unique combination of experience, having been a partner in both the audit group and the M&A Services group at Deloitte & Touche. His experience will be valuable in our efforts to identify, price and effectively integrate acquisitions that can generate good returns for the Company. We're confident that we can continue growing and generate organic growth during 2005. We believe our ability to now layer in accretive acquisitions, enhances our opportunities to create additional shareholder value in the future. I'll turn the call back to Carl.

Thanks, Brandon. On slide 5, I would like to call your attention to a new piece of information that we have begun including in our SEC filings. Which is the total estimated remaining collections for our portfolios. We have also provided the multiple of total collections to purchase price expected from these portfolios. As you can see, the 2001, 2002, and 2003 vintages are exceptionally strong. And we anticipate a lower multiple for portfolios purchased in 2004. This reflects our conservative posture when assigning initial collection multiples and the simple fact that $1 does not buy as much as it used to in this industry.

I would like to make a few comments about the collection multiples on this chart. First, even at a 2.2 multiple we still expect these portfolios to be nicely profitable for us. Second, we are highly focused on optimizing our collection efforts by continuing the development of additional collection channels, and leveraging our sophisticated analytics to assign accounts to the channel that can collect them in the most effective manner. We have demonstrated consistent improvement in the productivity of our collection efforts over the past few years, and it's our goal to continue this trend.

The collection multiple shown on this slide assume a stable level of collection productivity as that's the most prudent approach when assigning multiples. If we were able to generate further improvement in the collection productivity, then we would expect to have the opportunity to surpass the current multiples assigned to those portfolios. And third, as we have always communicated we are conservative by nature, which is reflected in the expected multiples that we assign to our portfolios. It has been our experience that we typically outperform the multiples we initially assign. We hope to continue that trend.

However, as far as our initial assumptions go, we remain conservative. We believe this will service us well with the implementation of SOP-03-03. We continue to believe that we won't have any material impairment that will need be recognized when SOP-03 is implemented.

In closing, the current conditions in the purchasing market present challenges to generating top line growth in the near term. Even though our purchasing increased on a year-to-year basis in 2004, we aren't getting the same volume of receivables to collect upon as we did in prior years. So it's important to understand that an increase in purchases does not necessarily result in a corresponding percentage increase in collections. This would also result in a lower revenue recognition percentage for the portfolios purchased under this scenario.

Given a continuation of the current pricing trends, we believe that our total collections in 2004 could be relatively flat with our 2004 levels. That being said, we believe 2005 will be another strong -- strong year of bottom line growth for the Company, driven primarily by continued high levels of zero basis collections, and the improving penetration of our existing portfolios. Coupled with disciplined expense control, and a significant reduction in our interest expense.

Looking out further, we believe that the future remains very bright. We have significantly enhanced our intellectual capital and management depth in the past year, and executives like Brandon and Paul are driving the process of adjusting our operating strategy, to reflect a market that's maturing. We're a nimble Company that can succeed in a variety of market conditions. We expect that our consistent ability to find new ways to enhance the penetration of our portfolios will continue to drive our organic growth.

And as Brandon mentioned, our financial strength and management depth, allow us to be an active participant in the mergers and acquisitions market, which can serve as another vehicle for creating shareholder value in the years ahead.

And now we'll be happy to answer your questions. Operator, please open the call.

Thank you, sir. Ladies and gentlemen, at this time we will begin the question-and-answer session. [OPERATOR INSTRUCTIONS] Our first question comes from Charles A. Trafton with America's Growth Capital. Please go ahead, sir.

Thanks. Carl, just to clarify something. I think you said that -- did you say that 2005 collections will be flat with 2004 collections?

Yes, that's a possibility under the pricing scenario we see.

Right. Can we just go into that a little deeper. How much of your collections in '04 came from portfolios you bought in '03?

$87 million.

. 87 out of -- ?

230.

230.

Yes. About a quarter. A little over a quarter.

And this year in '04 you grew purchases about 15 percent of the dollar growth?

That's right.

And productivity is up. So can you give us a range besides purchases might be flat. Could they be up 10 percent, maybe down 5 percent, or is it looking pretty much like it's going to be flat?

The point I was trying to make is the purchasing market right now in our view is very competitive. There seems to be quite a bit of portfolio available for sale at high prices. And so our success in investing wisely will depend on how our ability to identify and then close on the individual portfolios that we buy. As I've said before, this is very opportunistic, and our hope is to acquire throughout the year 2005 more in terms of dollars invested than we spent in 2004. But at this point there is no way to predict whether or not we'll be successful in doing that. And the spread of those purchases throughout the year.

