Encore Capital Group Inc (ECPG) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Encore Capital Group Announces Third Quarter 2011 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, today's conference call is being recorded.

I'd now like to turn the conference over to your host, Mr. Adam Sragovicz, Director of Finance & Treasury. Please go ahead.

Thank you, Aileen. Good afternoon, and thank you for joining Encore Capital Group's third quarter 2011 earnings call. The call will be led by Brandon Black, our President and Chief Executive Officer, and Paul Grinberg, our Chief Financial Officer. We will begin with prepared remarks and then follow with a question-and-answer period.

Before we begin, let me take a moment to reference the Safe Harbor provisions. Throughout this conference call, we will use forward-looking statements, including predictions, expectations, estimates or other information that might be considered forward-looking. While these forward-looking statements represent our current judgment, these statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements being made today.

As a result, we caution you against placing undue reliance on these forward-looking statements, which speak only as of the date that they are made. We will also be referencing both GAAP and non-GAAP financial results. We believe non-GAAP financial measures provide useful information about our business. However, the presentation of this additional information should not be considered an alternative to or more meaningful than our results prepared in accordance with GAAP.

Management utilizes adjusted EBITDA, which is similar to a financial measure contained in covenants used in our credit agreement, in the evaluation of our 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 our receivable portfolios.

We included information concerning adjusted operating expenses, excluding stock-based compensation expense and bankruptcy servicing expenses, in order to facilitate a comparison of approximate cash costs to cash collections for the debt purchasing business in the periods presented. Please make sure to see our 10-K, 10-Q and other SEC filings, including a press release issued as an exhibit to our periodic report on Form 8-K filed today for a more complete discussion of these factors and other risks.

As a reminder, this conference call will also be available for replay on the Investor Relations section of our website and we also plan to post the prepared remarks following the conclusion of this call.

Now, it is my pleasure to turn the time over to Brandon Black, our Chief Executive Officer.

Thank you, Adam, and good afternoon everybody. I appreciate you joining us for Encore's third quarter conference call. We are pleased to be able to share results today that reflect contributions from all of our channels. We have continued to invest in areas that will provide long-term strategic advantages and build upon our industry-leading debt purchasing and recovery platform.

Our deliberate and disciplined approach to portfolio underwriting and management led to strong earnings, collections, and operating cash flow in the quarter. Cash collections in the quarter were $189 million, which was a 20% increase from the third quarter of 2010. The strong collections were the result of our ability to identify and engage with those consumers with the greatest likelihood of recovery, as well as our continued emphasis on increasing the percentage of accounts that we can work profitably.

Our overall cost to collect decreased 10 basis points to 43.8% from 43.9% in the third quarter of 2010. This decrease reflects savings from various operational strategies, which were offset by investments in our internal legal initiative and additional spending required to manage the changing regulatory and legislative environment. In addition, we continued to expand our operations in India and are making significant investments in our analytics and our consumer intelligence platform.

Looking at consumer behavior, we saw payer rates and payment sizes remain consistent as compared to prior periods. We attribute the robust payer rates in part to enhancements in our operational capabilities, such as the increasing tenure of our collective workforce and in part to continued improvements in our analytic abilities.

The success of our business has allowed us to increase both our domestic and international head count. Our operation center in India continues to expand and produce an increasing percentage of total call center collections. At the end of the third quarter, the total number of employees in India was 1,471, up 23% from the same period in 2010. Our US operations employed 795 people at the end of the third quarter, up 22% from the same period last year.

Our improving cost structure has allowed us to expand our hiring here in the US, allowing Encore to continue to recruit talented employees during a time of economic uncertainty for many in the domestic labor force.

During the quarter, we deployed $65.7 million to purchase more than $2 billion in face value of portfolios. The majority or $52 million went to the purchase of credit card portfolios. Additionally, we spent $13 million on telecommunication receivables, which is an increase of $8.4 million as compared to the prior year.

