FirstCash(FCFS) - 2023 Q3 - Quarterly Report

Part I. Financial Information This section covers the company's unaudited financial statements, management's analysis, market risks, and internal controls Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements and detailed notes for FirstCash Holdings, Inc. for the specified periods Consolidated Balance Sheets As of September 30, 2023, total assets increased to $4.17 billion from $3.90 billion at year-end 2022, primarily driven by growth in pawn loans, goodwill from acquisitions, and leased merchandise, while total liabilities also rose to $2.26 billion from $2.03 billion due to increased borrowings Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $1,234,640 | $1,130,662 | | Pawn loans | $483,785 | $390,617 | | Goodwill | $1,713,354 | $1,581,381 | | Total Assets | $4,174,563 | $3,904,867 | | Total Current Liabilities | $317,370 | $295,529 | | Revolving unsecured credit facilities | $560,229 | $339,000 | | Senior unsecured notes | $1,037,151 | $1,035,698 | | Total Liabilities | $2,256,979 | $2,025,101 | | Total Stockholders' Equity | $1,917,584 | $1,879,766 | Consolidated Statements of Income For Q3 2023, total revenue grew 17% year-over-year to $786.3 million, but net income slightly decreased to $57.1 million, resulting in a flat diluted EPS of $1.26, while for the nine-month period, revenue grew 16% and net income declined 14% Q3 2023 vs Q3 2022 Income Statement (in thousands, except EPS) | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $786,301 | $672,143 | +17.0% | | Net Revenue | $388,647 | $323,292 | +20.2% | | Income Before Income Taxes | $77,624 | $75,395 | +3.0% | | Net Income | $57,144 | $59,316 | -3.7% | | Diluted EPS | $1.26 | $1.26 | 0.0% | Nine Months 2023 vs 2022 Income Statement (in thousands, except EPS) | Metric | 9M 2023 | 9M 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $2,299,662 | $1,979,598 | +16.2% | | Net Revenue | $1,089,590 | $915,451 | +19.0% | | Income Before Income Taxes | $201,361 | $222,027 | -9.3% | | Net Income | $149,712 | $173,429 | -13.7% | | Diluted EPS | $3.27 | $3.64 | -10.2% | Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash from operating activities slightly decreased to $317.0 million, while net cash used in investing activities significantly increased to $409.2 million due to acquisitions, and net cash provided by financing activities reversed to $58.7 million from a prior-year use Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $317,037 | $325,798 | | Net cash used in investing activities | ($409,173) | ($238,732) | | Net cash provided by (used in) financing activities | $58,707 | ($107,575) | | Change in cash and cash equivalents | ($30,783) | ($19,426) | Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, acquisitions, leases, fair value measurements, debt, and segment information, including the acquisition of 83 U.S. pawn stores, $1.6 billion in long-term debt, an ongoing CFPB lawsuit, and gold forward sales contracts - During the first nine months of 2023, the Company acquired 83 pawn stores in the U.S. for an aggregate purchase price of $168.1 million[35] - As of September 30, 2023, total long-term debt was $1.6 billion, consisting of $560 million from revolving credit facilities and $1.04 billion from senior unsecured notes[54] - The company is involved in a civil action from the CFPB alleging violations of the Military Lending Act (MLA), with the case currently stayed pending a Supreme Court decision on the CFPB's funding structure[63] - As of September 30, 2023, the Company had contractual commitments to deliver 57,600 gold ounces through June 2025 at a weighted-average price of $2,024 per ounce[64] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the performance of its U.S. Pawn, Latin America Pawn, and Retail POS Payment Solutions (AFF) segments, highlighting growth drivers, strategic acquisitions, and financial position - The company operates through three reportable segments: U.S. pawn, Latin America pawn, and Retail POS payment solutions (AFF)[73] - As of September 30, 2023, the company operated 2,988 pawn stores (1,181 in the U.S. and 1,807 in Latin America) and its AFF business had a network of approximately 10,800 active retail merchant partners[75][77] Results of Operations - U.S. Pawn Segment The U.S. Pawn segment delivered strong Q3 2023 results, with pre-tax operating income increasing 20% year-over-year to $84.4 million, driven by an 18% rise in pawn loan fees and a 22% increase in pawn loan balances, alongside 4% growth in retail merchandise sales with expanding gross margins U.S. Pawn Segment Performance - Q3 2023 vs Q3 2022 (in thousands) | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $334,931 | $305,032 | +10% | | Pawn loan fees | $114,022 | $96,222 | +18% | | Net Revenue | $204,964 | $178,795 | +15% | | Segment pre-tax operating income | $84,402 | $70,481 | +20% | - U.S. pawn loan receivables increased 22% in total and 11% on a same-store basis as of September 30, 2023, compared to the prior year, driven by inflationary pressures and tightened consumer credit[84] Results of Operations - Latin America Pawn Segment The Latin America segment's Q3 2023 pre-tax operating income rose 12% year-over-year to $41.0 million, significantly influenced by a 15% favorable currency impact from the Mexican peso, despite a 3% constant currency decrease due to rising operating expenses Latin America Pawn Segment Performance - Q3 2023 vs Q3 2022 (in thousands) | Metric | Q3 2023 (Reported) | Q3 2023 (Constant Currency) | Q3 2022 (Reported) | YoY Change (Constant Currency) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $202,047 | $173,323 | $162,722 | +7% | | Net Revenue | $110,123 | $94,964 | $89,157 | +7% | | Segment pre-tax operating income | $40,980 | $35,649 | $36,612 | -3% | - The translated value of Latin American