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EX-99.1 - EXHIBIT 99.1 - ASTA FUNDING INC | c04583exv99w1.htm |
Exhibit 99.2
Transcript of Asta Funding, Inc 3rd Quarter and Nine Months ended June 30, 2010
Conference Call
Operator: Good morning. My name is Rob [sp], and Ill be your conference operator today.
At this time, I would like to welcome everyone to the Asta Funding Incorporated Conference
Call for the Third Quarter and Nine Months Results for the period ended June 30th, 2010.
All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question-and-answer session.
If you would like to ask a question during this time, simply press star then the number one on
your telephone keypad.
Thank you.
On our call today is Mr. Gary Stern, Chairman and Chief Executive Officer, and Mr. Bob Michel,
Chief Financial Officer.
Before our host, Gary Stern, discusses the Companys current results, let me take a few
minutes to read the following statements.
Except for historical information contained herein, the matters set forth in the conference
call are forward-looking statements.
Although Asta Funding believes the expectations reflected in such forward-looking statements
are based upon reasonable assumptions, there could be no assurance that these expectations will be
realized.
Forward-looking statements involve certain risks and uncertainties that could cause actual
results to diverge materially from Asta Fundings expectations.
Factors that could contribute to such differences include the affect of the economy on
collections and on the performance of third-party collection agencies, judgments involved in
assessing portfolio performances, impairments, the Companys ability to fund the future portfolio
purchases, expectations with respect to future cashflow from operations and those factors
identified in our Form 10-K for the fiscal year ended September 30th, 2009, and from
time to time in our other filings with the Securities and Exchange Commission.
Asta Fundings reports with the U.S. Securities and Exchange Commission are available free of
charge through its website at www.astafunding.com.
Now, let me turn the call over to Gary Stern.
Mr. Gary Stern: Thank you.
Good morning, everyone, and thank you for joining todays conference call.
We are pleased to report continued profitability in the third quarter of fiscal year 2010 for
Asta, in which we reported net income of $3.1 million, as compared to $1.5 million, which we
reported for the third quarter of fiscal year 2009.
We received the previously announced $52.7 million federal tax income refund during the third
quarter of fiscal year 2010, which puts us in an excellent position to fund investments in the
distressed receivable portfolios area and other investment opportunities without the reliance on
third-party financing.
Our cash and cash equivalent position at June 30th, 2010, was $78 million. And as
of today we have approximately $82 million.
We continue to pay careful attention to cost management.
Expenses, including interest expense and excluding impairments, decreased $1.5 million, or
18.9 percent, in the third quarter of fiscal year 2010 as compared to the third quarter of fiscal
year 2009.
Notably, there were no impairments in the third quarter or the nine-month period ended June
30th, 2010.
We attribute this positive news to our efforts over the past year to take into consideration
the effects of the challenging economy and adjusting our portfolios to their net realizable values.
In addition, our zero-basis revenue remained relatively strong at $9.2 million for the third
quarter of fiscal year 2010, down from the prior fiscal year. However, an increase of
approximately $1 million, almost 10 percent, over the second quarter of this fiscal year.
Again, our intent is to remain opportunistic, but very selective at the same time, with our
portfolio acquisitions in 2010. Although our portfolio purchases have been limited, we believe
this is the right approach in the still-challenging economic environment.
However, on a positive note, recently we were successful in a bid and are currently finalizing
the details of an $80 million face value portfolio, which we will close on shortly.
Overall, it was a solid quarter that positioned Asta well for the future.
Now, Id like to turn to call over to Bob Michel, who will provide some additional details on
the financial results.
Mr. Bob Michel: Thank you, Gary. Good morning.
For the three months ended June 30th, 2010, we reported net income of $3,121,000 or 21 cents
per diluted share. This compares to a net income of 1,478,000, or 10 cents per diluted share, for
the same period last year.
Net income for the nine-month period ended June 30th, 2010, was $8,471,000, or 58 cents per
diluted share, as compared to a net loss of $11,527,000, or 81 cents per share for the same period
last year.
