Jefferson Capital Q1 2026 Earnings Call - Record Collections Drive Efficiency and Leverage into Strategic Optionality

Operator: Good afternoon, and welcome to Jefferson Capital’s fourth quarter and full year 2025 conference call. With us today are David Burton, Founder and Chief Executive Officer, and Christo Realov, Chief Financial Officer. As a reminder, this conference call is being recorded. This call may contain forward-looking statements regarding the company’s plans, initiatives, and strategies and the anticipated financial performance of the company, including, but not limited to, sales and profitability, expected benefits of the Bluestem acquisition, expectations on the market and macroeconomic factors, and expected collections and growth in certain collections. Such statements are based upon management’s current expectations, projections, estimates, and assumptions. Words such as expect, believe, anticipate, think, outlook, hope, and variations of such words and similar expressions identify such forward-looking statements. Forward-looking statements involve known risks and unknown risks and uncertainties that may cause future results to differ materially from those suggested by the forward-looking statements.

Such risks and uncertainties are further disclosed in the company’s most recent filings with the Securities and Exchange Commission. Shareholders, potential investors, and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements. The company does not undertake to update the forward-looking statements except as required by law. Also, during this conference call, the company will be presenting certain non-GAAP financial measures. Reconciliations of the company’s historical non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today’s earnings press release. Now I’ll turn the call over to David Burton. Please go ahead.

David Burton, Founder and Chief Executive Officer, Jefferson Capital: Thank you, operator, and thanks everyone for joining our investor call. Let’s dive into our first quarter financial performance highlights. We again generated strong results for shareholders. We delivered record collections of $310 million, up 19% versus the prior year period, and we continued to perform well versus our underwriting expectations. Our estimated remaining collections grew 18% to $3.4 billion, driven by our continued deployment performance and attractive anticipated returns. Revenue for the quarter was a record $176 million, up 14% versus the prior year period. We delivered a sector-leading cash efficiency ratio of 73%, driven in part by strong collections from the Bluestem Brands and Conn’s portfolio purchases.

We generated strong cash flow in the quarter, which improved our leverage to 1.79 times, a level which positions us well for future growth and creates significant strategic optionality. Adjusted EPS for the quarter was $0.73. Turning to the next slide, I’d like to offer a brief market update and cover some of the macroeconomic indicators to provide better context for why we remain confident in the investment opportunity for our business. Delinquency trends remained elevated across all non-mortgage consumer asset classes and create favorable portfolio supply trends. An asset class we continue to watch closely is auto finance. Receivables have grown steadily to a record of $1.68 trillion, with an average monthly new vehicle loan payment of $806, up 52% compared to pre-pandemic as a result of higher vehicle prices and elevated interest rates.

In March of 2026, nearly 1/3 of used vehicle trade-ins carried negative equity. In addition, 72-month loans accounted for 40.5% of all financed vehicle sales, and 84-month loans accounted for 12.8%. Continued strain on the consumer and deteriorating credit quality for originators, in some instances coupled with financing headwinds, all set the stage for increasing portfolio supply. We remain uniquely positioned to offer solutions across the spectrum of performing, charged off, and insolvency auto finance portfolios for both secured and unsecured accounts. The next important component to better understand the state of the consumer is the current level of personal savings. During the pandemic, consumers accumulated abnormally high savings as a result of the unprecedented levels of government stimulus, which served as a financial cushion against life’s unexpected events.

By the end of 2022, the excess savings had been depleted, and in fact, the current level of personal savings at $857 billion is substantially lower than the long-term pre-pandemic average from 2013 through 2019 of $1.1 trillion, a dynamic which is even more pronounced when adjusted for inflation. This suggests that consumers have a more limited ability to absorb unanticipated temporary financial hardships, which is an important driver for delinquency and charge-off volumes. Next, regarding the insolvency market, we have seen a well-pronounced increase in the number of insolvencies both in the U.S. and in Canada from the pandemic trough in 2021, which in turn has fueled the resurgence in supply of insolvency portfolios. Insolvency valuation and servicing requires highly specialized expertise, a robust data set to develop accurate forecasts, and a technologically advanced servicing platform.

