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): May 1, 2008

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. Disclosure of Results of Operations and Financial Condition.

On May 1, 2008, we issued a press release announcing our financial results for the first quarter ended March 31, 2008. 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 May 1, 2008.

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: May 1, 2008	/s/ Paul Grinberg
	Paul Grinberg
	Executive Vice President and Chief Financial Officer

EXHIBIT INDEX

Exhibit Number	Description
99.1	Press release dated May 1, 2008.

EX-99.1

Exhibit 99.1

For Immediate Release

Encore Capital Group Announces First Quarter 2008 Results

SAN DIEGO, May 1, 2008 /PRNewswire-FirstCall/ — Encore Capital Group, Inc. (Nasdaq: ECPG), a leading distressed consumer debt management company, today reported consolidated financial results for the first quarter ended March 31, 2008.

For the first quarter of 2008:

• Gross collections were $104.4 million, a 15% increase over the $90.5 million in the same period of the prior year.

• Investments in receivable portfolios were $47.9 million, to purchase $1.2 billion in face value of debt, compared to $45.4 million, to purchase $2.5 billion in face value of debt in the same period of the prior year.

• Revenues from receivable portfolios were $64.1 million, a 3% increase over the $62.2 million in the same period of the prior year. Revenue recognized on receivable portfolios, as a percentage of portfolio collections, excluding the effects of impairment provisions, was 67%, compared to 69% in the same period of the prior year.

• Revenues from bankruptcy servicing were $3.4 million, compared to $3.2 million in the same period of the prior year.

• Total operating expenses were $51.1 million, a 3% increase over the $49.8 million in the same period of the prior year. Operating expense (excluding stock-based compensation expense, bankruptcy servicing operating expenses and costs related to the consideration of strategic alternatives) per dollar collected decreased to 45.3% compared to 49.4% 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 $58.5 million, a 28% increase over the $45.6 million in the same period of the prior year.

• Total interest expense was $3.9 million, compared to $6.2 million in the same period of the prior year.

• Net income was $7.5 million or $0.32 per fully diluted share, compared to net income of $5.7 million or $0.24 per fully diluted share in the same period of the prior year.

Encore Capital Group, Inc.

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Additional information:

Certain events affected the comparability of 2008 versus 2007 quarterly results, as outlined below. For a more detailed comparison of 2008 versus 2007 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 March 31, 2008.

• In the first quarter of 2008, the Company recorded a net impairment provision of $5.3 million, compared to an impairment reversal of $0.2 million in the same period of the prior year.

• Effective January 1, 2008, the Company increased its collection forecasts from 72 months to 84 months. This resulted in an increase in the aggregate total estimated remaining collections for the receivable portfolios by $67.3 million, or 7.5%, as of March 31, 2008. For the quarter ended March 31, 2008, the impact of the change resulted in an increase in revenue of $0.1 million, a reduction in the net impairment provision of $3.1 million, an increase in net income of $1.9 million and an increase in fully diluted earnings per share of $0.08.

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, bankruptcy servicing operating expenses and costs related to the consideration of strategic alternatives in order to facilitate a comparison of approximate cash costs to cash collections for the debt purchasing business in the periods presented. 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. Neither Adjusted EBITDA nor operating expenses excluding stock-based compensation expense, bankruptcy servicing operating expenses and costs related to the consideration of strategic alternatives has been prepared in accordance with generally accepted accounting principles (GAAP). 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, and a reconciliation of operating expenses excluding stock-based compensation expense, bankruptcy servicing operating expenses and costs related to the consideration of strategic alternatives to the GAAP measure total operating expenses in the attached financial tables.

About Encore Capital Group, Inc.

Encore Capital Group, Inc. is a systems-driven purchaser and manager of charged-off consumer receivables portfolios. More information on the company can be found at www.encorecapitalgroup.com.

Encore Capital Group, Inc.

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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.

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ENCORE CAPITAL GROUP, INC.

Condensed Consolidated Statements of Financial Condition

(In Thousands, Except Par Value Amounts)

	March 31, 2008 Unaudited			December 31, 2007(A)
Assets
Cash and cash equivalents	$	9,024		$	4,900
Restricted cash		3,713			3,776
Accounts receivable, net		3,238			4,136
Investment in receivable portfolios, net		398,207			392,209
Deferred court costs		23,439			20,533
Property and equipment, net		4,990			4,390
Prepaid income tax		5,544			10,346
Forward flow asset		12,937			15,863
Other assets		7,999			8,800
Goodwill		15,985			15,985
Identifiable intangible assets, net		2,352			2,557
Total assets	$	487,428		$	483,495
Liabilities and stockholders’ equity
Liabilities:
Accounts payable and accrued liabilities	$	17,210		$	20,346
Deferred tax liabilities, net		13,091			13,669
Deferred revenue and purchased servicing obligation		4,083			3,898
Debt		270,168			272,420
Other liabilities		3,072			1,642
Total liabilities		307,624			311,975
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, 22,994 shares and 22,992 shares issued and outstanding as of March 31, 2008, and December 31, 2007, respectively		230			230
Additional paid-in capital		74,947			73,310
Accumulated earnings		106,475			98,975
Accumulated other comprehensive loss		(1,848	)		(995	)
Total stockholders’ equity		179,804			171,520
Total liabilities and stockholders’ equity	$	487,428		$	483,495

(A) Derived from the audited consolidated financial statements as of December 31, 2007.

