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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2022
OR
| | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to ___________
Commission file number 001-10960
FIRSTCASH HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | | | | |
| Delaware | | 87-3920732 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
1600 West 7th Street, Fort Worth, Texas 76102
(Address of principal executive offices) (Zip code)
(817) 335-1100
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, par value $.01 per share | FCFS | The Nasdaq Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
| ☒ | Large accelerated filer | ☐ | Accelerated filer |
| ☐ | Non-accelerated filer | ☐ | Smaller reporting company |
| | ☐ | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of October 26, 2022, there were 46,318,065 shares of common stock outstanding.
FIRSTCASH HOLDINGS, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2022
INDEX
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS
Forward-Looking Information
This quarterly report contains forward-looking statements about the business, financial condition and prospects of FirstCash Holdings, Inc. and its wholly owned subsidiaries (together, the “Company”). Forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, can be identified by the use of forward-looking terminology such as “believes,” “projects,” “expects,” “may,” “estimates,” “should,” “plans,” “targets,” “intends,” “could,” “would,” “anticipates,” “potential,” “confident,” “optimistic” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy, objectives, estimates, guidance, expectations and future plans. Forward-looking statements can also be identified by the fact these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties.
While the Company believes the expectations reflected in forward-looking statements are reasonable, there can be no assurances such expectations will prove to be accurate. Security holders are cautioned that such forward-looking statements involve risks and uncertainties. Certain factors may cause results to differ materially from those anticipated by the forward-looking statements made in this quarterly report. Such factors may include, without limitation, risks related to the American First Finance (“AFF”) transaction, including the failure of the transaction to deliver the estimated value and benefits expected by the Company, the incurrence of unexpected future costs, liabilities or obligations as a result of the transaction, the effect of the transaction on the ability of the Company to retain and hire personnel and maintain relationships with retail partners, consumers and others with whom the Company and AFF do business; the ability of the Company to successfully integrate AFF’s operations; the ability of the Company to successfully implement its plans, forecasts and other expectations with respect to AFF’s business; risks associated with the legal and regulatory proceedings that the Company is a party to, or may become a party to in the future, including the Consumer Financial Protection Bureau (the “CFPB”) lawsuit filed against the Company, the putative shareholder securities class action lawsuit filed against the Company, and the California private lawsuits filed against the Company; risks related to the regulatory environment in which the Company operates; general economic risks, including the contributory effects of the COVID-19 pandemic; potential changes in consumer behavior and shopping patterns which could impact demand for the Company’s pawn loan, retail, lease-to-own and retail finance products; labor shortages and increased labor costs; inflation; rising interest rates; a