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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________________________________________________________________

FORM 10-Q

(Mark One)

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020 or

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to__________.

COMMISSION FILE NUMBER: 000-26489

ENCORE CAPITAL GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	48-1090909
(State or other jurisdiction of<br>incorporation or organization)	(IRS Employer<br>Identification No.)

350 Camino De La Reina, Suite 100

San Diego, California 92108

(Address of principal executive offices, including zip code)

(877) 445 - 4581

(Registrant’s telephone number, including area code)

(Not Applicable)

(Former name, former address and former fiscal year, if changed since last report)

_______________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value Per Share	ECPG	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at October 26, 2020
Common Stock, $0.01 par value	31,344,685 shares

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ENCORE CAPITAL GROUP, INC.

INDEX TO FORM 10-Q

	Page
PART I – FINANCIAL INFORMATION	3
Item 1— Consolidated Financial Statements (Unaudited)	3
Consolidated Statements of Financial Condition	3
Consolidated Statements of Operations	4
Consolidated Statements of Comprehensive Income	5
Consolidated Statements of Equity	6
Consolidated Statements of Cash Flows	8
Notes to Consolidated Financial Statements	9
Note 1: Ownership, Description of Business, and Summary of Significant Accounting Policies	9
Note 2: Earnings Per Share	12
Note 3: Fair Value Measurements	12
Note 4: Derivatives and Hedging Instruments	15
Note 5: Investment in Receivable Portfolios, Net	17
Note 6: Deferred Court Costs, Net	20
Note 7: Other Assets	20
Note 8: Borrowings	21
Note 9: Variable Interest Entities	25
Note 10: Income Taxes	26
Note 11: Commitments and Contingencies	27
Note 12: Segment and Geographic Information	27
Note 13: Goodwill and Identifiable Intangible Assets	28
Note 14: Subsequent Event	29
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	61
Item 4 – Controls and Procedures	61
PART II – OTHER INFORMATION	62
Item 1 – Legal Proceedings	62
Item 1A – Risk Factors	62
Item 5 – Other Information	62
Item 6 – Exhibits	62
SIGNATURES	64

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PART I – FINANCIAL INFORMATION

Item 1— Consolidated Financial Statements (Unaudited)

ENCORE CAPITAL GROUP, INC.

Consolidated Statements of Financial Condition

(In Thousands, Except Par Value Amounts)

(Unaudited)

	September 30,<br>2020		December 31,<br>2019
Assets
Cash and cash equivalents	$	169,983	$	192,335
Investment in receivable portfolios, net	3,265,992		3,283,984
Deferred court costs, net	—		100,172
Property and equipment, net	120,125		120,051
Other assets	309,296		329,223
Goodwill	866,657		884,185
Total assets	$	4,732,053	$	4,909,950
Liabilities and Equity
Liabilities:
Accounts payable and accrued liabilities	$	221,837	$	223,911
Borrowings	3,252,101		3,513,197
Other liabilities	130,859		147,436
Total liabilities	3,604,797		3,884,544
Commitments and Contingencies (Note 11)
Equity:
Convertible preferred stock, $0.01 par value, 5,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.01 par value, 75,000 shares authorized, 31,345 and 31,097 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively	313		311
Additional paid-in capital	227,113		222,590
Accumulated earnings	1,018,348		888,058
Accumulated other comprehensive loss	(121,098)		(88,766)
Total Encore Capital Group, Inc. stockholders’ equity	1,124,676		1,022,193
Noncontrolling interest	2,580		3,213
Total equity	1,127,256		1,025,406
Total liabilities and equity	$	4,732,053	$	4,909,950

The following table presents certain assets and liabilities of consolidated variable interest entities (“VIEs”) included in the consolidated statements of financial condition above. Most assets in the table below include those assets that can only be used to settle obligations of consolidated VIEs. The liabilities exclude amounts where creditors or beneficial interest holders have recourse to the general credit of the Company. See “Note 9: Variable Interest Entities” for additional information on the Company’s VIEs.

	September 30,<br>2020		December 31,<br>2019
Assets
Cash and cash equivalents	$	238	$	34
Investment in receivable portfolios, net	528,481		539,596
Other assets	4,773		4,759
Liabilities
Borrowings	452,299		464,092

See accompanying notes to consolidated financial statements

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ENCORE CAPITAL GROUP, INC.

Consolidated Statements of Operations

(In Thousands, Except Per Share Amounts)

(Unaudited)

	Three Months Ended<br>September 30,				Nine Months Ended<br>September 30,
	2020		2019		2020		2019
Revenues
Revenue from receivable portfolios	$	342,489	$	316,217	$	1,035,141	$	939,870
Changes in expected current and future recoveries	30,451		—		(2,203)		—
Servicing revenue	29,787		31,060		82,417		97,399
Other revenues	949		144		3,435		673
Total revenues	403,676		347,421		1,118,790		1,037,942
Allowance reversals on receivable portfolios, net			8,515				11,945
Total revenues, adjusted by net allowances			355,936				1,049,887
Operating expenses
Salaries and employee benefits	95,979		96,638		279,944		284,699
Cost of legal collections	60,383		48,971		164,018		149,446
General and administrative expenses	53,459		38,168		113,954		110,335
Other operating expenses	28,088		25,753		83,527		84,913
Collection agency commissions	12,703		17,343		36,562		46,905
Depreciation and amortization	10,609		10,000		31,436		29,736
Goodwill impairment	—		10,718		—		10,718
Total operating expenses	261,221		247,591		709,441		716,752
Income from operations	142,455		108,345		409,349		333,135
Other expense
Interest expense	(67,962)		(54,365)		(172,951)		(173,245)
Other income (expense)	361		(11,546)		(1,211)		(15,766)
Total other expense	(67,601)		(65,911)		(174,162)		(189,011)
Income before income taxes	74,854		42,434		235,187		144,124
Provision for income taxes	(19,747)		(3,021)		(59,875)		(18,447)
Net income	55,107		39,413		175,312		125,677
Net income attributable to noncontrolling interest	(457)		(544)		(784)		(893)
Net income attributable to Encore Capital Group, Inc. stockholders	$	54,650	$	38,869	$	174,528	$	124,784
Earnings per share attributable to Encore Capital Group, Inc.:
Basic	$	1.74	$	1.24	$	5.56	$	3.99
Diluted	$	1.72	$	1.23	$	5.51	$	3.97
Weighted average shares outstanding:
Basic	31,484		31,338		31,402		31,242
Diluted	31,826		31,657		31,672		31,459

See accompanying notes to consolidated financial statements

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ENCORE CAPITAL GROUP, INC.

Consolidated Statements of Comprehensive Income

(Unaudited, In Thousands)

	Three Months Ended<br>September 30,				Nine Months Ended<br>September 30,
	2020		2019		2020		2019
Net income	$	55,107	$	39,413	$	175,312	$	125,677
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss) on derivative instruments:
Unrealized gain (loss) on derivative instruments	118		(799)		(3,985)		(6,561)
Income tax effect	7		169		1,120		1,190
Unrealized gain (loss) on derivative instruments, net of tax	125		(630)		(2,865)		(5,371)
Change in foreign currency translation:
Unrealized gain (loss) on foreign currency translation	30,982		(31,864)		(32,088)		(33,129)
Removal of other comprehensive loss in connection with divestiture	—		3,814		2,632		3,814
Unrealized gain (loss) on foreign currency translation, net of divestiture	30,982		(28,050)		(29,456)		(29,315)
Other comprehensive income (loss), net of tax:	31,107		(28,680)		(32,321)		(34,686)
Comprehensive income	86,214		10,733		142,991		90,991
Comprehensive loss (income) attributable to noncontrolling interest:
Net income attributable to noncontrolling interest	(457)		(544)		(784)		(893)
Unrealized gain on foreign currency translation	(15)		(51)		(11)		(485)
Comprehensive income attributable to noncontrolling interest:	(472)		(595)		(795)		(1,378)
Comprehensive income attributable to Encore Capital Group, Inc. stockholders	$	85,742	$	10,138	$	142,196	$	89,613

See accompanying notes to consolidated financial statements

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ENCORE CAPITAL GROUP, INC.

Consolidated Statements of Equity

(Unaudited, In Thousands)

		Three Months Ended September 30, 2020
		Common Stock				Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive (Loss) Income		Noncontrolling Interest		Total Equity
	Shares		Par
Balance as of June 30, 2020		31,288		$	313	$	227,030	$	963,698	$	(152,190)	$	3,536	$	1,042,387
Net income		—		—		—		54,650		—		457		55,107
Other comprehensive income, net of tax		—		—		—		—		31,092		15		31,107
Purchase of noncontrolling interest		—		—		(2,196)		—		—		(1,428)		(3,624)
Issuance of share-based awards, net of shares withheld for employee taxes		57		0		(1,605)		—		—		—		(1,605)
Stock-based compensation		—		—		3,884		—		—		—		3,884
Balance as of September 30, 2020		31,345		$	313	$	227,113	$	1,018,348	$	(121,098)	$	2,580	$	1,127,256
		Three Months Ended September 30, 2019
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
		Common Stock				Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive (Loss) Income		Noncontrolling Interest		Total Equity
	Shares		Par
Balance as of June 30, 2019		30,980		$	310	$	211,508	$	806,104	$	(117,427)	$	2,462	$	902,957
Net income		—		—		—		38,869		—		544		39,413
Other comprehensive (loss) income, net of tax		—		—		—		—		(32,545)		51		(32,494)
Exercise of stock options and issuance of share-based awards, net of shares withheld for employee taxes		79		1		(2,267)		—		—		—		(2,266)
Stock-based compensation		—		—		4,005		—		—		—		4,005
Issuance of exchangeable notes		—		—		6,776		—		—		—		6,776
Exchangeable notes hedge transactions		—		—		1,792		—		—		—		1,792
Other		—		—		—		—		3,814		—		3,814
Balance as of September 30, 2019		31,059		$	311	$	221,814	$	844,973	$	(146,158)	$	3,057	$	923,997
		Nine Months Ended September 30, 2020
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
		Common Stock				Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive (Loss) Income		Noncontrolling Interest		Total Equity
	Shares		Par
Balance as of December 31, 2019		31,097		$	311	$	222,590	$	888,058	$	(88,766)	$	3,213	$	1,025,406
Cumulative adjustment		—		—		—		(44,238)		—		—		(44,238)
Net income		—		—		—		174,528		—		784		175,312
Other comprehensive (loss) income, net of tax		—		—		—		—		(34,964)		11		(34,953)
Purchase of noncontrolling interest		—		—		(2,196)		—		—		(1,428)		(3,624)
Issuance of share-based awards, net of shares withheld for employee taxes		248		2		(6,470)		—		—		—		(6,468)
Stock-based compensation		—		—		13,189		—		—		—		13,189
Other		—		—		—		—		2,632		—		2,632
Balance as of September 30, 2020		31,345		$	313	$	227,113	$	1,018,348	$	(121,098)	$	2,580	$	1,127,256

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		Nine Months Ended September 30, 2019
		Common Stock				Additional Paid-In Capital		Accumulated Earnings		Accumulated Other Comprehensive (Loss) Income		Noncontrolling Interest		Total Equity
	Shares		Par
Balance as of December 31, 2018		30,884		$	309	$	208,498	$	720,189	$	(110,987)	$	1,679	$	819,688
Net income		—		—		—		124,784		—		893		125,677
Other comprehensive (loss) income, net of tax		—		—		—		—		(38,985)		485		(38,500)
Exercise of stock options and issuance of share-based awards, net of shares withheld for employee taxes		175		2		(3,696)		—		—		—		(3,694)
Stock-based compensation		—		—		9,412		—		—		—		9,412
Issuance of exchangeable notes		—		—		6,776		—		—		—		6,776
Exchangeable notes hedge transactions		—		—		1,792		—		—		—		1,792
Other		—		—		(968)		—		3,814		—		2,846
Balance as of September 30, 2019		31,059		$	311	$	221,814	$	844,973	$	(146,158)	$	3,057	$	923,997

See accompanying notes to consolidated financial statements

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ENCORE CAPITAL GROUP, INC.

Consolidated Statements of Cash Flows

(Unaudited, In Thousands)

	Nine Months Ended September 30,
	2020		2019
Operating activities:
Net income	$	175,312	$	125,677
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	31,436		29,736
Expense related to financing	19,791		3,496
Other non-cash interest expense, net	22,725		24,049
Stock-based compensation expense	13,189		9,412
Deferred income taxes	(15,070)		5,012
Goodwill impairment	—		10,718
Changes in expected current and future recoveries	2,203		—
Allowance reversals on receivable portfolios, net	—		(11,945)
Other, net	24,469		20,218
Changes in operating assets and liabilities
Deferred court costs and other assets	14,267		45,415
Prepaid income tax and income taxes payable	(11,226)		(21,240)
Accounts payable, accrued liabilities and other liabilities	(27,114)		(43,602)
Net cash provided by operating activities	249,982		196,946
Investing activities:
Purchases of receivable portfolios, net of put-backs	(517,959)		(757,101)
Collections applied to investment in receivable portfolios, net	540,101		588,259
Purchases of property and equipment	(22,658)		(30,712)
Other, net	8,091		1,596
Net cash provided by (used in) investing activities	7,575		(197,958)
Financing activities:
Payment of loan and debt refinancing costs	(48,676)		(8,777)
Proceeds from credit facilities	1,695,914		481,105
Repayment of credit facilities	(2,051,764)		(440,992)
Proceeds from senior secured notes	410,820		460,512
Repayment of senior secured notes	(152,430)		(460,455)
Proceeds from issuance of convertible and exchangeable senior notes	—		100,000
Repayment of convertible senior notes	(89,355)		(84,600)
Other, net	(32,400)		(15,480)
Net cash (used in) provided by financing activities	(267,891)		31,313
Net (decrease) increase in cash and cash equivalents	(10,334)		30,301
Effect of exchange rate changes on cash and cash equivalents	(12,018)		(1,042)
Cash and cash equivalents, beginning of period	192,335		157,418
Cash and cash equivalents, end of period	$	169,983	$	186,677
Supplemental disclosure of cash information:
Cash paid for interest	$	148,059	$	131,873
Cash paid for taxes, net of refunds	87,154		31,419

See accompanying notes to consolidated financial statements

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ENCORE CAPITAL GROUP, INC.

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Ownership, Description of Business, and Summary of Significant Accounting Policies

Encore Capital Group, Inc. (“Encore”), through its subsidiaries (collectively with Encore, the “Company”), is an international specialty finance company providing debt recovery solutions and other related services for consumers across a broad range of financial assets. The Company purchases portfolios of defaulted consumer receivables at deep discounts to face value and manages them by working with individuals as they repay their obligations and work toward financial recovery. Defaulted receivables are consumers’ unpaid financial commitments to credit originators, including banks, credit unions, consumer finance companies and commercial retailers. Defaulted receivables may also include receivables subject to bankruptcy proceedings. The Company also provides debt servicing and other portfolio management services to credit originators for non-performing loans.

Through Midland Credit Management, Inc. and its domestic affiliates (collectively, “MCM”), the Company is a market leader in portfolio purchasing and recovery in the United States. Through Cabot Credit Management Limited (“CCM”) and its subsidiaries and European affiliates (collectively, “Cabot”), the Company is one of the largest credit management services providers in Europe and a market leader in the United Kingdom and Ireland. These are the Company’s primary operations.

The Company also has investments and operations in Latin America and Asia-Pacific, which the Company refers to as “LAAP.” In August 2019, the Company completed the sale of Baycorp, which represented the Company’s investments and operations in Australia and New Zealand.

COVID-19

On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, which continues to spread throughout the United States and around the world. The COVID-19 outbreak and resulting containment measures implemented by governments around the world, as well as increased business uncertainty, have impacted the Company. The circumstances around the COVID-19 pandemic are rapidly evolving and will continue to impact the Company’s business and its estimation of expected recoveries in future periods. The Company will continue to closely monitor the COVID-19 situation and update its assumptions accordingly.

Financial Statement Preparation and Presentation

The accompanying interim consolidated financial statements have been prepared by the Company, without audit, in accordance with the instructions to the Quarterly Report on Form 10-Q, and Rule 10-01 of Regulation S-X promulgated by the United States Securities and Exchange Commission (the “SEC”) and, therefore, do not include all information and footnotes necessary for a fair presentation of its consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”).

In the opinion of management, the unaudited financial information for the interim periods presented reflects all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the Company’s consolidated financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in the Company’s financial statements and the accompanying notes. The inputs into the judgments and estimates consider the economic implications of the COVID-19 pandemic on the Company’s critical and significant accounting estimates. Actual results could materially differ from those estimates.

Basis of Consolidation

The consolidated financial statements have been prepared in conformity with GAAP and reflect the accounts and operations of the Company and those of its subsidiaries in which the Company has a controlling financial interest. The Company also consolidates variable interest entities for which it is the primary beneficiary. The primary beneficiary has both (1) the power to direct the activities of the VIE that most significantly affect the entity’s economic performance, and (2) either the obligation to absorb losses or the right to receive benefits. Refer to “Note 9: Variable Interest Entities”, for further details. All intercompany transactions and balances have been eliminated in consolidation.

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Translation of Foreign Currencies

The financial statements of certain of the Company’s foreign subsidiaries are measured using their local currency as the functional currency. Assets and liabilities of foreign operations are translated into U.S. dollars using period-end exchange rates, and revenues and expenses are translated into U.S. dollars using average exchange rates in effect during each period. The resulting translation adjustments are recorded as a component of other comprehensive income or loss. Equity accounts are translated at historical rates, except for the change in retained earnings during the year which is the result of the income statement translation process. Intercompany transaction gains or losses at each period end arising from subsequent measurement of balances for which settlement is not planned or anticipated in the foreseeable future are included as translation adjustments and recorded within other comprehensive income or loss. Translation gains or losses are the material components of accumulated other comprehensive income or loss and are reclassified to earnings upon the substantial sale or liquidation of investments in foreign operations.

Reclassifications

Certain immaterial reclassifications have been made to the consolidated financial statements to conform to the current year’s presentation.

Recently Adopted Accounting Pronouncement

On January 1, 2020, the Company adopted the new accounting standard for Financial Instruments - Credit Losses (“CECL”). CECL introduces a new impairment approach for credit loss recognition based on current expected lifetime losses rather than incurred losses. CECL applies to all financial assets carried at amortized costs, including the Company’s investment in receivable portfolios, which are defined as purchased credit deteriorated (“PCD”) financial assets under CECL. The adoption of CECL represents a significant change from the previous U.S. GAAP guidance relating to purchased credit impaired assets and resulted in changes to the Company’s accounting for its investment in receivable portfolios and the related income from the receivable portfolios.

As part of the adoption of CECL, the Company changed its accounting methodology for its court costs spent in its legal collection channel effective January 1, 2020. Previously, the Company capitalized its upfront court costs spent in its consolidated financial statements (“Deferred Court Costs”) and provided a reserve for those costs that it believed would ultimately be uncollectible. Effective January 1, 2020, the Company expenses all of its court costs as incurred. All expected cash flows, including all the expected collections from the legal channel, are included in the measurement of the negative allowance, or investment in receivable portfolios, at a discounted value. Upon transition, an adjustment was made to retained earnings to reflect the net change from an undiscounted to discounted value prior to writing-off uncollectible receivables and establishing a balance for discounted value of future recoveries of amounts expected to be collected.

The Company has not adjusted prior period comparative information and will continue to disclose prior period financial information in accordance with the previous accounting guidance. The following table summarizes the cumulative effects of adopting the CECL guidance on the Company’s consolidated statements of financial condition at January 1, 2020 (in thousands):

	Balance as of December 31, 2019		Adjustment		Opening Balance as of January 1, 2020
Assets
Investment in receivable portfolios, net	$	3,283,984	$	44,166	$	3,328,150
Deferred court costs, net	100,172		(100,172)		—
Liabilities
Other liabilities (for deferred tax liabilities)	147,436		(11,768)		135,668
Equity
Accumulated earnings	888,058		(44,238)		843,820

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Recent Accounting Pronouncements Not Yet Effective

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt — Debt with Conversion and Other Options (“Subtopic 470-20”) and Derivatives and Hedging — Contracts in Entity’s Own Equity (“Subtopic 815-40”): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). The ASU simplifies the accounting for convertible instruments by removing certain models in Subtopic 470-20 and revises the guidance in Subtopic 815-40 to simplify the accounting for contracts in an entity’s own equity. The ASU also amends the guidance to improve the consistency of earnings per share calculations, which requires the if-converted method be used for convertible instruments. ASU 2020-06 is effective for reporting periods beginning after December 15, 2021 with early adoption permitted for reporting periods beginning after December 15, 2020. The amendment is to be adopted through either a modified retrospective or fully retrospective method of transition. Under ASU 2020-06, the Company’s convertible and exchangeable notes will no longer be bifurcated to a debt component and an equity component, instead, they will be carried as a single liability. The interest expense recognized on the convertible and exchangeable notes will be based on coupon rates, rather than higher effective interest rates. As a result, the Company will recognize lower interest expense. Additionally, the if-converted method will not substantially change the dilutive effect for convertible instruments that require net share settlement, only in-the-money shares will be included in the dilutive effect. Based on the preliminary assessment, the Company believes that ASU 2020-06 will have a significant impact on its consolidated financial statements and is in the process of determining the adoption approach and whether or not to early adopt.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The ASU is effective as of March 12, 2020 through December 31, 2022. We will evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis. The ASU is currently not expected to have a material impact on our consolidated financial statements.

With the exception of the updated standards discussed above, there have been no recent accounting pronouncements or changes in accounting pronouncements during the nine months ended September 30, 2020, as compared to the recent accounting pronouncements described in our Annual Report, that have significance, or potential significance, to the Company’s consolidated financial statements.

Accounting Policy Update

As a result of the adoption of CECL, the Company revised its following accounting policies effective January 1, 2020:

Investment in Receivable Portfolios

The Company purchases portfolios of loans that have experienced significant deterioration of credit quality since origination from banks and other financial institutions. These financial assets are defined as PCD assets under CECL. Under the PCD accounting model, the purchased assets are grossed-up to their face value with an offsetting allowance and noncredit discount allocated to the individual receivables as the unit of account is at the individual loan level. Since each loan is deeply delinquent and deemed uncollectible at the individual loan level, the Company applies its charge-off policy and fully writes-off the amortized costs (i.e., face value net of noncredit discount) of the individual receivables immediately after purchasing the portfolio. The Company then records a negative allowance that represents the present value of all expected future recoveries for pools of receivables that share similar risk characteristics using a discounted cash flow approach, which ultimately equals the amount paid for a portfolio purchase and presented as “Investment in receivable portfolios, net” in the Company’s consolidated statements of financial condition. The discount rate is an effective interest rate (or “purchase EIR”) based on the purchase price of the portfolio and the expected future cash flows at the time of purchase. The amount of the negative allowance (i.e., investment in receivable portfolios) will not exceed the total amortized cost basis of the loans written-off.

