Encore Capital Group, Inc. (ECPG) Q2 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Encore Capital Group Second Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would like to now introduce your host for today's conference, Bruce Thomas, Vice President of Investor Relations for Encore. Sir, you may begin your conference.

Thank you, operator. Good afternoon, and welcome to Encore Capital Group's Second Quarter 2014 Earnings Call. With me on the call today are Ken Vecchione, our President and Chief Executive Officer; and Paul Grinberg, our Executive Vice President and Chief Financial Officer. Ken and Paul will make prepared remarks and then we'll be happy 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 2014 and the second quarter of 2013. Today's discussion will include forward-looking statements subject to risks and uncertainties. Actual results could differ materially from these forward-looking statements. Please refer to our SEC filings and especially our most recent Form 10-K, for a detailed discussion of potential risks. During this call, we will use rounding and abbreviations for the sake of brevity. We will also be discussing non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are included in our earnings release, which was filed on Form 8-K earlier today. As a reminder, this conference call will also be made available for replay on the Investors section of our website, where we will also post our prepared remarks following the conclusion of this call. With that, let me turn the call over to Ken Vecchione, our President and Chief Executive Officer.

Thank you, Bruce. And good afternoon. I appreciate everyone joining us for a discussion of our second quarter results. Encore had a terrific quarter. With GAAP EPS rising to $0.86 per share compared to $0.44 per share on the second quarter of 2013. Excluding onetime expenses and convertible noncash interest, non-GAAP economic EPS was a record $1.10 per share compared to $0.85 per share, an increase of 29% from the second quarter of 2013. Cash collections increased 47% to a record $409 million. This substantial increase was driven primarily by our acquisitions of Cabot and Marlin. Adjusted EBITDA was $256 million, an increase of 48%. Our overall cost-to-collect this quarter was 37.9%, reflecting the favorable impact of Cabot in our results this year. Our estimated remaining collections, or ERC, at June 30 was approximately $4.9 billion, an increase of $2.2 billion from the same quarter a year ago. During the quarter, we deployed $328 million, $162 million of which was in our core business in the U.S. Q2 was a record quarter for Propel, which deployed $102 million. We also deployed a significant amount of capital in the U.K. in what is typically a slow quarter for purchases. We believe that our purchasing mix underlines the strength of our worldwide platform and confirms our thesis of geographic and asset class diversification. It also demonstrates that we're able to deploy capital profitably even as the U.S. market is challenged by historically low levels of charge-offs and the current absence from the market of a couple of large issuers. Outside of the U.S., we are deploying capital in accordance with our business plans. We now have multiple asset classes and geographies from which we can choose to deploy our capital. I'd like to take a few minutes now to provide our review of the landscape of the U.S. market and how it affects our future strategy. Over the past couple of years, we supply -- the supply of charged-off debt has declined as issuers have decreased their loan portfolios, and the customers have made good progress in repairing their personal balance sheets. During that same period of time, the universe of debt buyers has become more -- has become much smaller as regulators had been increasing their oversight of both the banking and debt collection industries, which has increased the cost of compliance making it very challenging for companies without substantial scale to operate as profitably as they had historically. This consolidation trend has continued with the announcement earlier today of our acquisition of one our important competitors, which I'll talk about in more detail in a few minutes. Despite the consolidation, pricing has been elevated coming into 2014. However, starting in Q1 and continuing into Q2, pricing has remained steady and, in some recent portfolios, has declined modestly. While it's too early to call this a trend, the recent increase in card issuances, the market consolidation and the eventual return of 2 large issuers to the market at some point, should all help future pricing dynamics. In anticipation of the supply-demand imbalance, we put in place a growth strategy, which I shared with you in detail at our Investor Day in New York a couple of months ago. That strategy has 3 components: maintaining the core and growing our subsidiaries; investing in attractive adjacencies, such as international markets and other asset classes; and exploring business model expansion opportunities. Maintaining the core and growing our subsidiaries is the first component of our strategy. As you saw from the previous chart, the supply and demand dynamics in our core business have changed over time and will continue to do