8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported): October 26, 2010

ENCORE CAPITAL GROUP, INC.

(Exact Name of Registrant as Specified in Charter)

Delaware	000-26489	48-1090909
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)
8875 Aero Drive, Suite 200, San Diego, California		92123
(Address of Principal Executive Offices)		(Zip Code)

(877) 445-4581

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On October 26, 2010, we issued a press release announcing our financial results for the third quarter ended September 30, 2010. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference herein.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

Exhibit Number	Description
99.1	Press release dated October 26, 2010.

The information in this Current Report on Form 8-K, including the exhibit, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities under that Section, nor be deemed to be incorporated by reference into the filings of the Company under the Securities Act of 1933.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	ENCORE CAPITAL GROUP, INC.
Date: October 26, 2010	/s/    PAUL GRINBERG
	Paul Grinberg
	Executive Vice President, Chief Financial Officer and Treasurer

EXHIBIT INDEX

Exhibit Number	Description
99.1	Press release dated October 26, 2010.

EX-99.1

Exhibit 99.1

For Immediate Release

Encore Capital Group Announces Third Quarter 2010 Financial Results

Net Income Reaches $12.3 Million; Gross Collections Increase 25% to $157.4 Million

SAN DIEGO, October 26, 2010 /PRNewswire-FirstCall/ – 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.

Encore Capital Group, Inc.

Page 2 of 7

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.

Encore Capital Group, Inc.

Page 3 of 7

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.

Contact:

Encore Capital Group, Inc.

Paul Grinberg (858) 309-6904

paul.grinberg@encorecapitalgroup.com

or

Ren Zamora (858) 560-3598

ren.zamora@encorecapitalgroup.com

FINANCIAL TABLES FOLLOW

Encore Capital Group, Inc.

Page 4 of 7

ENCORE CAPITAL GROUP, INC.

Condensed Consolidated Statements of Financial Condition

(In Thousands, Except Par Value Amounts)

(Unaudited)

	September 30, 2010			December 31, 2009
Assets
Cash and cash equivalents	$	11,531		$	8,388
Accounts receivable, net		2,983			3,134
Investment in receivable portfolios, net		580,154			526,877
Deferred court costs, net		26,530			25,957
Property and equipment, net		11,599			9,427
Prepaid income tax		2,662			—
Other assets		11,784			4,252
Goodwill		15,985			15,985
Identifiable intangible assets, net		846			1,139
Total assets	$	664,074		$	595,159
Liabilities and stockholders’ equity
Liabilities:
Accounts payable and accrued liabilities	$	20,606		$	21,815
Income taxes payable		—			2,681
Deferred tax liabilities, net		16,772			16,980
Deferred revenue		4,228			5,481
Debt		334,922			303,075
Other liabilities		1,033			2,036
Total liabilities		377,561			352,068
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock, $.01 par value, 5,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $.01 par value, 50,000 shares authorized, 23,905 shares and 23,359 shares issued and outstanding as of September 30, 2010 and December 31, 2009, respectively		239			234
Additional paid-in capital		112,081			104,261
Accumulated earnings		174,723			139,842
Accumulated other comprehensive loss		(530	)		(1,246	)
Total stockholders’ equity		286,513			243,091
Total liabilities and stockholders’ equity	$	664,074		$	595,159

Encore Capital Group, Inc.

Page 5 of 7

ENCORE CAPITAL GROUP, INC.

Condensed Consolidated Statements of Income

(In Thousands, Except Per Share Amounts)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Revenue
Revenue from receivable portfolios, net	$	93,822		$	76,448		$	268,574		$	222,688
Servicing fees and other related revenue		4,145			3,938			12,962			12,179
Total revenue		97,967			80,386			281,536			234,867
Operating expenses
Salaries and employee benefits (excluding stock-based compensation expense)		16,166			14,411			48,135			43,130
Stock-based compensation expense		1,549			1,261			4,756			3,335
Cost of legal collections		33,851			26,092			91,519			84,665
Other operating expenses		9,512			6,034			27,653			18,612
Collection agency commissions		5,389			5,795			17,098			13,483
General and administrative expenses		6,982			7,280			21,286			20,074
Depreciation and amortization		816			652			2,241			1,895
Total operating expenses		74,265			61,525			212,688			185,194
Income before other (expense) income and income taxes		23,702			18,861			68,848			49,673
Other (expense) income
Interest expense		(4,928	)		(3,970	)		(14,346	)		(12,201	)
Gain on repurchase of convertible notes, net		—			—			—			3,268
Other income (expense)		148			61			250			(11	)
Total other expense		(4,780	)		(3,909	)		(14,096	)		(8,944	)
Income before income taxes		18,922			14,952			54,752			40,729
Provision for income taxes		(6,632	)		(5,948	)		(19,871	)		(16,087	)
Net income	$	12,290		$	9,004		$	34,881		$	24,642
Weighted average shares outstanding:
Basic		23,947			23,225			23,793			23,177
Diluted		25,154			24,199			25,012			23,936
Earnings per share:
Basic	$	0.51		$	0.39		$	1.47		$	1.06
Diluted	$	0.49		$	0.37		$	1.39		$	1.03

Encore Capital Group, Inc.