deterioration in the economic conditions in the United States and Latin America which potentially could have an impact on discretionary consumer spending; currency fluctuations, primarily involving the Mexican peso; and other risks discussed and described in the Company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”), including the risks described in Part 1, Item 1A, “Risk Factors” thereof, and other reports filed with the SEC. Many of these risks and uncertainties are beyond the ability of the Company to control, nor can the Company predict, in many cases, all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. The forward-looking statements contained in this quarterly report speak only as of the date of this quarterly report, and the Company expressly disclaims any obligation or undertaking to report any updates or revisions to any such statement to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | |
| FIRSTCASH HOLDINGS, INC. |
| CONSOLIDATED BALANCE SHEETS |
| (unaudited, in thousands) |
| | | | |
| | | September 30, | | December 31, |
| | | 2022 | | 2021 | | 2021 |
| ASSETS | | | | | | |
| Cash and cash equivalents | | $ | 100,620 | | | $ | 49,907 | | | $ | 120,046 | |
| Accounts receivable, net | | 58,435 | | | 43,492 | | | 55,356 | |
| Pawn loans | | 404,227 | | | 348,993 | | | 347,973 | |
| Finance receivables, net | | 111,945 | | | — | | | 181,021 | |
| Inventories | | 295,428 | | | 254,260 | | | 263,311 | |
| Leased merchandise, net | | 132,097 | | | — | | | 143,944 | |
| Prepaid expenses and other current assets | | 38,322 | | | 14,793 | | | 17,707 | |
| Total current assets | | 1,141,074 | | | 711,445 | | | 1,129,358 | |
| | | | | | |
| Property and equipment, net | | 535,584 | | | 411,042 | | | 462,526 | |
| Operating lease right of use asset | | 299,052 | | | 300,040 | | | 306,061 | |
| Goodwill | | 1,523,699 | | | 1,014,052 | | | 1,536,178 | |
| Intangible assets, net | | 345,512 | | | 83,019 | | | 388,184 | |
| Other assets | | 9,133 | | | 8,413 | | | 8,531 | |
| Deferred tax assets, net | | 6,906 | | | 5,472 | | | 5,614 | |
| Total assets | | $ | 3,860,960 | | | $ | 2,533,483 | | | $ | 3,836,452 | |
| | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
| | | | | | |
| Accounts payable and accrued liabilities | | $ | 175,964 | | | $ | 88,151 | | | $ | 244,327 | |
| Customer deposits and prepayments | | 63,066 | | | 46,702 | | | 57,310 | |
| Lease liability, current | | 91,115 | | | 89,502 | | | 90,570 | |
| Total current liabilities | | 330,145 | | | 224,355 | | | 392,207 | |
| | | | | | |
| Revolving unsecured credit facilities | | 338,000 | | | 246,000 | | | 259,000 | |
| | | | | | |
| Senior unsecured notes | | 1,035,226 | | | 493,499 | | | 1,033,904 | |
| Deferred tax liabilities, net | | 155,263 | | | 78,191 | | | 126,098 | |
| Lease liability, non-current | | 197,171 | | | 197,618 | | | 203,166 | |
| Other liabilities | | — | | | — | | | 13,950 | |
| Total liabilities | | 2,055,805 | | | 1,239,663 | | | 2,028,325 | |
| | | | | | |
| Stockholders’ equity: | | | | | | |
| | | | | | |
| Common stock | | 573 | | | 493 | | | 573 | |
| Additional paid-in capital | | 1,732,500 | | | 1,222,432 | | | 1,724,956 | |
| Retained earnings | | 995,669 | | | 849,438 | | | 866,679 | |
| Accumulated other comprehensive loss | | (127,366) | | | (125,761) | | | (131,299) | |
| Common stock held in treasury, at cost | | (796,221) | | | (652,782) | | | (652,782) | |
| Total stockholders’ equity | | 1,805,155 | | | 1,293,820 | | | 1,808,127 | |
| Total liabilities and stockholders’ equity | | $ | 3,860,960 | | | $ | 2,533,483 | | | $ | 3,836,452 | |
| | | | | | |
| The accompanying notes are an integral part of these consolidated financial statements. |
