Jefferson Capital Inc’s Earnings Call: Legal Costs, Forward Flows and Cash Efficiency Signals Clash

Date of Call: Aug 13, 2026

Financials Results

• Revenue: $178 million, up 16% year-over-year
• EPS: $0.77 Adjusted EPS

Business Commentary:

Strong Financial Performance:

• Jefferson Capital reported collections of $301 million for the second quarter, up 18% year-over-year, and deployed $152 million, a 21% increase from the prior year.
• The company's estimated remaining collections grew 18% to $3.4 billion.
• This growth was driven by strong collections from portfolio purchases and continued deployment performance.

Auto Finance Market Opportunity:

• Auto finance receivables reached a record $1.69 trillion, with higher loan amounts driven by elevated vehicle prices and interest rates.
• The average monthly new vehicle loan payment is $773, up 40% from pre-pandemic levels.
• These trends indicate a substantial opportunity for Jefferson Capital as they provide solutions for performing, charged-off, and insolvency auto finance portfolios.

Improved Operating Efficiency:

• The company achieved a sector-leading cash efficiency ratio of 72.2%, driven by strong collections from Bluestem and Conn’s portfolio purchases.
• Excluding these portfolios, the cash efficiency ratio would have been `67.8%%.
• The high cash efficiency ratio is a result of the company's focus on owning high value-added aspects of the purchasing and collection process.

Legal Channel Collections Growth:

• Legal channel collections increased by 54% year-over-year to $64 million.
• This growth was supported by process improvements that compressed the timing from account placement to lawsuit filing and modeling improvements that identified new profitable collection opportunities.

Geographic Expansion in Mexico:

• Jefferson Capital has entered the debt purchasing market in Mexico, with a focus on low initial capital deployment to build servicing capabilities.
• The company sees attractive U.S. dollar risk-adjusted returns and views this as a significant growth pillar for their Latin American strategy.

Sentiment Analysis:

Overall Tone: Positive

• Management reported 'excellent results for shareholders' with 'strong collections growth' and 'record deployments' in July. They noted the market backdrop remains 'attractive' and they are 'confident in the deployment landscape.' The tone was optimistic regarding growth prospects and new geographic expansion.

Q&A:

• Question from Mark Hughes (Truist Securities): You talked in the auto segment, sounds like you’re seeing a lot of success in the month of July. How broad is that? How should we think about the opportunities as the rest of the year progresses? Just a little more detail on that auto would be great.
  Response: July deployments across auto asset classes (charge-offs, insolvencies, performing) indicate a growing opportunity, with the company uniquely positioned to benefit from sector headwinds.

• Question from Mark Hughes (Truist Securities): Could you refresh us on any differences in terms of the collection profile or costs associated with the auto channel?
  Response: Auto collections involve higher operational complexity and costs, especially for repossession and legal channels in deficiency/distressed accounts, compared to insolvency or performing loans.

• Question from Mark Hughes (Truist Securities): Then, Christo, the staging recoveries, the nice positive number again, maybe starting to look like a trend. How should we think about that line item?
  Response: Staging recoveries were slightly higher but still within the expected single-digit millions range; modeling targets accuracy, not conservatism.

• Question from David Scharf (Citizens Capital Markets): Dave, you have historically enjoyed some pretty formidable competitive barriers... Could you talk a little more about just the... competitive landscape there...?
  Response: Auto finance is more complex for collection due to vehicle repossession, legal documentation, and state regulations; the company's expertise across all segments (secured/unsecured, performing/non-performing) is a rare competitive advantage.

• Question from David Scharf (Citizens Capital Markets): ...compared to a year ago, would you say that your auto volumes represent mostly deeper penetration of some existing originator relationships, or have you been adding new relationships over that time?
  Response: Auto volumes are a mix of deeper penetration with existing customers and new client relationships.

• Question from David Scharf (Citizens Capital Markets): With the legal channel growing... there’s sort of a delayed kind of cash flow dynamic... is there any type of step function we should think about in terms of court costs?
  Response: Court costs are expected to follow a similar trajectory; cash efficiency ratios (high 60s excluding Bluestem/Conn’s) provide a good guide for second half modeling.

• Question from Randy Benner (Texas Capital): On the July deployment number, did I hear that correctly as being a, did you say $185 million, David?
  Response: Yes, July deployments were $185 million, a record monthly figure driven by a wide distribution across asset classes with a larger share in auto.

• Question from Randy Benner (Texas Capital): ...what was the nature of that? I kind of missed that. Was that like a big lumpy thing...?
  Response: The $185 million deployment was a normal distribution across asset classes, with a larger allocation to auto, not an episodic or lumpy event.

• Question from Randy Benner (Texas Capital): ...the collection activity just continues to be good and ahead of our expectation. Do you talk about collection performance by vintage?
  Response: Collection performance is not significantly differentiated by vintage; underwriting accounts for consumer repayment capability, and liquidation rates are stable barring a recession.

• Question from John Hecht (Jefferies LLC): First one is, maybe David, can you talk about the pipeline?... Maybe talk about the characteristics of the pipeline and pricing and so forth.
  Response: Pipeline activity is elevated across geographies and asset classes due to attractive supply and increased effectiveness in building relationships.

