Asset Acceptance Capital Corp. (NASDAQ: AACC), a leading
purchaser and collector of charged-off consumer debt, today
reported results for the quarter ended June 30, 2010.
Financial highlights from the second quarter 2010 included:
- Cash collections of $84.2
million;
- Revenues of $50.9 million;
- Operating expenses of $46.8
million, or 55.6% percent of cash collections; and
- Net income of $774.5 thousand,
or $0.03 per diluted share.
The Company’s operational highlights included:
- Amended its credit facility,
which nearly doubled purchasing capacity;
- Acquired $48.6 million (net of
buybacks) in charged-off consumer receivable portfolios with an
aggregate value of $1,502.4 million, or 3.24% of face value;
- Furthered its strategic
initiatives to improve operational efficiency through the sale of
its PARC healthcare receivables portfolio and acquiring
substantially all of the assets of BSI eSolutions, LLC, the
Company’s collections platform software partner.
Rion Needs, President and CEO of Asset Acceptance Capital Corp.,
commented: “We are beginning to see improving trends in our
business and are encouraged by the financial and operational
results during the quarter. Consistent with our efforts to
accelerate portfolio acquisitions, we purchased $48.6 million in
charged-off receivables and reported $84.2 million in cash
collections during the second quarter. In addition, during the
quarter, we increased yields on certain portfolios as a result of
better than anticipated performance during the first half of 2010.
We have targeted purchases to grow further through the second half
of 2010, which should fuel continued improvement in cash collection
performance.”
Second Quarter 2010 Financial
Highlights
Asset Acceptance reported cash collections of $84.2 million in
the quarter ended June 30, 2010, compared to cash collections of
$87.3 million in the year-ago period.
Total revenues were $50.9 million in the second quarter of 2010,
an increase of 3.7% compared to total revenues of $49.1 million in
the second quarter of 2009. Amortization of purchased receivables
in the second quarter of 2010 was 39.9% of total cash collections
versus 44.1% of total cash collections in the second quarter of
2009. The Company reported a non-cash net impairment reversal of
$1.1 million on purchased receivables in the second quarter, versus
a net impairment charge of $6.8 million in the prior year
quarter.
Total operating expenses in the quarter increased 3.8% to $46.8
million, from $45.1 million in the second quarter of 2009. For the
2010 second quarter, Asset Acceptance reported operating expenses
of 55.6% of cash collections, up from 51.6% of cash collections in
the prior year quarter.
Net income for the quarter was $774.5 thousand, or $0.03 per
fully diluted share, compared to net income of $842.3 thousand, or
$0.03 per fully diluted share, in the second quarter of 2009.
Earnings Before Interest, Taxes, Depreciation and Amortization,
including purchased receivables amortization (“Adjusted EBITDA”),
was $39.5 million in the second quarter of 2010, down 10.1%
compared to the year-ago period.
During the second quarter of 2010, the Company invested $48.6
million to purchase charged-off consumer debt portfolios with a
face value of $1,502.4 million, for a blended rate of 3.24% of face
value. This compares to the prior-year second quarter, when the
Company invested $19.6 million to purchase consumer debt portfolios
with a face value of $716.5 million, representing a blended rate of
2.74% of face value. All purchase data is adjusted for
buybacks.
First Six Months 2010
Financial Highlights
For the six-month period ended June 30, 2010, the Company
reported cash collections of $173.4 million compared to cash
collections of $181.4 million in the first six months of 2009.
Total revenues in the first half of 2010 were $102.5 million
versus $106.1 million in the first six months of 2009. For the
first six months of 2010, amortization of purchased receivables was
41.4% of total cash collections versus 41.8% of total cash
collections in the same period of last year. Net impairment
reversals for the first six months of 2010 totaled $1.0 versus a
$10.3 million net impairment for the first six months of 2009.
