What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-06 compared with 2022-02-28 · 239 added, 166 removed, 402 unchanged (50% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

On December 17, 2021, the Company completed the acquisition of AFF, which is a leading technology-driven retail POS payments platform primarily focused on providing LTO products.

See Note 3 of Notes to Consolidated Financial Statements for additional information about the AFF Acquisition.

With the AFF Acquisition, the Company now operates two business lines:

pawn operations and retail POS payment solutions.

Its business lines are organized into three reportable segments.

The Company’s primary business line is the operation of retail pawn stores, also known as “pawnshops,” which focus on serving cash and credit-constrained consumers.

The Company is the leading operator of pawn stores in the U.S.

and Latin America.

Pawn stores help customers meet small short-term cash needs by providing non-recourse pawn loans and buying merchandise directly from customers.

Personal property, such as jewelry, electronics, tools, appliances, sporting goods and musical instruments, is pledged and held as collateral for the pawn loans over the typical 30-day term of the loan.

Pawn stores also generate retail sales primarily from the merchandise acquired through collateral forfeitures and over-the-counter purchases from customers.

With the AFF Acquisition, the Company is also a leading provider of technology-driven, retail POS payment solutions focused on serving credit-constrained consumers.

The Company’s retail POS payment solutions business line consists solely of the operations of AFF, which focuses on LTO products and facilitating other retail financing payment options across a large network of traditional and e-commerce merchant partners in all 50 states in the U.S., the District of Columbia and Puerto Rico.

AFF’s retail partners provide consumer goods and services to their customers and use AFF’s LTO and retail finance solutions to facilitate payments on such transactions.

The Company’s two business lines are organized into three reportable segments.

pawn segment consists of all pawn operations in the U.S.

3 unchanged sentences

Financial information regarding the Company’s revenue and long-lived assets by geographic areas is provided in Note 17 of Notes to Consolidated Financial Statements.

The Company’s primary business line continues to be the operation of retail pawn stores, also known as “pawnshops,” which focus on serving cash and credit-constrained consumers.

Pawn stores help customers meet small short-term cash needs by providing non-recourse pawn loans and buying merchandise directly from customers.

Pawn stores also generate retail sales primarily from the merchandise acquired through collateral forfeitures and over-the-counter purchases from customers.

The Company’s retail POS payment solutions business line consists solely of the operations of AFF, which focuses on providing LTO and retail financing payment options across a large network of traditional and e-commerce retail merchant partners in all 50 states in the U.S., the District of Columbia and Puerto Rico.

AFF’s retail partnerships provide consumer goods and services to their shoppers and use AFF’s LTO and retail finance solutions to facilitate payments on such transactions.

As one of the largest omni-channel providers of “no credit required” payment options, AFF’s technology set provides its merchant partners with seamless leasing and financing experiences in-store, online, in-cart and on mobile devices.

Business operations in Mexico, Guatemala and Colombia are transacted in Mexican pesos, Guatemalan quetzales and Colombian pesos.

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Critical Accounting Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, related revenue and expenses, and disclosure of gain and loss contingencies at the date of the financial statements.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, related revenue and expenses, and disclosure of gain and loss contingencies at the date of the financial statements.

Such estimates, assumptions and judgments are subject to a number of risks and uncertainties, which may cause actual results to differ materially from the Company’s estimates.

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The customer has the right to cancel the lease at any time by returning the merchandise and making all scheduled payments due through the minimum lease holding period, which is typically 60 days.

Leased merchandise contracts can typically be renewed for between six to 24 months.

Leased merchandise contracts can typically be renewed for between six and 24 months.

Leased merchandise is stated at depreciated cost.

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Unamortized fees, discounts and premiums are recognized in full upon early buyout or charge-off.

The Company accrues for lease income earned but not yet collected as accrued rent receivable, which is included in accounts receivable, net in the accompanying consolidated balance sheets.

The Company accrues lease income earned but not yet collected as accrued rent receivable, which is included in accounts receivable, net in the accompanying consolidated balance sheets.

Alternatively, lease payments received in excess of the amount earned are recognized as deferred revenue, which is included in customer deposits and prepayments in the accompanying consolidated balance sheets.

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If an account is deemed to be uncollectible prior to this date, the Company will charge off the leased merchandise at the point in time it is deemed uncollectible.

Finance receivables and revenue recognition - The Company purchases and services retail finance receivables, the term of which typically range from six to 24 months, directly from its merchant partners or from its bank partner.

Finance receivables and revenue recognition - The Company purchases and services retail finance receivables, the term of which typically range from six and 24 months, directly from its merchant partners or from its bank partner.

The Company has a partnership with a Utah state-chartered bank that requires the Company to purchase the rights to the cash flows associated with finance receivables marketed to retail consumers on the bank’s behalf.

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When appropriate, the Company utilizes independent valuation experts to advise and assist in determining the fair value of the assets acquired and liabilities assumed in connection with a business acquisition, in determining appropriate amortization methods and periods for identified intangible assets and in determining the fair value of contingent consideration, which is reviewed at each subsequent reporting period with changes in the fair value of the contingent consideration recognized in the consolidated statement of income.

See Note 3 and Note 6 of Notes to Consolidated Financial Statements.

