AACC Asset Acceptance Capital Corp. (MM)

Asset Acceptance Capital Corp. (NASDAQ: AACC), a leading purchaser and collector of charged-off consumer debt, today announced results for the quarter ended September 30, 2009.

Highlights from the third quarter include:

• Acquired $37.2 million (net of buybacks) in charged-off consumer receivable portfolios, with an aggregate value of $1.6 billion, or 2.32% of face value;
• Cash Collections of $77.8 million;
• Operating expenses of 61.8 percent of Cash Collections; and
• Expanded borrowing capacity to $84 million with amended credit agreement financial covenants.

  Rion Needs

Rion Needs, President and CEO, commented: “Our cash collections during the quarter, particularly on older vintage portfolios, were unfavorably impacted by the ongoing macro-economic landscape that continues to hinder consumers’ ability to repay their obligations. We began to execute on our strategy to leverage the attractive pricing conditions for our paper, increasing our purchasing by roughly 80% during the third quarter versus the second quarter of 2009. In addition, we believe that our now expanded capacity under the amended credit facility coupled with the more advantageous pricing environment positions us well to execute on our strategy in the remainder of 2009 and into 2010.”

Needs continued, “While the current macro backdrop remains challenging, we are in a position to increase both our operational efficiency, as well as our capacity to positively impact liquidation rates going forward. In the coming months we will be unveiling new technology that will automate several of the key functions of our call center representatives, increasing their efficiency substantially and allowing them to focus their time on accounts that they are most likely to liquidate. Additionally, we have made solid progress in achieving our goal of increasing collection account representative headcount, and signed a third-party agreement with an offshore firm on a per seat basis to expand capacity by 20% by year-end. While the last several quarters have been difficult, we have implemented a number of initiatives and strategies to make us more successful as market conditions improve.”

Third Quarter 2009 Review

Asset Acceptance reported cash collections of $77.8 million in the third quarter ended September 30, 2009, versus cash collections of $90.8 million in the year-ago period.

Total revenues were $47.7 million in the third quarter of 2009, compared to total revenues of $58.4 million in the third quarter of 2008. Amortization of purchased receivables in the third quarter of 2009 was 39.0% of total cash collections versus 36.0% of total cash collections in the third quarter of 2008. The Company reported a third quarter of 2009 net impairment charge of $6.8 million on purchased receivables, versus a net impairment charge of $3.1 million in the prior year quarter.

The net loss for the quarter was $1.6 million, or $0.05 per fully diluted share, compared to net income of $3.0 million, or $0.10 per fully diluted share, in the third quarter of 2008. Earnings Before Interest, Taxes, Depreciation and Amortization, including purchased receivable amortization (“Adjusted EBITDA”), decreased to $32.6 million in the third quarter of 2009, down 22.8% compared to the year-ago period. Please refer to the table on page four, which reconciles net income according to Generally Accepted Accounting Principles (“GAAP”) to Adjusted EBITDA.

During the third quarter of 2009, the Company invested $37.2 million to purchase charged-off consumer debt portfolios with a face value of $1.6 billion, for a blended rate of 2.32% of face value. This compares to the prior-year third quarter, when the Company invested $35.6 million to purchase consumer debt portfolios with a face value of $718.8 million, representing a blended rate of 4.95% of face value. All purchase data is adjusted for buybacks.

In addition to lower cash collections in the quarter, the Company reported lower operating expenses compared to the prior year. Total operating expenses in the quarter were reduced 4.0% to $48.1 million, from $50.1 million in the third quarter of 2008. For the 2009 third quarter, Asset Acceptance reported operating expenses of 61.8% of cash collections, up from 55.2% of cash collections in the prior year quarter.

Nine Months Ended September 30, 2009

For the nine-month period ended September 30, 2009, the Company reported cash collections of $259.2 million compared to cash collections of $286.2 million in the first nine months of 2008.

Total revenues in the first nine months of 2009 were $153.7 million versus $179.2 million in the first nine months of 2008. For the first nine months of 2009, amortization of purchased receivables was 41.0% of total cash collections versus 37.8% of total cash collections in the same period of last year. Net impairments for the first nine months of 2009 totaled $17.1 million, versus $8.4 million for the first nine months of 2008.

Net income in the first nine months of 2009 was $3.8 million, or $0.12 per fully diluted share, compared to net income of $11.9 million, or $0.39 per fully diluted share, in the same period of 2008. For the nine-month period ended September 30, 2009, Adjusted EBITDA declined to $125.1 million, a decrease of 11.8% when compared to the same nine-month period in 2008.

