Table of Contents

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, 2019
ORMarch 31, 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)
Delaware48-1090909
(State or other jurisdiction of

incorporation or organization)
(IRS Employer

Identification No.)
350 Camino De La Reina,, Suite 100
San Diego,, California92108
(Address of principal executive offices, including zip code)
(877) (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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 Par Value Per ShareECPGThe 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☒Large accelerated filerx Accelerated filer   ☐ Non-accelerated filer  ☐ Smaller reporting company  ☐ Emerging growth company  ☐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.
ClassOutstanding at October 30, 2019May 4, 2020
Common Stock, $0.01 par value31,058,77131,234,420 shares



Table of Contents
ENCORE CAPITAL GROUP, INC.
INDEX TO FORM 10-Q
 
Page
3
3
3
4
5
6
87
98
8
11
11
13
15
17
18
18
23
23
24
25
25
3427
6451
6451
6552
6552
6552
6553
6654



Table of Contents
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)
March 31,
2020		December 31,
2019
Assets
Cash and cash equivalents$188,199  $192,335  
Investment in receivable portfolios, net3,166,018  3,283,984  
Deferred court costs, net—  100,172  
Property and equipment, net119,417  120,051  
Other assets302,019  329,223  
Goodwill839,301  884,185  
Total assets$4,614,954  $4,909,950  
Liabilities and Equity
Liabilities:
Accounts payable and accrued liabilities$168,481  $223,911  
Borrowings3,404,427  3,513,197  
Other liabilities136,235  147,436  
Total liabilities3,709,143  3,884,544  
Commitments and Contingencies (Note 11)
Equity:
Convertible preferred stock, $0.01 par value, 5,000 shares authorized, 0 shares issued and outstanding—  —  
Common stock, $0.01 par value, 75,000 shares authorized, 31,234 and 31,097 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively312  311  
Additional paid-in capital222,403  222,590  
Accumulated earnings833,366  888,058  
Accumulated other comprehensive loss(153,355) (88,766) 
Total Encore Capital Group, Inc. stockholders’ equity902,726  1,022,193  
Noncontrolling interest3,085  3,213  
Total equity905,811  1,025,406  
Total liabilities and equity$4,614,954  $4,909,950  
 September 30,
2019		 December 31,
2018
Assets   
Cash and cash equivalents$186,677
 $157,418
Investment in receivable portfolios, net3,188,167
 3,137,893
Deferred court costs, net94,011
 95,918
Property and equipment, net116,633
 115,518
Other assets291,018
 257,002
Goodwill831,549
 868,126
Total assets$4,708,055
 $4,631,875
Liabilities and Equity   
Liabilities:   
Accounts payable and accrued liabilities$208,994
 $287,945
Borrowings3,429,343
 3,490,633
Other liabilities145,721
 33,609
Total liabilities3,784,058
 3,812,187
Commitments and contingencies


 


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 and 50,000 shares authorized, 31,059 and 30,884 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively311
 309
Additional paid-in capital221,814
 208,498
Accumulated earnings844,973
 720,189
Accumulated other comprehensive loss(146,158) (110,987)
Total Encore Capital Group, Inc. stockholders’ equity920,940
 818,009
Noncontrolling interest3,057
 1,679
Total equity923,997
 819,688
Total liabilities and equity$4,708,055
 $4,631,875
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“Note 9: Variable Interest Entities” for additional information on the Company’s VIEs.
September 30,
2019		 December 31,
2018		March 31,
2020		December 31,
2019
Assets   Assets
Cash and cash equivalents$186
 $448
Cash and cash equivalents$90  $34  
Investment in receivable portfolios, net483,547
 501,489
Investment in receivable portfolios, net478,613  539,596  
Other assets4,601
 9,563
Other assets4,645  4,759  
Liabilities   Liabilities
Accounts payable and accrued liabilities$—
 $4,556
Borrowings430,217
 445,837
Borrowings$435,099  $464,092  
Other liabilities44
 46
See accompanying notes to consolidated financial statements

3
Table of Contents
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended
September 30,		 Nine Months Ended
September 30,		 Three Months Ended March 31,
2019 2018 2019 2018 20202019
Revenues       Revenues
Revenue from receivable portfolios$316,217
 $295,357
 $939,870
 $869,028
Revenue from receivable portfolios$357,365  $311,158  
Changes in expected current and future recoveriesChanges in expected current and future recoveries(98,661) —  
Servicing revenueServicing revenue28,680  34,023  
Other revenues31,204
 37,388
 98,072
 112,809
Other revenues1,697  529  
Total revenues347,421
 332,745
 1,037,942
 981,837
Total revenues289,081  345,710  
Allowance reversals on receivable portfolios, net8,515
 4,029
 11,945
 31,472
Allowance reversals on receivable portfolios, net1,367  
Total revenues, adjusted by net allowances355,936
 336,774
 1,049,887
 1,013,309
Total revenues, adjusted by net allowances347,077  
Operating expenses       Operating expenses
Salaries and employee benefits96,638
 95,634
 284,699
 275,853
Salaries and employee benefits93,098  91,834  
Cost of legal collections48,971
 50,473
 149,446
 155,583
Cost of legal collections66,279  49,027  
Other operating expenses25,753
 30,691
 84,913
 103,478
Other operating expenses27,164  29,614  
Collection agency commissions17,343
 10,682
 46,905
 34,587
Collection agency commissions13,176  16,002  
General and administrative expenses38,168
 41,893
 110,335
 123,163
General and administrative expenses31,877  39,547  
Depreciation and amortization10,000
 9,873
 29,736
 31,232
Depreciation and amortization10,285  9,995  
Goodwill impairment10,718
 —
 10,718
 —
Total operating expenses247,591
 239,246
 716,752
 723,896
Total operating expenses241,879  236,019  
Income from operations108,345
 97,528
 333,135
 289,413
Income from operations  47,202  111,058  
Other expense       
Other (expense) incomeOther (expense) income
Interest expense(54,365) (65,094) (173,245) (183,092)Interest expense(54,662) (54,967) 
Other expense(11,546) (2,539) (15,766) (4,961)
Other income (expense)Other income (expense)1,439  (2,976) 
Total other expense(65,911) (67,633) (189,011) (188,053)Total other expense(53,223) (57,943) 
Income from operations before income taxes42,434
 29,895
 144,124
 101,360
(Loss) income before income taxes(Loss) income before income taxes (6,021) 53,115  
Provision for income taxes(3,021) (16,879) (18,447) (37,657)Provision for income taxes  (4,558) (3,673) 
Net income39,413
 13,016
 125,677
 63,703
Net (income) loss attributable to noncontrolling interest(544) 7,709
 (893) 5,147
Net income attributable to Encore Capital Group, Inc. stockholders$38,869
 $20,725
 $124,784
 $68,850
Net (loss) incomeNet (loss) income (10,579) 49,442  
Net loss (income) attributable to noncontrolling interestNet loss (income) attributable to noncontrolling interest 125  (188) 
Net (loss) income attributable to Encore Capital Group, Inc. stockholdersNet (loss) income attributable to Encore Capital Group, Inc. stockholders $(10,454) $49,254  
       
Earnings per share attributable to Encore Capital Group, Inc.:       
(Loss) earnings per share attributable to Encore Capital Group, Inc.:(Loss) earnings per share attributable to Encore Capital Group, Inc.:
Basic$1.24
 $0.69
 $3.99
 $2.52
Basic$(0.33) $1.58  
Diluted$1.23
 $0.69
 $3.97
 $2.49
Diluted$(0.33) $1.57  
       
Weighted average shares outstanding:       Weighted average shares outstanding:
Basic31,338
 29,867
 31,242
 27,372
Basic31,308  31,201  
Diluted31,657
 30,121
 31,459
 27,663
Diluted31,308  31,359  
See accompanying notes to consolidated financial statements

4
Table of Contents
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Comprehensive (Loss) Income
(Unaudited, In Thousands)
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2019 2018 2019 2018
Net income$39,413
 $13,016
 $125,677
 $63,703
Other comprehensive income (loss), net of tax:  ��    
Change in unrealized gains/losses on derivative instruments:       
Unrealized loss on derivative instruments(799) (1,152) (6,561) (3,306)
Income tax effect169
 284
 1,190
 823
Unrealized loss on derivative instruments, net of tax(630) (868) (5,371) (2,483)
Change in foreign currency translation:       
Unrealized loss on foreign currency translation(28,050) (6,919) (29,315) (23,436)
Other comprehensive loss, net of tax(28,680) (7,787) (34,686) (25,919)
Comprehensive income10,733
 5,229
 90,991
 37,784
Comprehensive (income) loss attributable to noncontrolling interest:       
Net (income) loss attributable to noncontrolling interest(544) 7,709
 (893) 5,147
Unrealized (gain) loss on foreign currency translation(51) 1,293
 (485) (119)
Comprehensive (income) loss attributable to noncontrolling interest(595) 9,002
 (1,378) 5,028
Comprehensive income attributable to Encore Capital Group, Inc. stockholders$10,138
 $14,231
 $89,613
 $42,812
 Three Months Ended March 31,
 20202019
Net (loss) income $(10,579) $49,442  
Other comprehensive (loss) income, net of tax:
Change in unrealized gains/losses on derivative instruments:
Unrealized loss on derivative instruments  (5,051) (2,202) 
Income tax effect1,497  172  
Unrealized loss on derivative instruments, net of tax  (3,554) (2,030) 
Change in foreign currency translation:
Unrealized (loss) gain on foreign currency translation (61,038) 7,580  
Other comprehensive (loss) income, net of tax (64,592) 5,550  
Comprehensive (loss) income (75,171) 54,992  
Comprehensive loss (income) attributable to noncontrolling interest:
Net loss (income) attributable to noncontrolling interest 125  (188) 
Unrealized loss (gain) on foreign currency translation 3  (427) 
Comprehensive loss (income) attributable to noncontrolling interest 128  (615) 
Comprehensive (loss) income attributable to Encore Capital Group, Inc. stockholders $(75,043) $54,377  
See accompanying notes to consolidated financial statements

5
Table of Contents
ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Equity
(Unaudited, In Thousands)
Three Months Ended March 31, 2020
Common StockAdditional
Paid-In
Capital		Accumulated
Earnings		Accumulated
Other
Comprehensive
Loss		Noncontrolling
Interest		Total
Equity
SharesPar
Balance as of December 31, 201931,097  $311  $222,590  $888,058  $(88,766) $3,213  $1,025,406  
Cumulative adjustment—  —  —  (44,238) —  —  (44,238) 
Balance as of January 1, 202031,097  311  222,590  843,820  (88,766) 3,213  981,168  
Net loss—  —  —  (10,454) —  (125) (10,579) 
Other comprehensive loss, net of tax—  —  —  —  (64,589) (3) (64,592) 
Issuance of share-based awards, net of shares withheld for employee taxes137  1  (4,714) —  —  —  (4,713) 
Stock-based compensation—  —  4,527  —  —  —  4,527  
Balance as of March 31, 202031,234  $312  $222,403  $833,366  $(153,355) $3,085  $905,811  
 Three Months Ended September 30, 2019
 Common Stock 
Additional
Paid-In
Capital
 
Accumulated
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling
Interest
 
Total
Equity
Shares Par 
Balance at June 30, 201930,980
 $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—
 —
 —
 —
 (28,731) 51
 (28,680)
Exercise of stock options and issuance of share-based awards, net of shares withheld for employee taxes79
 1
 (2,267) —
 —
 —
 (2,266)
Stock-based compensation—
 —
 4,005
 —
 —
 —
 4,005
Issuance of convertible notes, net of repurchases—
 —
 6,776
 —
 —
 —
 6,776
Unwind of convertible notes hedge—
 —
 1,792
 —
 —
 —
 1,792
Balance at September 30, 201931,059
 $311
 $221,814
 $844,973
 $(146,158) $3,057
 $923,997

 Three Months Ended September 30, 2018
 Common Stock 
Additional
Paid-In
Capital
 
Accumulated
Earnings
 Accumulated
Other
Comprehensive
Loss		 
Noncontrolling
Interest
 
Total
Equity
Shares Par 
Balance at June 30, 201825,931
 $259
 $68,820
 $652,428
 $(96,900) $(9,121) $615,486
Net income—
 —
 —
 20,725
 —
 (1,158) 19,567
Other comprehensive loss, net of tax—
 —
 —
 —
 (6,494) (186) (6,680)
Purchase of redeemable noncontrolling interest—
 —
 —
 —
 —
 9,626
 9,626
Exercise of stock options and issuance of share-based awards, net of shares withheld for employee taxes2
 —
 (18) —
 —
 —
 (18)
Issuance of common stock4,920
 50
 181,138
 —
 —
 —
 181,188
Stock-based compensation—
 —
 5,045
 —
 —
 —
 5,045
Issuance of convertible and exchangeable notes—
 —
 14,009
 —
 —
 —
 14,009
Exchangeable notes hedge transactions—
 —
 (17,785) —
 —
 —
 (17,785)
Net equity adjustment on Cabot Transaction—
 —
 (43,097) —
 —
 —
 (43,097)
Other—
 —
 (127) —
 —
 —
 (127)
Balance at September 30, 201830,853
 $309
 $207,985
 $673,153
 $(103,394) $(839) $777,214
Three Months Ended March 31, 2019
 Common StockAdditional
Paid-In
Capital		Accumulated
Earnings		Accumulated
Other
Comprehensive
(Loss) Income		Noncontrolling
Interest		Total
Equity
SharesPar
Balance as of December 31, 201830,884  $309  $208,498  $720,189  $(110,987) $1,679  $819,688  
Net income—  —  —  49,254  —  188  49,442  
Other comprehensive income, net of tax—  —  —  —  5,123  427  5,550  
Issuance of share-based awards, net of shares withheld for employee taxes83  1  (1,950) —  —  —  (1,949) 
Stock-based compensation—  —  1,826  —  —  —  1,826  
Balance as of March 31, 201930,967  $310  $208,374  $769,443  $(105,864) $2,294  $874,557  
See accompanying notes to consolidated financial statements

ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Equity
(Unaudited, In Thousands)
6
 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 at December 31, 201830,884
 $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—
 —
 —
 —
 (35,171) 485
 (34,686)
Exercise of stock options and issuance of share-based awards, net of shares withheld for employee taxes175
 2
 (3,696) —
 —
 —
 (3,694)
Stock-based compensation—
 —
 9,412
 —
 —
 —
 9,412
Issuance of convertible notes, net of repurchases—
 —
 6,776
 —
 —
 —
 6,776
Unwind of convertible notes hedge—
 —
 1,792
 —
 —
 —
 1,792
Other—
 —
 (968) —
 —
 —
 (968)
Balance at September 30, 201931,059
 $311
 $221,814
 $844,973
 $(146,158) $3,057
 $923,997
Table of Contents
 Nine Months Ended September 30, 2018
 Common Stock 
Additional
Paid-In
Capital
 
Accumulated
Earnings
 Accumulated
Other
Comprehensive
Loss		 
Noncontrolling
Interest
 
Total
Equity
Shares Par 
Balance at December 31, 201725,801
 $258
 $42,646
 $616,314
 $(77,356) $(9,929) $571,933
Net income—
 —
 —
 68,850
 —
 (969) 67,881
Other comprehensive (loss) income, net of tax—
 —
 —
 —
 (26,038) 433
 (25,605)
Change in fair value of redeemable noncontrolling interest—
 —
 19,430
 (12,011) —
 —
 7,419
Purchase of noncontrolling interest—
 —
 —
 —
 —
 9,626
 9,626
Exercise of stock options and issuance of share-based awards, net of shares withheld for employee taxes

132
 1
 (1,934) —
 —
 —
 (1,933)
Issuance of common stock4,920
 50
 181,138
 —
 —
 —
 181,188
Stock-based compensation—
 —
 10,452
 —
 —
 —
 10,452
Issuance of convertible and exchangeable notes—
 —
 14,009
 —
 —
 —
 14,009
Exchangeable notes hedge transactions—
 —
 (17,785) —
 —
 —
 (17,785)
Net equity adjustment on Cabot Transaction—
 —
 (43,097) —
 —
 —
 (43,097)
Other—
 —
 3,126
 —
 —
 —
 3,126
Balance at September 30, 201830,853
 $309
 $207,985
 $673,153
 $(103,394) $(839) $777,214
See accompanying notes to consolidated financial statements


ENCORE CAPITAL GROUP, INC.
Consolidated Statements of Cash Flows
(Unaudited, In Thousands)
Nine Months Ended September 30, Three Months Ended March 31,
2019 2018 20202019
Operating activities:   Operating activities:
Net income$125,677
 $63,703
Net (loss) incomeNet (loss) income $(10,579) $49,442  
Adjustments to reconcile net income to net cash provided by operating activities:   Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization29,736
 31,232
Depreciation and amortization10,285  9,995  
Other non-cash interest expense, net24,049
 30,453
Other non-cash interest expense, net5,909  6,629  
Interest expense related to financing3,496
 —
Stock-based compensation expense9,412
 10,452
Stock-based compensation expense4,527  1,826  
Loss on derivative instruments, net1,730
 10,648
Deferred income taxes5,012
 18,733
Deferred income taxes(12,030) 19,682  
Goodwill impairment10,718
 —
Changes in expected current and future recoveriesChanges in expected current and future recoveries98,661  —  
Allowance reversals on receivable portfolios, net(11,945) (31,472)Allowance reversals on receivable portfolios, net  —  (1,367) 
Other, net18,488
 (9,690)Other, net  2,161  4,081  
Changes in operating assets and liabilities   Changes in operating assets and liabilities
Deferred court costs and other assets45,415
 (19,537)Deferred court costs and other assets3,377  18,725  
Prepaid income tax and income taxes payable(21,240) 21,419
Prepaid income tax and income taxes payable14,970  (30,247) 
Accounts payable, accrued liabilities and other liabilities(43,602) (5,919)Accounts payable, accrued liabilities and other liabilities(46,476) (67,775) 
Net cash provided by operating activities196,946
 120,022
Net cash provided by operating activities  70,805  10,991  
Investing activities:   Investing activities:
Purchases of receivable portfolios, net of put-backs(757,101) (881,789)Purchases of receivable portfolios, net of put-backs(209,045) (258,635) 
Collections applied to investment in receivable portfolios, net588,259
 615,010
Collections applied to investment in receivable portfolios, net169,914  202,695  
Purchases of property and equipment(30,712) (37,436)Purchases of property and equipment(7,538) (10,227) 
Payment for derivative instruments, net—
 (28,656)
Other, net1,596
 6,800
Other, net3,414  (3,347) 
Net cash used in investing activities(197,958) (326,071)Net cash used in investing activities  (43,255) (69,514) 
Financing activities:   Financing activities:
Payment of loan and debt refinancing costs(8,777) (6,440)
Proceeds from credit facilities481,105
 766,471
Proceeds from credit facilities171,880  196,263  
Repayment of credit facilities(440,992) (465,666)Repayment of credit facilities(167,221) (119,854) 
Proceeds from senior secured notes460,512
 —
Repayment of senior secured notes(460,455) (1,029)Repayment of senior secured notes(16,250) —  
Proceeds from issuance of convertible senior notes100,000
 172,500
Repayment of convertible senior notes(84,600) —
Proceeds from other debt16,236
 9,090
Repayment of other debt(24,205) (23,450)
Payment for the purchase of PECs and noncontrolling interest—
 (234,101)
Payment of direct and incremental costs relating to Cabot Transaction—
 (8,622)
Other, net(7,511) (3,826)Other, net(10,171) (4,862) 
Net cash provided by financing activities31,313
 204,927
Net increase (decrease) in cash and cash equivalents30,301
 (1,122)
Net cash (used in) provided by financing activitiesNet cash (used in) provided by financing activities (21,762) 71,547  
Net increase in cash and cash equivalents Net increase in cash and cash equivalents  5,788  13,024  
Effect of exchange rate changes on cash and cash equivalents(1,042) (6,368)Effect of exchange rate changes on cash and cash equivalents(9,924) (3,346) 
Cash and cash equivalents, beginning of period157,418
 212,139
Cash and cash equivalents, beginning of period192,335  157,418  
Cash and cash equivalents, end of period$186,677
 $204,649
Cash and cash equivalents, end of period$188,199  $167,096  
   
Supplemental cash information:   
Supplemental disclosure of cash information:Supplemental disclosure of cash information:
Cash paid for interest$131,873
 $163,842
Cash paid for interest$60,495  $62,135  
Cash paid for taxes, net of refunds31,419
 (2,724)Cash paid for taxes, net of refunds766  15,003  

See accompanying notes to consolidated financial statements

7
Table of Contents
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 (the “Baycorp Transaction”) of its wholly-owned subsidiary Encore Australia Holdings I PTY LTD (together with its subsidiaries “Baycorp”),Baycorp, which represented the Company’s investments and operations in Australia and New Zealand and was a component of LAAP.
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, are having an adverse impact on the Company’s ability to collect and are expected to delay a portion of its near-term expected cash collections on purchased receivable portfolios. The resulting impact on expected recoveries has impacted our financial results. We may also incur increased costs or other adverse changes to our business, but such potential impacts are unknown at this time.
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, 2018.2019. 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 COVID-19 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“Note 9: Variable Interest Entities,”Entities”, for further details. All intercompany transactions and balances have been eliminated in consolidation.
8
Table of Contents
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.

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.
ChangeRecently 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 Accounting Principlereceivable 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 adopted Accounting Standard Codification 842 - Leases (“Topic 842”) as of January 1, 2019, using the transition method in accordance with ASU 2018-11, Leases: Targeted Improvements issued in July 2018. Under Topic 842, lessees are required to recognize assetshas not adjusted prior period comparative information and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance or operating leases.
The adoption of this new standard resulted in the recording of lease assets and lease liabilities for the Company’s operating leases of approximately $89.1 million and $102.7 million, respectively, as of January 1, 2019. The difference between the leased assets and lease liabilities primarily represents lease incentives. All periodsdisclose prior to January 1, 2019 were presentedperiod financial information in accordance with the previous lease accounting standard, and no retrospective adjustments were made toguidance. The following table summarizes the comparative periods presented. The accounting for finance leases remains substantially unchanged. The adoptioncumulative effects of this new standard did not materially impactadopting the CECL guidance on the Company’s consolidated statements of operations or cash flows, or the Company’s compliance with debt covenants. Refer to Note 11 “Leases” for detailed information on the Company’s leases.financial condition at January 1, 2020 (in thousands):
Recent Accounting Pronouncements
Other than the adoption of the standard discussed above, there have been no new accounting pronouncements made effective during the nine months ended September 30, 2019 that have significance, or potential significance, to the Company’s consolidated financial statements.
Balance as of December 31, 2019AdjustmentOpening Balance as of January 1, 2020
Assets
Investment in receivable portfolios, net$3,283,984  $44,166  $3,328,150  
Deferred court costs, net100,172  (100,172) —  
Liabilities
Other liabilities (for deferred tax liabilities)147,436  (11,768) 135,668  
Equity
Accumulated earnings888,058  (44,238) 843,820  
Recent Accounting Pronouncements Not Yet Effective
In June 2016,March 2020, the FASBFinancial Accounting Standards Board issued ASUAccounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement2020-04, Facilitation of Credit Lossesthe Effects of Reference Rate Reform on Financial Instruments (“Reporting (Topic 848). The ASU 2016-13”).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 2016-13 applies a current expected credit loss model which is a new impairment model based on expected losses rather than incurred losses. The expected credit losses, and subsequent adjustments to such losses, will be recorded through an allowance account that is deducted from, or added to, the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected. ASU 2016-13 eliminates the current accounting model for loans and debt securities acquired with deteriorated credit quality under ASC 310-30, which provides authoritative guidance for the accounting of the Company’s investment in receivable portfolios.
ASU 2016-13 is effective for reporting periods beginning after December 15, 2019. The guidance will be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginningMarch 12, 2020 through December 31, 2022. We will evaluate transactions or contract modifications occurring as a result of the period in which ASU 2016-13 is adopted. However, the FASB has determined that financial assets for which the guidance in Subtopic 310-30, Receivables-Loansreference rate reform and Debt Securities Acquired with Deteriorated Credit Quality, has previously been applied should prospectivelydetermine whether to apply the optional
9
Table of Contents
guidance inon an ongoing basis. The ASU 2016-13 for purchased financial assets with credit deterioration.
ASU 2016-13, including the effect of ongoing developments and amendments to the guidance, is expected to result in a significant change to the Company’s accounting for its receivable portfolios. The Company is in the process of implementing ASU 2016-13, including drafting accounting policies, assessing data needs for new reporting requirements, and developing software resources and financial models.
In April 2019, the FASB issued ASU No. 2019‑04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”). The amendments in ASU 2019-04 clarify certain aspects of accounting for credit losses, hedging activities, and financial instruments. For clarifications around credit losses, the effective date will be the same as the effective date of ASU 2016-13. For entities that have adopted ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, ASU 2019-04 is effective the first annual reporting period beginning after the date of issuance of ASU 2019-04 and may be early adopted. The amendments in ASU 2019-04 that are related to financial instruments are effective for fiscal years beginning after December 15, 2019, and interim periods within those years, with early adoption permitted. The Company's adoption of ASU 2019-04 iscurrently not expected to have a material impact on itsour consolidated financial statements.
With the exception of the standardsupdated standard discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the ninethree months ended September 30, 2019,March 31, 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 continues to evaluate the reasonable economic life of a pool in each reporting period. 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 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.
10
Table of Contents
Note 2: (Loss) Earnings Per Share
Basic (loss) earnings per share areis calculated by dividing net earnings attributable to Encore by the weighted average number of shares of common stock outstanding during the period. Diluted (loss) earnings per share areis calculated based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options, restricted stock, and the dilutive effect of the convertible and exchangeable senior notes, if applicable. In computing the diluted net loss per share for the three months ended March 31, 2020, dilutive potential common shares are excluded from the diluted loss per share calculation because of their anti-dilutive effect.
A reconciliation of shares used in calculating (loss) earnings per basic and diluted shares follows (in thousands, except per share amounts):
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2019 2018 2019 2018
Net income attributable to Encore Capital Group, Inc. stockholders$38,869
 $20,725
 $124,784
 $68,850
        
Total weighted-average basic shares outstanding31,338
 29,867
 31,242
 27,372
Dilutive effect of stock-based awards319
 254
 217
 291
Total weighted-average dilutive shares outstanding31,657
 30,121
 31,459
 27,663
        
Basic earnings per share$1.24
 $0.69
 $3.99
 $2.52
Diluted earnings per share$1.23
 $0.69
 $3.97
 $2.49

 Three Months Ended March 31,
 20202019
Net (loss) income attributable to Encore Capital Group, Inc. stockholders$(10,454) $49,254  
Total weighted-average basic shares outstanding31,308  31,201  
Dilutive effect of stock-based awards—  158  
Total weighted-average dilutive shares outstanding31,308  31,359  
Basic (loss) earnings per share$(0.33) $1.58  
Diluted (loss) earnings per share$(0.33) $1.57  
Anti-dilutive employee stock options outstanding were approximately 13,000 and 81,000 during217,000 for the three and nine months ended September 30,March 31, 2020 and 2019, respectively. Anti-dilutive employee stock options outstanding were approximately 13,000 during each of the three and nine months ended September 30, 2018, respectively.
Note 3: Fair Value Measurements
The authoritative guidance for fairFair value measurements defines fair valueis defined as the price that would be received upon sale of an asset or the price paid to transfer a liability, in an orderly transaction between market participants at the measurement date (i.e., the “exit price”). The guidance utilizesCompany uses a fair value hierarchy that prioritizes the inputs used in valuation techniques to measure fair value into three broad levels. The following is a brief description of each level:
•Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
•Level 3: Unobservable inputs, including inputs that reflect the reporting entity’s own assumptions.
Financial Instruments Required To Be Carried At Fair Value
Financial assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):
 Fair Value Measurements as of March 31, 2020
 Level 1Level 2Level 3Total
Assets
Interest rate cap contracts$—  $2,150  $—  $2,150  
Liabilities
Foreign currency exchange contracts—  (2,177) —  (2,177) 
Interest rate swap agreements—  (14,735) —  (14,735) 
Contingent consideration—  —  (27) (27) 

11
Table of Contents
 Fair Value Measurements as of
September 30, 2019
 Level 1 Level 2 Level 3 Total
Assets       
Foreign currency exchange contracts$—
 $634
 $—
 $634
Interest rate cap contracts—
 166
 —
 166
Liabilities       
Foreign currency exchange contracts—
 (575) —
 (575)
Interest rate swap agreements—
 (10,839) —
 (10,839)
Contingent consideration—
 —
 (61) (61)

 Fair Value Measurements as of
December 31, 2018
 Level 1 Level 2 Level 3 Total
Assets       
Interest rate cap contracts$—
 $2,023
 $—
 $2,023
Liabilities       
Foreign currency exchange contracts—
 (237) —
 (237)
Interest rate swap agreements—
 (4,881) —
 (4,881)
Contingent consideration—
 —
 (6,198) (6,198)

 Fair Value Measurements as of December 31, 2019
 Level 1Level 2Level 3Total
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.
The following table provides a roll forwardroll-forward of the fair value of contingent consideration for the ninethree months ended September 30, 2019March 31, 2020 and year ended December 31, 20182019 (in thousands):
 Amount
Balance at December 31, 2017$10,612
Issuance of contingent consideration in connection with acquisition1,728
Change in fair value of contingent consideration(5,664)
Payment of contingent consideration(271)
Effect of foreign currency translation(207)
Balance at December 31, 20186,198
Change in fair value of contingent consideration(2,300)
Payment of contingent consideration(3,684)
Effect of foreign currency translation(153)
Balance at September 30, 2019$61

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, 201966 
Payment of contingent consideration(35)
Effect of foreign currency translation(4)
Balance as of March 31, 2020$27 
Non-Recurring Fair Value Measurement:
Certain assets are measured at fair value on a nonrecurring basis. These assets include real estate-owned (“REO”) 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 23 measurements. The fair value estimate of the assets held for sale was approximately $40.9$42.9 million and $26.7$46.7 million as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.
Financial Instruments Not Required To Be Carried At Fair Value
In accordance with the disclosure requirements of ASC Topic 825, Financial Instruments, theThe 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.




