Atlanticus (ATLC) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Nov. 5, 2026

CALL PARTICIPANTS

• Investor Relations - Dan Mauch
• President and Chief Executive Officer - Jeffrey Howard
• Chief Financial Officer - Bill McCamey

TAKEAWAYS

• Total Operating Revenue -- $776 million, representing a 60% increase due to growth in general-purpose and private-label receivables and a $205 million contribution from Mercury.
• Adjusted Diluted EPS -- $3.00, excluding $1.87 per share in one-time gains from the sale of CAR Auto Finance and Mercury intellectual property.
• Reported Diluted EPS -- $4.87, including one-time items associated with completed strategic transactions.
• Adjusted Return on Average Equity -- 30%, which exceeded management's 20% long-term target.
• Managed Receivables -- $7.1 billion, up 8% year over year and 3.4% sequentially from the previous quarter.
• Organic Revenue Growth -- 18% to 22%, as estimated by management when excluding the contribution from the Mercury acquisition.
• Net Income Attributable to Common Shareholders -- $93 million, representing a 300% increase from the prior year third quarter.
• Net Margin -- $238 million, up 80% as revenue growth offset higher funding costs and fair value adjustments.
• Principal Net Charge-off Ratio -- 17.3%, a decrease from 17.7% in the previous quarter.
• Sale of CAR Auto Finance -- $71.2 million in total consideration, resulting in a gain of approximately $20 million.
• Mercury Intellectual Property Sale -- $27.5 million in cash for the MERCURY word mark and related intellectual property.
• Change in Fair Value of Loans -- Negative $418 million, compared with negative $277 million in the prior year quarter.
• Interest Expense -- $118 million, up from $75 million reflecting a larger receivable base and the financing required to support it.
• Total Operating Expenses -- $162 million, driven by higher servicing and marketing activity alongside a larger operating platform.
• Contingent Consideration Gain -- $8 million, related to a reduction in the fair value of contingent consideration.
• Cash and Restricted Cash -- $736 million, providing liquidity to support operating and financing needs for future growth.
• Total Assets -- $7.8 billion, at the close of the quarter ended Sept. 30, 2026.
• Total Equity -- $808 million, as reported on the period-end balance sheet.
• Customers Served -- Almost 7 million, reaching a new record for the company.
• Account Originations -- Management reported a third consecutive quarter of record new account originations on behalf of bank partners.

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RISKS

• McCamey stated, "We expect delinquency ratios to increase marginally as our bank partners' offerings mix shift to a broader range of consumers," indicating that a shift toward higher-yield assets may negatively impact credit quality metrics.
• Howard noted that the company is seeing "heightened competition on the direct mail channel" relative to the environment 18 months ago.
• Howard indicated that for the general-purpose credit card portfolio, "it's more likely than not that our CPAs at the portfolio-wide level will continue to go up" due to channel mix and marketing investments.

SUMMARY

Atlanticus Holdings Corporation (NASDAQ:ATLC) reported third quarter results characterized by record managed receivables of $7.1 billion and a 60% increase in total operating revenue to $776 million. Management completed two significant strategic divestitures during the period, selling the CAR Auto Finance operations for $71.2 million and the Mercury intellectual property for $27.5 million to concentrate capital on core consumer credit opportunities. The company reported adjusted diluted EPS of $3.00 and an adjusted return on equity of 30%, which management attributed to sustained organic growth and the ongoing integration of the Mercury portfolio. CFO Bill McCamey noted that while expenses rose to $162 million, the operating expense ratio improved as revenue growth outpaced the expansion of the platform.

• Management reported that the company currently maintains over 40 underwriting models in production to refine risk and return outcomes across various consumer subsegments.
• The divestiture of CAR Auto Finance resulted in the segment being classified as discontinued operations, as CAR comprised the company's entire auto finance business.
• The sale of the Mercury brand allows for a transition period where Atlanticus can use the mark for marketing for 12 months and for servicing for five years.
• Howard noted that growth in the retail credit business is driven by strategic partners leaning on the company for a higher percentage of their volume over time.
• Management stated that investments in digital marketing channels are successfully reaching a broader range of consumers, which typically yield higher returns despite having higher average delinquencies.
• CFO Bill McCamey indicated that customer service costs per acquisition decreased sequentially as the company realized benefits of scale from the combined Atlanticus and Mercury platforms.

