The State of Affairs in the Accounts Receivable Management Industry: Webinar & Transcript Available

Following the volatile 2018, this year may arguably be one of the most impactful in recent memory as it relates to the accounts receivable management (ARM) industry. As such, this is a pivotal time in our industry.

During a roughly 50-minute webinar, Mike Ginsberg discussed the present state of affairs in the accounts receivable management (ARM) industry and the impact these and other significant changes and events will have on service providers, tech companies, debt buyers, and credit grantors. He additionally analyzed recent economic trends, highlighted key market segments, reviewed major 2018 regulatory and compliance matters, and examined the current political climate.

Please watch the following 50-minute webinar and read the available transcript.

The State of Affairs in the Accounts Receivable Management Industry: Transcript

Kelsey Flinko: Hello and welcome to the State of Affairs in the Accounts Receivable Management Industry webinar, hosted by Kaulkin Ginsberg Company and sponsored by Topline Valuation Group. Before we begin we’d like to thank you for attending. We know you’re busy and time is valuable, so thank you for being here. My name is Kelsey Flinko, and I will be your meeting manager today.

Now, I have just a few housekeeping items to address.

You’ll notice the phone lines are muted. Should you have a question, please submit it in the questions box, and we will answer it during the dedicated Q&A session at the end of this webinar as time permits, or we will personally reach out to you with an answer after the webinar ends.

Second, I have a disclaimer that I need to read, so bear with me as I read it on your screen.

This information is not intended as legal, financial, or advice of any kind and may not be used as such. Advice must be tailored to the specific circumstances of each case. Every effort has been made to assure this information is up-to-date as of the date of this presentation. It is not intended to be a full and exhaustive explanation, nor may you use the information to replace the advice of your own legal counsel.

The presenters assume no liability for typographical or other errors contained in the presentation or for changes that occur in the future affecting anything discussed therein.

Next, I will tell you a little about Kaulkin Ginsberg Company

Since 1991, Kaulkin Ginsberg Company has provided critical strategic advice to the outsourced business services industry. Our client-centric approach covers almost every stage of a company’s life cycle and enables us to maintain longstanding relationships as trusted advisors. The firm provides mergers and acquisition advisory, strategic consulting, valuation and financial solutions, market intelligence and analysis, as well as litigation support and expert witness.

And with that, we’re ready, and I’ll turn it over to Mike Ginsberg, president & CEO of Kaulkin Ginsberg Company.


Mike Ginsberg: Thank you, Kelsey. Let me get situated here. Good afternoon and thank you all for taking time with us this afternoon. We know you all have busy schedules and we appreciate you participating in today’s webinar. I am happy to report that the State of the Union in the accounts receivable management industry in relatively strong. Clients across multiple market segments are outsourcing. Debt sales have increased. Liquidation results have improved. The industry is expanding overall. However, like any other industry, accounts receivable management has its challenges which we will also address this afternoon.

We wanted to let you know that we are scheduling additional webinars and podcasts throughout 2019. We had great success with 8-10 minute podcasts that zero in on specific topics with subject matter experts that I individually select. I value your feedback and your suggestions so I will be following up with you shortly after webinar to get your feedback where you want us to drill down and we’ll do our very best to accommodate your specific needs.

Let me take a moment and introduce our sponsor. Topline Valuation Group was formed a few years back to provide valuation services and financial support specifically to accounts receivable management companies and related service providers. This firm has extensive experience helping executives like you with their budgets and with their forecasts. They also provide due diligence, quality of earnings reports and fairness opinions for any companies that are involved in mergers and acquisitions. I suggest you reach out to Topline Valuation Group for all your financial needs.

I am controlling both the slides and looking at some notes as I’m speaking to you so sometimes they might not be lined up perfectly.

Today’s Agenda

We have a lot of ground to cover this afternoon so why don’t we just get started?

These are the topics that we’re going to cover. I’m not going to read them, but we’re going to get in to each and every one of these shortly.

Operational Challenges

Let’s start with Operational Challenges

I spoke to a number of industry executives about their operational challenges and their concerns and what’s keeping them up at night. Consistently they expressed concern about increases in labor costs, lower commission rates, increasing technology costs, significant margin compression, and increased client demands. You see those here.

The ACA, along with Ernst & Young, completed an assessment of the industry a few years back. This slide shows total debt collected and commission rates by region.

