FirstCash Reports Second Quarter Operating Results; U.S. Pawn Fees Grow 22%, Driving 25% Increase in U.S. Pawn Segment Earnings; 47 Pawn Locations Added in Second Quarter Through Acquisitions and New Store Openings; Quarterly Cash Dividend Increased to $0.38 per Share

FORT WORTH, Texas, July 25, 2024 (GLOBE NEWSWIRE) — FirstCash Holdings, Inc. (“FirstCash” or the “Company”) (Nasdaq: FCFS), the leading international operator of more than 3,000 retail pawn stores and a leading provider of retail point-of-sale (“POS”) payment solutions through American First Finance (“AFF”), today announced operating results for the three and six month periods ended June 30, 2024. The Company also announced that the Board of Directors declared a quarterly cash dividend of $0.38 per share, an increase of 9% compared to the previous quarterly dividend of $0.35 per share, to be paid in August 2024.

Mr. Rick Wessel, chief executive officer, stated, “We are pleased to report another quarter of record revenues and strong earnings growth. The U.S. pawn segment delivered outstanding results with a 25% increase in second quarter segment income, coupled with solid earnings results in both the LatAm pawn and AFF segments. FirstCash continued to invest significantly in the long-term growth of its core pawn operations during the second quarter, adding 26 U.S. pawn locations through multiple acquisitions and opening 21 new stores, mostly in Latin America.

“FirstCash’s balance sheet and cash flows remain exceptionally strong. In addition to acquisitions and new store openings, we repurchased $85 million of stock this quarter and raised the next quarterly cash dividend to further drive long-term shareholder value.”

This release contains adjusted financial measures, which exclude certain non-operating and/or non-cash income and expenses, that are non-GAAP financial measures. Please refer to the descriptions and reconciliations to GAAP of these and other non-GAAP financial measures at the end of this release.

Consolidated Operating Highlights

• Gross revenues totaled $831 million in the second quarter, an increase of 11% compared to the prior-year quarter, while net revenues (gross profit) increased 12% over the same period. Year-to-date revenues totaled $1.7 billion, an increase of 10% compared to the prior-year period, while net revenues increased 13% over the same period.
• Diluted earnings per share for the second quarter increased 9% over the prior-year quarter on a GAAP basis while adjusted diluted earnings per share increased 12% compared to the prior-year quarter. Year-to-date diluted earnings per share increased 21% over the prior-year period on a GAAP basis while adjusted diluted earnings per share increased 18% compared to the prior-year period.
• Net income for the second quarter increased 9% over the prior-year quarter on a GAAP basis while adjusted net income increased 11% compared to the prior-year quarter. Year-to-date, net income totaled $110 million on a GAAP basis while adjusted net income was $132 million. For the twelve month period ended June 30, 2024, net income totaled $237 million on a GAAP basis while adjusted net income was $296 million.
• Adjusted EBITDA increased 13% in the second quarter compared to the prior-year quarter. For the twelve month period ended June 30, 2024, adjusted EBITDA totaled $548 million, an increase of 20% over the comparable prior-year period.
• Operating cash flows for the twelve month period ended June 30, 2024 were $439 million and adjusted free cash flows (a non-GAAP measure) were $220 million.

Store Base and Platform Growth

• Pawn Stores:
  • The Company added 47 new pawn locations in the second quarter through acquisitions and new store openings. Year-to-date, a total of 67 pawn locations have been added.
  • 26 U.S. stores were added in the second quarter through three separate acquisitions in the states of North Carolina, Texas and Florida. Additionally, one new store opened in the Las Vegas, Nevada market.
  • There were 20 new store openings in Latin America in the second quarter which included 13 locations in Mexico, five locations in Guatemala and two locations in El Salvador. For the first six months of 2024, a total 39 new locations have opened in Latin America.
  • Over the last twelve months, the Company has opened and acquired a combined 188 locations. As of June 30, 2024, the Company has 3,018 locations, comprised of 1,201 U.S. locations and 1,817 locations in Latin America.
  • The Company also purchased the underlying real estate at 10 of its existing pawn stores during the second quarter, bringing the number of owned properties to over 360 locations.
• Retail POS Payment Solutions Merchant Partnerships:
  • At June 30, 2024, there were approximately 12,800 active retail and e-commerce merchant partner locations, representing a 22% increase in the number of active merchant locations compared to a year ago.
  • Since the Company’s acquisition of AFF in December 2021, the number of active merchant locations has almost doubled.

