Correspondence 0001437749-24-030736 from Atlanticus Holdings Corp (ATLC)
Atlanticus Holdings Corp
Date: Oct. 4, 2024 · CIK: 0001464343 · Accession: 0001437749-24-030736
AI Filing Summary & Sentiment
File numbers found in text: 001-40485
Referenced dates: September 6, 2024
Letter
VIA EDGAR United States Securities and Exchange Commission Division of Corporation Finance Atlanticus Holdings Corporation Form 10-K for Fiscal Year Ended December 31, 2023 Form 10-Q for Fiscal Quarter Ended June 30, 2024 File No. 001-40485
Dear Mr. Schroeder and Mr. Volley:
This letter is being submitted in response to the comments provided by the Staff of the Division of Corporation Finance of the United States Securities and Exchange Commission (the “SEC”) set forth in your letter dated September 6, 2024 (the “Comment Letter”) to William R. McCamey, Chief Financial Officer of Atlanticus Holdings Corporation (the “Company”), with respect to the Form 10-K for the fiscal year ended December 31, 2023 (the “Form 10-K”) and the Form 10-Q for the fiscal quarter ended June 30, 2024 (the “Form 10-Q”).
We are authorized by the Company to provide the responses contained in this letter on its behalf. The terms “we,” “us,” and “our” in the responses refer to the Company. For your convenience, we set forth each comment from the Comment Letter in bold typeface and include the Company’s response below it. The numbered paragraphs in this letter correspond to the numbered paragraphs of the Comment Letter. We have indicated new and revised disclosure in future SEC filings with underlining.
United States Securities and Exchange Commission
October 4, 2024
Page 2
Form 10-K for Fiscal Year Ended December 31, 2023
Business, page 1
1.
Considering that your five largest retail partners accounted for over 70% of your outstanding private label credit receivables, for each material concentration related to merchants, please tell us and revise future filings to disclose the amount of private label receivables purchased from each merchant for each period presented.
Company Response:
Our bank partner originates receivables through various retail partners. Through agreements with our bank partner we, in turn, acquire a portion of these receivables for which we provide marketing and servicing functions. The volume of receivables purchased each period varies based on a number of factors including seasonal consumer purchase patterns and growth (or contraction) within merchant retail locations. Further impacting receivable purchase amounts each period are consumer application volumes that retail partners may direct to our bank partners versus competitors who offer similar financing products to those retail merchant partners. The volumes of consumer applications allocated to direct competitors are generally not shared with us by our retail partners. We believe that the disclosure of our purchase amounts associated with specific retail partners would put us at a competitive disadvantage allowing our competitors to discern relative volume allocations which could drive changes in their underwriting and pricing approach.
In future filings we will revise our disclosure to include the following:
“Our top five retail partnerships accounted for over 70% of the above-referenced Retail period-end managed receivables outstanding as of June 30, 2024. The volume of receivables purchased each period varies based on a number of factors including seasonal consumer purchase patterns and growth (or contraction) within merchant retail locations. Further impacting receivable purchase amounts in a period are consumer application volumes that retail partners may direct to our bank partners versus competitors who offer similar financing products to those retail merchant partners. During the three months ended June 30, 2024, we had purchases from our top five retail partners of $35.3 million, $56.2 million, $90.8 million, $122.5 million and $449.1 million. During the six months ended June 30, 2024, we had purchases from our top five retail partners of $77.7 million, $104.3 million, $189.2 million, $238.8 million and $792.7 million. During the three months ended June 30, 2023, we had purchases from our top five retail partners of $42.3 million, $48.1 million, $98.4 million, $116.3 million and $343.6 million. During the six months ended June 30, 2023, we had purchases from our top five retail partners of $59.2 million, $66.1 million, $222.1 million, $222.2 million and $655.7 million.”
United States Securities and Exchange Commission
October 4, 2024
Page 3
2.
