Jefferson Capital, Inc. Common Stock Q1 FY2026 earnings call

Macroeconomic Market Context

• Elevated delinquency across all non-mortgage consumer asset classes has created favorable portfolio supply conditions, led by growing stress in the auto finance sector: total auto receivables reached a record $1.68 trillion, with average new monthly vehicle payments up 52% vs pre-pandemic levels, 33% of used vehicle trade-ins carrying negative equity as of March 2026, and long loan terms (72-month loans making up 40.5% of sales, 84-month loans 12.8%) increasing default risk.
• Excess pandemic-era consumer savings have been fully depleted, with current personal savings ($857 billion) substantially lower than the 2013-2019 pre-pandemic average ($1.1 trillion), leaving consumers with less buffer to absorb unexpected financial shocks and driving higher delinquency and charge-off volumes.
• Insolvency levels in the U.S. and Canada have risen sharply from the 2021 pandemic trough, increasing supply of insolvency portfolios; Jefferson Capital is one of the few U.S. firms with specialized insolvency expertise and the largest debt buyer in Canada positioned to capitalize on this opportunity.
• Low unemployment continues to support expected liquidation rates on the company's existing portfolio, and the business is less sensitive to unemployment changes than traditional credit originators.

Operational Performance Highlights

• Legal channel collections are growing: process improvements in the U.S. have compressed the timeline from account placement to lawsuit filing, accelerating suit volumes; the inventory of suit-eligible accounts has grown from robust deployment over the past three years, with further legal collection growth expected over time.
• The company maintains a highly efficient operating model focused on retaining high-value, high-barrier internal functions (data analytics, proprietary modeling, technology) and outsourcing commoditized, operationally intensive work like domestic call centers; a champion-challenger framework allocates portfolio segments to the highest-performing internal and external servicers, resulting in a mostly variable cost structure that scales with market conditions.
• The Q1 2026 cash efficiency ratio was 73%, aided by lower collection costs for the Bluestem and Cons portfolios (which have a large share of pre-paying accounts); excluding these portfolios, the cash efficiency ratio was 68.1%, outperforming peer sector levels.

Capital Structure and Capital Allocation

• The company recently expanded its senior secured revolving credit facility by $150 million to a total of $1.15 billion, adding two new bank partners with no material changes to terms, resulting in a strong liquidity position.
• The company's long-term target leverage ratio is 2.0x to 2.5x, and the current 1.79x leverage level provides significant flexibility for future growth and strategic optionality.
• Capital allocation priorities are: 1) deploying capital to purchase portfolios with attractive risk-adjusted returns; 2) maintaining a regular quarterly dividend ($0.24 per share, a 4.6% annualized yield as of April 2026); 3) opportunistic share repurchases and disciplined M&A activity.

Jefferson Capital does not break out performance into separate core product segments in this call. All financial results are aggregated for the overall debt purchasing and collections business: Q1 2026 total revenue was a record $176 million, up 14% year-over-year. Total collections were a record $310 million, up 19% year-over-year, with $54.5 million of collections from the Bluestem portfolio purchase and $31 million from the Cons portfolio purchase. Operating expenses totaled $96 million, up 47% year-over-year, with court costs rising 86% year-over-year to $17.3 million. Adjusted pre-tax income was $58 million, with an adjusted pre-tax ROE of 50.8%. Adjusted cash EBITDA was $235 million, up 12% year-over-year. Adjusted EPS was 73 cents. The company recognized $15.3 million in portfolio revenue and $7.9 million in net operating income from the Bluestem acquisition, and $12.4 million in total revenue ($11.2 million portfolio, $1.2 million servicing) and $7.7 million in net operating income from the Cons acquisition. Estimated remaining collections (ERC) grew 18% year-over-year to $3.4 billion, with Bluestem and Cons contributing $238 million and $105 million respectively. Leverage improved to 1.79x net debt to adjusted cash EBITDA.

• Court costs are expected to remain stable at the current elevated level of ~$17.3 million for the remainder of 2026, supported by the growing inventory of suit-eligible accounts from portfolio growth over the past several years.
• Management expects sustained elevated levels of consumer delinquency and charge-offs across all consumer asset classes, creating a long runway of robust portfolio supply through coming quarters.
• To maintain current estimated remaining collection levels, the company needs to deploy ~$563 million globally over the 12 months ending March 2027; as of March 31, 2026, $216 million of deployments are already locked in via forward flow contracts, with $353 million total locked in for coming quarters.
• 52% of current ERC is expected to be collected by the end of 2027, with $1.1 billion expected to be collected in the 12 months ending March 2027.

• Forward-looking statements about future portfolio supply, collection performance, deployment levels, and legal channel growth are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from expectations, as disclosed in the company's SEC filings.
• Rising unemployment or greater-than-expected macroeconomic pressure could alter consumer payment behavior and seller portfolio sales dynamics, impacting collection yields and deployment volumes.
• Future portfolio purchases will add new suit-eligible accounts, which could keep court costs elevated beyond 2026, creating near-term pressure on operating expenses even if long-term returns meet underwriting expectations.
• Constrained funding markets could impact the company's ability to close large portfolio transactions, though management notes its current strong liquidity profile mitigates this risk for sellers seeking closing certainty.

Q: Committed forward flow arrangements rose 28% from year-end 2025 to March 2026. Are more sellers entering forward flow deals, and how would higher unemployment or macro pressure change seller preference for forward flow vs spot sales? / A: The 28% growth in committed forward flows reflects deepened client relationships and conversion of historically spot-sale-oriented sellers to programmatic forward flow arrangements. In periods of falling prices connected to rising unemployment, sellers tend to shift to longer-term forward flows to de-risk future recoveries, while they prefer shorter forward flows in rising price environments. At present, management does not see a meaningful market shift in the share of debt sales done via forward flow vs spot.

Q: With the growing mix of legal channel collections, will the 68.1% core cash efficiency ratio (excluding Bluestem/Cons) move higher near term? / A: The 68.1% core ratio already includes current court costs from the growing legal channel, and management expects court costs to stay stable for the full year. The company continues to deliver consistent efficiency improvements via ongoing cost-saving initiatives, and the shifting mix of legal collections will not have a material impact on the core cash efficiency ratio.

Q: Could elevated court costs remain high beyond 2026 given the growing inventory of suit-eligible accounts, and was Q1 2026 U.S. deployment volume softer than expected for any unusual reason? / A: Future court cost levels beyond 2026 depend on how much new suit-eligible portfolio the company purchases for the rest of 2026, so management cannot forecast beyond that horizon. All legal costs are already embedded in underwriting pricing and target IRRs, so attractive cash-on-cash returns are locked in at purchase regardless of near-term P&L timing. The soft year-over-year Q1 comparison is due to a large 2025 Canadian insolvency back-book purchase and normal Q1 seasonal deceleration, not a lack of opportunity; management remains very confident in the robust pipeline of U.S. deployment opportunities amid growing consumer stress.

Q: What has been the change in competitive dynamics and pricing across non-credit card asset classes, and can the company's expanded legal capability support entry into higher-balance receivables? / A: Pricing across all asset classes (including charge-off and insolvency) has remained stable and attractive for Jefferson Capital. There are now more sellers across all sectors, including auto, telecom, installment loans, and credit card, as more credit grantors recognize debt sales as a profit-optimizing strategy. The company already has the legal capability to pursue higher-balance portfolios; most higher-balance prime credit card portfolios currently do not meet return thresholds due to market pricing, but the company is willing to pursue higher-balance opportunities if pricing becomes attractive, and this segment could make up a larger share of deployments over time.