Encore Capital Group, Inc. (ECPG) Q1 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to your Encore Capital Group First Quarter 2013 Earnings Conference. [Operator Instructions] And as a reminder, today's conference is being recorded. And now, I would like introduce your first host for today, Adam Sragovicz. Please go ahead, sir.

Thank you, John. Good afternoon, and welcome to Encore Capital Group's First Quarter 2013 Earnings Call. With me on the call today are Brandon Black, our Chief Executive Officer; Ken Vecchione, our President; and Paul Grinberg, our Executive Vice President and Chief Financial Officer. Brandon, Ken and Paul will make prepared remarks, and then we will 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 first quarter of 2013 and the first quarter of 2012. 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 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 they are made. We will also use rounding and abbreviations in our conference call for the sake of brevity. For more detailed numbers and explanations, please refer to our Form 10-Q that will be filed later 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 agreement in the evaluation of our operations and believes this measure is a useful indicator of our ability to generate cash collections in excess of operating expenses through liquidation of our receivable portfolios. We included information concerning adjusted operating expenses, excluding stock-based compensation expense, in order to facilitate a comparison of approximate cash costs to cash collections for the debt purchasing business in the periods presented. Once again, 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 for a more complete discussion of these factors and other risks. As a reminder, this conference call will also be made available for replay on the Investors section of our website, and we also plan to post the prepared remarks following the conclusion of this call. With that, let me turn the call over to Brandon Black, our Chief Executive Officer.

Thank you, Adam, and good afternoon. I appreciate you joining us today to discuss Encore's first quarter results. Once again, we maintained our consistent growth pattern by posting record results in the quarter. We achieved these results even as we consciously repositioned our purchasing activity in anticipation of the closing of Asset Acceptance and continued investing in corporate compliance and internal legal initiatives. I want to, first and foremost, recognize and express my appreciation to our 2,800 employees around the world, whose dedication, hard work and perseverance helped make this quarter so successful. They continue to add to the solid foundation on which we will build Encore's future growth. Our core business delivered strong results in the quarter. Collections reached an all-time high of $270 million, which is a 17% increase over the first quarter of 2012. Operating cash flow or adjusted EBITDA was $174 million, up 21% from 2012. We were able to produce these collections while continuing to expand our operating margin. During the quarter, our overall cost-to-collect ratio decreased 190 basis points to a record low of 36.5%. The growth in collections and improvement in cost-to-collect led to earnings per share of $0.80. When taking into account noncash interest expense related to the convert and deal costs, we achieved earnings of $0.86 per share. The acquisition of Asset Acceptance has allowed us to be more selective about portfolio purchasing. In the quarter, we deployed $59 million on new portfolios, and Asset Acceptance deployed an additional $27 million on portfolios that we will manage after closing, bringing the total combined investment to nearly $86 million. We have spent the last few months finalizing plans for the integration. During that time, we have created a detailed work plan for each area of our business, have held joint planning sessions with key leaders of Asset Acceptance and have communicated with their employees on a regular basis. Despite the uncertainty, the Asset Acceptance team has done a