NCO Group's Earnings Fall, Announce Management Expansion

HORSHAM, PA – NCO Group, Inc. (“NCO” or the “Company”) (Nasdaq: NCOG), a leading provider of accounts receivable management and collection services, announced today that during the second quarter it achieved net income of $0.38 per share, on a diluted basis. These earnings were within NCO’s previously announced guidance of $0.37 to $0.43. This wider than normal range took into consideration the potential for an increase in the amount of net revenue being deferred into future periods under a long-term collection contract. During the second quarter, NCO continued to receive a greater than expected amount of business under the long-term collection contract. The net impact of this deferral was a reduction in earnings of $0.04 per diluted share.

Revenue in the second quarter of 2003 was $188.6 million, an increase of 7.7%, or $13.5 million, from revenue of $175.1 million in the second quarter of the previous year. Net income was $10.3 million, or $0.38 per share, on a diluted basis, as compared to net income of $11.7 million, or $0.42 per share, on a diluted basis, in the second quarter a year ago.

NCO’s operations are currently organized into market specific divisions that include: U.S. Operations, Portfolio Management and International Operations. These divisions accounted for $172.0 million, $18.1 million and $17.4 million of the revenue for the second quarter of 2003, respectively. Included in U.S. Operations’ revenue was $12.1 million from Portfolio Management and included in International Operations’ revenue was $6.8 million from U.S. Operations. In the second quarter of 2002, these divisions accounted for $159.7 million, $14.1 million and $12.0 million of the revenue, respectively, before intercompany eliminations of $8.1 million included in U.S. Operations and $2.6 million included in International Operations.

Included in revenue for the second quarter of 2003 was a negative impact of $1.7 million, or $0.04 per diluted share, attributable to the accounting for a long-term collection contract. This compares to a positive impact of $2.4 million, or $0.05 per diluted share, for the second quarter of 2002.

NCO’s payroll and related expenses as a percentage of revenue decreased for the second quarter of 2003 as compared to the same period in the prior year, but its selling, general and administrative expenses as a percentage of revenue increased for the second quarter of 2003. The decrease in payroll and related expenses and the increase in the selling, general and administrative expenses were partially due to the shift of more of our collection work to the attorney network and other third party service providers, and the rationalization of collection staff. This shift was associated with the continuing efforts to maximize collections for clients, particularly as we approached the first reconciliation date of the long-term collection contract. This rise in costs was offset, in part, by a reduction in collection expenses and purchased data costs.

NCO also announced the expansion of its management team to include Paul Burkitt, Executive Vice President, Sales and Marketing, and Charles Burns, Executive Vice President, Business Process Outsourcing.

Mr. Burkitt will be responsible for the strategic direction as well as the day-to-day operations of NCO’s sales and marketing functions. Mr. Burkitt has nearly twenty years of sales experience. Prior to joining NCO, he was the Executive Vice President of RMH Teleservices, Inc.

Mr. Burns will be responsible for the expansion of NCO’s service offerings in the Business Process Outsourcing marketplace. Mr. Burns has nearly twenty years of sales and consulting experience. Prior to joining NCO, he was a partner in BearingPoint, Inc., formerly KPMG Consulting, Inc., a business systems integrator and full service consulting firm.

Additionally, NCO is pleased to announce that Steven Leckerman has assumed the responsibility of Chief Operating Officer, Accounts Receivable Outsourcing, and in addition to his role as Chief Financial Officer, Steven L. Winokur has assumed the role of Chief Operating Officer of Shared Services.

Commenting on the quarter, Michael J. Barrist, Chairman and Chief Executive Officer, stated, “During the second quarter, we continued to meet all of our operational and financial objectives. Outside of the greater than expected net deferral of revenue on the long-term collection contract, our earnings were towards the higher end of the range of possible results we provided to our investors. Additionally, we continued to be the beneficiary of new client opportunities, we continued to brand ourselves as the best in class provider of outsourced accounts receivable management services and we continued to focus on balancing the near-term tactical challenges of operating a service business in our current environment with the longer-term strategic initiatives needed to improve shareholder value. With that in mind, it gives me great pleasure to welcome Paul Burkitt and Chuck Burns to the NCO management team, and to congratulate Steve Leckerman and Steve Winokur on their promotions. The addition of new talent to our team and the realignment of how we manage this business represent the first of many strategic changes we expect to unfold over the next several quarters as we begin the process of properly positioning NCO for growth regardless of the timing of an economic upturn.”

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