Asset Acceptance Reports Rough Year, Record Purchases

Debt purchaser and collector Asset Acceptance Capital Corp. Tuesday reported flat revenues for its fourth quarter of 2007 and a decline in net income for the period. The company also reported revenues and earnings that were down for the full year on a record year for portfolio purchases.

Warren, Mich.-based Asset (Nasdaq: AACC) made good on its warning last week that earnings would be weak for the quarter and year (“Asset Acceptance Gives Poor Earnings Preview for 2007,” Feb. 22). The company said that in the fourth quarter revenues increased 1.1 percent to $62.2 million. Net income for the quarter dropped 59 percent to $4 million, or $0.13 per share. Analysts had been expecting earnings of around $0.17 per share.

For the year, Asset Acceptance reported that revenues declined 2.7 percent to $248 million. Net income for the year declined 55.2 percent to $20.4 million.

In a conference call Tuesday, Chairman and CEO Brad Bradley said the disappointing results were “a call to renewed action on the part of the senior management team. We’ve injected a new level of urgency and accountability into every aspect of our business.”

Asset Acceptance said that it spent $172 million on portfolio purchases in 2007, up nearly 29 percent from 2006, and a new record for the company. The comments echoed those by rival Portfolio Recovery Associates last week which also reported a record year of portfolio purchasing (“PRA Notches Record Buying Year, Looks Offshore for Collections,” Feb. 22). Asset said that in the fourth quarter alone, it invested a record $62.8 million to purchase 46 charged-off consumer debt portfolios with a face value of $1.5 billion.

Bradley said that Asset Acceptance is well-positioned to ride out the current consumer economic environment and that the company is seeing an increased supply of paper at prices 10-15 percent lower than in previous periods.

The company also said that its legal collections strategy is being accelerated and expanded. Asset blamed an increase in expenses in large part on the implementation of the strategy.

Legal collections increased 17 percent alone in the fourth quarter. The legal channel now accounts for 42.2 percent of total cash collections at the company, compared to the 43.3 percent brought in by traditional call center collections. All collection strategies experienced increases in 2007 as Asset reported record total cash collections of $371.2 million for the year, up 8.9 percent from 2006.

In response to a question on the conference call, the company’s Chief Operating Officer, Rion Needs, said that Asset is not only filing suits earlier in the collection process, but that it is “putting more volume into the [legal collections] system.”

At the end of the fourth quarter, Asset Acceptance counted 889 full-time equivalent collectors, 478 of which had more than one year of experience. The number was down from previous quarters as the company announced the closure of two collection offices in Wixom, Mich. – near Detroit — and White Marsh, Md., near Baltimore.