ATLC - NASDAQ

Good day, and thank you for standing by. Welcome to the Atlanticus Holdings Corporation Fourth Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message of buzz and your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Dan Mock of Atlanticus Holdings Corporation. Please go ahead.

Thank you, operator, and good afternoon, everyone. Atlanticus Holdings Corporation released results for the fourth quarter and full year 2025 ended December 31, 2025 this afternoon after market close. If you did not receive a copy of our earnings press release, you may obtain it from the investor relations section of our website at investors.atlanticus.com. We have also posted an updated investor presentation. With me on today's call are Jeff Howard, President and Chief Executive Officer, and Bill McKamey, Chief Financial Officer. This call is being webcast and will be archived on the investor relations section of our website. Today's discussion may contain forward-looking statements that reflect the company's current views with respect to, among other things, the benefits of the acquisition of Mercury, including expected synergies, and future financial and operating results. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking statement. Please review our earnings release and the risk factors discussed in our SEC filings. 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 addition, during this call, we may refer to certain non-GAAP financial measures. Please refer to our earnings release and investor presentation for important disclosure regarding such measures, including reconciliations to the most comparable GAAP financial measures. I will now turn the call over to Jeff Howard.

Thanks, Dan. And again, good afternoon, everyone, and welcome to Atlanticus Holdings Corporation's first public earnings call. To state the obvious, 2025 was a transformative year for our company. Not only did we deliver sustained above-market growth across our core businesses, but we also completed the acquisition of Mercury Financial, a transaction that meaningfully enhanced the scale, capabilities, and long-term earnings power of our company. With the Mercury acquisition, we effectively doubled the size of our balance sheet to $7.0 billion. We added more than 1.3 million customers that we serve, we deepened and strengthened our data analytics and product capabilities in the near-prime space. Most importantly, we added significant human resource talent. Strategically, this acquisition expands the markets we can serve and accelerates efficiencies gained from scale. It also provides us a $3.0 billion portfolio to optimize with our portfolio management expertise, expertise gained from our numerous portfolio acquisitions throughout our history. As a result, we anticipate significant long-term earnings accretion driven by disciplined portfolio management, cost savings, and incremental origination growth in the near-prime space. Integration of Mercury has progressed well ahead of plan. Our team has done an exceptional job in integrating the organization and bringing about the realization of the many value-creating opportunities that will be derived from the acquisition. Our first priority is portfolio management, undertaking actions to properly position the Mercury portfolio. Phase one of those actions has been completed and is performing better than modeled. Additional phases will continue throughout 2026. At the same time, we are already realizing meaningful operating cost efficiencies across the combined company. We expect these revenue enhancements and cost benefits to contribute increasingly to earnings growth in 2027 and 2028. During the quarter, we also acquired a $165.0 million retail credit portfolio from a competitor, further solidifying our leadership position in the second-look point-of-sale market. Turning to our financial performance, we once again delivered strong results in the fourth quarter and for the full year. For the fourth quarter, diluted earnings per share grew 23% year over year, and for the full year grew 25% over prior year. We also continue to deliver strong returns to our shareholders, return on average equity above 20%, even while maintaining more than $600.0 million of unrestricted cash at year end. While I have highlighted the Mercury acquisition, it was our historical business that drove results in 2025. Excluding Mercury, managed receivables increased 37% year over year. New account originations increased 73% to more than 2.2 million for the year, and were up 56% in the fourth quarter compared to the prior-year period. Purchase volume increased 54% for the quarter over last year and 32% for the year. Revenue increased 27% for the full year, and 35% in the fourth quarter year over year. As a result, we finished 2025 with record levels of receivables, record originations, and record accounts served while exceeding our earnings growth return on capital goals. On the consumer front, our data indicates that the consumers we serve remain stable. We are seeing consistent payment performance, steady purchase activity, and stable delinquency trends. While much has been made about a K-shaped economy, we continue to see rational consumer behavior. While purchasing decisions may be shifting, consumers are still maintaining their credit. For those newer to our story, we have seen through multiple cycles, the utility provided by our offerings is one of the most valuable financial tools in a consumer's wallet. As a result, when given time to adjust to the macro landscape, open-ended consumer credit products like ours show less variability during downturns. We see nothing today that suggests our consumers are not managing their finances prudently. On a different note, the competitive landscape remains robust, and we are seeing record solicitations in our space leading to some softening in response rates and marketing efficiency. Nonetheless, given our diversified product offerings, our broad consumer reach, and multiple origination channels, we are highly confident in our long-term positioning. As we look ahead, it serves us well to look at how far we have come. Five years ago, we had $1.1 billion in managed receivables. Today, we have $7.0 billion, a compounded annual growth rate of 45%. Five years ago, we had $560.0 million in revenue. In 2025, we generated just under $2.0 billion in revenue, a 28% annual growth rate. Our customers served have grown from 1.2 million to approximately 6.0 million, a 38% annual growth rate. Importantly, we achieved our return on equity targets of greater than 20% each year, even with the inflationary bubble in 2022 and 2023. Over the next five years, our long-term objectives remain unchanged. While the addition of Mercury naturally moderates our asset growth rate due to the larger base, we are targeting long-term earnings growth of 20% or more annually while delivering returns on average equity of 20% or greater. We have a talented and experienced team, scalable technology, a proven platform, and ample capital. We have a diversified product offering and marketing capability allowing us to meet customers where they are. We operate at scale in an underserved market where we offer highly valued services to consumers on fair terms. Consumers are experiencing modest but real wage growth, stable employment, and tax policies have been enacted that favor the middle class. We are well positioned to empower better financial outcomes for even more everyday Americans, and provide for durable, profitable growth and long-term value creation for our shareholders. I will now turn the call over to Bill McKamey.

