Good day, and welcome to the Encore Capital Group's First Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to our host today, Mr. Adam Sragovicz, Director of Finance and Treasury. Please go ahead.

Thank you, Carolina. Good afternoon, thank you for joining Encore Capital Group's First Quarter 2012 Earnings Call. As a reminder, in order to see the slides we are presenting this afternoon, please be sure to log into the webcast on the Investors section of our website, www.encorecapital.com. With me on the call today are Brandon Black, our Chief -- our President and Chief Executive Officer; and Paul Grinberg, our Chief Financial Officer. We will begin with prepared remarks, together with a slide presentation and then follow with a question-and-answer period. Given a significant number of new items, we decided to utilize the slide presentation as part of this quarter's call, which will also be available on our website following the call. Please also note that all spoken references to first quarter or Q1 will refer to the first quarter of 2012, unless otherwise stated. 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 the 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 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 financial measure contained in covenants used in our credit agreement in the evaluation of our operation 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 portfolio. We 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 other risks. As a reminder, this conference call will also be available for replay on the Investor Relations 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 and review the meaningful corporate developments. It's my hope that you'll take away 3 key points from this call: first, Encore delivered strong financial performance and record results in the quarter; second, we continue to improve and evolve our operating model to maximize returns and adjust to the constantly changing regulatory environment; and third, the meaningful corporate developments that we're announcing today are a testament to our commitment to expanding our business by leveraging our core competencies to drive future growth and shareholder value. I'm speaking with you today from the headquarters of Propel in San Antonio, Texas, and I'm thrilled to welcome the Propel employees to the Encore team. Paul is in our headquarters in San Diego, so please excuse any pauses during the question-and-answer period. This has been an important period and time for our company. And before getting started, I want to recognize and express my appreciation for our 2,600 employees around the world, whose dedication, hard work and perseverance helped make this quarter so successful. Our core business delivered strong results in the quarter. Collections reached an all-time high of $231 million, which is a 21% increase over the first quarter of 2011. We were able to produce these collections while continuing to expand our operating margin. During the quarter, our overall cost to collect decreased to 160 basis points to 38.4%. This is a significant accomplishment because these results include the continued investment that we are making in our internal legal initiative and our new operating site in Costa Rica. The growth in collections and improvement in cost to collect led to earnings per share of $0.69 was adjusted for the noncash charges related to Ascension. Adjusted…

Thank you, Brandon. As Brandon discussed, we had a very strong first quarter. Rather than going through the results in as much detail as I normally do, I will just focus on some of the highlights for the quarter and take the rest of the time to provide more detail about the 3 transactions, which Brandon mentioned. In this section, any reference to the prior year should be construed as a quarter-to-quarter comparison, unless I mention otherwise. Collections grew 21% to $231 million; adjusted EBITDA grew 23% to $143 million; and earnings per share, excluding the impact of the Ascension transaction, grew 28% to a record $0.69. On the operations front, despite the continued investment and initiatives, like internal legal and our new site in Costa Rica, our cost to collect was the lowest in the company's history at 38.4%, down from 40%. We are excited about the increased leverage, but I want to reiterate that our goal is to maximize dollars collected less dollars spent, not the ratio of dollars spent to dollars collected. As such, where we can generate incremental collections, we will do so, even when it may entail a higher average cost to collect. I also want to mention that as a result of the seasonality of our business, our cost to collect is generally the lowest during the first quarter and highest in the fourth quarter. The quarter's strong cash generation enabled us to deploy $130 million for purchases, while only increasing our debt by $9 million. After reflecting the impact of the recent amendments to our credit facility, at the end of the quarter, we had nearly $180 million of available borrowing capacity. This availability enabled us to complete the Propel acquisition, and we'll facility the large portfolio purchases that Brandon mentioned, without the…

Thanks, Paul. Encore's first quarter performance demonstrate that we are uniquely able to continue to succeed in an ever-changing business, economic and regulatory environment. Our continued focus on our core expertise around distressed consumers, strong operational capacity and legislative and regulatory expertise will help us drive future success. We are pleased to have found an opportunity to further leverage our analytics and experience with distressed consumer in our acquisition of Propel. Our strong team, disciplined approach and growing capital availability are all great news for Encore employees and shareholders. We thank you for listening, and we look forward to seeing you on our investor day in June. Operator, please open up the line for questions.

