Consecutive quarters of growth in revenue coupled with continued growth in customers served
ATLANTA–(BUSINESS WIRE)–Atlanticus Holdings Corporation (NASDAQ: ATLC) (“Atlanticus,” “the Company”, “we,” “our” or “us”), a financial technology company which enables its bank, retail and healthcare partners to offer more inclusive financial services to millions of everyday Americans, today announced its financial results for the third quarter ended September 30, 2022. An accompanying earnings presentation is available in the “Investors” section of the Company’s website at www.atlanticus.com or by clicking here.
Third Quarter 2022 Highlights (all comparisons to the prior year period)
Total operating revenue increased 36.3% to $277.9 million.
Purchase volume increased 13.5% to $692.9 million.
Total number of accounts serviced(1) at period end increased 28.1% to 3.3 million.
Over 80,000 new serviced accounts added during the quarter.
Managed receivables(2) increased 41.8% to $2.1 billion, and 27.3% from December 31
Net income attributable to common shareholders of $26.3 million, or $1.41 per diluted common share.
Repurchased and retired 313,893 shares of our common stock at an aggregate cost of $10.9 million.
(1) In our calculation of total accounts serviced, we include all accounts with account activity and accounts that have open lines of credit at the end of the referenced period.
(2) Managed receivables is a non-GAAP financial measure and excludes the results of our Auto Finance receivables. See “Non-GAAP Financial Measures” for important additional information.
Management Commentary
Jeff Howard, President and Chief Executive Officer at Atlanticus stated, “We are pleased to have another consecutive quarter of growth in revenue, managed receivables, and customers served during the third quarter of 2022. Additionally, we achieved another milestone as managed receivables now exceed $2 billion. We have continued to report strong growth across all of our main operating lines – private label credit, general purpose credit cards and, more modestly, our Auto Finance platform.
As we monitor consumer behavior and the impacts of inflation, we have deliberately slowed our growth in receivables and new customers served on behalf of our bank partner by tactically tightening underwriting standards beginning in the second quarter. We have seen a strong correlation between consumer behavior and rising prices, particularly gas which has declined meaningfully since peaking in June. We believe we are well-positioned in the event of an economic downturn given our longstanding history of navigating economic volatility combined with our capital availability and largely fixed-rate funding structures.
We are proud to serve more than 3 million customers and provide them with invaluable financial tools to empower better financial outcomes. As part of that ongoing commitment, we recently launched the Aspire Banking platform, enabling the offering of banking services through our partner bank as a tool for new consumers to gain access to credit. This unique offering will provide a path to credit for millions more everyday Americans and create a more engaging experience for customers we currently serve.
With our experience, strong capital position, proven growth, and ongoing strategic initiatives, we are excited about our long-term value creation potential.”
For the Three Months Ended September 30,
($ In Thousands)
2022
2021
% Change
Total operating revenue
$
277,874
$
203,917
36.3
Other non-operating revenue
80
32
nm
Total Revenue
277,954
203,949
36.3
Interest expense
(21,514)
(12,370)
nm
Provision for losses on loans, interest and fees receivable recorded at net realizable value
(381)
(9,238)
nm
Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value
(163,624)
(58,727)
nm
Net margin
92,435
123,614
(25.2)
Total Operating Expense
53,119
49,552
7.2
Loss on repurchase and redemption of convertible senior notes
—
16,184
nm
Net income
32,370
47,097
(31.3)
Net loss attributable to noncontrolling interests
201
(123)
nm
Net income attributable to controlling interests
32,571
46,974
(30.7)
Preferred dividends and discount accretion
(6,296)
(6,629)
(5.0)
Net income attributable to common shareholders
26,275
40,345
(34.9)
Per Share Data
Net income attributable to common shareholders per common share – basic
1.81
2.67
(32.2)
Net income attributable to common shareholders per common share – diluted
$
1.41
$
1.96
(28.1)
*nm = not meaningful
Managed Receivables
Managed receivables increased 41.8% to $2.1 billion in the quarter, as total accounts serviced increased 28.1% to 3.3 million. Managed receivables also increased 27.3% or $439.4 million from December 31, 2021. This increase is primarily due to strong consumer spending behavior on private label and general-purpose credit cards during the third quarter of 2022. We currently expect this trend of period over period growth to continue into 2023, albeit at a slower pace when compared to earlier periods. Growth in future periods largely is dependent on the addition of new retail partners to the private label credit origination platform, the timing and size of solicitations within the general purpose credit card platform by our bank partner, as well as purchase activity of consumers, and our ongoing assessment of consumer risk which drives changes in underwriting.
