FIRSTCASH HOLDINGS, INC. The following discussion of financial condition, results of operations, liquidity and capital resources ofFirstCash Holdings, Inc. and its wholly-owned subsidiaries (together, the "Company") should be read in conjunction with the Company's consolidated financial statements and accompanying notes included under Part I, Item 1 of this quarterly report on Form 10-Q, as well as with the audited consolidated financial statements and accompanying notes and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2022 . GENERAL The Company's primary line of business is the operation of retail pawn stores, also known as "pawnshops," which focus on serving cash and credit-constrained consumers. The Company is the leading operator of pawn stores in theU.S. andLatin America . Pawn stores help customers meet small short-term cash needs by providing non-recourse pawn loans and buying merchandise directly from customers. Personal property, such as jewelry, electronics, tools, appliances, sporting goods and musical instruments, is pledged and held as collateral for the pawn loans over the typical 30-day term of the loan. Pawn stores also generate retail sales primarily from the merchandise acquired through collateral forfeitures and over-the-counter purchases from customers. The Company is also a leading provider of technology-driven, retail POS payment solutions focused on serving credit-constrained consumers. The Company's retail POS payment solutions business line consists solely of the operations of AFF, which focuses on LTO products and facilitating other retail financing payment options across a large network of traditional and e-commerce merchant partners in all 50 states in theU.S. , theDistrict of Columbia andPuerto Rico . AFF's retail partners provide consumer goods and services to their customers and use AFF's LTO and retail finance solutions to facilitate payments on such transactions. The Company's two business lines are organized into three reportable segments. TheU.S. pawn segment consists of all pawn operations in theU.S. and theLatin America pawn segment consists of all pawn operations inMexico ,Guatemala ,Colombia andEl Salvador . The retail POS payment solutions segment consists of the operations of AFF in theU.S. andPuerto Rico .
OPERATIONS AND LOCATIONS
Pawn Operations
As ofMarch 31, 2023 , the Company operated 2,877 pawn store locations composed of 1,102 stores in 25 U.S. states and theDistrict of Columbia , 1,686 stores in 32 states inMexico , 61 stores inGuatemala , 14 stores inColombia and 14 stores inEl Salvador .
The following table details pawn store count activity for the three months ended
Three Months Ended
U.S. Latin America Total
Total locations, beginning of period 1,101 1,771 2,872
New locations opened (1) - 14 14
Locations acquired 3 - 3
Consolidation of existing pawn locations
(2) (2) (10) (12)
Total locations, end of period 1,102 1,775 2,877
(1)In addition to new store openings, the Company strategically relocated one
store in the U.S. and one store in Latin America during the three months ended
March 31, 2023 .
(2)Store consolidations were primarily acquired locations over the past six
years which have been combined with overlapping stores and for which the Company
expects to maintain a significant portion of the acquired customer base in the
consolidated location.
22
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POS Payment Solutions
As of
CRITICAL ACCOUNTING ESTIMATES
The financial statements have been prepared in accordance with GAAP. The significant accounting policies and estimates that the Company believes are the most critical to aid in fully understanding and evaluating its reported financial results have been reported in the Company's 2022 Annual Report on Form 10-K. There have been no changes to the Company's significant accounting policies for the three months endedMarch 31, 2023 .
