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 and fiscal year ended December 31, 2009.

Highlights from the fourth quarter 2009 include:

• Acquired $43.0 million (net of buybacks) in charged-off consumer receivable portfolios during the fourth quarter of 2009, with an aggregate value of $1.4 billion, or 3.08% of face value;
• Cash collections of $74.8 million;
• Non-cash net impairment of purchased receivables of $32.4 million;
• Operating expenses of 64.9 percent of cash collections; and
• Net loss of $20.2 million.

Rion Needs, President and CEO, commented: “The operating environment in 2009 has been one of the most challenging periods in our Company’s history, with the fourth quarter proving to be one of the most difficult quarters of the year. The macroeconomic environment continued to adversely impact our cash collections, particularly on our older vintages. In connection with the preparation of our financial statements for the quarter and year ended December 31, 2009, we observed a significant difference between actual and projected cash collections in some of these older portfolios, which caused us to perform a more in depth review of our expectation of future cash collections. This resulted in a large non-cash impairment charge of $32.4 million, or $0.66 per share, net of the tax benefit. As a result, we reported a net loss for fourth quarter and the year. We are hopeful that this action will aid in minimizing non-cash impairments going forward.”

Needs continued, “While the economic headwinds persisted throughout the year, the pricing environment remained attractive as supply of charge-offs from issuers continued to expand and the overall demand remained soft. We continued to ramp up our purchasing during the back half of the year, and expect this initiative to pay dividends as we move through 2010 and collect on the newer vintage. Additionally, we made further progress with our initiatives to improve operational efficiencies that not only helped us manage through the current economic climate but also positions us for long-term value creation. Despite a difficult 2009, we look forward to 2010 and the opportunities for our business.”

Fourth Quarter 2009 Review

Asset Acceptance reported cash collections of $74.8 million in the fourth quarter ended December 31, 2009, versus cash collections of $83.3 million in the year-ago period.

Total revenues were $18.7 million in the fourth quarter of 2009, compared to total revenues of $55.0 million in the fourth quarter of 2008. Amortization of purchased receivables in the fourth quarter of 2009 was 75.6% of total cash collections versus 34.2% of total cash collections in the fourth quarter of 2008. The Company reported a fourth quarter of 2009 non-cash net impairment charge of $32.4 million on purchased receivables, versus $4.6 million in the prior year quarter.

The net loss for the quarter was $20.2 million, or $0.66 per fully diluted share, compared to net income of $3.8 million, or $0.12 per fully diluted share, in the fourth quarter of 2008. Earnings Before Interest, Taxes, Depreciation and Amortization, including purchased receivables amortization (“Adjusted EBITDA”), decreased to $28.2 million in the fourth quarter of 2009, down 28.2% compared to the year-ago period. Please refer to the table on page three, which reconciles net income according to Generally Accepted Accounting Principles (“GAAP”) to Adjusted EBITDA.

During the fourth quarter of 2009, the Company invested $43.0 million to purchase charged-off consumer debt portfolios with a face value of $1.4 billion, for a blended rate of 3.08% of face value. This compares to the prior-year fourth quarter, when the Company invested $31.9 million to purchase consumer debt portfolios with a face value of $630.0 million, representing a blended rate of 5.06% of face value. All purchase data is adjusted for buybacks.

In addition to lower cash collections in the quarter, the Company reported higher operating expenses compared to the prior year. Total operating expenses in the quarter increased 5.5% to $48.5 million, from $46.0 million in the fourth quarter of 2008. For the 2009 fourth quarter, Asset Acceptance reported operating expenses of 64.9% of cash collections, up from 55.2% of cash collections in the prior year quarter.

Twelve Months Ended December 31, 2009

For the fiscal year ended December 31, 2009, the Company reported cash collections of $334.0 million compared to cash collections of $369.6 million in fiscal year 2008.

Total revenues in the fiscal year 2009 were $172.5 million versus $234.2 million in 2008. For 2009, amortization of purchased receivables was 48.7% of total cash collections versus 37.0% of total cash collections in the same period of last year. Net non-cash impairments for the fiscal year of 2009 totaled $49.5 million, versus $13.0 million for the year 2008.

The net loss for the twelve months of 2009 was $16.4 million, or $0.54 per fully diluted share, compared to net income of $15.7 million, or $0.51 per fully diluted share, in 2008. For the fiscal year ended December 31, 2009, Adjusted EBITDA declined to $153.3 million, a decrease of 15.3% when compared to the year ended 2008.

