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Atlanticus Reports Third Quarter 2021 Financial Results
Source: Nasdaq GlobeNewswire / 12 Nov 2021 16:20:27 America/New_York
ATLANTA, Nov. 12, 2021 (GLOBE NEWSWIRE) -- 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, 2021.
Financial and Operating Highlights
2021 Third Quarter compared to 2020 Third Quarter- Total operating revenue increased 41.8% to $203.9 million.
- Purchase volume increased 55.7% to $610.5 million.
- The number of total customers we serve(1) increased 59.8% to 2.6 million. Since the start of the third quarter 2021, customers served increased by over 388,000, or 17.7%.
- Managed receivables(2) associated with our Credit and Other Investments Segment increased 46.5% to $1.4 billion, and 15.9% over second quarter 2021.
- Net income attributable to common shareholders increased 18.4% to $40.3 million, or $1.96 per diluted common share, an increase of 14.0%.
- Adjusted net income(2), which adjusts for the $16.2 million ($13.2 million tax effected) loss on repurchase and redemption of convertible senior notes, increased 57.1% to $53.5 million, or $2.60 per diluted common share, an increase of 50.9%.
- On a trailing twelve months basis, net income attributable to common shareholders increased 137.1% to $133.8 million, or $6.56 per diluted common share, an increase of 125.4%.
- On a trailing twelve months basis, adjusted net income, which adjusts for the $29.4 million ($24.1 million tax effected) loss on repurchase and redemption of convertible senior notes, increased 179.7% to $157.8 million or $7.71 per diluted common share, an increase of 165.0%.
(1) In our calculation of total customers, we include all customers with account activity and customers who have open lines of credit at the end of the referenced period.
(2) Managed receivables and Adjusted net income are non-GAAP financial measures. See “Non-GAAP Financial Measures” for important additional information.
Management Commentary
Jeff Howard, President and Chief Executive Officer, stated, "Atlanticus continued to deliver excellent results, reporting significant growth across our two main operating lines, general purpose credit card and point-of-sale finance solutions. Our growth is a direct result of the success we are having enabling our bank, retail, and healthcare partners to empower better financial outcomes for millions of everyday Americans. The strength of these partnerships and our ability to rely on data aggregated through multiple economic cycles, allowed us to continue to responsibly support our partners and their customers throughout the pandemic. This led to significant growth in customers served, managed assets, revenues and profits for the quarter. In addition, we have seen our asset quality continue to improve, with lower charge-off rates compared with both the prior year and prior quarter periods. We are equally excited about the opportunities that lie ahead as we continue to strive to enable expanded access to credit for those overlooked by other financial institutions.”
2021 Third Quarter Financial Results
For the Third Quarter Ended Sept. 30,Income
Increases (Decreases)Percentage
Increases (Decreases)(In Thousands) 2021 2020 From 2020 to 2021 From 2020 to 2021 Total operating revenue $ 203,917 $ 143,853 $ 60,064 41.8 % Other non-operating revenue 32 635 (603 ) (95.0 %) Total revenue 203,949 144,488 59,461 41.2 % Interest expense (12,370 ) (12,678 ) 308 (2.4 %) Provision for losses on loans, interest and fees receivable recorded at net realizable value (9,238 ) (17,028 ) 7,790 (45.7 %) Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value (58,727 ) (32,298 ) (26,429 ) 81.8 % Net margin 123,614 82,484 $ 41,130 49.9 % Total operating expense (49,552 ) (34,221 ) $ (15,331 ) 44.8 % Loss on repurchase and redemption of convertible senior notes (16,184 ) - $ (16,184 ) N/A Net income $ 47,097 $ 38,807 $ 8,290 21.4 % Net income attributable to controlling interests $ 46.974 38,855 8,119 20.9 % Preferred dividends and discount accretion $ (6,629 ) $ (4,788 ) $ (1,841 ) 38.5 % Net income attributable to common shareholders $ 40,345 $ 34,067 $ 6,278 18.4 % Net income attributable to common shareholders per common share—basic $ 2.67 $ 2.35 $ 0.32 13.6 % Net income attributable to common shareholders per common share—diluted $ 1.96 $ 1.72 $ 0.24 14.0 % Managed receivables
Managed receivables increased to $1.4 billion as of September 30, 2021, from $987.3 million as of September 30, 2020 as total customers served increased 59.8% to 2.6 million. Managed receivables also increased $200 million from June 30, 2021. Consumer spending behavior was strong, driven by increased demand for general-purpose credit products, as well as increased purchase levels through the diverse retail partnerships supported by our platform. This growth helped to increase the overall combined managed receivables levels, and we expect this trend to continue through the remainder of the year.