The Company invested $79.1 million to purchase charged-off consumer debt portfolios with a face value of $3.1 billion, for a blended rate of 2.57% during the first nine months of 2009, compared to $122.3 million with a face value of $3.2 billion, for a blended rate of 3.85% in the same period of 2008. All purchase data is adjusted for buybacks.

Amended Credit Agreement

Asset Acceptance also announced the signing of an amendment to its credit facility led by JPMorgan Chase Bank, N.A. Under the terms of the Credit Agreement, the Company has a five-year $100.0 million revolving credit facility expiring in June 2012 and a six-year $150.0 million term loan facility expiring in June 2013. The amendment loosened two of the more restrictive financial covenants within the agreement and made other changes:

• The Leverage ratio has been loosened to 1.5 to 1.0, from 1.125 to 1.0, for approximately 2 years. At December 31, 2011, the leverage ratio will step down to 1.25 to 1.0 through expiration.
• The planned step down of the Total Liabilities to Tangible Net Worth ratio on December 31, 2009 from 2.5 to 1.0 to 2.25 to 1.0 has been deferred until December 31, 2011.
• The Minimum Tangible Net Worth requirement was increased by $5.0 million.
• The LIBOR spread was increased by 100 basis points.
• The Company paid fees and other costs of approximately $1.9 million in connection with the amendment.

“We are very pleased to announce the amended credit agreement with JPMorgan Chase. Under the amended agreement, our borrowing capacity has more than doubled to $84 million, creating additional flexibility to take advantage of the improved pricing conditions in the remainder of 2009 and into 2010,” commented Mark Redman, Senior Vice President and CFO of Asset Acceptance Capital Corp. “We have also made progress with Project Grow and our planned ramp up in paper purchases. We expect to see these initiatives begin to bear fruit, in terms of both productivity and our cost to convert accounts, as we move through the next twelve months.”

Reconciliation of GAAP Net (Loss) Income to Adjusted EBITDA (Unaudited)

The Company provided the following table which reconciles GAAP net (loss) income, as reported, to Adjusted EBITDA. The Company indicated that the measure “Adjusted EBITDA” is used in its amended credit agreement’s financial covenants. A similar calculation is used for its management bonus program. 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 September 30,   Nine months ended September 30, 2009   2008 2009   2008 Net (loss) income $ (1,641,668 ) $ 3,039,979 $ 3,802,763 $ 11,941,961 Add: interest income and expense (net), income taxes, depreciation and amortization 2,314,217 6,227,984 12,729,717 20,348,675 Add: share-based and other non-cash compensation 312,863 271,289 1,074,093 1,009,187 Add (subtract): (gain) loss on disposal of assets 100,560 2,280 107,101 (153,277 ) Add: impairment of assets 1,167,600   —   1,167,600   445,651   Subtotal 2,253,572 9,541,532 18,881,274 33,592,197   Change to balance of purchased receivables 30,745,788 32,791,472 106,642,722 108,633,398   Non-cash revenue (403,684 ) (131,376 ) (449,126 ) (447,645 ) Adjusted EBITDA $ 32,595,676   $ 42,201,628   $ 125,074,870   $ 141,777,950     Cash collections $ 77,832,357 $ 90,775,528 $ 259,242,871 $ 286,232,552 Other revenues, net 180,328 238,331 694,457 976,153 Operating expenses (48,097,751 ) (50,084,817 ) (140,160,099 ) (149,862,480 ) Share-based and other non-cash compensation 312,863 271,289 1,074,093 1,009,187 Depreciation and amortization 1,097,909 1,000,728 2,943,223 2,950,502 Impairment of assets 1,167,600 — 1,167,600 445,651 Loss on disposal of equipment 103,800 2,280 110,341 11,763 Other income (expense) (1,430 ) (1,711 ) 2,384   14,622   Adjusted EBITDA $ 32,595,676   $ 42,201,628   $ 125,074,870   $ 141,777,950  

Third Quarter 2009 Earnings Conference Call

Asset Acceptance Capital Corp. will host a conference call at 5 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 November 2, 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 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 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. 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)   Q3 ‘09   Q2 ‘09   Q1 ‘09   Q4 ‘08   Q3 ‘08 Total revenues   $ 47.7   $ 49.1   $ 57.0   $ 55.0   $ 58.4 Cash collections   $77.8   $87.3   $ 94.1   $ 83.3   $ 90.8 Operating expenses to cash collections   61.8%   51.6%   50.0%   55.2%   55.2% Traditional call center collections   $ 32.7   $ 36.1   $ 41.0   $ 35.1   $ 38.4 Legal collections   $ 33.1   $ 38.5   $ 38.7   $ 34.9   $ 38.1 Other collections   $ 12.0   $ 12.7   $ 14.4   $ 13.3   $ 14.3 Amortization rate   39.0%   44.1%   39.7%   34.2%   36.0% Collections on fully amortized portfolios   $ 14.9   $ 15.8   $ 18.3   $ 17.7   $ 18.4 Core amortization rate (Note 1)   48.2%   53.9%   49.3%   43.4%   45.1% Investment in purchased receivables (Note 2)   $ 37.2   $ 19.9   $ 22.0   $ 32.0   $ 35.6 Face value of purchased receivables (Note 2)   $ 1,601.5   $ 726.9   $ 745.3   $ 631.5   $ 718.8 Average cost of purchased receivables (Note 2)   2.32%   2.74%   2.95%   5.06%   4.95% Number of purchased receivable portfolios   33   22   31   23   42 Collections per account representative FTE   $ 31,413   $ 38,858   $ 42,940   $ 34,994   $39,866 Average account representative FTE’s   1,040   929   955   1,003   966