The Company invested $121.9 million to purchase charged-off consumer debt portfolios with a face value of $4.5 billion, for a blended rate of 2.73% during 2009, compared to $154.2 million with a face value of $3.8 billion, for a blended rate of 4.05% in 2008. All purchase data is adjusted for buybacks.

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

This press release includes a discussion of "Adjusted EBITDA," which is a non-GAAP financial measure. The Company defines Adjusted EBITDA as net (loss) income plus (a) the (benefit) provision for income taxes, (b) interest expense, net, (c) depreciation and amortization, (d) share-based compensation, (e) (gain) loss on sale of assets, net, (f) impairment of assets and (g) purchased receivables amortization.

The Company believes this non-GAAP financial measure provides important supplemental information to management and investors. This non-GAAP financial measure reflects an additional way of viewing aspects of the Company's operations that, when viewed with the GAAP results and the accompanying reconciliation to the most directly comparable GAAP financial measure, provide a more complete understanding of factors and trends affecting the Company's business and results of operations.

Management uses Adjusted EBITDA for planning purposes, including the preparation of internal budgets and forecasts; in communications with the Board of Directors, stockholders, analysts and investors concerning our financial performance; as a key component in management’s annual incentive compensation plan; and as a measure of operating performance for the financial covenants in our amended credit agreement. The Company also believes that analysts and investors use Adjusted EBITDA as supplemental measures to evaluate the overall operating performance of companies in its industry.

Adjusted EBITDA, which is a non-GAAP financial measure, should not be considered an alternative to, or more meaningful than, net (loss) income prepared on a GAAP basis. Management strongly encourages investors to review the Company's consolidated financial statements in their entirety and to not rely on any single financial measure. Because non-GAAP financial measures are not standardized, it may not be possible to compare this financial measure with other companies' non-GAAP financial measures having the same or similar names. In addition, the Company expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from the Company's non-GAAP measure should not be construed as an inference that these costs are unusual, infrequent or non-recurring.

The Company provided the following table which reconciles GAAP net (loss) income, as reported, to Adjusted EBITDA.

  Three months ended

December 31,

  Twelve months ended

December 31,

2009   2008 2009   2008 Net (loss) income $ (20,236,860 ) $ 3,781,235 $ (16,434,097 ) $ 15,723,196 Adjustments: Income tax (benefit) expense (12,020,016 ) 2,146,351 (9,757,449 ) 9,680,968 Interest expense, net 2,610,979 3,128,386 10,134,906 12,991,942 Depreciation and amortization 1,164,412 1,004,300 4,107,635 3,954,802 Share-based compensation 254,309 320,111 1,328,402 1,329,298 (Gain) loss on sale of assets, net (151,840 ) 210,102 (44,739 ) 56,825 Impairment of assets — 170,692 1,167,600 616,343 Purchased receivables amortization   56,561,720     28,491,595   162,755,316     136,677,348 Adjusted EBITDA $ 28,182,704   $ 39,252,772 $ 153,257,574   $ 181,030,722

Fourth Quarter and Full Year 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 and access the presentation, 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 March 10, 2011.

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)   Q4 ‘09   Q3 ‘09   Q2 ‘09   Q1 ‘09   Q4 ‘08 Total revenues   $ 18.7   $ 47.7   $ 49.1   $ 57.0   $ 55.0 Cash collections   $ 74.8   $ 77.8   $ 87.3   $ 94.1   $ 83.3 Operating expenses to cash collections   64.9%   61.8%   51.6%   50.0%   55.2% Traditional call center collections   $ 32.6   $ 32.7   $ 36.1   $ 41.0   $ 35.1 Legal collections   $ 31.4   $ 33.1   $ 38.5   $ 38.7   $ 34.9 Other collections   $ 10.8   $ 12.0   $ 12.7   $ 14.4   $ 13.3 Amortization rate   75.6%   39.0%   44.1%   39.7%   34.2% Collections on fully amortized portfolios   $ 14.2   $ 14.9   $ 15.8   $ 18.3   $ 17.7 Core amortization rate (Note 1)   93.4%   48.2%   53.9%   49.3%   43.4% Investment in purchased receivables (Note 2)   $ 43.0   $ 37.1   $ 19.9   $ 21.9   $ 31.9 Face value of purchased receivables (Note 2)   $ 1,395.5   $ 1,597.8   $ 724.9   $ 741.7   $ 630.0 Average cost of purchased receivables (Note 2)   3.08%   2.32%   2.74%   2.95%   5.06% Number of purchased receivable portfolios   37   33   22   31   23 Collections per account representative FTE   $ 29,345   $ 31,413   $ 38,858   $ 42,940   $ 34,994 Average account representative FTE’s   1,112   1,040   929   955   1,003