fantastic job of focusing on collecting and producing results consistent with our valuation expectations. The integration is being led by one of our most experienced leaders, Ashish Masih, who has been with Encore for almost 4 years and in the financial service industry for 15 years. Ashish is particularly well suited for this transaction, given his M&A and acquisition integration experience during his time at McKinsey and Capital One. We're also relocating another executive, who has been at Encore for over a decade to Warren, Michigan, to manage their operations after the acquisition closes. As we have demonstrated with previous acquisitions of competitor inventories, Encore's deep and experienced leadership team, combined with our consumer level analytics and operational advantages, will enable us to drive strong returns on large complicated transactions. We believe this acquisition marks the beginning of a new phase in our highly fragmented industry, a phase defined by more efficient companies committed to operating ethically and treating customers with respect. As we have consistently said, success in our industry depends on 3 factors: an efficient operating platform, access to low-cost capital and a deep understanding of the financially distressed consumer. We've also said that companies that lack these factors will find it difficult to survive in this competitive environment, particularly as regulatory compliance becomes more and more complex. As we look into the future, we believe Encore's ability to expand its market share will be enhanced as consolidation continues and competition for portfolio is reduced. Turning to Propel. We continue to execute against our plan, which is 3 core elements: optimizing the tax lien transfer business in Texas, expanding the Texas model to other states and acquiring tax certificates in those states with established practices. During the quarter, we increased the book at Propel by 14%, began deploying capital on tax lien certificates in 2 states and introduced legislation in 6 states. We are excited about both the near and long-term prospects at Propel, and we expect to be able to deploy significant capital over the next few years in the tax lien space. Before I turn the call over to Paul, I want to highlight some of the things we are seeing on the regulatory front. Coming off of an election year, we anticipate there'll be a significant amount of legislative activity, and this has proven to be accurate. However, while bills have been introduced in 10 states, most have stalled, been removed from consideration or have been amended into an acceptable form. In partnership with our industry associations, our government relations team has done an excellent job of educating legislators about the existing regulatory framework and the unintended consequences for consumers from certain bills, as well as dispelling common misconceptions about the collection industry. We have received many calls on one bill in New York that recently passed the General Assembly and awaits consideration in the Senate. This bill has been introduced at least 3 other times in New York but failed to reach the governor's desk each time. And while it still has many legislative hurdles, I want to provide our insight on the proposal to shorten the statute of limitations. If the legislation passages, Encore would largely mitigate the impact through proactive account management and pricing decisions. The real impact from a bill like this would be felt by the consumers of the state of New York. Instead of being able to partner with consumers to give them time to recover and pay their bills voluntarily, collection companies will be forced to accelerate the decision to pursue litigation. The only certain outcome of this bill is that far too many individuals would find themselves with a judgment on their credit report. For this reason, Encore is working closely with legislators and key stakeholders in an effort to provide a more balanced approach. With that, I'll turn the call over to Paul, who will discuss our financial results in more detail. Paul?