12
Table of Contents
The carrying amounts in the following table are recordedincluded in the consolidated statements of financial condition at September 30, 2019as of March 31, 2020 and December 31, 20182019 (in thousands):

 March 31, 2020December 31, 2019
 Carrying AmountEstimated Fair ValueCarrying AmountEstimated Fair Value
Financial Assets
Investment in receivable portfolios, net$3,166,018  $3,547,965  $3,283,984  $3,464,050  
Deferred court costs—  —  100,172  100,172  
Financial Liabilities
Encore convertible notes and exchangeable notes(1)
645,591  567,691  642,547  693,708  
Cabot senior secured notes(2)
1,077,548  996,060  1,127,435  1,170,945  
_______________________
 September 30, 2019 December 31, 2018
 Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value
Financial Assets       
Investment in receivable portfolios$3,188,167
 $3,101,295
 $3,137,893
 $3,525,861
Deferred court costs94,011
 94,011
 95,918
 95,918
Financial Liabilities       
Encore convertible notes and exchangeable notes(1)
639,538
 680,811
 619,639
 553,744
Cabot senior secured notes(2)
1,064,842
 1,104,718
 1,109,922
 1,036,905
_______________________(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.
(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.
(2)Carrying amount represents historical cost, adjusted for any related debt discount or debt premium.
Investment in Receivable Portfolios:
The Company records itsfair value of investment in receivable portfolios at cost, which represents a significant discount from the contractual receivable balance due. The Company computes the fair value of its investment in receivable portfoliosis measured using Level 3 inputs by discounting the estimated future cash flows generated by its proprietary forecasting models. The key inputs include the estimated future gross cash flow, average cost to collect, and discount rate. In accordance with authoritative guidance related to fair value measurements, the Company estimates the average cost to collect and discount rates based on its estimate of what a market participant might use in valuing these portfolios. 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.
In the Company’s current analysis, the fair value of investment in receivable portfolios was approximately $3,101.3 million and $3,525.9 million as of September 30, 2019 and December 31, 2018, respectively, as compared to the carrying value of $3,188.2 million and $3,137.9 million as of September 30, 2019 and December 31, 2018, respectively. A 100 basis point increase in the cost to collect and discount rate used would result in a decrease in the fair value of U.S. and European portfolios by approximately $62.8 million and $74.6 million, respectively, as of September 30, 2019. This fair value calculation does not represent, and should not be construed to represent, the underlying value of the Company or the amount which could be realized if its investment in receivable portfolios were sold.
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 Company capitalizes deferred court costs and provides a reservefair value estimate for those costs that it believes will ultimately be uncollectible. The carrying value of net deferred court costs was $94.0 million and $95.9 millionDeferred Court Costs as of September 30, 2019 and December 31, 2018, respectively,2019 involved Level 3 inputs as there was little observable market data available and approximated fair value.management was required to use significant judgment in its estimates.
Borrowings:
The majority of the Company’s borrowings are carried at historical amounts, adjusted for additional borrowings less principal repayments, which approximate fair value. These borrowings include Encore’s senior secured notes and borrowings under its revolving credit and term loan facilities and Cabot’s borrowings under its revolving credit facility. The carrying value of the Company’s revolving credit and term loan facilities approximates fair value due to the short-term nature of the interest rate periods. The fair value of the Company’s senior secured notes was 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 Company’s borrowings also include finance lease liabilities for which the carrying value approximates fair value.
Encore’s convertible notes and exchangeable notes are carried at historical cost, adjusted for the debt discount. The carrying value of the convertible notes and exchangeable notes was $639.5 million and $619.6 million, net of the debt discount of $33.3 million and $36.4 million as of September 30, 2019 and December 31, 2018, respectively. The fair value estimate for these convertible notes and exchangeable notes, which incorporates quoted market prices using Level 2 inputs, was approximately $680.8 million and $553.7 million as of September 30, 2019 and December 31, 2018, respectively.

Cabot’s senior secured notes are carried at historical cost, adjusted for the debt discount. The carrying value of Cabot’s senior secured notes was $1,064.8 million and $1,109.9 million, net of the debt discount of $1.6 million and $1.5 million as of September 30, 2019 and December 31, 2018, respectively. The fair value estimate for these seniorconvertible and exchangeable notes which incorporates quoted market prices using Level 2 inputs, was $1,104.7 million and $1,036.9 million as of September 30, 2019 and December 31, 2018, respectively.inputs.
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.
13
Table of Contents
The following table summarizes the fair value of derivative instruments as recordedincluded in the Company’s consolidated statements of financial condition (in thousands):
 September 30, 2019 December 31, 2018
Balance Sheet
Location
 Fair Value 
Balance Sheet
Location
 Fair Value
Derivatives designated as hedging instruments:       
Foreign currency exchange contractsOther assets $634
 Other liabilities $(237)
Interest rate cap contractsOther assets 166
 Other assets 2,023
Interest rate swap agreementsOther liabilities (10,839) Other liabilities (4,881)
Derivatives not designated as hedging instruments:       
Foreign currency exchange contractsOther liabilities (575) Other liabilities —

 March 31, 2020December 31, 2019
Balance Sheet
Location		Fair ValueBalance Sheet
Location		Fair Value
Derivatives designated as hedging instruments:
Interest rate cap contractsOther assets$2,150  Other assets$2,460  
Foreign currency exchange contractsOther liabilities(134) Other assets443  
Interest rate swap agreementsOther liabilities(14,735) Other liabilities(9,116) 
Derivatives not designated as hedging instruments:
Foreign currency exchange contractsOther liabilities(2,043) Other assets1,030  
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 enters 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.
Certain of the Company’s foreign currency forward contracts are designated as cash flow hedging instruments and qualify for hedge accounting treatment. Gains and losses arising from such contracts are recorded as a component of accumulated other comprehensive income (“OCI”) as gains and losses on derivative instruments, net of income taxes. The hedging gains and losses in OCI are subsequently reclassified into earnings in the same period in which the underlying transactions affect the Company’s earnings. If all or a portion of the forecasted transaction is cancelled, the accumulated gains or losses in OCI would be reclassified into earnings.
As of September 30, 2019,March 31, 2020, the total notional amount of the forward contracts that were designated as cash flow hedging instruments was $21.3$6.3 million. The Company estimates that approximately $0.6$0.1 million of net derivative gainloss included in OCI will be reclassified into earnings within the next 12 months. NaN gains or losses were reclassified from OCI into earnings as a result of forecasted transactions that failed to occur during the ninethree months ended September 30, 2019March 31, 2020 and 2018.2019.
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. In accordance with authoritative guidance relating to derivatives and hedging transactions, the Company designates its interest rate swap instruments as cash flow hedges. As of September 30, 2019,March 31, 2020, there were 4 interest rate swap agreements outstanding with a total notional amount of $335.5$327.9 million.
As of September 30, 2019,Previously, the Company also held 2 interest rate cap contracts that matured in 2021 (the “2018 Caps”) which hedged the risk of GBP-LIBOR interest rate fluctuations for interest payments of Cabot Securitisation’s senior facility agreement. As part of the amended and restated senior facility agreement as described in “Note 8: Borrowings”, 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 three months ended March 31, 2020.
As of March 31, 2020, the Company held 2 interest rate cap contracts with a notional amount of £350.0approximately $876.4 million (approximately $430.2 million) that are used to manage its risk related to interest rate fluctuations on the Company’s variable interest rate bearing debt. The 2018 Caps matureinterest rate cap hedging the fluctuations in 2021three-month EURIBOR for the Cabot 2024 Floating Rate Notes (“2019 Cap”) has a notional amount of €400.0 million (approximately $435.1 million) and arematures 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 $441.3 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 GBP-LIBOREURIBOR 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 GBP-LIBORSONIA or EURIBOR exceeds the strike price of the Caplets. The Company expects the hedge relationshiprelationships to be highly effective and designates the 2018 Caps2019 Cap and 2020 Cap as cash flow hedge instruments.
14
Table of Contents
The following table summarizes the effects of derivatives in cash flow hedging relationships designated as hedging instruments onin the Company’s consolidated statements of operations for the three and nine months ended September 30, 2019 and 2018 (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,
 2019 2018  2019 2018
Foreign currency exchange contracts $(323) $(916) Salaries and employee benefits $198
 $95
Foreign currency exchange contracts (48) (130) General and administrative expenses 27
 11
Interest rate swap agreements (800) 3
 Interest expense (742) 4
Interest rate cap contracts (145) —
 Interest expense —
 —

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,
 2019 2018  2019 2018
Foreign currency exchange contracts $1,068
 $(1,990) Salaries and employee benefits $183
 $1,078
Foreign currency exchange contracts (57) (206) General and administrative expenses (44) 46
Interest rate swap agreements (7,182) (9) Interest expense (1,606) 29
Interest rate cap contracts (1,857) —
 Interest expense —
 —

Derivatives Designated as Hedging InstrumentsGain (Loss)
Recognized in OCI		Location of Gain (Loss) Reclassified from
OCI into Income (Loss)		Gain (Loss) Reclassified from OCI into Income (Loss)
Three Months Ended
March 31,		Three Months Ended
March 31,
2020201920202019
Foreign currency exchange contracts$(389) $935  Salaries and employee benefits$127  $(95) 
Foreign currency exchange contracts(45) (78) General and administrative expenses17  (84) 
Interest rate swap agreements(6,707) (2,086) Interest expense(1,088) (420) 
Interest rate cap contracts(1,396) (1,572) Interest expense(2,542) —  
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.
The following table summarizes the effects of derivatives in cash flow hedging relationships not designated as hedging instruments onin the Company’s consolidated statements of operations for the three and nine months ended September 30, 2019 and 2018 (in thousands):
Amount of Gain Recognized in Income (Loss)
Three Months Ended
March 31,
Derivatives Not Designated as Hedging InstrumentsLocation of Gain Recognized in Income (Loss) on Derivative20202019
Foreign currency exchange contractsOther income (expense) $1,943  $—  
Derivatives Not Designated as Hedging Instruments Location of Gain (Loss) Recognized in Income on Derivative Amount of Gain (Loss) Recognized in Income on Derivative
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2019 2018 2019 2018
Foreign currency exchange contracts Other expense $(436) $(2,281) $(263) $(9,221)
Interest rate cap contracts Interest expense —
 289
 —
 (1,427)

Note 5: Investment in Receivable Portfolios, Net
In accordance with the authoritative guidance for loansAs discussed in “Note 1: Ownership, Description of Business, and debt securities acquired with deteriorated credit quality, discrete receivable portfolio purchases during the same fiscal quarter are aggregated into pools based on common risk characteristics. Common risk characteristics include risk ratings (e.g. FICO or similar scores)Summary of Significant Accounting Policies”, 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 region or location. Portfolios acquired in business combinations are also grouped into these pools. During any fiscal quarter in which the Company has an acquisition of an entity that has portfolio, the entire historical portfolio of the acquired

company is aggregated into the pool groups for that quarter, based on common characteristics, resulting in pools for that quarter that may consist of several different vintages of portfolio. Once a static pool is established, the portfolios are permanently assigned to the pool. The discount (i.e. the difference between the cost of each static pool and the related aggregate contractual receivable balance) is not recorded because the Company expects to collect a relatively small percentage of each static pool’s contractual receivable balance. As a result, receivable portfolios are recorded at cost at the time of acquisition. The cost of the portfolios includes certain fees paid to third parties incurred in connection with the direct acquisition of the receivable portfolios.
In compliance with the authoritative guidance,effective January 1, 2020, the Company accounts for its investmentsinvestment in receivable portfolios using eitheras PCD assets under CECL and changed its accounting policy for reimbursable court costs. As a result, the interest method orCompany wrote-off the cost recovery method. The interest method appliesprevious Deferred Court Costs balance that represented an internal rateundiscounted value of return (“IRR”) to the cost basisrecoverable historic spend as a result of the pool,a loss-rate methodology, and established a discounted value of expected future recoveries of these reimbursable court costs, which remains unchanged throughout the life of the pool, unless there is a significant increase in subsequent expected cash flows. Subsequent increases in expected cash flows are recognized prospectively through an upward adjustment of the pool’s IRR over its remaining life. Subsequent decreases in expected cash flows do not change the IRR but are recognized as an allowance to the cost basis of the pool and are reflectedincluded in the consolidated statementsbeginning balance of operations as a reduction in revenue, with a corresponding valuation allowance, offsetting the investment in receivable portfolios inportfolios.
The table below illustrates the consolidated statements of financial condition. Due to the discounting of future cashflows using monthly IRRs, an allowance charge could still result even if substantially higher collections occurring later in the collection curve offset lower collections in the near term.
The Company accountsCompany’s transition approach for each static pool as a unit for the economic life of the pool (similar to one loan) for recognition of revenue from receivable portfolios, for collections applied to the cost basis of receivable portfolios and for provision for loss or allowance. Revenue from receivable portfolios is accrued based on each pool’s IRR applied to each pool’s adjusted cost basis. The cost basis of each pool is increased by revenue earned and portfolio allowance reversals and decreased by gross collections and portfolio allowances.
If the amount or timing of future cash collections on a pool of receivables are not reasonably estimable, the Company accounts for such portfolios on the cost recovery method as Cost Recovery Portfolios. The accounts in these portfolios have different risk characteristics than those included in other portfolios acquired during the same quarter, or the necessary information was not available to estimate future cash flows and, accordingly, they were not aggregated with other portfolios. Under the cost recovery method of accounting, no revenue is recognized until the carrying value of a Cost Recovery Portfolio has been fully recovered.
Accretable yield represents the amount of revenue the Company expects to generate over the remaining life of its existing investment in receivable portfolios based on estimated future cash flows. Total accretable yield is the difference between future estimated collections and the current carrying valueas of a portfolio. All estimated cash flows on portfolios where the cost basis has been fully recovered are classified as zero basis cash flows.January 1, 2020 (in thousands):
Amount
Investment in receivable portfolios prior to transition$3,283,984 
Initial transitioned deferred court costs44,166 
3,328,150 
Allowance for credit losses79,028,043 
Amortized cost82,356,193 
Noncredit discount132,533,142 
Face value214,889,335 
Write-off of amortized cost(82,356,193)
Write-off of noncredit discount(132,533,142)
Negative allowance3,328,150 
Initial negative allowance from transition$3,328,150 
15
Table of Contents
The following table summarizesbelow provides the Company’s accretable yield and an estimatedetail on the establishment of zero basis future cash flows at the beginning and endnegative allowance for expected recoveries of the period presented (in thousands):

 
Accretable
Yield
 
Estimate of
Zero Basis
Cash Flows
 Total
Balance at December 31, 2018$3,773,171
 $253,035
 $4,026,206
Revenue from receivable portfolios(285,255) (25,903) (311,158)
Allowance (reversals) on receivable portfolios, net900
 (2,267) (1,367)
Additions (reductions) on existing portfolios, net38,512
 (199) 38,313
Additions for current purchases285,637
 —
 285,637
Effect of foreign currency translation26,244
 217
 26,461
Balance at March 31, 20193,839,209
 224,883
 4,064,092
Revenue from receivable portfolios(285,562) (26,933) (312,495)
Allowance (reversals) on receivable portfolios, net255
 (2,318) (2,063)
Additions on existing portfolios, net113,074
 32,285
 145,359
Additions for current purchases277,556
 —
 277,556
Effect of foreign currency translation(46,492) (34) (46,526)
Balance at June 30, 20193,898,040
 227,883
 4,125,923
Revenue from receivable portfolios(300,047) (16,170) (316,217)
Allowance reversals on receivable portfolios, net(6,471) (2,044) (8,515)
Additions (reductions) on existing portfolios, net153,807
 (60,280) 93,527
Additions for current purchases288,547
 —
 288,547
Effect of foreign currency translation(72,664) (1,146) (73,810)
Balance at September 30, 2019$3,961,212
 $148,243
 $4,109,455
 
Accretable
Yield
 
Estimate of
Zero Basis
Cash Flows
 Total
Balance at December 31, 2017$3,695,069
 $369,632
 $4,064,701
Revenue from receivable portfolios(249,821) (31,188) (281,009)
Allowance reversals on receivable portfolios, net(8,082) (1,729) (9,811)
Reductions on existing portfolios, net(24,945) (39,529) (64,474)
Additions for current purchases285,172
 —
 285,172
Effect of foreign currency translation57,577
 643
 58,220
Balance at March 31, 20183,754,970
 297,829
 4,052,799
Revenue from receivable portfolios(258,698) (33,964) (292,662)
Allowance reversals on receivable portfolios, net(15,411) (2,221) (17,632)
Additions reductions on existing portfolios, net136,267
 5,824
 142,091
Additions for current purchases345,006
 —
 345,006
Effect of foreign currency translation(97,448) (597) (98,045)
Balance at June 30, 20183,864,686
 266,871
 4,131,557
Revenue from receivable portfolios(263,109) (32,248) (295,357)
Allowance reversals on receivable portfolios, net(1,196) (2,833) (4,029)
Additions on existing portfolios, net23,241
 14,481
 37,722
Additions for current purchases262,751
 —
 262,751
Effect of foreign currency translation(20,483) (136) (20,619)
Balance at September 30, 2018$3,865,890
 $246,135
 $4,112,025

During the three months ended September 30, 2019, the Company purchased receivable portfolios with a face value of $5.3 billion for $259.9 million, or a purchase price of 4.9% of face value. This low purchase price as a percentage of face value was attributable to the purchase of certain asset classes in Europe that were deeply discounted. The estimated future collections at acquisition for all portfolios purchased during the three months ended September 30, 2019 amounted to $548.5 million.March 31, 2020 (in thousands):

During the three months ended September 30, 2018, the Company purchased receivable portfolios with a face value of $1.6 billion for $248.7 million, or a purchase price of 15.9% of face value. The estimated future collections at acquisition for all portfolios purchased during the three months ended September 30, 2018 amounted to $512.3 million.
During the nine months ended September 30, 2019, the Company purchased receivable portfolios with a face value of $9.4 billion for $764.9 million, or a purchase price of 8.2% of face value. This low purchase price as a percentage of face value was attributable to the purchase of certain asset classes in Europe that were deeply discounted. The estimated future collections at acquisition for all portfolios purchased during the nine months ended September 30, 2019 amounted to $1,616.7 million. During the nine months ended September 30, 2018, the Company purchased receivable portfolios with a face value of $6.2 billion for $885.0 million, or a purchase price of 14.2% of face value. The estimated future collections at acquisition for all portfolios purchased during the nine months ended September 30, 2018 amounted to $1,772.9 million.
All collections realized after the net book value of a portfolio has been fully recovered (“Zero Basis Portfolios”) are recorded as revenue (“Zero Basis Revenue”). During the three months ended September 30, 2019 and 2018, Zero Basis Revenue was approximately $16.2 million and $32.2 million, respectively. During the three months ended September 30, 2019 and 2018, allowance reversals on Zero Basis Portfolios were $2.0 million and $2.8 million, respectively.
During the nine months ended September 30, 2019 and 2018, Zero Basis Revenue was approximately $69.0 million and $97.4 million, respectively. During the nine months ended September 30, 2019 and 2018, allowance reversals on Zero Basis Portfolios were $6.6 million and $6.8 million, respectively.


Three Months Ended March 31, 2020
Purchase price$214,113 
Allowance for credit losses521,194 
Amortized cost735,307 
Noncredit discount967,715 
Face value1,703,022 
Write-off of amortized cost(735,307)
Write-off of noncredit discount(967,715)
Negative allowance214,113 
Negative allowance for expected recoveries - current period purchases$214,113 
The following tablestable summarize the changes in the balance of the investment in receivable portfolios during the following periods presented (in thousands except percentages):
Three Months Ended September 30, 2019Three Months Ended March 31,
Accrual Basis
Portfolios
 
Cost Recovery
Portfolios
 
Zero Basis
Portfolios
 Total20202019
Balance, beginning of period$3,139,937
 $84,631
 $—
 $3,224,568
Balance, beginning of period$3,328,150  $3,137,893  
Purchases of receivable portfolios259,910
 —
 —
 259,910
Purchases of receivable portfolios214,113  262,335  
Deconsolidation of receivable portfolios (1)
(51,935) —
 —
 (51,935)
Put-backs and RecallsPut-backs and Recalls(5,068) (3,700) 
Transfers to assets held for sale(657) (1,108) —
 (1,765)Transfers to assets held for sale(1,531) (3,589) 
Collections on receivable portfolios (2)
(480,089) (1,125) (18,181) (499,395)
Put-Backs and Recalls(3)
(2,734) —
 (12) (2,746)
Cash collectionsCash collections(527,279) (513,853) 
Revenue from receivable portfoliosRevenue from receivable portfolios357,365  311,158  
Changes to expected current period recoveriesChanges to expected current period recoveries10,315  —  
Changes to expected future period recoveriesChanges to expected future period recoveries(108,976) —  
Portfolios allowance reversal, netPortfolios allowance reversal, net—  1,367  
Foreign currency adjustments(62,595) (2,586) (21) (65,202)Foreign currency adjustments(101,071) 19,976  
Revenue recognized300,047
 —
 16,170
 316,217
Portfolio allowance reversals, net6,471
 —
 2,044
 8,515
Balance, end of period$3,108,355
 $79,812
 $—
 $3,188,167
Balance, end of period$3,166,018  $3,211,587  
Revenue as a percentage of collections(4)
62.5% 0.0% 88.9% 63.3%67.8 %60.6 %
During the three months ended March 31, 2020, the Company reassessed its future forecasts of expected recoveries of receivable portfolios based on its best estimate of the potential impact arising from the COVID-19 pandemic. The updated forecasts changed the timing of future recoveries by reducing the forecasted cash flows in 2020. The majority of the shortfall in near-term cash flows is expected to be recovered in 2021 and most of the rest of the shortfall is expected to be recovered in subsequent periods. As a result, the change in the total amount of estimated remaining collections (“ERC”) was negligible. The delay in expected future cash flows, when discounted to present-value, resulted in a provision for credit loss adjustment of approximately $109.0 million during the three months ended March 31, 2020. 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 monitor the COVID-19 situation closely and update its assumptions accordingly.
Accretable yield represented the amount of revenue on purchased receivable portfolios the Company expects 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 three months ended March 31, 2019
 Three Months Ended September 30, 2018
 
Accrual Basis
Portfolios
 
Cost Recovery
Portfolios
 
Zero Basis
Portfolios
 Total
Balance, beginning of period$3,074,292
 $10,329
 $—
 $3,084,621
Purchases of receivable portfolios248,691
 —
 —
 248,691
Transfers to assets held for sale(4,253) (1,111) —
 (5,364)
Collections on receivable portfolios (2)
(463,474) (306) (35,063) (498,843)
Put-Backs and Recalls(3)
(2,056) —
 (18) (2,074)
Foreign currency adjustments(17,208) (93) —
 (17,301)
Revenue recognized263,109
 —
 32,248
 295,357
Portfolio allowance reversals, net1,196
 —
 2,833
 4,029
Balance, end of period$3,100,297
 $8,819
 $—
 $3,109,116
Revenue as a percentage of collections(4)
56.8% 0.0% 92.0% 59.2%
________________________(in thousands):
16
Table of Contents
Three Months Ended
March 31,
2019
Balance as of beginning of period$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 purchases285,637 
Effect of foreign currency translation26,461 
Balance as of end of period$4,064,092 
(1)Deconsolidation of receivable portfolios as a result of the Baycorp Transaction.
(2)Does not include amounts collected on behalf of others.
(3)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 agreements.
(4)Revenue as a percentage of collections excludes the effect of net portfolio allowances or net portfolio allowance reversals.

