Earnings call transcript: Jefferson Capital reports strong Q2 2025 growth

Jefferson Capital (JCAP), a $1.19 billion market cap company, reported significant growth in its Q2 2025 earnings call, showcasing robust year-over-year increases across several financial metrics. Currently trading at $18.80, near its 52-week high of $19.55, InvestingPro analysis suggests the stock is currently overvalued. The company highlighted its strategic achievements and provided insights into its future outlook, although no immediate changes in stock price were observed post-announcement.

Key Takeaways

• Jefferson Capital’s Q2 2025 collections surged by 85% year-over-year.
• Revenue increased by 47% compared to the same period last year.
• The company completed its initial public offering on June 25, marking a significant milestone.
• Jefferson Capital’s cash efficiency ratio is notably higher than its peers by approximately 1,000 basis points.
• The firm anticipates strong portfolio supply and elevated deployment opportunities in the fourth quarter.

Company Performance

Jefferson Capital demonstrated impressive performance in Q2 2025, with collections and revenue seeing substantial year-over-year growth. The company maintains a strong gross profit margin of 70.75% and generated $273.4M in EBITDA over the last twelve months. The company’s strategic focus on high-value portfolio purchases and its proprietary technological capabilities in the collection process have contributed to these results. Jefferson Capital continues to strengthen its position as a market leader in debt buying, particularly within insolvency markets. For deeper insights into JCAP’s financial metrics and growth potential, InvestingPro subscribers can access the comprehensive Pro Research Report, one of 1,400+ available company analyses.

Financial Highlights

• Revenue: $153 million, up 47% year-over-year
• Net Operating Income: $87 million, up 57% year-over-year
• Adjusted Pretax Income: $62 million, up 55% year-over-year
• Cash Efficiency Ratio: 75.9%
• Leverage Ratio: Improved to 1.76 times

Outlook & Guidance

Jefferson Capital is targeting a long-term leverage ratio of 2-2.5 times and expects continued strong portfolio supply. The company has announced a quarterly dividend of $0.24 per share, offering a 5.7% annualized yield. Analysts maintain a bullish outlook, with price targets ranging from $19 to $29, and forecast 36% revenue growth for FY2025. Management anticipates the fourth quarter will present elevated deployment opportunities, aligning with historical trends.

Executive Commentary

CEO David Burton emphasized the company’s readiness to capitalize on evolving market opportunities, stating, "We’ve built an outstanding platform over the past twenty-two years and we’re in a great position to capitalize on opportunities as the market continues to evolve." He also highlighted the significant impact of improving cash efficiency on the company’s operations.

Risks and Challenges

• Elevated consumer delinquencies in non-mortgage asset classes could impact future collections.
• Lower personal savings rates compared to pre-pandemic levels may affect consumer spending.
• Increased insolvencies in the US and Canada pose potential risks to the company’s portfolio.
• Macroeconomic uncertainties, including potential recessions, could influence market conditions.
• Maintaining high cash efficiency ratios and liquidity levels in a volatile market environment remains a challenge.

Jefferson Capital’s Q2 2025 earnings call underscored its strong financial performance and strategic positioning in the market. InvestingPro awards the company a "GREAT" Financial Health Score of 3.26, reflecting its robust operational efficiency and strong market position. The company’s focus on efficiency and innovation, combined with its readiness to adapt to changing market dynamics, positions it well for future growth. Investors seeking detailed analysis of JCAP’s financial health metrics, peer comparisons, and expert insights can access the complete Pro Research Report on the InvestingPro platform.

Full transcript - Jernigan Capital Inc (JCAP) Q2 2025:

Conference Operator: Good afternoon, and welcome to Jefferson Capital’s second quarter twenty twenty five conference call. With us today are David Burton, chief executive officer, and Christo Riloff, 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, 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 the 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 direct directly comparable GAAP financial measures appear in today’s earnings press release. And now, I’ll turn the call over to David Burton.

David Burton, Chief Executive Officer, Jefferson Capital: Thank you, operator, and thanks, everyone, for joining our investor call. On June 25, we completed our initial public offering, which was both the culmination of over twenty two years of execution on our differentiated growth strategy and the very first step in what is a new and incredibly exciting chapter in the company’s history. I’d like to welcome our new investors We appreciate your support in the offering, and I look forward to delivering on the investment thesis I laid out in the roadshow. Now let’s dive into the financial results.

