Encore Capital Group Announces Increases in Collections, Revenue and Income in Q3

SAN DIEGO — Encore Capital Group, Inc. (Nasdaq: ECPG), a leading distressed consumer debt buying and recovery company, today reported consolidated financial results for the third quarter ended September 30, 2010.

For the third quarter of 2010:

• Gross collections were $157.4 million, a 25% increase over the $125.7 million in the same period of the prior year.
• Investment in receivable portfolios was $77.9 million, to purchase $2.6 billion in face value of debt, compared to $77.7 million, to purchase $2.2 billion in face value of debt in the same period of the prior year. Available capacity under the revolving credit facility, subject to borrowing base and applicable debt covenants, was $81.0 million as of September 30, 2010. Total debt, consisting of the revolving credit facility, senior secured notes and capital lease obligations, was $334.9 million as of September 30, 2010, an increase of 11% from $303.1 million as of December 31, 2009.
• Revenue from receivable portfolios, net was $93.8 million, a 23% increase over the $76.4 million in the same period of the prior year. Revenue recognized on receivable portfolios, as a percentage of portfolio collections, excluding the effects of net portfolio allowances, remained at approximately 64%, compared to the same period of the prior year.
• Revenue from bankruptcy servicing was $4.1 million, a 5% increase over the $3.9 million in the same period of the prior year.
• Total operating expenses were $74.3 million, a 21% increase over the $61.5 million in the same period of the prior year. Operating expense (excluding stock-based compensation expense and bankruptcy servicing operating expenses) per dollar collected decreased to 43.9% compared to 45.4% in the same period of the prior year.
• Adjusted EBITDA, defined as net income before interest, taxes, depreciation and amortization, stock-based compensation expense and portfolio amortization, was $89.7 million, a 28% increase over the $70.0 million in the same period of the prior year.
• Total interest expense was $4.9 million, compared to $4.0 million in the same period of the prior year.
• Net income was $12.3 million or $0.49 per fully diluted share, compared to net income of $9.0 million or $0.37 per fully diluted share in the same period of the prior year.
• Tangible book value per share, computed by dividing total stockholders’ equity less goodwill and identifiable intangible assets by the number of diluted shares outstanding, was $10.72 as of September 30, 2010, a 16% increase over $9.23 as of December 31, 2009.

Additional Financial Information:

Certain events affected the comparability of 2010 versus 2009 quarterly results, as outlined below. For a more detailed comparison of 2010 versus 2009 results, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010.

• In the third quarter of 2010, the Company recorded net portfolio allowances of $6.1 million, compared to $4.3 million in the same period of the prior year.
• In the third quarter of 2010, the Company expensed $13.1 million in upfront court costs, compared to $9.7 million in the same period of the prior year.

Conference Call and Webcast

The Company will hold a conference call today at 2:00 p.m. Pacific time / 5:00 p.m. Eastern time to discuss third quarter results. Members of the public are invited to listen to the live conference call via the Internet.

To hear the presentation, log on at the Investor Relations page of the Company’s website at www.encorecapitalgroup.com.For those who cannot listen to the live broadcast, a replay of the conference call will be available shortly after the call at the same location.

Non-GAAP Financial Measures

The Company has included information concerning Adjusted EBITDA because management utilizes this information, which is materially similar to a financial measure contained in covenants used in the Company’s credit agreement, in the evaluation of its operations and believes that this measure is a useful indicator of the Company’s ability to generate cash collections in excess of operating expenses through the liquidation of its receivable portfolios. The Company has included information concerning total operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses in order to facilitate a comparison of approximate cash costs to cash collections for the debt purchasing business in the periods presented. The Company has included information concerning tangible book value per share because management believes that this metric is a meaningful measure of the equity deployed in the business. Adjusted EBITDA, operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses, and tangible book value per share have not been prepared in accordance with generally accepted accounting principles (GAAP). These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, net income and total operating expenses as indicators of Encore Capital Group’s operating performance and total stockholders’ equity as an indicator of Encore Capital Group’s financial condition. Further, these non-GAAP financial measures, as presented by Encore Capital Group, may not be comparable to similarly titled measures reported by other companies. The Company has included a reconciliation of Adjusted EBITDA to reported earnings under GAAP, a reconciliation of operating expenses excluding stock-based compensation expense and bankruptcy servicing operating expenses to the GAAP measure total operating expenses, and a reconciliation of tangible book value per share to the GAAP measure total stockholders’ equity in the attached financial tables.

About Encore Capital Group, Inc.
Encore Capital Group is a leader in consumer debt buying and recovery. We purchase portfolios of defaulted consumer receivables from banks, credit unions, consumer finance companies, commercial retailers, auto finance companies and telecommunication companies and manage them by partnering with individuals as they repay their obligations and work toward financial recovery.

Headquartered in San Diego, we are a publicly traded NASDAQ Global Select company (ticker symbol: ECPG) and a component stock in the Russell 2000 and the Wilshire 4500. Our performance derives from our sophisticated and widespread use of analytics, our investments in data and consumer intelligence, our cost leadership position (based on our enterprise-wide, account-level cost database as well as our India facility), and our commitment to see principled intent drive every consumer interaction. More information on the Company can be found at www.encorecapitalgroup.com.