Total revenue
Period-over-period increases in operating revenue primarily relate to growth in point-of-sale receivables and general purpose credit card receivables.
During the quarter ended September 30, 2021, total operating revenue increased 41.8% to $203.9 million from $143.9 million at September 30, 2020. Total operating revenue increased 13.6% from $179.5 million at June 30, 2021. 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.
Given our expectation for continued period-over-period growth in point-of-sale and direct-to-consumer receivables, we expect continued net period-over-period growth in our total interest income and related fees and charges for these operations throughout the remainder of 2021.
Interest expense
Interest expense was $12.4 million for the quarter ended September 30, 2021, compared with $12.7 million in the prior year period. Outstanding notes payable, net, associated with our point-of-sale and direct-to-consumer operations increased to $944.5 million as of September 30, 2021 from $689.3 million as of September 30, 2020. Despite this increase, an overall decrease in the weighted average cost of funds resulted in a year over year decline in interest expense. We anticipate additional debt financing over the next few quarters as we continue to grow, and 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 $9.2 million for the quarter ended September 30, 2021, compared to $17.0 million in the prior year period.
We have experienced a period-over-period decrease in this category primarily reflecting: 1) the effects of our adoption of the fair value option to account for certain loans receivable that are acquired on or after January 1, 2020 which has resulted in a decline in the outstanding receivables subject to this provision and 2) the overall reduction in delinquencies (and related charge-offs) associated with these receivables in part due to government stimulus programs, which have served to increase payments on outstanding receivables.
This reduction in provision has been offset somewhat by additional reserves associated with accounts that have been impacted due to COVID-19. Based on delinquencies levels we are currently experiencing and the ongoing impacts of recent government stimulus payments, we expect to see continued period-over-period reductions in our provision for loan losses for the coming quarters.
Total operating expense
Total operating expense increased 44.8% to $49.6 million, compared to $34.2 million in the prior year period. Total annualized operating expense as a percentage of total assets increased slightly to 13.4% from 13.2% in the prior year period. Certain operating costs are variable based on the levels of accounts and receivables we service and the pace and breadth of our growth in receivables. Increases in operating expenses were largely due to increases in receivables acquisition volume as well as increased marketing expenses that often precede the revenues generated from the subsequently acquired assets.
Net Income Attributable to Common Shareholders
Net income attributable to common shareholders increased 18.4% to $40.3 million for the quarter ended September 30, 2021, compared to $34.1 million in the prior year period.
Net Income Attributable to Common Shareholders Per Common Share – basic and diluted
Net income attributable to common shareholders per basic common share increased to $2.67 for the period ended September 30, 2021, compared to $2.35 for the same period in 2020. Net income attributable to common shareholders per common share diluted increased to $1.96 for the period ended September 30, 2021, compared to $1.72 for the same period in 2020.
Balance Sheet and Cash Flow Information
At September 30, 2021, we had $167.0 million in unrestricted cash and cash equivalents.
During the nine months ended September 30, 2021, we generated $140.0 million of cash flows from operations compared to our generating $147.8 million of cash flows from operations during the nine months ended September 30, 2020. The decrease in cash provided by operating activities was principally related to slight decreases in finance and fee collections associated with point-of-sale and direct-to-consumer receivables as government stimulus payments declined and consumer payments returned to normalized levels as well as a bulk sale of charge-off accounts in the nine months ended September 30, 2020 which resulted in proceeds of $5.0 million.
