Jefferson Capital (JCAP) Q3 2026 Earnings Call Transcript

DATE

Thursday, Nov. 12, 2026

CALL PARTICIPANTS

• Founder and Chief Executive Officer - David Burton
• Chief Financial Officer - Christo Realov

TAKEAWAYS

• Total Collections -- $319.2 million, representing 34.8% growth year over year driven by deployments from 2024, 2025, and 2026.
• Deployments -- $318.0 million, a 110.6% increase versus the third quarter of 2025.
• Estimated Remaining Collections (ERC) -- $3.6 billion, up 23.3% year over year reflecting deployment performance and anticipated returns.
• U.S. Deployments -- $238.7 million, representing 122.7% growth supported by expanded opportunities in the auto finance sector.
• Latin America Deployments -- $36.7 million, up 312.4% year over year as the company enters the debt purchasing market in Mexico.
• U.K. Deployments -- $9.3 million, an increase of 126.8% versus the prior year period.
• Cash Efficiency Ratio -- 72.9%, aided by collections on performing portfolios that carry lower costs to collect.
• Adjusted EPS -- $0.83, based on Adjusted Net Income of $51.3 million.
• Leverage Ratio -- 1.73x, which remains below the company's long-term target range of 2x to 2.5x.
• Revenue -- $185.5 million, up 22.9% year over year driven by strong deployments and higher yields.
• Phin Solutions Acquisition Multiple -- 4.6x trailing 12-month earnings, reflecting a purchase price disciplined around strategic data integration.
• Maintenance Deployments -- $642 million required globally over the next 12 months to replace portfolio runoff and maintain current ERC levels.
• Committed Forward Flows -- $384.3 million as of Sept. 30, 2026, up 20% compared to the prior year.
• Next 12-Month Collections -- $1.1 billion, with 40% of the total ERC expected to be recovered through 2027.
• U.S. Auto Finance Market -- $1.71 trillion in total receivables, with the average new vehicle monthly payment rising 38% since the pandemic.
• Bluestem Portfolio Performance -- $13.4 million in portfolio revenue and $10.3 million in net operating income for the quarter.
• Operating Expenses -- $98.4 million, including $8.5 million in agency and legal commission expenses.
• Share Repurchases -- 3 million shares purchased for $58.9 million during the nine months ended Sept. 30, 2026.
• Quarterly Dividend -- $0.24 per share, offering an annualized yield of 4.9% as of October month-end.
• Senior Notes Issuance -- $100 million in notes due 2030 issued at 104% of face value with an implied yield of 6.6%.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• Burton cautioned that "quarterly deployments can fluctuate," and observed that the timing of transactable purchases is difficult to predict.
• Realov noted that "there certainly is an inherent component of lumpiness" in performing portfolio purchases because of the larger dollar amounts involved.

SUMMARY

Jefferson Capital, Inc. (NASDAQ:JCAP) reported growth in deployments and collections across all operating geographies during the third quarter. Management indicated that elevated consumer credit balances and rising charge-off levels are expanding the supply of available portfolios across various asset classes. The company completed the acquisition of Phin Solutions to integrate a proprietary database of U.S. bankruptcy information into its recovery platform. Executives highlighted the auto finance sector as a primary opportunity, citing rising vehicle prices and household budget constraints as drivers for portfolio sales. The company utilized a senior notes issuance and its revolving credit facility to finance a record level of quarterly deployments while maintaining a leverage ratio below its long-term target.

• Burton stated, "Auto is a sector in the U.S. that we've been in for a decade or more," noting that the company has built specialized analytical and operational expertise in the segment.
• Management noted that higher loan amounts in auto finance are driven by vehicle prices and the rollover of negative equity balances, with nearly one-third of used vehicle trade-ins carrying negative equity.
• The company utilizes a variable cost structure that outsources commoditized collections while using champion-challenger performance measures to allocate portfolios to the most effective servicers.
• Burton noted that while the Phin Solutions acquisition is financially immaterial, it provides strategic benefits by integrating bankruptcy data and technology with the company's servicing capabilities.
• The geographic expansion into Mexico is being managed with low initial capital to validate underwriting models and build operating capability before scaling.
• Realov indicated that the tactical share repurchase in January was used to reduce the sponsor overhang and support the follow-on equity offering.