Charles, this is Brandon. The other thing is -- one of the things we think people should be aware of, is just because you spent more, it doesn't mean you actually got more. I have a very simple analogy. If oranges were four for $1, and you spent $1, now they're 3 for $1, you still spent $1 but you get fewer oranges.

I get it.

In a rising price environment, just because you spent more dollars, doesn't mean you bought more collectibility.

Right. In '04, almost half of your purchases were done in the Q4 once you amended the credit agreement. And according to the ERC table you have in '04, your estimated multiple collections is 2.2, down from 3.2 the year before. Did that trail off during the year? Did it start higher and go lower?

Prices varied through the year. I think prices tended to rise throughout the year, ending up at a higher level than they were at the beginning of the year, so the inverse of that would be the multiple decline.

Right.

Okay. How much zero basis did you have in the quarter?

Hang on one second.

Let's pull that up, Charles.

$9 million.

$9 million. 9 million. What does that compare to against Q4 '03?

I have it at 10.7 last quarter.

That would be Q3 '04?

Right.

Right. And the order wasn't Q4 '03? A year ago?

Year-over-year zero basis went up from 19.7 to 43.1. But we'll get you the Q4 '03 number

19.7 what?

For the year. Zero basis (multiple speakers)

For the year. Okay. Okay. And how many employees did you have at the end of the year?

700.

Right at 700.

So down a little bit?

Yes.

What do you think is behind the trend in the outbound calling group not growing as well the legal and other channels?

The number of people employed is not necessarily reflective of the productivity of the group. So we were able to hold the group relatively steady. In fact, it actually declined in size as it got more productive. And because as we keep stressing, we've got a variety of different channels we can continue to grow overall collections, and we're not dependent on either the outbound group, or any other group.

Right. Your employees are actually down year-over-year too.

Right.

Okay. Thanks. I'm let somebody else. Thanks.

Sure.

Our next question comes from Richard Shane, Jefferies & Co.

Thanks for taking my question.

Sure.

I think the -- you had given some pretty clear guidance in terms of collections. The other part of the puzzle I think that we need to understand is the revenue recognition. The recognition percentage was very high this quarter. Can you help us understand that, and can you also give where that's going next year? I guess put that in context of what's going to happen overall with revenues?

Yes. I think the -- we put a new chart in the K which is illustrative of what is happening, the revenue recognition was high for the fourth quarter. And the reason was that it's a large amount of revenue that came from zero-basis portfolios, and a large amount of revenue that came from portfolios that had been largely amortized.

And so over time the zero-basis will decline, as we have said. We'll continue to buy new portfolios at lower revenue recognition rates, so the revenue recognition rate should gradually decline. But the important thing to focus on is the life-to-date revenue recognition rate, which is about 69 percent.

And there is a both a chart and a graph in the 10-K addressing that. It stems largely from our very conservative approach from the time we took over the Company through the present, of wanting to basically overperform and not be overpromising. So we've been very conservative in the revenue recognition. That's gotten us to a point where as we continue to penetrate the portfolios better, that's another key part of this, is we continue to penetrate the portfolios better than we thought at the outset. Those two things mean that we get to a very low basis on a large volume of our portfolios, and continue to have revenue coming out of it.

But, Carl, I guess this is the context that we need. The last couple of quarters' revenue recognition has trended into the mid-70s. This quarter it went into the mid-80s. When you say it is going to drift down, is it going to drift down from the mid-80s back to the mid-70s, or is it going to drift down -- assuming a normalized recognition in the mid-70s, below that level into the low-70s, or even into the 60s?

One of the things, Rick, is if you look at that graph, the life to date multiple is 69.8 percent and the ratio of revenue to collections is 69.8 percent. That's a multiple of 3.3. You compare that to our table in the book in the Q, on page 22, our expected multiple is about 3.2. We're not being overly aggressive. Excuse me.

A large part, about half of the dollars in the fourth quarter came from portfolios that were at less than 50 percent, from about 0 to 50 percent of the original cost basis. And when we went through and increased our forecast on those because we're confident that we're still going to get it. We ended up with a --

Guys, you're breaking up on us.

I think at the end of the day what we realize especially on the '01, '02, and '03 purchases, the longer we penetrate and the deeper we penetrate, the higher this number has gone. Definitionaly, for example, if you have got a 4.7 multiple, it will average 80 at some point in time, your revenue recognition. If you were at 60 at one point, you end up being at 90 by the end of the curve. What we now believe is that on the overperforming portfolios, that will continue for a while, and so the recognition rate will drift down. It will not drift down in a step function like you described. It will gradually work its way down throughout the year. And will probably drift into the – call it the 70s range – probably the mid 70s range, then it will drift down beyond that.

