Jefferson Capital Inc Stock

Thank you. Capital's Second Quarter of 2026 Conference Call. With us today are David Burton, Founder and Chief Executive Officer, and [ Christo Riel ], 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, anticipated benefits of the debt purchasing market in Mexico, expectations for the market and macroeconomic factors, and target performance metrics. Such statements are based upon management's current expectation, 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 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. I will now turn the call over to [ Dr. D'Alessandro ].

[ to David Burton. ] Thank you, Operator, and thanks, everyone, for joining our investor call. Let's dive into our second quarter financial performance highlights. We generated another quarter of excellent results for shareholders. The company delivered strong collections growth, with collections up 18% year-over-year to $301 million, and we continue to perform well versus our underwriting expectations. The market backdrop remains attractive, and our deployments for the quarter were $152 million, up 21% versus the prior year period. Estimated remaining collections grew 18% to $3.4 billion, driven by our continued deployment performance and attractive anticipated returns. We delivered a sector-leading cash efficiency ratio of 72.2%, driven in part by strong collections from the Bluestem and Conn's portfolio purchases.

The company also generated strong cash flow for the quarter, which improved our leverage ratio to 1.71x, a level which positions us well for future growth and creates significant strategic optionality. Adjusted EPS for the quarter was $0.77. Next, 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. The fundamental backdrop remains unchanged. Near-record consumer credit balances and elevated levels of charge-offs and delinquencies across all asset classes create a long runway for robust portfolio supply. The environment 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. I want to focus more closely on auto finance, an asset class which presents a substantial opportunity for our business. This is a large and growing segment of consumer credit, but also one which is highly fragmented and experiencing significant headwinds.

Auto finance receivables have grown steadily to a new record of $1.69 trillion. Higher loan amounts for both new and used vehicles have been driven by higher vehicle prices, but also by the need for borrowers to roll over past negative equity balances with nearly one-third of used vehicle trade-ins carrying negative equity. As a result, loan payments, also driven by elevated interest rates, have grown significantly and have pressured household budgets. The average monthly new vehicle loan payment is currently $773, up 40% compared to pre-pandemic, and the average used vehicle monthly loan payment has reached $531, up 35% post-pandemic. In addition, 72-month or longer loans account for nearly a third of all financed new vehicle sales. For smaller auto finance originators or dealership networks, deteriorating credit quality is frequently coupled with financing challenges, where a portfolio sale could become the value-maximizing option for the business going forward. All of these trends set the stage for increasing portfolio supply for an asset class where significant complexity limits the number of interested buyers. 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 and to capitalize on this growing opportunity.

Moving on, I'd like to review in more detail some key performance trends for the quarter. Our collections were $301 million, up 18% year-over-year, driven by strong deployments in 2024 and 2025. $41 million of collections for the quarter were attributable to the Bluestem portfolio purchase and $24 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. A key trend in collection performance has been the increase in legal channel collections, which were up 54% year-over-year to $64 million. Jefferson Capital utilizes the 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've 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 the lawsuit, which in turn has accelerated suit volumes. The inventory of suit-eligible accounts has increased the significant growth in deployments over the past three years.

So over time, we expect to see continued growth in legal collections. A separate component of the increase is driven by modeling improvements which have allowed us to identify new portfolio segments from prior purchases where we have uncovered opportunities to profitably increase collections through use of the legal channel. The increased consumer litigation activity will result in incremental court costs, but the resulting collections will profitably support this upfront expense. Our portfolio purchases for the quarter were $152 million, up 21% year-over-year. Returns remain attractive, and we remain confident in the deployment landscape. I am pleased to report that as a result of our strong execution on our asset class-based growth strategy and the favorable market backdrop I described, we were able to generate record deployments in the month of July of $185 million, a significant portion of which was invested in performing and non-performing auto finance portfolios. This is an important milestone as we have now added auto as a third asset class segment to our performing portfolio purchase capabilities, following credit cards with Bluestem and installment loans with Conn's.

To further this strong purchasing momentum, we generated robust growth in forward flow commitments. As of June 30, we had $480.7 million of deployments locked in through forward flows, which is a new record for the company and an important building block of our deployment strategy for the coming quarters. Finally, I'm pleased to announce that after significant evaluation, Jefferson Capital has entered the debt purchasing market in Mexico. As in our past efforts to enter a new geography, we deploy relatively low amounts of capital initially as we build our servicing capabilities and validate our forecast model. But we believe this is a large market which offers attractive U.S. dollar risk-adjusted returns and adds another growth pillar for our Latin American strategy. In addition, our foray is supported by a number of significant competitive advantages, including global relationships with key sellers, more sophisticated modeling and servicer management capabilities, and a substantially lower cost of capital compared to local competitors. We're excited to report more on our progress in the coming quarters as we gain more experience in this market. Moving on, our estimated remaining collections as of June 30 were $3.4 billion, up 18% year-over-year, with ERC related to the Bluestem and Conn's portfolios comprising $218 million and $83 million of U.S. distressed.

Our ERC is relatively short in duration due in part to the lower average account balances in our portfolio with 46% of our ERC to be collected through 2027. We expect to collect $1.1 billion of our June 30 ERC balance during the next 12 months. Based on the average purchase price multiples recorded in the second quarter, we would need to deploy approximately $565 million globally over the same timeframe to replace this runoff and maintain current ERC levels. I would note that as of June 30, we had $312 million of deployments already 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 of our differentiated return profile, our best-in-class operating efficiency. We seek to own 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 collection 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. Finally, 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 mentioned earlier, our cash efficiency ratio for the quarter was 72.2%. It was aided by collections on the Bluestem and Conn's portfolios, which carry lower cost to collect given the significant portion of paying accounts. Excluding the Bluestem and Conn's portfolio collections and expenses, the cash efficiency ratio would have been 67.8%, 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 on our differentiated investment strategy, supports consistent, attractive shareholder returns.

With that, I would now like to hand the call over to [ Christo ] for a more detailed look at our financial results.

Thank you, David. Taking a closer look at the financial details for the second quarter, revenue was $178 million, up 16% year-over-year, driven by continued strong deployments and higher net yields. Changes in recoveries were $9 million for the quarter, reflecting the accuracy of our modeling and strong execution against our underwritten forecast. Operating expenses were $95 million, up 46% year-over-year, with the increase due to two key components. An increase in court costs as a result of increased legal channel volumes, and non-cash stock-based compensation expense resulting from the IPO. Adjusting for stock-based comp and adjusting the prior year quarter for IPO-related items, expense growth would have been 35%. Expenses remain well controlled relative to the growing collections with our cash efficiency ratio at 72.2% for the quarter. Adjusted pre-tax income was $59 million for the quarter, resulting in an adjusted pre-tax margin of 51.6%.

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 our adjusted cash EBITDA to $226 million for the quarter, up 12% year-over-year. Finally, for the second quarter, Jefferson Capital recognized portfolio revenue of $11 million and net operating income of $7.1 million related to the Bluestem portfolio purchase. Separately, we recognized portfolio revenue of $11.1 million, servicing revenue of $0.6 million, and net operating income of $8.1 million related to the Conn's portfolio purchase. Our credit profile remains strong and positions us well for future opportunities. As of June 30, our net debt to adjusted cash EBITDA improved to 1.71x, a level which is significantly lower than our publicly traded peers. Over the long term, our target leverage ratio is in the range of 2x to 2.5x on a sustained basis. Our balance sheet is solid with ample liquidity to support growth, create strategic optionality, and pay our quarterly dividend.

Our senior secured revolving credit facility, with aggregate committed capital of $1.15 billion, had $226 million drawn at June 30. Today, we drawn the RCF and transferred $300 million to the bond trustee for the repayment of our senior unsecured notes, due August 2026. The notes will be discharged August 17. Our strong liquidity profile is a critical component of our value proposition to sellers, who value certainty of closing periods when portfolio activity increases, but 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 a share, which represents a 4.8% annualized yield as of July 19. The dividend offers an attractive component of shareholder return, which is not available from other public companies in the sector.

It 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 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 if the share price exhibits significant volatility. Finally, we have a long history of successful M&A, but we intend to remain disciplined and opportunistic. Now we will be happy to answer any questions that you may have. Operator, please open up the lines.

Thank you. [Operator Instructions] Our first question today is from Mark Hughes with Truist Securities. Please proceed.

You talked in the auto segment, it sounds like you're seeing a lot of success in the month of July. How broad is that? I mean, how should we think about the opportunities the rest of the year, probably as the year progresses, just a little more detail on that auto would be great.

Sure. I guess as we don't really provide, you know, guidance around, you know, deployments or really guidance in general, what I can do is, you know, characterize that July in particular had us deploying capital across the spectrum in auto, both in terms of charge-offs, insolvencies, and performing. And so I think that's indicative, and it's why we've been talking about the auto market opportunity in particular, that we have seen a growing opportunity set in that space. And I think we're uniquely positioned to be a beneficiary of the headwinds that are facing that sector.

Could you refresh us on any differences in terms of the collections profile or costs associated with the auto channel?

Sure. So I'll start with insolvency. Insolvency, as a reminder, in general, has a very low cost to collect as most of the interaction takes place with the bankruptcy trustees. However, there are some concerns about the secured loans, there are occasions, both in insolvency and outside of insolvency and distressed, where the consumer still retains the vehicle. And as part of that, there could be a repossession process that takes place, which is a higher-cost undertaking. And so I would think about deployments and insolvencies as largely being similar in aggregate to other insolvency costs to collect, and on the deficiency side or the charge-off distress side of the business, that is more in line but has some unique components, and that are higher cost to collect than insolvency. And finally, on the performing side, the sort of cost to collect for installment lending, as in our purchase of the Conn's portfolio, is a good template to think about what the cost to collect would be for performing auto.

