Jefferson Capital Inc(JCAP) - 2025 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements This section provides the unaudited combined and condensed consolidated financial statements and their explanatory notes Combined and Condensed Consolidated Balance Sheets | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | Change (Thousands) | % Change | | :-------------------------------- | :-------------------------- | :---------------------------- | :----------------- | :------- | | Total Assets | $1,767,618 | $1,654,284 | $113,334 | 6.85% | | Total Liabilities | $1,356,810 | $1,271,755 | $85,055 | 6.69% | | Total Stockholder's Equity | $410,808 | $382,529 | $28,279 | 7.39% | | Investments in receivables, net | $1,589,801 | $1,497,748 | $92,053 | 6.15% | | Cash and cash equivalents | $51,651 | $35,506 | $16,145 | 45.47% | | Deferred tax liabilities | $94,057 | $2,193 | $91,864 | 4190.88% | Combined and Condensed Consolidated Statements of Operations and Comprehensive Income | Metric (Thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change (Thousands) | YoY % Change | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change (Thousands) | YoY % Change | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------------------- | :----------- | :--------------------------- | :--------------------------- | :--------------------- | :----------- | | Total Revenues | $152,708 | $103,804 | $48,904 | 47.11% | $307,651 | $203,759 | $103,892 | 50.99% | | Net Operating Income | $86,641 | $55,147 | $31,494 | 57.11% | $175,908 | $107,075 | $68,833 | 64.29% | | Income Before Income Taxes | $61,906 | $34,067 | $27,839 | 81.72% | $128,811 | $68,898 | $59,913 | 86.96% | | Net Income | $47,651 | $32,168 | $15,483 | 48.14% | $111,876 | $65,059 | $46,817 | 71.96% | | Basic EPS | $18.61 | $— | N/A | N/A | $86.88 | $— | N/A | N/A | | Diluted EPS | $16.76 | $— | N/A | N/A | $78.26 | $— | N/A | N/A | Combined and Condensed Consolidated Statements of Shareholders' Equity | Metric (Thousands) | June 30, 2025 | December 31, 2024 | Change | | :--------------------------------- | :------------ | :---------------- | :----- | | Total Stockholder's Equity | $410,808 | $382,529 | $28,279 | | Retained earnings | $477,576 | $398,122 | $79,454 | | Accumulated other comprehensive income (loss) | $2,723 | $(15,593) | $18,316 | | Dividends to stockholders (6 months) | $(32,422) | N/A | N/A | | Net income (6 months) | $111,876 | N/A | N/A | | Foreign currency translation (6 months) | $18,316 | N/A | N/A | | Reorganization adjustments (6 months) | $(78,216) | N/A | N/A | | Shares issued (6 months) | $8,725 | N/A | N/A | Combined and Condensed Consolidated Statements of Cash Flows | Metric (Thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change (Thousands) | YoY % Change | | :-------------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------- | :----------- | | Net cash provided by operating activities | $130,565 | $83,146 | $47,419 | 57.03% | | Net cash used in investing activities | $(66,938) | $(164,008) | $97,070 | (59.19)% | | Net cash (used in) / provided by financing activities | $(43,109) | $73,692 | $(116,801) | (158.50)% | | Net (decrease) increase in cash and restricted cash | $17,257 | $(7,055) | $24,312 | (344.62)% | | Cash and cash equivalents and restricted cash, end of period | $55,500 | $13,549 | $41,951 | 309.62% | Notes to Combined and Condensed Consolidated Financial Statements 1. Organization, Description of Business and Summary of Significant Accounting Policies - Jefferson Capital, Inc. provides debt recovery solutions and related services across consumer receivables in the U.S., Canada, U.K., and Latin America, primarily purchasing charged-off portfolios at deep discounts[23] - The Company completed its IPO in June 2025, issuing 625,000 shares for net proceeds of $4.5 million, and underwent a Reorganization where Jefferson Capital, Inc. became a holding company for JCAP TopCo, LLC[25][26] - Following the IPO and Reorganization, IPO investors own 17.8% of common stock, JCF Stockholders own 67.6%, and Management Stockholders own 14.3%[26][32] - Revenue from investments in receivables is recognized under ASC 326 (CECL model), based on expected future collections discounted to present value, and includes "Total portfolio income" and "Changes in recoveries"[42][45][46] 2. Earnings Per Share - Basic and diluted EPS are calculated from June 27, 2025 (IPO date) through June 30, 2025, and are not presented for prior periods due to the company's predecessor structure as a single-member LLC and the nature of the Reorganization[52][53][54] | Metric (Thousands, except per share) | 3 Months Ended June 30, 2025 | 6 Months Ended June 30, 2025 | | :--------------------------------- | :--------------------------- | :--------------------------- | | Net income | $47,651 | $111,876 | | Weighted-average common shares outstanding (Basic) | 2,561 | 1,288 | | Weighted-average common shares outstanding (Diluted) | 2,843 | 1,430 | | Basic Earnings per common share | $18.61 | $86.88 | | Diluted Earnings per common share | $16.76 | $78.26 | 3. Acquisitions - Effective December 3, 2024, the Company acquired certain assets from Conn's, Inc. for $244.9 million in cash, including performing receivables, and hired 197 former Conn's FTEs[56][57] | Allocation of Purchase Price (Thousands) | Amount | | :------------------------------------- | :----- | | Total purchase consideration paid | $244,937 | | Investments in receivables, net | $238,028 | | Other intangible assets (Intellectual property, Assembled workforce) | $5,272 | - For the six months ended June 30, 2025, the Conn's portfolio purchase contributed $54.7 million in portfolio revenue, $6.8 million in servicing revenue, and $42.8 million in net operating income[62] 4. Fair Value Measurements - The Company does not have financial instruments subject to recurring fair