The Company reported total revenues in the third quarter of 2010 of $12,083,000 as compared to
$17,238,000 for the third quarter of fiscal 2009.
Third quarter revenue was up over the second quarter, as revenue from fully-amortized
portfolios increased in the third quarter of 2010, as compared to the second quarter of 2010.
Total revenue for the nine-month period ended June 30th, 2010, was $34,294,000 as compared to
total revenues of $53,812,000 for the same period a year ago.
This reduction in revenue is a result of lower level of purchases over the last two years and
a number of our portfolios that are in the later stages of their yield curves.
Net cash collections of consumer receivables acquired for liquidation, including net cash
collections represented by account sales for the third quarter of fiscal 2010, were $25,769,000 as
compared to net cash collections, including net cash collections
represented by account sales of 37,621,000 during the second quarter of fiscal year 2009.
Net collections represented by account sales was not material in the third quarter of 2010,
and net collections represented by account sales were $1,195,000 during the third quarter of 2009.
Net cash collections of consumer receivables acquired for liquidation in the nine-month period
ended June 30th, 2010, were 80,886,000, including $3,177,000 represented by account sales, as
compared to $78,963,000, including 7,842,000 represented by account sales in the same period the
prior year.
Finance income during the third quarter of 2010 from fully-amortized portfolios was $9.2
million as compared to 10.5 million in the same period a year ago.
Finance income during the nine-month period ended June 30th, 2010, from fully-amortized
portfolios was 25.6 million as compared to 31.1 million during the nine-month period ended June
30th, 2009.
Uh, we invested approximately 3.4 million for the nine months ended June 30th, 2010, with a
face value of 155.7 million, as compared to investing 16.5 million with a face value of 427 million
in the nine-month period ended June 30th, 2009.
In addition, as Gary previously mentioned, the Companys finalizing the purchase of an $80
million face value portfolio of distressed receivables. We should close shortly.
General and administrative expenses for the third quarter of fiscal year 2010 were $5,836,000,
as compared to $6,634,000 during the third quarter of fiscal year 2009 or 12 percent lower than the
same period a year ago.
General and administrative expenses for the nine-nine month ended June 30th, 2010, were
$16,739,000, as compared to $20,006,000 in the prior year.
Expenses were lower this year due to the closure of the Pennsylvania Call Center in February
2009 and a discontinuation of the $275,000 monthly consulting and skip tracing fee, which ended May
of 2009 pertaining to the large portfolio purchase from 2007 and overall cost containment efforts
throughout the organization.
With regard to the cost containment efforts, we recently renewed our lease at the New Jersey
location with approximately 17 percent initial annual savings.
And Gary previously mentioned, there were no impairments in the third quarter and nine-month
period ended June 30th, 2010, as compared to 6,364,000 and 46,208,000 reported during the third
quarter and nine-month periods, respectively, ended June 30th, 2009.
As of June 30th, 2009, the close of our third fiscal quarter, the balance of our $6 million
senior facility was zero. And after paying down this facility in January of 2010, the facility has
not been utilized.
In addition, we currently have approximately 82 million in cash and cash equivalents, which
includes the receipt of the $52.7 million federal tax refund at the end of the third quarter.
We continue to make our payments on the subordinated debt, with a balance on the facility of
93.5 million as of June 30th, 2010.
We continue our discussions with the Bank of Montreal regarding this facility and hope to come
to an agreement well before
the April 2011 maturity date.
The Companys book value per share, as of June 30th, was $11.43.
And that concludes my remarks for the financial results.
Ill turn the call back to Gary.
Mr. Gary Stern: Thank you, Bob.
Now, wed like to take questions.
Operator: Thank you.
At this time, ladies and gentlemen, if you would like to ask a question, please press star-one
on your telephone keypad.
We will be accepting one question per participant.
And then, press start once again for a follow-up question.
We will pause for just a moment to compile the Q&A roster.