Very good. And then, [ Christo ], the change in recovery is a nice positive number again, maybe starting to look like a trend. How should we think about that line item? Is that something where it sounds like your modeling and legal collections, you're having good success. Is that something that emerges over time or is that something we shouldn't anticipate in future quarters? Just how to approach that.

I think probably the best way to answer the question is that historically we have guided to kind of single digits of millions as a number that should be expected given the size of the portfolio. And I think for the quarter, this number was maybe slightly higher than in prior quarters, but it's still what we can expect to see in the future. And then I'll go back to our comments that we've made on this topic previously, which is that the objective of our modeling of ERC is accuracy and not necessarily conservatism.

Thank you very much. Our next question is from David Scharf with Citizens JMP. Please proceed.

I wanted to follow up maybe on Mark's questions on auto. You know, Dave, you've historically enjoyed, you know, some pretty formidable sort of competitive barriers, if you will, you know, in your core kind of low balance accounts. Can you talk, I know you referenced you believe you're the only one who can kind of service the breadth or the mix of performing, charged-off, and insolvency across auto. But can you talk a little bit more about, you know, just the competitive landscape there, the breadth of how many sellers you work with? Just trying to get a sense for whether auto as an asset class is from a competitive standpoint kind of closer to the traditional credit card world, or if it's closer to the barriers you enjoy in your core assets.

David, and I think it will be helpful to others to understand that distinction. I view auto as an area with more complexities both in underwriting and engaging consumers. And even though you utilize similar collection channels, whether it be call center or legal, each of those are made more difficult because of the complexities involved in collecting on an auto account. You have, in some cases, the consumer has, you know, voluntarily surrendered the car or it's been repossessed, and the balance to be able to communicate clearly about the composition of the balances and important criteria to have an effective communication with the consumer. Similarly, should the consumer still have the vehicle, then you're also undertaking a more complex undertaking as it relates to replevin action or repossession. And so operationally, it's more complex. In terms of consumer engagement, it's more complex. And that also applies to the legal channel where the documentation requirements are much more comprehensive and complex as there are state-based regulations which apply that are different from state to state. And oftentimes, you need to have evidence of those required communications in order to initiate litigation.

It's a higher touch, more complex process and one that we excel at and have built systems and processes to be able to do so effectively. And I don't know that there are many other competitors in the space that are able to do that, and that's especially true as you consider the array of account segments with secured and unsecured insolvency, performing and non-performing. And it again, that's why we have expertise and capability across that spectrum, and that makes us an ideal counterparty for an originator that has sale objectives.

No, that color is very helpful. And I guess just so we have a flavor for kind of the momentum in the business, I guess compared to a year ago, would you say that your auto volumes represent mostly deeper penetration of, you know, some existing originator relationships, or have you been adding new relationships over that time?

It's a mix of both. I think we have cultivated relationships with existing customers where we're doing more, and while at the same time we've been able to cultivate new clients as well.

Got it. And just one last question for [ Christo ]. You know, with the legal channel growing, you know, obviously the returns will be similar, but with more upfront court costs, you know, there's sort of a delayed kind of cash flow dynamic as that channel grows. You know, as we think about second half modeling, I know you're not giving any guidance, but is there any type of step function we should think about in terms of court costs, or is it going to continue along this typical trajectory?

I would make two comments. The first one is the cash efficiency ratio that we put out obviously includes the court cost for the quarter. We provide that both on a kind of as reported basis, which is the 72.2% number, and on an excluding Conn's and Bluestem basis, which is the 68% number. And we've also said that we expect that excluding Conn's and Bluestem to be kind of in the high 60s. Those comments are relevant and that probably is a good way to think about this. As it relates to the actual court cost amounts, I would think of this quarter as a good kind of guide to what to expect for the balance of the year.

Our next question is from [ Randy Benner ] with Texas Capital. Please go ahead.

On the July deployment number, did I hear that correctly? Did you say $185 million, David?

We did, and we normally wouldn't disclose a monthly deployment number, but as you note, it's more in July than for the entire second quarter, and we thought that was valuable information to share with shareholders.

Yes, and the other three analysts, there was some good Q&A about auto, which is helpful, you know, to learn about and kind of understand, because it's clearly the direction you're moving. But I guess the one, because 185 is a big number, what was the nature of that? I kind of missed that. Was that like a big lumpy thing or that was just a deployment kind of across the board? Presumably it was large in auto, but was there like anything episodic or lumpy there? Or is that just trying to figure out how to sequence, you know, I wouldn't put 185 in the model every month. Let me put it that way. So maybe just trying to understand if there was anything unusually large about it.

Yes, we certainly wouldn't encourage you to do that. But what we would say is, you know, it's a wide distribution of our more of like a normal kind of distribution across asset classes. Yes, there was a larger distribution in the month of July for auto.

Got it, okay. And then I have a question just about, so the collection activity just continues to be good and ahead of our expectation. Do you talk about collection performance by vintage? Meaning is it, you know, kind of given the dynamic where there's a larger, you know, balance and charge-off at the same time that people have jobs? Are collections better on kind of more recent vintages and not as good in older vintages? How should we think about that?

Yes, I don't know that that's necessarily the way I would think about it, as your underwriting should take into account, you know, the capability sort of repayment based on, you know, history and the volatility around liquidation rates as it relates to things like levels of unemployment are pretty, are relatively narrow, except in the case where there's an actual recession where unemployment increases rapidly to levels that exceed 6%, 7%. And so I would say the level of variance in times of non-recession is the liquidation rates don't have substantial changes, you know, macroeconomic fluctuations.

Our next question is from John Hecht with Jefferies LLC.

David, can you talk about the pipeline? I mean, obviously, you guys have a lot of good organic growth, but both performing portfolio acquisitions as well as buying into other channels has been an important part of your story. Maybe talk about the characteristics of the pipeline and pricing and so forth?

Yes, I think what I would say is that the level of activity is certainly elevated across all of the kinds of investments that we make. And so when you look at deployments across all of our geographies, for example, you're going to see attractive levels of growth. And I think that's evidence of both an attractive backdrop in terms of supply, but also it's indicative of increased effectiveness in building our pipeline.

Okay, and then, [ Christo ], maybe, can you, I mean, I guess you have to think about Bluestem and Conn's in this, but then also just general, like, Q2 to Q3 seasonality. Just maybe remind us and refresh us how those factors impact the coming quarters.

Right, that's one of the key things. Yes, I mean, look, I think the seasonality impact is probably a much bigger driver of performance, and specifically collections in the first quarter. Going kind of into the rest of the year, that obviously kind of, I think the seasonality impact weakens. We certainly see on deployments a trend of acceleration of activity as we're getting into the second half of the year. And typically, right, the fourth quarter is the largest quarter in terms of deployments, as we have discussed before. So I don't think that there's anything out of the ordinary that we're seeing. And the activity that we saw in the month of July is probably indicative more of this broader opportunity that we discussed in the prepared remarks around auto finance and around the broader consumer credit asset class, rather than any seasonal impacts.

And I'll just add to that, John, a reminder of the record-level forward flow commitments that we have, which are $480 million, which is a substantial increase. I think if you looked at that on just a year-over-year basis, that's up 80%. And so I think that is one component of the future deployment pipeline.

Okay. And then final question for me is, I mean, all geographies seem to be doing very well, but Latin America kind of stuck out this quarter in terms of growth and momentum. Maybe anything to point out there that was one-time or maybe just talk about the overall conditions there and opportunities you've seen?

Yes, thank you. Thanks for noticing that. We're really proud of the platform that we're continuing to build in Latin America and continuing to be a leader in the Colombian and Peru market as we have expanded our pipeline of opportunities there and we also have been successful in putting in place I think some of the first forward flows that that region has initiated as that market has historically been characterized really just by spot sales. And so that helps us develop sustained growth as we build these longer-term relationships with originators in the region. And, of course, we did mention to you that we did an inaugural deployment in Mexico, which, in July. And as often all of our initial forays when we're making an organic investment into a new geography, we take a very measured and patient approach to ensure that we validate our underwriting model and that we build a robust servicing capacity before deploying, you know, lots of capital in that market.

Our next question is from Robert Dodd with Raymond James.

On the timing of collections on auto, obviously we look at non-auto, right, where there's legal challenges, some obviously the court costs run collections to a degree, so we kind of understand what's going on there. On the auto channel, when you do have those higher cost elements, like if it's a repo, for example, which is not all of it, obviously, but I would imagine those high costs are incurred kind of essentially in the same or very closely related time period to when the collection occurs as well, i.e., maybe wholesaling the vehicle at an auction. So does the auto, it does have high collection, but are those closely aligned? They're not as distortive time-wise to cash efficiency ratios as, say, sometimes the regular court cost rates component is, if that makes sense.

It does make sense. My answer is not intentionally confusing, but I just want to flag that we purchase across kind of the three core businesses, if you will, of, you know, charge-off, insolvency, and now performing. And auto and performing has a low cost to collect. And as you at least in the context of how closely do the expenses correlate to collections, and I think they're not in any way out of sequence in the performing side of the business, nor are they really in insolvency, at least for secured insolvencies, as those are paid out at 100% in the bankruptcy process plus interest in some cases. But it's in the deficiency collections in distressed where you may have a disconnect between some expenses and recoveries. Repossession is one example of that and court costs is another, and because deficiency balances tend to be a low priority obligation for the consumer, a higher percentage of recoveries in the deficiency balance and distressed segment will require the legal channel, and so you'll see a greater disconnect between costs and recoveries or collections. Um, so again, because in the quarter we deployed capital across all three of those, I make the answers a little complicated and we're not going to disclose exactly how much was in each. But I think your bigger question is, do you expect some kind of a step function change in the timing of your expenses and your collections, how would that flow through perhaps to your cash efficiency ratio? And I think, you know, [ Christo ] sort of guided on that, and it's consistent with what we've really indicated in the past, you know, both with and without the performing side, without performing, you know, high 60s is what we would expect, and despite the larger deployments in auto, we are not anticipating really any change in that.