so. Our job is to effectively navigate through these cycles. The U.S. market has been and will always be an important part of our success. Throughout these cycles, we have made significant investments in analytics, technology, risk management and compliance, which have enabled us to deploy a meaningful amount of capital in this market. This is demonstrated by our strong purchase volumes in this quarter. We will continue to invest in our core so that we are optimally positioned to capitalize on opportunities as the supply-demand dynamics begin to shift back in our favor. But to achieve our growth, we cannot limit ourselves to one geography over our core, which is why the second leg of our growth strategy involves the expansion to new geographies and asset classes. We shared with you at our Investor Day the specifics of our acquisitions of Cabot, Marlin, Grove and Refinancia, as well as our emerging debt buying business in India. Some of these businesses are strong contributors to our earnings today while others won't contribute meaningfully until 2015 or beyond. Keep in mind, we will have the opportunity with each of them to increase our ownership in the future and, with that, their contributions to our earnings. The third component of our growth strategy, business model expansion, is where we are working to leverage some of our core competencies and other areas. When these become meaningful, we will share them with you. In line with the first component of our growth strategy, we just completed the acquisition of a leader in the market for acquiring freshly charged-off portfolio, Atlantic Credit & Finance. With this transaction comes a portfolio with approximately $275 million in ERC and a platform that specializes in acquiring and collecting on higher-balance fresh paper. The transaction as many benefits, of which I will highlight 2. First, it expands our expertise to a market segment in which Encore has not historically had a significant footprint. Our specialization has always been on collecting older and lower-balanced paper. And while we were successful in buying some fresh paper from issuers, our win rate was not as strong in a fresher, high-balanced segment as it was in other areas. With Atlantic's expertise and track record in this segment, we believe that we will have the opportunity to deploy more capital going forward. Second, this transaction will serve to satisfy a large portion of our capital deployment for 2014. We've known the management team at Atlantic for a long time and have great respect for the operation and its productivity. We have also found Atlantic to be a company that shares our commitment to treating consumers fairly and respectfully, which is critical to our business' success. Encore has been acquiring portfolios from Atlantic for many years, so we feel very comfortable with our evaluation, and we're very excited to be in working closely with the Atlantic team. Please note that we expect to incur $3 million to $5 million in onetime charges associated with deal costs and streamlining redundant processes in the second half of the year. Turning to our subsidiaries, we are pleased with Cabot's financial performance. Cabot's EPS contribution was $0.19 this quarter, in line with our business plans but slightly below the $0.21 they delivered in Q1 due to the Marlin acquisition. We expect a meaningful uplift to Cabot's ERC related to the Marlin litigation strategy and capabilities. As we finalize our analysis around these improvements in the coming months, we expect to be able to increase IRRs on Cabot's pool groups. And as a result, Cabot's result next quarter should return to Q1 levels. Cabot deployed GBP 250 million or roughly $410 million in the first half of 2014 and now has grown their ERC to over GBP 1.5 billion or almost $2.4 billion. From an operational perspective, Cabot India continues to exceed expectations regarding the quantity and quality of collections. Propel had a very strong quarter as well. During our Q1 earnings call, we announced Propel's acquisition of a nationwide tax lien portfolio and servicing platform from a national acquirer delinquent tax liens. That transaction expanded Propel's operational footprint from 11 states to 22 states, increasing our ability to deploy capital in this asset class. In fact, between this portfolio and others acquired during the quarter, Propel deployed over $100 million in the seasonally strong second quarter. We continue to leverage Encore's analytical strength and our Costa Rica call center to enhance Propel's operations. In addition, we expect that the recent securitization of Propel's Texas assets and the subsequent lowering of our cost of capital will further improve Propel's contributions to earning going forward. Before I turn the call over to Paul, I'd like to mention that in addition to our earnings announcement and the Atlantic acquisition, we also announced today that Mike Monaco has joined our Board of Directors. Mike is a fantastic addition to our board. He's a seasoned executive with more than 30 years of experience in finance and management, and I am delighted that he'll be joining us to help guide Encore into the future. With that, I'll turn it over to Paul who'll go through the financial results in more detail. Paul?

