FirstCash Holdings, Inc. — FY2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. The filing is an annual report; it does not provide a separate Q4-only income statement or cash flow statement. Comparisons with 2021 are affected by the American First Finance (AFF) acquisition, which closed on December 17, 2021. Accordingly, 2022 includes a full year of AFF operations, while 2021 includes only 15 days.
Business context
FirstCash operates three reportable segments: U.S. pawn, Latin America pawn and retail point-of-sale payment solutions through AFF. Pawn operations provide non-recourse pawn loans and sell pre-owned merchandise. AFF provides lease-to-own, retail installment and bank-originated payment solutions to credit-constrained consumers through more than 9,200 active merchant locations.
- The Company operated 2,872 pawn stores at year-end: 1,101 in the U.S. and 1,771 in Latin America.
- Pawn operations represented approximately 85% of consolidated net revenue; AFF represented approximately 15%.
- 2022 included 45 new pawn-store openings, 31 acquired stores and 29 consolidations, for a net increase of 47 stores.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $2,728.9 million | $1,699.0 million | +61% |
| Net revenue | $1,264.6 million | $919.2 million | +38% |
| Income before taxes | $323.6 million | $166.5 million | +94% |
| Net income | $253.5 million | $124.9 million | +103% |
| Diluted EPS | $5.36 | $3.04 | +76% |
| Adjusted net income | $245.7 million | $161.5 million | +52% |
| Adjusted diluted EPS | $5.19 | $3.94 | +32% |
| EBITDA | $496.9 million | $244.1 million | +104% |
| Adjusted EBITDA | $437.3 million | $289.6 million | +51% |
Consolidated net income margin was approximately 9.3% of revenue, compared with approximately 7.4% in 2021. The net revenue margin was approximately 46.3%, compared with 54.1% in 2021, reflecting the inclusion and growth of AFF, which carries substantial lease depreciation and credit-loss provisions.
Segment performance and material changes
- U.S. pawn: Revenue increased 17% to $1,255.0 million, net revenue increased 13% to $721.4 million and segment pre-tax operating income increased 25% to $291.1 million. Pawn loans rose 10% to $282.1 million, while retail merchandise sales increased 10% to $818.5 million. The segment margin improved to 23% from 22%, despite retail merchandise margin declining to 42% from 44%.
- Latin America pawn: Revenue increased 14% to $675.5 million and segment pre-tax operating income increased 17% to $142.0 million. On a constant-currency basis, revenue increased 13% and segment operating income increased 16%. Pawn loans increased 18% to $108.5 million, while retail merchandise margin declined to 36% from 37%.
- AFF: Reported revenue was $803.4 million and reported segment pre-tax operating income was $59.2 million. Excluding AFF purchase-accounting effects, adjusted revenue was $846.1 million and adjusted segment pre-tax operating income was $109.5 million. AFF revenue benefited from a full year of ownership but was pressured by inflation, lower consumer spending and a shift toward LTO products. Finance receivables before allowance declined 27% as reported, or 12% excluding purchase-accounting effects.
- Corporate items: Interest expense increased 118% to $70.7 million due to higher debt and interest rates. Administrative expense increased 33% to $147.9 million, while depreciation and amortization increased to $103.8 million, primarily because of AFF-related intangible amortization.
- Unusual item: The Company recorded a $109.5 million pre-tax gain from revaluation of AFF contingent acquisition consideration. No liability remained at year-end for the principal contingent consideration arrangements, although up to $50.0 million could still become payable based on AFF performance in the first half of 2023.
Cash flow, liquidity and capital structure
| Metric | December 31, 2022 |
|---|---|
| Cash and cash equivalents | $117.3 million |
| Working capital | $835.1 million |
| Current ratio | 3.8:1 |
| Outstanding principal debt | $1,389.0 million |
| Available revolving credit capacity | $278.8 million, subject to covenants |
| Goodwill | $1,581.4 million |
- Operating cash flow was $469.3 million, up 110% from $223.3 million in 2021.
- Investing cash flow used $336.4 million, including $71.8 million for pawn acquisitions, $82.9 million for store real estate, $35.6 million for capital expenditures and $85.4 million of net finance-receivable funding.
- Free cash flow was $312.5 million; adjusted free cash flow was $315.4 million.
- The Company repurchased 2.204 million shares for $157.9 million and paid $59.6 million in dividends during 2022.
- Debt consisted primarily of $339.0 million drawn under revolving facilities and $1.05 billion of senior unsecured notes. The 2028 notes carry a 4.625% coupon and the 2030 notes carry a 5.625% coupon.
- The Company expects some net deleveraging by year-end 2023, but expects net interest expense to increase because of higher floating rates. Management stated that operating cash flow and available revolver capacity should fund anticipated needs over the next 12 months and beyond.
Guidance, outlook, risks and contingencies
- Management expected approximately 60 new Latin America pawn stores and four U.S. stores to open in 2023.
- Management expects AFF growth through expansion of merchant relationships, technology investment and improved customer and merchant support, but identified continuing inflation, higher interest rates and lower consumer spending as headwinds.
- The CFPB lawsuit against Company subsidiaries alleges violations of the Military Lending Act and a prior CFPB consent order. The case was stayed in November 2022 pending developments related to the CFPB’s funding structure; the Company cannot predict the outcome or potential monetary exposure.
- A putative securities class action and a shareholder derivative action related to the CFPB matter remained pending. The Company had not accrued material amounts because it could not estimate a probable loss or range of loss.
- Key operating risks include extensive consumer-finance regulation, possible changes to LTO and pawn rules, challenges to AFF’s bank-partner model, credit and lease losses, merchant concentration, cybersecurity, labor costs, foreign exchange and economic deterioration.
- At year-end, AFF reported allowances of $84.8 million for finance-receivable losses and $79.2 million for lease losses. Changes in economic conditions, delinquency trends or underwriting performance could require additional provisions.
- Gold exposure is significant: approximately 50% of inventory and 59% of pawn loans were related to jewelry, primarily gold. A sustained decline in gold prices could reduce collateral values, loan balances, inventory values and margins.
Important facts for investors to verify
- Separate Q4 2022 results, including quarterly revenue, margins and cash flow, because this annual filing primarily presents full-year data.
- The sustainability of AFF’s adjusted profitability after the full-year acquisition comparison normalizes and purchase-accounting adjustments decline.
- Credit performance, charge-offs and allowance adequacy for AFF’s finance receivables and leased merchandise.
- Status and potential financial impact of the CFPB, securities class action and derivative litigation.
- Debt covenant headroom, floating-rate exposure and the planned pace of deleveraging.
- Whether planned store additions and merchant growth generate sufficient returns while labor, occupancy and compliance costs increase.
- Exposure to gold prices, Mexican peso movements and consumer demand in the U.S. and Latin America.