Receivable portfolio purchases are aggregated into pools based on similar risk characteristics. Examples of risk characteristics include financial asset type, collateral type, size, interest rate, date of origination, term, and geographic location. The Company’s static pools are typically grouped into credit card, purchased consumer bankruptcy, and mortgage portfolios. The Company further groups these static pools by geographic location. Once a pool is established, the portfolios will remain in the designated pool unless the underlying risk characteristics change. The purchase EIR of a pool will not change over the life of the pool even if expected future cash flows change.

Revenue is recognized for each static pool over the economic life of the pool. The Company makes significant assumptions in determining the economic life of a pool, including the reasonable and supportable economic forecast period based on asset type and geography, which considers the availability of forward-looking scenarios and their respective time horizons. In general, the Company forecasts recoveries over one or two years prior to reverting to historical averages at an

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estimate-level over the remaining life using various methodologies depending on the asset type and geography. The speed at which forecasts revert varies based on the spread between the forecast period and historical data. In addition, estimated recoveries include a qualitative component. The Company continues to evaluate the reasonable economic life of a pool and reversion method annually. Revenue primarily includes two components: (1) accretion of the discount on the negative allowance due to the passage of time, and (2) changes in expected cash flows, which includes (a) the current period variances between actual cash collected and expected cash recoveries and (b) the present value change of expected future recoveries.

The Company measures expected future recoveries based on historical experience, current conditions, and reasonable and supportable forecasts. Factors that may change the expected future recoveries may include both internal as well as external factors. Internal factors include operational performance, such as capacity and the productivity of our collection staff. External factors that may have an impact on our collections include new laws or regulations, new interpretations of existing laws or regulations, and macroeconomic conditions.

The Company elected not to maintain its previously formed pool groups with amortized costs at transition. Certain pools already fully recovered their cost basis and became zero basis portfolios (“ZBA”) prior to the transition. The Company did not establish a negative allowance from ZBA pools as the Company elected the Transition Resource Group for Credit Losses’ practical expedient to retain the integrity of its legacy pools. All subsequent collections to the ZBA pools are recognized as ZBA revenue, which is included in revenue from receivable portfolios in the Company’s consolidated statements of operations. See “Note 5: Investment in Receivable Portfolios, Net” for further discussion of investment in receivable portfolios.

Deferred Court Costs

The Company pursues legal collections using a network of attorneys that specialize in collection matters and through its internal legal channel. The Company generally pursues collections through legal means only when it believes a consumer has sufficient assets to repay their indebtedness but has, to date, been unwilling to pay. In order to pursue legal collections, the Company is required to pay certain upfront costs to the applicable courts that are recoverable from the consumer. Effective January 1, 2020, the Company expenses all of its court costs as incurred and no longer capitalizes such costs as Deferred Court Costs. All expected cash flows, including all the expected collections from the legal channel, are included in the measurement of the negative allowance, or investment in receivable portfolios, at a discounted value.

Note 2: Earnings Per Share

Basic earnings per share is calculated by dividing net earnings attributable to Encore by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is calculated based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options, non-vested share awards, and the dilutive effect of the convertible and exchangeable senior notes, if applicable.

A reconciliation of shares used in calculating earnings per basic and diluted shares follows (in thousands, except per share amounts):

	Three Months Ended<br>September 30,			Nine Months Ended<br>September 30,
		2020		2019		2020		2019
Net income attributable to Encore Capital Group, Inc. stockholders		$	54,650	$	38,869	$	174,528	$	124,784
Total weighted-average basic shares outstanding		31,484		31,338		31,402		31,242
Dilutive effect of stock-based awards		342		319		270		217
Total weighted-average dilutive shares outstanding		31,826		31,657		31,672		31,459
Basic earnings per share		$	1.74	$	1.24	$	5.56	$	3.99
Diluted earnings per share		$	1.72	$	1.23	$	5.51	$	3.97

Anti-dilutive employee stock options outstanding were approximately 13,000 and 64,000 during the three and nine months ended September 30, 2020, respectively. Anti-dilutive employee stock options outstanding were approximately 13,000 and 81,000 during the three and nine months ended September 30, 2019, respectively.

Note 3: Fair Value Measurements

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Fair value is defined as the price that would be received upon sale of an asset or the price paid to transfer a liability, in an orderly transaction between market participants at the measurement date (i.e., the “exit price”). The Company uses a fair value hierarchy that prioritizes the inputs used in valuation techniques to measure fair value into three broad levels. The following is a brief description of each level:

•Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

•Level 3: Unobservable inputs, including inputs that reflect the reporting entity’s own assumptions.

Financial Instruments Required To Be Carried At Fair Value

Financial assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):

	Fair Value Measurements as of September 30, 2020
	Level 1		Level 2		Level 3		Total
Assets
Interest rate cap contracts	$	—	$	854	$	—	$	854
Liabilities
Interest rate swap agreements	—		(6,625)		—		(6,625)
Cross-currency swap agreements	—		(6,686)		—		(6,686)
Contingent consideration	—		—		(2,655)		(2,655)
	Fair Value Measurements as of December 31, 2019
---	---	---	---	---	---	---	---	---
	Level 1		Level 2		Level 3		Total
Assets
Foreign currency exchange contracts	$	—	$	1,473	$	—	$	1,473
Interest rate cap contracts	—		2,460		—		2,460
Liabilities
Interest rate swap agreements	—		(9,116)		—		(9,116)
Contingent consideration	—		—		(66)		(66)

Derivative Contracts:

The Company uses derivative instruments to manage its exposure to fluctuations in interest rates and foreign currency exchange rates. Fair values of these derivative instruments are estimated using industry standard valuation models. These models project future cash flows and discount the future amounts to a present value using market-based observable inputs, including interest rate curves, foreign currency exchange rates, and forward and spot prices for currencies.

Contingent Consideration:

The Company carries certain contingent liabilities resulting from its mergers and acquisition activities. Certain sellers of the Company’s acquired entities could earn additional earn-out payments in cash based on the entities’ subsequent operating performance. The Company recorded the acquisition date fair values of these contingent liabilities, based on the likelihood of contingent earn-out payments, as part of the consideration transferred. The earn-out payments are subsequently remeasured to fair value at each reporting date based on actual and forecasted operating performance.

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The following table provides a roll-forward of the fair value of contingent consideration for the nine months ended September 30, 2020 and year ended December 31, 2019 (in thousands):

	Amount
Balance as of December 31, 2018	$	6,198
Change in fair value of contingent consideration	(2,300)
Payment of contingent consideration	(3,686)
Effect of foreign currency translation	(146)
Balance as of December 31, 2019	66
Issuance of contingent consideration in connection with acquisition	2,653
Payment of contingent consideration	(35)
Effect of foreign currency translation	(29)
Balance as of September 30, 2020	$	2,655

Non-Recurring Fair Value Measurement:

Certain assets are measured at fair value on a nonrecurring basis. These assets include real estate-owned assets classified as held for sale at the lower of their carrying value or fair value less cost to sell. The fair value of the assets held for sale and estimated selling expenses were determined at the time of initial recognition using Level 3 measurements. The fair value estimate of the assets held for sale was approximately $40.7 million and $46.7 million as of September 30, 2020 and December 31, 2019, respectively.

Financial Instruments Not Required To Be Carried At Fair Value

The table below summarizes fair value estimates for the Company's financial instruments that are not required to be carried at fair value. The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company.

The carrying amounts in the following table are included in the consolidated statements of financial condition as of September 30, 2020 and December 31, 2019 (in thousands):

	September 30, 2020				December 31, 2019
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets
Investment in receivable portfolios, net	$	3,265,992	$	3,729,831	$	3,283,984	$	3,464,050
Deferred court costs	—		—		100,172		100,172
Financial Liabilities
Convertible notes and exchangeable notes(1)	561,714		625,410		642,547		693,708
Senior secured notes(2)	1,536,351		1,547,920		1,127,435		1,170,945

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(1)Carrying amount represents the portion of the convertible and exchangeable notes classified as debt, while estimated fair value pertains to the face amount of the notes.

(2)Carrying amount represents historical cost, adjusted for any related debt discount or debt premium.

Investment in Receivable Portfolios:

The fair value of investment in receivable portfolios is measured using Level 3 inputs by discounting the estimated future cash flows generated by the Company’s proprietary forecasting models. The key inputs include the estimated future gross cash flow, average cost to collect, and discount rate. The determination of such inputs requires significant judgment, including assessing the assumed market participant’s cost structure, its determination of whether to include fixed costs in its valuation, its collection strategies, and determining the appropriate weighted average cost of capital. The Company evaluates the use of these key inputs on an ongoing basis and refines the data as it continues to obtain better information from market participants in the debt recovery and purchasing business.

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Deferred Court Costs:

Effective January 1, 2020, the Company no longer carries Deferred Court Costs as a result of its change in accounting policy. The fair value estimate for Deferred Court Costs as of December 31, 2019 involved Level 3 inputs as there was little observable market data available and management was required to use significant judgment in its estimates.

Borrowings:

The Company’s convertible notes, exchangeable notes and senior secured notes are carried at historical cost, adjusted for the debt discount. The fair value estimate for the convertible and exchangeable notes incorporates quoted market prices using Level 2 inputs. The fair value of the senior secured notes is estimated using widely accepted valuation techniques, including discounted cash flow analyses using available market information on discount and borrowing rates with similar terms, maturities, and credit ratings. Accordingly, the Company used Level 2 inputs for these debt instrument fair value estimates.

The carrying value of the Company’s senior secured revolving credit facility agreement approximates fair value due to the short-term nature of the interest rate period. The Company’s borrowings also include finance lease liabilities for which the carrying value approximates fair value.

Note 4: Derivatives and Hedging Instruments

The Company may periodically enter into derivative financial instruments to manage risks related to interest rates and foreign currency. Certain of the Company’s derivative financial instruments qualify for hedge accounting treatment under the authoritative guidance for derivatives and hedging.

The following table summarizes the fair value of derivative instruments as included in the Company’s consolidated statements of financial condition (in thousands):

		September 30, 2020					December 31, 2019
	Balance Sheet Location		Fair Value			Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments:
Interest rate cap contracts		Other assets		$	854		Other assets		$	2,460
Foreign currency exchange contracts		Other assets		—			Other assets		443
Interest rate swap agreements		Other liabilities		(6,625)			Other liabilities		(9,116)
Cross-currency swap agreements		Other liabilities		(6,686)			Other liabilities		—
Derivatives not designated as hedging instruments:
Foreign currency exchange contracts		Other assets		—			Other assets		1,030

Derivatives Designated as Hedging Instruments

The Company has operations in foreign countries which expose the Company to foreign currency exchange rate fluctuations due to transactions denominated in foreign currencies. To mitigate a portion of this risk, the Company may enter into derivative financial instruments, principally foreign currency forward contracts with financial counterparties. The Company adjusts the level and use of derivatives as soon as practicable after learning that an exposure has changed and reviews all exposures and derivative positions on an ongoing basis.

The Company held certain foreign currency forward contracts designated as cash flow hedging instruments that matured in June 2020. As of September 30, 2020, the Company had no outstanding forward contracts that were designated as cash flow hedging instruments. No gains or losses were reclassified from other comprehensive income into earnings as a result of forecasted transactions that failed to occur during the nine months ended September 30, 2020 and 2019.

The Company may periodically enter into interest rate swap agreements to reduce its exposure to fluctuations in interest rates on variable interest rate debt and their impact on earnings and cash flows. Under the swap agreements, the Company receives floating interest rate payments and makes interest payments based on fixed interest rates. The Company designates its interest rate swap instruments as cash flow hedges. Previously, the Company held four interest rate swap agreements that hedged the risk of USD-LIBOR interest rate fluctuations for the Encore revolving credit facility and term loan facility. As part of the financing transactions completed in September 2020, the Company settled two of the interest rate swap agreements. As of September 30, 2020, there were two interest rate swap agreements outstanding with a total notional amount of $200.2 million. The Company expects to reclassify approximately $9.1 million of net derivative loss from OCI into earnings relating to interest rate swaps within the next 12 months.

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In connection with the financing transactions discussed above, the Company entered into cross-currency swap agreements, which are used to manage foreign currency exchange risk by converting fixed-rate Euro-denominated borrowings including periodic interest payments and the payment of principal at maturity to fixed-rate USD debt and are accounted for as cash flow hedges. As of September 30, 2020, there were four cross-currency swap agreements outstanding with a total notional amount of €350.0 million (approximately $410.4 million). The Company expects to reclassify approximately $4.6 million of net derivative loss from OCI into earnings relating to cross-currency swaps within the next 12 months.

Previously, the Company held two interest rate cap contracts (the “2018 Caps”) that hedged the risk of GBP-LIBOR interest rate fluctuations for the Cabot Securitisation Senior Facility interest payments. In February 2020, the Company settled the 2018 Caps and ceased the hedge relationship, which resulted in the reclassification of the associated other comprehensive loss balance to interest expense for approximately $2.5 million during the first quarter of 2020.

As of September 30, 2020, the Company held two interest rate cap contracts with a notional amount of approximately $921.3 million that are used to manage its risk related to interest rate fluctuations on the Company’s variable interest rate bearing debt. The interest rate cap hedging the fluctuations in three-month EURIBOR for the Cabot 2024 Floating Rate Notes (“2019 Cap”) has a notional amount of €400.0 million (approximately $469.0 million) and matures in 2024. The interest rate cap hedging the fluctuations in sterling overnight index average (“SONIA”) for the Cabot Securitisation UK Ltd senior facility agreement (“2020 Cap”) has a notional amount of £350.0 million (approximately $452.3 million) and matures in 2023. The 2019 Cap is structured as a series of European call options (“Caplets”) such that if exercised, the Company will receive a payment equal to 3-months EURIBOR on a notional amount equal to the hedged notional amount net of a fixed strike price. The 2020 Cap is also structured as a series of Caplets such that if exercised, the Company will receive a payment equal to SONIA on a notional amount equal to the hedged notional amount net of a fixed strike price. Each interest rate reset date, the Company will elect to exercise the Caplet or let it expire. The potential cash flows from each Caplet are expected to offset any variability in the cash flows of the interest payments to the extent SONIA or EURIBOR exceeds the strike price of the Caplets. The Company expects the hedge relationships to be highly effective and designates the 2019 Cap and 2020 Cap as cash flow hedge instruments. The Company expects to reclassify approximately $0.4 million of net derivative loss from OCI into earnings relating to interest rate caps within the next 12 months.

The following tables summarize the effects of derivatives in cash flow hedging relationships designated as hedging instruments in the Company’s consolidated financial statements (in thousands):

Derivatives Designated as Hedging Instruments		Gain (Loss) Recognized in OCI					Location of Gain (Loss) Reclassified from OCI into Income		Gain (Loss) Reclassified from OCI into Income
	Three Months Ended September 30,							Three Months Ended September 30,
	2020			2019				2020			2019
Foreign currency exchange contracts		$	—		$	(323)	Salaries and employee benefits		$	—		$	198
Foreign currency exchange contracts		—			(48)		General and administrative expenses		—			27
Interest rate swap agreements		(140)			(800)		Interest expense		(2,458)			(742)
Interest rate cap contracts		(624)			(145)		Interest expense		(103)			—
Cross-currency swap agreements		(6,779)			—		Interest expense / Other income (expense)		(5,100)			—
Derivatives Designated as Hedging Instruments		Gain (Loss) Recognized in OCI					Location of Gain (Loss) Reclassified from OCI into Income		Gain (Loss) Reclassified from OCI into Income
---	---	---	---	---	---	---	---	---	---	---	---	---	---
	Nine Months Ended September 30,							Nine Months Ended September 30,
	2020			2019				2020			2019
Foreign currency exchange contracts		$	(341)		$	1,068	Salaries and employee benefits		$	49		$	183
Foreign currency exchange contracts		(44)			(57)		General and administrative expenses		11			(44)
Interest rate swap agreements		(7,405)			(7,182)		Interest expense		(5,558)			(1,606)
Interest rate cap contracts		(2,755)			(1,857)		Interest expense		(2,741)			—
Cross-currency swap agreements		(6,779)			—		Interest expense / Other income (expense)		(5,100)			—

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Derivatives Not Designated as Hedging Instruments

The Company enters into currency exchange forward contracts to reduce the effects of currency exchange rate fluctuations between the British Pound and Euro. These derivative contracts generally mature within one to three months and are not designated as hedge instruments for accounting purposes. The Company continues to monitor the level of exposure of the foreign currency exchange risk and may enter into additional short-term forward contracts on an ongoing basis. The gains or losses on these derivative contracts are recognized in other income or expense based on the changes in fair value. As of September 30, 2020, the Company had no outstanding currency exchange forward contracts that were not designated as cash flow hedging instruments.

The following table summarizes the effects of derivatives in cash flow hedging relationships not designated as hedging instruments in the Company’s consolidated statements of operations (in thousands):

		Amount of Gain (Loss) Recognized in Income
		Three Months Ended<br>September 30,				Nine Months Ended<br>September 30,
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	2020		2019		2020		2019
Foreign currency exchange contracts	Other income (expense)	$	(407)	$	(436)	$	3,564	$	(263)

Note 5: Investment in Receivable Portfolios, Net

As discussed in “Note 1: Ownership, Description of Business, and Summary of Significant Accounting Policies”, effective January 1, 2020, the Company accounts for its investment in receivable portfolios as PCD assets under CECL and changed its accounting policy for reimbursable court costs. As a result, the Company wrote-off the previous Deferred Court Costs balance that represented an undiscounted value of recoverable historic spend as a result of a loss-rate methodology, and established a discounted value of expected future recoveries of these reimbursable court costs, which is included in the beginning balance of the investment in receivable portfolios.

The table below illustrates the Company’s transition approach for its investment in receivable portfolios as of January 1, 2020 (in thousands):

	Amount
Investment in receivable portfolios prior to transition	$	3,283,984
Initial transitioned deferred court costs	44,166
	3,328,150
Allowance for credit losses	79,028,043
Amortized cost	82,356,193
Noncredit discount	132,533,142
Face value	214,889,335
Write-off of amortized cost	(82,356,193)
Write-off of noncredit discount	(132,533,142)
Negative allowance	3,328,150
Initial negative allowance from transition	$	3,328,150

The table below provides the detail on the establishment of negative allowance for expected recoveries of portfolios purchased during the periods presented (in thousands):

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	Three Months Ended<br>September 30, 2020		Nine Months Ended<br>September 30, 2020
Purchase price	$	170,131	$	532,183
Allowance for credit losses	507,907		1,400,525
Amortized cost	678,038		1,932,708
Noncredit discount	1,104,695		2,858,922
Face value	1,782,733		4,791,630
Write-off of amortized cost	(678,038)		(1,932,708)
Write-off of noncredit discount	(1,104,695)		(2,858,922)
Negative allowance	170,131		532,183
Negative allowance for expected recoveries - current period purchases	$	170,131	$	532,183

The following table summarizes the changes in the balance of the investment in receivable portfolios during the periods presented (in thousands):

	Three Months Ended<br>September 30,						Nine Months Ended<br>September 30,
	2020			2019			2020			2019
Balance, beginning of period	$	3,201,241		$	3,224,568		$	3,328,150		$	3,137,893
Purchases of receivable portfolios	170,131			259,910			532,183			764,942
Deconsolidation of receivable portfolios(1)	—			(51,935)			(2,822)			(51,935)
Put-backs and Recalls	(2,830)			(2,746)			(14,224)			(7,841)
Disposals and transfers to assets held for sale	(3,560)			(1,765)			(6,273)			(7,681)
Cash collections	(539,748)			(499,395)			(1,575,242)			(1,528,129)
Revenue from receivable portfolios	342,489			316,217			1,035,141			939,870
Changes in expected current period recoveries	78,268			—			197,155			—
Changes in expected future period recoveries	(47,817)			—			(199,358)			—
Portfolios allowance reversal, net	—			8,515			—			11,945
Foreign currency adjustments	67,818			(65,202)			(28,718)			(70,897)
Balance, end of period	$	3,265,992		$	3,188,167		$	3,265,992		$	3,188,167
Revenue as a percentage of collections	63.5		%	63.3		%	65.7		%	61.5		%

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(1)Deconsolidation of receivable portfolios as a result of the Company’s divestiture of its investment in Brazil for the nine months ended September 30, 2020 and as a result of the Baycorp Transaction for the three and nine months ended September 30, 2019.

Changes in expected current period recoveries represent over and under-performance in the reporting period. Collections during the three and nine months ended September 30, 2020 significantly outperformed the projected cash flows. The Company believes the collection over-performance was largely driven by the reduced near-term expected recoveries as a result of adjustments made to the projected cash flow forecast during the first quarter of 2020 associated with the COVID-19 pandemic. The over-performance was also a result of sustained improvements in portfolio collections driven by liquidation improvement initiatives.

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While the Company now has additional information with respect to the impact on collections of the COVID-19 pandemic, the future outlook remains uncertain, and will continue to evolve depending on future developments, including the duration and spread of the pandemic and related actions taken by governments. When reassessing the future forecasts of expected lifetime recoveries during the three months ended September 30, 2020, management considered historical and current collection performance, uncertainty in economic forecasts in the geographies in which we operate, and believes that the operational disruption as a result of the COVID-19 pandemic has, for the near term, been resolved through a combination of social distancing in the workplace and working remotely. However, the macroeconomic driven consumer distress is still present and will likely continue to impact the Company’s collections performance in the near future. As a result, the Company has updated its forecast, resulting in a reduction of total estimated remaining collections which in turn, when discounted to present value, resulted in a provision for credit loss adjustment of approximately $47.8 million and $199.4 million during the three and nine months ended September 30, 2020, respectively. The circumstances around this pandemic are evolving rapidly and will continue to impact the Company’s business and its estimation of expected recoveries in future periods. The Company will continue to closely monitor the COVID-19 situation and update its assumptions accordingly.

Accretable yield represented the amount of revenue on purchased receivable portfolios the Company expected to recognize over the remaining life of its existing portfolios. The following table summarizes the change in accretable yield under the previous accounting guidance during the periods presented (in thousands):

Balance as of December 31, 2018	$	4,026,206
Revenue from receivable portfolios	(311,158)
Allowance reversals on receivable portfolios, net	(1,367)
Additions on existing portfolios, net	38,313
Additions for current purchases	285,637
Effect of foreign currency translation	26,461
Balance as of March 31, 2019	4,064,092
Revenue from receivable portfolios	(312,495)
Allowance reversals on receivable portfolios, net	(2,063)
Additions on existing portfolios, net	145,359
Additions for current purchases	277,556
Effect of foreign currency translation	(46,526)
Balance as of June 30, 2019	4,125,923
Revenue from receivable portfolios	(316,217)
Allowance reversals on receivable portfolios, net	(8,515)
Additions on existing portfolios, net	93,527
Additions for current purchases	288,547
Effect of foreign currency translation	(73,810)
Balance as of September 30, 2019	$	4,109,455

The following table summarizes the change in the valuation allowance for investment in receivable portfolios as accounted for under the previous accounting guidance during the periods presented (in thousands):

	Three Months Ended<br>September 30, 2019		Nine Months Ended<br>September 30, 2019
Balance as of beginning of period	$	57,204	$	60,631
Provision for portfolio allowances	1,120		4,835
Reversal of prior allowances	(9,635)		(16,780)
Baycorp Transaction	(1,036)		(1,036)
Effect of foreign currency translation	(554)		(551)
Balance as of end of period	$	47,099	$	47,099

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Note 6: Deferred Court Costs, Net

As discussed in “Note 1: Ownership, Description of Business, and Summary of Significant Accounting Policies”, effective January 1, 2020 and as part of the adoption of CECL, the Company changed its method of accounting for court costs spent in its legal collection channel. The Company now expenses all of its court costs as incurred and includes all expected recoveries, including the recoveries from the legal channel, in the measurement of the investment in receivable portfolios at a discounted value. As a result, the Company no longer carries Deferred Court Costs.