Thank you, Ken. As Ken discussed, we had an extremely productive second quarter reflecting strong performance from our core business, and our recent acquisitions continue to deliver solid contributions to our bottom line. Before I go into our financial results in detail, I would just like to remind you that as required by U.S. GAAP, we are showing 100% of Cabot, Grove and Refinancia's results on our financial statements. Where indicated, we will adjust the numbers to account for our noncontrolling interests. We generated $409 million of collections in the second quarter, representing the highest single quarter of collections in our company's history. This performance reflects the steady execution of our collections operation and, in particular, the growth of our operations outside of the U.S. Nearly 1/4 of our total collections, $97 million, were generated from accounts in the U.K. For the quarter, our call centers contributed 47% of total collections or $192 million compared to $117 million in Q2 of 2013. Legal channel collections accounted for 41% of total collections and grew to $168 million in the second quarter compared to $134 million in 2013. Collection agencies accounted for 12% of total collections and grew to $49 million in the second quarter compared to $28 million in 2013. Keep in mind that for some of Cabot's purchases, we are contractually required to keep accounts with certain collection agencies for a period of time. When excluding the collections made by agencies on behalf of Cabot, only 5% of collections in the quarter came from third-party collection agencies. For the quarter, revenue was $269 million, an increase of 72% over the $156 million of revenue in the second quarter of 2013. With regard to our revenue from receivable portfolios as a percentage of collections and excluding the effects of allowance reversals, our revenue recognition rate was 59.8% compared to 53.3% in Q2 of 2013. This increase was the result of the higher returns associated with our business in the U.K. For the quarter, we had $3.4 million of allowance reversals, the majority of which were 0 basis allowance reversals compared to $3.7 million of allowance reversals in Q2 of 2013. We had no portfolio allowances in the quarter. As many of you know, once we have evidenced a sustained overperformance in a pool, we will increase that pool's yield. Consistent with this practice and as a result of continued overperformance primarily in the 2009 through 2013 vintages, we increase yields in those pool groups this quarter. Turning to cost-to-collect. Excluding acquisition-related and other onetime costs, our overall cost-to-collect for the second quarter was 37.9%. Breaking the overall cost-to-collect into its components, Cabot's cost-to-collect in the quarter continues to trend lower than our overall average at approximately 30% due to the fact that Cabot's portfolio primarily consists of consumers who are already on payment plans and involves very little litigation. Even though the addition of Marlin has marginally increased Cabot's cost-to-collect due to its litigation focus, we expect that, over time, Cabot's investment in Marlin will drive incremental net collections and a higher overall return. Within our U.S. business, direct cost per dollar collected in our call centers was 6.4% in Q2 versus 6.1% last year. This was the result of increased costs associated with Asset Acceptance business. Direct cost per dollar collected in the domestic legal channel was 35.8%, down from 36.8% in Q2 of 2013. 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 for dollar invested. We accomplished that by generating more gross dollars collected per investment dollar, for what we believe to be the industry's lowest cost per dollar collected. Our legal channel, which includes both legal outsourcing and our internal legal operations in the United States, continues to contribute meaningfully both in terms of dollars collected and cost-to-collect. Total dollars collected in our legal outsourcing channel was $126 million at a cost-to-collect of 34.7%, the same percentage as last year. In Q2, we collected $30 million in our internal legal channel at a cost-to-collect of 40.3%, and we expect that to decline further as we place more volume in this channel. We continue to break out our legal cost-to-collect between our external and internal legal channels in our 10-Q to provide more visibility into our operations. 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 we are owed. We not only believe that this is the right thing to do for our consumers but the right thing to do for our business. For Encore, legal action is always the last resort and is pursued only after numerous attempts to communicate and reach an acceptable agreement with a consumer. As mentioned earlier, collections reached another all-time high in the second quarter. This growth in collections led to improved cash flows with second quarter adjusted EBITDA increasing 48% over last year to $256 million. As investors who are familiar with Encore know, adjusted EBITDA is one of the most important ways that we measure our company's operating performance. It helps us determine amounts available for future purchases, capital expenditures, debt service and taxes, and it gives investors a clear picture of the strong cash flow generated by our business. Our estimated remaining collections, or ERC, at the end of the second quarter was $4.9 million, an increase of 79% over last year. This increase was driven primarily by the acquisitions of Cabot and Marlin. We believe that our ERC, which reflects the value of portfolios the we have already acquired 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 overperformance. To fully understand our overall results, there were certain onetime and noncash items that affected our results of this quarter: $0.06 were related to the noncash interest in issuance cost associated with our convertible notes; and $0.14 were related to onetime acquisition and integration cost for a total of $0.20 per share; after adjusting for these, we end up with $1.06 per fully diluted share and $1.10 on a non-GAAP economic basis. In calculating our EPS on a non-GAAP economic basis, we exclude those shares associated with our convertible debt that are reflected in our EPS denominator from an accounting perspective but which will not be issued as a result of the cost spread we entered into of the time we issued the convert. For Q2, there are approximately 1 million shares included in the calculation of GAAP EPS, which will not increase the number of outstanding shares as a result of the cost spread. During the quarter, we made progress on the $50 million share repurchase plan authorized by the board. We purchased about 400,000 shares at an average price of $42 a share. Going forward, our plan is to continue to execute on the program, and at a minimum, we intend to make sure that we cover any from employee equity grants. Finally, you'll see in our filings that we've amended the terms of our revolving credit facility in the U.S. to provide ourselves with some additional flexibility to invest in our subsidiaries and to facilitate our acquisition of Atlantic. We appreciate the cooperation of our banking partners led by SunTrust and Bank of America in making this happen. With that, I'd like to turn it back over to Ken for his closing comments.

