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DATE

Thursday, Aug. 13, 2026 at 5:00 p.m. ET

CALL PARTICIPANTS

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

TAKEAWAYS

• Total Collections -- $300.9 million, increasing 18% year over year driven by contributions from the Bluestem and Conn's portfolios.
• Portfolio Deployments -- $152.2 million, up 21% from the prior year period reflecting an attractive market backdrop for consumer credit.
• Estimated Remaining Collections (ERC) -- $3.4 billion, growing 18% year over year due to continued deployment performance and anticipated returns.
• Cash Efficiency Ratio -- 72.2%, supported by a significant portion of paying accounts within the Bluestem and Conn's acquisitions.
• Leverage Ratio -- 1.71x, improving from 1.76x in the prior year as a result of strong growth in portfolio cash flow.
• Adjusted EPS -- $0.77, compared to $0.77 in the prior year period despite increased operating expenses.
• Total Revenues -- $177.5 million, up 16.2% year over year primarily resulting from strong deployments in prior periods.
• Adjusted Cash EBITDA -- $226 million, rising 12% year over year due to collections on portfolios purchased in 2024 and 2025.
• July 2026 Deployments -- $185 million, representing a monthly record driven by investments in performing and nonperforming auto finance portfolios.
• Forward Flow Commitments -- $480.7 million, reaching a company record and up 80% year over year to provide a base for future deployments.
• Legal Channel Collections -- $64 million, increasing 54% year over year following process improvements that accelerated lawsuit filing volumes.
• Bluestem Portfolio Collections -- $41 million, contributing to the growth in the United States geographic segment.
• Conn's Portfolio Collections -- $24 million, supporting overall collection performance for the quarter.
• Operating Expenses -- $95.4 million, rising 45.6% year over year due to higher court costs and non-cash stock-based compensation from the initial public offering.
• Adjusted Pretax Return on Equity (ROE) -- 51.6%, reflecting strong execution against underwritten forecasts.
• Share Repurchases -- 3 million shares, acquired for $59 million in January 2026 to reduce the sponsor overhang.
• Quarterly Dividend -- $0.24 per share, representing a 4.8% annualized yield as of July 2026 month end.
• Revolving Credit Facility (RCF) Liquidity -- $226 million, drawn from a total commitment of $1.15 billion as of June 30, 2026.
• Note Repayment -- $300 million, deposited with the bond trustee on Aug. 13, 2026 for the discharge of senior unsecured notes due later in the month.
• Next 12 Months Estimated Collections -- $1.1 billion, representing the portion of ERC expected to be recovered by June 30, 2027.
• Latin America Collections -- $18 million, up 52.5% year over year driven by expanded pipelines in Colombia and Peru.
• ERC Duration -- 46% of the balance is scheduled for collection through 2027, indicating a relatively short duration for the current portfolio.
• Runoff Replacement Deployment -- $565 million, representing the estimated global investment required over the next 12 months to maintain current ERC levels.
• Acquisition Revenue -- $11 million in portfolio revenue from Bluestem and $11.1 million from Conn's, contributing to total quarterly performance.

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RISKS

• Burton noted that "increased consumer litigation activity will result in incremental court costs" as the company expands its legal channel volumes to address its growing inventory of eligible accounts.

SUMMARY

Management reported that Jefferson Capital, Inc. (JCAP -4.57%) achieved record quarterly revenue and 18% growth in its global collections portfolio during the second quarter. The company announced its entry into the Mexican debt purchasing market and designated auto finance as a primary third asset class for its performing portfolio strategy. Performance was supported by record levels of forward flow commitments and the integration of large consumer debt portfolios from Bluestem and Conn's. Financial operations included the retirement of senior unsecured notes and the repurchase of common stock to manage the sponsor overhang.

• Burton stated, "Auto finance receivables have grown steadily to a new record of $1.69 trillion."
• Management noted that 46% of the company's total estimated remaining collections are scheduled to be recovered by the end of 2027.
• Regarding the Mexico entry, Burton said the company will "deploy relatively low amounts of capital initially" as it builds servicing capabilities and validates forecast models.
• Burton reported that the company has added auto as a third asset class for performing portfolio purchases following credit cards and installment loans.
• Realov indicated that the company targets a long-term leverage ratio in the range of 2x to 2.5x on a sustained basis.