In the second quarter, we again generated strong results for shareholders. Our collections were $256,000,000 up 85% versus the 2024, and we continue to perform well versus our underwriting expectations. Our estimated remaining collections reached a new record of $2,900,000,000 up 31 year over year, driven by our continued deployment performance and attractive returns. Revenue for the quarter was $153,000,000 up 47% versus the prior year period. We delivered a sector leading cash efficiency ratio of 75.9%, 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 $654,000,000 which in turn improved our leverage to 1.76 times, a level which positions us well for future growth and creates significant strategic optionality. Next, I’d like to offer a brief market update and cover some of the macroeconomic indicators to provide better context for why I remain bullish on 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 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, which served as a financial cushion against life’s unexpected events.

By the 2022, the excess savings had been depleted, and in fact, the current level of personal savings at $1,000,000,000,000 is lower than the long term pre pandemic average from January 2013 through December 2019 of $1,100,000,000,000 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 in both The U. S. And Canada from the pandemic trough in 2021, which in turn has fueled a resurgence in supply 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 our 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, as I mentioned, were $256,000,000 up 85% year over year, driven by strong deployments in 2023 and 2024. The cons portfolio purchase represented 65,000,000 of collections for the quarter. Our collection performance continues to reinforce the accuracy of our underwriting models. Our portfolio purchases for the quarter were $125,000,000 compared to 140,000,000 for the 2024.

Year to date, deployments were $3.00 $1,000,000 up 24% versus the same period in 2024. Returns remain attractive, and we remain bullish on the deployment landscape. An important trend which continued in the quarter was the increase in insolvency deployments both in The U. S. And Canada, which grew 45% on a combined basis as a result of the insolvency trends I outlined earlier.

As of June 30, we had $257,000,000 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, or ERCs, as of June 30 were $2,900,000,000 up 31% year over year, with ERC related to the Conn’s portfolio purchase comprising $227,000,000 of the total. Our ERC is relatively short in duration, with 66% to be collected through 2027. The short duration of our ERC is due in part to the lower average account balances in our portfolio. We expect to collect $889,000,000 of our June 30 ERC balance during the next twelve months.

Based on the average purchase price multiples recorded thus far in 2025, we would need to deploy approximately $465,000,000 globally over the same timeframe to replace this runoff and maintain current ERC levels. I would note that as of June 30, we had $219,000,000 of deployments contracted via forward flows for the next twelve months. Moving on to slide eight, 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 add 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 competitive advantage for the company and 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 a large domestic call center.

We utilize Champion Challenger performance measures to allocate portfolio segments to the best servicers, and our internal collection platform effectively competes for market share against 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 75.9%. It was aided by the collections on the cons portfolio purchase, which carry lower cost to collect given the significant portion of paying accounts in the cons portfolio.

When excluding the cons portfolio collections and expenses, the cash efficiency ratio would have been 71.8%. That’s approximately 1,000 basis points 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.

Christo Riloff, Chief Financial Officer, Jefferson Capital: Thank you, David. Taking a closer look at the financial details for the second quarter, revenue was $153,000,000 up 47% year over year. Continued strong performance of our UK servicing businesses as well as incremental revenue related to servicing arrangements for the cost securitizations drove servicing revenue growth of 48% year over year. Operating expenses were $66,000,000 up 37% year over year, with an increase due to significant growth collections. Expenses remain well controlled relative to collections and our cash efficiency ratio at 75.9% for the quarter was significantly higher than our much larger publicly traded industry peers.

Given the change in our tax status related to the initial public offering, I will focus on profitability metrics before taxes. Net operating income was $87,000,000 for the quarter, up 57% year over year. Adjusted pretax income in turn was $62,000,000 up 55% year over year, resulting in an adjusted pretax return on average equity of 58.4%. Finally, we recognized portfolio revenue of 25,000,000 servicing revenue of $3,000,000 and net operating income of $19,500,000 related to the cost portfolio purchase. As you can see on Slide 10, 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 1.76 times following the comps related uptick in December as a result of strong collections in 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 two to 2.5 times. Our balance sheet is solid with ample liquidity to support growth, create strategic optionality and payout quarterly dividend. On May 2, we completed our third unsecured bond offering, raising $500,000,000 with the intent to effectively pre fund the $300,000,000 2026 maturity.