Thanks, Paul. The Encore team has delivered another solid performance in Q2, and we're looking forward to more business opportunities and other important developments during the balance of 2014. As you can see from our continued progress on the acquisition front and in our capital deployment, we continue to broaden our capabilities, keeping our understanding of our own and of new markets and are evolving into an increasingly diverse international specialty finance company. Through our operational execution, we are providing ourselves with the flexibility to enter new markets and geographies, and position ourselves to navigate the challenging market dynamics. Finally, I'd like to acknowledge the hard work and dedication of the people of Encore and recognize their efforts in the considerable reshaping of our company that we've accomplished together. Thank you, all, for taking the time to join us today. And operator, if you'd open up the line for some questions.

[Operator Instructions] Our first question comes from Sameer Gokhale.

So I had a few questions. The first one was about Atlantic Credit & Finance. So it seems like part of the rationale for the acquisition was increasing your win rate as it relates to fresh paper. But is there any other benefit you can get from this acquisition in terms of data and the like or do you feel do you have that -- I'm trying to figure out, other than the portfolio itself and the relationships that might help you win a -- get a higher win rate, is there any other transfer of data or synergies that could made to be a little more accretive than otherwise would have been?

I think the benefits are: we gained ERC; we gained a higher win rate; we were able to buy fresh paper that we, heretofore, haven't been able to buy; we get a very talented collection group and center in Roanoke, Virginia, which will help us; and then there are also some expense synergies around the edges that we'll take advantage of.

Okay. And so in terms of -- if I just do some rough math, I mean, is it reasonable to think that this acquisition could be accretive to EPS annually by a run rate of around $0.40 or so per share? Is that like a reasonable rough estimate?

It is accretive to EPS. It's going to be a part of what we look to achieve for in 2015. And it was sort of embedded in our goals for 2014.

Okay, all right. So then, the other question I had is -- and I might have missed it in your comments. But the -- when I look at your expenses, your operating expenses, and I strip out the onetimers, it looks like the OpEx was flat compared to Q1. So that was a bit surprising to me. I was just curious. I don't know if you went over it in your comments but if you could just clarify that again, that'd be helpful. Because you did acquired Grove as well, so I thought you have some additional expenses.

Yes, Grove is very small, Sameer. So Grove has a dozen or so employees, so it really doesn't add much to our overall expense base.

Okay. But then if I look at your -- so your cash flow statement and I look at cash flow for acquisitions for the 6 months versus the year-to-date -- the 3 months, it looks like roughly seeing about -- you paid about $45 million or so for Grove, is that right? Or is there something else in that line item for Q2?