Thank you, Brandon. As Brandon discussed, we had a very strong first quarter. Collections grew 17% to $270 million. Adjusted EBITDA grew 21% to $174 million, and earnings per fully diluted share adjusted for deal costs incurred during the quarter and noncash interest expense related to the convert grew 23% to a record $0.86. On the operations front, our cost-to-collect was the lowest in the company's history at 36.5%, down from 38.4%. Our efficient operating platform and low cost-to-collect were key factors in the Asset Acceptance transaction. We believe that our cost advantage will enable us to extract more value out of the Asset Acceptance portfolio than any other bidder could have. And combined with our ability to generate incremental collections, positions us to generate a strong return on this purchase and on other opportunities as we see more industry consolidation. The quarter's strong cash generation enabled us to deploy $59 million for purchases while net debt declined by $72 million. Although purchasing was lower this quarter than in comparative periods, this was a deliberate strategy in light of the Asset Acceptance acquisition. On a pro forma basis, our combined purchases for the first quarter were almost $86 million. But more importantly, when we complete the Asset Acceptance acquisition later this quarter, subject to the final purchase price allocation, it will represent the equivalent of acquiring a portfolio in excess of $400 million. As such, we expect that purchases during the second and third quarters will be less than historical levels. By the fourth quarter, we would expect to be deploying capital as we would in any other period. One of the many benefits we have created as a result of our consistent operating results is a strong partnership with our capital providers. During the past 5 years, we've been able to increase our capital commitments from about $190 million in 2007 to over $800 million. The latest increase happened today, when we closed on an additional $217.5 million in commitments and expanded the total facility to almost $1 billion. Funding the Asset Acceptance transaction will require a significant amount of capital, somewhere in the magnitude of $300 million to $350 million, depending on how many Asset Acceptance shareholders elect to take Encore's stock as part of the deal consideration. This amendment to our facility gives us the committed capital to fund the deal and pursue additional opportunities on very attractive terms. We appreciate the support of our existing bank group and welcome 3 of Asset Acceptance's lenders, RBS Citizens, The PrivateBank and Flagstar to our facility, as well as 2 new lenders, Raymond James and Torrey Pines Bank. As part of the amendment, we reloaded the accordion by $200 million, expanding the total facility to $975 million, and made certain amendments, including the ability to raise additional junior capital, as well as capital to fund our tax lien business. This access to additional capital affords Encore unparalleled flexibility to execute its strategic plans and take advantage of market opportunities even after the acquisition of Asset Acceptance. One of the metrics we monitor closely is our estimated remaining collections, or ERC. At March 31, ERC was just under $2 billion. We believe that our 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 a sustained period of over-performance. Our pro forma ERC, reflecting the acquisition of Asset Acceptance, will approach $3 billion. Taking a closer look at our collections by channel. Our call centers contributed 46.8% of total collections or $127 million for the quarter as compared to $110 million in 2012. Legal channel collections grew to $122 million in the quarter compared to $110 million last year and accounted for 45.3% of total collections. The remaining 8% of collections came primarily from collection agencies. Direct cost per dollar collected in our call centers declined to 5.7% for the quarter from 5.9% in 2012. This improvement is largely the result of collections growth from our operations center in India, which increased 12% from $59.5 million in 2012 to $66.4 million in 2013. India represented 52% of total call center collections during the quarter. Cost-to-collect in the legal channel in 2013 was 34.6%, down from 35.3% in 2012. Moving on, revenue from receivable portfolios in the quarter was $141 million, an increase of 11% over the $126 million in 2012. As a percentage of collections and excluding the effects of allowances, the revenue recognition rate was 51.7% in the first quarter, slightly lower than the 54.9% in the first quarter of 2012. During the quarter, we had $1 million in net portfolio allowance reversals compared to $373,000 of allowances in 2012. Looking at the breakdown by pool, we had $459,000 of allowances in the 2006 vintage, which were offset by $1.5 million in reversals. We had no allowances -- allowance charges for the 2009, '10, '11, '12 or '13 vintages in the quarter as has been the case since we acquired these portfolios. Revenue was impacted by the timing and volume of purchases. Since we expect to close the Asset Acceptance acquisition in June and, as a result, expect lower levels of other purchases in the second quarter, we encourage investors to look at revenue over the course of the year rather than focus on quarterly levels. The Asset Acceptance acquisition will likely cause some lumpiness to revenue and earnings this year, with the second quarter being impacted by our somewhat lower purchases year-to-date and integration expenses while the third and fourth quarter will benefit from the acquisition. Our outlook for all of 2013, excluding the impact of deals, transition and integration costs, remain consistent with prior guidance. Turning to Propel. We continue to grow the book. The balance in property tax payments receivable grew from $135 million at December 31 to nearly $154 million at the end of the first quarter. Propel continues to generate earnings for Encore, contributing $5.2 million in pretax earnings or $0.13 in EPS over the last 3 full quarters of ownership. We will provide more details on Propel at our Investor Day in June. The income tax provision in the quarter was $12.6 million, reflecting an overall tax rate of 39.3% as compared to 39.2% in the same period in 2012. Over the last few years, we focused our business on developing more insights into the financially stressed consumer, improving our marketing efforts and operational model through analytical rigor and building a superior cost-effective operating platform. These have all led to record cash flows, strengthened our balance sheet and, as I mentioned earlier, allowed us to build up a reservoir of value reflected in ERC. Before we open up the call for questions, I want to turn it over to Brandon to introduce Ken, who'll be our new CEO beginning in June. Brandon?