As we look out, it will actually stay at reasonably high levels, because of the expected high levels of zero basis, and the continued penetration of those '01, '02, and '03 portfolios, and that's why we break out, in the other chart we showed you of stuff bought on the last year, the recognition rate on that is much lower. We have this great stored value that we're going to be able to tap into as we look out.

Got it. I'm going to try to -- this will be a fairly pointed question. Given where your guidance in terms of collections and what you're talking about in terms of revenue recognition, are you seeing, anticipating flat, up, or down revenues in '05 versus '04?

I think the revenue is going to be higher you know for the reasons that we just said. We continue to penetrate the existing portfolios better. But you have to also recognize that among the portfolios that we just put on the books at say a multiple of 2.2, they're going to have a very low revenue recognition rate.

In the beginning?

In the beginning. And -- I want to go back to the collections could be flat statement. Collections could also be a lot higher. It's a function of our ability to find the portfolios that we want to buy. If we're successful in finding a larger volume than we anticipate, we could have higher collections. We just want to decouple the price that we pay, or the dollars that we invest in portfolios from the expected collections the way it's been coupled up in the past apparently.

Okay. Thank you, guys.

Our next question comes from Joe Chumbler with Stephens Inc. Please go ahead, sir.

Good afternoon.

Hi, Joe.

Just looking at the salary and wage line. It seemed to tick up a little bit year-over-year and sequentially as a percent of collections. I guess intuitively I would have expected the opposite, given the growth in legal and outsource collections. Am I missing something there?

There were -- you know, that includes the bonus compensation for the people on, the collectors. It's volume driven. So it's going to rise as volumes rise.

Okay. You haven't mentioned SOP-03. I'm wondering now that you're two thirds of the way through the first quarter, I know your conservative on your revenue recognition assumptions. Does that mitigate the chance of impairments this year?

I don't -- I'm certainly not aware of any material impairments we're going to have to make. We feel very comfortable with our position. We've been speaking about it now for over a year. And have been planning accordingly. I don't anticipate any material impairments.

Although as I've said periodically, from time to time any company in our business is going to have some small isolated impairments, which is analogous to a bank having a bad loan. So the individual small impairments shouldn't be viewed by anyone as troublesome. Although, I'll say again, at the present time we don't anticipate any in the near future.

Okay. And what about deal flow in the first quarter? You said pricing appears to be remaining tough. What about deal flow? Has it slowed down since the fourth quarter?

No we've actually seen an awful lot of deals in the marketplace. So I don't know see any slowing of the flow, the supply is quite large. The prices are just very high. And so you have to be very selective in purchasing.

Credit cards suffering from price pressure? Or is it across the board?

I think it's pretty much across the board.

Okay. And then I wanted to ask you about the ChoicePoint identity theft a couple of weeks ago. They had mentioned that maybe they would dial back some of the availability of data to collection firms. How would this possibly impact your business? Have you assessed that situation?

They have no impact on our business, because we don't use them.

Well, not just ChoicePoint specifically. What about just the data provider industry?

You know, one could only speculate. I don't see any movement to limit across the board at this point the availability of the kind of data that we use.

Okay.

Certainly it's something to watch.

Okay. And then Brandon, you had mentioned acquisition opportunities. Given the state of the industry, what kind of multiples do you expect to be paying for specialty buyers such as bankruptcy or healthcare Companies?

It's a great question. I don't want to speculate on the call. I think that we would only, our focus is on finding deals that would be accretive to us, which would mean doing it with the appropriate multiples, and it's hard to say. It's a function of the size of the business, their current earnings stream and how we think it could fit into what we're doing, so it's tough to give you an answer.

It's a very fragmented industry. These industries are very fragmented. There is a wide range of types of players and their emphasis. So I think you see a very wide range of prices. I think what's important so us, is to make purchases that have long-term strategic value to the shareholders. So that when we're making the investment we see a long-term growth benefit for the shareholders, from whatever it is we purchase.

Okay. And finally, in terms of use of cash flow, I presume you would prioritize rational portfolio purchases first, and then maybe strategic acquisitions, what comes after that?

I think those are the two things that we would, the only two things I can think of right now that would be on the plate. Other than our growth of the Company, internal growth.

All right. Thank you.

Sure.

Our next question comes from Brian Gonnick (ph), Corsera Capital.

Hi, good afternoon.

Hi, Brian.

Of the estimated remaining collections of $474 million, can you tell us how much of that is zero-basis collections?

