Monday, August 2, 2010

Asset Acceptance Beat Earnings Estimates and Debt Buyers Portfolio Recovery

Accounts receivable management firms Portfolio Recovery Associates and Asset Acceptance Capital Corp. late Thursday reported financial results for the second quarter of 2010. Both beat Wall Street analysts’ estimates on earnings, but the firms had very different quarters as PRA broke quarterly performance records and Asset Acceptance announced a slew of strategic moves including a technology acquisition and the divestiture of its medical receivables portfolio.

Norfolk, Va.-based Portfolio Recovery Associates, Inc. (Nasdaq: PRAA), a purchaser and collector of charged-off consumer debt, reported record net income in the period ended June 30, 2010 of $19.5 million, or $1.14 per share, a 67 percent increase from the second quarter 2009. Analysts polled by Thomson Reuters had expected the company to earn $0.93 per share in the quarter.

Total revenue in the second quarter of 2010 was up 31 percent to $93 million, a record for a quarter. Cash collections rose 42 percent to another quarterly record of $128 million in the second quarter. Call center and other collections increased 9 percent to $54.5 million, external legal collections increased 14 percent to $18.8 million, internal legal collections grew 167 percent to $11.4 million, and purchased bankruptcy collections gained 123 percent to $43.7 million when compared with the year-earlier period.

PRA's fee-for-service businesses generated revenue of $16.1 million in the second quarter of 2010, down 6 percent from the same period a year ago. These businesses accounted for 17.3 percent of the company's overall revenue in the second quarter of 2010, down from 24 percent in Q2 2009.

"Portfolio Recovery Associates concluded the first half of 2010 with strong second-quarter results across the board, setting new records for cash collections, cash receipts, revenue, net income and EPS," said Steven D. Fredrickson, chairman, president and chief executive officer. "This performance was the direct result of long-term investments the Company has made over the past several years -- and intends to continue making -- in portfolios, technology and people. Importantly, this financial performance was achieved despite a weak economy that brought with it high unemployment and limited availability of consumer credit."

PRA also said it purchased $1.67 billion of face-value debt during the second quarter of 2010 for $86.8 million. This debt was acquired in 78 portfolios from 11 different sellers.

Asset Acceptance Capital Corp. (Nasdaq: AACC), based in Warren, Mich., reported net income of $774,500 for the second quarter of 2010, down 8 percent from Q2 2009. The company earned $0.03 per share, the same as in the year-ago period. But analysts polled by Thomson Reuters expected Asset Acceptance to earn $0.02 in the second quarter.

Total revenues were $50.9 million in the second quarter of 2010, an increase of 3.7 percent from Q2 2009. Cash collections in the quarter totaled $84.2 million, a 3.5 percent decline from cash collections in the year-ago period. The company said that 54 percent of cash collections came from the call center collection channel, which includes in-house collectors, external debt collection agency forwarding, and off-shore collection agency forwarding. The other 46 percent of cash collections came from the legal collection channel, which includes in-house attorney activity, legal forwarding, bankruptcy, and probate collections.

Asset Acceptance said that it counted 925 in-house collection representatives and supervisors at the end of the quarter, flat from the end of the second quarter 2009. The company said that 226 account representatives work at its off-shore location in India.

"We are beginning to see improving trends in our business and are encouraged by the financial and operational results during the quarter,” said Rion Needs, President and CEO of Asset Acceptance. “Consistent with our efforts to accelerate portfolio acquisitions, we purchased $48.6 million in charged-off receivables.”

The company’s portfolio purchases in the quarter represented an aggregate face value of $1.5 billion.

Asset Acceptance also discussed a number of high-level strategic moves and ongoing initiatives.

On a conference call Thursday to discuss results, Needs discussed an ongoing investigation by the Federal Trade Commission. 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. Needs said Thursday that the company does not expect the resolution of the matter to have a material adverse impact on the business, but that external legal expenses would be higher than normal until the action is resolved.

The company formally introduced new Chief Financial Officer Reid Simpson. Simpson was announced as the new CFO April 30 (“Executive Change: Asset Acceptance Names Reid E. Simpson Chief Financial Officer,” April 30).

Asset Acceptance also disclosed a strategic acquisition and divestiture during the second quarter of 2010. The company sold its medical receivables portfolio – acquired from PARC – to Capio Partners. Needs said on the conference call that the sale of the portfolio will simplify business operations and that self-pay healthcare receivables did not align with Asset Acceptance’s strategy going forward given the uncertainty surrounding medical debt. The company expects proceeds of $1 million to $1.5 million from the sale, but will incur restructuring charges of $1.3 million when it closes the Deerfield Beach, Fla. office that housed the PARC servicing operations.

The company also announced that it had acquird BSI eeSolutions, makers of the Cogent brand of collection software. Asset Acceptance had been implementing the collection system to replace its legacy collection software and said that it made the acquisition “to protect our investment in the software we acquired and to enhance our ability to successfully implement it.” The company said that it expects the deal to be neutral to earnings and did not disclose financial specifics of the purchase.



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