Good day, ladies and gentlemen, and welcome to the Encore Capital Group Announces Fourth Quarter and Full Year 2011 Financial Results Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Adam Sragovicz. Please go ahead.

Thank you, Patrick. Good afternoon, and welcome to Encore Capital Group's Fourth Quarter and Full Year 2011 Earnings Call. With me on the call today are Brandon Black, our President and Chief Executive Officer; and Paul Grinberg, our Executive Vice President and Chief Financial Officer. Brandon and Paul will make prepared remarks and then follow with a question-and-answer period. Before we begin, we have a few housekeeping items to take care of. Throughout this conference call, we will use forward-looking statements, including predictions, expectations, estimates or other information that might be considered forward-looking. While these forward-looking statements represent our current judgment, these statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements being made today. As a result, we caution you against placing undue reliance on these forward-looking statements, which speak only as of the date they are made. We will also use rounding and abbreviation in our conference call for the sake of brevity. For more detailed numbers and explanations, please refer to our Form 10-K that was filed today with the SEC. We will also be referencing both GAAP and non-GAAP financial results. We believe certain non-GAAP financial measures provide useful information about our business. However, the presentation of this additional information should not be considered an alternative to, or more meaningful than, our results prepared in accordance with GAAP. Management utilizes adjusted EBITDA, which is similar to a financial measure contained in covenants used in our credit 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 the liquidation of our receivable portfolios. The included information concerning adjusted operating expenses, excluding stock-based compensation expense and bankruptcy servicing operating expenses, 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 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, for a more complete discussion of these factors and risks. As a reminder, this conference call will also be 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 President and Chief Executive Officer.

Thank you, Adam, and good afternoon, everyone. I appreciate you joining us for a discussion of Encore's results for the fourth quarter and full year 2011. Before beginning, I would like to recognize and thank Encore's 2,200 employees for a fantastic quarter and a record year. Our results are a direct reflection of their collective effort and I appreciate all of their hard work. Throughout 2011, the company was able to produce consistently strong results, with contributions coming from all of our collection channels. We have achieved these results while investing in areas we believe will provide long-term strategic advantages and build upon our industry-leading debt purchasing and recovery platform. Our deliberate and disciplined approach to portfolio underwriting and management led to record earnings, collection and operating cash flow for the fourth quarter and the year. Cash collections for the quarter were $186 million, which is a 25% increase over the fourth quarter of 2010. Looking at consumer behavior, we saw payer rates and payment sizes remain consistent as compared to prior periods. These strong collections were the result of our ability to identify and engage with those consumers with the greatest likelihood of recovery, even in this seasonally weak collection period. When compared to the same period last year, our overall cost to collect in the fourth quarter decreased 30 basis points to 44.1%. This decrease reflects savings from various operational strategies, which were partially offset by investments in our internal legal initiative, the ramp-up of our new operating site in Costa Rica and additional spending required to manage the changing regulatory and legislative environment. The success of our business has allowed us to increase both our domestic and international headcounts. We are pleased that we have continued to hire here in the United States during a time of…

Thank you, Brandon. As Brandon discussed, we had a very strong 2011. Collections reached an all-time high for a fourth quarter and the continuing advancements in our operating platform give us confidence in our ability to expand on the operating leverage created over the past few years. We generated earnings of $0.67 per fully diluted share during the quarter, an increase of 20% over the fourth quarter of 2010. For 2011, we generated earnings of $2.37 per share, an increase of 22% over 2010. Adjusted EBITDA, which represents the cash we generate that is available for future purchases, capital expenditures, debt service and taxes, was $105 million in the fourth quarter, an increase of 25% compared to the fourth quarter of 2010. The strong cash flow allowed us to fund a significant portion of our portfolio acquisitions during the quarter. In fact, our debt levels at year end increased by only $3.7 million from the prior year, despite purchases of over $380 million. As a result of our strong financial performance, we have kept borrowing costs at the lowest rate tier possible under the terms of our credit facility. Our overall cost to collect decreased 150 basis points to 42.2% in 2011, down significantly from 43.7% in 2010. We achieved these results even as we made investments to expand our internal legal channel and launch our new operation center in Costa Rica. As I've mentioned previously, our goal is to maximize dollars collected less dollars spent, not minimize the ratio of dollars spent to dollars collected, and where we can generate incremental collections, we will do so even when it may entail a slightly higher cost to collect. Overall, we expect our cost to collect to continually improve but it will fluctuate from quarter-to-quarter based on seasonality, the level of…