RESULTS OF OPERATIONS (unaudited)
Operating Results for the Three Months Ended
The following table presents segment pre-tax operating income and other operating metrics of theU.S. pawn segment for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 (dollars in thousands). Operating expenses include salary and benefit expenses of pawn-store-level employees, occupancy costs, bank charges, security, insurance, utilities, supplies and other costs incurred by the pawn stores. Three Months Ended March 31, 2023 2022 IncreaseU.S. Pawn Segment Revenue: Retail merchandise sales $ 210,681 $ 204,942 3 % Pawn loan fees 102,684 90,339 14 % Wholesale scrap jewelry sales 26,316 16,524 59 % Total revenue 339,681 311,805 9 % Cost of revenue: Cost of retail merchandise sold 121,929 119,718 2 % Cost of wholesale scrap jewelry sold 21,082 14,530 45 % Total cost of revenue 143,011 134,248 7 % Net revenue 196,670 177,557 11 % Segment expenses: Operating expenses 109,781 98,822 11 % Depreciation and amortization 5,870 5,587 5 % Total segment expenses 115,651 104,409 11 % Segment pre-tax operating income $ 81,019 $ 73,148 11 % Operating metrics: Retail merchandise sales margin 42 % 42 % Net revenue margin 58 % 57 % Segment pre-tax operating margin 24 % 23 % 23
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The following table details earning assets, which consist of pawn loans and
inventories as well as other earning asset metrics of the U.S. pawn segment, as
of March 31, 2023 compared to March 31, 2022 (dollars in thousands, except as
otherwise noted):
As of March 31, Increase /
2023 2022 (Decrease)
U.S. Pawn Segment
Earning assets:
Pawn loans $ 256,773 $ 241,597 6 %
Inventories 178,587 184,671 (3) %
$ 435,360 $ 426,268 2 %
Average outstanding pawn loan amount (in ones) $ 248 $ 226 10 %
Composition of pawn collateral:
General merchandise 30 % 33 %
Jewelry 70 % 67 %
100 % 100 %
Composition of inventories:
General merchandise 42 % 44 %
Jewelry 58 % 56 %
100 % 100 %
Percentage of inventory aged greater than one year 2 % 1 %
Inventory turns (trailing twelve months cost of
merchandise sales divided by average inventories) 2.8 times 2.8 times
Retail Merchandise Sales Operations
U.S. retail merchandise sales increased 3% to$210.7 million during the first quarter of 2023 compared to$204.9 million for the first quarter of 2022. Same-store retail sales decreased 1% in the first quarter of 2023 compared to the first quarter of 2022. The increase in total retail sales was primarily due to sales contributions from acquired stores whereas the decrease in same-store retail sales was primarily due to slightly lower than normal inventory levels during the first quarter of 2023 compared to the first quarter of 2022, as further described below. The gross profit margin on retail merchandise sales in theU.S. was 42% in both the first quarter of 2023 and 2022.U.S. inventories decreased 3% from$184.7 million atMarch 31, 2022 to$178.6 million atMarch 31, 2023 . The decrease was primarily due to slightly lower pawn loan forfeiture rates in the first quarter of 2023 compared to the first quarter of 2022. Inventories aged greater than one year in theU.S. were 2% atMarch 31, 2023 and 1% atMarch 31, 2022 .
Pawn Lending Operations
U.S. pawn loan fees increased 14% to$102.7 million during the first quarter of 2023 compared to$90.3 million for the first quarter of 2022. Same-store pawn fees in the first quarter of 2023 increased 11% compared to the first quarter of 2022. The increase in total and same-store pawn loan fees was primarily due to higher average pawn receivables which reflected the continued recovery in pawn loan receivables to pre-pandemic levels combined with inflationary pressures driving additional demand for consumer credit. 24 --------------------------------------------------------------------------------
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Segment Expenses
U.S. operating expenses increased 11% to $109.8 million during the first quarter
of 2023 compared to $98.8 million during the first quarter of 2022 while
same-store operating expenses increased 8% compared with the prior-year period.
The increase in total and same-store operating expenses was primarily due to
inflationary increases in wages and certain other operating costs and increased
store-level incentive compensation driven by increased net revenues and segment
profit during the first quarter of 2023 compared to the first quarter of 2022.
