What changed in this filing

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Item 1. Business

2023-03-15 compared with 2022-03-15 · 58 added, 47 removed, 189 unchanged (36% of the section changed)

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For additional information about our business, please visit our website at www.Atlanticus.com .

Information contained on or available through our website is not incorporated by reference in this Report. Subject to the availability of capital at attractive terms and pricing, we plan to continue to evaluate and pursue a variety of activities, including: (1) investments in additional financial assets associated with private label credit and general purpose credit card activities as well as the acquisition of interests in receivables portfolios; (2) investments in other assets or businesses that are not necessarily financial services assets or businesses and (3) the repurchase or retirement of debt and equity securities. We are principally engaged in providing products and services to lenders in the U.S.

Information contained on or available through our website is not incorporated by reference in this Report.

Atlanticus is a financial technology company powering more inclusive financial solutions for everyday Americans.

We leverage data, analytics, and innovative technology to unlock access to financial solutions for the millions of Americans who would otherwise be underserved. We are principally engaged in providing products and services to lenders in the U.S.

and, in most cases, we invest in the receivables originated by lenders who utilize our technology platform and other related services.

From time to time, we also purchase receivables portfolios from third parties.

In the private label credit channel, we partner with retailers and service providers in various industries across the U.S.

to allow them to provide credit to their customers for the purchase of a variety of goods and services including consumer electronics, furniture, elective medical procedures, healthcare, educational services, and home-improvements.

In this Report, “receivables”

From time to time, we also purchase receivables portfolios from third parties.

Subject to the availability of capital at attractive terms and pricing, we plan to continue to evaluate and pursue a variety of activities, including: (1) investments in additional financial assets associated with private label credit and general purpose credit card activities as well as the acquisition of interests in receivables portfolios; (2) investments in other assets or businesses that are not necessarily financial services assets or businesses and (3) the repurchase or retirement of debt and equity securities.  In this Report, “receivables”

or “loans”

typically refer to receivables we have purchased from our bank partners or from third parties. The types of revenues we earn from our investments in receivables portfolios and services primarily include fees and finance charges, and merchant fees or annual fees associated with the private label credit and general purpose credit card receivables.

Market Overview

According to data published by FICO, 37% of Americans had FICO®

scores of less than 700 as of the second quarter of 2021.

We believe this equates to a population of over 100 million everyday Americans in need of access to credit. These consumers often have financial needs that are not effectively met by larger financial institutions. By facilitating appropriately priced consumer credit and financial service alternatives with value-added features and benefits curated for the unique needs of these consumers, we endeavor to empower better financial outcomes for everyday Americans.

According to data published by Experian, 40% of Americans had FICO®

scores of less than 700.

We believe this equates to a population of over 100 million everyday Americans in need of access to credit.

These consumers often have financial needs that are not effectively met by larger financial institutions.

By facilitating appropriately priced consumer credit and financial service alternatives with value-added features and benefits curated for the unique needs of these consumers, we endeavor to empower better financial outcomes for everyday Americans.

Company History

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Credit as a Service Segment 

Currently, within our Credit as a Service ("CaaS") segment, we apply our technology solutions, in combination with the experiences gained, and infrastructure built from servicing over $27 billion in consumer loans over our 25-year operating history, to support lenders in offering more inclusive financial services.

Currently, within our Credit as a Service ("CaaS") segment, we apply our technology solutions, in combination with the experiences gained, and infrastructure built from servicing over $30 billion in consumer loans over more than 25 years of operating history, to support lenders in offering more inclusive financial services.

These products include private label credit and general purpose credit cards originated by lenders through multiple channels, including retail and healthcare, direct mail solicitation, digital marketing and partnerships with third parties.

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These include investments in companies engaged in mobile technologies, marketplace lending and other financial technologies.

These investments are carried at the lower of cost or market valuation.

These investments are carried at cost.

None of these companies are publicly-traded and there are no material pending liquidity events.

We will continue to carry these investments on our books at cost minus impairment, if any, plus or minus changes resulting from observable price changes.

One of these companies, Fintiv Inc., has sued Apple, Inc., Walmart, Inc., and PayPal Holdings, Inc.

for patent infringement.

has approximately 150 patents related to secure money transfer on computer and mobile devices.

The transaction volume in these areas has increased dramatically over the last five years. 

If Fintiv Inc.

is successful in the patent litigation, there could be large exposure, including treble damages for these companies.

The claimed losses sustained by this patent infringement are substantial and could be measured in the billions of dollars.

We believe on a diluted basis that we will own over 10% of the company.

The case against Apple, Inc.

is expected to go to trial in June 2023.

Apple has vigorously contested the claims, and we expect it to continue doing so.