See Note 3 of Notes to Consolidated Financial Statements.

Goodwill and other indefinite-lived intangible assets - Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in each business combination.

The Company performs its goodwill impairment assessment annually as of December 31, and between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The Company performs its goodwill impairment assessment annually and between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The Company historically assessed goodwill for impairment as of December 31 each year.

In 2022, the Company changed the date of its annual goodwill impairment assessment to October 1 to allow for operational expediency.

The Company believes the change in goodwill impairment testing date does not represent a material change to its method of applying an accounting principle in light of its internal controls and requirements to assess goodwill impairment upon certain triggering events.

The Company’s reporting units, which are tested for impairment, are U.S.

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The Company assesses goodwill for impairment at a reporting unit level by first assessing a range of qualitative factors, including, but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for the Company’s products and services, regulatory and political developments, entity specific factors, such as strategy and changes in key personnel, and overall financial performance.

If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company proceeds to the impairment testing methodology.

See Note 14 of Notes to Consolidated Financial Statements.

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Operating Results for the Twelve Months Ended December 31, 2022 Compared to the Twelve Months Ended December 31, 2021

The COVID-19 pandemic continues to impact numerous aspects of the Company’s business and the continuing long-term impact to its business remains unknown.

The extent to which COVID-19 continues to impact the Company’s operations, results of operations, liquidity and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the unknown duration and severity of the COVID-19 pandemic, which may be impacted by variants of concern and the efficacy and adoption rate of the COVID-19 vaccines in the jurisdictions in which the Company operates.

In addition, changes in economic conditions and consumer spending, rising inflation, and the actions taken to limit the economic impact of COVID-19, such as government stimulus and other transfer programs, have and may continue to have a material adverse impact on demand for pawn loans in future periods.

Moreover, safety protocols, staffing constraints and supply chain delays continue to impact operations and traffic counts for many retailers, which include the Company’s pawn stores and many of AFF’s retail merchant partners.

The COVID-19 pandemic and government responses thereto had an initial adverse and material impact on pawn loan demand in 2020, which negatively impacted pawn receivables, inventories and revenues.

This initial adverse impact in pawn loan demand was offset in large part by a positive impact in merchandise sales, especially among stay-at-home products, which were enhanced by federal stimulus payments directly to consumers.

Throughout 2021 and 2022, as the contributory impacts of the pandemic normalized, pawn loan demand steadily recovered and pawn receivables, inventories and revenues are now ahead of pre-pandemic levels.

Inflationary pressures on the Company’s customer base helped drive further demand for consumer credit, especially among its customer base, which contributed to the recovery in pawn loan demand.

The following tables and related discussion set forth key operating and financial data for the Company’s operations by reporting segment as of and for the years ended December 31, 2022 and 2021.

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pawn segment and Latin America pawn segment sections below are those stores that were opened or acquired prior to the beginning of the prior-year comparative period and remained open through the end of the reporting period.

Also included are stores that were relocated during the applicable period within a specified distance serving the same market where there is not a significant change in store size and where there is not a significant overlap or gap in timing between the opening of the new store and the closing of the existing store.

Also included are stores that were relocated, during the applicable period, within a specified distance and are serving the same market, where there is not a significant change in store size, and where there is not a significant overlap or gap in timing between the opening of the new store and the closing of the existing store.

The following table details earning assets, which consist of pawn loans and inventories as well as other earning asset metrics of the U.S.

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The following table presents segment pre-tax operating income and other operating metrics of the U.S.

pawn segment for the year ended December 31, 2021 as compared to the year ended December 31, 2020 (dollars in thousands).

pawn segment for the year ended December 31, 2022 compared to the year ended December 31, 2021 (dollars in thousands).

Operating expenses include salary and benefit expense of pawn-store-level employees, occupancy costs, bank charges, security, insurance, utilities, supplies and other costs incurred by the pawn stores.

December 31, Increase /

2021 2020 (Decrease)

2022 2021 Increase

Retail merchandise sales $ 818,548 $ 742,374 10 %

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Wholesale scrap jewelry sales 63,004 27,163 132 %

Interest and fees on finance receivables (1)

— 2,016 (100) %

Total revenue 1,254,968 1,074,887 17 %

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Cost of wholesale scrap jewelry sold 54,893 22,886 140 %

Provision for loan losses (1)

— (488) 100 %

Total cost of revenue 533,611 438,925 22 %

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Segment pre-tax operating margin 23 % 22 %

(1) Effective June 30, 2020, the Company’s U.S.

pawn segment ceased offering an unsecured consumer loan product.

Retail Merchandise Sales Operations

retail merchandise sales increased 10% to $818.5 million during 2022 compared to $742.4 million for 2021.

Same-store retail sales were flat during 2021 compared to 2020.

The gross profit margin on retail merchandise sales in the U.S.

was 44% during 2021 compared to a margin of 42% during 2020.

The increase in margin was primarily a result of continued retail demand for value-priced pre-owned merchandise, increased buying of merchandise directly from customers and lower levels of aged inventory, which limited the need for normal discounting.

Same-store retail sales increased 8% during 2022 compared to 2021.