Total operating expenses in first half of 2010 increased 3.3% to
$95.1 million, from $92.1 million in the first half of 2009. For
the first six months of 2010, Asset Acceptance reported operating
expenses of 54.9% of cash collections, up from 50.8% of cash
collections in the prior year period.
Net income for the first two quarters of 2010 was $1.1 million,
or $0.04 per fully diluted share, compared to net income of $5.4
million, or $0.18 per fully diluted share, in the same period of
2009. For the six-month period ended June 30, 2010, Adjusted EBITDA
declined to $82.0 million, a decrease of 11.3% when compared to the
same six-month period in 2009. Please refer to the table on page
ten, which reconciles net income according to Generally Accepted
Accounting Principles (“GAAP”) to Adjusted EBITDA.
During the first six months of 2010, the Company invested $78.4
million to purchase charged-off consumer debt portfolios with a
face value of $2.3 billion, for a blended rate of 3.37% of face
value. This compares to the prior-year first half, when the Company
invested $41.4 million to purchase consumer debt portfolios with a
face value of $1.5 billion, representing a blended rate of 2.85% of
face value. All purchase data is adjusted for buybacks.
Reid Simpson, Senior Vice President and CFO commented: “During
the second quarter we made progress on a number of fronts. We
successfully amended our credit facility, which nearly doubled our
capacity and will help enable us to achieve our purchasing goals
for 2010. In addition, we continued to increase our purchasing
levels. We have now seen a steady increase over the past 12 months
and we are focused on continuing the purchasing momentum we have
generated during the first half of the year. Finally, we have made
good progress on evaluating our cost structure and are focusing on
eliminating underperforming assets and on identifying other
opportunities to increase operating efficiencies – all focused on
driving long-term sustainable growth and value creation.”
Second Quarter 2010 Earnings
Conference Call
Asset Acceptance Capital Corp. will host a conference call at
4:30 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 July 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, collections 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. These Risk Factors include 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.
Factors that could affect our results and cause them to materially
differ from those contained in the forward-looking statements
include the following:
- instability in the financial
markets and a prolonged economic recession limiting our ability to
access capital and to acquire and collect on charged-off receivable
portfolios;
- our ability to maintain
existing, and to secure additional financing on acceptable
terms;
- a decrease in collections if
changes in or enforcement of debt collection laws impair our
ability to collect, including any unknown ramifications from the
recently passed Dodd-Frank Wall Street Reform and Consumer
Protection Act;
- failure to comply with
government regulation, including our ability to successfully
conclude the on-going FTC matter;
- our ability to purchase
charged-off receivable portfolios on acceptable terms and in
sufficient amounts;
- a decrease in collections as a
result of negative attention or news regarding the debt collection
industry and debtors’ willingness to pay the debt we acquire;
- the costs, uncertainties and
other effects of legal and administrative proceedings impacting our
ability to collect on judgments in our favor;
- ongoing risks of litigation in
our litigious industry, including individual and class actions
under consumer credit, collections and other laws;
- our ability to substantiate our
application of tax rules against examinations and challenges made
by tax authorities;
- our ability to make reasonable
estimates of the timing and amount of future cash receipts and
values and assumptions underlying the calculation of the net
impairment charges for purposes of recording purchased receivable
revenues;
- our ability to respond to
changes in technology to remain competitive, including our ability
to successfully complete the conversion of our legacy debt
collection platform to a different software system;
- our ability to successfully
hire, train, integrate into our collections operations and retain
in-house account representatives;
- our ability to successfully seek
opportunities to diversify beyond collecting on our purchased
receivables portfolios;
- our ability to acquire and to
collect on charged-off receivable portfolios in industries in which
we have little or no experience;
- any significant and
unanticipated changes in circumstances leading to goodwill
impairment or other impairment of intangible asset, which, in turn,
could adversely impact earnings and reduce our net worth; and
- other unanticipated events and
conditions that may hinder our ability to compete.
