Business Overview and History
Atlanticus Holdings Corporation, a leading financial technology company, has been at the forefront of enabling more inclusive financial services for millions of Americans over the past 25 years. Through its innovative platform and deep expertise in consumer lending, Atlanticus has carved out a unique niche in the financial services industry, serving as a trusted partner to banks, retailers, and healthcare providers in delivering tailored credit solutions to underserved consumers.
Atlanticus was founded in 1996 with the goal of providing technology and support services to lenders offering various financial products and services to consumers. The company's initial focus was on leveraging its expertise and infrastructure to support lenders in providing more inclusive financial services, including private label credit cards and general purpose credit cards. In its early years, Atlanticus faced challenges as it worked to establish relationships with lenders and build out its technology platform. However, the company persevered and successfully grew its business by offering valuable services to its lender partners.
As Atlanticus expanded its reach, it began collaborating with an increasing number of retail and healthcare partners to provide financing options to their customers. A significant milestone in the company's history came in 2005 when Atlanticus acquired CAR, an auto finance platform that primarily purchases and services loans secured by automobiles from a network of independent automotive dealers and finance companies. This acquisition allowed Atlanticus to diversify its business and offer additional financial products and services.
Throughout its 25-year history, Atlanticus has demonstrated resilience in the face of various economic downturns, regulatory changes, and competitive pressures. The company has consistently adapted its business model and product offerings to meet the evolving needs of consumers and its partner institutions. Atlanticus' commitment to innovation, customer service, and regulatory compliance has been instrumental in its ability to navigate these challenges and maintain its position as a leading provider of financial technology solutions.
One of Atlanticus' key strengths is its ability to develop custom credit solutions that cater to the specific needs of its partners and their customer bases. The company's proprietary platform, powered by machine learning and predictive analytics, enables instant credit decisions and a seamless customer experience. This has made Atlanticus an increasingly attractive partner for banks, retailers, and healthcare providers seeking to expand their reach and better serve their communities.
In recent years, Atlanticus has experienced significant growth, with its managed receivables increasing from $2.12 billion at the end of 2022 to $2.65 billion as of September 30, 2024, a 14.6% year-over-year increase. This growth has been driven by the continued expansion of Atlanticus' private-label credit and general-purpose credit card offerings, as well as the success of its auto financing segment.
Business Segments
Atlanticus operates in two main business segments: Credit as a Service (CaaS) and Auto Finance.
Credit as a Service (CaaS)
The CaaS segment is the primary driver of Atlanticus' business, where the company applies its technology solutions and infrastructure to support lenders in offering more inclusive financial services. This includes private label credit cards using the Fortiva and Curae brand names, as well as merchant-associated brands, and general purpose credit cards using the Aspire, Imagine and Fortiva brand names.
Atlanticus' flexible technology solutions allow its bank partners to integrate its paperless process and instant decisioning platform with the existing infrastructure of participating retailers, healthcare providers and other service providers. Using Atlanticus' technology and proprietary predictive analytics, lenders can make instant credit decisions leveraging hundreds of inputs from multiple sources, enabling them to offer credit to consumers overlooked by many providers that focus exclusively on consumers with higher FICO scores.
Within the CaaS segment, Atlanticus earns revenue from fees and finance charges associated with the private label credit and general purpose credit card receivables it acquires from its bank partners. The company reports these revenues within the "Consumer loans, including past due fees" and "Fees and related income on earning assets" line items on its income statement. Atlanticus also generates servicing income and ancillary product revenue within the CaaS segment, which are recorded under the "Other revenue" category.
The fair value of Atlanticus' CaaS segment receivables, which were $2.51 billion as of September 30, 2024, is a key driver of the company's financial performance. Changes in assumptions around credit losses, payment rates, servicing costs, discount rates and yields can lead to fluctuations in the fair value of these receivables, with the impact reflected through the "Changes in fair value of loans" line item on the income statement.
Auto Finance
Atlanticus' Auto Finance segment, operated through its CAR subsidiary, primarily purchases and/or services loans secured by automobiles from or for a pre-qualified network of independent automotive dealers and finance companies in the buy-here, pay-here used car business. The segment generates revenue through interest earned on the auto loan receivables as well as servicing fees. As of September 30, 2024, Atlanticus' Auto Finance segment had $110.64 million in managed receivables.
