Encore Capital Group Inc (ECPG) 2005 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Encore Capital Group fourth-quarter 2005 conference call. (Operator Instructions). As a reminder, this conference is being recorded today, Wednesday, March 15, 2006.

I would now like to turn the conference over to Tony Rossi of the Financial Relations Board. Please go ahead, sir.

Thank you, operator. Good afternoon. We would like to welcome everybody to Encore Capital Group's fourth-quarter 2005 conference call. With us today from management are Brandon Black, President and Chief Executive Officer, and Paul Grinberg, Chief Financial Officer. Management will discuss fourth-quarter results and will then open up the call to your questions.

Earlier today, Encore Capital Group filed its 10-K for the year ended December 31, 2005. This is a complete report of Encore's results and we encourage you to read it thoroughly because it contains a great deal of useful information.

Before we begin, I would like to note that certain statements in this conference call 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, 2005, 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, whether as a result of new information, future events or for any other reason.

With that, I would now like to turn the call over to Brandon Black. Brandon?

Thank you, Tony, and good afternoon. The fourth quarter capped another record year for Encore. For the year, we generated the highest level of collections in the history of our Company at $292 million versus $235 million in 2004. In the fourth quarter, we generated similarly strong collections of $72 million in a seasonally slower period of the year. This compares to $53 million in the fourth quarter of 2004, or a 35% increase in year-over-year collections.

Looking at purchases for the year, we invested $196 million to buy over $5.9 billion in face value of debt. In the fourth quarter, while the pricing environment remained generally elevated, we found several good opportunities. Combined with our purchases under the forward flow agreement with Jefferson Capital, we invested $39.9 million to purchase over $1.3 billion in face value of debt.

While deal flow is very strong, due to the increased supply resulting from bankruptcy reform, we believe much of the portfolio offered for sale in the fourth quarter continued to trade at elevated prices. Therefore, we limited our purchases to those that we felt were appropriately priced and could generate an adequate return for our stockholders.

We remain steadfast in our disciplined approach to purchasing, buying only those portfolios that meet or exceed our internal IRR hurdle rates. These new purchases, combined with our existing portfolio and solid execution by our various collection channels, led to record profits, with earnings per share of $1.30 for the year and $0.32 for the quarter, in line with the guidance range we communicated on our third-quarter earnings call.

Overall, we are extremely proud of these financial accomplishments, particularly since they reflect the impact of some dilution from our convertible notes and the amortization of intangible assets relating to the acquisition of Ascension Capital. Paul will provide more details on both of these items later.

It was a strong year, not only financially but strategically. I would like to give you a quick update on three specific strategic objectives we set out to accomplish in 2005 and the results of those efforts.

The first is Jefferson Capital. The bulk purchase continues to perform as expected. While for competitive reasons we do not plan on providing portfolio-level collection performance going forward, we did want to offer one more snapshot of our performance on this purchase, given its size.

Through the end of February 2006, cumulative collections were $50.4 million or 53% of the purchase price and continue to track above our initial estimates. As for the forward flow, it has provided us with a monthly supply of favorably priced portfolio, and collections are meeting our expectations. While we realize that one successful large deal does not make a trend, we're confident in our ability to value such portfolios and believe it supports our strategic decision to focus on larger transactions.

In 2006, we plan to continue to purchase large negotiated purchase opportunities where the returns may be greater than many of the deals offered in the open market, especially if the elevated prices we see today persist into the future. While this may cause variability in purchases for a quarter or two and some lumpiness in our corresponding revenue and earnings, we believe it is the best course to pursue for the long-term success of the Company.

Second, I would like to update you on Ascension Capital, our fee-based bankruptcy services business, which we acquired at the end of August. In the fourth quarter, Ascension was a beneficiary of bankruptcy reform. We had record placements and revenue totaled $4.4 million.

While we saw a significant spike in Chapter 7 placements during October equal to four to five times monthly historical averages, we also witnessed a subsequent tailing off in November through the end of the year and into early 2006. We expect placement trends to return to a more normalized growth rate later this year.

We continue to be very pleased with this acquisition. It continues to contribute cash to our business and we see a strong pipeline of potential new clients that we believe will help this business maintain its growth momentum in the future.