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 December 31, 2009 Year of

Purchase

Collections   Revenue  

Amortization Rate(1)

  Monthly

Yield(2)

  Net

Impairments

  Zero Basis

Collections

2004 and prior $ 15,242,351 $ 9,368,895 N/M N/M $ 4,238,000 $ 10,708,969 2005 4,330,183 (6,349,293 ) N/M N/M 9,025,000 1,069,404 2006 10,496,427 (6,605,124 ) N/M N/M 13,587,000 1,380,421 2007 14,272,149 2,619,833 81.6 % 1.25 % 5,546,000 880,453 2008 17,064,373 8,847,629 48.2 3.17 26,316 78,279 2009   13,382,243   10,344,066   22.7 4.00   —     86,345 Totals $ 74,787,726 $ 18,226,006   75.6 % 1.92 % $ 32,422,316   $ 14,203,871   Three months ended December 31, 2008 Year of

Purchase

Collections Revenue

Amortization Rate(1)

Monthly

Yield(2)

Net

Impairments

Zero Basis

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   Twelve months ended December 31, 2009 Year of

Purchase

Collections Revenue

Amortization Rate(1)

Monthly

Yield(2)

Net

Impairments

Zero Basis

Collections

2004 and prior $ 76,818,620 $ 59,351,726 N/M N/M $ 9,916,500 $ 51,005,995 2005 22,725,619 2,276,130 90.0 % 0.88 % 11,770,000 1,968,651 2006 53,239,336 19,573,500 63.2 3.00 19,855,000 6,523,756 2007 69,890,696 31,214,488 55.3 3.05 6,994,000 3,204,897 2008 83,430,138 38,422,017 53.9 2.91 969,254 332,543 2009   27,926,188   20,437,420   26.8 3.98   —     124,996 Totals $ 334,030,597 $ 171,275,281   48.7 % 4.27 % $ 49,504,754   $ 63,160,838   Twelve months ended December 31, 2008 Year of

Purchase

Collections Revenue

Amortization Rate(1)

Monthly

Yield(2)

Net

Impairments

Zero Basis

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

__________________

(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.

 

Asset Acceptance Capital Corp.

Consolidated Statements of Operations

(Unaudited)

  Three months ended December 31,   Twelve months ended December 31,

2009

 

2008

2009

 

2008

Revenues Purchased receivable revenues, net $ 18,226,006 $ 54,853,983 $ 171,275,281 $ 232,900,782 Gain on sale of purchased receivables 396,133 — 399,373 165,040 Other revenues, net   118,490     170,341     812,947     1,146,494   Total revenues   18,740,629     55,024,324     172,487,601     234,212,316   Expenses Salaries and benefits 20,349,896 19,385,443 77,666,083 83,348,494 Collections expense 22,575,623 20,948,870 89,095,287 89,458,611 Occupancy 2,128,572 1,894,194 7,588,100 7,727,356 Administrative 2,050,788 2,362,025 8,694,344 10,510,635 Depreciation and amortization 1,164,412 1,004,300 4,107,635 3,954,802 Impairment of assets — 170,692 1,167,600 616,343 Loss on disposal of equipment and other assets   244,293     210,102     354,634     221,865   Total operating expenses   48,513,584     45,975,626     188,673,683     195,838,106   (Loss) income from operations (29,772,955 ) 9,048,698 (16,186,082 ) 38,374,210 Other income (expense) Interest expense (2,629,954 ) (3,128,587 ) (10,168,671 ) (13,023,938 ) Interest income 18,975 201 33,765 31,996 Other   127,058     7,274     129,442     21,896   (Loss) income before income taxes (32,256,876 ) 5,927,586 (26,191,546 ) 25,404,164 Income tax (benefit) expense   (12,020,016 )   2,146,351     (9,757,449 )   9,680,968   Net (loss) income $ (20,236,860 ) $ 3,781,235   $ (16,434,097 ) $ 15,723,196     Weighted-average number of shares: Basic 30,657,948 30,579,066 30,633,936 30,566,031 Diluted 30,657,948 30,581,939 30,633,936 30,592,317 (Loss) earnings per common share outstanding: Basic $ (0.66 ) $ 0.12 $ (0.54 ) $ 0.51 Diluted $ (0.66 ) $ 0.12 $ (0.54 ) $ 0.51  

Asset Acceptance Capital Corp.

