Debt Purchaser Encore Capital Announces Increased Earnings, Revenues and Collections for Q1

SAN DIEGO, CA – Encore Capital Group, Inc. (Nasdaq: ECPG), a leading accounts receivable management firm, today reported consolidated financial results for the first quarter ended March 31, 2004.

For the first quarter of 2004:

• Net income was $6.0 million for the first quarter of 2004 as compared to $8.2 million for the first quarter of 2003. The first quarter of 2003 included a one-time after-tax benefit from litigation settlement of $4.4 million. Adjusting for the one-time benefit, net income grew 59%, from $3.8 million in the first quarter of 2003 to $6.0 million in the first quarter of 2004.
• Earnings per fully diluted share amounted to $0.26 in the first quarter of 2004. That compares with $0.44 per fully diluted share earned in the first quarter of 2003 and with $0.20 per fully diluted share after adjusting for the first quarter 2003 benefit from litigation settlement of $0.24 per fully diluted share. Also, in the first quarter of 2004, there were 4.8 million more fully diluted weighted average shares outstanding as compared to the first quarter of 2003, largely as a result of the Company’s follow-on public offering that closed October 1, 2003.
• Gross collections increased 36% or $16.9 million to $64.0 million over the first quarter of 2003.
• Total revenues were $42.4 million, a 51% increase over the prior year’s $28.1 million.
• Cash Flow from Operations was $8.2 million, a 76% increase over 2003′s $4.7 million.

“Encore turned in another strong performance during the first quarter,” said Carl C. Gregory, III, President and CEO of Encore Capital Group, Inc. “Importantly, this growth has been led by improving productivity, as seen by the 17% growth in monthly average of gross collections per average employee to $29,282 in the first quarter of 2004 from $25,001 in the first quarter of 2003.

“In addition, we also diversified our purchasing. 52% of the first quarter of 2004 purchases were in the alternative paper category. This not only improved the potential return on these portfolios as they were purchased with our own funds, but also enabled us to make purchases that were more attractive than many credit card opportunities.”

Mr. Gregory added, “In our industry, the first quarter is usually the year’s best in terms of collections. It appears that debtors try to resolve past issues at the start of a new year when they can use their tax refunds as a source of debt repayment. Our challenge is to maintain this momentum throughout the year.”

First Quarter Financial Highlights
Revenue from receivable portfolios recognized as a percentage of collections was 68% in the first quarter of 2004 compared to 64% in the first quarter of 2003. When revenue and collections from the retained interest and servicing portfolios are included, revenue recognized as a percentage of collections was 66% in the first quarter of 2004 compared to 60% in the first quarter of 2003.

Total operating expenses were $23.3 million, an increase of 34% or $5.9 million over the $17.4 million in the first quarter of 2003. Total expenses as a percentage of gross collections declined slightly from 37% in the first quarter of 2003 to 36% in the 2004 quarter.

Cash flow from operations grew 76% or $3.5 million, to $8.2 million in the 2004 quarter from $4.7 million in the 2003 quarter. Cash flow as a percentage of gross collections also grew to 13% in the first quarter of 2004 compared with 10% in the 2003 quarter.

The Company spent $17.2 million to purchase approximately $786.4 million in face value of portfolios during the first quarter of 2004, a blended purchase price of 2.19% of face value. The Company spent $18.8 million to purchase approximately $589.4 million in face value of portfolios during the first quarter of 2003, a blended purchase price of 3.19% of face value.

Commenting on the outlook for the Company, Mr. Gregory said, “Although the first quarter’s pace of collections was quite impressive, we recognize that the year will be full of challenges and requires constant attention to the fundamentals that have contributed to our success to date. Our improved performance has been driven by disciplined portfolio purchases based on our proprietary modeling, effective collection efforts through multiple channels, and prudently scaling our business to service the volume of receivables that we own. We believe that continued execution on these core strategies will continue to create additional value for our stockholders.”

Conference Call and Webcast
The Company will hold a conference call today at 2:00 PM Pacific time / 5:00 P.M. Eastern time to discuss the first quarter results. Members of the public are invited to listen to the live conference call via the Internet. To hear the presentation and to access a slide presentation containing financial information that will be discussed in the conference call, log on at the Investor Relations page of the Company’s web site 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.

About Encore Capital Group, Inc.
Encore Capital Group, Inc. is an accounts receivable management firm that specializes in purchasing charged-off and defaulted consumer debt.

Forward-Looking Statements – The statements in this press release that are not historical facts, including, most importantly, those statements preceded by, or that include, the words “may,” “believes,” “projects,” “expects,” “anticipates” or the negation thereof, or similar expressions, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). These statements may include, but are not limited to, projections of revenues, income or loss; estimates of capital expenditures; plans for future operations, products or services; and financing needs or plans, as well as assumptions relating to those matters. For all “forward-looking statements,” the Company claims the protection of the safe harbor for forward-looking statements contained in the Reform Act. Such forward-looking statements involve risks, uncertainties and other factors which may cause actual results, performance or achievements of the Company and our subsidiaries to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that could affect the Company’s results and cause them to materially differ from those contained in the forward-looking statements include: the Company’s ability to purchase receivables portfolios on acceptable terms and in sufficient quantities; the availability and cost of financing; the Company’s ability to recover sufficient amounts on or with respect to receivables to fund operations; the Company’s continued servicing of receivables in its third party financing transactions; the Company’s ability to hire and retain qualified personnel to recover on its receivables efficiently; changes in, or failure to comply with, government regulations; the costs, uncertainties and other effects of legal and administrative proceedings; and risk factors and cautionary statements made in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2003.

Forward-looking statements speak only as of the date the statement was made. They are inherently subject to risks and uncertainties, some of which the Company cannot predict or quantify. Future events and actual results could differ materially from the forward-looking statements. The Company will not undertake and specifically declines any obligation to publicly release the result of any revisions to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, whether as the result of new information, future events or for any other reason. In addition, it is the Company’s policy generally not to make any specific projections as to future earnings, and the Company does not endorse any projections regarding future performance that may be made by third parties.

To read this entire release, including financial data, please click here.