Total revenue
Total operating revenue consists of: 1) interest income, finance charges and late fees on consumer loans, 2) other fees on credit products including annual and merchant fees and 3) ancillary, interchange and servicing income on loan portfolios.
Total operating revenue increased 36.3% to $277.9 million in the quarter. This revenue increase was primarily driven by growth in private label credit and general purpose credit card receivables, resulting in net period-over-period growth in our total interest income and related fees. We continue to experience higher growth in our acquisitions of general purpose credit card receivables (which tend to have higher yields and corresponding charge-offs) than in our acquisitions of private label credit receivables. As we tightened our stance on underwriting starting in the second quarter of 2022, we expect period over period revenue growth to slow over the next few quarters as we focus on acquiring higher quality assets in the near term which tend to have lower yields with correspondingly lower charge-off rates.
Interest expense
Interest expense was $21.5 million for the quarter, compared to $12.4 million in the prior year period. As expected, these variations are due to new borrowings associated with the growth in private label credit, general purpose credit card receivables and CAR operations. Offsetting these increases was the repayment of our debt facilities, commensurate with net liquidations of the underlying credit card, auto finance and installment loan receivables that serve as collateral for the facilities.
Outstanding notes payable, net of unamortized debt issuance costs and discounts, associated with our private label credit and general purpose credit card receivables increased 56.0% to $1,473.1 million as of September 30, 2022. The majority of this increase in outstanding debt relates to the addition of multiple revolving credit facilities during 2021 and 2022. Additionally, the issuance of $150.0 million of senior notes in November 2021 (included on our consolidated balance sheet as “Senior notes, net”) will serve to increase interest expense over prior periods.
Recent increases in the federal funds rate have thus far had a minimal impact on our interest expense as over 90% of interest rates on our outstanding debt are fixed. We anticipate additional debt financing over the next few quarters as we continue to grow coupled with increased effective interest rates resulting from recent and additional anticipated federal funds rate increases. As such we expect our quarterly interest expense to be above that experienced in the prior periods for these operations.
Provision for losses on loans, interest and fees receivable recorded at net realizable value
Provision for losses on loans, interest and fees receivable recorded at net realizable value decreased to $0.4 million for the quarter, compared to $9.2 million in the prior year period. This reduction is due to the adoption of fair value accounting for the majority of our outstanding receivables. We expect that our provision for losses on loans will continue to diminish when compared to similar periods in 2021 as the amount of underlying receivables that continue to be recorded at net realizable value has been significantly reduced.
Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value
Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value increased to $163.6 million in the quarter, compared to $58.7 million in the prior year period, largely driven by growth in underlying receivables coupled with increased fee billings on those receivables.
Fee billings on our fair value receivables increased from $234.4 million for the nine months ended September 30, 2021 to $642.2 million for the nine months ended September 30, 2022, inclusive of our forecasted market degradation to reflect the possibility of delinquency rates increasing above the level that historical and current trends would suggest.
Total operating expense
Total operating expense increased 7.2% to $53.1 million for the quarter primarily driven by increases in salaries, reflecting growth in number of employees and labor cost increases associated with retaining and recruiting employees. We expect some continued increase in this cost for the remainder of 2022 as we modestly increase our number of employees to support our ongoing growth.
Additionally, card and loan servicing expenses including marketing and solicitation costs and other third-party expenses increased the total operating expense in the quarter due to continued growth in accounts serviced. We expect marginal increases in these costs as we continue to grow our receivable portfolios.
Net Income Attributable to Common Shareholders
Net income attributable to common shareholders decreased 34.9% to $26.3 million.
Net income attributable to common shareholders per basic common share decreased 32.2% to $1.81.
Net income attributable to common shareholders per common share diluted decreased 28.1% to $1.41.
Share Repurchases
During the three months ended September 30, 2022, we repurchased 313,893 of our common stock at an aggregate cost of $10.9 million. We will continue to evaluate our common stock price relative to other investment opportunities and, to the extent we believe that the repurchase of our common stock represents an appropriate return of capital, we will repurchase shares of our common stock.
We repurchased 3,500 shares of Series B Preferred Stock for $70 thousand during the three months ended September 30, 2022.
About Atlanticus Holdings Corporation
Empowering Better Financial Outcomes for Everyday Americans
Atlanticus’ technology allows bank, retail, and healthcare partners to offer more inclusive financial services to everyday Americans through the use of proprietary analytics. We apply the experience gained and infrastructure built from servicing over 18 million customers and $27 billion in consumer loans over our 25-plus year operating history to support lenders that originate a range of consumer loan products. These products include retail and healthcare private label credit and general purpose credit cards marketed through our omnichannel platform, including retail point-of-sale, healthcare-point of-care, direct mail solicitation, internet-based marketing, and partnerships with third parties. Additionally, through our CAR subsidiary, Atlanticus serves the individual needs of automotive dealers and automotive non-prime financial organizations with multiple financing and service programs.