Net deferred court costs under the previous accounting method consisted of the following as of the date presented (in thousands):

	December 31, 2019
Court costs advanced	$	891,207
Court costs recovered	(369,043)
Court costs reserve	(421,992)
Deferred court costs, net	$	100,172

A roll-forward of the Company’s court cost reserve as accounted for under the previous accounting method is as follows (in thousands):

	Three Months Ended<br>September 30, 2019		Nine Months Ended<br>September 30, 2019
Balance as of beginning of period	$	(408,312)	$	(396,460)
Provision for court costs	(20,866)		(60,214)
Charge-offs	13,679		40,934
Effect of foreign currency translation	2,113		2,354
Balance as of end of period	$	(413,386)	$	(413,386)

Note 7: Other Assets

Other assets consist of the following (in thousands):

	September 30,<br>2020		December 31,<br>2019
Operating lease right-of-use assets	$	72,587	$	75,254
Identifiable intangible assets, net	44,617		51,371
Assets held for sale	40,740		46,717
Deferred tax assets	31,689		24,134
Service fee receivables	26,434		27,705
Income tax deposit	19,254		5,822
Prepaid expenses	19,149		22,272
Other financial receivables	14,529		17,308
Other	40,297		58,640
Total	$	309,296	$	329,223

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Note 8: Borrowings

The Company is in compliance in all material respects with all covenants under its financing arrangements as of September 30, 2020. The components of the Company’s consolidated borrowings were as follows (in thousands):

	September 30,<br>2020		December 31,<br>2019
Global senior secured revolving credit facility	$	585,227	$	—
Encore revolving credit facility	—		492,000
Encore term loan facility	—		171,677
Encore private placement notes	156,320		308,750
Senior secured notes	1,542,205		1,129,039
Convertible notes and exchangeable notes	583,500		672,855
Cabot senior revolving credit facility	—		285,749
Cabot securitisation senior facility	452,299		464,092
Other	30,574		54,151
Finance lease liabilities	8,487		8,121
	3,358,612		3,586,434
Less: debt discount and issuance costs, net of amortization	(106,511)		(73,237)
Total	$	3,252,101	$	3,513,197

In September 2020 the Company entered into various transactions, agreements and amendments related to its borrowings including (collectively, the “Financing Transactions”):

•an amended multi-currency revolving credit facility that formerly supported only Cabot that now supports the operations of all operating units;

•an issuance of €350.0 million (approximately $410.8 million) in 4.875% senior secured notes due 2025; and

•an amendment to the terms of the existing Senior Secured Notes (defined below).

Following the Financing Transactions, Encore is the parent of the restricted group for the Global Senior Facility, the Senior Secured Notes and the Private Placement Notes, each of which is now guaranteed by the same group of material Encore subsidiaries and secured by the same collateral, which represents substantially all of the assets of those subsidiaries.

In connection with the Financing Transactions, Encore repaid and terminated the Encore Senior Secured Credit Facilities (defined below) and prepaid a portion of its Encore Private Placement Notes (defined below). The total fees paid to the lenders and third-party costs incurred relating to the Financing Transactions were approximately $49.7 million, a portion of which were capitalized as debt issuance costs. Additionally, certain of the unamortized debt issuance costs prior to the Financing Transaction were written-off. The Company recorded a pre-tax expense of approximately $24.6 million (approximately $18.9 million net of tax) relating to the Financing Transactions, $17.7 million of which was included in interest expense and $6.9 million was included in general and administrative expense in the Company’s consolidated statements of operations during the three and nine months ended September 30, 2020.

Global Senior Secured Revolving Credit Facility

The Company has entered into a multi-currency senior secured revolving credit facility agreement (as amended and restated, the “Global Senior Facility”). In previous periods, the Company referred to this facility as the Cabot Credit Facility. As of September 30, 2020, the Global Senior Facility provided for a total committed facility of $1,050.0 million that matures in September 2024 and included the following key provisions:

•Interest at LIBOR (or EURIBOR for any loan drawn in euro) plus 2.50% per annum, with a LIBOR (or EURIBOR) floor of 0.75%;

•A restrictive covenant that limits the LTV Ratio (defined in the Global Senior Facility) to 0.75 in the event that the Global Senior Facility is more than 20% utilized;

•A restrictive covenant that limits the SSRCF Ratio (defined in the Global Senior Facility) to 0.275;

•A restrictive covenant that requires the Company to maintain a Fixed Charge Coverage Ratio (as defined in the Global Senior Facility) of at least 2.0;

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•Additional restrictions and covenants which limit, among other things, the payment of dividends and the incurrence of additional indebtedness and liens; and

•Standard events of default which, upon occurrence, may permit the lenders to terminate the Global Senior Facility and declare all amounts outstanding to be immediately due and payable.

The Global Senior Facility is secured by substantially all of the assets of the Company and the guarantors. Pursuant to the terms of an intercreditor agreement entered into with respect to the relative positions of (1) the Global Senior Facility, any super priority hedging liabilities and the Encore Private Placement Notes (collectively, “Super Senior Liabilities”) and (2) the Senior Secured Notes, Super Senior Liabilities that are secured by assets that also secure the Senior Secured Notes will receive priority with respect to any proceeds received upon any enforcement action over any such assets.

As of September 30, 2020, the outstanding borrowings under the Global Senior Facility were $585.2 million. Since the completion of the Financing Transactions, the weighted average interest rate of the Global Senior Facility was 3.25%. The weighted average interest rate of the previous Cabot Credit Facility was 3.06% and 3.30% for the three and nine months ended September 30, 2020, respectively, and 3.71% and 3.47% for the three and nine months ended September 30, 2019, respectively. The weighted average interest rate of the previous Encore Revolving Credit Facility was 3.63% and 3.90% for the three and nine months ended September 30, 2020, respectively, and 5.25% and 5.40% for the three and nine months ended September 30, 2019, respectively. Available capacity under the Global Senior Facility was $464.8 million as of September 30, 2020.

Encore Revolving Credit Facility and Term Loan Facility

The Company had a revolving credit facility (the “Revolving Credit Facility”) and term loan facility (the “Term Loan Facility,” and together with the Revolving Credit Facility, the “Encore Senior Secured Credit Facilities”) pursuant to a Third Amended and Restated Credit Agreement dated December 20, 2016 (as amended, the “Restated Credit Agreement”) that was previously used to support the Company’s domestic operations. In connection with the Financing Transactions on September 24, 2020, the Company repaid the Encore Senior Secured Credit Facilities and terminated the Restated Credit Agreement.

Encore Private Placement Notes

In August 2017, Encore entered into $325.0 million in senior secured notes with a group of insurance companies (the “Encore Private Placement Notes”). In September 2020, as part of the Financing Transactions, the Company prepaid approximately $103.7 million of the Encore Private Placement Notes and made a $10.4 million make-whole payment to the holders of notes that were prepaid. As of September 30, 2020, $156.3 million of the Encore Private Placement Notes remained outstanding. The Encore Private Placement Notes bear an annual interest rate of 5.625%, mature in August 2024 and require quarterly principal payments of $9.8 million. The covenants and material terms for the Encore Private Placement Notes are substantially similar to those for the Global Senior Facility.

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Senior Secured Notes

The following table provides a summary of the Senior Secured Notes ($ in thousands):

	September 30,<br>2020		December 31,<br>2019		Maturity Date	Interest Rate
Cabot 2023 Notes	$	662,836	$	680,118	Oct 1, 2023	7.500
Cabot 2024 Floating Rate Notes	468,997		448,921		Jun 1, 2024	IBOR +6.375%
Encore 2025 Notes	410,372		—		Oct 15, 2025	4.875
	$	1,542,205	$	1,129,039

All values are in Euros.

Cabot Financial (Luxembourg) S.A. (“Cabot Financial”) has issued £512.9 million (approximately $651.3 million) in aggregate principal amount of 7.500% Senior Secured Notes due 2023 (the “Cabot 2023 Notes”). Interest on the Cabot 2023 Notes is payable semi-annually, in arrears, on April 1 and October 1 of each year.

Cabot Financial (Luxembourg) II S.A. (“Cabot Financial II”), an indirect subsidiary of Encore, has issued €400.0 million (approximately $452.0 million) in aggregate principal amount of Senior Secured Floating Rate Notes due 2024 (the “Cabot 2024 Floating Rate Notes”). The Cabot 2024 Floating Rate Notes bear interest at a rate equal to the sum of (i) three-month EURIBOR (subject to a 0% floor) plus (ii) 6.375%, reset quarterly. Interest is payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year.

In September 2020, Encore issued €350.0 million (approximately $410.8 million) in aggregate principal amount of 4.875% Senior Secured Notes due 2025 at an issue price of 98.889% (the “Encore 2025 Notes” and together with the Cabot 2023 Notes and the Cabot 2024 Floating Rate Notes, the “Senior Secured Notes”). Interest on the Encore 2025 Notes is payable semi-annually, in arrears, on April 15 and October 15 of each year, commencing on April 15, 2021.

The Senior Secured Notes are secured by the same collateral as the Global Senior Facility and the Encore Private Placement Notes. The guarantees provided in respect of the Senior Secured Notes are pari passu with each such guarantee given in respect of the Global Senior Facility and Encore Private Placement Notes. Subject to the intercreditor agreement described above under “Global Senior Secured Revolving Credit Facility,” Super Senior Liabilities that are secured by assets that also secure the Senior Secured Notes will receive priority with respect to any proceeds received upon any enforcement action over any such assets.

Convertible Notes and Exchangeable Notes

The following table provides a summary of the principal balance, maturity date and interest rate for the Company’s convertible and exchangeable senior notes (the “Convertible Notes” or “Exchangeable Notes,” as applicable) ($ in thousands):

	September 30,<br>2020		December 31,<br>2019		Maturity Date	Interest Rate
2020 Convertible Notes(1)	$	—	$	89,355	Jul 1, 2020	3.000	%
2021 Convertible Notes	161,000		161,000		Mar 15, 2021	2.875	%
2022 Convertible Notes	150,000		150,000		Mar 15, 2022	3.250	%
2023 Exchangeable Notes	172,500		172,500		Sep 1, 2023	4.500	%
2025 Convertible Notes	100,000		100,000		Oct 1, 2025	3.250	%
	$	583,500	$	672,855

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(1)The 2020 Convertible Notes matured on July 1, 2020 and the Company repaid the outstanding principal in cash.

The Exchangeable Notes were issued by Encore Capital Europe Finance Limited (“Encore Finance”), a 100% owned finance subsidiary of Encore, and are fully and unconditionally guaranteed by Encore. Unless otherwise indicated in connection with a particular offering of debt securities, Encore will fully and unconditionally guarantee any debt securities issued by Encore Finance. Amounts related to Encore Finance are included in the consolidated financial statements of Encore subsequent to April 30, 2018, the date of the incorporation of Encore Finance.

Prior to the close of business on the business day immediately preceding their respective free conversion or exchange date (listed below), holders may convert or exchange their Convertible Notes or Exchangeable Notes under certain circumstances set forth in the applicable indentures. On or after their respective free conversion or exchange dates until the close of business on the second scheduled trading day immediately preceding their respective maturity date, holders may convert or exchange their

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notes at any time. Certain key terms related to the convertible and exchangeable features as of September 30, 2020 are listed below:

	2021 Convertible Notes		2022 Convertible Notes		2023 Exchangeable Notes		2025 Convertible Notes
Initial conversion or exchange price	$	59.39	$	45.57	$	44.62	$	40.00
Closing stock price at date of issuance	$	47.51	$	35.05	$	36.45	$	32.00
Closing stock price date	Mar 5, 2014		Feb 27, 2017		Jul 20, 2018		Sep 4, 2019
Conversion or exchange rate (shares per $1,000 principal amount)	16.8386		21.9467		22.4090		25.0000
Free conversion or exchange date	Sep 15, 2020		Sep 15, 2021		Mar 1, 2023		Jul 1, 2025

In the event of conversion or exchange, holders of the Company’s Convertible Notes or Exchangeable Notes will receive cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. The Company’s current intent is to settle conversions and exchanges through combination settlement with a minimum specified dollar amount of $1,000 per $1,000 principal amount of notes (i.e., convertible or exchangeable into cash up to the aggregate principal amount, and shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election and subject to certain restrictions contained in each of the indentures governing the Convertible Notes and Exchangeable Notes, for the remainder). As a result, only the conversion or exchange spread is included in the diluted earnings per share calculation, if dilutive. Under such method, the settlement of the conversion or exchange spread has a dilutive effect when, during any quarter, the average share price of the Company’s common stock exceeds the initial conversion or exchange prices listed in the above table.

On October 29, 2020, the Company entered into supplemental indentures for the Convertible Notes and Exchangeable Notes so that in the event of conversion or exchange, the notes are convertible or exchangeable into cash up to the aggregate principal amount of the notes and the excess conversion premium, if any, may be settled in cash or shares of the Company’s common stock at the Company’s election and subject to certain restrictions contained in each of the indentures governing the Convertible Notes and Exchangeable Notes. Refer to “Item 5: Other Information” for additional details of these supplemental indentures.

The debt and equity components, the issuance costs related to the equity component, the stated interest rate, and the effective interest rate for each of the Convertible Notes and Exchangeable Notes at the time of the original offering are listed below (in thousands, except percentages):

	2021 Convertible Notes			2022 Convertible Notes			2023 Exchangeable Notes			2025 Convertible Notes
Debt component	$	143,645		$	137,266		$	157,971		$	91,024
Equity component	$	17,355		$	12,734		$	14,009		$	8,976
Equity issuance cost	$	581		$	398		$	—		$	224
Stated interest rate	2.875		%	3.250		%	4.500		%	3.250		%
Effective interest rate	4.700		%	5.200		%	6.500		%	5.000		%

The balances of the liability and equity components of all the Convertible Notes and Exchangeable Notes outstanding were as follows (in thousands):

	September 30,<br>2020		December 31,<br>2019
Liability component—principal amount	$	583,500	$	672,855
Unamortized debt discount	(21,786)		(30,308)
Liability component—net carrying amount	$	561,714	$	642,547
Equity component	$	53,074	$	83,127

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The debt discount is being amortized into interest expense over the remaining life of the Convertible Notes and Exchangeable Notes using the effective interest rates. Interest expense related to the Convertible Notes and Exchangeable Notes was as follows (in thousands):

	Three Months Ended September 30,			Nine Months Ended September 30,
		2020		2019		2020		2019
Interest expense—stated coupon rate		$	5,130	$	6,754	$	16,728	$	17,662
Interest expense—amortization of debt discount		2,382		3,405		8,521		9,770
Interest expense—Convertible Notes and Exchangeable Notes		$	7,512	$	10,159	$	25,249	$	27,432

Hedge Transactions

In order to reduce the risk related to the potential dilution and/or the potential cash payments the Company may be required to make in the event that the market price of the Company’s common stock becomes greater than the conversion or exchange prices of the Convertible Notes and the Exchangeable Notes, the Company maintains a hedge program that increases the effective conversion or exchange price for the 2021 Convertible Notes and the Exchangeable Notes. The Company did not hedge the 2022 Convertible Notes or the 2025 Convertible Notes.

The details of the hedge program are listed below (in thousands, except conversion or exchange price):

	2021 Convertible Notes		2023 Exchangeable Notes
Cost of the hedge transaction(s)	$	19,545	$	17,785
Initial conversion or exchange price	$	59.39	$	44.62
Effective conversion or exchange price	$	83.14	$	62.48

Cabot Securitisation Senior Facility

Cabot Securitisation UK Ltd (“Cabot Securitisation”), an indirect subsidiary of Encore, has a senior facility for a committed amount of £350.0 million (as amended, the “Cabot Securitisation Senior Facility”). The Cabot Securitisation Senior Facility matures in March 2025. Funds drawn under the Cabot Securitisation Senior Facility bear interest at a rate per annum equal to SONIA plus a margin of 3.06% plus, for periods after March 15, 2023, a step-up margin ranging from zero to 1.00%.

As of September 30, 2020, the outstanding borrowings under the Cabot Securitisation Senior Facility were £350.0 million (approximately $452.3 million). The obligations of Cabot Securitisation under the Cabot Securitisation Senior Facility are secured by first ranking security interests over all of Cabot Securitisation’s property, assets and rights (including receivables purchased from Cabot Financial UK from time to time), the book value of which was approximately £401.2 million (approximately $518.5 million) as of September 30, 2020. The weighted average interest rate was 3.12% and 3.28% for the three and nine months ended September 30, 2020 and 3.75% and 3.74% for the three and nine months ended September 30, 2019.

Cabot Securitisation is a securitized financing vehicle and is a VIE for consolidation purposes. Refer to “Note 9: Variable Interest Entities” for further details.

Note 9: Variable Interest Entities

A VIE is defined as a legal entity whose equity owners do not have sufficient equity at risk, or, as a group, the holders of the equity investment at risk lack any of the following three characteristics: decision-making rights, the obligation to absorb expected losses, or the right to receive expected residual returns of the entity. The primary beneficiary is identified as the variable interest holder that has both the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and the obligation to absorb expected losses or the right to receive benefits from the entity that could potentially be significant to the VIE. The Company consolidates VIEs when it is the primary beneficiary.

As of September 30, 2020, the Company’s VIEs include certain securitized financing vehicles and other immaterial special purpose entities that were created to purchase receivable portfolios in certain geographies. The Company is the primary beneficiary of these VIEs. The Company has the power to direct the activities of the VIEs which includes but is not limited to the ability to exercise discretion in the servicing of the financial assets. The Company evaluates its relationships with its VIEs on an ongoing basis to ensure that it continues to be the primary beneficiary.

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Most assets recognized as a result of consolidating these VIEs do not represent additional assets that could be used to satisfy claims against the Company’s general assets. Conversely, liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets; rather, they represent claims against the specific assets of the VIE.

Note 10: Income Taxes

The Company recorded income tax expense of $19.7 million and $3.0 million during the three months ended September 30, 2020 and 2019, respectively, and income tax expense of $59.9 million and $18.4 million during the nine months ended September 30, 2020 and 2019, respectively.

The effective tax rates for the respective periods are shown below:

	Three Months Ended<br>September 30,				Nine Months Ended<br>September 30,
	2020		2019		2020		2019
Federal provision	21.0	%	21.0	%	21.0	%	21.0	%
State provision	2.7	%	5.3	%	3.0	%	3.7	%
Tax benefit relating to Baycorp Transaction	—	%	(29.1)	%	—	%	(8.6)	%
Tax effect of CFPB settlement fees(1)	4.2	%	—	%	1.3	%	—	%
Audit assessment	—	%	8.9	%	—	%	2.6	%
Change in valuation allowance(2)	2.0	%	1.9	%	2.2	%	2.1	%
Tax benefit from divestiture of foreign investment	—	%	—	%	(1.3)	%	—	%
Change in tax accounting method	—	%	—	%	—	%	(6.3)	%
Tax rate change	(3.5)	%	—	%	(1.1)	%	—	%
Other	—	%	(0.9)	%	0.4	%	(1.7)	%
Effective tax rate	26.4	%	7.1	%	25.5	%	12.8	%

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(1)Non-deductible expense for tax purposes, refer to “Note 14: Subsequent Event.”

(2)Attributable to losses incurred at certain foreign subsidiaries with cumulative operating losses for tax purposes.

The Company utilized the discrete effective tax rate method (“discrete method”) for recording income taxes for the three and nine months ended September 30, 2020. The Company believes the use of the discrete method is more appropriate than the application of the estimated annual effective tax rate (“AETR”) method due to uncertainty in estimating annual pre-tax earnings primarily due to the ongoing COVID-19 pandemic. The Company will re-evaluate the use of the discrete method each quarter until it is deemed appropriate to return to the AETR method.

The Company’s subsidiary in Costa Rica is operating under a 100% tax holiday through December 31, 2026. The impact of the tax holiday in Costa Rica for the three and nine months ended September 30, 2020 and 2019, was immaterial.

The Company had gross unrecognized tax benefits, inclusive of penalties and interest, of $8.2 million as of September 30, 2020. These unrecognized tax benefits, if recognized, would result in a net tax benefit of $7.6 million as of September 30, 2020. There was no material change in gross unrecognized tax benefits from December 31, 2019.

The Company has not provided for applicable income or withholding taxes on the undistributed earnings from continuing operations for certain of its subsidiaries operating outside of the United States. Undistributed net income of these subsidiaries as of September 30, 2020 was approximately $180.5 million. Such undistributed earnings are considered permanently reinvested. The Company does not provide deferred taxes on translation adjustments on unremitted earnings under the indefinite reversal exemption. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practical due to the complexities of a hypothetical calculation. Subsidiaries operating outside of the United States for which the Company does not consider under the indefinite reversal exemption have no material undistributed earnings or outside basis differences and therefore no U.S. taxes have been provided.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in response to the COVID-19 pandemic. The CARES Act contains several corporate income tax provisions, including modifications to the limitation on business interest expense and net operating loss regulations, and provides for a payment delay

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of employer payroll taxes and income taxes. The CARES Act did not have a material impact on the Company’s effective tax rate or income tax provision for the three and nine months ended September 30, 2020.

The UK Finance Act 2020 received Royal Assent in the United Kingdom on July 22, 2020, changing the corporate income tax rate from the previously enacted 17% to 19% effective on April 1, 2020.

Note 11: Commitments and Contingencies

Litigation and Regulatory

The Company is involved in disputes, legal actions, regulatory investigations, inquiries, and other actions from time to time in the ordinary course of business. The Company, along with others in its industry, is routinely subject to legal actions based on the Fair Debt Collection Practices Act (“FDCPA”), comparable state statutes, the Telephone Consumer Protection Act (“TCPA”), state and federal unfair competition statutes, and common law causes of action. The violations of law investigated or alleged in these actions often include claims that the Company lacks specified licenses to conduct its business, attempts to collect debts on which the statute of limitations has run, has made inaccurate or unsupported assertions of fact in support of its collection actions and/or has acted improperly in connection with its efforts to contact consumers. Such litigation and regulatory actions could involve potential compensatory or punitive damage claims, fines, sanctions, injunctive relief, or changes in business practices. Many continue on for some length of time and involve substantial investigation, litigation, negotiation, and other expense and effort before a result is achieved, and during the process the Company often cannot determine the substance or timing of any eventual outcome.