We used the net proceeds of the offering to pay off our revolving credit facility, which at June 30 has zero balance outstanding. In addition to that, at quarter end, had $52,000,000 of unrestricted cash to further support our liquidity needs. We have earmarked €300,000,000 of the RCF capacity to repay the 2026 bonds. Given the maturity is fully prefunded 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. The 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 may be constrained or unavailable.

With regard to our capital allocation priorities, our primary focus remains on deploying capital with 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 per share, which represents a 5.7% annualized dividend yield. The dividend offers an attractive component of shareholder return, which sets us apart from other publicly traded companies in the sector and also induces long term discipline around investment returns. We will evaluate share repurchase at the appropriate time, while also aiming to maintain trading liquidity in the stock.

And finally, we have a long history of successful M and 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.

Conference Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from John Heck with Jefferies. Please go ahead.

John Heck, Analyst, Jefferies: Afternoon, guys, and congratulations on your first post IPO quarter. So first question is just looking at the deployments, obviously a good number, but I’m wondering the mix of the deployments. Was there anything worthy of noting with respect to the change in mix, is it pretty consistent with the past mix of the current ERC?

David Burton, Chief Executive Officer, Jefferson Capital: Thanks for your question, John. The mix is consistent with our recent trends and so no substantial material changes other than those noted in our prepared comments as it related to continued growth and insolvency deployments in The US and Canada.

John Heck, Analyst, Jefferies: Okay. And then maybe can you talk a little bit about is there any it sounds like supply is good. Any though change of cadence, like whether you’re talking about credit card or personal loans or telco, is there any kind of update you can give us with respect to pricing or supply in the various markets that you guys specialize in?

David Burton, Chief Executive Officer, Jefferson Capital: Yes. I would say that the trends that existed in the first quarter with respect to supply across the asset classes have remained pretty consistent, and I wouldn’t consider there to be any material change between the first and the second quarter. Generally speaking, we’re seeing increased supply across all asset classes.

John Heck, Analyst, Jefferies: Great. I appreciate that very much.

David Burton, Chief Executive Officer, Jefferson Capital: Yeah. Thanks for the question, John.

Conference Operator: Thank you. Our next question comes from David Schaff with Citizens Capital. Please go ahead.

David Schaff, Analyst, Citizens Capital: Hi, good afternoon. Thanks for taking my questions as well. And I’ll echo John’s congrats.

Unidentified Speaker: Dave, I

David Schaff, Analyst, Citizens Capital: appreciate all the color on both kind of the macro backdrop as well as the visibility into volumes via what’s under contract for forward flow. I’m wondering if you could also maybe provide if there’s any commentary on just sort of the seller pipeline of new potential sellers. Clearly, you’re benefiting from the tailwinds at high debt levels. But if there’s anything you can provide just in terms of whether there are more sellers across various asset classes coming to market, you think?

David Burton, Chief Executive Officer, Jefferson Capital: So, yes, thanks for the question, David. Our quest is to continually expand our funnel of opportunities with the greatest emphasis on the asset classes where we’re already kind of the market leader, where we have some competitive sustainable competitive advantages beyond just having a better cash efficiency ratio. And so there is continued progress in cultivating new clients in those asset classes of per normal. With respect to and I think your question probably is more along the lines of the credit card asset class, there has been

Unidentified Speaker: an

David Burton, Chief Executive Officer, Jefferson Capital: expectation that over time, particularly perhaps with a CFPB, which has been maybe less active that other credit card issuers perhaps that hadn’t been selling, but represent large opportunities that they may come to market. And I would note that I’m not really aware of any new credit card companies kind of coming to market of any of the top issuers. Although I will note that the combination of Capital One and Discover have many people wondering about whether Discover, which historically hasn’t been a seller, might become one. I don’t have any information on that, but I would think that to the extent that there would be a new entrant in the charge off sales that that would be more likely because Capital One has been a seller, that that would be the most likely new entrant.

David Schaff, Analyst, Citizens Capital: Got it. No, it’s helpful. And maybe just as one follow-up. You had called out the particular strength in the growth in insolvency for both US and UK. Can you just remind us is there anything we ought to keep in mind about just the impact on sort of your consolidated yields and efficiency ratio as insolvency continues to grow as part of the mix?

