Q2 2026 Jefferson Capital Inc Earnings Call

August 13, 2026

Speaker #1: Good afternoon, and welcome to Jefferson Capital's second quarter 2026 conference call. With us today are David Burton, Founder and Chief Executive Officer; and Christo Rial, Chief Financial Officer.

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 expectation, 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.

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 expectation, 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.

Speaker #1: As a reminder, this conference call is being recorded. This call may contain forward-looking statements regarding the company's plans, initiatives, and strategies, as well as the anticipated financial performance of the company.

Speaker #1: 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.

Speaker #1: Such statements are based upon management's current expectation, 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.

Speaker #1: Forward-looking statements involve known and unknown risk and uncertainty that may cause future results to differ materially from those suggested by the forward-looking statements. Such risk and uncertainties are further disclosed in the company's most recent filings, with the securities and exchange commission.

Operator: 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.

Speaker #1: Shareholders, potential investors, and other readers are urged to consider these factors carefully and evaluate the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements.

Speaker #1: 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.

Speaker #1: 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.

Speaker #2: 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.

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. 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 1.71 times, a level which positions us well for future growth and creates significant strategic optionality.

Speaker #2: The company delivered strong collections growth, with collections up 18% year over year to $301 million. We continue to perform well versus our underwriting expectations.

Speaker #2: 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.

Speaker #2: We delivered a sector-leading cash efficiency ratio of 72.2%, driven in part by strong collections from the blue stem and Khan's portfolio purchases. The company also generated strong cash flow for the quarter, which improved our leverage ratio to 1.71 times, a level which positions us well for future growth and creates significant strategic optionality.

Speaker #2: Adjusted EPS for the quarter was $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.

David Burton: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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 one-third of used vehicle trade-ins carrying negative equity.

David Burton: 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 one-third 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. The average used vehicle monthly loan payment has reached $531, up 35% 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.

Speaker #2: 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.

Speaker #2: 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 a third of all financed new vehicle sales.

Speaker #2: 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.

Speaker #2: 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.

David Burton: 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.

Speaker #2: 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.

Speaker #2: $41 million of collections for the quarter were attributable to the Blue Stem portfolio purchase, and $24 million were attributable to the Khans portfolio purchase.

Speaker #2: 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.

David Burton: 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 US, 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 three years. Over time, we expect to see continued growth in legal collections.

Speaker #2: 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.

Speaker #2: We've achieved a number of important process improvements specifically in the US, which have significantly compressed the timing from placement of the account to filing the lawsuit.

Speaker #2: Which in turn has accelerated suit volumes. The inventory of suit-eligible accounts has increased, given the significant growth in deployments over the time, we expect to see continued growth in legal collections.

Speaker #2: 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.

David Burton: 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 non-performing auto finance portfolios.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: A significant portion of which was invested in performing and non-performing 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.

David Burton: 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 30 June, 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 am 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.

Speaker #2: Following credit cards with blue stem and installment loans with Khan's. To further this strong purchasing momentum, we generated robust growth in FordFlow commitments, as of June 30th, we had $480.7 million of deployments locked in through FordFlows.

Speaker #2: This 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.

Speaker #2: 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.

Speaker #2: But we believe this is a large market which offers attractive US dollar risk-adjusted returns and adds another growth pillar for our Latin American strategy.

David Burton: We believe this is a large market which offers attractive USD 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 30 June 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 US 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.

Speaker #2: In addition, our foray is supported by a number of significant competitive advantages, including global relationships with key sellers, more sophisticated modeling and service or management capabilities, and a substantially lower cost of capital compared to local competitors.

Speaker #2: 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 30th were $3.4 billion, up 18% year over year, with ERC related to the blue stem and Khan's portfolios comprising $218 million and $83 million of US distressed.

Speaker #2: 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.

Speaker #2: 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 timeframe to replace this runoff and maintain current ERC levels.

David Burton: We expect to collect $1.1 billion of our 30 June ERC balance during the next 12 months. Based on the average purchase price multiples recorded in Q2, 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 30 June, we had $312 million of deployments already contracted via forward flows for the next 12 months. Lastly, I would 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.

Speaker #2: I would note that as of June 30th, we had $312 million of deployments already contracted via FordFlows 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.

Speaker #2: 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.

David Burton: 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.