Included in the acquisitions is Grove, which is much, much smaller than that. And then also the nationwide tax lien business that we -- that Propel acquired. So that's included in that number.

Okay. That's what I was missing. And then if you wouldn't mind, just my last question was, you, Ken, were talking about Cabot and something that depressed the results in Q2, it sounded like relative to Q1, and you've assumed a normal trajectory again back in Q3. Would you mind just discussing that again? Because I missed it.

Yes, so we bought Marlin at the very tail end of Q1. And in Q2, we're still working on our synergy strategies where we're able to apply the Marlin litigation scorecard to the Cabot back book. And we said this in our Investor Day, as well, that we think that there's over 100,000 accounts that we could apply that litigation scorecard to that will produce incremental ERC. And we started that operation at the very end of Q1; continued it through Q2. And in Q3, you'll begin to see it pay some dividends. And therefore, that's why we said that Q3's Cabot EPS will be back to the level of Q1 or, if not, greater.

So as we pay for those accounts -- those incremental accounts through the additional channel that we have, it will generate more ERC, which will, again, reflected in our results and, therefore, increase the IRR on those pool groups that, that ERC relates to. So the additional earnings will come from higher IRRs on the Cabot's pool groups.

Our next question comes from David Scharf.

A few questions here. First, Ken, you're -- well, you're not the first recovery company this week to comment that there seem to be signs of stabilization in pricing and maybe some early signs that supply may be improving here in the U.S. Can you talk about what you're seeing in terms of just over all collectibility? And I mean, are you noticing any changes relative to the first half of the year in consumer health liquidations?

No, I would say they're roughly the same; not much of a change there at all.

Okay, fair enough. And then, switching to the acquisition. Historically -- I mean, you've always had some exposure to fresh receivables. But I'm just curious, when you think about where your internal scoring and credit analytics are, did this acquisition give you, in your mind, the tools that you need to compete and call it a new world order? Particularly if regulators and banks ultimately put most of the resale market to bed for the future.

Well, I mean, one of the reasons for the -- I think Atlantic sold was because of some of the resale procedures that a lot of the banks are putting into place, i.e. you can't resell. So their strategy was originally to -- they were very, very good in the front end. They were be able to the consumer. They were able to get their payments rather quickly. And for those accounts that they weren't able to gain any traction to, they sold. So what we've done here is taken the best of both worlds. We let them handle the high, fresh, balanced paper, get what they can. And then internally transfer, if you will, to the traditional Encore call centers to continue with the collection process. And by putting both of those things together, we wind up having higher IRRs on the portfolios that will buy going forward.

Got it, okay. And I just wanted to clarify your comments. The acquisition of Atlantic, the portfolio that you acquired, that's included in the Investor Day $500 million to $600 million of U.S. capital deployment? That was already contemplated?

Yes, it was.

Okay. And I know we have the ERC, the $275 million. Is there an NFR balance?

We're in the process of doing our purchase price allocation, so we haven't finalized that yet. But it's likely to be somewhere in the $130 million to $140 million range. We'll finalize it. Since the accounts are largely fresh accounts, the multiples tend to be lower than older accounts and the cost-to-collect tends to be lower than older accounts.

Our next question comes from Mark Hughes with SunTrust.

The internal legal collection seems to be moderating the last few quarters. Will that pick back up?

So we're -- we continue to put more through that channel. A lot of our focus in internal legal over the last 2 or 3 quarters has been in integrating what Asset Acceptance had and what Encore had. So our focus has been there. Now that we've largely completed the integration, the focus will be on expanding and growing the channel. So it's not going to -- we're going to continue to use both internal, as well as external legal as part of our strategy. Internal legal will grow, but it's certainly not going to grow at the same rate as it did early on.

Okay. Can you talk about the organic growth at Propel? You did a large transaction in the period. How about the underlying business? How did it do?

The underlying business did fine. There are 2 parts of the business: there's the TLT business, which is in Texas; and the TLC business, which are purchases in other states. The second quarter, there was one large state that usually goes to market in the second quarter. And that state did, and we got our fair representation of that market share of what that state sold. In Texas, there's still good organic growth. And we would expect to win our fair share of the organic growth going forward. But much like the NPL business, we also see some opportunities for consolidation. So I would think going forward, you'll still see the same combination of both organic growth and, potentially, some acquisitions going forward over the next year.

