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 for the millions of Americans with lower credit scores who are often underserved by larger financial institutions.

Atlanticus primarily operates in two segments:

Credit as a Service (CaaS): This segment provides technology solutions and other support services 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.

Auto Finance: This segment 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, or 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 company’s net income attributable to controlling interests increased by $8.5 million, or 8.2%, to $111.3 million in 2024. This was primarily due to the growth in revenue, partially offset by increases in operating expenses such as salaries, card and loan servicing, and other costs associated with supporting the expanded receivables portfolio.

Revenue and Profit Trends

The CaaS segment, which accounts for the majority of Atlanticus’ business, saw strong growth in both private label credit and general purpose credit card receivables. Private label credit receivables grew by $292.4 million, or 31.1%, over the prior year, while general purpose credit card receivables grew by $21.7 million, or 1.5%.

The growth in receivables led to increases in revenue from finance charges, merchant fees, and other fees and income. However, the relative mix shift towards private label credit receivables, which typically have lower yields than general purpose credit cards, put some pressure on the total managed yield ratio, which decreased from 39.4% in 2023 to 40.0% in 2024.

The company’s combined principal net charge-off ratio, which measures net losses on the receivables, improved from 26.4% in 2023 to 22.0% in 2024. This was due to a combination of factors, including tightened underwriting standards, growth in the receivables portfolio, and improvements in consumer payment behavior.

Interest expense increased by $50.8 million, or 46.5%, as Atlanticus raised additional debt to fund the growth in receivables. The company’s net interest margin ratio, which measures the difference between yield and charge-offs and interest expense, decreased from 7.6% in 2023 to 11.5% in 2024, reflecting the higher cost of capital.

The Auto Finance segment saw a decline in managed receivables due to recent stress at some dealer locations, which resulted in higher credit losses on floorplan loans. This segment’s total managed yield ratio remained relatively stable, ranging from 34.9% to 36.0% throughout 2024.

Strengths and Weaknesses

Strengths:

• Successful growth strategy in private label credit and general purpose credit cards, leveraging technology and data to serve underbanked consumers
• Diversified revenue streams, including servicing income and investments in consumer technology platforms
• Strong liquidity position, with $375.4 million in unrestricted cash at the end of 2024
• Experienced management team with expertise in cybersecurity and risk management

Weaknesses:

• Reliance on bank partners to originate credit products, which could be impacted by regulatory changes or partner decisions
• Exposure to credit risk, with the potential for increased delinquencies and charge-offs during economic downturns
• Rising interest expense as the company funds growth through debt, which could pressure profit margins
• Concentration risk, with the top five retail partnerships accounting for over 75% of private label credit receivables

Outlook

Atlanticus expects to continue growing its private label credit and general purpose credit card receivables in 2025, although the pace and timing of new receivable acquisitions may be impacted by factors such as seasonal consumer spending patterns, labor shortages, and supply chain disruptions.

The company anticipates that its total managed yield ratio will remain relatively stable, with potential fluctuations due to changes in the mix of receivables and the impact of recent product, policy, and pricing changes in response to regulatory developments.

Atlanticus expects its combined principal net charge-off ratio to improve in 2025 compared to 2024, as the company’s tightened underwriting standards and growth in the receivables portfolio help to offset any potential increases in delinquencies.

However, the company’s interest expense is likely to continue rising as it replaces existing financing arrangements with new, higher-cost debt to fund the growth in receivables. This could put pressure on the company’s net interest margin ratio in the near term.

Overall, Atlanticus appears well-positioned to continue executing on its growth strategy, leveraging its technology and data capabilities to serve the underbanked consumer market. However, the company will need to carefully manage its credit risk, funding costs, and regulatory environment to maintain profitability and create value for shareholders.