Speaker #2: Conversely, we seek to outsource the aspects of the collection value chain that we view as commoditized or operationally intensive, and that do not produce a competitive advantage—such as running large domestic call centers.

Speaker #2: 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.

Speaker #2: 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.

David Burton: 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.

Speaker #2: As mentioned earlier, our cash efficiency ratio for the quarter was 72.2%. It was aided by collections on the Bluestem and KAN's portfolios, which carry lower cost to collect given the significant portion of paying accounts.

Speaker #2: Excluding the blue stem and Khan'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.

Speaker #2: 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.

Speaker #2: With that, I would now like to hand the call over to Christo for a more detailed look at our financial results.

Speaker #1: Thank you, David. Take your 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.

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 two key components. An increase in court costs as a result of increased legal channel volumes and non-cash 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.

Speaker #1: 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 increase due to two key components.

Speaker #1: An increase in court costs as a result of increased legal channel volumes, and non-cash 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%.

Speaker #1: Expenses remain well controlled relative to the growth in collections, with our cash efficiency ratio at 72.2% for the quarter. Adjusted pre-tax income was $59 million for the quarter, resulting in an adjusted pre-tax ROE of 51.6%.

Christo Realov: Adjusted pre-tax income was $59 million for the quarter, resulting in an adjusted pre-tax 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 30 June, our net debt to adjusted cash EBITDA improved to 1.71 times, a level which is significantly lower than our publicly-traded peers.

Speaker #1: We realized the material level of collections on portfolios purchased in 2024 and 2025, including the Blue Stem and Khan's portfolio purchases, which in turn drove our adjusted cash EBITDA to $226 million for the quarter, up 12% year over year.

Speaker #1: Finally, for the second quarter, Jefferson Capital recognized portfolio revenue of $11 million, a net operating income of $7.1 million, related to the blue stem portfolio purchase.

Speaker #1: Separately, we recognized portfolio revenue of $11.1 million, servicing revenue of $0.6 million, a net operating income of $8.1 million, related to the Khan's portfolio purchase.

Speaker #1: Our crate profile remains strong and positions as well for future opportunities. As of June 30th, our net debt to adjusted cash EBITDA improved to $1.71 times, a level which is significantly lower than our publicly traded peers.

Speaker #1: Over the long term, our target leverage ratio is in the range of 2 to 2 and a half times, on a sustained basis. Our balance sheet is solid with ample liquidity to support growth, create strategic optionality, and pay our quarterly dividend.

Christo Realov: Over the long term, our target leverage ratio is in the range of two to 2.5 times 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 trade facility with aggregate committed capital of $1.15 billion had $226 million drawn at 30 June. 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 17 August. Our strong liquidity profile is a critical component of our value proposition to sellers, who value certainty of closing 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.

Speaker #1: Our senior secured revolving trade facility with aggregate committed capital of $1.15 billion had 226 million drawn at June 30th. Today, we draw on the RCF and transfer $300 million to the bond trustee for the repairment of our senior unsecured notes, the August 2026.

Speaker #1: The notes will be discharged on August 17th. Our strong liquidity profile is a critical component of our value proposition to sellers, who value certainty of closing periods when portfolio activity increases, but the funding markets could be constrained or unavailable.

Speaker #1: 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 per share, which represents a 4.8% annualized yield as of July month-end.

Christo Realov: 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 legal 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 overhead. 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.

Speaker #1: 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.

Speaker #1: In conjunction with the fall on equity offering in January, we also repurchased $3 million shares, or approximately 5% of the total legally issued shares, for $59 million.

Speaker #1: This was a tactical share repurchase, where the company used its capital to support the offering and to further reduce the sponsor overhead. We will evaluate open market share repurchases if the share price exhibits significant volatility.

Speaker #1: 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.

Speaker #1: Operator, please open up the lines.

Christo Realov: Operator, please open up the lines.

Speaker #3: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we pull for questions. Our first question today is from Mark Hughes with Truist Securities. Please proceed.

Speaker #3: A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

Speaker #3: One moment while we pull for questions. Our first question today is from Mark Hughes with Truist Securities. Please proceed.

Speaker #2: Yeah, thank you. Good afternoon.

Mark Hughes: Yeah, thank you. Good afternoon.

Speaker #4: Good afternoon, Mark.

Christo Realov: Yes, Mark.

Speaker #2: Could you talk to in the auto segment, it sounds like you're seeing a lot of success in the month of July. How broad is that?

