NCO Group Reports Slip in Earnings for Q2

HORSHAM, PA – NCO Group, Inc. (“NCO” or the “Company”), a leading provider of business process outsourcing services, announced today that during the second quarter of 2005, it reported net income of $14.1 million, or $0.42 per diluted share, as compared to net income of $14.4 million, or $0.43 per diluted share, in the second quarter of 2004.

Revenue in the second quarter of 2005 was $247.2 million, a decrease of 3.2%, or $8.1 million, from revenue of $255.3 million in the second quarter of 2004.

NCO’s operations are organized into four market specific divisions that include: Accounts Receivable Management North America (“ARM North America”), Customer Relationship Management (“CRM”), Portfolio Management, and Accounts Receivable Management International (“ARM International”). For the second quarter of 2005, these divisions accounted for $192.5 million, $43.8 million, $27.8 million, and $3.3 million of revenue, respectively. Included in ARM North America’s revenue was $20.1 million of intercompany revenue from Portfolio Management and included in ARM International’s revenue was $79,000 of intercompany revenue from Portfolio Management. All intercompany revenue is eliminated in consolidation.

For the second quarter of 2004, the ARM North America, CRM, Portfolio Management and ARM International divisions accounted for $185.0 million, $59.4 million, $24.1 million and $3.5 million of the revenue, respectively. Included in ARM North America’s revenue was $16.6 million of intercompany revenue from Portfolio Management and included in ARM International’s revenue was $97,000 of intercompany revenue from Portfolio Management. All intercompany revenue is eliminated in consolidation.

The decrease in revenue was primarily attributable to the previously discussed loss of a telecommunications client within the Company’s CRM division. While the implementation of newly committed client contracts is progressing on schedule, the revenue from such opportunities has not yet had a meaningful impact on the Company.

NCO’s payroll and related expenses as a percentage of revenue decreased to 49.6% for the second quarter of 2005 as compared to 52.0% for the same period in the prior year. The decrease in payroll and related expenses as a percentage of revenue was attributable to continued diligence in monitoring staffing levels against revenue, as well as the use of labor in Barbados and the Philippines.

NCO’s selling, general and administrative expenses as a percentage of revenue increased to 36.9% for the second quarter of 2005 as compared to 32.8% for the same period in the prior year. This increase was primarily due to the additional use of outside attorneys and other third party service providers including the use of the Company’s business partner in India.

Commenting on the quarter, Michael J. Barrist, Chairman and Chief Executive Officer, stated, “The second quarter is difficult to compare to the prior year because of several unique situations imbedded in the results of the current quarter. During the quarter our CRM division continued both the planned exit of a large telecom client and the implementation of several new client opportunities. While our ARM North America division grew its revenue, clients continued to impact our margins by adding many administrative and security burdens and as well as exerting pricing pressure. This was partially offset by the extremely strong operating results within our Portfolio Management division, which included a new process of identifying and selling accounts that have a very low probability of collection. As a result of this process we recognized a gain during the quarter of approximately $5.3 million. However, due to the nature of these sales, the gain was included in other income since it was not considered to be a component of operating income. We are encouraged by our success in positioning our portfolio business for the remainder of this year and beyond with closed deals, as well as deals that are still in the pipeline and have a high probability of closing.”

NCO also announced that it continues to expect earnings per share to be approximately $1.70 to $1.80 per diluted share for 2005.