Encore Capital Group, Inc.

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ENCORE CAPITAL GROUP, INC.

Condensed Consolidated Statements of Operations

(In Thousands, Except Per Share Amounts)

(Unaudited)

	Three Months Ended March 31,
	2008			2007
Revenues
Revenue from receivable portfolios, net	$	64,068		$	62,153
Servicing fees and other related revenue		3,486			3,222
Total revenues		67,554			65,375
Operating expenses
Salaries and employee benefits (excluding stock-based compensation expense)		14,851			17,186
Stock-based compensation expense		1,094			801
Cost of legal collections		20,306			17,621
Other operating expenses		5,651			5,744
Collection agency commissions		4,031			3,294
General and administrative expenses		4,460			4,271
Depreciation and amortization		722			869
Total operating expenses		51,115			49,786
Income before other (expense) income and income taxes		16,439			15,589
Other (expense) income
Interest expense		(3,946	)		(2,920	)
Contingent interest expense		—			(3,235	)
Other income		21			116
Total other expense		(3,925	)		(6,039	)
Income before income taxes		12,514			9,550
Provision for income taxes		(5,014	)		(3,893	)
Net income	$	7,500		$	5,657
Weighted average shares outstanding:
Basic		22,992			22,783
Diluted		23,431			23,314
Earnings per share:
Basic	$	0.33		$	0.25
Diluted	$	0.32		$	0.24

Encore Capital Group, Inc.

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ENCORE CAPITAL GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, In Thousands)

	Three Months Ended March 31,
	2008			2007
Operating activities
Gross collections	$	104,355		$	90,541
Amounts collected on behalf of third parties		(75	)		(129	)
Amounts applied to principal on receivable portfolios		(40,212	)		(28,259	)
Provision for impairment (reversal)		5,335			(217	)
Servicing fees		44			31
Operating expenses		(49,868	)		(50,896	)
Interest payments		(4,172	)		(3,391	)
Contingent interest payments		—			(4,319	)
Other income		21			116
Decrease in restricted cash		63			521
Income tax refund (payments)		407			(1,899	)
Excess tax benefits from stock-based payment arrangements		(5	)		(52	)
Net cash provided by operating activities		15,893			2,047
Investing activities
Purchases of receivable portfolios, net of forward flow allocation		(44,976	)		(41,847	)
Collections applied to investment in receivable portfolios		34,877			28,476
Proceeds from put-backs of receivable portfolios		1,692			953
Purchases of property and equipment		(1,117	)		(552	)
Net cash used in investing activities		(9,524	)		(12,970	)
Financing activities
Proceeds from notes payable and other borrowings		9,000			7,000
Repayment of notes payable and other borrowings		(11,169	)		—
Proceeds from exercise of stock options		2			14
Excess tax benefits from stock-based payment arrangements		5			52
Repayment of capital lease obligations		(83	)		(61	)
Net cash (used in) provided by financing activities		(2,245	)		7,005
Net increase (decrease) in cash		4,124			(3,918	)
Cash and cash equivalents, beginning of period		4,900			10,791
Cash and cash equivalents, end of period	$	9,024		$	6,873

Encore Capital Group, Inc.

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ENCORE CAPITAL GROUP, INC.

Supplemental Financial Information

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

Compensation Expense, Bankruptcy Servicing Operating Expenses and Costs Related to the Consideration of

Strategic Alternatives to GAAP Total Operating Expenses

(Unaudited, In Thousands)

	Three Months Ended March 31,
	2008			2007
GAAP net income, as reported	$	7,500		$	5,657
Interest expense		3,946			2,920
Contingent interest expense		—			3,235
Provision for income taxes		5,014			3,893
Depreciation and amortization		722			869
Amount applied to principal on receivable portfolios		40,212			28,259
Stock-based compensation expense		1,094			801
Adjusted EBITDA	$	58,488		$	45,634
GAAP total operating expenses, as reported	$	51,115		$	49,786
Stock-based compensation expense		(1,094	)		(801	)
Bankruptcy servicing operating expenses		(2,738	)		(4,120	)
Costs related to the consideration of strategic alternatives		—			(116	)
Operating expenses, excluding stock-based compensation expense, bankruptcy servicing operating expenses and costs related to the consideration of strategic alternatives	$	47,283		$	44,749

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