Please revise to disclose the brands your products are sold under (e.g., Aspire, Imagine, Fortiva, Curae, etc.) and describe the various markets that they serve.
Company Response:
In future filings we will revise our disclosure to include the following:
“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 $40 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 cards using the Fortiva and Curae brand names as well as merchant associated brands. Our general purpose credit cards use the Aspire, Imagine and Fortiva brand names. Private label credit products associated with the healthcare space are generally issued under the Curae brand while all other retail partnerships, including those in consumer electronics, furniture, elective medical procedures, and home-improvements use the Fortiva brand or use our retail partners’ brands.”
3.
Please tell us and revise future filings to provide additional information related to your arrangements with issuing bank partners, including but not limited to:
●
identifying your major bank partners;
●
clarifying if each bank partner sells both types of receivables to you;
●
clarifying if they pay anything to utilize the flexible technology solutions you provide to them;
●
clarifying the key terms of any contracts, including the length of term of each contract, whether they must exclusively sell receivables originated with your flexible technology solutions to you, and how the price paid for receivables is determined; and
●
clarifying the economics for the banks that utilize your technology and sell receivables to you (e.g., whether you pay them a fee, whether they retain a participation in the receivable, etc.).
Company Response:
We will include additional information with respect to the activities and general economics of our bank partners as indicated below. With respect to specific economics underlying our bank partner agreements, we do not disclose certain information as this disclosure would cause competitive harm to the Company if publicly disclosed. We filed both the Amended and Restated Program Management Agreement and Amended and Restated Receivable Sales Agreement (and related amendments) with the Bank of Missouri as exhibits 10.1 – 10.2(a) to our Form 10-Q filed on August 14, 2020. The agreements with WebBank are currently not considered material to the Company as our relationship with WebBank is new and only accounted for 5.2% of receivables purchased in the six months ended June 30, 2024.
United States Securities and Exchange Commission
October 4, 2024
Page 4
In future filings we will revise our disclosure to include the following:
“Both private label and general purpose card products are originated by The Bank of Missouri and general purpose card products are also originated by WebBank (collectively, our “bank partners”). Our bank partners originate these accounts through multiple channels, including retail and healthcare point-of-sale locations, direct mail solicitation, digital marketing and partnerships with third parties. The services of our bank partners are often extended to consumers who may not have access to financing options with larger financial institutions. Our flexible technology solutions allow our bank partners to integrate our paperless process and instant decisioning platform with the existing infrastructure of participating retailers, healthcare providers and other service providers. Using our technology and proprietary predictive analytics, lenders can make instant credit decisions utilizing hundreds of inputs from multiple sources and thereby offer credit to consumers overlooked by many providers of financing who focus exclusively on consumers with higher FICO scores. Atlanticus’ underwriting process is enhanced by machine learning, enabling lenders to make fast, sound decisions when it matters most.
We are principally engaged in providing these products and services to lenders in the U.S. for which these lenders pay us a fee and in most circumstances, the lenders are then obligated to sell us the receivables they generate from these products and services. We acquire these receivables for the principal amount of the loan less any up-front fees and any third party or merchant fees associated with the receivables. We compensate our bank partners monthly for the regulatory oversight they provide associated with our acquired receivables, the underlying accounts of which they continue to own and service, and also based on variable levels of the underlying performance of the acquired receivables. From time to time, we also purchase receivables portfolios from third parties. In this Report, "receivables" or "loans" typically refer to receivables we have purchased from our bank partners or from third parties.”
United States Securities and Exchange Commission
October 4, 2024
Page 5
4.
Please tell us and revise future filings to provide additional information, in separately captioned sections, related to your purchases of private label credit receivables and credit card receivables. For private label credit receivables:
●
Clarify the economics and related financial reporting of a typical transaction. For example, for a $1,000 purchase by a customer at a merchant, clarify the typical amount the bank pays to the merchant (e.g., significant discount, slight discount, face value, etc.), and clarify the typical amount you pay to the bank.