[Operator Instructions] And we have a question from the line of David Scharf with JMP Securities.

A few things, just starting on the purchase environment, I know you've provided a little commentary on Q3 being below normal. Just kind of wondering, are there any unique staffing issues related to the amount of paper you're taking on in just a 5-month period? Should there be any kind of unusual spinoff costs that might kind of depress margins a little bit in the next couple of quarters? Or is this all in kind of the regular course of business?

David, in anticipation of this transaction, we started expanding our staffing notably in India and had the good fortune of being able to adjust the work efforts for some of our employees there from lower yielding accounts onto the new portfolios. So we don't actually expect there would be a significant change, although there was certainly some staffing requirements. We also had the ability to work with the seller, who has generally had an outsource model to allow accounts from agencies for a period of time, so we recall them. But that's -- again, that's why I think we do well, and I think our team is poised to bring on this large set of portfolios on top of the prior 2 quarters in an expeditious fashion without any meaningful disruption.

Okay, that's helpful. And then turning to productivity, particularly legal. It was a dramatic decline, especially given the investments you're making. Should we interpret the -- setting aside seasonality, should we interpret this big decline in cost to collect any macro or consumer-driven factors? Or would you attribute this all to just operational improvement efficiencies?

If you go back, we made the decision 5 or 6 years ago, to really ramp up the investment in legal and those consumers who we thought could pay, but weren't engaging with us. And back then, it was more expensive. But as time has gone on, we've been able to build models that allow us to refine that process over and over. And so we think it's just 6 -- 5 or 6 years of learning. And each time around that we go around the annual process, we get better and better in what we do. So we don't think it's a macro effect. It's just really this long embedded duration of significant investment that's allowed us to bring the cost down.

Okay. So no need to kind of jump the gun and concluding anything about the consumer...

David, just I want to clarify that the internal legal costs are not included in the cost to collect for the legal operations. So they're just -- they're separated. They're disclosed in the Q separately, but they're not part of that cost to collect.

Right, right. Okay, and then lastly and then I'll get back in queue. Can you give us a little better feel for -- I know you're going to discuss Propel in more detail in the investor day, but just how these tax liens ultimately liquidate, how we ought to think about the average life of the collections on these or the workout schedules, how it relates to your core credit card receivables, and in what kind of typical purchase prices they're acquired at?

So I'll handle a part of it and I'll let Paul sort of talk about the accounting differences. But generally, the assets are acquired at par. So unlike our core business is where you're paying sort of 10 cents on the dollar. You're paying largely 100 cents on the dollar. And that's because ultimately, these liens are sort of super secured, meaning that if you're thinking about that waterfall, who gets paid first, these liens go above even the first mortgage holder. That's why it's highly liquid and also highly secured. And the way they're originated, as you buy the par from the municipality and then you ultimately get that, their right as a tax lien holder. The duration, Paul, correct me if I'm wrong, is around 3 years and the accounting is slightly different. I'll let Paul work through that.

Yes, that's right, it's about between 3 and 4 years. And effectively, they're acquired at par and then accrue an interest rate, and so the earnings are the interest that's accrued on the investment. And so the curves are flatter than our typical curves are in the core business because we're acquiring it at par and just generating a return on that investment.

And our next question is from the line of Bob Napoli with William Blair.

Question, I guess, first on -- what was the size of the 9 portfolios, the dollar amount, did you give that one? I know you said over 100, but how much over 100?

We did not give the numbers, so we're just going to go with over 100.

Okay. I guess, I mean the -- obviously, that transaction was well publicized, and there was discussion about very aggressive price expectations from the seller. Can you comment? I mean, how can you give us comfort that you were -- that the multiple you paid, the pricing you paid was reasonable? It's a big chunk of business to take on, so it's a concentration of risk from one seller. So how did you go through the pricing, and are the rumor -- I mean, the discussion of pricing in the market, are you saying that -- was that right or wrong or -- maybe give us some color on that and the returns you expect on that business? Because obviously, it was very competitive.

