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 March 31, 2010.

Highlights from the first quarter 2010 include:

• Cash collections of $89.2 million;
• Operating expenses of 54.2% percent of cash collections;
• Net income of $356.5 thousand, or $0.01 per diluted share; and
• Acquired $29.8 million (net of buybacks) in charged-off consumer receivable portfolios with an aggregate value of $823.3 million, or 3.62% of face value.

Rion Needs, President and CEO of Asset Acceptance Capital Corp., commented: “While our business and industry faced a difficult economic period in 2009, we are pleased with the early success of many of our efforts to improve efficiencies and increase purchasing. Our initiatives to improve our workflow automation processes contributed to solid collections performance in the first quarter. In addition, the continued advantageous purchasing environment allowed us to acquire $29.8 million in charged-off consumer debt portfolios, net of buybacks, an increase of 37% from the first quarter of last year. As the pricing environment has begun to stabilize, we seek to continue to maximize returns as we bid appropriately on the portfolios purchased. In 2010, we remain committed to returning our purchasing levels to meet or exceed historical levels.”

Needs continued, “We also maintained our focus on progressing the four tenets of our long-term growth strategy. We continued to identify ways to improve operational efficiencies across the business, which led to both collections and expense management that exceeded our internal plans. While we realize there is more work to be done, efforts to further improve our operations, enhance our financial discipline and achieve an optimal capital structure will drive revenue growth and profitability, and in turn, create long-term shareholder value.”

First Quarter 2010 Review

Asset Acceptance reported cash collections of $89.2 million in the quarter ended March 31, 2010, versus cash collections of $94.1 million in the year-ago period. Cash collections on a year over year basis continued to be negatively impacted by the reduced purchasing in 2009.

Total revenues were $51.6 million in the first quarter of 2010, compared to total revenues of $57.0 million in the first quarter of 2009. Amortization of purchased receivables in the first quarter of 2010 was 42.7% of total cash collections versus 39.7% of total cash collections in the first quarter of 2009. The Company reported a non-cash net impairment charge of $99.7 thousand on purchased receivables in the first quarter, versus $3.4 million in the prior year quarter.

Net income for the quarter was $356.5 thousand, or $0.01 per fully diluted share, compared to net income of $4.6 million, or $0.15 per fully diluted share, in the first quarter of 2009. Earnings Before Interest, Taxes, Depreciation and Amortization, including purchased receivables amortization (“Adjusted EBITDA”), decreased to $42.5 million in the first quarter of 2010, down 12.5% 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.

Mark Redman, Senior Vice President and CFO, commented: “In the first quarter our total cash collections, operating expenses and Adjusted EBITDA exceeded our expectations. The amortization rate during the quarter was high despite recognizing nominal impairments. Purchased receivables revenue is largely a factor of the yields assigned and the carrying value of the receivables. With the significant impairment recognized in the fourth quarter of 2009, revenue was down because of the lower carrying value of the purchased receivables despite a relatively steady yield when compared to 2009. Better than expected collections result in increased amortization in the short-term but generally better overall revenues in the long-term.”

During the first quarter of 2010, the Company invested $29.8 million to purchase charged-off consumer debt portfolios with a face value of $823.3 million, for a blended rate of 3.62% of face value. This compares to the prior-year first quarter, when the Company invested $21.8 million to purchase consumer debt portfolios with a face value of $737.6 million, representing a blended rate of 2.95% 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 2.9% to $48.4 million, from $47.0 million in the first quarter of 2009. For the 2010 first quarter, Asset Acceptance reported operating expenses of 54.2% of cash collections, up from 50.0% of cash collections in the prior year quarter.

The Company also disclosed that, beginning in February 2006, the Federal Trade Commission (“FTC”) commenced an investigation into the Company’s debt collection practices under the Fair Credit Reporting Act, the Fair Debt Collection Practices Act and the Federal Trade Commission Act. On April 6, 2010, the FTC delivered a letter to the Company which stated its view that Asset Acceptance may have engaged in certain violations of those laws, offered the Company an opportunity to resolve the matter through consent negotiations, and forwarded a proposed consent decree. The proposed consent decree includes certain monitoring and reporting obligations and customer disclosures, as well as a civil monetary penalty. Asset Acceptance is currently reviewing the proposal with counsel and has begun to discuss the matter with the FTC. The Company indicated that it believes that the resolution of this matter will not have a material adverse effect on its business.