In September 2015, the Company entered into a consent order (the “2015 Consent Order”) with the Consumer Financial Protection Bureau (the “CFPB”) in which the Company settled allegations arising from its practices between 2011 and 2015. On September 8, 2020, a suit captioned Bureau of Consumer Financial Protection v. Encore Capital Group, Inc. et al. was filed in the United States District Court for the Southern District of California. In the suit, the CFPB alleged that the Company did not perfectly adhere to certain operational provisions of the 2015 Consent Order, leading to alleged violations of federal consumer financial law. On October 15, 2020, the parties entered into a stipulated judgment (“Stipulated Judgment”) to resolve the lawsuit. The Company recorded an after-tax charge of $15.0 million for the three and nine months ended September 30, 2020 as a result of the Stipulated Judgment. Refer to “Note 14: Subsequent Event” for further details regarding the Stipulated Judgment.

Other than as discussed above, as of September 30, 2020, there were no material developments in any of the legal proceedings disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

In certain legal proceedings, the Company may have recourse to insurance or third-party contractual indemnities to cover all or portions of its litigation expenses, judgments, or settlements. The Company records loss contingencies in its financial statements only for matters in which losses are probable and can be reasonably estimated. Where a range of loss can be reasonably estimated with no best estimate in the range, the Company records the minimum estimated liability. The Company continuously assesses the potential liability related to its pending litigation and regulatory matters and revises its estimates when additional information becomes available. The Company’s legal costs are recorded to expense as incurred. As of September 30, 2020, other than the charge recorded for the Stipulated Judgement, the Company has no material reserves for legal matters.

Purchase Commitments

In the normal course of business, the Company enters into forward flow purchase agreements and other purchase commitment agreements. As of September 30, 2020, the Company had entered into agreements to purchase receivable portfolios with a face value of approximately $2.0 billion for a purchase price of approximately $259.1 million.

Note 12: Segment and Geographic Information

The Company conducts business through several operating segments that have similar economic and other qualitative characteristics and have been aggregated in accordance with authoritative guidance into one reportable segment, portfolio purchasing and recovery. Since the Company operates in one reportable segment, all required segment information can be found in the consolidated financial statements.

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The Company has operations in the United States, Europe and other foreign countries. The following table presents the Company’s total revenues by geographic area in which the Company operates (in thousands):

	Three Months Ended<br>September 30,				Nine Months Ended<br>September 30,
	2020		2019		2020		2019
Total revenues(1):
United States	$	256,212	$	211,193	$	751,197	$	599,953
International
Europe(2)	142,495		130,868		353,950		397,063
Other geographies	4,969		13,875		13,643		52,871
	147,464		144,743		367,593		449,934
Total	$	403,676	$	355,936	$	1,118,790	$	1,049,887

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(1)Total revenues for periods in 2019 are adjusted by net allowances. Total revenues are attributed to countries based on consumer location.

(2)Based on the financial information that is used to produce the general-purpose financial statements, providing further geographic information is impracticable.

Note 13: Goodwill and Identifiable Intangible Assets

Goodwill is tested for impairment at the reporting unit level annually and in interim periods if certain events occur that indicate that the fair value of a reporting unit may be below its carrying value. Determining the number of reporting units and the fair value of a reporting unit requires the Company to make judgments and involves the use of significant estimates and assumptions.

The Company performs its annual goodwill impairment testing in the fourth quarter of each year. During the impairment testing in 2019, both of the Company’s two reporting units had fair values substantially in excess of their carrying values. In addition to the annual impairment test, the Company is required to assess whether a triggering event has occurred which would require interim impairment testing. During the three months ended September 30, 2020, the Company updated its consideration of the current and expected future economic and market conditions surrounding the COVID-19 pandemic and its impact on each of the reporting units. Additionally, the Company assessed the current market capitalization, forecasts and the amount of headroom in the 2019 impairment test. The Company determined that there were no impairment indicators for either of the reporting units as of September 30, 2020. Therefore, an interim quantitative impairment test was not performed.

Management continues to evaluate and monitor all key factors impacting the carrying value of the Company’s recorded goodwill and long-lived assets. Adverse changes in the Company’s actual or expected operating results, market capitalization, business climate, economic factors or other negative events that may be outside the control of management could result in a material non-cash impairment charge in the future.

The Company’s goodwill is attributable to reporting units included in its portfolio purchasing and recovery segment. The following table summarizes the activity in the Company’s goodwill balance (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Balance, beginning of period	$	838,024	$	865,527	$	884,185	$	868,126
Goodwill impairment	—		(10,718)		—		(10,718)
Effect of foreign currency translation	28,633		(23,260)		(17,528)		(25,859)
Balance, end of period	$	866,657	$	831,549	$	866,657	$	831,549

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The Company’s acquired intangible assets are summarized as follows (in thousands):

	As of September 30, 2020						As of December 31, 2019
	Gross<br>Carrying<br>Amount		Accumulated<br>Amortization		Net<br>Carrying<br>Amount		Gross<br>Carrying<br>Amount		Accumulated<br>Amortization		Net<br>Carrying<br>Amount
Customer relationships	$	63,388	$	(19,801)	$	43,587	$	67,897	$	(18,191)	$	49,706
Developed technologies	4,487		(4,125)		362		4,734		(4,124)		610
Trade name and other	5,437		(4,769)		668		6,299		(5,244)		1,055
Total intangible assets	$	73,312	$	(28,695)	$	44,617	$	78,930	$	(27,559)	$	51,371

Note 14: Subsequent Event

In September 2015, the Company entered into a consent order (the “2015 Consent Order”) with the Consumer Financial Protection Bureau (the “CFPB”) in which the Company settled allegations arising from its practices between 2011 and 2015. On September 8, 2020, a suit captioned Bureau of Consumer Financial Protection v. Encore Capital Group, Inc. et al. was filed in the United States District Court for the Southern District of California. In the suit, the CFPB alleged that the Company did not perfectly adhere to certain operational provisions of the 2015 Consent Order, leading to alleged violations of federal consumer financial law.

On October 15, 2020, the parties entered into a stipulated judgment (“Stipulated Judgment”) to resolve the lawsuit. The Stipulated Judgment includes obligations on the Company to, among other things: (1) continue to follow a narrow subset of the operational requirements contained in the 2015 Consent Order, all of which have long been part of the Company’s routine practices; (2) pay a $15.0 million civil monetary penalty; and (3) provide redress of approximately $9,000 to 14 affected consumers, which is in addition to approximately $70,000 of redress that the Company had previously voluntarily provided. Under the Stipulated Judgment, the Company neither admits nor denies the allegations in the CFPB’s suit. In connection with the Stipulated Judgment the CFPB has formally terminated the 2015 Consent Order.

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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains “forward-looking statements” relating to Encore Capital Group, Inc. (“Encore”) and its subsidiaries (which we may collectively refer to as the “Company,” “we,” “our” or “us”) within the meaning of the securities laws. The words “believe,” “expect,” “anticipate,” “estimate,” “project,” “intend,” “plan,” “will,” “may,” and similar expressions often characterize forward-looking statements. These statements may include, but are not limited to, projections of collections, revenues, income or loss, estimates of capital expenditures, plans for future operations, products or services, financing needs or plans or the impacts of the COVID-19 pandemic, as well as assumptions relating to these matters. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we caution that these expectations or predictions may not prove to be correct or we may not achieve the financial results, savings, or other benefits anticipated in the forward-looking statements. These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties, some of which may be beyond our control or cannot be predicted or quantified, that could cause actual results to differ materially from those suggested by the forward-looking statements. Many factors including, but not limited to, those set forth in our Annual Report on Form 10-K under “Part I, Item 1A—Risk Factors” and those set forth in “Part II, Item 1A, Risk Factors” of this Quarterly Report could cause our actual results, performance, achievements, or industry results to be very different from the results, performance, achievements or industry results expressed or implied by these forward-looking statements. Our business, financial condition, or results of operations could also be materially and adversely affected by other factors besides those listed. Forward-looking statements speak only as of the date the statements were made. We do not undertake any obligation to update or revise any forward-looking statements to reflect new information or future events, or for any other reason, even if experience or future events make it clear that any expected results expressed or implied by these forward-looking statements will not be realized. In addition, it is generally our policy not to make any specific projections as to future earnings, and we do not endorse projections regarding future performance that may be made by third parties.

Our Business

We are an international specialty finance company providing debt recovery solutions and other related services for consumers across a broad range of financial assets. We purchase portfolios of defaulted consumer receivables at deep discounts to face value and manage them by working with individuals as they repay their obligations and work toward financial recovery. Defaulted receivables are consumers’ unpaid financial commitments to credit originators, including banks, credit unions, consumer finance companies and commercial retailers. Defaulted receivables may also include receivables subject to bankruptcy proceedings. We also provide debt servicing and other portfolio management services to credit originators for non-performing loans.

Encore Capital Group, Inc. (“Encore”) has three primary business units: MCM, which consists of Midland Credit Management, Inc. and its subsidiaries and domestic affiliates; Cabot, which consists of Cabot Credit Management Limited (“CCM”) and its subsidiaries and European affiliates, and LAAP, which is comprised of our investments and operations in Latin America and Asia-Pacific.

MCM (United States)

Through MCM we are a market leader in portfolio purchasing and recovery in the United States, including Puerto Rico.

Cabot (Europe)

Through Cabot we are one of the largest credit management services providers in Europe and a market leader in the United Kingdom and Ireland. Cabot, in addition to its primary business of portfolio purchasing and recovery, also provides a range of debt servicing offerings such as early stage collections, business process outsourcing (“BPO”), and contingent collections, including through Wescot Credit Services Limited (“Wescot”), a leading U.K. contingency debt collection and BPO services company.

LAAP (Latin America and Asia-Pacific)

We have purchased non-performing loans in Colombia, Peru, Mexico and Brazil (which was sold in April 2020). Additionally, we have invested in Encore Asset Reconstruction Company (“EARC”) in India.

To date, operating results from LAAP have not been significant to our total consolidated operating results. Our long-term growth strategy is focused on continuing to invest in our core portfolio purchasing and recovery business in the United States and United Kingdom and strengthening and developing our business in the rest of Europe.

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Recent Developments

In March 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) a pandemic, which has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns (including court closures in certain jurisdictions). While we are unable to accurately predict the full impact that COVID-19 will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures, our compliance with these measures has impacted our day-to-day operations and could disrupt our business and operations for an indefinite period of time. Through a combination of work-from-home and social distancing, we remain fully operational in all the markets we serve. As a result of the COVID-19 pandemic and the resulting containment measures, we have observed, among other things: a decrease in supply in the U.S. driven mainly by a decrease in charge-off rates; a decrease in supply in Europe, which we believe is driven by both a decrease in charge-off rates and decreased sales as the banks focus on their customers’ needs; and impacts to the legal collections process, which negatively affected legal collections beginning in late March 2020 and could continue to affect legal collections and related costs depending on the duration and severity of the COVID-19 pandemic and the resulting containment measures.

Government Regulation

There have been various governmental actions taken, or proposed, in response to the COVID-19 pandemic, such as limiting debt collections efforts and encouraging or requiring extensions, modifications or forbearance, with respect to certain loans and fees. In addition, in certain jurisdictions courts have closed and/or government actions have affected the litigation process. Government actions have not been consistent across jurisdictions and the efficacy and ultimate effect of such actions is not known. We continue to monitor federal, state and international regulatory developments in relation to the COVID-19 pandemic and their potential impact on our operations.

MCM (United States)

As discussed in more detail under “Part I - Item 1 - Business - Government Regulation” contained in our Annual Report on Form 10-K, our U.S. debt purchasing business and collection activities are subject to federal, state and municipal statutes, rules, regulations and ordinances that establish specific guidelines and procedures that debt purchasers and collectors must follow when collecting consumer accounts, including among others, specific guidelines and procedures for communicating with consumers and prohibitions on unfair, deceptive or abusive debt collection practices.

In September 2015, we entered into a consent order (the “2015 Consent Order”) with the Consumer Financial Protection Bureau (the “CFPB”) in which we settled allegations arising from our practices between 2011 and 2015. On September 8, 2020, the CFPB filed a suit alleging that we violated the 2015 Consent Order. In the suit, the CFPB alleged that we did not perfectly adhere to certain operational provisions of the 2015 Consent Order, leading to alleged violations of federal consumer financial law.

On October 15, 2020, the parties entered into a stipulated judgment (“Stipulated Judgment”) to resolve the lawsuit. The Stipulated Judgment includes obligations on us to, among other things: (1) continue to follow a narrow subset of the operational requirements contained in the 2015 Consent Order, all of which have long been part of our routine practices; (2) pay a $15.0 million civil monetary penalty; and (3) provide redress of approximately $9,000 to 14 affected consumers, which is in addition to approximately $70,000 of redress that we had previously voluntarily provided. Under the Stipulated Judgment, we neither admit nor deny the allegations in the CFPB’s suit. In connection with the Stipulated Judgment, the CFPB has formally terminated the 2015 Consent Order.

We recorded an after-tax charge of $15.0 million for the three and nine months ended September 30, 2020 as a result of the Stipulated Judgment.

On October 30, 2020, the CFPB issued final rules to implement the Fair Debt Collection Practices Act, which restate and clarify prohibitions on harassment and abuse, false or misleading representations, and unfair practices by debt collectors when collecting consumer debt. The rules included provisions related to, among other things, the use of newer technologies (text, voicemail and email) to communicate with consumers and limits relating to telephonic communications. The rules will become effective one year after publication in the Federal Register. Based on our preliminary assessment of the rules, we believe that the new rules will not have a material incremental effect on our operations. The CFPB also announced that it intends to issue an additional debt collection final rule focused on consumer disclosures in December 2020.

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Cabot (Europe)

As discussed in more detail under “Part I - Item 1 - Business - Government Regulation” contained in our Annual Report on Form 10-K, our operations in Europe are affected by foreign statutes, rules and regulations regarding debt collection and debt purchase activities. These statutes, rules, regulations, ordinances, guidelines and procedures are modified from time to time by the relevant authorities charged with their administration, which could affect the way we conduct our business.

Portfolio Purchasing and Recovery

MCM (United States)

In the United States, the defaulted consumer receivable portfolios we purchase are primarily charged-off credit card debt portfolios. A small percentage of our capital deployment in the United States comprises of receivable portfolios subject to Chapter 13 and Chapter 7 bankruptcy proceedings.

We purchase receivables based on robust, account-level valuation methods and employ proprietary statistical and behavioral models across our U.S. operations. These methods and models allow us to value portfolios accurately (and limit the risk of overpaying), avoid buying portfolios that are incompatible with our methods or strategies and align the accounts we purchase with our business channels to maximize future collections. As a result, we have been able to realize significant returns from the receivables we acquire. We maintain strong relationships with many of the largest financial service providers in the United States.

Cabot (Europe)

In Europe, our purchased under-performing debt portfolios primarily consist of paying and non-paying consumer loan accounts. We also purchase: (1) portfolios that are in insolvency status, in particular, individual voluntary arrangements; and (2) non-performing secured mortgage portfolios and real estate assets previously securing mortgage portfolios. When we take possession of the underlying real estate assets or purchase real estate assets, we refer to those as real estate-owned assets, or REO assets.

We purchase paying and non-paying receivable portfolios using a proprietary pricing model that utilizes account-level statistical and behavioral data. This model allows us to value portfolios accurately and quantify portfolio performance in order to maximize future collections. As a result, we have been able to realize significant returns from the assets we have acquired. We maintain strong relationships with many of the largest financial services providers in the United Kingdom and continue to expand in the United Kingdom and the rest of Europe with our acquisitions of portfolios and other credit management services providers.

Purchases and Collections

Portfolio Pricing, Supply and Demand

MCM (United States)

Issuers have continued to sell predominantly fresh portfolios. Fresh portfolios are portfolios that are generally sold within six months of the consumer’s account being charged-off by the financial institution. Pricing in the third quarter remained favorable. Issuers continued to sell their volume in mostly forward flow arrangements that are often committed early in the calendar year. We are closely monitoring the impacts of the COVID-19 pandemic on pricing and supply. We have observed a slight decrease in supply as a result of the COVID-19 pandemic, but expect an increase in supply in the second half of 2021.

We believe that smaller competitors continue to face difficulties in the portfolio purchasing market because of the high cost to operate due to regulatory pressure and because issuers are selective with buyers in the marketplace. We believe this favors larger participants, such as Encore, because the larger market participants are better able to adapt to these pressures and commit to larger forward flow agreements.

Cabot (Europe)

The U.K. market for charged-off portfolios has generally provided a relatively consistent pipeline of opportunities over the past few years, despite an ongoing historic low level of charge-off rates, as creditors have embedded debt sales as an integral part of their business models and consumer indebtedness has continued to grow since the financial crisis.

The Spanish debt market continues to be one of the largest in Europe with a significant amount of debt to be sold and serviced. In particular, we anticipate strong debt purchasing and servicing opportunities in the secured and small and medium enterprise asset classes given the backlog of non-performing debt that has accumulated in these sectors. Additionally, financial

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institutions continue to experience both market and regulatory pressure to dispose of non-performing loans, which should further increase debt purchasing opportunities in Spain.

Across all of our European markets, we are closely monitoring the impacts of the COVID-19 pandemic on pricing and supply of portfolios to purchase. Due to the COVID-19 pandemic, banks have decreased portfolio sales in order to focus on customers’ needs. As a result, we expect a lower level of supply available for purchase in the near-term.

Purchases by Geographic Location

The following table summarizes the geographic locations of receivable portfolios purchased during the periods presented (in thousands):

	Three Months Ended<br>September 30,				Nine Months Ended<br>September 30,
	2020		2019		2020		2019
MCM (United States)	$	141,066	$	173,214	$	451,141	$	527,318
Cabot (Europe)	29,065		85,201		81,042		226,047
Other geographies	—		1,495		—		11,577
Total purchases of receivable portfolios	$	170,131	$	259,910	$	532,183	$	764,942

During the three months ended September 30, 2020, we invested $170.1 million to acquire receivable portfolios, with face values aggregating $1.8 billion, for an average purchase price of 9.5% of face value. The amount invested in receivable portfolios decreased $89.8 million, or 34.6%, compared with the $259.9 million invested during the three months ended September 30, 2019, to acquire receivable portfolios with face values aggregating $5.3 billion, for an average purchase price of 4.9% of face value.

During the nine months ended September 30, 2020, we invested $532.2 million to acquire receivable portfolios, with face values aggregating $4.8 billion, for an average purchase price of 11.1% of face value. The amount invested in receivable portfolios decreased $232.8 million, or 30.4%, compared with the $764.9 million invested during the nine months ended September 30, 2019, to acquire receivable portfolios with face values aggregating $9.4 billion, for an average purchase price of 8.2% of face value.

In the United States, purchases of receivable portfolios decreased during the three and nine months ended September 30, 2020 as compared to the corresponding periods in the prior year. The majority of our purchases in the U.S. are in forward flow agreements, and the timing, contract duration, and volumes for each contract can fluctuate leading to variation when comparing to prior periods. The decrease in purchases in the U.S. resulted from a decrease in supply and our cautious approach to purchasing at the beginning of the COVID-19 pandemic when the potential impacts were relatively unknown.

In Europe, purchases of receivable portfolios decreased during the three and nine months ended September 30, 2020 as compared to the corresponding periods in the prior year. The decreases were primarily the result of a relatively limited supply of portfolios during the three and nine months ended September 30, 2020 and a heightened return expectation as a result of greater uncertainty relating to the future impact of the COVID-19 pandemic.

The average purchase price, as a percentage of face value, varies from period to period depending on, among other factors, the quality of the accounts purchased and the length of time from charge-off to the time we purchase the portfolios.

During the three months ended September 30, 2020 and 2019, we also invested $0.2 million and $8.2 million in REO assets, respectively. During the nine months ended September 30, 2020 and 2019, we invested $1.5 million and $21.1 million in REO assets, respectively.

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Collections from Purchased Receivables by Channel and Geographic Location

We utilize three channels for the collection of our purchased receivables: call center and digital collections; legal collections; and collection agencies. The call center and digital collections channel consists of collections that result from our call centers, direct mail program and online collections. The legal collections channel consists of collections that result from our internal legal channel or from our network of retained law firms. The collection agencies channel consists of collections from third-party collection agencies that we utilize when we believe they can liquidate better or less expensively than we can or to supplement capacity in our internal call centers. The collection agencies channel also includes collections on accounts purchased where we maintain the collection agency servicing until the accounts can be placed in our internal collection channels. The following table summarizes the total collections from receivable portfolios by collection channel and geographic area (in thousands):

	Three Months Ended<br>September 30,				Nine Months Ended<br>September 30,
	2020		2019		2020		2019
MCM (United States):
Call center and digital collections	$	246,689	$	187,500	$	709,780	$	557,135
Legal collections	139,473		141,269		431,096		428,296
Collection agencies	4,699		2,459		10,766		8,682
Subtotal	390,861		331,228		1,151,642		994,113
Cabot (Europe):
Call center and digital collections	65,182		64,492		182,206		192,832
Legal collections	40,171		45,276		115,107		145,285
Collection agencies	36,120		40,452		104,634		131,162
Subtotal	141,473		150,220		401,947		469,279
Other geographies:
Call center and digital collections	—		5,383		—		25,620
Legal collections	—		744		—		3,541
Collection agencies	7,414		11,820		21,653		35,576
Subtotal	7,414		17,947		21,653		64,737
Total collections from purchased receivables	$	539,748	$	499,395	$	1,575,242	$	1,528,129

Gross collections from purchased receivables increased by $40.4 million, or 8.1%, to $539.7 million during the three months ended September 30, 2020, from $499.4 million during the three months ended September 30, 2019. Gross collections from purchased receivables increased by $47.1 million, or 3.1%, to $1,575.2 million during the nine months ended September 30, 2020, from $1,528.1 million during the nine months ended September 30, 2019.

Gross collections from receivable portfolios in the United States increased significantly in both periods presented. The increases were primarily due to the acquisition of portfolios with higher returns in recent periods, the increase in our collection capacity, and our continued effort in improving liquidation. Our consumer centric collection approach and our capacity buildup are driving a higher proportion of call center and digital collections compared to legal collections in the United States.

The decreases in collections from purchased receivables in Europe were primarily due to the impacts of the COVID-19 pandemic. We anticipate a material portion of the reduced collections in 2020 will be recovered in future years.

The decreases in collections from purchased receivables in other geographies were primarily due to the sale of our wholly-owned subsidiary Baycorp in August 2019.

The COVID-19 pandemic and the resulting containment measures, including impacts to the legal collections process, negatively affected legal collections beginning in late March 2020 and could continue to affect legal collections and related costs depending on the duration and severity of the COVID-19 pandemic and the resulting containment measures. We are closely monitoring the impacts of the COVID-19 pandemic on collections and cost-to-collect.

