Asset Acceptance Posts Lower Earnings, But Beats Estimates

Bad debt buyer Asset Acceptance Capital Corp. (Nasdaq: AACC) said Thursday that its net income for the fourth quarter of 2008 was down 4 percent from the same period in 2007, but reported earnings per share above analysts’ expectations.

Warren, Mich.-based Asset Acceptance reported net income in the fourth quarter 2008 of $3.8 million, or $0.12 per fully diluted share, compared to net income of $4 million, or $0.13 per fully diluted share in the fourth quarter 2007.

Analysts were expecting per share earnings in the quarter to come in at $0.09.

Total revenues decreased 11.6 percent to $55 million in the fourth quarter.

Asset Acceptance reported cash collections of $83.3 million in the fourth quarter ended December 31, 2008, a decrease of 6.5 percent versus the year-ago period, driven primarily by the continued deterioration of the collections environment. For the full-year period ended December 31, 2008, cash collections declined 0.4 percent to $369.6 million, compared to $371.2 million in the prior-year period.

For the full year 2008, net income declined 23 percent to $15.7 million, or $0.51 per share. Revenue for the year declined 5.6 percent to $234.2 million. But net impairment charges in 2008 on purchased portfolios declined to $13 million from $24.4 million in fiscal 2007.

"Undoubtedly, 2008 will long be remembered for the significant economic turmoil that has dramatically impacted the financial well-being of the American consumer," said Rion Needs, President and CEO, in a statement. "For us, these trying times present both challenges and opportunities. On the one hand, increasing unemployment and other macro-economic factors are leading to increases in delinquencies of consumer debt that we expect will be available for purchase in the future. On the other hand, the receivables that we acquired in previous periods have become more difficult to liquidate. Our challenge is to remain diligent and tailor our collection efforts to maximize the long-term return to the Company while positioning ourselves to take advantage of increases in the supply of receivables that will be coming to market."

During the fourth quarter of 2008, Asset Acceptance invested $32.2 million to purchase charged-off consumer debt portfolios with a face value of $636.5 million, representing a blended rate of 5.06 percent of face value. This compares to the prior-year fourth quarter, when the company invested $60.7 million to purchase consumer debt portfolios with a face value of $1.5 billion, representing a blended rate of 4.10 percent of face value. For the full year 2008, the company invested $155.2 million in purchased receivables with a face value of $3.8 billion, or 4.05 percent of face value. By comparison, in 2007, the company invested $169.5 million in purchased receivables with a face value of $5.2 billion, or 3.26 percent of face value.

Asset Acceptance noted that the increase in the blended rate paid resulted from an overall higher quality of purchased receivables acquired in the current periods compared to the prior periods.

Needs said that the debt purchaser was being cautious and selective with the portfolio purchases it currently pursues. But he noted that Asset Acceptance will ramp up its debt buying activity once management sees a bottom reached in portfolio pricing levels and liquidation rates begin to recover. The company expects this to happen in late 2009 or early 2010.