PRA Group Inc (PRAA) 2012 Q4 法說會逐字稿

Good afternoon. Thank you for joining Portfolio Recovery Associates fourth-quarter 2012 earnings call. Speaking to you today will be Steve Fredrickson, PRA's Chairman, President and Chief Executive Officer; Kevin Stevenson, Chief Financial and Administrative Officer; and Neal Stern, Executive Vice President, Chief Operations Officer. We will begin with prepared comments, then follow up with a question-and-answer.

Before we begin, I would like everyone to please take note of PRA's Safe Harbor language. Statements on this call which are not historical, including Portfolio Recovery Associates or Management's intention, hope, belief, expectation, representation, projection, plans or predictions of the future, including with respect to PRA's future portfolio's performance, opportunities, future revenue and earnings growth, future cash collection, future space and staffing requirements, future productivity of collectors, and future contributions of its subsidiaries to earnings, are forward-looking statements.

These forward-looking statements are based upon PRA management's beliefs, assumptions and expectations of the Company's future operations and economic performance, taking into account currently available information. These statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known to PRA.

Actual events or results may differ from those expressed or implied in any such forward-looking statements, as a result of various factors, including the risk factors and other risks that are described from time to time in PRA's filings with the Securities and Exchange Commission. Including, but not limited to, its annual reports on Form 10-K, it's quarterly reports on Form 10-Q, and its current reports on Form 8-K filed with the Securities and Exchange Commission, and available through PRA's website. Which contain a more detailed discussion of the Company 's business, including risks and uncertainties that may affect future results.

Due to such uncertainties and risks, PRA cautions you not to place undue reliance on any forward-looking statements, which speak only as of the date thereof. PRA expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in PRA's expectations with regard thereto. Or to reflect any change in events, conditions or circumstances on which any such forward-looking statements are based, in whole or in part.

Now here is Steve Fredrickson.

Good evening. And thank you all for joining us. Today PRA is pleased to report record operating results for the fourth quarter and full year 2012. An exceptional concluding quarter to an equally exceptional year. Our results once again demonstrated the strength of PRA's business model, focused on diverse revenue and earnings from our bankruptcy business, our core debt purchase and collections operations, and our business and government services subsidiaries. As we ended 2012, our record results coincided with a substantial strengthening of our financial position, as we entered into a new $600 million credit facility. And acquired new bankruptcy assets and investment expertise from National Capital Management, or NCM.

Today, PRA is in an excellent position to continue to grow and prosper during 2012 and beyond. Let me take you through highlights of our record Q4 and full-year results. Cash collections, including those in the UK, were $229 million, up 27% from the fourth quarter of 2011, and up 29% for full-year 2012 to $909 million. Revenues were up 31% year-over-year to a record $154 million during Q4. And increased 29% to $593 million for the full year.

Net income increased 35% year-over-year to a record $35.8 million, translating into diluted earnings per share of $2.10, compared with $1.54 in the fourth quarter of 2011. For all of 2012, net income grew 26% to $127 million. And earnings per share grew 26% to $7.39. Return on equity of 20.6% exceeded our 20% benchmark in Q4. For full year 2012, I'm pleased to report that return on equity rose to 19.6%, from 18.5% in 2011.

In Q4, we acquired $1.9 billion in face value of finance receivables, for a total purchase price of $199.1 million, including $69 million purchased from NCM. These receivables were purchased in 104 defaulted debt portfolios, from 19 different sellers. Pricing remained very competitive in Q4, as it did throughout all of 2012. In the UK, our debt purchase activity continued to be focused on smaller niche opportunities with 10 portfolios purchased in the quarter, for a total spend of GBP1.6 million, or $2.6 million. We continue to deliberately pace our buying activity as we build and calibrate models and operating strategy For full year 2012, total portfolio purchases were a record $538.5 million, with a total face value of $6.2 billion.

Our expanded focus on legal collections from customers who can but won't pay their debt, continue to produce strong results. Legal collections totaled $65.5 million in Q4, up 49% over the fourth quarter of 2011. Although our legal collection expenses in Q4 were substantially above the same period in 2011, due to our significant buildup in 2012, these Q4 expenses were lower than in Q3 2012 by 3%, or approximately $700,000. Our bankruptcy business continued to grow, and comprised 40% of our total cash collections in the fourth quarter. In Q4, collections from purchased bankruptcy portfolios totaled $91.1 million, a 21% increase from the fourth quarter 2011.