INDUSTRY GLOSSARY

• ERC (Estimated Remaining Collections): The total amount of money a company expects to collect on its purchased debt portfolios over a specified period.
• Forward Flows: Pre-arranged agreements with creditors to purchase a constant stream of defaulted accounts over a set period.
• Cash Efficiency Ratio: A metric calculated as cash receipts minus adjusted operating expenses, divided by cash receipts.
• Phin Solutions: A provider of bankruptcy data services and technology solutions acquired by Jefferson Capital.
• Bluestem Portfolio: A specific credit card debt portfolio acquired by the company in late 2025.
• Champion-Challenger: A performance measurement model that pits different collection servicers or strategies against each other to identify the most effective performer.
• RCF (Revolving Credit Facility): A senior secured revolving credit facility used by the company to fund portfolio purchases.

Full Conference Call Transcript

Operator: Good afternoon, and welcome to Jefferson Capital's Third Quarter of 2026 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, anticipated benefits of our acquisitions, expected impacts of seasonality, expectations for the market and macroeconomic factors, and target performance metrics. 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. Now I'll turn the call over to David Burton. Please go ahead.

David Burton: Thank you, operator, and thanks everyone for joining our investor call. Let's dive into our third quarter financial performance highlights. We generated another quarter of excellent results for shareholders. The company delivered strong collections growth with collections up 35% year-over-year to $319 million, and we continue to perform well versus our underwriting expectations. The market backdrop remains attractive, and our deployments were a third quarter record $318 million, up 111% versus the prior year period. The growth was broad-based across our geographic footprint, and in the U.S., it benefited from the growing opportunity in auto finance. Our estimated remaining collections grew 23% to $3.6 billion, driven by our continued deployment performance and attractive anticipated returns.

We delivered a sector-leading Cash Efficiency Ratio of 72.9%, driven in part by strong collections from our performing portfolio purchases. The company also generated strong cash flow for the quarter, which resulted in a leverage ratio of 1.73x, a level which positions us well for future growth and creates significant strategic optionality. Adjusted EPS for the quarter was $0.83. I'm pleased to report that subsequent to quarter end, we closed the acquisition of Phin Solutions, a leading provider of bankruptcy data services and technology solutions. Founded in 2000, Phin is a Minnesota-based company anchored in a proprietary database with U.S. bankruptcy information dating back to 1995 and covering consumer and business filings across all bankruptcy chapters.

The acquisition is not material from a financial standpoint, but it carries a number of strategic benefits for our U.S. business. Most notably, it strengthens our ability to provide originators with a more comprehensive bankruptcy recovery solution by combining Phin's differentiated bankruptcy information and technology capabilities with Jefferson Capital's servicing expertise and debt purchasing capabilities. 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 $1.71 trillion.

Higher loan amounts for both new and used vehicles have been driven higher by higher vehicle prices, but also by the need for borrowers to roll over past negative equity balances, with nearly 1/3 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 $765, up 38% compared to pre-pandemic. And the average used vehicle monthly loan payment has reached $542, also up 38% 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, both for 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 $319 million, up 35% year-over-year, driven by strong deployments in 2024, 2025, and 2026. $32 million of collections for the quarter were attributable to the Bluestem portfolio purchase. More broadly, our collection performance on the overall portfolio continues to reflect the accuracy of our underwriting models. We generated record third-quarter purchases of $318 million, up 111% year-over-year. Returns remain attractive, and we remain confident in the deployment landscape. Deployment growth was broad-based across our geographic footprint, with the U.S. up 123%, the U.K. up 127%, and Latin America up 312%. U.S. growth benefited from the expanding opportunity in auto finance, including distressed, insolvency, and performing portfolios.

