Encore Capital Group Inc (ECPG) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Encore Capital Group Second Quarter 2010 Results. (Operator Instructions). And, as a reminder, this conference is being recorded.

And now your host for today's conference, Ren Zamora, Director of Finance. Please go ahead, sir.

Thank you, operator. Good afternoon and thank you for joining Encore Capital Group's Second Quarter 2010 Earnings Call. On the call today are Brandon Black, our President and CEO, and Paul Grinberg, our Chief Financial Officer.

We will begin with prepared remarks and then follow with a question-and-answer period. Brandon will end the call with some final remarks.

Before we begin, let me take a moment to reference the Safe Harbor provision. We want to remind listeners that certain statements made on this call are forward-looking statements under the Private Securities Litigation Reform Act of 1995. These can be identified by words such as "intend," "believe," and "expect," and phrases using those or similar terms.

Specifically, statements relating to projections of future collections, revenue, income, profitability, cash flow, non-GAAP financial measures, growth and expansion strategies and ability to expand and utilize flexibility under our credit facility are forward-looking statements.

We caution you not to place undue reliance on our forward-looking statements, which speak only as of today's date and we undertake no obligation to update these statements. Actual results may differ materially from any results expressed or implied by forward-looking statements as a risks, uncertainties and other factors discussed in the reports we file with the SEC, including our Forms 10-K, 10-Q and 8-K.

Our presentation today also includes information concerning adjusted EBITDA and other non-GAAP financial measures. We believe non-GAAP financial measures provide useful information. Management utilizes adjusted EBITDA, which is materially similar to a financial measure contained in covenants used in our agreements in the evaluation of its operations and believes that this measure is a useful indicator of our ability to generate cash collections in excess of operating expenses through the liquidation of its receivables portfolios.

We included information concerning total operating expenses, excluded stock-based compensation expense and bankruptcy servicing operating expenses in order to facilitate a comparison of approximate cash cost to cash collections for the debt purchasing business in the periods presented.

The presentation of this additional information should not be considered as alternatives to or more meaningful than our results prepared in accordance with GAAP. Our press release issued today, which can be found as an exhibit to our periodic report on Form 8-K, filed with the Securities and Exchange Commission today, or at the Investor Relations section of our website at www.encorecapitalgroup.com, contains a reconciliation of adjusted EBITDA to reported earnings under GAAP, a reconciliation of operating expenses, excluding stock-based compensation expense and bankruptcy servicing operating expenses to GAAP-measured total operating expense and a reconciliation of tangible book value per share to the GAAP measure, total stockholders' equity.

As a reminder, this conference call will also be available for replay on our website. And now, it's my pleasure to turn it over to Brandon Black, our Chief Executive Officer.

Thank you, Ren, and good afternoon. I appreciate everyone joining us today to discuss our results and continue the dialogue about our Company and industry trends.

To begin with, I'm pleased to report that our second quarter was marked by record-setting financial results, including cash collections, adjusted EBITDA and earnings per share. A month and a half ago, at our investor day in New York, we detailed the four competitive strengths or pillars that we believe underpin the strong financial performance you will hear about on today's call.

These pillars are -- one, analytic strength; two, consumer intelligence; three, cost leadership; and four, principled intent. I'd like to begin today's discussion by briefly touching on the significance of each of these for our Company and within the context of our industry.

Starting with the first two pillars -- analytic strength and consumer intelligence -- our evaluation and operating model continues to indicate that our consumers are recovering at rates consistent with historical levels, despite the macroeconomic headwinds. Much of the commentary that you generally hear around our industry is that the economy continues to have a significant negative impact on collections. Our results demonstrate a different and positive story.

In fact, our most recent consumer payer rate was 16 basis points, or [14%], higher as compared to last year. Average payment size was stable at approximately $220, which is roughly in line with 2008 and 2009, and consumers continue to honor their payment arrangements at increasing rates.