Robert, one additional comment. The return profile of the incremental deployments in July is not substantially different than our historical return targets and what we're seeing on the rest of the portfolio, right?

Got it, got it, thank you. So the follow-up to that, I mean, you said in the prepared remarks a day or two ago, I can't remember if it was you or David, [ Christo ]. You've got forward flows locked in over the next year at $312 million. You bought $185 million in July. Maybe a tiny part of that was from the forward flows, but I don't imagine very much. That's $497 million. And you also said that you need to deploy over the next year $565 million to maintain ERC. I mean, that looks like you're almost there in July, right, with contracts and forward flows. I mean, so are there any headwinds you can see where you would not generate substantial, maybe you don't want to use the word substantial, but meaningful ERC growth over the course of the next year, given the position you're starting in in July and the amount that you need to deploy over the next 12 months?

The clear answer is no.

Our next question is from Bose George with KBW.

Just going back to the auto discussion, you know, it seems like it's hitting kind of an inflection point, that asset class. You know, how much of the change is being driven by just the increased supply that you noted versus, you know, a shift among lenders, maybe recognizing that the outcomes, you know, could be better through selling the receivables?

You have a number of drivers in the auto market. Some are permanent and some are sort of episodic to this moment in time. And so the permanent drivers are that a relatively low percentage of autos happen to be sold into the market. And our quest is to cultivate relations with more originators and encourage them to undertake their first sale, which is a profit-maximizing option for them. And so there's a large organic opportunity that really has nothing to do with the level of charge-offs or any headwinds that are sort of an episodic component right now. And then turning to the episodic aspect, there happens to be higher balances in auto, a more stressed consumer, that also happens to have depleted the savings that were built up during the pandemic after receiving government stimulus. And the level of delinquency and defaults for some originators has become an important headwind that is driving them to look at asset sales either at levels that are higher than they were before or, in some cases, more holistically and potentially exiting the origination business altogether.

And so, you know, it's a very fragmented industry, and so there's lots going on. And it's hard for me to characterize how much of our deployments were derived from either the episodic trends or the broader trend of more auto originators choosing to optimize their profitability by beginning to sell their charge-offs to us or to the sector.

Okay, great. That's helpful. Thanks. And then just on the forward flow numbers, can you just remind us, is there kind of a sweet spot for purchase forward flow commitments as a percentage of your total acquisitions?

Historically, that percentage has ran, you know, in the 50% range, you know, plus or minus. And so we're not really trying to optimize around a specific percentage of our deployments. Our goal is to deploy capital at attractive risk-adjusted returns, and we seek to have as many forward flows in place that reflect those levels of attractive risk-adjusted returns. They certainly help in terms of having certainty and allow us to have a base to be able to jump off of as we attempt to grow in the aggregate. So, forward flows is not a specific like target. It hopefully is a byproduct of a good relationship with originators where we can add value and we turn that value into something that's more long-term in a forward flow agreement.

That will conclude today's question and answer session. I would now like to turn the floor back to David Burton for closing remarks.

Thanks, Operator. Looking forward, we're excited about the growth prospects for 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 very much for joining us in today's call, and we look forward to providing another update on our third quarter earnings call.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.

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. And now I'll turn the call over to David Burton. Please go ahead.

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 continue 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 and Conn's portfolio purchases. We generated strong cash flow in the quarter, which improved our leverage to 1.79x, 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 United States 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, and 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. And 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 United States.

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 United States, 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 3 years. So over time, we expect to see continued growth in legal collections.

Our portfolio purchases for the quarter were $115 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 nonperforming portfolios ahead of year-end. Deployments then 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 31, 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 31 were $3.4 billion, up 18% year-over-year with ERC related to Bluestem and Conn's comprising $238 million and $105 million of U.S. 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 31 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 31, 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.

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 overperformance 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.

Core 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 put forward these expenses. We expect core 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 pretax income was $58 million for the quarter, resulting in an adjusted pretax ROE of 50.8%. We realized a material level of collections on portfolios purchased in '24 and '25, including the Bluestem and C 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 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 CS portfolio purchase. Our credit profile remains strong and positions us well for future opportunities. As of March 31, our net debt to adjusted cash EBITDA improved to 1.79x, 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 2.5x 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 22, we completed an amendment of our senior secured revolving credit 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 31, 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. And 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. This strong liquidity profile is a critical component of our value proposition to sellers who value certainty of close in periods when portfolio activity increases, but 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 this 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 legally 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 Instructions] Our first question today is from David Scharf with Citizen Capital Markets.

On a strong start to the year. David, I 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? And secondly, 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.

Thanks for the question, David. I'll first start by commenting that our forward flow -- our committed forward flows were up about 28% between 12/31 and 3/31. And I think that reflects a number of factors, including deepening our client relationships. And in some markets that 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, my own experience has been that in an environment of rising prices, you tend to see sellers more interested in shorter-term forward flows. And in an environment where prices decrease, especially when that's connected to rising unemployment, that's when you see sellers try to derisk future recoveries by locking in longer-term forward flows.

So 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 people's -- in sellers' appetite to really modify their -- the percentage of their debt sales that are subject to a forward flow agreement versus spot sales. So I don't know that there has been a market change that at least I can discern.

Got it. No, that's helpful context. And I think the close to 30% increase in flow dollars year-over-year kind of 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, should we be thinking about that 68.1% going up near term? Or is it best to sort of keep it flat?

I'll think of this in two ways. Number one, 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 68.1% kind of adjusted cash efficiency ratio to exclude Cons and Bem already includes the current level of core costs. And we believe, as I said in the prepared remarks, that those will remain relatively stable over the course of the year.

The next question is from Robert Dodd with Raymond James.

Congrats on the quarter. First, following up on kind of the legal thing, to your point, Chris, 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, 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 accounts? Or is there still, do you think, going to 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, call it, 9 months?

Yes. So good question, Robert. I do -- it's a complicated question because what we don't know is what we're going to 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. So I think we're careful to not comment on things that are beyond the horizon, which is harder for us to anticipate. I do want to 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 the -- our pricing and the net IRRs. And so we're deploying capital, obviously, at attractive returns. and the timing for the incurrence of court costs 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.

Understood. And then just on the purchase volume. I mean, obviously, Q1, I mean, you mentioned Canada had a tough comp because you got a lot of purchase volume last year. The U.S. didn't have a tough comp per se. Yes, it's seasonal. I understood like Q4 to Q1 isn't necessarily right comp, but Q1 to Q1 last year. Was there anything unusual about the volumes of the sellers this quarter? I mean, did people -- is there any slippage, I guess, as I'm kind of asking like did things spill over into Q2 without asking for a number. But 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.

Yes. Thanks for the question. I will highlight that we've had good growth in deployments in a number of areas, including Latam and the U.K. But 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 and any kind of year-over-year comparison that we feel anything but confidence in the deployment opportunities in the U.S. And so 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 -- and 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.

The next question is from Randy Binner with Texas Capital.

I have this is super helpful disclosure. I appreciate it. On the revolver, was it $250 million that was drawn overall, Christo, I just didn't catch that part of your commentary.

$254 million was drawn.

Yes. Okay. Cool. And then, I guess I'll kind of like try to ask the looking into the future question a little bit like higher level is just with larger -- like larger bulkier opportunities, is that -- are there more -- with your commentary of the market and particularly with auto and opportunities that are coming in, can you -- is it possible to just take a little bit more look or commentary into kind of larger potential deals that could be out there?

Let's see how to answer that without making a forward-looking statement. I would say that -- I guess I'll go back to the comments that I provided early 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. So the backdrop is favorable. Whether that results in large, medium or small opportunities, I think all indicators point to all of the above. But any specific transactions and sizes, they're not 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. And -- but as the dynamic is such that it's hard to know the timing and the size very far in advance of those opportunities being presented to us -- or as we cultivate them. So I do realize that we do large transactions. And frankly, we like all transactions, whether the 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.

So 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.

I appreciate the response. And there's one other one, I guess, on just your regular way business, the smaller accounts that come in. Is there -- do you all disclose like a transaction count per quarter? If I missed that, I apologize. But is it -- are you getting like a higher volume of like smaller deals? Or is it a lower volume of somewhat just kind of like the data -- the kind of the regular week in, week out transactions that you see?

Yes. Look, we do not disclose any sort of transaction count. We have commented previously that we purchased 50 to 70 portfolios a month and then the average transaction size tends to be kind of in the less than $1 million sort of area, right, if that's helpful. And the other thing we have commented on is that historically, over -- approximately 50% of our deployments are coming in through forward purchases, right? So the 50 to 70 portfolios, about half of them are coming into forward flows and the rest is spot purchases. And that excludes the sort of the large episodic transactions that we did in '24...

The next question is from Yuna Son with Jefferies.

So we see from earlier competitors' earnings announcement that there's some positive momentum in the overall space. I wanted to hear what you have seen about any interest from the competitors, any changes in dynamic and especially when it comes to changes in interest in non-credit card space receivable?

Yes. 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. And I would say that pricing has continued to be stable and attractive. And that's really true across all asset classes and also insolvency and charge-offs. And 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 auto and telecom and installment loan and even, I would say, credit card as well. So I think there's a broad trend of there being more comfort and understanding for the profit optimizing option that debt sales offer credit granters.

Got it. And just going back to the investment in the legal channels. So 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?

Yes. Thanks for that question. And you're right, it is an important capability to have both an effective voluntary channel as well as a legal channel to support really all balance ranges, but particularly higher balance ranges, which often require a 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. So that is much less a function of like a capacity or capability and more a function of really market pricing mechanism. But we're completely capable and certainly interested in higher balance portfolios as well. I do suspect that over time, it is possible that a higher percentage of our deployments in the future could be from higher balance portfolios as that dynamic potentially changes.

