AACC Asset Acceptance Capital Corp. (MM)

Reports Record Cash Collections and Operating Expenses Reduced to 50% of Cash Collections; Revenue Declines on Higher Purchased Receivable Amortization WARREN, Mich., April 30 /PRNewswire-FirstCall/ -- Asset Acceptance Capital Corp. (NASDAQ:AACC), a leading purchaser and collector of charged-off consumer debt, today announced first quarter 2008 results, highlighted by a 4.6 percent improvement in cash collections and reduced operating expenses. Total revenues declined by 4.4 percent versus the same period last year. Asset Acceptance reported cash collections of $100.3 million in the first quarter ended March 31, 2008 -- the first time quarterly cash collections have exceeded the one hundred million dollar mark, versus cash collections of $95.9 million in the same period of 2007. Total revenues declined to $64.4 million for the first quarter 2008, compared to total revenues of $67.3 million in the first quarter of 2007. Amortization of purchased receivables in the first quarter of 2008 was 36.4 percent of total cash collections versus 30.3 percent in the year ago period. The Company reported a first quarter 2008 net impairment charge of $0.4 million, versus a net impairment charge of $4.5 million in the prior year quarter. Net income for the quarter was $6.8 million, or $0.22 per fully diluted share, compared to net income of $9.9 million, or $0.28 per fully diluted share, for the first quarter of 2007. Earnings Before Interest, Taxes, Depreciation and Amortization, including purchased receivable amortization ("Adjusted EBITDA"), increased 12.9 percent in the first quarter 2008 to $52.1 million when compared to the year-ago period. Please refer to the table on page 4, which reconciles net income according to Generally Accepted Accounting Principles ("GAAP") to Adjusted EBITDA. Rion Needs, Senior Vice President and COO, commented: "Operating expenses were 50 percent of total cash collections in the quarter, comparing favorably to more than 53 percent in the same quarter a year ago and nearly 56 percent for all of 2007. Our efforts to focus on improving expense management and implementing higher levels of operational discipline throughout our organization were factors that contributed to the lower collection cost. However, also contributing to this decline was our conscious decision to temporarily defer some legal collection expenses as we enhanced our predictive modeling capabilities and refined our ability to forecast costs and resulting collections in the legal collection channel." During the first quarter of 2008, the Company invested $22.3 million to purchase charged-off consumer debt portfolios with a face value of $548.5 million, representing a blended rate of 4.07 percent of face value. This compares to the prior-year first quarter, when the Company invested $36.3 million to purchase consumer debt portfolios with a face value of $765.1 million, representing a blended rate of 4.74 percent of face value. All purchase data is adjusted for buybacks. "We were opportunistic, but selective in our approach to purchasing delinquent receivable portfolios during the first quarter," said Brad Bradley, Chairman, President and CEO of Asset Acceptance Capital Corp. "Several factors contributed to our modest investment in purchased receivables during the first quarter when compared to the year-ago period, including our belief that the pricing environment may continue to improve from current levels, our bias toward the most attractive deals available in the market, as well as reduced purchasing activity for two weeks while we sought a temporary waiver for our credit agreement covenant violation. Furthermore, given the potential impact of the current uncertain macroeconomic climate on the financial well-being of the U.S. consumer, we believe portfolio supply will continue to expand in the foreseeable future." Bradley continued: "Given our more moderate purchasing activities during the quarter, we used excess cash flow to reduce our outstanding debt on the revolving line of credit by $27.0 million during the first quarter. This reduction in our debt outstanding, combined with the updated financial covenants under our credit agreement, provide us with the financial flexibility to further