Thank you, Paul. Encore's fourth quarter and full year performance were highlighted by record-setting cash collections and our continued deployment of capital at strong returns. Our proactive approach in engaging regulators and our new operating initiatives are paving the way for stable growth in an uncertain and changing macro economic environment. Encore's key differentiators were at work in the fourth quarter and we expect they will continue to be key drivers in the growth of cash flows and year-over-year earnings. With that, we will be happy to answer any questions you may have. Operator, please open up the line for questions.

[Operator Instructions] Our first question comes from Hugh Miller from Sidoti.

I had, I guess, a housekeeping question first to start off. One was, with regards to the tax rate, I guess, coming in a bit lighter than, I think, what you guys have been talking about previously. I was kind of wondering what was driving the rate and how we should be thinking about that as we head into 2012?

The rate in 2012 will be about 39%, Hugh. And from quarter-to-quarter, it does vary based upon timing and differences between permanent and nonpermanent tax adjustments. So it's really -- from quarter-to-quarter, it's going to vary, but for the year, it should be about 39%.

Okay, great. It looks like, I guess, within the headcount for the offshore call center in India, on an end-of-period basis, you actually had a decline from the end of period of the third quarter. I was wondering, I guess, if you can talk a bit about that and how we should be thinking about headcount in 2012?

I think, if anything, it's the timing of hiring class more than anything else. You should expect continued growth of headcount in India in 2012.

Okay. So is it just a matter of maybe attrition and the timing of when you guys will be doing more hiring?

That's right. Someone could have got hired the last day of the third quarter and started their work in the fourth quarter. I don't have the exact numbers in front of you, but I don't think it signals any trend. You should just expect continued growth into 2012.

Okay. And have attrition rates kind of varied at all? I know we talked a bit about that at the beginning of the year, but have those trends changed at all over the course of 2011 in offshore?

They have not. We have consistent year-over-year attrition, almost identical 2010 and 2011.

Okay. And another thing, I guess on the collections, zero-based collections exceptionally strong in the fourth quarter on both an absolute basis and as a percentage of collections. I wanted to, I guess, get a sense of kind of what's driving that? Is it a function of just you being so conservative and not moving up the yields or improvements to the models or adjustments to strategies? Any color there?

There are a couple of things here. One is, as you mentioned, the conservatism, which has led to certain pool groups going ZBA. There's also, we did have a pool group in 2007 which performed exceptionally well and actually fully amortized recently, and that's generated an increase in the ZBA collections. And so we would expect that trend to continue because of that pool group now being included in ZBA collections.

Okay. And I realize that you typically, during the Analyst Day, give us a purchasing goal for the year with a tangible figure. But as you look out at the trends that you're seeing, you commented a bit about pricing and areas there, but are you guys anticipating that you will show growth in 2012 on the purchasing front relative to 2011?

Certainly, our goal is to grow purchasing and our target to give more definitive guidance will be around the Investor Day as well. As we say here today, our plan will be disclosed, our targets, at the June 6 meeting.

Okay. And the last question I have was just, if you could talk to us about -- you did give us color about working with legislation in order to draft stuff that's thoughtful. I guess, as you're seeing commentary from the CFPB, I was wondering if you could give us a sense of your expectations about working with them and what changes you could foresee coming to the business down the pike?

We've had a lot of conversations with the CFPB. It has not led to any clear goals on their part. Most of it is them asking us questions, and us answering it in a constructive way. I believe the collection industry being an industry that they are spending time and focus on at some point in 2012. So I can't give you any specificity other than I think they're having a very open and constructive dialogue with industry leaders, and I hope our input will be factored in if they think about any changes.

Your next question comes from Mike Grondahl from Piper Jaffray.