In light of the uncertainty around these lawsuits, we will continue to carry these investments on our books at cost minus impairment, if any, plus or minus changes resulting from observable price changes. 

The recurring cash flows we receive within our CaaS segment principally include those associated with (1) private label credit and general purpose credit card receivables, (2) servicing compensation and (3) credit card receivables portfolios that are unencumbered or where we own a portion of the underlying structured financing facility.

Our credit and other operations are heavily regulated, which may cause us to change how we conduct our operations either in response to regulation or in keeping with our goal of leading the industry in adherence to consumer-friendly practices.

Our credit and other operations are heavily regulated, potentially causing us to change how we conduct our operations either in response to regulation or in keeping with our goal of leading the industry in adherence to consumer-friendly practices.

We have made meaningful changes to our practices over the past several years, and because our account management practices are evolutionary and dynamic, it is possible that we may make further changes to these practices, some of which may produce positive, and others of which may produce adverse, effects on our operating results and financial position.

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and Item 1A, “Risk Factors.”

Subject to possible disruptions caused by COVID-19 and disruptions in supply chains, we believe that our private label credit and general purpose credit card receivables are generating, and will continue to generate, attractive returns on assets, thereby facilitating debt financing under terms and conditions (including advance rates and pricing) that will support attractive returns on equity, and we continue to pursue growth in this area.

Subject to the possible negative effects from inflation, supply chain disruptions, higher interest rates and other factors impacting consumer confidence, we believe that our private label credit and general purpose credit card receivables are generating, and will continue to generate, attractive returns on assets, thereby facilitating debt financing under terms and conditions (including advance rates and pricing) that will support attractive returns on equity, and we continue to pursue growth in this area.

Auto Finance Segment

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We offer a number of other products to our network of buy-here, pay-here dealers (including our floor-plan financing offering), but the majority of our activities are represented by our purchases of auto loans at discounts and our servicing of auto loans for a fee.

As of December 31, 2021, our CAR operations served more than 600 dealers in 34 states, the District of Columbia and two U.S.

As of December 31, 2022, our CAR operations served more than 610 dealers in 32 states and two U.S.

These operations continue to perform well (achieving consistent profitability and generating positive cash flows and growth).

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We believe the fair value option also enables us to report GAAP net income that provides increased transparency into our profitability and asset quality.

Receivables arising in accounts originated prior to January 1, 2020, continue to be accounted for in our 2020 and 2021 financial statements at amortized cost, net.

Receivables arising in accounts originated prior to January 1, 2020, continued to be accounted for in our 2020 and 2021 financial statements at amortized cost, net.

We estimate the Fair Value Receivables using a discounted cash flow model, which considers various factors such as expected yields on consumer receivables, the timing of expected payments, customer default rates, estimated costs to service the portfolio, interest rates, and valuations of comparable portfolios.

As a result of this fair value adoption, our loans, interest and fees receivable arising in accounts originated subsequent to January 1, 2020, are carried at fair value with changes in fair value recognized directly in earnings, and certain fee billings (such as annual membership fees and merchant fees) and origination costs associated with these receivables will no longer be deferred.

We reevaluate the fair value of our Fair Value Receivables at the end of each quarter.

As discussed elsewhere in this Report we plan to adopt ASU 2016-13 beginning January 1, 2022. This ASU requires the use of an impairment model (the current expected credit loss (“CECL”) model) that is based on expected rather than incurred losses. The ASU also allows for a one-time fair value election for receivables.

Upon adoption, we plan to elect the fair value option for all remaining loans receivable associated with our private label credit and general purpose credit card platform currently measured at amortized cost and will record an increase to our allowance for loan losses for our remaining Loans, interest and fees receivable associated with our Auto Finance Segment. See Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components-Recent Accounting Pronouncements”

As discussed elsewhere in this Report we adopted ASU 2016-13 on January 1, 2022. This ASU requires the use of an impairment model (the current expected credit loss (“CECL”) model) that is based on expected rather than incurred losses. The ASU also allows for a one-time fair value election for receivables.

Upon adoption, we elected the fair value option for all remaining loans receivable associated with our private label credit and general purpose credit card platform previously recorded at amortized cost and recorded an increase to our Allowances for uncollectible loans, interest and fees receivable for our remaining Loans, interest and fees receivable associated with our Auto Finance Segment. See Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components-Recent Accounting Pronouncements”

to our consolidated financial statements included herein for further discussion of our adoption of ASU 2016-13.

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In March 2020, a national emergency was declared under the National Emergencies Act due to the COVID-19 pandemic.

As of the date of filing this Annual Report on Form 10-K, the duration and severity of the effects of the COVID-19 pandemic remain unknown.

