Asset Acceptance Reports Difficult Quarter, Plans for Future Growth

Debt buyer Asset Acceptance Capital Corp. (Nasdaq: AACC) Thursday reported significant declines in collections, revenue and earnings for the second quarter of 2009. But the company also showed optimism while detailing their growth plan for the remainder of 2009.

The Warren, Mich.-based accounts receivable management company posted net income of $0.8 million in the second quarter – or $0.3 per share – representing a 62 percent decline from income in the second quarter of 2008. Analysts on average were expecting earnings of 13 cents a share, according to Reuters Estimates.

Total revenues in the second quarter were down 13 percent to $49.1 million. Cash collections were down 8 percent compared to the prior year period to $87.3 million.

On a conference call Thursday to discuss results, President and CEO Rion Needs noted that the results in the quarter “were clearly disappointing.” He said that the continued weak macroeconomic environment burdened consumers in the quarter, impacting cash collections.

"The collections environment continues to be challenging in the current economic climate. As unemployment continues to increase we are seeing a negative impact on our liquidation rates, especially in the older vintages where there is decreased collection leverage due to the age of the accounts,” Needs said in a press release.

Traditional call center collections in Q2 2009 fell 14 percent from Q2 2008 to $36.1 million and were off 12 percent from the first quarter of this year.

But Needs noted on the call that the company’s strategy for growth for the remainder of the year is still in place. Needs said that Asset Acceptance has been engaging in “selective portfolio purchasing” in the first half of 2009, holding out for a large ramp-up in the second half.

Indeed, the portfolio purchasing numbers in the second quarter were down. The company invested $20 million to purchase charged-off consumer debt portfolios with a face value of $727.9 million, less than a third of the purchasing activity in the second quarter of 2008 and roughly in line with totals from the first quarter of this year.

To facilitate what it expects as an influx of work from increasing purchasing activity, Needs noted that Asset Acceptance will be expanding its collector workforce by about 20 percent by the end of 2009. He also expects to pull back accounts forwarded to third party collection agencies and work them in-house. The hiring ramp-up began in June, according to management. Asset Acceptance also announced a deal with their home state of Michigan recently to create more jobs ("Asset Acceptance to Create Hundreds of Jobs Under Agreement with Michigan," June 19).

“We continue to build increased levels of operational sophistication and data analysis into our daily activities that will serve to maximize collections on our portfolios over the long run,” Needs said in a statement. “We are particularly focused on our call centers, where we are aggressively increasing our capacity by expanding our collection account representative headcount to achieve better penetration of our inventory. We expect a net increase in collection account representative headcount of 20% by year end and are ahead of plan. We continue to enhance the segmentation of our accounts in order to focus our efforts on those most likely to liquidate, as well as complete our system conversion that will give our workforce the tools they need to maximize every collection opportunity. We believe these efforts will increase our liquidation rates going forward.”

Asset Acceptance also reported that it had been successful in reining in costs in the second quarter, with expenses falling 9.3 percent in the quarter.

At the end of the second quarter of 2009, Asset Acceptance reported an average collector full-time equivalent count of 929, roughly flat from the 939 reported at the end of Q2 2008, but down from the 955 reported at the end of Q1 2009.