Note 1: Core amortization rate is amortization divided by collections on non-fully amortized portfolios.

Note 2: All purchase data is adjusted for buybacks.

The Company provided the following details regarding purchased receivable revenues:

  Three months ended September 30, 2009 Year of

Purchase

Collections   Revenue   Amortization Rate (1)   Monthly

Yield (2)

  Net

Impairments

  Zero Basis

Collections

2003 and prior

$ 12,496,014

$11,988,598

N/M

N/M

$ 89,600

$ 10,936,289

2004 4,454,762 2,599,509 41.6 % 6.11 % 1,217,600 808,955 2005 4,853,793 3,983,559 17.9 6.50 — 822,205 2006 11,958,118 5,851,551 51.1 3.68 3,771,000 1,535,195 2007 16,308,467 7,463,259 54.2 3.06 1,448,000 659,696 2008 19,246,798 9,313,547 51.6 3.03 260,938 76,087 2009 8,514,405 6,290,230 26.1 4.05 — 32,401 Totals $ 77,832,357 $ 47,490,253 39.0 4.84 $6,787,138 $ 14,870,828   Three months ended September 30, 2008 Year of

Purchase

Collections   Revenue   Amortization Rate (1)   Monthly

Yield (2)

  Net

Impairments

  Zero Basis

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   Nine months ended September 30, 2009 Year of

Purchase

Collections   Revenue   Amortization Rate (1)   Monthly

Yield (2)

  Net

Impairments

  Zero Basis

Collections

  2003 and prior

$ 44,611,966

$ 41,584,236

N/M

N/M

$ 502,300

$ 37,553,786

2004 16,964,303 8,398,595 50.5 % 5.48 % 5,176,200 2,743,240 2005 18,395,436 8,625,423 53.1 3.96 2,745,000 899,247 2006 42,742,909 26,178,624 38.8 4.91 6,268,000 5,143,335 2007 55,618,547 28,594,655 48.6 3.51 1,448,000 2,324,444 2008 66,365,765 29,574,388 55.4 2.84 942,938 254,264 2009 14,543,945 10,093,354 30.6 3.96 — 38,651 Totals $ 259,242,871 $ 153,049,275 41.0 5.00 $ 17,082,438 $ 48,956,967   Nine months ended September 30, 2008 Year of

Purchase

Collections   Revenue   Amortization Rate (1)   Monthly

Yield (2)

  Net

Impairments

  Zero Basis

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

(1)“N/M” indicates that the calculated percentage for aggregated vintage years 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.

Asset Acceptance Capital Corp.

Consolidated Statements of Operations

(Unaudited)

  Three months ended September 30,   Nine months ended September 30,

2009

 

2008

2009

 

2008

Revenues Purchased receivable revenues, net $ 47,490,253 $ 58,115,432 $ 153,049,275 $ 178,046,799 Gain on sale of purchased receivables 3,240 — 3,240 165,040 Other revenues, net 180,328   238,331   694,457   976,153   Total revenues 47,673,821   58,353,763   153,746,972   179,187,992   Expenses Salaries and benefits 19,102,293 21,059,704 57,316,187 63,963,050 Collections expense 22,752,371 23,515,621 66,519,664 68,509,742 Occupancy 1,789,286 1,976,845 5,459,528 5,833,162 Administrative 2,084,492 2,529,639 6,643,556 8,148,610 Depreciation and amortization 1,097,909 1,000,728 2,943,223 2,950,502 Impairment of assets 1,167,600 — 1,167,600 445,651 Loss on disposal of equipment and other assets 103,800   2,280   110,341   11,763   Total operating expenses 48,097,751   50,084,817   140,160,099   149,862,480   (Loss) income from operations (423,930 ) 8,268,946 13,586,873 29,325,512 Other income (expense) Interest income 10,098 1,766 14,790 31,795 Interest expense (2,424,753 ) (3,300,691 ) (7,538,717 ) (9,895,351 ) Other (1,430 ) (1,711 ) 2,384   14,622   (Loss) income before income taxes (2,840,015 ) 4,968,310 6,065,330 19,476,578 Income tax (benefit) expense (1,198,347 ) 1,928,331   2,262,567   7,534,617   Net (loss) income $ (1,641,668 ) $ 3,039,979   $ 3,802,763   $ 11,941,961     Weighted-average number of shares: Basic 30,642,866 30,570,423 30,625,842 30,561,653 Diluted 30,642,866 30,614,701 30,659,555 30,595,802 (Loss) earnings per common share outstanding: Basic $ (0.05 ) $ 0.10 $ 0.12 $ 0.39 Diluted $ (0.05 ) $ 0.10 $ 0.12 $ 0.39