INDUSTRY GLOSSARY

• Managed Receivables: The total principal balance of consumer loans being serviced by the company, including those held for investment and those owned by third-party lenders.
• GPCC: General Purpose Credit Card; credit cards that can be used at any merchant that accepts the card network, rather than being limited to a specific retailer.
• CPA: Cost per Acquisition; the marketing and operational costs associated with acquiring a new credit customer.
• Net Charge-off Ratio: The percentage of the total loan portfolio that the company expects will not be repaid, net of any recoveries.
• CAR Auto Finance: A former segment of Atlanticus focused on purchasing and servicing loans collateralized by automobiles, primarily in the used car market.
• Mercury: A credit card brand and portfolio acquired by Atlanticus in 2025; the company recently sold the word mark intellectual property while retaining the receivables.

Full Conference Call Transcript

Operator: Good afternoon, and welcome, everyone, to the Atlanticus Third Quarter 2026 Earnings Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Dan Mauch, Investor Relations. Please go ahead.

Dan Mauch: Thank you, operator, and good afternoon, everyone. Atlanticus released results for the third quarter ended September 30, 2026, 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, earnings growth, returns on equity, portfolio performance, the sufficiency of available capital, underwriting, delinquency and charge-off rates, the use of proceeds from the sales of the CAR Auto Finance operations and the Mercury intellectual property, the rebranding of the Mercury program 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 statements. In addition, during the call, we may refer to certain non-GAAP financial measures. Please refer to our earnings release for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures. And with that, I'll turn the call over to Jeff.

Jeffrey Howard: Thanks, Dan. Good afternoon, everyone, and thank you for joining us. We are pleased to report another very strong quarter, reflecting the strength of our core business and continued progress in executing our strategy. Diluted EPS was $4.87, including $1.87 from one-time items associated with two transactions completed during the quarter, which we will address later in our comments. Excluding these one-time items, adjusted diluted EPS was $3 and adjusted return on average equity was 30%, well exceeding our 20% return goals and reaffirming the earnings power of our platform. During the quarter, we achieved record performance across almost every operating metric.

We achieved records for managed receivables, account originations on behalf of our bank partners, customers served, purchase activity, revenue and, most importantly, profitability. This success was derived from sustained organic growth, the ongoing and successful integration of the Mercury acquisition and the continued resiliency of the customers we serve. Our sustained organic growth is being driven by our third consecutive quarter of record new account originations on behalf of our bank partners. While I talk about growth, it's important to reiterate that a tight focus on unit level profitability remains our guide for account origination levels. We lean into growth as we see attractive returns.

We have over 40 models in production at any given time and are continuously updating and refining those models for better outcomes within the subsegments across our business. Growth is a byproduct of that process. Accordingly, the increases in originations are not the result of risk expansion. Our growth stems from ongoing investment in newer marketing channels and model development within those channels along with continued growth with strategic clients in our retail credit business. The Mercury acquisition continues to deliver better-than-modeled performance on both the back book and new origination volumes.

The Mercury acquisition was a significant contributor to both revenue and earnings growth, compounded by the fact that we only own the business for approximately half of September in the prior year period. As for the consumer, we are still mindful of inflation levels being above target, volatile gas prices and ongoing macroeconomic uncertainty. The headlines regarding the state of the consumer are not new, but our data continues to show that the consumers we serve remain resilient and rational, making appropriate changes to spending while exhibiting consistent payment behaviors. Much of the negative headwinds appear to be offset by a very stable employment market.

That being said, we will continue to monitor metrics across numerous acquisitions, portfolio, customer service and third-party data attributes and lean heavily on our dynamic infrastructure to quickly enact empirically derived changes in underwriting when necessary. Now let me briefly cover the onetime items this quarter. First, we completed the sale of our CAR Auto Finance operations to an unaffiliated buyer for approximately $71.2 million in total consideration, which resulted in a gain of approximately $20 million. While CAR had been a contributor to our business for over 20 years, the sale represented an opportunity to concentrate our capital and management resources on the consumer credit products where we see the strongest opportunities for long-term value creation.

