Atlanticus Reports Third Quarter 2022 Financial Results

Consecutive quarters of growth in revenue coupled with continued growth in customers served

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.”

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.

(1) Both the Series A preferred stock and the Series B preferred stock have no par value and are part of the same aggregate 10,000,000 shares authorized.

Additional Information

Additional trends and data with respect to our private label credit and general purpose credit card receivables can be found in our latest 10-Q filing with the Securities and Exchange Commission (SEC) under Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Calculation of Non-GAAP Financial Measures

This press release presents information about managed receivables, which is a non-GAAP financial measure provided as a supplement to the results provided in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In addition to financial measures presented in accordance with GAAP, we present managed receivables, total managed yield, total managed yield ratio, combined principal net charge-off ratio, percent of managed receivables 30-59 days past due, percent of managed receivables 60-89 days past due and percent of managed receivables 90 or more days past due, all of which are non-GAAP financial measures. These non-GAAP financial measures aid in the evaluation of the performance of our credit portfolios, including our risk management, servicing and collection activities and our valuation of purchased receivables. The credit performance of our managed receivables provides information concerning the quality of loan originations and the related credit risks inherent with the portfolios. Management relies heavily upon financial data and results prepared on the “managed basis” in order to manage our business, make planning decisions, evaluate our performance and allocate resources.

These non-GAAP financial measures are presented for supplemental informational purposes only. These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation from, or as a substitute for, GAAP financial measures. These non-GAAP financial measures may differ from the non-GAAP financial measures used by other companies. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures or the calculation of the non-GAAP financial measures are provided below for each of the fiscal periods indicated.

These non-GAAP financial measures include only the performance of those receivables underlying consolidated subsidiaries (for receivables carried at amortized cost basis and fair value) and exclude the performance of receivables held by our former equity method investee. As the receivables underlying our former equity method investee reflect a small and diminishing portion of our overall receivables base, we do not believe their inclusion or exclusion in the overall results is material. Additionally, we calculate average managed receivables based on the quarter-end balances.

The comparison of non-GAAP managed receivables to our GAAP financial statements requires an understanding that managed receivables reflect the face value of loans, interest and fees receivable without any consideration for potential loan losses or other adjustments to reflect fair value.

Below are (i) the reconciliation of Loans, interest and fees receivable, at fair value to Loans, interest and fees receivable, at face value and (ii) the calculation of managed receivables:

As discussed above, our managed receivables data differ in certain aspects from our GAAP data. First, managed receivables data are based on billings and actual charge-offs as they occur without regard to any changes in our allowance for uncollectible loans, interest and fees receivable (in periods where applicable). Second, for managed receivables data, we amortize certain fees (such as annual and merchant fees) and expenses (such as marketing expenses) associated with our Fair Value Receivables over the expected life of the corresponding receivable and recognize other costs, such as claims made under credit deferral programs, when paid. Under fair value accounting, these fees are recognized when billed or upon receivable acquisition and marketing expenses are recognized when incurred. Third, managed receivables data excludes the impacts of equity in income of equity method investees. As of January 1, 2022, we changed the names of combined net charge-offs to combined principal net charge-offs and the combined net charge-off ratio, annualized to combined principal net charge-off ratio, annualized. These changes reflect that we now subtract finance charge-offs in the calculation of combined principal net charge-offs and the related ratio. We believe this revised calculation is more in line with the calculations used by our peers. All prior periods have been restated to reflect this new methodology. A reconciliation of our operating revenues, net of finance and fee charge offs, to comparable amounts used in our calculation of Total managed yield ratios is as follows:

As of January 1, 2022, we changed the names of combined net charge-offs to combined principal net charge-offs and the combined net charge-off ratio, annualized to combined principal net charge-off ratio, annualized. These changes reflect that we now subtract finance charge-offs in the calculation of combined principal net charge offs and the related ratio. We believe this revised calculation is more in line with the calculations used by our peers. All prior periods have been restated to reflect this new methodology. The calculation of Combined principal net charge offs used in our Combined principal net charge-off ratio, annualized is as follows:

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