value measurements. Fair value estimates for non-recurring instruments are categorized into Level 1, 2, or 3 inputs[64][68] | Financial Instrument (Thousands) | June 30, 2025 Carrying Amount | June 30, 2025 Estimated Fair Value | December 31, 2024 Carrying Amount | December 31, 2024 Estimated Fair Value | | :------------------------------- | :---------------------------- | :------------------------------- | :------------------------------ | :------------------------------- | | Investments in receivables, net | $1,589,801 | $1,762,369 | $1,497,748 | $1,646,535 | | Senior unsecured bond due 2026 | $298,514 | $301,308 | $297,828 | $299,478 | | Senior unsecured bond due 2029 | $395,090 | $422,333 | $394,405 | $424,792 | | Senior unsecured bond due 2030 | $492,651 | $519,075 | $— | $— | - Fair value of investments in receivables, net, is measured using Level 3 inputs (discounted estimated future cash flows), while senior unsecured bonds use Level 2 inputs (quoted market prices from secondary broker quotes)[66][70] 5. Investment in receivables, net | Metric (Thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Balance, beginning of period | $1,561,595 | $1,047,174 | $1,497,748 | $984,496 | | Purchases | $125,278 | $140,463 | $300,501 | $241,883 | | Cash collections | $(255,739) | $(137,889) | $(516,629) | $(265,080) | | Total portfolio income | $138,877 | $94,699 | $277,571 | $186,103 | | Changes in expected current period recoveries | $4,178 | $(371) | $10,575 | $2,725 | | Changes in expected future period recoveries | $(2,622) | $330 | $(5,399) | $(2,850) | | Foreign currency adjustments | $18,234 | $(5,206) | $25,434 | $(8,077) | | Balance, end of period | $1,589,801 | $1,139,200 | $1,589,801 | $1,139,200 | - Actual collections overperformed projected collections by approximately $10.6 million for the six months ended June 30, 2025, and $2.7 million for the same period in 2024, driven by strong collection performance[71] - For the six months ended June 30, 2025, the Company purchased receivable portfolios with face values of $4,517.0 million for a purchase price of $300.5 million (6.7% of face value), compared to $4,060.6 million for $241.9 million (6.0% of face value) in 2024[75] 6. Credit Card Receivables | Geography (Thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | United States | $7,465 | $7,470 | | Canada | $10,506 | $11,613 | | Total | $17,971 | $19,083 | - Credit card receivables are placed on nonaccrual status when greater than 90 days past due or within 60 days of bankruptcy notification[76] | Metric (Thousands) | June 30, 2025 | December 31, 2024 | | :----------------- | :------------ | :---------------- | | Allowance for Credit Losses | $1,733 | $1,907 | | Nonaccrual Credit Card Receivables | $660 | $890 | 7. Goodwill - The Company tests goodwill for impairment annually as of June 30. No impairments were recorded for the six months ended June 30, 2025, or fiscal year 2024[83] | Segment (Thousands) | December 31, 2024 | June 30, 2025 | Change | | :------------------ | :---------------- | :------------ | :----- | | United States | $31,633 | $31,633 | $0 | | United Kingdom | $19,209 | $19,209 | $0 | | Canada | $6,841 | $7,201 | $360 | | Latin America | $— | $— | $0 | | Total Goodwill | $57,683 | $58,043 | $360 | 8. Notes Payable, Net | Debt Instrument (Thousands) | June 30, 2025 Amount Outstanding | June 30, 2025 Interest Rate | December 31, 2024 Amount Outstanding | December 31, 2024 Interest Rate | | :-------------------------- | :------------------------------- | :-------------------------- | :------------------------------- | :-------------------------- | | Senior unsecured bond due 2026 | $300,000 | 6.00% | $300,000 | 6.00% | | Senior unsecured bond due 2029 | $400,000 | 9.50% | $400,000 | 9.50% | | Senior unsecured bond due 2030 | $500,000 | 8.25% | $— | — | | Credit agreements | $— | 7.52% | $508,146 | 7.51% | | Total Notes Payable, net | $1,181,470 | 8.10% (Avg) | $1,194,726 | 7.79% (Avg) | - The Company issued $500.0 million aggregate principal amount of 8.250% senior notes due 2030 in May 2025, using proceeds to pay down the Revolving Credit Facility[96][261] - As of June 30, 2025, the Company was in compliance with all financial covenants of its notes payable[100] 9. Leases | Metric (Thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Operating lease costs | $536 | $321 | $1,184 | $710 | | Metric (Thousands) | June 30, 2025 | December 31, 2024 | | :----------------- | :------------ | :---------------- | | Operating lease right-of-use assets | $4,386 | $4,449 | | Operating lease liabilities | $4,858 | $4,861 | | Weighted-average remaining lease term (years) | 5.0 | 5.5 | | Weighted-average discount rate | 7.5% | 7.5% | 10. Stock Based Compensation - Prior to the IPO in June 2025, Class B Units were issued under the JCAP TopCo, LLC 2018 Underlying Units Plan and Management Invest LLC 2018 Management Incentive Plan[103][104] - As part of the IPO, all in-the-money Class B Units were converted into common stock (vested) or restricted stock (unvested), while out-of-the-money units were canceled and replaced with new stock options under the 2025 Incentive Award Plan[105][106] | Metric | June 30, 2025 | | :---------------------------------- | :------------ | | Restricted Shares Outstanding | 6,418,775 | | Weighted-Average Grant Date Fair Value (Restricted Shares) | $15.00 | | Stock Options Outstanding | 457,542 | | Weighted-Average Exercise Price (Stock Options) | $24.81 | | Weighted-Average Remaining Contractual Term (Years) | 5.0 | | Total unrecognized equity-based compensation expense | $96.3 million | | Weighted average term for recognition | 3.0 years | - Stock-based compensation expense recognized for the six months ended June 30, 2025, was $(7.9) million, a decrease from $1.9 million in 2024, primarily due to the reversal of expense from the IPO's impact on