Encore Reports a 50% Increase in Fully Diluted Earnings Per Share in Q4

Encore Capital Group, Inc. (Nasdaq: ECPG), a leading accounts receivable management firm, today reported consolidated financial results for the fourth quarter and full year ended December 31, 2004.

For the fourth quarter of 2004:

• Gross collections were $53.4 million, a 12% increase over the $47.7 million in the same period of the prior year
• Total revenues were $46.0 million, a 46% increase over the $31.4 million in the same period of the prior year
• Net income was $5.7 million compared with $3.8 million in the same period of the prior year, a 48% increase
• Earnings per fully diluted share were $0.24, a 50% increase over the $0.16 in the same period of the prior year. Earnings per fully diluted share in the fourth quarter of 2004 were up 26% over the $0.19 earned in the same period of the prior year excluding the one-time other charge.

For the full year 2004:

• Gross collections were $234.7 million, a 23% increase over the $190.5 million in 2003
• Total revenues were $178.5 million, a 52% increase over the $117.5 million in 2003
• Net income was $23.2 million, a 26% increase over $18.4 million in 2003
• Earnings per fully diluted share were $0.99 a 12% increase over $0.88 in 2003. Earnings per fully diluted share in 2004 were up 41% over the $0.70 earned in 2003 excluding the one-time benefit and other charge.

"Our fourth quarter performance capped a very strong year for Encore, as we generated record levels of collections, revenues, and earnings per share," commented Carl C. Gregory, III, Vice Chairman and CEO of Encore Capital Group, Inc. "We were able to achieve this strong growth despite scaling back on our purchasing of new portfolios throughout much of 2004 in response to less attractive pricing in the marketplace. Total purchases during 2004 were $103.4 million compared to $89.8 million in 2003. We continue to effectively develop alternative collection channels, such as legal and agency outsourcing, which increase our ability to penetrate our portfolios further. For the full year, our collections through alternative channels, other than sales, more than doubled, and we expect that our continued development of these channels will be valuable in enhancing the productivity of our collection efforts and the profitability of our operations."

Fourth Quarter Financial Highlights
Revenue recognized, as a percentage of collections, was 86% in the fourth quarter of 2004, compared to 66% in the fourth quarter of 2003. The increase in the percentage of revenue recognized in the fourth quarter of 2004 is primarily attributable to high levels of zero-basis income, deeper penetration of more tenured portfolios, and a larger portion of portfolio purchases occurring later in the quarter.

Total operating expenses for the fourth quarter of 2004 were $27.9 million, compared with $19.8 million in the fourth quarter of 2003. The increase in total operating expenses is largely volume driven and reflects growth in the utilization of the legal collection channel and the expansion of the agency outsourcing collection channel. General and administrative expenses included approximately $0.8 million related to Sarbanes-Oxley compliance efforts and $0.1 million in SEC reporting fees and legal fees related to the Company's secondary offering completed in January 2005.

Pretax cash flows from operations for the fourth quarter of 2004 were $14.5 million, an increase of 64% over the $8.9 million generated in the same period of 2003. (Adjustments to arrive at pre-tax cash flow from operations consisted of income tax payments of $1.4 million in the fourth quarter of 2004 and $0.9 million in the fourth quarter of 2003.) The Company exhausted its Federal net operating loss carry forward in the fourth quarter of 2003 and began to make income tax payments at the statutory rates in 2004.

The Company spent $46.1 million to purchase approximately $1.2 billion in face value of portfolios during the fourth quarter of 2004, a blended purchase price of 3.86% of face value. 96% of the portfolios purchased in the fourth quarter of 2004 were credit card receivables.

"The current purchasing market remains highly competitive," said Mr. Gregory. "However, we believe there are opportunities to purchase portfolios that can yield acceptable returns. During the fourth quarter, we spent approximately $46.1 million on portfolios that we expect to be profitable for the Company, though to a lesser degree than portfolios purchased in prior years."

Outlook
Commenting on the outlook for the Company, Mr. Gregory said, "We believe that 2005 will be another year of strong earnings growth, driven primarily by disciplined expense control and lower interest costs resulting from our new revolving credit facility. We are intensely focused on optimizing our operating efficiency by leveraging our sophisticated analytics to assign accounts to the channel that can collect them in the most profitable manner. Our continual focus on improving the efficiency of our operations serves the Company particularly well during periods when conditions in the purchasing market present challenges to driving top-line growth."

"Our strong performance over the past few years has significantly improved our financial strength and flexibility. We are now in a position to begin pursuing acquisition opportunities that can expand our footprint into additional asset classes or collection channels," said Mr. Gregory.

The Company also provided the following information to assist the investment community:

• Due to rising purchase prices for portfolios, an increase in the amount invested in portfolio purchases does not necessarily result in a corresponding increase in collections. This could also result in a lower revenue recognition percentage for the portfolios purchased under this scenario.
• As a result of the replacement of its Secured Credit Facility with the new revolving credit facility, the Company anticipates that contingent interest expense will decline beginning in 2005. The Company has forecasted that its contingent interest expense could be approximately 65% of 2004 levels in 2005; 35% of 2004 levels in 2006; and subsequent lower levels beyond 2006. Contingent interest expense amounted to $32.3 million for the year 2004 which represents $0.81 per fully diluted share, net of taxes.

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