Asset Acceptance has Good Q1; Will Outsource More to Collection Agencies

Debt purchasing and collection firm Asset Acceptance reported a drop in earnings for the first quarter of 2008 but beat analysts’ estimates for performance. The company also reported a decline in revenues for the quarter even as it saw record cash collections.

In addition, Warren, Mich.-based Asset Acceptance Capital Corp. (Nasdaq: AACC) said Wednesday that it outsourced more debt to external collection agencies and that more will be coming as it focuses on growing that collections channel and legal collections. In addition, the company announced a new chief of its legal collections department.

Asset Acceptance said that net income for the first quarter came in at $6.8 million, or $0.22 per share, representing a 31 percent decline from the $9.9 million in earnings it reported in the first quarter of 2007. Total revenues declined to $64.4 million for the first quarter of 2008, compared with total revenues of $67.3 million in the first quarter of 2007. But the company reported cash collections of $100.3 million in the first quarter — the first time quarterly cash collections have exceeded the one hundred million dollar mark — versus cash collections of $95.9 million in the same period of 2007.

Analysts polled by Reuters had expected earnings of $0.19 per share. The company’s stock was up 1.6 percent in midday trading today.

On a conference call Wednesday morning, Brad Bradley, Asset Acceptance’s chairman and CEO, said that the drop in earnings was due to an increased amortization rate on purchased portfolios and higher interest expense. The interest expense was driven higher primarily by the $150 million the company borrowed to complete a recapitalization program last year (“Asset Acceptance Completes Recapitalization with Large Special Dividend,” June 19, 2007).

Management lauded the increase in cash collections, noting that the spike was a result of shifting liquidation strategies. While traditional call center collections comprised the largest segment of cash collections — $47.5 million — the total was down 1.6 percent from the first quarter of 2007. Meanwhile, legal collections increased 6.4 percent to $38.2 million and other collections, primarily collection agency forwarding, was up nearly 25 percent to $14.6 million.

Rion Needs, senior vice president and chief operating officer, told analysts that Asset Acceptance will be “using the legal and collection forwarding channels more” going forward.

Needs also announced that Darin Herring was hired as vice president of legal collections on April 1 to replace Diane Kondrat. Herring had been a vice president in American Express’s Corporate Card division. Kondrat is retiring this summer.

Asset Acceptance also reduced debt buying activity in the first quarter of 2008 as it worked through an issue with its credit facility (“Asset Acceptance Announces Amendment to Credit Agreement,” March 11). In the quarter, the company bought 47 debt portfolios with a face value of $548.5 million for $22.3 million, compared to the $765.1 million in face value debt it bought in Q1 2007. Bradley noted that 35 of the portfolios were from forward flow agreements. Bradley said that he expected pricing of portfolios to come down further.

At the end of the first quarter, Asset Acceptance counted 901 collection representatives at its offices in Arizona, Florida, Illinois, Michigan, New Jersey, Ohio, Virginia and Texas.