| | | | | | | | | | | | | | | | | | | | | | | |
| FIRSTCASH HOLDINGS, INC. |
| CONSOLIDATED STATEMENTS OF INCOME |
| (unaudited, in thousands, except per share amounts) |
| | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Revenue: | | | | | | | |
| Retail merchandise sales | $ | 300,899 | | | $ | 268,726 | | | $ | 901,975 | | | $ | 806,335 | |
| Pawn loan fees | 145,727 | | | 121,365 | | | 411,613 | | | 346,796 | |
| Leased merchandise income | 158,089 | | | — | | | 455,736 | | | — | |
| Interest and fees on finance receivables | 48,846 | | | — | | | 135,039 | | | — | |
| Wholesale scrap jewelry sales | 18,582 | | | 9,583 | | | 75,235 | | | 44,060 | |
| Total revenue | 672,143 | | | 399,674 | | | 1,979,598 | | | 1,197,191 | |
| | | | | | | |
| Cost of revenue: | | | | | | | |
| Cost of retail merchandise sold | 182,199 | | | 158,057 | | | 543,722 | | | 468,634 | |
| Depreciation of leased merchandise | 86,519 | | | — | | | 262,830 | | | — | |
| Provision for lease losses | 31,916 | | | — | | | 109,771 | | | — | |
| Provision for loan losses | 31,956 | | | — | | | 83,453 | | | — | |
| Cost of wholesale scrap jewelry sold | 16,261 | | | 8,528 | | | 64,371 | | | 37,657 | |
| Total cost of revenue | 348,851 | | | 166,585 | | | 1,064,147 | | | 506,291 | |
| | | | | | | |
| Net revenue | 323,292 | | | 233,089 | | | 915,451 | | | 690,900 | |
| | | | | | | |
| Expenses and other income: | | | | | | | |
| Operating expenses | 185,547 | | | 138,619 | | | 539,398 | | | 415,071 | |
| Administrative expenses | 36,951 | | | 30,208 | | | 110,882 | | | 88,605 | |
| Depreciation and amortization | 25,971 | | | 11,217 | | | 77,495 | | | 32,731 | |
| Interest expense | 18,282 | | | 7,961 | | | 50,749 | | | 22,389 | |
| Interest income | (206) | | | (143) | | | (1,104) | | | (420) | |
Loss (gain) on foreign exchange | 255 | | | 558 | | | (198) | | | 248 | |
| Merger and acquisition expenses | 733 | | | 12 | | | 1,712 | | | 1,264 | |
Gain on revaluation of contingent acquisition consideration | (19,800) | | | — | | | (82,789) | | | — | |
| Other expenses (income), net | 164 | | | 361 | | | (2,721) | | | 1,640 | |
| | | | | | | |
| | | | | | | |
| Total expenses and other income | 247,897 | | | 188,793 | | | 693,424 | | | 561,528 | |
| | | | | | | |
| Income before income taxes | 75,395 | | | 44,296 | | | 222,027 | | | 129,372 | |
| | | | | | | |
| Provision for income taxes | 16,079 | | | 10,900 | | | 48,598 | | | 33,834 | |
| | | | | | | |
| Net income | $ | 59,316 | | | $ | 33,396 | | | $ | 173,429 | | | $ | 95,538 | |
| | | | | | | |
| Earnings per share: | | | | | | | |
| Basic | $ | 1.26 | | | $ | 0.83 | | | $ | 3.65 | | | $ | 2.34 | |
| Diluted | $ | 1.26 | | | $ | 0.82 | | | $ | 3.64 | | | $ | 2.34 | |
| | | | | | | |
| The accompanying notes are an integral part of these consolidated financial statements. |
| | | | | | | | | | | | | | | | | | | | | | | |
| FIRSTCASH HOLDINGS, INC. |
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| (unaudited, in thousands) |
| | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Net income | $ | 59,316 | | | $ | 33,396 | | | $ | 173,429 | | | $ | 95,538 | |
| Other comprehensive income: | | | | | | | |
| Currency translation adjustment | (7,372) | | | (9,971) | | | 3,933 | | | (7,329) | |
| Comprehensive income | $ | 51,944 | | | $ | 23,425 | | | $ | 177,362 | | | $ | 88,209 | |
| | | | | | | |
| The accompanying notes are an integral part of these consolidated financial statements. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FIRSTCASH HOLDINGS, INC. |
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY |
| (unaudited, in thousands, except per share amounts) |
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 |