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)
Q2 ‘10 Q1
‘10 Q4 ‘09 Q3 ‘09 Q2
‘09 Total revenues $ 50.9 $ 51.6 $ 18.7
$ 47.7 $ 49.1 Cash collections $ 84.2 $
89.2 $ 74.8 $ 77.8 $ 87.3 Operating expenses
to cash collections 55.6% 54.2% 64.9%
61.8% 51.6% Call center collections (Note 1) $ 45.5
$ 50.5 $ 40.5 $ 41.7 $ 45.9 Legal
collections (Note 1) $ 38.7 $ 38.7 $ 34.3
$ 36.1 $ 41.4 Amortization rate 39.9%
42.7% 75.6% 39.0% 44.1% Collections on fully
amortized portfolios $ 13.8 $ 14.9 $ 14.2
$ 14.9 $ 15.8 Investment in purchased receivables
(Note 2) $ 48.6 $ 29.8 $ 42.7 $ 36.9
$ 19.6 Face value of purchased receivables (Note 2) $
1,502.4 $ 822.2 $ 1,381.1 $ 1,585.9 $
716.5 Average cost of purchased receivables (Note 2) 3.24%
3.62% 3.09% 2.33% 2.74% Number of
purchased receivable portfolios 41 28 37
33 22 Collections per account representative FTE
$ 36,132 $ 37,704 $ 29,345 $ 31,413
$ 38,858 Average account representative FTE’s 925
1,047 1,112 1,040 929
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 June 30, 2010
Year of
Purchase
Collections Revenue
Amortization Rate
(1)
Monthly
Yield (2)
Net
Impairments
Zero Basis
Collections
2004 and prior $ 14,012,401 $ 12,232,427 N/M N/M $ 38,089 $
10,501,033 2005 4,047,269 3,018,844 25.4 % 15.44 % (1,153,800 )
786,911 2006 9,974,216 5,363,233 46.2 6.78 51,000 1,241,187 2007
13,156,759 6,923,550 47.4 4.22 — 847,372 2008 16,654,669 7,599,601
54.4 3.38 — 98,532 2009 21,343,084 11,633,662 45.5 3.87 — 362,640
2010
5,025,675 3,855,557
23.3 2.88
— — Totals
$ 84,214,073 $
50,626,874 39.9 5.36
$
(1,064,711 ) $
13,837,675 Three months ended June 30,
2009
Year of
Purchase
Collections Revenue
Amortization Rate
(1)
Monthly
Yield (2)
Net
Impairments
Zero Basis
Collections
2003 and prior $ 14,882,021 $ 13,402,082 N/M N/M $ 489,000 $
12,484,108 2004 5,633,013 2,475,410 56.1 % 4.96 % 1,941,000 901,949
2005 6,103,487 864,320 85.8 1.23 2,488,000 34,537 2006 14,512,193
9,086,793 37.4 5.11 1,701,000 1,610,591 2007 18,191,261 9,907,523
45.5 3.67 — 706,439 2008 22,974,091 9,838,611 57.2 2.85 227,000
88,705 2009
4,997,511
3,244,604 35.1 3.90
—
6,250 Totals
$
87,293,577 $ 48,819,343 44.1
4.83
$ 6,846,000 $
15,832,579 Six months ended June 30,
2010
Year of
Purchase
Collections Revenue
Amortization Rate
(1)
Monthly
Yield (2)
Net
Impairments
Zero Basis
Collections
2004 and prior $ 30,205,907 $ 25,612,953 N/M N/M $ 137,769 $
21,485,227 2005 9,253,696 5,487,498 40.7 % 12.06 % (1,153,800 )
1,903,412 2006 21,619,661 11,857,884 45.2 6.78 51,000 2,654,458
2007 28,096,125 14,521,971 48.3 4.14 — 1,737,603 2008 35,005,726
16,342,011 53.3 3.40 — 211,662 2009 43,308,909 23,399,814 46.0 3.69
— 762,128 2010
5,939,379
4,491,289 24.4 2.78
—
— Totals
$
173,429,403 $ 101,713,420
41.4 5.35
$ (965,031 )
$ 28,754,490 Six months
ended June 30, 2009
Year of
Purchase
Collections Revenue
Amortization Rate
(1)
Monthly
Yield (2)
Net
Impairments
Zero Basis
Collections
2003 and prior $ 32,115,952 $ 29,595,638 N/M N/M $ 412,700 $
26,617,497 2004 12,509,541 5,799,086 53.6 % 5.23 % 3,958,600
1,934,285 2005 13,541,643 4,641,864 65.7 2.97 2,745,000 77,042 2006
30,784,791 20,327,073 34.0 5.44 2,497,000 3,608,141 2007 39,310,080