The good news is that total debt collected across the country is up almost 30%. This is directly attributed to a recovering economy. It is worth noting that our research analysts looked at this data on a regional basis and they determined that the South continually results in the largest amounts of debt collected in the United States.

When we look at the graph over to the right, we see that commission rates are down regionally and nationally. This is not good news to any of us. At Kaulkin Ginsberg we are concerned this trend of continuous rate compression will continue into the foreseeable future until ARM executives push back on their clients. While some ARM companies are able to generate significant profits even at these lower rates, many more are finding it increasingly more challenging to operate profitably. We’ll get in to this more.

Let’s take a look at labor costs. Driven by a strong economy with an exceptionally low unemployment rate, hourly wages have increased by 2.3% annually, on average, since the year 2000, to nearly $17 per hour in 2017, as this graphic illustrates.

Additionally, the ratio of total collection agency payroll relative to overall revenue has increased somewhat substantially over the past half-decade, increasing from a 10-year low of 37.9% in 2012 to an estimated 42.3% in 2017. This takes into consideration any excess compensation that is paid to either owners or family members. So as you can see, labor is arguable the highest cost for any of these ARM companies sometimes rent depending on how many facilities creeps up there in to the top position, but pay roll and labor wages tends to be the most significant area. And you can see here off to the left that we were really focused in on collector’s wages.

Economic Conditions

Let’s move onto economic conditions.

The U.S economy is quite strong right now, increasing by an annualized rate of 3.4%, as this graphic illustrates. Additionally, the unemployment rate is incredibly low nationally at 3.8%, well beneath historical levels over the past decade, and comparable to those in the early 2000s.

Going forward, we expect that gross domestic product should fall as the individual tax rate cuts from the 2017 Tax Cuts and Jobs Act begin to phase out. Additionally, the unemployment rate should increase as individuals enter the labor force – which is actually a good thing for the economy and should have a positive effect on your recovery efforts.

A strong economy presents both positives and negatives for the ARM industry overall, but as long as consumer confidence doesn’t falter too much, via another extended government shutdown or an increased trade war, for example, consumers should continue spending money and accumulating debt.

Incidentally, if you want a copy of this you’ll be receiving it shortly after, by early to mid-next week you will have a copy of this. We’re also going to put together a transcript for this as well, so you will have the written documentation with charts and graphics as well and we appreciate you signing up. So you will get that free of any charge. I also will encourage you now and throughout this presentation to please submit your questions. Even if I don’t get to them right now, cause I am the only one here with this particular webinar, I will make sure I either get to them at the end, or I will follow up with you personally shortly after this webinar. Thank you.

Monetary policy – let’s move on to this slide.

There’s been several talks and rumors of an impending recession. Much of the recession talk began when the stock market declined throughout the latter half of 2018 when the S&P500 fell by nearly 20% from its peak. It has since recovered in 2019, as the hysteria calmed, increasing by 5.4% year-to-date.

However, there is an indicator that many point to with regard to predicting a potential recession, which is the interest rate spread. This is the difference between the 10-year Treasury rates and the 3-month rates, and as shown in this the graphic, it’s falling. As shown in 2001 and in 2007, when this spread falls below 0 percentage points, a recession of some form appears. Currently, the spread is at 0.42 percentage points so there’s still some buffer left between it potentially hits that 0 percentage point in that threshold to indicate a recession.

In all, the economy is healthy and borrowing is becoming more expensive. If we observe a massive shift in the interest rate spread and other major macroeconomic variables, then we can begin questioning the strength of the economy going forward. But we don’t need to do that right now.

Regulatory & Compliance Review

Let’s move onto the fun topic of regulation and compliance. Since Trump took office, the CFPB has become far less active and aggressive than it was during the Obama administration. In the early days of his presidency, Trump clashed with then-director Richard Cordray. In November 2017, Cordray stepped down and was replaced by acting director Mick Mulvaney.

Mulvaney contracted the CFPB even further, reorganizing the agency away from enforcement in areas like fair lending and student loans and revising rules like those regarding payday lending.