INDUSTRY GLOSSARY

• Estimated Remaining Collections (ERC): The total amount of money the company expects to collect on its existing portfolios over a specified period.
• Forward Flow Commitments: Contractual agreements to purchase a steady stream of debt portfolios from a lender at pre-negotiated prices over time.
• Cash Efficiency Ratio: A non-GAAP measure calculating cash receipts minus adjusted operating expenses, divided by cash receipts.
• Leverage Ratio: A measurement of company debt relative to its adjusted cash EBITDA, used to assess financial flexibility and risk.
• Charge-off: A debt that has been written off by the original creditor but remains legally collectible by third-party purchasers.
• Asset Class: Different categories of consumer debt, such as credit cards, auto loans, or installment loans.
• Sponsor Overhang: The potential for downward pressure on a stock price caused by the expected sale of large share blocks held by early investors or sponsors.

Full Conference Call Transcript

Operator: Good afternoon, and welcome to Jefferson Capital's second 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 the debt purchasing market in Mexico, 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. I will now turn the call over to David Burton.

David Burton: Thank you, operator, and thanks, everyone, for joining our investor call. Let's dive into our second quarter financial performance highlights. We generated another quarter of excellent results for shareholders. The company delivered strong collections growth with collections up 18% year-over-year to $301 million, and we continue to perform well versus our underwriting expectations. The market backdrop remains attractive, and our deployments for the quarter were $152 million, up 21% versus the prior year period. Our estimated remaining collections grew 18% to $3.4 billion, driven by our continued deployment performance and attractive anticipated returns. We delivered a sector-leading cash efficiency ratio of 72.2%, driven in part by strong collections from the Bluestem and Conn's portfolio purchases.

The company also generated strong cash flow for the quarter, which improved our leverage ratio to 1.71x, a level which positions us well for future growth and creates significant strategic optionality. Adjusted EPS for the quarter was $0.77. 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 $1.69 trillion.

Higher loan amounts for both new and used vehicles have been driven 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 $773, up 40% compared to pre-pandemic. And the average used vehicle monthly loan payment has reached $531, up 35% post-pandemic. In addition, 72-month or longer loans account for nearly 1/3 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 for both 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 $301 million, up 18% year-over-year, driven by strong deployments in 2024 and 2025. $41 million of collections for the quarter were attributable to the Bluestem portfolio purchase, and $24 million were attributable to the Conn's portfolio purchase. More broadly, our collection performance on the overall portfolio continues to reflect the accuracy of our underwriting models. A key trend in collection performance has been the increase in legal channel collections, which were up 54% year-over-year to $64 million. Jefferson Capital utilizes the legal channel as a means of last resort in instances where we believe the account holder has the ability but not the willingness to engage or pay.

We've achieved a number of important process improvements, specifically in the U.S., which have significantly compressed the timing from placement of the account to filing the lawsuit, which, in turn, has accelerated suit volumes. The inventory of suit-eligible accounts has increased given the significant growth in deployments over the past 3 years. So over time, we expect to see continued growth in legal collections. A separate component of the increase is driven by modeling improvements, which have allowed us to identify new portfolio segments from prior purchases where we have uncovered opportunities to profitably increase collections through use of the legal channel.

The increased consumer litigation activity will result in incremental court costs, but the resulting collections will profitably support this upfront expense. Our portfolio purchases for the quarter were $152 million, up 21% year-over-year. Returns remain attractive, and we remain confident in the deployment landscape. I am pleased to report that as a result of our strong execution on our asset class-based growth strategy and the favorable market backdrop I described, we were able to generate record deployments in the month of July of $185 million, a significant portion of which was invested in performing and nonperforming auto finance portfolios.

This is an important milestone as we have now added auto as a third asset class segment to our performing portfolio purchase capabilities following credit cards with Bluestem and installment loans with Conn's. To further this strong purchasing momentum, we generated robust growth in forward flow commitments. As of June 30, we had $480.7 million of deployments locked in through forward flows, which is a new record for the company and an important building block of our deployment strategy for the coming quarters. Finally, I'm pleased to announce that after significant evaluation, Jefferson Capital has entered the debt purchasing market in Mexico.

As in our past efforts to enter a new geography, we deploy relatively low amounts of capital initially as we build our servicing capabilities and validate our forecast model. But we believe this 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 a 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. Moving on.

Our estimated remaining collections as of June 30 were $3.4 billion, up 18% year-over-year with ERC related to the Bluestem and Conn's portfolios comprising $218 million and $83 million of U.S. distressed. Our ERC is relatively short in duration due in part to the lower average account balances in our portfolio with 46% of our ERC to be collected through 2027. We expect to collect $1.1 billion of our June 30 ERC balance during the next 12 months. Based on the average purchase price multiples recorded in the second quarter, we would need to deploy approximately $565 million globally over the same time frame to replace this runoff and maintain current ERC levels.