Second, we completed the sale of the MERCURY word mark and related intellectual property for $27.5 million in cash. The transaction did not include any credit card receivables associated with the Mercury-branded program. Under the agreement, we have the right to use the brand for marketing purposes for 12 months and for servicing for an additional 5 years, giving us ample time for the necessary rebranding. We view these transactions as a continued refinement of our strategic focus, and the proceeds will be invested in our higher return, higher growth lines of business. We are pleased with another record-breaking quarter for Atlanticus and a period of important strategic progress.

We are making deliberate decisions to direct capital towards opportunities with the greatest growth and return potential. This reflects our long-term focus on building the capabilities and reach to become the preferred financial partner for everyday Americans. We're proud of the progress our team has made and are committed to carrying that work forward. Now I'll turn it over to Bill to walk through our financial results in more detail. Bill?

William McCamey: Fantastic. Thanks, Jeff. It really was a great quarter. Let me start by addressing a few reporting notes. First, on CAR Auto Finance, CAR comprised our entire auto finance segment. So that will be reported as discontinued operations going forward. Second, because we acquired Mercury near the end of Q3 last year, the year-over-year comparisons vary by metric. Period-end measures such as managed receivables reflect the full Mercury portfolio at both quarter ends. Quarter-long measures such as revenue and charge-offs reflect Mercury's results only for the portion of the prior year quarter that we owned it. Now let me turn to the income statement. Total operating revenue and other income was $776 million, up 60% from a year ago.

The increase reflected growth in both general purpose and private-label receivables along with a $205 million contribution from Mercury. Net margin reached $238 million, up 80% versus the prior year period as higher revenue offset increased funding costs and fair value. Changes in fair value of loans were negative $418 million compared with negative $277 million a year ago. Changes in fair value of loans were partially offset by favorable assumption changes, improvements in customers served, continued favorable performance of the Mercury portfolio as well as an $8 million gain related to a reduction in the fair value of contingent consideration.

Net income attributable to common shareholders was $93 million or $4.87 per share, up 300% from last year's third quarter. Adjusted diluted EPS, excluding the transactions related gain Jeff described earlier, was $3. At quarter end, managed receivables totaled $7.1 billion, up 8% year-over-year and 3.4% sequentially. Growth was broad-based across both private-label and general-purpose receivables. We'll continue to grow where we meet or exceed our return thresholds, relying on our 30 years of data aggregation to drive decisions. Credit remained stable quarter-on-quarter. The combined principal net charge-off ratio declined to 17.3% from 17.7% last quarter. We expect delinquency ratios to increase marginally as our bank partners' offerings mix shift to a broader range of consumers.

These receivables carry higher yields, which we expect to result in a more profitable asset overall. Interest expense was $118 million compared with $75 million in the prior year quarter. The increase reflected the larger receivable base and the financing used to support it. Total operating expenses were $162 million compared with $103 million. Higher servicing and marketing activity, along with the larger operating platform, contributed to the increase. We continue to see customer service CPAs lower sequentially as we integrate the Mercury portfolio and realize benefits of scale on the combined platform. As well, revenue growth outpaced expense growth during the quarter, and our operating expense ratio improved modestly as the platform continues to scale.

Turning to the balance sheet. Total assets were $7.8 billion, and total equity was $808 million. Cash and restricted cash totaled $736 million. Along with cash generated by the portfolio, availability under our financing facilities and access to the capital markets, these resources support our operating and financing needs for future growth. We appreciate the continued engagement from our investors and the increased interest in Atlanticus. Our focus remains on executing our strategy and managing the business with our long-term perspective on unit profitability and earnings growth. With that, I'll turn the call back over to the operator.

Operator: [Operator Instructions] We'll go first to Randy Binner at Texas Capital.

Randy Binner: That was a good quarter for sure. So I'll ask a few on the top line and, kind of, revenue and production, if I can. I guess the first is, and I apologize if I missed it, if you broke this out, but did you break out, kind of, organic growth ex-Mercury? Or is that getting harder to do? How would you, kind of, parse out growth of, kind of, Atlanticus before Mercury and then with Mercury?