Third, I would like to provide an update on our medical debt purchasing business. Through the end of February, cumulative collections on our first purchase made in September 2005 have exceeded our initial expectations and represent 35% of the purchase price. Since our last call, we have expanded the group that is exclusively focused on this business, with the core management team having nearly 40 years of collective experience in health care and collections.

We continue to pursue new purchases and have many active prospects. While the sale cycle is longer than other asset classes, we continue to see several large opportunities. We believe the foundation we have put in place positions us as the preferred purchaser of health care debt as the market continues to emerge.

With that, I would like to turn it over to Paul for his discussion of the financials in more detail.

Thanks, Brandon. As Brandon stated earlier, our gross collections in the fourth quarter of 2005 were $72 million, an increase of 35% from $53 million in the fourth quarter of 2004. In the fourth quarter, all of our collection channels increased their contribution over the prior year.

We are especially pleased with the performance of our St. Cloud collections site. The St. Cloud team has exceeded our expectations and we have begun aggressively hiring there.

The growth in the agency channel is directly related to the amount of Jefferson Capital portfolio worked through third-party agencies. Over time, we expect to shift all of these portfolios to our internal sites and our other collection channels. This transition began in the fourth quarter of 2005 and accelerated in the first quarter of 2006. We expect this transition to continue throughout the remainder of the year.

With regards to sales, we continue to be opportunistic and take advantage of the elevated pricing in the marketplace. Specifically, we are selling certain types of accounts at prices that exceed the net present value of the expected remaining cash flows.

Our remaining value model, UCS, allows us to look at the credit profile of each customer, our historical collection attempts and the current profile of the account to determine its future value on a dynamic basis. This resulted in approximately $7.7 million in collections from the sales channel this quarter versus $3.3 million in the fourth quarter of 2004.

The majority of the sales proceeds came from pools originated in 2001 through 2003 and were comprised of [skip] and other low-value accounts. If prices remain elevated, we believe this will be an avenue we will continue to pursue, but not rely on.

Our total revenue in the quarter was $58 million, a 27% increase over the $46 million in the same period of the prior year. Revenue recognized on receivable portfolios as a percentage of portfolio collections was 75% in the quarter, compared with 86% in the fourth quarter of 2004. Netted in revenue was a $2.3 million allowance charge. This charge, which represented less than 1% of our total investment in receivable portfolios, related to a few specific pool groups.

The majority of the current quarter's allowance related to one commercial gas credit card portfolio where the issuer was unable to provide the required personal guarantor information and two early 2005 purchases of auto deficiency portfolios that were in excess of 80 months from charge-off at the time of purchase.

The auto deficiency portfolios were the initial sales for two of the five largest automotive captive finance units. We believe that the allowances we recorded have mitigated the future impact these portfolios may have on our performance and believe that some incremental gains still exists from a relationship perspective with these large auto captives, each of which is expected to generate significant sales volume in the future.

These two purchases were part of an R&D initiative to understand older auto deficiencies, and going forward, we plan on accounting for future R&D portfolios on the cost recovery method. As of the end of the year, we had no other portfolios that we would consider R&D portfolios.

While we were not pleased with the performance of these two specific auto deficiency portfolios, it does not diminish our enthusiasm for this asset class. To date, excluding these two portfolios, we have purchased $1 billion in face value of auto deficiency debt, and as a whole, our experience has been solid.

Along with the allowance charge discussed above, which had the effect of reducing the revenue recognition rate by 3 points, the change in the rate was also attributable to a higher percentage of collections coming from more recently purchased portfolios that have lower collection multiples and correspondingly lower internal rates of return assigned to them. We expect this rate to continue to trend down in the near term.

Since we're discussing alternative paper types, I would also like to mention our experience with telecom portfolios. To date, we have spent $14.1 million to purchase $524 million in face value of telecom debt, of which $4.5 million was spent on wireless portfolios.

Overall, in telecom, our collections have performed as expected with both reasonable payer rates and solid average payment sizes. As with any asset class, there is an appropriate price to pay for telecom portfolios. Based on our experience, we believe we have the ability to accurately value and efficiently collect upon telecom debt and expect that it will continue to be a profitable area for the Company.

We continue to focus on improving our operating margin. Our total operating expenses for the fourth quarter of 2005, excluding Ascension, were $33 million, compared with $28 million in the same period last year. As a percentage of collections, operating expenses declined to 46% from 52% in the fourth quarter of 2004.