Forward-Looking Statements
This press release contains forward-looking statements that reflect the Company’s current views with respect to, among other things, its business, operations, financial performance, revenue, amount and pace of growth of managed receivables, total interest income and related fees and charges, debt financing, liquidity, interest expense, operating expense, interest rates, underwriting, asset quality, asset yields, charge-off rates, consumer performance trends and economic developments. You generally can identify these statements by the use of words such as “outlook,” “potential,” “continue,” “may,” “seek,” “approximately,” “predict,” “believe,” “expect,” “plan,” “intend,” “estimate” or “anticipate” and similar expressions or the negative versions of these words or comparable words, as well as future or conditional verbs such as “will,” “should,” “would,” “likely” and “could.” These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. These risks and uncertainties include those risks described in the Company’s filings with the Securities and Exchange Commission and include, but are not limited to, risks related to the extent and duration of the COVID-19 pandemic and its impact on the Company, bank partners, merchant partners, consumers, loan demand, the capital markets, labor availability, supply chains and the economy in general; the Company’s ability to retain existing, and attract new, merchant partners and funding sources; changes in market interest rates; increases in loan delinquencies; its ability to operate successfully in a highly regulated industry; the outcome of litigation and regulatory matters; the effect of management changes; cyberattacks and security vulnerabilities in its products and services; and the Company’s ability to compete successfully in highly competitive markets. The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, the Company disclaims any obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, there is no assurance that the events or results suggested by the forward-looking statements will in fact occur, and you should not place undue reliance on these forward-looking statements.
Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)
For the Three Months
Ended
For the Nine Months
Ended
September 30,
September 30,
2022
2021
2022
2021
Revenue:
Consumer loans, including past due fees
$
218,016
$
141,177
$
574,369
$
366,127
Fees and related income on earning assets
48,518
54,085
169,055
140,658
Other revenue
11,340
8,655
34,016
20,546
Total operating revenue, net
277,874
203,917
777,440
527,331
Other non-operating revenue
80
32
380
3,458
Total revenue
277,954
203,949
777,820
530,789
Interest expense
(21,514
)
(12,370
)
(57,849
)
(38,458
)
Provision for losses on loans, interest and fees receivable recorded at net realizable value
(381
)
(9,238
)
(710
)
(24,469
)
Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value
(163,624
)
(58,727
)
(414,863
)
(144,981
)
Net margin
92,435
123,614
304,398
322,881
Operating expense:
Salaries and benefits
10,363
8,455
31,888
24,577
Card and loan servicing
24,775
19,239
71,447
54,838
Marketing and solicitation
11,053
16,462
51,857
40,441
Depreciation
488
268
1,630
900
Other
6,440
5,128
28,086
16,068
Total operating expense
53,119
49,552
184,908
136,824
Loss on repurchase and redemption of convertible senior notes
—
16,184
—
29,439
Income before income taxes
39,316
57,878
119,490
156,618
Income tax expense
(6,946
)
(10,781
)
(8,568
)
(28,668
)
Net income
32,370
47,097
110,922
127,950
Net loss (income) attributable to noncontrolling interests
201
(123
)
684
(25
)
Net income attributable to controlling interests
32,571
46,974
111,606
127,925
Preferred dividends and discount accretion
(6,296
)
(6,629
)
(18,759
)
(16,054
)
Net income attributable to common shareholders
$
26,275
$
40,345
$
92,847
$
111,871
Net income attributable to common shareholders per common share—basic
$
1.81
$
2.67
$
6.32
$
7.41
Net income attributable to common shareholders per common share—diluted
$
1.41
$
1.96
$
4.85
$
5.43
Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
For the Nine Months Ended
September 30,
2022
2021
Operating activities
Net income
$
110,922
$
127,950
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion, net
4,094
448
Provision for losses on loans, interest and fees receivable
710
24,469
Interest expense from accretion of discount on notes
—
453
Income from accretion of merchant fees and discount associated with receivables purchases
(109,312
)
(130,166
)
Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value
414,863
144,981
Amortization of deferred loan costs
3,646
3,761
Income from equity-method investments
—
(16
)
Loss on repurchase and redemption of convertible senior notes
—
29,439