Again, ladies and gentlemen, if you would like to ask a question, please press star-one on
your telephone keypad.
Thank you.
Our first question is from Sameer Gokhale with Keefe, Bruyette Woods [sic].
Mr. Sameer Gokhale: Uh, just a couple of quick ones.
Uh, first, some housekeeping questions.
Uh, in terms of your carrying value of the Great Seneca portfolio, wheres that at the end of
the quarter?
Mr. Bob Michel: At the end of the quarter, the book value of the Great Seneca portfolio was
108 million.
Mr. Sameer Gokhale: Thank you.
And then, uh, what were the net cash collections from that portfolio during the quarter?
Mr. Gary Stern: Cash collections for the quarter.
Mr. Bob Michel: Hold on, Sameer.
Mr. Sameer Gokhale: Okay.
Mr. Bob Michel: [Unintelligible.] Uh, collections for the quarter were 4.4 million.
Mr. Sameer Gokhale: Four point four. Thank you.
And then, you know, just the, uhthe other question I had was, you know, Im trying to figure
out how to think about the, uh, accounting, uh, because, you know, youve begun to mention the,
uhdisclose the amount for your zero-basis collections.
But, I know some of your, uhyour peers in the industry have been booking reversals and
impairment charges that were previously taken. And the thinking is that you reverse those out to
the extent youve taken the impairment charges.
And then, over and above that, uh, then you start recognizing some additional revenue oruh,
justif you could shed some light on how youre thinking about the reversal of impairment charges
relative to your zero-basis revenues that youre booking, uh, and did you have new reversals this
quarter?
Mr. Bob Michel: We have not any reversals of impairments. And, I mean, that is, athat is a
method of accounting to, uh,
work with. We have not, uh, done that in this fiscal year.
Mr. Sameer Gokhale: So, uh, the way youre doing the accounting is basicallywe should just
anticipate that, you know, you would not have the reversals. You would just book whatever cash
that comes in straight into revenue as zero-basis collections going forward. Is that the way to
think about it?
Mr. Bob Michel: Yes. We werejust work theour portfolio down to zero basis.
Mr. Sameer Gokhale: Okay. Um, okay. Thats great. Thank you.
Mr. Gary Stern: Thank you.
Operator: Our next question is from the line of Gregg Hillman with First Wilshire.
Please proceed with your question.
Mr. Gregg Hillman: Um, yeah, Gary, could you help us, um, you know, think about what the, um,
you knowI guess the intrinsic value or the, uhthe market value of the entire, uh, portfolios is
at this point and whether youve seen any, you know, portfolio sales with judgments on them
recently and what?
Mr. Gary Stern: Uh, we.
Mr. Gregg Hillman: Theyve been?
Mr. Gary Stern: We have not seen any sale of portfolio judgments. We have not gone to market
to sell portfolio judgments.
Um, the resale market is not great, and our strategy has been to maximize recovery on
judgments through asset searches. And asyou all know that, basically, the, uh, refinancing
market is not great, so we dont see that many refinances where there are payoffs as weve had, you
know, in the past when the economy is better.
Soand the bag of the portfolio were not going to comment on. We feel its fairly reflected
on our balance sheet, and there is a significant amount to zero basis, uh, as you can see.
Mr. Gregg Hillman: Um, Gary, do you think the judgments are fairly reflected on your balance
sheet?
Mr. Gary Stern: Absolutely. Everything on our balance sheet is fairly reflected.
Mr. Bob Michel: Wellthis is Bob. Just keep in mindI mean, we arewe have our portfolio
at that cost. So, the netuh, the value of the portfolio with the judgments is higher than we
have on the books, but, thatagain, our [inaudible] value is cost basis.
Mr. Gregg Hillman: Right.
Uh, thatGary, thats what Im trying to get at, you know, the actual, you know, value of the
judgments, whether its, you know, 20 cents on the dollar or whatever. Isdo you have reason to
believe that the value of a judgment has gone up recentlyyou know?
Mr. Gary Stern: No.
Mr. Gregg Hillman: Having a judgment?
