Encore Capital Reports Q4 and Full Year Results, Cautions on Portfolio Purchases

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, 2005.

For the fourth quarter of 2005:

• Gross collections were $72.0 million, a 35% increase over the $53.4 million in the same period of the prior year

• Total revenues were $58.4 million, a 27% increase over the $46.0 million in the same period of the prior year

• Net income was $7.8 million, a 37% increase over the $5.7 million in the same period of the prior year

• Earnings per fully diluted share were $0.32, a 33% increase over the $0.24 in the same period of the prior year.

For the full year of 2005:

• Gross collections were $292.2 million, a 24% increase over the $234.7 million in 2004

• Total revenues were $221.8 million, a 24% increase over the $178.5 million in 2004

• Net income was $31.1 million, a 34% increase over the $23.2 million in 2004

• Earnings per fully diluted share were $1.30, a 31% increase over the $0.99 in 2004

Commenting on the fourth quarter and the full year, J. Brandon Black, President and CEO of Encore Capital Group, Inc., said, “Our fourth quarter capped another record year for the Company. For the year, we generated the highest level of collections, revenues, and profits in our history. We continue to remain disciplined in our purchasing process and during the fourth quarter we spent $39.9 million to purchase $1.3 billion in face value of debt. While deal flow was very strong in the fourth quarter due to the increased supply in the credit card market resulting from bankruptcy reform, we limited our purchases to those that we felt were appropriately priced and could generate an adequate return for our stockholders. Similarly, we remained steadfast in our goal to find further process innovations and efficiency improvements to help offset the elevated level of pricing that we continue to see.

“We continue to be pleased with our initial bulk portfolio purchase and the forward flow agreement from the Jefferson Capital transaction. Through the end of February 2006, cumulative collections on the initial bulk portfolio purchase were $50.4 million, or 53% of the purchase price. The forward flow continues to provide us favorably priced portfolio and collections continue to meet our expectations.

“Ascension Capital, our fee-based bankruptcy services business achieved record placements in the fourth quarter, confirming our projections for increasing demand for these services. We continue to see a strong pipeline of potential new clients that we believe will help this business maintain its momentum in the future,” said Mr. Black.

Financial Highlights
Revenue recognized on receivable portfolios, as a percentage of portfolio collections, was 75% in the fourth quarter of 2005, compared with 86% in the fourth quarter of 2004. The lower revenue recognition rate was partially attributable to a higher percentage of collections from more recently purchased portfolios that have lower collection multiples assigned to them. The change in the revenue recognition rate was also attributable to a $2.3 million allowance charge recorded in the fourth quarter of 2005, which was netted against revenue.

The Company generated $4.4 million in fee-based revenue during the fourth quarter of 2005, through the Ascension Capital bankruptcy services business acquired in August 2005.

Total operating expenses for the fourth quarter of 2005 were $38.0 million, compared with $27.9 million in the fourth quarter of 2004. Excluding Ascension Capital, which is a fee-based business, operating expenses were $32.9 million in the fourth quarter of 2005, compared with $27.9 million in the fourth quarter of 2004, while operating expense per dollar collected declined to 45.7% from 52.3%.

Total interest expense was $7.8 million in the fourth quarter of 2005, compared to $8.5 million in the fourth quarter of 2004. The contingent interest component of interest expense was $4.6 million in the fourth quarter of 2005, compared with $7.4 million in the same period of the prior year. The Company continues to see a reduction in contingent interest expense as collections decline from older portfolios purchased under its previous credit facility.

During the fourth quarter, the Company spent $39.9 million to purchase $1.3 billion in face value of debt. For the full year of 2005, the Company spent $195.6 million to purchase $5.9 billion in face value of debt.

Outlook
Commenting on the outlook for Encore Capital Group, Mr. Black said, “In 2006, we expect our traditional collection business to be a steady cash generator and we will continue to enhance our unique operating platform that is predicated on consumer level analytics and technology. We have been able to maintain strong revenue and earnings growth despite a challenging purchasing environment over the last year, and we remain confident in our ability to continue generating growth in revenue and earnings over the long term. The fundamentals of our industry remain strong, with expected future increases in supply as consumer debt levels increase and creditors across different asset classes explore debt sales to monetize their charged-off receivables. Our consumer level analytical approach will position us well to capitalize on these opportunities.

“Nevertheless, our near term earnings growth will be affected by our ability to identify opportunities to acquire attractively priced portfolios, as we did with the Jefferson Capital transaction in 2005, and by our portfolio mix which has shifted towards more recently purchased portfolios with lower collection multiples assigned to them. In 2006, we will continue to supplement our core business by seeking to identify investment opportunities in new areas with high growth potential within the distressed consumer debt market, as we did with bankruptcy services and medical collections,” said Mr. Black.

Conference Call and Webcast
The Company held a conference call yesterday at 2:00 PM Pacific time / 5:00 P.M. Eastern time to discuss fourth quarter and full year results.

To hear the presentation, 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.