Class B units[108] 11. Commitments and Contingencies - As of June 30, 2025, the Company had forward flow purchase agreements for receivables with an estimated minimum aggregate purchase price of approximately $257.3 million, down from $332.1 million in 2024[112] - The Company sponsors defined contribution plans (401k, DPSP, government contribution plan) in the U.S., Canada, and U.K., with total contributions of $0.5 million for the six months ended June 30, 2025[113] - The Company has an obligation to purchase credit card receivables from issuing banks, with maximum credit limits of $15.5 million as of June 30, 2025[114] - A liability of $8.6 million was accrued as of June 30, 2025, for the Canaccede Exit Incentive Payment, reflecting the net present value of an anticipated maximum payment contingent on a Liquidity Event by December 31, 2027[115] 12. Income Taxes | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Effective Tax Rate | 23.0% | 5.6% | 13.1% | 5.6% | - The Company incurred a year-to-date provision of $16.9 million for income taxes to reflect the change in taxpayer status to a corporation as a result of the IPO reorganization[185][213] 13. Related Party Transactions - In February 2023, Jefferson Capital Systems, LLC sold a 26.75% beneficial ownership interest in a portfolio of performing installment loans to HH Warehouse LLC for $2.9 million, and repurchased it in July 2024 for $1.4 million. Christopher Giles, a board member, held a 12.86% interest in HH Warehouse[119] 14. Segment Reporting - The Company operates through four geographic segments: United States, United Kingdom, Canada, and Latin America. The CEO acts as the Chief Operating Decision Maker (CODM) and uses net operating income to allocate resources and assess performance[120][121] | Segment (Thousands) | 3 Months Ended June 30, 2025 Net Operating Income | 3 Months Ended June 30, 2024 Net Operating Income | YoY Change (Thousands) | YoY % Change | 6 Months Ended June 30, 2025 Net Operating Income | 6 Months Ended June 30, 2024 Net Operating Income | YoY Change (Thousands) | YoY % Change | | :------------------ | :------------------------------------------ | :------------------------------------------ | :--------------------- | :----------- | :------------------------------------------ | :------------------------------------------ | :--------------------- | :----------- | | United States | $63,781 | $35,884 | $27,897 | 77.74% | $131,700 | $69,400 | $62,300 | 89.77% | | United Kingdom | $3,470 | $5,158 | $(1,688) | (32.73)% | $5,200 | $10,300 | $(5,100) | (49.51)% | | Canada | $14,112 | $9,171 | $4,941 | 53.88% | $27,100 | $18,000 | $9,100 | 50.56% | | Latin America | $5,278 | $4,934 | $344 | 6.97% | $11,900 | $9,400 | $2,500 | 26.60% | | Total | $86,641 | $55,147 | $31,494 | 57.11% | $175,908 | $107,075 | $68,833 | 64.29% | 15. Subsequent Events - On August 13, 2025, the Company declared a dividend of $0.24 per share[125] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Jefferson Capital's financial condition, operational results, liquidity, and key accounting estimates Overview - Jefferson Capital, Inc. provides debt recovery solutions for various consumer receivables (credit card, automotive, telecom, utilities), primarily purchasing charged-off portfolios at deep discounts[127] - The business operates through four geographic segments (U.S., U.K., Canada, Latin America) and two primary lines: Distressed (nonperforming consumer loans) and Insolvency (financial assets of consumers in bankruptcy/insolvency)[128][131] Our Business Model - The Company purchases nonperforming loans (and sometimes performing loans with significant credit deterioration) via spot sales or forward flow agreements, leveraging proprietary valuation models to maximize collections[129][130][134] - Operational costs and regulatory pressures favor larger market participants like Jefferson Capital, enabling them to adapt and commit to larger purchases and forward flow agreements[136] - The average purchase price as a percentage of face value increased in the period ended June 30, 2025, compared to prior year periods, primarily due to changes in portfolio mix (e.g., higher percentage of newly charged-off or paying portfolios)[138] - Collection channels include legal (internal legal channel, retained law firms) and voluntary (domestic/offshore call centers, direct mail, digital collections, third-party collection agencies)[139] Key Business Metrics and Non-GAAP Financial Measures - Estimated Remaining Collections (ERC) is defined as the undiscounted sum of all future projected collections on owned finance receivables portfolios, calculated using proprietary behavioral and asset valuation models[143] | ERC by Geographic Area (Millions) | June 30, 2025 | June 30, 2024 | Increase (Decrease) | % Change | | :-------------------------------- | :------------ | :------------ | :------------------ | :------- | | United States | $2,101.7 | $1,616.4 | $485.3 | 30.0% | | Canada | $348.5 | $221.6 | $126.9 | 57.3% | | United Kingdom | $158.4 | $146.5 | $12.0 | 8.2% | | Latin America | $244.3 | $185.8 | $58.5 | 31.5% | | Total | $2,852.9 | $2,170.2 | $682.7 | 31.5% | - Deployments (portfolio purchases) for the six months ended June 30, 2025, increased by $58.6 million (24.2%) to $300.5 million, acquiring portfolios with face values aggregating $4,517.0 million at an average purchase price of 6.7% of face value[146] | Deployments by Geographic Area (Millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :---------------------------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | United States | $80.6 | $91.8 | $(11.2) | (12.2)% | $200.2 | $155.2 | $45.0 | 29.0% | | Canada | $26.6 | $24.1 | $2.5 | 10.4% | $78.6 | $44.6 | $34.0 | 76.2% | | United Kingdom | $4.7 | $8.5 | $(3.8) | (44.7)% | $6.6 | $18.0 | $(11.4) | (63.3)% | | Latin America | $13.4 | $16.1 | $(2.7) | (16.8)% | $15.1 | $24.1 | $(9.0) | (37.3)% | | Total Purchases | $125.3 | $140.5 | $(15.2) | (10.8)% | $300.5 | $241.9 | $58.6 | 24.2% | | Collections by Geographic Area (Millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :---------------------------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | United States | $202.4 | $97.7 | $104.7 | 107.2% | $416.8 | $189.0 | $227.8 | 120.5% | | Canada | $30.8 | $21.4 | $9.4 | 43.9% | $56.5 | $40.8 | $15.7 | 38.5% | | United Kingdom | $10.7 | $9.8 | $0.9 | 9.2% | $20.9 | $18.5 | $2.4 | 13.0% | | Latin America | $11.8 | $9.0 | $2.8 | 31.1% | $22.4 | $16.8 | $5.6 | 33.3% | | Total Collections | $255.7 | $137.9 | $117.8 | 85.4% | $516.6 | $265.1 | $251.5 | 94.9% | - Adjusted Net Income, a non-GAAP measure, increased by 57.7% to $59.6 million for the three months ended June 30, 2025, and by 70.1% to $122.3 million for the six months ended June 30, 2025, compared to the prior year periods[153][155] | Metric (Millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :---------------------------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Net Income | $47.7 | $32.2 | $15.5 | 48.1% | $111.9 | $65.1 | $46.8 | 71.9% | | Adjusted Net Income | $59.6 | $37.8 | $21.8 | 57.7% | $122.3 | $71.9 | $50.4 | 70.1% | | Pro Forma EPS (Thousands, except per share) | 3 Months Ended June 30, 2025 | 6 Months Ended June 30, 2025 | | :---------------------------------------- | :--------------------------- | :--------------------------- | | Pro Forma Adjusted Basic EPS | $0.82 | $1.92 | | Pro Forma Adjusted Diluted EPS | $0.81 | $1.92 | Components of Results of Operations - Revenue primarily comes from previously charged-off receivables (debt purchasing and recovery), credit card revenue, and servicing revenue[159] - Total portfolio revenue includes portfolio income (accretion of discount on negative allowance) and changes in recoveries (difference between actual and expected collections, and changes in expected future recoveries)[160] - Provision for credit losses is an allowance for expected credit losses on loans and fees receivable, computed at the pool level using a roll-rate methodology, considering historical loss rates, delinquency trends, and economic factors[164] - Operating expenses include salaries and benefits (expected to decline as a percentage of revenue over time), servicing expenses (expected to decrease as a percentage of revenue long-term), depreciation and amortization, professional fees (increased due to IPO costs), and other selling, general and administrative expenses[165][166][167][168][169][170] Results of Operations (Three months ended June 30, 2025 compared to the three months ended June 30, 2024) For the three months ended June 30, 2025, total revenues increased by 47.1% to $152.8 million, with net income growing by 47.7% to $47.7 million | Metric (Millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :---------------------------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Total Revenues | $152.8 | $103.9 | $48.9 | 47.1% | | Total Operating Expenses | $65.5 | $47.7 | $17.8 | 37.4% | | Net Operating Income | $86.7 | $55.2 | $31.5 | 57.1% | | Income Before Income Taxes | $62.0 | $34.2 | $27.8 | 81.3% | | Net Income | $47.7 | $32.3 | $15.4 | 47.7% | Revenues - Total revenues increased by $48.9 million (47.1%) to $152.8 million for the three months ended June 30, 2025, primarily due to strong deployment growth in prior periods[176] | Revenue Component (Millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :--------------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Total portfolio revenue | $140.5 | $94.7 | $45.8 | 48.4% | | Credit card revenue | $1.8 | $2.1 | $(0.3) | (14.3)% | | Servicing revenue | $10.5 | $7.1 | $3.4 | 47.9% | Operating Expenses - Total operating expenses increased by $17.8 million (37.4%) to $65.5 million for the three months ended June 30, 2025, mainly due to a $12.7 million increase in court costs, agency/repo commission, and other servicing expenses[177] - Salaries and benefits decreased by $6.0 million (48.8%) to $6.3 million, driven by the reversal of stock-based compensation expense due to the IPO[178] - Servicing expenses increased by $12.7 million (41.2%) to $43.5 million, primarily due to increased collections[179] - Professional fees increased by $7.3 million (347.6%) to $9.4 million, mainly due to one-time legal and professional fees incurred for the IPO[181] - Other selling, general and administrative expenses increased by $3.0 million (150.0%) to $5.0 million, primarily due to data processing and rent expenses from the Conn's purchase and a $0.7 million cost related to the Canada acquisition exit incentive[182] Other Income (Expense) - Total interest expense increased by $7.6 million (41.0%) to $25.8 million, driven by higher credit facility debt balance from increased deployments and increased amortization of note payable origination costs[183] Provision for Income Tax Expense - The Company incurred a year-to-date provision of $16.9 million to reflect the change in taxpayer status to a corporation as a result of the IPO reorganization[185] Segment Results of Operations (Three Months) United States - Total Revenue increased by $42.4 million (61.9%) to $110.9 million, with portfolio revenue growing 59.0% and servicing revenue growing 375.0%, largely due to the Conn's Portfolio Purchase[187][188] - Net Operating Income increased by $28.1 million (78.5%) to $63.9 million, with a margin of 57.6%, driven by the Conn's portfolio contribution of $19.5 million[192] - Salaries and benefits decreased by $6.6 million (90.4%) due to the reversal of stock-based compensation expense from the IPO[189] United Kingdom - Total Revenue increased by $0.6 million (4.6%) to $13.7 million, with portfolio revenue up 7.2% and servicing revenue up 1.6%[193][194] - Net Operating Income declined