Well, I don't know how a competitive it was or wasn't. What I can say is the whole portfolio wasn't sold. And so what we're buying is a portion of the portfolio that meets our return thresholds. I don't know what the other parts the portfolio did or didn't trade for. What I do know is that, as I mentioned in the call, our underwriting model is perfectly suited for this kind of opportunity. The -- our ability to evaluate the collectability at the individual consumer level allows us to look at portfolios that comes from issuers in the resale market. We'll ultimately -- we don't care who owned the right before us or who underwrote it. We care whether that individual consumer can recover and repay us over time. And the greatest testament to that, I think, is if you look at our history in being profitable on 95% of your deals, I'm not sure if there's a better answer than that one, they take our operating model, our history from the fact we only bought a portion of the portfolio that met our return thresholds, should give you the confidence, and I won't comment on what other people think about it.

Do you -- I mean, do you expect the similar returns on this paper as any other paper you've been buying in the market?

Absolutely.

Okay. The -- and then on the acquisition of Propel. Interesting business, and I've looked at tax lien businesses off and on for a long time. And typically, there's been a decent amount of regulatory risk that's been associated with the tax lien industry, at least in some markets at some times. How did you get comfortable with this business from that perspective? And it's in one state, did you have discussions with regulators in the state of Texas, or I mean how did you go get comfortable with the acquisition of Propel? And was it a competitive bid?

It was not a competitive bid. It was a company that we approached. And quite frankly, we view it as having very little regulatory risk in the sense that this is a government debt. And so unless they have a challenge with their own math, you don't run it yourself in the issue of kind of its underlying data could. In this particular product, the consumer chooses the auctions. There was an auction process, and the consumer gets better terms and conditions that would otherwise. The industry in Texas was legislated into existence about 70 years ago. It was amended about 20 years ago with some different changes. So we actually believe this model is the absolute right model for consumers. We think it comes with very little regulatory or headline risks, certainly compared to our core business. And we spend a lot of time getting comfortable with that, but we really think it's an excellent product and one that consumers need.

Okay. And then the purchase price, was that -- was there book value or is that -- was it -- what was the book value of Propel? Or is the $187 million, is that all intangible?

It's not all intangible. As I mentioned, a large portion of that will be allocated to the portfolio and the rest will be goodwill and intangibles. And obviously, over time, we'll be disclosing more details on what that is.

And just last question, what's the yield on that? What kind of yield do you get on the tax lien business? What's the interest rate on the loan to the consumer?

So we're not giving that number. You could think about it in sort of the mid-teens.

And our next question is from the line of Mark Hughes with SunTrust.

What does the revenue and margin and cash collection profile of the Propel business look like? If you take your current run rate or in the last 12 months or something, just so we can get a sense of how will it look on your income statement.

Mark, we'll be providing more information about the detailed specifics on Propel when we -- some historical data when we do our 8-K filing, which will include 2011 financial data for Propel. So we'll be doing that. We'll be filing our 8-K within 75 days or so of the closing of the acquisition. So we'll provide more information then. And obviously, as we close out our Q2 earnings, and it's part of that, we'll be providing additional data then.

Okay. How much of -- or how applicable is this business to other markets? Because obviously, in Texas, it sounds like it's pretty idiosyncratic for that state. Is it legal elsewhere? Is the hope to make it -- make legislative changes so it is something you can spread to other states?

Well we actually think about this acquisition as the entry into the tax lien market. We're doing it through, we think, it's one of the best platforms you could find. The actual product they work on today is exclusive to Texas, although, we believe that it's got the opportunity to go more broadly. But the company, we think about this as a 28-state, $10 billion market that we're sort of starting, getting a toe-hold in Texas. But we expect that, over time, to grow either by expansion of this product or by outright tax lien acquisitions over the next few years.

Yes, were they capital constrained in Texas? Were there still attractive investments they could have made it if they had more capital?

Well what I will say is the combined penetration of all the participants in the space is less than 20%. And so we think there's a significant amount of opportunity that can penetrate this consumer base. Just quite frankly, there isn't anybody who has a delinquent tax lien that shouldn't take this product. Just given the rate and fee structure of the -- what they'll get through the governmental entities. And our job is to help them with the analytics and the marketing to really grow and penetrate that other 80%. But we think there's significant growth opportunities just in Texas.

Right. Paul, you mentioned some good puts and takes here in terms of outlook, we've obviously got accretion from Propel and selling off Ascension and these portfolio purchases. You also mentioned investments in legal. Can you give us some body language on how does that shake out relative to -- you've been going along at a pretty good clip in terms of growth, EPS in the last year in the low 20s, this is obviously better than that. What can you tell us about how this all impacts the bottom line?

I think we've always said that our goal is to continue growing the business at rates where we've been growing at historically. And I think this will be one of the things that will be part of that growth.