The increase in total and same-store retail sales was primarily due to increased inventory levels during 2022 compared to 2021 and greater demand for value-priced consumer goods, with such demand driven in part by inflationary pressures on the Company’s customers.

During 2022, the gross profit margin on retail merchandise sales in the U.S.

was 42% compared to a margin of 44% during 2021.

The comparative margin in 2021 was historically high as a result of lower inventory levels in 2021, especially in the first half of the year, which limited the need for normal discounting.

inventories increased 3% from $197.5 million at December 31, 2021 to $202.6 million at December 31, 2022.

The increase was primarily due to the lower than normal inventory balances at December 31, 2020 due to the impacts of the COVID-19 pandemic.

The increase was primarily due to the increase in store count.

Inventories aged greater than one year in the U.S.

were 1% at December 31, 2021 compared to 2% at December 31, 2020.

were 1% at both December 31, 2022 and 2021.

Pawn Lending Operations

pawn loan receivables as of December 31, 2022 increased 10% in total and 8% on a same-store basis compared to December 31, 2021.

The increase in total and same-store pawn receivables was primarily due to the continued recovery in pawn lending demand during 2021 to pre-pandemic levels as the economy reopened and government stimulus programs were curtailed.

pawn loan fees decreased 2% to $305.4 million during 2021 compared to $310.4 million for 2020.

Same-store pawn fees decreased 4% during 2021 compared to 2020.

The decline in total and same-store pawn loan fees was primarily due to the significantly lower than normal beginning pawn loan levels, partially offset by the continued recovery in pawn loan demand towards pre-pandemic levels during 2021.

Segment Expenses and Segment Pre-Tax Operating Income

store operating expenses decreased 4% to $380.9 million during 2021 compared to $396.6 million during 2020 and same-store operating expenses decreased 6% compared with the prior-year period.

The decrease in total and same-store operating expenses was primarily due to reduced staffing levels and other cost saving initiatives in response to COVID-19, partially offset by increased store-level incentive compensation driven by increased revenues towards the latter part of 2021.

The increase in total and same-store pawn receivables was primarily due to the continued recovery in pawn loan demand to pre-pandemic levels, combined with inflationary pressures driving additional demand for consumer credit.

pawn loan fees increased 22% to $373.4 million during 2022 compared to $305.4 million for 2021.

Same-store pawn fees increased 20% during 2022 compared to 2021.

The increase in total and same-store pawn loan fees was primarily due to higher average pawn receivables which reflected the continued recovery in pawn loan receivables to pre-pandemic levels, combined with inflationary pressures driving additional demand for consumer credit.

Segment Expenses

store operating expenses increased 7% to $407.0 million during 2022 compared to $380.9 million during 2021, and same-store operating expenses increased 5% compared with the prior-year period.

The increase in operating expenses was primarily due to inflationary increases in wages and other certain operating costs and increased store-level incentive compensation driven by increased revenues and segment profit during 2022.

Segment Pre-Tax Operating Income

segment pre-tax operating income for 2022 was $291.1 million, which generated a pre-tax segment operating margin of 23% compared to $232.8 million and 22% in the prior year, respectively.

The increase in the segment pre-tax operating income and margin reflected an increase in gross profit from retail sales and a decrease in operating expenses, partially offset by a slight decrease in pawn loan fees, gross profit from scrap sales and net revenue from consumer loan and credit services products as a result of discontinuing consumer lending operations in U.S.

pawn stores in 2020.

The increase in the segment pre-tax operating income and margin reflected a 13% increase in net revenue, further leveraged by a 7% increase in segment expenses.

Latin America Pawn Segment

The Company’s management reviews and analyzes operating results in Latin America on a constant currency basis because the Company believes this better represents the Company’s underlying business trends.

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.

The wholesale scrap jewelry sales in Latin America are priced and settled in U.S.

dollars and are not affected by foreign currency translation, as are a small percentage of the operating and administrative expenses in Latin America, that are billed and paid in U.S.

Latin American results of operations for 2021 compared to 2020 were impacted by a 6% favorable change in the average value of the Mexican peso compared to the U.S.

The translated value of Latin American earning assets as of December 31, 2021 compared to December 31, 2020 was also impacted by a 4% unfavorable change in the end-of-period value of the Mexican peso compared to the U.S.

Latin American results of operations for 2022 compared to 2021 benefited from a 1% favorable change in the average value of the Mexican peso compared to the U.S.

The translated value of Latin American earning assets as of December 31, 2022 compared to December 31, 2021 also benefited from a 6% favorable change in the end-of-period value of the Mexican peso compared to the U.S.

The following table details earning assets, which consist of pawn loans and inventories as well as other earning asset metrics of the Latin America pawn segment as of December 31, 2022 as compared to December 31, 2021 (dollars in thousands, except as otherwise noted):

Constant Currency Basis

As of December 31, Increase / 2021 Increase

2021 2020 (Decrease) (Non-GAAP) (Non-GAAP)

As of December 31, 2022 Increase

2022 2021 Increase (Non-GAAP) (Non-GAAP)

Latin America Pawn Segment

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Constant Currency Basis

Year Ended December 31, Increase /

December 31, Increase / 2021 (Decrease)

2021 2020 (Decrease) (Non-GAAP) (Non-GAAP)

Year Ended December 31,

December 31, 2022 Increase

2022 2021 Increase (Non-GAAP) (Non-GAAP)

Latin America Pawn Segment

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Retail Merchandise Sales Operations

Latin America inventories increased 21% (25% on a constant currency basis) from $54.2 million at December 31, 2020 to $65.8 million at December 31, 2021.