Our purchase in Q4 of most of NCM's assets and operations, together with the hiring of a majority of NCM employees, was a very exciting transaction for PRA. We've always viewed NCM as a well-run organization. During the past decade, NCM carved out a strong competitive niche in the market for secured bankruptcy portfolios, primarily automobile loans. This acquisition not only gave us a large existing pool of seasoned accounts, it also provided us entree into a new class of bankruptcy receivables that expands our addressable market by 10% or more. As a result, we have begun to close on several follow-on opportunities this year in the secured bankruptcy market. My congratulations and thanks to PRA's Bankruptcy Services President, Mike Petit, and his team, for the enormous amount of hard work they put into underwriting and closing this transaction at year end 2012. We're also pleased to have former NCM employees on staff as we continue to grow our bankruptcy business.

Turning now to our fee-based businesses, we experienced a modest increase in fee income in Q4, both sequentially and year-over-year. However, this increase was entirely due to our UK-based contingency collections business acquired in January 2012. As we announced in Q4, Steve Roberts, a longtime marketing and operations executive at the public and private companies, is now leading our US fee-for-service businesses. He has begun to refocus each business in such a way as to accelerate growth in revenue and profitability, and to make meaningful contributors to PRA once again.

We've initiated plans to acquire an additional 19% interest in our Claims Compensation Bureau subsidiary this year. Since acquiring 62% of CCB in 2010, results have been uneven due to the timing of major class action settlement payouts. And 2012 was a poor year for this business. However, we expect that 2013 will be a stronger year for CCB. And we anticipate that a single large case may generate approximately $4 million to $6 million in fees during the first half of 2013. The purchase of a larger interest in the company is priced advantageously due to look-back pricing formula. And will allow us to participate more fully in the anticipated large fee in the first half of the year.

In the UK, new client business and increased allocations from existing clients in Q4 drove a second consecutive quarterly increase in new contingency accounts. Inflow from direct issuer clients increased for the third straight quarter. Additionally, two major debt purchase clients restarted volume allocations in Q4, with purchaser client inflow increasing quarter-on-quarter for the first time in 2012. In Q4, our UK business was successful in winning the prestigious Credit Today Consumer Debt Collection Agency of the Year award. The award's been very positively received by our clients, potential clients, and sellers.

Finally, regarding our share repurchase program, we made very minor purchases during Q4. However, we continue to closely monitor market conditions for the remaining $77 million available under the program. Next, Kevin Stevenson will elaborate on our Q4 financial statements. Neal Stern will have an update on operations. And then I'll have some closing comments before opening this call to your questions. Kevin?

Thanks, Steve. The quarter-to-quarter comparisons I'm about to make are between Q4 2012 and Q4 2011, unless otherwise noted. Also, you'll recall that our UK business was acquired in 2012. Thus the results of the UK operation are included in PRA 's 2012 financial statements but not in our 2011 statements. As Steve noted, Q4 2012 was an exceptional quarter. Cash collections, revenue, and net income grew 27%, 31%, and 35%, respectively. Our net income margin was 23% for the quarter, and 21% for the year. Since going public in 2002, PRA has delivered a 20% net income margin every year except 2008 and 2009 when net income margins were still north of 16%. We're very proud of this performance.

Let me now move to some specifics in our financial statements. Our Q4 revenue of $154.3 million was comprised of $138.1 million in net finance receivables, or NFR revenues. And $16.2 million in fee revenue. Finance receivable revenue for the quarter was comprised of $93 million in core portfolio revenue, including our UK operation. And net of an allowance reversal of $2.1 million. Net core portfolio revenue increased 46%. The bankruptcy portfolio revenue was $45.1 million, net of allowance charge of $4.3 million. The vast majority of which was recorded in the Q4 2007 through Q3 2008 pools. Net bankruptcy portfolio revenue increased 16%.

Fee revenue of $16.2 million increased 5%, with our UK operations driving that increase. Fee revenue accounted for 10% of the Company's revenue. Operating expenses for the quarter increased on pace with our revenue growth at 31%. Operating expenses included in $9.1 million increase in personnel-related expenses, an $8.1 million increase in legal costs and fees related to PRA's expanded focus on legal collections, and the inclusion of the UK business in our 2012 financial results.