Mr. Gary Stern: Its very hard to say. Were not going to comment on the value of judgments.
We certainlyyou know, we can say that as the economy improves at some point, when it
improves or if it improves, uh, and
the real estate market improves, theoretically the judgment value should go up because of the,
you know, extra value that we have on houses where we have REITs.
So, were not going to comment on what the value is.
Mr. Gregg Hillman: Okay.
And then, Gary, in the past you bought, uh, I believe, paper from, uh, retailers that have
gone bankrupt. Um, is there a market for that today?
Mr. Gary Stern: Oh, sure. Theyre opportunistic markets. And thats what I alluded to to
part of the other investment, uh, statement that I made.
Yes, we are looking at these opportunities as they become available. They dont become
available every day, but the Company is in excellent, uh, financial shape. We have $82 million in
cash, uh, to seize opportunities as they become available.
Operator: Thank you.
Our next question is from Bill Dezellem with Teton Capital.
Please proceed with your question.
Mr. Bill Dezellem: Uh, thank you.
Uh, would you please, uh, discuss, uh, in some detail the $80 million portfolio buy that you,
uh, referenced here, uh, this morning?
And secondarily, how does that, uh, tie into your comments on the previous conference call
that you, uh, saw a number of purchase opportunities that, uh, you were hoping to take advantage of
once you did receive the, uhthe IRS refund?
Mr. Gary Stern: Okay, were still looking at those opportunities. Theres still a couple
that are pending. But, these take time to negotiate and theyre more one-on-one transactions.
But, theres nothing pending that we anticipate closing at this time, but were continuing to
discuss these portfolios with the possible sellers.
And this other portfolio is a credit card portfolio that was purchased at an attractive price.
And weve had past history with this specific asset from, uh, this specific seller. So, we were
very pleased when they offered this portfolio, so we seized that opportunity.
Mr. Bill Dezellem: And to what degree, uh, are you seeing the number of sellers coming to you
increase now that you, uh, have the IRS refund on the balance sheet and they?
Mr. Gary Stern: Um.
Mr. Bill Dezellem: Excuse meand they recognize that you have a large amount of cash ready
and available?
Mr. Gary Stern: Its really the same. Its the same. I dont see any difference, uh, in the
amount of sellers coming to us. Its the same.
Mr. Bill Dezellem: And then, one more question, if I may. Kind of a, uha bigger picture
question.
What level of portfolio purchases are required to maintain the, uhthe June quarters level
of results?
Mr. Bob Michel: Ill answer that.
Itsokay, lets look at the quarter. Nine millionapproximately $9 million was collected
on zero basis. Zero basis was up $1 million for this quarter versus last quarter.
We cant predict exactly, at a zero basis, wellyou know, well collect out allin the
future, but were really pleased on our performance because the collections seem to be fairly
steady over a period of time. Theyre down somewhat from last year, but were very happy that they
increased by $1 million this quarter.
So, if they stay in the $9 million rangeand Im not saying they will, but if they stay in
the $9 million rangelets look at the dynamics of this company.
The G&A is, lets say, anywhere from five and a halflets say around five and half, maximum
$6 million per quarter. If our zero basis is 9 million, theres about $3 million, pre-tax$3
and-a-half million pre-tax per quarter.
It costs us about $1 million to serviceto, umon interest from Bank of Montreal, which
declines somewhat each quarter. And the, umthe actual revenue that we recognized was
approximately $2.8 million, I believe, on the remaining portfolios that liquidate out.
Now, that will diminish somewhat next year.
So, the Companyyou know, when Iyou know, this is a forward-looking statement, but I want
to be very careful and clear. Weyou know, the caveatwe dont know what the zero basis will be.
Were comfortable the G&A should stay in a range like were speaking atuh, about, which
iswhich I think really differentiates us from our peers.
We do not have a tremendous amount of overhead. And if the Company is successful in
purchasing portfolios down the road, the G&A should not go up much.