David Burton, Chief Executive Officer, Jefferson Capital: Great question. So, first let me just slightly correct you. You mentioned increase in insolvencies in The U. S. And The UK and really it’s okay.

Just want to make sure for listeners that they note that. And to the extent that there would be a massive change in our deployment volumes and mixed more toward insolvency, which does have a lower kind of cost to collect. That would be seen over time to kind of increase our cash efficiency ratio. The opposite had been the case since kind of 2021 as insolvency volumes kind of hit kind of that trough. And so we’ve had probably lower deployments in insolvency relative to prior years before 2021.

So I would think that we were experiencing on a marginal basis, the opposite effect where our mix was increasing toward distress in our overall ERC and collections. But so you’re right that the mix does matter in terms of cash efficiency ratio. But the insolvency deployments are not at a level where I would anticipate much of an impact today on near term cash efficiency ratio.

Christo Riloff, Chief Financial Officer, Jefferson Capital: And David, I think that’s exactly right. And I would add to that that the net return to us is very similar between distressed portfolios and insolvency portfolios as the purchase price multiple on an insolvency portfolio is typically lower, right? But as it relates to the overall profitability profile, we would underwrite these portfolios to a similar net return to us. And then the other impact you may see is, of course, as the mix shifts a little bit, is lower purchase price multiples, the gross multiple maybe.

Unidentified Speaker: Understood.

David Schaff, Analyst, Citizens Capital: Great. Thank you very much.

David Burton, Chief Executive Officer, Jefferson Capital: Yeah. Thank you, David.

Conference Operator: Thank you. Our next question comes from Mark Hughes with Trust Securities. Please go ahead.

Mark Hughes, Analyst, Trust Securities: Yeah, thank you. Good afternoon. Christa, the effective tax rate in the quarter was above, I think, earlier thoughts about what the rate would be in 2Q. Am I thinking about that properly? And if so, what was the driver of that?

Christo Riloff, Chief Financial Officer, Jefferson Capital: So look, I think the effective tax rate for the quarter was 23%. And there were a number of onetime items, and there was a material sort of catch up for taxes in the second However, coincidentally, we think that the 23% is probably the right number as we think about the third quarter and going forward. And we’ll update the market to the extent that that changes. But 23% round numbers for aggregate tax rate is the right ballpark.

Mark Hughes, Analyst, Trust Securities: And am I correct in thinking the kind of the initial thought was it would be upper single digits, was that to me or was that kind of the original expectation you all had had?

Christo Riloff, Chief Financial Officer, Jefferson Capital: Upper single digits was the historical

Mark Hughes, Analyst, Trust Securities: For this tax quarter, to be clear, not for

Christo Riloff, Chief Financial Officer, Jefferson Capital: the So, yes, so you are right in the sense that we were a C Corp for only four days. However, what happened was there were we needed to effectively accrue a tax provision for the full six months. And the tax expense that you see on the P and L is the difference between the amount that was accrued for the six months and what we paid under our old structure for the first quarter, right? So, yes, as such, due to that catch up and that catch up is quite significant. So the difference is around, I think it’s around $12,200,000 of an adjustment as it relates to taxes for the quarter.

But I think there’s a little bit of coincidence here, the tax rate that you see, the effective tax rate is for the third quarter is expected to be around the same as it was in the second quarter.

Mark Hughes, Analyst, Trust Securities: Yeah, yep, exactly. And again, just trying to be clear that the kind of the original thoughts you all had about pretax income, you did substantially better, but then the tax rate and that catch up was higher. And so on a reported basis or an adjusted basis, it’s that unusual tax item dampens the bottom line result. Is that fair way to think about it?

Christo Riloff, Chief Financial Officer, Jefferson Capital: That is very much a fair assessment of what happened and that adjustment is 12,200,000.0 out of the 14 that you see there.

Mark Hughes, Analyst, Trust Securities: Yes. And I think that’s broken out in the queue if I looked at it properly. Okay. Do you happen to have the adjusted cash EBITDA number for this quarter and then the second quarter last year? Do.

You provided on a trailing basis, but I’m and I could probably figure that out, but I wonder if you had it there handy.