21,131,396 46.2 3.70 — 1,664,748 2008 47,118,967 20,260,841 57.0
2.76 682,000 178,177 2009
6,029,540
3,803,124 36.9 3.82
—
6,250 Totals
$
181,410,514 $ 105,559,022
41.8 5.08
$ 10,295,300
$ 34,086,140
_________________
(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 June 30,
Six months ended June 30,
2010
2009
2010
2009
Revenues Purchased receivable revenues, net $ 50,626,874 $
48,819,343 $ 101,713,420 $ 105,559,022 Gain on sale of purchased
receivables 107,825 — 324,848 — Other revenues, net
180,152 262,610
431,247 514,129
Total revenues
50,914,851
49,081,953 102,469,515
106,073,151 Expenses
Salaries and benefits 18,660,755 18,367,377 38,165,621 38,213,894
Collections expense 23,072,450 21,640,610 47,265,390 43,767,293
Occupancy 1,697,154 1,859,381 3,449,281 3,670,242 Administrative
2,201,611 2,228,678 3,942,979 4,559,064 Depreciation and
amortization 1,146,329 959,496 2,308,711 1,845,314 Loss on disposal
of equipment and other assets
5,342
5,137 5,543
6,541 Total operating expenses
46,783,641 45,060,679
95,137,525
92,062,348 Income from operations 4,131,210
4,021,274 7,331,990 14,010,803
Other income (expense)
Interest expense (2,888,677 ) (2,471,838 ) (5,517,102 ) (5,113,964
) Interest income 371 3,731 1,413 4,692 Other
40,961 (67,963
) 55,563
3,814 Income before income taxes 1,283,865
1,485,204 1,871,864 8,905,345 Income tax expense
509,408 642,917
740,890 3,460,914
Net income
$ 774,457
$ 842,287 $
1,130,974 $ 5,444,431
Weighted-average number of shares: Basic 30,682,152
30,623,320 30,676,471 30,617,189 Diluted 30,781,363 30,711,491
30,760,432 30,668,037 Earnings per common share outstanding: Basic
$ 0.03 $ 0.03 $ 0.04 $ 0.18 Diluted $ 0.03 $ 0.03 $ 0.04 $ 0.18
Asset Acceptance Capital
Corp.
Consolidated Statements of
Financial Position
(Unaudited)
June 30, 2010 December
31, 2009 ASSETS Cash $ 5,900,221 $ 4,935,248
Purchased receivables, net 325,380,271 319,772,006 Income taxes
receivable 5,360,500 5,553,181 Property and equipment, net
13,902,380 14,521,666 Goodwill 14,323,071 14,323,071 Intangible
assets, net 979,065 1,079,065 Other assets
7,797,533 6,231,732
Total assets
$ 373,643,041
$ 366,415,969
LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities:
Accounts payable $ 3,342,798 $ 3,002,299 Accrued liabilities
17,797,411 21,294,388 Income taxes payable 1,787,460 1,196,071
Notes payable 167,359,956 160,022,514 Capital lease obligations
242,391 278,459 Deferred tax liability, net
57,553,566 57,524,754
Total liabilities
$ 248,083,582
$ 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 — 33,220,757 and 33,220,132 at June 30, 2010 and December
31, 2009, respectively 332,208 332,201 Additional paid in capital
148,942,125 148,243,688 Retained earnings 19,885,191 18,754,217
Accumulated other comprehensive loss, net of tax (2,321,921 )
(2,955,451 ) Common stock in treasury; at cost, 2,616,582 and
2,616,424 shares at June 30, 2010 and December 31, 2009,
respectively
(41,278,144 )
(41,277,171 ) Total stockholders’ equity
125,559,459
123,097,484 Total liabilities and stockholders’
equity
$ 373,643,041
$ 366,415,969
ASSET ACCEPTANCE CAPITAL
CORP.