capitalize on an improving debt purchasing environment." The Company provided the following details regarding purchased receivable revenues: 3 months ended March 31, 2008 Amorti- Net Year of zation Monthly Impair- Zero Basis Purchase Collections Revenue Rate Yield(1) ments Collections 2002 and prior $14,575,197 $14,187,683 2.7% N/M% $(550,000) $13,078,350 2003 11,897,021 10,145,297 14.7 31.89 (481,050) 6,196,948 2004 9,594,231 6,579,328 31.4 7.11 1,050,347 931,339 2005 10,611,978 5,759,834 45.7 3.91 92,986 36,398 2006 24,887,906 15,533,913 37.6 5.56 92,000 1,964,255 2007 27,347,947 11,201,973 59.0 2.50 180,000 44,810 2008 1,350,001 314,660 76.7 1.38 - - Totals $100,264,281 $63,722,688 36.4 6.20 $384,283 $22,252,100 3 months ended March 31, 2007 Amorti- Net Year of zation Monthly Impair- Zero Basis Purchase Collections Revenue Rate Yield(1) ments Collections 2001 and prior $10,330,950 $10,244,254 0.8% N/M% $ - $10,166,762 2002 12,016,760 7,943,214 33.9 25.36 216,800 4,554,522 2003 16,780,060 11,649,217 30.6 14.11 763,300 2,676,504 2004 14,034,358 9,179,365 34.6 6.31 1,931,000 768,617 2005 14,740,661 10,436,030 29.2 4.57 934,000 10,536 2006 26,513,053 16,380,649 38.2 4.24 628,000 285,541 2007 1,437,508 949,305 34.0 1.55 - - Totals $95,853,350 $66,782,034 30.3 7.14 $4,473,100 $18,462,482 (1) The monthly yield is a 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. First Quarter 2008: Key Financial Highlights -- Cash collections increased 4.6 percent to $100.3 million in the current quarter, versus $95.9 million in the prior year first quarter. -- Total revenues declined 4.4 percent to $64.4 million in the current quarter, versus $67.3 million in the prior year first quarter. -- Net income decreased 31.2 percent to $6.8 million in the current quarter, versus net income of $9.9 million in the prior year first quarter. Net income per fully diluted share decreased to 0.22, compared with net income per fully diluted share of 0.28 in the prior year quarter. -- Total operating expenses were $50.1 million, or 50.0 percent of cash collections. This compares with operating expenses of 53.4 percent of cash collections during the same period last year. -- Traditional call center collections were $47.5 million, a decrease of 1.6 percent from the same period last year and 47.4 percent of total cash collections. -- Legal collections for the quarter were $38.2 million, an increase of 6.4 percent from the same period last year and 38.1 percent of total cash collections. -- Other collections, consisting primarily of agency forwarding, bankruptcy and probate collections, accounted for $14.6 million or the remaining 14.5 percent of cash collections. -- Quarterly account representative productivity on a full-time equivalent basis was $53,908, an increase of 0.5 percent from the first quarter 2007. Mark Redman, Senior Vice President-Finance and CFO of Asset Acceptance Capital Corp., concluded: "Overall, we generated strong cash flow as demonstrated by the 12.9 percent growth in Adjusted EBITDA resulting from increased cash collections and the reduction in operating expenses to 50.0 percent of total cash collections. Amortization rates on purchased receivables continue to rise as the portfolios acquired in recent years in an elevated pricing environment comprise a larger proportion of total cash collections." Redman summarized: "Higher prices result in lower expected multiples of purchase price to be collected and therefore lower yields for revenue recognition. The reduced yields result in a lower proportion of cash collected being recognized as purchased receivable revenues." Reconciliation of GAAP Net Income to Adjusted EBITDA (Unaudited) The Company provided the following table which reconciles GAAP net income, as reported, to Adjusted EBITDA. The Company indicated that the measure "Adjusted EBITDA" is the basis for its management bonus program and a similar computation is used in its credit agreement's financial covenants. The Company believes that Adjusted EBITDA, which is generally cash collections less operating expenses (other than non-cash operating expenses, such as depreciation and amortization) represents the Company's cash generation which can be used to purchase receivables, pay down debt, pay income taxes, return to shareholders and for other uses. Adjusted EBITDA, which is a non-GAAP financial measure, should not be considered an alternative to, or more meaningful than, net income prepared on a GAAP basis. Additionally, Adjusted EBITDA as computed by the Company may not be comparable to similar metrics used by others in the industry. 