Auto finance is now a third asset class segment of our performing portfolio purchasing capability, following credit cards with Bluestem and installment loans with Conn's. As previously reported, Jefferson Capital entered the debt purchasing market in Mexico after significant evaluation, and we followed up with a second purchase in August. Consistent with our past efforts to enter a new geography, we deploy a relatively low amount of capital initially as we build our servicing capabilities and validate our forecast model. But we believe Mexico 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 substantially lower cost of capital compared to local competitors. We are excited to report more on our progress in the coming quarters as we gain more experience in this market. As of September 30th, we had $384 million of deployments locked in through forward flows, which is an important building block of our deployment strategy for the coming quarters. Moving on, our estimated remaining collections as of September 30th were $3.6 billion, up 23% year-over-year, with ERC related to Bluestem, comprising $186 million of our U.S. distressed business.

Our ERC is relatively short in duration, due in part to the lower average account balances in our portfolio, with 40% expected to be collected through 2027. We expect to collect $1.1 billion of our September 30th ERC during the next 12 months. Based on the average purchase price multiples recorded in the third quarter, we would need to deploy approximately $642 million globally over the same time frame to replace this runoff and maintain current ERC levels. I would note that as of September 30th, we had $267.5 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 process 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. 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 72.9%. It was aided by collections on the performing portfolios, which carry lower cost to collect given the significant portion of paying accounts.

Excluding performing portfolio collections and expenses, the Cash Efficiency Ratio would have been 68%, which is also materially higher than other public companies in the sector. Our leading operating efficiency is a power 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 over the call to Christo, for a more detailed look at our financial results.

Christo Realov: Thank you, David. Taking a closer look at the financial details for the third quarter, revenue was $186 million, up 23% year-over-year, driven by continued strong deployment and higher yields. Changes in recoveries were $7 million for the quarter, driven in part by modest ERC increases on certain portfolio segments, where we expect to realize collections incremental to our original forecast related to the legal channel improvements discussed on prior calls. We continue to think of changes in recoveries relative to the aggregate ERC of the company of $3.6 billion, and continue to focus on accuracy as opposed to conservatism in portfolio modeling. Operating expenses were $98 million, up 23% year-over-year, which compares to a 35% increase in collections.

Expenses remain well controlled relative to the growth in collections, with our Cash Efficiency Ratio at 72.9% for the quarter. Adjusted pre-tax income was $63 million for the quarter, resulting in an adjusted pre-tax ROE of 50.9%. We realized a material level of collections from portfolios purchased in 2024, 2025, and 2026, including our performing portfolio purchases, which in turn drove adjusted cash EBITDA to $241 million for the quarter, up 34% year-over-year. Finally, for the third quarter, Jefferson Capital recognized portfolio revenue of $13.4 million and net operating income of $10.3 million related to the Bluestem portfolio purchase. Our credit profile remains strong and positions us well for future opportunities.

As of September 30th, our net debt to adjusted cash EBITDA was 1.73x, 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 $554 million drawn at September 30th. On August 20th, 2026, we issued $100 million in an opportunistic reopening of our 2030 Senior Notes.

The transaction was executed in a highly efficient format, which allowed us to time a favorable window prior to the increase in market volatility. The notes were issued at 104% of face value at an implied yield of 6.6%, and have the same terms as the existing 2030 notes. We used the offering proceeds to right-size the RCF utilization following the record-high third quarter deployments. At this time, the company has no debt maturities until 2029. Our capital structure is well-positioned to respond to expected seasonally strong fourth quarter portfolio supply.

Our 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. We continue to grow the portfolio, with a 23% increase in ERC versus the third quarter of 2025. Our board has declared a regular quarterly dividend of $0.24 per share, which represents a 4.9% annualized yield as of October month-end. 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 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 if the share price exhibits significant volatility. In aggregate, the company has returned $103 million to shareholders for the nine months ended September 30. Finally, we have a long history of successful M&A, and the Phin Solutions acquisition David touched on is the most recent example.