As we have discussed in the past, success in our industry hinges on understanding, measuring and predicting distressed consumer behavior. We continue to invest heavily in what we believe is the industry's strongest analytic platform devoted to understanding this demographic segment.

Ours is a business in which the economics are driven by a small percentage of accounts we acquire. Therefore, we manage both our collection activities and our expenses using a variety of analytic tools and sophisticated statistical models. This investment, made over many years, allows us to precisely and rapidly adjust our collection strategies in responses to changes, both at the individual consumer level, as well as based on broader economic developments.

Our willingness-capability framework continues to inform our payment plans and discounts we offer and powerful connects us-- connects our analytics to our operational activities.

Our third pillar reflects our focus on cost efficiency, a key part of both our collection and purchasing strategies. We believe Encore enjoys significant cost advantages, due in large part to our India facility, our enterprise-wide activity-level cost database and the development and implementation of our most-recent operational model, which is aimed at reducing unnecessary cost costs.

This quarter, collections from our New Delhi site grew to a record $28 million, which is nearly 130% more than the $12 million we collected in the second quarter of 2009. The increased performance was driven primarily by our tenured employees, defined as those individuals who have been with the Company for more than six months. These employees are producing results on par or slightly above what we see domestically, with very strong retention.

At the end of the quarter, we had over 800 account managers in India, 520 of whom have been with us for more than six months. The newer account managers are ramping up their performance and will become significant contributors in 2011 and beyond.

In addition to expected liquidation, cost to collect is a critical element in our purchasing decisions and strongly influences the price we are able to pay for portfolios. The lower cost structure, combined with our strong cash generation, allowed to remain very active in the purchasing market, where we deployed $83 million this quarter. Year to date, the total deployed to purchase portfolios was $165 million.

We continue to benefit from historically high charge-off rates. In fact, much of the supply that was generated over the past few years is still waiting to come to market as the demand has been constrained since early 2009.

Recently, we have seen increases in portfolio prices due to what is a traditionally seasonally low period for supply and some influx of capital into the space. Despite these increases, we fully expect to meet our 2010 purchasing goal of $300 million and anticipate the backlog of supply will ultimately come to market later this year and in 2011.

Our fourth area of focus is principled intent. Ultimately, we believe that the interests of Encore, its shareholders, the large financial institutions we purchase from and our industry's regulators are closely aligned around both the importance of protecting consumer rights and ensuring that an appropriate balance is struck between corporate and consumer responsibility.

In this context, one of the most complex decisions we make is whether or not to pursue litigation during the collection process. Since the vast majority of our consumers ignore our phone calls and letters, more often than not this lack of response deprives us of the opportunity to resolve their accounts through conversation and compromise.

Perhaps at no other time is the power of our models more important than in these situations and we use our robust analytics to ensure, as best we can, that our legal activities are directed towards those consumers who are able to pay their obligations over time.

Last year, we introduced an optimization model designed to better identify those consumers who would not be able to pay when subject to the legal process. After all, we do not believe it would be in our shareholders' best interests to incur court costs, legal fees and opportunity costs by taking action against an individual who will not have the financial means to fulfill a court judgment. Not only is this a principled approach, but it also makes good financial sense. The effect of the new model can be seen in our cost-to-collect ratio for the legal channel, which has declined from 60% in the first half of 2009 to 46% in the first half of 2010.

As we discussed during our investor day, the accelerating maturation of our industry brings opportunities to partner with legislators, regulators, consumer groups and consumers themselves as they redefine standards for lending, credit and financial health. Although we continue to see increasing levels of legislative and regulatory scrutiny around our industry, including the Dodd-Frank bill, whose ultimate impact is hard to predict, we believe that thoughtful and carefully adopted regulation could ultimately be a net positive for our industry. Not only is it likely to move less-sophisticated companies to the sidelines, it will also augment the ability of more-sophisticated companies to minimize any confusion felt by consumers as they go through the collection process.