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

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.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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 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.

And now I'll turn the call over to David Burton.

Thank you, operator, and thanks, everyone, for joining our investor call. On January 9, we completed our first follow-on offering post IPO, which substantially improved our float and liquidity and reduced the J.C. Flowers ownership to 53%. I'd like to welcome our new investors to the call. We appreciate your support, and we look forward to delivering on the investment thesis we laid out in the road show.

Let's dive into our fourth quarter financial performance highlights. We again generated strong results for shareholders. We delivered record collections at $245 million, up 41% versus the prior year period, and we continued to perform well on our underwriting expectations. We generated record deployments with $381 million invested, up 6% versus the fourth quarter of 2024, which had also been a record quarter. Our estimated remaining collections also reached a new record at $3.4 billion, up 23% year-over-year, driven by our continued deployment performance and attractive anticipated returns.

Revenue for the quarter was a record $155 million, up 30% versus the prior year period. We delivered a sector-leading cash efficiency ratio of 71%, driven in part by strong collections from the Conn's portfolio purchase. Adjusted EPS for the quarter was $0.69. The previously announced Bluestem portfolio purchase closed on December 4, and we believe the transaction solidifies our leadership position as a strategic acquirer of a wide spectrum of dislocated consumer credit portfolios. We're pleased with the portfolio's performance to date and expect Bluestem to be a meaningful contributor to our financial results in 2026.

Next, 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. I'll start with delinquency trends, which remain elevated across all nonmortgage consumer asset classes and create favorable portfolio supply trends. An 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 $831 billion is substantially lower than the long-term prepandemic average from 2013 to 2019 of $1.1 trillion, which is -- which becomes 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've 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. And we remain one of the very few debt buyers in the U.S. and by far, the largest debt buyer in Canada that can take advantage of 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. And despite the recent negative surprise on unemployment, current employment levels are still very 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 strong collection performance on our existing book and on any future portfolio purchases.

Next, I'll review our outstanding 2025 performance in the context of our long-term financial results, starting with 2019 as a prepandemic full-year reference. We have successfully navigated credit cycle fluctuations, changing market dynamics, and evolving regulatory framework, and a global pandemic, while continuously improving our financial performance through a combination of sustained growth and acute focus on returns. We delivered a 27% revenue compounded annual growth rate, a 37% net operating income compounded annual growth rate, and a 43% net income compounded annual growth rate from 2019 through 2025, showcasing our growth trajectory, efficiency improvements, and the profitability of the business. I believe there are very few debt buyers globally who can demonstrate this level of profitability and recurring growth through changing market and economic conditions.

I'd also observe that Jefferson Capital is much better positioned today to take advantage of opportunities relative to earlier periods in our history. We have a much more scaled operation and are much more broadly diversified both geographically and across asset classes, which allow us to evaluate a substantially wider funnel of opportunities. We also have a more sophisticated collection capabilities today and a lower cost to collect, which in turn should further improve our net returns. And today, we have a much more robust funding structure with proven access to both the banks and the unsecured debt capital markets at an attractive borrowing cost. Simply put, Jefferson Capital is in a solid position to continue to deliver on its outstanding financial track record in the coming years and to build shareholder value.

Moving on, I'd like to review in more detail some key performance trends for the quarter. Our collections, as I mentioned, were $245 million, up 41% year-over-year, driven by strong deployments in 2023 and 2024. The Conn's portfolio purchase represented $36 million of collections for the quarter and the Bluestem portfolio, which closed on December 4, represented $14 million. We've completed all necessary servicer transitions for Bluestem and the portfolio is performing according to expectations. More broadly, our collection performance on the overall portfolio continues to reflect the accuracy of our underwriting models.

A key trend in collection performance has been the increase in legal channel collections. Jefferson Capital utilizes the 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 United States, which have significantly compressed the timing from placement of the account to filing of the suit, which in turn has accelerated suit volumes. The inventory of suit-eligible accounts has increased given the significant growth in deployments over the past 3 years. So over time, we expect to see continued growth in legal collections.

Our portfolio purchases for the quarter were $381 million, up 6% despite the fourth quarter of 2024, including the Conn's portfolio purchase. Returns remain attractive, and we remain confident in the deployment landscape. As of December 31, we had $274 million of deployments locked in through forward flows, which is an important building block of our deployment strategy for the coming quarters. I will note that our business is subject to pronounced seasonality. The fourth quarter is typically the largest quarter for deployments as credit originators aim to dispose of nonperforming portfolios ahead of year-end. Deployments then 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 United States.

Our estimated remaining collections as of December 31 were $3.4 billion, up 23% year-over-year with ERC related to Conn's and Bluestem comprising $140 million and $296 million of our U.S. distressed ERC, respectively. Our ERC is relatively short in duration due in part to the lower average account balances in our portfolio with 58% expected to be collected through 2027. We expect to collect $1.1 billion of our December 31 ERC balance during the next 12 months. Based on the average purchase price multiples recorded in 2025, we would need to deploy approximately $582 million globally over the same time frame to replace this runoff and maintain current ERC levels. I would note that as of December 31, we had $225 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 of 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 process and techniques that we believe create both a competitive advantage for the company as well as a significant barrier to entry.

In contrast, we seek to outsource the aspects of the collection 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, 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 71%. It was aided by the collections on the Conn's portfolio, which carry lower cost to collect given the significant portion of paying accounts in the Conn's portfolio and to a lesser extent, the Bluestem portfolio, which benefited the month of December. Excluding the Conn's and Bluestem portfolio collections and expenses, the cash efficiency ratio would have been 68%, which remains materially higher than other public companies in the sector. Our leading operating efficiency is a powerful competitive advantage and coupled with the strong returns on our differentiated investment strategy supports consistent, attractive shareholder returns.

With that, I would now like to hand the call over to Christo for a more detailed look at our financial results.

Thank you, David. Taking a closer look at the financial details for the fourth quarter. Revenue was $155 million, up 30% year-over-year, driven by continued strong deployments and higher net yields. Changes in recoveries were $0 million for the quarter, reflecting the accuracy of our modeling and our execution against our underwritten forecast. Operating expenses were $84 million, up 30% year-over-year compared to an increase in collections of 41%.

Court costs increased to $17.7 million, or 86% year-over-year, as a result of the trends in the 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 core costs to remain at this level given the increased inventory of suit-eligible accounts resulting from the significant overall portfolio growth over the past several years.

Adjusted pretax income was $51 million for the quarter, up 15% year-over-year, resulting in adjusted pretax ROE of 44.8%. We realized a material level of collections on portfolios purchased in 2023 and '24, including the Conn's portfolio purchase, which in turn drove adjusted cash EBITDA to $178 million for the quarter, up 34% year-over-year. Finally, for the fourth quarter, Jefferson Capital recognized portfolio revenue of $15.5 million, servicing revenue of $1.3 million, and net operating income of $10.7 million related to the Conn's portfolio purchase. Separately, we recognized portfolio revenue of $5.4 million and net operating income of $2.5 million related to the Bluestem portfolio purchase, which closed on December 4.

Moving on to the full year results. We delivered strong performance in 2025, while setting several important operating milestones by recording the highest annual collections, deployments in ERC in the company's 23-year history. That performance in turn drove record revenue, net operating income, adjusted pretax income, and adjusted cash EBITDA. Our cash efficiency ratio for 2025 was 74%. And excluding the Conn's and Bluestem portfolio collections and expenses, the ratio would have been 69.7%.

Our credit profile remains strong and positions us well for future opportunities. As of December 31, our net debt to adjusted cash EBITDA improved to 1.9x, a level which is significantly lower than our publicly traded peers. Over the long term, our target leverage ratio is in the range of 2x to 2.5x on a sustained basis. Our balance sheet is solid with ample liquidity to support growth, create strategic optionality, and pay our quarterly dividend. On October 27, we completed an amendment of our senior secured revolving credit facility, which achieved a number of capital structure objectives and substantially improved the terms.

We increased the aggregate committed capital by $175 million to $1 billion and added 2 new lenders to the bank group. We refreshed the tenor of the facility to 5 years with an effective 2.5-year extension. We improved pricing by 50 basis points across the grid and eliminated the credit spread adjustment for an aggregate interest expense savings on the drawn balance of the facility of 60 basis points. We also reduced the nonuse fee rate for unutilized commitments by 5 basis points.

The facility had $232 million drawn at December 31, and we have earmarked $300 million of capacity to repay our 2026 bonds in May of 2026. Given the maturity was fully prefunded with a $500 million unsecured issuance in 2025 and at this point we are 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. This strong liquidity profile is a critical component of our value proposition to sellers who value certainty of costs in periods when portfolio activity increases, but 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 4.7% annualized yield as of February month end. The dividend offers an attractive component of shareholder return, which is not available from other public companies in the sector, and it 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 legally issued shares for $59 million. This was a tactical share repurchase where the company used its capital to support the offering and to reduce the sponsor overhang. We will evaluate open market share repurchases at the appropriate time while also aiming to maintain liquidity in the stock. Finally, we have a long history of successful M&A, but we intend to remain disciplined and opportunistic.

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

Our first question comes from the line of David Scharf with Citizens Capital Markets.

I guess probably obligatory to lead off, Dave, with maybe just some questions about your thoughts about maybe some of the macro uncertainties and whether it's employment headlines or the prospect of sustained elevated energy costs. Do any of these factors color how you're viewing the purchasing environment and maybe the types of bids you're putting in? Just trying to get a sense for whether it's just too early to really conclude that the macro in the U.S. has shifted much or whether you feel like we're starting to see some of the signs that maybe people saw in 2022 when inflation set in?