We maintained strict pricing discipline in this transaction, with a purchase price multiple on trailing 12-month earnings of 4.6x. Now we will be happy to answer any questions that you may have. Operator, please open up the lines.

Operator: [Operator Instructions] Our first question today is from John Hecht with Jefferies.

John Hecht: Congrats on another solid quarter. David, I think you gave us a lot of details, and you talked a lot about the opportunities you are identifying in auto and then the geography of Mexico. You've been active in both those markets for some time. I'm wondering, is this a function of, call it competitive dynamics, where you've now built certain advantages in those segments or those regions that you're going to move more aggressively? Or is it a function of the pipeline is starting to get more active, or the return profile?

I'm wondering kind of what are the changing elements that are allowing you to be more, call it, putting those as a higher priority or spending more time on those?

David Burton: Well, thanks for the question, John. I would like to separate the two as I answer the question, starting with auto first. Auto is a sector in the U.S. that we've been in for a decade or more, and we have built out our capabilities in that sector over time to include both secured and unsecured, as well as charge-off and insolvency or bankruptcies. More recently, we entered into the performing portfolio purchasing arena. And so, the opportunities in that space are a combination of our better kind of penetration of that sector by virtue of having more offerings to auto originators, and so we have a larger client base.

And then secondly, that sector, as we talked about, is experiencing real headwinds, as with a more rapid increase in delinquencies and charge-offs than other asset classes. And finally, I think the amount of expertise, both analytically and operationally, that we are able to bring to bear, having a more mature platform in all of these areas, where we are able to continue to build continuous performance improvement, puts us in an improving or increasing competitive advantage in the auto space. All of that is sort of translating into both more opportunities for us and more capital being deployed.

Now I will get back to the Mexico question, because I think the answer to that question is quite a bit different. Mexico is a geography we entered very recently, and even though we have been looking at Mexico for a long time, where we have studied that marketplace, the participants, the originators, and the regulatory environment, we have only purchased just a very few portfolios there. And our plan for Mexico, much like other geographies that we have entered, is to deploy a limited amount of capital, build our operating capability and platform, and validate our underwriting models before deploying more significant amounts of capital.

So I do not think Mexico will be a significant contributor to the company's growth in the very near-term, but I expect over time, it certainly has the potential to be a significant contributor in that Mexico is substantially larger consumer credit market than, for example, Colombia, where we are the leading debt buyer, which already has where we have demonstrated continuous growth in deployments and collections. And we would hope that would become an example of what Mexico might become for us over time.

John Hecht: Okay. That is a very good color, and sounds exciting. I guess one question on the OpEx. I am just wondering, like the legal commissions expense or the Bluestem portfolio expense, are those temporary or one-time items that you would call out as not run rate, or is the $98.4 million of OpEx generally run rate at this point in time? Maybe that is for Christo.

Christo Realov: Yes. So the Bluestem contribution of the financials, we are just calling out as additional color, and I would not think of that as one time. We have previously discussed the concept that this is a relatively short portfolio, and we expect the majority of the financial impact from that portfolio to kind of take place over 2026, right? And 2027 will be kind of a thin tail. But I would not think of it as one time.

John Hecht: Sorry, Christo. I was specifically referring to the $3.1 million expense, not the operating profit contribution.

Christo Realov: Yes, that is right. And then, for court costs, I think the current level is probably indicative of where we see that kind of going forward. We didn't call out court costs specifically in the prepared remarks because we have discussed the trends already on prior calls, and there isn't much different for this quarter.

David Burton: Yes. But I think, John, and maybe I'm presaging more of what you're looking for on the Bluestem. Are you trying to ask the question about Bluestem in the context of, are we likely to be saddled with some level of fixed costs as that portfolio diminishes in size? Was that the question?

John Hecht: Yes. It's specifically around this, you call out a $3.1 million expense related to the purchase of Bluestem. I'm wondering, is that just a temporary one-time $3 million, or is that going to be part of an ongoing cost tied to that as it all moves through your platform?

