Weak Collections Send NCO to a Loss

A difficult collection environment drove down second quarter results at NCO Group as the international business outsourcing and ARM firm reported today a net loss of $738,000 for the period ending June 30, down from profits of $10.0 million in the same period a year ago. Interest expense rose to $23.1 million in the quarter from $6.8 million a year ago.

Consolidated revenues for Horsham, Pa.-based NCO’s three operating divisions came in at $310.2 million in the second quarter, up nearly 5 percent from $296.2 million in the same period a year ago.

The company’s Accounts Receivable Management division reported revenues of $210.6 million, down 3 percent from $217.5 million a year ago. The ARM unit’s income from operations was $5.4 million, down 61 percent from $14.0 million in the second quarter of 2006. NCO in a statement attributed the decline to a troubled quarter for collections along with “the timing of collection activity between the first and second quarters of 2007, and the adverse impact of foreign currency.”

NCO plans to hold an investor conference call on August 22 at 10:00 a.m. Eastern Time to provide details on its performance.

NCO’s two other divisions, Customer Relationship Management (CRM), and Portfolio Management, met or exceeded revenue and profitability targets, according to NCO. The CRM unit reported revenues of $81.6 million, up 36 percent from $60.0 million, while income from operations rose to $1.1 million from a loss of $4.8 million in the second quarter of 2006. The Portfolio Management division saw revenues of $43.6 million, down from $47.6 million, with income from operations dropping to $13.8 million from $14.6 million a year ago.

Michael J. Barrist, chairman and CEO, said in a statement the company will “carefully weigh cost reductions against the increased volume requests we are currently receiving from our clients.”

In the first six months of 2007, NCO made accounts receivable purchases of $74.0 million, a 31 percent rise from $56.4 million in the same period in 2006.

In November 2006, One Equity Partners, Barrist, and other senior managers bought NCO for $1.26 billion.