●
Clarify how your typical purchase price relates to the fair value recognized on day one and the face amount of the contractual amount due from the customer. Clearly, indicate whether you typically recognize a “day one gain” based on the fair value being greater than your purchase price.
●
Describe what merchant fees are, any other typical material fees, and how they impact the economics and financial reporting of the transaction.
●
Describe the level of fees recognized on day one as compared to the total contractual amount due and also compared to typical finance charges expected to be collected over the term of the agreement.
●
Describe the contractual term of a typical transaction.
For credit card receivables:
●
Describe the typical amount of annual and/or monthly fees and any other material fees.
●
Clarify the economics and financial reporting of a typical transaction. For example, clarify if annual fees and monthly fees are recognized on day one, potentially prior to any purchases on the card, clarify if your purchase price is less than, equal to, or greater than the gross amount of the customer purchase.
●
Describe whether you typically recognize a day one gain based on the fair value being greater than your purchase price.
Company Response:
There is significant variability in the products and services offered by our bank partners. As a result, we believe that providing a single example could be misleading. In order to provide more information about our products and services, in future filings we will add the following:
“The recurring cash flows we receive within our CaaS segment principally include those associated with private label credit and general purpose credit card receivables, and servicing compensation.
United States Securities and Exchange Commission
October 4, 2024
Page 6
Private label credit
Our bank partner works with both us and with their retail partners to provide financing options to retail consumers. These financing options vary by retail partner and consists of a range in APRs of 0% - 36% and a range in merchant fees of 0% - 65%. Merchant fees, which vary by retail partner, offset the purchase price our bank partner remits to the retail partner on a consumer transaction. These merchant fees are used to enhance the return on products when contractual APRs or other terms are insufficient due to promotional or other below market pricing retail merchants may offer to consumers (such as 0% APR offers). Financing arrangements may include fees to enhance yields on a product including annual and/or monthly maintenance fees. Additionally, terms of these products offered to consumers may include deferred interest options whereby consumers pay no interest on their purchases over periods ranging from 6-12 months. Terms of these products can range from 12 months to 84 months based on the retail merchant partner. Each offer is customized for retail clients based on the expected performance of the underlying receivables, receivable purchase volumes and overall return requirements. Our flexible technology allows retail partners to present financing offers to their customers through a variety of delivery options including retail point of sale locations, online transactions, or through in home sales. These financing arrangements are based on underwriting standards tailored to each retail partner and are the result of a close collaboration between our bank partners and us to ensure all products are compliant with regulatory requirements and to ensure they provide attractive terms to consumers. When a consumer accepts the terms of a financing arrangement for the purchase of a good or service and completes the underlying transaction, our bank partner forwards the net purchase price (net of merchant or other fees) to the retail partner. Our bank partner is then obligated to sell, and we are obligated to purchase, the receivable (along with rights to all future finance and fee billings associated with the receivable) from our bank partner under similar terms, which best reflects the receivables fair value at the time of acquisition with no gain or loss recognized.
General Purpose Credit Cards
We work closely with our bank partners to assist them in creating general purpose credit card offers. These offers have varying lines of credit ranging from $350 to $3,000, annual percentage rates (“APRs”) ranging from 19.99% to 36%, annual fees ranging from $0 to $175 and monthly maintenance fees ranging from $0 to $15. Our agreements with our bank partners obligate them to sell and for us to acquire the receivables associated with underlying purchases and subsequent fee and finance billings. We acquire these receivables for the principal amount of any related purchase less any up-front or third-party fees associated with the receivables which best reflects the receivables fair value at the time of acquisition with no gain or loss recognized.
As discussed above, our bank partner continues to provide ongoing account management and oversight for these receivables, for which we compensate the bank partner monthly.
