Asset Acceptance Capital Corp. Reports Third Quarter 2012 Results

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Asset Acceptance Capital Corp. Reports Third Quarter 2012 Results

Increased investment in the Legal channel, which recorded a 15% increase in collection growth

WARREN, Mich.--(BUSINESS WIRE)-- Asset Acceptance Capital Corp. (NASDAQ: AACC), a leading purchaser and collector of charged-off consumer debt, today reported results for the quarter ended September 30, 2012.


Third Quarter 2012 Financial Highlights:

Cash collections for the third quarter of 2012 were $89.2 million, an increase of 2.0% compared to the prior year period. Results included 14.8%, or $5.8 million, cash collection growth from the Company's legal channel.

Third quarter revenues were $54.7 million, down 3.4% compared to the prior year period. The Company reported net impairment reversals of $0.5 million compared to net impairment reversals of $2.7 million in the prior year period. Results in the current quarter included a non-cash impairment of $1.7 million, or $0.06 per fully diluted share, pre-tax, on one pool.

Operating expenses were $48.6 million representing a slight increase of $0.1 million, or 0.1% from the prior year. Results reflected a continued investment in the Company's legal channel and an increase in the associated up-front costs. Legal investments increased to $10.2 million, or $0.33 per fully diluted share, pre-tax, during the quarter compared to $8.3 million, or $0.27 per fully diluted share, pre-tax, in the prior year period. Operating expenses also included $0.3 million, or $0.01 per fully diluted share, pre-tax, of restructuring costs related to actions taken to close the Tempe, Arizona collections office. Cost to collect for the quarter was 54.5%, an improvement of 100 basis points from the third quarter 2011, notwithstanding the unfavorable comparative impacts of the increased legal investment and restructuring charges.

Income tax expense was a net benefit of $0.5 million which was due to tax credits, state tax refund claims from prior years, and additional benefits achieved through a state sourcing strategy. As a result of these benefits, the year-to-date effective tax rate was lowered to 24.5%.

The Company reported net income of $1.5 million, or $0.05 per fully diluted share, net of tax, during the third quarter of 2012, compared to a net income of $3.1 million, or $0.10 per fully diluted share, net of tax, in the third quarter of 2011.

Adjusted Earnings Before Interest Taxes Depreciation and Amortization ("Adjusted EBITDA") was $42.5 million, a 1.8% increase from $41.7 million in the third quarter of 2011. Adjusted EBITDA was adversely impacted by the increased investment in legal costs compared to prior year.

During the third quarter of 2012, the Company invested $23.9 million to purchase charged-off consumer debt portfolioswith a face value of $766.2 million, for a blended rate of 3.13%. This compares to the prior-year third quarter, when the Company invested $38.3 million to purchase consumer debt portfolios with a face value of $1.3 billion, for a blended rate of 2.91%. All purchase data is adjusted for buybacks.

Rion Needs, President and CEO of Asset Acceptance Capital Corp., commented, "While we are not content with the reported results for the quarter, we are executing on initiatives and investments that we expect will position the Company for accelerated growth going forward. These include the restructuring actions we took during the quarter and the continued investments in our legal channel. Our investments in this channel are beginning to pay dividends as evidenced by the continued momentum in this business, specifically the sequential growth rate in this channel during the quarter. In addition, we maintained a focus on further streamlining our business operations by reducing our cost and geographic footprint. We expect the closure of our Tempe, Arizona collections call center and expansion of our legal collections operations in our Riverview, Florida office to drive improved results in 2013 and beyond."

On September 10, 2012, the Company announced that it will be expanding its legal collections operations in Riverview, Florida and closing its Tempe, Arizona collections call center. The closing of the Tempe collections office, along with related inventory reallocations is expected to increase earnings on an annual basis by approximately $4.0 million or $0.10 per share, net of tax.

First Nine Months 2012 Financial Highlights

For the nine-month period ended September 30, 2012, the Company reported cash collections of $282.2 million compared to cash collections of $267.9 million in the first nine months of 2011, an increase of $14.3 million or 5.3%. Results included 9.1%, or $10.9 million, cash collection growth from the Company's legal channel.

Total revenues in the first nine months of 2012 were $175.2 million compared to $161.7 million in the prior year. Revenue on purchased receivables was $174.5 million during the first nine months of 2012, an increase of 8.5% from the prior year.