The effective tax rate for full-year 2012 was 39.1%, compared with 39.6% for full-year 2011. This rate declined due to various changes, including the impact of foreign operations and changes in blended state rates. The effective rate for Q4 2012 was lower than the full-year rate, at 38.6%. This was consistent with the Q4 2011 rate. We believe that the full-year 2012 effective rate of 39.1% is a reasonable basis for an estimate for full-year 2013.

Operating income was $60 million compared with $46 million, an increase of 31%. Operating margin was 39% for the quarter, consistent with the fourth quarter of 2011. Sequentially the operating margin improved from 38% to 39%. Net income margins, as I noted, was a robust 23% for the quarter, and roughly consistent with the fourth quarter of 2011. Sequentially, the ratio improved from 22% to 23%.

Moving on to the balance sheet, cash balances ended the quarter at $33 million. During the quarter we invested $199 million in total defaulted debt portfolio. Investment activity was comprised of $88 million in core consumer debt purchases, including investments made in the UK. And $111 million of bankruptcy portfolio purchases. Bankruptcy portfolio purchases included the acquisition of portfolios from NCM. To give you some further clarity on the NCM transaction, which will be further described in our upcoming 10-K, here's how the numbers preliminarily broke out.

Total purchase price for NCM was approximately $113 million. $69 million was allocated to bankruptcy NFR assets. $30 million was allocated to other assets, including amounts due from the seller. And $14 million was recorded to goodwill. Also, a liability of $12.2 million was recorded for contingent earnout. The earnout liability, based on our current estimates of cash collections, will accrete to approximately $14.5 million over the term of the earnout. This accretion will be expensed through earnings, with the majority of the expense expected to occur in 2013. Of course this is subject to change in our estimates.

The NFR balance increased to $1.1 billion, up from $927 million. The NFR balance is the amount of unamortized purchase price of acquired debt portfolios recorded on our balance sheet. Principal amortization of finance receivables, including net allowance charges, as a percentage of cash collections, was 39.8% in Q4 2012. Compared with 43%. While this quarterly rate is the lowest we've seen since Q4 2008, the full-year 2012 rate of 41.6% is very consistent with both the full-year 2010 and 2009 rates of 41.5% and 41.4%, respectively. The 2011 full-year rate was higher at 43%.

It's been a while since I've spoken at any length about amortization, so a few quick comments as I look forward into 2013. First, the aging of our 2009 through 2011 pools. As these pools have aged and we've gained comfort with the over-performance relative to our original projections, for the accounting guidance we've increased yields over time. Moving up yields generally translates into lower amortization rates going forward. Second, the competitive pricing environment -- as prices increase relative to collectiblity, or ERC, the amortization rates are naturally going to be higher, simply because gross yields are lower as pricing increases.

And third, the mix of bankruptcy portfolio versus core portfolio -- bankruptcy buying reached a near-term high in 2010 at 59% of total purchase price deployed. Followed closely in 2009 at 56%. Bankruptcy portfolio purchases were still a robust 48% of total purchases in 2011, and 49% in 2012. More bankruptcy accounts generally translate into higher overall amortization rates. So, in summary, higher pricing, and continued significant bankruptcy buying, will tend to move amortization rates up. While continued contribution of the 2009 through 2011 pools will tend to exert some downward pressure on amortization rates.

Moving on. Our debt to equity ratio at quarter end was 46%, up from 37%. The debt to equity ratio including net deferred tax liabilities was 72%. This is higher than in recent periods due to the greater-than-normal amount of investment activity in the fourth quarter. During the fourth quarter, we announced an expansion of our credit facility to $600 million. This expansion broadens our lending group to a total of 11 banks, including 3 new banks. At the same time, we lowered our borrowing rate from LIBOR plus 2.75% to LIBOR plus 2.50% for normal borrowings under the facility.

The balance under our credit facility was $327 million at year end, consisting of $200 million in term financing and $127 million in revolving credit. Availability under the line of credit, subject to the borrowing and collateral provisions, was $273 million. We continue to be in pay down mode as it relates to our deferred tax liability. As a reminder, income taxes are fully expensed as income as earned. As we've described in the past, using cost recovery method for tax accounting creates a timing difference, not a permanent difference, between book and tax revenue.