Asset Acceptance Capital Corp.

Consolidated Statements of Financial Position

(Unaudited)

  September 30, 2009   December 31, 2008 ASSETS Cash $ 5,801,837 $ 6,042,859 Purchased receivables, net 333,750,279 361,808,502 Income taxes receivable 3,885,852 3,934,029 Property and equipment, net 12,976,497 12,526,817 Goodwill 14,323,071 14,323,071 Intangible assets, net 1,129,065 2,453,117 Other assets 4,938,462   7,082,721   Total assets $ 376,805,063   $ 408,171,116     LIABILITIES AND STOCKHOLDERS’ EQUITY   Liabilities: Accounts payable $ 2,571,352 $ 3,388,320 Accrued liabilities 16,562,531 21,476,207 Income taxes payable 1,133,852 658,329 Notes payable 146,197,514 181,550,000 Deferred tax liability, net 67,579,774   64,470,002   Total liabilities $ 234,045,023   $ 271,542,858     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 — 33,198,336 and 33,169,552 at September 30, 2009 and December 31, 2008, respectively 331,983 331,696 Additional paid in capital 147,989,597 146,915,791 Retained earnings 38,991,077 35,188,314 Accumulated other comprehensive loss, net of tax (3,325,246 ) (4,664,862 ) Common stock in treasury; at cost, 2,607,748 and 2,596,521 shares at September 30, 2009 and December 31, 2008, respectively (41,227,371 ) (41,142,681 ) Total stockholders’ equity 142,760,040   136,628,258   Total liabilities and stockholders’ equity $ 376,805,063   $ 408,171,116  

ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)

  Nine months ended September 30,

2009

 

2008

Cash flows from operating activities Net income $ 3,802,763 $ 11,941,961

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 2,943,223 2,950,502 Amortization of deferred financing costs 394,954 403,919 Deferred income taxes 2,541,292 428,242 Share-based and other non-cash compensation 1,074,093 1,009,187 Net impairment of purchased receivables 17,082,438 8,438,250 Non-cash revenue (449,126 ) (447,645 ) Loss on disposal of equipment and other assets 110,341 11,763 Gain on sale of purchased receivables (3,240 ) (165,040 ) Impairment of assets 1,167,600 445,651 Changes in assets and liabilities: Decrease (increase) in other assets 1,749,305 (905,711 )

(Decrease) increase in accounts payable and other accrued liabilities

(3,822,548 ) 162,763 Increase in net income taxes 523,700   2,115,480   Net cash provided by operating activities 27,114,795   26,389,322     Cash flows from investing activities Investment in purchased receivables, net of buy backs (78,135,527 ) (120,546,458 ) Principal collected on purchased receivables 89,560,284 100,195,148 Proceeds from the sale of purchased receivables 3,394 167,405 Purchases of property and equipment (3,350,989 ) (5,109,623 ) Proceeds from sale of property and equipment 4,197   2,515   Net cash provided by (used in) investing activities 8,081,359   (25,291,013 )   Cash flows from financing activities Borrowings under notes payable 24,800,000 91,500,000 Repayments of notes payable (60,152,486 ) (93,625,000 ) Purchase of treasury shares (84,690 ) — Payment of deferred financing costs — (660,575 ) Repayments of capital lease obligations —   (15,986 ) Net cash used in financing activities (35,437,176 ) (2,801,561 ) Net decrease in cash (241,022 ) (1,703,252 ) Cash at beginning of period 6,042,859   10,474,479   Cash at end of period $ 5,801,837   $ 8,771,227     Supplemental disclosure of cash flow information Cash paid for interest, net of capitalized interest $ 7,591,706 $ 9,873,833 Net cash (received) paid for income taxes (742,067 ) 5,020,725 Non-cash investing and financing activities: Change in fair value of swap liability (1,908,096 ) 191,095 Change in unrealized loss on cash flow hedge 1,339,616 (124,084 )