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Results of Operations

Results of operations, in dollars and as a percentage of total revenues, adjusted by net allowances, were as follows (in thousands, except percentages):

	Three Months Ended September 30,
	2020				2019
Revenues
Revenue from receivable portfolios	$	342,489	84.8	%	$	316,217	88.8	%
Changes in expected current and future recoveries	30,451		7.6	%	—		—	%
Servicing revenue	29,787		7.4	%	31,060		8.7	%
Other revenues	949		0.2	%	144		0.1	%
Total revenues	403,676		100.0	%	347,421		97.6	%
Allowance reversals on receivable portfolios, net					8,515		2.4	%
Total revenues, adjusted by net allowances					355,936		100.0	%
Operating expenses
Salaries and employee benefits	95,979		23.8	%	96,638		27.2	%
Cost of legal collections	60,383		15.0	%	48,971		13.8	%
General and administrative expenses	53,459		13.2	%	38,168		10.7	%
Other operating expenses	28,088		7.0	%	25,753		7.2	%
Collection agency commissions	12,703		3.1	%	17,343		4.9	%
Depreciation and amortization	10,609		2.6	%	10,000		2.8	%
Goodwill impairment	—		—	%	10,718		3.0	%
Total operating expenses	261,221		64.7	%	247,591		69.6	%
Income from operations	142,455		35.3	%	108,345		30.4	%
Other expense
Interest expense	(67,962)		(16.8)	%	(54,365)		(15.3)	%
Other income (expense)	361		0.1	%	(11,546)		(3.2)	%
Total other expense	(67,601)		(16.7)	%	(65,911)		(18.5)	%
Income before income taxes	74,854		18.6	%	42,434		11.9	%
Provision for income taxes	(19,747)		(4.9)	%	(3,021)		(0.8)	%
Net income	55,107		13.7	%	39,413		11.1	%
Net income attributable to noncontrolling interest	(457)		(0.1)	%	(544)		(0.2)	%
Net income attributable to Encore Capital Group, Inc. stockholders	$	54,650	13.6	%	$	38,869	10.9	%

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	Nine Months Ended September 30,
	2020				2019
Revenues
Revenue from receivable portfolios	$	1,035,141	92.5	%	$	939,870	89.5	%
Changes in expected current and future recoveries	(2,203)		(0.2)	%	—		—	%
Servicing revenue	82,417		7.4	%	97,399		9.3	%
Other revenues	3,435		0.3	%	673		0.1	%
Total revenues	1,118,790		100.0	%	1,037,942		98.9	%
Allowance reversals on receivable portfolios, net					11,945		1.1	%
Total revenues, adjusted by net allowances					1,049,887		100.0	%
Operating expenses
Salaries and employee benefits	279,944		25.0	%	284,699		27.1	%
Cost of legal collections	164,018		14.7	%	149,446		14.2	%
General and administrative expenses	113,954		10.2	%	110,335		10.5	%
Other operating expenses	83,527		7.5	%	84,913		8.1	%
Collection agency commissions	36,562		3.3	%	46,905		4.5	%
Depreciation and amortization	31,436		2.8	%	29,736		2.9	%
Goodwill impairment	—		—	%	10,718		1.0	%
Total operating expenses	709,441		63.5	%	716,752		68.3	%
Income from operations	409,349		36.5	%	333,135		31.7	%
Other expense
Interest expense	(172,951)		(15.5)	%	(173,245)		(16.5)	%
Other expense	(1,211)		(0.1)	%	(15,766)		(1.5)	%
Total other expense	(174,162)		(15.6)	%	(189,011)		(18.0)	%
Income before income taxes	235,187		20.9	%	144,124		13.7	%
Provision for income taxes	(59,875)		(5.4)	%	(18,447)		(1.7)	%
Net income	175,312		15.5	%	125,677		12.0	%
Net income attributable to noncontrolling interest	(784)		(0.1)	%	(893)		(0.1)	%
Net income attributable to Encore Capital Group, Inc. stockholders	$	174,528	15.4	%	$	124,784	11.9	%

Comparison of Results of Operations

Revenues

Our revenues primarily include revenue recognized from engaging in debt purchasing and recovery activities. Effective January 1, 2020, we adopted the CECL accounting standard. Under CECL, we apply our charge-off policy and fully write-off the amortized costs (i.e., face value net of noncredit discount) of the individual receivables we acquire immediately after purchasing the portfolio. We then record a negative allowance that represents the present value of all expected future recoveries for pools of receivables that share similar risk characteristics using a discounted cash flow approach, which is presented as “Investment in receivable portfolios, net” in our consolidated statements of financial condition. The discount rate is an effective interest rate (or “purchase EIR”) established based on the purchase price of the portfolio and the expected future cash flows at the time of purchase. Revenue generated by such activities primarily includes two components: (1) the accretion of the discount on the negative allowance due to the passage of time, which is included in “Revenue from receivable portfolios” and (2) changes in expected cash flows, which includes (a) the current period variances between actual cash collected and expected cash recoveries and (b) the present value change of expected future recoveries, and is presented in our consolidated statements of operations as “Changes in expected current and future recoveries.”

Certain pools already fully recovered their cost basis and became zero basis portfolios (“ZBA”) prior to our adoption of CECL. We did not establish a negative allowance for these pools as we elected the Transition Resource Group for Credit Losses’ practical expedient to retain the integrity of these legacy pools. Similar to how we treated ZBA collections prior to the

adoption of CECL, all subsequent collections to the ZBA pools are recognized as ZBA revenue, which is included in revenue from receivable portfolios in our consolidated statements of operations.

Servicing revenue consists primarily of fee-based income earned on accounts collected on behalf of others, primarily credit originators. We earn fee-based income by providing debt servicing (such as early stage collections, BPO, contingent collections, trace services and litigation activities) to credit originators for non-performing loans.

Other revenues primarily include revenues recognized from the sale of real estate assets that are acquired as a result of our investments in non-performing secured residential mortgage portfolios in Europe and LAAP. Other revenues also include gains recognized on transfers of financial assets.

Under the previous accounting standard for purchased credit deteriorated assets, we incurred allowance charges when actual cash flows from our receivable portfolios underperformed compared to our expectations or when there was a change in the timing of cash flows. We also recorded allowance reversals on pool groups that had historic allowance reserves when actual cash flows from these receivable portfolios outperformed our expectations.

We have not adjusted prior period comparative information and will continue to disclose prior period financial information in accordance with the previous accounting guidance. The following table summarizes revenues for the periods presented (in thousands, except percentages):

	Three Months Ended September 30,
	2020		2019		Change	% Change
Revenue recognized from portfolio basis	$	329,106	$	300,048		9.7	%
ZBA revenue	13,383		16,169		(2,786)	(17.2)	%
Revenue from receivable portfolios	342,489		316,217		26,272	8.3	%
Changes in expected current period recoveries	78,268
Changes in expected future period recoveries	(47,817)
Changes in expected current and future recoveries	30,451
Servicing revenue	29,787		31,060		(1,273)	(4.1)	%
Other revenues	949		144		805	559.0	%
Total revenues	$	403,676	$	347,421		16.2	%
Allowance reversals on receivable portfolios, net(1)			8,515
Total revenues, adjusted by net allowances			$	355,936

All values are in US Dollars.

________________________

(1)Amount includes $2.0 million of allowance reversals for zero-basis portfolios.

	Nine Months Ended September 30,
	2020		2019		Change	% Change
Revenue recognized from portfolio basis	$	991,614	$	870,865		13.9	%
ZBA revenue	43,527		69,005		(25,478)	(36.9)	%
Revenue from receivable portfolios	1,035,141		939,870		95,271	10.1	%
Changes in expected current period recoveries	197,155
Changes in expected future period recoveries	(199,358)
Changes in expected current and future recoveries	(2,203)
Servicing revenue	82,417		97,399		(14,982)	(15.4)	%
Other revenues	3,435		673		2,762	410.4	%
Total revenues	$	1,118,790	$	1,037,942		7.8	%
Allowance reversals on receivable portfolios, net(1)			11,945
Total revenues, adjusted by net allowances			$	1,049,887

All values are in US Dollars.

________________________

(1)Amount includes $6.6 million of allowance reversals for zero-basis portfolios.

Our operating results are impacted by foreign currency translation, which represents the effect of translating operating results where the functional currency is different than our U.S. dollar reporting currency. The strengthening of the U.S. dollar relative to other foreign currencies has an unfavorable impact on our international revenues, and the weakening of the U.S. dollar relative to other foreign currencies has a favorable impact on our international revenues. Our revenues were favorably impacted by foreign currency translation, primarily by the weakening of the U.S. dollar against the British Pound by 4.6% during the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The foreign currency translation effect on our revenues for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was negligible.

The increases in revenue recognized from portfolio basis during the three and nine months ended September 30, 2020 as compared to the three and nine months ended September 30, 2019 were primarily due to higher expected total future cash flows resulting from a change in the expected economic life of static pool groups based on a lifetime expected recovery model upon the adoption of CECL which led to increased EIR, and increased expected total future cash flows resulting from a change in our accounting policy for court costs. Under our new accounting policy, all future expected cash flows, including the expected total recoveries in our legal channel, are included in the initial curve in the establishment of negative allowance, which in turn, increased the EIR.

As discussed above, ZBA revenue represents collections from our legacy ZBA pools. We expect our ZBA revenue to continue to decline as we collect on these legacy pools. Since our forecast period is on a rolling 15 year basis after the adoption of CECL, we do not expect to have new ZBA pools in the future.

Under CECL, changes in expected current period recoveries represent over and under-performance in the reporting period. Collections during the three and nine months ended September 30, 2020 significantly outperformed the projected cash flows. We believe the collection over-performance was largely driven by the reduced near-term expected recoveries as a result of adjustments made to our projected cash flow forecast during the first quarter of 2020 associated with the COVID-19 pandemic. The over-performance was also a result of our sustained improvements in portfolio collections driven by liquidation improvement initiatives.

While we now have additional information with respect to the impact on collections of the COVID-19 pandemic, the future outlook remains uncertain, and will continue to evolve depending on future developments, including the duration and spread of the pandemic and related actions taken by governments. When reassessing the future forecasts of expected lifetime recoveries during the three months ended September 30, 2020, management considered historical and current collection performance, uncertainty in economic forecasts in the geographies in which we operate, and believes that the operational disruption as a result of the COVID-19 pandemic has, for the near term, been resolved through a combination of social distancing in the workplace and working remotely. However, the macroeconomic driven consumer distress is still present and will likely continue to impact our collections performance in the near future. As a result, we have updated our forecast, resulting in a reduction of total estimated remaining collections which in turn, when discounted to present value, resulted in a provision for credit loss adjustment of approximately $47.8 million and $199.4 million during the three and nine months ended September 30, 2020, respectively. The circumstances around this pandemic are evolving rapidly and will continue to impact our business and our estimation of expected recoveries in future periods. We will continue to closely monitor the COVID-19 situation and update our assumptions accordingly.

The following tables summarize collections from purchased receivables, revenue from receivable portfolios, end of period receivable balance and other related supplemental data, by year of purchase (in thousands, except percentages):

	Three Months Ended September 30, 2020						As of September 30, 2020
	Collections		Revenue from Receivable Portfolios		Changes in Expected Current and Future Recoveries		Investment in Receivable Portfolios		Monthly EIR
United States:
ZBA	$	12,145	$	12,148	$	—	$	—	—	%
2011	6,026		5,275		673		2,027		88.6	%
2012	6,245		5,894		196		4,552		42.0	%
2013	15,028		14,050		718		11,361		40.5	%
2014	11,368		8,334		(1,443)		37,728		6.7	%
2015	15,362		7,465		1,585		59,920		3.9	%
2016	27,343		13,517		2,270		109,636		3.9	%
2017	45,696		24,441		9,872		149,478		5.2	%
2018	73,473		36,907		2,871		297,062		3.8	%
2019	108,410		64,583		(9,618)		522,303		3.8	%
2020	69,765		37,347		18,752		422,572		3.6	%
Subtotal	390,861		229,961		25,876		1,616,639		4.3	%
Europe:
ZBA	42		41		—		—		—	%
2013	24,113		21,588		671		221,977		3.2	%
2014	21,414		17,301		1,189		191,851		3.1	%
2015	13,595		10,745		476		147,919		2.4	%
2016	13,531		10,748		1,629		129,015		2.6	%
2017	21,729		14,891		(689)		259,394		1.8	%
2018	19,341		14,707		(1,577)		309,543		1.6	%
2019	20,682		13,569		(1,557)		239,346		1.8	%
2020	7,026		4,713		3,172		82,980		2.4	%
Subtotal	141,473		108,303		3,314		1,582,025		2.3	%
Other geographies:
ZBA	1,182		1,194		—		—		—	%
2014(1)	922		399		241		45,043		101.7	%
2015(1)	1,054		597		305		3,395		96.7	%
2016	608		390		109		1,626		7.1	%
2017(1)	1,993		925		336		10,933		6.2	%
2018	1,587		686		261		5,922		3.7	%
2019	68		34		9		409		4.6	%
2020	—		—		—		—		—	%
Subtotal	7,414		4,225		1,261		67,328		7.9	%
Total	$	539,748	$	342,489	$	30,451	$	3,265,992	3.4	%

________________________

(1)Portfolio balance includes non-accrual pool groups. The EIR presented is only for pool groups that accrete portfolio revenue.

	Three Months Ended September 30, 2019						As of September 30, 2019
	Collections		Revenue from Receivable Portfolios		Net Reversal (Portfolio Allowance)		Unamortized Balances		Monthly EIR
United States:
ZBA	$	16,333	$	14,301	$	2,045	$	—	—	%
2011	8,310		9,264		—		2,907		77.2	%
2012	9,072		8,392		—		6,692		33.5	%
2013	20,387		17,559		—		15,844		33.3	%
2014	16,358		10,422		1,717		53,863		6.0	%
2015	20,305		8,728		4,636		88,511		3.0	%
2016	37,609		16,817		—		163,481		3.2	%
2017	59,238		31,909		—		219,053		4.5	%
2018	86,185		47,839		(196)		450,300		3.3	%
2019	57,431		37,680		—		491,560		3.2	%
Subtotal	331,228		202,911		8,202		1,492,211		4.1	%
Europe:
ZBA	73		72		—		—		—	%
2013	26,530		20,858		—		221,599		3.1	%
2014	25,112		17,701		29		200,040		2.9	%
2015	18,042		11,273		450		154,572		2.3	%
2016	13,957		10,214		—		139,951		2.5	%
2017	27,412		15,558		—		292,257		1.7	%
2018	24,413		17,188		(888)		380,162		1.5	%
2019	14,681		9,287		—		208,934		1.8	%
Subtotal	150,220		102,151		(409)		1,597,515		2.1	%
Other geographies:
ZBA	1,777		1,796		—		—		—	%
2014	1,492		942		—		60,827		80.8	%
2015	3,714		2,804		267		7,295		13.7	%
2016	2,757		1,640		455		4,998		4.9	%
2017	3,652		1,827		—		16,169		5.2	%
2018	3,369		1,673		—		8,792		3.1	%
2019	1,186		473		—		360		3.2	%
Subtotal	17,947		11,155		722		98,441		6.0	%
Total	$	499,395	$	316,217	$	8,515	$	3,188,167	3.1	%
	Nine Months Ended September 30, 2020						As of September 30, 2020
---	---	---	---	---	---	---	---	---	---	---
	Collections		Revenue from Receivable Portfolios		Changes in Expected Current and Future Recoveries		Investment in Receivable Portfolios		Monthly EIR
United States:
ZBA	$	40,202	$	40,215	$	—	$	—	—	%
2011	19,494		17,398		1,444		2,027		88.6	%
2012	21,377		19,518		338		4,552		42.0	%
2013	48,854		46,166		(986)		11,361		40.5	%
2014	37,795		27,302		(3,056)		37,728		6.7	%
2015	51,856		25,068		2,821		59,920		3.9	%
2016	93,103		45,161		4,786		109,636		3.9	%
2017	154,198		82,417		17,595		149,478		5.2	%
2018	243,439		124,467		(4,204)		297,062		3.8	%
2019	313,152		205,004		(2,749)		522,303		3.8	%
2020	128,172		69,143		32,567		422,572		3.6	%
Subtotal	1,151,642		701,859		48,556		1,616,639		4.3	%
Europe:
ZBA	142		141		—		—		—	%
2013	69,322		64,334		(6,317)		221,977		3.2	%
2014	62,882		51,799		(1,179)		191,851		3.1	%
2015	40,451		32,138		1,416		147,919		2.4	%
2016	37,144		32,096		(7,235)		129,015		2.6	%
2017	64,225		45,071		(10,603)		259,394		1.8	%
2018	59,452		44,562		(24,395)		309,543		1.6	%
2019	57,277		41,017		(8,139)		239,346		1.8	%
2020	11,052		8,724		4,746		82,980		2.4	%
Subtotal	401,947		319,882		(51,706)		1,582,025		2.3	%
Other geographies:
ZBA	3,162		3,171		—		—		—	%
2014(1)	3,445		1,262		270		45,043		101.7	%
2015(1)	3,559		2,027		525		3,395		96.7	%
2016	2,025		1,474		(100)		1,626		7.1	%
2017(1)	5,082		3,008		52		10,933		6.2	%
2018	4,201		2,348		205		5,922		3.7	%
2019	179		110		(5)		409		4.6	%
2020	—		—		—		—		—	%
Subtotal	21,653		13,400		947		67,328		7.9	%
Total	$	1,575,242	$	1,035,141	$	(2,203)	$	3,265,992	3.4	%

________________________

(1)Portfolio balance includes non-accrual pool groups. The EIR presented is only for pool groups that accrete portfolio revenue.

	Nine Months Ended September 30, 2019						As of September 30, 2019
	Collections		Revenue from Receivable Portfolios		Net Reversal (Portfolio Allowance)		Unamortized Balances		Monthly EIR
United States:
ZBA	$	68,127	$	61,518	$	6,630	$	—	—	%
2011	14,186		13,925		304		2,907		77.2	%
2012	23,552		20,018		273		6,692		33.5	%
2013	65,132		55,298		(52)		15,844		33.3	%
2014	54,569		31,766		3,247		53,863		6.0	%
2015	68,045		27,925		4,636		88,511		3.0	%
2016	127,311		56,240		(896)		163,481		3.2	%
2017	203,288		101,421		—		219,053		4.5	%
2018	269,545		152,323		(196)		450,300		3.3	%
2019	100,358		65,552		—		491,560		3.2	%
Subtotal	994,113		585,986		13,946		1,492,211		4.1	%
Europe:
ZBA	265		266		—		—		—	%
2013	85,001		66,525		—		221,599		3.1	%
2014	80,303		55,567		(145)		200,040		2.9	%
2015	55,456		32,964		267		154,572		2.3	%
2016	47,175		32,116		(29)		139,951		2.5	%
2017	89,966		49,503		—		292,257		1.7	%
2018	85,015		54,332		(888)		380,162		1.5	%
2019	26,098		17,525		—		208,934		1.8	%
Subtotal	469,279		308,798		(795)		1,597,515		2.1	%
Other geographies:
ZBA	7,202		7,221		—		—		—	%
2014	3,316		5,803		—		60,827		80.8	%
2015	14,448		10,881		267		7,295		13.7	%
2016	10,663		5,598		(606)		4,998		4.9	%
2017	12,822		7,192		—		16,169		5.2	%
2018	13,176		7,110		(867)		8,792		3.1	%
2019	3,110		1,281		—		360		3.2	%
Subtotal	64,737		45,086		(1,206)		98,441		6.0	%
Total	$	1,528,129	$	939,870	$	11,945	$	3,188,167	3.1	%

The decreases in servicing revenues during the three and nine months ended September 30, 2020 as compared to the three and nine months ended September 30, 2019 were primarily attributable to the sale of Baycorp in August 2019. Through Baycorp, we earned servicing revenues through August 2019. The decreases were also driven by the COVID-19 pandemic. The decrease during the three months ended September 30, 2020 as compared to the corresponding period in the prior year was partially offset by the favorable impact of foreign currency translation, which was primarily the result of the weakening of the U.S. dollar against the British Pound.

The increases in other revenues during the three and nine months ended September 30, 2020 as compared to the three and nine months ended September 30, 2019 were due to increased gains recognized upon sale of real estate assets that are acquired as a result of our investments in non-performing secured residential mortgage portfolios in Europe and LAAP.

Operating Expenses

The following table summarizes operating expenses for the periods presented (in thousands, except percentages):

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	Three Months Ended September 30,
	2020		2019		Change	% Change
Salaries and employee benefits	$	95,979	$	96,638		(0.7)	%
Cost of legal collections	60,383		48,971		11,412	23.3	%
General and administrative expenses	53,459		38,168		15,291	40.1	%
Other operating expenses	28,088		25,753		2,335	9.1	%
Collection agency commissions	12,703		17,343		(4,640)	(26.8)	%
Depreciation and amortization	10,609		10,000		609	6.1	%
Goodwill impairment	—		10,718		(10,718)	(100.0)	%
Total operating expenses	$	261,221	$	247,591		5.5	%

All values are in US Dollars.

	Nine Months Ended September 30,
	2020		2019		Change	% Change
Salaries and employee benefits	$	279,944	$	284,699		(1.7)	%
Cost of legal collections	164,018		149,446		14,572	9.8	%
General and administrative expenses	113,954		110,335		3,619	3.3	%
Other operating expenses	83,527		84,913		(1,386)	(1.6)	%
Collection agency commissions	36,562		46,905		(10,343)	(22.1)	%
Depreciation and amortization	31,436		29,736		1,700	5.7	%
Goodwill impairment	—		10,718		(10,718)	(100.0)	%
Total operating expenses	$	709,441	$	716,752		(1.0)	%

All values are in US Dollars.

Our operating results are impacted by foreign currency translation, which represents the effect of translating operating results where the functional currency is different than our U.S. dollar reporting currency. The strengthening of the U.S. dollar relative to other foreign currencies has a favorable impact on our international operating expenses, and the weakening of the U.S. dollar relative to other foreign currencies has an unfavorable impact on our international operating expenses. Our operating expenses were unfavorably impacted by foreign currency translation, primarily by the weakening of the U.S. dollar against the British Pound by 4.6% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, the foreign currency translation effect on our operating expenses for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was negligible.

Operating expenses are explained in more detail as follows:

Salaries and Employee Benefits

The decrease in salaries and employee benefits during the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily due to the following reasons:

•Decrease in headcount in other geographies as a result of the sale of Baycorp in August 2019;

•The unfavorable impact of foreign currency translation, primarily by the weakening of the U.S. dollar against the British Pound during the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

The decrease in salaries and employee benefits during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily due to the following reasons:

•Decrease in headcount in other geographies as a result of the sale of Baycorp in August 2019;

•Partially offset by increased stock compensation for the nine months ended September 30, 2020 due to adjustments to estimated vesting of certain performance-based awards.