Revenues are generally deferred in times of heavy buying and heavy operational ramp up. And when buying and/or operational and growth normalizes, tax revenue and tax payments increase. For the full-year 2012, actual cash income tax payments were nearly $100 million. As compared to the expensed provision for income tax on our income statement, of just over $80 million. Tax payments in 2012 were up from $24 million in 2011, and $107,000 in 2010. the net deferred tax liability at December 31, 2012 was $185 million, down from $194 million at December 2011.

Finally, let me provide some details on cash collections. Cash collections increased 27%, and 29%, for the quarter and full year, respectively. Fourth-quarter cash collections were $229 million. Core portfolio collections included $3.4 million from our UK business, and were $138 million, or up 31%. This increase was led by growth in legal collections, which increased 49%. And bankruptcy portfolio collections were $91 million, up 21%. So it's clear that 2012 was an outstanding year for PRA on many levels. From top line cash collections, to bottom line net income. As we look into 2013, our challenge will be to find and invest in NFR assets, both core and bankruptcy, in this very competitive market. And to execute with precision on all fronts. While dealing with the existing portfolio amortization and cash flow dynamics that I mentioned earlier.

Neal Stern now has additional comments on our Q4 and full-year 2012 collection results. Neal?

Thanks, Kevin. Our Q4 collections provided an appropriately strong end to a strong 2012. The key contributors to our success were an increase in the number of monthly payments, augmented by the rate at which our US customers are maintaining their payment plans; an end to a multi-year trend in which our average payment size was in decline; strong call center productivity results; legal collection performance that exceeded our expectations; and continued improvements in the productivity of our UK operations.

Let me expand on these points. The number of US payments collected on our debt portfolios in the fourth quarter represented a 25% increase over the same quarter in 2011. For the full-year 2012, payments increased by 27% to a record 8 million payments. The growth of these payments has been on a steep rise for several years. Since 2009, our monthly payments from customers are up by an impressive 204%. I'm extremely proud of our team's work with customers that generated more than 8 million payments this year, 90%-plus of which can be attributed to customers that have made a prior payment to us. In fact, more than 60% of the payments we received were from customers that have made six or more prior payments to us.

When payment plans are reasonable, they provide a mechanism for customers to eliminate debt, as well as a low-cost recurring cash collection stream for PRA. Doing this properly requires the hard work and patient approach that our team has consistently delivered. That patient and reasonable approach is also central to our commitment to compliance, and is an important part of the dialogue we have had, and seek to have, with the CFPB. During the fourth quarter, PRA continued to meet with the CFPB, to discuss aspects of the debt buying market, and to introduce recent Company initiatives that we thought might be of interest to the Bureau.

Our US call center cash collections were strong in Q4, finishing 13% higher than the same quarter in 2011. For the year, call center cash collections finished up by 11.5% over 2011. Collector productivity ended the quarter at 3% higher than Q4 2011. And for the year, productivity finished 6.7% better. Q4 legal collections increased by 49% over the same quarter in 2011. External legal collections finished 58% higher. And internal legal collections were 36%. For the full-year 2012, legal collections were up by 49% over 2011.

Performance from our legal collection channel remained above our internal expectations. And continued to benefit from the incremental court costs invested during the year. In total, the results of our incremental investments in court costs finished the year 21% ahead of our internal expectations. Which were to recoup our investment within 6 to 12 months. And to deliver a 200%-plus return on investment. Our legal collections obviously had a favorable impact on our 2012 cash collection results. But, more importantly, they have also begun to positively impact our longer-term cash expectations for the portfolios we acquire. This also has a positive impact on our ability to competitively buy portfolios.

While we regularly review our models and return on investment hurdles, it's our near-term expectation for our court costs to remain relatively flat in 2013 relative to 2012. But moderated relative to our total account volumes and legal cash collections. Our legal collection strategy has been and remains differentiated. Our focused efforts to grow our internal legal collection efforts have generated improved compliance, meaningful savings, and increased effectiveness. In short, we ended relationships with many of the external law firms that lacked analytical and operational sophistication, resulting in a much stronger external network. And an internal capability second to none.

Our most important differentiator is that legal collection efforts are truly an option of last resort. PRA always puts significant and prolonged efforts into reaching customers by phone and through the mail in order to try and obtain payment arrangements. But for approximately 5% of our core accounts, these efforts yield no result, in spite of customers having an asset or income that could be used to resolve their accounts. The fact that this small minority of accounts contributes almost one-third of our total cash collections speaks to the precision of our models, and the differentiating account segmentation.