| | | Common
Stock | | Additional
Paid-In
Capital | | Retained
Earnings | | Accum-
ulated
Other
Compre-
hensive
Loss | | Common Stock
Held in Treasury | | Total
Stock-
holders’
Equity |
| | | | | | Shares | | Amount | | | | | | | | Shares | | Amount | | |
| As of 12/31/2021 | | | | | 57,322 | | | $ | 573 | | | $ | 1,724,956 | | | $ | 866,679 | | | $ | (131,299) | | | 8,843 | | | $ | (652,782) | | | $ | 1,808,127 | |
| Shares issued under share-based compensation plan | | | | | — | | | — | | | (1,281) | | | — | | | — | | | (17) | | | 1,281 | | | — | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Share-based compensation expense | | | | | — | | | — | | | 3,075 | | | — | | | — | | | — | | | — | | | 3,075 | |
| Net income | | | | | — | | | — | | | — | | | 28,005 | | | — | | | — | | | — | | | 28,005 | |
Cash dividends ($0.30 per share) | | | | | — | | | — | | | — | | | (14,546) | | | — | | | — | | | — | | | (14,546) | |
Currency translation adjustment | | | | | — | | | — | | | — | | | — | | | 11,789 | | | — | | | — | | | 11,789 | |
Purchases of treasury stock | | | | | — | | | — | | | — | | | — | | | — | | | 1,048 | | | (72,217) | | | (72,217) | |
| | | | | | | | | | | | | | | | | | | |
| As of 3/31/2022 | | | | | 57,322 | | | $ | 573 | | | $ | 1,726,750 | | | $ | 880,138 | | | $ | (119,510) | | | 9,874 | | | $ | (723,718) | | | $ | 1,764,233 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Share-based compensation expense | | | | | — | | | — | | | 2,875 | | | — | | | — | | | — | | | — | | | 2,875 | |
| Net income | | | | | — | | | — | | | — | | | 86,108 | | | — | | | — | | | — | | | 86,108 | |
Cash dividends ($0.30 per share) | | | | | — | | | — | | | — | | | (14,235) | | | — | | | — | | | — | | | (14,235) | |
Currency translation adjustment | | | | | — | | | — | | | — | | | — | | | (484) | | | — | | | — | | | (484) | |
Purchases of treasury stock | | | | | — | | | — | | | — | | | — | | | — | | | 301 | | | (20,499) | | | (20,499) | |
| | | | | | | | | | | | | | | | | | | |
| As of 6/30/2022 | | | | | 57,322 | | | $ | 573 | | | $ | 1,729,625 | | | $ | 952,011 | | | $ | (119,994) | | | 10,175 | | | $ | (744,217) | | | $ | 1,817,998 | |
|
|
|
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Share-based compensation expense | | | | | — | | | — | | | 2,875 | | | — | | | — | | | — | | | — | | | 2,875 | |
| Net income | | | | | — | | | — | | | — | | | 59,316 | | | — | | | — | | | — | | | 59,316 | |
Cash dividends ($0.33 per share) | | | | | — | | | — | | | — | | | (15,658) | | | — | | | — | | | — | | | (15,658) | |
Currency translation adjustment | | | | | — | | | — | | | — | | | — | | | (7,372) | | | — | | | — | | | (7,372) | |
Purchases of treasury stock | | | | | — | | | — | | | — | | | — | | | — | | | 686 | | | (52,004) | | | (52,004) | |
| | | | | | | | | | | | | | | | | | | |
| As of 9/30/2022 | | | | | 57,322 | | | $ | 573 | | | $ | 1,732,500 | | | $ | 995,669 | | | $ | (127,366) | | | 10,861 | | | $ | (796,221) | | | $ | 1,805,155 | |
| | | | | | | | | | | | | | | | | | | |
| The accompanying notes are an integral part of these consolidated financial statements. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FIRSTCASH HOLDINGS, INC. |
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY |
| CONTINUED |
| (unaudited, in thousands, except per share amounts) |
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2021 |
| | | Common
Stock | | Additional
Paid-In
Capital | | Retained
Earnings | | Accum-
ulated
Other
Compre-
hensive
Loss | | Common Stock
Held in Treasury | | Total
Stock-
holders’
Equity |
| | | | | | Shares | | Amount | | | | | | | | Shares | | Amount | | |