The increase was primarily due to lower than normal inventory balances at December 31, 2020 due to the impacts of the COVID-19 pandemic.

Inventories aged greater than one year in Latin America were 1% at December 31, 2021 and 2% at December 31, 2020.

Latin America retail merchandise sales increased 14% (13% on a constant currency basis) to $447.5 million during 2022 compared to $391.9 million for 2021.

Same-store retail sales increased 13% (12% on a constant currency basis).

The gross profit margin on retail merchandise sales was 37% during 2021 and 2020.

The gross profit margin on retail merchandise sales was 36% during 2022 compared to 37% during 2021.

Latin America inventories increased 30% (23% on a constant currency basis) from $65.8 million at December 31, 2021 to $85.7 million at December 31, 2022.

The increase was primarily due to lower-than-normal inventory balances at December 31, 2021 due to the impacts of the COVID-19 pandemic.

Inventories aged greater than one year in Latin America were 1% at both December 31, 2022 and 2021.

Pawn Lending Operations

Latin America pawn loan receivables increased 4% (7% on a constant currency basis) as of December 31, 2021 compared to December 31, 2020, and on a same-store basis, increased by 3% (6% on a constant currency basis).

The increase in total and same-store pawn receivables and resulting pawn loan fees was primarily due to the continued recovery in pawn lending demand during 2021 towards pre-pandemic levels.

Latin America pawn loan fees increased 16% (10% on a constant currency basis), totaling $170.4 million during 2021 compared to $147.1 million for 2020.

Same-store pawn fees increased 14% (8% on a constant currency basis) during 2021 compared to 2020.

The increase in total and same-store constant currency pawn loan fees was primarily due to the continued improvement of pawn loan origination activity during 2021, partially offset by significantly lower than normal beginning pawn loan levels.

Segment Expenses and Segment Pre-Tax Operating Income

Store operating expenses increased 8% (3% on a constant currency basis) to $179.0 million during 2021 compared to $165.5 million during 2020.

Latin America pawn loan receivables increased 18% (12% on a constant currency basis) as of December 31, 2022 compared to December 31, 2021, on both a total and same-store basis.

The increase in total and same-store pawn receivables was primarily due to the continued recovery in pawn loan demand during 2022 to pre-pandemic levels.

Latin America pawn loan fees increased 10% (also 10% on a constant currency basis), totaling $188.0 million during 2022 compared to $170.4 million for 2021.

Same-store pawn fees increased 9% (also 9% on a constant currency basis) during 2022 compared to 2021.

The increase in total and same-store constant currency pawn loan fees was primarily due to the continued recovery of pawn loan receivables.

Segment Expenses

Store operating expenses increased 8% (7% on a constant currency basis) to $193.3 million during 2022 compared to $179.0 million during 2021, reflecting continued store growth and inflationary pressure on labor and other operating expenses during the current period.

Same-store operating expenses increased 7% (6% on a constant currency basis) compared to the prior-year period.

Segment Pre-Tax Operating Income

The segment pre-tax operating income for 2022 was $142.0 million, which generated a pre-tax segment operating margin of 21% compared to $121.8 million and 21% in the prior year, respectively.

The increase in the segment pre-tax operating income and margin was primarily due to an increase in gross profit from retail sales and pawn loan fees and a 6% favorable change in the average value of the Mexican peso, partially offset by a decrease in gross profit from scrap sales and an increase in store operating expenses.

The increase in the segment pre-tax operating income reflected an 11% increase in net revenue, further leveraged by an 8% increase in segment expenses and a 1% favorable change in the average value of the Mexican peso.

Retail POS Payment Solutions Segment

The Company completed the AFF Acquisition on December 17, 2021, and the results of operations of AFF have been consolidated since the acquisition date.

The Company has performed a preliminary valuation analysis of identifiable assets acquired and liabilities assumed and allocated the aggregate purchase consideration based on the fair values of those identifiable assets and liabilities.

See Note 3 of Notes to Consolidated Financial Statements for additional information about the AFF Acquisition.

As a result of purchase accounting, AFF’s as reported earning assets, consisting of finance receivables and leased merchandise, contain significant fair value adjustments.

The fair value adjustments will be amortized over the life of the lease contracts and finance receivables acquired at the time of acquisition.

Future originations of finance receivables and purchases of leased merchandise will be accounted for as described in Note 2 of Notes to Consolidated Financial Statements.

The following table provides a detail of finance receivables as reported and as adjusted to exclude the impacts of purchase accounting as of December 31, 2021 (in thousands):

As of December 31, 2021

As a result of purchase accounting, AFF’s as reported earning assets, consisting of finance receivables and leased merchandise, contain significant fair value adjustments as of December 31, 2021.

The fair value adjustments to AFF’s acquired earning assets were fully amortized during 2022.

