AACC Asset Acceptance Capital Corp. (MM)

WARREN, Mich., Feb. 19 /PRNewswire-FirstCall/ -- Asset Acceptance Capital Corp. (NASDAQ:AACC), a leading purchaser and collector of charged-off consumer debt, today announced financial results for its fourth quarter and fiscal year ended December 31, 2008. The Company's full-year results included cash collections of $369.6 million and a decline in operating expenses to 53.0 percent of cash collections. The Company reported earnings per fully diluted share in the fourth quarter of $0.12. Asset Acceptance reported cash collections of $83.3 million in the fourth quarter ended December 31, 2008, a decrease of 6.5 percent versus the year-ago period, driven primarily by the continued deterioration of the collections environment. For the full-year period ended December 31, 2008, cash collections declined 0.4 percent to $369.6 million, compared to $371.2 million in the prior-year period. Total revenues decreased 11.6 percent to $55.0 million for the fourth quarter 2008, compared to revenues of $62.2 million in the year-ago period. Total revenues for the fiscal year ended December 31, 2008 declined 5.6 percent to $234.2 million, compared to $248.0 million in the prior year. Fiscal 2008 purchased receivable revenues declined 5.2 percent to $232.9 million, down from $245.7 million in fiscal 2007. The Company reported a fourth quarter 2008 net impairment charge of $4.6 million versus $0.9 million in the fourth quarter of 2007. For the full-year 2008, Asset Acceptance reported net impairment charges of $13.0 million compared to $24.4 million in fiscal 2007. The Company reported net income in the fourth quarter 2008 of $3.8 million, or $0.12 per fully diluted share, compared to net income of $4.0 million, or $0.13 per fully diluted share in the fourth quarter 2007. Net income for the year ended December 31, 2008 declined 23.0 percent to $15.7 million, or $0.51 per fully diluted share, compared to $20.4 million, or $0.63 per fully diluted share in fiscal 2007. Earnings Before Interest, Taxes, Depreciation and Amortization, including purchased receivable amortization ("Adjusted EBITDA"), increased to $38.9 million in the fourth quarter of 2008, up 1.2 percent compared to the same period a year ago. For the year ended December 31, 2008, Adjusted EBITDA grew to $179.7 million, an increase of 5.8 percent when compared to the prior-year period. Please refer to the table on page four, which reconciles net income according to Generally Accepted Accounting Principles ("GAAP") to Adjusted EBITDA. "Undoubtedly, 2008 will long be remembered for the significant economic turmoil that has dramatically impacted the financial well-being of the American consumer," said Rion Needs, President and CEO of Asset Acceptance Capital Corp. "For us, these trying times present both challenges and opportunities. On the one hand, increasing unemployment and other macro-economic factors are leading to increases in delinquencies of consumer debt that we expect will be available for purchase in the future. On the other hand, the receivables that we acquired in previous periods have become more difficult to liquidate. Our challenge is to remain diligent and tailor our collection efforts to maximize the long-term return to the Company while positioning ourselves to take advantage of increases in the supply of receivables that will be coming to market." Needs continued: "We continue to focus on achieving a high level of operational discipline throughout the organization. In 2008, we improved our operating expenses as a percentage of cash collections by approximately 290 basis points when compared to 2007. By better controlling our operating costs, we increased Adjusted EBITDA by 5.8 percent despite a small drop in our year-over-year cash collections. We are investing in our people, processes and tools in order to drive efficiencies and maintain profitability in this challenging environment in order to be poised for growth as the supply of receivables builds." During the fourth quarter of 2008, the Company invested $32.2 million to purchase charged-off consumer debt portfolios with a face value of $636.5 million, representing a blended rate of 5.06 percent of face value. This compares to the prior-year fourth quarter, when the Company invested $60.7 million to purchase consumer debt portfolios with a face value of $1.5 billion, representing a blended rate of 4.10 percent of face value (net of buybacks through 2008). For the full year 2008, the Company invested $155.2 million in purchased receivables with a face value of $3.8 billion, or 4.05 percent of face value. By comparison, in 2007, the Company invested $169.5 million in purchased receivables with a face value of $5.2 billion, or 3.26 percent of face value. The Company indicated that the increase in the blended rate paid resulted from an overall higher quality of purchased receivables