Christo Riloff, Chief Financial Officer, Jefferson Capital: Bear with me for one second. So the adjusted cash EBITDA number for the ’25 was $2.00 $4,000,000 and the adjusted and you wanted the reference quarter in ’24?

David Burton, Chief Executive Officer, Jefferson Capital: Correct.

Christo Riloff, Chief Financial Officer, Jefferson Capital: That was 01/2007.

Mark Hughes, Analyst, Trust Securities: 01/2007. And then a final question, the cons, could you talk a little bit about the performance? You have a performing and non performing part of that portfolio, just some update on how you’re seeing either bucket performing here through the second quarter?

David Burton, Chief Executive Officer, Jefferson Capital: Sure. I think my comments will be on the performing portfolio. The nonperforming portfolio, which was a small part of the acquisition, is kind of encompassed and incorporated into our charge off purchases in the distressed business. But with respect to the performing cons portfolio, we have continued to exceed the underwritten expectations and that portfolio continues to perform well. And we did disclose what the collections were for the quarter, what the operating expenses were, and what the servicing revenue was related to the securitizations that we’re servicing.

Christo Riloff, Chief Financial Officer, Jefferson Capital: Yes, just to add, as we’ve said before is the we expect that the this is a relatively short portfolio, and we expect the financial impact of those of the collections to taper off and to continue to taper off over the course of 2025 and to be the material component of the impact would be contained within 2025 for that portfolio.

Mark Hughes, Analyst, Trust Securities: Appreciate the detail. For sure.

Conference Operator: Thank you. Our next question comes from the line of Robert Dodd with Raymond James. Please go ahead.

Unidentified Speaker: Hi, guys. And, yeah, congratulations on getting the the the first quarter out of the way. Just not not on cons, but sort of focusing on cons. I think, Chris, in your prepared remarks, you mentioned, you know, M and A, you’ve been disciplined and opportunistic. Obviously, Conn’s was the the last opportunity and the the return on that has been pretty acceptable.

So in in terms of in terms of opportunities on that front, are you seeing any changes that make opportunities more likely to occur in the near medium term? Or is that still kind of like, yes, you’d like to do more, but you’re just not seeing anything that’s attractive right now?

David Burton, Chief Executive Officer, Jefferson Capital: Sure. Let me thanks for the question. I’ll make a couple of comments. The first one I would say is, I consider the cons portfolio purchase really not to be an M and A type of acquisition. The company has a long history of doing successful acquisitions of companies.

I think Chris’s comments in our prepared remarks really were referring to M and A activities to acquire a debt buyer, a specialized servicer in either a new geography or a new asset class, which has been kind of our ongoing long term strategy to support growth. And we’re constantly looking at those types of opportunities. And of course, we look at a lot more than we’re actually able to transact on. And I suppose that’s a reference to Christos comment about being disciplined. So it’s not just the importance of being able to buy a good platform with a good management team, but it’s also important to buy it at the right price.

And secondly, your comment, I think, is really relating to performing portfolios, the cons portfolio, as you mentioned, had an acceptable We would agree with you on that. And I would say that while we have looked at performing portfolios in the past and have had success in acquiring them, not to the size and scale of the cons opportunity, but I would say that acquisition itself, fact that it was through a March bankruptcy process, there was a fair amount of press related to that transaction. And I believe as a result, we’ve been seeing more opportunities. And so those type of performing portfolio dislocations where a business like Conn’s is exiting its business are not ones where we can create the opportunity, but we are prepared to respond to the opportunities that get presented to us. And so I suspect that we have been seeing and will continue to see more of those opportunities as it has become known that we have a unique capability and have proven to be an excellent counterparty in transactions like that.

Unidentified Speaker: Thank you for that color. One more if I can. On cost efficiency, obviously, mean, comes into play here. Obviously, it was less of cash collections this quarter than last quarter, and I would expect that trend to to continue. So there’s a bit of a headwind, on just a reported basis.

But if we we if we look through that and look at, like, the underlying cost efficiency if you were to exclude cons, for example, the the the the trends are still pretty pretty robust. What other levers do you have to, you know, continue that? I mean, it’s already pretty high. Right? I mean, you’re not gonna get to a cost efficiency ratio of a 100%, obviously.