So, overall, wereI think were poised and in good shape to becontinue to be profitable,
assuming that there are no impairments.
Operator: Thank you.
The next question is from the line of Dan Brazeau with M.A. Weatherbie.
Please proceed with your question.
Mr. Dan Brazeau: Good morning, guys.
Mr. Gary Stern: Good morning.
Mr. Dan Brazeau: Uh, just a quick, uh, housekeeping question to make sure I have my numbers
correct.
Uh, you said the cash collections on the Great Seneca portfolio were, uh, $4.4 million. So, I
guess cash collections on, uh, the non-Seneca portfolios were about 21 million. Is that correct?
Mr. Bob Michel: Yes.
Mr. Dan Brazeau: And would you expectuh, when you look at your, uh, curves, would you
expect that 20, $21 million number to continue for the rest of the year or how do you think about
that?
And then, I have a quick follow-up question.
Mr. Bob Michel: Yeah, we would hope that that would say at that pace. But, as the portfolios
do age, you know, the collections will, umyou know, will decline over a period of time.
But, then, howeveryou know, as Gary mentioned on the zero basis, um, that part of the
portfolio remains, uh, fairly strong.
Mr. Gary Stern: Right. And this is Gary speaking.
We alsothe summer months tend to be somewhat slow. So, there could be asomewhat of a
decrease, but it wouldnt concern us.
Mr. Dan Brazeau: Was there anything in the quarter that contributed, you know, seasonally, a
better cash collection?
Mr. Bob Michel: Not really.
Mr. Dan Brazeau: Number?
Mr. Bob Michel: I think the Companyin my humble opinion, the Companys collections have
been standing up on the regular Asta portfolio, you know, very well. We dont buy much paper, and
the collections keep coming in. So, were very, uh, pleased with this.
Mr. Dan Brazeau: And then, final question on the, uh, G&A that you mentioned. Its sort of
in that five to $6 million range.
Uh, if you were to, lets say, tomorrow sell the Seneca portfolio, would G&A change much at
all? In other words, is there much in the G&A line associated with the Seneca portfolio or is that
all netted out into the revenue number?
Mr. Bob Michel: It wouldnt bethis is Bob Michel. There wouldnt be a significant affect
ton G&A because of just the lean nature of our, umour infrastructure.
Mr. Dan Brazeau: Okay, all right. Thank you, guys.
Mr. Bob Michel: Yep.
Operator: Our next question is from the line of John Deysher with Pinnacle Capital.
Please proceed with your question.
Mr. John Deysher: Uh, good morning.
Mr. Gary Stern: Good morning.
Mr. John Deysher: Uh, two questions. One, Bob, you mentioned a number of 155 million, uh,
the current quarter. What was that number again?
Is that collections? That was, uh, purchases?
Mr. Bob Michel: Well, let me just, uh, go back andthat was the face value of the portfolio
purchase through the nine months ended June 30th, 2010.
Mr. John Deysher: Okay, so that was nine months. What was the face value for the quarter?
Purchases?
Mr. Bob Michel: Well, very minor. We spent 60,000 on a cost basis. Andjust hold on
onethe face amount was a little over $6 million.
Mr. John Deysher: Okay.
And what were the comparable numbers for, uh, a year ago? The nine months in thisin the
quarter?
Mr. Bob Michel: The cost was, uh, 13.8 million with a face value of 336 million.
Mr. John Deysher: Okay, great.
And I guess, uh, the, uh, problems you had with the, uh, bankruptcy of, I think, one of your,
uh, attorneys, has that been resolved at this point? Is there anything?
Mr. Bob Michel: Well, all of the accounts have been moved to theuh, new servicers, and
theyre all being worked, uh, at full strength.
There are still some administrative details regarding the bankruptcy that were working with
our attorneys on.
Mr. John Deysher: Oh, okay. Did that impact the quarter at all?
Mr. Bob Michel: There was, uh, additional legal fees of about, you know, $100,000 in expense,
just working with the attorneys on the, umthe resolution.