We remain one of the very few debt buyers in the U.S., and by far the largest debt buyer in Canada, that can capitalize on this market opportunity. Finally, this backdrop is also underpinned by a low level of unemployment, which supports the expected liquidation rates on our existing portfolio and gives us confidence in underwriting new purchases. Our portfolio performance is less sensitive to changes in unemployment compared to an originator. Despite the recent labor market headwinds, the overall employment level is still favorable for our business. All of these trends point in one direction, elevated levels of consumer delinquencies and charge-offs, which we’re seeing across all consumer asset classes and which we believe create a long runway for a robust portfolio supply over the coming quarters, coupled with continued strong collection performance on our existing book and on any future portfolio purchases.

Moving on, I’d like to review in more detail some of the key performance trends for the quarter. Our collections, as I mentioned, were $310 million, up 19% year-over-year, driven by strong deployments in 2024 and 2025. $54.5 million of collections for the quarter were attributable to the Bluestem portfolio purchase, and $31 million were attributable to the Conn’s portfolio purchase. More broadly, our collection performance on the overall portfolio continues to reflect the accuracy of our underwriting models, and we did see the typical seasonal impact of tax refunds on consumer liquidity in the U.S. A key trend in collection performance has been the increase in legal channel collections.

Jefferson Capital utilizes legal channel as a means of last resort in instances where we believe the account holder has the ability but not the willingness to engage or pay. We have achieved a number of important process improvements, specifically in the U.S., which have significantly compressed the timing from placement of the account to filing of the lawsuit, which in turn has accelerated suit volumes. This inventory of suit-eligible accounts has increased given the significant growth in deployments over the past three years. Over time, we expect to see continued growth in legal collections. Our portfolio purchases for the quarter were $150 million compared to $175 million in the first quarter of 2025. Returns remain attractive, and we remain confident in the deployment landscape.

I will note that our deployments in the year-ago first quarter benefited from a $28.5 million insolvency back book purchase in Canada. More broadly, our business is subject to pronounced seasonality. The fourth quarter is typically the largest quarter for deployments as credit originators aim to dispose of non-performing portfolios ahead of year-end. Deployments tend to decelerate in the first quarter as portfolio sales activity declines as originators want to take advantage of consumer liquidity related to tax refunds in the U.S. As of March 31st, we had $353 million of deployments locked in through forward flows, which is an important building block of our deployment strategy for the coming quarters.

Our estimated remaining collections as of March 31st were $3.4 billion, up 18% year-over-year, with ERC related to Bluestem and Conn’s comprising $238 million and $105 million of US distressed respectively. Our ERC is relatively short in duration, due in part to the lower average balance accounts in our portfolio, with 52% of our ERC expected to be collected through 2027. We expect to collect $1.1 billion of our March 31st ERC balance during the next 12 months. Based on the average purchase price multiples recorded in the first quarter, we’d need to deploy approximately $563 million globally over the same time frame to replace this runoff and maintain current ERC levels.

I would note that as of March 31st, we had $216 million of deployments contracted via forward flows for the next 12 months. Lastly, I’d like to review in more detail another core pillar of our business model and a critical building block for our differentiated return profile, our best-in-class operating efficiency. We seek to own the high value-added aspects of the purchasing and collection process, including portfolio and consumer payment performance data, extensive analytical and modeling capabilities, certain proprietary technological capabilities, and the collection processes and techniques that we believe create both a competitive advantage for the company as well as a significant barrier to entry. Conversely, we seek to outsource the aspects of the collections value chain that we view as commoditized or operationally intensive and do not produce a competitive advantage, such as running large domestic call centers.

We utilize champion challenger performance measures to allocate portfolio segments to the best servicers, and our internal collection platform competes for market share against external collection service providers. Our mostly variable cost structure provides flexibility to scale deployments depending on market conditions. The benefits of our relentless pursuit of operating efficiency are evident in our efficiency metrics relative to the rest of the sector. As I mentioned, our cash efficiency ratio for the quarter was 73%. It was aided by collections on the Bluestem and Conn’s portfolios, which carry a lower cost to collect given the significant portion of paying accounts. Excluding Bluestem and Conn’s portfolio collections and expenses, the cash efficiency ratio would have been 68.1%, which is also materially higher than other public companies in the sector.

