AACC Asset Acceptance Capital Corp. (MM)

Reports Cash Collections of $90.8 Million, Operating Expenses Decline to 55.2% of Cash Collections and Purchasing of $36.0 Million WARREN, Mich., Nov. 4 /PRNewswire-FirstCall/ -- Asset Acceptance Capital Corp. (NASDAQ:AACC), a leading purchaser and collector of charged-off consumer debt, today announced third quarter 2008 results, highlighted by higher net income and Adjusted EBITDA. Asset Acceptance reported cash collections of $90.8 million in the third quarter ended September 30, 2008, versus cash collections of $90.7 million in the year-ago period. For the nine-month period ended September 30, 2008, the Company reported cash collections of $286.2 million, an increase of 1.5 percent compared to the same nine-month period in 2007. Total revenues increased 11.0 percent to $58.4 million in the third quarter 2008, compared to total revenues of $52.6 million in the third quarter of 2007. Purchased receivable revenues were $58.1 million for the current quarter, an increase of $6.1 million, or 11.7 percent, from $52.0 million in the 2007 third quarter. During the third quarter of 2008, the Company's amortization rate, or cash collections applied to principal, decreased to 36.0% from 42.7% in the third quarter of 2007. The Company reported a third quarter 2008 net impairment charge of $3.1 million, versus a net impairment charge of $13.8 million in the prior year quarter. Net impairments for the first nine months of 2008 totaled $8.4 million versus $23.5 million for the first nine months of 2007. Net income for the current quarter was $3.0 million, or $0.10 per fully diluted share, compared to a net loss of $1.7 million, or $0.05 per fully diluted share, in the third quarter of 2007. Earnings Before Interest, Taxes, Depreciation and Amortization, including purchased receivable amortization ("Adjusted EBITDA"), increased to $41.9 million in the third quarter of 2008, up 5.0 percent compared to the year-ago period. For the nine-month period ended September 30, 2008, Adjusted EBITDA grew to $140.8 million, an increase of 7.2 percent when compared to the same nine-month period in 2007. Please refer to the table on page 5, which reconciles net income according to Generally Accepted Accounting Principles ("GAAP") to Adjusted EBITDA. Rion Needs, Senior Vice President and COO, commented: "We are pleased to continue the trend of lower operating expenses in comparison to the prior year not only as a percentage of cash collections but also in absolute dollars. Notably, this came despite an increasingly difficult collections environment. Operating expenses as a percent of cash collections declined more than 200 basis points to 55.2 percent in the third quarter versus 57.4 percent in the third quarter of last year. The most significant improvement in our operating expense structure occurred from the initiative implemented in the first quarter to better match our legal collections and expenses. At the same time, our account representative productivity declined for the quarter by approximately 12 percent which we believe was primarily the result of a more challenging collections environment. We will continuously refine and improve our collection tools and remain committed to providing all of our associates with better training and development initiatives that will enable us to maximize our collections in any environment." During the third quarter of 2008, the Company invested $36.0 million to purchase charged-off consumer debt portfolios with a face value of $725.8 million, for a blended rate of 4.96 percent of face value. This compares to the prior-year third quarter, when the Company invested $35.1 million to purchase consumer debt portfolios with a face value of $1.9 billion, representing a blended rate of 1.89 percent of face value. All purchase data is adjusted for buybacks. "Our dollars invested in purchasing consumer debt portfolios returned to more normalized levels during the quarter," said Brad Bradley, Chairman, President and CEO of Asset Acceptance Capital Corp. "The economy has continued to deteriorate and credit card charge-off and unemployment rates have increased. The financial markets are in turmoil, and economic conditions may very well get worse before they get better. As