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 $26 billion in consumer loans over our 25-year operating history to support lenders that originate a range of consumer loan products. These products include retail and healthcare 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, managed receivables, total interest income and related fees, loan losses, debt financing and interest expense. 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, merchants, 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, merchants 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.
Non-GAAP Financial Measures
This press release presents information about managed receivables and adjusted net income, which are non-GAAP financial measures provided as supplements to the results provided in accordance with accounting principles generally accepted in the United States of America (“GAAP”). 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 origination 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. The calculation of managed receivables is provided below under “Calculation of Non-GAAP Financial Measure” for each of the fiscal periods indicated.
Contact:
Investor Relations
Adam Prior
Senior Vice President
The Equity Group Inc.
(212) 836-9606
aprior@equityny.comAtlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share data)For the Three Months Ended For the Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Revenue: Consumer loans, including past due fees $ 141,177 $ 103,643 $ 366,127 $ 306,902 Fees and related income on earning assets 54,085 35,488 140,658 102,532 Other revenue 8,655 4,722 20,546 10,358 Total operating revenue, net 203,917 143,853 527,331 419,792 Other non-operating revenue 32 635 3,458 950 Total revenue 203,949 144,488 530,789 420,742 Interest expense (12,370 ) (12,678 ) (38,458 ) (38,514 ) Provision for losses on loans, interest and fees receivable recorded at net realizable value (9,238 ) (17,028 ) (24,469 ) (116,894 ) Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value (58,727 ) (32,298 ) (144,981 ) (73,156 ) Net margin 123,614 82,484 322,881 192,178 Operating expense: Salaries and benefits 8,455 6,624 24,577 20,642 Card and loan servicing 19,239 16,309 54,838 47,747 Marketing and solicitation 16,462 7,016 40,441 26,523 Depreciation 268 327 900 932 Other 5,128 3,945 16,068 13,332 Total operating expense 49,552 34,221 136,824 109,176 Loss on repurchase and redemption of convertible senior notes 16,184 — 29,439 — Income before income taxes 57,878 48,263 156,618 83,002 Income tax expense (10,781 ) (9,456 ) (28,668 ) (15,716 ) Net income 47,097 38,807 127,950 67,286 Net (income) loss attributable to noncontrolling interests (123 ) 48 (25 ) 159 Net income attributable to controlling interests 46,974 38,855 127,925 67,445 Preferred dividends and discount accretion (6,629 ) (4,788 ) (16,054 ) (12,283 ) Net income attributable to common shareholders $ 40,345 $ 34,067 $ 111,871 $ 55,162 Net income attributable to common shareholders per common share—basic $ 2.67 $ 2.35 $ 7.41 $ 3.81 Net income attributable to common shareholders per common share—diluted $ 1.96 $ 1.72 $ 5.43 $ 2.85 Atlanticus Holdings Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)September 30, December 31, 2021 2020 Assets Unrestricted cash and cash equivalents (including $93.5 million and $96.6 million associated with variable interest entities at September 30, 2021 and December 31, 2020, respectively) $ 166,966 $ 178,102 Restricted cash and cash equivalents (including $30.9 million and $70.2 million associated with variable interest entities at September 30, 2021 and December 31, 2020, respectively) 47,808 80,859 Loans, interest and fees receivable: Loans, interest and fees receivable, at fair value (including $753.8 million and $374.2 million associated with variable interest entities at September 30, 2021 and December 31, 2020, respectively) 846,160 417,098 Loans, interest and fees receivable, gross (including $404.1 million and $560.2 million