| As of 12/31/2020 | | | | | 49,276 | | | $ | 493 | | | $ | 1,221,788 | | | $ | 789,303 | | | $ | (118,432) | | | 8,238 | | | $ | (609,337) | | | $ | 1,283,815 | |
Shares issued under share-based compensation plan, net of 28 shares net-settled | | | | | — | | | — | | | (7,090) | | | — | | | — | | | (73) | | | 5,427 | | | (1,663) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Share-based compensation expense | | | | | — | | | — | | | 3,625 | | | — | | | — | | | — | | | — | | | 3,625 | |
| Net income | | | | | — | | | — | | | — | | | 33,715 | | | — | | | — | | | — | | | 33,715 | |
Cash dividends ($0.27 per share) | | | | | — | | | — | | | — | | | (11,097) | | | — | | | — | | | — | | | (11,097) | |
| Currency translation adjustment | | | | | — | | | — | | | — | | | — | | | (12,335) | | | — | | | — | | | (12,335) | |
| Purchases of treasury stock | | | | | — | | | — | | | — | | | — | | | — | | | 84 | | | (4,967) | | | (4,967) | |
| | | | | | | | | | | | | | | | | | | |
| As of 3/31/2021 | | | | | 49,276 | | | $ | 493 | | | $ | 1,218,323 | | | $ | 811,921 | | | $ | (130,767) | | | 8,249 | | | $ | (608,877) | | | $ | 1,291,093 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Share-based compensation expense | | | | | — | | | — | | | 1,625 | | | — | | | — | | | — | | | — | | | 1,625 | |
| Net income | | | | | — | | | — | | | — | | | 28,427 | | | — | | | — | | | — | | | 28,427 | |
Cash dividends ($0.30 per share) | | | | | — | | | — | | | — | | | (12,308) | | | — | | | — | | | — | | | (12,308) | |
| Currency translation adjustment | | | | | — | | | — | | | — | | | — | | | 14,977 | | | — | | | — | | | 14,977 | |
| Purchases of treasury stock | | | | | — | | | — | | | — | | | — | | | — | | | 452 | | | (32,998) | | | (32,998) | |
| | | | | | | | | | | | | | | | | | | |
| As of 6/30/2021 | | | | | 49,276 | | | $ | 493 | | | $ | 1,219,948 | | | $ | 828,040 | | | $ | (115,790) | | | 8,701 | | | $ | (641,875) | | | $ | 1,290,816 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
|
|
|
|
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Exercise of stock options | | | | | — | | | — | | | (358) | | | — | | | — | | | (10) | | | 738 | | | 380 | |
| | | | | | | | | | | | | | | | | | | |
| Share-based compensation expense | | | | | — | | | — | | | 2,842 | | | — | | | — | | | — | | | — | | | 2,842 | |
| Net income | | | | | — | | | — | | | — | | | 33,396 | | | — | | | — | | | — | | | 33,396 | |
Cash dividends ($0.30 per share) | | | | | — | | | — | | | — | | | (11,998) | | | — | | | — | | | — | | | (11,998) | |
| Currency translation adjustment | | | | | — | | | — | | | — | | | — | | | (9,971) | | | — | | | — | | | (9,971) | |
| Purchases of treasury stock | | | | | — | | | — | | | — | | | — | | | — | | | 152 | | | (11,645) | | | (11,645) | |
| | | | | | | | | | | | | | | | | | | |
| As of 9/30/2021 | | | | | 49,276 | | | $ | 493 | | | $ | 1,222,432 | | | $ | 849,438 | | | $ | (125,761) | | | 8,843 | | | $ | (652,782) | | | $ | 1,293,820 | |
| | | | | | | | | | | | | | | | | | | |
| The accompanying notes are an integral part of these consolidated financial statements. |
| | | | | | | | | | | | | | |
| FIRSTCASH HOLDINGS, INC. |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (unaudited, in thousands) |
| | | Nine Months Ended |
| | September 30, |
| | | 2022 | | 2021 |
| Cash flow from operating activities: | | | | |
| Net income | | $ | 173,429 | | | $ | 95,538 | |
| Adjustments to reconcile net income to net cash flow provided by operating activities: | | | | |
| Depreciation of leased merchandise | | 262,830 | | | — | |
| Provision for lease losses | | 109,771 | | | — | |
| Provision for loan losses | | 83,453 | | | — | |
| Share-based compensation expense | | 8,825 | | | 8,092 | |
