Atlanticus Holdings Corporation

Good day and thank you for standing by. Welcome to the Atlanticus Holdings Corporation fourth quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's 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 five and your hand is raised. And 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. Please go ahead.

Thank you, operator, and good afternoon, everyone. Atlanticus released results for the fourth quarter and full year 2025 ended December 31st, 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 McCamey, 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 statements. 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. And with that, I'd like to turn the call over to Jeff.

Thanks, Dan. And again, good afternoon, everyone, and welcome to Atlanticus' first public earnings call. To state the obvious, 2025 was a transformative year for our company. Not only do 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 approximately $7 billion. We added more than 1.3 million customers that we serve, and we deepened and strengthened our data, analytics, and product capabilities in the near prime space. And 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 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, call savings, and incremental origination growth in the near prime space. The integration of Mercury has progressed well ahead of plan. Our team has done an exceptional job in integrating the organizations 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 million retail credit portfolio from a competitor, further solidifying our leadership position in the second 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 with return on average equity above 20%, even while maintaining more than $600 million of unrestricted cash at year end. And while I've highlighted the Mercury acquisition, it was our historical business that drove results in 2025. Excluding mercury, managed receivables increased 37 percent year-over-year. New account originations increased 73 percent to more than 2.2 million for the year, and we're up 56 percent in the fourth quarter compared to the prior year period. Purchase volume increased 54 percent for the quarter over last year and 32 percent for the year. Revenue increased 27 percent for the full year and 35 percent 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 and return on capital goals. On the consumer front, our data indicates that the consumers we serve remain stable. We're seeing consistent payment performance, steady purchase activity, and stable delinquency trends. While much has been made about a case-shaped economy, we continue to see rational consumer behavior. Purchasing decisions may be shifting, but 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've come. Five years ago, we had 1.1 billion in managed receivables. Today, we have 7 billion. a compounded annual growth rate of 45%. Five years ago, we had $560 million in revenue. In 2025, we generated just under $2 billion in revenue, a 28% annual growth rate. And our customers served have grown from 1.2 million to approximately 6 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 rates 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.

With that, I'll turn the call over to Bill. Awesome. Thanks, Jeff, and thanks, everybody, for joining us. I'll begin my section with revenue. For the fourth quarter, total operating revenue and other income increased 107 percent year-over-year to $734 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 volumes. 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. reflected expanded warehouse capacity, term securitizations, and the issuance of senior notes to support our ongoing growth. Total operating expenses increased 67 percent 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 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. With that, I'll turn the call back to the operator for questions.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. And to withdraw your question, please press star 11 again. And the first question will come from Vincent Caintick 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's nice to hear that it's moving ahead of schedule. Maybe if you can go into more detail where we're at, what's been achieved so far, and what's left to do. how long it might take. I thought in the press release there was discussions about the product policy and pricing changes. I'm 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, integration to 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, after 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 that kudos to our team to really undertake what was a heavy lift to get that change in terms out in market. And that change in terms entailed a lot of different actions across the portfolio. And we've done this seven or eight other times in our history. We've got a lot of experience in doing this. And we leverage that experience as well as our sort of more recent portfolio management actions undertaken in 2022 and 2023, to have a high degree of certainty in those actions. And 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 builds. And so that was effective, as I said, beginning in December. We've had a number of operational efficiencies that we're starting to realize. The integration of the two organizations starts with a system of record integration, which will be undertaken later this year. That will help align all of our systems and continue the cost savings and help us further along the process of gaining the benefits of scale. And 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. So we're starting to realize those efficiencies already. I think the entirety of our integration plan was around 18 months. So into the early part of 2027, we'll feel like we'll 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. Thanks very much for that detail. Second part I wanted to talk about was the funding structure of Atlanticus. I think we've heard maybe some just 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've seen amongst many of the fintechs out there, as well as some fintechs exploring becoming a bank. And so I wanted to get your thoughts on that as part of your discussion. your funding structure as well. Thank you.

Yeah, Vincent, happy to address that. We've got great funding partners really all over the world, and they remain very supportive. We continue to access the securitization market routinely, have seen no deterioration or widening of our spreads as we approach those markets. We have a 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. So we've done a number of things with the mercury asset that we've acquired. I think we announced at least one of those in December. That's very well received. We've got good partners in the whole program. So we don't sense that there's 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 a billion dollars of committed and undrawn bank warehouse lines across the whole business, so we've got good capital support for our growth. And then with regards to your question about a bank, we obviously observe others that are applying for bank acquisitions or seeking new charters. We're studying that ourselves, and that's an interesting element for that industry more broadly and something that we're considering.

Okay, great. Very helpful. Thank you.

Thank you. And the next question will come from Alex Howell with Stevens. Your line's open.

Hey, guys. Thanks for taking my question. It's 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're rather thinking about, you know, this particular tax refund season and the implications to the portfolio and just growth of receivables over the, I guess, the start of this new year.

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

Okay. Uh, if I could just also sneak another one in, um, in, uh, in your filings, you guys talk about, uh, customer concentration. I'm just curious if you could provide a little bit more context on, uh, your particular relationship with, uh, partner, your, your largest partner in the, you know, how that relationship has evolved, um, and what you're 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 in our retail point of sale channel. Some of them have bigger concentrations than others. Obviously, you see the table in our 10K. We haven't disclosed who those individual partners are, but I think the scale and the way that that's grown is reflective of how we approach that whole market. It's very technology driven the integration with each of our merchant partners is very sophisticated very API driven maybe very mobile first and that really enables us to make great underwriting decisions and partnership with our with our account on our banks at the point of sale and it gives us a lot of defensive moat in that operating structure so that I say all that as an example that relationship has scaled because you know probably at least six or seven years we've been adding great value to that partner as we think we do with all our partners and And we've been winning more and more market share with them and others. So that's been a good growth story for us. It's not a concern from our perspective, from a concentration perspective, because obviously that one partnership is a part of a bigger portfolio, which in turn is a part of a bigger balance sheet. So we've got good underwriting of the individual consumers affected there or that we support there. and good counterparty risk with that merchant as well. So it's not an area that we're concerned about.