U.S. Pawn Segment Operating Results

• Segment pre-tax operating income in the second quarter of 2024 was a record $91 million, an increase of $18 million, or 25%, compared to the prior-year quarter. The resulting segment pre-tax operating margin increased to 24% for the second quarter of 2024, an improvement over the 23% margin for the prior-year quarter. Year-to-date segment pre-tax operating income increased by $34 million, or 22%, compared to the prior-year period. The pre-tax operating margin increased to 25% for the year-to-date period, as compared to the 24% margin for the prior-year period.
• Pawn loan fees increased 22% for the second quarter and 21% year-to-date, while on a same-store basis, pawn loan fee revenue increased 12% for both the quarter and year-to-date periods compared to the respective prior-year periods. The increased pawn loan fee revenue reflected both store growth and continued growth in demand for pawn loans.
• Pawn receivables continued to grow to record levels, increasing 22% in total at June 30, 2024 compared to the prior year. The increase in total pawn receivables was driven by a 9% increase in the U.S. store count coupled with an impressive 11% same-store increase. The same-store increase was driven by a 7% increase in average loan size and a 3% increase in the number of loans outstanding.
• Retail merchandise sales increased 17% in the second quarter of 2024 compared to the prior-year quarter. Same-store retail sales increased 7% compared to the prior-year quarter, which was a meaningful sequential improvement from the 4% increase in the first quarter of 2024 as compared to the prior-year quarter.
• Retail sales margins were 42% for the second quarter, improving sequentially over the first quarter and in line with target margins of 41% to 43%. Year-to-date margins were also 42% which compared to 43% in the prior-year period.
• Annualized inventory turnover was 2.8 times for the trailing twelve months ended June 30, 2024, which equaled the prior-year annualized inventory turnover. Inventories aged greater than one year at June 30, 2024 decreased to 1% compared to 2% at June 30, 2023.
• Operating expenses for the second quarter increased 16% in total, due primarily to the 9% weighted-average store growth over the past year. Same-store expenses increased 5% compared to the prior-year quarter.

Latin America Pawn Segment Operating Results

Note: Certain growth rates below are calculated on a constant currency basis, a non-GAAP financial measure defined at the end of this release. The average Mexican peso to U.S. dollar exchange rate for the second quarter of 2024 was 17.2 pesos / dollar, a favorable change of 3% versus the comparable prior-year period, and for the six month period ended June 30, 2024 was 17.1 pesos / dollar, a favorable change of 6% versus the prior-year period.

• Second quarter segment pre-tax operating income totaled $37 million, a marginal 2% decline compared to the prior year, which resulted in a pre-tax operating margin of 18% compared to 20% in the prior-year quarter. Year-to-date segment pre-tax operating income totaled $69 million, a 2% decline compared to the prior-year period, resulting in a pre-tax operating margin of 17% compared to 19% in the prior-year period. On a constant currency basis, segment income decreased 4% for the quarter and 7% for the year-to-date period due primarily to increased costs related to wage inflation and store expansion as described further below.
• Both total and same-store pawn loan fees increased 10%, or 7% on a constant currency basis, in the second quarter of 2024 as compared to the prior-year quarter. Total and same-store year-to-date pawn loan fees increased 13%, or 6% on a constant currency basis, compared to the prior-year period.
• While total receivables at June 30, 2024 were flat on U.S. dollar basis, they increased 8% on a constant currency basis compared to the prior year. Same-store pawn receivables increased 1% on a U.S. dollar basis and increased 8% on a constant currency basis.
• Both total and same-store retail merchandise sales in the second quarter of 2024 increased 6%, or 3% on a constant currency basis, compared to the prior-year quarter. Year-to-date retail merchandise sales increased 8%, or 2% on a constant currency basis, while same-store retail merchandise sales increased 7%, or 1% on a constant currency basis.
• Retail margins improved to 36% for the second quarter of 2024 compared to 35% in the prior-year quarter. Annualized inventory turnover was 4.3 times for the trailing twelve months ended June 30, 2024, which equaled the prior-year annualized inventory turnover, while inventories aged greater than one year at June 30, 2024 remained extremely low at 1%.
• Operating expenses increased 14% in total and 12% on a same-store basis compared to the prior-year quarter. On a constant currency basis, they increased 11% in total and 9% on a same-store basis. The increase in total expenses from all stores reflected increased store counts, accelerated store opening activity and higher labor costs (due primarily to further increases in the federal minimum wage and other mandated benefit programs), along with other inflationary impacts.

