Encore Capital Group Inc (ECPG) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Encore Capital Group Second Quarter 2012 Results Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to introduce your host for today's presentation, [Mr. Glen Frater]. Sir, you may begin.

Thank you, Howard. Good afternoon, and welcome to Encore Capital Group's Second Quarter 2012 Earnings Call. With me on the call today are Brandon Black, our President and Chief Executive Officer, and Paul Grinberg, our Executive Vice President and Chief Financial Officer. Brandon and Paul will make prepared remarks, and then we'll be happy to take your questions.

Before we begin, we have a few housekeeping items. Unless otherwise noted, all comparisons made on this conference call will be between the second quarter of 2012 and the second quarter of 2011. Throughout the 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 the statements being made today. As a result, we caution you against place undue reliance on these forward-looking statements, which speak only as of the date they are made. We will also use rounding and abbreviations in our conference call for the sake of brevity. For more details numbers and explanations, please refer to our Form 10-Q that was filed today with the SEC.

We will also be referencing both GAAP and non-GAAP financial results. We believe certain 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 agreements and the evaluation of our operations and believe this measure is a useful indicator of our ability to generation cash collection in excess of operating expenses through the liquidation of our receivable portfolio.

Additionally, we included information concerning adjusted operating expenses, excluding stock based compensation expense, tax (inaudible) operating expenses, and acquisition related expenses in order to facilitate a comparison of approximate cash costs to cash collection for our debt purchasing business. Once again, for a more complete discussion of these factors and other risks, please be sure to see our Forms 10-K, 10-Q, and other SEC filings, including a press release issued as an exhibit to our current report on Form 8-K filed today, which includes a reconciliation of non-GAAP financial measures. As a reminder, this conference call will also be made available for replay on the Investor section of our website where we'll also post our prepared remarks following the conclusion of this call.

With that, let me turn the call over to Brandon Black, our President and Chief Executive Officer.

Thank you, Glen, and good afternoon. I appreciate you joining us for a discussion of Encore's second quarter results. Before beginning, I would like to recognize and thank Encore's nearly 2,700 employees for a fantastic quarter. Our results are a direct reflection of their collective effort and I appreciate their dedication and hard work.

For the quarter we delivered strong financial results while making investments that will provide long term strategic advantages and further strengthen our industry leading debt purchasing and recovery platform. Our deliberate and disciplined approach to portfolio underwriting and management drove record earnings, record collections, and record operating cash flow. Cash collections increased 23% to $241 million. This increase was the result of strong purchase volumes over the past few years and our ability to identify and engage those consumers with the greatest likelihood of recovery. Looking at consumer behavior, we saw pay rates and payment sizes remain consistent with prior periods.

Earnings for the quarter were $0.82 after excluding Propel acquisition related expenses, an increase of 41% over the prior year. Our overall cost to collect decreased 140 basis points to 39.5%. This reflects savings achieved through various operational strategies, which were offset by investments and our internal legal initiative, increased hiring at our new operating site in Costa Rica, and additional spending required to proactively manage the changing regulatory and legislative environment.

We are very pleased by our early success in Costa Rica, where we have now more than 100 employees. In the five months since opening, we have seen relatively limited attrition and steadily improving performance. Not only did Costa Rica significantly enhance our ability to partner with consumers who prefer to speak with us in Spanish, it will provide significant collections in the future.

One of the most noteworthy accomplishments during the quarter was in the area of purchasing where we successfully deployed $231 million. This was a 146% increase and includes the more than $100 million we spent to acquire a $3 billion portfolio from one of our competitors. This was an operationally complex transaction and I want to thank those employees who continue to put in a significant amount of time and effort to ensure a successful outcome. We completed 73 individual transactions from 10 unique sellers, including two new relationships. Credit card and consumer loan portfolios made up the majority of the purchases for $202 million.

The remaining $29 million was spent on telecommunications portfolios. To reiterate a message from our investor day, we expect purchases for the remainder of 2012 to be approximately $130 million for the third and fourth quarters combined. On a normalized basis, our 2012 capital deployment will be closer to $400 million than our current expectation of $500 million.

Our purchasing volumes over the past three quarters were designed to achieve two very specific outcomes. First, we are now insulated against the price increases we anticipated seeing in the third quarter as a result of seasonal volume constraints. Second, we're able to be selective about what we purchase for the remainder of the year.