While we have continually stated that this is not a business that should be managed by the cost per dollar collected, we have increased our efforts to improve our cost structure in response to higher purchase prices.

Our total interest expense was $7.8 million in the fourth quarter of 2005, compared to $8.5 million in the same period last year. The contingent interest component of interest expense was $4.6 million in the fourth quarter of 2005, compared with $7.4 million in the same period last year.

The Company continues to see a reduction in contingent interest expense as collections decline from older portfolios purchased under its previous credit facility. In 2006, we expect contingent interest to continue to decline throughout the year and be approximately 50% of what it was in 2005. However, as we have mentioned in the past, the level of contingent interest will ultimately depend on actual collections from portfolios financed under this arrangement.

Our fully diluted earnings per share were $0.32 in the fourth quarter of 2005, a 33% increase over the $0.24 in the same period last year. Included in these results is the impact from completing the allocation of the purchase price for the Ascension Capital acquisition.

As you may recall, when we reported our third-quarter earnings, we had not yet finalized this allocation. The work performed by our external evaluation firm resulted in us establishing several new assets on our balance sheet, including a purchased servicing asset, certain intangible assets and a prepaid employment asset, which is included in other assets on our balance sheet.

These assets will be amortized over time as non-cash charges. In 2006, we expect these charges to impact earnings by approximately $0.10 per fully diluted share, net of taxes. The impact of Ascension amortization expense in the fourth quarter of 2005 was $0.02 per fully diluted share, net of taxes.

In the second half of 2005, we were able to lock in $100 million of five-year covenant-free financing at 3.375% by issuing convertible notes with an effective conversion price of $29.04. This transaction had a modest impact on our share count until we obtained stockholder approval of the net share settlement feature on October 28. The net effect on fourth-quarter earnings was dilution of $0.01 per share.

Going forward, for modeling purposes, we would suggest a fully diluted share count averaging closer to the amounts experienced in the first and second quarters of 2005.

Before I conclude, I would like to provide some guidance on the level of compensation expense relating to stock options. Beginning with the first quarter of 2006, we will be required in accordance with FAS 123R to report stock options as compensation expense. While we have not finalized our analysis of all the factors that will determine the actual expense that we will record when we implement FAS 123R, we estimate the impact on earnings per share, net of taxes, will be in the range of $0.10 to $0.20 in 2006.

With that, I would now like to turn the call over to Brandon, who will provide some closing remarks.

2005 was a good year for Encore. We were able to navigate through a much more competitive environment and added two significant growth engines -- medical collections and bankruptcy servicing. While we generally expect pricing to remain at elevated levels, we are confident in our ability to continue generating growth in revenue and earnings over the long term. The level of earnings growth that we experience in 2006 will be largely dependent on our ability to acquire attractively priced portfolios as we did with the Jefferson Capital transaction in 2005.

As I conclude, let me reiterate the key steps in our strategic approach. First, focusing on larger portfolio transactions, where our valuation models and our access to capital give us a strategic advantage. Given this approach, we would encourage the investment community to track our full-year purchases as the best indicator of our level of investment in the business rather than purchases in any one particular quarter.

Second, capitalizing on our leadership position in additional consumer debt markets such as bankruptcy services and medical collections. Third, strengthening our unique operating platform that is predicated on consumer-level analytics and technology. Fourth, seeking out additional businesses in the distressed consumer space, with strong foundations in emerging markets with high growth potential.

Fifth, emphasizing innovation in our collection processes in order to increase the liquidation of our portfolio and drive costs out of the business. And finally, continuing to create an environment that attracts and retains the best human capital from across all industries.

In summary, we believe that we are attractively positioned within the consumer debt recovery industry. Industry fundamentals remain strong. We will expect future increases in supply as consumer debt levels increase and creditors across different asset classes explore debt sales to monetize their charge-off receivables. We believe our consumer-level analytical approach will position us well to capitalize on these opportunities to enhance the long-term value for our stockholders.

Now we will be happy to answer your questions. Operator, please open up the call.

(Operator Instructions). Mark Hughes, SunTrust.

The zero basis collections -- is that something you can share for the quarter?

Sure. The zero basis collections were $6 million for the quarter.

And then the contingent interest comparison, I don't have it in front of me. Would you mind sharing the third-quarter comparison?