Right. Now you're putting a lot of capital to work. One would hope if you do put that amount of capital that it would make the business grow faster. Would we be -- would that be too optimistic?

Well, I think since we've said this will be accretive to earnings, so we'll clearly grow faster than had we not done it.

[Operator Instructions] And our next question is from the line of Adam Letson with Piper Jaffray.

Just quickly to make sure I heard correctly, the Propel deal closed yesterday. And then, Paul, if you could walk through just the deal charges again, and then potentially kind of what you think the magnitude of accretion is.

Yes, we haven't shared what the magnitude of accretion is. So there's nothing there. In this quarter, there was about $0.01 of deal cost, which I didn't mention. But there was about $0.01 of deal cost in Q1. For Q2, we expect to have about $0.12 in deal cost.

And it did close yesterday.

Great. Just one quick follow-up on the pricing environment. Clearly, the purchases you made this quarter were a bit more expensive than last year. Purchasing the large portfolio, next quarter, is there -- if you can just give a little bit more color as to kind of how the pricing is working out relative to this quarter, that'd be helpful.

So it's our belief that the pricing continues to bend off slightly quarter-to-quarter, although, the advancements in pricing have slowed down pretty meaningfully from what was occurring in 2011. So we see pricing going up a little bit. And I just think our ability to purchase is a function of both the gross liquidation we're able to give, which we think is industry-leading. But now with our cost down where they are, that just allows us to be significantly more competitive than many of the people we compete with. And that's what we built the company for. So while we see a little bit of price increases, we've been able to moderate that with improvements in our operating platform.

And our next question is from the line of Hugh Miller with Sidoti.

Had a question, you guys have referenced kind of a mid-teens interest rate for the Propel business. I was wondering, is that the rate that the government's charging or that's the rate that you guys would be receiving after you've taken on the business?

The government actually charges a higher rate than that. So that would be our rate.

Okay. And as you look at that business and the returns on invested capital relative to the debt buying business, how do they compare?

On a risk-adjusted basis, we think they compare very favorably with our core business.

Okay. So one could say though that you view the Propel business as a lower risk business. Correct?

That's correct.

Okay. So risk adjusted is the same -- all right, that makes sense. And I guess as you -- as I look at the productivity, you guys referenced obviously some of the improvements you've made in productivity on the legal side. But it's also look like cash collections per hour paid, it was up materially on a year-over-year basis as well, in the north of 20%. I was wondering if you could talk about the drivers of that, and if it's primarily seasoning of some of the collectors, or have you noticed any difference in average payment size on a year-over-year basis?

So we think a big part of it is the seasoning of the account managers, especially in India, as we highlighted going back a couple of years now that as we bring on significant number of new employees, it takes them about a year to get up to curve. And Manu, if you have seen him over there, he's done a fantastic job of growing that workforce, and that's a big part of it. I also think we're getting better on the marketing direct mail side, which drove significant returns in the quarter. So it's a combination of those 2.

Okay. And any color you can provide on the average payment size? Is that -- any trends you're noticing their relative to last year in the first quarter?

Yes, we've seen a pretty flat average payment size for the last few years and no discernible trends in the first quarter.

Okay. And you guys also referenced in the third quarter that you'd anticipate seeing kind of the less-than-normal buying activity if you guys to swallow the deal activity in the first half of the year. Can you just -- can you give us a sense on how meaningful that reduction is probably likely to be? [Audio Gap]

On our forecast for purchasing for the year.

And our next question is from the line of Mark Hughes with SunTrust. Please go ahead.

Paul, just so I understand. Could you walk me through how the cash flow works on -- you make an investment, say, $100 in the tax lien business. It sounds like you're buying it at par, you're then charging the consumer 15% interest rate. I presume you're recognizing that as revenue. Could you give me just a little more detail, you spent $100, how does it come back to you with a good return?

Through Propel, we would enter into something similar to an amortizing loan with a consumer where, say, if we lent $100 and it paid, as using your example here, 15%. And if it was a 5-year term, there would be a monthly payment that they would pay every month, which includes both principal and interest and it would amortize the loan in the example over that 5 years. And there are no prepayment penalties, so while the terms are typically longer, the average life is 3 to 4 years because there are prepayments.

And do you always buy it at par?

Yes.

And so whatever the losses may be are just factored into the interest rate that you charge?