United States Securities and Exchange Commission
October 4, 2024
Page 7
For both our Private label credit and General purpose credit card purchases from our bank partners, the initial acquisition of receivables is at fair value, with no gain recognized. All finance charges, fees and merchant fees are recognized into earnings through our Consumer loans, including past due fees (i
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Troutman Pepper Hamilton Sanders LLP
600 Peachtree Street NE, Suite 3000
Atlanta, GA 30308-2216
troutman.com
Paul Davis Fancher
paul.fancher@troutman.com
October 4, 2024
VIA EDGAR
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549
Attn: William Schroeder and Michael Volley
Re:
Atlanticus Holdings Corporation
Form 10-K for Fiscal Year Ended December 31, 2023
Form 10-Q for Fiscal Quarter Ended June 30, 2024
File No. 001-40485
Dear Mr. Schroeder and Mr. Volley:
This letter is being submitted in response to the comments provided by the Staff of the Division of Corporation Finance of the United States Securities and Exchange Commission (the “SEC”) set forth in your letter dated September 6, 2024 (the “Comment Letter”) to William R. McCamey, Chief Financial Officer of Atlanticus Holdings Corporation (the “Company”), with respect to the Form 10-K for the fiscal year ended December 31, 2023 (the “Form 10-K”) and the Form 10-Q for the fiscal quarter ended June 30, 2024 (the “Form 10-Q”).
We are authorized by the Company to provide the responses contained in this letter on its behalf. The terms “we,” “us,” and “our” in the responses refer to the Company. For your convenience, we set forth each comment from the Comment Letter in bold typeface and include the Company’s response below it. The numbered paragraphs in this letter correspond to the numbered paragraphs of the Comment Letter. We have indicated new and revised disclosure in future SEC filings with underlining.
United States Securities and Exchange Commission
October 4, 2024
Page 2
Form 10-K for Fiscal Year Ended December 31, 2023
Business, page 1
1.
Considering that your five largest retail partners accounted for over 70% of your outstanding private label credit receivables, for each material concentration related to merchants, please tell us and revise future filings to disclose the amount of private label receivables purchased from each merchant for each period presented.
Company Response:
Our bank partner originates receivables through various retail partners. Through agreements with our bank partner we, in turn, acquire a portion of these receivables for which we provide marketing and servicing functions. The volume of receivables purchased each period varies based on a number of factors including seasonal consumer purchase patterns and growth (or contraction) within merchant retail locations. Further impacting receivable purchase amounts each period are consumer application volumes that retail partners may direct to our bank partners versus competitors who offer similar financing products to those retail merchant partners. The volumes of consumer applications allocated to direct competitors are generally not shared with us by our retail partners. We believe that the disclosure of our purchase amounts associated with specific retail partners would put us at a competitive disadvantage allowing our competitors to discern relative volume allocations which could drive changes in their underwriting and pricing approach.
In future filings we will revise our disclosure to include the following:
“Our top five retail partnerships accounted for over 70% of the above-referenced Retail period-end managed receivables outstanding as of June 30, 2024. The volume of receivables purchased each period varies based on a number of factors including seasonal consumer purchase patterns and growth (or contraction) within merchant retail locations. Further impacting receivable purchase amounts in a period are consumer application volumes that retail partners may direct to our bank partners versus competitors who offer similar financing products to those retail merchant partners. During the three months ended June 30, 2024, we had purchases from our top five retail partners of $35.3 million, $56.2 million, $90.8 million, $122.5 million and $449.1 million. During the six months ended June 30, 2024, we had purchases from our top five retail partners of $77.7 million, $104.3 million, $189.2 million, $238.8 million and $792.7 million. During the three months ended June 30, 2023, we had purchases from our top five retail partners of $42.3 million, $48.1 million, $98.4 million, $116.3 million and $343.6 million. During the six months ended June 30, 2023, we had purchases from our top five retail partners of $59.2 million, $66.1 million, $222.1 million, $222.2 million and $655.7 million.”
United States Securities and Exchange Commission
October 4, 2024
Page 3
2.
Please revise to disclose the brands your products are sold under (e.g., Aspire, Imagine, Fortiva, Curae, etc.) and describe the various markets that they serve.