As we mentioned previously, we continued to deploy capital in those asset classes which we believe will yield the strongest return. Telecommunications is one such asset class where the efficiency of our collection platform enables us to apply effort to small balance accounts at lower overall cost to collect than our competitors.

Overall, during the quarter, we completed 46 individual purchase transactions from 13 unique sellers. While absolute purchase levels were lower than the run rate established in the first two quarters, it does not signal a trend. In fact, we've already secured $90 million in purchases for the fourth quarter and are maintaining a very robust pipeline.

As such, we remain committed to the purchase expectations we established in June of $380 million for 2011. Our outlook regarding portfolio purchases is based largely on the strength of our operating platform, which is driven by an underwriting philosophy at the individual consumer level that is focused on the willingness and ability to pay rather than asset type or age of receivables.

We refined our purchasing strategy to accommodate a broad range of delinquency characteristics and maximize internal rates of return. As mentioned at our Investor Day, portfolio prices are increasing moderately and this continues to be most apparent for newly charged off or fresh portfolios. Despite these increases, we have been able to find mismatches between portfolio returns and market clearing prices and we will continue to capitalize upon these.

Following up on the strategic initiatives announced during our Investor Day, our internal legal and our near-shore call center projects are progressing nicely. Within our internal legal channel, we are operational in four states and are on track to add a fifth state by the beginning of 2012. We also expect to expand into five additional states by the end of next year.

Our internal legal collections are tracking to plan and we are continuing to customize the information technology platform, which should give us substantial leverage in the future. We're also pleased to report that we have selected Costa Rica for our near-shore operation site to better serve our Spanish-speaking consumers.

San Jose was selected because of its well-developed infrastructure, educated work force, tax incentives and its proximity to the United States. The market also was attractive to us because of the extensive number of existing call center and collection operations and the availability of bilingual qualified talent. We have established a local entity, executed a lease, and are currently on track to begin operations during the first quarter of 2012.

Of note during the third quarter, Encore was named San Diego's Healthiest Large Company for 2011, a recognition awarded by the San Diego Business Journal. This award reflects our five-year vision of building cutting-edge health and wellness programs. As a result of the advancements we have made in our health and wellness initiatives, we had no healthcare cost increases in 2011, contrary to average increases over 15% in healthcare cost nationally. We are expecting to have another year of minimal increases in 2012 in sharp contrast to what is happening more broadly.

We are committed to healthy leaving and actively promoting personal and professional satisfaction. When competing for top talent as well as the retention of our employees and the management of healthcare-related expenses, we believe that this kind of recognition is second to none.

Before turning the call over to Paul, I wanted to update you on the most recent developments and the affidavit-related matters. As most of you are aware, in August a federal judge confirmed the settlement of the Brent case on the terms we had previously agreed to and announced. With the Brent case behind us, we moved quickly to focus our attention on addressing related concerns raised by certain attorneys general and it reached the settlement principal with the Texas attorney general.

We continue to work on finalizing the agreement and hope to have it completed in the next 30 days. Pursuant to the terms of the proposed settlement, the Company will pay a financial penalty and provide meaningful credits to certain consumers.

We have also had discussions with the Minnesota attorney general, but have not yet finalized an agreement. It is our hope and intent they will be able to finalize an agreement with the Texas attorney general and reach resolution with Minnesota that we are prepared to defend our positions if necessary. We also anticipate engaging in discussions with other states' attorneys general with a view towards putting the remainder of our affidavit-related issues behind us.

With that, I will turn it over to Paul, who will discuss our financial results in more detail. Paul?

Thank you, Brandon. As Brandon discussed, we had a very strong third quarter. Collections were at an all-time high for a third quarter and the continued investments in our operating platform give us confidence in our ability to expand upon the operating leverage created over the past few years.