Segment Pre-Tax Operating Income
TheU.S. segment pre-tax operating income for the first quarter of 2023 was$81.0 million , which generated a pre-tax segment operating margin of 24% compared to$73.1 million and 23% in the prior year, respectively. The increase in the segment pre-tax operating income and margin reflected an improved net revenue margin partially offset by the increase in segment expenses. 25 -------------------------------------------------------------------------------- Table of Contents
Latin America Operations Segment
Latin American results of operations for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 benefited from a 9% favorable change in the average value of the Mexican peso compared to theU.S. dollar. The translated value of Latin American earning assets as ofMarch 31, 2023 compared toMarch 31, 2022 benefited from a 9% favorable change in the end-of-period Mexican peso compared to theU.S. dollar. Constant currency results are non-GAAP financial measures, which exclude the effects of foreign currency translation and are calculated by translating current-year results at prior-year average exchange rates. See the "Constant Currency Results" section in "Non-GAAP Financial Information" below for additional discussion of constant currency operating results. The following table presents segment pre-tax operating income and other operating metrics of theLatin America pawn segment for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 (dollars in thousands). Operating expenses include salary and benefit expenses of pawn-store-level employees, occupancy costs, bank charges, security, insurance, utilities, supplies and other costs incurred by the pawn stores. Constant Currency Basis Three Months Ended Three Months Ended March 31, Increase / March 31, 2023 (Decrease) 2023 2022 Increase (Non-GAAP) (Non-GAAP) Latin America Pawn Segment Revenue: Retail merchandise sales$ 118,937 $ 97,877 22 %$ 109,139 12 % Pawn loan fees 48,876 41,480 18 % 44,815 8 % Wholesale scrap jewelry sales 18,868 16,281 16 % 18,868 16 % Total revenue 186,681 155,638 20 % 172,822 11 % Cost of revenue: Cost of retail merchandise sold 77,963 62,496 25 % 71,583 15 % Cost of wholesale scrap jewelry sold 14,645 13,685 7 % 13,363 (2) % Total cost of revenue 92,608 76,181 22 % 84,946 12 % Net revenue 94,073 79,457 18 % 87,876 11 % Segment expenses: Operating expenses 55,756 45,542 22 % 51,494 13 % Depreciation and amortization 5,445 4,401 24 % 5,115 16 % Total segment expenses 61,201 49,943 23 % 56,609 13 % Segment pre-tax operating income$ 32,872 $ 29,514 11 %$ 31,267 6 % Operating metrics: Retail merchandise sales margin 34 % 36 % 34 % Net revenue margin 50 % 51 % 51 % Segment pre-tax operating margin 18 % 19 % 18 % 26
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The following table details earning assets, which consist of pawn loans and
inventories as well as other earning asset metrics of the Latin America pawn
segment, as of March 31, 2023 compared to March 31, 2022 (dollars in thousands,
except as otherwise noted):
Constant Currency Basis
As of
March 31, Increase /
As of March 31, 2023 (Decrease)
2023 2022 Increase (Non-GAAP) (Non-GAAP)
Latin America Pawn Segment
Earning assets:
Pawn loans $ 120,924 $ 102,504 18 % $ 110,235 8 %
Inventories 79,016 62,605 26 % 72,073 15 %
$ 199,940 $ 165,109 21 % $ 182,308 10 %
Average outstanding pawn loan amount
(in ones) $ 85 $ 79 8 % $ 77 (3) %
Composition of pawn collateral:
General merchandise 67 % 68 %
Jewelry 33 % 32 %
100 % 100 %
Composition of inventories:
General merchandise 72 % 68 %
Jewelry 28 % 32 %
100 % 100 %
Percentage of inventory aged greater
than one year 1 % 1 %
Inventory turns (trailing twelve months cost of merchandise sales divided by average inventories) 4.3 times
4.3 times
Retail Merchandise Sales Operations
Latin America retail merchandise sales increased 22% (12% on a constant currency basis) to$118.9 million during the first quarter of 2023 compared to$97.9 million for the first quarter of 2022. Same-store retail sales increased 21% (11% on a constant currency basis) during the first quarter of 2023 compared to the first quarter of 2022. The increase in total and same-store retail sales was primarily due to increased inventory levels during the first quarter of 2023 compared to the first quarter of 2022 and greater demand for value-priced consumer goods, with such demand driven in part by inflationary pressures on the Company's customers. The gross profit margin on retail merchandise sales was 34% during the first quarter of 2023 and 36% during the first quarter of 2022.Latin America inventories increased 26% (15% on a constant currency basis) from$62.6 million atMarch 31, 2022 to$79.0 million atMarch 31, 2023 . The increase was primarily due to lower-than-normal inventory balances atMarch 31, 2022 due to the impacts of the COVID-19 pandemic. Inventories aged greater than one year inLatin America were 1% at bothMarch 31, 2023 and 2022. 27 --------------------------------------------------------------------------------
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Pawn Lending Operations
Latin America pawn loan receivables increased 18% (8% on a constant currency
basis) as of March 31, 2023 compared to March 31, 2022 , and on a same-store
basis, pawn loan receivables increased 18% and 7%, respectively. The increase in
total and same-store pawn receivables was primarily due to the continued
recovery in pawn loan demand to pre-pandemic levels combined with inflationary
pressures driving additional demand for consumer credit.