Reconciliation of GAAP Net 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 income plus (a) the 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 its 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 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 income, as reported, to Adjusted EBITDA.

  Three Months Ended March 31, 2010   2009 Net income $ 356,517 $ 4,602,144 Adjustments:

Income tax expense

231,482 2,817,997 Interest expense, net 2,627,383 2,641,165 Depreciation and amortization 1,162,382 885,818 Share-based compensation 219,009 236,818 (Gain) loss on sale of assets, net (216,822 ) 1,404 Purchased receivables amortization   38,128,784     37,377,258 Adjusted EBITDA $ 42,508,735   $ 48,562,604  

First Quarter 2010 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 April 29, 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)   Q1 ‘10   Q4 ‘09   Q3 ‘09   Q2 ‘09   Q1 ‘09 Total revenues   $ 51.6   $ 18.7   $ 47.7   $ 49.1   $ 57.0 Cash collections   $ 89.2   $ 74.8   $ 77.8   $ 87.3   $ 94.1 Operating expenses to cash collections   54.2%   64.9%   61.8%   51.6%   50.0% Call center collections (Note 1)   $ 50.5   $ 40.5   $ 41.7   $ 45.9   $ 52.3 Legal collections (Note 1)   $ 38.7   $ 34.3   $ 36.1   $ 41.4   $ 41.8 Amortization rate   42.7%   75.6%   39.0%   44.1%   39.7% Collections on fully amortized portfolios   $ 14.9   $ 14.2   $ 14.9   $ 15.8   $ 18.3 Investment in purchased receivables (Note 2)   $ 29.8   $ 42.9   $ 37.0   $ 19.6   $ 21.8 Face value of purchased receivables (Note 2)   $ 823.3   $ 1,394.3   $ 1,590.1   $ 716.7   $ 737.6 Average cost of purchased receivables (Note 2)   3.62%   3.08%   2.33%   2.74%   2.95% Number of purchased receivable portfolios   28   37   33   22   31 Collections per account representative FTE   $ 37,704   $ 29,345   $ 31,413   $ 38,858   $ 42,940 Average account representative FTE’s   1,047   1,112   1,040   929   955          

Note 1: Amounts have been reclassified to conform to the current period presentation.

Note 2: All purchase data is adjusted for buybacks.

The Company provided the following details of purchased receivable revenues by year of purchase:

  Three months ended March 31, 2010 Year of     Amortization   Monthly   Net   Zero Basis Purchase Collections Revenue Rate (1) Yield (2) Impairments Collections 2004 and prior $ 16,193,506 $ 13,380,526 N/M N/M $ 99,680 $ 10,984,194 2005 5,206,427 2,468,654 52.6 % 9.51 % — 1,116,501 2006 11,645,445 6,494,651 44.2 6.79 — 1,413,271 2007 14,939,366 7,598,421 49.1 4.07 — 890,231 2008 18,351,057 8,742,410 52.4 3.42 — 113,130 2009 21,965,825 11,766,152 46.4 3.52 — 399,488 2010   913,704   635,732 30.4 2.31   —   — Totals $ 89,215,330 $ 51,086,546 42.7 5.34 $ 99,680 $ 14,916,815     Three months ended March 31, 2009 Year of     Amortization   Monthly   Net   Zero Basis Purchase Collections Revenue Rate (1) Yield (2) Impairments Collections 2003 and prior $ 17,233,931 $ 16,193,556 N/M N/M $ (76,300 ) $ 14,133,389 2004 6,876,528 3,323,676 51.7 % 5.46 % 2,017,600 1,032,336 2005 7,438,156 3,777,544 49.2 4.38 257,000 42,505 2006 16,272,598 11,240,280 30.9 5.73 796,000 1,997,549 2007 21,118,819 11,223,873 46.9 3.74 — 958,309 2008 24,144,876 10,422,230 56.8 2.68 455,000 89,472 2009   1,032,029   558,520 45.9 3.43   —     — Totals $ 94,116,937 $ 56,739,679 39.7 5.31 $ 3,449,300   $ 18,253,560  

__________________

(1) “N/M” indicates that the calculated percentage for aggregated vintage years is not meaningful.

