Atlanticus Holdings Corporation (ATLC) is a financial technology company that enables its bank, retail, and healthcare partners to offer more inclusive financial services to millions of everyday Americans. With a rich history spanning over 25 years, Atlanticus has established itself as a pioneer in the consumer finance industry, leveraging its expertise and innovative technology to provide accessible credit solutions to underserved populations.
Company History and Evolution
The company's journey began in 1996, when it was founded as CompuCredit Corporation in Atlanta, Georgia, focusing on providing credit cards and financial services to consumers with less-than-prime credit scores. In its early years, Atlanticus faced significant challenges as it navigated the highly regulated consumer finance industry and worked to establish relationships with banks and retail partners. Despite these obstacles, the company persevered and continued to grow its operations.
A significant milestone in Atlanticus' history came in 2005 with the acquisition of CAR, an auto finance company. This strategic move allowed Atlanticus to diversify its business and expand into the auto finance market. Over the years, CAR has grown substantially, now serving over 670 dealers across 34 states and two U.S. territories, solidifying Atlanticus' position in the auto finance sector.
In 2009, Atlanticus made a pivotal shift in its strategy by introducing private label credit card programs and general-purpose credit cards. This move leveraged the company's proprietary technology platform to provide instant credit decisions, enabling partnerships with retailers and healthcare providers to offer financing options to their customers. Despite facing regulatory changes that impacted certain credit products, Atlanticus demonstrated its adaptability by adjusting its business model and continuing to grow its private label and general-purpose credit card portfolios.
The company's financial evolution continued in recent years, with significant capital raises to support its growth initiatives. In 2019, Atlanticus issued 400,000 shares of Series A preferred stock to refinance a $40 million loan. This was followed by the issuance of 3.19 million shares of Series B preferred stock in 2021, raising approximately $76.5 million in net proceeds. These capital infusions provided Atlanticus with the resources to invest in its technology, expand its partner relationships, and grow its consumer credit portfolios.
Business Segments and Operations
Today, the company operates through two primary segments: Credit as a Service (CaaS) and Auto Finance. The CaaS segment is the backbone of Atlanticus' business, where it partners with banks to provide private label credit cards, general-purpose credit cards, and other credit products to consumers who may have been overlooked by traditional lenders. Leveraging its proprietary technology and data-driven analytics, Atlanticus empowers its partners to make instant credit decisions, enabling more inclusive access to financing options.
Credit as a Service (CaaS)
Within the CaaS segment, Atlanticus' private label credit card offerings, marketed under the Fortiva and Curae brands, have gained significant traction in the retail and healthcare sectors. These specialized credit products cater to the unique needs of consumers, providing them with tailored financing solutions at the point of sale. Additionally, the company's general-purpose credit card brands, such as Aspire and Imagine, further expand its reach, offering consumers a broader range of credit options.
The CaaS segment generates revenues primarily from fees and finance charges, merchant fees, or annual fees associated with private label credit and general-purpose credit card receivables. In the private label credit business, Atlanticus works with retail partners to provide financing options to retail consumers. These financing options vary in APRs from 0% to 36% and have merchant fees ranging from 0% to 65%. The merchant fees offset the purchase price that Atlanticus' bank partners remit to the retail partner on a consumer transaction.
Atlanticus' flexible technology allows retail partners to present financing offers to customers through various channels like point-of-sale, online, or in-home sales. These private label credit arrangements are customized for each retail partner based on expected performance of the underlying receivables, receivable purchase volumes, and overall return requirements.
For general-purpose credit cards, Atlanticus collaborates with its bank partners to create card offerings with varying credit limits ($350 to $3,000), APRs (19.99% to 36%), annual fees ($0 to $175), and monthly maintenance fees ($0 to $15). Atlanticus acquires the receivables associated with purchases and subsequent fee and finance billings on these general-purpose cards.
The CaaS segment has experienced period-over-period growth in both private label credit and general-purpose credit card receivables. As of September 30, 2024, Atlanticus' private label credit receivables stood at $1.21 billion, up from $944 million a year earlier. General-purpose credit card receivables grew to $1.45 billion from $1.37 billion over the same period. This growth was driven by the addition of new retail partners for private label credit as well as increased marketing and customer acquisitions for general-purpose cards.
Auto Finance
The Auto Finance segment, operated through Atlanticus' CAR subsidiary, focuses on purchasing and servicing loans secured by automobiles. The company partners with a network of independent automotive dealers and finance companies in the buy-here, pay-here used car industry, providing floor plan financing and acquiring auto loans at discounted rates.
