Jefferson Capital, Inc. / DE Q4 FY2025 Earnings Call

Good afternoon, and welcome to Jefferson Capital's Fourth Quarter and Full Year 2025 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, expected benefits of the Bluestem acquisition, expectations on the market and macroeconomic factors, and expected collections and growth in certain collections. Such statements are based upon management's current expectations, projections, estimates, and assumptions. Words such as expect, believe, anticipate, think, outlook, hope, and variations of such words and similar expressions identify such forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause future results to differ materially from those suggested by the forward-looking statements. Such risks and uncertainties are further disclosed in the company's most recent filings with the Securities and Exchange Commission. Shareholders, potential investors, and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements. The company does not undertake to update the forward-looking statements, except as required by law. Also, during this conference call, the company will be presenting certain non-GAAP financial measures. Reconciliations of the company's historical non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's earnings press release. And now I'll turn the call over to David Burton.

Thank you, operator, and thanks, everyone, for joining our investor call. On January 9, we completed our first follow-on offering post IPO, which substantially improved our float and liquidity and reduced the J.C. Flowers ownership to 53%. I'd like to welcome our new investors to the call. We appreciate your support, and we look forward to delivering on the investment thesis we laid out in the road show. Let's dive into our fourth quarter financial performance highlights. We again generated strong results for shareholders. We delivered record collections at $245 million, up 41% versus the prior year period, and we continued to perform well on our underwriting expectations. We generated record deployments with $381 million invested, up 6% versus the fourth quarter of 2024, which had also been a record quarter. Our estimated remaining collections also reached a new record at $3.4 billion, up 23% year-over-year, driven by our continued deployment performance and attractive anticipated returns. Revenue for the quarter was a record $155 million, up 30% versus the prior year period. We delivered a sector-leading cash efficiency ratio of 71%, driven in part by strong collections from the Conn's portfolio purchase. Adjusted EPS for the quarter was $0.69. The previously announced Bluestem portfolio purchase closed on December 4, and we believe the transaction solidifies our leadership position as a strategic acquirer of a wide spectrum of dislocated consumer credit portfolios. We're pleased with the portfolio's performance to date and expect Bluestem to be a meaningful contributor to our financial results in 2026. 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. I'll start with delinquency trends, which remain elevated across all nonmortgage consumer asset classes and create favorable portfolio supply trends. An important component to better understand the state of the consumer is the current level of personal savings. During the pandemic, consumers accumulated abnormally high savings as a result of the unprecedented levels of government stimulus, which served as a financial cushion against life's unexpected events. By the end of 2022, the excess savings had been depleted. And in fact, the current level of personal savings at $831 billion is substantially lower than the long-term prepandemic average from 2013 to 2019 of $1.1 trillion, which becomes even more pronounced when adjusted for inflation. This suggests that consumers have a more limited ability to absorb unanticipated temporary financial hardships, which is an important driver for delinquency and charge-off volumes. Next, regarding the insolvency market, we've seen a well-pronounced increase in the number of insolvencies, both in the U.S. and in Canada from the pandemic trough in 2021, which in turn has fueled the resurgence in supply of insolvency portfolios. Insolvency valuation and servicing requires highly specialized expertise, a robust data set to develop accurate forecasts, and a technologically advanced servicing platform. And we remain one of the very few debt buyers in the U.S. and by far, the largest debt buyer in Canada that can take advantage of this market opportunity. Finally, this backdrop 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. Our portfolio performance is less sensitive to changes in unemployment compared to an originator. And despite the recent negative surprise on unemployment, current employment levels are still very favorable for our business. All of these trends point in one direction, elevated levels of consumer delinquencies and charge-offs, which we're 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 strong collection performance on our existing book and on any future portfolio purchases. Next, I'll review our outstanding 2025 performance in the context of our long-term financial results, starting with 2019 as a prepandemic full-year reference. We have successfully navigated credit cycle fluctuations, changing market dynamics, and evolving