As this graph illustrates, the dollar amount of civil penalties collected has fallen year-over-year since the Trump administration began. Just because the aggregated numbers are falling does not mean that CFPB’s capacity for large enforcement actions is diminished. For example, in Q2 2018 the CFPB collected a $500 million fine from Wells Fargo for violating the Consumer Financial Protection Act in the way it administered a mandatory insurance program related to its auto loans

In December 2018, just last month, the Senate confirmed Kathy Kraninger as President Trump’s permanent CFPB director. Kraninger, who worked under Mulvaney, is expected to show a similar path as her former boss. If she continues Mulvaney’s policy of softening oversight, the ARM industry may not only face reduced compliance costs and a more transparent set of rules that we’re all looking for, but also benefit from a more relaxed regulatory regime as a whole compared to the Obama years

For 2019: CFPB is expected to issue its highly-anticipated Notice of Proposed Rulemaking in March 2019, which will address a host of issues, including debt collection under the FDCPA. I plan to put together a team of experts to discuss this when it develops.

TCPA remains as one of the most talked about compliance related topics in the ARM industry.

With regard to the Do Not Call Registry, 7.2 million complaints were registered with the FTC regarding the Do Not Call Registration in fiscal year 2017, a 34% increase over 2016. 12% of the 7.2 million complaints were related to reducing debt.

The bottom line is the compliance burden with regard to the FTC’s DNC list is rising for everyone, including accounts receivable management companies.

Regarding increased Complaints and legislation, which you see here in the middle of the page, approximately 3,600 TCPA-related complaints were filed with the FCC from January 1 through November 30 of last year, an increase of over 60% since 2013.

In this highlighted case Marks v. Crunch San Diego, LLC, the Ninth Circuit Court expanded the definition of the term “automatic telephone dialing system” (auto-dialer or ATDS) to include equipment that has the capacity—(1) to store numbers to be called or (2) to produce numbers to be called, using a random or sequential number generator—and to dial such numbers automatically even if the system must be turned on or triggered by a live person.

While this ruling currently only applies to the Ninth Circuit, obviously, the precedent it sets could affect the rest of the country.

In response to negative feedback received following this, the FCC plans to clarify its definition of auto dialers sometime in 2019. Hopefully, the added clarity will give ARM firms a better idea of the compliance landscape and could potentially lessen the amount of TCPA litigation filed. We’ll see what happens.

As the Trump administration continues to scale back federal rules, regulations, and oversight, some state governments are becoming very aggressive:

Democrats gained a majority of state attorneys general offices in the 2018 midterm elections and plan to combat the Trump Administration’s deregulatory agenda.

These attorneys general can challenge the Federal Government’s rules and actions in court, thereby slowing them down and/or overturning them completely.

They can also bring lawsuits against potentially bad actors as the Federal Government scales back its oversight role. For example, California’s attorney general Xavier Becerra is actively suing Ashford University and its parent company Bridgeport Education over claims that the school misrepresented both the costs of the school and career prospects for its graduates.

This means that some ARM companies, particularly those located in states with newly-elected Democratic attorneys general, may face enhanced regulatory scrutiny.

Additional state actions worth following include California Consumer Privacy Act (CCPA) of 2018 which broadens the definition of “personal information” and expands consumers’ privacy rights.

We’re also tracking certain state actions regarding the affordable care act and student loan relief actions. We have a lot of data on these topics that we are happy to share in a focused podcast. We’ll follow up with you to see if that’s of interest.

Political Climate

Let’s move forward to the political climate. Although the government shutdown recently ended, there’s no telling what will happen on February 15 when it may start up again. This past shutdown has experts estimating that the total cost to the U.S. economy was upwards of $11 billion. Beyond that, there’s still the ongoing dispute between the U.S. and China, and the EU regarding trade negotiations and tariffs.

Most notably, there are several hundred billions of dollars’ worth of tariffs between the U.S. and China, which is currently at a standstill. Furthermore, the tariffs enacted on the EU haven’t fallen, and the potential of Brexit may throw those negotiations into even more tumultuous and uncertain territory.

However, beyond the immediate effects of the trade wars and government shutdown, there are lasting effects. Tariffs raise prices on imports for U.S. consumers, lowering their purchasing power and hurting the economy. Additionally, there was a ripple effect with regard to the shutdown, with agencies like the IRS, USDA, or HUD falling behind on loans and operations, hurting consumers who rely on the assistance. Even if the government remains open, there’s still been a massive disruption from which it’ll take a while to recover.

I do want to point out also that fortunately the closing of the government didn’t impact the tax season as the IRS made it abundantly clear that taxes will be taken care of right on schedule. I did write a blog about this and I’m still concerned about it. I encourage you if you are questioning that as well to read the blog on the Kaulkin website.