Page 6 of 7

ENCORE CAPITAL GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, In Thousands)

	Nine Months Ended September 30,
	2010			2009
Operating activities:
Net income	$	34,881		$	24,642
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,241			1,895
Amortization of loan costs and debt discount		3,270			3,100
Stock-based compensation expense		4,756			3,335
Gain on repurchase of convertible notes, net		—			(3,268	)
Deferred income tax expense		(208	)		437
Excess tax benefit from stock-based payment arrangements		(2,667	)		(47	)
Provision for allowances on receivable portfolios, net		16,777			14,323
Changes in operating assets and liabilities
Other assets		(763	)		(1,623	)
Deferred court costs		(573	)		625
Prepaid income tax and income taxes payable		(2,815	)		11,149
Deferred revenue		(1,253	)		472
Accounts payable, accrued liabilities and other liabilities		(2,900	)		840
Net cash provided by operating activities		50,746			55,880
Investing activities:
Purchases of receivable portfolios, net of forward flow allocation		(242,857	)		(205,378	)
Collections applied to investment in receivable portfolios, net		169,896			126,019
Proceeds from put-backs of receivable portfolios		2,907			2,028
Purchases of property and equipment		(1,723	)		(3,626	)
Net cash used in investing activities		(71,777	)		(80,957	)
Financing activities:
Payment of loan costs		(6,248	)		—
Proceeds from senior secured notes		50,000			—
Proceeds from revolving credit facility		111,644			85,500
Repayment of revolving credit facility		(92,144	)		(41,500	)
Repayment of convertible notes		(42,920	)		—
Repurchase of convertible notes		—			(22,262	)
Proceeds from net settlement of certain call options		524			—
Proceeds from exercise of stock options		1,773			123
Excess tax benefit from stock-based payment arrangements		2,667			47
Repayment of capital lease obligations		(1,122	)		(232	)
Net cash provided by financing activities		24,174			21,676
Net increase (decrease) in cash and cash equivalents		3,143			(3,401	)
Cash and cash equivalents, beginning of period		8,388			10,341
Cash and cash equivalents, end of period	$	11,531		$	6,940
Supplemental disclosures of cash flow information:
Cash paid for interest	$	7,369		$	9,568
Cash paid for income taxes	$	22,895		$	4,859
Supplemental schedule of non-cash investing and financing activities:
Fixed assets acquired through capital lease	$	2,398		$	224

Encore Capital Group, Inc.

Page 7 of 7

ENCORE CAPITAL GROUP, INC.

Supplemental Financial Information

Reconciliation of Adjusted EBITDA to GAAP Net Income, Operating Expenses, Excluding Stock-based

Compensation Expense and Bankruptcy Servicing Operating Expenses to GAAP Total Operating Expenses, and

Tangible Book Value Per Share to GAAP Total Stockholders’ Equity

(In Thousands, Except Per Share Amounts)

(Unaudited)

	Three Months Ended September 30,
	2010			2009
GAAP net income, as reported	$	12,290		$	9,004
Interest expense		4,928			3,970
Provision for income taxes		6,632			5,948
Depreciation and amortization		816			652
Amount applied to principal on receivable portfolios		63,507			49,188
Stock-based compensation expense		1,549			1,261
Adjusted EBITDA	$	89,722		$	70,023
	Three Months Ended September 30,
	2010			2009
GAAP total operating expenses, as reported	$	74,265		$	61,525
Stock-based compensation expense		(1,549	)		(1,261	)
Bankruptcy servicing operating expenses		(3,662	)		(3,238	)
Operating expenses, excluding stock-based compensation expense and bankruptcy servicing operating expenses	$	69,054		$	57,026

	As of September 30, 2010			As of December 31, 2009
GAAP total stockholders’ equity, as reported	$	286,513		$	243,091
Goodwill		(15,985	)		(15,985	)
Identifiable intangible assets, net		(846	)		(1,139	)
Tangible book value	$	269,682		$	225,967
Diluted shares outstanding		25,154			24,484
Tangible book value per share	$	10.72		$	9.23