 Nine Months Ended September 30, 2019
 
Accrual Basis
Portfolios
 
Cost Recovery
Portfolios
 
Zero Basis
Portfolios
 Total
Balance, beginning of period$3,129,502
 $8,391
 $—
 $3,137,893
Purchases of receivable portfolios764,942
 —
 —
 764,942
Transfer of portfolios(1)
(78,980) 78,980
 —
 —
Deconsolidation of receivable portfolios(2)
(51,935) —
 —
 (51,935)
Transfers to assets held for sale(4,615) (3,066) —
 (7,681)
Collections on receivable portfolios(3)
(1,449,705) (2,831) (75,593) (1,528,129)
Put-Backs and Recalls(4)
(7,820) —
 (21) (7,841)
Foreign currency adjustments(69,214) (1,662) (21) (70,897)
Revenue recognized870,864
 —
 69,006
 939,870
Portfolio allowance reversals, net5,316
 —
 6,629
 11,945
Balance, end of period$3,108,355
 $79,812
 $—
 $3,188,167
Revenue as a percentage of collections(6)
60.1% 0.0% 91.3% 61.5%
 Nine Months Ended September 30, 2018
 
Accrual Basis
Portfolios
 
Cost Recovery
Portfolios
 
Zero Basis
Portfolios
 Total
Balance, beginning of period$2,879,170
 $11,443
 $—
 $2,890,613
Purchases of receivable portfolios885,033
 —
 —
 885,033
Transfers to assets held for sale(9,358) (1,373) —
 (10,731)
Collections on receivable portfolios (3)
(1,379,095) (1,729) (103,214) (1,484,038)
Put-Backs and Recalls(4)
(14,231) —
 (171) (14,402)
Foreign currency adjustments(57,539) (320) —
 (57,859)
Reclassification adjustments(5)
—
 798
 (798) —
Revenue recognized771,628
 —
 97,400
 869,028
Portfolio allowance reversals, net24,689
 —
 6,783
 31,472
Balance, end of period$3,100,297
 $8,819
 $—
 $3,109,116
Revenue as a percentage of collections(6)
56.0% 0.0% 94.4% 58.6%
________________________
(1)Represents all portfolios in Mexico, which were transferred from accrual basis portfolios to cost recovery portfolios as the timing of future collections were determined to not be currently reasonably estimable, due to the changing political and economic conditions in Mexico.
(2)Deconsolidation of receivable portfolios as a result of the Baycorp Transaction.
(3)Does not include amounts collected on behalf of others.
(4)Represent ineligible accounts that are returned by us or recalled by the seller pursuant to specific guidelines as set forth in the respective purchase agreements.
(5)Reclassification relating to certain Zero Basis Revenue that was classified as collections in cost recovery portfolios in prior periods.
(6)Revenue as a percentage of collections excludes the effect of net portfolio allowances or net portfolio allowance reversals.


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 presentedthree months ended March 31, 2019 (in thousands):
Three Months Ended
March 31,
2019
Balance as of beginning of period$60,631 
Provision for portfolio allowances2,626 
Reversal of prior allowances(3,993)
Effect of foreign currency translation164 
Balance as of end of period$59,428 
 Valuation Allowance
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2019 2018 2019 2018
Balance at beginning of period$57,204
 $75,129
 $60,631
 $102,576
Provision for portfolio allowances1,120
 6,156
 4,835
 8,816
Reversal of prior allowances(9,635) (10,185) (16,780) (40,288)
Baycorp Transaction(1,036) —
 (1,036) —
Effect of foreign currency translation(554) (365) (551) (369)
Balance at end of period$47,099
 $70,735
 $47,099
 $70,735

Note 6: Deferred Court Costs, Net
TheAs 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 pursueschanged its method of accounting for court costs spent in its legal collections using a network of attorneys that specialize in collection matters and through its internal legal channel. The Company generally pursues collections throughnow expenses all of its court costs as incurred and includes all expected recoveries, including the recoveries from the legal means only when it believeschannel, in the measurement of the investment in receivable portfolios at a consumer has sufficient assets to repay their indebtedness but has, to date, been unwilling to pay. In order to pursue legal collections,discounted value. As a result, the Company is required to pay certain upfront costs to the applicable courts that are recoverable from the consumer (“no longer carries Deferred Court Costs”).Costs.
The Company capitalizes Deferred Court Costs in its consolidated financial statements and provides a reserve for those costs that it believes will ultimately be uncollectible. The Company determines the reserve based on an estimated court cost recovery rate established based on its analysis of historicalNet deferred court costs recovery data. The Company estimates deferral periods for Deferred Court Costs based on jurisdiction and nature of litigation and writes off any Deferred Court Costs not recovered withinunder the respective deferral period. Collections received from debtors are first applied against related court costs with the balance applied to the debtors’ account balance.
Deferred Court Costs for the deferral period consistprevious accounting method consisted of the following as of the datesdate presented (in thousands):
 September 30,
2019		 December 31,
2018
Court costs advanced$867,032
 $828,713
Court costs recovered(359,635) (336,335)
Court costs reserve(413,386) (396,460)
Deferred court costs$94,011
 $95,918

December 31, 2019
Court costs advanced$891,207 
Court costs recovered(369,043)
Court costs reserve(421,992)
Deferred court costs, net$100,172 
A roll forwardroll-forward of the Company’s court cost reserve as accounted for under the previous accounting method is as follows (in thousands):
Three Months Ended
March 31, 2019
Balance at beginning of period$(396,460)
Provision for court costs(15,713)
Charge-offs13,779 
Effect of foreign currency translation(1,597)
Balance at end of period$(399,991)
 Court Cost Reserve
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2019 2018 2019 2018
Balance at beginning of period$(408,312) $(381,125) $(396,460) $(364,015)
Provision for court costs(20,866) (23,065) (60,214) (67,293)
Charge-offs13,679
 13,603
 40,934
 38,990
Effect of foreign currency translation2,113
 960
 2,354
 2,691
Balance at end of period$(413,386) $(389,627) $(413,386) $(389,627)


17
Table of Contents
Note 7: Other Assets
Other assets consist of the following (in thousands):
March 31,
2020		December 31,
2019
Operating lease right-of-use asset$74,113  $75,254  
Identifiable intangible assets, net46,371  51,371  
Assets held for sale42,947  46,717  
Deferred tax assets26,291  24,134  
Service fee receivables22,786  27,705  
Prepaid expenses22,191  22,272  
Other financial receivables16,213  17,308  
Other51,107  64,462  
Total$302,019  $329,223  
 September 30,
2019		 December 31,
2018
Operating lease right-of-use asset$75,852
 $—
Identifiable intangible assets, net49,717
 60,581
Assets held for sale40,890
 26,664
Service fee receivables25,041
 28,035
Deferred tax assets21,378
 24,910
Prepaid expenses15,352
 24,989
Other financial receivables8,090
 47,363
Other54,698
 44,460
Total$291,018
 $257,002

Note 8: Borrowings
The Company is in compliance in all material respects with all covenants under its financing arrangements as of September 30, 2019.March 31, 2020. The components of the Company’s consolidated borrowings were as follows (in thousands):
 September 30,
2019		 December 31,
2018
Encore revolving credit facility$469,000
 $429,000
Encore term loan facility175,498
 195,056
Encore senior secured notes325,000
 325,000
Encore convertible notes and exchangeable notes672,855
 656,000
Less: debt discount(33,317) (36,361)
Cabot senior secured notes1,066,434
 1,111,399
Less: debt discount(1,592) (1,477)
Cabot senior revolving credit facility305,454
 298,005
Cabot securitisation senior facilities430,217
 445,837
Other credit facilities—
 43,354
Other52,305
 64,566
Finance lease liabilities7,893
 7,563
 3,469,747
 3,537,942
Less: debt issuance costs, net of amortization(40,404) (47,309)
Total$3,429,343
 $3,490,633

March 31,
2020		December 31,
2019
Encore revolving credit facility$528,000  $492,000  
Encore term loan facility167,855  171,677  
Encore senior secured notes292,500  308,750  
Encore convertible notes and exchangeable notes672,855  672,855  
Less: debt discount(27,264) (30,308) 
Cabot senior secured notes1,078,965  1,129,039  
Less: debt discount(1,417) (1,604) 
Cabot senior revolving credit facility241,170  285,749  
Cabot securitisation senior facilities435,099  464,092  
Other47,924  54,151  
Finance lease liabilities8,642  8,121  
3,444,329  3,554,522  
Less: debt issuance costs, net of amortization(39,902) (41,325) 
Total$3,404,427  $3,513,197  
Encore Revolving Credit Facility and Term Loan Facility
The Company has a revolving credit facility (the “Revolving Credit Facility”) and term loan facility (the “Term Loan Facility,” and together with the Revolving Credit Facility, the “Senior Secured Credit Facilities”) pursuant to a Third Amended and Restated Credit Agreement dated December 20, 2016 (as amended, the “Restated Credit Agreement”). The total commitment for the Revolving Credit Facility is $884.2 million that matures in December 2021. The Term Loan Facility matures in December 2021 and the principal amortizes $15.3 million in 2020 with the remaining principal due in 2021.

18
Table of Contents
Provisions of the Restated Credit Agreement as of September 30, 2019March 31, 2020 include, but are not limited to:
•A Revolving Credit Facility commitments of $884.2 million that expire in December 2021 with interest at a floating rate equal to, at the Company’s option, either: (1) reserve adjusted London Interbank Offered Rate (“LIBOR”), plus a spread that ranges from 250 to 300 basis points depending on the cash flow leverage ratio of Encore and its restricted subsidiaries as defined in the Restated Credit Agreement; or (2) alternate base rate, plus a spread that ranges from 150 to 200 basis points, depending on the cash flow leverage ratio of Encore and its restricted subsidiaries. “Alternate base rate,” as defined in the Restated Credit Agreement, means the highest of (i)(a) the per annum rate which the administrative agent publicly announces from time to time as its prime lending rate, (ii)(b) the federal funds effective rate from time to time, plus 0.5% per annum, (iii)(c) reserved adjusted LIBOR determined on a daily basis for a one month interest period, plus 1.0% per annum and (iv)(d) zero;
•A $194.6 million term loan maturing in December 2021,Term Loan Facility with interest at a floating rate equal to, at the Company’s option, either: (1) reserve adjusted LIBOR, plus a spread that ranges from 250 to 300 basis points, depending on the cash flow leverage ratio of Encore and its restricted subsidiaries; or (2) alternate base rate, plus a spread that ranges from 150 to 200 basis points, depending on the cash flow leverage ratio of Encore and its restricted subsidiaries. Principal amortizes $15.3 million in each of 2019 and 2020 with the remaining principal due in 2021;subsidiaries;
•A borrowing base under the Revolving Credit Facility equal to 35% of all eligible non-bankruptcy estimated remaining collections plus 55% of eligible estimated remaining collections for consumer receivables subject to bankruptcy;
•A maximum cash flow leverage ratio permitted of 3.00:1.00;
•A maximum cash flow first-lien leverage ratio of 2.00:1.00;
•A minimum interest coverage ratio of 1.75:1.00;
•The allowance of indebtedness in the form of senior secured notes not to exceed $350.0 million;
•The allowance of additional unsecured or subordinated indebtedness not to exceed $1.1 billion, including junior lien indebtedness not to exceed $400.0 million;
•Restrictions and covenants, which limit the payment of dividends and the incurrence of additional indebtedness and liens, among other limitations;
•Repurchases of up to $150.0 million of Encore’s common stock and permitted indebtedness after July 9, 2015, subject to compliance with certain covenants and available borrowing capacity;
A change of control definition, that excludes acquisitions of stock by Red Mountain Capital Partners LLC, JCF FPK I, LP and their respective affiliates of up to 50% of the outstanding shares of Encore’s voting stock;
Events of default which, upon occurrence, may permit the lenders to terminate the facility and declare all amounts outstanding to be immediately due and payable;
•A pre-approved acquisition limit of $225.0 million per fiscal year;
•A basket to allow for investments not to exceed the greater of (1) 200% of the consolidated net worth of Encore and its restricted subsidiaries; and (2) an unlimited amount such that after giving effect to the making of any investment, the cash flow leverage ratio is less than 1.25:1:00;
•A basket to allow for investments in persons organized under the laws of Canada in the amount of $50.0 million;
•Collateralization by all assets of the Company, other than the assets of certain foreign subsidiaries and all unrestricted subsidiaries as defined in the Restated Credit Agreement.
At September 30, 2019,As of March 31, 2020, the outstanding balance under the Revolving Credit Facility was $469.0$528.0 million, which bore a weighted average interest rate of 5.25%4.58% and 5.09%5.50% for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and 5.40% and 4.90% for the nine months ended September 30, 2019 and 2018, respectively. Available capacity under the Revolving Credit Facility, after taking into account borrowing base and applicable debt covenants, was $224.6$356.2 million as of September 30, 2019. At September 30, 2019,March 31, 2020. As of March 31, 2020, the outstanding balance under the Term Loan Facility was $175.5$167.9 million.

Encore Senior Secured Notes
In August 2017, Encore entered into $325.0 million in senior secured notes with a group of insurance companies (the “Senior Secured Notes”). The Senior Secured Notes bear an annual interest rate of 5.625%, mature in 2024 and beginning in November 2019, will require quarterly principal payments of $16.3 million. At September 30, 2019, the outstanding balanceAs of March 31, 2020, $292.5 million of the Senior Secured Notes was $325.0 million.remained outstanding.
The Senior Secured Notes are guaranteed in full by certain of Encore’s subsidiaries. The Senior Secured Notes are pari passu with, and are collateralized by the same collateral as, the Senior Secured Credit Facilities. The Senior Secured Notes may be accelerated and become automatically and immediately due and payable upon certain events of default, including certain events related to insolvency, bankruptcy, or liquidation. Additionally, any series of the Senior Secured Notes may be accelerated at the election of the holder or holders of a majority in principal amount of such series of Senior Secured Notes upon certain events of default by Encore, including the breach of affirmative covenants regarding guarantors, collateral, minimum revolving credit facility commitment or the breach of any negative covenant. Encore may prepay the Senior Secured Notes at any time for any reason. If Encore prepays the Senior Secured Notes, payment will be at the higher of par or the present value of the remaining scheduled payments of principal and interest on the portion being prepaid. The discount rate used to determine the present value is 50 basis points over the then current Treasury Rate corresponding to the remaining average life of the Senior Secured Notes. The covenants and material terms in the purchase agreement for the Senior Secured Notes are substantially similar to those in the Restated Credit Agreement. The holders
19
Table of the Senior Secured Notes and the administrative agent for the lenders of the Restated Credit Agreement have an intercreditor agreement related to their pro rata rights to the collateral, actionable default, powers and duties and remedies, among other topics.Contents
Encore 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,
2019		 December 31,
2018		 Maturity date Interest rate
2020 Convertible Notes$89,355
 $172,500
 July 2020 3.000%
2021 Convertible Notes161,000
 161,000
 March 2021 2.875%
2022 Convertible Notes150,000
 150,000
 March 2022 3.250%
Exchangeable Notes172,500
 172,500
 September 2023 4.500%
2025 Convertible Notes100,000
 —
 October 2025 3.250%
 $672,855
 $656,000
    

March 31,
2020		December 31,
2019		Maturity dateInterest rate
2020 Convertible Notes$89,355  $89,355  Jul 1, 20203.000 %
2021 Convertible Notes161,000  161,000  Mar 15, 20212.875 %
2022 Convertible Notes150,000  150,000  Mar 15, 20223.250 %
Exchangeable Notes172,500  172,500  Sep 1, 20234.500 %
2025 Convertible Notes100,000  100,000  Oct 1, 20253.250 %
$672,855  $672,855  
In June and July 2013,The Exchangeable Notes were issued by Encore issued $172.5 million aggregate principal amount of 3.000% convertible senior notes that mature on July 1, 2020 in private placement transactions (the “2020 Convertible Notes”). In March 2014, Capital Europe Finance Limited (“Encore issued $161.0 million aggregate principal amount of 2.875% convertible senior notes that mature on March 15, 2021 in private placement transactions (the “2021 Convertible Notes”Finance”). In March 2017, Encore issued $150.0 million aggregate principal amount of 3.250% convertible senior notes that mature on March 15, 2022 in private placement transactions (the “2022 Convertible Notes”).
In July 2018, Encore Finance (defined below), a 100% owned finance subsidiary of Encore, issued $172.5 million aggregate principal amount of exchangeable senior notes due 2023 (the “Exchangeable Notes”) whichand are fully and unconditionally guaranteed by Encore. The Exchangeable Notes mature on September 1, 2023 and bear interest at a rate of 4.500% per year, payable semiannually in arrears on March 1 and September 1 of each year, beginning on March 1, 2019.
Unless otherwise indicated in connection with a particular offering of debt securities, Encore will fully and unconditionally guarantee any debt securities issued by Encore Capital Europe Finance Limited (“Encore Finance”), a 100% owned finance subsidiary of 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.
In September 2019, Encore issued $100.0 million aggregate principal amount of 3.250% convertible senior notes that mature on October 1, 2025 in a private placement transaction (the “2025 Convertible Notes” and together with the 2020 Convertible Notes, the 2021 Convertible Notes and the 2022 Convertible Notes, the “Convertible Notes”). The interest on the Convertible Notes is payable semi-annually. The Company used a portion of the net proceeds from the issuance of the 2025 Convertible Notes to repurchase, in separate privately negotiated transactions, approximately $83.1 million aggregate principal amount of its 2020 Convertible Notes for approximately $85.0 million, including accrued and unpaid interest. Additionally, the

Company received proceeds of $1.8 million from the unwind of the capped call options associated with the repurchased portion of the 2020 Convertible Notes. Based on the fair value allocated to the debt and equity components of the 2020 Convertible Notes at the time of repurchase, the Company recognized a pre-tax loss on the repurchase of approximately $1.7 million, which was recorded to other expense in the consolidated statements of operations during the three and nine months ended September 30, 2019. In addition, the Company recognized approximately $0.4 million of interest expense to record the write-off of unamortized debt issuance costs associated with the repurchase of the 2020 Convertible Notes in the consolidated statements of operations during the three and nine months ended September 30, 2019. Since the capped call options were determined to be equity instruments, the partial unwind of the capped call options was recorded as an increase in additional paid-in capital in the consolidated statements of financial condition as of September 30, 2019.
Prior to the close of business on the business day immediately preceding their respective 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 conversion or exchange dates until the close of business on the scheduled trading day immediately preceding their respective maturity date, holders may convert or exchange their notes at any time. Certain key terms related to the convertible and exchangeable features as of September 30, 2019March 31, 2020 are listed below.below:
2020 Convertible Notes2021 Convertible Notes2022 Convertible Notes2023 Exchangeable Notes2025 Convertible Notes
Initial conversion or exchange price$45.72  $59.39  $45.57  $44.62  $40.00  
Closing stock price at date of issuance$33.35  $47.51  $35.05  $36.45  $32.00  
Closing stock price dateJun 24, 2013Mar 5, 2014Feb 27, 2017Jul 20, 2018Sep 4, 2019
Conversion or exchange rate (shares per $1,000 principal amount)21.8718  16.8386  21.9467  22.4090  25.0000  
Conversion or exchange dateJan 1, 2020Sep 15, 2020Sep 15, 2021Mar 1, 2023Jul 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 (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, and in accordance with authoritative guidance related to derivatives and hedging and earnings per share, 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.
Authoritative guidance requires that issuers



20
Table of convertible or exchangeable debt instruments which, upon conversion or exchange, may be settled fully or partially in cash, must separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible or nonexchangeable debt borrowing rate when interest cost is recognized in subsequent periods. Additionally, debt issuance costs are required to be allocated in proportion to the allocation of the liability and equity components and accounted for as debt issuance costs and equity issuance costs, respectively.Contents
As discussed above, upon exchange of the Exchangeable Notes, the Company will pay or deliver, as the case may be, 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 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):

2020 Convertible Notes(1)
2021 Convertible Notes2022 Convertible Notes2023 Exchangeable Notes2025 Convertible Notes
Debt component$140,247  $143,645  $137,266  $157,971  $91,024  
Equity component$32,253  $17,355  $12,734  $14,009  $8,976  
Equity issuance cost$1,106  $581  $398  $—  $224  
Stated interest rate3.000 %2.875 %3.250 %4.500 %3.250 %
Effective interest rate6.350 %4.700 %5.200 %6.500 %5.000 %
________________________
 
2020 Convertible Notes(1)
 2021 Convertible Notes 2022 Convertible Notes 2023 Exchangeable Notes 2025 Convertible Notes
Debt component$140,247
 $143,645
 $137,266
 $157,971
 $91,024
Equity component$32,253
 $17,355
 $12,734
 $14,009
 $8,976
Equity issuance cost$1,106
 $581
 $398
 $—
 $224
Stated interest rate3.000% 2.875% 3.250% 4.500% 3.250%
Effective interest rate6.350% 4.700% 5.200% 6.500% 5.000%
________________________(1)The Company used a portion of the net proceeds from the issuance of the 2025 Convertible Notes to repurchase approximately $83.1 million aggregate principal amount of its 2020 Convertible Notes. As a result, the remaining principal amount of the 2020 Convertible Notes was $89.4 million as of March 31, 2020.
(1)The Company used a portion of the net proceeds from the issuance of the 2025 Convertible Notes to repurchase approximately $83.1 million aggregate principal amount of its 2020 Convertible Notes. As a result, the remaining principal amount of the 2020 Convertible Notes was $89.4 million as of September 30, 2019.
The balances of the liability and equity components of all the Convertible Notes and Exchangeable Notes outstanding were as follows (in thousands):
 September 30,
2019		 December 31,
2018
Liability component—principal amount$672,855
 $656,000
Unamortized debt discount(33,317) (36,361)
Liability component—net carrying amount$639,538
 $619,639
Equity component$83,127
 $76,351

March 31,
2020		December 31,
2019
Liability component—principal amount$672,855  $672,855  
Unamortized debt discount(27,264) (30,308) 
Liability component—net carrying amount$645,591  $642,547  
Equity component$83,127  $83,127  
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,
 2019 2018 2019 2018
Interest expense—stated coupon rate$6,754
 $3,676
 $17,662
 $10,969
Interest expense—amortization of debt discount3,405
 2,518
 9,770
 7,410
Interest expense—Convertible Notes and Exchangeable Notes$10,159
 $6,194
 $27,432
 $18,379

Three Months Ended March 31,
20202019
Interest expense—stated coupon rate$5,799  $5,337  
Interest expense—amortization of debt discount3,044  3,121  
Interest expense—Convertible Notes and Exchangeable Notes$8,843  $8,458  
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 primarily through capped call options, that increases the effective conversion or exchange price for the 2020 Convertible Notes, the 2021 Convertible Notes and the Exchangeable Notes. The Company did not hedge the 2022 Convertible Notes or the 2025 Convertible Notes. As discussed above, the Company unwound the capped call options associated with the portion of the 2020 Convertible Notes repurchased by the Company in September 2019.
The details of the hedge program are listed below (in thousands, except conversion price):
2020 Convertible Notes2021 Convertible Notes2023 Exchangeable Notes
Cost of the hedge transaction(s)$18,113  $19,545  $17,785  
Initial conversion or exchange price$45.72  $59.39  $44.62  
Effective conversion or exchange price$61.55  $83.14  $62.48  


21
Table of Contents
Cabot Senior Secured Notes
The following table provides a summary of the Cabot senior secured notes ($ in thousands):

 September 30,
2019		 December 31,
2018		 Maturity date Interest rate
Floating rate senior secured notes due 2024$435,960
 $—
 June 2024 EURIBOR +6.375%
Floating rate senior secured notes due 2021—
 356,067
 November 2021 EURIBOR +5.875%
Senior secured notes due 2023630,474
 653,355
 October 2023 7.500%
Senior secured notes due 2021—
 101,977
 April 2021 6.500%
 $1,066,434
 $1,111,399
    

In June 2019, Cabot Financial (Luxembourg) II S.A. (“Cabot Financial II”), an indirect subsidiary of Encore, 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 will mature in June 2024 and 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.
The proceeds from the issuance of the Cabot 2024 Floating Rate Notes, together with cash on hand, were used to (1) fully redeem existing €310.0 million (approximately $350.3 million) floating rate notes due in November 2021 and pay premium and accrued interest thereon, (2) fully redeem existing £80.0 million (approximately $101.6 million) senior secured notes due in April 2021 and pay accrued interest thereon, and (3) pay commissions, fees and other expenses. The transaction was treated as a debt extinguishment and related fees of approximately $9.0 million were recorded as interest expense in the Company’s consolidated statements of operations during the nine months ended September 30, 2019.
The Cabot 2024 Floating Rate Notes are fully and unconditionally guaranteed on a senior secured basis by the following indirect subsidiaries of the Company: CCM, Cabot Financial Limited and all material subsidiaries of Cabot Financial Limited (other than Cabot Financial II, Marlin Intermediate Holdings plc, Cabot Securitisation UK Limited and Cabot Securitisation (UK) II Limited). The Cabot 2024 Floating Rate Notes are secured by a first-ranking security interest in all the outstanding shares of Cabot Financial II and the guarantors (other than CCM and Marlin Midway Limited) and substantially all the assets of Cabot Financial II and the guarantors (other than CCM).
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”). The Cabot 2023 Notes mature in October 2023. Interest on the Cabot 2023 Notes is payable semi-annually, in arrears, on April 1 and October 1 of each year. The Cabot 2023 Notes are fully and unconditionally guaranteed on a senior secured basis by the following indirect subsidiaries of the Company: CCM, Cabot Financial Limited, and all material subsidiaries of Cabot Financial Limited (other than Cabot Financial, Marlin Intermediate Holdings plc, Cabot Securitisation UK Limited and Cabot Securitisation (UK) II Limited). The Cabot 2023 Notes are secured by a first ranking security interest in all the outstanding shares of Cabot Financial and the guarantors (other than CCM and Marlin Midway Limited) and substantially all the assets of Cabot Financial and the guarantors (other than CCM). Subject to the Intercreditor Agreement described below under “Cabot Senior Revolving Credit Facility”, the guarantees provided in respect of the Cabot 2023 Notes are pari passu with each such guarantee given in respect of the Cabot 2024 Floating Rate Notes and the Cabot Credit Facility described below.
March 31,
2020		December 31,
2019		Maturity dateInterest rate
Floating rate senior secured notes due 2024$441,336  $448,921  Jun 1, 2024EURIBOR +6.375%
Senior secured notes due 2023637,629  680,118  Oct 1, 20237.500 %
$1,078,965  $1,129,039  
Interest expense related to the Cabot senior secured notes was as follows (in thousands):
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Interest expense—stated coupon rate$18,434
 $21,411
 $57,291
 $64,250
Interest expense—amortization of debt discount1,522
 1,684
 5,091
 4,579
Interest expense—Cabot senior secured notes$19,956
 $23,095
 $62,382
 $68,829

 Three Months Ended March 31,
20202019
Interest expense—stated coupon rate$19,417  $19,394  
Interest expense—amortization of debt discount85  202  
Interest expense—Cabot senior secured notes$19,502  $19,596  
Cabot Senior Revolving Credit FacilitiesFacility
In November 2018, Cabot Financial (UK) Limited (“Cabot Financial UK”) entered intohas an amended and restated senior secured revolving credit facility agreement (as amended and restated, the “Cabot Credit Facility”). At September 30, 2019,As of March 31, 2020, the Cabot Credit Facility providesprovided for a total committed facility of £385.0£375.0 million of which £375.0 millionthat expires in September 2022 and £10.0 million expires in September 2021,2023 and included the following key provisions:

•Interest at LIBOR (or EURIBOR for any loan drawn in euro) plus 3.00% per annum;
•
Interest at LIBOR (or EURIBOR for any loan drawn in euro) plus 3.00% per annum for the £375.0 million facility, and interest at LIBOR (or EURIBOR for any loan drawn in euro) plus 3.25% per annum for the £10.0 million facility;
A restrictive covenant that limits the loan to value ratio to 0.75 in the event that the Cabot Credit Facility is more than 20% utilized;
•A restrictive covenant that limits the super senior loan (i.e.(i.e., the Cabot Credit Facility and any super priority hedging liabilities) to value ratio to 0.275; and
•Additional restrictions and covenants which limit, among other things, the payment of dividends and the incurrence of additional indebtedness and liens; andliens.
EventsAs of default which, upon occurrence, may permit the lenders to terminate the Cabot Credit Facility and declare all amounts outstanding to be immediately due and payable.
The Cabot Credit Facility is unconditionally guaranteed by the following indirect subsidiaries of the Company: CCM, Cabot Financial Limited, and all material subsidiaries of Cabot Financial Limited. The Cabot Credit Facility is secured by first ranking security interests in all the outstanding shares of Cabot Financial UK and the guarantors (other than CCM) and substantially all the assets of Cabot Financial UK and the guarantors (other than CCM). Pursuant to the terms of intercreditor agreements entered into with respect to the relative positions of the Cabot 2023 Notes, the Cabot 2024 Floating Rate Notes, and the Cabot Credit Facility, any liabilities in respect of obligations under the Cabot Credit Facility that are secured by assets that also secure the Cabot 2023 Notes, the Cabot 2024 Floating Rate Notes will receive priority with respect to any proceeds received upon any enforcement action over any such assets.
At September 30, 2019,March 31, 2020, the outstanding borrowings under the Cabot Credit FacilitiesFacility were £248.5£194.0 million (approximately $305.5$241.2 million). The weighted average interest rate was 3.71%3.55% and 3.86%3.37% for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and 3.47% and 3.78% for the nine months ended September 30, 2019 and 2018, respectively. Available capacity under the Cabot Credit Facility, after taking into account borrowing base and applicable debt covenants, was £136.5£181.0 million (approximately $167.8$225.0 million) as of September 30, 2019.March 31, 2020.
Cabot Securitisation Senior Facility
Cabot’s wholly owned subsidiary Cabot Securitisation UK Ltd (“Cabot Securitisation”) entered into a senior facility agreement (the “Senior Facility Agreement”) for a committed amount of £300.0 million,million. In November 2018, Cabot’s wholly owned subsidiary Cabot Securitisation UK II Ltd (“Cabot Securitisation II”) entered into a non-recourse asset backed senior facility of which £300.0 million was drawn as£50.0 million.
On February 18, 2020, Cabot Securitisation amended and restated its Senior Facility Agreement. Pursuant to the amendment and restatement of September 30, 2019. Thethe Senior Facility Agreement, maturesthe total commitment amount was increased by £50.0 million from £300.0 million to £350.0 million, the repayment date was extended from September 15, 2023 to March 15, 2025 and SONIA replaced LIBOR as the reference rate. Funds drawn under the amended and restated Senior Facility Agreement 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 0 to 1.00%. Cabot Securitisation has drawn down the additional £50.0 million and used the proceeds to purchase receivables from Cabot Securitisation II in September 2023.order to effect the termination of the £50.0 million senior facility of Cabot Securitisation II.
As of March 31, 2020, the outstanding borrowings under the Cabot Securitisation Senior Facility were £350.0 million (approximately $435.1 million). The obligations of Cabot Securitisation under the Senior Facility Agreement 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 £329.3£377.6 million (approximately $404.8
22
Table of Contents
$469.4 million) as of September 30, 2019. Funds drawn under the Senior Facility Agreement will bear interest at a rate per annum equal to LIBOR plus a margin of 2.85%.
In November 2018, Cabot’s wholly owned subsidiary Cabot Securitisation UK II Ltd (“Cabot Securitisation II”) entered into a new non-recourse asset backed senior facility of £50.0 million, of which £50.0 million was drawn as of September 30, 2019. The senior facility matures in September 2023. The facility is secured by first ranking security interests over all of Cabot Securitisation II’s property, assets and rights (including receivables purchased from Cabot Financial UK from time to time), the book value of which was approximately £52.5 million (approximately $64.5 million) as of September 30, 2019. Funds drawn under this facility will bear interest at a rate per annum equal to LIBOR plus a margin of 4.075%.
At September 30, 2019, the outstanding borrowings under the Cabot Securitisation Senior Facility were £350.0 million (approximately $430.2 million).March 31, 2020. The weighted average interest rate was 3.75%3.52% and 3.56%3.76% for the three months ended September 30,March 31, 2020 and 2019 and 2018 respectively, and 3.74% and 3.42% for the nine months ended September 30, 2019 and 2018, respectively.
Cabot Securitisation and Cabot Securitisation II are securitized financing vehicles and are VIEs for consolidation purposes. Refer to Note 9, “Variable“Note 9: Variable Interest Entities,” for further details.
Finance Lease Liabilities
The Company has finance lease liabilities primarily for computer equipment. As of September 30, 2019, the Company’s finance lease liabilities were approximately $7.9 million. Refer to “Note 11: Leases”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.
The Company evaluates its relationships with its VIEs on an ongoing basis to ensure that it continues to be the primary beneficiary. A reconsideration event is significant if it changes the design of the entity or the entity’s equity investment at risk. Prior to the purchase of all of the outstanding equity of CCM not owned by the Company, CCM’s indirect holding Company Janus Holdings S.a r.l. (“Janus Holdings”) was a VIE. Upon completion of the Cabot Transaction on July 24, 2018 and the subsequent change in organizational structure, Janus Holdings no longer qualified as a VIE and CCM is consolidated via the voting interest model.
As of September 30, 2019,March 31, 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.
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
IncomeThe Company recorded income tax expense was $3.0of $4.6 million and $16.9on consolidated loss before income taxes of $6.0 million during the three months ended September 30, 2019March 31, 2020 and 2018, respectively, and $18.4income tax expense of $3.7 million and $37.7on consolidated income before income taxes of $53.1 million during the ninethree months ended September 30, 2019 and 2018, respectively.March 31, 2019. The decreases in income tax expense for the three and nine months ended September 30, 2019 as compared to the corresponding periods in 2018 wereMarch 31, 2020 was primarily attributable to the recording of valuation allowances in certain foreign jurisdictions that incurred pre-tax losses. The income tax expense for the three months ended March 31, 2019 included a tax benefit recognized in relation to the Baycorp Transaction. Additionally, the decrease in income tax expense during the nine months ended September 30, 2019 as compared to the corresponding period in 2018 was also a result of a tax benefit recognizedapproximately $9.1 million related to a tax accounting method change for revenue reporting approved by the Internal Revenue Service (“IRS”) during the first quarterperiod.
23
Table of 2019.Contents

The effective tax rates for the respective periods are shown below:
Three Months Ended March 31,
 20202019
Federal provision21.0 %21.0 %
State provision(15.6)%2.5 %
Foreign income taxed at different rates(1)
(3.2)%(0.9)%
Change in valuation allowance(2)
(66.5)%1.9 %
Change in tax accounting method(3)
— %(17.1)%
Foreign currency remeasurement(6.4)%0.2 %
Permanent items(4)
(1.7)%0.1 %
Other(3.3)%(0.8)%
Effective tax rate(75.7)%6.9 %
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2019 2018 2019 2018
Federal provision21.0 % 21.0% 21.0 % 21.0 %
State provision5.3 % 1.7% 3.7 % 1.5 %
Tax benefit relating to Baycorp Transaction(1)
(29.1)% —% (8.6)% — %
Foreign income taxed at different rates(3.4)% 13.0% (2.6)% (1.6)%
Audit assessment(2)
8.9 % —% 2.6 % — %
Change in valuation allowance1.9 % 18.1% 2.1 % 16.3 %
Change in tax accounting method(3)
— % —% (6.3)% — %
Other2.5 % 2.7% 0.9 % (0.1)%
Effective rate7.1 % 56.5% 12.8 % 37.1 %
________________________
________________________(1)Relates primarily to the lower tax rates on the income or loss attributable to international operations.
(1)In connection with
(2)Change in valuation allowance during 2020, recognized in the Baycorp Transaction that was completed on August 15, 2019, the Company recognized a total tax benefit of $17.5 million on the disposition of certain investments in Baycorp held by the Company and its subsidiaries in various jurisdictions during the three and nine months ended September 30, 2019.
(2)Relates to an IRS audit assessment for tax years 2014-2017 currently under exam.
(3)During the first quarter of 2019, the Company received IRS approval for a tax accounting method change related to revenue reporting. The revised tax accounting method more closely aligns with the Company’s book accounting method for revenue reporting. 
Each interim period under the discrete method, is considered an integral partattributable to losses incurred at certain foreign subsidiaries with cumulative operating losses for tax purposes.
(3)In 2019, includes tax benefit resulting from tax accounting method change.
(4)Represents a provision for nondeductible expenses
The Company utilized the discrete effective tax rate method (“discrete method”) for recording income taxes for the three months ended March 31, 2020. The Company believes the use of the annual period and tax expense or benefitdiscrete method is measured using an estimated annual effective income tax rate. Themore appropriate than the application of the estimated annual effective tax rate for the full year is applied(“AETR”) method due to uncertainty in estimating annual pre-tax earnings primarily due to the respective interim period, taking into account year-to-date amounts and projected amounts forongoing COVID-19 pandemic. The Company will re-evaluate the year. Since the Company operates in foreign countries with varying tax rates, the impactuse of the resultsdiscrete method each quarter until it is deemed appropriate to return to the international operations have on the Company’s quarterly effective tax rate is dependent on the level of income or loss from the international operations in the period.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,March 31, 2020 and 2019, and 2018, was immaterial.
The Company had gross unrecognized tax benefits, inclusive of penalties and interest, of $19.9$8.2 million at September 30, 2019.as of March 31, 2020. These unrecognized tax benefits, if recognized, would result in a net tax benefit of $13.0$7.6 million as of September 30, 2019.March 31, 2020. There werewas no material changeschange in gross unrecognized tax benefits from December 31, 2018.2019.
OfThe Company has not provided for applicable income or withholding taxes on the Company’s $186.7 millionundistributed earnings from continuing operations for certain of cash and cash equivalents as of September 30, 2019, $161.8 million was heldits subsidiaries operating outside of the United States. FollowingUndistributed net income of these subsidiaries as of March 31, 2020 was approximately $117.1 million. Such undistributed earnings are considered permanently reinvested. The Company does not provide deferred taxes on translation adjustments on unremitted earnings under the enactmentindefinite reversal exemption. Determination of the Tax Reform Act andamount of unrecognized deferred tax liability related to these earnings is not practical due to the associated transition tax, in general, repatriationcomplexities of cash toa hypothetical calculation. Subsidiaries operating outside of the United States can be completed with no incremental U.S. tax. However, repatriation of cash could subjectfor which the Company to non-U.S. jurisdictional taxes on distributions. The Company maintains non-U.S. funds in its foreign operations to (1) provide adequate working capital, (2) satisfy various regulatory requirements, and (3) take advantage of business expansion opportunities as they arise. The non-U.S. jurisdictional taxes applicable to foreign earnings aredoes not readily determinable or practicable. The Company regularly evaluates its election to indefinitely reinvest its non-U.S. earnings. As of September 30, 2019, management believes that it has sufficient liquidity to satisfy its cash needs, including its cash needs in the United States.
Note 11: Leases
Effective January 1, 2019, the Company adopted Topic 842 using the modified retrospective method. As such, the Company recognized operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated statements of financial condition. Prior period financial statements were not adjustedconsider under the new standardindefinite reversal exemption have no material undistributed earnings or outside basis differences and therefore those amounts areno 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 of employer payroll taxes and income taxes. The CARES Act did not presented below. The Company elected not to apply the recognition requirements to short-term leases, not to separate non-lease components from lease components, and elected the transition provisions available for existing contracts, which allowed the Company to carryforward its historical assessments of (1) whether contracts are or containhave a lease, (2) lease classification, and (3) initial direct costs.
ROU assets representmaterial impact on the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the net present value of fixed lease payments over the lease term. The Company’s lease term includes options to extendeffective tax rate or terminate the lease when it is reasonably certain that it will exercise that option. ROU assets also

include any advance lease payments made and are net of any lease incentives. As most of the Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that the Company would expect to pay to borrow over a similar term, and on a collateralized basis, an amount equal to the lease payments in a similar economic environment.
The majority of the Company’s leases are for corporate offices, various facilities and information technology equipment. The components of lease expenseincome tax provision for the three and nine months ended September 30, 2019 were as follows (in thousands):March 31, 2020.
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2019 2019
Operating lease costs(1)
$6,739
 $15,394
Finance lease costs   
Amortization of right-of-use assets441
 1,254
Interest on lease liabilities51
 466
Total lease costs$7,231
 $17,114
________________________
(1)Operating lease expenses are included in general and administrative expenses in the Company’s consolidated statements of operations. Costs include short-term and variable lease components which were not material for the periods.
The following table provides supplemental consolidated balance sheet information related to leases as of September 30, 2019 (in thousands):
 ClassificationSeptember 30,
2019
Assets  
Operating lease right-of-use assetsOther assets$75,852
Finance lease right-of-use assetsProperty and equipment, net8,286
Total lease right-of-use assets $84,138
   
Liabilities  
Operating lease liabilitiesOther liabilities$94,154
Finance lease liabilitiesDebt, net7,893
Total lease liabilities $102,047

Supplemental lease information is summarized below (in thousands, except rate and lease term):
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2019 2019
Right-of-use assets obtained in exchange for new operating lease obligations$4,232
 $114,484
Right-of-use assets obtained in exchange for new finance lease obligations3,862
 6,795
Cash paid for amounts included in the measurement of lease liabilities   
Operating leases - operating cash flows4,022
 10,883
Finance leases - operating cash flows51
 466
Finance leases - financing cash flows454
 1,419


September 30,
2019
Weighted-average remaining lease term (in years)
Operating leases8.2
Finance leases3.2
Weighted-average discount rate
Operating leases(1)
5.4%
Finance leases4.7%
________________________
(1)Upon adoption of the new lease standard, discount rates used for existing operating leases were established at January 1, 2019.
Minimum future payments on noncancelable operating leases as of September 30, 2019 are summarized as follows (in thousands):
 
Finance
Leases
 
Operating
Leases
 Total
2019(1)
$662
 $3,812
 $4,474
20202,646
 17,233
 19,879
20212,508
 16,352
 18,860
20222,281
 13,288
 15,569
2023433
 12,145
 12,578
Thereafter—
 54,566
 54,566
Total undiscounted lease payments8,530
 117,396
 125,926
   Less: imputed interest(637) (23,242) (23,879)
Lease obligations$7,893
 $94,154
 $102,047
________________________
(1)2019 amount consists of three months data from October 1, 2019 to December 31, 2019.

As previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and under the previous lease accounting standard, minimum future payments on noncancelable operating leases as of December 31, 2018 are summarized as follows (in thousands):
 
Finance
Leases
 
Operating
Leases
 Total
2019$2,507
 $16,538
 $19,045
20201,983
 13,850
 15,833
20211,844
 13,044
 14,888
20221,630
 11,737
 13,367
2023204
 9,741
 9,945
Thereafter—
 37,997
 37,997
Total minimal leases payments8,168
 $102,907
 $111,075
   Less: Interest(605)    
Present value of minimal lease payments$7,563
    


Note 12:11: 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
24
Table of Contents
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.
At September 30, 2019,As of March 31, 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, 2018.2019.
In certain legal proceedings, the Company may have recourse to insurance or third partythird-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, 2019,March 31, 2020, the Company has 0 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, 2019,March 31, 2020, the Company had entered into agreements to purchase receivable portfolios with a face value of approximately $2.6$3.0 billion for a purchase price of approximately $306.0$378.4 million. Most purchase commitments do not extend past one year.
Note 13:12: 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 1 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.
The Company has operations in the United States, Europe and other foreign countries. The following table presents the Company’s total revenues adjusted by net allowances by geographic areasarea in which the Company operates (in thousands):
 Three Months Ended March 31,
 20202019
Total revenues(1):
United States$208,218  $189,372  
International
Europe(2)
75,965  135,276  
Other geographies4,898  22,429  
80,863  157,705  
Total$289,081  $347,077  
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2019 2018 2019 2018
Revenues, adjusted by net allowances(1):
       
United States$211,193
 $178,892
 $599,953
 $530,679
International       
Europe(2)
130,868
 137,331
 397,063
 412,407
Other geographies13,875
 20,551
 52,871
 70,223
 144,743
 157,882
 449,934
 482,630
Total$355,936
 $336,774
 $1,049,887
 $1,013,309
________________________
________________________(1)Total revenues for periods in 2019 are adjusted by net allowances. Total revenues are attributed to countries based on consumer location.
(1)Revenues, adjusted by net allowances, are attributed to countries based on consumer location. Revenues primarily include portfolio revenues and fee-based income earned on accounts collected on behalf of others.
(2)Based on the financial information that is used to produce the general-purpose financial statements, providing further geographic information is impracticable.
(2)Based on the financial information that is used to produce the general-purpose financial statements, providing further geographic information is impracticable.
Note 14:13: 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.

On August 15,The Company performs its annual goodwill impairment testing in the fourth quarter of each year. During the 2019 impairment testing, both of the two reporting units had fair values substantially in excess of their carrying values. In addition to the annual impairment test, the Company completed the sale of Baycorp.is required to assess whether a triggering event has occurred which would require interim impairment testing. The Company concludedconsidered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and its impact on each of the reporting units. Further, the Company assessed the current market capitalization, forecasts and the amount of headroom in the 2019 impairment test. The Company determined that it was
25
Table of Contents
not more likely than not that the fair value of Baycorp immediately prior toeach of the Baycorp Transactionreporting units was less than its recorded bookrespective carrying value and, as a result, the entire goodwill balance carried at the Baycorp reporting unit of $10.7 million was impaired. The goodwill impairment is included in operating expenses in the Company’s consolidated statements of operations during the three and nine months ended September 30, 2019.
The annual goodwill testing date for the reporting units that are included in the portfolio purchasing and recovery reportable segment is October 1st. Other than the impairment charge discussed above, there have been no events or circumstances during the nine months ended September 30, 2019 that have required the Company to performMarch 31, 2020. Therefore, an interim assessment of goodwill carried at these reporting units. 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):
 Total
Balance, December 31, 2018$868,126
Effect of foreign currency translation14,758
Balance, March 31, 2019882,884
Effect of foreign currency translation(17,357)
Balance, June 30, 2019865,527
Goodwill impairment(10,718)
Effect of foreign currency translation(23,260)
Balance, September 30, 2019$831,549

Three Months Ended March 31,
20202019
Balance, beginning of period$884,185  $868,126  
Effect of foreign currency translation(44,884) 14,758  
Balance, end of period$839,301  $882,884  
The Company’s acquired intangible assets are summarized as follows (in thousands):
 As of March 31, 2020As of December 31, 2019
 Gross
Carrying
Amount		Accumulated
Amortization		Net
Carrying
Amount		Gross
Carrying
Amount		Accumulated
Amortization		Net
Carrying
Amount
Customer relationships$60,718  $(15,565) $45,153  $67,897  $(18,191) $49,706  
Developed technologies4,257  (3,744) 513  4,734  (4,124) 610  
Trade name and other5,248  (4,543) 705  6,299  (5,244) 1,055  
Total intangible assets$70,223  $(23,852) $46,371  $78,930  $(27,559) $51,371  
 As of September 30, 2019 As of December 31, 2018
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Customer relationships$63,464
 $(15,309) $48,155
 $73,458
 $(17,025) $56,433
Developed technologies5,842
 (5,161) 681
 7,461
 (6,446) 1,015
Trade name and other5,557
 (4,676) 881
 8,346
 (5,213) 3,133
Total intangible assets$74,863
 $(25,146) $49,717
 $89,265
 $(28,684) $60,581

26

Table of Contents


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, and financing needs or plans or the impacts of COVID-19, 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. 1A—Risk Factors” and those set forth in our subsequent Quarterly Report for the quarter ended June 30, 2019 under “Part II, Item 1A, Risk Factors,”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 primarily 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. Cabot strengthened its debt servicing offerings with the acquisition ofcollections, including through Wescot Credit Services Limited (“Wescot”), a leading U.K. contingency debt collection and BPO services company in November 2017. Previously we controlled CCM via our majority ownership interest in an indirect holding company of CCM. In July 2018, we completed the purchase of all of the outstanding equity of CCM not owned by us (the “Cabot Transaction”). As a result, CCM became a wholly owned subsidiary of Encore.company.
LAAP (Latin America and Asia-Pacific)
We have purchased non-performing loans in Colombia, Peru, Mexico and Brazil.Brazil (which was sold in April 2020). Additionally, we have invested in Encore Asset Reconstruction Company (“EARC”) in India.
In August 2019, we completed the sale (the “Baycorp Transaction”) of our wholly-owned subsidiary Encore Australia Holdings I PTY LTD (together with its subsidiaries “Baycorp”). Baycorp specialized in the management of non-performing

loans in Australia and New Zealand and was previously a component of our LAAP business unit. 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.
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 through MCMin the United States and United Kingdom and strengthening and developing our Cabot business.business in the rest of Europe.
27
Table of Contents
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.
Although such disruptions did not have a material effect on our day-to-day operations for the first quarter of 2020, they are having an adverse impact on our ability to collect and are expected to delay a portion of our near-term collections on purchased receivable portfolios. Therefore, in accordance with the new accounting standard for Financial Instruments - Credit Losses (“CECL”), we have updated our expectations of timing of future collections primarily as a result of COVID-19, the financial impact of which materially impacted our results of operations.
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 COVID-19 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.
On May 7, 2019, the Consumer Financial Protection Bureau (“CFPB”) issued a Notice of Proposed Rulemaking (“NPRM”) regarding debt collection. The NPRM proposes rules related to, among other things: disclosures by debt collectors to consumers; requirements for debt validation; use of newer technologies (text, voicemail and email) to communicate with consumers; and limits relating to telephonic communications. The industry and public had a 90-day period to comment on the proposed rules, which was extended by 30 days. The CFPB will evaluate any comments and issue the final rules. It is anticipated that the final rules will be issued in early to mid 2020, with an effective date one year after the final rules are issued. 
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.domestic business. 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 certain secured mortgage portfolios and portfolios that are in insolvency status, in particular, individual voluntary arrangements.
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 with a high degree of accuracy and quantify portfolio performance in order to maximize future collections. As a result, we have been able to realize significant returns from the assets
28
Table of Contents
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)
Industry delinquency and charge-off rates have continued to increase, creating higher volumes of charged-off accounts that are sold. In addition, 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. Meanwhile pricing remainsin the first quarter remained favorable. In addition to selling a higher volume of charged-off accounts, 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 COVID-19 on pricing and supply as well as collections and cost-to-collect.
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 being more 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 continues to grow,has generally provided a relatively consistent pipeline of opportunities over the past few years, despite an on-goingongoing historic low level of charge-off rates, as creditors choose to both sell morehave embedded debt sales as an integral part of their debtbusiness models and sell at earlier stages. The near record levels of consumer indebtedness suggest that charged-off debt will increase over time and, together with recent commitments by major debt purchasershas continued to deliver a deleveraging profile, cause us to believe that pricing pressure will decrease ingrow since the future.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 institutions continue to experience both market and regulatory pressure to dispose of non-performing loans, which should further increase debt purchasing opportunities in Spain.
Although pricing has been elevated, we believe that asAcross all of our European businesses increasemarkets, we are closely monitoring the impacts of COVID-19 on pricing and supply of portfolios to purchase. Due to the COVID-19 pandemic, banks have paused portfolio sales to address customers’ needs. As a result, we expect a lower level of supply available for purchase in scale and continue to improve liquidation and collection efficiencies, our margins will remain competitive. Additionally, our continuing investment in our litigation liquidation channel has enabled us to collect from consumers who have the ability to pay but have so far been unwilling to do so. This also enables us to mitigate some of the impact of elevated pricing.near-term.
PurchasesPurchased Receivables by Geographic Location
The following table summarizes the geographic locations of receivable portfolios we purchased during the periods presented (in thousands):
Three Months Ended
September 30,		 Nine Months Ended
September 30,		 Three Months Ended March 31,
2019 2018 2019 2018 20202019
MCM (United States)$173,214
 $122,783
 $527,318
 $504,333
MCM (United States)$185,252  $174,227  
Cabot (Europe)85,201
 114,988
 226,047
 349,315
Cabot (Europe)28,861  83,640  
Other geographies1,495
 10,920
 11,577
 31,385
Other geographies—  4,468  
Total purchases$259,910
 $248,691
 $764,942
 $885,033
Total purchases$214,113  $262,335  
During the three months ended September 30, 2019,March 31, 2020, we invested $259.9$214.1 million to acquire receivable portfolios, with face values aggregating $5.3$1.7 billion, for an average purchase price of 4.9% of face value. The amount invested in receivable portfolios increased $11.2 million, or 4.5%, compared with the $248.7 million invested during the three months ended September 30, 2018, to acquire receivable portfolios with face values aggregating $1.6 billion, for an average purchase price of 15.9% of face value.
During the nine months ended September 30, 2019, we invested $764.9 million to acquire receivable portfolios, with face values aggregating $9.4 billion, for an average purchase price of 8.2%12.6% of face value. The amount invested in receivable portfolios decreased $120.1$48.2 million, or 13.6%18.4%, compared with the $885.0$262.3 million invested during the ninethree months ended September 30, 2018,March 31, 2019, to acquire receivable portfolios with face values aggregating $6.2$1.7 billion, for an average purchase price of 14.2%15.1% of face value.