Company Response:
In future filings we will revise our disclosure to include the following:
“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 $40 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 cards using the Fortiva and Curae brand names as well as merchant associated brands. Our general purpose credit cards use the Aspire, Imagine and Fortiva brand names. Private label credit products associated with the healthcare space are generally issued under the Curae brand while all other retail partnerships, including those in consumer electronics, furniture, elective medical procedures, and home-improvements use the Fortiva brand or use our retail partners’ brands.”
3.
Please tell us and revise future filings to provide additional information related to your arrangements with issuing bank partners, including but not limited to:
●
identifying your major bank partners;
●
clarifying if each bank partner sells both types of receivables to you;
●
clarifying if they pay anything to utilize the flexible technology solutions you provide to them;
●
clarifying the key terms of any contracts, including the length of term of each contract, whether they must exclusively sell receivables originated with your flexible technology solutions to you, and how the price paid for receivables is determined; and
●
clarifying the economics for the banks that utilize your technology and sell receivables to you (e.g., whether you pay them a fee, whether they retain a participation in the receivable, etc.).
Company Response:
We will include additional information with respect to the activities and general economics of our bank partners as indicated below. With respect to specific economics underlying our bank partner agreements, we do not disclose certain information as this disclosure would cause competitive harm to the Company if publicly disclosed. We filed both the Amended and Restated Program Management Agreement and Amended and Restated Receivable Sales Agreement (and related amendments) with the Bank of Missouri as exhibits 10.1 – 10.2(a) to our Form 10-Q filed on August 14, 2020. The agreements with WebBank are currently not considered material to the Company as our relationship with WebBank is new and only accounted for 5.2% of receivables purchased in the six months ended June 30, 2024.
United States Securities and Exchange Commission
October 4, 2024
Page 4
In future filings we will revise our disclosure to include the following:
“Both private label and general purpose card products are originated by The Bank of Missouri and general purpose card products are also originated by WebBank (collectively, our “bank partners”). Our bank partners originate these accounts through multiple channels, including retail and healthcare point-of-sale locations, direct mail solicitation, digital marketing and partnerships with third parties. The services of our bank partners are often extended to consumers who may not have access to financing options with larger financial institutions. Our flexible technology solutions allow our bank partners to integrate our paperless process and instant decisioning platform with the existing infrastructure of participating retailers, healthcare providers and other service providers. Using our technology and proprietary predictive analytics, lenders can make instant credit decisions utilizing hundreds of inputs from multiple sources and thereby offer credit to consumers overlooked by many providers of financing who focus exclusively on consumers with higher FICO scores. Atlanticus’ underwriting process is enhanced by machine learning, enabling lenders to make fast, sound decisions when it matters most.
We are principally engaged in providing these products and services to lenders in the U.S. for which these lenders pay us a fee and in most circumstances, the lenders are then obligated to sell us the receivables they generate from these products and services. We acquire these receivables for the principal amount of the loan less any up-front fees and any third party or merchant fees associated with the receivables. We compensate our bank partners monthly for the regulatory oversight they provide associated with our acquired receivables, the underlying accounts of which they continue to own and service, and also based on variable levels of the underlying performance of the acquired receivables. From time to time, we also purchase receivables portfolios from third parties. In this Report, "receivables" or "loans" typically refer to receivables we have purchased from our bank partners or from third parties.”
United States Securities and Exchange Commission
October 4, 2024
Page 5
4.
Please tell us and revise future filings to provide additional information, in separately captioned sections, related to your purchases of private label credit receivables and credit card receivables. For private label credit receivables:
●
Clarify the economics and related financial reporting of a typical transaction. For example, for a $1,000 purchase by a customer at a merchant, clarify the typical amount the bank pays to the merchant (e.g., significant discount, slight discount, face value, etc.), and clarify the typical amount you pay to the bank.