Historically, there have been no losses.

Right, so everybody pays?

That's correct.

It's the big daddy gov is backing you up, right? Okay, well that's -- can you say what Propel -- their revenue growth in 2011, what it was over 2010. Historically, what kind of cyclical impact of this business? Are cities more likely to -- I don't know whether they persuade or are happier to have you step in or more consumers are delinquent in bad economies, and so therefore when we -- if we do get in a recovery, that could have some influence on the business. Could you -- again, what was the growth last year and what kind of cyclicality does the business have?

I'll address the cyclicality. I actually believe this has been a growing market over -- if you go back through time, we think any reduction, any one geography will be offset by growth in the new geographies. So it's our belief we'll continue to do that. We also think that this consumer-friendly product of having the consumer ultimately choose it rather than having imposed on them is a better solution. And we think more and more localities will come around to believing that this is a better product than holding on themselves or selling it in some way. If you think about what fund's most municipal budgets, it's the taxes on real estate. And so we think if anything there'd be more people selling given the shortfall in many budgets, not fewer.

How do your analytics help in this case? Is it determining whether you accept the consumers if they choose this? Is it a underwriting process where you accept or reject or your interest rate adjusts depending on the individual? How does that work?

I think you described it largely. I think it's understanding the population of consumers who are eligible, if you define a set of people and creating offers and opportunities for them at the individual level. And what we bring to the table is the ability to really understand and analyze that consumer rather than just a property. And so it's in the combination of consumer analytics and the real estate knowledge that Propel has is one advantage. The second is our deep ability to think about how they market to these consumers. And then we think our servicing platform will be able to help them in building other avenues in areas like telemarketing where not much is done today. So there's a broad number of areas, and we'll go through all of the synergies as we see them when we get to the June meeting.

And we have a follow-up question from the line of Bob Napoli with William Blair.

On the legal side, the reduction in the fees that you paid to the attorneys, how is that sustained -- I guess, is that sustainable? I mean you had a pretty big drop in legal costs. The costs that we see this quarter, as a percentage of the legal collections, is that sustainable? A pretty big drop percentage-wise. I'm trying to understand how that happened and if it's sustainable?

Yes, so, I mean a lot of it happened because of what Brandon described, which is being more sophisticated around which consumers we use this strategy with. And so, it is sustainable, but I'll say one thing though, that if we're able to identify another group of consumers where we can spend a little more and generate incremental collection dollars, we will do that. So our goal isn't to minimize the cost per dollar collection, it's to maximize with dollars -- collection of dollars spent. So based upon the pool that we collected from this quarter, clearly, it's sustainable. But we keep identifying new pools of consumers. And so, there may be increases in the future, depending upon whether we can generate incremental dollars or not.

So the decrease in the commission rate, is that -- I mean, is that happening across the industry or is it because you're giving so much volume to the attorneys?

This is less about the actual commission rate. It's more around -- our cost are both the commissions we pay the law firms as well as the unsuccessful use of court costs, and we see here today, maybe for reduction in the, I call them, wasted court costs over time.

Okay, interesting. And then in portfolio purchases, I kind of missed what you said about third quarter purchases.

I said that they will be lower than our -- significantly lower than what we typically spend in the third quarter, as we digest the significant volume of purchases we've had in Q4, Q1, and what we're anticipating in Q2.

Are you seeing less -- I mean obviously you're significant competitor has signed their portfolio, you're buying a part of it. Are you seeing any new players -- private equity-backed players or anything? I mean there's been pretty big, I guess, mergers of the industry into a handful of, say, larger players. And are there new players coming up? Are there less bidders now for portfolios than you've seen over the last 10 years?

So we're seeing meaningfully fewer bidders when you contrast it over history. In the near term, I think what you're saying is it's getting harder and harder and harder for the small- and medium-sized companies to compete just because they don't have the access to capital or the operating platform or the analytics or the technology. Our belief is every time the industry will consolidate into a few significant meaningful players, and it will be hard for a private equity leg firm to come into business and make it work.

And then just last question on the tax lien business, I mean it sounds like the metrics that you put out, it sounds awful attractive, 0 losses, 15 mid-teens yields and it still -- it improves the lot of the consumer. Sounds like a great business. What is the competitive environment like? And it seems like a kind of business that would attract a lot of competition. What is the barrier to entry? What does your company do that builds a barrier to competition? What is unique about Propel?