CAR primarily purchases and services loans secured by automobiles from a network of independent auto dealers and finance companies in the buy-here, pay-here used car market. CAR also provides floor plan financing to these dealers. As of September 30, 2024, CAR's managed auto loan receivables stood at $110.6 million, down slightly from $118 million a year earlier.
Financial Performance
Atlanticus' financial performance has been resilient, with the company reporting total operating revenue of $956.77 million for the nine months ended September 30, 2024, a 13.0% increase compared to the same period in the prior year. The company's net income for the nine months ended September 30, 2024, was $79.14 million, showcasing its ability to generate consistent profitability.
For the most recent fiscal year (2023), Atlanticus reported revenue of $256.34 million and net income of $102.84 million. The company's operating cash flow for 2023 was $459.32 million, with free cash flow of $455.32 million.
In the most recent quarter (Q3 2024), Atlanticus reported revenue of $350.95 million, representing a 19.0% year-over-year growth. Net income for Q3 2024 was $29.54 million. The company's operating cash flow for the quarter was $112.36 million, with free cash flow of $112.50 million. The increase in revenue was primarily driven by growth in the company's private label credit and general-purpose credit card receivables.
The company's managed receivables, a key metric that reflects the performance of its credit portfolios, grew to $2.65 billion as of September 30, 2024, a 14.6% increase compared to the prior year period. This growth has been driven by the continued expansion of Atlanticus' private label credit and general-purpose credit card offerings, as well as its strategic partnerships with banks and retail/healthcare providers.
The CaaS segment's total managed yield ratio, which includes interest income, finance charges, late fees, and other fees, was 40.5% on an annualized basis as of September 30, 2024, up slightly from 40.6% a year earlier. The combined principal net charge-off ratio, which measures credit losses, was 22.2% annualized, down from 22.5% the prior year. Atlanticus attributed these trends to a mix shift towards higher-yielding general-purpose credit cards and improvements in underwriting and risk management.
The Auto Finance segment's total managed yield ratio was 36.0% annualized as of the third quarter of 2024, up from 35.4% a year prior. The combined principal net charge-off ratio for auto loans was 8.4% annualized, up from 1.7% the prior year, as Atlanticus noted some recent stress at certain dealer locations leading to higher credit losses on floorplan loans.
Financials and Liquidity
Atlanticus' financial position remains strong, with a current ratio of 2.33 as of September 30, 2024, indicating its ability to meet short-term obligations. The company's cash and cash equivalents, including restricted cash, totaled $384.71 million as of the same date, providing ample liquidity to support its ongoing operations and growth initiatives. The company's cash position stood at $308.65 million as of the most recent quarter.
The company's debt-to-equity ratio is 4.99, reflecting its leveraged capital structure. Atlanticus has several revolving credit facilities with available limits ranging from $20 million to $325 million, most of which mature between 2024 and 2028. These credit facilities provide additional financial flexibility to support the company's growth initiatives.
Atlanticus primarily operates in the United States, focusing its business activities on the domestic market.
Industry Challenges and Regulatory Environment
Atlanticus has navigated various industry challenges and regulatory changes adeptly, demonstrating its resilience and adaptability. In response to recent rule changes enacted by the Consumer Financial Protection Bureau (CFPB) that aim to limit late fees charged to consumers, the company has collaborated with its bank partners to implement product, policy, and pricing changes to mitigate the potential impact on its revenue.
Strategic Initiatives and Future Outlook
Furthermore, Atlanticus has a history of strategic investments and acquisitions, with the company periodically exploring opportunities to grow its business, make investments, and purchase or sell assets. These initiatives have allowed the company to expand its capabilities, diversify its revenue streams, and enhance its overall competitive positioning.
Looking ahead, Atlanticus remains focused on continuing its growth trajectory, leveraging its technological expertise and partnerships to provide more inclusive financial services to underserved consumers. The company's robust financial performance, strong liquidity position, and adaptability to industry changes position it well to capitalize on future opportunities and drive long-term value for its stakeholders.
Atlanticus' business model centers around leveraging its financial technology and infrastructure to enable more inclusive consumer lending, with a focus on serving subprime and near-prime borrowers through its private label credit and general-purpose credit card offerings. The company's ability to grow its receivables base and maintain favorable credit performance in both its CaaS and Auto Finance segments are key drivers of its financial results.
As Atlanticus continues to navigate the evolving consumer finance landscape, its commitment to financial inclusion and innovative credit solutions remains at the core of its strategy. The company's strong performance in recent quarters, coupled with its robust liquidity position and strategic focus on expanding its credit offerings, suggests that Atlanticus is well-positioned to capitalize on growth opportunities in the consumer finance market and continue delivering value to its stakeholders.