NCO Group Loses $26.5 million in Q3 on Impairments and Restructuring

NCO Group, one of the largest accounts receivable management firms in the world, said late Thursday that it lost money in the third quarter of 2008 on a large impairment charge on purchased debt portfolios and restructuring charges related to the acquisition of Outsourcing Solutions, Inc. (OSI) and other businesses.

Horsham, Pa.-based NCO reported a net loss of $26.5 million in the third quarter of 2008, compared to a net loss of $4.6 million in the same period a year ago.

Total revenue in the quarter was $381.1 million, up 17.2 percent from the third quarter last year.

NCO said in a press release that all of its divisions -- Accounts Receivable Management (ARM), Customer Relationship Management (CRM) and Portfolio Management (PM) – operated below their revenue and profitability targets in the third quarter of 2008.

The ARM division operated below its revenue and profitability targets primarily as a result of lower than expected revenues derived from the PM division as a result of ongoing challenges in the economy. The impact of the weaker than expected collection environment was partially offset by incremental volume received from certain clients as they begin to manage the impact of the weakening economy on their businesses. The CRM division operated slightly below its profitability and revenue targets primarily as a result of fluctuations in client volumes due to the weaker than expected economy. The PM unit operated below its profitability and revenue targets primarily as a result of further deterioration in consumer payment patterns.

The ARM unit reported revenue of $315 million in the quarter, up 40 percent from the third quarter of 2007. The large increase in revenue can be at least partially attributed to the integration of OSI operations, which at the time of purchase was the second-largest debt collection agency in the U.S. (“NCO Group Completes Acquisition of OSI,” March 3). Revenues in the CRM unit were up 10.3 percent to $91.7 million in Q3 2008. The debt purchasing unit had negative revenue of $4.4 million in the quarter as it took an impairment charge of $32.4 million on purchased accounts. In the third quarter of 2007, the PM unit had revenues of $45.1 million.

The third quarter results also included $3.4 million of restructuring charges primarily related to the acquisitions of Systems & Services Technologies, Inc. (SST) and OSI.

In the most recent quarter, NCO purchased face value accounts receivable of $1.1 billion for $33.9 million, compared to accounts worth $662.3 million purchased in the third quarter of 2007.