Asset Acceptance Capital Corp. Reports Fourth Quarter and Full Year 2012 Results

Asset Acceptance Capital Corp. Reports Fourth Quarter and Full Year 2012 Results

Earnings per fully diluted share for the full year 2012 of $0.35; strong quarter of investment in purchased receivables

WARREN, Mich.--(BUSINESS WIRE)-- Asset Acceptance Capital Corp. (NASDAQ: AACC), a leading purchaser and collector of charged-off consumer debt, today reported results for the quarter and fiscal year ended December 31, 2012.


In a separate press release, the Company also announced today that it had entered into an agreement in which Encore Capital Group, Inc. will acquire Asset Acceptance for $6.50 per share for a total equity value of approximately $200 million.

Fourth Quarter 2012 Financial Highlights

Cash collections for the fourth quarter of 2012 increased 4.3% compared to the same period of the prior year, to $85.7 million.

Fourth quarter revenues were $51.7 million, a decrease of 8.3% from the prior year period. The Company reported net impairments on purchased receivables of $0.9 million, which decreased revenues for the quarter, versus net impairment reversals of $2.6 million in the prior year period.

Rion Needs, President and CEO of Asset Acceptance Capital Corp, commented: "During the fourth quarter we continued to focus on our key initiatives, specifically, growing legal channel collections as well as identifying and implementing initiatives to improve our cost structure and productivity. Mr. Needs continued, "We continued to show progress in key performance metrics and have ambitious goals to further improve efficiency. While industry dynamics remained challenging, particularly the supply and pricing of charged-off receivables, we believe we remain well positioned to reach our operational and profitability goals in 2013 and beyond."

Operating expenses were $46.8 million, an increase of $1.6 million compared to the prior year period. Results reflected a continued strategic investment in the Company's legal channel and an increase in the related up-front costs ahead of associated collections. Legal investments increased to $9.4 million during the quarter compared to $7.2 million in the prior year period. Operating expenses also included restructuring charges in the fourth quarter of 2012 and 2011 of $0.4 million and $0.1 million, respectively. The restructuring charges were related to actions taken to close the Tempe, AZ and San Antonio, TX collection offices. Cost to collect for the quarter was 54.7%, an improvement of 40 basis points from the fourth quarter of 2011.

The Company reported net income of $0.2 million or $0.01 per fully diluted share during the fourth quarter of 2012, compared to net income of $4.2 million or $0.14 per fully diluted share in the fourth quarter of 2011. Results for the fourth quarter of 2011 included a charge of $1.1 million for the extinguishment of debt related to the refinancing the Company completed in November 2011.

Adjusted Earnings Before Interest Taxes Depreciation and Amortization ("Adjusted EBITDA") was $40.7 million, a 5.9% increase from $38.4 million in the fourth quarter of 2011. Please see a reconciliation of net income according to U.S. Generally Accepted Accounting Principles ("GAAP") to Adjusted EBITDA on page 13.

The Company acquired $60.9 million in charged-off consumer receivables with a face value of $1,334.4 million for a blended rate of 4.56% of face value. This compares to the prior year period when the Company purchased $26.7 million in charged-off consumer receivables with a face value of $1,180.0 million for a blended rate of 2.26% of face value. All purchase data is adjusted for buybacks.

Full Year 2012 Financial Highlights:

Cash collections for 2012 were $367.8 million compared to $350.0 million for 2011, an increase of 5.1%.

For the full year, revenues increased 4.1% to $226.9 million from $218.1 million in 2011. Net impairment reversals for the full year of 2012 were $8.5 million compared to net impairment reversals of $6.2 million for 2011.

Operating expenses were $192.1 million, or 52.2% of cash collections for 2012, an increase of $6.9 million from 2011 when operating expenses were 52.9% of cash collections. Results reflected a continued strategic investment in the Company's legal channel and an increase in the related up-front costs ahead of associated collections. Legal investments increased to $35.2 million during the year compared to $28.6 million in the prior year. Operating expenses included restructuring charges in 2012 and 2011 of $0.7 million and $0.1 million, respectively. The restructuring charges were related to actions taken to close the Tempe, AZ and San Antonio, TX collection offices. The Company also recorded $1.7 million of charges related to settlement of an FTC matter in 2011. FTC charges were included as a component of "Administrative expense."

The Company reported net income of $10.9 million, or $0.35 per fully diluted share, for 2012 compared to net income of $12.0 million, or $0.39 per fully diluted share in 2011. During 2011, the Company recorded a charge of $1.1 million for the extinguishment of debt related to the refinancing the Company completed in November.

Adjusted EBITDA for 2012 was $183.2 million, a 6.0% increase from $172.9 million in 2011.

The Company acquired $164.7 million of charged-off consumer receivables with a face value of $4,980.5 million for a blended rate of 3.31% of face value in 2012. This compares to the prior year when the Company purchased $160.6 million in charged-off consumer receivables with a face value of $5,320.6 million for a blended rate of 3.02% of face value. All purchase data is adjusted for buybacks.

Fourth Quarter 2012 Earnings Conference Call

Given the aforementioned acquisition by Encore Capital Group, Inc., the Company will no longer host its previously scheduled earnings call this afternoon at 5:30 p.m. Eastern.

About Asset Acceptance Capital Corp.