Total operating expenses in the first nine months of 2012 were $145.3 million, an increase of $5.4 million or 3.8%. Cost to collect was 51.5% of cash collections compared to 52.2% from the prior year period. Results included legal channel investment of $25.7 million, or $0.83 per fully diluted share, pre-tax, compared to $21.5 million, or $0.70 per fully diluted share, pre-tax, for the comparable period last year.

Net income for the first nine months of 2012 was $10.7 million, or $0.34 per fully diluted share, net of tax, compared to net income of $7.8 million, or $0.25 per fully diluted share, net of tax, in the same period of 2011, an increase of 36.7%.

For the first nine months of 2012, Adjusted EBITDA was $142.5 million, a 6.0% increase from $134.5 million in the first nine months of 2011.

During the first nine months of 2012, the Company invested $104.0 million to purchase charged-off consumer debt portfolios with a face value of $3,651.0 million, for a blended rate of 2.85% of face value. This compares to the prior-year nine month period, when the Company invested $133.9 million to purchase charged-off consumer debt portfolios with a face value of $4,140.9 million, for a blended rate of 3.23% of face value. All purchase data is adjusted for buybacks.

Please refer to Supplemental Financial Data beginning on page six for additional information about the Company's financial results for the three and nine months ended September 30, 2012 and prior year periods. In addition, please see a reconciliation of net income according to Generally Accepted Accounting Principles ("GAAP") to Adjusted EBITDA beginning on page 13.

Third Quarter 2012 Earnings Conference Call

Asset Acceptance Capital Corp. will host a conference call at 4:30 p.m. Eastern today to discuss these results and current business trends. To listen to a live webcast of the call, please go to the investor section of the Company's web site at www.AssetAcceptance.com. A replay of the webcast will be available until October 29, 2013.

About Asset Acceptance Capital Corp.

For 50 years, Asset Acceptance has provided credit originators, such as credit card issuers, consumer finance companies, retail merchants, utilities and others an efficient alternative in recovering defaulted consumer debt. For more information, please visit www.AssetAcceptance.com.

Asset Acceptance Capital Corp. Safe Harbor Statement

This press release contains certain statements, including the Company's plans and expectations regarding its operating strategies, charged-off receivables, collections and costs, which are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include reference to the Company's presentations and webcasts. These forward-looking statements reflect the Company's views, expectations and beliefs at the time such statements were made with respect to such matters, as well as the Company's future plans, objectives, events, portfolio purchases and pricing, collections and financial results such as revenues, expenses, income, earnings per share, capital expenditures, operating margins, financial position, expected results of operations and other financial items. Forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Risk Factors") that make the timing, extent, likelihood and degree of occurrence of these matters difficult to predict. Words such as "anticipates," "believes," "estimates," "expects," "intends," "should," "could," "will," variations of such words and similar expressions are intended to identify forward-looking statements.

There are a number of factors, many of which are beyond the Company's control, which could cause actual results and outcomes to differ materially from those described in the forward-looking statements. These Risk Factors include the Risk Factors discussed under "Item 1A Risk Factors" in the Company's most recently filed Annual Report on Form 10-K and in other SEC filings, in each case under a section titled "Risk Factors" or similar headings and those discussions regarding risk factors as well as the discussion of forward-looking statements in such sections are incorporated herein by reference. Other Risk Factors exist, and new Risk Factors emerge from time to time that may cause actual results to differ materially from those contained in any forward-looking statements. Factors that could affect our results and cause them to materially differ from those contained in the forward-looking statements include the following:

  • failure to comply with government regulation;
  • increased costs or a decrease in collections if changes in the way we conduct business or additional costs to conduct business result from supervision and regulation by the Consumer Financial Protection Bureau or unknown ramifications from the Dodd-Frank Wall Street Reform and Consumer Protection Act;
  • our ability to purchase charged-off receivable portfolios on acceptable terms and in sufficient amounts;
  • instability in the financial markets and continued economic weakness or recession impacting our ability to acquire and collect on charged-off receivable portfolios and our operating results;
  • our ability to maintain existing, and to secure additional financing on acceptable terms;
  • changes in relationships with third parties collecting on our behalf;
  • intense competition on bids for portfolio purchases that could impair our ability to achieve our goals;
  • ongoing risks of litigation in our litigious industry, including individual and class actions under consumer credit, collections and other laws;
  • concentration of a significant portion of our portfolio purchases during any period with a small number of sellers;
  • our ability to substantiate our application of tax rules against examinations and challenges made by tax authorities;
  • our ability to collect sufficient amounts from our purchases of charged-off receivable portfolios;
  • our ability to diversify beyond collecting on our purchased receivables portfolios into ancillary lines of business;
  • a decrease in collections as a result of negative attention or news regarding the debt collection industry and debtors' willingness to pay the debt we acquire;
  • our ability to respond to technology downtime and changes in technology to remain competitive;
  • our ability to make reasonable estimates of the timing and amount of future cash receipts and assumptions underlying the calculation of the net impairment charges or IRR increases for purposes of recording purchased receivable revenues;
  • the costs, uncertainties and other effects of legal and administrative proceedings impacting our ability to collect on judgments in our favor;
  • our ability to successfully hire, train, integrate into our collections operations and retain in-house account representatives; and
  • other unanticipated events and conditions that may hinder our ability to compete.

Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Furthermore, the Company expressly disclaims any obligation to update, amend or clarify forward-looking statements.

Supplemental Financial Data

Quarterly trends for certain financial metrics are shown in the table below.

(Unaudited, $ in Millions, except collections per account representative) Q3 '12 Q2 '12 Q1 '12 Q4 '11 

Q3 '11

Total revenues $54.7  $58.7  $61.8  $56.4  $56.6 
Cash collections $89.2  $91.9  $101.1  $82.1  $87.4 
Operating expenses to cash collections  54.5%  52.7%  47.8%  55.1%  55.5%
Call center collections $44.1  $48.8  $58.7  $44.7  $48.2 
Legal collections $45.1  $43.1  $42.4  $37.4  $39.2 
Amortization rate  39.0%  36.4%  39.1%  31.6%  35.6%
Core amortization (1)  44.4%  42.0%  44.7%  36.9%  41.6%
Collections on fully amortized portfolios $10.9  $12.2  $12.7  $11.8  $12.6 
Investment in purchased receivables (2) $23.9  $58.9  $21.2  $26.7  $38.3 
Face value of purchased receivables (2) $766.2  $2,080.7  $804.1  $1,180.4  $1,317.1 
Average cost of purchased receivables (2)  3.13%  2.83%  2.63%  2.27%  2.91%
Number of purchased receivable portfolios  17   28   27   26   31 
Collections per account representative FTE (3) $47,593  $49,873  $60,482  $42,282  $42,135 
Average account representative FTE's (3)  413   446   480   546   601 
     
(1) The core amortization rate is calculated as total amortization divided by collections on amortizing portfolios.
(2)All purchase data is adjusted for buybacks.
(3)Historical information has not been adjusted for collection center closings.
 
 
 

The following table summarizes purchased receivable revenues and amortization rates by year of purchase:

 Three months ended September 30, 2012

Year
of Purchase

Collections Revenue 

Amortization
Rate (1)

 Monthly

Yield (2)

 

Net
Impairments
(Reversals)

 

Zero Basis

Collections

2006 and prior$13,002,016$11,848,325N/MN/M$(1,584,800)$8,726,718
20075,968,5644,167,28730.2%8.62%(618,000)1,271,044
20088,135,0135,207,53536.07.51882,334
200912,589,6338,163,72535.27.7138,364
201015,003,6017,797,74448.03.99
201122,769,6919,824,35056.92.701,717,000
2012 11,699,729 7,424,77436.52.89   
Totals$89,168,247$54,433,74039.0%5.11%$(485,800)$10,918,460
 
 
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 Three months ended September 30, 2011

Year
of Purchase

Collections Revenue 

Amortization
Rate (1)

 

Monthly
Yield (2)

 

Net
Impairments
(Reversals)

 

Zero Basis

Collections

2005 and prior$12,851,763$12,121,177N/MN/M$(1,228,100)$10,282,392
20066,458,5304,176,15335.3%11.27%(1,155,000)634,018
20078,804,8904,353,54650.65.14(350,000)250,263
200811,593,8626,374,20045.05.451,448,771
200916,156,8969,550,30640.95.6711,734
201018,249,5729,280,46749.13.11
2011 13,322,377 10,438,71821.63.26   
Totals$87,437,890$56,294,56735.6%5.42%$(2,733,100)$12,627,178