We generated earnings of $0.60 per share during the quarter, which included a $0.02 per share charge in connection with the financial penalty component of the proposed settlement of the Texas matter.

Adjusted EBITDA, which represents the cash we generate that is available for future purchases, capital expenditures, debt service and taxes, was $107.2 million in the third quarter, an increase of 20% compared to the third quarter of 2010. This improvement allowed us to fund all portfolio acquisitions during the quarter, while reducing quarter-over-quarter net debt levels.

Our leverage ratio declined from 1.1 times trailing 12 months adjusted EBITDA at the end of 2010 to 0.81 times at the end of the third quarter of 2011. We now have more than $100 million of available borrowing base to deploy for future purchases and potential acquisitions.

Our overall cost to collect decreased 10 basis points to 43.8% from 43.9% in the third quarter of 2010. Sequentially, our cost to collect increased from 40.9% in the second quarter due to the shifting of our collection mix, the increased spending on our internal legal team and additional legal costs related to our defense of the Brent litigation and related matters.

In addition, this quarter we saw a greater percentage of our collections come from the legal channel, which has a higher average cost to collect than our other channels. Our goal is to maximize dollars collected less dollars spent and where we can generate incremental collections we will do so even when it may entail a slightly higher average cost to collect.

Overall, we expect our cost to collect to continue to improve incrementally over time, but it will fluctuate from quarter to quarter based on seasonality, the level of our investment and initiatives like our internal legal platform and our near-shore site, as well as ongoing legal costs related to governmental discussions and other open legal matters.

For 2012, we expect to invest $0.20 and $0.07 per share in our internal legal channel and near-shore initiatives respectively. We are confident that these important investments will improve long-term profitability. For example, once we have achieved scale in our internal legal platform, we expect to be able to collect at a lower cost than our outside law firms.

Each 100 basis point improvement in our cost to collect should result in an increase of $0.06 in earnings per share as compared to the commission rates we currently pay. Due primarily to high volume and a strong performance of portfolio purchased over the last couple of years, our Estimated Remaining Collections or ERC at September 30 increased by $173 million over the prior year to approximately $1.5 billion.

As we've discussed previously, we believe that ERC, which reflects the estimated remaining value of our existing portfolio, is conservatively stated, because of our cautious approach to setting initial curves and our practice of only increasing future expectations after sustained period of over-performance.

Moving on to other financial results, this quarter's collections were very strong at $189 million, up 20% from $157.4 million during the same quarter last year. Our call centers contributed 44.1% of total collections or $83 million for the quarter, as compared to $67.1 million in the third quarter of 2010.

Direct cost per dollar collected in our call centers declined to 8.2% for the third quarter of 2011, from 9.3% in the third quarter of 2010. This improvement is largely the result of collections growth from our operation center in India, which increased 29.8% from $32.2 million in the third quarter of 2010 to $41.8 million in the third quarter of 2011.

India represented 50.2% of total call center collections during the quarter. We now have 1,065 Account Managers at our New Delhi site. We expect that our call center performance will continue to improve and that our cost to collect will decline, as more and more recently hired Account Managers reach the period of peak productivity, which is generally 12 months from hire. As the growth in mix of our employee base has important implications for our overall cost, we have included a table in our Form 10-Q which shows employee head count by geography.

Legal channel collections grew to $94.9 million in the quarter, compared to $71.8 million in the third quarter of 2010 and accounted for 50.2% of total collections. Cost to collect in the legal channel was 42.3%, down meaningfully from 47.2% in the third quarter of 2010. The decline was primarily attributable to the continued refinement of our analytic capabilities and increased ability to predict consumer behavior, which has allowed us to become more precise about when to pursue litigation. We also incurred approximately $1.7 million in cost this quarter associated with the build-out of our internal legal platform.

I'd like to reiterate that our long stated preference is to work with our consumers to negotiate a mutually acceptable payment plan, which works within their personal financial situation. These plans almost always involve substantial discounts from what is owed to us. We not only believe that this is the right thing to do for our consumers, but that it is the right thing to do for our business. The remaining 5.7% of collections came primarily from third-party collection agencies.