In the U.K., there have been some industry forecast for double-digit growth in supply in 2014 and still a healthy growth in '15. Overall, would -- how would you compare what you see now with those earlier forecasts?

Yes, on Investor Day, we said primarily, the organic growth was going to be about 9% per year, and we saw that going out for a couple of years. And right now, we have no reason to change that. We also said that we thought that we'd be able to take advantage of some consolidation there, as well. There are a number of companies that are in the process or rumored to be coming to market, and we hope to have our fair amount of wins when it comes to those companies to be acquired. So again, much like the U.S., we plan to -- we hope to do well organically, and we hope to have our fair share of wins when it comes to the acquisitions.

And Mark, the -- our capital deployment in the first half of the year, Cabot of about $200 million just shows that, that market is strong and there's lots of opportunity.

[Operator Instructions] Our next question comes from Fin O'Shea with Raymond James.

On the opening comments, did you say the eventual return of 2 larger players?

We hope one day they'll return. We don't see either one returning in 2014 but probably somewhere in 2015, we hope. And we're just trying to give you some overview that, hopefully, when they return with less competitors out there, more supply, that the pricing dynamics will shift back into the favor of the debt purchasers.

Yes. So I take it that implies that one of them is out of the picture for good?

No, I didn't say that at all. I just said when they return.

Okay. And regarding the OCC rules published earlier this week, what's your understanding of banks in general, their level of compliance with these guidelines?

The banks got on top of this rather early with the debt sales, best practices that was issued in July of 2013. And I think we said in our Q1 call, we probably had somewhere between 11 and 13 issuer audits in the fourth quarter of 2013 with all those issuers really adhering to sort of the debt sales best practices. So I would think that's there's going to be very little change to those banks as they continue to go forward with their sales activity and as they continue to come in and do their annual issuer reviews of us.

Okay. And just one more. I have -- on the P&L, it looks like compensation and G&A have ticked up a little bit relatively. Is there anything you can add there? Any color on that?

Compensation and G&A have definitely ticked up relative to -- because of the transactions we've been doing and the new businesses that we've been acquiring, so we have additional headcount associated with that. We continue to make investments in things like compliance. But we are absorbed, as we mentioned, when we talked about our overall cost-to-collect, we're able to absorb those costs through efficiencies in our operations. So while we continue to make investments on our people, we cover those costs through improvements in operations and efficiencies.

Our next question comes from Bob Napoli. Robert P. Napoli - William Blair & Company L.L.C., Research Division: And I'm sorry, I missed some of the opening comments. But -- so just a question on the Atlantic capital acquisition. Within that press release, you say the transitional was served to satisfy a large portion of Encore's capital deployment for 2014. Does that mean you're not going to buy as much in the back half of the year, and that was part of their purchases? Or that there's just not as much in the market? What were you -- what was that statement meant to?

It was meant to give you some color against the target that we set out, which was $500 million to $600 million for the year. It was to indicate that we are well on track to make that $600 million goal. And we see decent flow coming at us. But this also gives us the opportunity to pick and choose on the deals we like. And we make sure we get the right returns, and we don't have to stretch on price. So it provides us with some optionality as well. But we wanted to make sure that we gave you some guidance a couple of months ago -- I guess, June 5 thereabout, and want to let you know that we're on track to that guidance.

And we saw plenty of capital still within the market for deals with the right returns. Robert P. Napoli - William Blair & Company L.L.C., Research Division: Okay. And you did say that you've seen one large institution come back into the market?

No, I didn't say that.

You said that, not me. Nice try. Robert P. Napoli - William Blair & Company L.L.C., Research Division: But 2 are out. And you said 2 large ones are still out. And I guess the...

[indiscernible] the other large ones, never, Bob.

We're not commenting on it.

We particularly sure. Robert P. Napoli - William Blair & Company L.L.C., Research Division: Okay, play. Let's see. The Grove acquisition, what types of originations -- and I think you had laid out something in your Investor Day, but any additional thoughts on the growth business on the size of that market, and what was Grove originating? Or what would you expect them to originate?