by $1.8 million (34.6%) to $3.4 million, with a margin of 24.8%, due to lower deployments and higher servicing expenses[196] Canada - Total Revenue increased by $4.7 million (32.4%) to $19.2 million, driven by higher deployments leading to a 35.4% increase in portfolio revenue and 300.0% in servicing revenue[197][198] - Net Operating Income increased by $4.9 million (53.3%) to $14.1 million, with a margin of 73.4%, due to higher revenue growth and prudent expense management[198] Latin America - Total Revenue increased by $1.2 million (15.4%) to $9.0 million, primarily from strong collection performance[199] - Net Operating Income increased by $0.3 million (6.0%) to $5.3 million, with a margin of 58.9%, due to higher revenues[201] Six months ended June 30, 2025 compared to six months ended June 30, 2024)) For the six months ended June 30, 2025, total revenues increased by 50.9% to $307.6 million, with net income growing by 71.9% to $111.9 million | Metric (Millions) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :---------------------------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Total Revenues | $307.6 | $203.8 | $103.8 | 50.9% | | Total Operating Expenses | $130.6 | $94.9 | $35.7 | 37.6% | | Net Operating Income | $175.9 | $107.1 | $68.8 | 64.2% | | Income Before Income Taxes | $128.8 | $68.9 | $59.9 | 86.9% | | Net Income | $111.9 | $65.1 | $46.8 | 71.9% | Revenues - Total revenues increased by $103.8 million (50.9%) to $307.6 million for the six months ended June 30, 2025, primarily due to increased deployments[203] | Revenue Component (Millions) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :--------------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Total portfolio revenue | $282.8 | $186.0 | $96.8 | 52.0% | | Credit card revenue | $3.7 | $4.3 | $(0.6) | (14.0)% | | Servicing revenue | $21.1 | $13.5 | $7.6 | 56.3% | Operating Expenses - Total operating expenses increased by $35.7 million (37.6%) to $130.6 million, driven by higher servicing expenses ($23.7 million), professional fees ($7.6 million for IPO), and other SG&A expenses ($5.8 million)[204] - Salaries and benefits decreased by $3.1 million (13.2%) to $20.3 million, due to the reversal of stock-based compensation expense from the IPO, partially offset by $6.0 million in costs for additional employees from the Conn's acquisition[205] - Servicing expenses increased by $23.7 million (37.9%) to $86.3 million, primarily due to increased collections and $6.7 million from the Conn's portfolio acquisition[206] - Professional fees increased by $7.6 million (190.0%) to $11.6 million, primarily due to one-time legal and professional fees incurred for the IPO[208] - Other selling, general and administrative expenses increased by $5.7 million (150.0%) to $9.5 million, mainly due to $4.0 million for data processing and rent from the Conn's location and a $1.0 million cost for the Canada acquisition exit incentive[209] Other Income (Expense) - Total interest expense increased by $15.2 million (42.8%) to $50.7 million, driven by increased deployments leading to higher credit facilities debt balance and increased amortization of note payable origination costs[210][211] Provision for Income Tax Expense - The Company incurred a year-to-date provision of $16.9 million to reflect the change in taxpayer status to a corporation as a result of the IPO reorganization[213] Segment Results of Operations (Six Months) United States - Total Revenue grew $91.7 million (67.4%) to $227.8 million, with portfolio revenue up 64.2% and servicing revenue up 388.2%, significantly boosted by the Conn's Portfolio Purchase ($54.7 million revenue, $6.8 million servicing revenue)[215][216] - Net Operating Income increased by $62.3 million (89.8%) to $131.7 million, primarily due to deployment growth and $36.9 million contributed from the Conn's portfolio[221] - Salaries and benefits decreased by $4.1 million (29.9%) due to the IPO's stock-based compensation reversal, despite a $6.0 million increase from Conn's acquisition employees[217] United Kingdom - Total Revenue decreased by $1.4 million (5.5%) to $24.0 million, primarily due to lower deployments leading to a 13.1% decrease in portfolio revenue[222] - Net Operating Income declined by $5.1 million (49.5%) to $5.2 million, due to lower deployments and higher servicing costs[225] Canada - Total Revenue increased by $9.1 million (32.9%) to $36.8 million, driven by higher deployments resulting in a 35.9% increase in portfolio revenue and 600.0% in servicing revenue[226][227] - Net Operating Income increased by $9.1 million (50.6%) to $27.1 million, primarily due to increased deployments[227] Latin America - Total Revenue increased by $4.4 million (30.1%) to $19.0 million, primarily due to strong collection performance[228] - Net Operating Income increased by $2.5 million (26.6%) to $11.9 million, driven by strong collection performance[229] Supplemental Performance Data as of June 30, 2025 - The Company's investment in receivables portfolios is categorized into Distressed and Insolvency, with collection practices adjusted for bankruptcy/insolvency status[231] - Purchase price multiples vary based on factors like pricing competition, supply levels, age and quality of receivables, and operational efficiency, with fresher accounts typically having lower collection expenses[232][234] | Segment (Millions) | Purchase Price | Life-to-Date Collections | Total ERC | Grand Total | Current Collection Multiple | Original Collection Multiple | | :----------------- | :------------- | :----------------------- | :-------- | :---------- | :-------------------------- | :--------------------------- | | US Distressed | $1,824.8 | $2,670.3 | $1,877.0 | $4,547.3 | 2.06x (2024) | 1.98x (2024) | | US Insolvency | $716.7 | $799.8 | $224.6 | $1,024.4 | 1.36x (2024) | 1.39x (2024) | | UK Distressed & Insolvency | $148.0 | $209.4 | $158.4 | $367.8 | 1.80x (2024) | 1.70x (2024) | | Canada Insolvency | $435.8 | $534.6 | $222.0 | $756.6 | 1.48x (2024) | 1.38x (2024) | | Canada Distressed | $224.9 | $393.8 | $126.5 | $520.3 | 1.90x (2024) | 1.83x (2024) | | Latin America Distressed | $136.5 | $105.4 | $244.3 | $349.8 | 2.52x (2024) | 2.35x (2024) | | Total (2025) | $300.5 | $33.9 | $540.8 | $574.7 | 1.91x | 1.91x | | Total (2024) | $723.3 | $391.4 | $1,020.9 | $1,412.3 | 1.95x | 1.88x | | Deployments by Geography and Business Line (Millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | | :-------------------------------------------------- | :--------------------------- | :--------------------------- | | US Distressed | $57.3 | $76.7 | | US Insolvency | $23.3 | $15.1 | | UK Distressed & Insolvency | $4.7 | $8.5 | | Canada Insolvency | $20.6 | $15.1 | | Canada Distressed | $6.1 | $9.0 | | Latin America Distressed | $13.3 | $16.1 | | Total Purchases | $125.3 | $140.5 | Liquidity and Capital Resources - As of June 30, 2025, unrestricted cash and cash equivalents totaled $51.7 million, with $16.0 million related to international operations. Management believes the Company has sufficient liquidity for the next twelve months and foreseeable future[252] - Total borrowings outstanding were $1,148.3 million (net of unamortized debt issuance costs) as of June 30, 2025, with $825.0 million available under the Revolving Credit Facility (subject to borrowing base and covenants)[253] | Metric (Millions) | June 30, 2025 | June 30, 2024 | | :-------------------------------- | :------------ | :------------ | | Total borrowings | $1,181.5 | $845.0 | | Unamortized debt issuance costs | $18.5 | $15.2 | | Unrestricted cash and cash equivalents | $(51.7) | $(10.5) | | Net debt | $1,148.3 | $849.7 | | Adjusted cash EBITDA (12 months) | $654.0 | $343.5 | | Leverage ratio (net debt / adjusted cash EBITDA) | 1.76x | 2.47x | - The Company was in compliance with all financing arrangement covenants as of June 30, 2025[256] | Metric (Millions) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net cash provided by operating activities | $158.4 | $47.8 | $210.0 | $83.1 | | Adjusted Cash EBITDA | $204.1 | $101.7 | $414.7 | $191.4 | Cash Flows Analysis for the Six months Ended June 30, 2025 and 2024 | Cash Flow Activity (Millions) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :---------------------------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Operating activities | $210.0 | $83.1 | $126.9 | 152.7% | | Investing activities | $(66.9) | $(164.0) | $97.1 | (59.2)% | | Financing activities | $(122.6) | $73.7 | $(196.3) | (266.4)% | | Net increase (decrease) in cash and restricted cash | $17.3 | $(7.1) | $24.4 | (343.7)% | - Net cash provided by operating activities increased by $126.9 million (152.7%), primarily due to collections recognized as revenue offset by operating expenses, interest, and income taxes[268] - Cash used in investing activities decreased by $97.1 million, primarily due to increased collections applied to investment in receivables ($154.7 million increase)[270] - Cash flow from financing activities decreased by $196.3 million, primarily due to payments on borrowings under the credit facility[271] Contractual Obligations | Obligation (Millions) | Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years | | :-------------------- | :---- | :--------------- | :---------- | :---------- | :---------------- | | Operating Leases | $5.9 | $1.4 | $2.3 | $1.4 | $0.8 | | Long-term debt | $847.8 | $42.0 | $380.5 | $425.3 | $— | | Purchase commitments | $257.3 | $218.8 | $38.5 | $— | $— | | Other Liabilities | $9.0 | $— | $9.0 | $— | $— | | Total | $1,120.0 | $262.2 | $430.3 | $426.7 | $0.8 | Critical Accounting Estimates - Critical accounting estimates include total portfolio revenue (forecasting cash collections, applying discounted cash flow methodology) and allowance for credit losses (estimating expected credit losses on credit card receivables)[275][276][278] | Impact of ERC Change (Millions) | 1% Reduction in ERC | 1% Increase in ERC | | :------------------------------ | :------------------ | :----------------- | | 2025 Impact on Income Before Taxes | $(24.3) | $24.3 | | 2024 Impact on Income Before Taxes | $(18.2) | $18.2 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risks including interest rate, foreign currency, inflation, and concentration risks Interest Rate Risk - The Company is subject to interest rate risk from borrowings on its Revolving Credit Facility and interest-bearing deposits. As of June 30, 2025, with $0.0 million in variable rate credit facilities, a 50 basis point change in interest rates would result in an estimated $0.0 million change in interest expense over 12 months[284] Foreign Currency Exchange Risk - International operations expose the Company to foreign currency exchange rate fluctuations (e.g., British pound, Canadian dollar) against the U.S. dollar, which can affect revenue and operating expenses. The Company does not currently hedge against these risks[285][286] Inflation Risk - Inflation has not had a material effect on the business, but significant inflationary pressures, especially on labor costs, could harm financial results if not offset by price increases[287] Concentration Risk - A substantial percentage of purchases are concentrated with a few large sellers; the top five clients accounted for 41.0% and 40.4% of deployments for the six months ended June 30, 2025 and 2024, respectively[288] - The Company mitigates concentration risk through a diversified client base and forward flow purchase agreements, with $257.3 million in committed forward flows as of June 30, 2025[289][290] Item 4. Controls and Procedures Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting Limitation on Effectiveness of Controls and Procedures - Management recognizes that controls