Third quarter agency collections decreased to $10.8 million from $18.1 million in the prior year, reflecting changes in our operating strategy that has seen us shift more of our work to our internal call centers at a lower overall cost to collect, especially as capacity continues to come online in India. Consistent with our stated practice and in keeping with our Consumer Bill of Rights, we had no portfolio sales in the third quarter.

Moving on, revenue from receivable portfolios was $115.8 million, an increase of 23.5% over the $93.8 million in the third quarter of 2010. As a percentage of collections and excluding the effects of allowances, the revenue recognition rate decreased to 62.1% in the third quarter of 2011 from 63.5% in the third quarter of 2010.

Our revenue recognition rate is attributable to our cautious approach to setting initial IRRs and our policy of increasing them gradually after periods of over-performance. For example, our 2009 and 2010 vintages were initially booked at average multiples of 2.4 times and 2.1 times respectively. As a result of sustained over-performance, we have slowly increased the multiples on these vintages to 2.7 times and 2.4 times respectively.

During the quarter, we expensed $1.6 million in net allowance charges compared to $6.1 million in the third quarter of 2010. Looking at the breakdown by pool, we had $1.6 million of allowances in the 2006 vintage, $1.7 million in the 2007 vintage, and $1.1 million in the 2008 vintage. These allowances were offset by $2.8 million in reversals. We had no allowance charges for the 2009, '10, or '11 vintages in the last quarter. That has been the case since we acquired these portfolios. This quarter, we over-performed our forecasted collection curves by 14%.

As most of you know, we account for the business on a quarterly pool basis, not in an overall level. When pools underperform, we take allowance charges, which are reflected as an immediate reduction in revenue. We measure under-performance against the current yield that is assigned to a pool, not its original expectation. This pool-by-pool level accounting treatment leads inevitably to non-cash allowance charges in certain periods even when we are over-performing a pool's initial expectations.

In contrast, when pools over-perform, that over-performance is not reflected immediately. Once we have evidence of sustained over-performance in a pool, we will increase that pool's yield. Unlike allowance charges which are realized immediately, this increased yield will be reflected as increased revenue in the current and in future quarters. Consistent with this practice, as a result of continued over-performance in certain pool groups, primarily in the 2009 and 2010 vintages, we increased yields in those pool groups this quarter.

Turning to Ascension, our fee-based bankruptcy servicing business, revenue rose by 15% from the prior year to $4.7 million. As we discussed last quarter, performance from servicing one large new client was below our expectations and we have parted ways with them. This departure will have a negative impact on the next few quarters at Ascension, but with the right decision for the long term. Despite these challenges at Ascension, we are confident that we will achieve Encore's overall growth targets.

Turning to expenses, our total operating expenses were $89.8 million, up from $74.3 million in the third quarter of 2010. Included in operating expenses for the third quarter of 2011 were stock-based compensation expenses of approximately $2.4 million and Ascension operating expenses of $4.6 million.

The income tax provision was nearly $9.9 million, reflecting an overall tax rate of 39.1%, as compared to 35% in the third quarter of 2010. The prior year's rate was lower, largely due to state and federal tax refunds, true-ups of state and federal tax accounts, and the availability of the tax holiday in India, which expired on March 31, 2011.

Finally, our fully diluted earnings per share during the third quarter were $0.60, a 22% increase compared to quarterly earnings per share of $0.49 in the same period last year. In connection with our agreement in principal with Texas, we have established a reserve for a cash penalty and other costs and fees of $0.02 per share that the Company anticipates paying as part of that settlement.

In addition, our collection curves reflect the remainder of the anticipated impact of the proposed settlement. The final settlement terms are subject to continuing discussions with the Texas attorney general. However, based upon the agreement in principal that we have reached in this matter, we believe that the anticipated settlement will serve both the best interest of Texas consumers and the Company's shareholders.

