Asset Acceptance Capital Corp. Announces Third Quarter Results

Asset Acceptance Capital Corp., a leading purchaser and collector of charged-off consumer debt, today announced third quarter 2005 results, highlighted by a 14.3 percent increase in total revenues, a 17.0 percent increase in cash collections, a 76.9 percent increase in purchased receivables and a 7.4 percent increase in net income compared with the prior-year third quarter results.

Revenues grew to $64.0 million for the third quarter ended September 30, 2005, compared with revenues of $56.0 million in the third quarter of 2004. Cash collections grew to $78.2 million in the third quarter of 2005, versus cash collections of $66.8 million in the same period of 2004. Net income for the quarter was $13.7 million, or $0.37 per fully diluted share, compared with net income of $12.8 million, or $0.34 per fully diluted share, for the third quarter of 2004.

During the third quarter of 2005, Asset Acceptance invested $28.0 million to purchase consumer debt portfolios with a face value of $1.1 billion, representing a blended rate of 2.49 percent of face value. This compares to the prior year third quarter, when the Company invested $15.8 million to purchase consumer debt portfolios with a face value of $631.6 million, representing a blended rate of 2.51 percent of face value. Through the first nine months of 2005, Asset Acceptance invested $77.2 million to purchase consumer debt portfolios with a cumulative face value of $3.3 billion, up 27.6 percent from the same period in 2004. All purchase data is adjusted for buybacks.

"Our third quarter results reflect year-on-year gains in revenue and profitability, led by collections growth from our legal collections department," said Brad Bradley president and CEO of Asset Acceptance Capital Corp. "Our overall growth in cash collections slowed modestly in the third quarter reflecting a lower growth rate in call center collections."

Bradley also said, "Overall, we are pleased with our purchasing in the third quarter and all of 2005 which shows strong increases over 2004. The pricing climate in the third quarter remained at the elevated levels experienced in the previous quarter. Throughout the third quarter, supply remained strong, with increased deal activity appearing within a variety of non-traditional asset classes. While bidding remains competitive throughout the various asset classes in which we participate, we continue to invest only in those portfolios that meet or exceed our long-term total return objective of three times cost over a five-year period. Furthermore, we have become increasingly opportunistic in the purchase of non-traditional portfolios, with approximately 55 percent of face value of our third quarter purchases originating from non-traditional asset classes."

Third Quarter and Nine Months-Ended 2005: Key Highlights

• Total revenues grew 14.3 percent year-on-year to $64.0 million for the third quarter 2005, compared with revenues of $56.0 million in the third quarter of 2004. Total revenues year-to-date increased to $198.9 million, up 26.5 percent from the first nine months of 2004.

• For the third quarter of 2005, investment in purchased receivables of $28.0 million was 76.9 percent higher than the same period in 2004. Investment in purchased receivables increased to $77.2 million year-to- date, up 27.6 percent from the first nine months of 2004.

• Total cash collections increased 17.0 percent year-on-year to $78.2 million in the third quarter of 2005, versus cash collections of $66.8 million in the third quarter of 2004. Total cash collections year-to- date increased to $243.4 million, up 22.0 percent from the first nine months of 2004.

• Call center, legal and other collections all increased in the third quarter of 2005 versus the same period in 2004.
  • Call center collections increased year-on-year by 6.3 percent to $38.9 million. Call center collections year-to-date increased to $127.7 million, up 9.9 percent from the first nine months of 2004.
  • Legal collections increased year-on-year by 34.5 percent to $29.1 million. Legal collections year-to-date increased to $86.0 million, up 42.9 percent from the first nine months of 2004.
  • Other collections, which include forwarding, bankruptcy and probate collections, increased year-on-year by 18.5 percent to $10.2 million. Other collections year-to-date increased to $29.7 million, up 27.8 percent from the first nine months of 2004.
• Collections on fully amortized portfolios, commonly referred to as zero- basis collections, increased year-on-year by 62.3 percent to $14.0 million. Zero-basis collections nearly doubled year-to-date to $41.1 million, up 94.0 percent from the first nine months of 2004.

• Net income for the third quarter 2005 increased 7.4 percent year-on-year to $13.7 million or $0.37 per fully diluted share. Net income year-to- date increased to $45.2 million or $1.21 per fully diluted share, compared to a reported net loss of $11.8 million, or a loss of $0.33 per fully diluted share, incurred during the first nine months of 2004, including one-time items recognized within the first nine months of 2004. On an adjusted basis, net income increased 28.4 percent in the first nine months of 2005 versus the year ago period, where the Company earned adjusted net income of $35.2 million, or $0.97 per fully diluted share. The reported (GAAP) results accounted for within the first nine months of 2004 included a previously announced one-time compensation and related payroll tax charge of $45.7 million resulting from the vesting of share appreciation rights upon the initial public offering and a deferred income tax charge of $19.3 million as a result of the reorganization in anticipation of the initial public offering. A reconciliation of reported GAAP net loss to the adjusted basis is set forth below.

• Quarterly collector productivity on a full-time equivalent basis was $36,454 in the third quarter of 2005, a decline of 9.4 percent from the year-ago period. The Company reported that on a year-on-year basis, the average number of collectors increased 17.2 percent to 1,067 collectors in the current period.

• Asset Acceptance collected on purchases made from credit card issuers, retailers, finance companies, utilities, healthcare providers and other credit originators during the third quarter of 2005 and continues to maintain a diverse mix of asset types in its consumer debt portfolios.

Mark A. Redman, vice president-finance and CFO of Asset Acceptance Capital Corp., concluded: "While growth in collections and net income slowed in the third quarter, we remain well positioned for the future, with a growing cash position, no debt outstanding on our line of credit and healthy profit margins. We are committed to improving our collector recruiting and retention initiatives. Additionally, we will review our collection strategies as we seek more efficient methods to collect our acquired receivables."