Mark Hughes: You talked in the Auto segment, sounds like you are 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.

Speaker #2: How should we think about the opportunity as the rest of the year progresses? Just a little more detail on that outlook would be great.

Speaker #4: 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 in solvencies and performing.

Christo Realov: Sure. I guess, as we do not 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. I think that is indicative, and it is why we have 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 are uniquely positioned to be a beneficiary of the headwinds that are facing that sector.

Speaker #4: And so I think that's indicative, and it's why we've been talking about the auto market opportunity in particular—we have seen a growing opportunity set in that space.

Speaker #4: 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?

Speaker #2: Very good. Could you refresh this on any differences in terms of the collections profile or costs associated with the auto channel?

Speaker #4: 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.

Christo Realov: Sure. I will 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, with secured loans, there are occasions, both in insolvency and outside of insolvency and distressed, where the consumer still retains the vehicle. As part of that, there could be a repossession process that takes place, which is a higher cost undertaking. I would think about deployments in insolvencies as largely being similar in aggregate to other insolvency costs to collect.

Speaker #4: However, with secured loans, there are occasions—both in insolvency and outside of insolvency and distress—where the consumer still retains the vehicle.

Speaker #4: 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.

Speaker #4: And on the deficiency side or the charge-offs distress side of the business, that is more in line but has some unique components that are higher cost to collect than insolvency.

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

Speaker #4: And finally, on the performing side, the sort of cost to collect for installment line, as in our purchase of the Kahn's portfolio, is a good template to think about what the cost to collect would be for performing auto.

Speaker #2: Very good. Then Christo, the change in recoveries, the nice positive number again, maybe starting to look like a trend. How should we think about the that line item?

Mark Hughes: Very good. Christo, the contingent recovery is a nice positive number again, maybe starting to look like a trend. How should we think about that line item? It sounds like you are modeling and legal collections, you are 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.

Speaker #2: Is that something where it sounds like you’re modeling in legal collections and you’re having good success? Is that something that emerges over time, or is that something we shouldn’t anticipate in future quarters?

Speaker #2: Just how to approach that?

Speaker #1: I mean, 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?

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. I think for the quarter, this number was maybe slightly higher than in prior quarters. But it is still a number that we are comfortable with and a number that we can expect to see in the future. I will go back to comments that were made on this topic previously, which is that the objective of our modeling of the ERC is accuracy and not necessarily conservatism.

Speaker #1: 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.

Speaker #1: And then, to go back to our comments that we have made on this topic previously, which is that the objective of our modeling of the RC is accuracy and not necessarily conservatism.

Speaker #2: Thank you very much.

Mark Hughes: Thank you very much.

Speaker #4: Thanks, Mark.

David Burton: Thanks, Mark.

Speaker #3: And our next question, we'll hear from David Scarf with Citizen Capital Markets. Please proceed.

Operator: Our next question, we will hear from David Scharf with Citizens Capital Markets. Please proceed.

Speaker #2: Hi, yeah. Good afternoon. David and Christo, thanks for taking my questions. Wanted to follow up, maybe on Mark's questions on auto. Dave, you've historically enjoyed some pretty formidable sort of competitive barriers if you will.

David Scharf: Yeah. Good afternoon, Dave and Christo. Thanks for taking my questions. I wanted to follow up maybe on Mark's questions on auto. Dave, you have historically enjoyed some pretty formidable competitive barriers, if you will, in your core low balance accounts. I know you believe you are the only one who can service the breadth or the mix of performing charged-off and insolvency across auto. Could you talk a little more about just the competitive landscape there, the breadth of how many sellers you work with? I am just trying to get a sense for whether auto as an asset class is from a competitive standpoint closer to the traditional credit card world or if it is closer to the barriers you enjoy in your core assets.

Speaker #2: In your core kind of low-balance accounts, I know you referenced you believe you're the only one who can kind of service the breadth or the mix of performing, charged-off, and insolvency across auto.

Speaker #2: But could you talk a little bit more about, just, I guess, the competitive landscape there? The breadth of how many sellers you work with?

Speaker #2: 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 the barriers you enjoy in your core assets.

Speaker #4: Good question, David. And I think it's will be helpful to others to understand that distinction. I view auto as an area with more complexities both in underwriting in 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.