Awesome. Thanks, Jeff, and thanks, everybody, for joining us. I will begin my section with revenue. For the fourth quarter, total operating revenue and other income increased 107% year over year to $734.0 million. This growth was primarily driven by the acquisition of Mercury, continued expansion of our managed receivables, and increased merchant fee recognition associated with higher origination volume. Our fair value mark declined modestly as we onboarded the Mercury portfolio as well as added meaningful new receivables to our existing general purpose card asset. Newly originated and newly acquired receivables typically carry lower initial fair values because lifetime loss expectations are front loaded until the accounts season beyond peak charge-off periods. The Mercury receivables were initially recorded at fair values below our legacy general purpose credit portfolio, reflecting both mix and acquisition accounting. As these portfolios season and as product policy and pricing adjustments Jeff referenced earlier are implemented, we expect fair value marks to improve over time. Our year-over-year improvement in delinquency and charge-offs continued through the fourth quarter, and was amplified with the addition of the Mercury assets. We expect to see the positive impact of the current tax season on delinquencies and subsequent charge-offs. Interest expense increased consistent with receivable growth and higher funding costs. This reflected expanded warehouse capacity, term securitizations, and the issuance of senior notes to support our ongoing growth. Total operating expenses increased 67% year over year, primarily driven by increased servicing costs associated with portfolio growth, the addition of Mercury personnel and operating infrastructure, and higher marketing investment. As we integrate Mercury and scale the combined platform, we continue to identify and realize operating efficiencies. Net income attributable to common shareholders increased approximately 25% year over year to $32.8 million in the fourth quarter, or $1.75 per diluted share. We ended the year with ample capital, and continue to maintain substantial borrowing capacity across our warehouse facilities and term securitization platforms. Our funding model remains diversified across bank partners, term securitizations, and corporate debt markets. We believe we are well positioned to support continued receivable growth while maintaining disciplined return thresholds. For the quarter, we generated a return on average equity of approximately 22%. Our focus remains clear: empower the more than 5.0 million customers we serve by prudently deploying capital into at or above targeted return receivables, manage credit conservatively, and drive long-term earnings growth while maintaining balance sheet strength. In summary, the quarter reflects strong top-line growth, disciplined credit management, improving portfolio seasoning dynamics, and continued operating leverage as we scale the combined platform. I will now turn the call back to the operator for questions.

Thank you. At this time, we will conduct the question-and-answer session. Please press star 11 on your telephone. The first question will come from Vincent Kaintic with BTIG. Your line is now open.

Good afternoon. Thanks for taking my question and congratulations on your first earnings call. First, I wanted to talk about the integration in Mercury. It is nice to hear that it is moving ahead of schedule. Maybe if you can go into more detail where we are at, what has been achieved so far, and what is left to do. How long it might take. I thought in the press release, there was discussion about the product policy and pricing changes and I am sort of curious about what higher yields we should be expecting once all of that is said and done. Thank you.