Our long term goal is to deploy enough capital across all asset classes, including tax lien transfers, to generate 15% to 20% earnings growth.

Importantly, we also diversified our business in the second quarter. We are often asked about how we would manage the business during a period of static or even declining supply. While we are confident that our industry leading liquidation platform and high efficiency low cost approach will allow us to achieve higher portfolio yields than our competitors, our strategic goals have long included the expansion into new asset classes with significant growth potential. We met that goal with the acquisition of Propel, the leading company in the over $1 billion Texas tax lien transfer market.

When you look more broadly at the tax lien industry, the market opportunity is upwards of $10 billion, making it significantly larger than the charged off credit card market. We're pleased to report that the integration of Propel is proceeding smoothly. Teams from our Human Resources, Information Technology, Accounting, Payroll, Finance, and Marketing departments have invested considerable time to ensure the successful integration of systems, operations, and personnel.

We have already begun leveraging Encore's strength to bring cost savings to Propel. For example, over the next few weeks we are migrating Propel's mail volumes to our existing vendor, which will reduce cost per piece mail by 30%. As direct mail is Propel's dominant means of contacting prospective consumers, this change should create a meaningful competitive advantage.

While we are actively supporting the Propel team's efforts to achieve their 2012 goals, we are also developing a plan to leverage our core strengths to increase originations, while continuing to provide outstanding customer service.

Finally on Propel, during the quarter the team achieved two important milestones - the funding of its 25,000th transfer and surpassing $250 million in cumulative tax lien transfers.

As a company, we are constantly striving to create a culture that attracts and retains excellent employees. Our success was recognized twice in the second quarter. First, for the second year in a row we were recognized by the Great Place to Work Institute as one of India's Top 50 Employers. The ranking improved from 37th in 2011 to 34th this year. Encore's unique culture and commitment to employee engagement has allowed us to successfully build a high performing international operation when so many others have failed.

We were also recognized again for the second year in a row as San Diego's Healthiest Large Company. These recognitions reflect investments in our people and our commitment to building a workforce in which they can truly excel.

With that, I'll turn it over to Paul who will discuss the financial results in more detail.

Thank you, Brandon. As Brandon discussed, we had a very strong second quarter. Collections reached an all-time high and continued investments in our operating platform give us confidence in our ability to expand upon the operating leverage created over the past few years. Earnings from continuing operations increased 41% to $0.82 per fully diluted share during the quarter, excluding the $3.8 million of transaction and related costs in connection with the acquisition of Propel. Adjusted EBITDA, which represents the cash we generate that is available for future purchases, capital expenditures, debt service, and taxes, was $148 million in the second quarter, an increase of 27%. This strong cash flow allowed us to fund a significant portion of our portfolio acquisitions during the quarter.

Our net debt levels at quarter end increased by $306 million from the prior year as a result of the acquisition of Propel and our large portfolio purchase, which we were able to finance without the need to raise more expensive junior capital or equity. Our overall cost to collect decreased 140 basis points to 39.5%, down significantly from 40.9% in 2011. We achieved these results even as we made investments to expand our internal legal channel and launch our new operations center in Costa Rica. We are often asked whether our cost to collect metric is comparable to others in the industry given the different approaches to accounting for court costs. In fact, if we had expensed 100% of court costs incurred and netted those against court costs recovered, which is consistent with the approach of some of our competitors, the impact of fully diluted earnings per share in the quarter would have been less than $0.01.

While cost to collect is an important metric, we don't focus on it in isolation. Overall success in our business is driven by generating the greatest net return per dollar invested. We accomplished that by generating more gross dollars collected per investment dollar at what we believe to be the lowest cost per dollar collected in the industry.

Over time, we expect our cost to collect to continue improving, but also expect it to fluctuate from quarter to quarter based on seasonality, the cost of investments in new operating initiatives, and the ongoing management of the changing regulatory and legislative environment.

Due primarily to the large purchasing volume and the strong performance of portfolios purchased over the last couple of years, our estimated remaining collections, or ERC, at June 30 increased by $568 million to approximately $2 billion. As we've discussed previously, we believe that our ERC, which reflects the estimated remaining value of our existing portfolios, is conservatively stated because of our cautious approach to setting initial curves and our practice of only increasing future expectations after a sustained period of over performance. For example, as a result of sustained over performance, we have slowly increased the multiples on the 2009, 2010, and 2011 vintages to 2.8, 2.6, and 2.2 times, respectively, up from 2.4, 2.2, and two times, respectively.