Can you maybe just give a little bit greater description of the competitive environment, kind of what you're seeing there today and maybe what your expectations are for the first 6 months of 2012? And maybe specifically, as it relates to fresh credit card paper? And then also just kind of your early take on how your telecom initiative is going. It looks like it got up to be about 10% of purchases by the end of the year.

Sure, Mike. I think on the competitive side, what we do see is we don't see a lot of new entrants -- or any new entrants in the space. And if anything, I believe 2012 may be a year where we see some shrinking of competition. To be successful in our industry today you've got to have an advantage somewhere, whether that's an information advantage, an operating advantage, operating cost advantage or a cost of funds advantage. If you think about the smaller, middle-market firms, it's just going to be difficult for them to attain any of those. And as the environment gets more competitive, we think the larger companies are best positioned to take advantage of whatever portfolio may become available, whether that be fresh or otherwise. So I expect 2012 is actually a year of net decrease in demand, and you'll see more of the large players acquiring the volume that's available just because we have scale, we have lower operating costs and we have lower cost of capital. I think that would apply to a fresh portfolio or aged portfolio. I don't think you'll see much change there. On the telecom front, we signaled this obviously in June. We've been investing in this asset class now for many years. We've accelerated our purchasing in the fourth quarter, which is just more a function of the cultivation of some new relationships, but continue to believe this is an asset class that many can't compete in. Some may try and not actually appreciate the cash flow dynamics or the cost dynamics, but we think over the long-haul, this is an asset class that we're uniquely positioned to buy the vast majority of what gets sold.

Got you. And then just lastly for Paul, was the $1.6 million in kind of internal legal channel investment, was that really the only kind of unique investment or charge in the quarter, Paul, that we should back out or think about?

That was the most meaningful one in the quarter as it relates to comparisons from Q4 of 2011 to Q4 of 2010. There are obviously some smaller ones but that was the most meaningful one.

[Operator Instructions] We have a question from Edward Hemmelgarn from Shaker Investments.

You mentioned, Paul, you think, and Brandon, that you think there may be less competition next year. Do you have any thoughts that anyone -- there may be any portfolios available for sale from the existing collectors, that somebody may go out of business or something?

We would expect there to be supply of portfolio from -- anyone who's an established player or maybe their inability to deploy capital gets -- their ability to deploy capital gets constrained, we would expect them to consider selling their portfolio. We've seen some of that. We participated in some of that. And that's what gives us the confidence that, that's likely to continue throughout the year.

Our next question comes from Hugh Miller from Sidoti.

I just had one follow-up question, more an overview. I know that you guys have considered geographic expansion as a part of your strategy longer-term. I was wondering, could you talk to us just a little bit about the nuance differences in kind of looking at the U.K. and Australia relative to the U.S. and how that differs?

Well, it continues to be something that we believe is part of Encore's destiny. We see all the transactions that are prospective transactions. We certainly haven't found one yet that meets our financial and operational goals, but we think ultimately, over time, we'll do something. The differences are largely around the laws that govern the collections industry and how you go about collecting in those environments. And we've spent now it feels like 2 or 3 years studying that and we think we have a pretty good handle on what that would look like. We think we can leverage our India call center in either geography. So it's just making sure we get aligned -- a transaction which would produce the right financial returns and be the right entry point for us. We expect that to happen, I guess, at some point in our history.

Okay. And is the underwriting substantially different? You were talking about just from a collections standpoint and different laws and those types of things, but do you see kind of the modeling of the underwriting being dramatically different than the way that you go about underwriting here in the U.S.?

I think we would continue to do a consumer-based underwriting, underwriting approach. What differs is the data that it's available at the time of purchase. So you have to customize your models to adjust for the data that's available, but we would still take the exact same approach. We'd build -- likely build unique models for those geographies. And as a result, would probably want to -- if we were to enter one of them, likely acquire an established large debt purchaser, which would give us all the history we need to build the models.

And we currently show no other questions in queue.

Thank you, everybody, for your time today and look forward to speaking with you at the first quarter earnings release.

Ladies and gentlemen, thank you for participating in today's program. This concludes the program. You may all disconnect.