Atlanticus Holdings Corporation (NASDAQ:ATLC) is a purpose-driven financial technology company primarily focused on facilitating consumer credit through the use of its financial technology and related services. The company's operations are divided into two reportable segments: Credit as a Service (CaaS) and Auto Finance.
Business Overview
Within the CaaS segment, Atlanticus applies its technology solutions, combined with the experiences gained and infrastructure built from servicing over $39 billion in consumer loans over more than 25 years of operating history, to support lenders in offering more inclusive financial services. These products include private label credit and general purpose credit cards originated by lenders through multiple channels, including retailers and healthcare providers, direct mail solicitation, digital marketing, and partnerships with third parties. The company's flexible technology solutions allow its bank partners to integrate Atlanticus' paperless process and instant decisioning platform with the existing infrastructure of participating retailers, healthcare providers, and other service providers. Using its technology and proprietary predictive analytics, lenders can make instant credit decisions utilizing hundreds of inputs from multiple sources and thereby offer credit to consumers overlooked by many providers of financing who focus exclusively on consumers with higher FICO scores.Atlanticus' Auto Finance segment, through its CAR subsidiary, principally purchases and/or services loans secured by automobiles from or for, and also provides floor-plan financing for, a pre-qualified network of independent automotive dealers and automotive finance companies in the buy-here, pay-here used car business. The company generates revenues on purchased loans through interest earned on the face value of the installment agreements combined with the accretion of discounts on loans purchased. Additionally, Atlanticus generates revenues from servicing loans on behalf of dealers for a portion of actual collections and by providing back-up servicing for similar quality assets owned by unrelated third parties.
Financial Performance
For the fiscal year ended December 31, 2023, Atlanticus reported annual net income of $77,647,000, annual revenue of $1,155,876,000, annual operating cash flow of $459,317,000, and annual free cash flow of $455,325,000.In the first quarter of 2024, the company reported total operating revenue of $290,174,000, a 11.2% increase from the $260,982,000 reported in the first quarter of 2023. Net income for the first quarter of 2024 was $25,819,000, compared to $25,894,000 in the first quarter of 2023. Operating cash flow for the first quarter of 2024 was $118,796,000, up from $101,698,000 in the first quarter of 2023, while free cash flow was $51,197,000, compared to $48,268,000 in the same period of the prior year.
The increase in total operating revenue was primarily driven by growth in the company's private label credit and general purpose credit card receivables, which grew to $2,317.6 million as of March 31, 2024, from $2,055.0 million as of March 31, 2023. This growth was partially offset by a slight decrease in net income, which was impacted by higher interest expense and provision for credit losses.
Segmental Performance
CaaS Segment
The CaaS segment, which includes the company's private label credit and general purpose credit card operations, as well as other product testing and investments, reported total operating revenue of $279,601,000 in the first quarter of 2024, up from $251,583,000 in the first quarter of 2023. This increase was primarily driven by growth in the private label credit and general purpose credit card receivables, as well as higher fees and related income on earning assets. The segment's net margin increased to $86,476,000 in the first quarter of 2024, compared to $78,315,000 in the same period of the prior year.Auto Finance Segment
Atlanticus' Auto Finance segment, which includes the operations of its CAR subsidiary, reported total operating revenue of $10,573,000 in the first quarter of 2024, up from $9,399,000 in the first quarter of 2023. The segment's net margin decreased to $7,052,000 in the first quarter of 2024, compared to $7,966,000 in the same period of the prior year, primarily due to an increase in the provision for credit losses.Liquidity
As of March 31, 2024, Atlanticus had $444.8 million in unrestricted cash held by its various business subsidiaries. The company finances its business through cash flows from operations, asset-backed structured financings, and the issuance of debt and equity. During the first quarter of 2024, the company generated $118.8 million in cash flows from operations, compared to $101.7 million in the first quarter of 2023.In January and February 2024, Atlanticus issued an aggregate of $57.2 million in 9.25% Senior Notes due 2029, further strengthening its liquidity position. The company also has access to various revolving credit facilities and other financing arrangements to support the growth of its receivables portfolio.
Risks and Challenges
Atlanticus operates in a highly regulated industry, and changes in bankruptcy, privacy, or other consumer protection laws, or to the prevailing interpretation thereof, may expose the company to litigation, adversely affect its ability to collect receivables, or otherwise adversely affect its operations. Additionally, the company's reliance on a limited number of large retail partners for its private label credit operations, as well as its exposure to the creditworthiness of its consumer borrowers, present inherent risks to its business model.The reaction to the COVID-19 pandemic, including the resulting supply chain disruptions, inflation, and rising interest rates, has also had a significant impact on the macroeconomic environment, which could continue to affect consumer spending behavior and demand for credit, thereby impacting Atlanticus' performance and results of operations.
Outlook and Conclusion
Despite the challenges faced by the company, Atlanticus' focus on leveraging data, analytics, and innovative technology to unlock access to financial solutions for underserved consumers positions it well for continued growth. The company's investments in private label credit and general purpose credit card receivables, as well as its expanding Auto Finance segment, are expected to drive future revenue and profitability.While the recent CFPB rule limiting credit card late fees represents a significant near-term headwind, Atlanticus has already executed on a number of strategies designed to limit the impact, and the company remains committed to adapting its business model to navigate the evolving regulatory landscape.
Overall, Atlanticus' strong financial performance, diversified business model, and focus on financial inclusion make it a compelling investment opportunity in the financial technology space.