Atlanticus Holdings Corporation 9.25% Senior Notes due 2029 (ATLCZ) Q1 2026 Earnings Report, Transcript and Summary

Hello, and welcome to Atlanticus First Quarter 2026 Earnings Conference Call. At this time, all participants are on 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 one one on your telephone. I would now like to hand the conference over to Dan Mauch. Please go ahead.

Thank you, operator. And good afternoon, everyone. Atlanticus released results for the first quarter ended March 31st, 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. Today's discussion may contain forward-looking statements that reflect the company's current views with respect to earnings growth, returns on equity, portfolio performance, and the benefits of the acquisition of Mercury. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially. In addition, during this call, we may refer to certain non-GAAP financial measures. With that, I'll turn the call over to Jeff.

Thanks, Dan. Good afternoon, everyone. 2026 is off to a very good start, combining strong legacy asset performance with continued momentum from our recent acquisition of Mercury Financial. We're now two full quarters into the Mercury acquisition, and the integration continues to progress well. Last quarter, we noted that we were ahead of plan, and that pace continued throughout the first quarter. We're encouraged by the early results from our portfolio management actions, which are ahead of our acquisition model, as well as better than planned origination volumes and unit-level economics. And most importantly, we are ahead of schedule on our operational integration and the creation of "One Atlanticus." We are a more scaled, better resourced, more talented and capable company than we were at this time last year. Aside from the Mercury acquisition, we also experienced growth in our legacy portfolios, which reinforces the underlying strength of the platform with managed receivables growth, excluding Mercury, of 35%. This growth remains broad-based across both our private label and general purpose product lines. From an overall portfolio perspective, we continue to see favorable asset-level performance. Payment behavior remains consistent and newer customer cohorts are performing well. While macro uncertainty persists, we have not observed any material change in underlying trends. Utilization rates, payment rates, first pay default, and delinquency trends all exhibit normal behaviors. Yes, spending patterns have shown some changes—the percent being spent on gas did increase in March, but remains in line with 2023 and 2024 levels. Conversely, we're actually seeing higher levels of discretionary spending and dining out expenditures. While we are mindful of inflation, the economy at large is in reasonably good shape. Unemployment is steady and jobless claims are at a 50-year low. Middle-income consumer deposits remain substantially higher than pre-pandemic levels. From a competitive standpoint, the general purpose card environment remains active with continued elevated solicitation levels. We are seeing somewhat lower response rates, but despite this, we continue to see opportunities for prudent growth. Turning to financial performance, we delivered net income attributable to common shareholders of $41.9 million and $2.23 per diluted share, up 50% year-over-year. We achieved a return on average equity of 26.8%. As we look ahead, we believe the business is better positioned than we have ever been. With that, I'll turn the call over to Bill.

Thanks, Jeff. I'll begin with revenue. For the first quarter, total operating revenue increased 97% year-over-year to $680 million, including $224 million from the Mercury portfolio. Net margin increased over 60% year-over-year to $190 million. Changes in fair value loans were negative $366 million, reflecting a larger receivables base and corresponding charge-offs, partially offset by favorable assumption changes. The quarter also included approximately $13 million of favorable impact related to a reduction in contingent consideration associated with the Mercury acquisition. Delinquency and charge-off trends remain stable. As anticipated, we are seeing the benefit of tax season in the first quarter with lower delinquency levels versus last year. Interest expense increased 158% year-over-year to $123 million, reflecting higher debt balances and financing associated with the Mercury portfolio. Total operating expenses increased 69% year-over-year to $131 million. Turning to the balance sheet, we ended the quarter with total assets of $7.5 billion and total equity of $644 million, along with $650 million of unrestricted cash. Looking ahead, we remain focused on disciplined, profitable growth. With that, I'll turn the call back to the operator for questions.

Our first question comes from the line of David Scharf with Citizens Capital Markets.

Congrats on a very strong start. Jeff, can you define "ahead of plan" regarding the Mercury deal? Why are originations performing ahead of pace? And on integration, are there greater cost synergies than originally anticipated?

Thanks, David. The biggest driver has been that changes in terms were executed more quickly, and the adoption rate and stickiness from consumers has been better than modeled. We're getting better financial performance on repricing than we modeled. Additionally, we are putting the companies together from a technology and infrastructure perspective ahead of schedule. Regarding new originations, we were very conservative in our initial model. Having the capital to lean into opportunities has allowed us to increase mail velocity and online partnerships at a rate faster than anticipated.

As a follow-up, where would we see the $13 million contingency release in the P&L?

That's in our fair value mark, David.

Our next question comes from the line of Vincent Caintic with BTIG.

Congratulations on the quarter. Managed receivables growth of 35% is amazing while others are slowing down. Are you taking share from prime lenders who are tightening? Also, could you describe the expansion with a retail partner mentioned in the release?

On the general purpose side, competition has increased but it has rationalized compared to the fintech bubble. It's now consolidated among five or six players. We're all trying to serve 100 million consumers. On the retail credit side, we are taking share. We bought a portfolio from a competitor back in October, and we've grown our share within those merchant partners while supporting organic growth at existing merchants.

Regarding the multi-year guidance provided when Mercury was announced, has your view changed? And what is left in terms of the integration pathway?

We feel very good about the range provided for '26 and '27. Regarding integration, there is still technology work to be done. We are bringing two disparate infrastructures together, which we outlined as an 18-month timeline. We feel we'll likely come in before that period expires. Multiple databases and systems of record need to be consolidated, and that work is well underway.

Our next question comes from the line of Randy Binner with Texas Capital.

On the lower response rates—is that a sign of supply issues or a sign of stability in your target market not reaching as much for credit?

It’s more of a supply issue. We are seeing more mail volume based on third-party data. Usually, if there were signs of stress, demand and response rates would go up. We aren’t seeing that. Our consumers find ways to adjust their lifestyle—driving less because gas is up or shifting from dining out to groceries—to meet credit obligations. This steady performance has not led to an unusual demand for credit.

Tax refunds were reported to be 9%–12% higher than last year. Did you see that help organic growth or delinquency numbers? Was the impact front-loaded in Q1 or will it continue into Q2?

It did not affect our growth strategy, as we don't play the timing game with tax season. However, we did see what I'd consider a "better" tax season in deep subprime with greater reductions in early delinquencies. In the near-prime space, it was a "longer" tax season that started and ended a little later. We see that benefit leaning into April, but coming out of tax season, things look very much like they did last year.

Ladies and gentlemen, this concludes the question and answer session. I would now like to turn the call back to Jeff Howard for closing remarks.

Thank you. We're obviously very pleased with Q1. We're excited about the organic opportunities across all our lines—retail credit, general purpose, and healthcare. We look forward to sharing results with you in the next quarter. Thank you all.

That concludes today's conference call. Thank you for your participation. You may now disconnect.