Chronicle Journal: Finance

Atlanticus Reports Second Quarter 2021 Financial Results

ATLANTA, Aug. 13, 2021 (GLOBE NEWSWIRE) -- Atlanticus Holdings Corporation (NASDAQ: ATLC) (“Atlanticus,” “the Company”, “we,” “our” or “us”), a technology-enabled financial services company that assists financial institutions in offering credit to millions of everyday Americans, today announced its financial results for its second quarter ended June 30, 2021.

Financial and Operating Highlights

2021 Second Quarter compared to 2020 Second Quarter

  • Net income attributable to common shareholders increased 74.4% to $32.1 million compared to $18.4 million for the second quarter of 2020. This reflects:
    • $2.12 per basic common share, compared to $1.28 per basic common share, an increase of 65.6%; and
    • $1.56 per diluted common share compared to $0.93 per diluted common share, an increase of 67.7%.
  • On a trailing twelve months basis, net income attributable to common shareholders increased to $8.60 per basic common share from $2.44 per basic common share, representing an increase of 252.5% and $6.32 per diluted common share from $2.02 per diluted common share, representing an increase of 212.9%.
  • Managed receivables(1), associated with our Credit and Other Investments Segment, increased 38.6% to $1.2 billion, and 14.2% over first quarter 2021.
  • Total operating revenue increased 32.6% to $179.5 million from $135.4 million.
  • Combined net charge-off ratio, annualized(1) associated with our Credit and Other Investments Segment, improved to 15.2% from 26.9%.
  • The number of total customers we serve increased 48.3% to 2.2 million(2). Since the start of the second quarter 2021, customers served increased by 339,704, or 18.3%.
  • Further diversified capital structure and enhanced liquidity with the addition of $70.0 million in proceeds through the issuance of 2.8 million shares of 7.625% Series B preferred stock before deducting underwriting discounts, the structuring fee and other offering expenses. Subsequent to period end, we issued an additional 388,533 shares pursuant to the exercise of the underwriters’ overallotment option.

(1) Managed receivables and combined net charge-off ratio, annualized are non-GAAP financial measures. See “Non-GAAP Financial Measures” for important additional information.
(2) In our calculation of total customers, we include all customers with account activity or customers who have open lines of credit at the end of the referenced period.

Management Commentary

Jeff Howard, President and Chief Executive Officer, stated, "This was an exceptional quarter, with Atlanticus reporting strong growth in customers served, managed assets, revenue and profitability. Our investment in technology, expanding marketing channels, and focus on assisting financial institutions to empower everyday Americans during their greatest time of need continues to generate solid results. Despite higher than usual payment rates, we have continued to report strong growth across our two main operating lines, general purpose credit cards and point-of-sale financing, through which we increased receivables by 38.6% year-over-year and 14.2% quarter-over-quarter. We also further grew our capital base at a lower cost through the issuance of Series B preferred stock that provided an incremental $70.0 million of liquidity. This capital enhances our overall liquidity and positions us well for the growth we see ahead.”

Quarterly Highlights

 
For the Quarter Ended June 30,
 Income 
Increases
(Decreases)
 Percentage 
Increases
(Decreases)
(In Thousands)2021 2020 From 2020
to 2021
 From 2020
to 2021
Total operating revenue$179,519  $135,421  44,098  32.6%
Other non-operating revenue 2,586   325  2,261  695.7%
Total revenue 182,105   135,746  46,359  34.2%
Interest expense (13,790)  (12,252) (1,538) 12.6%
Provision for losses on loans, interest and fees receivable recorded at net realizable value  (11,096)  (32,530) 21,434  (65.9%)
Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value (58,763)  (25,667) (33,096) 128.9%
Net margin$98,456  $65,297  33,159  50.8%
Total operating expense$46,065  $37,205  (8,860) 23.8%
Loss on repurchase of convertible senior notes$(5,448) $-  (5,448) N/A 
Net income$36,826  $23,117  13,709  59.3%
Net income attributable to controlling interests$36,876   23,165  13,711  59.2%
Preferred dividends and discount accretion$(4,738) $(4,736) (2) 0.0%
Net income attributable to common shareholders$32,138  $18,429  13,709  74.4%
Net income attributable to common shareholders per common share—basic$2.12  $1.28  0.84  65.6%
Net income attributable to common shareholders per common share—diluted$1.56  $0.93  0.63  67.7%

2021 Second Quarter Financial Results

Managed receivables

Managed receivables increased to $1.2 billion as of June 30, 2021, from $900.2 million as of June 30, 2020 as total customers increased from 1.5 million to 2.2 million. Managed receivables also increased sequentially from $1.1 billion as of March 31, 2021. We have noted continued recovery in consumer spending behavior and increased demand for general-purpose credit products, as well as a broadening of the recovery through our diverse retail partnerships. 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 finance and direct-to-consumer accounts and receivables.

During the quarter ended June 30, 2021, total operating revenue increased 32.6% to $179.5 million from $135.4 million at June 30, 2020. Total operating revenue increased 24.7% sequentially from $143.9 million at March 31, 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 2021.