Yeah, in fact, I think it's 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's really customized to each of those enterprise-level relationships. And that's what you see as our portfolio has matured.

All right, thanks for taking my question, guys. I'll hop back in the queue. Thanks.

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

Hi, everyone. Good afternoon. This is Zach on for David. Thanks for taking our questions. I wanted to dig in a little bit on the macro side of things. Obviously, you know, there's a lot going on with oil prices right now. I wanted to see if we can kind of get some more commentary on that. And also, you know, obviously, it's a large part of your average customer's budget. And, you know, there's a lot of similar dynamics in 2022. And I wanted to see if it's a little bit too early to kind of read into what's going on right now versus then or, you know, if we can kind of draw other parallels.

Yeah, great question. Thank you. And, you know, we, like you, sort of 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 we react to any change in behavior that we see with our consumer, just like we did in 2022. You guys may recall that we were very early to identify a change in behavior coming out of tax season in April of 2022 and change 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. And when we saw that, we changed very, very quickly. That allowed us to continue to serve our customers in a way that we felt were representative of the risk and getting an appropriate return on that capital. And as you look back at our financial performance, it still enabled us to hit our target return on capital of 20-plus percent. And so we feel we're in sort of 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 of 2022. But we're going to watch the data. And as soon as we see a change in behavior, we're 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 and feel like our portfolio is very well positioned to absorb that as well. You know, we don't wait on changes in behavior to start pricing for that behavior. We've 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. So we feel like we've done that and been planning for events like this. And now when we actually observe it taking place, we'll take further action based on the tool set that we've 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 kind of drill down a little bit and get a little bit more insight into it, particularly around 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 through our normal organic originations. And then we did a lot of organic originations in the third and fourth quarter too. So I think as I mentioned in my comments earlier, newer receivables are new to their seasoning and their life cycle. So we have a little bit more conservative, actually we've got a very conservative approach to our fair value underwriting since we adopted fair value. And I think that's really what you see in this number. So I think the number is some 60 basis points or so below where we were last quarter. It's really a very conservative approach to how we think about the asset itself. And then I think, as we also mentioned, as our improvements to the Mercury book and our continuing origination and tempo advances through 2026, I think we anticipate seeing that fair value mark improving.

Got it. Thank you very much.

Thank you. And the next question will come from Hal Goach with B. Raleigh Securities. Your line is open.

Hey, thank you. Thanks for the call. One question on integration costs and one on maybe revenue, a revenue question. You mentioned maybe an 18-month timeline to get everything on a similar systems of record integration. You know, from start to finish, you know, what kind of overall new dollar savings of being on a common system of record bring the company over the next year versus where we're at today?

Yeah, good question. We don't 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. But suffice it to say there are meaningful savings to be garnered from the full integration of what were two you know, close to scale platforms and getting, you know, one significantly scaled platform in place. And that extends well beyond just a system of record into, you know, servicing and marketing, internal cost, et cetera. So we feel like there's a lot of levers for us to pull to continue to gain efficiencies through that scale and through that integration. And again, would refer back to our initial transaction disclosures where we said we felt like we'd get $2 to $4 a share of accretion in 2027.

Okay. And the next question is, you know, it's not like you have a chance to, you know, reprice some customers. As you mentioned, the Card Act and some protective balances are going to run off. You know, what kind of maybe 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. And so it's hard to sort of say at the portfolio level what that might mean, and we haven't disclosed that. But, you know, we felt like from day one we could get, you know, 300 to 350 basis points of ROA improvement on this portfolio.

Okay. Okay. And I guess one follow-up. It led to the tuck-in acquisition of the VIVE portfolio from Prague Holdings. You know, that was, you know, a subscale kind of operation for Prague, and it wasn't that profitable. And I'm just curious what – What can Atlanticus do with its expertise in card programs to improve the economics of that program that was not very large?

Yeah, another good question. Thank you. And so 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. And then thirdly, we also had 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. And so we felt like the combination of those three things got us a return profile for that acquisition that we deemed attractive.

All right. Terrific. Thank you very much.

Thank you. And the next question will come from Alex Howell with Stevens. Your line is open.

Hey again, guys. Quick question on the private label receivables, the delinquency rates. You guys call out that you don't include certain receivables from the private label card business. Just curious if you could help me understand, you know, the thinking behind that and perhaps Just for comparability 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. So in some cases, the merchant will reimburse us for principal losses in that program. And so because there's no loss experience, no expected loss experience, nor any actual loss experience with those particular receivables, we don't include them in those ratios. We're trying to here present what we think is an accurate description of how the assets are performing. And so including those receivables here, that would be, I think, confusing with regards to how the asset is actually performing. So those assets we don't include in that table. And We haven't broken them out in terms of size or impact, so I don't know if I can directly answer your question with regards to what would they look like if they were included, but they would be because there's no losses there, so I guess it would be a different ratio, but that's how we think about it.

Okay. Thank you, guys.

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're obviously very pleased with the quarter that we've 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're even more excited about what lies ahead and the opportunities for our business and the earnings power that we've created this platform over the course of the last five years as we referenced in some of our prepared comments. And we look forward to sharing the results of those opportunities in the coming quarter. So thank you all again and thank you for your interest and we look forward to talking to you again in the next quarter.

This concludes today's conference call. Thank you for participating and you may now disconnect.