Yes, so Kevin Fuller, who's the CEO of Grove, mentioned on Investor Day, he thought the size of that market was about $150 million, $160 million a year. He also said it was back-weighted, which is what we're seeing. We already have 4 deals inked for the third quarter. And we kind of gave guidance of around $50 million for the full year of growth. And so we would expect, obviously, most of that to come between now and the end of the year. Robert P. Napoli - William Blair & Company L.L.C., Research Division: Okay. And then average deal sizes in that business are -- I mean, how fragmented are the purchases?

You know what? There -- we did one that was very small, and we've got some very large ones we're looking at. And so there's no average size on that. They're all over the map. Robert P. Napoli - William Blair & Company L.L.C., Research Division: And then, did you give any comments on India on your partnership and your outlook for partnership there?

No, we didn't say anything. We're still in the process. We're working through it. And I would say that we kind of picked the time frame of end of Q1 2015 to be ready. But I think, I was pretty clear on Investor Day, and I said this to Manu Rikhye, who's running the show there, that I'd rather be 6 months late and be absolutely perfect than to be a couple of months early and not get it right. So if we get it ready and we get going at the end of the first quarter, great. If it takes a little while longer, then I'm fine with that as well. Again, they have $35 billion in charge-off receivables sitting on their books and another $35 billion in restructured debt on all the bank books. Being late a little bit will not hurt us at all. Robert P. Napoli - William Blair & Company L.L.C., Research Division: So it's not like a question of if-if, it's when?

We're working out the deal arrangements with our partners, and it's a different structure there. We can only own 50%. We have to bring in other partners, and we have to negotiate with each partner. So it takes a little longer than we would like, but we'll get through it. Robert P. Napoli - William Blair & Company L.L.C., Research Division: And then Latin America, any -- did you purchase much in the second quarter?

We purchased $4 million. Again, we said our goal was $40 million for the full year. We did one the other day we just got awarded. And so I think we're pretty much running very close to the $40 million right now. Robert P. Napoli - William Blair & Company L.L.C., Research Division: And are you seeing returns consistent with our expectations there?

Yes, yes. The returns in all our markets are the highest in Colombia and Peru. Robert P. Napoli - William Blair & Company L.L.C., Research Division: Okay. And then the -- I guess, pan-European or looking outside of the U.K. or do you have interest or other opportunities on the M&A side outside of the U.K. that you're looking at? Is that a high priority at this point or not?

Well, I'll give you 2 parts of that answer. First, we feel very strong about the U.S. and the U.K. market, and to grow our market share there as rapidly as we can and to also be a consolidator of other companies there. And right now, that's panning out exactly as we anticipated. As it relates to other M&A activity, Bob, we have -- we probably have no less than 4 deals, 5 deals going on at any time in various stages. And one will drop off for a variety of reasons and one will pop back on. So we're active-looking at Europe, we're active-looking other places, as well. And we sit down in investment committee, and what Paul and I try to do best is make sure the allocation of capital is correct. And we'll go where the highest returns are. Robert P. Napoli - William Blair & Company L.L.C., Research Division: And then, that OCC, that report that came out this week, it didn't have say anything about international collections? And I think the last one did. Is that have -- and I know there were a couple of banks that were requiring domestic collections. Has that changed with that OCC paper?

No, I was silent on that. And I think we told you, for us, that's really old news. But I think it was around the second quarter 2013 or the third quarter, we told you that we'd be ready to handle any bank that wanted to have us collect onshore versus offshore. And we're positioned to do just that. But we -- that activity or that conversation has really died down and we haven't heard any chatter about that since the middle of last year.

Our next question comes from Mike Grondahl with Piper Jaffray.

What type of competition do you see when you're looking at, or purchasing, a deal like Atlantic? And then secondly, could you just talk about your return hurdle for acquisitions and how you think about that versus sort of purchasing charge-off paper in your core market?

