Asset Acceptance Capital Corp. Reports First Quarter 2013 Results
Asset Acceptance Capital Corp. Reports First Quarter 2013 Results
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 March 31, 2013.
First Quarter 2013 Financial Highlights
Cash collections for the first quarter of 2013 increased 2.6% compared to the same period of the prior year, to $103.8 million.
First quarter revenues were $55.2 million, a decrease of 10.7% from the same period of the prior year. The Company reported net impairments on purchased receivables of $0.2 million, which decreased revenues for the quarter, versus net impairment reversals of $4.5 million in the prior year period.
Operating expenses were $47.0 million, a decrease of $1.4 million compared to the prior year period. Results reflected continued investment in the Company's legal channel and an increase in related up-front costs ahead of associated collections. Legal investments increased to $8.0 million during the quarter compared to $6.9 million in the same period of the prior year. Despite the increased legal investment, cost to collect for the quarter was 45.3%, an improvement of 253 basis points from the first quarter of 2012. Reported operating expenses and cost to collect do not include $1.9 million of costs related to the pending merger transaction with Encore Capital Group, Inc. ("Encore"), disclosed on March 6, 2013. These costs have been reported as Other Income (Expense).
Adjusted Earnings Before Interest Taxes Depreciation and Amortization ("Adjusted EBITDA") was $56.5 million, a 3.3% increase from $54.7 million in the first quarter of 2012. Please see a reconciliation of net income according to U.S. Generally Accepted Accounting Principles ("GAAP") to Adjusted EBITDA on page 13.
The Company reported net income of $0.4 million or $0.01 per fully diluted share during the first quarter of 2013, compared to net income of $5.4 million or $0.18 per fully diluted share in the first quarter of 2012. The quarterly effective tax rate of 70.8% included the effect of a significant amount of non-deductible costs related to the pending merger transaction.
During the first quarter of 2013, the Company acquired $27.1 million in charged-off consumer receivables with a face value of $431.6 million for a blended rate of 6.27% of face value. By comparison, the Company purchased $21.1 million in charged-off consumer receivables with a face value of $803.2 million during the prior year's first quarter, representing a blended rate of 2.63% of face value. All purchase data is adjusted for buybacks.
As previously reported on March 6, 2013, the Company has entered into a definitive agreement and plan of merger (the "Merger Agreement") with Encore, pursuant to which a wholly-owned subsidiary of Encore will merge with and into the Company, with the Company continuing as the surviving corporation and becoming a wholly-owned subsidiary of Encore (the "Merger"). For terms of the Merger Agreement, including circumstances under which the Merger Agreement can be terminated and the ramifications of such a termination, as well as other terms and conditions, refer to the Merger Agreement filed as Exhibit 1.1 to our Current Report on Form 8-K with the SEC Commission on March 11, 2013. The parties to the Merger Agreement currently expect to complete the Merger in the second quarter of 2013, although neither the Company nor Encore can assure completion by any particular date or that the Merger will be completed at all. Because the Merger is subject to a number of conditions, the exact timing of completion of the Merger cannot be determined at this time.
Please refer to Supplemental Financial Data beginning on page five for additional information about the Company's financial results for the three months ended March 31, 2013 and prior year quarters.
About Asset Acceptance Capital Corp.