Finance Receivables, Net

The following tables provide a detail of finance receivables as reported and as adjusted to exclude the impacts of purchase accounting as of December 31, 2022 and 2021 (in thousands):

(GAAP) Adjustments Adjusted

As of December 31, 2022

Finance receivables, before allowance for loan losses $ 188,327 $ — $ 188,327

Less allowance for loan losses (84,833) — (84,833)

Finance receivables, net $ 103,494 $ — $ 103,494

As of December 31, 2021

Finance receivables, before allowance for loan losses (1)

$ 256,595 $ (42,657) $ 213,938

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Finance receivables, net $ 181,021 $ (42,657) $ 138,364

(1) As reported acquired finance receivables was recorded at fair value in conjunction with purchase accounting.

(1) As reported acquired finance receivables were recorded at fair value in conjunction with purchase accounting.

Adjustment represents the difference between the original amortized cost basis and fair value of the remaining acquired finance receivables.

The following table provides a detail of leased merchandise as reported and as adjusted to exclude the impacts of purchase accounting as of December 31, 2021 (in thousands):

As of December 31, 2021

Finance receivables, before allowance for loan losses decreased 27% as of December 31, 2022 compared to December 31, 2021.

The decrease was primarily due to fair value purchase accounting related items included in the December 31, 2021 balance that were fully amortized during 2022 and therefore not included in the December 31, 2022 balance.

On an adjusted basis, excluding the impacts of fair value purchase accounting, finance receivables, before allowance for loan losses decreased 12% as of December 31, 2022 compared to December 31, 2021, which was primarily due to a mix-shift in AFF’s earning assets towards the LTO product and macroeconomic retail headwinds experienced in many of AFF’s retail merchant partners during 2022, including elevated inflation and generally lower consumer spending.

Those declines were partially offset by an increase in AFF’s active merchant locations offering AFF’s POS payment solutions during 2022.

The allowance for loan losses increased 12% as of December 31, 2022 compared to December 31, 2021.

The increase was primarily due to a mix-shift in AFF’s finance receivables towards the bank-originated installment loans, which are typically utilized by merchant partners financing services as opposed to personal property and tend to have slightly higher charge-off rates than the RISA product, and the macroeconomic headwinds described above resulting in a more challenging credit environment in 2022 compared to 2021.

Leased Merchandise, Net

The following tables provide a detail of leased merchandise as reported and as adjusted to exclude the impacts of purchase accounting as of December 31, 2022 and 2021 (in thousands):

(GAAP) Adjustments Adjusted

As of December 31, 2022

Leased merchandise, before allowance for lease losses $ 233,974 $ — $ 233,974

Less allowance for lease losses (79,576) — (79,576)

Leased merchandise, net (1)

$ 154,398 $ — $ 154,398

As of December 31, 2021

Leased merchandise, before allowance for lease losses (2)

$ 149,386 $ 53,829 $ 203,215

Less allowance for lease losses (3)

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Leased merchandise, net $ 143,944 $ (7,697) $ 136,247

(1) Includes $1.1 million of intersegment transactions related to the Company offering AFF’s LTO payment solution as a payment option in its U.S.

pawn stores that are eliminated upon consolidation.

For further detail, see earning assets detail in Note 17 of Notes to Consolidated Financial Statements.

(2) As reported acquired leased merchandise was recorded at fair value (which includes estimates for charge-offs) in conjunction with purchase accounting.

Adjustment represents the difference between the original depreciated cost and fair value of the remaining acquired leased merchandise.

(2) As reported allowance for lease losses represents the provision for lease losses for leases originated between December 17, 2021 and December 31, 2021.

(3) As reported allowance for lease losses as of December 31, 2021 represents the provision for lease losses for leases originated between December 17, 2021 and December 31, 2021.

Adjustment represents the remaining allowance for lease losses of acquired leased merchandise, which is included in the fair value of the acquired leased merchandise described in (2) above.

AFF’s as reported results of operations also contain significant purchase accounting impacts.

Leased merchandise, before allowance for lease losses increased 57% as of December 31, 2022 compared to December 31, 2021.

The increase was primarily due to fair value purchase accounting as noted in the footnotes to the table above.

On an adjusted basis, excluding the impacts of fair value purchase accounting, leased merchandise, before allowance for lease losses increased 15% as of December 31, 2022 compared to December 31, 2021, which was primarily due to a mix-shift in AFF’s earning assets towards the LTO product and an increase in AFF’s active merchant locations offering AFF’s POS payment solutions during 2022.

Those increases were partially offset by macroeconomic retail headwinds experienced in many of AFF’s retail merchant partners during 2022, including elevated inflation and generally lower consumer spending.

The allowance for lease losses increased to $79.6 million as of December 31, 2022 compared to $5.4 million as of December 31, 2021.

The increase was primarily due to fair value purchase accounting as noted in the footnotes to the table above.

On an adjusted basis, excluding the impacts of fair value purchase accounting, the allowance for lease losses increased 19%, which was primarily due to the increase in the gross leased merchandise and the macroeconomic headwinds, described above, resulting in a more challenging credit environment in 2022 compared to 2021.

AFF’s as reported results of operations contain significant purchase accounting impacts.