Yes. The Atlantic deal came to us just through our relationship with Atlantic, which we've known a long time. It started at a dinner pre-Thanksgiving with me and their CEO. And it was never a bidding process. It was always a very friendly negotiation, where they wanted to sell to us, and we wanted to buy them. And those are the best deals that we have. And we get a lot of those deals, and we really excel at those deals. So that was the Atlantic deal. Regarding general returns. Yes, we would say that we would like the returns on acquisitions to be higher than those of just portfolios. They are bigger in size. They sometimes include a platform, and they may or may not include us going into a different country that we want to get compensated for. So once again, back to what we do in the investment committee, we look for the appropriate returns and appropriate risk-reward structure. And we would look for acquisitions that have higher IRRs than portfolio purchases.

And our next question comes from David Scharf with JMP Securities.

Just had a few more quick ones. I guess, we couldn't wait for the Q to come out. But Paul, do you have the monthly yield for Q2?

The multiple?

The yield? I believe it was 4.1% last quarter on a monthly basis for revenue recognition.

Well, I will pull it up right now as we are talking. So why don't...

And while you're looking, is there any update coming out of New York state from all that chatter a quarter or so ago with the Chief Judge and efforts to kind of implement different processes for filing suits? Does anything ever get resolved or moved forward on that front?

Nothing came out yet. Many folks had an opportunity to put in their comments. And we would anticipate this is our guess, that something towards the end of the summer but we don't know. So far, it's been quiet since the judge made those comments.

Okay, got it. And back to Atlantic, can you give us a sense for -- I think you said it was about $130 million, $140 million NFR. But how active have they been the last couple of years?

They're pretty active. But they had certain liquidity constraints. So they would come in, they would buy up to their liquidity constraints, they worked their portfolios, then they would resell them. And then, again, create liquidity, and then go back into the market. So they always were at a -- they were a steady purchaser and they were in or out depending on the amount of liquidity they had at that time and how they were performing with the portfolios that they just recently purchased.

Got it, got it. Okay. So since they were an active reseller, I'm just -- I mean, did they -- you may have mentioned, I mean, but do they have substantial in-house collection facilities now? Is it something you would immediately absorb into excess capacity you have here domestically?

Yes, We're probably getting somewhere in the neighborhood of about 120-odd account managers, and they will all stay in Roanoke. And they provide us with additional capacity. We also expect to be able to increase our win rate, as I said earlier, on the fresh balance portfolios as well. So we should keep them pretty well occupied.

Got it, got it. And then lastly -- and just to be clear, I guess on the purchase side, I mean, will you be active in the third quarter? I mean, when we think about modeling the balance of the year, it sounds like this $130 million, $140 million, was embedded in your guidance from a month ago. So that'll hit Q3. Will there be substantially more activity in Q3 or are you going to kind of just wait until the end of the year?

No, we're going to be active for the rest -- from now through the end of the year. But we're also going to be prudent. So we're not going to chase deals but I must've looked at 3 or 4 deals just today alone. So we're busy. If there's market out there to get, market share to get and we can win it and when there's that reasonable IRR, we will be in that market. And we will be going at it.

Okay. And then lastly, just making the resale point, I mean, the OCC, obviously -- going back to their guidelines last summer and their rules pretty much this week just rubber stamps the guidelines from a year ago. I mean, they didn't forbid resales. It looks like they just kind of raised the bar in terms of how diligent the paper trail has to be every time paper is sold from one entity to another. Just in conversations with the banks, I mean, are you getting any sense that they may reconsider in the future? Just trying to understand that this core competency of yours whether -- as we look out 12, 24 months from now, whether we may be back to the way things used to be.

I'm going to guess here, but I don't think they're going to reconsider. I just think they moved to these sets of rules recently. I do think they're going to reverse themselves. And I think it takes risk away from them by preventing reselling. And I think, my guess is, if I was on their side of the ledger. I would stick with it and not make any changes.

David, the numbers you're looking for: monthly IRRs for the U.S. is 5%, this is as of June 30; for the U.K., it's 2.3%; and blended, it's 3.6%.

Okay, sir, I'm showing no...

Well, we thank you, all, very much for joining us. We look forward to talking to you at the end of our third quarter, and have a nice day, everyone. Thank you.