Asset Acceptance Sees Gains in Collections, Revenue, Income in Q3; Debt Buying Up

WARREN, Mich. — Asset Acceptance Capital Corp. (Nasdaq: AACC), a leading purchaser and collector of charged-off consumer debt, today reported results for the quarter ended September 30, 2010.

Financial highlights from the third quarter 2010 included:

Cash collections of $78.9 million; Revenues of $48.5 million; Operating expenses of $48.0 million, or 60.9% percent of cash collections; Net income of $4.2 million, or $0.14 per diluted share; Impact of the previously announced exit of healthcare collection activities conducted by our Premium Asset Recovery Corporation ("PARC") subsidiary as follows: Gain on sale of healthcare receivables of $0.5 million or $0.02 per diluted share before income taxes; Restructuring charges related to the closing of the Deerfield Beach, FL office housing PARC of $1.3 million or ($0.04) per diluted share before income taxes; Tax benefit of $5.5 million or $0.18 per diluted share.

The Company’s operational highlights included:

Acquired $41.3 million (net of buybacks) in charged-off consumer receivable portfolios with an aggregate value of $1,177.0 million, or 3.51% of face value; Closed the Deerfield Beach, FL office, an action that is expected to yield an annualized savings of $2.5 million; Acquisition of substantially all of the assets of BSI eSolutions, LLC, the Company’s collections platform software partner for $0.8 million; and On October 4th, announced closure of our Chicago office, which is expected to yield annual savings of $2.0 million.

Rion Needs, President and CEO of Asset Acceptance Capital Corp, commented: "We maintained momentum during the third quarter, advancing on a number of our previously stated strategic initiatives. Specifically, we continued to drive collections, achieving the first year-over-year growth in roughly two years. While we have made significant progress, in terms of increasing purchasing, eliminating underperforming assets, and focusing on operating efficiencies, there is more work to be done. Looking ahead, we remain focused on the actions and initiatives that will favorably impact long-term profitability and productivity without sacrificing top-line collections."

Third Quarter 2010 Financial Highlights

Please refer to Supplemental Financial Data beginning on page six for additional information about the Company’s financial results for the three and nine months ended September 30, 2010 and comparable prior year periods. In addition, please see a reconciliation of net income according to Generally Accepted Accounting Principles ("GAAP") to Adjusted EBITDA on page 13.

Asset Acceptance reported cash collections of $78.9 million in the quarter ended September 30, 2010, an increase of 1.3% compared to cash collections of $77.8 million in the year-ago period. Excluding healthcare collections, growth was 3.3% for the quarter.

Total revenues were $48.5 million in the third quarter of 2010, an increase of 1.7% compared to total revenues of $47.7 million in the third quarter of 2009. Amortization of purchased receivables in the third quarter of 2010 was 40.0% of total cash collections versus 39.0% of total cash collections in the third quarter of 2009. The Company reported a net impairment reversal of $0.7 million on purchased receivables in the third quarter, versus a net impairment charge of $6.8 million in the prior year quarter.

Total operating expenses of $48.0 million for the third quarter were $0.1 million lower than the 2009 third quarter. For the 2010 third quarter, Asset Acceptance reported operating expenses of 60.9% of cash collections, down from 61.8% of cash collections in the prior year quarter. Excluding restructuring and impairment charges of $1.3 million and $1.2 million in third quarter 2010 and third quarter 2009, respectively, operating expenses were 59.3% of cash collections compared to 60.3% in third quarter 2009.

Net income for the quarter was $4.2 million, or $0.14 per fully diluted share, compared to a loss of $1.6 million, or $0.05 per fully diluted share, in the third quarter of 2009. For the third quarter 2010, the Company recorded restructuring charges related to the closing of the Deerfield Beach office housing the PARC subsidiary and a gain on the sale of healthcare receivables, which resulted in a combined impact of $(0.02) per fully diluted share before income taxes. The Company also recorded a tax benefit as part of the PARC transaction of $0.18 per fully diluted share.

Earnings Before Interest, Taxes, Depreciation and Amortization, including purchased receivables amortization ("Adjusted EBITDA"), was $33.9 million in the third quarter of 2010, up 4.0% compared to the year-ago period.

During the third quarter of 2010, the Company invested $41.3 million to purchase charged-off consumer debt portfolios with a face value of $1,177.0 million, for a blended rate of 3.51%. This compares to the prior-year third quarter, when the Company invested $36.9 million to purchase consumer debt portfolios with a face value of $1,585.6 million, representing a blended rate of 2.33% of face value. All purchase data is adjusted for buybacks.

First Nine Months 2010 Financial Highlights

For the nine-month period ended September 30, 2010, the Company reported cash collections of $252.3 million compared to cash collections of $259.2 million in the first nine months of 2009, a decline of 2.7%. Excluding healthcare, total collections declined 2.2% for the first nine months of 2010.

Total revenues in the first nine months of 2010 were $150.9 million versus $153.7 million in the first nine months of 2009. For the first nine months of 2010, amortization of purchased receivables was 40.9% of total cash collections versus 41.0% of total cash collections in the same period of last year. Net impairment reversals for the first nine months of 2010 totaled $1.6 million versus net impairments of $17.1 million for the first nine months of 2009.

Total operating expenses in the first nine months of 2010 increased 2.1% to $143.1 million, from $140.2 million in the first nine months of 2009. For the first nine months of 2010, Asset Acceptance reported operating expenses of 56.7% of cash collections, up from 54.1% of cash collections in the prior year period.

Net income for the first three quarters of 2010 was $5.4 million, or $0.17 per fully diluted share, compared to net income of $3.8 million, or $0.12 per fully diluted share, in the same period of 2009. In the third quarter 2010, the Company recorded restructuring charges related to the PARC exit and a gain on the sale of healthcare receivables, which resulted in a combined impact of $(0.02) per fully diluted share before income taxes. The Company also recorded a tax benefit as part of the PARC transaction of $0.18 per fully diluted share.

For the nine-month period ended September 30, 2010, Adjusted EBITDA declined to $115.9 million, a decrease of 7.3% when compared to the same nine-month period in 2009.

During the first nine months of 2010, the Company invested $119.6 million to purchase charged-off consumer debt portfolios with a face value of $3.5 billion, for a blended rate of 3.42% of face value. This compares to the prior-year nine month period, when the Company invested $78.3 million to purchase consumer debt portfolios with a face value of $3.0 billion, representing a blended rate of 2.58%. All purchase data is adjusted for buybacks.

Reid Simpson, Senior Vice President and CFO commented: "Our third quarter performance showed meaningful progress on a number of fronts, including year-over-year improvement in cash collections, operating expenses, Adjusted EBITDA and purchasing. We are beginning to see the impact, in terms of collections, from our ramp up in purchasing, and remain on-track to reach our purchasing goals for the remainder of 2010."

Third 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 November 2, 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.