Our leading operating efficiency is a powerful competitive advantage and coupled with the strong returns of our differentiated investment strategy, supports consistent, attractive shareholder returns. With that, I’d now like to hand it over to Christo for a more detailed look at our financial results.

Christo Realov, Chief Financial Officer, Jefferson Capital: Thank you, David. Taking a closer look at the financial details for the first quarter, revenue was $176 million, up 14% year-over-year, driven by continued strong deployments and higher net yields. Changes in recoveries were $7 million for the quarter, reflecting collection over performance in the U.S. related to the seasonal impact of tax refunds. Operating expenses were $96 million, up 47% year-over-year, with the increase due to the significant growth in collections. Expenses remain well controlled relative to the growth in collections, with our cash efficiency ratio at 73% for the quarter. Court costs increased to $17.3 million or 86% year-over-year as a result of the trends in increased legal channel volumes that David reviewed in his comments.

This is an upfront expense to support future collections through the legal channel and the accelerated time to suit pulled forward these expenses. We expect court costs to remain at approximately this level given the increased inventory of suit-eligible accounts resulting from the significant overall portfolio growth over the past several years. Adjusted pre-tax income was $58 million for the quarter, resulting in an adjusted pre-tax ROE of 50.8%. We realized a material level of collections on portfolios purchased in 2024 and 2025, including the Bluestem and Conn’s portfolio purchases, which in turn drove adjusted cash EBITDA to $235 million for the quarter, up 12% year-over-year. Finally, for the first quarter, Jefferson Capital re-recognized portfolio revenue of $15.3 million and net operating income of $7.9 million related to the Bluestem portfolio purchase.

Separately, we recognized portfolio revenue of $11.2 million, servicing revenue of $1.2 million, and net operating income of $7.7 million related to the Conn’s portfolio purchase. Our credit profile remains strong and positions us well for future opportunities. As of March 31st, our net debt to adjusted cash EBITDA improved to 1.79 times, a level which is significantly lower than our publicly traded peers. Over the long term, our target leverage ratio is in the range of 2 to 2.5 times on a sustained basis. Our balance sheet is solid with ample liquidity to support growth, create strategic optionality, and pay our quarterly dividend. On April 22nd, we completed an amendment of our senior secured revolving trade facility, increasing aggregate committed capital by $150 million to $1.15 billion.

We added two new partners to the bank group, each committing $75 million. There were no material changes to terms. The facility had $254 million drawn at March 31st, and we have earmarked $300 million of capacity to repay our 2026 bonds. Given the maturity was fully prefunded with the $500 million unsecured issuance in 2025, at this point, we’re not taking on any market risk. We plan to keep the bonds outstanding as long as possible to take advantage of the attractive 6% coupon. The strong liquidity profile is a critical component of our value proposition to sellers who value certainty of closing periods when portfolio activity increases, the funding markets could be constrained or unavailable. With regard to our capital allocation priorities, our primary focus remains on deploying capital to purchase portfolios at attractive risk-adjusted returns.

Our board has declared a regular quarterly dividend of $0.24 per share, which represented a 4.6% annualized yield as of April month-end. The dividend offers an attractive component of shareholder return, which is not available from other public companies in the sector and also reinforces long-term discipline around investment returns. In conjunction with the follow-on equity offering in January, we also repurchased 3 million shares or approximately 5% of the total legal issued shares for $59 million. This was a tactical share repurchase where the company used its capital to support the offering and to further reduce the sponsor overhang. We will evaluate open market share repurchases at the appropriate time while also aiming to maintain trading liquidity in the stock. Finally, we have a long history of successful M&A, but we intend to remain disciplined and opportunistic.

Now, we’ll be happy to answer any questions that you may have. Operator, please open up the lines.

Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster.

Our first question today is from David Scharf with Citizens Capital Markets. Please go ahead.