Thanks for the question, David. I guess let me answer that question in 2 different ways. The first way would be that the incremental pressure that energy costs would have and some modest deterioration in employment could have. That modest on-the-margin impact is likely to really just impact delinquencies and charge-offs. That minor movement is not apt to change liquidation rates on charge-off accounts. because a charge-off tends to be a consumer who has had 1 of 3 things happen: either they've lost their job, they've had a divorce, or they've had a health care issue that has either caused them to incur an uninsured medical bill or a health care situation that keeps them out of work temporarily. And so, I think the net of the current environment is probably a net positive for us on the supply side and not likely, and certainly, we see no indications of it impacting expected liquidation rates.

And maybe just as a follow-on, shifting to the deployment side and purchase volumes. The information on the visibility that the flow deals provide over the next 12 months is helpful. I'm curious, do you ever -- well, I guess, number one, are there any trends among your sellers broadly in terms of either a willingness to engage in more flow deals or less? And I guess related to that is, as you plan out the year, is there usually a percentage of total deployment that you'd like to have locked in, in January 1 by flow deals? Or is it just more opportunistic based on the terms that are out there?

So very insightful questions. I hope I'll be able to remember all of the questions, so I can answer them all. I'll start with, do we target a specific percentage of our deployments for forward flows? And the answer to that is we don't. Our history has been about half of our deployments have been in forward flows. But if forward flows were pricing in a way that wasn't meeting our return targets, we would not feel a need to reach in order to have this composition that we've historically had in the past. So we've been -- we continue and have been from really our inception to be very returns focused. As it happens, areas and sectors that we are a leader in have a consistent pattern of forward flows. And so that level has been relatively consistent. And you can see that our numbers don't move that much in terms of future committed forward flow volume.

And with respect to your second question, which is, is there a market trend toward more forward flows or less. And I would say I need to answer the forward flow question by geography. The United States is the most prevalent market to offer forward flows. Most markets outside of the United States that we operate in have a much lesser emphasis on forward flows. And as a result, I would say Canada is probably the next highest percentage of forward flows that we have as a percentage of total deployments. And then the U.K. and then LatAm, which virtually has none. We actually, I think, had the first forward flow of any one or any seller in the Colombian market.

But what I will -- I also want to point out is it's not just a geographic differential that exists. There's also differential across asset classes. Auto, as an example, which is an area where we are a leader, has historically been hesitant to embark on forward flows. There are some, but as a percentage of total deployment, it tends to be a much lower percentage. That is a sector that I think now, given some of the challenges that the auto sector has faced, we're hearing more discussions about forward flows, but I don't think that, that's manifested itself yet in any elevated level of forward flows for Jefferson Capital just yet. But I am hopeful that our long-term leadership in that market and that more sellers are discussing forward flows in that space that, that will lead to more forward flows because we do like to have committed future purchases at good returns.

No, interesting opportunity. I guess maybe just one more to wrap up. I guess this would be for Christo. Given the pace at which the Conn's portfolio runs off throughout this year as well as the half-life on the Bluestem collections, should we see -- I know you're not providing guidance, but when we think about the efficiency ratio, should we see a reversion towards that 68% level by the end of the year? Or are there other efficiencies and process improvements that would keep the ratio at 70% or above even as those 2 low-cost collection portfolios...?

Yes. look, I think we certainly have a substitution effect that you see. You can see that the headline cash efficiency ratio trended down over the course of 2025 as the collections coming out of the Conn's portfolio declined. And now we're going to essentially reup and the Bluestem would have virtually the same impact, and it's similar in size. And we expect that to effectively take, of course, over the course of 2026, as we have discussed before. We also provide the underlying cash efficiency ratio, excluding any collections and expenses from both Conn's and Bluestem, and that would be in the high 60s as a underlying trend, excluding the impact of performing portfolios.

Our next question comes from the line of Mark Hughes with Truist.

David, your commentary about supply is very interesting. Any way to characterize how much of an increase you've seen? Is it single digits, double digits? I wonder if you could maybe give us a little more detail there.

And that's specifically as it relates to volume of charged-off accounts or insolvencies.

Yes, just the opportunity set that you're seeing.

Yes. I would say there's a couple of things at play. First, there's this seasonality aspect where the fourth quarter is the biggest quarter that originators tend to sell. And then because the tax season in the first quarter tends to be a trough. And so you have both of those things going on. Those impacts are probably bigger than any impact on underlying charge-off trends. And so these are difficult quarters to gauge a steady state.

And so I wish I had a little bit more clairvoyance for you. But I think the second quarter probably would be a better quarter to begin making something more conclusive. I think one thing I could say is we are -- the era of supply of elevated levels of supply began some time ago and broadly, it's continuing.

Very good. How about the returns? Have the return profiles been reasonably stable when you look across your book and what you're buying? And your returns have obviously been very attractive. Is that -- are we looking at being able to maintain that or a little bit better, maybe a little more competitive? How do you see that?

Yes. So I would say that our returns have been pretty stable. And I think pricing is pretty stable in the market and fairly predictable. And that our win rates, which is another gauge of the level of competition, have been steady.

Then, Christo, the tax rate this quarter for the adjusted number, was it the similar 14%, 15%? And then what should we use for 2026?

Yes. I would say for 2026, we now have a full clean year. And as such, I think something that's in the 24% to 25% is appropriate to estimate the tax provision. So call it 24.5% would be what I would use for '26 for full year.

And how about for 4Q, the adjusted EPS number, is that based on a -- I think just doing the math on the release, it was 14.5% tax rate?

Yes. Although if that's the effective tax rate, that is true, I would not -- that effectively takes into account the full year tax provision that's required, except that we are only getting taxed as a taxpayer for half of the year since the IPO. So that is not indicative of anything going forward. Going forward, it should be relatively straightforward. There isn't anything special from a tax perspective other than the fact that we're not paying cash taxes. But for the purpose of estimating the tax provision going forward, 24.5%.

Then I'm sorry, I missed this when you were talking about the potential share buybacks in the future. What's the current authorization? What's your posture on that? Are you -- do you tend to be active...?

No, the posture is that the $3 million that we repurchased was very much a tactical repurchase in conjunction with the follow-on offering. At present time, our focus is on deploying capital at attractive risk-adjusted returns in portfolio purchases. We will evaluate open market share repurchases in the future. But at present time, we, of course, are also focused on developing better liquidity and better float for our investors.

Our next question comes from the line of John Hecht with Jefferies.

Congratulations on wrapping up a pretty busy year. First question is just thinking about deployments. You guys are diversified from a product and geographic perspective. Maybe can you give us the characteristics of the deployments where -- in which markets and which products? And was there any shifts in that deployment that are worth calling out over the past couple of quarters?

I think the one of the most prominent and promising shifts has been an increase in deployments in insolvencies, which is an area that, obviously, we have very limited competition because there's only a couple of companies that have the ability to value or service those accounts in the U.S. and in Canada. And our deployments correspond quite closely with how the filings have increased across the country.

And then I would say other trends in deployments, obviously, our ability to undertake these attractive deployments in Bluestem and Conn's, I think, represent a unique capability and a good and a very attractive risk-adjusted return profile. And so I think that obviously is a change in our composition versus '23 and prior. So I think the trends have been relatively similar to quarters in the past. And we're -- they all reinforce the markets that we're in, our asset class specialization as being attractive, and the geographic diversification and the geographies we picked have, again, reinforced our investment thesis for those markets. So we're obtaining attractive returns across really all of the spaces that we're in, both asset class and geographies.

And then a follow-up is, obviously, acquisitions, you have good organic growth and then you've had successful acquired growth over time as well. How do we -- how would you describe the pipeline now?

So I'm going to separate my comments into these runoff portfolios that in the form of like Conn's and Bluestem, which we have a unique capability set to value, navigate, integrate, and execute on. During '25, we saw more of those opportunities than we've ever seen. but that resulted in 2 very large purchases. And sometimes a process like that takes a long time to conclude. And so we're eager to evaluate opportunities in that space, and we're active. But there's, of course, no certainty on any one of those. Our hope would be that while we've done this successfully in the installment loan space and in credit card that we could, over time, expand our capabilities to include some of the other asset classes that we're in.

Our next question comes from the line of Bose George with KBW.

Actually, in terms of areas of potential growth, have you seen pricing become more interesting in areas like prime credit cards? Or is that still not quite there yet?

I would say prime credit card continues to be an area that our win rate has been pretty consistent. So I don't know that we're seeing much change in pricing of those assets. And we obviously would welcome pricing to reflect better returns in those asset classes, but we're not really seeing much in the way of change, even though there has been a modest increase in supply.

And then just there's obviously been a lot of concern about AI-driven white-collar job loss. It seems very early to think about what that means, but is that something that you guys have thought about in terms of the way it potentially impacts supply performance? Or is it just early for that?

Yes. I think it would be early for that. And of course, it depends on who you read as to what the impact is going to be. I've read the full gamut of how all the -- formation of all these AI companies is leading to more demand for staff. But at the same time, there's efficiencies that are happening by the deployment of AI in various parts of other companies. So hard to know. I certainly don't consider myself an expert. What I do know is that we look at employment trends pretty closely. And we have a long way to go before an elevated level of unemployment would begin causing concern for us with respect to our ability to achieve our underwritten collection forecasts.

Our next question comes from the line of Robert Dodd with Raymond James.

Congrats on the year and the beginning of the new one. Most of my questions have actually been already answered. On the tax season, to your point, we're at the beginning of the year, it is tax season in the U.S. If we look at it, there's always been 50 million returns filed and processed even though it's pretty early in season. That's about 1/3 of the total. So it's that you expect for. So it's a pretty decent sample and the average refund is up almost 9%. So are you seeing anything in the data to your point, the macro doesn't seem to be hurting you and the tax season may be of benefit. So are you seeing anything unusual at all? Any increase in utilization of payment plans or increase in spot payments? Obviously, it's -- that's Q1. You probably don't want to talk about it, but I'm going to ask anyway.