and procedures can only provide reasonable assurance due to inherent limitations and resource constraints[291] Evaluation of Disclosure Controls and Procedures - The CEO and CFO concluded that disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2025[292] Changes in Internal Control over Financial Reporting - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[293] Part II. Other Information Item 1. Legal Proceedings The Company is subject to various legal proceedings, none expected to materially affect its financial condition or operations - No material pending legal proceedings to which the Company or its subsidiaries are a party as of June 30, 2025, and December 31, 2024[116][295] Item 1A. Risk Factors Investing in the Company's common stock involves substantial risks across business, international operations, regulation, IT, and finance Risks Related to our Business - Deterioration in economic or inflationary environments could adversely affect revenues and asset values, as well as consumers' ability to pay debts, impacting business and financial results[297] - Inability to continually replace nonperforming loans at appropriate prices or collect sufficient amounts could lead to operational inefficiencies, reduced profitability, and difficulties funding operations[300][303][304] - Increased insolvency proceedings and bankruptcy filings involving liquidations could decrease collections on unsecured receivables, adversely impacting financial condition[305][306] - Disruptions or failures by third-party outsourcing/offshoring partners (e.g., Mumbai co-sourced operation) could adversely affect business operations, financial condition, and reputation[308][309] - Goodwill impairment charges could negatively impact net income and stockholders' equity due to adverse macroeconomic conditions, significant variances in financial results, or other factors[310][311] - Loss contingency accruals may not be adequate to cover actual losses from legal proceedings, potentially impacting business and financial condition[312][314] - Solicitors of Moriarty (UK law firm subsidiary) must prioritize client interests, which may conflict with the Company's financial interests, and regulatory bodies could impose sanctions[315] - Expected collections from the Conn's Portfolio Purchase may not be realized, or associated expenses (e.g., FTE integration, vendor contracts) may be higher than anticipated, adversely impacting financial results[317] Risks Related to Our International Operations - International operations expose the Company to adverse economic, political, and social conditions, foreign exchange controls, currency fluctuations, and varying regulatory environments, which could harm business and financial results[318][319][320] - Lack of collection experience with new asset classes or in new geographies could lead to losses and negatively impact expected profits[321] - Compliance with complex and evolving international and U.S. laws (e.g., anti-corruption, sanctions, tax laws like OECD Pillar Two) could increase costs, restrict operations, and harm the business[322][324] - Evolving regulation in Latin America, particularly regarding new technologies like AI, could impose greater restrictions on debt collection practices, increasing compliance costs or limiting operational effectiveness[325][326] Risks Related to Government Regulation and Litigation - The ability to collect and enforce loans is limited by extensive and evolving federal, state, and international laws and regulations, including consumer protection and data privacy laws[327] - Failure to comply with collections industry regulations (e.g., licensing, consumer protection, unfair practices) could result in penalties, fines, litigation, reputational damage, or suspension of business operations[328][330][333][334] - Investigations or enforcement actions by governmental authorities (e.g., CFPB) could lead to changes in business practices, reduced deployment volume, increased collection difficulty, fines, restitution, and litigation[335] - Changes in tax provisions or successful challenges by tax authorities could result in additional tax liabilities, significantly impacting financial condition or results of operations[336][337] - Recent changes in U.S. trade policy (e.g., tariffs) could indirectly affect the debt purchasing and collections industry by influencing consumer behavior, financial stability, and market volatility[338][339] Risks Related to Information Technology, Cybersecurity and Intellectual Property - Evolving data privacy regulations globally (e.g., EU GDPR, U.K. GDPR, GLBA, CCPA) and an inability to manage data governance structures could increase compliance costs and decrease competitiveness[340][341] - Dependence on data gathering systems and proprietary consumer profiles means loss of access or public disclosure of such data could materially and adversely affect the business and competitive advantage[345][346] - Cybersecurity incidents could damage reputation, disrupt systems, compromise sensitive information, and lead to significant costs, fines, penalties, and litigation, potentially not fully covered by insurance[347][349][350] - Underperformance or failure of IT infrastructure, networks, or communication systems could result in productivity loss, competitive disadvantage, and business disruption[351] - Inadequate protection of proprietary software, processes, and techniques (trade secrets) could diminish competitive advantage. Claims of intellectual property infringement by third parties could be costly to defend and result in significant damages[352][353] - Use of third-party open-source software components carries risks, including potential requirements to disclose proprietary software source code under "copyleft" licenses, which could erode competitive advantages[354][355] - The use of machine learning and AI technologies, if