If these issues continue, the ARM industry will be hurt not only directly as contractors and subcontractors of the federal government, but also due to more conservative consumer habits and less spending.

We’ve heard from several executives and read in the news that there’s a ton of uncertainty with the current administration’s policies. Going into the Trump presidency, we envisioned massive deregulation and tax cuts, among other things. Although he succeeded to a point in cutting taxes – albeit only temporarily – it’s quite early and we’re unsure how things will progress once the individual tax rate cuts phase out over the next decade.

From a recent report, about 90% of Trump’s intended deregulation policies have been struck down in court, compared to historical presidential averages about 69%.

To measure this political uncertainty, we chose to highlight consumer sentiment, as this was a metric that immediately saw a boost upon Trump’s 2016 victory, and has remained pretty high levels with mild volatility since. However, due to the tiresome and sometimes endless trade wars, the recent Government shutdown, and falling investor confidence (via stock market), consumer confidence dropped 7.7% this month, falling to its lowest levels by far under the Trump administration.

If Trump is unable to increase economic optimism as in the past, then his approval ratings may not be the only thing that suffers. Just like many thought the 2017 stock market growth was somewhat inflated by overconfidence due Trump, the current economy may see a massive shock if the uncertainty continues and lack of confidence remains.

If this occurs, spending should slow and would negatively impact the ARM industry into the near future. Of course, if another government shutdown occurs and confidence continues falling, there may actually be a recession or at least a significant slowdown.

We want to take a few moments to discuss the Midterm results. Congress is now officially divided. Democrats gained a large majority in the House, while the GOP retained its majority in the Senate

On the one hand, the Republican-held Senate will most likely stymie any efforts on the part of House Democrats to pass legislation aimed at increasing government intervention in the economy, particularly with regard to financial services and healthcare, two of the biggest markets in the accounts recievable management industry.

On the other hand, business-friendly legislation will have a much tougher time becoming law. House Democrats will most likely shoot down any attempts to lower taxes or further relax regulations.

This is unfortunate for ARM companies, as it benefitted greatly from the Republicans’ legislative agenda both directly (through tax reform) and indirectly (through economic growth driving collection and recoveries).

Also worth noting from the Midterm elections, there are now 37 State Government Trifectas

Democrats gained seven governorships, six state legislatures, and broke one Republican supermajority, while the GOP picked up a single governorship (Alaska). This resulted in a record 37 trifectas whereby single party control of the governorship and both legislative bodies.

We’re less than two years away from the 2020 Presidential election, which means that candidates are beginning to emerge as the campaign season starts to heat up. An Elizabeth Warren and potential Sanders Presidency would be particularly harmful to the ARM industry as many of us know.

Warren, who championed the CFPB and once called all private collection agencies “ineffective”, a harsh critic of big banks and favors a great deal of government intervention in the financial sector. Sanders is a self-professed democratic socialist and has repeatedly called for big banks to be broken up. Both are hostile to private collection agencies and financial services as a whole.

Credit Grantor Market Segments

Let’s change topics and focus in on credit grantor market segments.

Credit card and auto loan delinquencies are rising. We chose to highlight these trends through data from the FDIC and NCUA (National Credit Union Administration) which you see here in front of you.

Broadly speaking, we can see that net charge-offs for each loan type grew and peaked in 2010, as the fallout of the Great Recession continued, before falling dramatically over the subsequent few years.

Recently, however, credit card net charge-offs has grown dramatically, amounting to about $30 billion in 2017, whereas auto loan net charge-offs amounted to about $6 billion. We estimate total credit card and auto loan net charge-offs to equal about $34.5 billion and $6.5 billion, respectively, in 2018.

With rising interest rates, this leads to more increased consumer payments on delinquent credit cards and auto loan bills, providing greater opportunities for the ARM industry.

On the healthcare front, we are experiencing significant consolidation. Larger hospital systems are growing and acquiring many of the local smaller ones. Physician practices are also being absorbed.

This is somewhat similar to the trend we’re seeing with health insurers, as suggested through the near mergers of Aetna-Humana and Anthem-Cigna just a few years ago.