Finally, our work in the UK during Q4 continued to produce positive results for the near-term in the area of collector productivity. We expect to see significant improvements stemming from our reduction in outsourcing, increased legal collection efforts, and our ongoing work to improve account scoring and segmentation. These results should drive better results for UK clients, as well as make us a more effective debt buyer.

And now some final comments from Steve.

Thanks, Neil. Before I turn the call over to your questions, I would like to thank our more than 3,000 employees for PRA's exceptional record 2012 growth. As a reminder, this growth follows 23% growth in 2011 revenue, and 37% growth in 2011 net income. Which followed 33% growth in 2010 revenue and 66% growth in 2010 net income. In just three years, we've more than doubled revenue and have almost tripled net income for our shareholders. This is an extraordinary track record by an equally extraordinary team of employees. Our operator will now open up the call to your questions.

(Operator Instructions)

Hugh Miller, Sidoti & Company.

I had a couple of housekeeping questions to start with. One was, if you have it, what was the fee base business margin dilution during the quarter?

I actually looked at that before I came into this call because I knew you'd ask that question. About 350 basis points.

350, great. And as we think about -- you gave us some great color on the NCM portfolio. Obviously, it's a higher quality. Or maybe that's not the right way to look at it, but more secured asset class relative to the BK paper you buy that often at times isn't cash flowing. How should we be thinking about the purchase price multiple on that particular portfolio?

It's buried in because it's part of the Q4 buying. I think the Q4 buying multiple is in the 1.35 range, off the top of my head, if you look at just that plain Q4 quarter.

So NCM is probably lower a touch, relative to the normalized 1.4 to 1.6 range?

Probably so. And it's, again, we did book it, it's a big deal. It's got flavor of a new asset class for us. So we probably put it on at a little bit of a discount just to make sure we know where things are going. And then we'll watch that curve and if things look more like the original expectations, we'll start moving that up over time.

Okay. And as you think about, obviously, solid capital deployment, even excluding the NCM purchase during the quarter, but can you just give us a feel of it? It seems like you guys continue to point towards just very competitive pricing. I'm not sure if that's solely in the direct paper market. But what are you seeing there? And are you seeing the opportunities? It seemed like there was going to be opportunities for you guys to buy receivables from competitors that are exiting the space because of how competitive the environment is.

Yes. We continue to see a fair amount of portfolio activity from people either exiting the space, or selling down portfolios. And that has been on both the core and the bankruptcy side. And we've been fairly careful, making sure that we've got enough dry powder to take advantage of those opportunities as they come available. It's one of the reasons why we haven't been more aggressive on the share repurchase to date. We're keeping a close eye on that amount of dry powder.

Okay. And, obviously, with the limited purchasing within the UK business, I realize that McKenzie, as you talked about, is a niche type of buyer. And you need to gain a comfort level with how the curves are for general asset category in that region. But how should we be thinking about the duration of time that you think it's going to take you to get comfortable before you can start to get a little bit more aggressive with capital deployment in that area?

We're looking at it as a long-term play. We've had quarters where we've deployed, relative to our experience over there, a fair amount of cash. And, as in this quarter, we've had others where we didn't deploy as much. So we're just taking a slow and measured approach. And as we said in the script, calibrating those models and making sure that we're understanding exactly how this stuff is performing. So, we don't think the opportunity there is going away any time soon, and we're very happy to take it slow and steady.

Okay. And given the delay we've seen in the tax return season this particular quarter, do you expect that to really have an influence on your cash collections in 1Q?

So far we don't see any evidence of that.

Okay. And one last question just on the regulatory front. With regards to some of the recent rulings about recess appointments, do you expect that to really have any influence over your relationship with the CFPB and how they go about regulating the industry, as we look into 2013?

I think both the CFPB and us look at things as business as usual. And if the courts decide differently, then we will react at that point in time.

Okay, thank you very much.

Bob Napoli, William Blair.

The NCM deal, I just want to make sure I understood, in the buying for the quarter, there was $69 million from NCM, and then $30 million due from seller. Is that $30 million portfolio to be delivered?

No, that's like stub period cash that would be moved over. Think about it like a receivable almost.