American First Finance (AFF) – Retail POS Payment Solutions Segment Operating Results

• Second quarter segment pre-tax operating income totaled $26 million which equaled the prior-year quarter. Year-to-date segment pre-tax operating income totaled $59 million, an increase of 20% over the prior-year period.
• Segment revenues for the quarter, comprised of lease-to-own (“LTO”) fees and interest and fees on finance receivables, increased 1% compared to the prior-year quarter, and increased 6% year-to-date.
• Gross transaction volume from originated LTO and POS financing transactions totaled $252 million for the second quarter and $508 million year-to-date. 2024 origination activity represented a 1% increase from the first half of last year and a 2% decrease from the second quarter of 2023 as originations from new merchants offset most of the 20% decrease in second quarter same-door originations. Most of the same-door origination decrease was in AFF’s significant furniture category as many furniture, appliance and electronics retailers experienced continued contraction in retail sales activity during the second quarter of 2024. AFF realized significant year-over-year increases in both door counts and transaction volumes in other growing verticals, including automotive products and services, jewelry and elective medical services.
• Combined gross leased merchandise and finance receivables outstanding at June 30, 2024 decreased 2% compared to the June 30, 2023 balances, which is consistent with the second quarter of 2024 origination activity.
• The combined lease and loan loss provision as a percentage of the total gross transaction volume originated was 31% for the second quarter of 2024, materially in-line with the 32% provisioning rate in the second quarter of 2023. The resulting allowance on leased merchandise and finance receivables at June 30, 2024 was 45% of the gross receivables, which was consistent with the prior year.
• The average monthly net charge-off (“NCO”) rate for combined leased merchandise and finance receivable products was 5.0% for the second quarter of 2024 and 5.1% for the year-to-date period. While slightly above the prior year, charge-offs remain within the range of forecasted expectations.
• Operating expenses decreased 5% compared to the prior-year quarter and decreased 1% year-to-date, which was reflective of second quarter origination activity and continued realization of operating synergies.

Cash Flow and Liquidity

• Each of the Company’s business segments generated significant operating cash flows during the twelve month period ended June 30, 2024. Consolidated operating cash flows for the twelve month period ended June 30, 2024 totaled $439 million and adjusted free cash flows (a non-GAAP measure) were $220 million. The cash flows helped fund significant growth in earning assets and continued investments in the store platform over the past twelve months, which included acquisitions of pawn stores totaling $241 million and investments in real estate of $57 million.
• The majority (over $1.5 billion) of the Company’s long-term financing remains fixed rate debt with favorable interest rates ranging from 4.625% to 6.875% and maturity dates that do not begin until 2028 and continue into 2032.
• Based on trailing twelve month results, the Company’s net debt to adjusted EBITDA ratio was 2.89x at June 30, 2024.

Shareholder Returns

• The Board of Directors declared a $0.38 per share third quarter cash dividend, which will be paid on August 30, 2024 to stockholders of record as of August 15, 2024.
• On an annualized basis, the dividend is now $1.52 per share, representing a 9% increase over the previous annualized dividend of $1.40 per share. Any future dividends are subject to approval by the Company’s Board of Directors.
• The Company repurchased 721,000 shares of common stock during the second quarter at an aggregate cost of $85 million. The Company has $115 million available under the $200 million share repurchase program authorized in July 2023. Future share repurchases are subject to expected liquidity, acquisitions and other investment opportunities, debt covenant restrictions, market conditions and other relevant factors.
• The Company generated a 12% return on equity and a 6% return on assets for the twelve months ended June 30, 2024. Using adjusted net income for the twelve months ended June 30, 2024, the adjusted return on equity was 15% while the adjusted return on assets was 7%.

2024 Outlook

The Company’s outlook for 2024 continues to be highly positive, with expected year-over-year growth in consolidated revenue and earnings driven by the continued growth in earning asset balances coupled with recent store additions. Anticipated conditions and trends for the remainder of 2024 include the following:

Pawn Operations:

• Pawn operations are expected to remain the primary earnings driver in 2024 as the Company expects segment income from the combined U.S. and Latin America pawn segments to be over 80% of total segment level pre-tax income for the full year.
• The Company continues to target the addition of approximately 90 to 100 total pawn locations for 2024 through a combination of new store openings and acquisitions.

