NCOG Nco

NCO Group Announces Third Quarter Results of $0.39 Per Diluted Share HORSHAM, Pa., Nov. 1 /PRNewswire-FirstCall/ -- NCO Group, Inc. ("NCO" or the "Company") (NASDAQ:NCOG), a leading provider of business process outsourcing services, announced today that during the third quarter of 2004 it reported net income of $13.3 million, or $0.39 per diluted share, as compared to net income of $10.7 million, or $0.39 per diluted share, in the third quarter of 2003. These earnings were in line with NCO's previously announced guidance of $0.38 to $0.42 per diluted share. Revenue in the third quarter of 2004 was $246.0 million, an increase of 30.4%, or $57.4 million, from revenue of $188.6 million in the third quarter of the previous year. 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 third quarter of 2004, these divisions accounted for $179.8 million, $52.8 million, $26.3 million, and $3.3 million of the revenue, respectively. Included in ARM North America's revenue was $16.1 million of intercompany revenue from Portfolio Management and included in ARM International's revenue was $99,000 of intercompany revenue from Portfolio Management. For the third quarter of 2003, the ARM North America, Portfolio Management and ARM International divisions accounted for $178.8 million, $18.8 million and $3.4 million of the revenue, respectively. Included in ARM North America's revenue was $12.3 million of intercompany revenue from Portfolio Management and included in ARM International's revenue was $104,000 of intercompany revenue from Portfolio Management. The CRM division was created in the second quarter of 2004 in connection with the acquisition of RMH Teleservices, Inc. ("RMH") on April 2, 2004 and, accordingly, is not included in the results for 2003. NCO's payroll and related expenses as a percentage of revenue increased to 50.9% for the third quarter of 2004 as compared to 46.6% for the same period in the prior year. The increase in payroll and related expenses as a percentage of revenue was primarily attributable to the CRM division, which was created with the acquisition of RMH. The CRM division has a more significant amount of payroll and related expenses as compared to the ARM business. Excluding the CRM division, payroll and related expenses as a percentage of revenue decreased for the third quarter of 2004. This decrease was primarily attributable to the continuing increase in the use of near shore and offshore staffing solutions, and the continuing rationalization of staff. NCO's selling, general and administrative expenses as a percentage of revenue decreased to 34.4% for the third quarter of 2004 as compared to 37.4% for the same period in the prior year. The decrease was primarily attributable to the CRM division's expense structure. Excluding the CRM division, the selling, general and administrative expenses as a percentage of revenue increased due to the increased usage of outside attorneys and other third party service providers. NCO also announced that it expects earnings per share to be approximately $0.38 to $0.42 per diluted share for the fourth quarter of 2004 and $1.62 to $1.67 for 2004. Commenting on the quarter, Michael J. Barrist, Chairman and Chief Executive Officer, stated, "I am pleased that despite a turbulent consumer spending environment and the continued weakness of the U.S. dollar, NCO met its overall operating objectives for the quarter. During the quarter, strong results from our Portfolio Management segment were able to counteract the more challenging environment that we encountered within our ARM North America segment while our CRM and ARM International segments operated as expected. This demonstrates the benefit of operating multiple business units in multiple geographies. "As we move into the final quarter of 2004, we are anticipating continued pressure on our ARM North America segment, which we expect to be offset by better than expected results from our Portfolio Management segment. Additionally, we believe that our ARM International and CRM segments will perform as previously expected. If the U.S. dollar continues to weaken, we will most likely be at the lower end of the range." NCO will host an investor conference call on Tuesday, November 2, 2004, at 10:00 a.m., ET, to address the items discussed in the press release in more detail and to allow the investment community an opportunity to ask questions. Interested parties can access the conference call by dialing (888) 209-7450 (domestic callers) or (706) 643-7734 (international callers) and providing the pass code 1822710. A taped replay of the conference call will be made available for seven days and can be accessed by interested parties by dialing (800) 642-1687 (domestic callers) or (706) 645-9291 (international callers) and providing the pass code 1822710. A transcript of the conference call will also be available on NCO's website (http://www.ncogroup.com/) and will be furnished to the SEC in a Form 8-K report. NCO Group, Inc. is a leading provider of business process outsourcing services including accounts receivable management, customer relationship management and other services. NCO provides services through over 90 offices in the United States, Canada, the United Kingdom, India, Barbados and the Philippines. For further information: At NCO Group, Inc. Michael J. Barrist, Chairman and CEO Steven L. Winokur, EVP, Finance and CFO (215) 441-3000 http://www.ncogroup.com/ Certain statements