Interest expense

Interest expense was $13.8 million for the quarter ended June 30, 2021, compared with $12.3 million in the prior year period. Outstanding notes payable, net, associated with our point-of-sale and direct-to-consumer operations increased to $911.9 million as of June 30, 2021 from $643.2 million as of June 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 as a percentage of managed receivables. 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 $11.1 million for the quarter ended June 30, 2021, compared to $32.5 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 recent 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 anticipated impacts of 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 23.8% to $46.1 million, compared to $37.2 million in the prior year period. Total annualized operating expense as a percentage of total assets decreased to 13.0% from 15.8% in the prior year period (compared to total assets at June 30, 2020). 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 74.4% to $32.1 million for the quarter ended June 30, 2021, compared to $18.4 million in the prior year period. Negatively impacting current period results were $5.4 million of losses on repurchases of convertible senior notes.

Net Income Attributable to Common Shareholders – basic and diluted

Net income attributable to common shareholders per basic common share increased to $2.12 for the period ended June 30, 2021, compared to $1.28 for the same period in 2020. Net income attributable to common shareholders per common share diluted increased to $1.56 for the period ended June 30, 2021, compared to $0.93 for the same period in 2020.

On a trailing twelve-month basis, net income attributable to common shareholders increased to $8.60 per basic common share from $2.44 per basic common share. On a trailing twelve month basis, net income attributable to common shareholders increased to $6.32 per diluted common share from $2.02 per diluted common share, representing an increase of 212.9%.

Balance Sheet and Cash Flow Information

At June 30, 2021, we had $265.9 million in unrestricted cash and cash equivalents.

During the six months ended June 30, 2021, we generated $74.8 million of cash flows compared to our generating $1.6 million of cash flows during the six months ended June 30, 2020. The increase in cash was principally related to increases in finance and fee collections associated with growing point-of-sale and direct-to-consumer receivables, our issuance of Series B preferred stock and overall increases in availability under new and existing financing structures. Offsetting these increases was growth in acquisitions of consumer receivables and repurchases of our outstanding convertible senior notes.

About Atlanticus Holdings Corporation

Empowering Better Financial Outcomes for Everyday Americans

Founded in 1996, our business utilizes proprietary analytics and a flexible technology platform to enable financial institutions to provide various credit and related financial services and products to everyday Americans. We apply the experience gained and infrastructure built from servicing over 18 million customers and $26 billion in consumer loans over our 24-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 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 combined net charge-off ratio, annualized, 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 each of these non-GAAP financial measures is provided below for each of the fiscal periods indicated.

Contact:
Investor Relations
Adam Prior
Senior Vice President
The Equity Group Inc.
(212) 836-9606
aprior@equityny.com

Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share data)

 For the Three Months Ended  For the Six Months Ended 
 June 30,  June 30, 
 2021  2020  2021  2020 
Revenue:               
Consumer loans, including past due fees$122,654  $100,112  $224,950  $203,259 
Fees and related income on earning assets 49,553   32,399   86,573   67,044 
Other revenue 7,312   2,910   11,891   5,636 
Total operating revenue 179,519   135,421   323,414   275,939 
Other non-operating revenue 2,586   325   3,426   315 
Total revenue 182,105   135,746   326,840   276,254 
                
Interest expense (13,790)  (12,252)  (26,088)  (25,836)
Provision for losses on loans, interest and fees receivable recorded at net realizable value (11,096)  (32,530)  (15,231)  (99,866)
Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value (58,763)  (25,667)  (86,254)  (40,858)
Net margin 98,456   65,297   199,267   109,694 
                
Operating expense:               
Salaries and benefits 7,883   6,508   16,122   14,018 
Card and loan servicing 18,212   15,601   35,599   31,438 
Marketing and solicitation 13,678   10,190   23,979   19,507 
Depreciation 320   320   632   605 
Other 5,972   4,586   10,940   9,387 
Total operating expense 46,065   37,205   87,272   74,955 
Loss on repurchase of convertible senior notes 5,448      13,255    
Income before income taxes 46,943   28,092   98,740   34,739 
Income tax expense (10,117)  (4,975)  (17,887)  (6,260)
Net income 36,826   23,117   80,853   28,479 
Net loss attributable to noncontrolling interests 50   48   98   111 
Net income attributable to controlling interests 36,876   23,165   80,951   28,590 
Preferred dividends and discount accretion (4,738)  (4,736)  (9,425)  (7,495)
Net income attributable to common shareholders$32,138  $18,429  $71,526  $21,095 
Net income attributable to common shareholders per common share—basic$2.12  $1.28  $4.74  $1.46 
Net income attributable to common shareholders per common share—diluted$1.56  $0.93  $3.47  $1.12 

Atlanticus Holdings Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)