In the United States, capital deployment increased forduring the three and nine months ended September 30, 2019,March 31, 2020, as compared to the corresponding periods in the prior year. The majority of our deployments 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.
29
Table of Contents
In Europe, capital deployment forduring the three and nine months ended September 30, 2019March 31, 2020 decreased as compared to the corresponding periods in the prior year. The decreases were primarily the result of a morerelatively limited supply of portfolios in the quarter and a continuation of our selective purchasing process in conjunction with a plan to reduce European debt leverage over time.
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. The average purchase price, as a percentage of face value decreased significantly during the three and nine months ended September 30, 2019 as compared to the corresponding periods in 2018, due to capital deployment on certain asset classes in Europe that were deeply discounted during the third quarter of 2019.
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 recalled and placed in our collection channels. The following table summarizes the total collections from receivable portfolios by collection channel and geographic area (in thousands):
Three Months Ended
September 30,		 Nine Months Ended
September 30,		 Three Months Ended
March 31,
2019 2018 2019 2018 20202019
MCM (United States):       MCM (United States):
Call center and digital collections$187,500
 $170,573
 $557,135
 $497,343
Call center and digital collections$214,238  $185,255  
Legal collections141,269
 143,718
 428,296
 417,315
Legal collections158,026  141,036  
Collection agencies2,459
 4,119
 8,682
 13,524
Collection agencies2,465  3,303  
Subtotal331,228
 318,410
 994,113
 928,182
Subtotal374,729  329,594  
Cabot (Europe)(1):
       
Cabot (Europe):Cabot (Europe):
Call center and digital collections64,492
 66,853
 192,832
 216,174
Call center and digital collections63,789  62,665  
Legal collections45,276
 42,333
 145,285
 118,603
Legal collections42,900  50,658  
Collection agencies40,452
 44,279
 131,162
 137,798
Collection agencies37,414  47,477  
Subtotal150,220
 153,465
 469,279
 472,575
Subtotal144,103  160,800  
Other geographies(2):
       
Other geographies:Other geographies:
Call center and digital collections5,383
 21,767
 25,620
 66,197
Call center and digital collections—  10,200  
Legal collections744
 1,957
 3,541
 6,368
Legal collections—  1,530  
Collection agencies11,820
 3,244
 35,576
 10,716
Collection agencies8,447  11,729  
Subtotal17,947
 26,968
 64,737
 83,281
Subtotal8,447  23,459  
Total collections$499,395
 $498,843
 $1,528,129
 $1,484,038
Total collections from purchased receivablesTotal collections from purchased receivables$527,279  $513,853  
________________________
(1)Certain reclassifications have been made for prior periods.
(2)In December 2018, we completed the sale of all our interest in Refinancia S.A. (“Refinancia”), which remains the servicer for the non-performing loans we own in Colombia and Peru. As such, subsequent to December 2018, collections for these non-performing loans are classified as collection agency collections instead of call center and digital collections.
Gross collections from purchased receivables increased slightly by $0.6$13.4 million, or 0.1%2.6%, to $499.4$527.3 million during the three months ended September 30, 2019,March 31, 2020, from $498.8$513.9 million during the three months ended September 30, 2018. Gross collections increased by $44.1 million, or 3.0%, to $1,528.1 million during the nine months ended September 30, 2019, from $1,484.0 million during the nine months ended September 30, 2018.March 31, 2019. The increasesincrease of gross collections during the three and nine months ended September 30, 2019 as compared to the corresponding periods in 2018 were duewas attributable to increased collections in the United States, offset by decreases in collections in Europe and other geographies.

The increase of collections from purchased receivables in the United States during the three and nine months ended September 30, 2019 as compared to the corresponding periods in the prior year was 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 collections compared to legal collections in the United States.
The decreasesdecrease in collections from purchased receivables in Europe during the three and nine months ended September 30, 2019 werewas primarily due to a reduced level of capital deployment in recent periods in conjunction with our plan to reduce European debt leverage over time, the impacts of COVID-19, and the unfavorable impact of foreign currency translation, which was primarily the result of the strengthening of the U.S. dollar against the British PoundPound.
The decrease in collections from purchased receivables in other geographies was primarily due to the sale of our wholly-owned subsidiary Baycorp in August 2019.
30
Table of Contents
COVID-19 and reduced levelthe resulting containment measures, including impacts to the legal collections process, negatively affected collections beginning in late March 2020 and could continue to affect collections and related costs depending on the duration and severity of capital deployment in recent periods in conjunction with our plan to reduce European debt leverage over time.the resulting containment measures.
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 March 31,
 20202019
Revenues
Revenue from receivable portfolios$357,365  123.6 %$311,158  89.7 %
Changes in expected current and future recoveries(98,661) (34.1)%—  — %
Servicing revenue28,680  9.9 %34,023  9.8 %
Other revenues1,697  0.6 %529  0.1 %
Total revenues289,081  100.0 %345,710  99.6 %
Allowance reversals on receivable portfolios, net1,367  0.4 %
Total revenues, adjusted by net allowances347,077  100.0 %
Operating expenses
Salaries and employee benefits93,098  32.2 %91,834  26.5 %
Cost of legal collections66,279  22.9 %49,027  14.1 %
Other operating expenses27,164  9.4 %29,614  8.5 %
Collection agency commissions13,176  4.6 %16,002  4.6 %
General and administrative expenses31,877  11.0 %39,547  11.4 %
Depreciation and amortization10,285  3.6 %9,995  2.9 %
Total operating expenses241,879  83.7 %236,019  68.0 %
Income from operations47,202  16.3 %111,058  32.0 %
Other expense
Interest expense(54,662) (18.9)%(54,967) (15.8)%
Other income (expense)1,439  0.5 %(2,976) (0.9)%
Total other expense(53,223) (18.4)%(57,943) (16.7)%
(Loss) income before income taxes(6,021) (2.1)%53,115  15.3 %
Provision for income taxes(4,558) (1.6)%(3,673) (1.1)%
Net (loss) income(10,579) (3.7)%49,442  14.2 %
Net loss (income) attributable to noncontrolling interest125  0.1 %(188) (0.1)%
Net (loss) income attributable to Encore Capital Group, Inc. stockholders$(10,454) (3.6)%$49,254  14.1 %

31
 Three Months Ended September 30,
 2019 2018
Revenues       
Revenue from receivable portfolios$316,217
 88.8 % $295,357
 87.7 %
Other revenues31,204
 8.8 % 37,388
 11.1 %
Total revenues347,421
 97.6 % 332,745
 98.8 %
Allowance reversals on receivable portfolios, net8,515
 2.4 % 4,029
 1.2 %
Total revenues, adjusted by net allowances355,936
 100.0 % 336,774
 100.0 %
Operating expenses       
Salaries and employee benefits96,638
 27.2 % 95,634
 28.4 %
Cost of legal collections48,971
 13.8 % 50,473
 15.0 %
Other operating expenses25,753
 7.2 % 30,691
 9.1 %
Collection agency commissions17,343
 4.9 % 10,682
 3.2 %
General and administrative expenses38,168
 10.7 % 41,893
 12.4 %
Depreciation and amortization10,000
 2.8 % 9,873
 2.9 %
Goodwill impairment10,718
 3.0 % —
 0.0 %
Total operating expenses247,591
 69.6 % 239,246
 71.0 %
Income from operations108,345
 30.4 % 97,528
 29.0 %
Other expense       
Interest expense(54,365) (15.3)% (65,094) (19.3)%
Other expense(11,546) (3.2)% (2,539) (0.8)%
Total other expense(65,911) (18.5)% (67,633) (20.1)%
Income from operations before income taxes42,434
 11.9 % 29,895
 8.9 %
Provision for income taxes(3,021) (0.8)% (16,879) (5.0)%
Net income39,413
 11.1 % 13,016
 3.9 %
Net income attributable to noncontrolling interest(544) (0.2)% 7,709
 2.3 %
Net income attributable to Encore Capital Group, Inc. stockholders$38,869
 10.9 % $20,725
 6.2 %

Table of Contents
 Nine Months Ended September 30,
 2019 2018
Revenues       
Revenue from receivable portfolios$939,870
 89.5 % $869,028
 85.8 %
Other revenues98,072
 9.4 % 112,809
 11.1 %
Total revenues1,037,942
 98.9 % 981,837
 96.9 %
Allowance reversals on receivable portfolios, net11,945
 1.1 % 31,472
 3.1 %
Total revenues, adjusted by net allowances1,049,887
 100.0 % 1,013,309
 100.0 %
Operating expenses       
Salaries and employee benefits284,699
 27.1 % 275,853
 27.2 %
Cost of legal collections149,446
 14.2 % 155,583
 15.4 %
Other operating expenses84,913
 8.1 % 103,478
 10.2 %
Collection agency commissions46,905
 4.5 % 34,587
 3.4 %
General and administrative expenses110,335
 10.5 % 123,163
 12.1 %
Depreciation and amortization29,736
 2.9 % 31,232
 3.1 %
Goodwill impairment10,718
 1.0 % —
 0.0 %
Total operating expenses716,752
 68.3 % 723,896
 71.4 %
Income from operations333,135
 31.7 % 289,413
 28.6 %
Other expense       
Interest expense(173,245) (16.5)% (183,092) (18.1)%
Other expense(15,766) (1.5)% (4,961) (0.5)%
Total other expense(189,011) (18.0)% (188,053) (18.6)%
Income from operations before income taxes144,124
 13.7 % 101,360
 10.0 %
Provision for income taxes(18,447) (1.7)% (37,657) (3.7)%
Net income125,677
 12.0 % 63,703
 6.3 %
Net income attributable to noncontrolling interest(893) (0.1)% 5,147
 0.5 %
Net income attributable to Encore Capital Group, Inc. stockholders$124,784
 11.9 % $68,850
 6.8 %
Results of Operations—Cabot Credit Management Limited
The following table summarizes the operating results contributed by CCM (which does not consolidate the results of its European affiliate Grove Europe S.á r.l.) during the periods presented (in thousands):
 Three Months Ended
March 31,
 20202019
Total revenues$79,964  $129,012  
Total operating expenses(75,239) (70,499) 
Income from operations4,725  58,513  
Interest expense(30,495) (28,955) 
Other income (expense)1,700  (302) 
(Loss) income before income taxes(24,070) 29,256  
Benefit (provision) for income taxes2,094  (5,431) 
Net (loss) income(21,976) 23,825  
Net loss (income) attributable to noncontrolling interest125  (188) 
Net (loss) income attributable to Encore Capital Group, Inc. stockholders$(21,851) $23,637  

32
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2019 2018 2019 2018
Total revenues, adjusted by net allowances$128,656
 $130,513
 $384,661
 $387,379
Total operating expenses(73,530) (72,343) (211,937) (215,344)
Income from operations55,126
 58,170
 172,724
 172,035
Interest expense-non-PEC(27,580) (36,169) (94,352) (96,196)
PEC interest expense—
 (1,952) —
 (17,307)
Other (expense) income(368) 523
 (234) 1,114
Income before income taxes27,178
 20,572
 78,138
 59,646
Provision for income taxes(4,798) (5,373) (13,630) (14,614)
Net income22,380
 15,199
 64,508
 45,032
Net (income) loss attributable to noncontrolling interest(544) 3,674
 (893) (5,068)
Net income attributable to Encore Capital Group, Inc. stockholders$21,836
 $18,873
 $63,615
 $39,964

Table of Contents
Comparison of Results of Operations
Revenues
Our revenues consistprimarily 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 presented in our consolidated statements of operations as “Changes to 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 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 and other revenues.in our consolidated statements of operations.
Revenue from receivable portfoliosServicing revenue consists of accretion revenue and zero basis revenue. Accretion revenue represents revenue derived from pools (quarterly groupings of purchased receivable portfolios) with a cost basis that has not been fully amortized. Revenue from pools with a remaining unamortized cost basis is accrued based on each pool’s effective interest rate applied to each pool’s remaining unamortized cost basis. The cost basis of each pool is increased by revenue earned and decreased by gross collections and portfolio allowances. The effective interest rate is the internal rate of return (“IRR”) derived from the timing and amounts of actual cash received and anticipated future cash flow projections for each pool. All collections realized after the net book value of a portfolio has been fully recovered, or Zero Basis Portfolios (“ZBA”), are recorded as revenue, or ZBA revenue. We account for our investment in receivable portfolios utilizing the interest method in accordance with the authoritative guidance for loans and debt securities acquired with deteriorated credit quality.
Other revenues consist 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 alsoprimarily 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.
We may incurUnder the previous accounting standard for purchased credit deteriorated assets, we incurred allowance charges when actual cash flows from our receivable portfolios underperform compared to our expectations or when there iswas a change in the timing of cash flows. Factors that may contribute to underperformance and to the recording of valuation allowances may include both internal as well as external factors. Internal factors that may have an impact on our collections include operational activities, 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 the overall condition of the economy. We recordalso recorded allowance reversals on pool groups that have historic allowance reserves when actual cash flows from these receivable portfolios outperform our expectations.
Total
33

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 adjusted by net allowances, were $355.9for the periods presented (in thousands):
Three months ended March 31,
20202019$ Change% Change
Revenue recognized from portfolio basis$340,815  $285,301  $55,514  19.5 %
ZBA revenue16,550  25,857  (9,307) (36.0)%
Revenue from receivable portfolios357,365  311,158  46,207  14.9 %
Changes in expected current period recoveries10,315  
Changes in expected future period recoveries(108,976) 
Changes in expected current and future recoveries(98,661) 
Servicing revenue28,680  34,023  (5,343) (15.7)%
Other revenues1,697  529  1,168  220.8 %
Total revenues$289,081  $345,710  $(56,629) (16.4)%
Allowance reversals on receivable portfolios, net(1)
1,367  
Total revenues, adjusted by net allowances$347,077  
________________________
(1)Amount includes $2.3 million during the three months ended September 30, 2019, an increase of $19.2 million, or 5.7%, compared to total revenues, adjusted by net allowances of $336.8 million during the three months ended September 30, 2018. Total revenues, adjusted by net allowances, were $1,049.9 million during the nine months ended September 30, 2019, an increase of $36.6 million, or 3.6%, compared to total revenues, adjusted by net allowances of $1,013.3 million during the nine months ended September 30, 2018.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 unfavorably impacted by foreign currency translation, primarily by the strengthening of the U.S. dollar against the British Pound by 5.7% for1.8% during the three months ended September 30, 2019March 31, 2020 compared to the three months ended September 30, 2018, and by 6.2% for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.March 31, 2019.
RevenueThe increase in revenue recognized from receivable portfoliosportfolio basis was $316.2 million during the three months ended September 30, 2019, an increase of $20.9 million, or 7.1%, compared to $295.4 million during the three months ended September 30, 2018. Revenue from receivable portfolios was $939.9 million during the nine months ended September 30, 2019, an increase of $70.8 million, or 8.2%, compared to $869.0 million during the nine months ended September 30, 2018. The increases in portfolio revenue during the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018 wereprimarily due to (1) higher portfolio basis used to calculate revenue, (2) higher expected total future cash flows resulting from a change in expected economic life of static pool groups based on a lifetime expected recovery model upon the adoption of CECL, which led to increased IRRs resultedEIR, and (3) 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 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 to expected current period recoveries represent over and under-performance in the reporting period. Due to our sustained improvements in portfolio collections driven by liquidation improvement initiatives.initiatives, collections during the three months ended March 31, 2020 outperformed the projected cash flows, the over-performance was partially offset by a slight shortfall of collections in March. We believe such shortfall was primarily the result of the COVID-19 pandemic.

During the three months ended March 31, 2020, we reassessed our future forecasts of expected recoveries of receivable portfolios based on our best estimate of the potential impact arising from the COVID-19 pandemic. The updated forecasts changed the timing of future recoveries by reducing the forecasted cash flows in 2020. The majority of the shortfall in near-term cash flows is expected to be recovered in 2021 and most of the rest of the shortfall is expected be recovered in subsequent periods. As a result, the change in the total amount of estimated remaining collections (“ERC”) was negligible. The delay in expected future cash flows, when discounted to present-value, resulted in a provision for credit loss adjustment of approximately $109.0 million during the three months ended March 31, 2020. 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 monitor the COVID-19 situation closely and update our assumptions accordingly.
34


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 March 31, 2020As of March 31, 2020
 CollectionsRevenue from Receivable PortfoliosChanges in Expected Current and Future RecoveriesInvestment in Receivable PortfoliosMonthly EIR
United States:
ZBA$15,274  $15,274  $—  $—  — %
20117,249  6,865  (215) 2,021  88.6 %
20128,495  7,664  (480) 4,795  42.0 %
201317,687  18,136  (3,984) 11,564  40.5 %
201414,591  10,089  (2,026) 44,820  6.7 %
201518,302  9,309  (1,079) 73,901  3.8 %
201633,377  16,785  (2,412) 133,941  3.8 %
201755,435  30,850  (1,103) 178,176  5.2 %
201889,418  46,938  (15,629) 362,553  3.8 %
2019102,534  72,048  (2,104) 601,892  3.8 %
202012,367  8,175  (5,010) 176,543  3.6 %
Subtotal374,729  242,133  (34,042) 1,590,206  4.4 %
Europe:
ZBA58  58  —  —  — %
201325,259  22,262  (6,306) 215,495  3.2 %
201423,271  17,887  (4,972) 186,139  3.0 %
201515,173  11,189  (2,096) 143,275  2.4 %
201613,102  11,259  (11,028) 122,994  2.8 %
201723,494  15,696  (9,692) 260,314  1.9 %
201822,658  15,662  (22,493) 305,824  1.6 %
201920,106  14,292  (7,633) 240,124  1.8 %
2020982  1,400  249  28,086  2.6 %
Subtotal144,103  109,705  (63,971) 1,502,251  2.3 %
Other geographies:
ZBA1,218  1,218  —  —  — %
2014 (1)
1,174  545  (19) 47,819  100.2 %
20151,557  941  76  4,544  17.1 %
2016971  686  (249) 3,391  5.1 %
20171,875  1,140  (323) 11,586  6.1 %
20181,580  955  (120) 5,986  3.7 %
201972  42  (13) 235  4.6 %
2020—  —  —  —  — %
Subtotal8,447  5,527  (648) 73,561  67.7 %
Total$527,279  $357,365  $(98,661) $3,166,018  3.4 %
 Three Months Ended September 30, 2019 As of
September 30, 2019
 
Collections(1)
 
Gross
Revenue(2)
 
Revenue
Recognition
Rate(3)
 Net
Reversal
(Portfolio
Allowance)		 
Gross Revenue
% of Total
Revenue
 
Unamortized
Balances
 
Monthly
IRR
United States:             
ZBA(4)
$16,333
 $14,301
 87.6% $2,045
 4.5% $—
 —
20118,310
 9,264
 111.5% —
 2.9% 2,907
 77.2%
20129,072
 8,392
 92.5% —
 2.7% 6,692
 33.5%
201320,387
 17,559
 86.1% —
 5.6% 15,844
 33.3%
201416,358
 10,422
 63.7% 1,717
 3.3% 53,863
 6.0%
201520,305
 8,728
 43.0% 4,636
 2.8% 88,511
 3.0%
201637,609
 16,817
 44.7% —
 5.3% 163,481
 3.2%
201759,238
 31,909
 53.9% —
 10.1% 219,053
 4.5%
201886,185
 47,839
 55.5% (196) 15.1% 450,300
 3.3%
201957,431
 37,680
 65.6% —
 11.9% 491,560
 3.2%
Subtotal331,228
 202,911
 61.3% 8,202
 64.2% 1,492,211
 4.1%
Europe:             
ZBA(4)
73
 72
 98.6% —
 0.0% —
 —
201326,530
 20,858
 78.6% —
 6.6% 221,599
 3.1%
201425,112
 17,701
 70.5% 29
 5.6% 200,040
 2.9%
201518,042
 11,273
 62.5% 450
 3.6% 154,572
 2.3%
201613,957
 10,214
 73.2% —
 3.2% 139,951
 2.5%
201727,412
 15,558
 56.8% —
 4.9% 292,257
 1.7%
201824,413
 17,188
 70.4% (888) 5.4% 380,162
 1.5%
201914,681
 9,287
 63.3% —
 3.0% 208,934
 1.8%
Subtotal150,220
 102,151
 68.0% (409) 32.3% 1,597,515
 2.1%
Other geographies:             
ZBA(4)
1,777
 1,796
 101.1% —
 0.6% —
 —
20141,492
 942
 63.1% —
 0.3% 60,827
 80.8%
20153,714
 2,804
 75.5% 267
 0.9% 7,295
 13.7%
20162,757
 1,640
 59.5% 455
 0.5% 4,998
 4.9%
20173,652
 1,827
 50.0% —
 0.6% 16,169
 5.2%
20183,369
 1,673
 49.7% —
 0.5% 8,792
 3.1%
20191,186
 473
 39.9% —
 0.1% 360
 3.2%
Subtotal17,947
 11,155
 62.2% 722
 3.5% 98,441
 6.0%
Total$499,395
 $316,217
 63.3% $8,515
 100.0% $3,188,167
 3.1%
________________________
________________________(1)Portfolio balance includes non-accrual pool groups. The EIR presented is only for pool groups that accrete portfolio revenue.
(1)Does not include amounts collected on behalf of others.
(2)Gross revenue excludes the effects of net portfolio allowances or net portfolio allowance reversals.
(3)Revenue recognition rate excludes the effects of net portfolio allowances or net portfolio allowance reversals.
(4)ZBA revenue typically has a 100% revenue recognition rate. However, collections on ZBA pool groups where a valuation allowance remains must first be recorded as an allowance reversal until the allowance for that pool group is zero. Once the entire valuation allowance is reversed, the revenue recognition rate will become 100%.


 Three Months Ended September 30, 2018 As of
September 30, 2018
 
Collections(1)
 
Gross
Revenue(2)
 
Revenue
Recognition
Rate(3)
 Net
Reversal
(Portfolio
Allowance)		 
Revenue
% of Total
Revenue
 
Unamortized
Balances
 
Monthly
IRR
United States:             
ZBA(4)
$32,383
 $29,568
 91.3% $2,833
 10.0% $—
 —
20113,740
 3,306
 88.4% —
 1.1% 3,704
 27.5%
20129,051
 6,882
 76.0% —
 2.3% 10,676
 18.8%
201325,237
 18,787
 74.4% —
 6.4% 29,048
 18.9%
201422,995
 11,638
 50.6% 394
 3.9% 78,795
 4.5%
201530,169
 12,619
 41.8% (1,709) 4.3% 142,909
 2.7%
201657,161
 24,004
 42.0% (401) 8.1% 261,557
 2.8%
201778,699
 34,790
 44.2% (646) 11.9% 360,900
 3.0%
201858,975
 36,745
 62.3% —
 12.4% 461,910
 3.1%
Subtotal318,410
 178,339
 56.0% 471
 60.4% 1,349,499
 3.6%
Europe:             
ZBA(4)
90
 90
 100.0% —
 0.0% —
 —
201331,884
 23,882
 74.9% 6,431
 8.1% 252,673
 3.1%
201430,545
 20,096
 65.8% —
 6.8% 249,249
 2.6%
201520,329
 11,897
 58.5% (62) 4.0% 196,211
 2.0%
201618,002
 11,861
 65.9% —
 4.0% 179,271
 2.3%
201735,261
 17,200
 48.8% —
 5.8% 370,498
 1.5%
201817,354
 12,854
 74.1% —
 4.4% 335,275
 1.5%
Subtotal153,465
 97,880
 63.8% 6,369
 33.1% 1,583,177
 2.1%
Other geographies:             
ZBA(4)
2,590
 2,590
 100.0% —
 0.9% —
 —
20141,304
 4,407
 338.0% —
 1.5% 63,420
 2.4%
20157,139
 4,628
 64.8% (1,748) 1.6% 22,142
 6.0%
20166,077
 2,524
 41.5% (1,063) 0.9% 29,895
 2.4%
20175,359
 2,793
 52.1% —
 0.9% 34,850
 2.3%
20184,499
 2,196
 48.8% —
 0.7% 26,133
 3.3%
Subtotal26,968
 19,138
 71.0% (2,811) 6.5% 176,440
 3.0%
Total$498,843
 $295,357
 59.2% $4,029
 100.0% $3,109,116
 2.8%
35
________________________
(1)Does not include amounts collected on behalf of others.
(2)Gross revenue excludes the effects of net portfolio allowances or net portfolio allowance reversals.
(3)Revenue recognition rate excludes the effects of net portfolio allowances or net portfolio allowance reversals.
(4)Zero basis revenue typically has a 100% revenue recognition rate. However, collections on ZBA pool groups where a valuation allowance remains must first be recorded as an allowance reversal until the allowance for that pool group is zero. Once the entire valuation allowance is reversed, the revenue recognition rate will become 100%.


 Three Months Ended March 31, 2019As of March 31, 2019
 CollectionsRevenue from Receivable PortfoliosNet
Reversal
(Portfolio
Allowance)		Unamortized
Balances		Monthly EIR
United States:
ZBA(1)
$25,531  $23,270  $2,267  $—  — %
20112,764  2,280  —  2,422  27.4 %
20127,336  6,096  273  8,994  20.2 %
201322,034  19,179  (52) 22,838  25.6 %
201419,667  10,822  1,090  65,813  5.0 %
201524,968  10,196  —  109,436  2.8 %
201647,454  20,653  (896) 208,176  3.0 %
201777,294  35,626  —  279,667  3.8 %
201894,281  52,674  —  527,432  3.1 %
20198,265  5,892  —  171,684  3.2 %
Subtotal329,594  186,688  2,682  1,396,462  3.8 %
Europe:
ZBA(1)
91  91  —  —  — %
201330,110  23,297  —  247,509  3.1 %
201428,120  19,679  (175) 228,433  2.7 %
201519,509  11,147  (256) 177,460  2.0 %
201616,823  11,279  (29) 157,254  2.4 %
201732,302  17,366  —  333,760  1.7 %
201830,079  18,991  —  418,012  1.5 %
20193,766  2,993  —  83,741  1.6 %
Subtotal160,800  104,843  (460) 1,646,169  2.1 %
Other geographies:
ZBA(1)
2,542  2,542  —  —  — %
2014945  4,654  —  64,928  2.4 %
20155,410  4,418  —  18,667  7.3 %
20164,239  2,067  12  24,867  2.6 %
20174,757  2,927  —  30,071  3.2 %
20185,131  2,864  (867) 26,284  3.4 %
2019435  155  —  4,139  3.5 %
Subtotal23,459  19,627  (855) 168,956  3.3 %
Total$513,853  $311,158  $1,367  $3,211,587  2.9 %

________________________
 Nine Months Ended September 30, 2019 As of
September 30, 2019
 
Collections(1)
 
Gross
Revenue(2)
 
Revenue
Recognition
Rate(3)
 Net
Reversal
(Portfolio
Allowance)		 
Gross Revenue
% of Total
Revenue
 
Unamortized
Balances
 
Monthly
IRR
United States:             
ZBA(4)
$68,127
 $61,518
 90.3% $6,630
 6.5% $—
 —
201114,186
 13,925
 98.2% 304
 1.5% 2,907
 77.2%
201223,552
 20,018
 85.0% 273
 2.1% 6,692
 33.5%
201365,132
 55,298
 84.9% (52) 5.9% 15,844
 33.3%
201454,569
 31,766
 58.2% 3,247
 3.4% 53,863
 6.0%
201568,045
 27,925
 41.0% 4,636
 3.0% 88,511
 3.0%
2016127,311
 56,240
 44.2% (896) 6.0% 163,481
 3.2%
2017203,288
 101,421
 49.9% —
 10.8% 219,053
 4.5%
2018269,545
 152,323
 56.5% (196) 16.2% 450,300
 3.3%
2019100,358
 65,552
 65.3% —
 7.0% 491,560
 3.2%
Subtotal994,113
 585,986
 58.9% 13,946
 62.4% 1,492,211
 4.1%
Europe:             
ZBA(4)
265
 266
 100.4% —
 0.0% —
 —
201385,001
 66,525
 78.3% —
 7.1% 221,599
 3.1%
201480,303
 55,567
 69.2% (145) 5.9% 200,040
 2.9%
201555,456
 32,964
 59.4% 267
 3.5% 154,572
 2.3%
201647,175
 32,116
 68.1% (29) 3.4% 139,951
 2.5%
201789,966
 49,503
 55.0% —
 5.3% 292,257
 1.7%
201885,015
 54,332
 63.9% (888) 5.8% 380,162
 1.5%
201926,098
 17,525
 67.2% —
 1.9% 208,934
 1.8%
Subtotal469,279
 308,798
 65.8% (795) 32.9% 1,597,515
 2.1%
Other geographies:             
ZBA(4)
7,202
 7,221
 100.3% —
 0.7% —
 —
20143,316
 5,803
 175.0% —
 0.6% 60,827
 80.8%
201514,448
 10,881
 75.3% 267
 1.1% 7,295
 13.7%
201610,663
 5,598
 52.5% (606) 0.6% 4,998
 4.9%
201712,822
 7,192
 56.1% —
 0.8% 16,169
 5.2%
201813,176
 7,110
 54.0% (867) 0.8% 8,792
 3.1%
20193,110
 1,281
 41.2% —
 0.1% 360
 3.2%
Subtotal64,737
 45,086
 69.6% (1,206) 4.7% 98,441
 6.0%
Total$1,528,129
 $939,870
 61.5% $11,945
 100.0% $3,188,167
 3.1%
________________________(1)Zero basis revenue typically has a 100% revenue recognition rate. However, collections on ZBA pool groups where a valuation allowance remains must first be recorded as an allowance reversal until the allowance for that pool group is zero. Once the entire valuation allowance is reversed, the revenue recognition rate will become 100%.
(1)Does not include amounts collected on behalf of others.
(2)Gross revenue excludes the effects of net portfolio allowances or net portfolio allowance reversals.
(3)Revenue recognition rate excludes the effects of net portfolio allowances or net portfolio allowance reversals.
(4)ZBA revenue typically has a 100% revenue recognition rate. However, collections on ZBA pool groups where a valuation allowance remains must first be recorded as an allowance reversal until the allowance for that pool group is zero. Once the entire valuation allowance is reversed, the revenue recognition rate will become 100%.