regulatory framework, and a global pandemic while continuously improving our financial performance through a combination of sustained growth and acute focus on returns. We delivered a 27% revenue compounded annual growth rate, a 37% net operating income compounded annual growth rate, and a 43% net income compounded annual growth rate from 2019 through 2025, showcasing our growth trajectory, efficiency improvements, and the profitability of the business. I believe there are very few debt buyers globally who can demonstrate this level of profitability and recurring growth through changing market and economic conditions. I'd also observe that Jefferson Capital is much better positioned today to take advantage of opportunities relative to earlier periods in our history. We have a much more scaled operation and are much more broadly diversified both geographically and across asset classes, which allows us to evaluate a substantially wider funnel of opportunities. We also have a more sophisticated collection capabilities today and a lower cost to collect, which in turn should further improve our net returns. And today, we have a much more robust funding structure with proven access to both the banks and the unsecured debt capital markets at an attractive borrowing cost. Simply put, Jefferson Capital is in a solid position to continue to deliver on its outstanding financial track record in the coming years and to build shareholder value. Moving on, I'd like to review in more detail some key performance trends for the quarter. Our collections, as I mentioned, were $245 million, up 41% year-over-year, driven by strong deployments in 2023 and 2024. The Conn's portfolio purchase represented $36 million of collections for the quarter and the Bluestem portfolio, which closed on December 4, represented $14 million. We've completed all necessary servicer transitions for Bluestem and the portfolio is performing according to expectations. 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. 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 have achieved a number of important process improvements, specifically in the United States, which have significantly compressed the timing from placement of the account to filing of the suit, 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. So over time, we expect to see continued growth in legal collections. Our portfolio purchases for the quarter were $381 million, up 6% despite the fourth quarter of 2024, including the Conn's portfolio purchase. Returns remain attractive, and we remain confident in the deployment landscape. As of December 31, we had $274 million of deployments locked in through forward flows, which is an important building block of our deployment strategy for the coming quarters. I will note that our business is subject to pronounced seasonality. The fourth quarter is typically the largest quarter for deployments as credit originators aim to dispose of nonperforming portfolios ahead of year-end. Deployments then tend to decelerate in the first quarter as portfolio sales activity declines as originators want to take advantage of consumer liquidity related to tax refunds in the United States. Our estimated remaining collections as of December 31 were $3.4 billion, up 23% year-over-year with ERC related to Conn's and Bluestem comprising $140 million and $296 million of our U.S. distressed ERC, respectively. Our ERC is relatively short in duration due in part to the lower average account balances in our portfolio with 58% expected to be collected through 2027. We expect to collect $1.1 billion of our December 31 ERC balance during the next 12 months. Based on the average purchase price multiples recorded in 2025, we would need to deploy approximately $582 million globally over the same time frame to replace this runoff and maintain current ERC levels. I would note that as of December 31, we had $225 million of deployments contracted via forward flows for the next 12 months. Lastly, I'd like to review in more detail another core pillar of our business model and a critical building block of our differentiated return profile, our best-in-class operating efficiency. We seek to own the 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 process and techniques that we believe create both a competitive advantage for the company as well as a significant barrier to entry. In contrast, 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, allocate portfolio segments to the best servicers, and our internal collection platform competes for market share against external collection service providers. Our mostly variable cost structure provides flexibility to scale deployments depending on market conditions. The benefits of our relentless pursuit of operating efficiency are evident in our efficiency metrics relative to the rest of the sector. As I mentioned, our cash efficiency ratio for the quarter was 71%. It was aided by the collections on the Conn's portfolio, which carry lower cost to collect given the significant portion of paying accounts in the Conn's portfolio and to a lesser extent, the Bluestem portfolio, which benefited the month of December. Excluding the Conn's and Bluestem portfolio collections and expenses, the cash efficiency ratio would have been 68%, which remains 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.

