Asset Acceptance Reports a Drop in Revenue and Earnings

Debt purchaser and collector Asset Acceptance reported financial results for the second quarter today, saying that higher prices paid for portfolios in 2004 and 2005 took their toll on income and revenues.

Warren, Mich.-based Asset Acceptance Capital Corp. (NASDAQ: AACC) reported net income for the second quarter of 2007 of $8.3 million, a 33 percent decrease from the $12.4 million reported in the same period a year ago. Earnings per full diluted share were $0.24. The consensus analyst estimate for earnings this quarter was $0.33, according to various media outlets.

Revenues for the quarter were $65.9 million, down 1.4 percent from the second quarter last year. Cash collections, however, increased 6.5 percent to $95.4 million when compared to the $89.6 million reported in the second quarter of last year.

Chairman and CEO Brad Bradley said in a statement that increased portfolio prices over the past several years has meant lower profits as the company works the portfolios.

“ … Lower yields on higher-priced pools purchased during the elevated pricing environment of the last few years has led to a higher rate of amortization,” according to Bradley’s statement. “The year-over-year increase in the amortization rate served to lower the proportion of cash collections recognized as revenue in the quarter, which is negatively affecting our profitability.”

Mark Redman, Asset’s CFO, said in a conference call today that the amortization rate – the difference between cash collections and revenue – is particularly high on portfolios purchased in 2004 and 2005.

Dan Fannon, an analyst that covers the firm for Jefferies & Company told insideARM.com, “There is still not a lot of downside to Asset Acceptance. The macro-economic environment is improving for debt purchasers and supply [of consumer debt portfolios] should be steady in the second half of 2007.”

The company also reported a one-time charge of about $328,000 for closing offices in White Marsh, Md. and Wixom, Mich. The restructuring is a part of an operational efficiency plan enacted by the company this year.

Asset Acceptance reported it spent $38.1 million on 37 debt portfolios with a face value of $1.1 billion in the second quarter, the second-highest amount the company has spent purchasing portfolios in a quarter. Bradley noted that $27.3 million was spent on “traditional” portfolios while $10.8 million was spent on “non-traditional” portfolios.

Asset Acceptance’s stock was down about 10 percent to $12.15 in midday trading today.