David Burton: Perfectly good question, and I think I was sort of onto it. I think it's important, I think, for people to understand that we design our platform expenses to be largely variable, and it's the same when we buy a performing portfolio as it is with charge-offs or insolvencies. And so, the whole design of our platform is such that even when a portfolio size sort of wanes, we're able to retain the economics in our underwriting.

Operator: The next question is from David Scharf with Citizens Capital Markets.

David Scharf: Dave or Christo, I wanted to ask a couple just as it relates to, I guess, the pipeline for capital deployment near-term, just so we have sort of a sense on how to be sort of forecasting over the next maybe 12, 18 months. And I guess, first question is, I know there was an unusually large amount of deployment in the month of October, towards auto receivables you had called out last quarter.

Is that something that we should think of as kind of a very unique one-off purchase event, or for lack of a better phrase, is there sort of a pig in the python opportunity here in auto where there's a lot of pent-up opportunities, so we could see more Octobers in the future?

David Burton: You ask a good question, which is a little bit hard to answer, because we, of course, have seen and continue to see more auto opportunities. Of course, the future as to whether or not those more opportunities turn into transactable purchases is sort of somewhat difficult to predict, even though, of course, there's a historical trend rate. And so I think, what I would caution you is obviously, quarterly deployments can fluctuate, as ours have. About half of our deployments historically have been under forward flow, and the other half are static pool transactions.

And if you want to think about how well we're positioned to deploy more capital in the future, one data point that you could utilize would be our committed forward flow volume at the end of the third quarter this year was $384 million. That's up about 20% compared to where it was at last year.

Christo Realov: Yes, and maybe one thing to add, David, just to clarify. The outsized deployment activity was for the month of July, not October. So the quarterly numbers, the $319 million that we disclosed for this quarter -- sorry, $318 million we disclosed for the quarter, includes that activity, right? We have not disclosed anything for the month of October.

David Scharf: Got it. Actually, as a follow-up on that, I was going to ask about forward flow. I know it's up year-over-year. I think it was down from maybe $480 million at June. Was there a particular account or seller that expired, or should we see that trend back up?

David Burton: Yes, I think the way I would characterize the decline as simply a natural consequence of the timing for when forward flows get put in place and renew, and not anything that is directionally concerning. And so we happened to, in the second quarter, initiate a significant number of forward flow renewals and brand new forward flows. Since then, of course, we've been consuming those forward flows. In the third quarter, we did not have as many new forward flows that we initiated, but not because of any kind of market change, just because of the timing of the calendar for when originators tend to do their forward flow programs.

Operator: The next question is from Randy Binner with Texas Capital.

Randy Binner: I think I have a little bit of a follow-up or looking for more detail based on the prior question set there. And so, going back to July, when we heard about the $185 million deployment in the month of July in the last call, I think that was largely attributed to auto. And so I am taking that number and I am looking at the $318 million deployed for the quarter that was reported here. Can you break out how much of that was auto versus other categories, just so we can get a sense of sizing this opportunity that is developing in the market?

Christo Realov: Yes. I mean, look, Randy, I think we don't disclose the deployments by asset class. I think what we commented is that a substantial portion of the $185 million was driven by opportunities in auto finance, and those included performing portfolios, charge-off portfolios, and insolvency portfolios. And then the other thing that I would mention is, in the prepared remarks, we called out significant growth across the board in the U.S., the United Kingdom, and Latin America, which all grew triple digits year-over-year. This was kind of a much more broad-based growth quarter in terms of deployments rather than just auto finance, right?

Randy Binner: Yes. The auto would just be in the United States, correct?

Christo Realov: Yes, that's right.

Randy Binner: Okay. Understood there. Then, actually, I had just a detail or modeling question, I guess, on the tax rate. Was it a little bit better than expected this quarter, and we plan on 26%? Is that a good level to plan on, and was it better this quarter?

Christo Realov: Yes, it definitely was better due to certain catch-ups. We were a little bit conservative in certain items for the first 2 quarters, and we have the ability to sort of right size the tax rate this quarter. I would think of the going forward tax rate as this mid-20s number that people are generally putting in.

