FirstCash Holdings, Inc. — Q3 2023 Form 10-Q Summary
Business context and reporting period
FirstCash operates retail pawn stores in the United States and Latin America and provides lease-to-own and retail finance payment solutions through American First Finance (AFF). The filing covers the unaudited three and nine months ended September 30, 2023, compared with the same periods in 2022.
At September 30, 2023, the Company operated 2,988 pawn stores and AFF served approximately 10,800 active merchant partner locations. The Company acquired 83 U.S. pawn stores and two pawn licenses during the first nine months of 2023.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Total revenue | $786.3 million | $672.1 million | $2.300 billion | $1.980 billion |
| Net revenue | $388.6 million | $323.3 million | $1.090 billion | $915.5 million |
| Income before taxes | $77.6 million | $75.4 million | $201.4 million | $222.0 million |
| Net income | $57.1 million | $59.3 million | $149.7 million | $173.4 million |
| Diluted EPS | $1.26 | $1.26 | $3.27 | $3.64 |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $317.0 million | $325.8 million |
Q3 revenue increased 17%, while net income declined 4%. Nine-month revenue increased 16%, but net income declined 14%. Approximate net revenue margins were 49.4% in Q3 2023 versus 48.1% in Q3 2022, and 47.4% for the first nine months of 2023 versus 46.2% in the prior-year period.
- Q3 revenue contributions included retail merchandise sales of $335.1 million, pawn loan fees of $174.6 million, leased merchandise income of $189.4 million, finance receivable interest and fees of $61.4 million, and wholesale scrap jewelry sales of $25.9 million.
- Q3 consolidated segment pre-tax operating income increased 30% to $164.5 million. U.S. pawn segment income increased 20% to $84.4 million, Latin America pawn increased 12% to $41.0 million, and retail POS payment solutions increased 96% to $39.4 million.
- U.S. pawn segment pre-tax margin improved to 25% from 23%. Latin America margin decreased to 20% from 22%, partly because wage and benefit costs increased faster than revenue. AFF’s reported results benefited from the absence of certain 2022 purchase-accounting adjustments.
- Q3 interest expense increased 35% to $24.7 million; nine-month interest expense increased 31% to $66.7 million, reflecting higher floating rates and greater borrowings.
- Allowance for lease losses was $105.1 million at September 30, 2023, up from $77.6 million a year earlier. The Q3 lease-loss provision rate increased to 27% of originations from 24%, and the delinquency rate increased to 21.1% from 18.9% on an adjusted basis.
- Allowance for finance receivable losses was $96.7 million, compared with $78.4 million a year earlier. The Q3 provision rate decreased to 32% of originations from 38%, while delinquency was broadly stable at 19.4% versus 19.2%.
Financial position, debt and liquidity
- Cash and cash equivalents were $86.5 million at September 30, 2023, compared with $117.3 million at December 31, 2022.
- Working capital was $917.3 million and the current ratio was 3.9:1.
- Total long-term debt was $1.597 billion, consisting primarily of $560.2 million drawn on revolving unsecured credit facilities and $1.037 billion of senior unsecured notes.
- The domestic credit facility had $531.0 million outstanding and $56.1 million available, subject to covenants. The Mexico facility had $29.2 million outstanding and $4.8 million available.
- On October 18, 2023, the domestic facility commitment was increased by $50 million to $640 million; other terms were unchanged.
- The Company reported compliance with debt covenants. Its consolidated total debt ratio was 2.9 to 1 at September 30, 2023.
- Operating cash flow of $317.0 million was used alongside borrowings to fund $409.2 million of investing activities, including $168.4 million of acquisitions, $93.4 million of property and equipment purchases, and net funding of pawn loans and finance receivables.
- The Company repurchased 1.248 million shares for $114.4 million during the nine months and paid $46.1 million of dividends. A new $200 million repurchase authorization remained fully available at September 30, 2023.
Material changes versus the prior comparable period
- Growth was driven by acquisitions, higher U.S. pawn receivables, increased AFF transaction volumes, and favorable currency translation from the Mexican peso.
- U.S. pawn receivables increased 22% and U.S. pawn earning assets increased 15% year over year. U.S. same-store retail sales decreased 3% in Q3, primarily because existing stores had lower inventory levels.
- Latin America revenue increased 24% in Q3 as reported, but only 7% on a constant-currency basis. Latin America segment income increased 12% as reported but decreased 3% on a constant-currency basis.
- AFF gross transaction volume increased 14% in Q3 and 24% for the nine months. The adjusted AFF segment pre-tax income comparison was $39.4 million versus $28.0 million in Q3 2022 and $88.5 million versus $78.3 million for the nine months, excluding purchase-accounting effects.
- Prior-year results included an $82.8 million gain from revaluation of contingent AFF acquisition consideration, including $19.8 million in Q3 2022. No corresponding gain was recorded in 2023, materially affecting year-to-date earnings comparisons.
- Adjusted net income increased to $70.8 million in Q3 and $184.0 million for the nine months, compared with $61.1 million and $169.1 million, respectively, in the prior-year periods. Adjusted diluted EPS was $1.56 and $4.02 versus $1.30 and $3.55.
Guidance, outlook, risks and unusual items
- Management expected approximately 65 total new pawn locations for full-year 2023; 57 had been opened through September 30.
- Management stated that operating cash flow and available revolving credit capacity should be adequate for expected liquidity and capital needs over the next 12 months and longer term.
- Management expects higher 2023 net interest expense because of increased acquisition-related borrowings and higher floating interest rates.
- The principal risks include extensive regulation, changes in consumer demand, inflation and rising interest rates, labor and wage pressures, currency fluctuations, competition, acquisition execution, credit and lease losses, and litigation.
- The CFPB lawsuit against subsidiaries alleging Military Lending Act violations remained stayed pending the U.S. Supreme Court’s review of the CFPB’s funding structure. The Company had not accrued a material amount because it could not estimate the potential loss.
- The Company had commitments to deliver 57,600 gold ounces from October 2023 through June 2025 at a weighted-average price of $2,024 per ounce; management expects sufficient scrap gold volumes to satisfy the commitments.
- Management reported effective disclosure controls as of September 30, 2023 and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Reconcile reported earnings with adjusted earnings, particularly the effect of AFF purchase-accounting amortization and the absence of the prior-year contingent-consideration gain.
- Monitor AFF lease-loss provisions, charge-offs and delinquencies, which increased despite strong transaction-volume growth.
- Assess leverage, floating-rate exposure, debt covenant headroom and the $640 million amended domestic credit facility.
- Evaluate whether U.S. same-store retail weakness and lower existing-store inventory levels persist.
- Separate reported Latin America growth from constant-currency performance and monitor Mexican peso volatility.
- Track cash deployment among acquisitions, store expansion, real estate purchases, dividends and the authorized $200 million share repurchase program.
- Follow the CFPB litigation and broader regulatory developments affecting pawn, lease-to-own and retail finance operations.