David Scharf, Analyst, Citizens Capital Markets: Hey, good afternoon. Congrats on a strong start to the year. Thanks for taking my questions. David, appreciate the kind of the macro commentary. It’s clearly kind of consistent with what we’ve heard from lenders during this reporting season. I’m wondering, though, as we think about the visibility of future forward flow arrangements, can you provide any commentary on, I guess, A, in addition to just how much is under contract, whether you’re seeing an expansion of the number of sellers that are entering into flow deals? Secondly, you know, just based on your history and experience, if there is some increased macro pressure, whether through higher unemployment or whatnot, do you tend to see sellers enter into more flow deals or fewer? If you can just provide some context, maybe.

David Burton, Founder and Chief Executive Officer, Jefferson Capital: Thanks for the question, David. I’ll first start by, you know, commenting that our forward flow, our committed forward flows were up about 28% between 12/31 and 3/31. I think that reflects, you know, a number of factors, including, you know, deepening our client relationships. In some markets that are historically have been spot sale-oriented, working with clients to convince them to be a more programmatic seller and the advantages associated with that.

To your point about the dynamic that might occur with sellers going more toward a forward flow orientation versus spot sale as it relates to things like unemployment, I You know, my own experience has been that in an environment of rising prices, you tend to see sellers more interested in shorter term forward flows. In an environment where prices decrease, especially when that’s connected to rising unemployment, that’s when you see sellers try to de-risk future recoveries by locking in longer term forward flows. I suppose that’s probably a dynamic that you would imagine would happen.

At this moment, I don’t think we’re seeing any significant changes in sellers’ appetite to really modify their, the percentage of their debt sales that are subject to a forward flow agreement versus spot sales. I don’t know that there’s been a market change that’s, that at least I can discern.

David Scharf, Analyst, Citizens Capital Markets: Got it. No, that’s helpful context. I think the close to 30% increase in flow dollars year-over-year kinda speaks for itself. Maybe just one follow-up question. Maybe it’s more for Christo. As we think about sort of forecasting the efficiency ratio sort of near term, if we kind of exclude Conn’s and Bluestem and think about that 68, low 68 as sort of the benchmark today. Does the increasing mix of legal collections, does the outsized growth of the legal channel inherently put a little downward pressure on the cost to collect Or I’m sorry, actually maybe downward pressure on that cash efficiency margin?

I mean, as long as legal is growing as quickly as it should we be thinking about that 68.1 going up near term, or is it best to sort of keep it flat?

Christo Realov, Chief Financial Officer, Jefferson Capital: I’ll think of this in 2 ways. The company has had a history of constantly improving that underlying cost to collect and in turn the cash efficiency ratio through a very sort of broad range of cost savings and efficiency initiatives, and we continue to do that day in and day out. The mix of legal channel collections would not have a material impact. Keep in mind that the 68%, 68.1% kind of adjusted cash efficiency ratio to exclude Conn’s and Bluestem already includes the current level of court costs. We believe, as I said in the prepared remarks, that those will remain relatively stable over the course of the year.

David Scharf, Analyst, Citizens Capital Markets: Got it. Thank you very much.

Operator: The next question is from Robert Dodd with Raymond James. Please go ahead.

Robert Dodd, Analyst, Raymond James: Hi guys, congrats on the quarter. First following up on kind of the legal thing to you point, Christo. I mean, you already indicated you expect the legal expenses to stay at kind of this level through the course of this year. I mean, just not asking about 2028, I think, but when we think about how much portfolio has been acquired or ERC has been acquired, the increased amount of legal eligible accounts, et cetera, all the things you’ve outlined. I mean, is this year the elevated court costs enough to kind of run through the increase of the number of eligible counselors?

Is there still, do you think, gonna be a kind of a, lack of a better word, a backlog even when you get to the end of the year and these elevated expenses could stay there for some extended period of time beyond just the next nine months?