Consolidated Statements of Financial Position

(Unaudited)

 

  December 31,

2009

  December 31,

2008

ASSETS

Cash

$ 4,935,248 $ 6,042,859 Purchased receivables, net 319,772,006 361,808,502 Income taxes receivable 5,553,181 3,934,029 Property and equipment, net 14,521,666 12,526,817 Goodwill 14,323,071 14,323,071 Intangible assets, net 1,079,065 2,453,117 Other assets   6,231,732     7,082,721   Total assets $ 366,415,969   $ 408,171,116    

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Liabilities:

Accounts payable $ 3,002,299 $ 3,388,320 Accrued liabilities 21,294,388 21,476,207 Income taxes payable 1,196,071 658,329 Notes payable 160,022,514 181,550,000 Capital lease obligations 278,459 — Deferred tax liability, net   57,524,754     64,470,002   Total liabilities   243,318,485     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 — 33,220,132 and 33,169,552 at December 31, 2009 and 2008, respectively 332,201 331,696 Additional paid in capital 148,243,688 146,915,791 Retained earnings 18,754,217 35,188,314 Accumulated other comprehensive loss, net of tax (2,955,451 ) (4,664,862 ) Common stock in treasury; at cost, 2,616,424 and 2,596,521 shares at December 31, 2009 and 2008, respectively   (41,277,171 )   (41,142,681 ) Total stockholders’ equity   123,097,484     136,628,258   Total liabilities and stockholders’ equity $ 366,415,969   $ 408,171,116    

ASSET ACCEPTANCE CAPITAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)

  For the Years Ended December 31, 2009   2008 Cash flows from operating activities Net (loss) income $ (16,434,097 ) $ 15,723,196 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 4,107,635 3,954,802 Amortization of deferred financing costs 670,559 506,821 Deferred income taxes (7,806,252 ) 5,770,054 Share-based compensation expense 1,328,402 1,329,298 Net impairment of purchased receivables 49,504,755 13,040,736 Non-cash revenue (1,499,743 ) (575,006 ) Loss on disposal of equipment and other assets 354,634 221,865 Gain on sale of purchased receivables (399,373 ) (165,040 ) Impairment of assets 1,167,600 616,343 Changes in assets and liabilities: Decrease (increase) in other assets 2,016,356 (845,756 ) (Decrease) in accounts payable and other accrued liabilities (397,257 ) (53,490 ) (Decrease) increase in income taxes   (1,081,410 )   149,088   Net cash provided by operating activities   31,531,809     39,672,911    

Cash flows from investing activities

Investment in purchased receivables, net of buybacks (118,319,478 ) (152,289,315 ) Principal collected on purchased receivables 114,750,304 124,211,618 Proceeds from sale of purchased receivables 399,863 167,405 Purchase of property and equipment (5,976,404 ) (5,658,784 ) Proceeds from sale of property and equipment   4,197     7,800   Net cash used in investing activities   (9,141,518 )   (33,561,276 )  

Cash flows from financing activities

Borrowings under notes payable 49,200,000 128,000,000 Repayment of notes payable (70,727,486 ) (137,700,000 ) Payment of deferred financing costs (1,835,926 ) (660,575 ) Repayment of capital lease obligations — (15,927 ) Purchase of treasury shares   (134,490 )   (166,753 ) Net cash (used in) financing activities   (23,497,902 )   (10,543,255 ) Net decrease in cash (1,107,611 ) (4,431,620 ) Cash at beginning of year   6,042,859     10,474,479   Cash at end of year $ 4,935,248   $ 6,042,859    

Supplemental disclosure of cash flow information

Cash paid for interest, net of capitalized interest $ 9,593,119 $ 12,588,205 Net cash (received) paid for income taxes $ (869,787 ) $ 3,724,444 Non-cash investing and financing activities: Change in fair value of swap liability $ (2,570,415 ) $ 4,117,571 Change in unrealized loss on cash flow hedge $ 1,709,411 $ (2,652,735 ) Purchased receivable obligations incurred $ 2,399,832 $ — Capital lease obligations incurred $ 278,459 $ —