Right? And it gets harder and harder as as as it is high to to to gain any improvements that that move the numbers. So what what are your thoughts on on how much more you can do on that on a like for like basis mix aside? Because, obviously, insolvency can move it, etcetera. There’s lots of moving parts in there.

But how much more efficiency have you got that you can squeeze out of the collections process on a like for like basis?

David Burton, Chief Executive Officer, Jefferson Capital: Well, first let me respond that I sort of agree with everything you’ve said, which is if you take the mix issues aside and you take the cons impact aside, I would also acknowledge that the ability to have the same impact on a nominal percentage basis gets more difficult each year. However, if you look at all of the quarters prior to the cons purchase, I think that would give you the best indication for the continuous improvement that the company has been able to actually achieve in driving down our cost to collect and improving our cash efficiency. We absolutely have an expectation and a set of initiatives around continuous improvement in our cash efficiency. That is a hallmark of our practices and focus here Because the power of improving cash efficiency is so profound when you think we’re obviously have a great track record of underwriting portfolios accurately and then delivering the expected collections. But if you then can, on top of achieving your expected returns origination, if you then can reduce costs in a way that wasn’t considered as part of your underwritten model and forecast, that has a powerful operating leverage impact in increasing and generating excess cash flow and profitability.

And so that will forever be an area of focus for us and I would forever expect that we would continue to create improvement opportunities in cash efficiency. So to your bigger point, do they become harder and therefore less impactful in terms of nominal percentage? Probably. But I would not expect them to flatline.

Unidentified Speaker: Got it. Thank you.

Conference Operator: Thank you. The next question comes from Bose George with KBW. Please go ahead.

Robert Dodd, Analyst, Raymond James: Yes. Good afternoon, and my congratulations as well. Actually, first, you noted the normalized leverage ratio of two to two and a half times. But based on your deployments of, say, over the next twelve months, do you get there? Or is it really do you need a ramp up in deployments or something opportunistic like the acquisitions you’ve talked about to get you into that range?

David Burton, Chief Executive Officer, Jefferson Capital: Look, you’re talking about future deployments and we’re kind of not giving guidance in that regard. But I would note that a helpful fact is that, of course, the historical seasonal trend regarding deployments is that the fourth quarter has tended historically to be our largest deployment quarter. And our goal will be to continue to expand our funnel and grow our deployments for the long term. And as we do that, we would expect to see a normalized leverage ratio in that 2% to 2.5% range.

Robert Dodd, Analyst, Raymond James: Okay, great. And then can you just discuss how an economic slowdown could impact both the existing portfolio and then just the outlook for new deployments?

David Burton, Chief Executive Officer, Jefferson Capital: Sure. I think I’ll point to what I view as possibly the most extreme downturn that we’ve had in the almost twenty three years in the company’s history, and that would have been the Great Recession in 02/2008, where the country experienced the most rapid rise in unemployment. In the period following the onset of that recession, we saw liquidation rates decline about 10%, and that lasted for about eighteen months until they reverted to the mean expectation. And so that dramatic and highly unlikely outcome, given that it was the most significant increase in unemployment since the Great Depression. With that kind of a book ended expectation, that kind of shows you what would be sort of a worst case kind of scenario, at least given our own historical data.

And more likely that some type of recessionary onset would not have that dramatic of an impact, but even that impact itself was not that material. Ultimately, the more important aspect of a recessionary environment is the impact that happens to the supply of charge offs, which massively increase. Of course, pricing, because of that, also gets more attractive. Returns get much better. So if you look at the returns coming out of that Great Recession and look at the 02/2009, ’ten and ’eleven vintages from the public debt buyers, you’ll see that those were among the very best returns available over a long period of time.

So that demonstrates that the onset of a recession would, on a net basis, over kind of near to medium term, would be a net positive for the company.

Robert Dodd, Analyst, Raymond James: Okay, great. Thank you.

Conference Operator: Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to David Burton for the closing comments.

David Burton, Chief Executive Officer, Jefferson Capital: Thank you. Again, looking forward, we’re excited about growth prospects for our business for the remainder of this year and beyond. We’ve built an outstanding platform over the past twenty two 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 third quarter investor call in November.

Conference Operator: Thank you. Ladies and gentlemen, the conference of Jefferson Capital has now concluded. Thank you for your participation. You may now disconnect your lines.

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