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Cost of Legal Collections

Cost of legal collections primarily includes contingent fees paid to our external network of attorneys and the cost of litigation. We pursue legal collections using a network of attorneys that specialize in collection matters and through our internal legal channel. Under the agreements with our contracted attorneys, we advance certain out-of-pocket court costs. Effective January 1, 2020, we no longer capitalize upfront court costs and recognize a portion of court costs as expense based on a loss-rate methodology, but rather, we expense all court costs as incurred. Cost of legal collections does not include internal legal channel employee costs, which are included in salaries and employee benefits in our consolidated statements of operations.

The following table summarizes our cost of legal collections for the periods presented (in thousands, except percentages):

	Three Months Ended September 30,
	2020		2019		Change	% Change
Court costs	$	38,500	$	22,471		71.3	%
Legal collection fees	21,883		26,500		(4,617)	(17.4)	%
Total cost of legal collections	$	60,383	$	48,971		23.3	%

All values are in US Dollars.

	Nine Months Ended September 30,
	2020		2019		Change	% Change
Court costs	$	96,202	$	67,285		43.0	%
Legal collection fees	67,816		82,161		(14,345)	(17.5)	%
Total cost of legal collections	$	164,018	$	149,446		9.8	%

All values are in US Dollars.

The increase in cost of legal collections during the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily due to the following reasons:

•No longer capitalizing upfront court costs but rather expensing all court costs as incurred;

•The unfavorable impact of foreign currency translation, primarily by the weakening of the U.S. dollar against the British Pound during the three months ended September 30, 2020 compared to the three months ended September 30, 2019;

•Partially offset by lower court cost spending due to court closures in certain jurisdictions.

The increase in cost of legal collections during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily due to the following reasons:

•No longer capitalizing upfront court costs but rather expensing all court costs as incurred;

•Partially offset by lower court cost spending due to court closures in certain jurisdictions.

General and Administrative Expenses

The increases in general and administrative expense during the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019 were primarily due to the following reasons:

•A charge of $15.0 million relating to our settlement with the CFPB;

•Certain third-party costs of approximately $6.9 million incurred relating to various financing transactions completed in September 2020;

•The increases were partially offset by reduced travel and facilities expenses, and consulting fees and lower general and administrative expenses due to the sale of Baycorp in August 2019.

Other Operating Expenses

The increase in other operating expenses during the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily due to the following reasons:

•Increased postage and printing expenses primarily at our domestic operations;

•The unfavorable impact of foreign currency translation, primarily by the weakening of the U.S. dollar against the British Pound.

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The decrease in other operating expenses during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily due to the following reasons:

•Lower collection expenses primarily due to the sale of Baycorp in August 2019;

•Reduced expenditures for bank charges;

•The decrease was partially offset by the increase in other operating expenses during the three months ended September 30, 2020 as compared to the corresponding period in the prior year as described above.

Collection Agency Commissions

Collection agency commissions are predominately in Europe and Latin America and vary from period to period depending on, among other things, the number of accounts placed with an agency versus accounts collected internally. Commissions, as a percentage of collections in this channel also vary from period to period depending on, among other things, the amount of time that has passed since the charge-off of the accounts placed with an agency, the asset class, and the geographic location of the receivables. Generally, freshly charged-off accounts have a lower commission rate than accounts that have been charged off for a longer period of time, and commission rates for purchased bankruptcy portfolios are lower than the commission rates for charged-off credit card accounts.

The decreases in collections agency commissions during the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019 were primarily due to the decrease in agency collections in Europe and other geographies.

Depreciation and Amortization

The increases in depreciation and amortization expense during the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019 were primarily due to the following reasons:

•Increased depreciation expense primarily incurred at our U.S. facilities;

•The unfavorable impact of foreign currency translation, primarily by the weakening of the U.S. dollar against the British Pound during the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

Goodwill Impairment

In August 2019, we completed the sale of Baycorp. The Baycorp transaction resulted in a goodwill impairment charge of $10.7 million and an additional loss on sale of $12.5 million during the three and nine months ended September 30, 2019.

Interest Expense

The following tables summarize our interest expense (in thousands, except percentages):

	Three Months Ended September 30,
	2020		2019		Change	% Change
Stated interest on debt obligations	$	44,484	$	48,413		(8.1)	%
Amortization of debt issuance costs	10,610		2,466		8,144	330.3	%
Amortization of debt discount	2,490		3,486		(996)	(28.6)	%
Other interest expense	10,378		—		10,378	100.0	%
Total interest expense	$	67,962	$	54,365		25.0	%

All values are in US Dollars.

In September 2020 we entered into various transactions, agreements and amendments (collectively, the “Financing Transactions”) related to our borrowings and completed the implementation of our new global funding structure.

The increase in interest expense during the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily due to the following reasons:

•$7.3 million of unamortized debt issuance costs were written-off primarily as a result of the Financing Transactions completed in September 2020;

•$10.4 million of other interest expense relating to the payment of a make-whole provision in September 2020 in connection with the prepayment of the Encore Private Placement Notes as part of the Financing Transactions;

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•The unfavorable impact of foreign currency translation, primarily by the weakening of the U.S. dollar against the British Pound;

•Partially offset by a decrease in London Interbank Offered Rate (“LIBOR”) which resulted in decreased interest expense for the revolving credit facilities that reference LIBOR.

	Nine Months Ended September 30,
	2020		2019		Change	% Change
Stated interest on debt obligations	$	137,366	$	145,297		(5.5)	%
Amortization of debt issuance costs	16,405		17,731		(1,326)	(7.5)	%
Amortization of debt discount	8,802		10,217		(1,415)	(13.8)	%
Other interest expense	10,378		—		10,378	100.0	%
Total interest expense	$	172,951	$	173,245		(0.2)	%

All values are in US Dollars.

The decrease in interest expense during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily due to the following reasons:

•$9.0 million of Euro-denominated bond refinancing fees incurred during the nine months ended September 30, 2019;

•A decrease in LIBOR which resulted in decreased interest expense for the revolving credit facilities that reference LIBOR;

•The decrease was partially offset by increased upfront costs incurred in September 2020 relating to the Financing Transactions, including the write-off of $7.3 million of unamortized debt issuance costs and the payment of $10.4 million make-whole provision in connection with the prepayment of the Encore Private Placement Notes.

Other Income (Expense)

Other income or expense consists primarily of foreign currency exchange gains or losses, interest income, and gains or losses recognized on certain transactions outside of our normal course of business. Other income was $0.4 million during the three months ended September 30, 2020 and other expense was $11.5 million during the three months ended September 30, 2019. Other expense was $1.2 million during the nine months ended September 30, 2020 and $15.8 million during the nine months ended September 30, 2019.

Other income recognized during the three months ended September 30, 2020 primarily represented income generated from our EARC operations partially offset by foreign currency exchange losses. Other expense recognized during the nine months ended September 30, 2020 primarily included a loss of $4.8 million as a result of the divestiture of our investment in Brazil. This loss was partially offset by other income from fair value changes for currency exchange forward contracts which were not designated as hedge instruments for accounting purposes. Other expense recognized during the three and nine months ended September 30, 2019 primarily included the loss recognized on the Baycorp transaction of $12.5 million.

Provision for Income Taxes

We recorded income tax expense of $19.7 million and $3.0 million during the three months ended September 30, 2020 and 2019, respectively, and income tax expense of $59.9 million and $18.4 million during the nine months ended September 30, 2020 and 2019, respectively.

The effective tax rates for the respective periods are shown below:

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	Three Months Ended<br>September 30,				Nine Months Ended<br>September 30,
	2020		2019		2020		2019
Federal provision	21.0	%	21.0	%	21.0	%	21.0	%
State provision	2.7	%	5.3	%	3.0	%	3.7	%
Tax benefit relating to Baycorp Transaction	—	%	(29.1)	%	—	%	(8.6)	%
Tax effect of CFPB settlement fees(1)	4.2	%	—	%	1.3	%	—	%
Audit assessment	—	%	8.9	%	—	%	2.6	%
Change in valuation allowance(2)	2.0	%	1.9	%	2.2	%	2.1	%
Tax benefit from divestiture of foreign investment	—	%	—	%	(1.3)	%	—	%
Change in tax accounting method	—	%	—	%	—	%	(6.3)	%
Tax rate change	(3.5)	%	—	%	(1.1)	%	—	%
Other	—	%	(0.9)	%	0.4	%	(1.7)	%
Effective tax rate	26.4	%	7.1	%	25.5	%	12.8	%

________________________

(1)Non-deductible expense for tax purposes, refer to “Note 14: Subsequent Event.”

(2)Attributable to losses incurred at certain foreign subsidiaries with cumulative operating losses for tax purposes.

We utilized the discrete effective tax rate method (“discrete method”) for recording income taxes for the three and nine months ended September 30, 2020. We believe the use of the discrete method is more appropriate than the application of the estimated annual effective tax rate (“AETR”) method due to uncertainty in estimating annual pre-tax earnings primarily due to the ongoing COVID-19 pandemic. We will re-evaluate the use of the discrete method each quarter until it is deemed appropriate to return to the AETR method.

Our income tax expense includes deferred income taxes arising from temporary differences between the financial reporting and tax bases of assets and liabilities, and net operating losses. We regularly evaluate the realizability of our deferred income tax assets and assess the need for a valuation allowance, including considerations of whether it is more likely than not that the deferred income tax assets will be realized. The assessment of realizability requires significant judgement and our projections of future taxable income required to fully realize the recorded amount of deferred tax assets reflect numerous assumptions about our operating business and investments, and are subject to change as conditions change specific to our operating business, investments or general economic conditions. Adverse changes in certain jurisdictions could result in the need to record or increase the valuation allowance, resulting in a charge against earnings in the respective period.

Our subsidiary in Costa Rica is operating under a 100% tax holiday through December 31, 2026. The impact of the tax holiday in Costa Rica for the three and nine months ended September 30, 2020 and 2019, was immaterial.

We had gross unrecognized tax benefits, inclusive of penalties and interest, of $8.2 million as of September 30, 2020. These unrecognized tax benefits, if recognized, would result in a net tax benefit of $7.6 million as of September 30, 2020. There was no material change in gross unrecognized tax benefits from December 31, 2019.

We have not provided for applicable income or withholding taxes on the undistributed earnings for certain of its subsidiaries operating outside of the United States. Undistributed net income of these subsidiaries as of September 30, 2020 was approximately $180.5 million. Such undistributed earnings are considered permanently reinvested. We do not provide for deferred taxes on translation adjustments on unremitted earnings under the indefinite reversal exemption. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practical due to the complexities of a hypothetical calculation. Subsidiaries operating outside of the United States for which we do not consider under the indefinite reversal exemption have no material undistributed earnings or outside basis differences and therefore no U.S. taxes have been provided.

The UK Finance Act 2020 received Royal Assent in the United Kingdom on July 22, 2020, changing the corporate income tax rate from the previously enacted 17% to 19% effective on April 1, 2020.

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Non-GAAP Disclosure

In addition to the financial information prepared in conformity with Generally Accepted Accounting Principles (“GAAP”), we provide historical non-GAAP financial information. Management believes that the presentation of such non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of our operations. Management believes that these non-GAAP financial measures reflect an additional way of viewing aspects of our business that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business.

Management believes that the presentation of these measures provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with varying capital structures, compensation strategies, derivative instruments, and amortization methods, which provide a more complete understanding of our financial performance, competitive position, and prospects for the future. Readers should consider the information in addition to, but not instead of, our financial statements prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of these measures for comparative purposes.

Adjusted Earnings Per Share. Management uses non-GAAP adjusted net income and adjusted earnings per share attributable to Encore to assess operating performance and to highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. Adjusted net income attributable to Encore excludes non-cash interest and issuance cost amortization relating to our convertible notes and exchangeable notes, acquisition, integration and restructuring related expenses, amortization of certain acquired intangible assets and other charges or gains that are not indicative of ongoing operations.

The following table provides a reconciliation between net income and diluted earnings per share attributable to Encore calculated in accordance with GAAP, to adjusted net income and adjusted earnings per share attributable to Encore, respectively (in thousands, except per share data):

	Three Months Ended September 30,
	2020			2019
		Per Diluted Share				Per Diluted Share
GAAP net income attributable to Encore, as reported		$	1.72			$	1.23
Adjustments:
CFPB settlement fees(1)	15,009	0.47			—	—
Convertible notes and exchangeable notes non-cash interest and issuance cost amortization	3,180	0.10			3,531	0.11
Acquisition, integration and restructuring related expenses(2)	(23)	0.00			3,819	0.12
Amortization of certain acquired intangible assets(3)	1,773	0.06			1,644	0.05
Loss on Baycorp Transaction(4)	—	—			12,489	0.39
Goodwill impairment(4)	—	—			10,718	0.34
Net gain on fair value adjustments to contingent consideration(5)	—	—			(101)	0.00
Income tax effect of above non-GAAP adjustments and certain discrete tax items(6)	(1,052)	(0.04)			(19,069)	(0.60)
Adjusted net income attributable to Encore		$	2.31			$	1.64

All values are in US Dollars.

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(1)Amount represents a charge resulting from the Stipulated Judgment with the CFPB. We adjust for this amount because we believe it is not indicative of ongoing operations; therefore, adjusting for it enhances comparability to prior periods, anticipated future periods, and our competitors’ results.

(2)Amount represents acquisition, integration and restructuring related expenses. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore, adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.

(3)We have acquired intangible assets, such as trade names and customer relationships, as a result of our acquisition of debt solution service providers. These intangible assets are valued at the time of the acquisition and amortized over their estimated lives. We believe that amortization of acquisition-related intangible assets, especially the amortization of an acquired company’s trade names and customer relationships, is the result of pre-acquisition activities. In addition, the amortization of these acquired intangibles is a non-cash static expense that is not affected by operations during any reporting period. As a result, the amortization of certain acquired intangible assets is excluded from our adjusted income attributable to Encore and adjusted earnings per share.

(4)The Baycorp Transaction resulted in a goodwill impairment charge of $10.7 million and a loss on sale of $12.5 million during the three months ended September 30, 2019. We believe the goodwill impairment charge and the loss on sale are not indicative of ongoing operations, therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.

(5)Amount represents the net gain recognized as a result of fair value adjustments to contingent considerations that were established for our acquisitions of debt solution service providers in Europe. We have adjusted for this amount because we do not believe this is indicative of ongoing operations. Refer to the Contingent Consideration section of “Note 3: Fair Value Measurements” in the notes to our consolidated financial statements for further details.

(6)Amount represents the total income tax effect of the adjustments, which is generally calculated based on the applicable marginal tax rate of the jurisdiction in which the portion of the adjustment occurred. Additionally, we adjust for certain discrete tax items that are not indicative of our ongoing operations.

	Nine Months Ended September 30,
	2020			2019
		Per Diluted Share			Per Diluted Share
GAAP net income attributable to Encore, as reported		$	5.51		$	3.97
Adjustments:
CFPB settlement fees(1)	15,009	0.47		—	—
Convertible notes and exchangeable notes non-cash interest and issuance cost amortization	11,205	0.35		11,571	0.37
Acquisition, integration and restructuring related expenses(2)	4,940	0.16		6,345	0.20
Amortization of certain acquired intangible assets(3)	5,207	0.16		5,358	0.17
Loss on Baycorp Transaction(4)	—	—		12,489	0.40
Goodwill impairment(4)	—	—		10,718	0.34
Net gain on fair value adjustments to contingent consideration(5)	—	—		(2,300)	(0.07)
Income tax effect of above non-GAAP adjustments and certain discrete tax items(6)	(6,399)	(0.19)		(21,840)	(0.69)
Change in tax accounting method(7)	—	—		(9,070)	(0.29)
Adjusted net income attributable to Encore		$	6.46		$	4.40

All values are in US Dollars.

________________________

(1)Amount represents a charge resulting from the Stipulated Judgment with the CFPB. We have adjusted for this amount because we believe it is not indicative of ongoing operations; therefore, adjusting for it enhances comparability to prior periods, anticipated future periods, and our competitors’ results.

(2)Amount represents acquisition, integration and restructuring related expenses. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore, adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.

(3)We have acquired intangible assets, such as trade names and customer relationships, as a result of our acquisition of debt solution service providers. These intangible assets are valued at the time of the acquisition and amortized over their estimated lives. We believe that amortization of acquisition-related intangible assets, especially the amortization of an acquired company’s trade names and customer relationships, is the result of pre-acquisition activities. In addition, the amortization of these acquired intangibles is a non-cash static expense that is not affected by operations during any reporting period. As a result, the amortization of certain acquired intangible assets is excluded from our adjusted income attributable to Encore and adjusted income per share.

(4)The Baycorp Transaction resulted in a goodwill impairment charge of $10.7 million and a loss on sale of $12.5 million during the three months ended September 30, 2019. We believe the goodwill impairment charge and the loss on sale are not indicative of ongoing operations, therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.

(5)Amount represents the net gain recognized as a result of fair value adjustments to contingent considerations that were established for our acquisitions of debt solution service providers in Europe. We have adjusted for this amount because we do not believe this is indicative of ongoing operations. Refer to the Contingent Consideration section of “Note 3: Fair Value Measurements” in the notes to our consolidated financial statements for further details.

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(6)Amount represents the total income tax effect of the adjustments, which is generally calculated based on the applicable marginal tax rate of the jurisdiction in which the portion of the adjustment occurred. Additionally, we adjust for certain discrete tax items that are not indicative of our ongoing operations.

(7)Amount represents the benefit from the tax accounting method change related to revenue reporting. We adjust for certain discrete tax items that are not indicative of our ongoing operations.

Adjusted EBITDA. Management utilizes adjusted EBITDA (defined as net income before discontinued operations, interest income and expense, taxes, depreciation and amortization, stock-based compensation expenses, acquisition, integration and restructuring related expenses, and other charges or gains that are not indicative of ongoing operations), in the evaluation of our operating performance. Adjusted EBITDA for the periods presented is as follows (in thousands):

		Three Months Ended<br>September 30,						Nine Months Ended<br>September 30,
	2020			2019			2020			2019
GAAP net income, as reported		$	55,107		$	39,413		$	175,312		$	125,677
Adjustments:
Interest expense		67,962			54,365			172,951			173,245
Interest income		(394)			(590)			(1,953)			(2,850)
Provision for income taxes		19,747			3,021			59,875			18,447
Depreciation and amortization		10,609			10,000			31,436			29,736
CFPB settlement fees (1)		15,009			—			15,009			—
Stock-based compensation expense		3,884			4,005			13,189			9,412
Acquisition, integration and restructuring related expenses(2)		(23)			3,819			4,940			6,345
Loss on Baycorp Transaction(3)		—			12,489			—			12,489
Goodwill impairment(3)		—			10,718			—			10,718
Net gain on fair value adjustments to contingent consideration(4)		—			(101)			—			(2,300)
Adjusted EBITDA		$	171,901		$	137,139		$	470,759		$	380,919
Collections applied to principal balance(5)		$	172,406		$	174,663		$	547,902		$	576,314

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(1)Amount represents a charge resulting from the Stipulated Judgment with the CFPB. We have adjusted for this amount because we believe it is not indicative of ongoing operations; therefore, adjusting for it enhances comparability to prior periods, anticipated future periods, and our competitors’ results.

(2)Amount represents acquisition, integration and restructuring related expenses. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore, adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.

(3)The Baycorp Transaction resulted in a goodwill impairment charge of $10.7 million and a loss on sale of $12.5 million during the three and nine months ended September 30, 2019. We believe the goodwill impairment charge and the loss on sale are not indicative of ongoing operations, therefore adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.

(4)Amount represents the gain recognized as a result of fair value adjustments to contingent considerations that were established for our acquisitions of debt solution service providers in Europe. We have adjusted for this amount because we do not believe this is indicative of ongoing operations. Refer to the Contingent Consideration section of “Note 3: Fair Value Measurements” in the notes to our consolidated financial statements for further details.

(5)For periods prior to January 1, 2020, amount represents (a) gross collections from receivable portfolios less the sum of (b) revenue from receivable portfolios and (c) allowance charges or allowance reversals on receivable portfolios. For periods subsequent to January 1, 2020 amount represents (a) gross collections from receivable portfolios less the sum of (b) revenue from receivable portfolios and (c) changes in expected recoveries. For consistency with the Company debt covenant reporting, for periods subsequent to June 30, 2020, the collections applied to principal balance also includes proceeds applied to basis from sales of REO assets and related activities; prior period amounts have not been adjusted to reflect this change as such amounts were immaterial.

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Adjusted Operating Expenses. Management utilizes adjusted operating expenses in order to facilitate a comparison of approximate costs to cash collections for our portfolio purchasing and recovery business. Adjusted operating expenses for our portfolio purchasing and recovery business are calculated by starting with GAAP total operating expenses and backing out operating expenses related to non-portfolio purchasing and recovery business, acquisition, integration and restructuring related operating expenses, stock-based compensation expense, settlement fees and related administrative expenses and other charges or gains that are not indicative of ongoing operations. Adjusted operating expenses related to our portfolio purchasing and recovery business for the periods presented are as follows (in thousands):

		Three Months Ended<br>September 30,						Nine Months Ended<br>September 30,
	2020			2019			2020			2019
GAAP total operating expenses, as reported		$	261,221		$	247,591		$	709,441		$	716,752
Adjustments:
Operating expenses related to non-portfolio purchasing and recovery business(1)		(54,001)			(42,503)			(137,876)			(130,817)
CFPB settlement fees (2)		(15,009)			—			(15,009)			—
Stock-based compensation expense		(3,884)			(4,005)			(13,189)			(9,412)
Acquisition, integration and restructuring related expenses(3)		23			(3,819)			(132)			(6,345)
Goodwill impairment(4)		—			(10,718)			—			(10,718)
Net gain on fair value adjustments to contingent consideration(5)		—			101			—			2,300
Adjusted operating expenses related to portfolio purchasing and recovery business		$	188,350		$	186,647		$	543,235		$	561,760

________________________

(1)Operating expenses related to non-portfolio purchasing and recovery business include operating expenses from other operating segments that primarily engage in fee-based business, as well as corporate overhead not related to our portfolio purchasing and recovery business.

(2)Amount represents a charge resulting from the Stipulated Judgment with the CFPB. We have adjusted for this amount because we believe it is not indicative of ongoing operations; therefore, adjusting for it enhances comparability to prior periods, anticipated future periods, and our competitors’ results.

(3)Amount represents acquisition, integration and restructuring related expenses. We adjust for this amount because we believe these expenses are not indicative of ongoing operations; therefore, adjusting for these expenses enhances comparability to prior periods, anticipated future periods, and our competitors’ results.

(4)The Baycorp Transaction resulted in a goodwill impairment charge of $10.7 million that is included in operating expenses during the three and nine months ended September 30, 2019. We believe the goodwill impairment charge is not indicative of ongoing operations, therefore, adjusting for the expense enhances comparability to prior periods, anticipated future periods, and our competitors’ results.