As mentioned at the beginning of the call, second quarter collections were very strong at $241 million, up 23% from 2011. Our call centers contributed 46% of total collections, or $112 million, compared to $85 million in 2011. Direct cost per dollar collected in our call centers fell to 6% in the second quarter versus 7.7% in 2011. This improvement is largely the result of two factors. First is enhancements to our analytical models, which allow us to focus our efforts on consumers who we believe have the ability and are most likely to pay. The second is the growth of our operations center in India. In the second quarter, our call center in India accounted for 53% of total call center collections compared to 50% in 2011.

Legal channel collections grew to $115 million in the second quarter, compared to $98 million in 2011, and accounted for 48% of total collections. Cost to collect in the legal channel was 35.7%, down from 41.5% in 2011. I'd like to reiterate that our long stated preference is to work with our consumers to negotiate a mutually acceptable payment plan tailored to 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 the right thing to do for our business.

Finally, 6% of collections came from third party collection agencies during the quarter. In general, we expect collections from this channel to continue to decline as we shift more of our work to our internal cost centers at a lower overall cost to collect. As a result of the large portfolio purchase, we will see a temporary increase in third party collection, as many of those assets were placed with third party agencies at the time of acquisition. Because of our lower cost to collect and because we are better able to ensure consistently positive consumer experience, we will continue to shift much of this work to our internal call centers.

Consistent with our stated practice and in keeping with our Consumer Bill of Rights, we had no portfolio sales in the quarter.

Moving on, revenue from receivable portfolios was $139 million, an increase of 25% over the $111 million in 2011. As a percentage of collections, and excluding the effects of allowances, our revenue recognition rate was 57%, compared to 58% in 2011. Our revenues were positively impacted by the significant portfolio purchases completed during the quarter. In general, revenue on that quarter's portfolio will decline over time. As Brandon mentioned, we expect purchase volumes to be lower for the remainder of the year. As such, revenue in our debt purchasing business will decline over time from the Q2 levels until purchasing volumes return to more typical levels.

During the quarter, we had $1.2 million in net allowance reversals, compared to $1 million of allowance charges in 2011. Looking at the breakdown by year, we had $1 million of allowance reversals in the 2005 vintage, $300,000 in the 2007 vintage, and $1 million in ZBA allowance reversals. These were partially offset by allowances of $900,000 in the 2006 vintage and $300,000 in the 2008 vintage. We had no allowance charges for the 2009, '10, '11, or '12 vintages, as has been the case since we acquired these portfolios. This quarter we over performed our forecasted collection curves by 20%.

As many of you know, we account for the business on a quarterly pool basis rather than overall. When pools underperform, we take allowance charges, which are reflected as an immediate reduction in revenue. We measure underperformance against the current yield that is assigned to a pool, not its original expectation. This pool by pool accounting treatment leads inevitably to non-cash allowance charges in certain periods, even when we are over performing approved 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 deal. Unlike allowance charges, which are realized immediately, this increased yield will be reflected as increased revenue during the current and future quarters. Consistent with this practice and as a result of continued over performance primarily in the 2009, 2010, and 2011 vintages, we increased yields in those pool groups this quarter.

Shifting now to expenses, our total operating expenses were $103 million, up from $82 million. Included in operating expenses were stock based compensation expenses of approximately $3 million and Propel acquisition costs of $3.8 million.

Turning to Propel, the integration continues to move ahead successfully as Brandon mentioned. The transaction was finalized in mid-May and Propel experienced a successful second quarter. Going forward, we will provide additional context in our quarterly earnings calls on the Propel business. I would also encourage you to review the information and details we provided in our recent 8-K and the segment and pro forma information we included in our Form 10-Q filed earlier today.

Finally, we completed the sale of Ascension Capital Group in May. In connection with the sale, we have agreed to cover normal operating losses in the first year of its new ownership. As the business grows and becomes profitable, we will be paid an earn out equal to 30% to 40% of Ascension's profits for the first five years after closing.

With that, we would be happy to answer any questions you may have. Operator, please open up the line for questions.