Latin America pawn loan fees increased 18% (8% on a constant currency basis),
totaling $48.9 million during the first quarter of 2023 compared to $41.5
million for the first quarter of 2022. Same-store pawn fees also increased 18%
(8% on a constant currency basis) in the first quarter of 2023 compared to the
first quarter of 2022. The increase in total and same-store constant currency
pawn loan fees was primarily due to higher average pawn receivables which
reflected the continued recovery in pawn loan receivables to pre-pandemic levels
combined with inflationary pressures driving additional demand for consumer
credit.
Segment Expenses
Operating expenses increased 22% (13% on a constant currency basis) to$55.8 million during the first quarter of 2023 compared to$45.5 million during the first quarter of 2022, reflecting continued store growth, inflationary pressure on labor and other operating expenses and increases in the federally mandated minimum wage and other required benefit programs. Same-store operating expenses increased 21% (12% on a constant currency basis) compared to the prior-year period.
Segment Pre-Tax Operating Income
The segment pre-tax operating income for the first quarter of 2023 was$32.9 million , which generated a pre-tax segment operating margin of 18% compared to$29.5 million and 19% in the prior year, respectively. 28 -------------------------------------------------------------------------------- Table of Contents
Retail POS Payment Solutions Segment
Retail POS Payment Solutions Operating Results
The following table presents segment pre-tax operating income of the retail POS payment solutions segment for the three months endedMarch 31, 2023 as compared to the three months endedMarch 31, 2022 (dollars in thousands): Adjusted (1) Three Months Ended Three Months Ended March 31, Increase / March 31, 2022 (Decrease) 2023 2022 Increase (Non-GAAP) (Non-GAAP) Retail POS Payment Solutions Segment Revenue: Leased merchandise income$ 183,438 $ 149,947 22 %$ 149,947 22 % Interest and fees on finance receivables 54,642 42,449 29 % 58,622 (7) % Total revenue 238,080 192,396 24 % 208,569 14 % Cost of revenue: Depreciation of leased merchandise 102,172 93,706 9 % 89,347 14 % Provision for lease losses 49,166 39,820 23 % 39,820 23 % Provision for loan losses 29,285 24,697 19 % 24,697 19 % Total cost of revenue 180,623 158,223 14 % 153,864 17 % Net revenue 57,457 34,173 68 % 54,705 5 % Segment expenses: Operating expenses 33,524 28,932 16 % 28,932 16 % Depreciation and amortization 736 682 8 % 682 8 % Total segment expenses 34,260 29,614 16 % 29,614 16 % Segment pre-tax operating income$ 23,197 $ 4,559 409 %$ 25,091 (8) % (1)As a result of purchase accounting, AFF's as reported amounts for the three months endedMarch 31, 2022 contain significant fair value adjustments. The adjusted amounts for the three months endedMarch 31, 2022 exclude these fair value purchase accounting adjustments. 29 -------------------------------------------------------------------------------- Table of Contents The following table provides a detail of gross transaction volumes originated during the three months endedMarch 31, 2023 as compared to the three months endedMarch 31, 2022 (in thousands): Three Months Ended March 31, 2023 2022 Increase Leased merchandise$ 151,175 $ 112,453 34 % Finance receivables 98,440 72,137 36 % Total gross transaction volume$ 249,615 $ 184,590
35 %
The following table details retail POS solutions earning assets as of
Adjusted (2)
As of
March 31, Increase /
As of March 31, Increase / 2022 (Decrease)
2023 2022 (Decrease) (Non-GAAP) (Non-GAAP)
Leased merchandise, net:
Leased merchandise, before allowance for
