FORT WASHINGTON, PA — NCO Group, Inc. (“NCO”)(Nasdaq: NCOG), a leading provider of accounts receivable management and collection services, announced today that during the third quarter it achieved net income of $0.30 per share, on a diluted basis, excluding the effects of certain one-time charges, or $0.04 per share, on a diluted basis, including the effects of certain one-time charges. The previously announced one-time charges incurred during the third quarter related to NCO’s decision to relocate its corporate headquarters as a result of a flood that occurred in June 2001.
Revenue in the third quarter of 2001 was $174.3 million, an increase of 13.3%, or $20.4 million, from revenue of $153.9 million in the third quarter of the previous year. Net income, excluding the after-tax effects of $11.2 million of one-time charges, was $8.1 million, or $0.30 per share, on a diluted basis, as compared to income from continuing operations of $11.5 million, or $0.45 per share, on a diluted basis, in the third quarter a year ago. Including the one-time charges, net income for the third quarter of 2001 was $952,000, or $0.04 per share, on a diluted basis.
The Company’s operations are currently organized into market specific divisions that include U.S. Operations, Portfolio Management, and International Operations. These divisions accounted for $157.3 million, $16.2 million and $9.7 million of the revenue for the third quarter of 2001, respectively. Included in the International Operations revenue was $1.6 million from the U.S. Operations. U.S. Operations included revenue of $7.3 million from Portfolio Management. In the third quarter of 2000, these divisions accounted for $143.6 million, $4.0 million and $8.1 million of the revenue, respectively, before intercompany eliminations of $1.8 million related to Portfolio Management.
Income from operations for the third quarter of 2001, excluding the one- time charges, decreased 16.9% to $21.5 million from $25.8 million for the same period a year ago. Including the one-time charges, income from operations decreased to $10.2 million for the third quarter of 2001.
Selling, general, and administrative expenses included $11.2 million of previously announced one-time charges incurred in connection with the decision to move the corporate headquarters to Horsham, PA as a result of the June 2001 flood of the Fort Washington, PA corporate headquarters. The one-time charges included the full amount of rent due under the remaining term of the Fort Washington, PA lease, but did not include any potential recovery or reduction of those lease payments pending the outcome of a lawsuit filed by NCO against its landlord. The one-time charges also included certain other expenses incurred in connection with the flood and the relocation of the corporate headquarters. Currently, the Company expects all property damage related to the flood to be covered by insurance.
Excluding the effects of the one-time charges, the Company experienced an increase in its payroll and related expenses, as well as its selling, general and administrative expenses as a percentage of revenue, for the third quarter of this year as compared to the third quarter of last year. The increases in cost structure were primarily the result of reduced collectibility within the Company’s contingent revenue stream resulting in costs rising as a percentage of the revenue generated by those costs. The effects of the difficult collection environment were further amplified by a significant revenue reduction in September as a result of diminished consumer payments resulting from the terrorist attacks on September 11, 2001. In order to mitigate the effects of decreased collectibility and maintain performance for certain clients, the Company had to increase spending for both payroll and direct costs of collection.
The effective tax rate for the third quarter of 2001 was 55.6% of income before income tax expense. The increase in the effective tax rate in the third quarter was primarily attributable to the higher than expected impact of the non-deductible goodwill amortization on a lower than expected level of operating income.
Commenting on the quarter, Michael J. Barrist, Chairman and Chief Executive Officer, stated, “Like many companies, in the wake of the tragedies of September 11th we were forced to quickly adapt to a new operating environment. Our short-term focus was meeting the immediate needs of our employees and clients. We provided space for displaced New York clients and modified our calling and mail patterns to allow our employees, our clients, and consumers time to adjust to what had transpired. As the month progressed, we worked closely with our clients to assure that our collection activities returned to normalcy in a responsible manner. While we did begin to see an uplift in collections towards the end of September, our monthly revenue was more than 10% off of our original targets. As we moved into October, we refocused our efforts on improving collections and effectively managing our cost structure given the new operating environment. Our managers and staff have done a great job in steadily improving our operating run rate, and we continue to see improvements in performance as we enter November.”
“While we are encouraged by this improvement, we believe that some of the revenue improvement in October may be a result of a backlog from September. Additionally, considering the current economic data on consumer sentiment and spending patterns, we believe it is likely that, in the short term, our revenue will fall short of our expectations prior to September 11th. Because of the lack of visibility caused by these factors, we will not be able to provide investor guidance for the fourth quarter and year 2002 at this time. We anticipate that as we move through November and obtain a better understanding of the quarter, we will be able to update investors.”
The Company will host an investor conference call on Wednesday, November 7, 2001 at 11:30 a.m., ET, to discuss the items discussed in this press release in more detail and to allow the investment community an opportunity to ask questions. Interested parties can access the conference call by dialing (800) 366-7640 (domestic callers) or (303) 262-2171 (international callers). A taped replay of the conference call will be made available for seven days and can be accessed by interested parties by dialing (800) 405-2236 (domestic callers) or (303) 590-3000 (international callers) and providing the pass code 408426.
NCO Group, Inc. is the largest provider of accounts receivable collection services in the world. NCO provides services to clients in the financial services, healthcare, retail, commercial, education, telecommunications, utilities and government sectors.
A copy of the Annual Report on Form 10-K can be obtained, without charge except for exhibits, by written request to Steven L. Winokur, Executive Vice President, Finance/CFO, NCO Group, Inc., 515 Pennsylvania Avenue, Ft. Washington, PA 19034.
Certain statements in this press release, including, without limitation, statements as to NCO’s, or management’s outlook as to financial results in 2001 and beyond, statements as to the effects of the terrorist attacks and the economy on NCO’s business, statements as to the effects of potential business opportunities, statements as to initiatives to improve margins, statements concerning projections of earnings per share or the earnings per share growth rate, statements as to fluctuations in quarterly operating results, statements as to trends, statements as to the Company’s or management’s beliefs, expectations or opinions, and all other statements in this press release, other than historical facts, are forward-looking statements, as such term is defined in the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created thereby. Forward-looking statements are subject to risks and uncertainties, are subject to change at any time and may be affected by various factors that may cause actual results to differ materially from the expected or planned results. In addition to the factors discussed above, certain other factors, including without limitation, the risk that the Company will not be able to implement its five-year strategy as and when planned, risks related to past and possible future terrorists attacks, risks related to the economy, the risk that the Company will not be able to improve margins, risks relating to growth and future acquisitions, risks related to fluctuations in quarterly operating results, risks related to the timing of contracts, risks related to strategic acquisitions and international operations, and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K, filed on March 16, 2001, can cause actual results and developments to be materially different from those expressed or implied by such forward-looking statements.