For over 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:
- the parties to the Merger Agreement may be unable to satisfy the conditions to the completion of the Merger and the pending Merger with Encore may not be completed, which could negatively impact the market price of AACC common stock and our financial condition and results of operation;
- until the consummation of the Merger, the Merger Agreement with Encore restricts our ability to engage in certain actions, including, among others, purchases of portfolio accounts receivable and making capital expenditures;
- failure to comply with government regulation;
- a decrease in collections if changes in or enforcement of debt collection laws impair our ability to collect, including any 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;
- ongoing risks of litigation in connection with the pending Merger and litigation in our litigious industry generally, 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)||Q1 '13||Q4 '12||Q3 '12||Q2 '12||Q1 '12|
|Total revenues||$55.2||$51.7||$54.7||$ 58.7||$ 61.8|
|Cash collections||$103.8||$85.7||$89.2||$ 91.9||$ 101.1|
|Operating expenses to cash collections (1)||45.3%||54.7%||54.5%||52.7%||47.8%|
|Call center collections||$53.4||$39.2||$44.1||$ 48.8||$ 58.7|
|Legal collections||$50.4||$46.5||$45.1||$ 43.1||$ 42.4|
|Core amortization (2)||52.5%||45.1%||44.4%||42.0%||44.7%|
|Collections on fully amortized portfolios||$10.8||$10.0||$10.9||$ 12.2||$ 12.7|
|Investment in purchased receivables (3)||$27.1||$60.8||$23.9||$ 58.6||$ 21.1|
|Face value of purchased receivables (3)||$431.6||$1,334.0||$765.6||$2,074.1||$803.2|
|Average cost of purchased receivables (3)||6.27%||4.56%||3.12%||2.83%||2.63%|
|Number of purchased receivable portfolios||33||40||17||28||27|
|Collections per account representative FTE (4) (5)||$93,771||$61,044||$45,005||$48,369||$58,052|
|Average account representative FTE's (4) (5)||250||291||437||460||500|
|(1)||Does not include $1.9 million of costs related to the pending merger transaction with Encore|
|(2)||The core amortization rate is calculated as total amortization divided by collections on amortizing portfolios.|
|(3)||All purchase data is adjusted for buybacks.|
|(4)||Historical information has not been adjusted for collection center closings.|
|(5)||Prior period results have been restated to the current period presentation.|
The Company provided the following details of purchased receivable revenues by year of purchase:
|Three Months Ended March 31, 2013|
Year of Purchase
|2007 and prior||$||16,135,973||$||11,219,563||N/M||N/M||$ 240,000||$||9,036,577|
|Three Months Ended March 31, 2012|
Year of Purchase
|2006 and prior||$||17,272,755||$||15,422,027||N/M||N/M||$ (2,639,700||)||$||10,463,961|
|(1)||"N/M" indicates that the calculated percentage is not meaningful.|
|(2)||The monthly yield is the weighted-average yield determined by dividing purchased receivable revenues recognized in the period by the average of the beginning monthly carrying values of the purchased receivables for the period presented.|
Purchased Receivable Revenues and Amortization
The table below shows the components of revenue from purchased receivables, the amortization rate and the core amortization rate. We use the core amortization rate to monitor performance of pools with remaining balances, and to determine if impairments, impairment reversals, or yield increases should be recorded. Core amortization trends may identify over or under performance compared to forecasts for pools with remaining balances.
The following factors contributed to the change in amortization rates from the prior year:
- total amortization and the amortization rate increased during the first quarter of 2013 compared to the same period in 2012. The increase in the amortization rate and total amortization was primarily the result of lower weighted-average yields, lower zero-basis collections and impairments during 2013 compared to impairment reversals during 2012. Portfolio balances that amortize too slowly in relation to current or expected collections may lead to impairments. If portfolio balances amortize too quickly and we expect collections to continue to exceed expectations, previously recognized impairments may be reversed, or if there are no impairments to reverse, assigned yields may increase;
- amortization of receivable balances for 2013 increased compared to 2012 as a result of higher collections on amortizing pools;
- net impairments are recorded as additional amortization, and increase the amortization rate, while net reversals have the opposite effect. Impairment for 2013 increased total amortization compared to the same period in 2012; and
- declining zero basis collections in the first quarter of 2013 compared to the same period in 2012 increased the amortization rate because 100% of these collections are recorded as revenue and do not contribute towards portfolio amortization.
Three Months Ended
|($ in millions)||2013||2012|
|Collections on amortizing portfolios||$||93.0||$||88.4|
|Zero basis collections||10.8||12.7|
|Amortization of receivables balances||$||48.6||$||43.9|
|Reversals of impairments||—||(4.5||)|
|Cost recovery amortization||—||0.1|
|Purchased receivable revenues, net||$||55.0||$||61.6|
|Core amortization rate (1)||52.5||%||44.7||%|
|(1)||The core amortization rate is calculated as total amortization divided by collections on amortizing portfolios.|
Consolidated Statements of Operations
|Three Months Ended March 31,|
|Purchased receivable revenues, net||$||55,014,330||
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