Jefferson Capital reported a record third quarter that ticks nearly every box operators in the credit and collection space watch: stronger collections, higher deployments, rising ERC (estimated remaining collections), and lower leverage, all supported by a very efficient cost structure.
By the numbers
- Collections: $236.8 million in the third quarter, up 63% year over year.
- Deployments: $151 million, up 22%, which represents the largest third quarter deployment in company history.
- ERC: $2.9 billion, up 27%, with $894 million expected in the next 12 months and 61% expected to be collected through 2027.
- Revenue: $150.8 million, up 36% year over year.
- Net income: $38.6 million, up from $36.9 million a year ago.
How they are doing it: Management continues to lean into higher value collection channels and complex asset classes, according to a conference call with analysts. Legal collections and insolvency portfolios are both growing contributors, with court costs rising 66% to $14.9 million as suit volumes increase. The company framed those costs as upfront investments that support future recovery on suit eligible accounts.
David Burton, the chief executive of Jefferson Capital, pointed to “depleted” consumer savings as an indicator of the opportunity that insolvency portfolios present and that the company is seeking “a well-pronounced increase” in the number of insolvencies across the United States and Canada.
“All of these trends point in one direction: elevated levels of consumer delinquencies and charge-offs, which we are seeing across all consumer asset classes, and which we believe create a long runway for a robust portfolio supply over the coming quarters, coupled with continued strong collection performance on the existing book and on any future portfolio purchases,” Burton said during the call.
Burton said the company will “own” the high-value portions of the collection process, such as data analysis, modeling, and “certain proprietary technological capabilities,” while outsourcing the commoditized aspects of the process, such as “running large domestic call centers.”
Burton did address potential opportunities in the student loan space, answering a question from an analyst, saying he is apprehensive because of noise surrounding the possibility of student loan debts being canceled or forgiven, but if the government moves ahead with a proposal to sell off portfolios of student loans, “that would give us the kind of encouragement to deploy” investment capital in the space.