Sure. The contingent interest was $5 million in the third quarter.

In your outlook section in the second paragraph, your language regarding near-term earnings growth affected by ability to identify opportunities, anything you can elaborate on that? Is there any sort of ranges or any more additional thoughts you can share about near-term earnings growth?

No. What I would say is you really have kind of two forces working against each other. One is you have the runoff of the portfolio that we've purchased in 2001 through 2003, which are either [ZVA] or higher ARPU. So, for every dollar we collect, we've got a pretty high revenue recognition rate.

And that runoff is being offset by our ability to replace that revenue with new purchases, and we don't have enough visibility, you know, as you look out into the future, to say exactly what that's going to be. And so we thought it was important to point that out. But we're not going to give any specific range.

Jeff Nevins, First Analysis.

Sorry about the background noise, but my question is related to the purchases you made in the fourth quarter. Was it a function of you were oubidded on deals? Did that take some of the burden -- you know, not making as many purchases as you probably would have liked?

And then the second part of that is was it that there was more maybe fresh paper out there as opposed to some of the paper you are more -- you've got more experience with, like tertiary or secondary?

Jeff, that's a good question. We actually -- if you recall back to the Jefferson Capital transaction, that is a fresh portfolio transaction, so it's not so much that the portfolio for sale is fresh paper; we just saw prices that quite frankly in some cases we just didn't even bid because we knew what the market going price would be.

So, to me it was a function of -- I think it's been used a couple of times -- portfolio being priced at the high end of rational, and in some cases, we just thought they were well beyond what we could pay.

And then my second and last question here, and I'm bouncing around between the mute button here, is on Jefferson Capital, could you give us the quarterly collection number for December? I know we have the February number.

No, we intentionally did not give the fourth-quarter number from the standpoint of not wanting to give the collection curve for that particular portfolio. So we're not going to give that number.

But is it safe to say that nothing happened in the fourth quarter, i.e., you know, fourth quarter wouldn't give us a bad comp if you include the two months of 2006?

No, I don't think so.

Brian Hagler, Kennedy Capital Management.

Can you maybe give a little more detail on the other operating expense line? I guess a couple of the other lines, you know, the salary and benefits and the collection agency commissions kind of did what you had foreshadowed on your last call. But other operating expense was up sequentially. If I could get more color on that, thanks.

There are number of things that are included in the other operating expenses, including our mail campaigns, expense -- our data services and also we've got for the fourth quarter of 2005, which we didn't have in prior years, we have some Ascension Capital expenses included in there. We did have some increase in mail campaigns in the fourth quarter of 2005 as compared to the prior year. Those are the largest components of what's in there.

Okay. And that's what drove the sequential increase for the most part?

That's correct. It's primarily related to increase in mail campaigns and the Ascension Capital stuff being in there.

Okay. And can you maybe expand a little bit on your (multiple speakers)

Brian, just one other thing that is in there -- there is some amortization of one of the Ascension Capital assets that's included in other operating expenses. If you -- when you see the balance sheet, there's something called a purchased servicing asset, and the amortization of that asset gets reflected in other operating expenses.

Okay. And can you maybe expand on your comments about further process innovations and efficiency improvements, kind of what you're looking at and what you hope to accomplish there?

Sure, so we, as most of you know, we've got a decision science group here that's focused not only on valuing portfolio, but looking at optimizing some of the repetitive processes that we have. Examples would be our outbound calling campaigns, our direct-mail strategies, and we've seen some pretty provocative things with respect to how we're going to go about executing those channels in the future.

So we're just trying to take a continued approach at using analytics to drive our processes, which should allow us to increase collections without having to either increase costs or headcount.

Is there any kind of expense-type savings range that you're hoping to achieve or think you can achieve?

None that we would disclose on the call.

Daniel O'Sullivan, Utendahl Capital Partners.

Thank you for taking my questions. Actually, I got on the call a couple of minutes late, so I'm sorry if I ask some questions that have already been answered. Can you give us a sense of what the collection channel mix looked like for the quarter?

Sure. For the quarter, about 40% of the collections came from our internal sites. About 30 came from legal, 16 from agencies and 11 from sales.

Daniel O'Sullivan The number has been moving up in third-party collections. Can you give us a sense of where that may go? I mean, taking a look at -- for '06?