I would note that as of June 30, we had $312 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 processes 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 collection 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 72.2%.

It was aided by collections on the Bluestem and Conn's portfolios, which carry lower cost to collect given the significant portion of paying accounts. Excluding the Bluestem and Conn's portfolio collections and expenses, the cash efficiency ratio would have been 67.8%, which is also materially 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 Realov: Thank you, David. Taking a closer look at the financial details for the second quarter, revenue was $178 million, up 16% year-over-year, driven by continued strong deployments and higher net yields. Changes in recoveries were $9 million for the quarter, reflecting the accuracy of our modeling and strong execution against our underwritten forecast. Operating expenses were $95 million, up 46% year-over-year, with the increase due to 2 key components: an increase in court costs as a result of increased legal channel volumes and noncash stock-based compensation expense resulting from the IPO. Adjusting for stock-based comp and adjusting the prior year quarter for IPO-related items, expense growth would have been 35%.

Expenses remain well controlled relative to the growth in collections with our cash efficiency ratio at 72.2% for the quarter. Adjusted pretax income was $59 million for the quarter, resulting in an adjusted pretax ROE of 51.6%. We realized a material level of collections on portfolios purchased in 2024 and 2025, including the Bluestem and Conn's portfolio purchases, which in turn drove our adjusted cash EBITDA to $226 million for the quarter, up 12% year-over-year. Finally, for the second quarter, Jefferson Capital recognized portfolio revenue of $11 million and net operating income of $7.1 million related to the Bluestem portfolio purchase.

Separately, we recognized portfolio revenue of $11.1 million, servicing revenue of $0.6 million and net operating income of $8.1 million related to the Conn's portfolio purchase. 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 1.71x, 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 $226 million drawn at June 30. Today, we drew on the RCF and transferred $300 million to the bond trustee for the repayment of our senior unsecured notes due August 2026. The notes will be discharged on August 17. 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.

Our Board has declared a regular quarterly dividend of $0.24 a share, which represents a 4.8% annualized yield as of July month end. The dividend offers an attractive component of shareholder return, which is not available from other public companies in the sector, and 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.

Finally, we have a long history of successful M&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 lines.

Operator: [Operator Instructions] Our first question today is from Mark Hughes with Truist Securities.

Mark Hughes: You talked to in the auto segment, it sounds like you're seeing a lot of success in the month of July. How broad is that? How should we think about the opportunity as the rest of the year progresses? Just a little more detail on that auto would be great.

David Burton: Sure. I guess as we don't really provide guidance around deployments or really guidance in general, what I can do is characterize that July, in particular, had us deploying capital across the spectrum in auto, both in terms of charge-offs, insolvencies and performing. And so I think that's indicative and it's why we've been talking about the auto market opportunity in particular, is that we have seen a growing opportunity set in that space. And I think we're uniquely positioned to be a beneficiary of the headwinds that are facing that sector.

Mark Hughes: Very good. Could you refresh us on any differences in terms of the collections profile or costs associated with the auto channel?

David Burton: Sure. So I'll start with insolvency. Insolvency, as a reminder, in general, has a very low cost to collect as most of the interaction takes place with the bankruptcy trustees. However, there are -- with secured loans, there are occasions both in insolvency and outside of insolvency and distressed where the consumer still retains the vehicle. And as part of that, there could be a repossession process that takes place, which is a higher cost undertaking. And so I would think about deployments in insolvencies as largely being similar in aggregate to other insolvency cost to collect.

And on the deficiency side or the charge-offs distressed side of the business, that is more in line but has some unique components that are higher cost to collect than insolvency. And finally, on the performing side, the sort of cost to collect for installment loan as in our purchase for -- of the Conn's portfolio is a good template to think about what the cost to collect would be for performing auto.

Mark Hughes: Very good. And then, Christo, the change in recoveries is a nice positive number again, maybe starting to look like a trend. How should we think about that line item? Is that something where it sounds like your modeling and legal collections, you're having good success? Is that something that emerges over time? Or is that something we shouldn't anticipate in future quarters? Just how to approach that?

Christo Realov: Look, I think probably the best way to answer the question is that historically, we have guided to kind of single digits of millions as a number that should be expected given the size of the portfolio, right? And I think for the quarter, this number was maybe slightly higher than in prior quarters, but it's still a number that we are comfortable with and a number that we can expect to see in the future. And then I'll go back to our comments that we have made on this topic previously, which is that the objective of our modeling of ERC is accuracy and not necessarily conservatism.