Next, we understand that there’s been a strong focus on maximizing liquidation rates for ARM companies, with healthcare providers being more stringent on the metric when analyzing its contractors’ performance. However, with the digital age and several regulations developing, there’s still a need for understanding and improving the patient experience.

Going one step further, being able to effectively measure and quantify your firm’s performance and display your value through analytics to the healthcare provider is absolutely paramount in the 21st century. Healthcare in the U.S. remains highly consumer-centric, so healthcare providers and businesses need to persuade consumers to join them and stay with them. As an ARM company, maximizing the patient experience without hurting liquidation results and staying out of the public eye is absolutely critical.

Lastly, and potentially very impactful, we are seeing an influx of middleware companies to the healthcare receivables and revenue cycle arena. We encourage you all to pay particular attention to this if you’re not seeing it with your current healthcare clients. Many healthcare providers are now utilizing companies like Experian/Search America, Healthfuse, and Connance to handle much of their vendor management responsibilities. This leads to hasty business decisions, increased competition and additional rate compression. We’ll watch this very closely.

The Federal Government marketplace is an often-overlooked segment of the ARM industry except for this servicing the U.S. Department of Education. As this pie chart illustrates, the federal debt market represents a diverse array of opportunities for those in the accounts receivable management industry.

Different government agencies present different types of debt. If your collection agency focuses primarily in healthcare, for example, you may want to focus in on the relevant contracts awarded by the Department of Health & Human Services. If your agency deals with utilities, perhaps the Department of Energy or Environmental Protection Agency contracts serve you better.

There’s been a lot of turmoil and negative stigmas regarding the Federal Government marketplace due to the seemingly endless saga with regard to the Department of Education contract procurement process. But as you can see here, there are significant opportunities worth evaluating for small and large vendors.

The cable and telecommunications market continues to consolidate. Following a string of mergers over the past 10 years, we can see that there are just a few major players in the U.S. cable & telecommunications industry. Many former players that were large at their time, like DirecTV, Cablevision, Metro PCS, and Time Warner Cable were absorbed by already-major or growing companies, such as AT&T and T-Mobile.

In 2008, the graphic off to the left, about 37% of total industry revenue was attributed to smaller players. The top 5 players accounted for roughly 54, almost 55% of total industry revenue.

In 2017, however, we observe that revenues increased to $733 billion with about 26.4% attributed to smaller players and the top 5 now accounting for nearly 62% of overall revenues, with several small companies entering the next tier.

The top 5 doesn’t even account for SPRINT’s $33.3 billion in revenue or CenturyLink’s $17.7 billion. Nor was it inclusive of Netflix’s $11.7 billion, which is sure to keep increasing over time as it continually encroaches upon existing – and perhaps “old” – revenue models. We encourage you to pay particular attention to this and e-commerce as it continues to erode these particular areas.

Mergers & Acquisitions Recap

Let’s change gears and focus in on the mergers and acquisitions landscape.

19 mergers and acquisitions involving accounts receivable management firms were announced in 2018. This total doesn’t account for transactions that were concluded at the end of the year but have not yet been announced, so it is subject to change.

About 50% of all transactions last year involved ARM companies that service healthcare providers. Among the largest transactions included Cognizant’s announced acquisition of Bolder Healthcare, as well as established players like USCB in California and First Point in North Carolina using acquisitions to expand their own footprint.

The commercial market segment generated the second most M&A activity last year. ABC Amega expanded by acquiring SKO Brenner, and Brown and Joseph was acquired by private equity firm LaSalle Capital.

The department of education’s ongoing procurement debacle created some carnage in the industry as well. Regional Adjustment Bureau was absorbed by Credit Control and Premier Credit was taken over by Performant.

We realize that no conversation about mergers and acquisitions would be complete unless we at least address at a high level pricing and where pricing parameters are going in to the year.

This graphic illustrates pricing of ARM companies overall. Experienced business buyers typically determine the value of selling businesses by assigning a multiple to the selling company’s normalized or adjusted earnings or EBITDA. As you can see here, the smaller companies we typically look at their discretionary earnings that include overall compensation to the shareholder or the owner that runs the company. Whereas the larger companies we tend to start with the EBITDA and normalize it for any one time or excess operating expenses.

More or less is typically paid based upon a number of characteristics of the selling company. Size is paramount as you can see here. It does adjust as the company gets larger, the price does adjust. The pricing for small companies remain virtually the same however we experienced an uptick in pricing for both midsize as well as larger companies. They’re just in higher demand. We are also seeing less structure for larger size transaction which is a direct result of the increased availability of relatively cheap financing and the improved performance of many selling companies.

