FirstCash Holdings, Inc. — Q1 2024 Form 10-Q Summary
Business Context and Reporting Period
Unaudited results cover the three months ended March 31, 2024, compared with the three months ended March 31, 2023. FirstCash operates retail pawn stores in the United States and Latin America and provides retail point-of-sale payment solutions, including lease-to-own and financing products, through American First Finance (AFF).
At March 31, 2024, the Company operated 2,997 pawn stores and AFF served approximately 12,200 active merchant locations. The Company added 19 new stores and acquired one U.S. pawn store during the quarter.
Financial Performance and Key Metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $836.4 million | $762.7 million | +10% |
| Net revenue | $395.8 million | $348.1 million | +14% |
| Income before taxes | $81.9 million | $63.2 million | +30% |
| Net income | $61.4 million | $47.4 million | +30% |
| Diluted EPS | $1.35 | $1.02 | +32% |
| Operating cash flow | $122.5 million | $110.6 million | +11% |
Net revenue margin improved to approximately 47.3% from 45.6%, while net income margin increased to approximately 7.3% from 6.2%. The effective income tax rate was 25.1%, compared with 25.0% in the prior-year quarter.
- U.S. Pawn revenue increased 11% to $377.7 million; segment pre-tax operating income increased 19% to $96.6 million, and the segment margin improved to 26% from 24%. Same-store retail sales increased 4%, while same-store pawn fees increased 12%.
- Latin America Pawn revenue increased 5% to $196.6 million, benefiting from a favorable Mexican peso translation effect. Segment pre-tax operating income declined 3% to $31.9 million, and the margin declined to 16% from 18%. On a constant-currency basis, revenue declined 3% and segment income declined 10%.
- Retail POS Payment Solutions revenue increased 10% to $263.1 million. Segment pre-tax operating income increased 43% to $33.1 million, supported by higher net revenue and lower lease-loss provisioning.
- Lease-loss provision declined 12% to $43.0 million, but average monthly net charge-off and delinquency rates increased to 5.5% and 20.5%, respectively, from 5.0% and 18.3%.
- Finance-receivable provision increased 4% to $30.4 million. Finance-receivable delinquency increased to 19.2% from 17.2%, and the allowance represented approximately 48% of finance receivables, compared with 46%.
Cash Flow, Debt and Liquidity
- Operating cash flow was $122.5 million. Investing cash flow used $29.6 million, including $26.4 million for equipment and improvements, $11.3 million for store real estate, and $1.7 million for acquisitions.
- Financing cash flow used $84.9 million. The Company issued $500.0 million of 6.875% senior unsecured notes due 2032 and used the proceeds primarily to repay revolving credit facility borrowings.
- At March 31, 2024, cash and equivalents were $135.1 million, working capital was $942.0 million, and available borrowing capacity under revolving facilities was approximately $658.2 million, subject to covenants.
- Total long-term debt carrying value was $1.544 billion, consisting of $15.0 million drawn on revolving facilities and $1.529 billion of senior unsecured notes. Outstanding senior-note principal was $1.550 billion.
- The consolidated total debt ratio was 2.5 to 1. The Company reported compliance with its credit-facility covenants.
- The Company paid a $0.35-per-share dividend, or $15.8 million, during the quarter. No shares were repurchased under the public repurchase program, although 58,747 shares were withheld in January for employee tax obligations. The remaining authorization under the repurchase program was $200.0 million.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven by store expansion and higher pawn loan balances, AFF growth, and favorable foreign-currency translation in Latin America.
- Profit growth exceeded revenue growth because of improved U.S. Pawn performance, stronger AFF segment results, and lower lease-loss provisioning.
- Interest expense increased 22% to $25.4 million because of higher floating rates and higher average debt balances.
- Latin America operating costs increased 21% as reported, or 11% on a constant-currency basis, reflecting inflation, minimum-wage increases and employee-benefit costs.
- U.S. pawn loans increased 23% and U.S. inventories increased 21% year over year. Latin America pawn loans increased 16% as reported and 7% in constant currency.
- Trailing-twelve-month adjusted EBITDA was $533.8 million, compared with $445.6 million, although trailing-twelve-month GAAP EBITDA declined to $515.7 million from $529.5 million because the prior-year period included a significant gain on revaluation of contingent acquisition consideration.
Guidance, Outlook, Risks and Unusual Items
- Management expects to add approximately 90 to 100 total pawn locations in 2024 through new openings and acquisitions; 19 had been added through March 31.
- Management expects net interest expense to increase in 2024 because of higher borrowings and anticipated higher floating interest rates.
- Management believes operating cash flow and available revolving-credit capacity will satisfy liquidity and capital needs over the next 12 months and beyond.
- The Company remains subject to significant pawn, consumer-finance and other regulatory requirements. The CFPB lawsuit alleging Military Lending Act violations remains stayed pending the U.S. Supreme Court’s review of the CFPB’s funding structure. No material loss has been accrued because the Company cannot estimate the outcome or a loss range.
- Key risks include regulatory changes and litigation, credit and lease losses, inflation and interest rates, consumer demand, labor costs, competition, foreign-currency volatility, gold prices, acquisitions and leverage constraints.
- At March 31, 2024, the Company had commitments to deliver 83,000 gold ounces through February 2026 at a weighted-average price of $2,110 per ounce; management expects sufficient historical scrap-gold volumes to satisfy the commitments.
- Adjusted net income was $70.2 million, or $1.55 adjusted diluted EPS, versus $57.7 million, or $1.25, after excluding specified acquisition, AFF intangible-amortization, foreign-currency and other items. These are non-GAAP measures.
Most Important Facts for Investors to Verify
- Whether higher AFF and pawn receivable growth can be sustained without further deterioration in delinquency and charge-off rates.
- The effect of higher interest rates and the new 2032 notes on interest expense, leverage and future capital allocation.
- The status and potential financial exposure of the CFPB litigation and other regulatory proceedings.
- Whether the planned 90-to-100-store expansion can be executed while maintaining U.S. and Latin America margins.
- The sustainability of the $0.35 quarterly dividend and the potential timing of share repurchases under the remaining $200.0 million authorization.
- Constant-currency performance in Latin America, particularly given the favorable currency translation benefit in the reported results.
- The Company’s allowance adequacy as AFF delinquency and net charge-off rates rise.