Operator: The next question is from Bose George with KBW.

Bose George: Can you talk about the collection, the multiples for the purchases this quarter, how that sort of compares year-to-date? Then with the increased performing piece in auto, just talk about how that impacts that as well.

David Burton: Again, I think we're not disclosing sort of asset class level deployments, and we're also not specifically talking about deployments in future quarters. All of these questions obviously are sort of around, like, what does this last quarter's deployments mean for future quarters' deployments? Which is obviously a very reasonable question. But I want to highlight, in the auto sector in particular, almost all of the auto deployments are static pool purchases, meaning they're not forward flows, and therefore there's more volatility around their contribution to a particular quarter.

The wisdom behind our superior growth strategy, however, is that we have a wider array of asset classes and a wider array of attractive geographies that, when taken together, allow us to produce growth in deployments on a continuous basis at attractive returns in a way that is less reliant on any particular asset class or geography. And so, we are very bullish on auto in general for all the reasons we discussed in the prepared remarks, and would expect it to continue to comprise a growing deployment set. But we are also experiencing significant growth outside of the U.S. Latin America and U.K. both grew substantially.

Latin America was up 300% plus compared to prior year, and the U.K. was above 100% compared to prior year. While we are highlighting auto as an attractive market that we are uniquely sort of positioned to benefit from, it is not by itself really the singular driver for this robust deployment growth that we are experiencing and we anticipate to be able to take advantage of as we move forward.

Christo Realov: One other thing on that, David, is more specifically as it relates to multiples. First of all, we generally caution how multiples are interpreted, especially for a very diversified, non-homogeneous portfolio, such as the one that we manage. Specifically, I would add that the purchase price multiples vary quite materially between distressed insolvency and performing purchases rather than between asset classes. The key driver of the multiples that you are seeing in the 10-Q would be the breakdown of deployments between distressed insolvency and performing, as opposed to whether it is credit cards, personal installment loans, or auto. And then the final thing I will mention is, Jefferson Capital, as always, is focused on the net unlevered IRR, right?

The fact that the insolvency pool carries a much lower purchase price multiple with a lower cost to collect compared to a distressed pool does not really impact the net unlevered IRR, which is the number that we are focused on in terms of underwriting portfolios.

Bose George: Okay, great. That is helpful. And then with the acquisition that you noted, should we see more investment in insolvency portfolios? Is that sort of the focus there?

David Burton: We do think that having Phin Solutions in our platform will create increased opportunities for us to provide a wider array of services to originators, both for purchasing and for servicing. Today, we have the most complete set of capabilities of any servicer or purchaser, and that ought to translate into more opportunities for us in the bankruptcy insolvency sector. That, of course, is part of our thesis for acquiring Phin.

Operator: The next question is from Mark Hughes with Truist Securities.

Mark Hughes: The Cash Efficiency Ratio was up this quarter. It had been down more recently because of largely mix issues. As you look at the book of business now, should we assume that efficiency ratio is going to continue to be steady to improved?

David Burton: First of all, thank you for noting that increase. The increase is largely due to the acquisition of the performing portfolio during the quarter, which then contributed more performing collections, which come at a lower cost to collect because the vast majority of the accounts are in repayment. And so I think that's really the phenomena that you're seeing. I think, should we not buy more performing portfolios, one would expect that our overall Cash Efficiency Ratio would eventually decline and eventually get to kind of the 68% level that we provide information for the Cash Efficiency Ratio when excluding the performing portfolios. But of course, we would also expect in the future to purchase additional performing portfolios.

So it's a mix issue rather than something fundamental, and that's why we try to be as transparent as we can and disclose the Cash Efficiency Ratio with and without the performing portfolios.

Mark Hughes: Very good. The amount to offset the $1.1 billion in collections anticipated over the next 12 months, if I have it right, I think this quarter you said $642 million, last quarter it was $565 million. Is that a price issue or is that a mix issue?