3 months ended March 31, 2008 2007 Net income $6,777,824 $9,851,253 Add: interest income and expense (net), income taxes, depreciation 8,520,369 7,253,151 Add (subtract): (gain) loss on disposal of equipment and other assets (153,522) (5,415) Add: impairment of intangible assets 445,651 - Add (subtract): other (income) expense (17,983) (12,209) Subtotal 15,572,339 17,086,780 Change to balance of purchased receivables 36,689,362 29,509,791 Non-cash revenue (147,769) (438,475) Adjusted EBITDA $52,113,932 $46,158,096 Cash collections $100,264,281 $95,853,350 Other revenues, net 472,937 523,993 Operating expenses (50,102,324) (51,302,724) Depreciation and amortization 1,027,804 1,088,892 Impairment of intangible assets 445,651 - Loss (gain) on disposal of equipment 5,583 (5,415) Adjusted EBITDA $52,113,932 $46,158,096 First Quarter 2008 Earnings Conference Call Asset Acceptance Capital Corp. will host a conference call at 10 a.m. Eastern today to discuss these results and current business trends. To listen to a live Web cast of the call, please go to the investor section of the Company's web site at http://www.assetacceptance.com/. A replay of the Web cast will be available until April 29, 2009. About Asset Acceptance Capital Corp. For more than 45 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 http://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 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. 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. Risk Factors include, among others: ability to purchase charged- off consumer receivables at appropriate prices, ability to continue to acquire charged-off receivables in sufficient amounts to operate efficiently and profitably, employee turnover, ability to compete in the marketplace and acquiring charged-off receivables in industries with which the Company has little or no experience. These Risk Factors also include, among others, 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. 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 (Unaudited, Dollars in Millions, except collections per account representative) Q1 '08 Q4 '07 Q3 '07 Q2 '07 Q1 '07 Total revenues $ 64.4 $ 62.2 $ 52.6 $ 65.9 $ 67.3 Cash collections $ 100.3 $ 89.1 $ 90.7 $ 95.4 $ 95.9 Operating expenses to cash collections 50.0% 58.8% 57.4% 54.1% 53.4% Traditional call center collections (Note 1) $ 47.5 $ 38.6 $ 41.0 $ 45.0 $ 48.3 Legal collections $ 38.2 $ 37.6 $ 36.6 $ 37.8 $ 35.9 Other collections (Note 1) $ 14.6 $ 12.9 $ 13.1 $ 12.6 $ 11.7 Amortization rate 36.4% 31.2% 42.7% 31.3% 30.3% Collections on fully amortized portfolios $ 22.3 $ 20.4 $ 21.3 $ 22.1 $ 18.5 Core amortization rate (Note 2) 46.8% 40.4% 55.7% 40.8% 37.6% Investment in purchased receivables (Note 3) $ 22.3 $ 61.5 $ 35.2 $ 37.6 $ 36.3 Face value of purchased receivables (Note 3) $ 548.5 $ 1,496.2 $ 1,858.8 $ 1,108.5 $ 765.1 Average cost of purchased receivables (Note 3) 4.07% 4.11% 1.89% 3.39% 4.74% Number of purchased receivable portfolios 47 46 42 37 33 Collections per account representative FTE (Note 1) $ 53,908 $ 44,235 $ 45,549 $ 49,421 $ 53,629 Average account representative FTE's (Note 1) 901 889 916 930 921 Note 1: Amounts reclassified for purposes of comparability to current periods. Note 2: Core amortization rate is amortization divided by collections on non-fully amortized portfolios. Note 3: All purchase data is adjusted for buybacks. Asset Acceptance Capital Corp. Consolidated Statements of Income (Unaudited) Three months ended March 31, 2008 2007 Revenues Purchased receivable revenues, net $63,722,688 $66,782,034 Gain on sale of purchased receivables 159,105 - Other revenues, net 472,937 523,993 Total revenues 64,354,730 67,306,027 Expenses Salaries and benefits 21,930,965 22,448,455 Collections expense 22,096,681 23,069,940 Occupancy 1,927,488 2,339,385 Administrative 2,668,152 2,213,356 Restructuring charges - 148,111 Depreciation and amortization 1,027,804 1,088,892 Impairment