in this press release, including, without limitation, statements as to fluctuations in quarterly operating results, statements concerning projections, statements concerning strategic initiatives, statements as to the economy and its effects on NCO's business, statements as to the integration of the acquisitions of RMH Teleservices, Inc., statements as to trends, statements as to NCO's or management's beliefs, expectations or opinions, and all other statements in this press release, other than historical facts, are forward-looking statements, as such term is defined in the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created thereby. Forward-looking statements are subject to risks and uncertainties, are subject to change at any time and may be affected by various factors that may cause actual results to differ materially from the expected or planned results. In addition to the factors discussed above, certain other factors, including without limitation, the risk that NCO will not be able to implement its business strategy as and when planned, risks related to the ERP implementation, risks related to the final outcome of the environmental liability, risks related to past and possible future terrorists attacks, risks related to the economy, the risk that NCO will not be able to improve margins, risks relating to growth and future acquisitions, risks related to the integration of the acquisitions of RMH Teleservices, Inc. and the minority interest of NCO Portfolio Management, Inc., risks related to fluctuations in quarterly operating results, risks related to the timing of contracts, risks related to international operations, risks relating to any adverse impact of restating the Company's historical financial statements and other risks detailed from time to time in NCO's filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the year ended December 31, 2003, can cause actual results and developments to be materially different from those expressed or implied by such forward-looking statements. The Company disclaims any intent or obligation to publicly update or revise any forward-looking statements, regardless of whether new information becomes available, future developments occur or otherwise. NCO GROUP, INC. Unaudited Selected Financial Data (in thousands, except for per share amounts) Statements of Income: For the Three Months For the Nine Months Ended Ended September 30, September 30, 2004 2003 2004 2003 Revenue $246,046 $188,619 $702,532 $566,210 Operating costs and expenses: Payroll and related expenses 125,287 87,878 349,149 264,506 Selling, general and admin. expenses 84,688 70,623 245,085 210,299 Depreciation and amortization expense 10,480 7,851 29,405 23,746 220,455 166,352 623,639 498,551 Income from operations 25,591 22,267 78,893 67,659 Other income (expense): Interest and investment income 767 1,327 2,362 2,952 Interest expense (5,339) (5,586) (15,883) (17,267) Other (expense) income (174) 402 447 1,128 (4,746) (3,857) (13,074) (13,187) Income before income taxes 20,845 18,410 65,819 54,472 Income tax expense 7,592 6,978 25,558 20,661 Income before minority interest 13,253 11,432 40,261 33,811 Minority interest - (709) (606) (1,619) Net income $13,253 $10,723 $39,655 $32,192 Net income per share: Basic $0.42 $0.41 $1.33 $1.24 Diluted $0.39 $0.39 $1.24 $1.17 Weighted average shares outstanding: Basic 31,919 25,941 29,849 25,919 Diluted 36,257 29,947 34,071 29,811 Selected Balance Sheet Information: As of As of Sept. 30, Dec. 31, 2004 2003 Cash and cash equivalents $35,381 $45,644 Current assets 242,421 229,452 Total assets 1,099,266 946,111 Current liabilities 179,297 123,043 Long-term debt, net of current portion 193,496 248,964 Shareholders' equity 677,167 490,417 NCO GROUP, INC. Unaudited Selected Segment Financial Data (in thousands) For the Three Months Ended September 30, 2004 ARM North Portfolio America CRM Management Revenue $179,809 $52,794 $26,334 Operating costs and expenses: Payroll and related expenses 85,239 37,634 482 Selling, general and admin. expenses 74,073 9,093 16,708 Depreciation and amortization expense 7,443 2,831 78 166,755 49,558 17,268 Income from operations $13,054 $3,236 $9,066 For the Three Months Ended September 30, 2004 ARM Intercompany International Eliminations (1) Consolidated Revenue $3,287 $(16,178) $246,046 Operating costs and expenses: Payroll and related expenses 1,932 - 125,287 Selling, general and admin. expenses 992 (16,178) 84,688 Depreciation and amortization expense 128 - 10,480 3,052 (16,178) 220,455 Income from operations $235 $- $25,591 For the Three Months Ended September 30, 2003 ARM Portfolio ARM Interco Consolidated N.A. Mngmnt Intl. Elim.(1) Revenue $178,778 $18,849 $3,420 $(12,428) $188,619 Operating costs and expenses: Payroll and related expenses 85,685 243 1,950 - 87,878 Selling, general and admin. expenses 68,730 13,404 917 (12,428) 70,623 Depreciation and amortization expense 7,655 85 111 - 7,851 162,070 13,732 2,978 (12,428) 166,352 Income from operations $16,708 $5,117 $442 $- $22,267 (1) Represents the elimination of intercompany revenue for accounts receivable management services provided by ARM North America and ARM International to Portfolio Management. DATASOURCE: NCO Group, Inc. CONTACT: Michael J. Barrist, Chairman and CEO, or Steven L. Winokur, EVP, Finance and CFO, +1-215-441-3000, both of NCO Group, Inc. Web site: http://www.ncogroup.com/

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