Mr. John Deysher: Okay. All right. So, thats pretty much behind us at this point.
Mr. Bob Michel: Now, there is thewe are looking for athe final piece of that puzzle will
come through, probably, by September, and there will be another expense. Not significant, but it
wouldit will be aprobably within the range of 100 to $200,000. And then, that should be the
end of it.
Mr. John Deysher: The end of September quarter?
Mr. Bob Michel: Yes.
Mr. John Deysher: Okay. Because I had noticed the line on the balance sheet, uh, due from
third-party collection agencies and attorneys was up, uh, relative to year-end. So, thats
trending in the right direction.
Mr. Bob Michel: Yes, thatsyou know, again, going back to Garys point about collections
holding their own and.
Mr. John Deysher: Okay. Thank you.
Mr. Gary Stern: Okay, thank you.
Operator: Our next question is coming from the line of Terry Corcoran with Lions Gate
Capital.
Please proceed with your question.
Mr. Terry Corcoran: Hi, guys. Uh, a couple questions.
Cost recovery portfolio, uh, non-Seneca. You have that number?
Mr. Bob Michel: That was, uhhold on, Terry.
Well, the bestthe book value of the Great Seneca portfolio, as I previously mentioned, was
108. And total.
Mr. Terry Corcoran: It was 10 last quarter.
Mr. Bob Michel: [Unintelligible.]
Terry, you want to get to, uh, another question while we, uh?
Mr. Terry Corcoran: Yeah, yeah. Sure, sure.
Um, uh, is there a number for gross collections? Are you guys paying out commissions and fees
for collections? Is that?
Mr. Bob Michel: Yeah, but, thatwethatll be disclosed with the, uhthe report of the
10-Q.
Mr. Terry Corcoran: Okay, thatll be in the Q.
Okay, my only other question was the family loan, uh, is 4.4 million?
Mr. Bob Michel: That is correct.
Mr. Terry Corcoran: Is that going to be repaid now that you have the pretty flush balance
sheet?
Mr. Bob Michel: That will be repaid by December of, uh, 2010.
Mr. Terry Corcoran: Okay, all right. Thats all Ive got. And I can follow-up on the cost
recovery number.
Mr. Bob Michel: Okay. Thank you Terry.
Mr. Terry Corcoran: Okay. Thanks, guys.
Mr. Bob Michel: Thank you.
Operator: Thank you.
Our next question is from Bill Dezellem with Teton Capital.
Please proceed with your question.
Mr. Bill Dezellem: Uh, thank you.
Id actually just like to follow up on, uh, the questions we were discussing before. And the
first one is, so that 2.8 million of finance income recognized that was not from the zero-basis
portfolio, would you help us understand, uh, the math, uh, in terms of what it would take in terms
of ongoing portfolio purchases to maintain that, uhthat 2.8 million?
Mr. Bob Michel: Well, its, uhthese are our portfolios that are, umagain, its a mix of
older portfolios that were set up, um, over a shorter period of time versus the newer portfolios
that were set up over the seven-year period.
Um, so, you know, it would justitits around two million a quarter.
Mr. Bill Dezellem: Of purchases that you would need to make to maintain that.
Mr. Bob Michel: A rough estimate, yes.
Mr. Bill Dezellem: Okay.
And, uh, then the, uhthe second question, the $80 million, uh, face value purchase, uh, that
you are making this quarter, when do, uh, you anticipate collections to begin and roughly what
price are you paying for that?
Mr. Gary Stern: Were paying in the mid three-cent range, and collections should begin within
30 days. And we will close that by the end of August.
Mr. Bill Dezellem: Thank you both.
Mr. Gary Stern: Thank you.
Operator: Thank you.
There are no further questions at this time, gentlemen.
Mr. Gary Stern: Okay.
Thank you for participating in our third quarter conference call.
As always, should you have any additional questions, please feel free to call Bob or myself.
Have a pleasant day.
Operator: This concludes todays teleconference.
You may disconnect your lines at this time.
Thank you for your participation.