associated with variable interest entities at September 30, 2021 and December 31, 2020, respectively) 511,140 667,556 Allowances for uncollectible loans, interest and fees receivable (including $76.8 million and $120.9 million associated with variable interest entities at September 30, 2021 and December 31, 2020, respectively) (80,029 ) (124,961 ) Deferred revenue (including $7.4 million and $10.3 million associated with variable interest entities at September 30, 2021 and December 31, 2020, respectively) (29,824 ) (39,456 ) Net loans, interest and fees receivable 1,247,447 920,237 Property at cost, net of depreciation 984 2,240 Investments in equity-method investee — 1,415 Operating lease right-of-use assets 5,447 9,181 Prepaid expenses and other assets 14,292 15,180 Total assets $ 1,482,944 $ 1,207,214 Liabilities Accounts payable and accrued expenses $ 38,627 $ 41,731 Operating lease liabilities 7,231 13,776 Notes payable, net (including $944.5 million and $827.1 million associated with variable interest entities at September 30, 2021 and December 31, 2020, respectively) 995,322 882,610 Notes payable associated with structured financings, at fair value (associated with variable interest entities) 2,221 2,919 Convertible senior notes — 24,386 Income tax liability 38,016 25,932 Total liabilities 1,081,417 991,354 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, 2021 (liquidation preference - $40.0 million); 400,000 shares issued and outstanding at December 31, 2020 (1) 40,000 40,000 Class B preferred units issued to noncontrolling interests 99,575 99,350 Shareholders' Equity Series B preferred stock, no par value, 3,188,533 shares issued and outstanding at September 30, 2021 and 0 shares issued and outstanding at December 31, 2020 (liquidation preference - $79.7 million) (1) — — Common stock, no par value, 150,000,000 shares authorized: 15,094,382 shares issued and outstanding at September 30, 2021; and 16,115,353 shares issued and outstanding (including 1,459,233 loaned shares to be returned) at December 31, 2020 — — Paid-in capital 252,438 194,950 Retained earnings (deficit ) 10,259 (117,666 ) Treasury stock, 1,459,233 and 0 shares at September 30, 2021 and December 31, 2020, respectively, at cost - - Total shareholders’ equity 262,697 77,284 Noncontrolling interests (745 ) (774 ) Total equity 261,952 76,510 Total liabilities, preferred stock and shareholders' equity $ 1,482,944 $ 1,207,214 (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.
Calculation of Non-GAAP Financial Measure
Loans, interest and fees receivable, at face value
At or for the Three Months Ended 2021 2020 2019 (in Millions) Sep. 30 (1) Jun. 30 (1) Mar. 31 (1) Dec. 31 (1) Sept. 30 (1) Jun. 30 (1) Mar. 31 (1) Dec. 31 Loans, interest and fees receivable, at fair value $ 846.2 $ 644.7 $ 481.4 $ 417.1 $ 310.8 $ 177.9 $ 89.4 $ 4.4 Fair value mark against receivable (2) $ 182.2 $ 148.6 $ 112.3 $ 99.0 $ 71.8 $ 42.7 $ 17.5 $ 2.0 Loans, interest and fees receivable, at face value $ 1,028.4 $ 793.3 $ 593.7 $ 516.1 $ 382.6 $ 220.6 $ 106.9 $ 6.4 (1) We elected the fair value option to account for certain loans receivable associated with our point-of-sale and direct-to-consumer platform that are acquired on or after January 1, 2020.
(2) The fair value mark against receivables reflects the difference between the face value of a receivable and the net present value of the expected cash flows associated with that receivable.
Managed receivables
Below is the calculation of managed receivables (in millions):
At or for the Three Months Ended 2021 2020 2019 (in Millions) Sep. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 Jun. 30 Mar. 31 Dec. 31 Loans, interest and fees receivable, gross $ 417.8 $ 454.2 $ 498.8 $ 574.3 $ 604.8 $ 679.6 $ 810.6 $ 908.4 Loans, interest and fees receivable, gross from fair value reconciliation above 1,028.4 793.3 593.7 516.1 382.6 220.6 106.9 6.4 Total managed receivables $ 1,446.2 $ 1,247.5 $ 1,092.5 $ 1,090.4 $ 987.4 $ 900.2 $ 917.5 $ 914.8 