You came in a little bit late, Dan, but as I mentioned in the prepared remarks, the bulk of the increase from the third-party agency related to the Jefferson Capital portfolio, and we have started migrating those collections from external agencies to our internal sites. And we will continue to do that throughout the year.

There's no specific guidance that we would give you in terms of where that number will end up, but we continue to make that shift and it will be a much lower number in 2006 than in 2005.

Daniel O'Sullivan But I mean, on the surface, you should see it start declining in this quarter and going forward through '06, or--?

That's correct. It actually did decline from the third quarter of 2005 to the fourth quarter. It was 22% in the third quarter, down to 16% in the fourth quarter. And that trend will continue.

Daniel O'Sullivan Okay. Any remarks on [Quattro] turnover, what you guys are seeing there in the Quattro ranks?

No, our effective turnover continues to be low. The turnover on our tenured employees was right around 30% for the year, so our retention was 70%. And of new hires, the turnover is right around 50%.

Daniel O'Sullivan One last thing. I know historically, the first quarter tends to benefit from tax refunds. Can you give us a sense of what you're seeing there? Is it tracking similar to previous years? Better or worse this quarter right now?

We don't see any deviation in seasonality from what we've seen in prior years. It is generally a stronger quarter, certainly compared to the fourth quarter.

James O'Brien, Brean Murray.

On the resales, can you give us a sense of is the reselling market quote, unquote, hot right now? And is that continuing this quarter and maybe beyond, or is that something that might abate as we go forward here?

As we've seen capital flow into the space, certainly that has impacted the resale market, and we've been able to take advantage of that by offering, as Paul talked about, a portfolio where our expected value kind of on an NPB basis is significantly lower than what the marketplace would pay, especially for segments of accounts.

So that isn't going to change. We've been doing that for over a year now. And we're not counting on it continuing in the future, but we expect it will for a short period of time, and then we will have to see. But right now, it's the strategy that we will employ opportunistically.

What about -- you were mentioning the demand for Ascension. Going forward, what would be maybe a good run rate for that, or what do you expect for a more normalized growth rate for that business to be?

Similar to our other business. What Ascension will have is it will have sort of large spikes in growth. So it might not grow very much in a period of time and then we will take on a new customer, which could grow revenues pretty dramatically.

The example we've used before is if we were to secure one large customer a year, we could, over the next few years, triple the business in the next couple of years. So there's some very big players. The market is immature. We're getting a lot of interest and so the growth rates could be pretty significant, although, again, it will be kind of lumpy, just given the fact that if we take on a very large client, we will shift their whole volume over.

So, rather than giving you a specific number, I would just say that we think it could be sizable, and it's just a function of attracting a couple large clients each year.

Okay, and then one last quick one, if I may. People have commented that pricing is elevated. You seem less sanguine than some of even your other competitors. Can you give us a sense maybe what pockets you're seeing that are a little bit more rational? I mean, is it wireless? Can you just give us a kind of lay of the land on pricing, where you think things are maybe at the far end of rational versus, you know, some of these things that are more in your wheelhouse?

Great question. I don't think we could point out one specific area that you could say this area's really hot. What I think we would say is every deal is highly competitive, especially those put out in the auction marketplace, and the buyers move around. But in any given pool, you're seeing a couple of people stretch well beyond kind of the pack of bidders.

And it's not the same person every time. People are just finding different pools they go after. Some of the pricing in fresh paper has gone up relatively dramatically in the past couple of years. But I don't think it's limited to that.

What we've been able to do is, again, using the consumer-level analytics, is pick the spots where we're going to invest in portfolio where we've got a very good sense of the collectibility of the pool rather than kind of buying -- bidding on every pool and hoping to win one. So, I don't think I could give you an area that I would point to other than I think the whole market is pretty competitive right now on every deal.

Is there any sense that there might be a credit trust out there or something -- any chatter that someone may blow up eventually because of the greater fool theory here?

You know, everyone, there's always a lot of chatter, although we haven't seen any evidence of that. So we're not planning on it. We're going out and creating our own deals, but certainly, I think everybody is looking for that. But it's not something we're counting on at all.

Justin Hughes, Philadelphia Financial.

First of all, thanks for taking the time to file the 10-K before this call so it saves us a lot of questions. I was wondering on the servicing fee business, is that going to be seasonal or should we kind of grow the number from here?

