Title: Pre-Paid Legal Services Q2 2010 Earnings Call Transcript

Symbol: PPD

Call Start: 8:30

Call End: 9:00

Pre-Paid Legal Services (PPD)

Q2 2010 Earnings Call

July 23, 2010 8:30 a.m. ET


Randy Harp – Co-CEO, President and COO

Steve Williamson – CFO



Good day ladies and gentlemen, and welcome to the Pre-Paid Legal Services second quarter earnings results conference call. (Operator Instructions.)

I would now like to turn the conference over to your host Mr. Randy Harp, co-CEO, president, and chief operating officer. Please go ahead.

Randy Harp

Good morning this is Randy Harp. I want to welcome you to the 2010 second quarter earnings conference call for Pre-Paid Legal Services Inc. Joining me here at the home office is our chief financial officer, Steve Williamson.

Before we begin, I need like to remind everybody that the conference call will contain forward-looking statements, including our expectations of future results and future plans. Actual results might differ materially from those projected in any forward-looking statements. Additional information concerning risk factors that could cause the results to differ materially from these forward-looking statements are contained in our press release announcing the second quarter earnings as well as disclosures in our public reports on Forms 10-K, 10-Q and 8-K and any amendments thereto filed with the SEC and as always they’re available on the SEC Edgar website as well as our own website.

My co-CEO, Mark Brown, is travelling today to British Columbia, but had passed on two very recent articles that were of interest to him and would be of interest to folks on this call and certainly pertain to the area that this company is focused on. One is dated July 12. The title is--and I’m just going to hit a few sentences from each of these articles--judges say litigants are increasingly going pro se, meaning that they represent themselves, and at their own peril. “A survey of nearly 1200 state trial judges around the country indicates that the weak economy has increased the number of litigants representing themselves in foreclosures, domestic relations, consumer issues, and non-foreclosure housing matters and the judges say litigants are doing a poor job as well as burdening courts already hurt by cutbacks. More than half the judges saw case filings increase in 2009, and 60% of them say fewer people are represented by counsel . The greatest increase is in foreclosures, followed by domestic relations, consumer cases, and other housing matters. The economic crisis has only exacerbated the problems in the courts says (inaudible). Self-representation is resulting in worse outcomes for litigants according to 62% of the judges. 78% of the judges say the increase in self-representation is hurting the courts, especially by slowing down the docket.”

Another article that was in the New York Times July 12: “Automated Debt-collection Lawsuits Engulf Courts. As millions of Americans have fallen behind on paying their bills, debt-collection law firms have been clogging courtrooms with lawsuits seeking repayment.” The firm that they profile in Woodbury, New York has been filing roughly 80,000 lawsuits a year. They have 14 lawyers on staff, so that averages out to more than 5700 cases per lawyer and the article goes on to explain how automated the process is, the software that they’re using.

How is that possible? “The answer to that is at the heart of a growing debate over the increasing use of the nation’s legal system to collect on bad debts. Already some state legislators and judges have tried to crack down on collection lawsuits and on Monday the Federal Trade Commission weighed in, saying the system for resolving disputes over consumer debts was broken and in need of significant reforms. The agency also urged states to adopt measures to make it more likely that consumers would show up in court to defend themselves because currently most do not, resulting in default judgments. Most consumers fail to show up in court and those who do rarely have a lawyer. A court judgment gives debt buyers the ability to collect on the debt through actions like wage or property garnishment.”

The last comment: “Lawsuits are sometimes filed against the wrong people, critics say. Other times, they say, the amount owed is incorrect or includes questionable fees and interest that has been added to the balance.”

So again, just a couple of articles that Mark had forwarded. We always say pick up any newspaper and it will make a case for our membership benefits and certainly I think those two are right on point, so please consider that information and at this time I’ll ask our chief financial officer Steve Williamson to step through the more significant financial highlights for the 2010 second quarter. Steve?

Steve Williamson

Thanks Randy. I’ll just start with a little overview for the second quarter of 2010 compared to ‘09. We had total revenue up about $1.7 million. Total expenses and taxes were up about $1 million, which resulted in about a $695,000 increase or a 4% increase in that income. 9% fewer shares gave us a 15% increase in diluted earnings per share.

On a sequential basis, membership fees were down about $581,000. Looking at the quarterly comparison, second quarter 2010 membership fees increased 1% over the second quarter of ‘09 due to the 1% increase in the average premium enforced that we had for the second quarter of 2010.

Associate services revenue increased $588,000, and that was primarily due to higher e-service fees that we had during the quarter compared to the ’09 quarter. The revenue, which as most of you know, is the 3-year amortization of that $10 enrollment fee that we have on some of our memberships. That was down $74,000, bringing that total line to $895,000.

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