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, in engaging consumers. 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 has 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. Similarly, should the consumer still have the vehicle, then you are also undertaking a more complex undertaking as it relates to replevin action or repossession. So operationally, it is more complex. In terms of consumer engagement, it is more complex.

Speaker #4: You have in some cases, the consumer has voluntarily surrendered the car or that's been repossessed and the balance to be able to be able to communicate clearly about the composition of the balances and important criteria to have an effective communication with the consumer.

Speaker #4: 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.

Speaker #4: 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.

David Burton: 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. Oftentimes you need to have evidence of those required communications in order to initiate litigation. So it is 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. I do not know that there are many other competitors in the space that are able to do that, and that is especially true as you consider the array of account segments with secured and unsecured insolvency, performing and non-performing. Again, that is why we have expertise and capability across that spectrum, and that makes us an ideal counterparty for an originator that has sale objectives.

Speaker #4: 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.

Speaker #4: 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 non-performing.

Speaker #4: 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.

Speaker #2: Got it. No, that color is very helpful. And I guess, just so we have a flavor for the momentum in the business, compared to a year ago, would you say that your auto volumes represent mostly deeper?

David Scharf: Got it. No, that color is very helpful. 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 represent mostly deeper penetration of some existing originator relationships, or have you been adding new relationships over that time?

Speaker #2: Penetration of some existing originator relationships, or have you been adding new relationships over that time?

David Burton: It is a mix of both. I think we have cultivated relationships with existing customers where we are doing more. While at the same time, we have been able to cultivate new clients as well.

Speaker #4: It's a mix of both. I think we have cultivated relationships with existing customers where we're doing more, and at the same time, we've been able to cultivate new clients as well.

Speaker #2: 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 cash flow dynamic.

David Scharf: Got it. Just one last question for Christo. With the legal channel growing, obviously the returns will be similar, but with more upfront court costs, there is sort of a delayed kind of cash flow dynamic as that channel grows. As we think about H2 modeling, I know you are 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?

Speaker #2: Is that channel growing as we think about second-half modeling? I know you're not giving guidance, but is there any type of step function we should think about in terms of court costs, or is it going to continue along this typical trajectory?

Speaker #5: So I'll make two comments. The first one is, the cash efficiency ratio that we put out obviously includes the core costs for the quarter.

Christo Realov: I will make two comments. The first one is, the cash efficiency ratio that we put out obviously includes the court cost for the quarter. We provide that both on a kind of as-reported basis, which is the 72.2% number, and on an excluding Conn's and Bluestem basis, which is the 68% number. We have also said that we expect that the 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.

Speaker #5: And we provide that both on a kind of as-reported basis, which is the 72.2% number, and on an excluding cons and Blue Time basis, which is the 68% number.

Speaker #5: And we've also said that we expect that, excluding CONS and Blue Stem, to be kind of in the high 60s. Those comments are relevant, and that probably is a good way to think about this.

Speaker #5: 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.

Speaker #2: Got it. Very helpful. Thanks so much.

David Scharf: Got it. Very helpful. Thanks so much.

Speaker #1: And next, we'll hear from Randy Benner with Texas Capital. Please go ahead.

Operator: Next we will hear from Randy Benner with Texas Capital Bank. Please go ahead.

Speaker #6: Hi, good evening. Thanks. I have a couple I'm the July deployment number. Did I hear that correctly as the did you say 185 million?

Randy Benner: Hi, good evening. Thanks. I have a couple. On the July deployment number, did I hear that correctly? Did you say $185 million, David?

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

Speaker #6: David?

Speaker #4: 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.

David Burton: We did. We normally wouldn't disclose a monthly deployment number. As you note, it's more in July than for the entire Q2, and we thought that was valuable information to share with shareholders.

Speaker #4: And we thought that was valuable information to share with shareholders.

Speaker #6: Yeah, and the other three 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.

Randy Benner: Yeah. The other three 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. I guess the one, because 185 is a big number, what 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? Just trying to figure out how to sequence. I wouldn't put 185 in the model every month, let me put it that way. Maybe just trying to understand if there was anything unusually large about it.

Randy Binner: Yeah. The other three 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. I guess the one, because 185 is a big number, what 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? Just trying to figure out how to sequence. I wouldn't put 185 in the model every month, let me put it that way. Maybe just trying to understand if there was anything unusually large about it.

Speaker #6: But I guess the one, because 185 is a big number, what was the—can you—was it more of the nature of that? I kind of missed that.