As of the date of filing this Annual Report on Form 10-K, the duration and severity of the effects of the COVID-19 pandemic remain uncertain.

Likewise, we do not know the duration and severity of the impact of the COVID-19 pandemic on all members of the Company’s ecosystem –

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as well as our employees.

At the onset of the COVID-19 pandemic, Atlanticus quickly instituted a company-wide remote work program to promote the safety of all employees and their families.

Once COVID-19 cases declined, Atlanticus transitioned to a hybrid remote work model where eligible positions may arrange with their manager to work partially or fully remote.

Appropriate safety measures continue to be followed to protect employees working on site. 

Atlanticus will continue to follow all government mandates and make adjustments to support employees and prioritize employee safety.

The Biden administration has indicated that the COVID-19 national and public health emergencies will end on May 11, 2023. 

The impact that the cessation of certain benefits provided under emergency relief programs will have on our consumers is uncertain.

Consumer spending behavior has been significantly impacted by the COVID-19 pandemic, principally due to uncertainties about the extent and duration of the pandemic.

Additionally, earlier government stimulus programs decreased consumer need for credit products and generally led to an increase in customer payments. While we have seen improvements in this area, to the extent this change in consumer spending behavior continues, receivables purchases could decline relative to the prior year.

The extent to which our merchants have remained open for business has varied across merchant category and geographic location within the U.S.

Furthermore, a number of our merchants have recently experienced labor shortages and supply chain disruptions.

Additionally, earlier government stimulus programs decreased consumer need for credit products and generally led to an increase in customer payments. While we have seen improvements in consumer spending behavior, receivables purchases could decline relative to the prior year if purchase behavior is further impacted by economic inflation.

A number of our merchants have recently experienced labor shortages and supply chain disruptions.

These trends could decrease or delay consumer spending and our receivables growth.

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As the impact of COVID-19 continues to evolve, the Company remains committed to serving our bank partner, merchants and consumers, while caring for the safety of our employees and their families.

The potential impact that COVID-19, related economic impacts, and labor shortages and supply chain disruptions could have on our financial condition and results of operations remains highly uncertain.

The potential impact that COVID-19, related economic impacts, inflation, labor shortages and supply chain disruptions could have on our financial condition and results of operations remains uncertain.

For more information, refer to Part I, Item 1A “Risk Factors”

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CaaS Segment.

We manage our investments in receivables using credit scoring, credit file data, non-credit-bureau attributes, and our proprietary risk evaluation systems developed and refined over our 25-year operating history.

These strategies include assisting our lending partners with the management of transaction authorizations, account renewals, credit line modifications and collection programs.

These strategies include assisting our issuing bank partners with the management of transaction authorizations, account renewals, credit line modifications and collection programs.

We use an adaptive control system to translate our strategies into account management processes.

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We believe that by combining external credit file data along with historical and current customer activity, we are able to better predict the true risk associated with current and delinquent receivables.

For our private label credit and general purpose credit card finance activities as well as the accounts that are open to purchases, we generally assist our lending partners with managing credit lines to reward customers who are performing well and to mitigate losses from delinquent customer segments.

We also assist our lending partners with employing strategies to reduce otherwise open credit lines for customers demonstrating indicators of increased credit or bankruptcy risk.

For our private label credit and general purpose credit card finance activities as well as the accounts that are open to purchases, we generally assist our issuing bank partners with managing credit lines to reward customers who are performing well and to mitigate losses from delinquent customer segments.

We also assist our issuing bank partners with employing strategies to reduce otherwise open credit lines for customers demonstrating indicators of increased credit or bankruptcy risk.

Data relating to account performance are captured and loaded into our proprietary database for ongoing analysis.

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The goal of the collections process is to collect as much of the account balance that is owed in the most customer-friendly and cost-effective manner possible.

This collection process has continued to evolve over the course of our 25-year operating history, with the utilization of digital and mobile processes helping to both aid in collections and facilitate better communication throughout the collection process.

This collection process has continued to evolve over the course of more than 25 years of operating history, with the utilization of digital and mobile processes helping to both aid in collections and facilitate better communication with the consumer throughout the collection process.

We oversee and manage third-party collectors, who employ these digital and mobile processes along with the traditional cross-section of letters, emails and telephone calls to encourage payment.

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however, this impact generally changes such delinquencies and charge offs by less than 10% and 5%, respectively.

We anticipate that further investments in Artificial Intelligence ("AI") will enable us to refine our customer-centric approach to collections. 

We anticipate that further investments in Artificial Intelligence ("AI") will enable us to refine our customer-centric approach to customer service and collections. 

As discussed above, typically, once an account is 90 days or more past due, the account is placed on a non-accrual status.

