GlobeNewswire Inc | Aug 13, 2021 04:38PM EDT

August 13, 2021

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 incomeattributable 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

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

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 feesand 3) ancillary, interchangeand 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 operationsincreased 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 additionalreserves associated with accounts that have been impacted due toCOVID-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.

AboutAtlanticus 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 billionin 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,Atlanticusserves 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 RelationsAdam PriorSenior Vice President The Equity Group Inc.(212) 836-9606aprior@equityny.com

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

For the Three Months For the Six Months Ended Ended June 30, June 30, 2021 2020 2021 2020 Revenue: Consumer loans, including $ 122,654 $ 100,112 $ 224,950 $ 203,259 past due feesFees and related income 49,553 32,399 86,573 67,044 on earning assetsOther revenue 7,312 2,910 11,891 5,636 Total operating revenue 179,519 135,421 323,414 275,939 Other non-operating 2,586 325 3,426 315 revenueTotal revenue 182,105 135,746 326,840 276,254 Interest expense (13,790 ) (12,252 ) (26,088 ) (25,836 )Provision for losses onloans, interest and fees (11,096 ) (32,530 ) (15,231 ) (99,866 )receivable recorded atnet realizable valueChanges in fair value ofloans, interest and feesreceivable and notes (58,763 ) (25,667 ) (86,254 ) (40,858 )payable associated withstructured financingsrecorded at fair valueNet 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 13,678 10,190 23,979 19,507 solicitationDepreciation 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 5,448 ? 13,255 ? convertible senior notesIncome before income 46,943 28,092 98,740 34,739 taxesIncome tax expense (10,117 ) (4,975 ) (17,887 ) (6,260 )Net income 36,826 23,117 80,853 28,479 Net loss attributable to 50 48 98 111 noncontrolling interestsNet income attributable 36,876 23,165 80,951 28,590 to controlling interestsPreferred dividends and (4,738 ) (4,736 ) (9,425 ) (7,495 )discount accretionNet income attributable $ 32,138 $ 18,429 $ 71,526 $ 21,095 to common shareholdersNet income attributableto common shareholders $ 2.12 $ 1.28 $ 4.74 $ 1.46 per common share?basicNet income attributableto common shareholders $ 1.56 $ 0.93 $ 3.47 $ 1.12 per common share?diluted

Atlanticus Holdings Corporation and SubsidiariesConsolidated 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 $ 265,869 $ 178,102 variable interest entities at June 30, 2021 andDecember 31, 2020, respectively)Restricted cash and cash equivalents (including$49.8 million and $70.2 million associated with 67,884 80,859 variable interest entities at June 30, 2021 andDecember 31, 2020, respectively)Loans, interest and fees receivable: Loans, interest and fees receivable, at fairvalue (including $587.6 million and $374.2million associated with variable interest 644,739 417,098 entities at June 30, 2021 and December 31, 2020,respectively)Loans, interest and fees receivable, gross(including $445.5 million and $560.2 millionassociated with variable interest entities at 547,355 667,556 June 30, 2021 and December 31, 2020,respectively)Allowances for uncollectible loans, interest andfees receivable (including $92.2 million and$120.9 million associated with variable interest (95,183 ) (124,961 )entities at June 30, 2021 and December 31, 2020,respectively)Deferred revenue (including $6.7 million and$10.3 million associated with variable interest (31,344 ) (39,456 )entities at June 30, 2021 and December 31, 2020,respectively)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 966,566 882,610 entities at June 30, 2021 and December 31, 2020,respectively)Notes payable associated with structuredfinancings, at fair value (associated with 2,562 2,919 variable interest entities)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 issuedand outstanding at June 30, 2021 (liquidation 40,000 40,000 preference - $40.0 million); 400,000 sharesissued and outstanding at December 31, 2020 (1)Class B preferred units issued to noncontrolling 99,500 99,350 interests Shareholders' Equity Series B preferred stock, no par value, 2,800,000shares issued and outstanding at June 30, 2021and 0 shares issued and outstanding at December ? ? 31, 2020 (liquidation preference - $70.0 million)(1)Common stock, no par value, 150,000,000 sharesauthorized: 16,638,161 shares issued andoutstanding (including 1,459,233 loaned shares tobe returned) at June 30, 2021; and 16,115,353 ? ? shares issued and outstanding (including1,459,233 loaned shares to be returned) atDecember 31, 2020Paid-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 $ 1,419,851 $ 1,207,214 shareholders' equity

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

(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 andfees receivable, $ 454.2 $ 498.8 $ 574.3 $ 604.8 $ 679.6 $ 810.6 $ 908.4 $ 769.0 grossLoans, interest andfees receivable, 793.3 593.7 516.1 382.6 220.6 106.9 6.4 7.1 gross from fair valuereconciliation aboveTotal managed $ 1,247.5 $ 1,092.5 $ 1,090.4 $ 987.4 $ 900.2 $ 917.5 $ 914.8 $ 776.1 receivables

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. Jun. 30 Mar. 31 Dec. 31 Sept. 30 30Net losses onimpairment ofloans, interestand fees $ 22.7 $ 14.3 $ 8.6 $ 3.3 $ 0.4 $ 0.3 $ 0.2 $ 0.2 receivablerecorded at fairvalueGross charge offson non fair value 27.6 26.3 30.6 54.3 71.8 70.5 49.9 34.8 accountsRecoveries on nonfair value (5.7 ) (3.4 ) (4.3 ) (5.4 ) (11.0 ) (4.4 ) (2.6 ) (4.3 )accountsCombined net $ 44.6 $ 37.2 $ 34.9 $ 52.2 $ 61.2 $ 66.4 $ 47.5 $ 30.7 charge-offs

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.