NCO Group Reports 2008 Results

Accounts receivable management and customer relations giant NCO Group Wednesday reported results for the full year and fourth quarter 2008 marked by a large loss on non-cash impairments and a sharp rise in revenue.

Horsham, Pa.-based NCO Group, Inc. reported a net loss for the full year 2008 of $337.1 million. In 2007, the company lost $31.7 million.

In the fourth quarter of 2008, the company reported a net loss of $286.6 million.

The losses were due to non-cash impairment charges related to a transaction in 2006 that took the company private, and to the company’s purchased debt portfolios.

NCO recorded a $289.5 million non-cash impairment of goodwill and other intangible assets in connection with the going-private transaction in November 2006. The charge had a direct impact on net operating figures for the year. The company also took a $98.9 million impairment charge on its purchased debt portfolios for the year.

NCO said that the impairment of goodwill and other intangible assets is a non-cash charge that does not affect the company’s cash flows from operations, liquidity, or compliance with the financial covenants in its senior credit facility.

Mike Barrist, NCO’s Chairman and CEO, said that the company had achieved its goals for the year exclusive of the impact of non-cash portfolio impairments and restructuring charges.

The company’s earnings before interest, taxes, depreciation and amortization (EBITDA) for the full year was $95.5 million.

“As we continue to navigate through 2009, we believe NCO is well positioned among its peers within each of its core markets to capitalize on all available opportunities,” said Barrist.

NCO also noted that it eliminated executive bonuses and reduced certain non-executive bonuses in 2008 to cut costs. It also experienced a “meaningful reduction in overall discretionary spending.”

But revenues soared in 2008. NCO said that it crossed the billion-and-a-half-dollar mark in 2008 by bringing in $1.51 billion in total revenues, up nearly 18 percent from total revenues reported in 2007.

The company attributed much of the increase in revenue to the acquisition of Outsourcing Solutions, Inc. (OSI), which at the time was the second largest collection agency in the U.S. The OSI deal closed in March 2008 (“NCO Group Completes Acquisition of OSI,” March 3, 2008). NCO said that OSI contributed $337.3 million in revenues in 2008.

Of the $1.51 billion in total revenue in 2008, $1.22 billion was generated by NCO’s ARM unit, up from $915.6 million in 2007. The company noted in an SEC filing that 60 percent of the ARM unit’s revenues were generated “from the recovery of delinquent accounts receivable on a contingency fee basis.”

NCO also said in its SEC filing that it spent $126.5 million on debt portfolio purchases in 2008, roughly the same amount it spent in 2007.