We have a lot of proprietary data on pricing. Please send me an email and I would be happy to follow up with you directly to answer any questions that you may have.

Outlook for 2019 & Beyond

We’re doing pretty well on time here, so let me just address the outlook for 2019 and beyond as we gaze into our crystal ball.

Start-ups used to be a thing of this industry. Entrepreneurialism was ramped in the industry as many folks would start collection agencies either organically or they would break away from existing operations and start their own operations. This was really prominent in the 90s and early 2000s when private equity was really acquiring businesses, creating roll-ups in the industry. Many managers would break off from their acquired company. Start a new company. It wasn’t unusually. In fact, Great lakes, for example was acquired in Buffalo. 3 or 4 other consumer agencies opened up also in Buffalo.

We strongly believe that very few successful start-up debt collection companies or debt buyers will emerge in the foreseeable future. It’s really because of a combination of two factors. Increased costs – running these businesses is not cheap at all as everybody knows when you factor in compliance, technology costs, payroll, and various other factors, as well as the increased demands that are being placed on these companies by their clients. A lot of clients require a multi look back even for established managers. They might wait three years before they start placing accounts with that agency. So for these reasons, we expect very few startups to emerge, and from that, even fewer successful startups compared to years prior.

We’re seeing significant changes among the industry trade associations. DBA didn’t only change their name to RMA, they also changed their premise – not just focused in on debt buyers anymore but focused in on the variety of accounts receivable management firms including first and third part bill collectors, as well as some credit grantors.

We’re seeing some contractions in the ACA where some units are getting together to cut costs. We’ve seen overall increases in the trade associations. The biggest problem is among their members. There’s a lot of attrition right now. As I said earlier, startups aren’t frequent right now in the industry, so they don’t have that to rely on. And as companies either go out of business, which sometimes occur, or merge with other companies, the numbers and the members in the trade associations do go down. We’re going to particular attention to this. I wouldn’t be surprised in the next couple of years if we see one or potentially more mergers among industry trade associations.

Good news. Delinquencies and charge-offs will continue to increase. As I had said earlier, assuming that there is not a dramatic change in the trade wars, or another government shutdown, or just a major issue that we’re not aware of, the trajectory of the delinquencies and charge offs is on the right path, and we believe that this will continue to rise which is good news for those in the accounts receivable management industry.

I do want to point out that with startups out there and the costs of running these businesses, while I’m concerned that we’re losing the entrepreneurialism in the industry, which I really don’t think this industry wants to lose or can afford to lose, I will also say that a natural barrier to entry is being formed, and those in the industry should really benefit by increase business as well as increase opportunities when it comes time to sell the business.

We’re expecting additional disruption in the healthcare market. We’re looking at major companies in the marketplace right now, Amazon and the like, getting in to the industry – first, by providing prescriptions now but then actually getting in to the marketplace. Obviously changes at CVS which we talked about earlier. Huge amount of consolidation overall in the market. We think in healthcare in particular, disruption creates opportunity. So it’s great that our healthcare and revenue cycle management clients and others in the industry are experiencing substantial growth. We think that additional disruption will only add to that growth.

We are closely watching, monitoring, and paying particularly close attention to the Department of Ed’s highly anticipated NextGen RFP process. This is considerable. This creates some opportunities as well as some challenges, both for the contractors as well as the subcontractors. We have particular expertise in this area and can assist. So if you want to talk about this offline, please let us know. But this is something that could create further disruption within the U.S. Department of Education and something worth paying particular attention to.

The good news again overall, the industry is positioned for growth – roughly 2% annually over the next 5 years is what we’re forecasting.

Questions and Conclusion

Thank you all for submitting your questions. I encourage you all to continue to do so. Even afterwards if you want to which is perfectly fine and I will make sure that I get back to all of you.

Q: First question, I am a collection agency that currently does not have the US Department of Education contract, the ED contract. Should I pursue it or not?

A:Well let me ask you, what’s your tolerance for risk? If you have a high tolerance for risk or substantial reward on the backend, maybe you should pursue it. But if you don’t have a deep purse, a lot of time, or expertise in that particular area, you might think twice about it, or potentially position yourself as a subcontractor in that marketplace. Happy to talk to you further about your specific needs. Thank you for the question.