We are taking an active role in this dialogue to recently travel to both New York and Washington, DC, to promote a partnership with consumer advocacy groups and legislators. Guided by the belief that our Company shares many goals in common with these important industry stakeholders, we are optimistic that a constructive dialogue can be maintained. This focus will continue to be important for us, as we're eager to improve upon what we hope to be industry best practices.

With that, I'd like to turn it over to Paul to review our results in more detail. Paul?

Thanks, Brandon. Before discussing our results for the quarter, I'm pleased to announce that we received an additional commitment of $33 million to our revolving credit facility through the partial exercise of the accordion feature, which closed on July 15th. This brings our revolving credit facility to $360.5 million, with $67 million remaining available under the accordion feature.

Importantly, we have also added another strong partner to our bank group, ING Capital. We believe that the accordion, when combined with our strong cash flows, will provide us with sufficient capital to pursue our increasing purchasing goal and retire the remaining $42.9 million of convertible notes due in September.

I'd now like to turn to the metrics that we monitor most closely to evaluate our business. One of the most relevant for us is adjusted EBITDA, which reflects our ability to profitably liquidate portfolio and generate strong cash flows. It represents the cash flow we generate that is available for future purchases, capital expenditures, debt service and taxes.

For the second quarter, adjusted EBITDA was $90.5 million, an increase of 40% compared to the $64.7 million reported in the second quarter of 2009. This improvement in cash flow allowed us to deploy $83.3 million for portfolio acquisitions in the quarter and pay $12.7 million in cash taxes, while only increasing our total debt outstanding by $10.6 million.

As noted by Brandon, another critically important metric that we monitor is our cost-to-collect ratio, which was 43.4% in the second quarter of 2010 compared to 48.3% in the second quarter of 2009. This nearly 500 basis points decrease is a key driver in our ability to be price competitive, which we believe will enable us to increase our purchasing levels in the future.

Looking forward, we expect cost to collect to fluctuate based on contribution by collection channel and overall collection volume. Please refer to the table on page 26 of our 10-Q, which shows the details on our cost to collect by collection channel, to get a better understanding of historical fluctuations.

The third metric that we track is the remaining value of our portfolio, which is reflected in our estimated remaining collections, or ERC. In addition to record collection performance, we have also been able to significantly increase our Company's embedded value. As of June 30th, 2010, our ERC stood at approximately $1.3 billion compared to just under $1.15 billion at June 30th, 2009.

While ERC increased more than $130 million, our total debt only increased $8.3 million during the same time period. We believe this clearly demonstrates the power of our operating model and our conservative stance on financial leverage.

Moving on to other financial results for the quarter, collections were the strongest in the Company's history at $156.8 million, up 28% from $122.4 million last year and $141.3 million in the first quarter of 2010. We are extremely proud of our team for achieving this milestone, particularly given the seasonal nature of our business, where the first quarter is typically the strongest for collections.

Our call centers contributed nearly 43% of total collections at $66.6 million for the quarter. As a result of our significant growth in call center headcount, particularly in India, we expect continued growth in call center collections throughout 2010 and 2011.

As Brandon mentioned, we currently have over 800 account managers at our India site. Of note, approximately 300 of these account managers have been with us for fewer than six months. As they progress through their training and development program, we expect to see improvements in overall productivity and cost to collect in the coming months.

By the end of this year, we expect to employ approximately 1,250 people in India, 925 of whom will be account managers. Since the growth in our headcount has important implications to our overall costs, we have also recently added additional disclosure, which you can find on page 35 in our Form 10-Q, which details headcount by site.

Legal collections grew to a record $68 million this quarter, as compared to $61.5 million in the second quarter of 2009. This represented 43% of total collections. Cost to collect in the legal channel was 45.9%, down from 46.6% in the second quarter of 2009.

The remaining 14% of collections came primarily from third-party collection agencies. Agency collections have increased to $22 million from $15.5 million in the prior year, reflecting changes in the mix of paper we've been placing with our third-party collection agency partners.