The following table presents segment pre-tax operating income as reported and as adjusted to exclude the impacts of purchase accounting for the year ended December 31, 2022 (in thousands).

Operating expenses 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.

Year Ended December 31, 2022

As Reported Adjusted

(GAAP) Adjustments (Non-GAAP)

Retail POS Payment Solutions Segment

Leased merchandise income $ 622,163 $ — $ 622,163

Interest and fees on finance receivables 181,280 42,657 223,937

Total revenue 803,443 42,657 846,100

Cost of revenue:

Depreciation of leased merchandise 354,104 (7,697) 346,407

Provision for lease losses 140,118 — 140,118

Provision for loan losses 118,502 — 118,502

Total cost of revenue 612,724 (7,697) 605,027

Net revenue 190,719 50,354 241,073

Segment expenses:

Operating expenses 128,616 — 128,616

Depreciation and amortization 2,912 — 2,912

Total segment expenses 131,528 — 131,528

Segment pre-tax operating income $ 59,191 $ 50,354 $ 109,545

The following table presents segment pre-tax operating income as reported and as adjusted to exclude the impacts of purchase accounting for the period from December 17, 2021 through December 31, 2021 (in thousands).

Operating expenses include salary and benefit expense 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 of AFF are not included in the segment pre-tax operating income.

December 17, 2021 - December 31, 2021

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Segment pre-tax operating income (loss) $ (40,515) $ 46,362 $ 5,847

(1) As reported provision for loan losses includes the establishment of the initial allowance for expected lifetime credit losses for acquired finance receivables not considered purchased credit deteriorated, which is recorded as an expense in the loan loss provision.

See Note 3 of Notes to Consolidated Financial Statements.

(2) Amortization of identified intangible assets in the AFF Acquisition are considered corporate expenses and not included in segment depreciation and amortization.

Consolidated Results of Operations

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59,191 (40,515) 246 %

Intersegment eliminations (2)

(1,096) — — %

Consolidated segment pre-tax operating income 491,235 314,130 56 %

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Interest income (1,313) (696) 89 %

Loss on foreign exchange 436 884 (51) %

(Gain) loss on foreign exchange

(585) 436 (234) %

Merger and acquisition expenses 3,739 15,449 (76) %

Gain on revaluation of contingent acquisition consideration

Impairments and dispositions of certain other assets 949 10,505 (91) %

Loss on extinguishment of debt — 11,737 (100) %

(109,549) (17,871) (513) %

Other expenses (income), net (2,731) 949 (388) %

Total corporate expenses and other income 167,602 147,628 14 %

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Net income $ 253,495 $ 124,909 103 %

(1) Includes the results of operations for AFF for the period December 17, 2021 to December 31, 2021.

These results are significantly impacted by certain purchase accounting adjustments as noted in the retail POS payment solutions segment above.

(1) The AFF segment results are significantly impacted by certain purchase accounting adjustments, as noted in the retail POS payment solutions segment results of operations above.

Adjusted retail POS payment solutions segment pre-tax operating income, excluding such purchase accounting adjustments, was $109.5 million for 2022 and $5.8 million for 2021.

The year ended December 31, 2021 includes the results of operations for AFF for the period December 17, 2021 to December 31, 2021.

(2) Represents the elimination of intersegment transactions related to the Company offering AFF’s LTO payment solution as a payment option in its U.S.

For further detail, see Note 17 of Notes to Consolidated Financial Statements.

Corporate Expenses and Taxes

Administrative expenses increased less than 1% to $111.3 million during 2021 compared to $110.9 million during 2020, primarily due to increased incentive compensation and a 6% favorable change in the average value of the Mexican peso resulting in higher U.S.

dollar translated expenses, partially offset by reduced travel costs and other cost saving initiatives in response to COVID-19.

As a percentage of revenue, administrative expenses were 7% during 2021 and 2020.

Interest expense increased 10% to $32.4 million during 2021 compared to $29.3 million for 2020, primarily related to the December 13, 2021 issuance of the $550.0 million senior unsecured notes due in 2030 and increased borrowings on the Company’s revolving unsecured credit facilities.

Administrative expenses increased 33% to $147.9 million during 2022 compared to $111.3 million during 2021, primarily due to the AFF Acquisition.

As a percentage of revenue, administrative expenses decreased from 7% during 2021 to 5% during 2022.

Corporate depreciation and amortization expenses increased 939% to $59.4 million during 2022 compared to $5.7 million in 2021, primarily due to $56.7 million in amortization expense during 2022, the majority of which related to identified intangible assets in the AFF Acquisition, compared to $2.1 million during 2021.

Interest expense increased 118% to $70.7 million during 2022 compared to $32.4 million for 2021, primarily due to an increase in the Company’s outstanding senior unsecured notes and higher interest rates and higher average balances outstanding on the Company’s unsecured credit facilities.

See Note 11 of Notes to Consolidated Financial Statements and “Liquidity and Capital Resources.”

Merger and acquisition expenses increased to $15.4 million during 2021 compared to $1.3 million during 2020, reflecting transaction costs primarily related to the AFF Acquisition in 2021.