(5)Amount represents the gain recognized as a result of fair value adjustments to contingent considerations that were established for our acquisitions of debt solution service providers in Europe. We have adjusted for this amount because we do not believe this is indicative of ongoing operations. Refer to the Contingent Consideration section of “Note 3: Fair Value Measurements” in the notes to our consolidated financial statements for further details.

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Cost per Dollar Collected

We utilize adjusted operating expenses in order to facilitate a comparison of approximate costs to cash collections from purchased receivables for our portfolio purchasing and recovery business. The following table summarizes our cost per dollar collected (defined as adjusted operating expenses as a percentage of collections from purchased receivables) by geographic location during the periods presented:

	Three Months Ended<br>September 30,				Nine Months Ended<br>September 30,
	2020		2019		2020		2019
United States	36.9	%	39.8	%	36.1	%	39.5	%
Europe	28.1	%	29.0	%	28.7	%	28.5	%
Other geographies	55.6	%	63.5	%	55.5	%	54.6	%
Overall cost per dollar collected	34.9	%	37.4	%	34.5	%	36.8	%

As discussed in the “Accounting Policy Update” section in “Note 1: Ownership, Description of Business, and Summary of Significant Accounting Policies” of the notes to the consolidated financial statements, effective January 1, 2020, we expense all court costs as incurred and no longer capitalize such costs as Deferred Court Costs based on a loss-rate methodology. This accounting policy change increased the cost-to-collect metric as compared to prior periods because the court costs expense recognized in prior periods only represented costs we did not expect to recover. The accounting policy change has no impact on the amount of court cost payments incurred.

Despite the increase in expense due to the accounting policy change discussed above, cost-to-collect decreased during the periods presented, due to a combination of (1) continued improvement in operational efficiencies in the collection process and (2) a large reduction in legal channel spending due to court closures in certain jurisdictions as a result of the COVID-19 pandemic, the legal channel spending has gradually increased as compared to the previous two quarters but is still lower than historical levels and (3) collection mix shifting towards non-legal collection, which has a lower cost-to-collect. Collections from other geographies continue to decline as we continue to focus on the U.S. and European markets. Cost-to-collect in LAAP is expected to stay at an elevated level and will continue to fluctuate over time.

Over time, we expect our cost-to-collect to remain competitive, but also to fluctuate from quarter to quarter based on seasonality, product mix, acquisitions, foreign exchange rates, the cost of new operating initiatives, and the changing regulatory and legislative environment.

Supplemental Performance Data

The tables included in this supplemental performance data section include detail for purchases, collections and ERC by year of purchase.

Our collection expectations are based on account characteristics and economic variables. Additional adjustments are made to account for qualitative factors that may affect the payment behavior of our consumers and servicing related adjustments to ensure our collection expectations are aligned with our operations. We continue to refine our process of forecasting collections both domestically and internationally with a focus on operational enhancements. Our collection expectations vary between types of portfolio and geographic location. For example, in the U.K., due to the higher concentration of payment plans, as compared to the U.S. and other locations in Europe, we expect to receive streams of collections over longer periods of time. As a result, past performance of pools in certain geographic locations or of certain types of portfolio are not necessarily a suitable indicator of future results in other locations or for other types of portfolio.

The supplemental performance data presented in this section is impacted by foreign currency translation, which represents the effect of translating financial results where the functional currency of our foreign subsidiary is different than our U.S. dollar reporting currency. For example, the strengthening of the U.S. dollar relative to other foreign currencies has an unfavorable reporting impact on our international purchases, collections, and ERC, and the weakening of the U.S. dollar relative to other foreign currencies has a favorable impact on our international purchases, collections, and ERC.

We utilize proprietary forecasting models to continuously evaluate the economic life of each pool.

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Cumulative Collections from Purchased Receivables to Purchase Price Multiple

The following table summarizes our receivable purchases and related gross collections by year of purchase (in thousands, except multiples):

Year of<br>Purchase		Purchase<br><br>Price(1)			Cumulative Collections through September 30, 2020
	<2011			2011			2012			2013			2014			2015			2016			2017			2018			2019			2020			Total(2)			Multiple(3)
United States:
<2011		$	1,760,989		$	3,222,155		$	637,415		$	458,336		$	328,076		$	236,557		$	180,622		$	129,676		$	99,169		$	80,397		$	65,855		$	39,953		$	5,478,211	3.1
2011		383,796			—			123,596			301,949			226,521			155,180			112,906			77,257			56,287			41,148			33,445			19,617			1,147,906		3.0
2012		548,812			—			—			187,721			350,134			259,252			176,914			113,067			74,507			48,832			37,327			21,434			1,269,188		2.3
2013		551,896			—			—			—			230,051			397,646			298,068			203,386			147,503			107,399			84,665			48,923			1,517,641		2.7
2014		517,702			—			—			—			—			144,178			307,814			216,357			142,147			94,929			69,059			37,795			1,012,279		2.0
2015		499,285			—			—			—			—			—			105,610			231,102			186,391			125,673			85,042			51,856			785,674		1.6
2016		553,391			—			—			—			—			—			—			110,875			283,035			234,690			159,279			93,103			880,982		1.6
2017		528,443			—			—			—			—			—			—			—			111,902			315,853			255,048			154,198			837,001		1.6
2018		630,864			—			—			—			—			—			—			—			—			175,042			351,696			243,439			770,177		1.2
2019		677,539			—			—			—			—			—			—			—			—			—			174,693			313,152			487,845		0.7
2020		449,089			—			—			—			—			—			—			—			—			—			—			128,172			128,172		0.3
Subtotal		7,101,806			3,222,155			761,011			948,006			1,134,782			1,192,813			1,181,934			1,081,720			1,100,941			1,223,963			1,316,109			1,151,642			14,315,076		2.0
Europe:
2013		619,079			—			—			—			134,259			249,307			212,129			165,610			146,993			132,663			113,228			69,322			1,223,511		2.0
2014		623,129			—			—			—			—			135,549			198,127			156,665			137,806			129,033			105,337			62,882			925,399		1.5
2015		419,941			—			—			—			—			—			65,870			127,084			103,823			88,065			72,277			40,580			497,699		1.2
2016		258,218			—			—			—			—			—			—			44,641			97,587			83,107			63,198			37,157			325,690		1.3
2017		461,571			—			—			—			—			—			—			—			68,111			152,926			118,794			64,225			404,056		0.9
2018		433,302			—			—			—			—			—			—			—			—			49,383			118,266			59,452			227,101		0.5
2019		273,354			—			—			—			—			—			—			—			—			—			44,118			57,277			101,395		0.4
2020		81,041			—			—			—			—			—			—			—			—			—			—			11,052			11,052		0.1
Subtotal		3,169,635			—			—			—			134,259			384,856			476,126			494,000			554,320			635,177			635,218			401,947			3,715,903		1.2
Other geographies:
2012		6,721			—			—			—			3,848			2,561			1,208			542			551			422			390			215			9,737		1.4
2013		29,568			—			—			—			6,617			17,615			10,334			4,606			3,339			2,468			1,573			745			47,297		1.6
2014		86,989			—			—			—			—			9,652			16,062			18,403			9,813			7,991			6,472			3,787			72,180		0.8
2015		83,198			—			—			—			—			—			15,061			57,064			43,499			32,622			17,499			3,559			169,304		2.0
2016		64,450			—			—			—			—			—			—			29,269			39,710			28,992			16,078			3,885			117,934		1.8
2017		49,670			—			—			—			—			—			—			—			15,471			23,075			15,383			5,082			59,011		1.2
2018		26,371			—			—			—			—			—			—			—			—			12,910			15,008			4,201			32,119		1.2
2019		2,668			—			—			—			—			—			—			—			—			—			3,198			179			3,377		1.3
2020		—			—			—			—			—			—			—			—			—			—			—			—			—		—
Subtotal		349,635			—			—			—			10,465			29,828			42,665			109,884			112,383			108,480			75,601			21,653			510,959		1.5
Total		$	10,621,076		$	3,222,155		$	761,011		$	948,006		$	1,279,506		$	1,607,497		$	1,700,725		$	1,685,604		$	1,767,644		$	1,967,620		$	2,026,928		$	1,575,242		$	18,541,938	1.7

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(1)Adjusted for Put-Backs and Recalls. Put-Backs (“Put-Backs”) and recalls (“Recalls”) represent ineligible accounts that are returned by us or recalled by the seller pursuant to specific guidelines as set forth in the respective purchase agreement.

(2)Cumulative collections from inception through September 30, 2020, excluding collections on behalf of others.

(3)Cumulative Collections Multiple (“Multiple”) through September 30, 2020 refers to collections as a multiple of purchase price.

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Total Estimated Collections from Purchased Receivables to Purchase Price Multiple

The following table summarizes our purchases, resulting historical gross collections, and estimated remaining gross collections from purchased receivables, by year of purchase (in thousands, except multiples):

	Purchase Price(1)		Historical<br><br>Collections(2)		Estimated <br>Remaining <br>Collections		Total Estimated<br>Gross Collections		Total Estimated Gross<br>Collections to<br>Purchase Price
United States:
<2011	$	1,760,989	$	5,478,211	$	121,918	$	5,600,129	3.2
2011	383,796		1,147,906		60,593		1,208,499		3.1
2012	548,812		1,269,188		67,941		1,337,129		2.4
2013(3)	551,896		1,517,641		192,744		1,710,385		3.1
2014(3)	517,702		1,012,279		123,269		1,135,548		2.2
2015	499,285		785,674		133,411		919,085		1.8
2016	553,391		880,982		246,922		1,127,904		2.0
2017	528,443		837,001		395,466		1,232,467		2.3
2018	630,864		770,177		627,656		1,397,833		2.2
2019	677,539		487,845		1,097,746		1,585,591		2.3
2020	449,089		128,172		964,006		1,092,178		2.4
Subtotal	7,101,806		14,315,076		4,031,672		18,346,748		2.6
Europe:
2013(3)	619,079		1,223,511		883,363		2,106,874		3.4
2014(3)	623,129		925,399		660,771		1,586,170		2.5
2015(3)	419,941		497,699		423,782		921,481		2.2
2016	258,218		325,690		331,604		657,294		2.5
2017	461,571		404,056		579,509		983,565		2.1
2018	433,302		227,101		624,762		851,863		2.0
2019	273,354		101,395		518,846		620,241		2.3
2020	81,041		11,052		207,477		218,529		2.7
Subtotal	3,169,635		3,715,903		4,230,114		7,946,017		2.5
Other geographies:
2012	6,721		9,737		219		9,956		1.5
2013	29,568		47,297		1,267		48,564		1.6
2014	86,989		72,180		51,215		123,395		1.4
2015	83,198		169,304		17,108		186,412		2.2
2016	64,450		117,934		6,740		124,674		1.9
2017	49,670		59,011		29,653		88,664		1.8
2018	26,371		32,119		10,503		42,622		1.6
2019	2,668		3,377		440		3,817		1.4
2020	—		—		—		—		—
Subtotal	349,635		510,959		117,145		628,104		1.8
Total	$	10,621,076	$	18,541,938	$	8,378,931	$	26,920,869	2.5

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(1)Purchase price refers to the cash paid to a seller to acquire a portfolio less Put-backs, Recalls, and other adjustments. Put-Backs and Recalls represent ineligible accounts that are returned by us or recalled by the seller pursuant to specific guidelines as set forth in the respective purchase agreement.

(2)Cumulative collections from inception through September 30, 2020, excluding collections on behalf of others.

(3)Includes portfolios acquired in connection with certain business combinations.

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Estimated Remaining Gross Collections by Year of Purchase

The following table summarizes our estimated remaining gross collections from purchased receivable portfolios and estimated future cash flows from real estate-owned assets by year of purchase (in thousands):

	Estimated Remaining Gross Collections by Year of Purchase(1)
	2020(3)		2021		2022		2023		2024		2025		2026		2027		2028		>2028		Total(2)
United States:
<2011	$	10,630	$	35,010	$	25,248	$	17,528	$	12,132	$	8,265	$	5,577	$	3,701	$	2,286	$	1,541	$	121,918
2011	5,278		16,568		11,875		8,325		5,861		4,133		2,920		2,068		1,468		2,097		60,593
2012	5,909		18,687		13,089		9,247		6,505		4,585		3,237		2,291		1,626		2,765		67,941
2013(4)	13,957		51,436		37,540		26,539		18,778		13,317		9,449		6,706		4,761		10,261		192,744
2014(4)	10,400		34,372		24,137		16,553		11,318		7,964		5,635		3,992		2,831		6,067		123,269
2015	12,273		39,128		26,762		17,867		11,936		7,831		5,358		3,774		2,664		5,818		133,411
2016	23,162		74,494		46,516		31,484		21,991		15,223		10,441		7,298		5,133		11,180		246,922
2017	35,858		119,171		79,757		50,338		33,716		23,283		16,254		11,415		8,071		17,603		395,466
2018	61,932		192,762		132,071		84,943		53,478		35,161		23,203		15,315		10,016		18,775		627,656
2019	109,314		354,853		210,468		131,837		89,240		60,901		42,730		30,774		22,034		45,595		1,097,746
2020	61,376		248,475		244,161		139,955		85,258		57,486		38,887		27,360		19,531		41,517		964,006
Subtotal	350,089		1,184,956		851,624		534,616		350,213		238,149		163,691		114,694		80,421		163,219		4,031,672
Europe:
2013(4)	24,105		95,517		92,781		87,795		80,626		73,626		66,225		59,637		53,578		249,473		883,363
2014(4)	20,924		81,176		74,759		67,819		62,415		55,483		47,451		41,601		37,470		171,673		660,771
2015(4)	15,274		53,301		47,339		43,312		39,408		35,331		31,222		26,728		23,397		108,470		423,782
2016	12,917		57,057		51,900		37,940		32,016		27,564		22,747		18,671		15,774		55,018		331,604
2017	22,335		87,038		80,082		67,643		57,548		48,193		40,033		34,490		28,522		113,625		579,509
2018	21,190		93,126		82,561		71,266		61,883		53,506		45,836		38,945		32,410		124,039		624,762
2019	19,555		80,356		72,906		62,447		52,403		42,971		35,135		29,679		25,374		98,020		518,846
2020	4,839		31,237		31,239		25,955		21,720		17,754		14,777		12,064		10,159		37,733		207,477
Subtotal	141,139		578,808		533,567		464,177		408,019		354,428		303,426		261,815		226,684		958,051		4,230,114
Other geographies:
2012	43		118		58		—		—		—		—		—		—		—		219
2013	177		546		357		187		—		—		—		—		—		—		1,267
2014	2,108		9,592		7,718		6,917		5,889		4,443		2,610		1,486		1,352		9,100		51,215
2015	907		3,224		2,747		2,515		1,743		1,156		854		748		647		2,567		17,108
2016	989		3,046		1,613		573		255		169		95		—		—		—		6,740
2017	2,097		7,220		5,105		3,742		2,086		1,847		1,383		793		696		4,684		29,653
2018	1,107		3,576		2,305		1,619		860		461		301		197		77		—		10,503
2019	51		165		100		67		48		9		—		—		—		—		440
2020	—		—		—		—		—		—		—		—		—		—		—
Subtotal	7,479		27,487		20,003		15,620		10,881		8,085		5,243		3,224		2,772		16,351		117,145
Portfolio ERC	498,707		1,791,251		1,405,194		1,014,413		769,113		600,662		472,360		379,733		309,877		1,137,621		8,378,931
REO ERC(5)	8,774		35,262		19,370		8,676		7,056		1,614		56		—		—		—		80,808
Total ERC	$	507,481	$	1,826,513	$	1,424,564	$	1,023,089	$	776,169	$	602,276	$	472,416	$	379,733	$	309,877	$	1,137,621	$	8,459,739

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(1)As of September 30, 2020, ERC for Zero Basis Portfolios include approximately $121.9 million for purchased consumer and bankruptcy receivables in the United States. ERC for Zero Basis Portfolios in Europe and other geographies was immaterial.

(2)Represents the expected remaining gross cash collections over a 180-month period. As of September 30, 2020, ERC for 84-month and 120-month periods were:

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	84-Month ERC		120-Month ERC
United States	$	3,763,006	$	3,954,550
Europe	2,982,780		3,599,914
Other geographies	97,284		105,273
Portfolio ERC	$	6,843,070	$	7,659,737
REO ERC	$	80,808	$	80,808
Total ERC	$	6,923,878	$	7,740,545

(3)Amount for 2020 consists of three months data from October 1, 2020 to December 31, 2020.

(4)Includes portfolios acquired in connection with certain business combinations.

(5)Real estate-owned assets ERC includes approximately $78.6 million and $2.2 million of estimated future cash flows for Europe and Other Geographies, respectively.

Estimated Future Collections Applied to Principal

As of September 30, 2020, we had $3.3 billion in investment in receivable portfolios. The estimated future collections applied to the investment in receivable portfolios net balance is as follows (in thousands):

Years Ending December 31,	United States		Europe		Other Geographies		Total
2020(1)	$	130,037	$	33,414	$	4,523	$	167,974
2021	471,409		177,744		16,298		665,451
2022	370,544		182,097		13,333		565,974
2023	218,436		158,642		8,430		385,508
2024	135,474		142,795		6,217		284,486
2025	89,819		125,640		4,867		220,326
2026	60,288		106,883		2,889		170,060
2027	42,228		92,423		1,641		136,292
2028	29,924		80,764		1,419		112,107
2029	20,966		71,514		1,352		93,832
2030	14,815		66,342		1,352		82,509
2031	10,674		63,481		1,352		75,507
2032	7,922		64,564		1,352		73,838
2033	6,280		69,072		1,352		76,704
2034	5,572		76,283		951		82,806
2035	2,251		70,367		—		72,618
Total	$	1,616,639	$	1,582,025	$	67,328	$	3,265,992

________________________

(1)Amount for 2020 consists of three months data from October 1, 2020 to December 31, 2020.

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Purchases by Quarter

The following table summarizes the receivable portfolios we purchased by quarter, and the respective purchase prices and fair value (in thousands):

Quarter	# of<br>Accounts	Face Value		Purchase <br>Price
Q1 2018	973	$	1,799,804	$	276,762
Q2 2018	1,031	2,870,456		359,580
Q3 2018	706	1,559,241		248,691
Q4 2018	766	2,272,113		246,865
Q1 2019	854	1,732,977		262,335
Q2 2019	778	2,307,711		242,697
Q3 2019	1,255	5,313,092		259,910
Q4 2019	803	2,241,628		234,916
Q1 2020	943	1,703,022		214,113
Q2 2020	754	1,305,875		147,939
Q3 2020	735	1,782,733		170,131

Liquidity and Capital Resources

Liquidity

The following table summarizes our cash flow activities for the periods presented (in thousands):

	Nine Months Ended September 30,
	2020		2019
	(Unaudited)
Net cash provided by operating activities	$	249,982	$	196,946
Net cash provided by (used in) investing activities	7,575		(197,958)
Net cash (used in) provided by financing activities	(267,891)		31,313

Operating Cash Flows

Cash flows from operating activities represent the cash receipts and disbursements related to all of our activities other than investing and financing activities. Operating cash flows are derived by adjusting net income for non-cash operating items such as depreciation and amortization, changes in expected recoveries, allowance charges and stock-based compensation charges, and changes in operating assets and liabilities which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in results of operations.

Net cash provided by operating activities increased $53.0 million for the nine months ended September 30, 2020 as compared to the prior period, mainly driven by a significant increase in net income, changes in expected recoveries compared to the prior year net allowance reversals, and the change in prepaid income tax and income taxes payable.

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Investing Cash Flows

Cash flow relating to investing activities is primarily affected by receivable portfolio purchases offset by collection proceeds applied to the principal of our receivable portfolios.

Net cash provided by investing activities was $7.6 million during the nine months ended September 30, 2020 as compared to net cash used in investing activities of $198.0 million for the nine months ended September 30, 2019, mainly driven by reduced purchasing volume. Receivable portfolio purchases, net of put-backs, were $518.0 million and $757.1 million during the nine months ended September 30, 2020 and 2019, respectively. Collection proceeds applied to the principal of our receivable portfolios, net, were $540.1 million and $588.3 million during the nine months ended September 30, 2020 and 2019, respectively.

Financing Cash Flows

Net cash used in financing activities was $267.9 million during the nine months ended September 30, 2020, and net cash provided by financing activities was $31.3 million during the nine months ended September 30, 2019. Financing cash flows are generally affected by borrowings under our credit facilities and proceeds from various debt offerings, offset by repayments of amounts outstanding under our credit facilities and repayments of various notes. Proceeds from our credit facilities were $1,695.9 million and $481.1 million during the nine months ended September 30, 2020 and 2019, respectively. Repayments of amounts outstanding under our credit facilities were $2,051.8 million and $441.0 million during the nine months ended September 30, 2020 and 2019, respectively. Proceeds from the issuance of senior secured notes were $410.8 million and $460.5 million during the nine months ended September 30, 2020 and 2019, respectively. Repayments of senior secured notes were $152.4 million and $460.5 million during the nine months ended September 30, 2020 and 2019, respectively.

Capital Resources

Historically, we have met our cash requirements by utilizing our cash flows from operations, cash collections from our investment in receivable portfolios, bank borrowings, debt offerings, and equity offerings. Depending on the capital markets, we consider additional financings to fund our operations and acquisitions. From time to time, we may repurchase outstanding debt or equity and/or restructure or refinance debt obligations. Our primary cash requirements have included the purchase of receivable portfolios, entity acquisitions, operating expenses, the payment of interest and principal on borrowings, and the payment of income taxes.

Currently, all of our portfolio purchases are funded with cash from operations, cash collections from our investment in receivable portfolios, and our bank borrowings.

In September 2020, we entered into various transactions, agreements and amendments related to our borrowings including (collectively, the “Financing Transactions”):

•an amended multi-currency revolving credit facility the “Global Senior Facility” that formerly supported only Cabot that now supports the operations of all operating units. The Global Senior Facility provides for a total committed facility of $1,050.0 million that matures in September 2024. Available capacity under the Global Senior Facility was $464.8 million as of September 30, 2020;

•an issuance of €350.0 million (approximately $410.8 million) in 4.875% senior secured notes due 2025; and

•an amendment to the terms of our existing senior secured notes originally issued by affiliates of Cabot to, among other things, add Encore and its material subsidiaries as guarantors and have Encore become the parent of the restricted group.

As part of the Financing Transactions, we prepaid $103.7 million of Encore’s senior secured notes with a group of insurance companies and made a $10.4 million make-whole payment to the holders of notes that were prepaid. As of September 30, 2020, $156.3 million of the notes remained outstanding.

Additionally, we paid $89.4 million of convertible senior notes that matured on July 1, 2020 using cash on hand.

We are in material compliance with all covenants under our financing arrangements. See “Note 8: Borrowings” to our consolidated financial statements for a further discussion of our debt.