Yeah. Thank you, Vincent. I appreciate the question. As we said, the integration of Mercury is well ahead of plan. Fortunately, we had ample time to plan post-acquisition for that integration given the length of time we were in negotiation with our counterparty before that acquisition. But that integration entails a number of different things. One, as I mentioned earlier, was the repricing and repositioning of the portfolio. We started that process on day one, literally the closing of the transaction, and undertook a significant change in terms on the portfolio that was effective back in December. That was obviously a very accelerated timeline, and kudos to our team to really undertake what was a heavy lift to get that change in terms out in market. That change in terms entailed a lot of different actions across the portfolio. Again, we have done this seven or eight other times in our history. We have got a lot of experience in doing this, and we leveraged that experience as well as our more recent portfolio management actions undertaken in 2022 and 2023 to have a high degree of certainty in those actions. In some instances, we added fees. In some instances, we increased APRs. In some instances, we lowered APRs and increased credit lines. It really was a risk-segment-by-risk-segment undertaking across the entire portfolio to better position the portfolio for longer-term profitable balance build. That was effective, as I said, beginning in December. We have had a number of operational efficiencies that we are starting to realize. The integration of the two organizations with a system-of-record integration will be undertaken later this year. That will help align all of our systems, continue the cost savings, and help us further along the process of gaining the benefits of scale. In that process, we are getting the benefits from scale from many of our third-party service providers throughout the entire ecosystem of our business. We are starting to realize those efficiencies already. I think the entirety of our integration plan was around 18 months, so into 2027, we feel like we will have the integration pretty much under our belt. But the realization of a lot of that integration and synergy and portfolio repositioning will continue to accrue into 2027 and even 2028. The way that a lot of the change in terms is undertaken post-CARD Act is you can only affect new balances with new APRs, and so it takes some time for the older protected balances to run off and to be replaced with the newer, higher-yielding balances, which is why we see what I would consider a longer-tailed realization of a lot of this change in terms.

Okay. Great. Thank you very much for that detail. Second part I wanted to talk about was the funding structure of Atlanticus Holdings Corporation. I think we have heard maybe some broader macro concerns about funding availability out there, such as with private credit and so forth. So if you could touch on that. And another thing we have seen amongst many of the fintechs out there is some fintechs exploring becoming a bank, and so I wanted to get your thoughts on that as part of your funding structure as well. Thank you.

Yeah. Vincent, happy to address that. We have got great funding partners really all over the world and they remain very supportive. We continue to access the securitization market routinely and have seen no deterioration or widening of our spreads as we approach those markets. We have diversified funding sources that include banks and life insurance companies and sovereign wealth funds and lots of different pools of capital, including private credit. We have not seen any lack of enthusiasm when we go to market. We have done a number of things with the Mercury asset that we have acquired. I think we announced at least one of those in December. That was very well received. We have got good partners in the whole program, so we do not sense that there is any softening there or support for our business. We also tap the corporate debt markets and have other places where we source capital. I think we have almost $1.0 billion of committed and undrawn bank warehouse lines across the whole business. We have got good capital support for our growth. With regard to your question about a bank, we obviously observe others that are applying for bank acquisitions or seeking new charters. We are studying that ourselves, and that is an interesting element for the industry more broadly and something that we are considering.

Thank you. The next question will come from Alex Howell with Stephens. Your line is open.

Hey, thanks for taking my question, and congrats on the quarter. Quick question, and some of this was touched on during the opening remarks. Curious also what you guys are thinking about, or how you are rather thinking about, this particular tax refund season and the implications to the portfolio and just growth of receivables over, I guess, the start of this new year.

Yeah. Listen. Our expectation is that this is going to be a fairly robust tax season. We have not seen anything to dissuade us of that view up to this date. We obviously recognize a number of tax policies that were enacted that we believe will benefit our consumers, and we expect to see the paydown accordingly, which will obviously hurt balances a little bit and slow our growth in the quarter, not necessarily year over year, but certainly in sequential quarters. It also has the longer-term benefit of reducing delinquencies. We feel very good about the way our portfolio is positioned. Like I said, the data that we are seeing suggests that tax season is in line with expectations, and it will follow its normal seasonal trends is our expectation. In consumer behavior throughout the rest of the year, our consumers will typically pay down with their tax dollars and tax refunds, then reborrow over the course of the year and rebuild those balances through the use of our card throughout the remainder of the year. We do not expect anything different at this point.