Jeffrey Howard: Yes, we did not break that out, but happy to share it. We -- I'll give you an estimation, it's probably in the high teens, low 20% growth rate, top line without Mercury.

Randy Binner: So near 20% ex-Mercury?

Jeffrey Howard: Yes.

Randy Binner: Okay. Well, that's high. So I guess, is it growth partnerships? I mean, I feel like in previous calls, there's been -- competition is a concern. There's always this, kind of, perpetual worry about the consumer, which seemingly is allayed here. But what is it? Is it -- are you having less competition? Or are you just winning because your analytics are better? Are there particular partners that are delivering more? Just, kind of, love to understand how that velocity of your organic growth is so strong.

Jeffrey Howard: Yes. No, great question, and thank you for asking. I would say it really boils down to two things. One, in our retail credit business, we just continue to grow with some of our strategic partners on a year-over-year basis. And again, that's top line and AR growth. And it's just due to us continuing to deliver for those partners to find ways to add more value to those partners, and they lean on us for more of their volume over time. So we're winning share there in that market. On the general-purpose side, it's a continuation of what we've talked about in previous quarters.

We are seeing, I would say, heightened competition on the direct mail channel, although it's rational, there's just more volume in that channel than we experienced 18 months ago. But we continue to invest in our digital marketing channels, and we've talked about us continuing to get smarter on those channels, to add more funnels across those channels, to build models that are specific to those channels, get better results therefore, and then continue to invest more in marketing dollars in those channels. So that's what's truly driving the growth on our GPCC side.

Operator: [Operator Instructions] We'll go next to David Scharf at Citizens Capital Markets.

David Scharf: Congrats on the results. Jeff, maybe one follow-up on -- a little bit on the last question. You had been noting, as you said, heightened competition in direct mail for quite a while. I think last quarter, you may have said that overall CAC was up about 5%. As you think about just the trends in direct mail as well as just the marketing channel mix, do you feel like, kind of, CAC has reached a high water-mark as we think about, kind of, modeling overall OpEx as well as just marketing efficiencies near term?

Jeffrey Howard: Yes. Look, some of it comes down to mix shift across our lines of business as well. We are spending more on marketing because we do see good, stable credit performance, and some of the channels that we're leaning into do have higher acquisition costs. And again, with GPCC, that's our general-purpose credit card portfolio, outgrowing the other parts of our business, which have lower acquisition costs. I would say it's more likely than not that our CPAs at the portfolio-wide level will continue to go up.

David Scharf: Got it. That's helpful. And I guess as a follow-up, it may be a related question. You [indiscernible] has not changed at all. You did reference a comment about, kind of, expect a little bit higher delinquencies in lieu of kind of a, I think in your words, a broader range of consumers. Can you just expand on that a little bit?

Jeffrey Howard: Yes. Look, we're constantly tweaking our models and looking for opportunities where we see at or above target-level returns. Our digital channel is a great example of that, right? We're seeing a broader swath of the consumer in those channels. We're able to, at very attractive returns, bring in what I would consider a broader range of consumers at prices and returns that we find attractive. They tend to have, on average, higher delinquencies and higher yields and, therefore, higher returns. And that's just where we're seeing the investment opportunity right now.

Operator: And that concludes our Q&A session. I will now turn the conference back over to Jeff Howard for closing remarks.

Jeffrey Howard: Yes. Thank you all for your participation. In closing, we continue to see really strong performance across our core general purpose and retail credit lines of business. And we obviously remain very pleased with the performance of our Mercury acquisition. Our team continues to deliver and this quarter delivered record-breaking results, which we're also very, very proud of. This reflects our continued progress and our commitment to expand access to financial services for everyday Americans. And we're proud to now serve and help almost 7 million of those Americans meet their day-to-day financial needs.

It's our belief that we, at Atlanticus, are better positioned now than at any point in our 30-year history, and we look forward to building on that progress in the quarters ahead. So we appreciate your support and look forward to our next call.

Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.

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