a result, we were selective in our approach to purchasing during the quarter as we expect there will be additional supply and better pricing in the next 12 to 18 months." The Company provided the following details regarding purchased receivable revenues: Three months ended September 30, 2008 Year of Amort- Net Purchase Collections Revenue ization Monthly Impair- Zero Basis Rate Yield(1) ments Collections 2002 and prior $11,088,771 $10,470,757 N/M% N/M% $- $10,139,534 2003 8,756,051 8,133,560 7.1 34.78 (293,200) 5,392,539 2004 7,477,697 5,214,842 30.3 6.90 1,121,000 857,394 2005 8,067,921 2,718,048 66.3 2.54 1,757,000 12,306 2006 17,983,016 13,561,339 24.6 6.01 12,000 1,909,125 2007 21,783,298 10,476,335 51.9 2.93 488,000 43,414 2008 15,618,774 7,540,551 51.7 2.74 - - Totals $90,775,528 $58,115,432 36.0 5.45 $3,084,800 $18,354,312 Three months ended September 30, 2007 Year of Amort- Net Purchase Collections Revenue ization Monthly Impair- Zero Basis Rate Yield(1) ments Collections 2001 and prior $8,393,785 $8,394,658 N/M% N/M% $- $8,393,785 2002 9,216,465 7,307,752 20.7 56.31 (46,600) 5,979,626 2003 13,745,208 9,309,806 32.3 18.08 159,300 3,703,211 2004 11,542,711 6,251,686 45.8 5.48 2,599,000 701,046 2005 11,977,322 (1,942,723) 116.2 (1.07) 11,124,000 25,775 2006 25,166,089 17,032,010 32.3 5.22 5,300 2,489,766 2007 10,706,862 5,681,345 46.9 2.30 - - Totals $90,748,442 $52,034,534 42.7 5.57 $13,841,00 $21,293,209 Nine months ended September 30, 2008 Year of Amort- Net Purchase Collections Revenue ization Monthly Impair- Zero Basis Rate Yield(1) ments Collections 2002 and prior $38,448,367 $36,759,752 N/M% N/M% $(550,000) $34,828,065 2003 31,199,446 27,553,337 11.7 33.70 (1,311,400) 17,491,792 2004 25,992,434 18,034,090 30.6 7.16 2,808,664 2,651,637 2005 28,762,384 11,025,465 61.7 2.90 4,362,986 56,605 2006 64,213,311 40,767,563 36.5 5.42 2,460,000 5,766,090 2007 73,446,469 32,799,249 55.3 2.73 668,000 78,674 2008 24,170,141 11,107,343 54.0 2.69 - 27,779 Totals $286,232,552 $178,046,799 37.8 5.76 $8,438,250 $60,900,642 Nine months ended September 30, 2007 Year of Amort- Net Purchase Collections Revenue ization Monthly Impair- Zero Basis Rate Yield(1) ments Collections 2001 and prior $29,075,495 $29,086,944 N/M% N/M% $- $28,909,608 2002 31,648,465 22,868,712 27.7 35.62 162,500 15,835,814 2003 46,176,202 31,082,260 32.7 15.54 1,783,600 9,739,777 2004 38,397,854 22,901,860 40.4 5.90 7,074,800 2,320,943 2005 40,451,980 17,445,342 56.9 2.79 13,803,000 56,005 2006 77,889,306 51,034,709 34.5 4.79 633,300 4,733,507 2007 18,394,511 9,911,639 46.1 2.33 - - Totals $282,033,813 $184,331,466 34.6 6.66 $23,457,20 $61,595,654 (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. Mark Redman, Senior Vice President-Finance and CFO of Asset Acceptance Capital Corp., said: "Fortunately, we refinanced our debt in June 2007 just ahead of the start of the events that have led to the extraordinarily difficult credit markets that we are currently experiencing. Our $100 million revolving credit line matures in June 2012 and the $150 million term loan matures in June 2013. During 2008, our strong cash flow has been the primary source of funds to acquire portfolios of charged-off consumer debt. We have invested $123.2 million in purchased receivables during the first nine months of 2008 and during that time the outstanding debt on our credit facilities has been reduced by approximately $2.1 million." Third Quarter 2008: Key Financial Highlights -- Cash collections were $90.8 million in the third quarter 2008, versus $90.7 million in the prior year third quarter. -- Total revenues increased 11.0 percent to $58.4 million in the third quarter 2008, versus $52.6 million in the prior year third quarter. -- Net income increased to $3.0 million, or $0.10 per fully diluted share, in the third quarter 2008, versus a net loss of $1.7 million, or $0.05 per fully diluted share, in the prior year third quarter. -- Total operating expenses were $50.1 million, or 55.2 percent of cash collections in the third quarter 2008, an improvement over operating expenses of 57.4 percent of cash collections during the same period last year. -- Traditional call center collections declined 6.4 percent to $38.4 million or 42.3 percent of total cash collections. -- Legal collections increased 3.9 percent to $38.1 million or 41.9 percent of total cash collections. -- Other collections, consisting primarily of agency forwarding, bankruptcy and probate collections, accounted for $14.3 million or the remaining 15.8 percent of total cash collections. -- Quarterly account representative productivity on a full-time equivalent basis was $39,866 in the third quarter 2008, a decline of 12.5 percent from the same period in 2007. Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA (Unaudited) The Company provided the following table which reconciles GAAP net income (loss), 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 (loss) 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. Three months ended Nine months ended September 30, September 30, 2008 2007 2008 2007 Net income (loss) $3,039,979 $(1,675,499) $11,941,961 $16,454,919 Add: interest income and expense (net), income taxes, depreciation and amortization 6,227,984 3,191,215 20,348,675 17,455,317 Add (subtract): (gain) loss on disposal of assets 2,280 (259,852) (153,277) (258,553) Add: impairment of intangible assets - - 445,651 - Add (subtract): other (income) expense 1,711 (29,240) (14,622) (51,705) Subtotal 9,271,954 1,226,624 32,568,388 33,599,978 Change to balance of purchased receivables 32,791,472 38,738,129 108,633,398 98,411,508 Non-cash revenue (131,376) (24,221) (447,645) (709,161) Adjusted EBITDA $41,932,050 $39,940,532 $140,754,141 $131,302,325 Cash collections $90,775,528 $90,748,442 $286,232,552 $282,033,813 Other revenues, net 238,331 290,257 976,153 1,165,226 Operating expenses (50,084,817) (52,174,978) (149,862,480) (155,143,090) Depreciation and amortization 1,000,728 1,073,957 2,950,502 3,242,223 Impairment of intangible assets - - 445,651 - Loss on disposal of equipment 2,280 2,854 11,763 4,153 Adjusted EBITDA $41,932,050 $39,940,532 $140,754,141 $131,302,325 Third 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 November 4, 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, ability to recover sufficient amounts on our charged-off receivable portfolios, 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 Q3 '08 Q2 '08 Q1 '08 Q4 '07 Q3 '07 Millions, except collections per account representative) Total revenues $58.4 $56.5 $64.4 $62.2 $52.6 Cash collections $90.8 $95.2 $100.3 $89.1 $90.7 Operating expenses to cash collections 55.2% 52.2% 50.0% 58.8% 57.4% Traditional call center collections (Note 1) $38.4 $42.2 $47.5 $38.6 $41.0 Legal collections $38.1 $39.9 $38.2 $37.6 $36.6 Other collections (Note 1) $14.3 $13.1 $14.6 $12.9 $13.1 Amortization rate 36.0% 41.0% 36.4% 31.2% 42.7% Collections on fully amortized portfolios $18.4 $20.3 $22.2 $20.4 $21.3 Core amortization rate (Note 2) 45.1% 52.1% 46.8% 40.5% 55.7% Investment in purchased receivables (Note 3) $36.0 $65.1 $22.1 $60.8 $35.1 Face value of purchased receivables (Note 3) $725.8 1,925.1 $544.8 $1,481.5 $1,850.7 Average cost of purchased receivables (Note 3) 4.96% 3.38% 4.06% 4.11% 1.89% Number of purchased receivable portfolios 42 52 47 46 42 Collections per account representative FTE (Note 1) $39,866 $45,538 $53,908 $44,235 $45,549 Average account representative FTE's (Note 1) 966 939 901 889 916 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 Operations (Unaudited) Three months ended Nine months ended September 30, September 30, 2008 2007 2008 2007 Revenues Purchased receivable revenues, net $58,115,432 $52,034,534 $178,046,799 $184,331,466 Gain on sale of purchased receivables - 262,706 165,040 262,706 Other revenues, net 238,331 290,257 976,153 1,165,226 Total revenues 58,353,763 52,587,497 179,187,992 185,759,398 Expenses Salaries and benefits 20,913,727 20,046,294 63,580,622 63,447,328 Collections expense 23,661,598 26,229,213 68,892,170 73,008,203 Occupancy 1,976,845 2,380,040 5,833,162 7,027,068 Administrative 2,529,639 2,355,442 8,148,610 7,849,901 Restructuring charges - 87,178 - 564,214 Depreciation and amortization 1,000,728 1,073,957 2,950,502 3,242,223 Impairment of intangible assets - - 445,651 - Loss on disposal of equipment 2,280 2,854 11,763 4,153 Total operating expenses 50,084,817 52,174,978 149,862,480 155,143,090 Income from operations 8,268,946 412,519 29,325,512 30,616,308 Other income (expense) Interest