earning assets as of Sep 30, 2023 benefited from a 13% favorable change in the end-of-period Mexican peso vs the U.S. dollar[89] Results of Operations - Retail POS Payment Solutions Segment (AFF) The AFF segment's Q3 2023 pre-tax operating income surged 96% year-over-year to $39.4 million, or 41% on an adjusted basis, driven by a 14% increase in total gross transaction volume to $250.7 million AFF Segment Performance - Q3 2023 vs Q3 2022 (in thousands) | Metric | Q3 2023 | Q3 2022 (Adjusted Non-GAAP) | Change (Non-GAAP) | | :--- | :--- | :--- | :--- | | Total Revenue | $250,795 | $214,046 | +17% | | Net Revenue | $73,861 | $63,876 | +16% | | Segment pre-tax operating income | $39,449 | $28,041 | +41% | - Total gross transaction volume for Q3 2023 was $250.7 million, an increase of 14% from the prior year[100] Liquidity and Capital Resources As of September 30, 2023, the company maintained liquidity through $86.5 million in cash and $60.9 million available on its credit facilities, with capital allocation priorities focused on expanding operations and returning capital to shareholders through acquisitions and share repurchases - Primary capital requirements are expanding pawn operations, growing the retail POS business, and returning capital to shareholders via dividends and stock repurchases[149] - In the first nine months of 2023, the company repurchased 1,248,000 shares for $114.4 million[156] - In July 2023, the Board of Directors authorized a new $200.0 million share repurchase program, which was fully available as of the report date[157] - In October 2023, the company increased its domestic credit facility commitment by $50.0 million to $640.0 million[159] Non-GAAP Financial Information The company provides non-GAAP measures to clarify core operating performance by excluding specific items, reporting adjusted diluted EPS of $1.56 for Q3 2023 and a trailing twelve-month adjusted EBITDA of $480.8 million GAAP vs. Non-GAAP EPS Reconciliation (Q3 2023) | Metric | Per Share Amount | | :--- | :--- | | Diluted EPS, as reported | $1.26 | | Merger and acquisition expenses | $0.06 | | Non-cash foreign currency loss | $0.01 | | AFF purchase accounting adjustments | $0.24 | | Other adjustments, net | ($0.01) | | Adjusted diluted EPS | $1.56 | Adjusted EBITDA Reconciliation (in thousands) | Period | Net Income | Adjusted EBITDA | | :--- | :--- | :--- | | Three Months Ended Sep 30, 2023 | $57,144 | $132,985 | | Nine Months Ended Sep 30, 2023 | $149,712 | $350,028 | | Trailing Twelve Months Ended Sep 30, 2023 | $229,778 | $480,759 | Quantitative and Qualitative Disclosures About Market Risk The company's main market risks stem from fluctuations in interest rates, gold prices, and foreign currency exchange rates, with no material changes to these exposures since the end of 2022 - The company's primary market risks are changes in interest rates, gold prices, and foreign currency exchange rates[186] - There have been no material changes to the Company's exposure to market risks since December 31, 2022[186] Controls and Procedures As of September 30, 2023, the company's CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - Management concluded that as of September 30, 2023, the Company's disclosure controls and procedures were effective[187] - No changes in internal control over financial reporting occurred during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company's internal control[188] Part II. Other Information This section covers legal proceedings, risk factors, equity sales, and other relevant corporate disclosures Legal Proceedings This section refers to Note 9 of the financial statements, detailing a civil action by the CFPB against two subsidiaries for alleged Military Lending Act violations, currently stayed pending a Supreme Court decision on the CFPB's funding structure - The company is party to a lawsuit from the CFPB alleging violations of the Military Lending Act (MLA)[63][190] - The action against the Company is stayed pending a U.S. Supreme Court decision regarding the constitutionality of the CFPB's funding structure[63] Risk Factors The company states there have been no material changes to its risk factors from those disclosed in its 2022 Annual Report on Form 10-K - There have been no material changes in the Company's risk factors from those in its 2022 Annual Report on Form 10-K[191] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2023, the company repurchased 94,925 shares for approximately $8.8 million, completing a prior authorization, and in July 2023, the Board authorized a new $200 million share repurchase program that remains fully available Share Repurchases - Q3 2023 | Period | Total Shares Purchased | Average Price Paid Per Share | Dollar Value of Shares That May Yet Be Purchased | | :--- | :--- | :--- | :--- | | July 2023 | 94,925 | $92.79 | $200,000,000 | | August 2023 | — | — | $200,000,000 | | September 2023 | — | — | $200,000,000 | - In July 2023, the Company's Board of Directors authorized a new common stock repurchase program for up to $200.0 million, of which the entire amount is currently remaining[192] Other Information This section discloses the adoption of Rule 10b5-1 trading plans by Director Randel G. Owen to sell up to 2,000 shares and CFO R. Douglas Orr to sell up to 42,000 shares - On August 10, 2023, Director Randel G. Owen adopted a Rule 10b5-1 plan to sell up to 2,000 shares of common stock[195] - On August 22, 2023, CFO R. Douglas Orr adopted a Rule 10b5-1 plan to sell up to 42,000 shares of common stock[196] Exhibits This section lists the exhibits filed with the Form 10-Q, including the Seventh Amendment to the company's Credit Agreement, CEO and CFO certifications, and Inline XBRL data files - A key exhibit filed is the Seventh Amendment to the Amended and Restated Credit Agreement, dated October 18, 2023[199]