Operator: And our next question, we will hear from David Scharf with Citizens Capital Markets.

David Scharf: I wanted to follow up again on Mark's questions on auto. Dave, you've historically enjoyed some pretty formidable sort of competitive barriers, if you will, in your core kind of low balance accounts. Can you -- I know you referenced -- you believe you're the only 1 who can kind of service the breadth or the mix of performing charge-off and insolvency across auto. But can you talk a little bit more about just, I guess, the competitive landscape there, the breadth of how many sellers you work with?

Just trying to get a sense for whether auto as an asset class is from a competitive standpoint, kind of closer to the traditional credit card world or if it's closer to your -- the barriers you enjoy in your core assets?

David Burton: Good question, David. And I think it will be helpful to others to understand that distinction. I view auto as an area with more complexities, both in underwriting and engaging consumers. And even though you utilize similar collection channels, whether it be call center or legal, each of those are made more difficult because of the complexities involved in collecting on an auto account. You have, in some cases, the consumer has voluntarily surrendered the car or that's been repossessed and the balance -- to be able to communicate clearly about the composition of the balance is an important criteria to have an effective communication with the consumer.

And similarly, should the consumer still have the vehicle, then you're also undertaking a more complex undertaking as it relates to replevin action or repossession. And so operationally, it's more complex. In terms of consumer engagement, it's more complex. And that also applies to the legal channel where the documentation requirements are much more comprehensive and complex as there are state-based regulations, which apply that are different from state to state. And oftentimes, you need to have evidence of those required communications in order to initiate litigation. So it's not -- it's a higher-touch, more complex process and one that we excel at and have built systems and processes to be able to do so effectively.

And I don't know that there are many other competitors in the space that are able to do that, and that's especially true as you consider the array of account segments with secured and unsecured insolvency performing and nonperforming. And again, that's why we have expertise and capability across that spectrum, and that makes us an ideal counterparty for an originator that has sale objectives.

David Scharf: No, that color is very helpful. And I guess just so we have a flavor for kind of the momentum in the business, I guess, compared to a year ago, would you say that your auto volumes are -- represent mostly deeper penetration of some existing originator relationships? Or have you been adding new relationships over that time?

David Burton: It's a mix of both. I think we have cultivated relationships with existing customers where we're doing more. And we -- while at the same time, we've been able to cultivate new clients as well.

David Scharf: Got it. And just one last question for Christo. With the legal channel growing, obviously, the returns will be similar. But with more upfront court costs, there's sort of a delayed kind of cash flow dynamic as that channel grows. As we think about second half modeling, I know you're not giving kind of guidance, but is there any type of step function we should think about in terms of court costs? Or is it going to kind of continue along this typical trajectory?

Christo Realov: So I'll make 2 comments. So the first one is the cash efficiency ratio that we put out obviously includes the court cost for the quarter. And we provide that both on a kind of as-reported basis, which is the 72.2% number and on excluding Conn's and Bluestem basis, which is the 68% number. And we've also said that we expect that excluding Conn's and Bluestem to be kind of in the high 60s. Those comments are relevant and that probably is a good way to think about this. As it relates to the actual court cost amounts, I would think of this quarter as a good kind of guide to what to expect for the balance of the year.

Operator: And next, we'll hear from Randy Binner with Texas Capital.

Randy Binner: I have a couple. On the July deployment number, did I hear that correctly, did you say $185 million, David?

David Burton: We did. And we normally wouldn't disclose a monthly deployment number. But as you note, it's more in July than for the entire second quarter. And we thought that was valuable information to share with shareholders.

Randy Binner: Yes. And the other 2 analysts, there was some good Q&A about auto, which is helpful to learn about and kind of understand because it's clearly a direction you're moving. But I guess the one -- because $185 million is a big number, what was the -- can you -- was the nature of that? I kind of missed that. Was that like a big lumpy thing or that was just a deployment kind of across. Presumably, it was large in auto, but was there like anything episodic or lumpy there? Or is that -- just trying to figure out how to -- I wouldn't put $185 in the model every month. Let me put it that way.

So maybe just trying to understand if there was anything unusually large about it.

David Burton: Yes. We certainly wouldn't encourage you to do that. But what we would say is it's a wide distribution of more of like a normal kind of distribution across asset classes. Yes, there was a larger distribution in the month of July for auto.