Speaker #6: Was that, like, a big lumpy thing, or was that just a deployment kind of across—presumably, it was large in auto—but was there anything episodic or lumpy there, or is that just trying to figure out how to sequence? I wouldn't put $185 in the model every month.

Speaker #6: Let me put it that way. So, maybe just trying to understand if there was anything unusually large about it.

Speaker #4: Yeah. We certainly wouldn't encourage you to do that. But what we would say is it's a wide distribution—more of like a normal kind of distribution—across asset classes.

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

Speaker #1: Yes, there was a larger distribution in the month of July for auto.

Speaker #2: Got it . Okay . And then I have a question just about . For the collection activity . Just continues to be good .

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

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

Speaker #2: And I kind of have our expectation . Is it Do you talk about collection performance by vintage meaning is it kind given the dynamic where there's a larger , you know , balance of charge offs at the same time that people have jobs or are you are collections better on kind of more recent vintages and not as good an older vintages ?

Speaker #2: How should we think about that?

Speaker #1: Yeah , I don't know That that's Necessarily the way I would think about it . As your underwriting should take into account , you know , the consumers , you know , capability sort of , of , of repayment based on , you know , history and the volatility around liquidation rates as it relates to things like , you know , levels of unemployment are pretty , are relatively narrow , except in the case where there's a , an actual recession where unemployment increases rapidly to levels , you that exceed six , 7% .

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

Speaker #1: And so I would , I would say the level of variance in times of , you know , non recession , the liquidation rates don't have substantial changes , you know , given macroeconomic fluctuations

Speaker #2: Okay, understood. Thank you. Thanks for the responses.

Randy Benner: Okay. Understood. Thank you. Thanks for the responses.

Randy Binner: Okay. Understood. Thank you. Thanks for the responses.

Speaker #1: Of course

David Burton: Of course.

Speaker #3: And next, we'll move to John Hecht with Jefferies LLC.

Operator: Next we will move to John Hecht with Jefferies LLC.

Speaker #4: Afternoon , guys . Congrats on another good quarter . And thanks for taking my questions . First one is maybe David , can you talk about the pipeline ?

John Hecht: Afternoon, guys. Congrats on another good quarter, and thanks for taking my questions. 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.

Speaker #4: I mean , obviously you guys have a lot of good organic growth , but are both performing portfolio acquisitions as well as buying into other channels have been an important part of your story .

Speaker #4: Maybe talk about the characteristics of the pipeline, and your pricing, and so forth.

Speaker #1: Yeah , I think what I would say is that the the level of activity Is certainly , you know , elevated across all of the kinds of investments that we make .

David Burton: Well, 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. When you look at deployment across all of our geographies, for example, you are going to see attractive levels of growth. I think that is evidence of both an attractive backdrop in terms of supply, but also it is indicative of increased effectiveness in building our pipeline.

Speaker #1: And so when you look at deployment across all of our geographies, for example, you're going to see attractive levels of growth. I think that's evidence of both an attractive backdrop in terms of supply, but also it's indicative of an increased effectiveness in building our pipeline.

Speaker #4: Okay . And then maybe , can you I mean , I guess you have to think about Bluestem and ponds in this , but then also just general , I see to Q3 seasonality .

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

Speaker #4: Yeah, just maybe remind us—refresh us—how those factors impact the coming quarters relative to Q2.

Speaker #5: Yeah . I mean , look , I think the seasonality impact is , 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 kind of it , it's a kind of a , I think the seasonality impact weakens .

Christo Realov: Yeah, I mean, look, I think the seasonality impact is probably a much bigger driver of performance and specifically collections in Q1. Going into the rest of the year, that obviously it's a kind of a I think the seasonality impact weakens. We certainly see on deployments a trend of acceleration of activity as we're getting into the H2 of the year. And typically, Q4 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 see. 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 impact.

Speaker #5: We certainly see, on deployments, you know, a trend of acceleration of activity as we're getting into the second half of the year.

Speaker #5: 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 .

Speaker #5: And the activity that we saw in the month of July is probably indicative more of this broader opportunity that that that we discussed in the in the prepared remarks around auto finance and around the broader consumer credit asset , rather than any seasonal , you know , impacts

Speaker #1: And I'll just add to that . I'll just add to that , John , reminder of the record level . Forward flow commitments that we have , which are 480 million , which is a substantial increase .