Our revenue from receivable portfolios in the quarter was $91.8 million, an increase of 24% over the $74 million in the second quarter of 2009. As a percentage of collections and excluding the effects of allowances, the revenue recognition decreased to 60.4% from 64.2%. The reduction in the revenue recognition rates is attributable to our conservative approach to setting initial IRRs and our policy of increasing them gradually after periods of overperformance.

During the second quarter, we did increase some IRRs on pool groups, but we maintained this conservatism to help avoid introducing the possibility of future allowances.

During the quarter, we recorded $2.8 million in net allowance charges, compared to net allowance charges of $4.6 million in the second quarter of 2009. As most of you know, we account for the business on a quarterly pool basis, not in an overall level. This pool-by-pool level accounting treatment leads inevitably to non-cash allowance charges in certain periods.

You can see our collection performance by pool group in the supplemental performance data section on page 29 of our 10-Q and our projections of future collections by vintage year through the remaining life of the portfolios on page 30.

Our revenue for the quarter at Ascension, which is a fee-based business, was $4.4 million, up approximately 8% from the $4.1 million recorded in the prior year. As I mentioned at our investor day, Ascension has recently won several new clients and, accordingly, we expect revenues to increase meaningfully in 2011.

Turning to expenses, our total operating expenses were $72.8 million, up from $63.5 million in the prior year. This was an increase of only 15% compared to the 28% increase in collections. Included in operating expenses were stock-based compensation expenses of approximately $1.4 million and operating expenses of $3.3 million for ascension.

Finally, our fully diluted earnings per share were $0.47 compared to earnings per share of $0.28 in the same period last year, an increase of nearly 70%. We are proud of our significant performance improvements, including record collections, record earnings per share and cash flow growth well in excess of collections growth. I would like to thank our employees for their hard work and valued contributions during the quarter.

With that, we would be happy to answer any questions you may have, after which Brandon will make a few closing remarks. Operator, please open up the line for questions.

Thank you, sir. (Operator Instructions). Our first question is from Mark Hughes of SunTrust. Your line is open, sir.

Thank you very much. Nice quarter. The collections on the 2010 paper you've got them-- your collections outlook is for 2.2, compared to your 2009 paper at 2.6. Is there anything about the performance of this year's portfolio that makes you more conservative about the long-term outlook? Or are you just assigning them an initially low number and maybe it's just more conservatism that has you at this level now?

Yes, Mark, it really relates to the conservatism that we put in place when we first book the multiples or first assign multiples to purchases. If you go back to 2009, you'll see that also, initially, we did set our multiples lower and as we consistently overperformed our collections expectations on the 2009 vintages, we did increase them.

So no difference in how they're performing as compared to 2009, just initial conservatism that we typically use when we set initial multiples.

Right. So 2010, at least at this point, as the 2009 was then?

Yes, it's performing well and if you just look at the metrics that Brandon had quoted, payer rates and payment size, you can see-- or we see that the performance in 2010 is really consistent with where it's been in 2009.

Right. And then the portfolio pricing, you talked about it up a little bit. How's the rate of increase compare to what you might have seen in Q1? Is it rising faster, about the same? Any numbers or ranges you might throw at us, specifically?

We never actually comment on specific numbers, but I would say the first quarter we didn't see much of an increase, year over year, a slight increase. It accelerated in Q2 and I think it's a function of, as I said earlier, of supply being generally down compared to the beginning of the year. There are a lot of flows that ultimately get locked into for the first part of the year. And so it's up, not a trivial amount, but it's hard to give you an exact percentage, because it varies by product and age and so it's difficult to give you an exact.

Thank you.

Thank you. (Operator Instructions). Our next question is from Hugh Miller of Sidoti. Your line is open.

Hi, good afternoon.

Hi there, Hugh.

Hi there. I had a question about, I guess, some of your peers in the call centers, on a sequential basis -- and I know that seasonality does play a factor -- but kind of had some challenges with roughly about a 4% or 5% sequential decline within that particular channel. You guys, obviously, had a 1% sequential rise, which kind of goes a little bit against what we've seen.