(2) 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)  

Three months ended March 31,

2010   2009 Revenues Purchased receivable revenues, net $ 51,086,546 $ 56,739,679 Gain on sale of purchased receivables 217,023 — Other revenues, net   251,095     251,519   Total revenues   51,554,664     56,991,198   Expenses Salaries and benefits 19,504,866 19,846,517 Collections expense 24,192,940 22,126,683 Occupancy 1,752,127 1,810,861 Administrative 1,741,368 2,330,386 Depreciation and amortization 1,162,382 885,818 Loss on disposal of equipment and other assets   201     1,404   Total operating expenses   48,353,884     47,001,669   Income from operations 3,200,780 9,989,529 Other income (expense) Interest expense (2,628,425 ) (2,642,126 ) Interest income 1,042 961 Other   14,602     71,777   Income before income taxes 587,999 7,420,141 Income tax expense   231,482     2,817,997   Net income $ 356,517   $ 4,602,144     Weighted average number of shares: Basic 30,670,728 30,610,988 Diluted 30,739,269 30,624,101 Earnings per common share outstanding: Basic $ 0.01 $ 0.15 Diluted $ 0.01 $ 0.15     Asset Acceptance Capital Corp. Consolidated Statements of Financial Position (Unaudited)   March 31, December 31, 2010 2009 ASSETS

Cash

$ 6,219,043 $ 4,935,248 Purchased receivables, net 310,792,323 319,772,006 Income taxes receivable 5,572,667 5,553,181 Property and equipment, net 13,722,324 14,521,666 Goodwill 14,323,071 14,323,071 Intangible assets, net 1,029,065 1,079,065 Other assets   6,386,437     6,231,732   Total assets $ 358,044,930   $ 366,415,969  

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:

Accounts payable $ 2,634,807 $ 3,002,299 Accrued liabilities 17,512,830 21,294,388 Income taxes payable 1,358,252 1,196,071 Notes payable 154,684,956 160,022,514 Capital lease obligations 265,154 278,459 Deferred tax liability, net   57,713,444     57,524,754   Total liabilities   234,169,443     243,318,485     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 at March 31, 2010 and December 31, 2009

332,201 332,201 Additional paid in capital 148,462,697 148,243,688 Retained earnings 19,110,734 18,754,217 Accumulated other comprehensive loss, net of tax (2,752,974 ) (2,955,451 ) Common stock in treasury; at cost, 2,616,424 shares at March 31, 2010 and December 31, 2009   (41,277,171 )   (41,277,171 ) Total stockholders’ equity   123,875,487     123,097,484   Total liabilities and stockholders’ equity $ 358,044,930   $ 366,415,969     ASSET ACCEPTANCE CAPITAL CORP. Consolidated Statements of Cash Flows (Unaudited)   Three months ended March 31,

2010

 

2009

Cash flows from operating activities Net income $ 356,517 $ 4,602,144 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,162,382 885,818 Amortization of deferred financing costs 275,605 131,652 Deferred income taxes 105,217 470,561 Share-based compensation expense 219,009 236,818 Net impairment of purchased receivables 99,680 3,449,300 Non-cash revenue (5,864 ) (32,815 ) Loss on disposal of equipment and other assets 201 1,404 Gain on sale of purchased receivables (217,023 ) — Changes in assets and liabilities: (Increase) decrease in other assets (430,310 ) 422,003 Decrease in accounts payable and other accrued liabilities (1,463,268 ) (2,688,351 ) Decrease in income tax receivable, net   142,695     2,426,693   Net cash provided by operating activities   244,841     9,905,227     Cash flows from investing activities Payments for investment in purchased receivables, net of buy backs (31,548,959 ) (21,617,749 ) Principal collected on purchased receivables 38,034,968 33,960,773 Proceeds from the sale of purchased receivables 217,049 — Purchase of property and equipment (313,241 ) (526,377 ) Proceeds from sale of property and equipment   —     210   Net cash provided by investing activities   6,389,817     11,816,857     Cash flows from financing activities Borrowings under notes payable 22,100,000 15,500,000 Repayment of notes payable (27,437,558 ) (35,002,486 ) Repayment of capital lease obligations   (13,305 )   —   Net cash used in financing activities   (5,350,863 )   (19,502,486 ) Net increase in cash 1,283,795 2,219,598 Cash at beginning of period   4,935,248     6,042,859   Cash at end of period $ 6,219,043   $ 8,262,457     Supplemental disclosure of cash flow information Cash paid for interest, net of capitalized interest $ 2,447,691 $ 2,772,175 Net cash (received) paid for income taxes (16,430 ) 27,490 Non-cash investing and financing activities: Change in fair value of swap liability 285,950 465,383 Change in unrealized loss on cash flow hedge (202,477 ) (469,690 )