NCO?s Quarterly Loss Widens on $24.6 million Portfolio Impairment

NCO Group, one of the largest accounts receivable management companies in the world, said late Monday that its net loss in the second quarter of 2008 widened on a large impairment charge for purchased receivables and costs associated with the recent acquisitions of Systems & Services Technologies, Inc. (SST) and Outsourcing Solutions Inc. (OSI).

Horsham, Pa.-based NCO reported a net loss of $14.75 million in the second quarter of 2008 compared to a loss of $1.3 million in the same quarter a year ago. Net income for the quarter was negatively impacted by a nonrecurring restructuring charge of $4.9 million in the quarter related to the SST (“NCO Group Acquires Loan Servicing Firm,” Aug. 31, 2007) and OSI (“NCO Group to Buy OSI for $325 Million,” Dec. 12, 2007) acquisitions.

Revenues in the quarter surged more than 22 percent in the quarter to $405 million, driven by a 45.4 percent increase in revenue from its accounts receivable management (ARM) division. NCO executives said in a conference call Tuesday morning that most of the increase was due to the integration of OSI’s operations. The ARM unit reported revenues of $334.8 million.

NCO is divided into three units: ARM, customer relationship management (CRM), and portfolio management, the company’s debt buying group. The CRM unit reported revenues of $84.8 million in Q2 2008, compared to $81.6 million last year. The portfolio management unit saw a large drop in revenue – from $43.6 million last year to $8.8 million in the second quarter of 2008 – principally attributable to a $24.6 million impairment charge on purchased portfolios. The company also noted that the deteriorating economy impacted consumers’ ability to repay debt in the quarter.

The debt buying group spent $33.4 million on $1.1 billion in face value debt portfolios in the second quarter of 2008.

In the conference call Tuesday, NCO noted that it was focusing on growing its ARM and CRM unit overseas as it seeks better operational efficiencies in different operating regions. The point was underscored with discussion of a possible fourth operating center in the Philippines. If the fourth site is opened, and the other three offices are ramped up as planned, NCO could have 8,000 employees in the country by the end of the first quarter 2009.