I was wondering whether or not that's a function more of the seasoning of some of the new guys in India or is there something else that's kind of driving that?

I think it's both a function of the growth curve of some of our new employees and, again, the continued contribution of the analytic models which help us target those periods in each period of time that we think can best pay. It's very hard for me to give you the exact breakdown of those things. It's a function of both of those things.

Okay. And the strength within the legal channel, up 19% sequentially from the first quarter, obviously up very strong on a year-over-year basis, but is that really driven more by an uptick in placements in the last several months or are you seeing better performance on that channel?

If you recall, we didn't specifically address this, this time, but we receive payments or remittance from our law firms every Thursday and depending upon the number of Thursdays in a given quarter, that will determine the collections that we're receiving both from the legal channels, as well as our collection agency partners. So this quarter we get one additional Thursday as compared to the first quarter, which drives a lot of that growth.

Okay. That's a good point. I actually had forgotten about that. And I guess, given how strong the collection performance has been, and that you guys are, obviously, being somewhat conservative with your multiples that you're assigning, are you starting to grow a little bit more comfortable with where we are right now in the performance of the Company about potentially looking at increasing some of the multiples further or are you still kind of a ways off from considering that?

We did increase some. As we mentioned, we did increase some multiples this quarter, but we do wait for consistent overperformance within those pool groups to do that. So there were pool groups where we did increase them, but, again, we do it very conservatively when we do it.

Okay. And I guess, given the staffing efforts that you've had in India, I guess when should we start to see, maybe, a decline in agency collections as you maybe move to bring some of that more in house into the cost-effective call centers in India or is that really not going to be as much of a function, given how much you've been purchasing and you'll continue to place at the agency level?

You'll actually see that take effect, actually, in the third quarter for two reasons. One is, both the in-sourcing of work and the second quarter also has the effect Paul spoke about earlier, which is we get remittance from the agencies on Thursdays, as well, and so the external collections were slightly higher this quarter. And so as a function of both in-sourcing the work and having one fewer Thursday will actually bring the number down in the third quarter.

But going forward, should we anticipate that you're going to be relying more on the center in India, as opposed to placements in the agencies?

That's right. You should expect that number to decline for the foreseeable future.

Okay. Okay and then I guess last question was with regards to you had mentioned anticipations for growth in the call centers. I assume that the comments on a year-over-year basis in that you're not anticipating sequential improvements in the second half of the year from the call center, going against some of the seasonal trends, or am I mistaken?

We actually believe you will see improvements in the second half of the year. Maybe not right at the end of the year, but we expect that the hiring that we've done will continue to provide dividends to the Company going to the third and the fourth quarter. So we expect the call centers to be very strong over the next few months.

Okay. All right, thank you.

Thank you.

Thank you, sir. Our next question or comment is from Sameer Grokhale of Keefe, Bruyette & Woods. Your line is open.

Thank you. I was just wondering if you guys could give some commentary about the impairment charges this quarter versus last quarter and, say, looking at trend line. Because, I mean, it just strikes me that we're trying to figure out an inflection point in those impairment charges and if I look at the table on page 30 to see an amortized balance as a percentage of total from your 10-Q, it seems like the bulk of the balance now, the vast majority, is really '08, '09, '10, where pricing was, perhaps, a lot better than you saw in the earlier periods.

So is it fair-- safe to say that you've kind of reached or are pretty close to the inflection point here? I mean, I know Q1 the impairment charges were fairly sizable. In Q2 they were much lower. But how do you-- I mean, are we at the inflection point, in your view? Are you ready to call that, as of now? Should we be thinking of it in that way? I just wanted to get your sense on that.

Sameer, it's tough to say that there's an inflection point at any point in time. Depending upon, as you know, we do account for this at the pool group level, so depending upon how we collect against any particular pool group in any given quarter will determine the level of impairment.