Deferred stock-based compensation costs
3,227
2,324
Lease liability payments
(3,845
)
(7,837
)
Gain on sale of property
—
(599
)
Changes in assets and liabilities:
Increase in uncollected fees on earning assets
(182,379
)
(70,980
)
Increase in income tax liability
4,326
12,085
Increase in accounts payable and accrued expenses
3,011
2,127
Other
(3,623
)
957
Net cash provided by operating activities
245,640
139,396
Investing activities
Investments in equity-method investee
—
(398
)
Proceeds from equity-method investee
—
560
Proceeds from recoveries on charged off receivables
21,490
9,110
Investments in earning assets
(1,946,759
)
(1,432,768
)
Proceeds from earning assets
1,402,124
1,128,653
Sale of property
—
1,100
Purchases and development of property, net of disposals
(1,299
)
(144
)
Net cash used in investing activities
(524,444
)
(293,887
)
Financing activities
Noncontrolling interests contributions
4
4
Proceeds from issuance of Series B preferred stock, net of issuance costs
191
75,270
Preferred dividends
(18,559
)
(15,582
)
Proceeds from exercise of stock options
3,629
1,742
Purchase and retirement of outstanding stock
(89,008
)
(5,794
)
Proceeds from borrowings
481,236
507,227
Repayment of borrowings
(218,565
)
(452,554
)
Net cash provided by financing activities
158,928
110,313
Effect of exchange rate changes on cash
(61
)
(9
)
Net decrease in cash and cash equivalents and restricted cash
(119,937
)
(44,187
)
Cash and cash equivalents and restricted cash at beginning of period
506,628
258,961
Cash and cash equivalents and restricted cash at end of period
$
386,691
$
214,774
Supplemental cash flow information
Cash paid for interest
$
53,463
$
35,203
Net cash income tax payments
$
4,242
$
16,584
(Decrease) increase in accrued and unpaid preferred dividends
$
(7
)
$
247
Atlanticus Holdings Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
September 30,
December 31,
2022
2021
Assets
Unrestricted cash and cash equivalents (including $186.6 million and $209.5 million associated with variable interest entities at September 30, 2022 and December 31, 2021, respectively)
$
352,908
$
409,660
Restricted cash and cash equivalents (including $15.8 million and $75.9 million associated with variable interest entities at September 30, 2022 and December 31, 2021, respectively)
33,783
96,968
Loans, interest and fees receivable:
Loans, interest and fees receivable, at fair value (including $1,618.2 million and $925.5 million associated with variable interest entities at September 30, 2022 and December 31, 2021, respectively)
1,728,091
1,026,424
Loans, interest and fees receivable, gross (including $369.6 million associated with variable interest entities at December 31, 2021)
107,410
470,293
Allowances for uncollectible loans, interest and fees receivable (including $55.1 million associated with variable interest entities at December 31, 2021)
(1,766
)
(57,201
)
Deferred revenue (including $8.2 million associated with variable interest entities at December 31, 2021)
(16,560
)
(29,281
)
Net loans, interest and fees receivable
1,817,175
1,410,235
Property at cost, net of depreciation
7,004
7,335
Operating lease right-of-use assets
12,047
4,016
Prepaid expenses and other assets
29,414
15,649
Total assets
$
2,252,331
$
1,943,863
Liabilities
Accounts payable and accrued expenses
$
43,490
$
42,287
Operating lease liabilities
19,959
4,842
Notes payable, net (including $1,473.0 million and $1,223.4 million associated with variable interest entities at September 30, 2022 and December 31, 2021, respectively)
1,544,108
1,278,864
Senior notes, net
144,027
142,951
Income tax liability
54,603
47,770
Total liabilities
1,806,187
1,516,714
Commitments and contingencies
Preferred stock, no par value, 10,000,000 shares authorized:
Series A preferred stock, 400,000 shares issued and outstanding at September 30, 2022 (liquidation preference – $40.0 million); 400,000 shares issued and outstanding at December 31, 2021 (1)
40,000
40,000
Class B preferred units issued to noncontrolling interests
99,875
99,650
Shareholders’ Equity
Series B preferred stock, no par value, 3,193,262 shares issued and outstanding at September 30, 2022 (liquidation preference – $79.8 million); 3,188,533 shares issued and outstanding at December 31, 2021 (1)
—
—
Common stock, no par value, 150,000,000 shares authorized: 14,445,295 and 14,804,408 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
—
—
Paid-in capital
127,025
227,763
Retained earnings
180,424
60,236
Total shareholders’ equity
307,449
287,999
Noncontrolling interests
(1,180
)
(500
)
Total equity
306,269
287,499
Total liabilities, preferred stock and equity
$
2,252,331
$
1,943,863
Contacts
Investor Relations
Karin Daly, Vice President, The Equity Group Inc.
(212) 836-9623
[email protected]