I'd like to end my remarks with some key points. First, our cautious approach to revenue recognition results in our setting lower initial yields and increasing them slowly over time as we outperform our initial expectations.

Second, the continued improvement in productivity resulting from our growing workforce in India should result in continuing improvements in cost to collect and operating margins. This will allow us to increase our purchasing levels in the future, while maintaining our financial discipline. Finally, our strong cash flow will enable us to maintain our conservative approach to financial leverage.

With that, I will turn it over briefly to Brandon before opening up the call for questions. Brandon?

Thank you, Paul. Encore's third quarter performance was highlighted by record-setting cash collections and our continued deployment of capital with strong returns. Our proactive approach of engaging with regulators and investing in our internal legal platform are paving the way for stable growth in an uncertain and changing macroeconomic environment. Encore's key differentiators were at work in the third quarter and we expect they will continue to be key drivers in the growth of cash flows and year-over-year earnings that we anticipate in 2011.

With that, we'll be happy to answer your questions. Operator, please open up the line for questions.

(Operator Instructions) David Scharf, JMP Securities.

Thank you for taking my questions. Brandon, a couple things, I know you -- related to purchase volume, it sounded like you were kind of quick to point out that we shouldn't interpret the lower levels in Q3 as a trend and you already booked a lot quarter-to-date in this fourth quarter.

I don't want to kind of pigeonhole you into looking at 2012 guidance, but just based on everything you see, the behavior of the larger card issuing banks, the pricing of fresh paper, a very modest growth in new account balances out there, can you give us a little sense if you had to guess directionally if next year we would see as much capital deployed as this year on the credit card asset class?

It's tough to look out sitting here in October and guessing 2012. What I would say is, I think we'll learn a lot in the next couple of months as many of the flows that expire get repriced. Sitting here today, we believe there is sufficient volume to allow us to continue to deploy capital at very high rates. Given what we're seeing in the marketplace today, nothing suggests that's not the case, but I think we'll know a lot more by our next earnings call.

Okay. Fair enough. Turning to the attorney general issue state by state, I know you must be frustrated with the class action case resolved, that was obviously supposed to sort of put an end to this. It sounds like Texas is out of the way. You're making progress in Minnesota. In the Q it looks like North Carolina now has surfaced.

Is there a way to paint a road map for us? I mean, is this going to be 50 different negotiations because it's kind of easy pickings for these guys to just start to harass you? I mean, how should we think about those outside legal fees that you're incurring because I know the Q mentions they're not going to moderate in the very near term, but trying to get a sense when there is light at the end of the tunnel?

Assuming we can continue to -- on our path with Texas and Minnesota, I think we're starting to see light at the end of the tunnel in a sense at least knowing how the path will play out. We can't target all the way through, but we do have a plan. We don't think it's going to be 50 individual negotiations. Although we do think some other states will take an interest, you mentioned North Carolina and North Carolina appears to be interested in things similar to Texas.

And we think that the fact that the issues that people are worried about were fixed now over two years ago. Each state has different laws and different -- will ask different questions. But we believe we have a plan to start to put this behind us. We think we do that sooner rather than later, but we won't know until we get these things documented and we appreciate the flexibility and their willingness to engage with us that we've seen in Minnesota and Texas and we think that posture will continue with any other state that takes an interest, but it will be a process.

Okay. And I wanted to make sure I heard Paul's comment correctly. Did you say that the $0.60 GAAP number in the quarter included effectively a $0.02 charge for reserving for the Texas, reimbursement of their cost?

For the cash component of the settlement with Texas, that represented $0.02, which is in the $0.60.

I got you.

Have we not had that cash accrual for the cash penalty, it would have been $0.62.

Okay. Thanks very much. I'll get back in line.

Thank you.

