Atlanticus Reports Third Quarter 2022 Financial Results

atlanticus-reports-third-quarter-2022-financial-results

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]

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