acquired in the current periods compared to the prior periods. All purchase data is adjusted for buybacks. "We continue to be selective in the receivables that we acquire, preferring to purchase moderate levels of debt from trusted sellers," said Needs. "We will continue to purchase at moderate levels that are below our current purchasing capacity as pricing and liquidation rates continue to decline. We will look to increase our purchasing levels as we start to see signs of a pricing bottom and the beginnings of a rebound in liquidation rates. We believe this will likely happen in late 2009 or early 2010, but will continue to update our models and timing as new economic data becomes available." Mark A. Redman, Senior Vice President-Finance and CFO of Asset Acceptance Capital Corp., concluded: "I am pleased that we were able to reduce our operating expenses to 53.0 percent of cash collections in 2008, despite the difficult collections environment. However, continued increases in our amortization rates of purchased receivables and interest expense on our debt led to a decline in net income to $15.7 million in 2008, compared to $20.4 million in 2007. Our strong cash flow allowed us to reduce our revolving line of credit by $8.2 million in 2008 while investing $155.2 million to purchase receivables. We remain dedicated to effectively managing Asset Acceptance through the current recession so that we can improve results as the economy recovers." Fiscal 2009 Outlook The Company also unveiled its econometric model, including expectations for operating in the current economic environment. Management noted that with continued weakness in the U.S. economy, 2009 will likely be a challenging year for collections. However, management believes that the current environment also presents substantial opportunities, and has a strategic plan that lays the foundation for long-term success. In developing the model, management conducted an in-depth economic analysis of the current collections and purchasing environment, reviewing key economic indicators that will likely impact business results. The result of this work is a refined quantitative econometric model that will identify major shifts in trends, and be used to guide the Company's timing of portfolio purchases and maximize return on investment in purchased receivables. Based on current and expected economic trends, management believes the supply of charged-off receivables will continue to grow through much of 2009, resulting in improving pricing. In addition, increasing levels of unemployment and credit card delinquency suggests collectability will continue to be challenging, resulting in lower revenue and profitability for recent portfolio purchases in the near term. As a result, the Company expects to be selective in its portfolio purchases, which will likely result in reduced investments in purchased receivables for the first half of 2009 as compared to prior years. The Company expects to increase purchases later in the year at substantially better collections-to-price multiples because it projects pricing to continue to improve into late 2009 and early 2010. The Company also believes that the bottom of this pricing market will roughly correspond with improving liquidation rates, resulting in increased revenues, earnings and return-on-portfolio investment. Management will continue to focus on efficiently and profitably collecting on its existing portfolios while updating its econometric model to guide the timing of increased portfolio purchasing. President and CEO Rion Needs concluded: "Although the expansion of our credit facility and other financing remains an option, we believe the long-term costs associated with refinancing in the current credit market would not be prudent. We continue to explore financing alternatives, recognizing that we have significant purchasing power based on current cash flow and from our current credit agreement to take advantage of opportunities in the market. However, we believe that the market will continue to improve and provide significantly better buying opportunities in the medium term (6-18 months), making it prudent for us to delay significant portfolio purchases until later in the year. We believe that pursuing this strategy will result in positioning the Company for improved growth in 2010 and beyond." 