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.