Jefferson Capital, Inc. Common Stock Q2 FY2026 earnings call

Overall Financial Performance

• Delivered adjusted EPS of 77 cents for Q2 2026, with a sector-leading cash efficiency ratio of 72.2%, improved net debt to adjusted cash EBITDA leverage ratio of 1.71x, and adjusted pre-tax ROE of 51.6%. Adjusted cash EBITDA hit $226 million, up 12% year-over-year.
• Estimated remaining collections (ERC) as of June 30, 2026 reached $3.4 billion, up 18% year-over-year, with 46% of ERC expected to be collected by the end of 2027 and $1.1 billion expected to be collected in the 12 months following June 30, 2026.

Market & Strategic Growth

• Macroeconomic conditions remain favorable: near-record consumer credit balances, elevated charge-off and delinquency rates, and continued low unemployment support strong liquidation rates and underwriting for new portfolio purchases.
• Auto finance is identified as a large, growing strategic opportunity: average monthly vehicle loan payments have risen 35-40% post-pandemic, pressuring household budgets and increasing available portfolio supply. Jefferson is positioned to serve all segments of auto finance (performing, charged-off, insolvency, secured and unsecured accounts).
• Entered the Mexican debt purchasing market as a new growth pillar for Latin American strategy, with initial small-scale capital deployment to build servicing capabilities and validate underwriting models, leveraging competitive advantages including lower cost of capital versus local competitors.

Operational Highlights

• Legal channel collections grew 54% year-over-year to $64 million, driven by process improvements that reduced time to lawsuit filing, growing inventory of eligible accounts from past deployment growth, and modeling improvements that uncovered new profitable collection opportunities. Increased legal activity will raise incremental court costs, but remains profitable.
• Q2 2026 portfolio purchases totaled $152 million, up 21% year-over-year, with a record $185 million in deployments in July 2026, majority allocated to auto finance portfolios. Forward flow deployment commitments as of June 30 hit a record $480.7 million, laying the groundwork for future growth.
• Maintains an efficient operating model focused on owning high-value core capabilities (data analytics, modeling, proprietary technology) and outsourcing commoditized, operationally intensive functions (large call centers), with a mostly variable cost structure for flexibility. Cash efficiency is aided by lower collection costs on the Bluestem and Cons portfolios.

Capital Allocation

• Balance sheet remains strong with ample liquidity: the $1.15 billion senior secured revolving credit facility had $226 million drawn as of June 30, and full repayment of senior unsecured notes due August 2026 has been arranged. Long-term target leverage is 2.0x to 2.5x net debt to adjusted cash EBITDA.
• Declared a quarterly dividend of $0.24 per share, for a 4.8% annualized yield as of end of July 2026. Tactically repurchased 3 million shares (approximately 5% of outstanding shares) for $59 million in conjunction with a January 2026 equity offering to reduce sponsor overhang, and will evaluate future open market repurchases during periods of significant share price volatility. Primary capital priority remains deploying capital for attractive risk-adjusted portfolio purchases, with disciplined opportunistic M&A as a secondary focus.

Jefferson Capital is a consumer debt purchasing firm with three core asset class segments: credit cards (via the Bluestem portfolio purchase), installment loans (via the Cons portfolio purchase), and the newly added auto finance segment. In Q2 2026:

• Bluestem portfolio: Recognized $11 million in portfolio revenue and $7.1 million in net operating income. Bluestem contributed $41 million in total collections for the quarter.
• Cons portfolio: Recognized $11.1 million in portfolio revenue, $0.6 million in servicing revenue, and $8.1 million in net operating income. Cons contributed $24 million in total collections for the quarter.
• Auto finance: Record $185 million in total deployments in July 2026, with a significant portion allocated to this new segment, which now forms Jefferson's third core portfolio segment. Overall company Q2 2026 revenue was $178 million, up 16% year-over-year, with total collections across all segments of $301 million, up 18% year-over-year.

• Management does not provide formal deployment or full quarterly guidance, but notes that current court cost levels from Q2 2026 are a good baseline for expected costs for the remainder of 2026.
• The expected cash efficiency ratio (excluding Bluestem and Cons portfolio impacts) is maintained at the high 60% range, with no expected step change despite growing auto deployments.
• Historically, positive single-digit million dollar changes in recoveries are the expected normal range for the recoveries line item, which remains consistent with the Q2 2026 result.
• Seasonally, deployment activity typically accelerates in the second half of the year, with the fourth quarter usually being the largest for deployments, and current July 2026 activity aligns with this normal trend.
• Forward flow commitments already lock in $312 million of the $565 million in deployments needed over 12 months to maintain current ERC levels, and management expects to hit the required deployment total for meaningful ERC growth with no expected headwinds blocking this outcome.

• Forward-looking statements about future performance, market opportunities, and growth are inherently uncertain, and actual results may differ materially due to known and unknown risks and uncertainties, which are disclosed in the company's recent SEC filings.
• Expanded legal channel activity creates incremental upfront court costs, with a potential timing disconnect between incurred costs and subsequent collections that could temporarily impact cash efficiency ratios.
• Entry into the new Mexican market carries initial execution risk as the company builds local servicing infrastructure and validates its underwriting models for the new market.
• Auto finance portfolio collection involves higher operational complexity and regulatory variability across U.S. states, particularly for secured collateral and repossession processes, which creates higher operational risk relative to legacy core asset classes.
• Macroeconomic conditions could change, including rises in unemployment that would reduce expected liquidation rates on purchased consumer debt portfolios, leading to lower-than-expected collections.

Q: The July auto deployment was strong, how broad is the opportunity, and what are the cost/collection differences for auto versus legacy segments? / A: July deployments covered all auto segments (charge-offs, insolvencies, performing), reflecting a growing market opportunity that Jefferson is uniquely positioned to capture. Insolvency auto has low collection costs similar to existing segments, while secured auto may require higher-cost repossession processes. Performing auto's cost profile aligns with the existing Cons installment loan portfolio. / A: Auto finance has higher operational complexity than legacy credit card assets, requiring more sophisticated processes for consumer communication, collateral handling, state-specific regulatory compliance, and legal documentation. Few competitors can serve the full spectrum of secured/unsecured, performing/non-performing, and insolvency auto segments, creating strong competitive barriers for Jefferson. Current auto growth comes from both deeper penetration of existing originator relationships and new client additions. / Q: With growing legal collections, is there a step function in court costs we should model for H2 2026? / A: The Q2 2026 cash efficiency ratio (72.2% as reported, 68% excluding Bluestem/Cons) already includes current court costs, and the existing guidance of high 60s for the ex-Bluestem/Cons ratio still holds. Q2 2026 court cost levels are an appropriate guide for what to expect for the remainder of the year. / Q: With $312 million in contracted forward flows and $185 million in July deployments, you are very close to the $565 million needed to maintain ERC, is meaningful ERC growth likely over the next year? / A: Management confirmed there are no expected headwinds that would prevent meaningful ERC growth over the coming 12 months. / Q: What is driving the auto inflection point, and what is the typical target range for forward flow commitments as a share of total acquisitions? / A: The auto growth comes from two factors: long-term organic opportunity from more originators choosing to sell receivables to maximize profit, near-term episodic growth from stressed consumer balances driving higher delinquency and more asset sales from originators. Historically, forward flows make up ~50% of total acquisitions (plus or minus 10%), but there is no specific target — forward flows are a byproduct of strong long-term client relationships.