Randy Binner: Got it. Okay. And then I have a question just about -- so the collection activity just continues to be good and kind of ahead of our expectation. Is it -- do you talk about collection performance by vintage, meaning is it -- kind of given the dynamic where there's a larger balance of charge-offs at the same time that people have jobs, are you -- are collections better on kind of more recent vintages and not as good in older vintages? How should we think about that?

David Burton: Yes. I don't know that's necessarily the way I would think about it as your underwriting should take into account the consumers' capability of repayment based on history and the volatility around liquidation rates as it relates to things like levels of unemployment are pretty -- are relatively narrow, except in the case where there's an actual recession, where unemployment increases rapidly to levels that exceed 6%, 7%. And so I would say the level of variance in times of nonrecession, the liquidation rates don't have substantial changes given macroeconomic fluctuations.

Operator: And next, we'll move to John Hecht with Jefferies LLC.

John Hecht: Congrats on another good quarter. First one is maybe, David, can you talk about the pipeline? I mean obviously, you guys have a lot of good organic growth, but both performing portfolio acquisitions as well as buying into other channels has been an important part of your story. Maybe talk about the characteristics of the pipeline and pricing and so forth.

David Burton: Yes. I think what I would say is that the level of activity is certainly elevated across all of the kinds of investments that we make. And so when you look at deployment across all of our geographies, for example, you're going to see attractive levels of growth. And I think that's evidence of both an attractive backdrop in terms of supply, but also, it's indicative of increased effectiveness in building our pipeline.

John Hecht: Okay. And then Christo, maybe can you -- I mean I guess you have to think about Bluestem and Conn's, but then also just general like Q2 to Q3 seasonality. Just maybe remind us or refresh us how those factors impact the coming quarters relative to Q3.

Christo Realov: Yes. I mean, look, I think the seasonality impact is probably a much bigger driver of performance and specifically collections in the first quarter. Going kind of into the rest of the year, that obviously it's kind of -- I think the seasonality impact weakens. We certainly see on deployments a trend of acceleration of activity as we're getting into the second half of the year. And typically, right, the fourth quarter is the largest quarter in terms of deployments as we have discussed before. So I don't think that there's anything out of the ordinary that we're seeing.

And the activity that we saw in the month of July is probably indicative more of this broader opportunity that we discussed in the prepared remarks around auto finance and around the broader consumer credit asset class rather than any seasonal impacts.

David Burton: And I'll just add to that, John, a reminder of the record-level forward flow commitments that we have which are $480 million, which is a substantial increase. I think if you looked at that on just a year-over-year basis, that's up 80%. And so I think that is 1 component of the future deployment pipeline.

John Hecht: Okay. And then final question for me is, I mean, all geographies seem to be doing very well, but LatAm kind of stuck out this quarter in terms of growth and momentum. Maybe anything to point out there that was onetime or maybe just talk about the overall conditions there and opportunities you're seeing?

David Burton: Yes. Thank you. Thanks for noticing that we're really proud of the platform that we're continuing to build in Latin America and continuing to be a leader in the Colombian and Peru market as we have expanded our pipeline of opportunities there. And we also have been successful in putting in place, I think the -- some of the first forward flows that, that region has initiated as that market has historically been characterized really just by spot sales. And so that helps us develop sustained growth as we build these longer-term relationships with originators in the region. And of course, we did mention to you that we did an inaugural deployment in Mexico in July.

And as all of our initial forays when we're making an organic investment into a new geography, we take a very measured and patient approach to ensure that we validate our underwriting model and that we build a robust servicing capacity before deploying lots of capital in that market.

Operator: And our next question, we'll hear from Robert Dodd with Raymond James.

Robert Dodd: On the timing of collections on auto, obviously, we look at non-auto, right, where there's legal channel, I mean, obviously, the court costs front run collections to a degree. So we kind of understand what's going on there. On the auto channel, when you do have those higher cost elements, like if it's repo, for example, which is not all of it, obviously. But I would imagine those high costs are incurred kind of essentially in the same or very closely related time period to when the collection occurs as well, i.e., maybe wholesaling the vehicle on an auction.

So does the auto -- it does have high collection elements, but are those closely aligned, i.e., they're not as distortive time-wise to cash efficiency ratios as, say, sometimes the regular cost component is, if that makes sense.

David Burton: It does make sense. And my answer is not intentionally confusing, but I just want to flag that we purchase across kind of the 3 core businesses, if you will, of charge-off insolvency and now performing in auto and performing has a low cost to collect. And as you -- at least in the context of how closely do the expenses correlate to collections.

