NCO Group Narrows Loss in First Quarter

Accounts receivable management giant NCO Group Monday reported a narrowed loss on an increase in revenue for the first quarter of 2009. The company said that cost savings due to a concerted effort launched last year led to the improvement, even as the collection environment remained difficult.

Horsham, Pa.-based NCO reported a net loss of $2.1 million and earnings before interest, taxes, depreciation and amortization (EBITDA) of $50.6 million in the first quarter of 2009, compared to a net loss of $9.2 million and EBITDA of $36.8 million in the first quarter of 2008.

Commenting on the quarter Michael J. Barrist, chairman and CEO, stated in a press release, “All of us at NCO are extremely pleased with the first quarter results. Against a backdrop of continued economic pressure on the consumer, we were able to exceed our first quarter expectations for both revenue and profitability.”

NCO’s VP of Investor Relations, Brian Callahan, explained to insideARM that the net losses NCO has been experiencing are principally related to accounting stemming from the company’s going-private transaction in 2006. He pointed to the significant increase in EBITDA as a sign of the company’s health.

Revenues in the quarter increased 10.3 percent to $402.1 million. The company’s accounts receivable management (ARM) division led the way, posting a 13.9 percent increase in revenues to $311.3 million.

NCO attributed the increase in the ARM unit’s revenues to the acquisition of Outsourcing Solutions, Inc. (OSI) last year (“NCO Group Completes Acquisition of OSI,” March 3, 2008). The company noted in an SEC filing that the ARM unit realized the benefit of a full first quarter of OSI revenues in 2009 compared to a partial quarter in 2008.

Revenue for the customer relationship management (CRM) division increased 4 percent, to $89.1 million in the first quarter of 2009. The increase in CRM’s revenue was primarily due to increased client volume related to the implementation of new contracts during 2008, partially offset by lower volumes from certain existing clients due to the impact of the economy, NCO said in the SEC filing.

NCO’s debt buying business – Portfolio Management – saw revenues decrease 28.9 percent to $20.4 million in the quarter. Cash collections in the Portfolio Management unit slid 17.7 percent to $43.8 million, which the company attributed to “the effect of the weaker collection environment during 2008 and continuing into 2009.” Company-wide net impairment charges on purchased portfolios were $33,000 in the first quarter.

The company invested $16.4 million in the first quarter on consumer debt portfolios with a face value of $1.2 billion. This compares to the $39.4 million it spent in Q1 2008 to purchase $1.4 billion in face value debt. The total face value of NCO’s purchased portfolios was $52.4 billion in the first quarter.

^pullquoteNCO attributed the increase in the ARM unit’s revenues to the acquisition of Outsourcing Solutions, Inc. (OSI) last year (“NCO Group Completes Acquisition of OSI,” March 3, 2008).pullquote^

Callahan said that the significant decrease in the price paid to acquire debt portfolios was due to a number of factors, but that the company has “definitely been seeing pricing adjustments over the past few quarters” in the debt purchasing market.

Callahan noted that the company’s cost savings were “more than anticipated” in the first quarter.

Payroll and related expenses increased 4.8 percent in the quarter to $205.8 million, but decreased as a percentage of revenue to 51.2 percent from 53.9 percent in the first quarter of 2008. The decrease in payroll and related expenses as a percentage of revenue was primarily attributable to the deployment of additional staff in off-shore locations where labor costs are lower, as well as the impact of the integration efforts following the acquisition of OSI.

The company also recorded restructuring charges of $443,000 in Q1 2009 related to OSI acquisition. The charges consisted primarily of severance costs. This compares to $2.6 million of restructuring charges in Q1 2008 and $1.4 million in the fourth quarter of 2008.