Jernigan Capital Q2 Earnings Call Highlights

Jefferson Capital reported higher second-quarter collections, revenue and portfolio purchases, while highlighting expanding opportunities in auto finance and its entry into Mexico’s debt-purchasing market.

Founder and Chief Executive Officer David Burton said collections increased 18% from a year earlier to $301 million, supported by deployment activity in 2024 and 2025 and contributions from the company’s Bluestem and Conn’s portfolio purchases. Bluestem contributed $41 million in quarterly collections, while Conn’s contributed $24 million.

Adjusted earnings per share totaled $0.77 for the quarter. The company’s estimated remaining collections, or ERC, rose 18% year over year to $3.4 billion as of June 30.

Financial results and operating metrics

Chief Financial Officer Christo Realov said second-quarter revenue increased 16% year over year to $178 million, driven by continued deployment growth and higher net yields. Changes in recoveries were $9 million, which Realov said reflected the accuracy of the company’s modeling and execution against underwriting forecasts.

Operating expenses rose 46% year over year to $95 million. The increase reflected higher court costs associated with greater legal-channel collection activity as well as non-cash stock-based compensation expense related to the company’s initial public offering. Excluding stock-based compensation and adjusting the prior-year period for IPO-related items, expense growth would have been 35%, according to Realov.

Jefferson Capital reported adjusted pre-tax income of $59 million and an adjusted pre-tax return on equity of 51.6%. Adjusted cash EBITDA increased 12% year over year to $226 million.

The company’s cash efficiency ratio was 72.2% during the quarter, aided by the Bluestem and Conn’s portfolios, which have lower collection costs because of their significant base of paying accounts. Excluding those portfolio collections and expenses, the cash efficiency ratio would have been 67.8%.

Legal collections and auto-finance opportunity

Legal-channel collections rose 54% year over year to $64 million. Burton said the legal channel is used as a last resort when the company believes an account holder has the ability but not the willingness to pay. Process improvements in the U.S. have reduced the time between account placement and lawsuit filing, accelerating suit volumes, he said.

The company also identified additional portfolio segments from prior purchases that it believes can be collected profitably through legal action. Burton said the increase in litigation activity will bring incremental court costs, but that the collections should profitably support those upfront expenses.

Auto finance was a central focus of the call. Burton cited record U.S. auto finance receivables of $1.69 trillion, rising vehicle prices, larger loan balances and elevated payment burdens as factors that could increase the supply of portfolios available for sale.

He said Jefferson Capital sees opportunities across performing, charged-off and insolvency auto portfolios, including both secured and unsecured accounts. The company made record deployments of $185 million in July, with a significant portion invested in performing and non-performing auto finance portfolios.

Burton said auto collections can involve more complexity than other consumer-credit categories, including repossessions, vehicle-related documentation and state-specific legal requirements. He said Jefferson Capital has built systems and processes to manage those complexities and has expanded both existing lender relationships and new client relationships in the sector.

Deployments, forward flows and Mexico expansion

Second-quarter portfolio purchases totaled $152 million, up 21% from a year earlier. As of June 30, Jefferson Capital had $480.7 million of deployment commitments locked in through forward-flow agreements, a record for the company. Of that total, $312 million was contracted for deployment over the next 12 months.

Burton said Jefferson Capital expects to collect $1.1 billion of its June 30 ERC balance during the next 12 months. Based on average second-quarter purchase-price multiples, the company would need to deploy about $565 million globally during that period to replace the expected runoff and maintain ERC at current levels.

The company also announced its entry into Mexico’s debt-purchasing market. Burton said Jefferson Capital will initially deploy relatively low amounts of Capital while it builds servicing capabilities and validates its forecasting model. He characterized Mexico as a large market offering potentially attractive U.S.-dollar risk-adjusted returns and another growth pillar for the company’s Latin American strategy.

Jefferson Capital continues to operate in Colombia and Peru, where Burton said the company has expanded its opportunity pipeline and established some of the region’s first forward-flow arrangements. The Mexican deployment occurred in July.

Balance sheet and capital allocation

Net debt to adjusted cash EBITDA improved to 1.71 times as of June 30. Realov said the company’s long-term target is to maintain leverage in a range of 2 to 2.5 times on a sustained basis.

The company’s senior secured revolving credit facility had aggregate commitments of $1.15 billion and $226 million drawn as of June 30. Jefferson Capital subsequently drew on the facility and transferred $300 million to a bond trustee to repay its senior unsecured notes due in August 2026. The notes are expected to be discharged on Aug. 17.

The board declared a regular quarterly dividend of $0.24 per share, representing a 4.8% annualized yield as of the end of July, according to Realov. The company also repurchased 3 million shares for $59 million in connection with its January follow-on equity offering. Realov said Jefferson Capital may evaluate open-market repurchases if its share price experiences significant volatility.

About Jernigan Capital (NASDAQ:JCAP)

Jernigan Capital is a New York Stock Exchange-listed real estate investment trust (NYSE: JCAP) that provides debt and equity Capital to private developers, owners and operators of self-storage facilities with a view to eventual outright ownership of facilities the Company finances. The Company's mission is to maximize shareholder value by accumulating a multi-billion dollar investment portfolio consisting of the newest, most attractive and best located self-storage facilities in the United States through a talented and experienced team demonstrating the highest levels of integrity, dedication, excellence and community.

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