Thank you, Paul. It's a source of pride that with Encore's history of success, we were able to attract a new CEO of the caliber of Ken Vecchione. Many of you have seen the press release announcing his coming onboard and are aware of his extensive leadership experience at leading financial services firms. Since joining, Ken and I worked closely to ensure a seamless transition, and I look forward to the many contributions he'll make to enhance the future of Encore. Ken?

Thank you, Brandon, and good afternoon, everyone, and thanks again for joining us today. It's been a month since I joined Encore, and I can tell you that it's been extremely exciting as I've engaged with the key leaders and people of the company. It has also confirmed that I made the right choice in coming here. When I first heard about the opportunity and researched the company, I was immediately intrigued. Here was a company that was a leader in its space and had an outstanding track record of year-over-year growth across all metrics. Encore share price has increased more than 270% over the past 5 years. Adjusted EBITDA has grown 27% annually over the past 5 years. These financial results were pretty compelling. So I looked deeper at what differentiates Encore from the rest of the industry. And frankly, that's when my interest turned to excitement. Encore is the only company that puts the distressed consumer front and center to the Consumer Bill of Rights and the Consumer Credit Research Institute. This depth of knowledge and commitment to respectful consumer treatment are huge advantages, especially as the industry continues to consolidate and we find ourselves interacting with the same consumers over and over. Another key advantage is Encore's analytics strength, which allows us to buy the right portfolios at the right price, allocate accounts to the right channels and optimize our collections. Perhaps, most importantly, in speaking with Brandon, Paul and the board, it became clear that Encore has an amazingly bright talented workforce and a strong leadership team. Together, Encore's growth and financial performance, combined with its operating advantages, presented me with the opportunity to join a great company with a bright future. It was an opportunity that I couldn't pass up. For the past month, I've been immersing myself in the business, doing a lot of listening and working side-by-side on a daily basis with Paul and Brandon. I've had in-depth meetings with each of the senior leaders, been to most of the domestic sites, visited India, hosted dozens of town halls and met hundreds of employees. My early days have only reinforced my initial assessment of the company. I like the strategy and the direction of the company. I'm excited about the opportunities that lie ahead. I'm invigorated by our leadership teams, talent and skills. I look forward to working with the Encore team to drive its current strategy. Finally, I feel especially fortunate to have Brandon's partnership for such an extended period of time. I don't have to tell you how rare it is for a departing CEO to spend months working through a transition plan. Having Brandon on a 3-year consulting contract will allow me to reach out to him and solicit his council and advice as circumstances warrant. Brandon's guidance will continue to be invaluable as I engage more deeply across the business in the coming months. I look forward to meeting you all on our Investor Day in June and in the days and weeks to come. Operator, at this time, could you please open up the line for questions?

[Operator Instructions] So we will take our first question from David Scharf from JMP Securities.

A few things. First, Paul, I just want to make sure I kind of jotted this down correctly. As it relates to thinking about purchasing activity for the rest of the year, did I hear you correctly that effectively, after taking a breather in Q2 and Q3, that the fourth quarter, at that juncture, you should be deploying capital along the normal seasonal pace following the integration?

That's correct. Yes, that's correct. We will be back in the market, like we would in any typical fourth quarter at that time. And as flows come up for 2014 in Q4 and Q1, we want to make sure that we're back in the market and bidding for all those forward flows.

Okay, perfect. And a question -- staying on AACC. As we look at the merger proxy, if I looked at the analysis of ERC correctly in the proxy, it looks like it's $1.1 billion, $1.2 billion, and it looks like that's now attributable to finance receivable or the static pool of about $400 million. Is 2.5 -- it looks like it's ultimately 2.5 to 3x purchase multiple. Is that the right way of looking at this? And does it suggest that there were just some uniquely attractively priced pieces of paper in there?

So when we did our analysis of the transaction and we looked at Asset Acceptance's portfolio, our ERC from their portfolio at that time was about $1 billion. That was a couple of months ago. They've certainly collected since then. They've made additional purchases since then. So the ultimate ERC will be determined at the point where we close, when we go back and we just reassess the activity since our valuation date. But we think that the amount we'll allocate to the portfolio will be about $400 million and the ERC will be about $1 billion, give or take the activity that's taken place in the ensuing period of time. So I think the -- your assessment of a multiple of somewhere in the 2.5 range, give or take, is probably about right. Again, because lots of activity has taken place since our valuation date, it's difficult to put an exact number on it until we ultimately close and see what collections and purchasing activity have taken place over the interim.

Okay, got it. And I'm looking at my notes from the last call, when the acquisition was announced, I think at that point, I had jotted down that you thought you could get the cost-to-collect on those operations basically in line with Encore's levels within about 9 months. Is that still in a timeframe you're comfortable with?

Yes, thereabouts. I mean, we will share more information at the Investor Day around specific plans for the Asset Acceptance integration. But our goal is -- and our investment thesis was that we would be able to take Asset Acceptance's portfolio. And because of analytics that we have, collect more and reduce the cost because of the efficiencies that we've built and our ability to understand which consumers to work with and which ones where there aren't value. So our goal is to reduce the costs, and 3 quarters is probably a reasonable period of time to believe that we'll be able to get those collections to our average cost.

Okay. And just 2 more quick ones. One, is there any commentary on kind of the lower than usual yield in the quarter? I mean, we haven't seen the queue yet and kind of the vintage analysis. But I know you book things cautiously, but did anything stand out?

Nothing stands out. I mean, we do, as you stated, book things cautiously, and we'll continue to do that. We continue to do that for the most recent vintages. And as we collect and hopefully over-perform, we'll increase those yields over time as we've done in previous vintages.

I think the only I would add -- the only one I would add is that we actually had very strong collections in the quarter. And so as you know, when you outperform your curve, you have collections and collection expense but you don't have the revenue. So we also just saw very strong performance across all vintages, which we feel very good about.