U.S. Pawn

• U.S. pawn operations are expected to benefit in 2024 from full year revenue and earnings contributions from the 87 stores acquired in the second half of 2023 coupled with further growth from the 27 stores acquired in the first half of 2024.
• Total pawn receivables, which drive future pawn fees and sellable inventories, were up 22% at June 30, 2024 compared to a year ago, with July balances to date up similarly. Although as a reminder, these growth rates for the balance of 2024 are expected to moderate as the Company begins to lap the significant growth in pawn receivables in the second half of 2023.
• Retail sales are expected to follow similar trends to pawn fees with retail margins expected to remain steady.
• Store operating expenses are expected to increase in line with store additions.

Latin America Pawn

• Latin America pawn loan growth to-date in July is up 7% on a constant currency basis and flat on a dollar basis as compared to the prior-year period. Full year 2024 fee growth is anticipated to remain in a mid-single digit range or better assuming foreign exchange rates remain steady.
• Retail sales in Latin America are also expected to grow, although at a slightly slower rate than pawn fees given current inventory levels, which remain below historical levels as a percentage of pawn receivables. Retail margins are anticipated to remain in a 35% to 36% range.
• Store operating expenses in Latin America this year are expected to rise in a range of 7% to 10% on a constant currency basis for the full year compared to last year due to increased store counts along with continued inflationary impacts primarily related to further minimum wage increases in Latin America. Even with increased operating expenses, the Company still anticipates earnings growth from the Latin America segment over the remainder of the year.

Retail POS Payment Solutions (AFF) Operations:

• While retail sales for many of AFF’s furniture, appliance and electronics merchant partners were down during the first half of 2024, the Company is still projecting its full year and second half gross transaction volumes for 2024 to exceed 2023 results. Resulting gross revenues for the second half of 2024 are expected to be flat to down slightly compared to the prior year due to lower second quarter origination activity and resulting receivable balances.
• The origination and revenue outlook contemplates the recently announced bankruptcy filing of Conn’s Home Plus and assumes minimal originations going forward from this merchant relationship. The Company does not expect that Conn’s bankruptcy filing will have a material impact on expected second half earnings.
• The second half lease and loan loss provision expense for 2024 is expected to increase given an improving second half origination forecast, with anticipated provision rates (combined provision for lease and loan losses as a percentage of the total gross transaction volume originated) ranging between 26% and 30% in the second half of the year.
• Combined operating and administrative expenses for AFF for the full year are expected to be approximately 1% to 3% below the prior year through cost saving initiatives and continued realization of operating synergies with FirstCash.

Interest Expense, Tax Rates and Currency:

• Net interest expense is expected to increase for full year 2024 compared to 2023, with most of the increase expected in the first half of 2024 due primarily to higher year-over-year interest rates for the comparative periods.
• For the full year of 2024, the effective income tax rate under current tax codes in the U.S. and Latin America is expected to range from 25% to 26%.
• Each full point change in the exchange rate of the Mexico peso represents an annual earnings impact of approximately $0.10 per share.

Additional Commentary and Analysis

Mr. Wessel provided additional insights on the Company’s second quarter results and outlook for the remainder of 2024, “Our second quarter and year-to-date operating results were outstanding and the outlook for the remainder of 2024 is highly positive. In addition, we continue to utilize our balance sheet and strong cash flows to further invest in the long-term growth of our core pawn operations and provide shareholder returns through the increased dividend and stock repurchases.

“Pawn demand continues to be extremely strong as evidenced by outstanding second quarter results in our U.S. pawn segment. This represents the fourth consecutive quarter of double-digit growth in same-store pawn receivables and pawn fees. Pawn retail metrics in the U.S. were also impressive, with a 7% increase in same-store merchandise sales and sequential gross margin improvement. Store growth in the U.S. also remains robust as we completed three separate acquisitions which added 26 domestic locations during the quarter and have acquired a total of 114 locations over the past 12 months. Given the store growth coupled with the strong same-store increases, our total U.S. pawn receivables are up 22% over last year as we begin the second half of 2024.

“In Latin America, we continued to see improving pawn demand in the second quarter combined with strong retail sales and margins. Additionally we have opened an impressive 39 locations in just the first six months of this year and continue to evaluate acquisition opportunities and look to further expand our market leading position in Latin America. With the current momentum, we believe that we are well positioned for segment revenue and earnings growth in the second half as well.

“We also remain positive on the long-term growth prospects for the retail POS payment solutions segment. AFF has developed a diversified merchant base representing almost 30 different retail and services verticals, with no single relationship accounting for more than approximately 15% of total merchant contribution. AFF continues to grow relationships and portfolios within each of the verticals served, providing additional stability and diversification. Based on the most recent trends in June and July, we expect growth in total originations in the second half driven by increased door counts and an influx of higher quality applicants resulting from a noticeable pullback in approvals from certain upstream lenders.

