U.S. Consumers, Canadian Dollar Hurt NCO's Third Quarter

 
NCO Group, business process outsourcing provider and largest ARM company in the U.S., late Wednesday reported a net loss for the third quarter of 2007 in what it categorized as a “difficult collections environment” in the country.

Horsham, Pa.-based NCO said that the quarter resulted in a net loss of $3.1 million compared to net income of $11.4 million in the third quarter of 2006. Revenue for the third quarter was up nearly 2 percent to $307.2 million.

NCO noted that their business is broken into three separate lines: ARM, the traditional collections unit; portfolio management, the debt purchasing arm; and CRM, the customer relationship management and other BPO services group, a business NCO has been expanding for the past several years.

For the third quarter, the ARM unit accounted for the lion’s share of revenues at $207.5 million, although that total was down 2.7 percent from the unit’s Q3 2006 revenues. The CRM group brought in $83.1 million, a 32.3 percent increase. And the debt purchasing unit had revenues of $45.1 million, down sharply from the $55.3 million reported in the third quarter of 2006.

Michael Barrist, NCO president and CEO, said this morning in a conference call that the weaker results were due in part to a difficult collections environment. “Consumers have fewer dollars in their pockets right now,” said Barrist. “We are seeing a lower percentage of payments in full and creep from consumers who are on payment plans.” Barrist explained that the payment creep meant consumers were more often falling behind on payment plans.

Another factor in the lackluster results was a negative foreign exchange environment, particularly as it relates to the U.S. dollar vs. the Canadian dollar. The foreign exchange hit was about $2.1 million higher than expected, said Barrist. The largest contributor to the issue was Canadian payroll, which may need to be pared.

“We will probably need to lower the headcount in Canada and transition those seats to offshore locations,” said Barrist. In the ARM unit alone, NCO employs nearly 1,600 people in Canada. In other offshore locations, the ARM group has 1,620 workers in India, 530 in the Philippines, and nearly 500 in the Caribbean.

John Schwab, executive vice president of finance, reported that the portfolio management group in the third quarter spent $14.2 million on debt portfolios with a face value of $648.5 million. Also, the company recorded no impairments on its purchased portfolios, although given the current consumer environment, “some impairment charges may be recorded in the future,” according to Schwab. Barrist also commented that pricing in the debt purchasing market is improving, with “a retrenchment of pricing back down to very rational levels.”

The company expects to be active in portfolio purchasing in the fourth quarter of this year. For the year, the company has purchased $3.9 billion in face value debt.