income 1,766 193,832 31,795 415,956 Interest expense (3,300,691) (3,357,264) (9,895,351) (4,759,644) Other (1,711) 29,240 14,622 51,705 Income (loss) before income taxes 4,968,310 (2,721,673) 19,476,578 26,324,325 Income taxes (benefits) 1,928,331 (1,046,174) 7,534,617 9,869,406 Net income (loss) $3,039,979 $(1,675,499) $11,941,961 $16,454,919 Weighted-average number of shares: Basic 30,570,423 30,568,041 30,561,653 33,173,613 Diluted 30,614,701 30,568,041 30,595,802 33,222,500 Earnings per common share outstanding: Basic $0.10 $(0.05) $0.39 $0.50 Diluted $0.10 $(0.05) $0.39 $0.50 Dividends per common share $- $2.45 $- $2.45 Asset Acceptance Capital Corp. Consolidated Statements of Financial Position (Unaudited) September 30, December 31, 2008 2007 ASSETS Cash $8,771,227 $10,474,479 Purchased receivables, net 358,557,240 346,198,900 Income taxes receivable 1,309,308 3,424,788 Property and equipment, net 13,342,208 11,006,658 Goodwill and other intangible assets 16,828,330 17,464,688 Other assets 7,245,578 6,083,211 Total assets $406,053,891 $394,652,724 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable $3,998,017 $3,377,068 Accrued liabilities 17,156,287 17,423,378 Notes payable 189,125,000 191,250,000 Deferred tax liability, net 60,526,015 60,164,784 Capital lease obligations 2,256 18,242 Total liabilities $270,807,575 $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 September 30, 2008 and December 31, 2007, respectively 331,196 331,196 Additional paid in capital 146,620,181 145,610,742 Retained earnings 31,407,079 19,465,118 Accumulated other comprehensive loss, net of tax (2,136,211) (2,012,127) Common stock in treasury; at cost, 2,576,670 and 2,551,556 shares at September 30, 2008 and December 31, 2007, respectively (40,975,929) (40,975,677) Total stockholders' equity 135,246,316 122,419,252 Total liabilities and stockholders' equity $406,053,891 $394,652,724 Asset Acceptance Capital Corp. Consolidated Statements of Cash Flows (Unaudited) Nine months ended September 30, 2008 2007 Cash flows from operating activities Net income $11,941,961 $16,454,919 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,950,502 3,242,223 Deferred income taxes 428,242 (1,544,037) Share-based compensation expense 1,009,187 1,203,717 Net impairment of purchased receivables 8,438,250 23,457,200 Non-cash revenue (447,645) (709,161) Loss on disposal of equipment 11,763 4,153 Gain on sale of purchased receivables (165,040) (262,706) Impairment of intangible assets 445,651 - Changes in assets and liabilities: Increase in accounts payable and accrued liabilities 162,763 3,679,496 Increase in other assets (501,792) (2,701,457) Decrease (increase) in income taxes receivable 2,115,480 (272,826) Net cash provided by operating activities 26,389,322 42,551,521 Cash flows from investing activities Investment in purchased receivables, net of buy backs (120,546,458) (108,329,242) Principal collected on purchased receivables 100,195,148 74,954,308 Proceeds from the sale of purchased receivables 167,405 262,706 Purchase of property and equipment (5,109,623) (2,052,351) Proceeds from the sale of property and equipment 2,515 274,397 Net cash used in investing activities (25,291,013) (34,890,182) Cash flows from financing activities Borrowings under notes payable 91,500,000 216,000,000 Repayment of notes payable (93,625,000) (70,375,000) Payment of credit facilities charges (660,575) - Repayment of capital lease obligations (15,986) (49,602) Repurchase of common stock - (78,717,201) Cash dividends paid - (74,891,700) Net cash used in financing activities (2,801,561) (8,033,503) Net decrease in cash (1,703,252) (372,164) Cash at beginning of period 10,474,479 11,307,451 Cash at end of period $8,771,227 $10,935,287 Supplemental disclosure of cash flow information Cash paid for interest $9,873,833 $3,500,176 Cash paid for income taxes 5,020,725 11,705,290 Non-cash investing and financing activities: Change in fair value of swap liability 191,095 801,193 Change in unrealized loss on cash flow hedge (124,084) (501,547) DATASOURCE: Asset Acceptance Capital Corp. CONTACT: Jeff Lambert or Jeff Tryka of Lambert, Edwards & Associates, +1-616-233-0500, Web site: http://www.assetacceptance.com/

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