 Nine Months Ended September 30, 2018 As of
September 30, 2018
 
Collections(1)
 
Gross
Revenue(2)
 
Revenue
Recognition
Rate(3)
 Net
Reversal
(Portfolio
Allowance)		 
Revenue
% of Total
Revenue
 
Unamortized
Balances
 
Monthly
IRR
United States:             
ZBA(4)
$94,675
 $88,063
 93.0% $6,783
 10.1% $—
 —
20081,652
 237
 14.3% —
 0.0% —
 —
2009(5)
—
 —
 —
 —
 —
 —
 —
2010(5)
—
 —
 —
 —
 —
 —
 —
201110,954
 10,081
 92.0% —
 1.2% 3,704
 27.5%
201228,496
 23,489
 82.4% (723) 2.7% 10,676
 18.8%
201381,759
 62,230
 76.1% —
 7.2% 29,048
 18.9%
201474,593
 39,790
 53.3% 1,299
 4.6% 78,795
 4.5%
2015100,683
 43,054
 42.8% (1,709) 5.0% 142,909
 2.7%
2016186,747
 80,046
 42.9% (401) 9.2% 261,557
 2.8%
2017243,525
 114,363
 47.0% (646) 13.2% 360,900
 3.0%
2018105,098
 64,612
 61.5% —
 7.4% 461,910
 3.1%
Subtotal928,182
 525,965
 56.7% 4,603
 60.6% 1,349,499
 3.6%
Europe:             
ZBA adjustment(6)
—
 798
 —
 —
 0.1% —
 —
ZBA(4)
108
 109
 100.9% —
 0.0% —
 —
2013102,073
 74,485
 73.0% 20,690
 8.6% 252,673
 3.1%
201499,411
 62,923
 63.3% 7,956
 7.2% 249,249
 2.6%
201567,228
 38,050
 56.6% 852
 4.4% 196,211
 2.0%
201663,071
 38,347
 60.8% —
 4.4% 179,271
 2.3%
2017116,312
 50,819
 43.7% —
 5.8% 370,498
 1.5%
201824,372
 19,861
 81.5% —
 2.3% 335,275
 1.5%
Subtotal472,575
 285,392
 60.4% 29,498
 32.8% 1,583,177
 2.1%
Other geographies:             
ZBA(4)
8,431
 8,430
 100.0% —
 1.0% —
 —
2013(5)
150
 —
 0.0% —
 0.0% —
 —
20144,377
 13,015
 297.3% —
 1.5% 63,420
 2.4%
201524,121
 15,618
 64.7% (1,748) 1.8% 22,142
 6.0%
201620,073
 9,059
 45.1% (881) 1.0% 29,895
 2.4%
201718,197
 7,741
 42.5% —
 0.9% 34,850
 2.3%
20187,932
 3,808
 48.0% —
 0.4% 26,133
 3.3%
Subtotal83,281
 57,671
 69.2% (2,629) 6.6% 176,440
 3.0%
Total$1,484,038
 $869,028
 58.6% $31,472
 100% $3,109,116
 2.8%
________________________
(1)Does not include amounts collected on behalf of others.
(2)Gross revenue excludes the effects of net portfolio allowances or net portfolio allowance reversals.
(3)Revenue recognition rate excludes the effects of net portfolio allowances or net portfolio allowance reversals.
(4)Zero basis revenue typically has a 100% revenue recognition rate. However, collections on ZBA pool groups where a valuation allowance remains must first be recorded as an allowance reversal until the allowance for that pool group is zero. Once the entire valuation allowance is reversed, the revenue recognition rate will become 100%.
(5)Total collections realized exceed the net book value of the portfolio and have been converted to ZBA.
(6)Adjustment resulting from certain ZBA revenue that was classified as collections in cost recovery portfolios in prior periods.

OtherThe decrease in servicing revenues were $31.2 million and $37.4 million forwas primarily attributable to the sale of Baycorp in August 2019. Through Baycorp, we earned servicing revenues during the three months ended September 30,March 31, 2019, and 2018, respectively, and $98.1 million and $112.8 million for the nine months ended September 30, 2019 and 2018, respectively. Other revenues primarily consist of fee-based income earned at our international subsidiaries that provide portfolio management services to credit originators for non-performing loans. The decrease in other revenues in the periods presented was primarily attributable to thealso driven by unfavorable impact of foreign currency translation, which was primarily the result of the strengthening of the U.S. dollar against the British Pound andPound.
The increase in other revenues was due to the increase in sale of all our interests in Refinancia in December 2018. Subsequent to the sale, we no longer earn fee-based income from Refinancia.
Net allowance reversals were $8.5 million and $4.0 million for the three months ended September 30, 2019 and 2018, respectively, and $11.9 million and $31.5 million for the nine months ended September 30, 2019 and 2018. Allowance reversals were primarilyreal estate assets that are acquired as a result of sustained improvementsour investments in portfolio collections on certainnon-performing secured residential mortgage portfolios on which we had previously recorded portfolio allowances in the past. These improvements in portfolio collections were driven by liquidation improvement initiatives.Europe and LAAP.

36
Table of Contents
Operating Expenses
TotalThe following table summarizes operating expenses were $247.6 million duringfor the three months ended September 30, 2019, an increase of $8.3 million, or 3.5%, compared to total operating expenses of $239.2 million during the three months ended September 30, 2018. Total operating expenses were $716.8 million during the nine months ended September 30, 2019, a decrease of $7.1 million, or 1.0%, compared to total operating expenses of $723.9 million during the nine months ended September 30, 2018.periods presented (in thousands):
Three Months Ended March 31,
20202019$ Change% Change
Salaries and employee benefits$93,098  $91,834  $1,264  1.4 %
Cost of legal collections66,279  49,027  17,252  35.2 %
Other operating expenses27,164  29,614  (2,450) (8.3)%
Collection agency commissions13,176  16,002  (2,826) (17.7)%
General and administrative expenses31,877  39,547  (7,670) (19.4)%
Depreciation and amortization10,285  9,995  290  2.9 %
Total operating expenses$241,879  $236,019  $5,860  2.5 %

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 favorably impacted by foreign currency translation, primarily by the strengthening of the U.S. dollar against the British Pound by 5.7%1.8% for the three months ended September 30, 2019March 31, 2020 compared to the three months ended September 30, 2018, and by 6.2% for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.March 31, 2019.
Operating expenses are explained in more detail as follows:
Salaries and Employee Benefits
SalariesThe increase in salaries and employee benefits increased slightly by $1.0 million, or 1.0%, to $96.6 million during the three months ended September 30, 2019, from $95.6 million during the three months ended September 30, 2018. Salaries and employee benefits increased by $8.8 million, or 3.2%, to $284.7 million during the nine months ended September 30, 2019, from $275.9 million during the nine months ended September 30, 2018. The increase was primarily due to the result of an increasefollowing reasons:
•Increase in salaries and employee benefits at our domestic sites as part of our initiative to increase collections capacity, partiallycapacity; and
•Increased stock compensation due to larger expense reversals in the prior period;
•Partially offset by a decrease in headcount at our international subsidiaries.
Stock-based compensation decreased $1.0 million, or 20.0%, to $4.0 million during the three months ended September 30, 2019, from $5.0 million during the three months ended September 30, 2018. Stock-based compensation decreased $1.1 million, or 10.0%, to $9.4 million during the nine months ended September 30, 2019, from $10.5 million during the nine months ended September 30, 2018. The decreases during the three and nine months ended September 30, 2019in other geographies as compared to the corresponding periods in the prior year were primarily attributable to additional expenses recognized due to the vesting of equity awards at the completiona result of the Cabot Transaction in July 2018.sale of Baycorp and the favorable impact of foreign currency translation, primarily by the strengthening of the U.S. dollar against the British Pound.
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 or Deferred Court Costs. We capitalize theseand recognize a portion of court costs in the consolidated financial statements and provide a reserve for those costs that we believe will ultimately be uncollectible. We determine the reserveas expense based on our analysis of historicala loss-rate methodology, but rather, we expense all court costs recovery data.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.

Three months ended March 31,
20202019$ Change% Change
Court costs$41,355  $20,479  $20,876  101.9 %
Legal collection fees24,924  28,548  (3,624) (12.7)%
Total cost of legal collections$66,279  $49,027  $17,252  35.2 %
During the three months ended September 30, 2019, overallThe increase in cost of legal collections decreased $1.5 million, or 3.0%, to $49.0 million, as compared to $50.5 million during the corresponding period in the prior year. The cost of legal collections in the United States decreased by $0.8 million, or 1.9% and the cost of legal collections in Europe decreased by $0.4 million, or 6.0% during the three months ended September 30, 2019, as compared to the corresponding period in the prior year.
During the nine months ended September 30, 2019, overall cost of legal collections decreased $6.1 million, or 3.9%, to $149.4 million, as compared to $155.6 million during the corresponding period in the prior year. The cost of legal collections in the United States decreased by $2.8 million, or 2.1% and the cost of legal collections in Europe decreased by $2.9 million, or 13.3% during the nine months ended September 30, 2019, as compared to the corresponding period in the prior year.
The decreases in the cost of legal collections during the three and nine months ended September 30, 2019 as compared to the corresponding periods in 2018 werewas primarily due to the shift of account placements towards non-legalfollowing reasons:
•No longer capitalizing upfront court costs but rather expensing all court costs as incurred;
•Partially offset by a decline in legal collection channels.fees.
Other Operating Expenses
OtherThe decrease in other operating expenses decreased by $4.9 million, or 16.1%, to $25.8 million during the three months ended September 30, 2019, from $30.7 million during the three months ended September 30, 2018. Other operating expenses decreased by $18.6 million, or 17.9%, to $84.9 million during the nine months ended September 30, 2019, from $103.5 million during the nine months ended September 30, 2018.
The decreases during the three and nine months ended September 30, 2019 as compared to the corresponding periods in the prior year werewas primarily due to a large expense incurred in our previously owned subsidiary Refinancia during the prior periods, in addition to reduced expenditures for temporary services and thefollowing reasons:
37
Table of Contents
•The favorable impact of foreign currency translation, primarily by the strengthening of the U.S. dollar relativeagainst the British Pound;
•Reduced expenditures for temporary services; and
•Lower collection expenses primarily due to other foreign currencies.the sale of Baycorp in August 2019.
Collection Agency Commissions
During the three months ended September 30, 2019, we incurred $17.3 million in commissions to third-party collection agencies, or 31.7% of the related gross collections of $54.7 million. During the three months ended September 30, 2018, we incurred $10.7 million in commissions to third-party collection agencies, or 20.7%, of the related gross collections of $51.6 million.
During the nine months ended September 30, 2019, we incurred $46.9 million in commissions to third-party collection agencies, or 26.7% of the related gross collections of $175.4 million. During the nine months ended September 30, 2018, we incurred $34.6 million in commissions to third-party collection agencies, or 21.3%, of the related gross collections of $162.0 million.
The increases in collectionCollection agency commissions during the periods presented were primarily driven by the change in our LAAP operations. As discussed in the “Collections by Channel and Geographic Location” section above, in December 2018, we completed the sale of all our interest in Refinancia, which remains the servicer for the non-performing loans we own in Colombia and Peru. Subsequent to December 2018, collections for these non-performing loans are classified as collection agency collections instead of call center and digital collections, as a result, costs associated with these collections are included in collection agency commissions.
Additionally, collections through this channel 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 United States collection agency commission rate is generally lower than the European rate due to a higher concentration of lower commission rate bankruptcy portfolios collected through the collection agency channel in the United States.
General and Administrative Expenses
General and administrative expenses decreased $3.7 million, or 8.9%, to $38.2 million during the three months ended September 30, 2019, from $41.9 million during the three months ended September 30, 2018. General and administrative expenses decreased $12.8 million, or 10.4%, to $110.3 million during the nine months ended September 30, 2019, from $123.2 million during the nine months ended September 30, 2018.

The decreases weredecrease in collections agency commissions was primarily due to (1) higher mergersthe following reasons:
•Other geographies decreased due to progressive decrement of portfolio collections during the period; and acquisition costs incurred in prior periods, (2)
•Europe decreased due to the favorable impact of foreign currency translation, primarily by the strengthening of the U.S. dollar relativeagainst the British Pound.
General and Administrative Expenses
The decrease in general and administrative expense was primarily due to otherthe following reasons:
•Reduced consulting fees and infrastructure costs at our domestic sites;
•Lower general and administrative expenses due to the sale of Baycorp in August 2019; and
•The favorable impact of foreign currenciescurrency translation, primarily by the strengthening of the U.S. dollar against the British Pound;
Depreciation and (3) higher infrastructure costsAmortization
The increase in depreciation and amortization expense was primarily due to the following reasons:
•Increased depreciation expense primarily incurred at our domestic sites in prior periods.facilities;
Depreciation and Amortization•Partially offset by the favorable impact of foreign currency translation, primarily by the strengthening of the U.S. dollar against the British Pound.
Depreciation and amortization expense increased slightly by $0.1 million, or 1.3%, to $10.0 million during the three months ended September 30, 2019, from $9.9 million during the three months ended September 30, 2018. Depreciation and amortization expense decreased by $1.5 million, or 4.8%, to $29.7 million during the nine months ended September 30, 2019, from $31.2 million during the nine months ended September 30, 2018.
Goodwill Impairment
In connection with our Baycorp Transaction, we concluded that the fair value of Baycorp was less than its recorded book value on August 15, 2019. As a result, the entire goodwill balance carried at our Baycorp reporting unit of $10.7 million was impaired. The goodwill impairment is included in operating expenses on our consolidated statements of operations during the three and nine months ended September 30, 2019. Refer to Note 15, “Goodwill and Identifiable Intangible Assets” to our consolidated financial statements for further information on the goodwill impairment charge.
Interest Expense
Interest expense decreased $10.7 million to $54.4 million during the three months ended September 30, 2019, from $65.1 million during the three months ended September 30, 2018. Interest expense decreased $9.8 million to $173.2 million during the nine months ended September 30, 2019, from $183.1 million during the nine months ended September 30, 2018.
The following table summarizes our interest expense (in thousands):
 Three Months Ended March 31,
 20202019$ Change% Change
Stated interest on debt obligations$48,755  $48,318  $437  0.9 %
Amortization of loan costs2,778  3,326  (548) (16.5)%
Amortization of debt discount3,129  3,323  (194) (5.8)%
Total interest expense$54,662  $54,967  $(305) (0.6)%
 Three Months Ended September 30,
 2019 2018 $ Change % Change
Stated interest on debt obligations$48,413
 $47,990
 $423
 0.9 %
Interest expense on preferred equity certificates—
 1,952
 (1,952) (100.0)%
Amortization of loan fees and other loan costs2,547
 12,517
 (9,970) (79.7)%
Amortization of debt discount3,405
 2,635
 770
 29.2 %
Total interest expense$54,365
 $65,094
 $(10,729) (16.5)%
 Nine Months Ended September 30,
 2019 2018 $ Change % Change
Stated interest on debt obligations$145,297
 $139,188
 $6,109
 4.4 %
Interest expense on preferred equity certificates—
 17,307
 (17,307) (100.0)%
Amortization of loan fees and other loan costs17,978
 19,067
 (1,089) (5.7)%
Amortization of debt discount9,970
 7,530
 2,440
 32.4 %
Total interest expense$173,245
 $183,092
 $(9,847) (5.4)%
On July 24, 2018, in connection with the Cabot Transaction, we purchased all outstanding preferred equity certificates (“PECs”) including accrued interest that were held by Cabot’s minority shareholders. As a result, no PEC interest expense was incurred subsequent to the Cabot Transaction.
The decreases in interest expense during the three and nine months ended September 30, 2019 as compared to the corresponding periods in 2018 were primarily attributable to certain financing fees incurred during the three and nine months ended September 30, 2018. During the three and nine months ended September 30, 2018, interest expense included approximately $6.6 million in fees relating to Cabot’s refinancing of the Cabot senior secured notes and approximately $2.5 million of fees for a bridge loan commitment related to the Cabot Transaction. The decrease in interest expense during the three and nine months ended September 30, 2019 was also attributableprimarily due to the purchasefollowing reasons:
•Favorable impact of all previously outstanding PECs and the favorable impact offoreign currency translation, primarily by the strengthening of the U.S. dollar relative to other foreign currencies. The decreasesagainst the British Pound;
•Lower balances on the Encore Term Loan Facility, Encore Senior Secured Notes, and Cabot Credit Facilities;
•Decrease in London Interbank Offered Rate (“LIBOR”) which resulted in decreased interest expense during the three and nine months ended September 30, 2019 were partially offset by higher interest rates for the Encore Revolving Credit FacilityFacility; and
•Partially offset by the Cabot Securitisation Senior Facility andeffect from higher balances on the Encore Revolving Credit Facility, Cabot Securitisation Senior Facility, and Cabot Credit Facilities.Facility.

38
Table of Contents
Other ExpenseIncome (Expense)
Other income andor 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 expenseincome was $11.5$1.4 million during the three months ended September 30, 2019 compared to $2.5March 31, 2020 and other expense was $3.0 million during the three months ended September 30, 2018. Other expense was $15.8 million during the nine months ended September 30, 2019 compared to $5.0 million during the nine months ended September 30, 2018. Other expenses during the three and nine months ended September 30, 2019 primarily included the loss recognized on the Baycorp Transaction of $12.5 million. Other expense during the three and nine months ended September 30, 2018March 31, 2019. The change in other income (expense) was primarily due to the result of a loss on a derivative contract of $2.7 million and $9.3 million, respectively, offset by certain otherfollowing reasons:
•Other income recognized during the periods.three months ended March 31, 2020 based on fair value changes for currency exchange forward contracts which are not designated as hedge instruments for accounting purposes;
•Other expense recognized during the three months ended March 31, 2019 primarily due to foreign currency exchange losses.
Provision for Income Taxes
We recorded income tax expense of $3.0$4.6 million and $16.9on consolidated loss before income taxes of $6.0 million during the three months ended September 30, 2019March 31, 2020 and 2018, and $18.4income tax expense of $3.7 million and $37.7on consolidated income before income taxes of $53.1 million during the ninethree months ended September 30, 2019 and 2018, respectively.March 31, 2019. The decreases in income tax expense for the three and nine months ended September 30, 2019 as compared to the corresponding periods in 2018 wereMarch 31, 2020 was primarily attributable to the recording of valuation allowances in certain foreign jurisdictions that incurred pre-tax losses. The income tax expense for the three months ended March 31, 2019 included a tax benefit recognized in relation to the Baycorp Transaction. Additionally, the decrease in income tax expense during the nine months ended September 30, 2019 as compared to the corresponding period in 2018 was also a result of a tax benefit recognizedapproximately $9.1 million related to a tax accounting method change for revenue reporting approved by the Internal Revenue Service (“IRS”) during the first quarter of 2019.period.
The effective tax rates for the respective periods are shown below:
Three Months Ended March 31,
 20202019
Federal provision21.0 %21.0 %
State provision(15.6)%2.5 %
Foreign income taxed at different rates(1)
(3.2)%(0.9)%
Change in valuation allowance(2)
(66.5)%1.9 %
Change in tax accounting method(3)
— %(17.1)%
Foreign currency remeasurement(6.4)%0.2 %
Permanent items(4)
(1.7)%0.1 %
Other(3.3)%(0.8)%
Effective tax rate(75.7)%6.9 %
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2019 2018 2019 2018
Federal provision21.0 % 21.0% 21.0 % 21.0 %
State provision5.3 % 1.7% 3.7 % 1.5 %
Tax benefit relating to Baycorp Transaction(1)
(29.1)% —% (8.6)% — %
Foreign income taxed at different rates(3.4)% 13.0% (2.6)% (1.6)%
Audit assessment(2)
8.9 % —% 2.6 % — %
Change in valuation allowance1.9 % 18.1% 2.1 % 16.3 %
Change in tax accounting method(3)
— % —% (6.3)% — %
Other2.5 % 2.7% 0.9 % (0.1)%
Effective rate7.1 % 56.5% 12.8 % 37.1 %
________________________
________________________(1)Relates primarily to the lower tax rates on the income or loss attributable to international operations.
(1)In connection with
(2)Change in valuation allowance during 2020, recognized in the Baycorp Transaction that was completed on August 15, 2019, we recognized a total tax benefit of $17.5 million on the disposition of certain investments in Baycorp held by Encore and its subsidiaries in various jurisdictions during the three and nine months ended September 30, 2019.
(2)Relates to an IRS audit assessment for tax years 2014-2017 currently under exam.
(3)During the first quarter of 2019, we received IRS approval for a tax accounting method change related to revenue reporting. The revised tax accounting method more closely aligns with our book accounting method for revenue reporting. 
Each interim period under the discrete method, is considered an integral partattributable to losses incurred at certain foreign subsidiaries with cumulative operating losses for tax purposes.
(3)In 2019, includes tax benefit resulting from tax accounting method change.
(4)Represents a provision for nondeductible expenses.
We utilized the discrete effective tax rate method (“discrete method”) for recording income taxes for the three months ended March 31, 2020. We believe the use of the annual period and tax expense or benefitdiscrete method is measured using an estimated annual effective income tax rate. Themore appropriate than the application of the estimated annual effective tax rate for the full year is applied(“AETR”) method due to uncertainty in estimating annual pre-tax earnings primarily due to the respective interim period, taking into account year-to-date amounts and projected amounts forongoing COVID-19 pandemic. We will re-evaluate the year. Since we operate in foreign countries with varying tax rates, the impactuse of the resultsdiscrete method each quarter until it is deemed appropriate to return to the international operations have onAETR 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 quarterly effectivedeferred income tax rateassets and assess the need for a valuation allowance, including considerations of whether it is dependent onmore likely than not that the leveldeferred 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 loss from the international operationsgeneral 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,March 31, 2020 and 2019, and 2018, was immaterial.
39
Table of Contents
We had gross unrecognized tax benefits, inclusive of penalties and interest, of $19.9$8.2 million at September 30, 2019.as of March 31, 2020. These unrecognized tax benefits, if recognized, would result in a net tax benefit of $13.0$7.6 million as of September 30, 2019.March 31, 2020. There werewas no material changeschange in gross unrecognized tax benefits from December 31, 2018.2019.