Okay. If I could just also sneak another one in. In your filing, you guys talk about customer concentration. I am just curious if you could provide a little bit more context on a particular relationship with your largest partner and how that relationship has evolved, and what you are doing to manage concentration risk?

Yeah. Thanks for the question, Alex. We have a number of, well, frankly, thousands of merchants that we work with within our retail point-of-sale channel. Some of them have bigger concentrations than others. Obviously, you see the table in our 10-K. We have not disclosed who those individual partners are, but I think the scale and the way that that has grown is reflective of how we approach that whole market. It is very technology driven. The integration with each of our merchant partners is very sophisticated, very API driven, and very mobile first. That really enables us to make great underwriting decisions in partnership with our account owner banks at the point of sale, and it gives us a lot of defensive moat in that operating structure. I would say all that as an example relates to how that relationship has scaled because for at least six or seven years, we have been adding great value to that partner, like we do with all our partners, and we have been winning more and more market share with them and others. That has been a good growth story for us. It is not a concern from our perspective from a concentration perspective, because that one partnership is a part of a bigger portfolio, which in turn is a part of a bigger balance sheet. We have good underwriting of the individual consumers that we support there, and good counterparty risk with that merchant as well. So not an area that we are concerned about. In fact, I think it is the continuation of our ongoing strategy for us to become more strategically important to fewer, more enterprise-level clients, so that we can get the full benefit of our custom solutions, our technology integrations, the breadth of underwriting, and create something that is really customized to each of those enterprise-level relationships. That is what you see as our portfolio has matured.

Alright. Thanks for taking my question, guys. I will hop back in the queue.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone. The next question will come from David Sharp with Citizens Capital Markets. Your line is open.

Hi, everyone. Good afternoon. This is

Yeah. Great question. Thank you. We, like you, draw the same parallel to 2022. We are not forecasting or pretending that we know how to forecast what gas prices are going to do in the coming weeks or months. But we are watching it very, very closely and will react to any change in behavior that we see with our consumer just like we did in 2022. You may recall that we were very early to identify change in behavior coming out of tax season in April 2022 and changed pretty meaningfully our underwriting, our approach to market, our pricing strategy, our origination tempo, even our existing back-book pricing, and undertook a meaningful change in terms and repositioning of our own portfolio because of what we saw very early on based on our, at that point in time, 25 years’ worth of data aggregation to identify deviations from expected payment performance. When we saw that, we changed very, very quickly. That allowed us to continue to serve our customers in a way that we felt was representative of the risk and getting an appropriate return on that capital. As you look back at our financial performance, it still enabled us to hit our target return on capital of 20-plus percent. We feel we are in the same position today. Obviously, this inflation bubble might be more limited to gas prices, at least short term, than what we experienced in April and May and June 2022. But we are going to watch the data, and as soon as we see a change in behavior, we are going to react accordingly. We obviously have a pretty deep toolbox available to us and a lot of experience on how to make changes once we see changes in that behavior to respond to it appropriately. We feel like our portfolio is very well positioned to absorb that as well. We do not wait on changes in behavior to start pricing for that behavior. We have been doing this long enough to know that you have to price your asset for through-the-cycle performance, meaning in the good times you have to build some buffer for when there is some stress. We feel like we have done that and have been planning for events like this. When we actually observe it taking place, we will take further action based on tools that we have developed over our now 30 years of operating history.

Got it. Thanks for the color. I wanted to also ask a little bit on the fair value mark to see if we can drill down a little bit and get a little bit more insight into it, particularly around the mix versus other impacts in the number.

Yeah. Happy to talk about that. As I think I mentioned in my comments earlier, we took the mark down a little bit because the Mercury portfolio is a little different asset than the one that we had traditionally acquired or originated through our normal organic originations, and then we did a lot of organic originations in the third and fourth quarter too. As I mentioned in my comments earlier, newer receivables are new to their seasoning and their life cycle. We have a little bit more conservative—actually, we have a very conservative—approach to our fair value underwriting since we adopted fair value, and I think that is really what you see in this number. The number is some 60 basis points or so below where we were last quarter. It is really a very conservative approach to how we think about the asset itself. Then, as we also mentioned, as our improvements to the Mercury book and our continuing origination and tempo advances through 2026, we anticipate seeing that fair value mark improving.