| Depreciation and amortization expense | | 77,495 | | | 32,731 | |
| Amortization of debt issuance costs | | 2,208 | | | 1,223 | |
| Net amortization of premiums, discounts and unearned origination fees on finance receivables | | 35,257 | | | — | |
Gain on revaluation of contingent acquisition consideration | | (82,789) | | | — | |
| Impairments and dispositions of certain other assets | | 482 | | | 1,640 | |
| | | | |
| Deferred income taxes, net | | 46,142 | | | 5,622 | |
| Changes in operating assets and liabilities, net of business combinations: | | | | |
| Accounts receivable, net | | (2,953) | | | (2,302) | |
| Inventories purchased directly from customers, wholesalers or manufacturers | | (11,017) | | | (25,592) | |
| Leased merchandise, net | | (360,755) | | | — | |
| Prepaid expenses and other assets | | (2,144) | | | 229 | |
| Accounts payable, accrued liabilities and other liabilities | | 7,256 | | | 16,538 | |
| Income taxes | | (21,692) | | | 4,131 | |
Net cash flow provided by operating activities | | 325,798 | | | 137,850 | |
| Cash flow from investing activities: | | | | |
Pawn loans, net (1) | | (74,707) | | | (70,637) | |
| Finance receivables, net | | (49,634) | | | — | |
| Purchases of furniture, fixtures, equipment and improvements | | (29,630) | | | (31,608) | |
| Purchases of store real property | | (77,689) | | | (38,256) | |
| | | | |
| Acquisitions of pawn stores, net of cash acquired | | (7,072) | | | (49,434) | |
| | | | |
Net cash flow used in investing activities | | (238,732) | | | (189,935) | |
| Cash flow from financing activities: | | | | |
| Borrowings from unsecured credit facilities | | 196,000 | | | 338,000 | |
| Repayments of unsecured credit facilities | | (117,000) | | | (215,000) | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Debt issuance costs paid | | (1,745) | | | — | |
| Purchases of treasury stock | | (140,391) | | | (49,610) | |
| Proceeds from exercise of stock options | | — | | | 380 | |
| | | | |
| Payment of withholding taxes on net share settlements of restricted stock unit awards and stock options exercised | | — | | | (1,663) | |
| Dividends paid | | (44,439) | | | (35,403) | |
Net cash flow (used in) provided by financing activities | | (107,575) | | | 36,704 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | | | | | | | | | | | |
| FIRSTCASH HOLDINGS, INC. |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| CONTINUED |
| (unaudited, in thousands) |
| | Nine Months Ended |
| | September 30, |
| | 2022 | | 2021 |
| Effect of exchange rates on cash | | 1,083 | | | (562) | |
| Change in cash and cash equivalents | | (19,426) | | | (15,943) | |
| Cash and cash equivalents at beginning of the period | | 120,046 | | | 65,850 | |
| Cash and cash equivalents at end of the period | | $ | 100,620 | | | $ | 49,907 | |
(1)Includes the funding of new pawn loans net of cash repayments and recovery of principal through the sale of inventories acquired from forfeiture of pawn collateral.
The accompanying notes are an integral part of these consolidated financial statements.
FIRSTCASH HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 1 - General
Basis of Presentation
The accompanying consolidated balance sheet as of December 31, 2021, which is derived from audited consolidated financial statements, and the unaudited consolidated financial statements, including the notes thereto, include the accounts of FirstCash Holdings, Inc. and its wholly-owned subsidiaries (together, the “Company”). The Company regularly makes acquisitions, and the results of operations for the acquired stores have been consolidated since the acquisition dates. All significant intercompany accounts and transactions have been eliminated.
These unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include certain information and disclosures required for comprehensive financial statements. These interim period financial statements should be read in conjunction with the Company’s audited consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022. The consolidated financial statements as of September 30, 2022 and 2021, and for the three month and nine month periods ended September 30, 2022 and 2021, are unaudited, but in management’s opinion include all adjustments (consisting of only normal recurring adjustments) considered necessary to present fairly the financial position, results of operations and cash flow for such interim periods. Operating results for the periods ended September 30, 2022 are not necessarily indicative of the results that may be expected for the full year.
On December 17, 2021, the Company completed the acquisition of AFF (the “AFF Acquisition”), which is a leading technology-driven retail point-of-sale (“POS”) payment solutions platform primarily focused on providing lease-to-own (“LTO”) products.
The Company has operations in Latin America, where in Mexico, Guatemala and Colombia, the functional currency is the Mexican peso, Guatemalan quetzal and Colombian peso. Accordingly, the assets and liabilities of these subsidiaries are translated into U.S. dollars at the exchange rate in effect at each balance sheet date, and the resulting adjustments are accumulated in other comprehensive income (loss) as a separate component of stockholders’ equity. Revenues and expenses are translated at the average exchange rates occurring during the respective period. The Company also has operations in El Salvador, where the reporting and functional currency is the U.S. dollar.
Use of Estimates
The preparation of interim financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and related revenue and expenses, and the disclosure of gain and loss contingencies at the date of the financial statements. Such estimates and assumptions are subject to a number of risks and uncertainties, which may cause actual results to differ materially from the Company’s estimates.
Reclassification
Certain amounts in the consolidated balance sheets as of September 30, 2021 and December 31, 2021 have been reclassified in order to conform to the 2022 presentation.
Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board issued ASU No 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank-offered rates to alternative reference rates. ASU 2020-04 was effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. As the Company no longer has any LIBOR based contracts (see Note 8), ASU 2020-04 will not have a material effect on the Company’s current financial position, results of operations or financial statement disclosures.
In March 2022, the Financial Accounting Standards Board issued ASU No 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”). ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings by creditors while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for entities. Early adoption is permitted if an entity has adopted the CECL accounting standard. Except for expanded disclosures to its vintage disclosures, the Company does not expect ASU 2022-02 to have a material effect on the Company’s current financial position, results of operations or financial statements.
Note 2 - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Numerator: | | | | | | | |
| Net income | $ | 59,316 | | | $ | 33,396 | | | $ | 173,429 | | | $ | 95,538 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Denominator: | | | | | | | |
| Weighted-average common shares for calculating basic earnings per share | 46,902 | | | 40,453 | | | 47,518 | | | 40,745 | |
| Effect of dilutive securities: | | | | | | | |
| Stock options and restricted stock unit awards | 120 | | | 63 | | | 84 | | | 44 | |
| Weighted-average common shares for calculating diluted earnings per share | 47,022 | | | 40,516 | | | 47,602 | | | 40,789 | |
| | | | | | | |
| Earnings per share: | | | | | | | |
| Basic | $ | 1.26 | | | $ | 0.83 | | | $ | 3.65 | | | $ | 2.34 | |
| Diluted | $ | 1.26 | | | $ | 0.82 | | | $ | 3.64 | | | $ | 2.34 | |
Note 3 - Acquisitions
American First Finance Acquisition
On December 17, 2021, the Company completed the AFF Acquisition. Subsequent to December 31, 2021, the Company made certain measurement period adjustments to the preliminary purchase price allocation, which resulted in a decrease in goodwill of $16.9 million. The adjusted purchase price allocation is reflected in the accompanying consolidated balance sheet as of September 30, 2022.