Okay. So all you bought from them was $69 million in the quarter.

Yes, $69 million NFR, and then we had $15 million of goodwill to be ongoing.

Okay. Now, are the margins and the returns, return on equity, or returns in that business similar to the rest of your business?

Yes, absolutely.

Okay. And you said you are seeing additional opportunities. You've been able to buy additional paper in that market?

That's right. Having now the expertise and the data set that we've obtained from the employee group, and from the assets that we bought in that deal, we can underwrite these secured bankruptcy assets with a much higher degree of confidence than we have been able to in the past. And as a result, we're competitive in that market, and have been able to do some additional buying.

Okay. Who else compete in that market?

A number of the guys that we compete against in the normal unsecured bankruptcy market. But there's a couple of nuanced buyers that are in there, as well. It's not a huge market. Obviously it's a segment of a segment, so it's not a huge market.

Okay. The UK business, I'm sorry I missed -- how much did you purchase in the quarter?

$2.6 million in US dollars.

And as far as, I understand taking the long view, and I agree the market's not going away any time soon, but is the activity, are you seeing more portfolios in that market? What does the flow look like? And do you have access? Are you tied into all the flow that is out there?

Yes, there is significant flow in the UK. In fact, there's very significant opportunities. The deals, however, are large. And I would say at this point in time we just don't have the confidence level to do a single, large deal in an asset class in which we are not really well steeped in terms of being able to understand our operational capability, as well as our underwriting capability. So, in our view, we'd rather let opportunities like that go by and not make a mistake. And, again, there's going to be plenty of opportunity there. The charge-offs in the UK aren't going away.

But you saw -- you had a pretty, a very hefty buying quarter ex the NCM, and given only about $2.6 million from the UK, in the US. Is that broad? Are you seeing that -- when you saw a real strong comeback of paper, is that continuing in the first quarter?

I would say, what we saw in the Q4 is, to a degree, continuing in Q1. And it's really twofold. Number one, we are seeing decent flow of portfolios, both in terms of resale and direct from issuer. But this phenomenon of a consolidation in the industry is real, and is continuing. And, as a result, we have seen our win rate move up slightly. And that's having an impact on the amount of money that we deploy in a quarter.

And that's just on the CFPB? As far as the full-fledged audit, is that happening? Are they on site? Or what is the timing of an audit by the CFPB?

We anticipate that we will have them on site at some point during the year. But we don't have anything more to report at this point.

Thanks. And then last question, on your leverage, your leverage, obviously you have a very strong balance sheet and it's a great asset to have. Where are you comfortable as far as leverage? How high would you take leverage? Your competitor, one public competitor, is comfortably above you on the debt to equity side. Where do you feel comfortable?

In the past, certainly pre-public, we'd run the Company at almost a 2 to 1 funded debt to equity level. So certainly a 1.5 number doesn't give us any pause at all. So that 1.5, between 1.5 and 2 shouldn't be a problem. Again, assuming you're buying the right NFR assets.

Great, thanks. Nice job.

Mark Hughes, SunTrust.

Kevin, you gave us three factors on amortization. Two up, one down. How do they net out?

I'd leave that for you to decide. But I can't -- we've avoided guidance for years. I just wanted to give you guys, make sure you're thinking about those three factors. I think I couched it pretty well. In summary, I wrote -- so, in summary, higher pricing and continued bankruptcy buying tends to move rates up, while the contribution of '09 and 2011 pools will tend to exert downward pressure. So I think -- I can't see '09 and '11 deals driving rates down next year. But it's going to have some influence on it.

Right. So, I guess I would interpret your language as steady.

Might be a good read on that.

Dramatic pause.

Right. Shuffled the papers, too.

The FTC reports, what was your take on that? The most negative things seem to be that maybe a lot of people got contacted who shouldn't be erroneously? What do you make of all that?

Overall, I think our take on the report, that it was fairly benign. It is a bit of a look back. This data was extracted from a number of folks a while back. And so I think almost everyone, especially over the last couple of years, has been moving their regulatory regime along and working hard on compliance issues. So, overall I don't think that it was a huge surprise to us, other than the fact that it didn't come up with any, at least from our perspective, glaring issues for the industry.

Right. And then what's your philosophy on a stock split? Is there a strong feeling that the stock split shouldn't be done? Or how should we think about it?