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 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. Three Months Ended Twelve Months Ended December 31, December 31, 2008 2007 2008 2007 Net income $3,781,235 $3,951,594 $15,723,196 $20,406,513 Add: interest income And expense (net), income taxes, depreciation 6,279,037 7,006,180 26,627,712 24,461,497 Add (subtract): (gain) loss on disposal of assets 210,102 (444,439) 56,825 (702,992) Add: impairment of assets 170,692 266,667 616,343 266,667 Add (subtract): other (income) expense (7,274) (99,449) (21,896) (151,154) Subtotal 10,433,792 10,680,553 43,002,180 44,280,531 Change to balance of purchased receivables 28,618,956 27,831,887 137,252,354 126,243,395 Non-cash revenue (127,361) (47,510) (575,006) (756,671) Adjusted EBITDA $38,925,387 $38,464,930 $179,679,528 $169,767,255 Cash collections $83,345,578 $89,144,650 $369,578,130 $371,178,463 Other revenues, net 170,341 301,394 1,146,494 1,466,620 Operating expenses (45,975,626) (52,413,169) (195,838,106) (207,556,259) Depreciation & amortization 1,004,300 1,032,709 3,954,802 4,274,932 Impairment of assets 170,692 266,667 616,343 266,667 Loss on disposal of equipment and other assets 210,102 132,679 221,865 136,832 Adjusted EBITDA $38,925,387 $38,464,930 $179,679,528 $169,767,255 Fourth Quarter and Year-End 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 February 19, 2010. 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. Forward-looking statements include reference to the Company's presentations and Web casts. 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 that 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) Q4 '08 Q3 '08 Q2 '08 Q1 '08 Q4 '07 Total revenues $55.0 $58.4 $56.5 $64.4 $62.2 Cash collections $83.3 $90.8 $95.2 $100.3 $89.1 Operating expenses to cash collections 55.2% 55.2% 52.2% 50.0% 58.8% Traditional call center collections (Note 1) $35.1 $38.4 $42.2 $47.5 $38.6 Legal collections $34.9 $38.1 $39.9 $38.2 $37.6 Other collections (Note 1) $13.3 $14.3 $13.1 $14.6 $12.9 Amortization rate 34.2% 36.0% 41.0% 36.4% 31.2% Collections on fully amortized portfolios $17.7 $18.4 $20.3 $22.2 $20.4 Core amortization rate (Note 2) 43.4% 45.1% 52.1% 46.8% 40.5% Investment in purchased receivables (Note 3) $32.2 $35.9 $65.0 $22.1 $60.7 Face value of purchased receivables (Note 3) $636.5 $724.0 $1,922.9 $544.0 $1,479.0 Average cost of purchased receivables (Note 3) 5.06% 4.96% 3.38% 4.06% 4.10% Number of purchased receivable portfolios 23 42 52 47 46 Collections per account representative FTE $34,994 $39,866 $45,538 $53,908 $44,235 Average account representative FTE's 1,003 966 939 901 889 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. Purchased Receivables Revenues Three Months Ended December 31, 2008 Year of Collect- Revenue Amortization Monthly Net Zero Purchase ions Rate Yield(1) Impair- Basis ments Collections 2003 and prior $16,922,585 $16,030,474 N/M% N/M% $285,600 $14,205,902 2004 6,283,258 4,139,738 34.1 6.08 1,774,300 1,055,473 2005 6,875,733 3,846,204 44.1 4.08 336,000 24,133 2006 15,740,083 10,127,371 35.7 4.88 2,167,497 1,727,832 2007 19,736,899 11,264,597 42.9 3.47 20,813 637,223 2008 17,787,020 9,445,599 46.9 2.66 18,276 73,516 Totals $83,345,578 $54,853,983 34.2 5.13 $4,602,486 $17,724,079 Three Months Ended December 31, 2007 Year of Collect- Revenue Amortization Monthly Net Zero Purchase ions Rate Yield(1) Impair- Basis ments Collections 2002 and prior $15,392,547 $14,070,257 N/M% N/M% $ - $13,299,254 2003 12,183,093 8,955,760 26.5 23.22 (248,600) 4,276,864 2004 9,695,151 6,858,595 29.3 6.85 1,184,900 858,731 2005 10,359,395 6,036,362 41.7 3.79 - 12,278 2006 23,639,849 16,482,364 30.3 5.49 - 1,992,660 2007 17,874,615 8,956,935 49.9 2.56 - - Totals $89,144,650 $61,360,273 31.2 6.42 $936,300 $20,439,787 Twelve Months Ended December 31, 2008 Year of Collect- Revenue Amortization Monthly Net Zero Purchase ions Rate Yield(1) Impair- Basis ments Collections 2003 and prior $86,570,398 $80,343,561 N/M% N/M% (1,575,800) $66,525,760 2004 32,275,692 22,173,829 31.3 6.93 4,582,964 3,707,110 2005 35,638,117 14,871,669 58.3 3.13 4,698,986 80,738 2006 79,953,394 50,894,934 36.3 5.30 4,627,497 7,493,922 2007 93,183,368 44,063,847 52.7 2.88 688,813 715,897 2008 41,957,161 20,552,942 51.0 2.68 18,276 101,294 Totals $369,578,130 $232,900,782 37.0 5.60 $13,040,736 $78,624,721 Twelve Months Ended December 31, 2007 Year of Collect- Revenue Amortization Monthly Net Zero Purchase ions Rate Yield(1) Impair- Basis Ments Collections 2002 and prior $76,116,507 $66,025,915 N/M% N/M% $162,500 $58,044,676 2003 58,359,295 40,038,019 31.4 16.78 1,535,000 14,016,641 2004 48,093,005 29,760,455 38.1 6.09 8,259,700 3,179,675 2005 50,811,376 23,481,703 53.8 3.00 13,803,000 68,282 2006 101,529,155 67,517,073 33.5 4.95 633,300 6,726,167 2007 36,269,125 18,868,574 48.0 2.43 - - Totals $371,178,463 $245,691,739 33.8 6.60 $24,393,500 $82,035,441 (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. Asset Acceptance Capital Corp. Consolidated Statements of Operations (Unaudited) For the Three Months Ended For the Years Ended December 31, December 31, 2008 2007 2008 2007 Revenues Purchased receivable revenues, net $54,853,983 $61,360,273 $232,900,782 $245,691,739 Gain on sale of purchased receivables - 577,118 165,040 839,824 Other revenues, net 170,341 301,394 1,146,494 1,466,620 Total revenues 55,024,324 62,238,785 234,212,316 247,998,183 Expenses Salaries and