I certainly don't blame you for the question. And your insights and instincts, I think, are very rational. I would say -- I think the comment that I can share is that things are in line with expectations. I wouldn't suggest anything materially higher or lower. And so we continue to expect to achieve the underwritten forecast that we have in place for the quarter, which obviously includes some seasonality in the expectation. And as you also note that we have very modest changes in expected recoveries and changes in collection performance relative to expectations during a quarter or so, which I think actually netted to 0 this quarter. So I know that's very different. And that might also be why some questions -- there are questions around this area. But that has typically not been an area where we generate incremental earnings.

One more, if I could. On the -- to Christo, the efficiency ratio. Obviously, there's a number of factors with a bit of seasonality and obviously, Conn's, Bluestem rolling off as we go through -- not rolling off, but Bluestem having a declining benefit as we get towards the second half of the year. But to your point, if we back that out and you give us the -- you do give us the underlying excluding that, are there any new initiatives? You're always working on that efficiency to improve the IRR with the Champion-Challenger model, the Mumbai center, et cetera. Are there any new initiatives in the works that can improve the underlying number if we look through the Conn's, Bluestem impact as we go through the course of this year and maybe a little longer term as it's hard to move that number in a 12-month window?

So you point out that we have historically had a strong emphasis on each year having a myriad, literally dozens of initiatives aimed at improving our efficiency and effectiveness. And this year is no different. We have our laundry list of things we're going to tackle this year. But we don't really like discussing what those are. But I think the historical trend of cost to collect improvement is one that I think is a trend that ought to continue pending our -- assuming we have continued success against those initiatives as we have in past years.

Our next question comes from the line of Randy Binner with Texas Capital.

I'm mostly covered at this point. But the one thing that stuck out to me that I thought was interesting is you mentioned these process improvements that are leading to, I think, more effective suit activity in the collection process. And I think of the court system as being slow still, and maybe I'm not thinking of it the right way. But can you explain a little bit more like how those process improvements have helped in that area?

First of all, again, you're actually right. The court systems are not moving any faster. Well, I shouldn't say that because, of course, there are lots of jurisdictions and some might be. But in the aggregate, I would -- I don't have any expectation for the court process themselves to work faster. What is -- where we have made the most inroads in our efficiency is all the things we have to do before filing the suit. And as you may or may not know, various courts and asset classes and states have different requirements with respect to what has to be available and included with the suit at the time of filing. And that list of things has gotten longer over time as those requirements and expectations have become more defined.

And so, a process which, call it, 10 years ago had much less stringent requirements with respect to what needed to be included at the time of filing suit has massively become more involved. that complexity added time to the process. And we spent a fair amount of time engineering efficiencies in that area, which began more than -- at the beginning of last year and concluded in the third quarter, at which time we saw that the ramp-up and the acceleration in our suit volume. So you're right, it's not the courts, it's everything we do before to prepare an account for suit.

But I guess the follow-up is, does it lead -- all that is great, the automation of the process. Does it lead to a better result? Or is it just more is getting through the process faster, so we're seeing it faster?

Yes. So there's really 2 aspects of it that are improvements. The first is you just have this compressed time frame, which obviously also has an NPV impact. If you start the suit sooner, you're going to get to the collections from that suit sooner. The other aspect is to the extent that after starting the process, there was components of the process, which then required incremental materials that were not provided right upfront, that then would cause a fair amount of delay, if you will, or added time. So there's a secondary compression that also has occurred from the process that we implemented.

Our next question comes from the line of Gowshi Sri with Singular Research.

Can you guys hear me?

Yes.

Building on that collection strength you've shown all year, can you talk about the quality of those collections, specifically whether you're seeing any change in the mix between onetime settlements, payment plans, and now with the legal recoveries that you talked about, would that make the cash flow profile more durable as we move through 2026?

Let me see if I can answer that in a way that gets at, I think, what you're looking at. The distribution of payment types and payment size has been pretty consistent over the last couple of years. I would say there was a different payment pattern that occurred during the government stimulus, which did involve more settlements and higher onetime payments, but that has reverted to the mean by the end of 2022.

And with the legal channel, you've leaned harder into the legal channel with court costs almost doubling, and I think you've alluded to that in a question. As we look at 2026, how should we think about the returns for the legal channel? Is there still room to scale that profitably? Are you reaching more of a near steady state?

So I would say that the volume of legal accounts corresponds to our underwritten expectations. And as we deployed more capital and bought more portfolios and more volume, that inherently creates more volume to the legal channel. But because the expense of court cost is recognized upfront, it's just a little bit more pronounced when that volume enters the legal channel. But I would not characterize our effort in legal and the volume growth in legal as necessarily inconsistent with our underwritten expectations. It's not like we're having some type of material uncovered inventory that now has become incrementally profitable.

Again, we are in line with the underwritten expectations. And because we just deployed more in '23 and '24 and '25, in particular, in U.S. distressed and really in the U.K. and to a lesser extent, in Canada, that just is -- as those accounts work through the voluntary collection process and we complete that, those that are eligible for legal and are profit generating after considering court costs, those just naturally flow to the legal channel at that time. Hopefully, that is helpful.

One last question. Given the supply backdrop that you've outlined, are there any parts of the market where you have consciously decided to walk away from either for pricing reasons or the return thresholds are not attractive?

No.

And we have reached the end of the question-and-answer session. Therefore, I will now turn the call back over to CEO, David Burton, for closing remarks.

Thank you. Looking forward, we're excited about the growth prospects for our business for the remainder of this year and beyond. We've built an outstanding platform over the last 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 first quarter earnings call.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation. Have a great day.

Good afternoon, and welcome to the Jefferson Capital's Third Quarter 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. 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 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.

And now I'll turn the call over to Mr. David Burton.

Thank you, operator, and thanks, everyone, for joining our investor call. Let's dive into the financial performance highlights. In the third quarter, we again generated strong results for shareholders. Our collections were $237 million, up 63% versus the third quarter of 2024, and we continue to perform well versus our underwriting expectations. We generated the largest third quarter deployments in the company's history with $151 million invested, up 22% versus the third quarter of 2024. Our estimated remaining collections were $2.9 billion, up 27% year-over-year, driven by our continued deployment performance and attractive returns.

Revenue for the quarter was $151 million, up 36% versus the prior year period. We delivered a sector-leading cash efficiency ratio of 72.2%, driven in part by strong collections from the Conn's portfolio purchase, which we completed in the fourth quarter of last year. We generated strong cash flow with LTM adjusted cash EBITDA of $727 million, which in turn improved our leverage to 1.59x, a level which positions us well for future growth and creates significant strategic optionality. Adjusted EPS for the quarter was $0.74, and the Board of Directors has declared a common stock dividend of $0.24 per share.

Next, on October 28, we completed an amendment of our senior secured revolving credit facility, increasing capital commitments to $1 billion and reducing pricing. This is an important milestone, which positions us well for the significant market opportunities ahead, and Christo will provide additional detail on the upside in his prepared remarks.

Finally, we are very excited about the previously announced Bluestem portfolio purchase, which we believe solidifies our leadership position as a strategic acquirer of a wide spectrum of dislocated consumer credit assets. We expect the transaction to close later in the fourth quarter, and I'll share additional detail further on in the presentation.

Next, I'd like to offer a brief market update and cover some of the macroeconomic indicators to provide better context for why we remain bullish on the investment opportunity for our business. I'll start with delinquency trends, which remain elevated across all non-mortgage consumer asset classes and create favorable portfolio supply trends for our business. An 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.

By the end of 2022, the excess savings had been depleted. And in fact, the current level of personal savings at $1.1 trillion is lower than the long-term pre-pandemic average from January 2013 through December 2019, and the reduction in personal savings in real terms is even more substantial when considering 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've 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 a 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, and we remain one of the very few debt buyers in the U.S. and by far, the largest debt buyer in Canada that can take advantage of 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. 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 the existing book and on any future portfolio purchases.

Moving on, I'd like to review in more detail some key performance trends for the quarter. Our collections were $237 million, up 63% year-over-year, driven by strong deployment growth in 2023 and 2024. The Conn's portfolio purchase represented $50 million of collections for the quarter. Our collection performance continues to reinforce the accuracy of our underwriting models. A key trend in collection performance has been the increase in legal channel collections.

Jefferson Capital utilizes legal channel in instances where we believe the account holder has the ability but not the willingness to pay. We've 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 suit, which in turn has accelerated suit volumes.

The inventory of suit eligible accounts has increased given the significant growth in deployments over the past 3 years. So over time, we expect to see continued growth in legal collections. Our portfolio purchases for the quarter were $151 million, up 22% year-over-year. Year-to-date deployments were $451 million, up 24% versus the same period in 2024. Returns remain attractive, and we remain confident in the deployment landscape.

As of September 30, we had $316 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 September 30 were $2.9 billion, up 27% year-over-year with ERC related to the Conn's portfolio purchase comprising $179 million of the total. Our ERC is relatively short in duration due in part to the lower average account balances in our portfolio with 61% of our ERC expected to be collected through 2027.

We expect to collect $894 million of our September 30 ERC balance during the next 12 months. Based on the average purchase price multiples recorded thus far in 2025, we would need to deploy approximately $456 million globally over the same time frame to replace this runoff and maintain current ERC levels. I would note that as of September 30, we had $273 million of deployments contracted via forward flows for the next 12 months.

Moving on to Slide 7. I'd like to review in more detail another core pillar of our business model and a critical building block of 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 proprietary portfolio and consumer payment performance data, advanced 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.

In contrast, we seek to outsource the aspects of the collection 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 is required to compete for market share against our external vendors in both the agency and the legal collection channels.

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 72.2%. It was aided by collections on the Conn's portfolio purchase, which carry lower cost to collect given the significant portion of paying accounts in the Conn's portfolio.