Thank you, David. Taking a closer look at the financial details for the fourth quarter. Revenue was $155 million, up 30% year-over-year, driven by continued strong deployments and higher net yields. Changes in recoveries were $0 million for the quarter, reflecting the accuracy of our modeling and our execution against our underwritten forecast. Operating expenses were $84 million, up 30% year-over-year compared to an increase in collections of 41%. Court costs increased to $17.7 million, or 86% year-over-year, as a result of the trends in the increased legal channel volumes that David reviewed in his comments. This is an upfront expense to support future collections through the legal channel and the accelerated time to suit pulled forward these expenses. We expect core costs to remain at this level given the increased inventory of suit-eligible accounts resulting from the significant overall portfolio growth over the past several years. Adjusted pretax income was $51 million for the quarter, up 15% year-over-year, resulting in adjusted pretax ROE of 44.8%. We realized a material level of collections on portfolios purchased in 2023 and 2024, including the Conn's portfolio purchase, which in turn drove adjusted cash EBITDA to $178 million for the quarter, up 34% year-over-year. Finally, for the fourth quarter, Jefferson Capital recognized portfolio revenue of $15.5 million, servicing revenue of $1.3 million, and net operating income of $10.7 million related to the Conn's portfolio purchase. Separately, we recognized portfolio revenue of $5.4 million and net operating income of $2.5 million related to the Bluestem portfolio purchase, which closed on December 4. Moving on to the full year results. We delivered strong performance in 2025, while setting several important operating milestones by recording the highest annual collections, deployments in ERC in the company's 23-year history. That performance in turn drove record revenue, net operating income, adjusted pretax income, and adjusted cash EBITDA. Our cash efficiency ratio for 2025 was 74%. And excluding the Conn's and Bluestem portfolio collections and expenses, the ratio would have been 69.7%. Our credit profile remains strong and positions us well for future opportunities. As of December 31, our net debt to adjusted cash EBITDA improved to 1.9x, a level which is significantly lower than our publicly traded peers. Over the long term, our target leverage ratio is in the range of 2x to 2.5x on a sustained basis. Our balance sheet is solid with ample liquidity to support growth, create strategic optionality, and pay our quarterly dividend. On October 27, we completed an amendment of our senior secured revolving credit facility, which achieved a number of capital structure objectives and substantially improved the terms. We increased the aggregate committed capital by $175 million to $1 billion and added 2 new lenders to the bank group. We refreshed the tenor of the facility to 5 years with an effective 2.5-year extension. We improved pricing by 50 basis points across the grid and eliminated the credit spread adjustment for an aggregate interest expense savings on the drawn balance of the facility of 60 basis points. We also reduced the nonuse fee rate for unutilized commitments by 5 basis points. The facility had $232 million drawn at December 31, and we have earmarked $300 million of capacity to repay our 2026 bonds in May of 2026. Given the maturity was fully prefunded with a $500 million unsecured issuance in 2025 and at this point we are not taking on any market risk, we plan to keep the bonds outstanding as long as possible to take advantage of the attractive 6% coupon. This strong liquidity profile is a critical component of our value proposition to sellers who value certainty of costs in periods when portfolio activity increases, but funding markets could be constrained or unavailable. With regard to our capital allocation priorities, our primary focus remains on deploying capital to purchase portfolios at attractive risk-adjusted returns. Our Board has declared a regular quarterly dividend of $0.24 per share, which represented a 4.7% annualized yield as of February month end. The dividend offers an attractive component of shareholder return, which is not available from other public companies in the sector, and it also reinforces long-term discipline around investment returns. In conjunction with the follow-on equity offering in January, we also repurchased 3 million shares or approximately 5% of the total legally issued shares for $59 million. This was a tactical share repurchase where the company used its capital to support the offering and to reduce the sponsor overhang. We will evaluate open market share repurchases at the appropriate time while also aiming to maintain liquidity in the stock. Finally, we have a long history of successful M&A, but we intend to remain disciplined and opportunistic.

Now we will be happy to answer any questions that you may have. Operator, please open up the lines.

I guess probably obligatory to lead off, Dave, with maybe just some questions about your thoughts about maybe some of the macro uncertainties and whether it's employment headlines or the prospect of sustained elevated energy costs. Do any of these factors color how you're viewing the purchasing environment and maybe the types of bids you're putting in? Just trying to get a sense for whether it's just too early to really conclude that the macro in the U.S. has shifted much or whether you feel like we're starting to see some of the signs that maybe people saw in 2022 when inflation set in?

Thanks for the question, David. I guess let me answer that question in two different ways. The first way would be that the incremental pressure that energy costs would have and some modest deterioration in employment could have. That modest on-the-margin impact is likely to really just impact delinquencies and charge-offs. That minor movement is not apt to change liquidation rates on charge-off accounts because a charge-off tends to be a consumer who has had one of three things happen: either they've lost their job, they've had a divorce, or they've had a health care issue that has either caused them to incur an uninsured medical bill or a health care situation that keeps them out of work temporarily. And so, I think the net of the current environment is probably a net positive for us on the supply side and not likely, and certainly, we see no indications of it impacting expected liquidation rates.