The Company recognized a gain of $17.9 million during 2021 as a result of a decrease in the liability for the estimated fair value of certain contingent consideration related to the AFF Acquisition which is tied to the Company’s stock price.

The gain was due to the increase in the Company’s stock price from $62.83 on December 16, 2021 to $74.81 on December 31, 2021, which decreased the estimated fair value of the contingent consideration.

Merger and acquisition expenses decreased to $3.7 million during 2022 compared to $15.4 million during 2021, reflecting timing of transaction costs primarily related to the AFF Acquisition in 2021.

Approximately $1.5 million of the 2022 expense related to pawn acquisitions.

The Company revalues the contingent consideration related to the AFF Acquisition to fair value at the end of each reporting period, with changes in the fair value recognized in the consolidated statements of income.

During 2022 and 2021, the Company recognized gains of $109.5 million and $17.9 million, respectively, as a result of a decrease in the liability for the estimated fair value of certain contingent consideration related to the AFF Acquisition.

There was no remaining fair value for contingent consideration at December 31, 2022.

See Note 3 and Note 6 of Notes to Consolidated Financial Statements for additional information about the contingent consideration related to the AFF Acquisition.

During 2021 and 2020, the Company recorded a $1.6 million and $7.1 million write-off of certain merger related lease intangibles, respectively.

The lease intangibles, which are included in the operating lease right of use asset on the consolidated balance sheets, were recorded in conjunction with the Cash America merger and were written-off primarily as a result of the Company purchasing the store real estate from the landlords of certain existing legacy Cash America stores.

During 2021, the Company also recorded a $0.7 million gain on the sale of real estate, and during 2020, the Company also recorded a $1.9 million impairment of other assets and a $1.5 million impairment of property and equipment.

During 2020, the Company redeemed its outstanding $300.0 million, 5.375% senior notes due 2024, incurring a loss on extinguishment of debt of $11.7 million, which includes an early redemption premium and other redemption costs of $8.8 million and the write-off of unamortized debt issuance costs of $2.9 million.

The consolidated effective income tax rate for 2021 and 2020 was 25.0% and 25.8%, respectively.

The decrease in the effective tax rate was primarily due to an increased foreign permanent tax benefit recorded during 2021 related to an increased inflation index adjustment allowed in Mexico as a result of elevated inflation during 2021, partially offset by a tax benefit recognized in 2020 resulting from the Internal Revenue Service finalizing regulations for the GILTI provisions for foreign operations in the U.S.

federal tax code, which essentially eliminated the impact of the incremental GILTI tax on the Company.

Consolidated effective income tax rates for 2022 and 2021 were 21.7% and 25.0%, respectively.

The decrease in the effective tax rate was primarily due to an increase in U.S.-sourced income, primarily a result of the AFF Acquisition and increased earnings in 2022 from the U.S.

pawn segment, which is taxed at a lower rate than the Latin American countries in which the Company operates.

In addition, the Company realized an $8.0 million foreign permanent tax benefit in 2022, compared to $6.3 million in 2021, related to an increased inflation index adjustment allowed in Mexico as a result of elevated inflation in Mexico, which started during the latter half of 2021 and increased further in 2022.

The Company also recognized a $4.6 million permanent domestic tax benefit during 2022 pursuant to the $109.5 million gain on revaluation of certain contingent consideration related to the AFF Acquisition as described above.

See Note 12 of Notes to Consolidated Financial Statements.

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The Company’s primary capital requirements include:

• Expand pawn operations through growth of pawn receivables and inventories in existing stores, new store openings and strategic acquisition of pawn stores;

• Expand pawn operations through growth of pawn receivables and inventories in existing stores, new store openings, strategic acquisition of pawn stores and purchases of real estate at existing locations;

• Expand retail POS payment solutions operations through growth of the business generated from new and existing merchant partners;

◦ Expected to result in additional purchases of lease merchandise, funding of additional finance receivables and an increase in servicing and collection activities to support increased leases and finance receivables outstanding;

◦ Expected to require operational support and development activities around AFF’s proprietary loan management and decisioning systems along with merchant and customer service functions;

• Return capital to shareholders through dividends and stock repurchases.

Other material capital requirements include operating expenses (see Note 4 of Notes to Consolidated Financial Statements regarding operating lease commitments), general corporate operating activities, income tax payments and debt service among others.

◦ Return of capital to shareholders through dividends and stock repurchases.

Other material capital requirements include operating expenses (see Note 4 of Notes to Consolidated Financial Statements regarding operating lease commitments), maintenance capital expenditures related to its facilities, technology-related capital expenditures, general corporate operating activities, income tax payments and debt service, among others.

While the Company expects some level of net de-leveraging by the end of 2023, net interest expense is expected to increase in 2023 compared to 2022 due to higher floating interest rates on the borrowings under the revolving credit facilities.

The Company believes that net cash provided by operating activities and available and unused funds under its revolving unsecured credit facilities will be adequate to meet its liquidity and capital needs for these items in the short-term over the next 12 months and also in the long-term beyond the next 12 months.

Expand Pawn Operations

The Company intends to continue expansion through new store openings, primarily in Latin America.

The impacts of COVID-19 limited the number of 2021 new store openings to 61.

