NCOG Nco

HORSHAM, Pa., Feb. 13 /PRNewswire-FirstCall/ -- NCO Group, Inc. ("NCO" or the "Company") (NASDAQ:NCOG), a leading provider of business process outsourcing services, announced today that during the fourth quarter of 2005, it reported net income of $7.5 million, or $0.23 per diluted share, as compared to net income of $12.2 million, or $0.36 per diluted share, in the fourth quarter of 2004. These results are after special charges of $5.2 million, net of taxes, or approximately $0.15 per diluted share. The special charges are associated with the previously announced restructuring of the Company's legacy operations to streamline the cost structure, and integration of recent acquisitions. The restructuring charges are included as a separate line item under operating costs and expenses, and the integration charges are included in payroll and related expenses and selling, general and administrative expenses. NCO is organized into four divisions that include Accounts Receivable Management North America ("ARM North America"), Customer Relationship Management ("CRM"), Portfolio Management, and Accounts Receivable Management International ("ARM International"). Overall revenue in the fourth quarter of 2005 was $290.3 million, an increase of 22.4%, or $53.0 million, from revenue of $237.3 million in the fourth quarter of 2004. Included in ARM North America's revenue for the fourth quarter of 2005, was $29.3 million of inter-company revenue from Portfolio Management and included in ARM International's revenue was $50,000 of inter- company revenue from Portfolio Management. Included in ARM North America's revenue for the fourth quarter of 2004 was $15.4 million of inter-company revenue from Portfolio Management and included in ARM International's revenue was $86,000 of inter-company revenue from Portfolio Management. All inter- company revenue is eliminated in consolidation. For the fourth quarter of 2005, ARM North America's revenue was $211.7 million as compared to $176.8 million in the fourth quarter of 2004. The increase was primarily attributable to the acquisition of Risk Management Alternatives, Inc. ("RMA"), which was completed on September 12, 2005. The increase was also attributable to an increase in inter-company revenue from Portfolio Management. During the quarter, the lingering effects from Hurricanes Katrina and Rita continued to negatively impact our collection efforts in the affected areas. In addition, the Company experienced the expected deterioration in the amount of payments it received from consumers as compared to the fourth quarter of 2004, which the Company believes is due to the effects of higher fuel costs on the broader economy. Continued pressure from client initiatives to reduce costs also had an adverse impact on revenue. During the quarter this division recorded approximately $4.0 million, net of tax, of restructuring charges and costs associated with integration of the Company's recent acquisitions. For the fourth quarter of 2005, CRM's revenue was $54.1 million as compared to $46.8 million in the fourth quarter of 2004. This $7.3 million increase was primarily attributable to new client ramp-up during the third and fourth quarters of 2005. While these new contracts will allow this division to expand its revenue base in 2006, the deployment of large numbers of seats on an expedited schedule adversely impacted near-term earnings due to incremental operating expenses related to the implementation of these new business opportunities. Partially offsetting the revenue from new clients was the previously discussed reduction in revenue from a major client where we ceased providing certain services when they decided to exit the consumer long- distance space due to a change in telecommunications laws. During the quarter this division recorded approximately $477,000, net of tax, of restructuring charges. For the fourth quarter of 2005, Portfolio Management's revenue was approximately $48.8 million compared to $26.0 million in the fourth quarter of 2004. The increase primarily reflects additional revenue from portfolio assets acquired as part of two business combinations during the third quarter of 2005, as well as $4.1 million of revenue from the expected sale of portions of several older portfolios with little or no remaining carrying value. For the fourth quarter of 2005, ARM International had revenue of approximately $5.1 million compared to $3.1 million in the fourth quarter of 2004. The increase in revenue was primarily attributable to the acquisition of the international operations of RMA. During the quarter this division recorded approximately $785,000, net of tax, of restructuring and integration charges. Commenting on the quarter, Michael J. Barrist, Chairman and Chief Executive Officer, stated, "During the fourth quarter we continued to execute on the planned restructuring of our service platform, which is expected to begin yielding tangible benefits as we move through 2006. This effort will allow us to better react to the changing needs of our client base. In combination with continued strong growth opportunities within our CRM and Portfolio sectors, these changes should allow us to meet our