Asta Funding's (ASFI) CEO Gary Stern on Q3 2016 Results - Earnings Call Transcript

| About: Asta Funding, (ASFI)

Asta Funding, Inc (NASDAQ:ASFI)

Q3 2016 Earnings Conference Call

August 09, 2016 10:00 AM ET

Executives

Gary Stern - Chairman & Chief Executive Officer

Bruce Foster - Chief Financial Officer

William Skyrm - CEO, CBC Settlement Funding

James Goodman - President, CBC Settlement Funding

Operator

Good morning. My name is Tania, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Asta Funding, Incorporated Investor Conference Call for the three and nine months ending June 30, 2016. All lines have been placed on mute to prevent any background noise. After the presentation, a question-and-answer session will enter. [Operator Instructions]

On the call today from Asta Funding are Gary Stern, Chairman and Chief Executive Officer; and Bruce Foster, Chief Financial Officer; also with us today on the call are William Skyrm, CEO of CBC, Settlement Funding; and James Goodman, President of CBC, Settlement Funding.

Before our host, Gary Stern, discusses current results, let me take a few minutes to read the following statements. Except for statements of historical facts, all of the statements made during 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 can be no assurance that these expectations will be realized.

Forward-looking statements are not guarantees and are subject to numerous known and unknown risks and uncertainties that could cause actual results to diverge materially and adversely from the results expected or implied by such forward-looking statements. Please review the full forward-looking statements in our earnings release issued today or in the Company's annual report of Securities and Exchange Commission, Form 10-for fiscal year ending September 30, 2015. These can all be found on the Company's website at www.astafunding.com.

Now, let me turn the call over to Gary Stern.

Gary Stern

Thank you. Good morning everyone and thank you for joining us for today's investor conference call. The investments we have made over the last few years both in management's time and capital expended to secure the certain investments and opportunities should provide a solid foundation for the Company in the coming years. We have built a diversified company with four strong business segments in growth markets. I believe the Company will continue to see opportunities to complement our business through acquisitions and strategic partnerships that should further strengthen the overall business of Asta. Having the capital resources available to the Company to act on these opportunities is paramount to our continued success.

Now let us begin with an update of our reportable segments, highlighting important aspects initiatives of each of our four core businesses. First, consumer receivables segment, this business manages consumer portfolio that has been acquired for liquidation. With our June 30th balance sheet, showing 14.4 million in account receivable the total amount and judgments in our U.S. portfolio is $2.4 billion. In addition to the judgments we have another approximately $630 million a phase value of consumer assets in the international market. We are extremely confident and diligent in our collection of these assets and these collections provide a significant cash flow for the Company.

During 2014, we increased our reach in this segment by acquired consumer receivable portfolios in the international market. Currently, we have acquired and actively working portfolios in three Latin American countries with an eye on increasing out footprint in other markets internationally. Our joint venture with Serlefan in Peru allows us to pursue opportunities in the region. Serlefan's strong relationships with financial institutions and experience in the industry will allow us to increase our presence in the region, not only by acquiring addition portfolios but also providing additional services in third party collections, credit monitoring and fraud alerts.

Second, person injury claims represent our 80% investment in Pegasus Funding which provides personal injury litigation funding directly to consumers. We commenced operations at the end of December 2011; and over the last several years, I've realized the strength in this business model. Currently, there are more than 4,800 active cases for which money has been advanced against personal injury claims. We also closed and collected an over 5,400 case. Asta's success has been in its exception underwriting assortments professional relationships and reputation in the market place. We continue to fund and actively manage cases in the personal injury space.

Third, in the disability services segment, Asta operators a specialized advocacy firm that helps people obtain long-term visibility benefits from the social security administration to assist in meeting their daily needs. We are beginning to see traction in the business as revenues has grown threefold for the nine months ended June 30, 2016, compared to a same period in 2015. Even though the Company has been in existence for two years, we can begin to see the development of the critical massive customers. As of today, we are managing more than 13,000 active cases with the social security administration. Of these cases approximately 8,500 are in the initial application stage while approximately 4,500 cases are in the hearing stage of process.

Remember, we recognized revenue on these cases only after they're closed and the fees have been collected. Management is working diligently to officially manage this business which has grown to encompass the entire United States, and believe the expense base and infrastructure are stabilized. Additionally, we recently began assisting veterans managing the time-consuming and complicated processes of the U.S. Department of Veteran Affairs. We are helping veterans obtaining disability compensation for physical or psychological wounds from their services. Asta serves those who have served our country by cultivating a workforce of people who know the law and are veterans themselves. As of today, we are working with more than 1,500 individual veterans in this area. We believe that this segment will continue to show revenue growth as we move into next year.

The fourth and final core business is structured settlements, which represents our investments CBC settlement funding. Earlier this year we completed the purchase of the remaining 20% interest of this entity making CBC a wholly-owned subsidiary. As you know CBC purchases periodic payments on the structured settlements and annuity policies and exchange for lump sum cash payments. Over the last nine months, we increased our structured settlement portfolio by $15.3 million to $79.9 million as of June 30th. Additionally last month, Asta completed its sixth successful securitization of its portfolio for $14.8 million at 4.85%. This segment continues to be integral part of the Company's long-term strategy. Through combination of these segments form a strong foundation by which we can effectively and efficiently grow the business.

Now, I would like to turn the call over to Bruce Foster, our Chief Financial Officer, who will provide some additional details on the financial results.

Bruce Foster

Thank you, Gary, and good morning. For the three months ended June 30 2016, net income attributable to Asta Funding was 3.2 million or $0.26 per diluted share as compared to net income attributable to Asta Funding of 0.2 million or $0.01 per diluted share for the three months ended June 30, 2015.