David Burton, Founder and Chief Executive Officer, Jefferson Capital: Yeah. A good question, Robert. I do. It’s a complicated question because what we don’t know is what we’re gonna buy for the rest of this year and how much of that will be expected to be legal eligible, legal profitable that would where the timing would be optimized by having that litigated next year. I think we’re careful to not comment on things that are beyond our horizon, which is harder for us to anticipate. I do wanna flag, though, that when we underwrite portfolios, we anticipate the volume and timing of accounts that are to be litigated, and that cost is embedded in our, in the, you know, our pricing and the net IRRs.

You know, we’re deploying capital obviously at attractive returns and the timing for, the incurrence of court costs, you know, matters on our P&L. What matters most to us, of course, is that we generate attractive cash on cash returns, and those are determined at the time of the purchase.

Robert Dodd, Analyst, Raymond James: Understood. Understood. Thank you. Just on the purchase volume, I mean, obviously Q1, I mean, you mentioned obviously Canada had a tough comp ’cause you got a lot of purchase volume last year. The U.S. didn’t have a tough comp per se. Yes, it’s seasonal, understood, like Q4 to Q1 isn’t necessarily right comp, but Q1 to Q1 last year. Was there anything unusual about the volumes or the sellers this quarter? I mean, did people, you know Is there any slippage, I guess, is I’m kinda asking. Like, did things spill over into Q2 without asking for a number? I mean, just it did look a little in the U.S., a little softer than I expected.

One quarter is not a trend, but I’m just trying to get a feel on how that shook out.

David Burton, Founder and Chief Executive Officer, Jefferson Capital: Yeah. Thanks for the question. I will highlight that, you know, we’ve had, you know, good growth in deployments in a number of areas, including, you know, LATAM and the U.K. I also want to make sure that you don’t derive any level of concern regarding the robustness of deployment opportunities in the U.S. I would not discern from the first quarter in any kind of year-over-year comparison that we feel anything but confidence in the deployment opportunities in the U.S.

You know, we’ve not been in a better position, with more clients and more asset classes and more capabilities across performing, charge-off and insolvency portfolios that we feel. The backdrop of the consumers being under increasing levels of pressure, that certainly provides a favorable backdrop as we think about deployments in the U.S. this year.

Robert Dodd, Analyst, Raymond James: Got it. Thank you.

Operator: The next question is from Randy Benner with Texas Capital. Please go ahead.

Randy Benner, Analyst, Texas Capital: Hey, I just have this is super helpful disclosure. Appreciate it. On the revolver, was it $250 that was drawn overall, Christo? I just didn’t catch that part of your commentary.

Christo Realov, Chief Financial Officer, Jefferson Capital: $254 million was drawn. Yeah.

Randy Benner, Analyst, Texas Capital: 54. Okay, cool. Yeah, I guess I’ll try to ask the looking into the future question a little bit higher level is just, you know, just with larger, bulkier opportunities. Are there, you know, with your commentary of the market and particularly with auto and the opportunities that are coming in, is it possible to just take a little bit more look or commentary into larger potential deals that could be out there?

David Burton, Founder and Chief Executive Officer, Jefferson Capital: Let’s see how to answer that without making a forward-looking statement. I guess I’ll go back to the comments that I provided earlier about just the level of indebtedness in auto in particular. And the delinquency trends, which are more pronouncedly higher in auto than they are in other asset classes, but they’re also elevated in other asset classes. The backdrop is favorable. Whether that results in large, medium or small opportunities, I think, all indicators point to, you know, all of the above. Any specific, you know, transactions and sizes, you know, they’re done sort of one at a time. Our goal obviously is building client relationships to so that we’re in a position to add that value.

As the dynamic is such that, it’s hard to know the timing and the size of, you know, very far in advance, of those opportunities being presented to us, or as we cultivate them. I do realize that, you know, we do large transactions and, frankly, we like all transactions, whether they’re large, medium or small, as we cultivate stronger relationships with our clients and make ourselves and capital available whenever their needs arise or as they seek to optimize their profitability.

I realize this is not really what you were hoping for, but I think it paints hopefully, at least the perspective that we take in kind of continually expanding our pipeline of opportunities and deepening our client relationships so that as large opportunities or small opportunities become available, that we’re in the right position to execute and be aware of them.

