Atlanticus Holdings Corporation (NASDAQ: ATLC) (“Atlanticus,” “the Company”, “we,” “our” or “us”), a financial technology company which enables its bank, retail and healthcare partners to offer more inclusive financial services to millions of everyday Americans, today announced its financial results for the second quarter ended June 30, 2022. An accompanying earnings presentation is available in the “Investors” section of the Company’s website at www.atlanticus.com or by clicking here.

Second Quarter 2022 Highlights (all comparisons to the prior year period)

• Total operating revenue increased 50.3% to $269.8 million.
• Purchase volume increased 40.2% to $769.1 million.
• Total number of accounts serviced(1) at period end increased 47.0% to 3.2 million.
• Over 290,000 new serviced accounts added during the quarter.
• Managed receivables(2) increased 53.0% to $1.9 billion, and 18.5% from December 31
• Net earnings of $33.8 million, or $1.46 per diluted common share.
• Repurchased and retired 355,036 shares of our common stock at an aggregate cost of $12.9 million.

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Management Commentary

Jeff Howard, President and Chief Executive Officer at Atlanticus stated, "We are excited to have achieved yet another important milestone during the second quarter of 2022, now servicing more than 3 million accounts as we seek to empower better financial outcomes for everyday Americans. We are pleased with our financial results which reflect continued growth in both revenue and managed receivables of over 50%. This growth is indicative of the value we bring our bank, retail, and healthcare partners as we work to meet the needs of their customers.”

“While we are pleased with our second quarter results and our long term prospects for continued growth, we are mindful of the economic environment and the impact it has on the customers we serve. In the second quarter we began tightening underwriting criteria and as a result, we expect slower growth near term. Given our experience managing through uncertain economic times, we believe we are well positioned should a downturn occur. Any short-term macro-economic headwinds do not detract from our belief in the value we bring our partners, the customers we serve and the long-term value creation capability of our team and our credit-as-a-service platform,” continued Mr. Howard.

Managed Receivables

Managed receivables increased over 53.0% to $1.9 billion as of June 30, 2022, from $1.2 billion as of June 30, 2021 as total accounts serviced increased 47.0% to 3.2 million. Managed receivables also increased 18.5% or $297.9 million from December 31, 2021. This increase is primarily due to continued strength in consumer spending behavior on our private label and general-purpose credit cards during the second quarter of 2022 for both new and existing accounts serviced. While we expect continued period over period growth in the receivable loan balances, we do expect that the pace of growth in these receivables will slow.

Total revenue

Total operating revenue consists of interest income, finance charges, fees, ancillary income, interchange and servicing income on loan portfolios.

Total operating revenue increased 50.3% to $269.8 million in the quarter. This revenue increase was primarily driven by higher growth in our acquisitions of general purpose credit card receivables (which tend to have higher yields and corresponding charge-offs) than in our acquisitions of private label credit receivables. While we noted some disruptions in consumer spending behavior due to the COVID-19 pandemic and related economic impacts, including inflation, labor shortages and supply chain disruptions, we are currently experiencing continued period-over-period growth in private label credit and general purpose credit card receivables and to a lesser extent in our CAR receivables—growth which we expect to result in net period-over-period growth (albeit at a slower pace of growth) in our total interest income and related fees for these operations for 2022.

Interest expense

Interest expense was $18.9 million for the quarter, compared to $13.8 million in the prior year period. Outstanding notes payable, net of unamortized debt issuance costs and discounts, associated with our private label credit and general purpose credit card platform increased to $1,359.7 million as of June 30, 2022 from $911.9 million as of June 30, 2021. The majority of this increase in outstanding debt relates to the addition of multiple revolving credit facilities during 2021. Additionally, the issuance of $150.0 million of senior notes in November 2021 also served to increase interest expense during the period, as expected.