“The Company’s cash flows and balance sheet remain extremely strong. In addition to the investments in acquisitions, new locations and real estate, we repurchased $85 million of Company stock during the quarter. Furthermore, we again increased our quarterly cash dividend to an annualized payout of $1.52 per share in order to further bolster shareholder returns,” concluded Mr. Wessel.

About FirstCash

FirstCash is the leading international operator of pawn stores and a leading provider of technology-driven point-of-sale payment solutions, both focused on serving cash and credit-constrained consumers. FirstCash’s more than 3,000 pawn stores in the U.S. and Latin America buy and sell a wide variety of jewelry, electronics, tools, appliances, sporting goods, musical instruments and other merchandise, and make small non-recourse pawn loans secured by pledged personal property. FirstCash, through its wholly owned subsidiary, AFF, also provides lease-to-own and retail finance payment solutions for consumer goods and services through a nationwide network of approximately 12,800 active retail merchant partner locations. As one of the largest omni-channel providers of “no credit required” payment options, AFF’s technology provides its merchant partners with seamless leasing and financing experiences in-store, online, in-cart and on mobile devices.

FirstCash is a component company in both the Standard & Poor’s MidCap 400 Index® and the Russell 2000 Index®. FirstCash’s common stock (ticker symbol “FCFS”) is traded on the Nasdaq, the creator of the world’s first electronic stock market. For additional information regarding FirstCash and the services it provides, visit FirstCash’s websites located at http://www.firstcash.com and http://www.americanfirstfinance.com.

Forward-Looking Information

This release contains forward-looking statements about the business, financial condition, outlook and prospects of FirstCash Holdings, Inc. and its wholly owned subsidiaries (together, the “Company”), including the Company’s outlook for 2024. 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 “outlook,” “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, outlook and future plans. Forward-looking statements can also be identified by the fact that 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 release. Such factors and risks may include, without limitation, risks related to the extensive regulatory environment in which the Company operates; 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; risks related to the Company’s acquisitions, including the failure of the Company’s acquisitions to deliver the estimated value and benefits expected by the Company and the ability of the Company to continue to identify and consummate acquisitions on favorable terms, if at all; potential changes in consumer behavior and shopping patterns which could impact demand for the Company’s pawn loan, retail, lease-to-own (“LTO”) and retail finance products; labor shortages and increased labor costs; a deterioration in the economic conditions in the United States and Latin America, including as a result of inflation, elevated interest rates and higher gas prices, which potentially could have an impact on discretionary consumer spending and demand for the Company’s products; currency fluctuations, primarily involving the Mexican peso; competition the Company faces from other retailers and providers of retail payment solutions; the ability of the Company to successfully execute on its business strategies; contraction in sales activity at AFF’s merchant partners; 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 release speak only as of the date of this release, 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.

The Company’s reportable segments are as follows:

• U.S. pawn
• Latin America pawn
• Retail POS payment solutions (AFF)

The Company provides revenues, cost of revenues, operating expenses, pre-tax operating income and earning assets by segment. Operating expenses include salary and benefit expenses of pawn store-level employees, occupancy costs, bank charges, security, insurance, utilities, supplies and other costs incurred by the pawn stores. Additionally, costs incurred in operating AFF have been classified as operating expenses, which include salary and benefit expenses of certain operations-focused departments, merchant partner incentives, bank and other payment processing charges, credit reporting costs, information technology costs, advertising costs and other operational costs incurred by AFF. Administrative expenses and amortization expense of intangible assets related to the purchase of AFF are not included in the segment pre-tax operating income.

U.S. Pawn Segment Results

U.S. Pawn Operating Results and Margins (dollars in thousands)

⁽¹⁾ Includes $1.1 million and $1.8 million of retail merchandise sales from intersegment transactions for the three months ended June 30, 2024 and 2023, respectively, related to the Company offering AFF’s LTO payment solution in its U.S. pawn stores that are eliminated upon consolidation. Excluding these intersegment sales, consolidated U.S. retail merchandise sales for the three months ended June 30, 2024 and 2023 totaled $229.0 million and $194.3 million, respectively.