Okay. So basically it's the outperformance. You keep the yield the same. You just chose not to write it up effectively, which keeps them in your back pocket for future periods. Last, and then I'll get back in line, just on the overall cost-to-collect, which was so low this quarter. It looks like some of that's just a function of legal collections being a lower part of the mix than in previous quarters and, obviously, the ongoing shift to India. But is there anything on the macro side and anything on average payment size, settlement folds, consumer behavior that's improving, or is that still all on the comp?

I think we continue to see consistent consumer performance so we didn't see a major shift. Over the -- it's our belief that over time, we've continued to get smarter and smarter about how to deploy accounts in the right channel to maximize yield and minimize cost, and I think this is just an extension of that.

And we'll take our next question from Sameer Gokhale from Janney Capital.

This is Andrew Kerai calling in for Sameer Gokhale. The one question I had for you was that if you look at the income from the tax lien, it was down modestly if you look sequential relative to Q4. I just wanted a little bit of additional color on that, kind of given that -- if you could just remind us, I believe the first half of the year is seasonally strong for that business. So just -- if you had a bit of additional color on that end.

Sure. The first part of the year is actually the point in time where we acquire new customers. The delinquent tax roll comes out in the first quarter. And so Propel spends virtually or the majority of their marketing dollars and customer acquisition dollars in the first and second quarter. So while the book has grown, expenses -- the earnings are a little bit lower because of all of the marketing expenses that we incur. So that's the typical seasonality that we see from Propel. So it's expected, it's budgeted for, and that's just how the business works.

Great, great. And then I guess I just have a follow-up as well. You mentioned you had made some marginal investments in that business. When do you, I guess, expect those to kind of materialize? I mean, is this something that we can maybe expect to see within the next 12 months or kind of more of a longer-term objective there within Propel?

So I think as with anything, we're going to ramp that up at a pace that we're comfortable with. We started small, we're investing, we're going to different geographies. But as we continue to come for it, I think you could see acceleration in that business. But we're just making sure that our models are right and our processes are set. And at that point, I think you should see an acceleration.

And we'll take our next question from Hugh Miller from Sidoti. Hugh M. Miller - Sidoti & Company, LLC: I guess I wanted to circle back with a couple of questions on the Propel business. It seems like as we look at some of the data there, and I think what the previous question was referring to was the sequential decline in net revenue, is that just a function of kind of very late in the quarter deployment of capital? The lien portfolio did expand nicely during the quarter. You had a 10% sequential decline in net revenue. I -- just wondering, is that just kind of a function of the business where the list comes out and you're kind of acquiring these portfolios very late in the quarter?

It's more so a function of the fact that you get payoffs throughout the year. And during the period of time where you're acquiring fewer consumers, the payoffs outweigh the originations, and so that obviously impacts the revenue so -- in that quarter. So as we now have built up the book and we're growing it further, you'll expect to see that reverse. So you'll see buildup of the book in the first, second, third quarter declining for the rest of the year, and the revenue will follow suit. Hugh M. Miller - Sidoti & Company, LLC: Got you. So is it kind of -- if I'm hearing you correctly, is it a function of people that you may have acquired as portfolio of -- or consumers that -- the tax lien that you acquired in the previous period finally got their tax returns, those types of things and may have paid down the liability and then throughout the latter part of the quarter, you were expanding the portfolio.

I think that's that. The other thing is just -- from a timing perspective, the delinquent tax roll comes out early February. You have lots of marketing expense in February and March, and you're booking sort of -- start to push out there. So there is also the effect you were referring to, where you have a lot of expense before you actually start booking the accounts. Hugh M. Miller - Sidoti & Company, LLC: Sure, yes. I mean, I was looking at it on the top line basis. But that also leads to my other question about the, call it, 40% increase in the cost to run the business there for Propel. What percentage of that is kind of marketing per se versus some of the costs that were just kind of from a legislative standpoint in order to kind of advance on those fronts?

The largest component of it is marketing cost, as well as during this time of year, we bring onboard a number of temporary resources because of the volumes associated with originating new tax lien transfers. So it's the salaries or the employee costs associated with the temporary resources, as well as the marketing costs. That's the bulk of the increase in expense during the quarter. Hugh M. Miller - Sidoti & Company, LLC: Okay, okay, very helpful.