As a follow-up, regarding the deployment side and purchase volumes, the insights from the flow deals concerning the next 12 months are valuable. I'm curious if there are any trends among your sellers regarding their willingness to engage in more flow deals or less. Additionally, as you plan for the year, do you typically have a percentage of total deployment that you aim to have secured by January 1 through flow deals, or is it more opportunistic based on available terms?

Thank you for your insightful questions. I hope I can remember them all to provide thorough answers. To start, we do not target a specific percentage of our deployments for forward flows. Historically, about half of our deployments have been in forward flows. However, if forward flows are priced in a way that does not meet our return targets, we wouldn’t feel compelled to maintain this historical composition. We have always been very focused on returns. The sectors where we lead tend to show a consistent pattern of forward flows, and as a result, our future committed forward flow volume has remained relatively stable. Regarding your second question about market trends, I would say the answer varies by geography. The United States is the leading market for forward flows, while most other countries we operate in emphasize forward flows much less. Canada has the next highest percentage of forward flows among our deployments, followed by the U.K. and then Latin America, where there are virtually no forward flows. In fact, we were among the first to introduce a forward flow in the Colombian market. It’s important to note that the differences are not just geographical; there are also variations across asset classes. For instance, while we lead in the auto sector, it has historically been reluctant to adopt forward flows, although we're starting to see more discussions about it now. However, this has not yet resulted in a significant increase in forward flows for Jefferson Capital. Still, I am optimistic that our long-standing leadership in this market and the growing conversations among sellers will eventually lead to more forward flows, as we prefer to have committed future purchases at favorable returns.

No, it's an interesting opportunity. I have one more question to conclude. This is for Christo. Considering the pace at which the Conn's portfolio is running off this year, along with the half-life on the Bluestem collections, should we expect a return to the 68% efficiency ratio by the end of the year? Or are there other efficiencies and process improvements that might maintain the ratio at 70% or above even with those two low-cost collection portfolios?

Yes, look, I think we certainly have a substitution effect that you see. You can see that the headline cash efficiency ratio trended down over the course of 2025 as the collections coming out of the Conn's portfolio declined. And now we're going to essentially reup, and the Bluestem would have virtually the same impact, and it's similar in size. And we expect that to effectively take, of course, over the course of 2026, as we have discussed before. We also provide the underlying cash efficiency ratio, excluding any collections and expenses from both Conn's and Bluestem, and that would be in the high 60s as an underlying trend, excluding the impact of performing portfolios.

David, your commentary about supply is very interesting. Any way to characterize how much of an increase you've seen? Is it single digits, double digits? I wonder if you could maybe give us a little more detail there.

And that's specifically as it relates to volume of charged-off accounts or insolvencies.

Yes, just the opportunity set that you're seeing.

Yes. There are a couple of factors to consider. Firstly, the fourth quarter is typically the largest for originators to sell due to the seasonal nature of the business, while the first quarter tends to be a low point because of tax season. Both of these aspects are likely more significant than any changes in charge-off trends. As a result, it’s challenging to assess a consistent state during these quarters. I wish I could provide clearer insights, but I believe the second quarter will provide a better basis for drawing conclusions. One thing I can confirm is that the elevated levels of supply have been in effect for some time and are generally continuing.

Very good. How about the returns? Have the return profiles been reasonably stable across your portfolio and purchases? Your returns have certainly been very attractive. Are we looking at the possibility of maintaining that, or perhaps improving a bit? How do you view that?

Yes. So I would say that our returns have been pretty stable. And I think pricing is pretty stable in the market and fairly predictable. And that our win rates, which is another gauge of the level of competition, have been steady.

Yes. I would say for 2026, we now have a full clean year. And as such, I think something that's in the 24% to 25% is appropriate to estimate the tax provision. So call it 24.5% would be what I would use for '26 for full year.

And how about for 4Q, is the adjusted EPS number based on a 14.5% tax rate?

Yes. While that may reflect the effective tax rate, it's important to note that it includes the full year tax provision required; however, we have only been taxed as a taxpayer for half of the year since the IPO. Therefore, it does not accurately represent future expectations. Looking ahead, the situation should be relatively straightforward. There isn't anything unusual from a tax standpoint, apart from the fact that we are not paying cash taxes. For estimating the tax provision in the future, I would suggest a rate of 24.5%.