Mike Grondahl, Piper Jaffray.

Yes. Thanks for taking my question, guys. Just kind of from a high level, Brandon, could you help us understand under what scenarios you would not be able to grow earnings nicely in 2012?

That's a loaded question. I think the scenarios would be and they relate back to David's question about buying portfolio. I think as long as we're able to continue to buy a portfolio, we think that we're -- the collection machine is working very well, we continue to be more proactive on the regulatory front. I think we see the momentum continuing. The biggest thing for us, we're making sure we can deploy capital at returns that are acceptable to us and our shareholders.

And I would just add that, the cautious posture we've always taken to curve setting also puts us in a situation where we shouldn't be impacted by anything. We shouldn't be materially impacted by something that may happen more broadly from an economic perspective, because we are cautious about setting curves and we have been over-performing them. So that unless it's something very drastic that shouldn't have a significant impact on our earnings either going forward, or collections going forward.

As you're thinking about capital allocation, I mean, is obviously buying credit card and telecom portfolios, is that where it's all headed? Or do you have any other ideas where you can allocate capital?

We have a lot of ideas. We certainly haven't put many of them into work at any great scale, but we've said all along that we believe Encore's destiny is to diversify beyond what we do today. And we're just being prudent about when to make those investments and how to make those investments. But we -- because I certainly believe other asset classes are part of the mix as we look forward.

Okay. Thanks, guys.

Hugh Miller, Sidoti & Company.

Hi, good afternoon. I had a question that you mentioned about the $0.02 expense in the third quarter for the cash component of the settlement with Texas. I was wondering if you could walk us through potential of a non-cash component from the settlement and what that would mean.

So, in the settlement there will be credits given to consumers. Those credits will flow through kind of the estimated remaining collections. And so it won't be a specific charge and we'll true that up as we go, but that's been done as it relates here, but we're not going to quantify that impact, but it is in the curves.

So, you've already kind of adjusted your expectations on the ERC to reflect this, but obviously it's not finalized.

That's correct.

Okay. Looks like during the quarter you actually had a fairly strong performance on zero-basis collections coming in I think around $5.6 million, about 3% of collections, it's much stronger than we've seen for a while. Anything, I guess have abnormal fueling that your thoughts go forward?

Because of the improvements we've made in some of our analytical -- our analyses of some of our various channels, we are collecting more in some of our older pool groups than we have historically. We also had some very strong performance in one of our Q7 pool groups, which actually has gone to ZBA.

So, the combination of the continued strong performance of some of the older pool groups and this new one going to ZBA will result -- that has resulted in higher zero-basis collections and we believe that it will be elevated going forward as well. So, while it has, we've seen a couple of years ago it slowly declining and it's picked up. I think we will expect to see it at relatively strong levels like you're seeing today for the near term.

Okay. And the Q7 pool group, what exactly is that purchase?

It's just one of the pool groups within -- it's actually our Q4 2007 pool group. We just had some -- a very strong performing purchase there, which has significantly over-performed our curves and resulted in that pool group going to zero-basis relatively quickly.

Okay. Okay. And I think, and then Brandon talked about still making active investments in analytics. And any update on things that kind of look exciting from the perspective of improving efficiency and so forth?

I think the biggest most exciting thing was Paul alluded to, what may not have been 100% clear. But in the legal channel, we've just gotten better and better to understanding which consumers are responding and conversely which ones won't. And so, we're able to place the same number of units through the system, but with a much greater realization rate, and so the costs have come down meaningfully and we had a 500 basis point drop in the legal channel this quarter.

That's all driven by the analytic engine that allows us to better understand those consumers and how they'll perform in the litigation scenario. And so when you think about that combined with what we're doing with internal legal, we're very excited about looking out the next couple of years what that will do to the, both the collections for the Company, but also the cost.

Sure, okay. Thank you very much.

Mark Hughes, SunTrust. Pardon me, Mark, your line is open. Please check your mute button.