⁽²⁾ Includes $0.6 million and $0.9 million of cost of retail merchandise sold from intersegment transactions for the three months ended June 30, 2024 and 2023, respectively, related to the Company offering AFF’s LTO payment solution in its U.S. pawn stores that are eliminated upon consolidation. Excluding these intersegment sales, consolidated U.S. cost of retail merchandise sold for the three months ended June 30, 2024 and 2023 totaled $131.9 million and $110.6 million, respectively.

⁽¹⁾ Includes $2.1 million and $3.5 million of retail merchandise sales from intersegment transactions for the six months ended June 30, 2024 and 2023, respectively, related to the Company offering AFF’s LTO payment solution in its U.S. pawn stores that are eliminated upon consolidation. Excluding these intersegment sales, consolidated U.S. retail merchandise sales for the six months ended June 30, 2024 and 2023 totaled $465.0 million and $403.3 million, respectively.

⁽²⁾ Includes $1.1 million and $1.8 million of cost of retail merchandise sold from intersegment transactions for the six months ended June 30, 2024 and 2023, respectively, related to the Company offering AFF’s LTO payment solution in its U.S. pawn stores that are eliminated upon consolidation. Excluding these intersegment sales, consolidated U.S. cost of retail merchandise sold for the six months ended June 30, 2024 and 2023 totaled $271.2 million and $231.6 million, respectively.

Latin America Pawn Segment Results

Constant currency results are non-GAAP financial measures, which exclude the effects of foreign currency translation and are calculated by translating current-year results at prior-year average exchange rates. See the “Constant Currency Results” section below for additional discussion of constant currency operating results.

Latin America Pawn Operating Results and Margins (dollars in thousands)

Retail POS Payment Solutions Segment Results

Retail POS Payment Solutions Operating Results (dollars in thousands)

⁽¹⁾ Includes $0.4 million and $0.5 million of depreciation of leased merchandise from intersegment transactions for the three months ended June 30, 2024 and 2023, respectively, related to the Company offering AFF’s LTO payment solution in its U.S. pawn stores that are eliminated upon consolidation. Excluding these intersegment transactions, consolidated depreciation of leased merchandise for the three months ended June 30, 2024 and 2023 totaled $110.2 million and $102.5 million, respectively.

⁽²⁾ Includes $0.2 million of provision for lease losses from intersegment transactions for both the three months ended June 30, 2024 and 2023 related to the Company offering AFF’s LTO payment solution in its U.S. pawn stores that are eliminated upon consolidation. Excluding these intersegment transactions, consolidated provision for lease losses for the three months ended June 30, 2024 and 2023 totaled $47.7 million and $52.9 million, respectively.

⁽¹⁾ Includes $0.9 million and $1.1 million of depreciation of leased merchandise from intersegment transactions for the six months ended June 30, 2024 and 2023, respectively, related to the Company offering AFF’s LTO payment solution in its U.S. pawn stores that are eliminated upon consolidation. Excluding these intersegment transactions, consolidated depreciation of leased merchandise for the six months ended June 30, 2024 and 2023 totaled $230.4 million and $204.1 million, respectively.

⁽²⁾ Includes $0.3 million of provision for lease losses from intersegment transactions for both the six months ended June 30, 2024 and 2023 related to the Company offering AFF’s LTO payment solution in its U.S. pawn stores that are eliminated upon consolidation. Excluding these intersegment transactions, consolidated provision for lease losses for the six months ended June 30, 2024 and 2023 totaled $90.7 million and $101.9 million, respectively.

⁽¹⁾ Includes $0.2 million and $1.4 million of intersegment transactions as of June 30, 2024 and 2023, respectively, related to the Company offering AFF’s LTO payment solution in its U.S. pawn stores that are eliminated upon consolidation. Excluding these intersegment transactions, consolidated net leased merchandise as of June 30, 2024 and 2023 totaled $142.9 million and $143.1 million, respectively.

⁽¹⁾ Includes $0.2 million of provision for lease losses from intersegment transactions for both the three months ended June 30, 2024 and 2023 related to the Company offering AFF’s LTO payment solution in its U.S. pawn stores that are eliminated upon consolidation. Excluding these intersegment transactions, consolidated provision for lease losses for the three months ended June 30, 2024 and 2023 totaled $47.7 million and $52.9 million, respectively.

⁽²⁾ Calculated as provision for lease or loan losses as a percentage of the respective gross transaction volume originated.

⁽³⁾ Calculated as charge-offs, net of recoveries, as a percentage of the respective average earning asset balance before allowance for lease or loan losses.

⁽⁴⁾ Calculated as the percentage of the respective contractual earning asset balance owed that is 1 to 89 days past due (the Company charges off leases and finance receivables when they are 90 days or more contractually past due).

