Business Context and Reporting Period
FirstCash, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2021. The company operates more than 2,800 retail pawn stores in the United States and Latin America, organized into U.S. Operations and Latin America Operations segments. At September 30, 2021, the store count was 2,808, including 1,069 U.S. stores and 1,739 Latin American stores.
Financial Performance and Position
| Metric | Q3 2021 | Q3 2020 | Change |
|---|---|---|---|
| Total revenue | $399.7 million | $359.9 million | Up 11% |
| Net revenue | $233.1 million | $202.7 million | Up 15% |
| Income before taxes | $44.3 million | $17.7 million | Up 150% |
| Net income | $33.4 million | $15.1 million | Up 122% |
| Diluted EPS | $0.82 | $0.36 | Up $0.46 |
| Adjusted diluted EPS | $0.84 | $0.59 | Up 42% |
| Adjusted EBITDA | $64.2 million | $46.3 million | Up 39% |
| Nine-month metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $1.197 billion | $1.239 billion | Down 3% |
| Net revenue | $690.9 million | $685.1 million | Up 1% |
| Income before taxes | $129.4 million | $100.6 million | Up 29% |
| Net income | $95.5 million | $73.9 million | Up 29% |
| Diluted EPS | $2.34 | $1.77 | Up 32% |
| Adjusted diluted EPS | $2.40 | $2.17 | Up 11% |
| Adjusted EBITDA | $187.3 million | $174.9 million | Up 7% |
Q3 retail merchandise sales were $268.7 million and pawn loan fees were $121.4 million. Wholesale scrap jewelry sales declined to $9.6 million from $25.3 million. The company discontinued its U.S. unsecured consumer loan product in June 2020; related revenue was zero in 2021 versus $2.0 million for the first nine months of 2020.
Q3 U.S. segment pre-tax operating income increased 39% to $52.1 million, with a 21% operating margin versus 16% in the prior-year quarter. Latin America segment pre-tax operating income increased 34% to $32.1 million, with a 21% margin versus 19%. Reported Latin American results benefited from favorable currency translation; constant-currency segment income increased 23%.
Cash and cash equivalents were $49.9 million at September 30, 2021, compared with $65.9 million at December 31, 2020. Working capital was $487.1 million and the current ratio was 3.2:1. Pawn loans totaled $349.0 million and inventories totaled $254.3 million.
Total debt was $739.5 million, consisting primarily of $246.0 million drawn on the revolving credit facility and $493.5 million carrying value of senior unsecured notes due 2028. The credit facilities had $280.4 million of available capacity, subject to covenants, including $250.8 million under the $500.0 million U.S. facility. The net debt ratio was 2.8:1 versus 1.7:1 at September 30, 2020. The company was in compliance with its debt covenants.
Operating cash flow for the first nine months was $137.9 million, down from $177.4 million. Investing cash flow was negative $189.9 million, reflecting $70.6 million of net pawn-loan funding, $49.4 million of acquisition spending, $31.6 million of capital expenditures and $38.3 million of store real-estate purchases. Financing cash flow was positive $36.7 million, including $123.0 million of net credit-facility borrowings, offset by $49.6 million of share repurchases and $35.4 million of dividends.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue and profitability improved substantially as pawn-loan demand and inventory availability recovered from pandemic-related weakness.
- For the nine-month period, reported revenue declined because 2020 included unusually strong retail activity and consumer-loan revenue; operating margins and net income nevertheless improved.
- U.S. and Latin America pawn-loan receivables increased 29% and 30%, respectively, year over year at reported exchange rates.
- U.S. inventories increased 45% and Latin America inventories increased 64%, partly reflecting abnormally low prior-year inventory levels.
- Debt increased materially, with revolving-facility borrowings of $246.0 million versus $123.0 million at December 31, 2020.
- The company acquired 28 U.S. pawn stores for aggregate consideration of approximately $50.7 million, including $48.5 million paid in cash at closing.
- Q3 2020 included an $11.7 million loss on extinguishment of debt; no comparable charge was recorded in Q3 2021. The nine-month 2021 results included $1.6 million of Cash America merger-related lease-intangible write-offs versus $4.6 million in 2020.
- The company repurchased 688,000 shares for $49.6 million during the first nine months, with approximately $72.2 million remaining under the active authorization.
Guidance, Outlook, Commentary, Risks and Unusual Items
The filing does not provide formal quantitative earnings or revenue guidance. Management expects to continue expanding primarily through Latin American store openings and opportunistic acquisitions in the United States and Latin America, while potentially purchasing store real estate from landlords.
The Board declared a fourth-quarter cash dividend of $0.30 per share, payable November 30, 2021. Future dividends and share repurchases remain subject to financial condition, debt covenants, investment opportunities, regulatory requirements and COVID-19 developments.
Management stated that the COVID-19 pandemic, variants, vaccination rates, government restrictions and stimulus programs remain highly uncertain. Government transfer programs may reduce demand for pawn loans. Other key risks include customer traffic and loan demand, inventory levels, gold prices, foreign exchange rates, interest rates, regulatory changes, leverage-covenant capacity and the pace of acquisitions and store expansion.
In Illinois, the company and industry plaintiffs challenged the Predatory Loan Prevention Act's application to pawn transactions. The court granted a preliminary injunction on September 7, 2021, and the regulator did not appeal within the permitted timeframe. The injunction remains in effect pending further action.
Management reported effective disclosure controls and no material changes in internal control over financial reporting. No material changes to previously reported risk factors or market-risk exposures were disclosed.
Facts Investors Should Verify
- Whether the recovery in pawn-loan demand and inventory levels is sustained after government stimulus effects fade.
- The effect of increased borrowings on interest expense, leverage ratios and future covenant headroom.
- Whether reported Latin American growth continues on a constant-currency basis, excluding favorable currency translation.
- The quality, turnover and aging of the sharply higher inventory balances.
- The final purchase-price allocations and performance of the 28 acquired U.S. stores.
- The continuing status and ultimate resolution of the Illinois litigation and any broader pawn-lending regulatory developments.
- The company’s ability to fund acquisitions, capital expenditures, dividends and share repurchases while maintaining liquidity.
- The reconciliation and limitations of non-GAAP measures, including adjusted EPS, adjusted EBITDA, constant-currency results and free cash flow.