No, it's a topic that we do discuss on an ongoing basis here. It's something that is currently being debated. We certainly don't have an opinion that's immovable one way or the other.

Okay. My vote would be to consider that.

Okay. Duly noted.

Thank you.

Edward Hemmelgarn, Shaker Investments.

Just one question about the portfolio that you purchased of bankruptcy, the new company. You said that was secured by auto? Or it was a secured credit that you bought?

They're Chapter 13 bankruptcy accounts that are secured by automobiles, for the most part.

Okay. Anyway, what I was getting at, is you would expect those to pay off at a more rapid rate, right?

I think all things being considered, that's right.

Because you collect -- in bankruptcy, don't you collect the secured first, and then the --?

Unsecured, second. Correct.

Yes, okay. So we should assume -- okay. Okay, that's all for me. Thanks. Congratulations on a good quarter.

David Scharf, JMP

Steve, just one more follow-up on NCM. Can you give us a little color on just the size of that secured market? My understanding was the portfolio you acquired actually, even though they do have exposure to secured BKs, that might actually be just a small portion of it.

The portfolio that we acquired was a strong mix leaning toward secured BK 's. NCM had been in the business of buying both types of debt. But, again, the portfolio we acquired was weighted toward the secured side.

And is there any way for us to just get a feel, order of magnitude, when we compare the amount of claims out there relative to, for example, what you've seen in the unsecured credit card BK market these past few years?

I think you can find all that data online, David. Because clearly, when you look at it, the secured filings are enormous, right? But so much of that is already real estate. It's real estate-based. So you've got to take a big chunk of that out. Then you work your way down into the automotive segment, which probably, I think if you really peel the onion back, is probably similar to '13 unsecured. But then, only a portion of that trades, too, because a lot of that doesn't charge off. So it's a big pot, you've got to take out all the real estate, get down to the automobile, which is probably roughly the size of the unsecured market, and then you've got to take a fraction of that, that actually trades.

Got it. And then lastly, Kevin, I just wanted to make sure I wrote this down correctly. With respect to the up-front court filing costs, 2013 should be roughly flat in terms of absolute dollars -- was that what I heard?

Right, yes.

Okay, got it. Thanks so much.

(Operator Instructions)

Bob Napoli, William Blair.

I just wanted to follow-up on competition in the bankruptcy industry. There was a pretty big trade that your public competitor, one of your public competitors, announced tonight that they had acquired. So you have a new competitor, I guess. Is that your view on that situation? A new significant competitor.

We've always had competition in the bankruptcy space. And our view of that competition has been, although maybe not as many in number, they've been pretty sophisticated and have had access to substantial capital. So another competitor in the fray certainly isn't something that we look forward to, but I don't know that it changes the dynamic in that market a whole lot either. We think that we're very good underwriters, as demonstrated by the track record that we've built over the last eight years or so in the bankruptcy market. And we think that our cost to administer these claims is as low as it gets. We are really proud of the engine that we've built here. And so if people want to compete, we're ready for it. We think we can compete with the best.

Okay. And then other types of paper, are you taking a harder look, or testing, close to initiating any different types of paper? I know you had looked at private student loans at one point. Not sure, is there anything else on the diversification front from a buying of paper standpoint?

I don't know that there's many other places to go. We have bought just about every type of paper since we've been in business. Certainly discussions continue to abound in the industry and here about the potential in the student loan market. But to date, there's just not a whole lot of transacting going on there yet. But you can be sure that's an area we're watching closely.

Any interest in the mortgage market? Either through a small acquisition of a platform or something like that?

I would say that's down on our list.

Okay. And then, not that I have a vote, but I would vote for a stock split. It might help the liquidity a little bit, as well.

Okay.

Two to zero so far.

Thank you.

Hugh Miller, Sidoti & Company.

I just had a quick question about the -- did you guys give us data on the average payment size? I saw the volume number, but I didn't catch it, if you talked about the average payment size and how that was trending?

It was flat in the quarter, and year over year flat, and flat for the year. So that's a big improvement. And in 2011, average payment size was down 7%. And in the year prior it was down 13%. So flat was happy news.

Great, thank you very much.

I am showing no further questions. Ladies and gentlemen, that does conclude the conference for today. Again, thank you for your participation. You may all disconnect. Have a good day.