• Question from John Hecht (Jefferies LLC): Christo, maybe can you... refresh us how those factors impact the coming quarters relative to Q2.
  Response: Seasonality impact weakens after Q1; deployment activity is trending to accelerate in the second half, with Q4 typically being the largest quarter.

• Question from John Hecht (Jefferies LLC): ...LatAm kind of stuck out this quarter in terms of growth and momentum. Maybe anything to point out there...
  Response: Growth in Latin America is driven by platform building, forward flows, and measured expansion, including an inaugural deployment in Mexico.

• Question from Robert Dodd (Raymond James): On the timing of collections on auto... does the auto have high collection elements, but are those closely aligned... to when the collection occurs...?
  Response: In performing auto, costs align closely with collections; in deficiency/distressed, some costs (repossessions, court) are more disconnected, but overall, no step function change in cash efficiency is expected.

• Question from Robert Dodd (Raymond James): ...you have forward flows locked in over the next year of $312 million. You bought $185 million in July... Are there any headwinds you can see where you would not generate substantial ERC growth...?
  Response: No headwinds are anticipated; the company is well-positioned for meaningful ERC growth.

• Question from Bose George (KBW): Just going back to the auto discussion. It seems like it’s hitting kind of an inflection point... How much of the change is being driven by just the increased supply... versus just a shift among lenders...?
  Response: Growth is driven by both permanent factors (low percentage of auto sales, originator sales optimization) and episodic trends (higher balances, stressed consumer, delinquencies pushing lenders to sell portfolios).

• Question from Bose George (KBW): Then just on the forward flow numbers, can you just remind us, is there kind of a sweet spot for purchase forward flow commitment as a percentage of your total acquisitions?
  Response: Historically, forward flows have run around 50% of deployments, but the goal is to deploy at attractive returns, with forward flows being a byproduct of strong originator relationships.

Contradiction Point 1

Legal Channel Cost Trajectory and Impact on Cash Efficiency

Contradiction on whether legal costs will remain stable or create downward pressure on cash efficiency.

David Scharf (Citizens Capital Markets) - David Scharf (Citizens Capital Markets)

2026Q2: The cash efficiency ratio (high 60s excluding Bluestem/Conn’s spend) is a better guide... This quarter’s court costs are indicative of what to expect for the balance of the year. - Christo Realov(CFO)

Given the legal channel's growth and delayed cash flow from upfront court costs, will court costs in the second half follow a step function or the typical trajectory? - David Scharf (Citizens Capital Markets)

2026Q1: The legal channel mix is not expected to have a material impact [on the cash efficiency ratio]. - Christo Realov(CFO)

Contradiction Point 2

Forward Flow Commitment as a Percentage of Total Acquisitions

Contradiction on whether forward flows are a byproduct or a specific target.

Bose George (KBW) - Bose George (KBW)

2026Q2: The goal is to deploy capital at attractive returns, with forward flows being a byproduct of strong originator relationships, not a specific target. - David Burton(CEO)

What is the optimal range for forward flow commitment as a percentage of total acquisitions? - David Scharf (Citizens Capital Markets)

2026Q1: Committed forward flows were up about 28%... reflecting deeper client relationships and a shift towards programmatic selling. - David Burton(CEO)

Contradiction Point 3

Auto Finance Opportunity and Market Dynamics

Contradiction on whether auto finance market expansion is a broad, sustainable trend or more related to seasonal and episodic factors.

Mark Hughes (Truist Securities) - Mark Hughes (Truist Securities)

2026Q2: July saw deployments across the spectrum in auto... indicating a growing opportunity set in the auto finance sector. - David Burton(CEO)

How broad is the success in the auto segment observed in July, and how should we assess the opportunities for the remainder of the year? - David Scharf (Citizens Capital Markets)

20260313-2025 Q4: Elevated supply began some time ago and broadly continues; Q2 may offer a better view. - David Burton(CEO)

Contradiction Point 4

Cash Efficiency Ratio (CER) Trajectory and Forecast

Contradiction on whether CER, excluding legacy portfolios, is expected to remain stable or trend downward due to portfolio run-off.

Robert Dodd (Raymond James) - Robert Dodd (Raymond James)

2026Q2: The cash efficiency to remain consistent (high 60s excluding Bluestem/Conn’s spend). The return profile is similar to historical targets. - Christo Realov(CFO), David Burton(CEO)

Are higher repossession costs incurred closer to collections than legal costs, affecting cash efficiency ratios less? - John Hecht (Jefferies)

20260313-2025 Q4: The headline cash efficiency ratio trended down in 2025 as Conn's collections declined. The substitution effect from these portfolios will impact 2026, but process improvements continue. - Christo Realov(CFO)

Contradiction Point 5

Seasonality Impact on Deployments

Contradiction on the primary driver of Q4 deployment strength.

John Hecht (Jefferies LLC) - John Hecht (Jefferies LLC)

2026Q2: The July activity reflects broad market opportunities, not seasonality. - David Burton(CEO)

How will Q2 seasonality and factors like Bluestem/Conn’s impact future quarters? - John Hecht (Jefferies LLC)

20251114-2025 Q3: Deployments are historically strongest in Q4 across all geographies... though some banks have different fiscal years, nonbank institutions typically align with the calendar year. - David Burton(CEO)