I'm sorry, I missed the part where you discussed the potential share buybacks in the future. What is the current authorization? What is your stance on that? Do you plan to be active?

No, the posture is that the $3 million that we repurchased was very much a tactical repurchase in conjunction with the follow-on offering. At present time, our focus is on deploying capital at attractive risk-adjusted returns in portfolio purchases. We will evaluate open market share repurchases in the future. But at present time, we, of course, are also focused on developing better liquidity and better float for our investors.

Congratulations on completing a busy year. My first question is about deployments. You have a diverse range of products and markets. Could you provide details about the deployments, specifically the markets and products involved? Also, have there been any notable shifts in those deployments over the past few quarters?

One of the most significant and encouraging changes has been an increase in deployments in insolvencies, an area where we face very limited competition due to the few companies capable of valuing or servicing those accounts in the U.S. and Canada. Our deployments closely align with the rise in filings across the country. Additionally, our ability to pursue attractive deployments in Bluestem and Conn's highlights our unique capability and offers a strong risk-adjusted return profile. This marks a shift in our composition compared to 2023 and earlier. Overall, the trends have been fairly consistent with previous quarters, reinforcing the appeal of our markets and asset class specialization. The geographic diversification we've chosen has further supported our investment strategy in these markets. We are achieving favorable returns across all the areas we operate in, both in terms of asset classes and geographies.

A follow-up question is about acquisitions. You've shown solid organic growth and have successfully expanded through acquisitions over time. How would you describe the current pipeline?

So I'm going to separate my comments into these runoff portfolios that in the form of like Conn's and Bluestem, which we have a unique capability set to value, navigate, integrate, and execute on. During '25, we saw more of those opportunities than we've ever seen. But that resulted in two very large purchases. And sometimes a process like that takes a long time to conclude. And so we're eager to evaluate opportunities in that space, and we're active. But there's, of course, no certainty on any one of those. Our hope would be that while we've done this successfully in the installment loan space and in credit cards that we could, over time, expand our capabilities to include some of the other asset classes that we're in.

Actually, in terms of areas of potential growth, have you seen pricing become more interesting in areas like prime credit cards? Or is that still not quite there yet?

I would say prime credit card continues to be an area that our win rate has been pretty consistent. So I don't know that we're seeing much change in pricing of those assets. And we obviously would welcome pricing to reflect better returns in those asset classes, but we're not really seeing much in the way of change, even though there has been a modest increase in supply.

And then just there's obviously been a lot of concern about AI-driven white-collar job loss. It seems very early to think about what that means, but is that something that you guys have thought about in terms of the way it potentially impacts supply performance? Or is it just early for that?

Yes. I think it would be early for that. And of course, it depends on who you read as to what the impact is going to be. I've read the full gamut of how all the formation of all these AI companies is leading to more demand for staff. But at the same time, there's efficiencies that are happening by the deployment of AI in various parts of other companies. So hard to know. I certainly don't consider myself an expert. What I do know is that we look at employment trends pretty closely. And we have a long way to go before an elevated level of unemployment would begin causing concern for us with respect to our ability to achieve our underwritten collection forecasts.

Congratulations on the past year and the start of the new one. Most of my questions have already been addressed. Regarding tax season, as you mentioned, it's that time of year in the U.S. Even though it’s early in the season, around 50 million returns have already been filed and processed, which represents about one-third of the total. This is a solid sample size, and the average refund amount has increased by almost 9%. Are you observing anything in the data that suggests the macroeconomic trends are not negatively impacting you, and could the tax season actually provide some advantages? Have you noticed any unusual trends, such as an increase in the use of payment plans or a rise in spot payments? I understand it's early in Q1, but I wanted to ask anyway.

I understand your question, and your insights seem quite reasonable. I can share that things are aligning with our expectations. I wouldn't indicate anything significantly higher or lower. We still anticipate reaching our projected outcomes for the quarter, which includes some seasonal factors. Additionally, we have seen only modest changes in expected recoveries and collection performance compared to our forecasts for this quarter, which netted to zero. I recognize this might differ from what you expected, and that could be why there are some inquiries in this area. However, this has not historically been a source of additional earnings for us.

