Overview

Atlanticus is a financial technology company that provides more inclusive financial solutions for everyday Americans. They leverage data, analytics, and innovative technology to unlock access to financial products and services for the millions of Americans who would otherwise be underserved by larger financial institutions.

Atlanticus operates in two main segments:

Credit as a Service (CaaS): This segment provides technology solutions and infrastructure to lenders who offer private label credit cards and general purpose credit cards to consumers. Atlanticus acquires the receivables generated by these credit products from its bank partners. It also provides loan servicing and testing/investment in consumer technology platforms.

Auto Finance: This segment principally purchases and services loans secured by automobiles from a network of independent automotive dealers and finance companies in the buy-here, pay-here used car business.

Financial Performance

Atlanticus experienced solid growth in 2024, with total operating revenue and other income increasing by $154.7 million (13.4%) compared to 2023. This was driven by growth in both the private label credit and general purpose credit card receivables within the CaaS segment.

The CaaS segment saw a $154.7 million (15.3%) increase in total operating revenue, reflecting growth in receivables and higher fees and finance charges. The Auto Finance segment saw a more modest $0.4 million (4.3%) increase in total operating revenue.

Net income attributable to controlling interests increased by $8.5 million (8.2%) in 2024 compared to 2023. This was driven by the revenue growth, partially offset by higher operating expenses, interest expense, and provision for credit losses.

Revenue and Profit Trends

The growth in CaaS segment revenue was primarily due to:

• Consistent quarterly growth in new credit card customers and seasonally driven growth in private label credit receivables, leading to higher finance charges, merchant fees, and other fees.
• Increased fee and finance pricing requirements on new receivable acquisitions in response to higher financing costs.
• Continued growth in the private label credit receivables portfolio, which offset some of the yield improvements from the pricing changes.

The Auto Finance segment saw more modest revenue growth due to recent stress at some dealer locations, leading to higher credit losses on floorplan loans. This was partially offset by growth in the underlying auto loan portfolio.

Atlanticus experienced increases in operating expenses, primarily in salaries/benefits, card/loan servicing, and other expenses. These increases were driven by growth in the business and inflationary pressures. Interest expense also increased due to higher debt levels and rising interest rates.

The provision for credit losses increased, mainly due to higher expected losses on floorplan loans in the Auto Finance segment and notes receivable from consumer technology platforms.

Overall, Atlanticus was able to grow profits, but the increases were moderated by higher operating costs and credit-related expenses.

Strengths and Weaknesses

Strengths:

• Innovative technology platform and data-driven approach to underwriting and servicing consumer loans
• Diversified revenue streams across private label credit, general purpose credit cards, and auto finance
• Long track record of profitability and cash flow generation
• Flexible funding structure with access to debt and equity capital markets

Weaknesses:

• Exposure to regulatory changes, such as the CFPB’s proposed limits on late fees, which could impact revenue
• Reliance on bank partners to originate credit products, which introduces some counterparty risk
• Concentration risk in the top retail partnerships for the private label credit business
• Potential for higher credit losses in the Auto Finance segment during economic downturns

Outlook

Atlanticus expects continued growth in its private label credit and general purpose credit card receivables in 2025, driven by expansion of existing retail partnerships and the addition of new partners. However, the pace and timing of new receivable acquisitions could be impacted in the short term by product, policy, and pricing changes in response to the proposed CFPB rules.

The company also anticipates some margin pressure as it implements these changes and faces higher financing costs due to rising interest rates. Delinquency and charge-off rates may increase modestly as Atlanticus targets a broader range of consumers, but the company believes it can offset this through more restrictive underwriting and pricing.

In the Auto Finance segment, Atlanticus expects modest growth in managed receivables, but the timing and size of bulk portfolio purchases will continue to be difficult to predict. Credit performance may remain elevated in the near term due to dealer-specific issues, but the company believes its reserve levels and collateral protections are adequate.

Overall, Atlanticus appears well-positioned to navigate the current economic environment and regulatory changes, leveraging its technology, data analytics, and diversified business model. However, the company will need to carefully manage costs, credit quality, and funding to maintain profitability and growth in the coming years.