David Burton: I'll just add to that.

John Hecht: Thanks.

David Burton: 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 a year-over-year basis, that's up 80%. And so I think that is one component of the future deployment pipeline.

Speaker #1: I think if you looked at that on a just a year over year basis , that that's up 80% . And so I think that is one component of , of the future deployment pipeline .

Speaker #4: Okay . And then final question for me is , I mean , all geographies seem to be doing very well , but that am kind of stuck out this quarter in terms of growth and momentum maybe .

John Hecht: Okay. 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 is one time or maybe just talk about the overall conditions there and opportunities you're seeing.

Speaker #4: Anything to point out there? That was one time, or, you know, maybe just talk about the overall conditions there and the opportunities you're seeing.

Speaker #1: Yeah. 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 region and Colombia.

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

Speaker #1: 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 .

Speaker #1: And so that helps us develop sustained growth as we build these longer term relationships with originators in , in the region . And of course , we did mention to you that we did an inaugural deployment in Mexico in July .

Speaker #1: And, as with 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, you know, lots of capital in that market.

David Burton: As all of our initial forays when we are 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.

Speaker #4: Wonderful. Thanks very much, guys.

John Hecht: Wonderful. Thanks very much, guys.

Speaker #1: Thank you . John

David Burton: Thank you, John.

Speaker #3: And our next question, we'll hear from Robert Dodd with Raymond James.

Operator: Our next question we will hear from Robert Dodd with Raymond James.

Speaker #6: Hi , guys . I'll own the the timing of collections on on auto . Obviously we look at non auto , right where there's legal channel .

Robert Dodd: Hi, guys. On the timing of collections on auto, obviously, we look at non-auto, where there is legal channel. Obviously, the court costs run collections to a degree. So we kind of understand what is going on there. On the auto channel, when you do have those higher cost elements, like if it is 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 at an auction. Does the auto, it does have high collection elements, but are those closely aligned, i.e., they are not as distortive time-wise to cash efficiency ratios as, say, sometimes the regular court cost component is? If that makes sense.

Speaker #6: I mean , obviously the court costs front run collections to , to degree . So we kind of understand what's going on there on the auto channel .

Speaker #6: When you do have those higher cost elements , like if it's a repo , for example , which is not the all of it .

Speaker #6: Obviously, but I would imagine those high costs are incurred essentially in the same or a very closely related time period to when the collection occurs as well.

Speaker #6: I.E. maybe wholesaling the vehicle on an auction . And so does does the auto . It does have high collection elements , but are those closely aligned either non not as distortive time wise to to cash efficiency ratios as say , sometimes the the regular cost Component is if that makes sense .

Speaker #1: It does make sense in . My answer is not intentionally confusing , but I just want to flag that we purchase across kind of the three core businesses , if you will , of , you know , charge off insolvency .

David Burton: It does make sense. My answer is not intentionally confusing, but I just want to flag that we purchase across kind of the three core businesses, if you will, of charge-off, insolvency, and now performing in auto. Performing has a low cost to collect. As you at least in the context of how closely do the expenses correlate to collections, I think they are not in any way out of sequence in the performing side of the business, nor are they really an insolvency, at least for secured insolvencies, as those are paid out at 100% in the bankruptcy process, plus interest in some cases. But it is in the deficiency collections of in distressed where you may have a disconnect between some expenses and recoveries. Repossession is one example of that, and court cost is another.

Speaker #1: 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 you?

Speaker #1: You know, 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.

Speaker #1: Plus interest in some cases. But it's in the deficiency collections or in distressed where you may have a disconnect between some expenses and recoveries.

Speaker #1: Repossession is one example of that . And court costs 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 .

David Burton: 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 will see a greater disconnect between costs and recoveries or collections. So again, because in the quarter we deployed capital across all three of those. The answer is a little complicated and we are 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? I think Christo sort of guided on that. It is consistent with what we have really indicated in the past both with and without the performing side. Without performing, high 60s is what we would expect.

Speaker #1: And so you'll see a greater disconnect between costs and recoveries or collections . So again , because in the quarter we deployed capital across all three of those , I you know , I make the answer is a little complicated .

Speaker #1: And we're we're not going to , you know , you know , disclose exactly how much was in each . But I , 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 ?

Speaker #1: And how would that flow through , perhaps to your cash efficiency ratio ? And I think , you know , Christo sort of guided on , on that .