Offsetting these increases in interest expense was an overall decrease in the weighted average cost of funds, coupled with the repurchase and redemption of our convertible senior notes. Recent increases in the federal funds rate have thus far had a minimal impact on our interest expense as over 90% of interest rates on our outstanding debt are fixed. We anticipate additional debt financing over the next few quarters as we continue to grow receivables coupled with increased effective interest rates resulting from both recently enacted and anticipated federal funds rate increases. 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 $182 thousand for the quarter, compared to $11.1 million in the prior year period. This reduction is due to the adoption of fair value accounting for the majority of our outstanding receivables. We do not anticipate having meaningful impacts from this line item for 2022.

Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value

Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value increased to $146.6 million in the quarter, compared to $58.8 million in the prior year period, largely driven by growth in receivables coupled with increased fee billings on those receivables and inclusive of modeled market degradation in our forecasts to reflect the possibility of delinquency rates increasing in the near term (and the corresponding increase in charge-offs and decrease in payments) above the level that historical and current trends would suggest. Fee billings on our fair value receivables increased from $129.1 million for the six months ended June 30, 2021 to $412.4 million for the six months ended June 30, 2022. Offsetting this increase in Changes in fair value of loans, interest and fees receivable and notes payable associated with structured financings recorded at fair value was a reduction in the discount rate applied to the net cash flows associated with these investments. The reduction in this discount rate for the period ended June 30, 2022 reflects the asset level returns we believe would be required by market participants.

Total operating expense

Total operating expense increased 34.2% to $61.8 million for the quarter, compared to $46.1 million in the prior year period, primarily driven by salaries, reflecting growth in the number of employees and related benefit cost. Additionally, card and loan servicing expenses including marketing and solicitation costs and other third-party expenses increased the total operating expense in the quarter due to growth in receivables. While we expect to see continued increases in these variable related expenses, their relative impact as a percentage of our average managed receivables is expected to decline.

Net Income Attributable to Common Shareholders

Net income attributable to common shareholders decreased 13.6% to $27.8 million from $32.1 million in the prior year period.

Net income attributable to common shareholders per basic common share was $1.88 compared to $2.12 in the prior year period.

Net income attributable to common shareholders per common share diluted decreased to $1.46 compared to $1.56 in the prior year period.

Share Repurchases

During the three and six months ended June 30, 2022, we repurchased and contemporaneously retired 355,036 and 1,360,248 shares of our common stock at an aggregate cost of $12,861,000 and $78,075,000, respectively, pursuant to both open market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations.

About Atlanticus Holdings Corporation

Empowering Better Financial Outcomes for Everyday Americans

Atlanticus’ technology allows bank, retail, and healthcare partners to offer more inclusive financial services to everyday Americans through the use of proprietary analytics. We apply the experience gained and infrastructure built from servicing over 18 million customers and $27 billion in consumer loans over our 25-year operating history to support lenders that originate a range of consumer loan products. These products include retail and healthcare private label 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, amount and pace of growth of managed receivables, total interest income and related fees and charges, debt financing, liquidity, interest expense, interest rates, underwriting, consumer performance trends and economic developments. 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, merchant partners, consumers, loan demand, the capital markets, labor availability, supply chains and the economy in general; the Company's ability to retain existing, and attract new, merchant partners 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.

_{Calculation of Non-GAAP Financial Measures}

This press release presents information about managed receivables, which is a non-GAAP financial measure provided as a supplement to the results provided in accordance with accounting principles generally accepted in the United States of America (“GAAP”). This non-GAAP financial measure aids 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.

This non-GAAP financial measure is presented for supplemental informational purposes only. This non-GAAP financial measure has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, GAAP financial measures. This non-GAAP financial measure may differ from the non-GAAP financial measures used by other companies.

Below are (i) the reconciliation of Loans, interest and fees receivable, at fair value to Loans, interest and fees receivable, at face value (ii) the calculation of managed receivables, (iii) the calculation of managed yield, and (iv) the calculation of combined principal net charge-offs:

i)

_ii)

iii)

A reconciliation of our operating revenues to comparable amounts used in our calculation of Total managed yield ratios follows (in millions):

iv)

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