Christo Realov: That is a mix issue, and that number is entirely driven by the year-to-date purchase price multiple, which was lower at September 30th compared to June 30th because of this performing portfolio that we have been talking about that we purchased in July. And that is the driver...

Mark Hughes: Okay. Last question, the U.S. credit card market, have you seen any more opportunities there? It seems like supply is good, maybe others aren't as aggressive in that market. How are you seeing it?

David Burton: I would say a modest increase in opportunities in that sector, but I see it very stable, very much stable, and I don't think there's anything particularly notable to indicate some type of structural change.

Operator: The next question is from Robert Dodd with Raymond James.

Robert Dodd: I hate to ask the same question about the portfolio growth. I mean, obviously, yes, Latin America, U.K., they both grew as well, but obviously the U.S. in pure dollar terms accounts for the vast majority of the year-over-year growth. I mean, was there -- and you told us it was coming, but I mean, was there anything, I don't want to say one-time, but lumpy? Like, in the auto, where you bought multiple types of asset class -- but obviously, you can potentially get multiple asset classes from the same seller. Was there one kind of big seller relationship in the quarter, and that's kind of like the source of volatility?

Or was it highly diversified, it just all happened to come together with a bunch of spot transactions at once in July? I mean, just kind of getting a feel of, you talked about the purchasing can be volatile. I wouldn't expect this again next quarter, but who knows, or this current quarter. But I mean, just how lumpy is it? Is it really big deals from one buyer that happened very episodically, or can you just give us some thought on how you've called it a fragmented market, but is the selling fragmented in a given quarter as well?

David Burton: It's hard to answer your question because, given that auto in particular is both fragmented and operates largely on a static pool basis, you don't have a tremendous sort of window into your future purchases. And that makes me hesitant to comment in a meaningful way relative to any short-term outcomes, or near-term outcomes. What I will say, though, is broadly speaking, we're seeing more opportunities in auto across all of the insolvencies, charge-offs, and performing. And I would expect those over medium-term times to result in more deployments for auto. But they lack the kind of visibility that we have in other asset classes where we do have forward flows in place.

And so it's obviously a good and important question, but not one that I can really answer other than the broader expectation that where historically we've seen more opportunities, those have tended to translate into transactable growth in our deployments. I would expect that to occur in auto as well.

Christo Realov: David, let me add maybe one other comment that may be helpful here. When we're talking about performing portfolio purchases, there certainly is an inherent component of lumpiness because these tend to be larger dollar amounts because we are paying a higher percentage of face value for a paying book, right? So by definition, any performing portfolio purchase would be larger than our typical average purchase in dollar amounts and would create a certain amount of lumpiness in the purchasing activity for that time period.

Robert Dodd: Got it. And a follow-on to the answer that you just gave to Mark, obviously the $642 million that you need to replace ERC. I am trying to frame this right, is that number becoming less meaningful? Because in the same sense, right, if it is a lower multiple because it was performing, you don't need the same ERC to produce the same IRR because the IRRs are different per dollar, right? So is the $642 million -- the fact that it is higher than it was 3 months ago, is it just a less meaningful number? Because, as you say, it is the IRR, has a multiple effect of $642 million, but it does not necessarily affect the IRR?

David Burton: Well, with all candor, Robert, it has never been a meaningful data point for us ever because we are a growth business, and the idea of operating around anything just being static or replacement is antithetical to the company's core strategy. And so when you look at the CAGR historically around our growth and deployments, I think that's a much more reliable way to think about the growth for Jefferson Capital going forward. And so what a terrible year it would be if all we did is create replacement value level deployments.

So I think the sector might be sort of prone to think about that because some of the public company competitors have had years that have, I think, demonstrated low growth. So maybe that was more relevant almost as a kind of a leverage metric, if you will. But for us, we only provide it because the sector provides it, and I find it completely meaningless.

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

David Burton: Thanks, operator. Looking forward, we are 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 24 years, and we are 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 fourth quarter earnings call.

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

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.