Atlanticus Holdings Corporation (ATLC) Earnings

Management highlights

### Company Milestone - This quarter marks Atlanticus' 30th anniversary. Over 30 years, the company has funded over $53 billion in receivables, raised $20 billion in capital, served over 23 million consumers, and built a culture focused on empowering better financial outcomes for everyday Americans. ### Acquisition and Integration Progress - The Mercury acquisition is performing better than pre-acquisition models across all metrics, including portfolio performance, new originations, synergy realization, and operational/technical integration, which are all on or ahead of plan. Full technology integration is on track to complete by mid-Q1 2027. - 90% of the Mercury portfolio segmentation and repricing process is complete. Repricing has outperformed forecasts on yield realization, consumer adoption, and delinquency, with delinquency coming in well below expectations. Overhead synergies are being realized, with marginal operating expenses already declining, and more upside expected as integration completes. - The Mercury portfolio is being repositioned from a liquidating asset to a growing receivable base through activities including credit line increases, balance transfer promotions, and continued customer engagement. ### Credit Performance - Overall credit metrics improved year-over-year, driven by the Mercury acquisition and stable consumer behavior. The combined principal net charge-off rate was 17.7%, with a modest sequential increase attributed to normal portfolio seasoning and receivable growth mix. Delinquency rates improved sequentially in Q2. - Management observes stable, prudent consumer spending: unemployment remains near historical lows, jobless claims are at 50-year lows, real wages are growing (with faster growth for lower-income consumers since 2019), and household credit ratios remain below pre-COVID levels. ### Balance Sheet and Capital - Ended Q2 with $7.5 billion in total assets and nearly $700 million in total equity, with $645 million in cash and restricted cash. The company achieved its first AAA ABS bond rating, issued term ABS at tighter spreads, and maintains strong capital capacity and funding flexibility to support growth and upcoming maturities. ### Strategic Priorities - Prioritize unit economics over origination volume, adjusting marketing and underwriting as market conditions change. Core priorities include full Mercury integration and optimization, profitable growth across all portfolios, disciplined credit management, and maintaining funding flexibility to capitalize on attractive opportunities.

Guidance

- Management maintains its long-term target of 20% return on equity, and expects full year 2026 return on equity to remain at or above this target, with earnings growth aligned with long-term objectives. - ROE is currently running in the high 20s, driven largely by core operating performance (with a small one-off contribution from a favorable Mercury earn-out adjustment). Management expects ROE to revert toward the 20% target over the forecast period as the company modestly de-levers its capital structure. - A modest sequential increase in delinquency and charge-off rates is expected in Q3 2026, due to the 2025 Q2 comparison including only a partial quarter of Mercury performance and intentional faster growth in higher-yield legacy portfolio segments. - Management does not forecast earnings or asset growth from new merchant partnerships due to the long and unpredictable development timeline for new relationships, but expects continued healthy organic receivables growth from existing merchant relationships.

Segment performance

Atlanticus reports total Q2 2026 operating revenue and other income of $744 million, an 89% increase year-over-year, driven by the Mercury acquisition and organic growth of legacy segments. Net income attributable to common shareholders is $47.4 million, a 67% year-over-year increase, with diluted EPS of $2.50. Total managed receivables ended the quarter at $6.9 billion, up 126% year-over-year and 2.5% sequentially: - Legacy platform (excluding Mercury): Total managed receivables are $3.8 billion, up 26% year-over-year, contributing approximately 55.1% of total managed receivables. Active accounts increased by more than 1 million year-over-year, with 790,000 total new customers added in the quarter. Retail credit (a core legacy segment) saw 27% year-over-year receivables growth. - Mercury segment: Contributed the majority of year-over-year receivable growth, accounting for approximately 44.9% of total managed receivables at quarter-end. The portfolio has delivered lower loss rates than pre-acquisition expectations.

Risks & headwinds

- Robust competition in the general purpose credit card segment has led to industry-wide high solicitation volumes, which have negatively impacted Atlanticus' direct mail response rates and increased customer acquisition costs in that channel. - The company faces competitive pressure from both larger prime lenders expanding into its target segment and smaller tertiary lenders moving up market, in addition to one major direct competitor. - Above-target inflation and volatile gas prices create uncertainty around future consumer credit behavior, though current metrics remain stable. - New merchant partnership growth is unpredictable and has a long development timeline, so near-term growth from new partnerships cannot be relied upon.

Analyst Q&A

• Q: What is the long-term opportunity for new merchant partner growth, and what competitive pressures does the company face in this space? /

  A: Management sees significant long-term opportunity, as many large merchants still lack second-look retail credit programs. However, converting the pipeline into actual receivables growth takes a long time and is unpredictable, so near-term results cannot be forecast. The company faces competitive pressure from both larger prime lenders expanding deeper into the segment and smaller tertiary lenders moving up market, but is well-positioned to win its fair share of opportunities due to its established market brand, technology, and custom solution capabilities.

• Q: Where are Mercury synergies already visible, and where is additional upside expected? /

  A: The largest outperformance to date has been from portfolio repricing, which has beaten forecasts for yield, consumer adoption, and delinquency. Overhead synergies are already being realized, but are not easily visible to investors since they reflect reduced costs relative to pre-acquisition Mercury operations. Additional operating expense synergy upside will come as full technology integration completes in mid-Q1 2027.

• Q: How far along is the Mercury portfolio segmentation process, and what is the strategy for each bucket? /

  A: The company has completed ~90% of the segmentation process, drawing on decades of experience acquiring and managing third-party portfolios. The portfolio is split into three buckets: 1) assets that will be run off quickly to realize the acquisition discount, 2) assets that will be repriced to an appropriate yield and maintained, 3) appropriately priced assets that will be actively grown through credit line increases and promotional offers to transition Mercury from a liquidating to a growing portfolio.

• Q: Given ROE is well above the 20% long-term target, is there room to accelerate marketing for more growth, and are any capital actions planned if high ROE persists? /

  A: Management will never pursue growth for growth's sake, but will lean in to attractive opportunities. While higher industry direct mail volumes have hurt response rates and raised costs in that channel, digital originations are outperforming forecasts after heavy investment, driving overall organic growth. ROE will trend back toward 20% as the company modestly de-levers, but if ROE remains in the high 20s long-term, the company will pursue expansion and potential capital return actions.