Consolidated Statements of Cash
Flows
(Unaudited)
Six months ended June 30,
2010
2009
Cash flows from operating activities Net income $ 1,130,974
$ 5,444,431 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation and amortization
2,308,711 1,845,314 Amortization of deferred financing costs
577,355 263,303 Deferred income taxes (181,161 ) 176,278
Share-based compensation expense 698,444 761,230 Net (reversal of
impairment) impairment of purchased receivables (965,031 )
10,295,300 Non-cash revenue (258,845 ) (45,442 ) Loss on disposal
of equipment and other assets 5,543 6,541 Gain on sale of purchased
receivables (324,848 ) — Changes in assets and liabilities:
Increase (decrease) in accounts payable and other accrued
liabilities 86,857 (2,840,763 ) (Increase) decrease in other assets
(1,367,348 ) 1,258,018 Decrease in income taxes receivable, net
784,070 4,120,061
Net cash provided by operating activities
2,494,721 21,284,271
Cash flows from investing activities Investments in
purchased receivables, net of buy backs (79,724,106 ) (41,138,254 )
Principal collected on purchased receivables 72,939,859 65,601,634
Proceeds from the sale of purchased receivables 324,874 — Purchase
of property and equipment (1,594,968 ) (1,885,272 ) Proceeds from
sale of property and equipment
—
210 Net cash (used in) provided by investing
activities
(8,054,341 )
22,578,318 Cash flows from financing
activities Borrowings under notes payable 60,700,000 17,800,000
Repayment of notes payable (53,362,558 ) (54,777,486 ) Payment of
deferred financing costs (775,808 ) — Purchase of treasury shares
(973 ) (923 ) Repayment of capital lease obligations
(36,068 ) —
Net cash provided by (used in) financing activities
6,524,593 (36,978,409
) Net increase in cash 964,973 6,884,180 Cash at
beginning of period
4,935,248
6,042,859 Cash at end of period
$
5,900,221 $
12,927,039 Supplemental disclosure of
cash flow information Cash paid for interest, net of
capitalized interest $ 4,998,502 $ 5,208,677 Net cash paid
(received) for income taxes 137,980 (705,644 ) Non-cash investing
and financing activities: Increase in fair value of derivative
instruments 843,503 1,639,023 Decrease in unrealized loss on cash
flow hedge (633,530 ) (1,171,921 )
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 June 30, Six
Months Ended June 30, 2010
2009 2010 2009 Net
income $ 774,457 $ 842,287 $ 1,130,974 $ 5,444,431 Adjustments:
Income tax expense
509,408 642,917 740,890 3,460,914 Interest expense, net 2,888,306
2,468,107 5,515,689 5,109,272 Depreciation and amortization
1,146,329 959,496 2,308,711 1,845,314 Share-based compensation
479,435 524,412 698,444 761,230 (Gain) loss on sale of assets, net
(102,483 ) 5,137 (319,305 ) 6,541 Purchased receivables
amortization 33,587,199 38,474,234 71,715,983 75,851,492 Other
219,137 —
219,137 — Adjusted EBITDA
$ 39,501,788 $
43,916,590 $ 82,010,523
$ 92,479,194
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