Speaker #1: And it's consistent with what we've really indicated in the past , you know , both with and without the performing side , without performing , we , you know , high 60s is what we would expect .

Speaker #1: And despite the larger deployments in auto, we are not anticipating really any change in that because we have more exposure to auto.

David Burton: Despite the larger deployments in auto, we are not anticipating really any change in that because we have more exposure to auto.

Christo Realov: Maybe, Robert.

Speaker #5: . Robert one , one additional comment , the , the , the return profile of the incremental deployment in July is not substantially different than , than our historical return targets .

Robert Dodd: Got it. Thank you.

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

Speaker #5: And what we're seeing on the rest of the portfolio, right?

Speaker #6: Got it , got it . Thank you . The follow up to that kind of I mean , you said in the prepared remarks Was you or David ?

Robert Dodd: Got it. Thank you. The follow-up to that kind of tied. You said in the prepared remarks, I cannot remember if it was you or David, Christo. You have forward flows locked in over the next year, 312. You bought 185 in July. Maybe a tiny part of that was from the forward flows, but I do not imagine very much. That is 497. You also said that you need to deploy over the next year 565 to maintain ERC. That looks like you are almost there in July with contracts and forward flows. Are there any headwinds you can see where you would not generate substantial, maybe you do not want to use the word substantial, but meaningful ERC growth over the course of the next year, given the position you are starting in in July and the amount that you need to deploy over the next 12 months?

Speaker #6: Chris , you've got forward flows locked in over the next year , 312 . You bought 185 in July , maybe a tiny part of that was from the forward flows .

Speaker #6: But I don't imagine very much. That's for '97. And you also said that you need to deploy over the next year.

Speaker #6: 565 to maintain ERC . I mean , that looks like you're almost there in July , right ? With with with contracts and forward flows .

Speaker #6: I mean , so it are there any headwinds you can see where you would not generate substantial . Maybe you don't want to use the word substantial , but but meaningful ERC growth over the course of the next year , given the position you're starting in , in July and the amount and the , the , the amount that you need to deploy over the next 12 months

Speaker #1: The clear answer is no.

David Burton: The clear answer is no.

Speaker #6: Fair enough. Yes, thank you.

Robert Dodd: Fair enough. Yes. Thank you.

Speaker #1: Of course

David Burton: Of course.

Speaker #3: And next, I'll move to both George with KBW.

Operator: Next I'll move to Bose George with KBW.

Speaker #2: Hey , guys . Good afternoon . Just going back to the auto discussion . You know , it seems like it's hitting kind of an inflection point .

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

Speaker #2: That asset class . How much of the change is being driven by just the increased supply that you noted versus , you know , a shift among lenders may recognizing that the outcomes , you know , could be better , you know , through selling the receivables

Speaker #1: So you have a number of drivers in the auto market . Some are , you know , permanent and some are sort of episodic to this moment in time And , and so the permanent drivers are that 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 in episodic component right now .

David Burton: You have a number of drivers in the auto market. Some are permanent, and some are sort of episodic to this moment in time. The permanent drivers are that relatively low percentage of autos happen to be sold into the market. 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. 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. 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.

Speaker #1: 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.

Speaker #1: 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 .

David Burton: 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. It's a very fragmented industry, and there's lots going on, and it's hard for me to 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.

Speaker #1: And so , you know , it's a very fragmented industry . And so there's lots going on . And it's hard for me to 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 .

Speaker #2: So . That's helpful . Thanks . 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 ?

Bose George: Okay, great. That's helpful. Thanks. On the forward flow numbers, can you just remind us, is there a sweet spot for purchase forward flow commitment as a percentage of your total acquisitions?

Speaker #1: Historically , that percentage has ran , you know , in the 50% range plus or minus 10% . And so we're not we're not really trying to optimize around a specific percentage of our deployments .

David Burton: Historically, that percentage has run in the 50% range, plus or minus 10%. We are 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 forward flows is not a specific 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.

Speaker #1: 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.

Speaker #1: They certainly help in terms of having, you know, certainty and allow us to have a base to be able to jump off of as we attempt to grow in the aggregate.

Speaker #1: So, I would say 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.

Speaker #2: Okay, great. Thanks for the color.

Bose George: Okay, great. Thanks for the color.

Speaker #3: 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.

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

Speaker #1: 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 .

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 23 years, and we are 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 Q3 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.