●
Clarify how your typical purchase price relates to the fair value recognized on day one and the face amount of the contractual amount due from the customer. Clearly, indicate whether you typically recognize a “day one gain” based on the fair value being greater than your purchase price.
●
Describe what merchant fees are, any other typical material fees, and how they impact the economics and financial reporting of the transaction.
●
Describe the level of fees recognized on day one as compared to the total contractual amount due and also compared to typical finance charges expected to be collected over the term of the agreement.
●
Describe the contractual term of a typical transaction.
For credit card receivables:
●
Describe the typical amount of annual and/or monthly fees and any other material fees.
●
Clarify the economics and financial reporting of a typical transaction. For example, clarify if annual fees and monthly fees are recognized on day one, potentially prior to any purchases on the card, clarify if your purchase price is less than, equal to, or greater than the gross amount of the customer purchase.
●
Describe whether you typically recognize a day one gain based on the fair value being greater than your purchase price.
Company Response:
There is significant variability in the products and services offered by our bank partners. As a result, we believe that providing a single example could be misleading. In order to provide more information about our products and services, in future filings we will add the following:
“The recurring cash flows we receive within our CaaS segment principally include those associated with private label credit and general purpose credit card receivables, and servicing compensation.
United States Securities and Exchange Commission
October 4, 2024
Page 6
Private label credit
Our bank partner works with both us and with their retail partners to provide financing options to retail consumers. These financing options vary by retail partner and consists of a range in APRs of 0% - 36% and a range in merchant fees of 0% - 65%. Merchant fees, which vary by retail partner, offset the purchase price our bank partner remits to the retail partner on a consumer transaction. These merchant fees are used to enhance the return on products when contractual APRs or other terms are insufficient due to promotional or other below market pricing retail merchants may offer to consumers (such as 0% APR offers). Financing arrangements may include fees to enhance yields on a product including annual and/or monthly maintenance fees. Additionally, terms of these products offered to consumers may include deferred interest options whereby consumers pay no interest on their purchases over periods ranging from 6-12 months. Terms of these products can range from 12 months to 84 months based on the retail merchant partner. Each offer is customized for retail clients based on the expected performance of the underlying receivables, receivable purchase volumes and overall return requirements. Our flexible technology allows retail partners to present financing offers to their customers through a variety of delivery options including retail point of sale locations, online transactions, or through in home sales. These financing arrangements are based on underwriting standards tailored to each retail partner and are the result of a close collaboration between our bank partners and us to ensure all products are compliant with regulatory requirements and to ensure they provide attractive terms to consumers. When a consumer accepts the terms of a financing arrangement for the purchase of a good or service and completes the underlying transaction, our bank partner forwards the net purchase price (net of merchant or other fees) to the retail partner. Our bank partner is then obligated to sell, and we are obligated to purchase, the receivable (along with rights to all future finance and fee billings associated with the receivable) from our bank partner under similar terms, which best reflects the receivables fair value at the time of acquisition with no gain or loss recognized.
General Purpose Credit Cards
We work closely with our bank partners to assist them in creating general purpose credit card offers. These offers have varying lines of credit ranging from $350 to $3,000, annual percentage rates (“APRs”) ranging from 19.99% to 36%, annual fees ranging from $0 to $175 and monthly maintenance fees ranging from $0 to $15. Our agreements with our bank partners obligate them to sell and for us to acquire the receivables associated with underlying purchases and subsequent fee and finance billings. We acquire these receivables for the principal amount of any related purchase less any up-front or third-party fees associated with the receivables which best reflects the receivables fair value at the time of acquisition with no gain or loss recognized.
As discussed above, our bank partner continues to provide ongoing account management and oversight for these receivables, for which we compensate the bank partner monthly.
United States Securities and Exchange Commission
October 4, 2024
Page 7
For both our Private label credit and General purpose credit card purchases from our bank partners, the initial acquisition of receivables is at fair value, with no gain recognized. All finance charges, fees and merchant fees are recognized into earnings through our Consumer loans, including past due fees (i