Debt Purchaser Encore Capital Reports 23% Increase in Net Income For Q3

SAN DIEGO, CA – Encore Capital Group, Inc. (Nasdaq: ECPG), a leading accounts receivable management firm, today reported consolidated financial results for the third quarter and nine months ended September 30, 2003.

• Pretax Income for the third quarter of 2003 increased 96.0% or $2.5 million to $5.2 million over the $2.6 million earned in the third quarter of 2002.

• Net income for the third quarter of 2003 increased 23.1% over third quarter of 2002, from $2.5 million to $3.1 million, or $0.14 to $0.15 per diluted share. Fully diluted EPS were impacted by both a higher tax rate in 2003 and a higher number of fully diluted shares outstanding – primarily as a result of a higher share price.

• Gross collections for the third quarter of 2003 increased by 26.7% or $10.4 million to $49.1 million over $38.7 million in the third quarter of 2002.

• Total revenues for the third quarter of 2003 were $29.5 million, an increase of 21.0% or $5.1 million over $24.4 million in the same period of the prior year.

• For the nine months ended September 30, 2003, cash flow from operations was $26.0 million, an increase of 91.2% or $12.4 million over $13.6 million for the first nine months of 2002.

“We are very pleased with our third quarter performance, which represented our eighth consecutive quarter of year-over-year improvement in net income,” said Carl C. Gregory, III, President and CEO of Encore Capital Group, Inc. “We achieved significant increases in key metrics such as gross collections, revenues, and net income. We continue to effectively manage our growth and have excellent operating leverage, as our third quarter collections increased 26.7% over the prior year, while our operating expenses increased only 18.0%. Employee productivity remained high during this period of growth. Over the past twelve months, we increased total employees by approximately 27%, while maintaining average collections per employee at a consistent rate.”

Mr. Gregory added, “It is also important to note that we completed a follow-on public offering shortly after the quarter ended that raised approximately $30.1 million for the Company and significantly improved our capital structure. With a stronger, less complex balance sheet, we can more aggressively pursue attractive receivable portfolios and grow the Company as we find appropriate opportunities.”

Third Quarter Financial Highlights
Gross collections were $49.1 million in third quarter of 2003, an increase of 26.7% or $10.4 million over $38.7 million in the same period of 2002. Revenue recognized as a percentage of collections was down slightly, from 63.0% in the third quarter of 2002 to 60.2% in the third quarter of 2003.

Total operating expenses were $19.5 million, an increase of 18.0% or $3.0 million over the $16.5 million in the third quarter of 2002.

The Company purchased approximately $640 million in face value debt during the third quarter of 2003, with a blended purchase price of 3.02% of face value.

Nine Month Financial Highlights
Total revenues for the nine months ended September 30, 2003 were $86.0 million, an increase of 37.2% or $23.4 million over $62.7 million in the same period of the previous year.

Net income was $14.6 million, or $0.73 per diluted share, for the nine months ended September 30, 2003, an increase of 323% or $11.2 million over net income of $3.4 million, or $0.22 per diluted share, in the same period of the previous year. The 2003 number includes the one-time benefit of the previously announced litigation settlement of $4.4 million, or $0.22 per diluted share.

In the first nine months of 2003, the Company purchased $2.4 billion of face value debt at a blended price of 2.68% of face value, compared with $2.2 billion at a blended price of 2.02% of face value for the same period in 2002.

Outlook The Company cited the following key drivers of future growth in revenue, earnings, and cash flow:

• The Company’s exclusive Secured Financing Facility, under which it purchases credit card receivables, expires at the end of 2004. The Company believes that any replacement or renegotiation of this financing relationship will lower the Company’s effective cost of borrowing and have a positive effect on earnings and cash flow. As a reference point, the interest expense under this facility was an after-tax $0.14 and $0.38 per fully diluted share for the three and nine months ended September 30, 2003, respectively. The contingent interest portion of this expense was an after-tax $0.12 and $0.33 per fully diluted share for the three and nine months ended September 30, 2003, respectively.

• The Company is currently validating the accuracy of a new model related to the expected collections on its receivables portfolios, and believes the validation will be completed in the fourth quarter of 2003. Once the validation is complete, the Company will implement the revised collection forecasts.

• As a result of our business success and the completion of our public offering, the Company now has approximately $37.5 million in cash. This cash is immediately available to invest in non-credit card paper purchases or other opportunities. As such, the Company expects that non-credit card paper will make up an increasing percentage of its purchases in the near future. The Company believes these purchases will yield a higher profit margin since they will not be financed under the current financing arrangement for its credit card receivables discussed above.

Commenting on the outlook for the Company, Mr. Gregory said, “We expect to deliver strong year-over-year growth going forward. We continue to see good opportunities to purchase additional portfolios that meet our investment criteria. We are also focused on prudently managing our growth. We are adding approximately 15 new collectors per month, while maintaining an employee retention rate above 80.0% for those employees who have graduated from our training program,” said Mr. Gregory.

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.

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