⁽¹⁾ Includes $0.3 million of provision for lease losses from intersegment transactions for both the six months ended June 30, 2024 and 2023 related to the Company offering AFF’s LTO payment solution in its U.S. pawn stores that are eliminated upon consolidation. Excluding these intersegment transactions, consolidated provision for lease losses for the six months ended June 30, 2024 and 2023 totaled $90.7 million and $101.9 million, respectively.

⁽²⁾ Calculated as provision for lease or loan losses as a percentage of the respective gross transaction volume originated.

⁽³⁾ Calculated as charge-offs, net of recoveries, as a percentage of the respective average earning asset balance before allowance for lease or loan losses.

⁽⁴⁾ Calculated as the percentage of the respective contractual earning asset balance owed that is 1 to 89 days past due (the Company charges off leases and finance receivables when they are 90 days or more contractually past due).

Pawn Operations

As of June 30, 2024, the Company operated 3,018 pawn store locations composed of 1,201 stores in 29 U.S. states and the District of Columbia, 1,716 stores in 32 states in Mexico, 72 stores in Guatemala, 17 stores in El Salvador and 12 stores in Colombia.

The following tables detail pawn store count activity for the three and six months ended June 30, 2024:

⁽¹⁾ In addition to new store openings, the Company strategically relocated four stores in the U.S. during the three months ended June 30, 2024. During the six months ended June 30, 2024, the Company strategically relocated six stores in the U.S.

⁽²⁾ Store consolidations were primarily acquired locations over the past seven years which have been combined with overlapping stores and for which the Company expects to maintain a significant portion of the acquired customer base in the consolidated location.

⁽³⁾ Includes 10 pawnshops located in Acapulco, Mexico that were severely damaged by a hurricane in the fall of 2023 which the Company elected to consolidate with other stores in this market. The Company expects to replace certain of these locations in this market over time as the city’s infrastructure recovers.

Retail POS Payment Solutions

As of June 30, 2024, AFF provided LTO and retail POS payment solutions for consumer goods and services through a network of approximately 12,800 active retail merchant partner locations located in all 50 U.S. states, the District of Columbia and Puerto Rico. This compares to the active door count of approximately 10,500 locations at June 30, 2023.

The Company uses certain financial calculations such as adjusted net income, adjusted diluted earnings per share, EBITDA, adjusted EBITDA, free cash flow, adjusted free cash flow, adjusted return on equity, adjusted return on assets and constant currency results as factors in the measurement and evaluation of the Company’s operating performance and period-over-period growth. The Company derives these financial calculations on the basis of methodologies other than generally accepted accounting principles (“GAAP”), primarily by excluding from a comparable GAAP measure certain items the Company does not consider to be representative of its actual operating performance. These financial calculations are “non-GAAP financial measures” as defined under the SEC rules. The Company uses these non-GAAP financial measures in operating its business because management believes they are less susceptible to variances in actual operating performance that can result from the excluded items, other infrequent charges and currency fluctuations. The Company presents these financial measures to investors because management believes they are useful to investors in evaluating the primary factors that drive the Company’s core operating performance and provide greater transparency into the Company’s results of operations. However, items that are excluded and other adjustments and assumptions that are made in calculating these non-GAAP financial measures are significant components in understanding and assessing the Company’s financial performance. These non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, the Company’s GAAP financial measures. Further, because these non-GAAP financial measures are not determined in accordance with GAAP, and are thus susceptible to varying calculations, the non-GAAP financial measures, as presented, may not be comparable to other similarly-titled measures of other companies.

While acquisitions are an important part of the Company’s overall strategy, the Company has adjusted the applicable financial calculations to exclude merger and acquisition expenses in order to allow more accurate comparisons of the financial results to prior periods. In addition, the Company does not consider these merger and acquisition expenses to be related to the organic operations of the acquired businesses or its continuing operations, and such expenses are generally not relevant to assessing or estimating the long-term performance of the acquired businesses. Merger and acquisition expenses include incremental costs directly associated with merger and acquisition activities, including professional fees, legal expenses, severance, retention and other employee-related costs, contract breakage costs and costs related to the consolidation of technology systems and corporate facilities, among others.