Second question, I’ll probably cover about a half a dozen of these and then we’ll let you go for the rest of your afternoon.

Q: Is FinTech an emerging area for debt collectors or for debt buyers?

A: That’s a great question. FinTech is an area that we’re paying close attention to. Over the next couple of months we’re actually going release a report about it. Ultimately for collection agencies and debt buyers it gets down to one area and that’s delinquencies and potential of accounts receivable management build up in that area. We don’t know yet how delinquencies are going to fare in the FinTech marketplace. But here is the good news, without exception, all of the large players are relatively new companies. They’re not established large financial institutions like B of A, Citi, Chase. That doesn’t mean that if these FinTech companies don’t take off, that doesn’t mean that they won’t acquire their way or invest in to this market segment. But for now their new players, and new players create new opportunities. We think anybody that’s positioned in the financial services industry as a first or third party, predominately first party bill collector or debt buyer should pay particularly close attention to this marketplace over the next few years. Thank you for that question.

A couple of other questions here.

Q: What do we think is going to happen to debt sales volume over the next few years? They seem to be increasing in Europe as a result of the IFRS9. Do you expect the same in the U.S. as a result of accounting changes here? Example CECL.

A: Great question. And I’ll just tell you from a debt buying standpoint, we brushed only briefly upon this earlier. I don’t think we’ll ever get back to the point that we were pre-recessionary times with debt volumes. I think banks have contracted somewhat. I also think they are also tending to use vendors that they feel most comfortable with – large, transparent companies, public traded companies. We feel that they have a better chance of not only recoveries but staying out of harm’s way. That being said though, I do think that there are some opportunities emerging in other markets that we should pay particular attention to. There’s always interesting opportunities in healthcare, for example. Some of these emerging markets, etc, where debt buying could be out there. But the volumes over the next few years, I don’t expect that they’re going to increase that substantially.

Q: Mike, do you foresee a recession occurring in 2019?

A: As I showed earlier in the charts, we’re getting dangerously close based on historic barometer and areas that are worth focusing in on. However, the economic conditions right now are quiet strong. Hopefully those will continue, but like I said, we have significant changes in the marketplace in the trade wars, or another government shutdown, it is unfortunately certainly possible.

We should have time for one more question here.

Q: What are emerging or incoming payment trends for collectors?

A: That’s an interesting question. I’m not sure right now how I would answer this. I want to give it some thought to emerging payment trends. There have been a lot of changes to payment models – payment types – in recent years, but what can we expect going forward? Let me think about that and I’ll get back to this particular person who asked this question. I think it’s a good question.

Q: How have pricing trends changed over the past few years for those looking to buy businesses?

A: We talked a little bit about pricing earlier. The bottom line is that it is fluctuating a little bit depending on the strength of the selling company, their overall performance. There’s about a half dozen areas that most buyers look to when they’re calculating a valuation of a particular firm and then depending on their needs, there could be dozens more. But the common ones include concentration risk, if there’s less concentration risk among clients; the buyers tend to be a little bit more aggressive with price or more favorable deal terms for example. And then if the trends are strong. If the trends of topline and bottom line growth are sustainable, that too can be reflected in higher pricing or better deal terms.

A couple of reminders before I let you go: First and foremost, if you do have additional questions, please feel free to submit them. We’re going to follow up with you shortly afterwards, survey you, and see what areas would be of particular interest for me to gather some of the leading subject matter experts that I believe can add a lot of value and shed a lot of light on particular matters that are of importance to you, so please answer the survey questions when we correspond with you next week. We will be posting this and the transcript shortly. And because of your attendance in this webinar, you will certainly be receiving that.

Lastly I do want to thank you for your time and for your effort getting to this point. I also want to thank the team here at Kaulkin Ginsberg. Kelsey, you on the communications side – exceptional. Jared and John, absolutely great on the research and gathering the very critical components here so we can make this a useful webinar. I want to thank each and every one of you for your time. If you are in the Midwest, stay warm out there. Today it’s about 0 degrees here in the Washington, D.C. area. An interestingly – we had a pipe burst outside here so I’m in a building right now without any water, it’s cold, but you know what? The show must go on! I was excited to continue and give you this presentation. I hope you have a great afternoon and I look forward to seeing you online or connecting with your shortly.

Thank you.