overall goal of providing our investors with consistent growth in both revenue and earnings." NCO also announced that it expects diluted earnings per share to be approximately $1.52 to $1.72 for 2006. This range includes the effects of approximately $6.1 million, after taxes, or approximately $0.18 per diluted share, of restructuring and integration costs expected to be incurred during the first quarter of 2006. For the first quarter NCO expects diluted earnings per share to be approximately $0.17 to $0.22. This range includes the effects of the approximately $6.1 million, after taxes, or approximately $0.18 per diluted share, of restructuring and integration costs. NCO will host an investor conference call on Tuesday, February 14, 2006, 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 5031185. 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 5031185. 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 Report on Form 8-K. 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 100 offices in the United States, Canada, the United Kingdom, India, the Philippines, the Caribbean and Panama. For further information contact: NCO Investor Relations (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 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, the risk that NCO will not be able to realize operating efficiencies in the integration of its acquisitions or that the restructuring charges will be greater than anticipated, 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 acquisitions, including the acquisition of Risk Management Alternatives, Inc., risks related to fluctuations in quarterly operating results, risks related to the timing of contracts, risks related to international operations, 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, 2004, 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 Twelve Months Ended December 31, Ended December 31, 2005 2004 2005 2004 Revenues $290,337 $237,265 $1,052,283 $939,797 Operating costs and expenses: Payroll and related expenses 151,777 123,766 528,932 472,915 Selling, general and admin. expenses 99,838 79,102 376,606 324,187 Restructuring charge 7,179 - 9,621 - Depreciation and amortization expense 12,791 10,820 45,787 40,225 271,585 213,688 960,946 837,327 Income from operations 18,752 23,577 91,337 102,470 Other income (expense): Interest and investment income 818 823 3,162 3,185 Interest expense (7,038) (5,361) (22,615) (21,244) Other income - - 30 447 (6,220) (4,538) (19,423) (17,612) Income before income taxes 12,532 19,039 71,914 84,858 Income tax expense 4,189 6,831 26,182 32,389 Income before minority interest 8,343 12,208 45,732 52,469 Minority interest (843) - (1,213) (606) Net income $7,500 $12,208 $44,519 $51,863 Net income per share: Basic $0.23 $0.38 $1.39 $1.71 Diluted $0.23 $0.36 $1.33 $1.60 Weighted average shares outstanding: Basic 32,174 32,043 32,125 30,397 Diluted 32,311 36,395 36,158 34,652 Selected Balance Sheet Information: As of December 31, 2005 2004 Cash and cash equivalents $23,287 $26,334 Current assets 323,134 245,839 Total assets 1,327,232 1,113,889 Current liabilities 151,648 175,369 Long-term debt, net of current portion 321,834 186,339 Shareholders' equity 742,685 695,601 NCO GROUP, INC. Unaudited Selected Segment Financial Data (in thousands) For the Three Months Ended December 31, 2005 ARM ARM North Portfolio Inter- America CRM Management national Revenues $211,717 $54,071 $48,777 $5,109 Operating costs and expenses: Payroll and related expenses 102,755 43,912 1,853 3,257 Selling, general and admin. expenses 86,832 10,167 30,416 1,760 Restructuring charge 5,304 846 - 1,029 Depreciation and amortization expense 7,750 4,325 413 303 202,641 59,250 32,682 6,349 Income (loss) from operations $9,076 $(5,179) $16,095 $(1,240) Intercompany Eliminations (1) Consolidated Revenues $(29,337) $290,337 Operating costs and expenses: Payroll and related expenses - 151,777 Selling, general and admin. expenses (29,337) 99,838 Restructuring charge - 7,179 Depreciation and amortization expense - 12,791 (29,337) 271,585 Income (loss) from operations $- $18,752 For the Three Months Ended December 31, 2004 ARM ARM North Portfolio Inter- America CRM Management national Revenues $176,844 $46,785 $25,956 $3,130 Operating costs and expenses: Payroll and related expenses 87,794 33,609 481 1,882 Selling, general and admin. expenses 70,555 7,418 15,810 769 Depreciation and amortization expense 7,807 2,797 70 146 166,156 43,824 16,361 2,797 Income from operations $10,688 $2,961 $9,595 $333 Intercompany Eliminations (1) Consolidated Revenues $(15,450) $237,265 Operating costs and expenses: Payroll and related expenses - 123,766 Selling, general and admin. expenses (15,450) 79,102 Depreciation and amortization expense - 10,820 (15,450) 213,688 Income from operations $- $23,577 (1) Represents the elimination of intercompany revenue for accounts receivable management services provided by ARM North America and ARM International to Portfolio Management. FCMN Contact: jennifer.collins@ncogroup.com DATASOURCE: NCO Group, Inc. CONTACT: NCO Investor Relations: +1-215-441-3000 Web site: http://www.ncogroup.com/

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