 June 30,  December 31, 
 2021  2020 
Assets       
Unrestricted cash and cash equivalents (including $156.9 million and $96.6 million associated with variable interest entities at June 30, 2021 and December 31, 2020, respectively)$265,869  $178,102 
Restricted cash and cash equivalents (including $49.8 million and $70.2 million associated with variable interest entities at June 30, 2021 and December 31, 2020, respectively) 67,884   80,859 
Loans, interest and fees receivable:       
Loans, interest and fees receivable, at fair value (including $587.6 million and $374.2 million associated with variable interest entities at June 30, 2021 and December 31, 2020, respectively) 644,739   417,098 
Loans, interest and fees receivable, gross (including $445.5 million and $560.2 million associated with variable interest entities at June 30, 2021 and December 31, 2020, respectively) 547,355   667,556 
Allowances for uncollectible loans, interest and fees receivable (including $92.2 million and $120.9 million associated with variable interest entities at June 30, 2021 and December 31, 2020, respectively) (95,183)  (124,961)
Deferred revenue (including $6.7 million and $10.3 million associated with variable interest entities at June 30, 2021 and December 31, 2020, respectively) (31,344)  (39,456)
Net loans, interest and fees receivable 1,065,567   920,237 
Property at cost, net of depreciation 1,704   2,240 
Investments in equity-method investee 1,033   1,415 
Operating lease right-of-use assets 6,970   9,181 
Prepaid expenses and other assets 10,824   15,180 
Total assets$1,419,851  $1,207,214 
Liabilities       
Accounts payable and accrued expenses$38,656  $41,731 
Operating lease liabilities 9,712   13,776 
Notes payable, net (including $911.8 million and $827.1 million associated with variable interest entities at June 30, 2021 and December 31, 2020, respectively) 966,566   882,610 
Notes payable associated with structured financings, at fair value (associated with variable interest entities) 2,562   2,919 
Convertible senior notes 9,226   24,386 
Income tax liability 37,211   25,932 
Total liabilities 1,063,933   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 June 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 99,500   99,350 
        
Shareholders' Equity       
Series B preferred stock, no par value, 2,800,000 shares issued and outstanding at June 30, 2021 and 0 shares issued and outstanding at December 31, 2020 (liquidation preference - $70.0 million) (1)     
Common stock, no par value, 150,000,000 shares authorized: 16,638,161 shares issued and outstanding (including 1,459,233 loaned shares to be returned) at June 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 254,001   194,950 
Retained deficit (36,715)  (117,666)
Total shareholders’ equity 217,286   77,284 
Noncontrolling interests (868)  (774)
Total equity 216,418   76,510 
Total liabilities, preferred stock and shareholders' equity$1,419,851  $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 measures

Loans, interest and fees receivable, at face value  
   
 At or for the Three Months Ended 
 2021  2020  2019 
(in Millions)Jun. 30(1)  Mar. 31(1)  Dec. 31(1)  Sept. 30(1)  Jun. 30(1)  Mar. 31(1)  Dec. 31  Sept. 30 
Loans, interest and fees receivable, at fair value$644.7  $481.4  $417.1  $310.8  $177.9  $89.4  $4.4  $4.5 
Fair value mark against receivable (2)$148.6  $112.3  $99.0  $71.8  $42.7  $17.5  $2.0  $2.6 
Loans, interest and fees receivable, at face value$793.3  $593.7  $516.1  $382.6  $220.6  $106.9  $6.4  $7.1 

(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)Jun. 30  Mar. 31  Dec. 31  Sept. 30  Jun. 30  Mar. 31  Dec. 31  Sept. 30 
Loans, interest and fees receivable, gross$454.2  $498.8  $574.3  $604.8  $679.6  $810.6  $908.4  $769.0 
Loans, interest and fees receivable, gross from fair value reconciliation above 793.3   593.7   516.1   382.6   220.6   106.9   6.4   7.1 
Total managed receivables$1,247.5  $1,092.5  $1,090.4  $987.4  $900.2  $917.5  $914.8  $776.1 

Combined net charge-off ratio, annualized

The calculation of Combined net charge-offs used in our Combined net charge-off ratio, annualized is as follows (in millions):

 At or for the Three Months Ended 
 2021  2020  2019 
(in Millions)Jun. 30  Mar. 31  Dec. 31  Sept. 30  Jun. 30  Mar. 31  Dec. 31  Sept. 30 
Net losses on impairment of loans, interest and fees receivable recorded at fair value$22.7  $14.3  $8.6  $3.3  $0.4  $0.3  $0.2  $0.2 
Gross charge offs on non fair value accounts 27.6   26.3   30.6   54.3   71.8   70.5   49.9   34.8 
Recoveries on non fair value accounts (5.7)  (3.4)  (4.3)  (5.4)  (11.0)  (4.4)  (2.6)  (4.3)
Combined net charge-offs$44.6  $37.2  $34.9  $52.2  $61.2  $66.4  $47.5  $30.7 

The Combined net charge-off ratio, annualized is calculated using the annualized combined net charge-offs as the numerator and period-end average managed receivables as the denominator.

 


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