benefits 19,259,577 19,469,334 82,840,199 82,916,662 Collections expense 21,074,736 26,378,541 89,966,906 99,386,744 Occupancy 1,894,194 2,111,375 7,727,356 9,138,443 Administrative 2,362,025 2,679,581 10,510,635 10,529,482 Restructuring charges - 342,283 - 906,497 Depreciation and amortization 1,004,300 1,032,709 3,954,802 4,274,932 Impairment of assets 170,692 266,667 616,343 266,667 Loss on disposal of equipment and other assets 210,102 132,679 221,865 136,832 Total operating expenses 45,975,626 52,413,169 195,838,106 207,556,259 Income from operations 9,048,698 9,825,6163 8,374,210 40,441,924 Other income (expense) Interest income 201 54,738 31,996 470,694 Interest expense (3,128,587) (3,385,812) (13,023,938) (8,145,456) Other 7,274 99,449 21,896 151,154 Income before income taxes 5,927,586 6,593,991 25,404,164 32,918,316 Income taxes 2,146,351 2,642,397 9,680,968 12,511,803 Net income $3,781,235 $3,951,594 $15,723,196 $20,406,513 Weighted average number of shares: Basic 30,579,066 30,568,041 30,566,031 32,516,866 Diluted 30,581,939 30,769,614 30,592,317 32,604,100 Earnings per common share outstanding: Basic $0.12 $0.13 $0.51 $0.63 Diluted $0.12 $0.13 $0.51 $0.63 Dividends per common share $- $- $- $2.45 Asset Acceptance Capital Corp. Consolidated Statements of Financial Position (Unaudited) December 31, December 31, 2008 2007 ASSETS $6,042,859 $10,474,479 Cash Purchased receivables, net 361,808,502 346,198,900 Income taxes receivable 3,934,029 4,181,245 Property and equipment, net 12,526,817 11,006,658 Goodwill and other intangible assets 16,776,188 17,464,688 Other assets 7,082,721 6,083,211 Total assets $408,171,116 $395,409,181 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable $3,388,320 $3,377,068 Accrued liabilities 21,476,207 17,423,378 Income taxes payable 658,329 756,457 Notes payable 181,550,000 191,250,000 Deferred tax liability, net 64,470,002 60,164,784 Capital lease obligations - 18,242 Total liabilities 271,542,858 272,989,929 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 - 33,169,552 and 33,119,597 at December 31, 2008 and December 31, 2007, respectively 331,696 331,196 Additional paid in capital 146,915,791 145,610,742 Retained earnings 35,188,314 19,465,118 Accumulated other comprehensive loss, net of tax (4,664,862) (2,012,127) Common stock in treasury; at cost, 2,596,521 and 2,551,556 shares at December 31, 2008 and 2007, respectively (41,142,681) (40,975,677) Total stockholders' equity 136,628,258 122,419,252 Total liabilities and stockholders' equity $408,171,116 $395,409,181 Asset Acceptance Capital Corp. Consolidated Statements of Cash Flows (Unaudited) For the Years Ended December 31, 2008 2007 Cash flows from operating activities Net income $15,723,196 $20,406,513 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,954,802 4,274,932 Deferred income taxes 5,770,054 646,442 Share-based and other non-cash compensation expense 1,329,298 1,458,768 Net impairment of purchased receivables 13,040,736 24,393,500 Non-cash revenue (575,006) (756,671) Loss on disposal of equipment and other assets 221,865 136,832 Gain on sale of purchased receivables (165,040) (839,824) Impairment of assets 616,343 266,667 Changes in assets and liabilities: (Decrease) increase in accounts payable and other accrued liabilities (53,490) 981,779 (Increase) decrease in other assets (338,935) 382,429 Increase (decrease) in income taxes 149,088 (189,362) Net cash provided by operating activities 39,672,911 51,162,005 Cash flows from investing activities Investment in purchased receivables, net of buybacks (152,289,315) (170,847,886) Principal collected on purchased receivables 124,211,618 101,849,895 Proceeds from the sale of purchased receivables 167,405 842,594 Purchase of property and equipment (5,658,784) (2,377,522) Proceeds from sale of property and equipment 7,800 276,638 Net cash used in investing activities (33,561,276) (70,256,281) Cash flows from financing activities Borrowings under notes payable 128,000,000 263,000,000 Repayment of notes payable (137,700,000) (88,750,000) Payment of deferred financing costs (660,575) (2,315,096) Repayment of capital lease obligations (15,927) (61,579) Repurchase of common stock (166,753) (78,720,321) Cash dividends paid - (74,891,700) Net cash (used in) provided by financing activities (10,543,255) 18,261,304 Net decrease in cash (4,431,620) (832,972) Cash at beginning of period 10,474,479 11,307,451 Cash at end of period $6,042,859 $10,474,479 Supplemental disclosure of cash flow information Cash paid for interest $12,588,205 $6,647,856 Net cash paid for income taxes $3,724,444 $12,176,983 Non-cash investing and financing activities: Change in fair value of swap liability $4,117,571 $3,126,003 Change in unrealized loss on cash flow hedge $(2,652,735) $(2,012,127) 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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