OfWe have not provided for applicable income or withholding taxes on the $186.7 millionundistributed earnings from continuing operations for certain of cash and cash equivalents as of September 30, 2019, $161.8 million was heldits subsidiaries operating outside of the United States. FollowingUndistributed net income of these subsidiaries as of March 31, 2020 was approximately $117.1 million. Such undistributed earnings are considered permanently reinvested. We do not provide for deferred taxes on translation adjustments on unremitted earnings under the enactmentindefinite reversal exemption. Determination of the Tax Reform Act and associated transitionamount of unrecognized deferred tax in general, repatriationliability related to these earnings is not practical due to the complexities of cash toa hypothetical calculation. Subsidiaries operating outside of the United States can be completed withfor which we do not consider under the indefinite reversal exemption have no incrementalmaterial undistributed earnings or outside basis differences and therefore no U.S. tax. However, repatriation of cash could subject us to non-U.S. jurisdictional taxes on distributions. We maintain non-U.S. funds in our foreign operations to (1) provide adequate working capital, (2) satisfy various regulatory requirements, and (3) take advantage of business expansion opportunities as they arise. The non-U.S. jurisdictional taxes applicable to foreign earnings are not readily determinable or practicable. We regularly evaluate our election to indefinitely reinvest our non-U.S. earnings. As of September 30, 2019, management believes that we have sufficient liquidity to satisfy our cash needs, including our cash needs in the United States.been provided.
Cost per Dollar Collected
We utilize adjusted operating expenses in order to facilitate a comparison of approximate costs to cash collections for our portfolio purchasing and recovery business. The calculation of adjusted operating expenses is illustrated in detail in the “Non-GAAP Disclosure” section. The following table summarizes our overall cost per dollar collected (defined as adjusted operating expenses as a percentage of collections) by geographic location during the periods presented:
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2019 2018 2019 2018
United States39.8% 40.7% 39.5% 41.7%
Europe29.0% 24.4% 28.5% 27.0%
Other geographies63.5% 46.9% 54.6% 47.1%
Overall cost per dollar collected37.4% 36.0% 36.8% 37.3%
Our overall cost per dollar collected (or “cost-to-collect”) increased 140 basis points to 37.4% for the three months ended September 30, 2019, from 36.0% during the corresponding period in the prior year, and decreased 50 basis points to 36.8% for the nine months ended September 30, 2019, from 37.3% during the corresponding period in the prior year.
Cost-to-collect in the United States decreased due to a combination of (1) collection mix shifting towards non-legal collection, which has lower cost-to-collect, (2) higher total collections that blended down fixed cost and reduced overall cost-to-collect, and (3) reduced cost-to-collect in the legal channel that was driven by improved court cost recovery rates.
Cost-to-collect in Europe during the three and nine months ended September 30, 2018 was lower than our typical cost-to-collect in this geography, driven in part by the reclassification during the quarter ended September 30, 2018 of certain expenses, which reduced adjusted operating expenses in Europe for that period.
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.
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 (Loss) Per Share. Management uses non-GAAP adjusted net income (loss) and adjusted earnings (loss) 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 (loss) 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 (loss) and diluted earnings (loss) per share attributable to Encore calculated in accordance with GAAP, to adjusted net income (loss) and adjusted earnings (loss) per share attributable to Encore, respectively. During the periods in which GAAP diluted earnings per share includes the dilutive effect of common shares that are issuable upon conversion or exchange of certain convertible notes and exchangeable notes because the average stock price during the respective periods exceeded the conversion price or exchange price of these notes, we present those metrics both including and excluding the dilutive effect of these convertible notes and exchangeable notes to better illustrate the impact of those notes and the related hedging transactions to shareholders, with “Per Diluted Share-Accounting” and “Per Diluted Share-Economic” columns. The average stock price during the three and nine months ended September 30, 2019 and 2018 did not exceed the conversion price of our convertible notes or the exchange price of our exchangeable notes, therefore, our GAAP diluted earnings per share did not include any dilutive effect attributable to our convertible notes or exchangeable notes. As a result, the adjusted earnings per diluted shares-accounting and per diluted shares-economic were the same during the respective periods presented belowrespectively (in thousands, except per share data):
 Three Months Ended March 31,
 20202019
 $Per Diluted Share$Per Diluted Share
GAAP net (loss) income attributable to Encore, as reported$(10,454) $(0.33) $49,254  $1.57  
Adjustments:
Convertible notes and exchangeable notes non-cash interest and issuance cost amortization3,977  0.13  4,002  0.13  
Acquisition, integration and restructuring related expenses(1)
187  0.01  1,208  0.04  
Amortization of certain acquired intangible assets(2)
1,643  0.05  1,877  0.06  
Income tax effect of above non-GAAP adjustments and certain discrete tax items(3)
(1,250) (0.05) (1,383) (0.05) 
Change in tax accounting method(4)
—  —  (9,070) (0.29) 
Adjusted net (loss) income attributable to Encore$(5,897) $(0.19) $45,888  $1.46  
 Three Months Ended September 30,
 2019 2018
 $ Per Diluted
Share—
Accounting and Economic		 $ Per Diluted
Share—
Accounting and Economic
GAAP net income attributable to Encore, as reported$38,869
 $1.23
 $20,725
 $0.69
Adjustments:       
Convertible notes and exchangeable notes non-cash interest and issuance cost amortization3,531
 0.11
 3,719
 0.12
Acquisition, integration and restructuring related expenses(1)
3,819
 0.12
 12,458
 0.41
Amortization of certain acquired intangible assets(2)
1,644
 0.05
 1,947
 0.07
Loss on Baycorp Transaction(3)
12,489
 0.39
 —
 —
Goodwill impairment(3)
10,718
 0.34
 —
 —
Net gain on fair value adjustments to contingent consideration(4)
(101) —
 —
 —
Loss on derivatives in connection with the Cabot Transaction(5)
—
 —
 2,737
 0.09
Income tax effect of above non-GAAP adjustments and certain discrete tax items(6)
(19,069) (0.60) (2,335) (0.08)
Adjustments attributable to noncontrolling interest(7)
—
 —
 (3,474) (0.11)
Adjusted net income attributable to Encore$51,900
 $1.64
 $35,777
 $1.19
________________________
_(1)__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.
40
Table of Contents
(2)_____________________As we acquire debt solution service providers around the world, we also acquire intangible assets, such as trade names and customer relationships. 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 (loss) attributable to Encore and adjusted income (loss) per share.
(1)Amount represents acquisition, integration and restructuring related expenses, which for the three months ended September 30, 2019 includes approximately $1.3 million of transaction costs incurred associated with the Baycorp Transaction. 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.
(2)As we acquire debt solution service providers around the world, we also acquire intangible assets, such as trade names and customer relationships. 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 from continuing operations attributable to Encore and adjusted income from continuing operations per share.
(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 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 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.
(5)Amount represents the loss recognized on the forward contract we entered into in anticipation of the completion of the Cabot Transaction. We adjust for this amount because we believe the loss is not indicative of ongoing operations; therefore, adjusting for this loss enhances comparability to prior periods, anticipated future periods, and our competitors’ results.

(6)
(3)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.
(4)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. We recognized approximately $17.5 million, or $0.55 per diluted share, in tax benefit as a result of the Baycorp Transaction, which is included in this income tax adjustment during the three months ended September 30, 2019. Refer to the Note 10“Income Taxes” in the notes to our consolidated financial statements for further details.
(7)Certain of the above adjustments include expenses recognized by our partially-owned subsidiaries. This adjustment represents the portion of the non-GAAP adjustments that are attributable to noncontrolling interest.
 Nine Months Ended September 30,
 2019 2018
 $ Per Diluted
Share—
Accounting and Economic		 $ Per Diluted
Share—
Accounting and Economic
GAAP net income attributable to Encore, as reported$124,784
 $3.97
 $68,850
 $2.49
Adjustments:       
Convertible notes and exchangeable notes non-cash interest and issuance cost amortization11,571
 0.37
 9,824
 0.36
Acquisition, integration and restructuring related expenses(1)
6,345
 0.20
 16,685
 0.60
Amortization of certain acquired intangible assets(2)
5,358
 0.17
 6,451
 0.23
Loss on Baycorp Transaction(3)
12,489
 0.40
 —
 —
Goodwill impairment(3)
10,718
 0.34
 —
 —
Net gain on fair value adjustments to contingent consideration(4)
(2,300) (0.07) (4,652) (0.17)
Loss on derivatives in connection with the Cabot Transaction(5)
—
 —
 9,315
 0.34
Expenses related to withdrawn Cabot IPO(6)
—
 —
 2,984
 0.11
Income tax effect of above non-GAAP adjustments and certain discrete tax items(7)
(21,840) (0.69) (7,763) (0.28)
Change in tax accounting method(8)
(9,070) (0.29) —
 —
Adjustments attributable to noncontrolling interest(9)
—
 —
 (5,022) (0.19)
Adjusted net income attributable to Encore$138,055
 $4.40
 $96,672
 $3.49
________________________
(1)Amount represents acquisition, integration and restructuring related expenses, which for the nine months ended September 30, 2019 includes approximately $1.3 million of transaction costs incurred associated with the Baycorp Transaction. 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.
(2)As we acquire debt solution service providers around the world, we also acquire intangible assets, such as trade names and customer relationships. 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 from continuing operations attributable to Encore and adjusted income from continuing operations per share.
(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 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 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.
(5)Amount represents the loss recognized on the forward contract we entered into in anticipation of the completion of the Cabot Transaction. We adjust for this amount because we believe the loss is not indicative of ongoing operations; therefore, adjusting for this loss enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
(6)Amount represents expenses related to the proposed and later withdrawn initial public offering by CCM. 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.
(7)
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. We recognized approximately $17.5 million, or $0.55 per diluted share, in tax benefit as a result of the Baycorp Transaction, which is included in this income tax adjustment during the nine months ended September 30, 2019. Refer to the Note 10“Income Taxes” in the notes to our consolidated financial statements for further details.

(8)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. Refer to Note 10: “Income Taxes” in the notes to our consolidated financial statements for further details.
(9)Certain of the above adjustments include expenses recognized by our partially-owned subsidiaries. This adjustment represents the portion of the non-GAAP adjustments that are attributable to noncontrolling interest.
Adjusted EBITDA. Management utilizes adjusted EBITDA (defined as net income (loss) before discontinued operations, interest income and expense, taxes, depreciation and amortization, stock-based compensation expenses, acquisition, integration and restructuring related expenses, settlement fees and related administrative 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 March 31,
20202019
GAAP net (loss) income, as reported$(10,579) $49,442  
Adjustments:
Interest expense54,662  54,967  
Interest income(1,000) (1,022) 
Provision for income taxes4,558  3,673  
Depreciation and amortization10,285  9,995  
Stock-based compensation expense4,527  1,826  
Acquisition, integration and restructuring related expenses(1)
187  1,208  
Adjusted EBITDA$62,640  $120,089  
Collections applied to principal balance(2)
$268,575  $201,328  
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
2019 2018 2019 2018
GAAP net income, as reported$39,413
 $13,016
 $125,677
 $63,703
Adjustments:       
Interest expense54,365
 65,094
 173,245
 183,092
Interest income(590) (747) (2,850) (2,846)
Provision for income taxes3,021
 16,879
 18,447
 37,657
Depreciation and amortization10,000
 9,873
 29,736
 31,232
Stock-based compensation expense4,005
 5,007
 9,412
 10,452
Acquisition, integration and restructuring related expenses(1)
3,819
 8,475
 6,345
 12,702
Loss on Baycorp Transaction(2)
12,489
 —
 12,489
 —
Goodwill impairment(2)
10,718
 —
 10,718
 —
Net gain on fair value adjustments to contingent consideration(3)
(101) —
 (2,300) (4,652)
Loss on derivatives in connection with the Cabot Transaction(4)
—
 2,737
 —
 9,315
Expenses related to withdrawn Cabot IPO(5)
—
 —
 —
 2,984
Adjusted EBITDA$137,139
 $120,334
 $380,919
 $343,639
        
Collections applied to principal balance(6)
$174,663
 $199,457
 $576,314
 $583,538
________________________
_(1)__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.
(2)_____________________Amount represents (a) gross collections from receivable portfolios less the sum of (b) revenue from receivable portfolios and (c) changes in expected recoveries for 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 2019.
(1)Amount represents acquisition, integration and restructuring related expenses, which includes approximately $1.3 million of transaction costs incurred associated with the Baycorp Transaction during the three and nine months ended September 30, 2019. 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.
(2)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.
(3)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 Note 3 “Fair Value Measurement - Contingent Consideration” in the notes to our consolidated financial statements for further details.
(4)Amount represents the loss recognized on the forward contract we entered into in anticipation of the completion of the Cabot Transaction. We adjust for this amount because we believe the loss is not indicative of ongoing operations; therefore, adjusting for this loss enhances comparability to prior periods, anticipated future periods, and our competitors’ results.
(5)Amount represents expenses related to the proposed and later withdrawn initial public offering by CCM. 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.
(6)Amount represents (a) gross collections from receivable portfolios less (b) revenue from receivable portfolios and (c) allowance charges or allowance reversals on receivable portfolios.

41
Table of Contents
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 March 31,
20202019
GAAP total operating expenses, as reported$241,879  $236,019  
Adjustments:
Operating expenses related to non-portfolio purchasing and recovery business(1)
(41,489) (46,082) 
Stock-based compensation expense(4,527) (1,826) 
Acquisition, integration and restructuring related expenses(2)
(187) (1,208) 
Adjusted operating expenses related to portfolio purchasing and recovery business$195,676  $186,903  
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
2019 2018 2019 2018
GAAP total operating expenses, as reported$247,591
 $239,246
 $716,752
 $723,896
Adjustments:       
Operating expenses related to non-portfolio purchasing and recovery business(1)
(42,503) (45,980) (130,817) (148,646)
Stock-based compensation expense(4,005) (5,007) (9,412) (10,452)
Acquisition, integration and restructuring related expenses(2)
(3,819) (8,475) (6,345) (12,702)
Goodwill impairment(3)
(10,718) —
 (10,718) —
Gain on fair value adjustments to contingent consideration(4)
101
 —
 2,300
 4,652
Expenses related to withdrawn Cabot IPO(5)
—
 —
 —
 (2,984)
Adjusted operating expenses related to portfolio purchasing and recovery business$186,647
 $179,784
 $561,760
 $553,764
________________________
_(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 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.
(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 acquisition, integration and restructuring related operating expenses (including approximately $1.3 million of transaction costs incurred associated with the Baycorp Transaction during the three and nine months ended September 30, 2019 and excluding amounts already included in stock-based compensation expense). 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 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.
(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 Note 3 “Fair Value Measurement - Contingent Consideration” in the notes to our consolidated financial statements for further details.
(5)Amount represents expenses related to the proposed and later withdrawn initial public offering by CCM. 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.
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 March 31,
 20202019
United States39.5 %39.6 %
Europe29.9 %27.6 %
Other geographies52.6 %51.2 %
Overall cost per dollar collected37.1 %36.4 %
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.
The change in cost per dollar collected was primarily due to the following reasons:
•Cost-to-collect increased due to the impact of change in accounting policy relating to court costs as discussed above;
•Despite the above increase due to accounting policy change, cost-to-collect in the United States decreased due to a combination of (1) continued improvement in operational efficiencies in the collection process, (2) collection mix shifting towards non-legal collection, which has lower cost-to-collect, and (3) higher total collections that blended down fixed cost and reduced overall cost-to-collect;
•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.

42
Table of Contents
Supplemental Performance Data
The tables included in this supplemental performance data section include detail for purchases, collections and estimated remaining collections (“ERC”)ERC by year of purchase. During any fiscal quarter in which we acquire an entity that has portfolio, the entire historical portfolio of the acquired company is aggregated into static pools for the quarter of acquisition based on common characteristics, resulting in pools for that quarter that may consist of several different vintages of portfolio. These quarterly pools are included in the tables in this section by year of purchase. For example, with the acquisition of Cabot in July 2013, all of Cabot’s historical portfolio to the date of the acquisition (which includes several years of historical purchases at various stages of maturity) is included in 2013 for Europe.
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.

43
Table of Contents
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
Purchase
Purchase
Price(1)
Cumulative Collections through March 31, 2020
<20112011201220132014201520162017201820192020
Total(2)
Multiple(3)
United States:
<2011$1,761,007  $3,222,155  $637,415  $458,336  $328,076  $236,557  $180,622  $129,676  $99,169  $80,397  $65,855  $15,151  $5,453,409  3.1  
2011383,805  —  123,596  301,949  226,521  155,180  112,906  77,257  56,287  41,148  33,445  7,372  1,135,661  3.0  
2012548,818  —  —  187,721  350,134  259,252  176,914  113,067  74,507  48,832  37,327  8,495  1,256,249  2.3  
2013551,920  —  —  —  230,051  397,646  298,068  203,386  147,503  107,399  84,665  17,687  1,486,405  2.7  
2014517,774  —  —  —  —  144,178  307,814  216,357  142,147  94,929  69,059  14,591  989,075  1.9  
2015499,371  —  —  —  —  —  105,610  231,102  186,391  125,673  85,042  18,302  752,120  1.5  
2016553,544  —  —  —  —  —  —  110,875  283,035  234,690  159,279  33,377  821,256  1.5  
2017528,642  —  —  —  —  —  —  —  111,902  315,853  255,048  55,435  738,238  1.4  
2018631,288  —  —  —  —  —  —  —  —  175,042  351,696  89,418  616,156  1.0  
2019678,821  —  —  —  —  —  —  —  —  —  174,693  102,534  277,227  0.4  
2020185,240  —  —  —  —  —  —  —  —  —  —  12,367  12,367  0.1  
Subtotal6,840,230  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  374,729  13,538,163  2.0  
Europe:
2013619,079  —  —  —  134,259  249,307  212,129  165,610  146,993  132,663  113,228  25,316  1,179,505  1.9  
2014623,129  —  —  —  —  135,549  198,127  156,665  137,806  129,033  105,337  23,271  885,788  1.4  
2015419,941  —  —  —  —  —  65,870  127,084  103,823  88,065  72,277  15,173  472,292  1.1  
2016258,218  —  —  —  —  —  —  44,641  97,587  83,107  63,198  13,102  301,635  1.2  
2017461,571  —  —  —  —  —  —  —  68,111  152,926  118,794  23,494  363,325  0.8  
2018433,302  —  —  —  —  —  —  —  —  49,383  118,266  22,658  190,307  0.4  
2019273,354  —  —  —  —  —  —  —  —  —  44,118  20,107  64,225  0.2  
202028,861  —  —  —  —  —  —  —  —  —  —  982  982  0.0  
Subtotal3,117,455  —  —  —  134,259  384,856  476,126  494,000  554,320  635,177  635,218  144,103  3,458,059  1.1  
Other geographies:
20126,721  —  —  —  3,848  2,561  1,208  542  551  422  390  70  9,592  1.4  
201329,568  —  —  —  6,617  17,615  10,334  4,606  3,339  2,468  1,573  291  46,843  1.6  
201486,989  —  —  —  —  9,652  16,062  18,403  9,813  7,991  6,472  1,350  69,743  0.8  
201583,198  —  —  —  —  —  15,061  57,064  43,499  32,622  17,499  1,557  167,302  2.0  
201664,450  —  —  —  —  —  —  29,269  39,710  28,992  16,078  1,652  115,701  1.8  
201749,670  —  —  —  —  —  —  —  15,471  23,075  15,383  1,875  55,804  1.1  
201826,371  —  —  —  —  —  —  —  —  12,910  15,008  1,580  29,498  1.1  
20192,668  —  —  —  —  —  —  —  —  —  3,198  72  3,270  1.2  
2020—  —  —  —  —  —  —  —  —  —  —  —  —  —  
Subtotal349,635  —  —  —  10,465  29,828  42,665  109,884  112,383  108,480  75,601  8,447  497,753  1.4  
Total$10,307,320  $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  $527,279  $17,493,975  1.7  
Year of
Purchase
 
Purchase
Price(1)
 Cumulative Collections through September 30, 2019
<2010 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 
Total(2)
 
Multiple(3)
United States:
<2010 $1,403,709
 $2,617,761
 $478,541
 $348,627
 $237,650
 $171,270
 $124,564
 $97,044
 $74,026
 $58,976
 $48,698
 $31,385
 $4,288,542
 3.1
2010 357,302
 
 125,853
 288,788
 220,686
 156,806
 111,993
 83,578
 55,650
 40,193
 31,699
 19,551
 1,134,797
 3.2
2011 383,806
 —
 —
 123,596
 301,949
 226,521
 155,180
 112,906
 77,257
 56,287
 41,148
 25,821
 1,120,665
 2.9
2012 548,819
 —
 —
 —
 187,721
 350,134
 259,252
 176,914
 113,067
 74,507
 48,832
 28,672
 1,239,099
 2.3
2013 551,925
 —
 —
 —
 —
 230,051
 397,646
 298,068
 203,386
 147,503
 107,399
 65,572
 1,449,625
 2.6
2014 517,853
 —
 —
 —
 —
 —
 144,178
 307,814
 216,357
 142,147
 94,929
 54,569
 959,994
 1.9
2015 499,500
 —
 —
 —
 —
 —
 —
 105,610
 231,102
 186,391
 125,673
 68,044
 716,820
 1.4
2016 553,821
 —
 —
 —
 —
 —
 —
 
 110,875
 283,035
 234,690
 127,310
 755,910
 1.4
2017 529,074
 —
 —
 —
 —
 —
 —
 —
 —
 111,902
 315,853
 203,288
 631,043
 1.2
2018 632,365
 —
 —
 —
 —
 —
 —
 —
 —
 —
 175,042
 269,544
 444,586
 0.7
2019 526,260
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 100,357
 100,357
 0.2
Subtotal 6,504,434
 2,617,761
 604,394
 761,011
 948,006
 1,134,782
 1,192,813
 1,181,934
 1,081,720
 1,100,941
 1,223,963
 994,113
 12,841,438
 2.0
Europe:                            
2013 619,079
 —
 —
 —
 —
 134,259
 249,307
 212,129
 165,610
 146,993
 132,663
 85,011
 1,125,972
 1.8
2014 630,342
 —
 —
 —
 —
 —
 135,549
 198,127
 156,665
 137,806
 129,033
 80,303
 837,483
 1.3
2015 423,297
 —
 —
 —
 —
 —
 —
 65,870
 127,084
 103,823
 88,065
 55,653
 440,495
 1.0
2016 258,841
 —
 —
 —
 —
 —
 —
 —
 44,641
 97,587
 83,107
 47,238
 272,573
 1.1
2017 464,110
 —
 —
 —
 —
 —
 —
 —
 —
 68,111
 152,926
 89,964
 311,001
 0.7
2018 455,549
 —
 —
 —
 —
 —
 —
 —
 —
 —
 49,383
 85,014
 134,397
 0.3
2019 225,831
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 26,096
 26,096
 0.1
Subtotal 3,077,049
 —
 —
 —
 —
 134,259
 384,856
 476,126
 494,000
 554,320
 635,177
 469,279
 3,148,017
 1.0
Other geographies:                          
2012 6,721
 —
 —
 —
 —
 3,848
 2,561
 1,208
 542
 551
 422
 298
 9,430
 1.4
2013 29,568
 —
 —
 —
 —
 6,617
 17,615
 10,334
 4,606
 3,339
 2,468
 1,155
 46,134
 1.6
2014 86,989
 —
 —
 —
 —
 —
 9,652
 16,062
 18,403
 9,813
 7,991
 5,024
 66,945
 0.8
2015 83,198
 —
 —
 —
 —
 —
 —
 15,061
 57,064
 43,499
 32,622
 15,422
 163,668
 2.0
2016 64,450
 —
 —
 —
 —
 —
 —
 —
 29,269
 39,710
 28,992
 13,731
 111,702
 1.7
2017 49,670
 —
 —
 —
 —
 —
 —
 —
 —
 15,471
 23,075
 12,822
 51,368
 1.0
2018 26,371
 —
 —
 —
 —
 —
 —
 —
 —
 —
 12,910
 13,176
 26,086
 1.0
2019 2,668
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 3,109
 3,109
 1.2
Subtotal 349,635
 —
 —
 —
 —
 10,465
 29,828
 42,665
 109,884
 112,383
 108,480
 64,737
 478,442
 1.4
Total $9,931,118
 $2,617,761
 $604,394
 $761,011
 $948,006
 $1,279,506
 $1,607,497
 $1,700,725
 $1,685,604
 $1,767,644
 $1,967,620
 $1,528,129
 $16,467,897
 1.7
________________________
________________________(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.
(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, 2019, excluding collections on behalf of others.
(3)Cumulative Collections Multiple (“Multiple”) through September 30, 2019 refers to collections as a multiple of purchase price.

(2)Cumulative collections from inception through March 31, 2020, excluding collections on behalf of others.
(3)Cumulative Collections Multiple (“Multiple”) through March 31, 2020 refers to collections as a multiple of purchase price.
44
Table of Contents
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 forfrom purchased receivables, by year of purchase (in thousands, except multiples):
Purchase Price(1)
Historical
Collections(2)
Estimated
Remaining
Collections		Total Estimated
Gross Collections		Total Estimated Gross
Collections to
Purchase Price
United States:
<2011$1,761,007  $5,453,409  $156,749  $5,610,158  3.2  
2011383,805  1,135,661  73,676  1,209,337  3.2  
2012548,818  1,256,249  83,474  1,339,723  2.4  
2013(3)
551,920  1,486,405  227,630  1,714,035  3.1  
2014(3)
517,774  989,075  150,849  1,139,924  2.2  
2015499,371  752,120  165,897  918,017  1.8  
2016553,544  821,256  305,060  1,126,316  2.0  
2017528,642  738,238  477,336  1,215,574  2.3  
2018631,288  616,156  776,619  1,392,775  2.2  
2019678,821  277,227  1,327,476  1,604,703  2.4  
2020185,240  12,367  408,161  420,528  2.3  
Subtotal6,840,230  13,538,163  4,152,927  17,691,090  2.6  
Europe:
2013(3)
619,079  1,179,505  864,253  2,043,758  3.3  
2014(3)
623,129  885,788  651,050  1,536,838  2.5  
2015(3)
419,941  472,292  421,602  893,894  2.1  
2016258,218  301,635  334,423  636,058  2.5  
2017461,571  363,325  586,845  950,170  2.1  
2018433,302  190,307  633,275  823,582  1.9  
2019273,354  64,225  528,265  592,490  2.2  
202028,861  982  71,820  72,802  2.5  
Subtotal3,117,455  3,458,059  4,091,533  7,549,592  2.4  
Other geographies:
20126,721  9,592  340  9,932  1.5  
201329,568  46,843  1,629  48,472  1.6  
201486,989  69,743  50,060  119,803  1.4  
201583,198  167,302  20,132  187,434  2.3  
201664,450  115,701  11,131  126,832  2.0  
201749,670  55,804  32,047  87,851  1.8  
201826,371  29,498  12,406  41,904  1.6  
20192,668  3,270  513  3,783  1.4  
2020—  —  —  —  —  
Subtotal349,635  497,753  128,258  626,011  1.8  
Total$10,307,320  $17,493,975  $8,372,718  $25,866,693  2.5  
 
Purchase Price(1)
 
Historical
Collections(2)
 
Estimated
Remaining
Collections
 
Total Estimated
Gross Collections
 
Total Estimated Gross
Collections to
Purchase Price
United States:

 

 

 
  
<2010$1,403,709
 $4,288,542
 $92,797
 $4,381,339
 3.1
2010357,302
 1,134,797
 46,046
 1,180,843
 3.3
2011383,806
 1,120,665
 65,081
 1,185,746
 3.1
2012548,819
 1,239,099
 68,968
 1,308,067
 2.4
2013(3)
551,925
 1,449,625
 194,580
 1,644,205
 3.0
2014(3)
517,853
 959,994
 141,785
 1,101,779
 2.1
2015499,500
 716,820
 161,146
 877,966
 1.8
2016553,821
 755,910
 312,244
 1,068,154
 1.9
2017529,074
 631,043
 484,658
 1,115,701
 2.1
2018632,365
 444,586
 876,641
 1,321,227
 2.1
2019526,260
 100,357
 1,030,186
 1,130,543
 2.1
Subtotal6,504,434
 12,841,438
 3,474,132
 16,315,570
 2.5
Europe:         
2013(3)
619,079
 1,125,972
 640,726
 1,766,698
 2.9
2014(3)
630,342
 837,483
 538,752
 1,376,235
 2.2
2015(3)
423,297
 440,495
 356,019
 796,514
 1.9
2016258,841
 272,573
 325,616
 598,189
 2.3
2017464,110
 311,001
 587,044
 898,045
 1.9
2018455,549
 134,397
 704,173
 838,570
 1.8
2019225,831
 26,096
 438,304
 464,400
 2.1
Subtotal3,077,049
 3,148,017
 3,590,634
 6,738,651
 2.2
Other geographies:        
20126,721
 9,430
 511
 9,941
 1.5
201329,568
 46,134
 2,358
 48,492
 1.6
201486,989
 66,945
 136,009
 202,954
 2.3
201583,198
 163,668
 22,807
 186,475
 2.2
201664,450
 111,702
 16,110
 127,812
 2.0
201749,670
 51,368
 36,949
 88,317
 1.8
201826,371
 26,086
 17,357
 43,443
 1.6
20192,668
 3,109
 755
 3,864
 1.4
Subtotal349,635
 478,442
 232,856
 711,298
 2.0
Total$9,931,118
 $16,467,897
 $7,297,622
 $23,765,519
 2.4
________________________
________________________(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.
(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, 2019, excluding collections on behalf of others.
(3)Includes portfolios acquired in connection with certain business combinations.