(Operator Instructions) Our first question or comment comes from the line of David Scharf from JMP Securities. Your line is open.

Thanks. Thank you for taking my questions. I want to zero in a little bit on the productivity gains and the cost to collect. Setting aside just the aggregate improvement, the mix of collections this quarter for the first time in a while saw legal dip below 50%. And obviously, that's the highest cost channel. Is this a deliberate trend? Is it just how the accounts kind of fell out? I mean, because it obviously has a very material impact on your profitability depending if you assume legal is 45% or 55% of collections.

I don't think it's a trend. I think on balance we're likely to be about 50% legal and about 50% other, a little bit of incremental agency collections. But we think in general we're going to be right around 50-50.

Okay. And as we think about just the investments you are still making on the internal legal initiative, can you give us a sense to just remind me what that cost to collect would've looked like this quarter, excluding sort of the upfront investments you're still making?

So what we said--the guidance we gave around investments in legal in Costa--internal legal in Costa Rica is that we would spend about $0.20 for internal legal and about $0.06 relating to the investment in the Costa Rica facility. And those are--they're not spread exactly evenly through the year, but they've increased a little bit from the first quarter and will continue to increase through the year. And the way we've calculated those investments is to take our standard cost to collect in the legal channel, apply those to the collections from internal legal and that difference is that $0.20. And the same thing for Costa Rica - we applied the standard cost to collect in our operating sites and looked at the additional costs associated with Costa Rica and that's what generated the $0.06.

Okay. And that hasn't changed since the initial guidance of that was rolled out a few quarters ago?

It hasn't changed significantly, no.

Okay. Hey, just switching to purchasing, if you exclude the one large acquisition from the competitor, it looks like of the remaining paper telecom was about 30%, which is kind of the high water mark. Once again, just a question of being opportunistic? Is it any--should we draw any conclusions about supply of core credit card charge-offs? Is that a level we should think about going forward, or was it just an unusual quarter of telecom paper?

I think it was a little--it was a slightly high quarter. We wouldn't expect to see that number for the rest of the year. There were a couple of deals that happened in the quarter that were large. But it continues to be an asset class that we are investing in and likely will try to invest more in over time given the operating cost advantages that we have and the generally lower balances. But I wouldn't expect that to be the [run rate] for the rest of the year.

Okay. And lastly, back on the collection mix, can you give us a little bit of help in how to think about maybe second half in 2013, the proportion of collections that will come from third party agencies while you--before you can transition some of the new ADF paper in?

It will probably go up by a couple of percentage points. It won't go up dramatically. So it all depends on the contribution from the other channels. But if it was 6% this quarter, it's likely not to exceed 10 and somewhere in between there, and then it will go down. We bring these--we're bringing the accounts in every month. And so, the third quarter will probably be the highest point, and then it will decline. Then by next year, most of that will be--have been brought internally.

Okay, that's helpful. I'll get back in line. Thank you.

Thank you. Our next question or comment comes from the line of Mr. Mike Grondahl from Piper Jaffray. Your line is open.

Yes, thank you, guys, for taking my question. Can you talk a little bit about the competitive environment? I mean, have you seen a little bit of change in pricing in the third quarter? And then, just maybe provide your thoughts how we should think about ZBA accounts the second half of the year and into 2013?

Did you say DDA accounts?

ZBA accounts.

ZBA.

Sorry. I'll let Paul answer the ZBA question. On the competitive environment, we have seen pricing late in the second quarter, early in the third quarter, kind of up a little bit, which we think is natural given that a lot of supplies contracted for late the prior year and earlier in this year. And so, it's generally a seasonally low period for portfolio supply and that's generally slightly higher prices, and that's a fairly consistent trend, which we anticipated. On the competition side, we haven't seen a lot of change. We continue to see the smaller to moderate size debt buyers I think struggling with how to be competitive in this environment, and the other large buyers fairly well situated and able to compete on those deals.

And related to ZBA, it's been relatively flat over the last three quarters or so. It increased from last year largely due to one pool group that went ZBA and was still generating some meaningful collections. So with new pool groups coming on, ZBA and others coming off, it should be relatively flat, although it will decline over time.

Got you. Thank you.

Thank you. Our next question or comment comes from the line of Mr. Hugh Miller from Sidoti. Your line is open.

Hi. Good afternoon.

Hi, Hugh.