When excluding the Conn's portfolio collections and expenses, the cash efficiency ratio would have been 68.8%, which remains materially higher compared to other public companies in the sector. Our leading operational efficiency is a powerful competitive advantage and coupled with the strong returns on our differentiated investment strategy supports consistent, attractive shareholder returns.

Next, I wanted to provide an update on the previously announced Bluestem portfolio purchase, where we are acquiring a portfolio of credit card assets from affiliates of Bluestem Brands. The portfolio was originated by Bluestem to finance e-commerce purchases of home goods and consumer products and consists of small balance revolving credit card receivables for which new purchases have been suspended.

The transaction does not include a back book of charged-off receivables. Similar to the Conn's portfolio purchase, the transaction is structured with a cutoff date, in this case, June 30, 2025. Jefferson Capital will pay a gross purchase price of $303 million to acquire receivables with a face value of $488 million as of the cutoff date. At closing, the gross purchase price will be adjusted for interim portfolio cash flows net of servicing expense.

Assuming for illustrative purposes that the deal closes on December 1 of this year, we expect the net purchase price to be approximately $195 million, and that number would be lower if the transaction is completed further out. Given the significant portion of paying accounts and the short duration of the assets, we expect the half-life of the ERC to be less than 1 year.

Unlike the Conn's portfolio purchase, Jefferson Capital is not acquiring any employees or physical facilities. Instead, the portfolio will be serviced by CardWorks Servicing going forward. $20 million of the purchase price will be held in escrow to secure implementation obligations relating to the servicing transfer. Jefferson Capital does not intend to pursue ongoing originations through the Bluestem platform, and the transaction does not include any Bluestem retail operations or assets. We expect closing in the fourth quarter of this year, subject to customary conditions, including an HSR approval.

I believe the Bluestem portfolio purchase positions us well for a wide spectrum of opportunities involving dislocated consumer finance portfolios. A number of nonbank consumer credit originators are facing challenges, and a consumer finance business is one that requires significant scale to support profitability. A portfolio sale is frequently the value-optimizing option and liquidity upfront is paramount, particularly in any lender-driven processes or where the decision has been made to cease new originations.

The potential buyer universe in these situations is limited given the significant operational complexity, risks of portfolio deterioration related to a servicing transfer and the potential for disruptions related to that servicing transfer. These opportunities remain episodic in nature, and as such, they require a particular set of circumstances, and they are difficult to predict from a timing perspective as it is not possible for us to induce this type of transaction. But Jefferson Capital remains uniquely positioned to react to these opportunities as they arise. We have specialized capabilities in hard-to-value and hard-to-service asset classes, particularly in small balance portfolios, which have given us an edge in both the Conn's and the Bluestem transactions. These capabilities are hard to replicate as they are underpinned by over 2 decades of data, coupled with our proprietary analytics.

We have the deep operational experience to manage the servicing transfer at close and also to improve servicing efficiency as we manage the portfolio runoff. And finally, we have a low-cost funding structure with ample capital availability, which allows us to offer speed and certainty of close, critical transaction components for the seller in situations where business disruption is rapidly eroding the value of the assets.

With that, I'd now like to hand over the call to Christo for a more detailed look at our financial results.

Thank you, David. Taking a closer look at the financial details for the third quarter, revenue was $151 million, up 36% year-over-year. Changes in recoveries rounded to $0 million for the quarter, reflecting the accuracy of our modeling and our execution against the underwritten forecast. Operating expenses were $80 million, up 59% year-over-year, corresponding to an increase in collections of 63%.

Court costs increased to $14.9 million or 66% 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 put forward these expenses to the current quarter. We expect court costs to remain at this level given the increased inventory of suit eligible accounts resulting from the significant overall portfolio growth over the past several years.

We also recorded $8.8 million of stock-based compensation expense from vesting of restricted shares related primarily to the company's 2018 award plan. As a reminder, there are 6.4 million shares of restricted stock, which are subject to a 3-year time vesting requirement in equal increments from the date of the initial public offering. These shares are legally issued and the company includes them in the share count for the adjusted EPS.

The related expense is a noncash item, which does not reflect any new awards post IPO, and as such, we treat the expense as an add-back. Adjusted pre-tax income was $54.8 million for the quarter, up 30% year-over-year, resulting in an adjusted pre-tax ROE of 51.7%. We realized a material level of collections on portfolios purchased in '23 and '24, including the Conn's portfolio purchase, which in turn drove a near doubling of adjusted cash EBITDA to $206 million for the quarter.

Finally, for the third quarter, Jefferson Capital recognized portfolio revenue of $22.4 million, servicing revenue of $1.9 million and net operating income of $16.5 million related to the Conn's portfolio purchase. Our credit profile remains strong and positions us well for future opportunities. As of September 30, our net debt to adjusted cash EBITDA improved to 1.59x following the Conn's related uptick last December as a result of strong collections during the quarter. This leverage ratio is significantly better than our publicly traded peers.

Over the long term, our target leverage ratio is in the range of 2 to 2.5x. Our balance sheet is solid with ample liquidity to support growth, create strategic optionality and pay our quarterly dividend. On October 27, we completed an amendment of our senior secured revolving credit facility, which achieved a number of capital structure objectives and substantially improved the terms. We increased the aggregate committed capital by $175 million to $1 billion and added 2 new lenders to the bank group. We refreshed the tenor of the facility to 5 years with an effective 2.5-year extension. We improved pricing by 50 basis points across the grid and eliminated the credit spread adjustment for an aggregate interest expense savings on the drawn balance of 60 basis points. We also reduced the non-use fee rate for unutilized commitments by 5 basis points.

Finally, we implemented a handful of housekeeping borrower-friendly changes to better align the credit agreement with public company precedent. The facility was undrawn at September 30. And in addition, we had $42 million of unrestricted cash on the balance sheet to supplement our liquidity needs, including the expected closing of the Bluestem portfolio purchase. We have earmarked $300 million of the RCF capacity to repay our 2026 bonds in May of 2026. Given the maturity was fully prefunded with a $500 million unsecured issuance earlier this year.

And at this point, we are 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. This strong liquidity profile is a critical component of our value proposition to sellers who value certainty of close in periods when portfolio activity increases, but 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. The fourth quarter typically offers an elevated level of deployment opportunities, and we're well positioned with capital to respond. Our Board has declared a quarterly dividend of $0.24 a share, which represents approximately a 5% annualized yield.

The dividend offers an attractive component of shareholder return, which is not available from other public companies in the sector, and it also reinforces long-term discipline around investment returns. We will evaluate share repurchases at the appropriate time while also aiming to maintain trading liquidity in the stock. And finally, we have a long history of successful M&A, but we intend to remain disciplined and opportunistic.

Now we will be happy to answer any questions that you may have. Operator, please open up the line for questions.

[Operator Instructions] Our first question comes from the line of John Hecht with Jefferies LLC.

Congratulations on another good quarter. A lot of good stuff going on. First question, just as you guys have diversified channels and geographies, is there any -- I guess, any details on the seasonality of collection that you discovered that are worth noting? Or is it pretty much consistent across the board?

John, there was a little bit of background noise there for a second. Would you mind repeating that question?

Sorry, can you hear me?

Yes.

Okay. Yes, the question is you've diversified your channels and sources and geographies. And is there any differences in seasonality of collection across those channels or geographies that's worth pointing out?

Sure. So I think the most notable and pronounced seasonality is really kind of twofold. One is sort of global and the other one is more U.S.-centric. The U.S.-centric one is -- relates to the seasonality relating to tax season refunds where collections are most elevated between the months of February and April. And the global characterization from a seasonality perspective affects deployments where historically, the fourth quarter has been the largest quarter for deployments, and that is fairly universal across all our geographies. I will note that many of the banks in Canada have a year-end that doesn't coincide with the calendar year. But even in Canada, the nonbank institutions tend to have a calendar year-end. And so we tend to see increases in deployments in the fourth quarter across all our geographies.

Okay. Very helpful. And then you guys mentioned the core costs because of the activity going on in that channel, the core costs were elevated in the quarter. It sounds like that's going to at least continue for some period of time. I guess, do you have any granularity for how we should think about that expense in the coming quarters?

Yes, John, thanks. I think probably the best way to think about this is if you take -- we reported $15 million of court costs for the quarter. I'll think of this as maybe slightly higher elevated level for the fourth quarter and then run rate for 2026. The aggregate amount of court cost for '26 will be based on run rate from this quarter.

Okay. And then last question is you guys have obviously Conn's and now Bluestem to accretive transactions. Anything worth noting just from a pipeline perspective?

Let's see. I think the thing I would note is we have looked at more transactions in the active or performing category this year that I think than any other year. I suspect part of that is because after conducting the Conn's transaction, there was a general awareness about our capabilities to value and close complex transactions. And I suspect that, that's helped us be identified as a suitor for more opportunities like that. I will say that these are not opportunities that we prospectively can create and rather we like respond to them. And there tends to be a complex set of circumstances that drive those processes, sometimes involving lender decisions. And so that also makes them probably more speculative in terms of whether or not they're going to close.

And so, all of that is to suggest that we expect to look at more of those transactions, but the certainty around whether or not those will be transactable is -- that's very speculative at this point. But we hope to report at some point in the future that we've been successful at acquiring portfolios that are similar to a Bluestem or Conn's.

Our next question comes from the line of Mark Hughes with Truist Securities.

Christo, the Conn's portfolio, the operating income, if I remember properly, it was $20 million last quarter, $11 million this quarter. Was there any seasonal fluctuation with that? Or is that just the timing of the runoff of the portfolio, the collections on the portfolio and $11 million is kind of the starting point from here?

Yes. This is very much the reflective of the runoff of the portfolio. As we have discussed previously, we expect the financial impact of that transaction to largely be contained within this year and driven by the relatively short duration of the portfolio as previously discussed.

Very good. And then the mix on the portfolio purchases, David, you talked about more insolvency paper. Anything else you'd highlight credit card, utilities, anything else that you are seeing any noteworthy trends in the quarter?