lease losses $ 243,363 $ 159,511 53 % $ 191,838 27 %
Less allowance for lease losses (93,269) (40,364) 131 % (76,028) 23 %
Leased merchandise, net (1) $ 150,094 $ 119,147 26 % $ 115,810 30 %
Finance receivables, net:
Finance receivables, before allowance
for loan losses $ 190,703 $ 212,813 (10) % $ 186,329 2 %
Less allowance for loan losses (88,610) (72,332) 23 % (72,332) 23 %
Finance receivables, net $ 102,093 $ 140,481 (27) % $ 113,997 (10) %
(1)Includes
(2)As a result of purchase accounting, AFF'sMarch 31, 2022 as reported earnings assets contain significant fair value adjustments, which were fully amortized during 2022. The adjusted amounts as ofMarch 31, 2022 exclude these fair value purchase accounting adjustments. 30 -------------------------------------------------------------------------------- Table of Contents
The following table details the changes in the allowance for lease and loan
losses and other portfolio metrics for the three months ended
Adjusted (4)
Three Months
Ended
Three Months Ended March 31,
March 31, Increase / 2022 Increase
2023 2022 (Decrease) (Non-GAAP) (Non-GAAP)
Allowance for lease losses:
Balance at beginning of period $ 79,576 $ 5,442 1,362 % $ 66,968 19 %
Provision for lease losses 49,065 39,820 23 % 39,820 23 %
Charge-offs (37,045) (6,020) 515 % (31,882) 16 %
Recoveries 1,673 1,122 49 % 1,122 49 %
Balance at end of period $ 93,269 $ 40,364 131 % $ 76,028 23 %
Leased merchandise portfolio metrics:
Provision expense as percentage of
originations (1) 32 % 35 %
Average monthly net charge-off rate
(2) 5.0 % 5.3 %
Delinquency rate (3) 17.3 % 17.0 %
Allowance for loan losses:
Balance at beginning of period $ 84,833 $ 75,574 12 %
Provision for loan losses 29,285 24,697 19 %
Charge-offs (27,117) (29,408) (8) %
Recoveries 1,609 1,469 10 %
Balance at end of period $ 88,610 $ 72,332 23 %
Finance receivables portfolio
metrics:
Provision rate (1) 30 % 34 %
Average monthly net charge-off rate
(2) 4.3 % 4.7 %
Delinquency rate (3) 16.1 % 17.4 %
(1)Calculated as provision for lease or loan losses as a percentage of the respective gross transaction volume originated.
(2)Calculated as charge-offs, net of recoveries, as a percentage of the respective average earning asset balance before allowance for lease or loan losses (adjusted to exclude any fair value purchase accounting adjustments, as applicable).
(3)Calculated as the percentage of the respective contractual earning asset balance owed that is 1 to 90 days past due (the Company charges off leases and finance receivables when they are 90 days or more contractually past due).
(4)As a result of purchase accounting, AFF's as reported allowance for lease losses for the three months endedMarch 31, 2022 contain significant fair value adjustments. The adjusted amounts for the three months endedMarch 31, 2022 exclude these fair value purchase accounting adjustments. As a result of the significance of these accounting adjustments, the Company does not believe that the unadjusted leased merchandise portfolio metrics for the three months endedMarch 31, 2022 provide a useful comparison against theMarch 31, 2023 amounts. 31
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LTO Operations
Leased merchandise, before allowance for lease losses, increased 53% as of
March 31, 2023 compared to March 31, 2022 . On an adjusted basis, excluding the
impacts of fair value purchase accounting, leased merchandise, before allowance
for lease losses, increased 27% as of March 31, 2023 compared to March 31, 2022 .
This increase was primarily due to increased transaction volumes from both
existing merchants and new merchant locations added since March 31, 2022 .