I don't think we break it out, Brian. I don't think we want to be that specific in this discussion.

Well, let me rephrase the question then.

Okay.

If the -- this multiple you're showing, the collection multiple of 3.2 times, is that sort of the blended multiple?

Yes.

So if I were to take basically the book value of $138 million, right? And times it by 3.2 times, that looks like you're going to collect $440 million. Right?

No, you've confused Book value and cost. Book value -- the multiple is a function of cost.

Right.

And book value is what's remained after amortization.

Ah, right. Okay. So is there any way that you can guide us to kind of figuring it out?

I'll give you only some very general guidance, which is most of the portfolios bought prior to 2002, we've eaten through most of the basis. If you're going to look at that, that would be a reasonable really proxy. Where it gets blurry, as you get into '02 and beyond, there are some pools that are zero-basis, and some that aren't.

Right. Okay. All right. I'll play with that. I guess another way to look at it is, in your historical model, I think you've used a multiple of 2.7 times, isn't that right, on average, historically?

We've always used 2.7 as an example of a portfolio and how it's basically, I think we've used it to demonstrate how the business works.

Right. I guess -- I would also presume that that's sort of like what you would use for your revenue recognition purposes? Kind of generally speaking, on average?

The two are linked together.

Right. With the exception being in '04, it looks like it's down to 2.2 times, is that right?

In '04, that's right. So the '04 revenue recognition would be the lowest on that chart.

So okay. I guess --

Brian, the challenge you have is you're seeing this for the first time. You don't have in '02, what we initially thought in '02 and what we ultimately got. Over time you'll be able to build this chart out, and get a sense of kind of the conservativeness built into the initial multiple, and how it plays out over time. It's hard to do it starting right now.

Right. Let me ask the question then, do you expect zero-basis revenues in '05 to be similar to what they were in '04?

I think that we expect zero-basis to decline in '05.

Yes. Dramatically? It's still going to be a decent chunk, though?

We don't expect a dramatic change in zero-basis.

Do you expect that you would be drawing down on your new credit facility this year?

I can't speculate on that. It's a function of the opportunities we look at.

Yes.

We're certainly glad to have it there, if we want to draw on it.

In your scenario of where you mentioned, you could be flat in terms of collections this year, and putting aside acquisition opportunities, I would suspect you're not going to really draw on it, would you?

We wouldn't have to use it a lot.

Right. My last question is can you tell us in Q4 was there any revaluation impact?

The amount of impact on the quarter was very small. It was -- I think it was approximately $1 million.

Okay. Okay. Thanks a lot, guys.

Sure.

Ladies and gentlemen, [OPERATOR INSTRUCTIONS] Our next call is a follow-up question from Richard Shane.

Guys, thanks again for taking a couple of more questions. Can you talk about what the collections environment looks like right now in Q1. Also given the building cash position, and the previous question about whether or not you would tap the facility. If you don't find acquisition opportunities, would you contemplate starting to buyback shares at this point?

I think the collection environment is what you expect for the first quarter. It is seasonally our best quarter. I have no reason -- I don't see anything that that leads me to conclude that it's not going to be this year also. You know as to buying back stock, I just don't see -- we haven't discussed that. I'm pretty -- I'm very bullish on the opportunities we're seeing out there. I don't contemplate buying back any stock.

And -- I mean -- I guess the question would be, given that you're talking about opportunities. What sort of timing -- I guess you're probably going to be pretty sensitive here. Is this something that we could see imminently. Is there stuff fairly far along in terms of strategic opportunities or is this, you know, several quarters out?

I think the best practice, Rick, is just to comment on them as they develop, and make specific concrete comments when it's appropriate to do so.

Okay. Thank you, guys.

Sure.

At this time we have no further questions. I would like to turn the conference back over to management.

I want to thank everybody for participating in the call today. With respect to one of the questions that was raised, salaries actually went down as a percent of collections. Although it was extremely modest. It was about a half of a percent.

So in summary, I want to say that we look out to 2005 as a year full of challenges, but also opportunity. I think three years from now, we're going to look back at the three years we've gone through seeing strong solid growth, although it is going to be a lot lumpier than it was the last three years. We're pretty optimistic. We feel like we have a terrific balance sheet, a lot of liquidity and most importantly a very strong management team. Thank you very much.

Ladies and gentlemen, this concludes the Encore Capital Group fourth quarter 2004 conference call. If you would like to listen a replay of today's conference, please dial toll-free, 800-405-2236 or local (303)590-3000 with the access code of 11024894. You may now disconnect. Thank you for using ATT teleconferencing.