of intangible assets 445,651 - Loss (gain) on disposal of equipment 5,583 (5,415) Total operating expenses 50,102,324 51,302,724 Income from operations 14,252,406 16,003,303 Other income (expense) Interest income 23,251 15,727 Interest expense (3,344,597) (263,818) Other 17,983 12,209 Income before income taxes 10,949,043 15,767,421 Income taxes 4,171,219 5,916,168 Net income $6,777,824 $9,851,253 Weighted average number of shares: Basic 30,553,019 34,718,820 Diluted 30,565,690 34,725,992 Earnings per common share outstanding: Basic $0.22 $0.28 Diluted $0.22 $0.28 Asset Acceptance Capital Corp. Consolidated Statements of Financial Position (Unaudited) March 31, December 31, 2008 2007 ASSETS Cash $12,753,915 $10,474,479 Purchased receivables, net 330,127,109 346,198,900 Income taxes receivable 823,300 3,424,788 Property and equipment, net 12,478,908 11,006,658 Goodwill and other intangible assets 16,932,614 17,464,688 Other assets 6,116,672 6,083,211 Total assets $379,232,518 $394,652,724 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable $3,678,460 $3,377,068 Accrued liabilities 23,925,493 17,423,378 Notes payable 163,875,000 191,250,000 Deferred tax liability, net 60,474,878 60,164,784 Capital lease obligations 9,186 18,242 Total liabilities 251,963,017 272,233,472 Stockholders' equity: Preferred stock, $0.01 par value, 10,000,000 shares authorized; no shares issued and outstanding - - Common stock, $0.01 par value, 100,000,000 shares authorized; issued shares - 33,119,597 at March 31, 2008 and December 31, 2007, respectively 331,196 331,196 Additional paid in capital 145,857,175 145,610,742 Retained earnings 26,242,942 19,465,118 Accumulated other comprehensive loss, net of tax (4,186,135) (2,012,127) Common stock in treasury; at cost, 2,551,556 shares at March 31, 2008 and December 31, 2007, respectively (40,975,677) (40,975,677) Total stockholders' equity 127,269,501 122,419,252 Total liabilities and stockholders' equity $379,232,518 $394,652,724 Asset Acceptance Capital Corp. Consolidated Statements of Cash Flows (Unaudited) Three months ended March 31, 2008 2007 Cash flows from operating activities Net income $6,777,824 $9,851,253 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,027,804 1,088,892 Deferred income taxes 1,510,293 197,786 Share-based compensation expense 246,433 94,144 Net impairment of purchased receivables 384,283 4,473,100 Non-cash revenue (147,769) (438,475) Loss (gain) on disposal of equipment 5,583 (5,415) Gain on sale of purchased receivables (159,105) - Impairment of intangible assets 445,651 - Changes in assets and liabilities: Increase in accounts payable and accrued liabilities 3,429,300 744,837 Decrease in other assets 536,083 73,747 Increase in income taxes 2,601,488 4,681,382 Net cash provided by operating activities 16,657,868 20,761,251 Cash flows from investing activities Investment in purchased receivables, net of buy backs (20,472,028) (36,214,485) Principal collected on purchased receivables 36,305,079 25,036,691 Proceeds from the sale of purchased receivables 161,331 - Purchase of property and equipment (2,415,950) (454,785) Proceeds (payments) from sale or disposal of property and equipment (3,264) 11,493 Net cash provided by (used in) investing activities 13,575,168 (11,621,086) Cash flows from financing activities Borrowings under notes payable - 17,000,000 Repayment of notes payable (27,375,000) (27,000,000) Payment of credit facility charges (569,544) - Repayment of capital lease obligations (9,056) (23,895) Purchase of treasury shares - (699,060) Net cash used in financing activities (27,953,600) (10,722,955) Net increase (decrease) in cash 2,279,436 (1,582,790) Cash at beginning of period 10,474,479 11,307,451 Cash at end of period $12,753,915 $9,724,661 Supplemental disclosure of cash flow information Cash paid for interest $3,434,253 $208,083 Cash paid for income taxes 73,390 1,037,000 Non-cash investing and financing activities: Change in fair value of swap liability 3,374,207 - Change in unrealized loss on cash flow hedge (2,174,008) - DATASOURCE: Asset Acceptance Capital Corp. CONTACT: Noel Ryan III of Lambert, Edwards & Associates, Inc., +1-616-233-0500, , for Asset Acceptance Capital Corp. Web site: http://www.assetacceptance.com/

Copyright