The allowance for lease losses increased 131% to $93.3 million as of March 31,
2023 compared to $40.4 million as of March 31, 2022 . On an adjusted basis,
excluding the impacts of fair value purchase accounting, the allowance for lease
losses increased 23% as of March 31, 2023 compared to March 31, 2022 . This
increase was primarily due to the increase in gross transaction volume compared
to the first quarter of 2022.
Leased merchandise income increased 22% to
Depreciation of leased merchandise increased 9% to$102.2 million during the first quarter of 2023 compared to$93.7 million during the first quarter of 2022. On an adjusted basis, excluding the impacts of fair value purchase accounting, depreciation of leased merchandise increased 14%. The increase was primarily due to higher leased merchandise balances. As a percentage of leased merchandise income, depreciation of leased merchandise decreased from 60% during the first quarter of 2022 (adjusted to exclude purchase accounting adjustments) to 56% during the first quarter of 2023. Provision for lease losses increased 23% to$49.2 million during the first quarter of 2023 compared to$39.8 million for the first quarter of 2022, which was primarily due to the increase in gross transaction volumes, partially offset by lower than expected charge-offs. As a percentage of gross transaction volume, the provision for lease losses decreased from 35% during the first quarter of 2022 to 32% during the first quarter of 2023 due to slightly improved net charge-off trends on 2022 origination vintages.
Retail Finance Operations
Finance receivables, before allowance for loan losses, decreased 10% as ofMarch 31, 2023 compared toMarch 31, 2022 . On an adjusted basis, excluding the impacts of fair value purchase accounting, finance receivables, before allowance for loan losses, increased 2% as ofMarch 31, 2023 compared toMarch 31, 2022 . This increase in the outstanding receivable balance was primarily due to new merchant locations added primarily in the fourth quarter of 2022 and first quarter of 2023, resulting in increased quarter-over-quarter transaction volumes. The allowance for loan losses increased 23% to$88.6 million as ofMarch 31, 2023 compared to$72.3 million as ofMarch 31, 2022 . While finance receivable credit metrics generally improved during the first quarter of 2023 compared to the first quarter of 2022, certain retail financing products AFF makes available to its merchants have less extensive history than the LTO products, therefore, the Company continues to apply certain qualitative factors and forecasted business trends in its CECL reserve methodology for its finance receivables. Interest and fees on finance receivables increased 29% to$54.6 million during the first quarter of 2023 compared to$42.4 million for the first quarter of 2022. On an adjusted basis, excluding the impacts of fair value purchase accounting, interest and fees on finance receivables decreased 7%. The decrease was primarily due to timing of transaction volume originations resulting in a decline in the average finance receivable balance during most of 2022 as noted above. Provision for loan losses increased 19% to$29.3 million during the first quarter of 2023 compared to$24.7 million for the first quarter of 2022, which was primarily due to the increase in gross transaction volumes, partially offset by lower than expected charge-offs. As a percentage of gross transaction volume, the provision for loan losses decreased from 34% during the first quarter of 2022 to 30% during the first quarter of 2023 due to slightly improved net charge-off trends on 2022 origination vintages.
Segment Expenses
Operating expenses increased 16% to$33.5 million during the first quarter of 2023 compared to$28.9 million during the first quarter of 2022, which was primarily due to higher leased merchandise balances and transaction volumes. As a percentage of segment revenues, operating expenses remained consistent at 14% during both the first quarter of 2023 and 2022 (adjusted to exclude purchase accounting adjustments). 32 -------------------------------------------------------------------------------- Table of Contents
Segment Pre-Tax Operating Income
The retail POS payment solutions segment pre-tax operating income for the first quarter of 2023 was$23.2 million compared to$4.6 million in the first quarter of 2022. The increase was primarily the result of fair value purchase accounting. On an adjusted basis, excluding the impacts of fair value purchase accounting, segment pre-tax operating income for the first quarter of 2022 was$25.1 million . The decrease in this adjusted segment pre-tax operating income was primarily the result of the provision for lease and loan losses associated with the increased gross transaction volume (full provision is recorded in the month of transaction origination).
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