Randy Benner, Analyst, Texas Capital: I appreciate the response. And there’s one other one, I guess, on the just your regular way business, the smaller, you know, the smaller accounts that come in. Do you all disclose like a transaction count per quarter? If I missed that, I apologize. Are you getting like a higher volume of like smaller deals, or is it a lower volume of somewhat-

David Burton, Founder and Chief Executive Officer, Jefferson Capital: Um-

Randy Benner, Analyst, Texas Capital: Just kind of like the data, you know, the kind of the regular week in, week out transactions that you see.

David Burton, Founder and Chief Executive Officer, Jefferson Capital: Yeah, look, we do not disclose any sort of transaction count. We have commented previously that we purchase 50 to 70 portfolios a month.

Randy Benner, Analyst, Texas Capital: Yeah.

David Burton, Founder and Chief Executive Officer, Jefferson Capital: That the average transaction size tends to be kind of in the less than $1 million sort of area, right? If that’s helpful. The other thing we have commented on is that historically, you know, over approximately 50% of our deployments are coming in through forward flow purchases, right? It’ll be 50-70 portfolios. About half of them are coming into forward flows and the rest is spot purchases. That excludes the sort of the large episodic transactions that we did in 2024 and 2025.

Randy Benner, Analyst, Texas Capital: All right. Got it. Thanks, thanks for the answers.

David Burton, Founder and Chief Executive Officer, Jefferson Capital: Of course.

Operator: The next question is from Yuna Song with Jefferies. Please go ahead.

Yuna Song, Analyst, Jefferies: Hello. Thanks for taking my question. We see from earlier competitors’ earnings announcement that there’s some positive momentum in the overall space. wanted to hear what you have seen about any interest rates from the competitors, any changes in dynamic and especially when it comes to changes in interest in non-credit card space receivable. Thank you.

David Burton, Founder and Chief Executive Officer, Jefferson Capital: Yeah. Thanks for the question. I think I’ll start off that answer by speaking about what we’re seeing in terms of sort of the level of competition. I would say that pricing has continued to be stable and attractive. That’s really true across all, you know, asset classes and also insolvency and charge-offs. Then with respect to the various sectors that we play in, I think it’s, I think if there is a trend and it’s that there are more sellers today than there were a year or 2 ago, and that includes, you know, auto and telecom and installment loan, and even, I would say, credit card as well.

I think there’s a broad trend of there being more comfort and understanding for the profit optimizing option that debt sales offer credit grantors.

Yuna Song, Analyst, Jefferies: Got it. Thank you. Just going back to the investment in the legal channels, with the upfront investments that you’re making, would it make sense for you to expand your market to be looking into higher balance receivables down the line? Would that be kind of a consideration for you?

David Burton, Founder and Chief Executive Officer, Jefferson Capital: Yes. Thanks for that question. You’re right, it is an important capability to have both an effective, you know, voluntary channel or as well as a legal channel to support, you know, really all balance ranges, but particularly higher balance ranges, which often require greater percentage of a portfolio to result in the legal channel. We feel like we have that capability today. Oftentimes the higher balance prime originated credit card portfolios don’t meet our return thresholds. That is much less a function of like a capacity or capability and more a function of really market pricing mechanism. We’re completely capable and, you know, certainly interested in higher balance portfolios as well.

I do suspect that, you know, over time, it is, you know, possible that, you know, a higher percentage of our deployments in the future could be from higher balance portfolios, as that dynamic, potentially, you know, changes.

Yuna Song, Analyst, Jefferies: Great. Thank you so much.

Operator: This concludes our question and answer session. I would like to turn the conference back over to David Burton for any closing remarks.

David Burton, Founder and Chief Executive Officer, Jefferson Capital: Thank you very much. Looking forward, we’re excited about the growth prospects of our business for the remainder of this year and beyond. We’ve built an outstanding platform over the past 23 years, and we’re in a great position to capitalize on opportunities as the market continues to evolve. Thank you all for joining us today, and we look forward to providing another update on our second quarter earnings call.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.