The financial performance of Atlanticus' Auto Finance segment is influenced by factors such as the credit quality of the underlying auto loans, the timing and amount of loan purchases, and the company's ability to effectively manage and collect on the receivables. Key metrics tracked for this segment include the total managed yield ratio, combined principal net charge-off ratio, and recovery ratio.
Financials and Operational Highlights
Atlanticus' financial performance has been consistently strong, with the company reporting total operating revenue of $956.77 million for the nine months ended September 30, 2024, up 12.2% from the same period in the prior year. Net income for the nine-month period was $79.14 million, compared to $75.68 million in the prior-year period, representing a 4.6% increase.
For the most recent fiscal year (2023), Atlanticus reported annual revenue of $1.02 billion and annual net income of $102.84 million. The company generated annual operating cash flow of $459.32 million and annual free cash flow of $455.32 million in 2023.
In the most recent quarter (Q3 2024), Atlanticus reported revenue of $350.95 million and net income of $29.54 million. This represents a year-over-year growth of 19.0% in total operating revenue.
The company's cash flow generation has also been robust, with operating cash flow of $346.80 million and free cash flow of $455.32 million for the nine months ended September 30, 2024. This strong cash flow has allowed Atlanticus to continue investing in its business, while also returning capital to shareholders through its preferred stock dividend program.
Atlanticus primarily operates within the United States and does not have significant operations outside the US.
Liquidity
Atlanticus' balance sheet remains healthy, with a current ratio of 2.33 and a debt-to-equity ratio of 5.04 as of September 30, 2024. The company's liquidity position, with $308.65 million in unrestricted cash and cash equivalents as of September 30, 2024, provides it with the flexibility to pursue growth initiatives and navigate potential economic challenges.
Atlanticus has access to several revolving credit facilities, including:
- $65 million facility expiring December 1, 2026 - $50 million facility expiring October 30, 2025 - $100 million facility expiring December 15, 2025 - $50 million facility expiring July 20, 2025 - $20 million facility expiring December 11, 2024 - $50 million facility expiring July 15, 2027 - $300 million facility expiring December 15, 2026 - $300 million facility expiring May 15, 2026 - $325 million facility expiring November 15, 2028 - $100 million facility expiring March 15, 2027 - $300 million facility expiring February 15, 2028 - $150 million facility expiring May 17, 2027 - $250 million facility expiring November 15, 2028 - $150 million facility expiring March 29, 2025 - $32.8 million facility expiring March 29, 2025
The company's current ratio and quick ratio both stand at 2.33 as of September 30, 2024, indicating a strong ability to meet short-term obligations.
Risks and Challenges
While Atlanticus has demonstrated its resilience and adaptability, the company is not without its risks and challenges. The consumer lending industry is highly competitive, with Atlanticus facing competition from both traditional financial institutions and emerging fintech players. The company's success is also dependent on the performance of its retail and healthcare partners, as well as the broader economic environment and its impact on consumer spending and credit quality.
Additionally, Atlanticus operates in a heavily regulated industry, with changes in laws and regulations, such as the recent CFPB rulemaking on credit card late fees, potentially impacting the company's business model and profitability. Atlanticus has proactively taken steps to mitigate these risks, such as working collaboratively with its partners to adjust pricing and underwriting strategies, but the regulatory landscape remains an area of ongoing vigilance.
Despite these challenges, Atlanticus' management team has proven its ability to navigate complex environments and capitalize on emerging opportunities. The company's focus on innovation, data-driven insights, and strong partnerships has positioned it well to continue delivering value to its stakeholders.
Outlook and Conclusion
Looking ahead, Atlanticus remains optimistic about its growth prospects. The company's guidance for the full year 2024 includes total operating revenue in the range of $1.25 billion to $1.30 billion and net income between $100 million and $110 million. This outlook reflects the company's confidence in its ability to continue expanding its customer base, driving higher volumes, and maintaining strong operational efficiency.
Atlanticus' commitment to financial inclusion and its track record of innovation make it a compelling investment opportunity in the rapidly evolving fintech landscape. By leveraging its technological capabilities and deep industry expertise, the company is well-positioned to continue empowering better financial outcomes for everyday Americans. As Atlanticus navigates the challenges and opportunities ahead, investors will undoubtedly keep a close eye on the company's ability to execute on its strategic priorities and deliver sustainable growth.