The Company has certain leases in Mexico which are denominated in U.S. dollars. The lease liability of these U.S. dollar-denominated leases, which is considered a monetary liability, is remeasured into Mexican pesos using current period exchange rates, resulting in the recognition of foreign currency exchange gains or losses. The Company has adjusted the applicable financial measures to exclude these remeasurement gains or losses (i) because they are non-cash, non-operating items that could create volatility in the Company’s consolidated results of operations due to the magnitude of the end of period lease liability being remeasured and (ii) to improve comparability of current periods presented with prior periods.

Adjusted Net Income and Adjusted Diluted Earnings Per Share

Management believes the presentation of adjusted net income and adjusted diluted earnings per share provides investors with greater transparency and provides a more complete understanding of the Company’s financial performance and prospects for the future by excluding items that management believes are non-operating in nature and are not representative of the Company’s core operating performance. In addition, management believes the adjustments shown below are useful to investors in order to allow them to compare the Company’s financial results for the current periods presented with the prior periods presented.

The following tables provide a reconciliation between net income and diluted earnings per share calculated in accordance with GAAP to adjusted net income and adjusted diluted earnings per share, which are shown net of tax (in thousands, except per share amounts):

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and Adjusted EBITDA

The Company defines EBITDA as net income before income taxes, depreciation and amortization, interest expense and interest income and adjusted EBITDA as EBITDA adjusted for certain items, as listed below, that management considers to be non-operating in nature and not representative of its actual operating performance. The Company believes EBITDA and adjusted EBITDA are commonly used by investors to assess a company’s financial performance, and adjusted EBITDA is used as a starting point in the calculation of the consolidated total debt ratio as defined in the Company’s senior unsecured notes. The following table provides a reconciliation of net income to EBITDA and adjusted EBITDA (in thousands):

Free Cash Flow and Adjusted Free Cash Flow

For purposes of its internal liquidity assessments, the Company considers free cash flow and adjusted free cash flow. The Company defines free cash flow as cash flow from operating activities less purchases of furniture, fixtures, equipment and improvements and net fundings/repayments of pawn loan and finance receivables, which are considered to be operating in nature by the Company but are included in cash flow from investing activities. Adjusted free cash flow is defined as free cash flow adjusted for merger and acquisition expenses paid that management considers to be non-operating in nature.

Free cash flow and adjusted free cash flow are commonly used by investors as additional measures of cash generated by business operations that may be used to repay scheduled debt maturities and debt service or, following payment of such debt obligations and other non-discretionary items, that may be available to invest in future growth through new business development activities or acquisitions, repurchase stock, pay cash dividends or repay debt obligations prior to their maturities. These metrics can also be used to evaluate the Company’s ability to generate cash flow from business operations and the impact that this cash flow has on the Company’s liquidity. However, free cash flow and adjusted free cash flow have limitations as analytical tools and should not be considered in isolation or as a substitute for cash flow from operating activities or other income statement data prepared in accordance with GAAP. The following table reconciles cash flow from operating activities to free cash flow and adjusted free cash flow (in thousands):

⁽¹⁾ Includes the funding of new loans net of cash repayments and recovery of principal through the sale of inventories acquired from forfeiture of pawn collateral.

Adjusted Return on Equity and Adjusted Return on Assets

Management believes the presentation of adjusted return on equity and adjusted return on assets provides investors with greater transparency and provides a more complete understanding of the Company’s financial performance by excluding items that management believes are non-operating in nature and not representative of the Company’s core operating performance.

Annualized adjusted return on equity and adjusted return on assets is calculated as follows (dollars in thousands):

⁽¹⁾ See detail of adjustments to net income in the “Adjusted Net Income and Adjusted Diluted Earnings Per Share” section above.

Constant Currency Results

The Company’s reporting currency is the U.S. dollar, however, certain performance metrics discussed in this release are presented on a “constant currency” basis, which is considered a non-GAAP financial measure. The Company’s management uses constant currency results to evaluate operating results of business operations in Latin America, which are transacted in local currencies in Mexico, Guatemala and Colombia. The Company also has operations in El Salvador, where the reporting and functional currency is the U.S. dollar.

The Company believes constant currency results provide valuable supplemental information regarding the underlying performance of its business operations in Latin America, consistent with how the Company’s management evaluates such performance and operating results. Constant currency results reported herein are calculated by translating certain balance sheet and income statement items denominated in local currencies using the exchange rate from the prior-year comparable period, as opposed to the current comparable period, in order to exclude the effects of foreign currency rate fluctuations for purposes of evaluating period-over-period comparisons. See the Latin America pawn segment tables elsewhere in this release for an additional reconciliation of certain constant currency amounts to as reported GAAP amounts.