I would say that the trend is definitely down and will continue to be down from where it was a year or two years ago as we take some impairments on these pool groups, but in the third quarter or fourth quarter it could be higher than it was in this quarter.

I mean--

Go ahead.

No, I was just trying-- I mean, I was trying to break it down rather simplistically. I mean, if they really-- if the economic-- what's happened in the macro economy really doesn't affect collections that much, then the driver is going to be collections relative to purchase price and purchase prices were a lot lower over the recent past. And so if that's really what's driving the revenue recognition and the-- I mean, part of it is also how you set your initial expectations. But my understanding is that you and others set the expectations more conservatively over the last couple of years.

So, I mean, when you triangulate from that, it just seems like there's-- I can't see how the reverse would be true, where the impairment charges would be elevated. It seems like at some point they have to come down, maybe not in dollar terms, but percentage terms as a percentage of your overall revenue. They have to be trending lower.

So what would be the reason why they wouldn't be trending that way? That's what I'm trying to figure out.

Well, logically, I think you're 100% correct that logically it should flow that as you get into more predictable pools and you eliminate some of the pools with the higher risk, you should expect them to come down. I think what Paul's referring to is the challenge of the accounting we have is if you have any period of time where you have a temporary dip at the pool group, that you're going to have an impairment.

That being said, I think it's our belief that there will be trend downward of impairments as a percentage of revenue or of the total book, but referring to it as an inflection point, I think, is what we're kind of reacting to. Because I don't think there's a sort of point where you stop having them. You're always going to have them, given the accounting, but we think your general conclusions are accurate.

Sure. And I appreciate that. I know you have to temper how we think about those, given the uncertainty with the accounting. But that's helpful. I mean, that's essentially what I was trying to get to.

Sameer, the only thing I would add is that from the pricing perspective, I think the pricing came down starting in 2009, so there's still meaningful book left in 2008, which is what I pointed out.

Okay, that's a good point. The other thing I wanted to-- I was asking about was the-- wondering about was the dialogue that, Brandon, you mentioned with the regulators was pretty constructive as of now. But can you drill down and tell me what that means? I mean, are they saying we recognize that you, Encore Capital, are doing the right things but there's some bad apples out there and we just want to address those specific practices? Or are they saying we want to really-- we're interested in changing the way the collections work in this industry?

I mean, what do they really want, at this point? Is there any clarity on that?

I think where I can give you clarity is after having these discussions it's our belief that any group you speak to believes that consumers who legitimately borrow money and have the means to pay it back, should. What you end up talking about is, okay, if you can anchor around that, what are the tactics underneath that we have to make sure are in line with getting that done. And so what you see is a lot of groups trying to make sure that the information flow that goes to consumers are-- is as complete as possible and that they're given enough opportunity to dispute the amount of the debt or the nature of it.

And so what I find is that most of the groups -- in fact, all of the groups we've spoken with -- do believe that if there's an ethical approach to collections, that people who incur debts should pay them back and now let's talk about how do you make sure that that's done in a way where the consumer is able to manage their own personal financial situation with the right amount of information, the right amount of time. And that's where we're spending our time.

We don't think there's anyone out there trying to not have the collection business exist. We do think a lot of people really wanted to make sure our consumers have a voice and I think the more we talk to those constituents, the better off we all are.

Okay, thanks, Brandon. That's pretty encouraging. And then just the last question, Paul, on your income tax provision. I mean, the tax rate seems to be, I think it was like 36.5% this quarter, 37.4% last quarter. What should we be modeling out for the full year? Are you looking for something like around 37%?

No, it's probably going to be closer-- for the next couple quarters it'll be closer to the 39% range for the next couple quarters.

39%? Okay. All right, guys. Thank you very much.

Thanks, Sameer.

Thank you, sir. Our next question or comment is from Edward Hemmelgarn of Shaker Investments. Your line is open.

