Good afternoon, and welcome to the Jefferson Capital, Inc. Common Stock's Third Quarter 2025 Conference Call. With us today are David Burton, Founder and Chief Executive Officer, and Christo Ryolov, 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 here 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 2024. 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 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 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 1.59 times, 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…

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 for the quarter, reflecting the accuracy of our modeling and our execution against the under 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 core. 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 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 three-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 expenses as an add-back. Adjusted pretax income was $54.8 million for the quarter, up 30% year over year, resulting in an adjusted pretax ROE of 51.7%. We realized a material level of collections on portfolios purchased in 2023 to 2024, including the Conn's portfolio purchase, which in turn drove a near doubling of adjusted cash EBITDA to $206 million for the quarter.…

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you'd 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. Our first question comes from the line of John Hecht with Jefferies LLC. Please go ahead.

Thanks very much for taking my questions. On another good quarter. A lot of good stuff going on. First question, just as, you know, as you guys have diversified channels, and geographies, is there any you know, yeah, I guess, any details on the seasonality of collection that you've discovered that 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. Yeah.

Okay. Yeah. The question is, you know, you've diversified your channels as sources and geographies. And is there any you know, 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 US-centric. The US-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. Thanks. And then you you guys mentioned the the core cost because of the the activity going on in that channel, the core costs were elevated in the quarter. Sounds like that's gonna know, at least continue for some period of time I guess, 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 for the quarter. I'll think of this as as as maybe slightly higher elevated level for the fourth quarter and then run rate for, you know, 2026. The aggregate amount of call cost for 2026 would be based on run rate from this score.

Okay. And then last question is yeah, you guys have obviously comms and now Boostem 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, you know, active or performing category this year, 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 And there tends to be a complex set of circumstances. That, you know, drive those processes sometimes involving, you know, lender decisions. And so that also makes them probably more speculative in terms of whether or not they're going to close. And so you know, 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 is is all you know, that's very speculative at this point. But you know, 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 Conse.

Great. Thank you guys very much.

Thank you, John.

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

Yes. Thank you. Good afternoon. Crystal, the comms 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.

Yeah. This is very much the reflective of the runoff of the portfolio. We've 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 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?

Yeah. 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, know, insolvencies had kind of trended down pretty continuously through kind of the '21. And since then, they've been kind of growing more quickly in 2024 and five. 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'll be over 2.74 years. So if you take that as as 11 quarters, and divide that gives you around $8 million a quarter. And that number is Thank very much. Thank you.

Okay. Appreciate that. Thank you.

Thanks, Mark.

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

Hey, guys. Good afternoon. 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. The the it has a similar kind of short duration. A pretty rapid pace of collections. So while not know, exactly the same, it would take a similar shape.

Okay. Great. And then on the cash efficiency side, is that is that gonna be similar? So this could know, 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 two offsetting impacts. But both of the portfolios are enhancements to our cash efficiency ratio.

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

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

Okay. Great. Thanks.

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

Hi. Good afternoon. Thanks. Congrats all around. Lots to digest. Wonder if I can maybe just follow-up on the last question on the efficiency ratio. You know, Dave, just maybe to help investors or myself kinda get a clearer picture of sort of the margin potential. For the business. If if we exclude cons in 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 will probably keep that at that level for a while.

Great great question, David. And let me see if I can be helpful here. Putting cons 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 two impacts as we move forward when excluding both cons 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 are have made the anticipated progress. But every year, we put together a host of what those initiatives should be for the 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 that's helpful. It it sounds like it it's clearly been improving even without the performing cons in there. Hey. Another topic you know, you you you talked about the existence and difficulty in timing. Whether actions take place of of other portfolios like 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 email today from you know, word of a private student loan portfolio of charge offs being for sale. And I know those are higher balanced than your core focus on small balance accounts, but you know, I'm curious if the student loan market is one you're maybe gonna revisit or if there's anything else that's showing up. Particularly since your IPO and you become more visible?

Sure. So first of 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, you know, forgiveness. And even though that wouldn't in any eventuality, likely be the case for a private student loan versus a a US 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 you know, government regulatory change. To kind of impact the our own anticipated expected return. So you know, for 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 I 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 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. And I think we're one of the few companies have both the data the analytics, and the capability for actually underwriting and executing against private or federal government student loan portfolio.

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

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

Oh, no. Not the face value, but it's a $195 where the actual purchase price.

Yes. That yes. Sorry. A little bit. We've got got mostly in translation here. The transactional capital to see at the significant discount to face value but the receivable balance you book on our balance sheet would be approximated by the purchase price.

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

Yeah. So the cutoff date is June 30. And in the example that we provided for the $195 million, that was a example of a December 1 closing date. And that doesn't imply a $107 million of collections because there's 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 kinda gross purchase price against the then total receivable balances of as of June 30.

Oh, got it. Got it. Perfect. Thank you.

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

Hi, guys, and congrats on the quarter. On sticking with Bluestem for well, the the the concept of Bluestem slash cons. I mean, what mean, obviously, you you you priority for deploying capital, number one, is to buy put. Portfolios. But, I mean, how would you if if you had your wishes, what kind of mix would you like to be acquiring of lumpy but performing portfolios versus non Obviously, the performing applies much for you. You get the collections much quicker. It's great ROI. But then you have to find another one. And and so what's the what's the balance of of where you like that to be going forward?

Yeah. So I I may answer the question a little differently than you've asked it, but I hope it kind of gets 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. Across a number of asset classes. And we we seek each year to widen that funnel. And the purchase of performing portfolios like cons 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, you know, onboard and and execute against that forecast. Across all these asset classes, geographies and active or nonperforming portfolio. So you know, it it of course, it's nice to be able to deploy a lot of money against an attractive risk-adjusted return opportunity. And so you know, 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. You know, I 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 I you know, 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 would have maybe even less competition than you know, 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 portfolio, for example. Large balance, small 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, Inc. Common Stock. Amongst our peers.

Oh, I I I agree with you, and I appreciate that that color. Thank you. You're kinda tying on to that. I mean, if if Bluestem works out as a big right, you're at 1.5 times leverage now, roughly, ahead of Bluestem. But, you know, given how fast Conn's liquidated and and lowered your leverage after an initial peak. Mean, the outlook is is, prospectively, you know, your your your leverage will be you know, down again. This time next year, we'll be looking, you know, well unless there's a lot of other moving parts, obviously. But, you know, it it's realistic that that your leverage could be even even further below the low end of your your target. By the time Bluestem gets onboarded and, you know, it's six months to its life if it performs anything like Conk. So what what do you guys get your thoughts there? I mean, obviously, you know, there's the dividend. But what else would you look at given, you know, the potential outlook for leverage? Not a bad thing. Over the next, you know, twelve to eighteen 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 I just wanna kinda flag for you, Robert, that we also have a bond maturing in the middle of next year. Mhmm. For for $300 million. And we would plan to utilize our revolver for that and why that doesn't increase our net debt. It it does show demonstrate our utilization of our existing capacity. Under our billion-dollar 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 and we are you know, we certainly have available to us you know, potential changes to the dividend or share repurchase or whatever as Christo referred to in his in his prepared remarks. And then, you know, lastly, you know, we've had a history of doing disciplined M&A. That have all worked out quite well for us. And so we've we find ourselves in an environment and with a capacity to consider really all of the above. As a means to to optimize shareholder returns.

Got it. Thank you.

Of course.

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 have built an outstanding platform. Over the past twenty-three years, and we are 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.