Got it. Thank you very much.

Thank you. The next question will come from Hal Goach with B. Riley Securities.

Hey. Thank you. Thanks for the call. I have one question on integration costs and one on maybe a revenue question. You mentioned maybe an 18-month timeline to get everything on a similar system-of-record integration. From start to finish, what kind of overall dollar savings of being on a common system of record bring the company over the next year versus where we are at today?

Yeah. Good question. We do not disclose the specifics of those synergies. But I think, as you saw when we announced the transaction, we anticipated somewhere between $2 and $4 a share in accretion on a go-forward basis. Suffice it to say, there are meaningful savings to be garnered from the full integration of two—close-to-scale platforms—and getting one significantly scaled platform in place. That extends well beyond just a system of record into servicing and marketing, internal cost, etc. We feel like there are a lot of levers for us to pull to continue to gain efficiencies through that scale and through that integration. Again, I would refer back to our initial transaction disclosures where we said we felt like we had $2 to $4 a share of accretion in 2027.

Okay. And the next question is, it sounds like you have a chance to reprice some customers. As you mentioned, the CARD Act and some protected balances are going to run off. What kind of increase in overall yield might that be for some of those accounts that might be able to be repriced a little higher or better unit economics if the balances do run off? What would that be?

Yeah. Great question. As you can imagine, given the sophistication of our data and analytics and the experience we have in both near-prime and subprime, the impact varies widely depending on where you sit in the risk spectrum. It is hard to say at the portfolio level what that might mean. We have not disclosed that. But we felt like from day one, we could get 100 to 350 basis points of ROA improvement on this portfolio.

Okay. Okay. And I guess one follow-up. It relates to the tuck-in acquisition of the Vibe portfolio from Prague Holdings. That was a subscale kind of operation for Prague, and it was not that profitable. I was just curious what Atlanticus Holdings Corporation can do with its expertise in card programs to improve the unit economics of that program that was not very large.

Yeah. Another good question. Thank you. One of the things that we did was buy it properly, and therefore, create a little bit more yield for the asset based on the purchase price. Two is our servicing costs are substantially less than the sellers’ just because of the scale that you referenced. Thirdly, we also have the opportunity to get more organic originations through the partnerships that we inherited at prices that we were then able to determine worked for us. We felt like the combination of those three things got us a return profile for that acquisition that we deemed attractive.

Alright. Terrific. Thank you very much.

Thank you. The next question will come from Alex Howell with Stephens. Your line is open.

Hey again, guys. Quick question on the private-label receivables, the delinquency rates. You guys call out that you do not include certain receivables from the private-label card business. Just curious if you could help me understand the thinking behind that and, perhaps just for comparability’s sake, help me understand what the delinquency metrics might look like if they were included.

Yeah. Happy to speak to that. We make that reference because some of our merchant relationships have support from the merchant with regards to asset performance. In some cases, the merchant will reimburse us for principal losses in that program. Because there is no loss experience, no expected loss experience, nor any actual loss experience with those particular receivables, we do not include them in those ratios. We are trying here to present what we think is an accurate description of how the assets are performing. Including those receivables here would be, I think, confusing with regards to how the asset is actually performing. So those assets we do not include in that table. I do not know how—we have not broken them out in terms of size or impact—so I do not know if I can directly answer your question with regards to what would they look like if they were included, but they would be different because there are no losses there. That is how we think about it.

This does conclude today's question-and-answer session. I would now like to turn it back to Jeff Howard for closing remarks.

Yeah. Thank you, and thank you all for your interest and support in our company. We are obviously very pleased with the quarter that we have posted and, obviously, the year as well. A lot took place in 2025 in terms of both organic opportunities and the transformational acquisition that we spent a good deal talking about. As much as there was to talk about in 2025, we are even more excited about what lies ahead and the opportunities for our business and the earnings power that we have created in this platform over the course of the last five years as we referenced in some of our prepared comments. We look forward to sharing the results of those opportunities in the coming quarters. So thank you all again, and thank you for your interest. We look forward to talking to you again in the next quarter.