I was wondering, you guys--I mean, obviously when we were out in India you showed us your backup power supplies. But just wanted to make sure that the situation abroad was not influencing your operations during the quarter.

That's kind of funny. It gives you a perspective on how the media reports things. And I can tell you that the--our site has multiple days of backup fuel to run on generators. But the actual impact to our site was measured in the couple of hours, not in the half a day or full day that you read in the newspaper. So the disruption--there was a disruption. It was much more minor than you would read about or watch on television and we're completely prepared for a much more significant outage.

Okay. And you guys are breaking out the account managers domestically, and then international. But was wondering can you provide us with the color on Costa Rica relative to the India account managers?

I mean, as Brandon said in his remarks, we had just over 100 account managers or people in India by the end of--at the end of the second quarter, and the bulk of those were account managers.

100 people in Costa Rica?

That's right.

Yes, okay. Great. And you guys talked about some of the opportunities to leverage your expertise with mailers for the PFS deal. Do you guys have a plan or is it part of the plan to kind of try and integrate some of the call centers? Do you have there, whether it's in Costa Rica or in India, to try and utilize that as a means to kind of market to these individuals in Texas?

Yes, we continue to evaluate the right strategy. But it is our belief that we'll be able to augment the resources they have in San Antonio, whether it's through domestic call centers, international call centers, is yet to be determined. But we think that the strength [is ours] and we'll use it as part of the strategy going forward.

Okay. And as I take a look at kind of the bumps in the yields applied to the various vintages, it seems like you guys were most active in raising the pre-2005 pool, and then also the 2010. And is there anything with those in particular that you're seeing that's giving you a little bit more confidence?

I mean, the 2005 is a reflection of just actual performance--we're getting very strong performance on that one. The '10 and '11 increase yields are--we've--as we say--as we've said in the past, we wait for several quarters to see how we're performing, and we feel very comfortable with the performance on those. And as a result of that, we're increasing the yields. We did the same thing with 2009 last year and over time we'll continue to do that as we get more experience in the more recent pool groups.

Okay. And I guess the last question I had was with regards to--if I'm hearing you correctly, the purchasing during the second quarter was just a hair under where you guys had kind of commented before. And I believe you guys are sticking with the second half of the year purchasing assumption. So you're now targeting about $490 million for the rest of--for the total of 2012?

That's right.

Okay. And is there any particular reason why you wouldn't probably just make up the slack in the second half of the year, the other $10 million or--?

--Yes, it's a great question. Well, we're certainly not saying we won't. It's a couple percent difference, so it's--.

--I know--.

--Doesn't make really--moving the $10 million didn't feel like it was worthwhile doing. But if we see good deals in the back half of the year, as we said, we can be selective. We certainly will invest in them.

Okay, I understand if it's not meaningful, but--all right. Thank you very much.

Thanks, Hugh.

Thank you. Our next question or comment comes from the line of Mr. Bob Napoli from William Blair. Your line is open.

Thank you. Good afternoon.

Hi, Bob.

A question on the--just on the legal cost as a percentage of legal collections. Just to be clear on this, I mean, it's the second quarter in a row that your legal cost--that a percentage of legal collections are down significantly at the 35% range - 35.7% this quarter. You were running in the 40s last year and much higher than that prior--several prior years. I mean, is this a sustainable number? Do you--can it improve further from here? And what drove the--is it really moving it from external to internal that's driving that improve--some of that improvement?

Well, we do think it's a structural change and we would expect--again, depending on volumes placed in the channel you'll see fluctuation. But we do think we've meaningfully altered the cost to collect. And it's just largely a function of getting smarter each year about the accounts that we ultimately place in the channel. If you recall, we started our significant investment back in 2006, and we're now sort of six years into the learning curve. And we just believe we're getting more and more precise each time, and that's effectively bringing down the--I'll call it the waste court costs meaning placing those consumers in the channel who ultimately don't pay. And we found ourselves being much more accurate, which means there are a lot fewer of those costs that we need to expense. And relating to internal legal, right now they're actually adding to the cost to collect overall in legal. And we expect that--we expect to be fully ramped up by the end of 2015 or so in the number of states that ultimately we'll go to. And at that point, we'll start seeing an improvement in cost to collect because we'll have been fully ramped up. Until that point, we're investing in the initiatives and so it actually adds to incremental cost to collect until then.