But if you look at G&A, Q4 to Q1, it's basically flat. Hugh M. Miller - Sidoti & Company, LLC: Okay. And just another question, I guess on the purchasing environment you guys alluded to a touch. But are you guys kind of seeing a reduction in purchasing competition from the credit issuers being a bit more selective? I mean, you kind of gave a longer-term outlook that you feel as though it'll be a positive for you. But are you starting to see any of that currently this year?

We are. It doesn't mean there's not sufficient demand to bid on portfolios, but certainly, we're seeing people be less aggressive. We see the banks actually take a much more concerted interest in who they sell to. I don't know if we've shared this before, but I think in the first 14 years I've been here, we were never audited by a bank. And in the last 6 months, we've been audited by 3 of them. So it's certainly changed and we think it plays well into Encore's strengths, and that's why we're so bullish about the future. Hugh M. Miller - Sidoti & Company, LLC: Okay. And I didn't get the breakout of the collections as you were talking about them, but I'll get them in -- from the K tonight. But can you just talk about any influence that we did see from the kind of the tax returns being kind of a touch below what they were in the prior year? Did that really influence collections? I know they were very strong overall in the quarter, but...

It did not. Hugh M. Miller - Sidoti & Company, LLC: Okay. And the last question is do you have any insight for us on how we should be thinking about kind of the Asset Acceptance integration costs for 2Q and as we think about just for the remainder of the year?

Yes. We will provide some more details in our Investor Day. But I think what I would -- the way I would think about it is that for the first couple of quarters, the cost-to-collect on the Asset Acceptance portfolio is going to be similar to what their cost-to-collect was as a standalone business. And as we go through our plan of integrating parts of their operations into Encore, you'll see some of those costs decline. And as David had mentioned on the first series of questions, we think that within 3 quarters or so, the cost-to-collect will be about where Encore's cost-to-collect is today. So I think if you -- as you model things out, go from what would be a typical cost-to-collect for Asset Acceptance in Q2 and then you can sort of reduce that over time and get to Encore's cost-to-collect in 3-or-so quarters. Hugh M. Miller - Sidoti & Company, LLC: Got you.

And there obviously will be some other -- there'll be some other costs, deal costs and related things like that, which we'll highlight for you. But those will be nonrecurring costs, which will be just onetime that we'll incur. Hugh M. Miller - Sidoti & Company, LLC: Right. And do you have a sense of what those types of expenses will amount to?

We haven't shared those yet. We're working through all the details on that. And when we have more information to share, we'll do that. Hugh M. Miller - Sidoti & Company, LLC: Sure, okay. And sorry, one other quick question. I guess one for Ken. I was wondering with what he's seeing coming onboard right now? Other areas that he feels as though he'll be able to kind of strengthen the current executive team in areas that he finds -- he might be able to help with some improvement? Is there anything that he's noticing off the bat?

I would say what I'm pleasantly surprised about is how strong the management team is. And interesting about the team, they're a team of people that like to be a team of people. And what is really unusual is to find a lot of Type-A people that are very cooperative and that like to work together and collectively have a win. And I've been at a number of companies where that always hasn't been the case. But in my 4 weeks here, I'm very surprised about that. And right now, my goal is to work on tactics, which is to make sure the Asset Acceptance deal works well, we continue to work on our cost-to-collect and we continue to be ready for the fourth quarter to grow our purchase volume. Absent that, I think some of the bigger questions I'll deal with on Investor Day.

And our next question is from Mark Hughes from SunTrust.

Yes. What would the -- any commentary on the supply of paper or pricing in the quarter? You may have touched on this. But the -- to sort of -- you were not as active by design. But what are your observations about the flow?

The good news is we've bid on everything. We just bid to high returns than we would've otherwise. It's our observation that pricing remains at levels that it remained at from last year. It's still very competitive. Yields are down for we think most of our competitors, which bodes well for us when we think about consolidation. On the supply front, again, not a lot of change. We continue to see supply come in that we're bidding on very actively. But I would say you've got a fairly consistent picture for the fourth quarter -- the first quarter, fairly high pricing, some people stretching in places they probably shouldn't, but plenty of deals that are being bid on.

How about the re-trade?