And I think they're not in any way out of sequence in the performing side of the business, nor are they really in insolvency, at least for secured insolvencies as those are paid out at 100% in the bankruptcy process plus interest in some cases, but it's in the deficiency collections of -- and distressed where you may have a disconnect between some expenses and recoveries. Repossession is one example of that and court cost is another. And because deficiency balances tend to be a low priority obligation for the consumer, a higher percentage of recoveries in the deficiency balance and distressed segment will require the legal channel. So you'll see a greater disconnect between costs and recoveries or collections.

So again, because in the quarter, we deployed capital across all 3 of those, I -- the answer is a little complicated, and we're not going to disclose exactly how much was in each. But I think your bigger question is, do you expect some kind of a step function change in the timing of your expenses and your collections? And how would that flow through perhaps to your cash efficiency ratio. And I think Christo sort of guided on that, and it's consistent with what we've really indicated in the past, both with and without the performing side. Without performing, high 60s is what we would expect.

And despite larger deployments in auto, we are not anticipating really any change in that because we have more exposure to auto.

Christo Realov: Maybe Robert, one additional comment. The return profile of the incremental deployment in July is not substantially different than our historical return targets and what we're seeing on the rest of the portfolio, right?

Robert Dodd: Got it. Got it. The follow-up to that kind of, I mean, you said in the prepared remarks, I don't know, if it was you or David, you've got forward flows locked in over the next year at $312 million. You bought $185 million in July. Maybe a tiny part of that was from the forward flows, but I don't imagine very much. That's $497 million. And you also said that you need to deploy over the next year, $565 million to maintain ERC. I mean that looks like you're almost there in July with contracts on forward flows.

I mean -- so are there any headwinds you can see where you would not generate substantial, maybe you don't want to use the word substantial, but meaningful ERC growth over the course of the next year given the position you're starting in, in July and the amount that you need to deploy over the next 12 months?

David Burton: The clear answer is no.

Operator: And next, I'll move to Bose George with KBW.

Bose George: Just going back to the auto discussion. It seems like it's hitting kind of an inflection point in that asset class. How much of the change is being driven by just the increased supply that you noted versus a shift among lenders, maybe recognizing that the outcomes could be better through selling the receivables?

David Burton: So you have a number of drivers in the auto market. Some are permanent and some are sort of episodic to this moment in time. And so the permanent drivers are that a relatively low percentage of autos happen to be sold into the market. And our quest is to cultivate relations with more originators and encourage them to undertake their first sale, which is a profit maximizing option for them. And so there's a large organic opportunity that really has nothing to do with the level of charge-offs or any headwinds that are sort of an episodic component right now. And then turning to the episodic aspect, there happens to be higher balances in auto, a more stressed consumer.

That also happens to have depleted the savings that were built up during the pandemic after receiving government stimulus. And the level of delinquency and defaults for some originators has become an important headwind that is driving them to look at asset sales either at levels that are higher than they were before or in some cases, more holistically and potentially exiting the origination business altogether. And so it's a very fragmented industry, and so there's lots going on.

And it's hard for me to like characterize how much of our deployments were derived from either the episodic trends or the broader trend of more auto originators choosing to optimize their profitability by beginning to sell their charge-offs to us or to the sector.

Bose George: Okay. Great. That's helpful. And then just on the forward flow numbers, can you just remind us, is there kind of a sweet spot for purchase forward flow commitments as a percentage of your total acquisitions?

David Burton: Historically, that percentage has ran in the 50% range, plus or minus 10%. And so we're not really trying to optimize around a specific percentage of our deployments. Our goal is to deploy capital at attractive risk-adjusted returns, and we seek to have as many forward flows in place that reflect those levels of attractive risk-adjusted returns. They certainly help in terms of having certainty and allow us to have a base to be able to jump off of as we attempt to grow in the aggregate. So I would -- forward flows is not a specific like target.

It hopefully is a byproduct of a good relationship with originators where we can add value and we turn that value into something that's more long term in a forward flow agreement.

Operator: And that will conclude today's question-and-answer session. I would now like to turn the floor back to David Burton for closing remarks.

David Burton: Thanks, operator. Looking forward, we're excited about the growth prospects for our business for the remainder of this year and beyond. We've built an outstanding platform over the past 23 years, and we're in a great position to capitalize on opportunities as the market continues to evolve. Thank you all very much for joining us in today's call, and we look forward to providing another update on our third quarter earnings call.

Operator: Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.