One more question for Christo about the efficiency ratio. There are several factors to consider, including some seasonality and the gradual decline of Bluestem's benefits as we approach the second half of the year. If we discount that and focus on the underlying efficiency, are there any new initiatives in the pipeline? You continuously work on improving the internal rate of return with strategies like the Champion-Challenger model and the Mumbai center. Are there any new initiatives planned that could enhance the underlying metrics beyond the effects of Conn's and Bluestem as we progress this year and potentially into the longer term, considering it’s challenging to adjust that number within a 12-month period?

We have always placed a strong focus on implementing numerous initiatives each year to enhance our efficiency and effectiveness, and this year is no exception. We have a comprehensive list of projects we plan to address, but we prefer not to disclose the specifics. However, the ongoing improvement in our cost to collect is a trend we expect to maintain, assuming we achieve continued success with our initiatives as we have in previous years.

I'm mostly covered at this point. But the one thing that stuck out to me that I thought was interesting is you mentioned these process improvements that are leading to, I think, more effective suit activity in the collection process. And I think of the court system as being slow still, and maybe I'm not thinking of it the right way. But can you explain a little bit more like how those process improvements have helped in that area?

First of all, you're correct that the court systems are not speeding up. While some jurisdictions may be moving faster, overall, I don't expect the court processes to improve in speed. However, we have made significant progress in our efficiency regarding the preparations we undertake before filing a suit. Different courts, asset classes, and states have various requirements for what needs to be submitted at the time of filing. Over time, these requirements have become more extensive and specific. A process that required fewer stringent requirements ten years ago has now become much more complex, which has added time to the overall process. We have focused on improving efficiency in this area since the beginning of last year, and by the third quarter, we noticed an increase in our suit volume. So, it’s not the courts that are the issue; it’s all the preparation we do before filing.

But I guess the follow-up is, does all that great automation of the process lead to a better result? Or is it just that more is getting through the process faster, so we're seeing it faster?

Yes. So there's really two aspects of it that are improvements. The first is you just have this compressed time frame, which obviously also has an NPV impact. If you start the suit sooner, you're going to get to the collections from that suit sooner. The other aspect is to the extent that after starting the process, there were components of the process, which then required incremental materials that were not provided right upfront, that then would cause a fair amount of delay, if you will, or added time. So there's a secondary compression that also has occurred from the process that we implemented.

Can you guys hear me?

Yes.

Building on that collection strength you've shown all year, can you talk about the quality of those collections, specifically whether you're seeing any change in the mix between onetime settlements, payment plans, and now with the legal recoveries that you talked about, would that make the cash flow profile more durable as we move through 2026?

Let me see if I can answer that in a way that gets at, I think, what you're looking at. The distribution of payment types and payment size has been pretty consistent over the last couple of years. I would say there was a different payment pattern that occurred during the government stimulus, which did involve more settlements and higher onetime payments, but that has reverted to the mean by the end of 2022. And with the legal channel, you've leaned harder into the legal channel with court costs almost doubling, and I think you've alluded to that in a question. As we look at 2026, how should we think about the returns for the legal channel? Is there still room to scale that profitably? Are you reaching more of a near steady state? The volume of legal accounts is in line with our expectations. As we invest more capital and acquire additional portfolios, this naturally increases the volume within the legal channel. However, since court costs are recognized upfront, the impact is more noticeable when that volume enters the legal segment. I wouldn't say our efforts in legal and the growth in volume are inconsistent with our expectations. We are not encountering a significant inventory that suddenly becomes more profitable. We are still aligned with our initial projections. With our increased investments in 2023, 2024, and 2025, specifically in U.S. distressed assets and somewhat in the U.K. and Canada, as the accounts progress through the voluntary collection process and as we finish that phase, the accounts that qualify for legal action and remain profitable after accounting for court costs will naturally transition to the legal channel at that point. I hope that clarifies things. No.

And we have reached the end of the question-and-answer session. Therefore, I will now turn the call back over to CEO, David Burton, for closing remarks.

Thank you. 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 last 23 years, and we're in a great position to capitalize on opportunities as the market continues to evolve. Thank you all for joining us today, and we look forward to providing another update on our first quarter earnings call.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation. Have a great day.