There continue to be companies in our space who are obviously under pressure, and we continue to talk with those companies. We see deals that get done. So like we saw in 2012, there is a flow of re-trade deals. But I think again -- also competitive deals. It is the one place where we probably have an advantage, given the history of how we bought the company and our ability to integrate complicated transactions. So it's out there, but I don't think there's any real story to draw from it.

Yes. How about the value of the property tax receivable, $154 million or so, this quarter, what was it in the first quarter of last year? Do you have that handy?

I think we -- if my recollection is correct, the end of 2011 was kind of $115-ish million. So I don't know exactly what at the end of the first quarter, probably not that different, but I don't have it in front of me.

Okay. And then the interest rate that we should apply to this balance, is there -- that similar? Is that gone down with lower yield, or is that pretty steady?

It's relatively similar in the 13-ish percent range.

And our next question comes from Mike Grondahl from Piper Jaffray.

The first one, the $59 million in purchases, can you break that out between kind of credit card, telecom and bankruptcy? And then secondly, how many states besides the 2, do you think you'll be in by year end with Propel?

So I'll answer the first question, let Brandon answer the second one. It was about $15 million of telecom and the rest was credit card, really no bankruptcy of much size in the first quarter.

In terms of Propel, we're actively engaging on all of the -- all the deals that are out there. I expect we're in, I'll call it, 5-ish by the end of the year as the number out there we're actively deploying capital.

Okay, okay, 5-ish. And then maybe just lastly, any new developments or new learnings coming out of the research institute?

There are. We haven't published anything recently. But I know Chris is working on publishing a few things. So I'll actually have you sort of wait 'till those come out in print. We have partners that we work with, and I don't think they'd appreciate me telling the world what those insights are before they get to write a report and put it out there in literature.

And our next and final question at the moment comes from Andrew Kerai from Janney Capital Markets.

Actually, this is Sameer Gokhale. I think the lines got crossed earlier with Andrew. So I just have a couple of questions and comments. Firstly, Brandon, I just want to acknowledge again the terrific work you've done at Encore Capital. So congratulations to you on the great run of the company. I know you're going to be around in a consulting capacity for some time, but I just wanted to still, again, just acknowledge all the good work you've done at the company. And then the other thing I wanted to do is just to address this question to Ken. Ken, it seems like given your background, you've clearly had experienced in MBNA. You've -- you worked at Apollo, you were COO at a bank. So the question I have is after, I guess, interviewing maybe for the job at Encore and showing this amazing sort of board presentation about where you want the company to go over the next 3 to 5 years, apart from just the near-term tactical stuff, so what can you share with us as far as what you envision this company doing over the next 3 to 5 years in terms of newer businesses, newer products? Given your background, what can you share with us today?

Well, what I'm first doing is sort of listening, going around and seeing what the company strengths are and where the senior management team collectively would like to take the business. And I did not make any presentations to the board about where the Encore is going to be in 3 to 5 years. We talked about many different aspects. And you'll see some of those flow out of our conversation on June 5. So much like Brandon's conversation about the Credit Research Institute, that's what part of our conversation will be on the fifth. I've been working with the team to develop strategies and tactics, and I'll share them at that time.

Okay, that's helpful. And then just another question. Recently, there were some articles about payoff.com and your relationship with them. And it sounds like what you're doing is trying to really help your customers or your debtors rehabilitate their credit and really improve their finances and the like. And somehow, the press seemed to put that into something negative in terms of information sharing potentially by the debtors to Payoff and then that's now flowing to you. So I just want to clarify, in your arrangement with Payoff, is there any sort of arrangement where you get information about your customers that goes to Payoff that could be used in your collections effort on a customer-by-customer basis? I don't think that's the case, but I just want to get some clarifications.

Yes, there is no relationship where that happens. It's actually -- to the contrary, we set this up intentionally so that the consumers had an independent relationship with Payoff. We are literally trying to help them. And unfortunately, in America in 2013, the story that you make up is a lot better than the facts that are true, and I think that's the case here. And I know that we're disappointed in the article, but it is -- it was 100% fact sheet inaccurate.

And I'm showing no further questions at the moment. I'd like to turn it back to the hosts for any concluding remarks.

Thank you, everybody, for joining us today. You're not done with me yet. You'll be seeing me a little bit in June, but I appreciate hearing your comments and look forward to seeing everybody on June 5. Take care.

Okay, ladies and gentlemen, this does conclude your conference. You may now disconnect, and have a great day.