(2)Cumulative collections from inception through March 31, 2020, excluding collections on behalf of others.

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

45
Table of Contents
Estimated Remaining Gross Collections by Year of Purchase
The following table summarizes our estimated remaining gross collections forfrom purchased receivablesreceivable 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)
20212022202320242025202620272028>2028
Total(2)
United States:
<2011$34,003  $42,770  $26,618  $18,485  $12,801  $8,718  $5,834  $3,800  $2,298  $1,422  $156,749  
201115,679  19,195  11,871  8,334  5,874  4,142  2,927  2,074  1,473  2,107  73,676  
201217,801  21,976  13,273  9,297  6,541  4,611  3,255  2,304  1,635  2,781  83,474  
2013(4)
41,433  58,706  37,648  26,573  18,807  13,338  9,464  6,717  4,769  10,175  227,630  
2014(4)
31,726  39,781  24,335  16,725  11,468  8,076  5,713  4,047  2,869  6,109  150,849  
201538,224  44,482  27,102  18,120  12,206  7,948  5,446  3,835  2,706  5,828  165,897  
201669,574  83,698  46,158  31,673  22,481  15,859  10,957  7,709  5,419  11,532  305,060  
2017110,650  131,493  76,280  48,620  33,282  23,388  16,531  11,566  8,162  17,364  477,336  
2018188,052  219,573  130,602  84,092  53,048  34,947  23,049  15,144  9,890  18,222  776,619  
2019289,653  405,226  207,586  129,623  88,517  61,172  43,469  31,721  23,032  47,477  1,327,476  
202066,269  118,820  82,316  46,276  29,463  19,988  13,595  9,693  6,972  14,769  408,161  
Subtotal903,064  1,185,720  683,789  437,818  294,488  202,187  140,240  98,610  69,225  137,786  4,152,927  
Europe:
2013(4)
65,016  97,245  89,756  82,763  75,784  68,460  61,018  54,687  49,026  220,498  864,253  
2014(4)
53,447  82,619  72,490  64,437  57,662  50,983  43,579  38,471  34,418  152,944  651,050  
2015(4)
33,723  54,501  46,837  41,600  37,365  33,430  29,283  25,112  22,306  97,445  421,602  
201628,748  56,789  54,024  37,176  29,545  25,543  21,344  17,597  14,385  49,272  334,423  
201754,962  89,183  77,170  65,197  55,192  45,740  37,969  32,331  26,477  102,624  586,845  
201855,516  93,158  79,957  68,919  59,021  51,049  43,671  36,832  31,218  113,934  633,275  
201947,943  84,335  71,488  60,228  50,094  40,533  33,591  28,671  24,603  86,779  528,265  
20205,231  12,610  11,064  8,806  7,193  5,802  4,756  3,679  2,969  9,710  71,820  
Subtotal344,586  570,440  502,786  429,126  371,856  321,540  275,211  237,380  205,402  833,206  4,091,533  
Other geographies:
2012107  149  84  —  —  —  —  —  —  —  340  
2013459  591  387  192  —  —  —  —  —  —  1,629  
20145,108  8,163  6,681  6,328  5,643  4,471  2,687  1,455  1,367  8,157  50,060  
20152,894  3,776  3,197  2,605  1,814  1,212  840  736  636  2,422  20,132  
20163,388  4,036  2,498  669  263  177  100  —  —  —  11,131  
20175,539  6,974  5,005  3,689  2,126  1,840  1,311  719  692  4,152  32,047  
20182,899  3,645  2,420  1,650  813  435  284  186  74  —  12,406  
2019134  159  99  67  45  9  —  —  —  —  513  
2020—  —  —  —  —  —  —  —  —  —  —  
Subtotal20,528  27,493  20,371  15,200  10,704  8,144  5,222  3,096  2,769  14,731  128,258  
Portfolio ERC1,268,178  1,783,653  1,206,946  882,144  677,048  531,871  420,673  339,086  277,396  985,723  8,372,718  
REO ERC(5)
13,461  35,374  17,655  8,913  7,148  3,615  64  —  —  —  86,230  
Total ERC$1,281,639  $1,819,027  $1,224,601  $891,057  $684,196  $535,486  $420,737  $339,086  $277,396  $985,723  $8,458,948  
 
Estimated Remaining Gross Collections by Year of Purchase(1), (2)
 
2019(3)
 2020 2021 2022 2023 2024 2025 2026 2027 >2027 
Total(4)
United States:
<2010$11,443
 $35,384
 $22,907
 $14,185
 $7,161
 $1,717
 $—
 $—
 $—
 $—
 $92,797
20104,597
 14,471
 10,002
 7,026
 4,951
 3,494
 1,505
 —
 —
 —
 46,046
20116,548
 21,979
 13,085
 8,770
 6,156
 4,335
 3,057
 1,151
 —
 —
 65,081
20126,898
 24,031
 13,575
 8,572
 6,005
 4,226
 2,980
 2,105
 576
 —
 68,968
2013(5)
16,998
 54,733
 38,290
 27,342
 19,436
 13,835
 9,906
 7,144
 5,175
 1,721
 194,580
2014(5)
14,156
 48,581
 28,886
 17,876
 11,588
 7,559
 5,101
 3,468
 2,366
 2,204
 141,785
201517,129
 58,305
 30,819
 18,836
 12,554
 8,373
 5,375
 3,643
 2,551
 3,561
 161,146
201633,500
 107,794
 60,563
 35,041
 23,669
 16,703
 11,709
 8,037
 5,641
 9,587
 312,244
201750,965
 164,834
 94,275
 58,829
 37,053
 25,013
 17,328
 12,088
 8,368
 15,905
 484,658
201888,273
 309,196
 173,410
 108,025
 70,414
 45,578
 31,657
 22,519
 15,989
 11,580
 876,641
201962,104
 308,262
 248,944
 142,059
 90,761
 62,165
 42,753
 30,340
 21,980
 20,818
 1,030,186
Subtotal312,611
 1,147,570
 734,756
 446,561
 289,748
 192,998
 131,371
 90,495
 62,646
 65,376
 3,474,132
Europe:                     
2013(5)
25,707
 97,646
 90,817
 84,054
 76,708
 69,069
 61,580
 54,493
 47,949
 32,703
 640,726
2014(5)
23,411
 86,190
 77,628
 70,353
 63,116
 55,602
 46,111
 40,101
 34,877
 41,363
 538,752
2015(5)
15,712
 56,639
 49,234
 43,434
 38,362
 33,626
 29,044
 24,699
 21,565
 43,704
 356,019
201613,784
 57,814
 54,270
 40,395
 30,971
 26,267
 23,946
 28,696
 14,229
 35,244
 325,616
201727,605
 97,824
 86,951
 74,313
 62,409
 51,895
 43,026
 35,151
 28,539
 79,331
 587,044
201832,315
 117,585
 98,766
 81,206
 66,873
 57,533
 50,411
 44,257
 37,229
 117,998
 704,173
201916,522
 69,755
 62,896
 54,877
 46,352
 38,019
 30,376
 25,009
 21,247
 73,251
 438,304
Subtotal155,056
 583,453
 520,562
 448,632
 384,791
 332,011
 284,494
 252,406
 205,635
 423,594
 3,590,634
Other geographies:                    
201256
 194
 163
 98
 —
 —
 —
 —
 —
 —
 511
2013252
 830
 616
 439
 221
 —
 —
 —
 —
 —
 2,358
20143,906
 26,460
 35,118
 33,301
 23,554
 13,670
 —
 —
 —
 —
 136,009
20151,587
 5,664
 4,897
 4,291
 3,196
 1,899
 1,194
 79
 —
 —
 22,807
20161,798
 6,040
 4,393
 2,968
 782
 84
 38
 7
 —
 —
 16,110
20172,416
 8,259
 7,922
 8,006
 7,043
 2,913
 390
 —
 —
 —
 36,949
20181,668
 5,362
 3,773
 2,668
 1,830
 957
 467
 320
 225
 87
 17,357
201973
 255
 171
 115
 78
 53
 10
 —
 —
 —
 755
Subtotal11,756
 53,064
 57,053
 51,886
 36,704
 19,576
 2,099
 406
 225
 87
 232,856
Total$479,423
 $1,784,087
 $1,312,371
 $947,079
 $711,243
 $544,585
 $417,964
 $343,307
 $268,506
 $489,057
 $7,297,622
________________________
________________________(1)As of March 31, 2020, ERC for Zero Basis Portfolios include approximately $156.7 million for purchased consumer and bankruptcy receivables in the United States. ERC for Zero Basis Portfolios in Europe and other geographies was immaterial.
(1)ERC for Zero Basis Portfolios can extend beyond our collection forecasts. As of September 30, 2019, ERC for Zero Basis Portfolios include approximately $138.8 million for purchased consumer and bankruptcy receivables in the United States. ERC for Zero Basis Portfolios in Europe and other geographies was immaterial. ERC also includes approximately $173.7 million from cost recovery portfolios, primarily in other geographies.
(2)
The collection forecast of each pool in the calculation of accretion revenue is generally estimated up to 120 months in the United States and up to 180 months in Europe. Expected collections beyond the 120 month collection forecast in the United States are included in the presentation of ERC but are not included in the calculation of IRRs.
(3)
2019 amount consists of three months data from October 1, 2019 to December 31, 2019.Represents the expected remaining gross cash collections on purchased portfolios over a 180-month period. As of March 31, 2020, ERC from purchased receivables for 84-month and 120-month periods were:
84-Month ERC120-Month ERC
   United States$3,875,245  $4,072,425  
   Europe2,878,292  3,478,009  
   Other geographies108,446  116,744  
Total$6,861,983  $7,667,178  
(4)Represents the expected remaining gross cash collections on purchased portfolios over a 180-month period. As of September 30, 2019, ERC for purchased receivables for 84-month and 120-month periods were:
46
Table of Contents
 84-Month ERC 120-Month ERC
United States$3,326,441
 $3,460,727
Europe2,904,459
 3,406,860
Other geographies232,474
 232,856
Total$6,463,374
 $7,100,443

(5)Includes portfolios acquired in connection with certain business combinations.
Unamortized Balances(3)2020 amount consists of Portfoliosnine months data from April 1, 2020 to December 31, 2020.
The following table summarizes the remaining unamortized balances(4)Includes portfolios acquired in connection with certain business combinations.
(5)Real estate-owned assets ERC includes approximately $82.5 million and $3.7 million of our purchased receivable portfolios by yearestimated future cash flows for Europe and Other Geographies, respectively. As of purchase December 31, 2019, estimated future cash flows for real estate-owned assets were approximately $88.0 million and $4.4 million, for Europe and Other Geographies, respectively.(in thousands, except percentages):
 Unamortized
Balance as of
September 30, 2019		 
Purchase
Price(1)
 
Unamortized
Balance as a
Percentage of
Purchase Price
 
Unamortized
Balance as a
Percentage
of Total
United States:       
2011$2,907
 $383,806
 0.8% 0.1%
20126,692
 548,819
 1.2% 0.2%
2013(2)
15,844
 551,925
 2.9% 0.5%
2014(2)
53,863
 517,853
 10.4% 1.7%
201588,511
 499,500
 17.7% 2.8%
2016163,481
 553,821
 29.5% 5.1%
2017219,053
 529,074
 41.4% 6.9%
2018450,300
 632,365
 71.2% 14.1%
2019491,560
 526,260
 93.4% 15.4%
Subtotal1,492,211
 4,743,423
 31.5% 46.8%
Europe:       
2013(2)
221,599
 619,079
 35.8% 7.0%
2014(2)
200,040
 630,342
 31.7% 6.3%
2015(2)
154,572
 423,297
 36.5% 4.8%
2016139,951
 258,841
 54.1% 4.4%
2017292,257
 464,110
 63.0% 9.2%
2018380,162
 455,549
 83.5% 11.9%
2019208,934
 225,831
 92.5% 6.5%
Subtotal1,597,515
 3,077,049
 51.9% 50.1%
Other geographies:       
201460,827
 86,989
 69.9% 1.9%
20157,295
 83,198
 8.8% 0.2%
20164,998
 64,450
 7.8% 0.2%
201716,169
 49,670
 32.6% 0.5%
20188,792
 26,371
 33.3% 0.3%
2019360
 2,668
 13.5% 0.0%
Subtotal98,441
 313,346
 31.4% 3.1%
Total$3,188,167
 $8,133,818
 39.2% 100.0%
________________________
(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 agreements.
(2)Includes portfolios acquired in connection with certain business combinations.


Estimated Future Amortization of PortfoliosCollections Applied to Principal
As of September 30, 2019,March 31, 2020, we had $3.2 billion in investment in receivable portfolios. This balance will be amortized based upon current projections of cash collections in excess of revenue applied to the principal balance. The estimated amortization offuture 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)
$262,775  $40,238  $9,895  $312,908  
2021532,398  195,560  15,337  743,295  
2022281,131  179,894  12,456  473,481  
2023166,963  151,215  7,899  326,077  
2024107,866  131,691  6,028  245,585  
202572,481  114,933  4,952  192,366  
202649,487  97,881  2,961  150,329  
202735,029  84,748  1,603  121,380  
202825,029  74,317  1,432  100,778  
202917,517  66,645  1,365  85,527  
203012,430  62,460  1,363  76,253  
20319,006  62,480  1,360  72,846  
20326,765  64,548  1,358  72,671  
20335,500  70,066  1,356  76,922  
20345,104  79,311  1,354  85,769  
2035725  26,264  2,842  29,831  
Total$1,590,206  $1,502,251  $73,561  $3,166,018  
Years Ending December 31,

United States
 

Europe
 

Other Geographies
 
Total
Amortization
2019(1)
$111,920
 $52,752
 $4,336
 $169,008
2020506,550
 208,211
 19,605
 734,366
2021336,893
 199,281
 23,849
 560,023
2022190,414
 179,806
 23,254
 393,474
2023122,162
 155,750
 17,056
 294,968
202480,293
 141,699
 8,876
 230,868
202554,833
 128,744
 998
 184,575
202639,504
 124,664
 233
 164,401
202727,980
 116,272
 159
 144,411
202817,142
 107,910
 75
 125,127
20294,520
 60,925
 —
 65,445
2030—
 43,198
 —
 43,198
2031—
 33,136
 —
 33,136
2032—
 26,965
 —
 26,965
2033—
 14,998
 —
 14,998
2034—
 3,204
 —
 3,204
Total$1,492,211
 $1,597,515
 $98,441
 $3,188,167
________________________
________________________(1)2020 amount consists of nine months data from April 1, 2020 to December 31, 2020.
(1)2019 amount consists of three months data from October 1, 2019 to December 31, 2019.
47
Table of Contents
Headcount by Function by Geographic Location and Function
The following table summarizes our headcount by functiongeographic location and by geographic location:function:
Headcount as of March 31,
Headcount as of September 30,20202019
2019 2018
Domestic International Domestic 
International(1)
United States:United States:
General & Administrative1,101
 2,110
 1,047
 2,680
General & Administrative1,137  1,097  
Account Manager479
 3,671
 531
 4,375
Account Manager416  495  
SubtotalSubtotal1,553  1,592  
Europe:Europe:
General & AdministrativeGeneral & Administrative1,079  1,049  
Account ManagerAccount Manager2,234  2,111  
SubtotalSubtotal3,313  3,160  
Other Geographies(1):
Other Geographies(1):
General & AdministrativeGeneral & Administrative621  1,353  
Account ManagerAccount Manager2,137  1,830  
SubtotalSubtotal2,758  3,183  
Total1,580
 5,781
 1,578
 7,055
Total7,624  7,935  
________________________
(1)Headcount as of September 30, 2018 includes 263 general and administrative and 450 account manager Refinancia employees and 210 and 359 Baycorp employees.

(1)Headcount as of March 31, 2019 includes 170 general and administrative and 361 account manager Baycorp employees.


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
Accounts		Face ValuePurchase 
Price
Q1 2018973  $1,799,804  $276,762  
Q2 20181,031  2,870,456  359,580  
Q3 2018706  1,559,241  248,691  
Q4 2018766  2,272,113  246,865  
Q1 2019854  1,732,977  262,335  
Q2 2019778  2,307,711  242,697  
Q3 20191,255  5,313,092  259,910  
Q4 2019803  2,241,628  234,916  
Q1 2020943  1,703,021  214,113  

48
Quarter
# of
Accounts
 Face Value 
Purchase 
Price
Q1 2017807
 $1,657,393
 $218,727
Q2 20171,347
 2,441,909
 246,415
Q3 20171,010
 3,018,072
 292,332
Q4 20171,434
 2,985,978
 300,761
Q1 2018973
 1,799,804
 276,762
Q2 20181,031
 2,870,456
 359,580
Q3 2018706
 1,559,241
 248,691
Q4 2018766
 2,272,113
 246,865
Q1 2019854
 1,732,977
 262,335
Q2 2019778
 2,307,711
 242,697
Q3 20191,255
 5,313,092
 259,910

Table of Contents
Liquidity and Capital Resources
Liquidity
The following table summarizes our cash flow activities for the periods presented (in thousands):
Nine Months Ended
September 30,		 Three Months Ended March 31,
2019 2018 20202019
(Unaudited)(Unaudited)
Net cash provided by operating activities$196,946
 $120,022
Net cash provided by operating activities$70,805  $10,991  
Net cash used in investing activities(197,958) (326,071)Net cash used in investing activities(43,255) (69,514) 
Net cash provided by financing activities31,313
 204,927
Net cash (used in) provided by financing activitiesNet cash (used in) provided by financing activities(21,762) 71,547  
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 future 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 was $196.9$70.8 million and $120.0$11.0 million during the ninethree months ended September 30,March 31, 2020 and 2019, respectively. Included in the net loss of $10.6 million during the three months ended March 31, 2020 was an adjustment of $98.7 million due to the changes in our expected current and 2018, respectively. Cashfuture recoveries. After adjusting for this item, net cash provided by operating activities is affected by net income, various non-cash add backs in operating activities, including portfolio allowance reversals, and changes in operating assets and liabilities. The primary drivers of the change in operating cash flow included net income, interest expense, and various changes in operating assets and liabilities. Prepaidsignificantly increased. Additionally, prepaid income tax and income taxes payable consumed $21.2provided $15.0 million and provided $21.4consumed $30.2 million of cash during the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively, while accounts payable, accrued liabilities and other liabilities consumed $43.6$46.5 million and $5.9$67.8 million during the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively.

Investing Cash Flows
Net cash used in investing activities was $198.0$43.3 million and $326.1$69.5 million during the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively. Cash used in investing activities is primarily affected by receivable portfolio purchases offset by collection proceeds applied to the principal of our receivable portfolios.portfolios, net of the change in principal balance due to the change in expected future recoveries or allowance adjustments. Receivable portfolio purchases were $757.1$209.0 million and $881.8$258.6 million during the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively. Collection proceeds applied to the principal of our receivable portfolios, net, were $588.3$169.9 million and $615.0$202.7 million during the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively. Capital expenditures for fixed assets acquired with internal cash flows were $30.7$7.5 million and $37.4$10.2 million for the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively.
Financing Cash Flows
Net cash used in financing activities was $21.8 million during the three months ended March 31, 2020, and net cash provided by financing activities was $31.3 million and $204.9$71.5 million during the ninethree months ended September 30, 2019 and 2018, respectively. Cash provided by financing activities isMarch 31, 2019. Financing cash flows are generally affected by borrowings under our credit facilities and proceeds from various debt offering,offerings, offset by repayments of amounts outstanding under our credit facilities and repayments of various notes. Borrowings under our credit facilities were $481.1$171.9 million and $766.5$196.3 million during the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively. Repayments of amounts outstanding under our credit facilities were $441.0$167.2 million and $465.7$119.9 million during the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively. Proceeds from the issuanceRepayment of convertible and exchangeablesenior secured notes were $100.0 million and $172.5was $16.3 million during the ninethree months ended September 30, 2019 and 2018, respectively. Financing cash outflows included $234.1 million of cash consideration paid for the acquisition of the remaining interest in Cabot during the nine months ended September 30, 2018.March 31, 2020.
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. From time to time, dependingDepending on the capital markets, we consider additional financings to fund our operations and acquisitions. We continue to explore possible synergies with respect to Cabot, including in connection with potential debt financing options. 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.
We have a revolving credit facility (the “Revolving Credit Facility”) and term loan facility (the “Term Loan Facility”, and together with the Revolving Credit Facility, the “Senior Secured Credit Facilities”) pursuant to a Third Amended and Restated Credit Agreement dated December 20, 2016 (as amended, the “Restated Credit Agreement”). The Senior Secured Credit Facilities have a five-year maturity, expiring in December 2021. As
49
Table of September 30, 2019, we had $469.0 million outstanding and $224.6 million of availability under the Revolving Credit Facility and $175.5 million outstanding under the Term Loan Facility.Contents
Through Cabot, we have a revolving credit facility of £385.0 million (approximately $473.2 million) (the “Cabot Credit Facility”). As of September 30, 2019, we had £248.5 million (approximately $305.5 million) outstanding and £136.5 million (approximately $167.8 million) of availability under the Cabot Credit Facility.
In August 2018, we established an at-the-market equity offering program (the “ATM Program”) pursuant to which we may issue and sell shares of Encore’s common stock having an aggregate offering price of $50.0 million in amounts and at times as we determine from time to time. During the three and nine months ended September 30, 2019, we did not issue any shares under our ATM Program.
We have no obligation to sell any of such shares under our ATM Program. Actual sales will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of our common stock, our determination of the appropriate sources of funding for the Company, and potential uses of funding available to us. We intend to use the net proceeds from the offering of such shares, if any, for general corporate purposes, which could include repayments of our credit facilities from time to time.
Currently, all of our portfolio purchases are funded with cash from operations, and borrowings undercash collections from our Senior Secured Credit Facilitiesinvestment in receivable portfolios, and our Cabot Credit Facility.bank borrowings.
We are in material compliance with all covenants under our financing arrangements. See Note 8, “Borrowings”“Note 8: Borrowings” to our consolidated financial statements for a further discussion of our debt.

Our cash and cash equivalents at September 30, 2019as of March 31, 2020 consisted of $24.9$55.7 million held by U.S.-based entities and $161.8$132.5 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.
Included in cash and cash equivalents is cash that was collected on behalf of, and remains payable to, third partythird-party clients. The balance of cash held for clients was $22.4$19.4 million at September 30, 2019.as of March 31, 2020.
WeCash 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.

50
Table of Contents
Item 3 – Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Exchange Rates. At September 30, 2019,As of March 31, 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, 2018.2019.
Interest Rates. At September 30, 2019,As of March 31, 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, 2018.2019.
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
NoExcept as noted below there were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2019March 31, 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.
51
Table of Contents
PART II – OTHER INFORMATION

Item 1 – Legal Proceedings
Information with respect to this item may be found in Note 12, “Commitments“Note 11, Commitments and Contingencies,” to the consolidated financial statements.
Item 1A – Risk Factors
ThereExcept for the additional risk factor set forth below, there is no material change in the information reported under “Part I-Item 1A-Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 20182019.
The impact of the COVID-19 pandemic and “Part II, Item 1A-Riskthe measures implemented to contain the spread of the virus have had, and are expected to continue to have, a material adverse impact on our business and results of operations.
The COVID-19 pandemic and resulting containment measures have caused economic and financial disruptions that have adversely affected, and could continue to materially adversely affect, our business and results of operations. The extent to which the pandemic will continue to materially adversely affect our business and results of operations will depend on future developments that we are not able to predict, including the duration, spread and severity of the outbreak; the nature, extent and effectiveness of containment measures; the extent and duration of the effect on the economy; and how quickly and to what extent normal economic and operating conditions can resume. It is also possible that any adverse impacts of the pandemic and containment measures may continue once the pandemic is controlled and the containment measures are lifted.

The COVID-19 pandemic and resulting containment measures have contributed to among other things:
•Adverse impacts on our daily business operations and our ability to perform necessary business functions, including as a result of illness or as a result of restrictions on movement, which has caused expected delays in collections;
•Widespread changes to financial and economic conditions of consumers, which has reduced our ability to collect on our consumer receivable portfolios;
•Uncertainty in certain jurisdictions with respect to near-term availability of receivable portfolios that meet our purchasing standards;
•Governmental actions discussed, proposed or taken to provide forms of relief, such as limiting debt collections efforts and encouraging or requiring extensions, modifications or forbearance, with respect to certain loans and fees;
•Impacts on the court system and the legal process, which has impacted our ability to collect through the litigation process;
•Adverse impacts on third-party service providers;
•Adverse impacts on capital and credit market conditions, which may limit our access to funding, increase our cost of capital, and affect our ability to meet liquidity needs;
•Increased spending on business continuity efforts and readiness efforts for returning to our offices, which may in turn require that we cut costs and investments in other areas; and
•An increased risk of an information or cyber-security incident, fraud or a failure in the effectiveness of our compliance programs due to, among other things, an increase in remote work.

On January 1, 2020 we adopted CECL. Our ability to accurately forecast future losses under CECL may be impaired by the significant uncertainty surrounding the COVID-19 pandemic and containment measures and the lack of comparable precedent.
We do not yet know the full extent of how COVID-19 and the resulting containment measures will affect our business, results of operations and financial condition. However, the effects are likely to have a material impact on our business and results of operations and heighten many of the other risks described in the “Risk Factors” insection of our QuarterlyAnnual Report on Form 10-Q10-K for the quarteryear ended June 30,December 31, 2019.

52
Table of Contents
Item 6 – Exhibits
NumberDescription
3.1.1
3.1.2
3.1.3
3.3
4.110.1 
10.1
Amendment No. 3 to Third Amended and Restated CreditSenior Facility Agreement, dated August 30, 2019, byFebruary 18, 2020, between Cabot Securitisation UK Limited, Cabot Financial (UK) Limited, HSBC Corporate Trustee Company (UK) Limited as Security Trustee, HSBC Bank PLC as Senior Agent 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 SunTrustGoldman Sachs International Bank as administrative agent and collateral agentSenior Lender (incorporated by reference to Exhibit 10.1 to the Company’s CurrentAnnual Report on Form 8-K filed on September 3, 2019)February 24, 2020)
10.210.2+ 
31.1
31.2
32.1
101.INSXBRL 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.SCHXBRL Taxonomy Extension Schema Document (filed herewith)
101.CALXBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
101.DEFXBRL Taxonomy Extension Definition Linkbase Document (filed herewith)
101.LABXBRL Taxonomy Extension Label Linkbase Document (filed herewith)
101.PREXBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101


+ Management contract or compensatory plan or arrangement.
53
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.
ENCORE CAPITAL GROUP, INC.
By:
By:/s/ Jonathan C. Clark
Jonathan C. Clark
Executive Vice President,
Chief Financial Officer and Treasurer
Date: November 6, 2019May 11, 2020



6654