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Once an account is placed on a non-accrual status, it is closed for further purchases.

We believe that re-ages help customers to manage difficult repayment periods, return to good standing and avoid further deterioration to their credit scores.

Accounts that are placed on a non-accrual status and thereafter make at least one payment qualify as troubled debt restructurings (“TDRs”).

See Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components-Loans, Interest and Fees Receivable-Troubled Debt Restructurings”

to our consolidated financial statements included herein for further discussion of TDRs as well as accounts that were impacted by COVID-19.

We believe that re-ages help customers to manage difficult repayment periods, return to good standing and avoid further deterioration to their credit scores. 

Auto Finance Segment.

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In addition, various statutes limit the liability of consumers for unauthorized use, prohibit discriminatory practices in consumer transactions, impose limitations on the types of charges that may be assessed and restrict the use of consumer credit reports and other account-related information.

Many of our lending partners' products are designed for customers at the lower end of the credit score range.

Many of our issuing bank partners' products are designed for customers at the lower end of the credit score range.

These products are priced to reflect the higher credit risk of these customers.

Because of the inherently greater credit risks of these customers and the resulting higher interest and fees, we and our lending partners may be subject to greater regulatory scrutiny.

If regulators, including the FDIC (which regulates bank lenders), the CFPB and the FTC, object to the terms of these products, or to the marketing or collection practices used, we and our lending partners could be required to modify or discontinue certain products or practices.

Because of the inherently greater credit risks of these customers and the resulting higher interest and fees, we and our issuing bank partners may be subject to greater regulatory scrutiny.

If regulators, including the FDIC (which regulates bank lenders), the CFPB and the FTC, object to the terms of these products, or to the marketing or collection practices used, we and our issuing bank partners could be required to modify or discontinue certain products or practices.

Auto Finance Segment.

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Privacy and Data Security Laws and Regulations .

We are required to manage, use, and store large amounts of personally identifiable information, principally the confidential personal and financial data of our lending partners’

We are required to manage, use, and store large amounts of personally identifiable information, principally the confidential personal and financial data of our issuing bank partners’

customers, in the ordinary course of our business.

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We face substantial competition from both financial service and financial technology companies, the intensity of which varies depending upon economic and liquidity cycles.

Our financial performance is, in part, a function of the performance of our investments in receivables and the aggregate outstanding amount of such receivables. The private label credit and general purpose credit card finance activities of our lending partners compete with national, regional and local bankcard and consumer credit issuers, other general purpose credit card issuers and retail credit card and merchant credit issuers.

Our financial performance is, in part, a function of the performance of our investments in receivables and the aggregate outstanding amount of such receivables. The private label credit and general purpose credit card finance activities of our issuing bank partners compete with national, regional and local bankcard and consumer credit issuers, other general purpose credit card issuers and retail credit card and merchant credit issuers.

Many of these competitors are substantially larger than we are, have significantly greater financial resources than we do and have significantly lower costs of funds than we have.

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Human Capital

As of December 31, 2021, we had 331 employees, including 3 part-time employees, all of whom are principally employed within the U.S.

As of December 31, 2022, we had 357 employees, including 2 part-time employees, all of whom are principally employed within the U.S.

We also engage temporary employees and consultants as needed to support our operations.

None of our employees are represented by a labor union, and we consider our relationships with our employees to be good.

Our management team members, on average, have over 15 years of tenure with the Company. 

This experience through macro-economic cycles guides our customer centric decision making. 

We believe that our success and future growth depends greatly on our ability to attract, develop and retain top talent.

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Health and Safety.

The health and safety of our employees and their families is a top priority. In response to the COVID-19 pandemic, we successfully instituted a company‑wide remote work program in March 2020 to promote the safety of all of our employees and their families.

We communicate regularly with employees and provide resources for health, wellness and engagement, and have established safety protocols for employees continuing critical on-site work. We continue to monitor the ongoing pandemic for new developments that may impact the Company, our work locations or our employees and are taking reasonable measures. 

The health and safety of our employees and their families is a top priority.

We communicate regularly with employees and provide resources for health, wellness and engagement. 

Diversity and Inclusion.

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Certain corporate governance materials, including our Board of Directors committee charters and our Code of Business Conduct and Ethics, are posted on our website under the heading “Investors”

and then "Corporate Information—Governance Documents." From time to time, the corporate governance materials on our website may be updated as necessary to comply with rules issued by the SEC or NASDAQ, or as desirable to further the continued effective and efficient governance of our company.

and then "Corporate Information—Governance Documents." From time to time, the corporate governance materials on our website may be updated as necessary to comply with rules issued by the SEC or the NASDAQ Stock Market, or as desirable to further the continued effective and efficient governance of our company.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business