All right, thanks.

And we have disclosure in the Q around what our dollars invested in internal legal--what those dollars are today.

Okay. Just on Propel, just to understand kind of the seasonal or the nature of that business. The loan balances in Propel, $139 million, is there--does that kind of flatten out for the next quarters, but then grow significantly in the first quarter? How does--generally what is the pattern? Is there a seasonal pattern to the growth of those receivable--of that--?

So typically the second quarter is one of the busiest quarters because of the July date where it becomes more punitive for homeowners in Texas if they don't take out one of these tax lien transfers. So the balance typically will grow through the second quarter, and then moderate for the rest of the year, and then again, starting in the new year it will start picking up again.

Any--.

--That's typically the seasonality. So originations are typically highest in the second quarter, then drop off for the remainder of the year, then pick up again in the first and second quarters of the following year.

Was there--has there been any progress in Texas--I'm sorry, in New York or other states on the tax lien business? I know New York was going to have a--you thought there was a decent chance. Do you think there's a decent chance that could--that laws similar to those in Texas could be passed in New York or other states?

We continue to believe that. I think in New York, like in--everywhere else in the country, getting things passed is difficult in an election year. So I think we made great strides in pushing the bill, getting it sponsored, and think that we'll resume that once we get through the election. But we've laid a lot of groundwork and are excited about what we can put in place next year.

Okay. If you just are in Texas next year, what kind of growth do you expect for that business?

We haven't actually given out a growth strategy. What I can say is our business--our acquisition of Propel is based exclusively on growth in Texas. So I would think there's a meaningful amount of growth given the market is sort of penetrating 20% of the available consumers that are there. And so we would--we think there's meaningful growth that can happen next year, although we haven't given any guidance.

What was the growth in '12 versus '11 for that company?

We haven't finished up '12 yet, so there's still--.

--I'm sorry. From where you are today versus a year ago, I guess--doing a year ago.

Somewhere in the 10% to 15% range.

Okay. Then, the--I mean, your allowances, you have $109 million in allowances. And with the improving--continuing to improve on the collections side, it seems like some or maybe even a very significant portion of that could be clawed back as--over time. Is that--do you think that's--am I thinking incorrectly about that, or what are your feelings about--obviously you're going to be very prudent. Do you see--I mean, there was a $2 million reversal this quarter. What do you expect on--could happen on reversals over the next few years?

So I think we will continue to reverse allowance charges. If you go back to some of the vintages, like the 2001 and '02 and I think even the '03, we were--we've--we're close to largely reversing all of the allowances taken. There's some pool groups like 2005--2005 through '08, where we took larger allowance charges, and it's not likely that we will reverse all of those. But I think that we will continue to take those charge--those reversals over time. It's tough to say exactly of that 109 how much will be reversed, but we'll continue to see allowance reversals.

Thanks. Last question. Just on the last page of your press release, just looking at kind of adjusted operating expenses, where are the--with the tax lien transfer in there you're just trying to normalize the expenses for the--for your core business?

That's right.

And then, which line items are the acquisition related expenses in--on?

They're in G&A.

They're all in G&A?

Yes.

Great. Nice job. Thank you very much.

Thanks, Bob.

Thank you. Our next question or comment comes from the line of Mr. Larry Berlin from First Analysis. Your line is open.

(Inaudible) folks, how are you doing today?

Good, Larry.

Good. Hey just a question on Propel. Just what metrics you--financial metrics you guys used to look at the acquisition that got you comfortable with it and that you think we should look at at this point?

Well, what we focused on were a couple of things. One was the fact that we acquired a portfolio of almost $140 million generating an annual interest rate return of close to 14%. And so, that--and as you know, the business is--from a risk adjusted basis that's a very strong return given the nature of the business and the zero losses it's had historically. So that was one component that we looked at. And the other component we looked at was the fact that we were acquiring a platform that could generate significant originations of tax lien transfers going forward, and so we could grow that portfolio of 13% to 14% high risk adjusted return significantly in the future. And that's how we evaluated the transaction.

Okay. Thank you very much.

No problem. Thanks, Larry.

I'm showing no additional questions or comments in the queue at this time. Sir, I'll turn the conference back over to you.

Thanks once again for joining the call and I'll look forward to speaking with you in a few months.

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