For over 50 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:

  • failure to comply with government regulation;
  • limitation on our ability to collect under federal, state and local laws;
  • unknown effect of additional regulation under the Dodd-Frank Act;
  • our ability to purchase charged-off receivable portfolios or purchase on acceptable terms and in sufficient amounts;
  • intense competition that could impair our ability to achieve our goals;
  • instability in the financial markets and continued economic weakness or recession impacting our ability to acquire and collect on charged-off receivable portfolios and our operating results;
  • our ability to maintain existing, and to secure additional financing on acceptable terms;
  • the costs, uncertainties and other effects of legal and administrative proceedings impacting our ability to collect on judgments in our favor;
  • changes in relationships with third parties collecting on our behalf;
  • ongoing risks of litigation in our litigious industry, including individual and class actions under consumer credit, collections and other laws;
  • our ability to respond to technology downtime and changes in technology to remain competitive;
  • our ability to substantiate our application of tax rules against examinations and challenges made by tax authorities;
  • concentration of a significant portion of our portfolio purchases during any period with a small number of sellers;
  • our ability to make reasonable estimates of the timing and amount of future cash receipts and assumptions underlying the calculation of the net impairment charges or IRR increases for purposes of recording purchased receivable revenues;
  • our ability to collect sufficient amounts from our purchases of charged-off receivable portfolios;
  • our ability to diversify beyond collecting on our purchased receivables portfolios into ancillary lines of business;
  • our ability to successfully hire, train, integrate into our collections operations and retain in-house account representatives;
  • 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; 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

Quarterly trends for certain financial metrics are shown in the table below.

                     
(Unaudited, $ in Millions, except collections per account representative)   Q4 '12   Q3 '12   Q2 '12   Q1 '12  

Q4 '11

Total revenues   $51.7   $54.7   $ 58.7   $ 61.8   $56.4
Cash collections   $85.7   $89.2   $ 91.9   $ 101.1   $82.1
Operating expenses to cash collections   54.7%   54.5%   52.7%   47.8%   55.1%
Call center collections   $39.2   $44.1   $ 48.8   $ 58.7   $44.7
Legal collections   $46.5   $45.1   $ 43.1   $ 42.4   $37.4
Amortization rate   39.8%   39.0%   36.4%   39.1%   31.6%
Core amortization (1)   45.1%   44.4%   42.0%   44.7%   36.9%
Collections on fully amortized portfolios   $10.0   $10.9   $ 12.2   $ 12.7   $11.8
Investment in purchased receivables (2)   $60.9   $23.9   $ 58.7   $ 21.1   $26.7
Face value of purchased receivables (2)   $1,334.4   $766.1   $2,076.4   $803.5   $1,180.0
Average cost of purchased receivables (2)   4.56%   3.13%   2.83%   2.63%   2.26%
Number of purchased receivable portfolios   40   17   28   27   26
Collections per account representative FTE (3)   $65,608   $47,593   $49,873   $60,482   $42,282
Average account representative FTE's (3)   271   413   446   480   546
(1)   The core amortization rate is calculated as total amortization divided by collections on amortizing portfolios.
(2) All purchase data is adjusted for buybacks.
(3) Historical information has not been adjusted for collection center closings.

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

  Three months ended December 31, 2012
        Net  
Year of Amortization Monthly Impairments Zero Basis
Purchase Collections Revenue Rate (1) Yield (2) (Reversals) Collections
2007 and prior $ 16,260,135 $ 11,996,775 N/M N/M $ 264,000 $ 9,242,311
2008 7,156,962 4,636,696 35.2 % 7.63 % 763,427
2009 11,355,315 7,549,136 33.5 8.11 27,783
2010 13,602,296 7,648,238 43.8 4.38
2011 21,770,722 10,510,392 51.7 3.22 656,000
2012 15,518,400   9,212,228 40.6 2.84      
Totals $ 85,663,830 $ 51,553,465 39.8 % 4.96 % $ 920,000   $ 10,033,521
 
Three months ended December 31, 2011
Net
Year of Amortization Monthly Impairments Zero Basis
Purchase Collections Revenue Rate (1) Yield (2) (Reversals) Collections
2006 and prior $ 17,357,551 $ 15,255,161 N/M N/M $ (2,271,500 ) $ 10,456,372
2007 7,538,493 3,812,409 49.4 % 5.32 % (287,000 ) 174,322
2008 9,796,825 5,862,608 40.2 5.74 1,152,640
2009 14,391,756 9,314,485 35.3 6.21 24,694
2010 16,340,975 8,750,466 46.5 3.21
2011 16,678,314   13,168,059 21.0 3.17      
Totals $ 82,103,914 $ 56,163,188 31.6 % 5.34 % $ (2,558,500 ) $ 11,808,028
 
Year ended December 31, 2012
Net
Year of Amortization Monthly Impairments Zero Basis
Purchase Collections Revenue Rate (1) Yield (2) (Reversals) Collections
2007 and prior $ 82,771,834 $ 67,738,984 N/M N/M $ (10,237,000 ) $ 41,467,615
2008 35,678,469 22,836,556 36.0 % 7.65 % 4,182,909
2009 54,963,200 36,874,552 32.9 8.12 (2,304,000 ) 177,780
2010 64,486,104 32,964,588 48.9 3.93
2011 94,940,993 45,066,231 52.5 2.93 4,083,000
2012   34,993,346 20,568,316 41.2 2.90      
Totals $ 367,833,946 $ 226,049,227 38.5 % 5.45 % $ (8,458,000 ) $ 45,828,304
  Year ended December 31, 2011
        Net  
Year of Amortization Monthly Impairments Zero Basis
Purchase Collections Revenue Rate (1) Yield (2) (Reversals) Collections
2006 and prior $ 79,506,740 $ 65,073,002 N/M N/M $ (8,344,400 ) $ 43,649,643
2007 36,610,606 17,261,410 52.9 % 4.65 % (170,000 ) 1,037,961
2008 47,668,069 25,465,249

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