incorrectly designed, reliant on poor data, or lacking sufficient oversight, could adversely affect products/services, harm reputation, or incur liability[358][360] Risks Related to Our Financial Condition and Indebtedness - The Company expects to use substantial leverage, with $1,181.5 million in consolidated indebtedness as of June 30, 2025, which could make it difficult to satisfy obligations, increase vulnerability to adverse conditions, and limit access to additional financing[361][362] - Inability to generate sufficient cash flow or complete alternative financing plans (refinancing, asset sales, raising capital) to meet debt service obligations could materially affect the business and delay expansion[363][364] - Agreements governing indebtedness contain restrictive covenants that may limit financial and business operations, and failure to satisfy these could lead to acceleration of debt, inability to purchase loans, or inability to secure alternative financing[365][366][368] - Adverse changes in credit ratings could negatively impact the ability to access capital markets at attractive rates and increase borrowing costs[371] Risks Related to Ownership of Our Common Stock - JCF Stockholders control approximately 67.6% of voting power, enabling them to control corporate decisions and potentially pursue interests conflicting with other stockholders, as the corporate opportunities doctrine is waived[372][374][375] - An active, liquid trading market for common stock may not be sustained, limiting the ability to sell shares and potentially causing the stock price to decline due to market volatility or company-specific factors[376][377] - Sales of a substantial number of shares after lock-up periods or under equity compensation plans could significantly reduce the market price of common stock[378][380] - There is no assurance that the Company will continue to declare cash dividends or repurchase shares, as policies may change based on financial condition, capital requirements, and contractual restrictions[381] - As a "controlled company" under Nasdaq rules, the Company qualifies for exemptions from certain corporate governance requirements, meaning stockholders will not have the same protections as those of fully compliant companies[382][383] - As an "emerging growth company," the Company uses reduced reporting and disclosure requirements, which might make its common stock less attractive to some investors and lead to more volatile stock prices[384][386][387] - The requirements of being a public company may strain resources and distract management, particularly after losing "emerging growth company" status, increasing legal and financial compliance costs[388][389][391] - If securities or industry analysts cease coverage, adversely change recommendations, or if results do not meet expectations, the stock price and trading volume could decline[393] General Risk Factors - Failure to develop and maintain effective internal control over financial reporting to comply with Section 404 of Sarbanes-Oxley Act could adversely affect investor confidence and stock value[394][395][397] - Future issuances or sales of common stock will be dilutive to existing stockholders and could adversely affect the prevailing price of common stock[401] - Anti-takeover provisions in the Company's charter and bylaws, and certain Delaware law provisions, may delay or prevent a change of control, potentially affecting the stock price[402][403][405] - Exclusive forum provisions in the charter and bylaws for certain disputes may limit stockholders' ability to bring claims in preferred judicial forums, potentially discouraging claims or increasing costs[406][409] - As a holding company, reliance on dividends and distributions from subsidiaries means restrictions on subsidiaries' ability to pay dividends or deterioration of their earnings could limit the Company's ability to meet its obligations[412] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company completed its IPO on June 27, 2025, generating $3.1 million net proceeds, with no unregistered sales or changes in use - The Company issued and sold 10 million shares of common stock in its IPO on June 27, 2025, at $15.00 per share, generating net proceeds of $3.1 million after expenses[415] - No unregistered sales of equity securities occurred, and there have been no material changes in the expected use of net proceeds from the IPO[414][416] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities - No defaults upon senior securities[418] Item 4. Mine Safety Disclosures Not applicable - Not applicable[419] Item 5. Other Information This section reports no Form 8-K disclosures, no changes to board nominee procedures, and no Rule 10b5-1 trading activity - No disclosure in lieu of reporting on a Current Report on Form 8-K[420] - No material changes to the procedures by which security holders may recommend nominees to the board of directors[420] - None of the directors or officers adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the three months ended June 30, 2025[421] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, indentures, plans, and certifications - The exhibits include the Amended and Restated Certificate of Incorporation and Bylaws, Specimen Stock Certificate, Indentures for 6.000% Senior Notes due 2026, 9.500% Senior Notes due 2029, and 8.250% Senior Notes due 2030[422] - Also included are the 2025 Incentive Award Plan, forms of Restricted Stock Unit Grant Notice and Agreement, Stock Option Grant Notice and Agreement, Restricted Stock Agreement, and Indemnification Agreement[423] - Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed/furnished[423] Signatures The report was duly signed by David Burton, CEO, and Christo Realov, CFO, on August 14, 2025 - The report was signed by David Burton, CEO, and Christo Realov, CFO, on August 14, 2025[426]