It's unique in many ways. One, it's clearly the market leader and it's one that has 3 -- have sort of branched in a couple of different directions. It's got one set of offices that has storefronts that address populations in a more face-to-face interaction. It's got direct marketing arm. It's now got 5 years worth of history. It isn't just something you come in to start sending letters around the people. I think getting access to capital is challenging as well. So we think the history that they have, the fact that they've been able to build multiple distribution channels for the product, the fact that they've been dedicated and thinking about it in an analytic lens and then our access to capital is what's going to keep it from having a lot of people come in. There are competitors in this space. There's more than a handful. But Propel has just driven a better model, and that's why we approached them late last year. We thought that they were the best-in-class and we'd be able to really take advantage of it.

And then we have a follow-up from the line of David Scharf with JMP Securities.

Two things. One on the purchasing side, obviously we heard about the Q3 reduction as you front-end loaded so much buying with these large acquisitions. I don't know if you purposely omitted Q4, but should we see a return to normal, say, by the end of the year? Or do we kind of consider this to be sort of 2012's budget pretty much nailed down by June?

As Paul alluded to, we have more distinct guidance, but we expect the majority of the pause could be through the third quarter and then a higher level of purchasing in the fourth quarter. We'll try to give you more specific detail in June.

Okay, that's actually helpful. And then just a couple of follow-ons on the tax lien. I've heard you mentioned no losses. Is there a -- it's a super secured lien, is there actually a foreclosure element to this type of product that you have to outsource, just kind of at a little bit of a loss to kind of grasp the concept of 0% losses on these assets.

It starts with positive selection from the consumer. Again, the consumer opts in to get that -- you are able to segment the whole universe of people into those who positively select in versus not. Ultimately, if it's not paid by the consumer, the next likely party to pay it is the first mortgage holder who oftentimes -- or the vast majority of times, will pay off the delinquent tax liens that rolled into their obligation. And about 1%, I've said 1% of the cases, there is a foreclosure element to it.

It's about half -- less than half of a percent of foreclosure instance.

And we have a follow-up question from the line of Hugh Miller with Sidoti.

Actually, you guys delved into the questions I had about the competitive environment and the differentiations between Propel and other companies. Just I guess, 2 quick follow-ups, is just one, you talked about how the penetration rate within Texas is extremely low at this point. But is it still somewhat competitive that everyone is kind of chasing after the same pool group of assets to the consumers to do business with. And the other question is just if you talked about expansion into other states as a possibility, would that be done via an acquisition of another firm or do you feel as though the knowledge that Propel has here could then be used organically to grow into other states?

So the first question, the universe of people that you can market this product is finite. It's published by the state. And so, you do have each group deciding of that population who they're willing to target, based on their risk tolerance. We think we're able to broaden that universe with our consumer level analytics. And then if we think a lot of it is education in the marketing angle and that's what we're going to focus on. But we think there is finite -- we can't create an increment of people and what our job is going to be to figure out how to partner with the team down here to penetrate the 80% that's not been penetrated. In terms of our growth strategy, we think about the team down here is being repeatedly used to drive into other geographies. It doesn't mean we won't add industry expertise or geographic expertise. But our platform will be the Propel platform.

And our next question is a follow-up from the line of Mark Hughes with SunTrust.

The company has been in business for 5 years. Is there any potential for some kind of tail risk or there's still some early loans that are still in the books, haven't been repaid that, again, 0-loss number is a very good number. Is there some reason to think that -- decent life, but not too long of a life of the company might not reflect some additional risks.

So the answer is, we believe, no. The part of the reason why we haven't talked about it thus far is we probably -- we hope to get details in the June 6 meeting, but I appreciate the questions. The LTV of many of these loans, if you ever think about it that way is, the underwriting is about 5%. So you're talking about just a dramatic difference between the value of the property and the actual lien amount. And so even the older vintages, we think are the most valuable ones, those are the consumers who have been paying for 5 years. So in the sense that so when you get late in the tail, some of you were the most committed, you're probably most at risk early on when somebody takes on the transfer. But ultimately, doesn't start paying right out of the gate. So we don't believe there's any tail risk.

This concludes the Q&A portion of today's conference call. Thank you for your participation in the Encore Capital Group's First Quarter 2012 Earnings Conference Call. This does conclude the program, and you may now disconnect. Thank you, and have a wonderful day.