Our cash and cash equivalents as of September 30, 2020 consisted of $39.8 million held by U.S.-based entities and $130.2 million held by foreign entities. Most of our cash and cash equivalents held by foreign entities is indefinitely reinvested and may be subject to material tax effects if repatriated. However, we believe that our U.S. sources of cash and liquidity are sufficient to meet our business needs in the United States.

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Included in cash and cash equivalents is cash that was collected on behalf of, and remains payable to, third-party clients. The balance of cash held for clients was $20.4 million as of September 30, 2020.

Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic, including timing of cash collections from our consumers, and other risks detailed in Risk Factors. However, we believe that we have sufficient liquidity to fund our operations for at least the next twelve months, given our expectation of continued positive cash flows from operations, cash collections from our investment in receivable portfolios, our cash and cash equivalents, our access to capital markets, and availability under our credit facilities. Our future cash needs will depend on our acquisitions of portfolios and businesses.

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Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Rates. As of September 30, 2020, there had not been a material change in any of the foreign currency risk information disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Interest Rates. As of September 30, 2020, there had not been a material change in the interest rate risk information disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Item 4 – Controls and Procedures

Attached as exhibits to this Form 10-Q are the certifications required by Rule 13a-14 of the Securities Exchange Act of 1934, as amended. This section includes information concerning the controls and controls evaluation referred to in the certifications.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”) and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and accordingly, management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on their most recent evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act are effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

Except as noted below there were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On January 1, 2020, we adopted the new accounting standard for Financial Instruments - Credit Losses (“CECL”). As a result, we implemented changes to policies, processes, systems, and controls over estimating the allowance for credit losses.

We have not experienced any material impact to our internal controls over financial reporting due to the COVID-19 pandemic even though many of our employees are working remotely. We are continually monitoring and assessing the impact of the COVID-19 pandemic on our internal controls to minimize the impact on their design and operating effectiveness.

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PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

Information with respect to this item may be found in “Note 11, Commitments and Contingencies,” to the consolidated financial statements.

Item 1A – Risk Factors

Except for the revised risk factor set forth below, there is no material change in the information reported under “Part I-Item 1A-Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and “Part II-Item 1A-Risk Factors” in our Quarterly Report on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020.

We are subject to ongoing risks of regulatory investigations and litigation, including individual and class action lawsuits, under consumer credit, consumer protection, theft, privacy, collections, and other laws, and we may be subject to awards of substantial damages or be required to make other expenditures or change our business practices as a result.

We operate in an extremely litigious climate and currently are, and may in the future be, named as defendants in litigation, including individual and class action lawsuits under consumer credit, consumer protection, theft, privacy, data security, automated dialing equipment, debt collections, and other laws. Many of these cases present novel issues on which there is no clear legal precedent, which increases the difficulty in predicting both the potential outcomes and costs of defending these cases. We are subject to ongoing risks of regulatory investigations, inquiries, litigation, and other actions by the CFPB, FTC, FCA, state Attorneys General, Central Bank of Ireland or other governmental bodies relating to our activities. For example, on September 8, 2020, the CFPB filed a suit alleging that Encore and certain of its US subsidiaries had violated their consent order (the “Consent Order”) with the CFPB pursuant to which we previously settled allegations arising from its practices between 2011 and 2015. These litigation and regulatory actions involve potential compensatory or punitive damage claims, fines, costs, sanctions, civil monetary penalties, consumer restitution, or injunctive relief, as well as other forms of relief, that could require us to pay damages, make other expenditures or result in changes to our business practices. Any changes to our business practices could result in lower collections, increased cost to collect or reductions in estimated remaining collections. Actual losses incurred by us in connection with judgments or settlements of these matters may be more than our associated reserves. Further, defending lawsuits and responding to governmental inquiries or investigations, regardless of their merit, could be costly and divert management’s attention from the operation of our business. All of these factors could have an adverse effect on our business, financial condition and operating results.

Item 5 – Other Information

On October 29, 2020, we entered into supplemental indentures for the Convertible Notes and Exchangeable Notes so that in the event of conversion or exchange, the notes are convertible or exchangeable into cash up to the aggregate principal amount of the notes and the excess conversion premium, if any, may be settled in cash or shares of the Company’s common stock at the Company’s election and subject to certain restrictions contained in each of the indentures governing the Convertible Notes and Exchangeable Notes. Copies of the supplemental indentures are attached as exhibits to this report and are incorporated herein by reference (and this description is qualified in its entirety by reference to such documents).

Item 6 – Exhibits

Number	Description
3.1.1	Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-1/A filed on June 14, 1999, File No. 333-77483)
3.1.2	Certificate of Amendment to the Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on April 4, 2002, File No. 000-26489)
3.1.3	Second Certificate of Amendment to the Certificate of Incorporation (incorporated by reference to Exhibit 3.1.3 to the Company’s Quarterly Report on Form 10-Q filed on August 7, 2019)
3.3	Bylaws, as amended through February 8, 2011 (incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K filed on February 14, 2011)
4.1	Indenture dated September 24, 2020 between Encore Capital Group, Inc., the subsidiary guarantors party thereto, Citibank, N.A., London Branch as trustee and Truist Bank as security agent (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 24, 2020)
4.2.1	First Supplemental Indenture dated September 7, 2020 to Indenture dated October 6, 2016http://www.sec.gov/Archives/edgar/data/1084961/000162828020013876/exhibit43-8xkxsuppleme.htm(incorporated by reference to Exhibit4.3to the Company’s Current Report on Form 8-K filed onSeptemberhttp://www.sec.gov/Archives/edgar/data/1084961/000162828020013876/exhibit43-8xkxsuppleme.htm24, 2020)

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4.2.2	Second Supplemental Indenture dated September 24, 2020 to Indenture dated October 6, 2016http://www.sec.gov/Archives/edgar/data/1084961/000162828020013876/exhibit45-8xksupplemen.htm(incorporated by reference to Exhibit 4.5to the Company’s Current Report on Form 8-K filed on September 24, 2020)
4.3.1	First Supplemental Indenture dated September 7, 2020 to Indenture dated June 14, 2019http://www.sec.gov/Archives/edgar/data/1084961/000162828020013876/exhibit42-8xkxsuppleme.htm(incorporated by reference to Exhibit 4.2to the Company’s Current Report on Form 8-K filed on September 24, 2020)
4.3.2	Second Supplemental Indenture dated September 24, 2020 to Indenture dated June 14, 2019http://www.sec.gov/Archives/edgar/data/1084961/000162828020013876/exhibit44-8xkxclosings.htm(incorporated by reference to Exhibit 4.4to the Company’s Current Report on Form 8-K filed on September 24, 2020)
4.4	Second Supplemental Indenture, dated October 29, 2020, to the Indenture, dated as of March 11, 2014, by and among Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and MUFG Union Bank, N.A., as trustee(filed herewith)
4.5	First Supplemental Indenture, dated October 29, 2020, to the Indenture, dated as of March 3, 2017, by and among Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and MUFG Union Bank, N.A., as trustee (filed herewith)
4.6	Second Supplemental Indenture, dated October 29, 2020, to the Indenture, dated as of July 20, 2018, by and among Encore Capital Europe Finance Limited, Encore Capital Group, Inc., as guarantor, and MUFG Union Bank, N.A., as trustee (filed herewith)
4.7	First Supplemental Indenture, dated October 29, 2020, to the Indenture, dated as of September 9, 2019, by and among Encore Capital Group, Inc., Midland Credit Management, Inc., as guarantor, and MUFG Union Bank, N.A., as trustee (filed herewith)
10.1	Amendment No. 5 to Third Amended and Restated Credit Agreement, dated July 9, 2020, by and among Encore Capital Group, Inc., the several banks and other financial institutions and lenders from time to time party thereto and listed on the signature pages thereof, and Truist Bank, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 13, 2020)
10.2	Amended and Restated Senior Facilities Agreement, dated September 1, 2020, by and among Encore Capital Group, Inc., the several guarantors, banks and other financial institutions and lenders from time to time party thereto and Truist Bank as Agent and Security Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 1, 2020)
10.3	Fourth Amended and Restated Senior Secured Note Purchase Agreement (including the forms of the Notes), dated as of September 1, 2020, by and among Encore Capital Group, Inc. and the purchasers named therein (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 1, 2020)
31.1	Certification of the Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2	Certification of the Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101.INS	XBRL Instance Document - The instance document does not appear in the interactive data file because XBRL tags are embedded within the inline XBRL document. (filed herewith)
101.SCH	XBRL Taxonomy Extension Schema Document (filed herewith)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)
101.LAB	XBRL Taxonomy Extension Label Linkbase Document (filed herewith)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101

Table of Contents

SIGNATURES

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 thereunto duly authorized.

ENCORE CAPITAL GROUP, INC.
By:	/s/ Jonathan C. Clark
	Jonathan C. Clark
	Executive Vice President,
	Chief Financial Officer and Treasurer

Date: November 2, 2020

64

Document

Exhibit 4.4

ENCORE CAPITAL GROUP, INC.,

THE GUARANTOR PARTY HERETO

and

MUFG UNION BANK, N.A.

as Trustee

_________________________________

SECOND SUPPLEMENTAL INDENTURE

Dated as of October 29, 2020

Supplementing the

INDENTURE

Dated as of March 11, 2014

_________________________________

2.875% Convertible Senior Notes due 2021

SECOND SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of October 29, 2020, among Encore Capital Group, Inc., a Delaware corporation, as issuer (the “Company”), Midland Credit Management, Inc., a Kansas corporation, as guarantor (the “Guarantor”), and MUFG Union Bank, N.A., a national banking association, as trustee (the “Trustee”).

WHEREAS, the Company, the Guarantor and the Trustee have executed and delivered that certain indenture (the “Existing Indenture”), dated as of March 11, 2014, relating to the Company’s 2.875% Convertible Senior Notes due 2021 (the “Notes”); and

WHEREAS, the execution and delivery of this Supplemental Indenture is authorized by Sections 10.01(e) and 10.01(h) of the Existing Indenture.

NOW, THEREFORE, each party to this Supplemental Indenture agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Notes.

Capitalized terms used in this Supplemental Indenture without definition have the respective meanings given to them in the Existing Indenture.

Article 1.AMENDMENTS

Notwithstanding anything to the contrary in Section 13.02(a) of the Existing Indenture, with respect to each conversion of any Note with a Conversion Date that is on or after the date of this Supplemental Indenture, (A) Combination Settlement will apply to such conversion; and (B) the Specified Dollar Amount applicable to such conversion will be determined in accordance with Section 13.02(a) of the Existing Indenture, provided that in no event will the Specified Dollar Amount applicable to any such conversion be (and in no event will the Company elect a Specified Dollar Amount applicable to any such conversion that is) an amount that is less than $1,000 per $1,000 principal amount of Notes.

Article 2.MISCELLANEOUS

Section 2.01. INCORPORATION BY REFERENCE OF CERTAIN PROVISIONS OF THE EXISTING INDENTURE.

The provisions of Sections 16.01, and 16.03 to 16.15, inclusive, of the Existing Indenture will apply to this Supplemental Indenture with the same force and effect as if such Sections were reproduced in this Supplemental Indenture, mutatis mutandis.

Section 2.02. RECITALS.

The recitals set forth in this Supplemental Indenture are set forth exclusively by the Company and the Guarantor, and the Trustee will not have any liability or responsibility with respect to such recitals.

[The Remainder of This Page Intentionally Left Blank; Signature Page Follows]

• 1 -

IN WITNESS WHEREOF, the parties to this Supplemental Indenture have caused this Supplemental Indenture to be duly executed as of the date first written above.

ENCORE CAPITAL GROUP, INC.

By:    /s/ Jonathan Clark

Name:    Jonathan Clark

Title:    EVP, CFO and Treasurer

MIDLAND CREDIT MANAGEMENT, INC.

By:    /s/ Jonathan Clark

Name:    Jonathan Clark

Title:    EVP, CFO and Treasurer

[Signature Page to Second Supplemental Indenture]

MUFG UNION BANK, N.A.

By:    /s/ Melonee Young

Name:    Melonee Young

Title:    Vice President

[Signature Page to Second Supplemental Indenture]

Document

Exhibit 4.5

ENCORE CAPITAL GROUP, INC.,

THE GUARANTOR PARTY HERETO

and

MUFG UNION BANK, N.A.

as Trustee

________________________________

FIRST SUPPLEMENTAL INDENTURE

Dated as of October 29, 2020

Supplementing the

INDENTURE

Dated as of March 3, 2017

________________________________

3.25% Convertible Senior Notes due 2022

FIRST SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of October 29, 2020, among Encore Capital Group, Inc., a Delaware corporation, as issuer (the “Company”), Midland Credit Management, Inc., a Kansas corporation, as guarantor (the “Guarantor”), and MUFG Union Bank, N.A., a national banking association, as trustee (the “Trustee”).

WHEREAS, the Company, the Guarantor and the Trustee have executed and delivered that certain indenture (the “Existing Indenture”), dated as of March 3, 2017, relating to the Company’s 3.25% Convertible Senior Notes due 2022 (the “Notes”); and

WHEREAS, the execution and delivery of this Supplemental Indenture is authorized by Section 10.01(h) of the Existing Indenture.

NOW, THEREFORE, each party to this Supplemental Indenture agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Notes.

Capitalized terms used in this Supplemental Indenture without definition have the respective meanings given to them in the Existing Indenture.

Article 1.AMENDMENTS

Notwithstanding anything to the contrary in Section 13.02(a) of the Existing Indenture, with respect to each conversion of any Note with a Conversion Date that is on or after the date of this Supplemental Indenture, (A) Combination Settlement will apply to such conversion; and (B) the Specified Dollar Amount applicable to such conversion will be determined in accordance with Section 13.02(a) of the Existing Indenture, provided that in no event will the Specified Dollar Amount applicable to any such conversion be (and in no event will the Company elect a Specified Dollar Amount applicable to any such conversion that is) an amount that is less than $1,000 per $1,000 principal amount of Notes.

Article 2.MISCELLANEOUS

Section 2.01.     INCORPORATION BY REFERENCE OF CERTAIN PROVISIONS OF THE EXISTING INDENTURE.

The provisions of Sections 16.01, and 16.03 to 16.15, inclusive, of the Existing Indenture will apply to this Supplemental Indenture with the same force and effect as if such Sections were reproduced in this Supplemental Indenture, mutatis mutandis.

Section 2.02.     RECITALS.

The recitals set forth in this Supplemental Indenture are set forth exclusively by the Company and the Guarantor, and the Trustee will not have any liability or responsibility with respect to such recitals.

[The Remainder of This Page Intentionally Left Blank; Signature Page Follows]

• 1 -

IN WITNESS WHEREOF, the parties to this Supplemental Indenture have caused this Supplemental Indenture to be duly executed as of the date first written above.

ENCORE CAPITAL GROUP, INC.

By:    /s/ Jonathan Clark

Name:    Jonathan Clark

Title:    EVP, CFO and Treasurer

MIDLAND CREDIT MANAGEMENT, INC.

By:    /s/ Jonathan Clark

Name:    Jonathan Clark

Title:    EVP, CFO and Treasurer

[Signature Page to First Supplemental Indenture]

MUFG UNION BANK, N.A.

By:    /s/ Melonee Young

Name:    Melonee Young

Title:    Vice President

[Signature Page to First Supplemental Indenture]

Document

Exhibit 4.6

ENCORE CAPITAL EUROPE FINANCE LIMITED,

THE GUARANTOR PARTY HERETO

and

MUFG UNION BANK, N.A.

as Trustee

_______________________________

SECOND SUPPLEMENTAL INDENTURE

Dated as of October 29, 2020

Supplementing the

_______________________________

FIRST SUPPLEMENTAL INDENTURE

Dated as of July 20, 2018

_______________________________

4.50% Exchangeable Senior Notes due 2023

SECOND SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of October 29, 2020, among Encore Capital Europe Finance Limited, a Jersey public limited company, as issuer (the “Company”), Encore Capital Group, Inc., a Delaware corporation, as guarantor (the “Guarantor”), and MUFG Union Bank, N.A., a national banking association, as trustee (the “Trustee”).

WHEREAS, the Company, the Guarantor and the Trustee have executed and delivered that certain base indenture (the “Existing Base Indenture”), dated as of July 20, 2018, as supplemented by that certain first supplemental indenture (the “Existing Supplemental Indenture,” and the Existing Base Indenture, as supplemented by the Existing Supplemental Indenture, the “Existing Indenture”), dated as of July 20, 2018, relating to the Company’s 4.50% Exchangeable Senior Notes due 2023 (the “Notes”); and

WHEREAS, the execution and delivery of this Supplemental Indenture is authorized by Section 6.01(h) of the Existing Supplemental Indenture.

NOW, THEREFORE, each party to this Supplemental Indenture agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Notes.

Capitalized terms used in this Supplemental Indenture without definition have the respective meanings given to them in the Existing Indenture.

Article 1.AMENDMENTS

Notwithstanding anything to the contrary in Section 9.02(a) of the Existing Supplemental Indenture, with respect to each conversion of any Note with a Conversion Date that is on or after the date of this Supplemental Indenture, (A) Combination Settlement will apply to such conversion; and (B) the Specified Dollar Amount applicable to such conversion will be determined in accordance with Section 9.02(a) of the Existing Supplemental Indenture, provided that in no event will the Specified Dollar Amount applicable to any such conversion be (and in no event will the Company elect a Specified Dollar Amount applicable to any such conversion that is) an amount that is less than $1,000 per $1,000 principal amount of Notes.

Article 2.MISCELLANEOUS

Section 2.01.     INCORPORATION BY REFERENCE OF CERTAIN PROVISIONS OF THE EXISTING INDENTURE.

The provisions of Sections 9.1 and 9.4 to 9.5, inclusive, of the Existing Base Indenture, and the provisions of Sections 12.01, and 12.03 to 12.12, inclusive, of the Existing Supplemental Indenture will apply to this Supplemental Indenture with the same force and effect as if such Sections were reproduced in this Supplemental Indenture, mutatis mutandis.

• 1 -

Section 2.02.    RECITALS.

The recitals set forth in this Supplemental Indenture are set forth exclusively by the Company and the Guarantor, and the Trustee will not have any liability or responsibility with respect to such recitals.

[The Remainder of This Page Intentionally Left Blank; Signature Page Follows]

• 2 -

IN WITNESS WHEREOF, the parties to this Supplemental Indenture have caused this Supplemental Indenture to be duly executed as of the date first written above.

ENCORE CAPITAL EUROPE FINANCE LIMITED

By:    /s/ Ashish Masih

Name:    Ashish Masih

Title:    President

ENCORE CAPITAL GROUP, INC.

By:    /s/ Jonathan Clark

Name:    Jonathan Clark

Title:    EVP, CFO and Treasurer

[Signature Page to Second Supplemental Indenture]

MUFG UNION BANK, N.A.

By:    /s/ Melonee Young

Name:    Melonee Young

Title:    Vice President

[Signature Page to Second Supplemental Indenture]

Document

Exhibit 4.7

ENCORE CAPITAL GROUP, INC.,

THE GUARANTOR PARTY HERETO

and

MUFG UNION BANK, N.A.

as Trustee

_______________________________

FIRST SUPPLEMENTAL INDENTURE

Dated as of October 29, 2020

Supplementing the

INDENTURE

Dated as of September 9, 2019

_______________________________

3.25% Convertible Senior Notes due 2025

FIRST SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of October 29, 2020, among Encore Capital Group, Inc., a Delaware corporation, as issuer (the “Company”), Midland Credit Management, Inc., a Kansas corporation, as guarantor (the “Guarantor”), and MUFG Union Bank, N.A., a national banking association, as trustee (the “Trustee”).

WHEREAS, the Company, the Guarantor and the Trustee have executed and delivered that certain indenture (the “Existing Indenture”), dated as of September 9, 2019, relating to the Company’s 3.25% Convertible Senior Notes due 2025 (the “Notes”); and

WHEREAS, the execution and delivery of this Supplemental Indenture is authorized by Section 10.01(h) of the Existing Indenture.

NOW, THEREFORE, each party to this Supplemental Indenture agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Notes.

Capitalized terms used in this Supplemental Indenture without definition have the respective meanings given to them in the Existing Indenture.

Article 1.AMENDMENTS

Notwithstanding anything to the contrary in Section 13.02(a) of the Existing Indenture, with respect to each conversion of any Note with a Conversion Date that is on or after the date of this Supplemental Indenture, (A) Combination Settlement will apply to such conversion; and (B) the Specified Dollar Amount applicable to such conversion will be determined in accordance with Section 13.02(a) of the Existing Indenture, provided that in no event will the Specified Dollar Amount applicable to any such conversion be (and in no event will the Company elect a Specified Dollar Amount applicable to any such conversion that is) an amount that is less than $1,000 per $1,000 principal amount of Notes.

Article 2.MISCELLANEOUS

Section 2.01.    INCORPORATION BY REFERENCE OF CERTAIN PROVISIONS OF THE EXISTING INDENTURE.

The provisions of Sections 16.01, and 16.03 to 16.15, inclusive, of the Existing Indenture will apply to this Supplemental Indenture with the same force and effect as if such Sections were reproduced in this Supplemental Indenture, mutatis mutandis.

Section 2.02.    RECITALS.

The recitals set forth in this Supplemental Indenture are set forth exclusively by the Company and the Guarantor, and the Trustee will not have any liability or responsibility with respect to such recitals.

[The Remainder of This Page Intentionally Left Blank; Signature Page Follows]

• 1 -

IN WITNESS WHEREOF, the parties to this Supplemental Indenture have caused this Supplemental Indenture to be duly executed as of the date first written above.

ENCORE CAPITAL GROUP, INC.

By:    /s/ Jonathan Clark

Name:    Jonathan Clark

Title:    EVP, CFO and Treasurer

MIDLAND CREDIT MANAGEMENT, INC.

By:    /s/ Jonathan Clark

Name:    Jonathan Clark

Title:    EVP, CFO and Treasurer

[Signature Page to First Supplemental Indenture]

MUFG UNION BANK, N.A.

By:    /s/ Melonee Young

Name:    Melonee Young

Title:    Vice President

[Signature Page to First Supplemental Indenture]

Document

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Ashish Masih, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Encore Capital Group, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/S/ ASHISH MASIH
	Ashish Masih<br>President and Chief Executive Officer

Date: November 2, 2020

Document

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Jonathan C. Clark, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Encore Capital Group, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/S/ JONATHAN C. CLARK
	Jonathan C. Clark<br>Executive Vice President, Chief Financial Officer and Treasurer

Date: November 2, 2020

Document

Exhibit 32.1

ENCORE CAPITAL GROUP, INC.

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Encore Capital Group, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company.

/s/ ASHISH MASIH
Ashish Masih
President and Chief Executive Officer

November 2, 2020

/s/ JONATHAN C. CLARK
Jonathan C. Clark
Executive Vice President,<br>Chief Financial Officer and Treasurer

November 2, 2020

This certification accompanies the above described Report and is being furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall be not be deemed filed as part of the Report.