For the three months ended June 30 2016, net income was 4.7 million compared to net income of 0.3 million for the three months ended June 30, 2015. Total income for the three months ended June 30, 2016 increased 8.8 million to 19 million compared to 10.2 million for the three months ended June 30, 2015.

Included in the three months ended June 30, 2016, was approximately 3.2 million in revenue from CBC settlement funding on structured settlements as compared to 2.6 million for the three months ended June 30, 2015.

Also included in total revenues for the three month period ended June 30 2016, is approximately 9.8 million from Pegasus Funding, the joint venture in the personal injury finance industry, as compared to 1.7 million from the three months ended June 30, 2015.

Disability fee income was 1.2 million for the three months ended June 30, 2016, compare to 0.6 million for the three months ended June 30, 2015.

Finance income from the distress receivable business was down by approximately 0.6 million to 4.6 million for the three months ended June 30, 2016 as compared to 5.2 million for the three month ended June 30, 2015.

General and administrative expenses were 10.6 million for the three months ended June 30, 2016, as compared to 9.2 million for the three months ended June 30, 2015. The increase for the three months ended June 30, 2016 was primarily attributable to an increase in legal fees, as well as increased operating costs for GAR Disability Advocates relative to the growth in the segment.

Interest expense was 0.8 million for the three months ended June 30, 2016 as compared to 0.6 million for the three months ended June 30, 2015.

For the nine months ended June 30, 2016, net income attributable to Asta Funding was 3.2 million, or $0.26 per diluted share, compared to net income attributable to Asta Funding of 0.9 million, or $0.07 per diluted share for the nine months ended June 30, 2015.

For the nine months ended June 30, 2016, net income was 5.3 million as compared to 1.1 million for the nine months ended June 30, 2015.

Total income for the nine months ended June 30, 2016 was 42.3 million, compared to 31.5 million for the nine months ended June 30, 2015. Total revenue included for the nine months ended June 30, 2016 is approximately 9.1 million in revenue from CBC Settlement Funding, on structured settlements, as compared to 7.6 million for the nine months ended June 30, 2016.

Also included in total revenues for the nine months ended June 30, 2016 is approximately 14.8 million from Pegasus Funding, as compared to 6.1 million for the nine months ended June 30, 2015. Disability fee income for the nine months ended June 30, 2016 was up by 1.8 million to 2.7 million, as compared to 0.9 million for the nine months ended June 30, 2015.

Finance income from the distressed receivable business was down by approximately 1 million to 14.7 million for the nine months ended June 30, 2016 from 15.7 million for the nine months ended June 30, 2015.

General and administrative expenses were 32 million for the nine months ended June 30, 2016, as compared to 27.8 million for the nine months ended June 30, 2015. The increase for the nine months ended June 30, 2016 was primarily attributable to several factors.

First, expected settlement costs of 2 million in connection with an expected legal settlement and 1 million loss reserve related to a reduction in the carrying value of one of the Company’s investments; second, increased operating costs for GAR Disability Advocates relative to the growth in the segment.

Interest expense was 2.3 million for the nine months ended June 30, 2016, as compared to 1.7 million for the nine months ended June 30, 2015. The increase in interest expense is related to the growth in our structured settlement business segment, CBC Settlement Funding. As of June 30, 2016, CBC's invested balance in structured settlements has increased 23% and 90% since September 30, 2015, and 2014, respectively.

Now turning our attention to our balance sheet, as of June 30, 2016, the Company had approximately 73.9 million in cash and cash equivalents, a 176.5 million in stockholders' equity, and a net book value per share of $14.91. At June 30, 2016, the Company had an invested balance of 79.9 million in structured settlements and 43.7 million in personal injury claims.

Net cash collections of the consumer receivables acquired for liquidation for the quarter ended June 30, 2016 totaled 7.1 million compared to 8.8 million in 2015.

Net cash collections on the Great Seneca portfolio were 1.6 million for the quarter ended June 30, 2016, compared to 2.3 in 5. The carrying value of the Great Seneca portfolio at June 30, 2016 was 5.4 million, as compared to 10.5 million at September 30, 2015.

We've invested approximately 0.3 million in consumer receivable portfolios in the international market in the third quarter ended June 30, 2016, as compared to 0.4 million in 2015.

The Company invested approximately 5.9 million in personal injury cases for the quarter ended June 30, 2016, as compared to 6.4 million in 2015. Investments in structured settlements were approximately 4 million for the third quarter ended June 2016, as compared to 4.6 million in 2015.

As part of its tender offer, the Company purchased 274,284 shares of this common stock at an average price of $10.25 during the three months ended June 30, 2016. Total shares repurchased under tender offer and repurchase plan during the nine months ended June 30, 2016 was 1,258,484 shares at an average price of $8.86.

This concludes my update on the financial results. I'll now open the floor for any question.

Question-and-Answer Session

Operator

Gary Stern

Okay. This is Gary Stern again. We launched a new corporate website today, one that proudly tells the Asta story to the market. We invite you to experience the site at www.astafunding.com. Our new site demonstrates the strengths of our diversified company to customers, investors and other key shareholders with details about our four strong and growing business segments: personal injury claims, structured settlements, international consumer debt and disability advocacy.

As I said at the beginning of this call, our results this quarter demonstrate that the investments we have made over the last few years are setting a solid foundation for growth in the coming years. I want to thank our shareholders for your support throughout the years. We are committed to investing in our areas of focus for growth, including personal injury claims, structured settlements and international consumer assets, while remaining focused on cost savings, balanced growth and value creations for you our shareholders.

Thank you for participating in our investor conference call.

Operator

Thank you for participating in today's teleconference. Have a pleasant day.

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