It generally won't be seasonal, although, as we put in our remarks, we will get the benefit of the spike in the fourth quarter of last year and the first part of 2006, but then the lower placement volume that happened immediately after will impact the middle half. So in 2006, you'll probably see some fluctuation, but I wouldn't call it seasonality. Overall, we don't see a lot of seasonality in the business. It's not nearly as variable as the credit card market. So I would not build in nearly as much seasonality.

Okay, so you're saying that the middle half of '06 should be better or worse than kind of what we're seeing now?

From a placement perspective, it should be improving from where we are seeing now. So it should be better than what we're seeing today.

Second question on the yield -- on the portfolio, I calculated 88%, but if we kind of pro forma out that write-off, it gets closer to about 91%. Is that approximately right?

When you say yield--?

Revenue to receivables on your portfolio -- on your balance sheet.

If you exclude Ascension --

No, I'm sorry -- collection revenues divided by receivables -- I'm adding it back. I think you had a 2 million write-down on one of your portfolios.

No, our reported revenue recognition was 75%. Without the allowance, it would be 78%.

Okay, I was looking at the yield, but we can talk those numbers, too. If the pricing market stays flat, where should that be trending to, assuming the yield -- it doesn't get any more competitive from here?

It's a good question. We continue to put portfolios on at a conservative multiple, and for example, you'll see the 2004 vintage has gone from 2.2 to 2.4 over the life. So it depends on what number you want to use. At a 2.2 multiple, that's all dollars you've got revenue recognition would be in the high 50s. But we don't expect it to end up there. But that's ultimately what would happen over time.

Okay, so high 50s if there's no further write-ups of portfolios?

Yes, just take one and divide it by the multiple and you'll get the revenue recognition rate for that given portfolio.

Okay. And then the last question on the 40 million of purchases you made this quarter, how much was from the Jeffersonville agreement?

About 10 million of that.

Brian Gonick, Corsair Capital Management.

Just to clarify on the quarter, what was the amortization rate if you exclude the write-down and zero basis collections?

Why don't we calculate that, Brian, and come back to you with the answer?

You kind of talked about what you expect for amortization rates kind of in '06. Can you lever it a little bit, and sort of what the trend might be and what you're seeing?

So from the 75% in the fourth quarter?

Right.

Without giving any specific numbers, again, it's going to depend on what you buy in any given quarter, but it will trend down. We still have significant portfolios coming in, collections coming in from high IRR portfolios. So it won't fall as dramatically as you might think. But it will trend down -- my guess a couple of percentage points over the next few quarters.

And Brian, the number you are looking for is 70%.

70 -- seven-zero?

Seven-zero.

So amortization was 30.

Yes, yes, I'm sorry. I'm giving the inverse.

Jeff Nevins.

My question is coming off a big year of purchases and with a visible supply of Jefferson Capital paper, why are we getting cautioned a little bit on the earnings outlook? It would at least appear on the surface that you have a really good setup of collections in the next couple of quarters.

It's a great question. I think what we're trying to do is to separate a little bit collection growth from revenue growth. Revenue growth will just be impacted by the fact that while we spent a lot, the effective revenue recognition rate on those pools bought last year are significantly lower than the pools that are falling off.

So you have pools where you collect $1 and you have $0.90, $1 of revenue versus now you collect $1 and you have $0.60 of revenue and you just have to replace those collections with significant growth -- replace the dollars with significant growth in collections just to offset that degradation.

So we're saying that there is that trade-off and we just wanted to put that out there that that's what's happening in the business.

And also, Jeff, the revenue is largely based upon the level of purchasing in any given quarter, and as we indicated in our prepared remarks, we are pursuing large deals like Jefferson Capital and the timing of that revenue -- timing of revenue will be based upon when we're able to execute those purchases.

So, the other reason we made the comment is because purchasing in any quarter is variable. And so the revenue -- the associated revenue with those purchases would be variable also.

Thank you, management. There are no further questions. I will turn the conference back to you for any closing comments you may have.

I would just like to thank everyone for joining us today, and we look forward to speaking with you in a couple of months at the end of the first quarter. Thank you.

Thank you. Ladies and gentlemen, that does conclude the Encore Capital Group fourth-quarter 2005 conference call. Thank you again for your participation and at this time you may disconnect.