Yes. I think the only noteworthy trend really was the continuing growth in insolvencies and there have been elevated opportunities across all the asset classes. But as you may remember, insolvencies had kind of trended down pretty continuously through kind of the end of '21. And since then, they've been kind of growing more quickly in 2024 and '25 than they were previously, but that growth began before '24.

And one final question, if I could. The stock-based comp, $9 million in this quarter. What should we think about 4Q and into next year?

So we have disclosed that the aggregate amount is $87.3 million. and that will be over 2.74 years. So if you take that as 11 quarters and divide that gives you around $8 million a quarter. And that number is...

Our next question comes from the line of Bose George with KBW.

Actually, when we think about the earnings contribution from Bluestem, should the cadence of those cash flows look a lot like what we saw from Conn's?

Yes. It has a similar kind of short duration and a pretty rapid pace of collections. So while not exactly the same, it would take a similar shape.

Okay. Great. And then on the cash efficiency side, is that going to be similar? So this could essentially be sort of boost the cash efficiency as this comes in as well?

Absent anything else happening, the answer to that would be yes. But keep in mind that the Conn's portfolio will continue to diminish in its overall contribution to our overall collections, while the Bluestem portfolio will begin increasing after closing. So you've got kind of 2 offsetting impacts. But both of the portfolios are enhancements to our cash efficiency ratio.

Okay. Great. And then actually just one more. There's been obviously a lot of noise in some asset classes like auto in the market. Are you seeing anything in terms of opportunities as a result yet?

So there is -- you're right to point out that there is a lot of activity in auto with more rapid increases in delinquencies, particularly in the nonprime sector. And so we are seeing more opportunities in auto generally, but in particular, in the non-prime segment.

Our next question comes from the line of David Scharf with JMP Capital Markets.

Congrats all around. A lot to digest. I wonder if I can maybe just follow-up on the last question on the efficiency ratio. Dave, just maybe to help investors or myself kind of get a clear picture of sort of the margin potential for the business. If we exclude Conn's and obviously, Bluestem going forward and just focus on that, call it, [ 8%, ] can you give us some maybe directional color on whether that has been increasing or whether the increase in legal collections, which is a more expensive channel, will probably keep that at that level for a while?

Great question, David. And let me see if I can be helpful here. Putting Conn's and Bluestem aside, you would have seen continued improvement in our cash efficiency ratio on kind of a consecutive basis. And that was occurring despite kind of lower overall collections from our insolvency business as a percentage of our total. And insolvency collections carry with them a much lower cost to collect compared to distressed. And so I would expect 2 impacts as we move forward when excluding both Conn's and Bluestem.

And that would be, I would expect for us to produce continuous efficiency gains in our cash efficiency ratio as we continue to implement a myriad of strategic initiatives that are precisely designed to deliver efficiency improvements. And we have had a myriad of those underway this year and have made the anticipated progress. But every year, we put together a host of what those initiatives should be for the coming year. And so I would expect that to be continuing.

The other aspect would be that our mix of collections for insolvencies I would expect to kind of increase pretty much sort of on the margin, not some kind of a massive overall increase, but that will also contribute to some -- an overall improvement in our cash efficiency ratio.

Got it. That's helpful. It sounds like it's clearly been improving even without the performing Conn's in there. Another topic, you talked about the existence and difficulty in timing, whether actions take place of other portfolios like Conn's and Bluestem, Fingerhut. But curious, are there any other asset classes that you're starting to take a closer look at? I actually received an e-mail today from word of a private student loan portfolio of charge-offs being for sale. And I know those are higher balance than your core focus on small balance accounts. But I'm curious if the student loan market is one you're maybe going to revisit or if there's anything else that's showing up, particularly since your IPO and you've become more visible.

Sure. So first of all, I appreciate that question. Student loans, in particular, is something that the company has a fair amount of experience in. We haven't been an active purchaser of private student loans for some time, in part because there was a fair amount under the last administration of speculation around whether or not student loans broadly would become something that becomes subject to forgiveness.

And even though that wouldn't, in any eventuality, likely be the case for a private student loan versus a U.S. Department of Education originated student loan, the consumer could change their payment priority or payment preference. And we wouldn't want some type of exigent government regulatory change to kind of impact our own anticipated expected returns.

So that certainly with the new administration had kind of sort of quieted down that discussion, although more recently, there's been some recent resurgence of discussion about student loan forgiveness. So I still have apprehension about making any material deployments in the private student loan space until that kind of noise subsides.

All of that being said, there also has been some discussion more recently that the federal government has begun some consideration about their own consideration of selling their student loan portfolio, which is something that I don't think has ever been considered or undertaken before. And so that kind of a transaction would likely create the kind of certainty that would give us the kind of encouragement to deploy capital. And I think we're one of the few companies that have both the data, the analytics and the capability for actually underwriting and executing against a private or federal government student loan portfolio.

Got it. No, clearly, a lot in flux right now. Maybe just one more, if I could squeeze in. Returning to Bluestem, just want to make sure I understand on the illustrative example you gave about sort of the net purchase price of $195 million if the transaction were to close on December 1, would that approximate the receivable balance that would be booked at that time?

No. There's a substantial discount to what the then face value. And I think the ratio would be sort of...

No, not the face value, but if $195 million were the actual purchase price.

Yes.

Yes. A little bit got most in translation here. The transactional capital at a significant discount to face value, but the receivable balance that we book on our balance sheet would be approximated by the purchase price.

Yes, that's -- okay. So it would be about $195 million of finance receivables on your balance sheet. And then as we think about the pace of liquidation, it looks like the gross purchase price of $303 million down to $195 million at December 1. Does that imply $107 million of collections during what time frame from June 30 to December 1?

So the cutoff date is June 30. And in the example that we provided for the $195 million, that was a defense example of a December 1 closing date. And that doesn't imply $107 million of collections because there are collections happening and then there's also receivable balances that are changing. But I think the best way to think about it is the original kind of gross purchase price against the then total receivable balances as of June 30.

Our next question comes from the line of Robert Dodd with Raymond James.

Congrats on the quarter. I'm sticking with Bluestem, well, the concept of Bluestem/Conn's. I mean, what -- I mean, obviously, your priority for deploying capital, number one, is to buy portfolios. But I mean, how would you -- if you had your wishes, what kind of mix would you like to be acquiring of lumpy but performing portfolios versus nonperforming? Obviously, the performing cash flow is much shorter, you get the collections much quicker. It's great ROI, but then you have to find another one. And so what's the balance of where you'd like that to be going forward?

Yes. So I may answer the question a little differently than you've asked it, but I hope it kind of gets at, at least the way we think about deployments from a risk-adjusted return standpoint. And as you've sort of noted and we've discussed, we deploy capital in a bunch of geographies and across a number of asset classes. And we seek each year to widen that funnel. And the purchase of performing portfolios like Conn's or Bluestem are just another demonstration of using our capability to deploy capital at attractive risk-adjusted returns.

And so I look at active or performing portfolios as just another expansion of our funnel of opportunities. And we're largely agnostic across that funnel of opportunities because we have underwriting models to be able to forecast accurately and then onboard and execute against that forecast across all these asset classes, geographies and active or nonperforming portfolio.

So I -- of course, it's nice to be able to deploy a lot of money against an attractive risk-adjusted return opportunity. And so active portfolios are helpful in that regard because you can put a lot of money to work in a single transaction. But whether it's retail installment loans or credit card or auto, I think we are quite happy underwriting and executing against any of those kinds of opportunities and would be at the ready to deploy our capabilities for any attractive opportunity across a number of asset classes.

And so I -- small balance, of course, is -- creates a further kind of competitive advantage because not as many folks have the data or the platform that is able to underwrite and execute against those. So that certainly is maybe more attractive to us or at least would have maybe even less competition than a large balance credit card portfolio. But even that, I think -- I don't think any of our public competitors have deployed capital against a performing credit card portfolio, for example, large balance or small balance.

So I think this whole category of the ability to make an attractive investment in performing portfolios is something that is unique to Jefferson Capital amongst our peers.

I agree with you. And I appreciate that color. Kind of tying on to that, I mean, if Bluestem works out and biggest, right, you're at 1.5x leverage now roughly ahead of Bluestem. But given how fast Conn's liquidated and lowered your leverage after an initial peak, I mean the outlook is -- prospectively your leverage will be down again this time next year, we'll be looking well unless there's a lot of other moving parts, obviously. But it's realistic that your leverage could be even further below the low end of your target by the time Bluestem gets onboarded and it's 6 months to its life if it performs anything like comps. So what are your thoughts there? I mean, obviously, there's the dividend, but what else would you look at given the potential outlook for leverage, not a bad thing over the next 12 to 18 months maybe?

So great question and a great observation that we obviously are operating below our target leverage, and that's before we get an accelerated amount of cash flow that we would derive from the Bluestem purchase once it closes. I just want to kind of flag for you, Robert, that we also have a bond maturing in the middle of next year for $300 million. And we would plan to utilize our revolver for that. And while that doesn't increase our net debt, it does show -- demonstrate our utilization of our existing capacity under our $1 billion revolver, which we just upsized and for which we had nothing drawn on at the -- and so we would certainly hope and the primary focus would remain deployment against portfolios in our geographies or potentially in a new geography.

And we are – that will certainly have available to us potential changes to the dividend or share repurchase or whatever, as Christo referred to in his prepared remarks. And then lastly, we've had a history of doing disciplined M&A that have all worked out quite well for us. And so we find ourselves in an environment and with the capacity to consider really all of the above as a means to optimize shareholder returns.

This now concludes our question-and-answer session. I would like to turn the floor back over to Mr. David Burton for closing comments.

Thank you. Looking forward, we're excited about the growth prospects for 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 attending today's investor earnings call. We look forward to providing a further update on our fourth quarter investor call next year.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.