Great. Thanks. A couple of questions. The first is more of a technical or accounting issue. As regards the impairments, if it looked like you were going to ultimately end up collecting more of that money in the future, would you reverse the impairment charges in a year or would you just get down to zero balances on-- and then just show collections on zero balances?

If we've taken an impairment in a pool group where we're collecting money beyond our basis, we will first go to reverse the impairment. Once we reverse the impairment, then all of the collections will be treated as zero basis.

Okay. But-- okay, so at point in time, if you looked like your collections were improving, that would-- a reversal of impairment, then, would really have an impact upon improving the amortization rate earlier rate, then?

Yes. So initially it would be-- it would go to-- our net impairment number would be lower and we've reflected our amortization rate or our revenue recognition rate net of impairment. So if you look at the rate net of impairment, it wouldn't have an impact on it. If you look at it gross of impairment, it would.

So just as an example, there are some of the older pool groups, 2001, 2002, and many in 2003, who've actually reversed almost all of the impairment we've taken on those pool groups, because we're still collecting very well on some of those. So to the extent we've reversed all of the impairment, we'll then record those as zero basis and then they will go into the amortization rate.

Okay. Second question, it looks like -- and correct me if I'm wrong -- is that the banks are, perhaps, working internally the collections longer on some of the charged-off portfolios. If that's the case -- and you can agree or disagree -- would you expect the future sales to be-- to contain a higher percentage of, like, tertiary portfolios than, say, in recent years?

It is true that the banks have been maintaining the assets under their control for a longer period of time. We think that's really a function of capital not being available to hit the market-clearing prices, not by choice. And so it's our expectation that supply will come back to the marketplace, but it will be more aged, call it six to 18 months from charge-off, because you'll have the losses that happened in '09 and early '10 coming out in late '10 and 2011.

But if you think about the history of this Company, we've actually successfully bought through the entire continuum and never actually relied on one particular section of the default curve. So we think that's a great opportunity for us to pick up some more portfolio when they do come to market.

Okay. I guess what I was getting at, do you think it's more of an advantage or disadvantage to you? I mean, I realize you buy across the continuum, but do you think that, perhaps, older paper or more worked over paper is that an advantage to a company using-- employing more sophisticated technologies like yourself, as opposed to someone that isn't?

We do believe that our consumer-level focus on both valuation and collection gives us an advantage where we can look at any pool of receivables throughout the lifecycle and we think it's the most accurate view of future collections and then, ultimately, action against those consumers that we think can ultimately pay and to make sure we only work those accounts that can ultimately pay.

So we do believe we have an advantage, both in the aged paper and if the resale market were ever to come back, in the resale market, which is a place where that's were we see a lot of advantage in what we do.

Okay, thanks.

Thank you.

Thank you. Our next question is from Hugh Miller of Sidoti. Your line is open.

Actually, the conversation you just had about the opportunities with the secondary and tertiary paper was exactly what I was asking about, so that was answered.

I guess, the other quick question I had would be, if I'm not mistaken, you guys will, then, have an actual additional Thursday for collections in the third quarter relative to the second quarter, 14 versus 13? Is that--?

That's correct.

Okay, so that actually be, even, an additional benefit of, roughly, what, about $7 million or so in the third quarter?

An additional benefit on the collections side, but keep in mind that we'll have the costs associated with those collections and revenue doesn't necessarily increase just because we have an additional remittance during the quarter. So revenue is going to be relatively static, month to month, but collections will be higher and cost to collect will be higher.

Absolutely. Thank you.

You're welcome.

Thank you and I'm showing no further questions or comments at this time. And now I'd like to turn the call over to Mr. Brandon Black for any closing remarks.

Thank you. In closing, we believe this is an exciting time to be part of Encore and its future growth prospects. We will continue our quest to maximize financial returns in a way which bridges the separate and shared responsibilities of our Company and its consumers. Our core desire is to create shareholder value, while helping our consumer satisfy their financial obligations and regain their financial footing.

Thank you for your participation today.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.