The following table details the preliminary purchase price allocation as of December 31, 2021, the measurement period adjustments made during the nine months ended September 30, 2022 and the preliminary purchase price allocation as of September 30, 2022, subject to future measurement period adjustments (in thousands):
| | | | | | | | | | | | | | | | | |
| December 31, | | 2022 | | September 30, |
| 2021 | | Adjustments | | 2022 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Accounts receivable | $ | 11,660 | | | $ | — | | | $ | 11,660 | |
| Finance receivables | 225,261 | | | — | | | 225,261 | |
| | | | | |
| Leased merchandise | 139,649 | | | — | | | 139,649 | |
| Prepaid expenses and other current assets | 4,474 | | | (211) | | | 4,263 | |
| Property and equipment | 11,670 | | | — | | | 11,670 | |
| Operating lease right of use asset | 491 | | | — | | | 491 | |
| Goodwill | 503,106 | | | (16,920) | | | 486,186 | |
| Intangible assets | 305,100 | | | — | | | 305,100 | |
| Accounts payable and accrued liabilities | (28,357) | | | (1,083) | | | (29,440) | |
| Customer deposits and prepayments | (11,014) | | | — | | | (11,014) | |
| Lease liability, current | (10) | | | — | | | (10) | |
Deferred tax liabilities (1) | (42,608) | | | 18,214 | | | (24,394) | |
| Lease liability, non-current | (481) | | | — | | | (481) | |
| Purchase price | $ | 1,118,941 | | | $ | — | | | $ | 1,118,941 | |
(1)Measurement period adjustment is primarily a result of the seller finalizing the ending tax basis in the assets and liabilities acquired, which carried over to the Company.
Note 4 - Operating Leases
Lessor
For information about the Company’s revenue-generating activities as a lessor, refer to Note 2 to the consolidated financial statements included in the Company’s 2021 Annual Report on Form 10-K. All of the Company’s lease agreements are considered operating leases.
Lessee
The Company leases the majority of its pawnshop locations and certain administrative offices under operating leases and determines if an arrangement is or contains a lease at inception. Many leases include both lease and non-lease components for which the Company accounts separately. Lease components include rent, taxes and insurance costs while non-lease components include common area or other maintenance costs. Operating leases are included in operating lease right of use assets, lease liability, current and lease liability, non-current in the consolidated balance sheets. The Company does not have any finance leases.
Leased facilities are generally leased for a term of three to five years with one or more options to renew for an additional three to five years, typically at the Company’s sole discretion. In addition, the majority of these leases can be terminated early upon an adverse change in law which negatively affects the store’s profitability. The Company regularly evaluates renewal and termination options to determine if the Company is reasonably certain to exercise the option, and excludes these options from the lease term included in the recognition of the operating lease right of use asset and lease liability until such certainty exists. The weighted-average remaining lease term for operating leases was 4.1 years for both September 30, 2022 and 2021.
The operating lease right of use asset and lease liability is recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The Company’s leases do not provide an implicit rate and therefore, it uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The Company utilizes a portfolio approach for determining the incremental borrowing rate to apply to groups of leases with similar characteristics. The weighted-average discount rate used to measure the lease liability as of September 30, 2022 and 2021 was 6.3% and 6.4%, respectively.
The Company has certain operating leases in Mexico which are denominated in U.S. dollars. The liability related to these leases is considered a monetary liability and requires remeasurement each reporting period into the functional currency (Mexican pesos) using reporting date exchange rates. The remeasurement results in the recognition of foreign currency exchange gains or losses each reporting period, which can produce a certain level of earnings volatility. The Company recognized a foreign currency loss of $0.4 million and $0.5 million during the three months ended September 30, 2022 and 2021, respectively, related to the remeasurement of these U.S. dollar denominated operating leases, which is included in loss (gain) on foreign exchange in the accompanying consolidated statements of income. During the nine months ended September 30, 2022 and 2021, the Company recognized a foreign currency gain of $0.4 million and a loss of $0.4 million, respectively, related to these U.S. dollar denominated leases.
Lease expense is recognized on a straight-line basis over the lease term, with variable lease expense recognized in the period such payments are incurred. The following table details the components of lease expense included in operating expenses in the consolidated statements of income during the three and nine months ended September 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2022 | | 2021 | |