All right. Yes, I was muted, I'm sorry. Paul, you had mentioned that the legal expenses for next year for developing the legal channel would be about $0.20 and then another $0.07 for offshoring, is that right?

That's right.

And is that when you say you expect cost to continue to decline, are you already incorporating that level of investment in that outlook?

No, that's -- I think when I say costs will decline, I'm saying -- if you look at our call center channel, you look at our legal outsourcing channel, costs will continue to decline in both of those channels and we've seen that this quarter. We can expect to see that going forward. I'm not including those costs in that. Ultimately, those costs will result in lower overall costs through our legal channel, but it'll take a couple of years before we're fully ramped up until you start seeing those cost improvements.

Right. So the -- is that $0.20 incremental in the legal channel on top of what you would have invested in 2011?

It is not on top of it. In terms of -- if you want an incremental number, in 2011 we'll probably invest around $4 million or so. So, it's incremental to the $4 million.

All right. And so you have a general view for cost to decline, but the incremental expense here would be something to consider separately?

That's correct, yes. And so that -- it's about a doubling, so $4 million is about $0.10 we'll invest this year, next year it'll be about $8 million or $0.20.

And then the offshoring, the $0.07, how much of that is incremental?

The bulk of that is going to be incremental.

Okay. All right. And then the $380 million in portfolio purchases that you express confidence in for this year, is that kind of a stretch goal or is there enough in front of you that you [should] be able to hit that?

We believe we have cited the flow of portfolio that would allow us to hit that. Obviously, it's subject to market conditions. But we believe that given what we've done thus far in the quarter, we should be able to hit the number.

Okay. And then Ascension when that customer drops off, how big of an impact relative to their revenue base and from an earnings perspective, will that be a neutral event or will that be -- when that revenue drops off, will it have a dilutive effect on earnings?

I think that what you can expect to see from Ascension for the next few quarters is pretty much a breakeven contribution to Encore overall, but maybe plus or minus a little bit, but in general it will break even for the next few quarters.

And what was it this quarter?

It was $100,000 of positive EBITDA.

Okay. So, not much change. How about the top line impact for Ascension?

It'll have a 10% impact or so, on the top line. That client was here for the last couple of quarters and so that's the kind of impact it'll have on the top line for Ascension.

Right. Thank you.

Thanks, Mark.

Edward Hemmelgarn, Shaker Investments.

Yes. I just had a question, Brandon and Paul, are you finding that as you decrease your cost to collect, is that allowing you to be more competitive or buy more paper even if the, I guess, the availability of paper would decline?

Ed, I think we certainly believe that our improving cost structure makes us more competitive and maybe makes us most competitive in a declining scenario. All things being equal, a rational bidder is going to look at their net yield and we think we have the lowest cost structure, and quite frankly the highest liquidation. And so, we feel like we've positioned ourselves well even if there is some decline in supply.

I guess, have you ever -- give any idea about how much of a cost benefit you have relative to others, I mean, have you ever tried to quantify that? It's not just cost, but I mean -- obviously you spend a lot of money in analytics too assuming -- it's not just that your -- I don't mean just your cost to per hour or something, but it's also -- it's just the -- your overall efficiency.

What I would say is, we look at the combination of both our ability to liquidate portfolio, which is we try to assess that. Just looking at for every dollar we deploy, how does that compare in terms of yield that's going to come in as well as the cost and it's not precise, but we think you have a pretty good sense of the advantages we have.

Okay. Thanks.

(Operator Instructions) David Scharf, JMP Securities.

Thank you. Actually my question has been answered. Thank you.

I'm showing no further questions at this time. I'd like to turn the conference back over to Mr. Brandon Black for any closing remarks.

Once again, well, I thank everybody for joining us today and look forward to speaking with you on our fourth quarter and full-year results early next year. Thank you very much.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect and have a wonderful day.