For 2022, the Company expects to add up to 60 de novo full-service pawn locations in Latin America.

Future store openings remain subject to uncertainties related to the COVID-19 pandemic, including but not limited to, the ability to continue construction projects and obtain necessary licenses and permits, utility services, store equipment, supplies and staffing.

The Company continually looks for, and is presented with, potential pawn store acquisition opportunities and will evaluate potential acquisitions based upon growth potential, purchase price, available liquidity, debt covenant restrictions, strategic fit and quality of management personnel, among other factors.

The Company acquired 46 pawn stores in the U.S.

and acquired a pawn license that will be used to open a new pawn store in the state of Nevada during 2022 for a cumulative purchase price of $79.5 million, net of cash acquired and subject to future post-closing adjustments.

The Company intends to continue expansion through the growth of earning assets at existing locations, new store openings and acquisitions.

For 2023, the Company expects approximately 60 new store additions, in Latin America through de novo openings, and another four stores are expected to be opened in the U.S.

Future store openings are subject to the Company’s ability to identify locations in markets with attractive demographics, available real estate with favorable leases and limited competition.

The Company evaluates potential acquisitions based upon growth potential, purchase price, available liquidity, strategic fit and quality of management personnel, among other factors.

During 2022, the Company acquired 30 pawn stores in the U.S.

and one store in Guatemala for an aggregate purchase price of $73.0 million, net of cash acquired and subject to future post-closing adjustments.

Although viewed by management as a discretionary expenditure not required to operate its pawn stores, the Company may continue to purchase real estate from its landlords at existing stores or in conjunction with pawn store acquisitions, as opportunities arise at reasonable valuations.

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Expand Retail POS Payment Solutions Operations

AFF will continue to promote and build relationships with existing customers and merchants and believes there is an opportunity to increase the share of existing merchants’ overall transaction volumes.

While existing merchant partner relationships represent a significant source of AFF’s origination volumes, the Company believes there are also many more untapped traditional and e-commerce merchants providing goods and services to customers that could benefit from offering AFF’s retail POS payment solutions.

AFF has made, and intends to continue to make, investments in its marketing team to drive awareness of AFF’s products at its merchant partners to increase utilization and encourage repeat business through increased marketing directly to AFF’s customers.

In addition, AFF has made and intends to continue to make investments in its unique and proprietary decisioning platform.

AFF expects to expand its business by promoting and expanding relationships with both new and existing customers and retail merchant partners.

In addition, AFF has made, and intends to continue to make, investments in its customer and merchant support operations and facilities, its technology platforms and its proprietary decisioning platforms and processes.

In addition to utilizing cash flows generated from their own operations to fund expected 2023 growth, AFF has access to the additional sources of liquidity described below if needed to fund further expansion activities.

Return of Capital to Shareholders

In February 2022, the Company’s Board of Directors declared a $0.30 per share first quarter cash dividend on common shares outstanding, or an aggregate of $14.5 million based on the December 31, 2021 share count, to be paid on February 28, 2022 to stockholders of record as of February 21, 2022.

While the Company currently expects to continue the payment of quarterly cash dividends, the amount, declaration and payment of cash dividends in the future (quarterly or otherwise) will be made by the Board of Directors, from time to time, subject to the Company’s financial condition, results of operations, business requirements, compliance with legal requirements, debt covenant restrictions and other relevant factors including the impact of COVID-19.

During 2021, the Company repurchased a total of 688,000 shares of common stock at an aggregate cost of $49.6 million and an average cost per share of $72.10, and during 2020, repurchased 1,427,000 shares of common stock at an aggregate cost of $107.0 million and an average cost per share of $74.96.

The Company has approximately $72.2 million of remaining availability under its currently authorized stock repurchase program.

While the Company intends to continue repurchases under its active share repurchase program, future share repurchases are subject to a variety of factors, including, but not limited to, the level of cash balances, credit availability, debt covenant restrictions, general business conditions, regulatory requirements, the market price of the Company’s stock, dividend policy, the availability of alternative investment opportunities, including acquisitions, and the impact of COVID-19.

In February 2023, the Company’s Board declared a $0.33 per share first quarter cash dividend on common shares outstanding, or an aggregate of $15.3 million based on the December 31, 2022 share count, to be paid on February 28, 2023 to stockholders of record as of February 14, 2023.

While the Company currently expects to continue the payment of quarterly cash dividends, the amount, declaration and payment of cash dividends in the future (quarterly or otherwise) will be made by the Board, from time to time, subject to the Company’s financial condition, results of operations, business requirements, compliance with legal requirements, debt covenant restrictions and other relevant factors.

During 2022, the Company repurchased 2,204,000 shares of common stock at an aggregate cost of $157.9 million and an average cost per share of $71.63, and during 2021, repurchased 688,000 shares of common stock at an aggregate cost of $49.6 million and an average cost per share of $72.10.

The Company has approximately $14.4 million of remaining availability under its currently authorized stock repurchase program authorized in April 2022.

In October 2022, the Board approved an additional share repurchase authorization of up to $100 million of common shares, of which the entire $100 million is currently remaining.

While the Company intends to continue repurchases under its active share repurchase programs, future share repurchases are subject to a variety of factors, including, but not limited to, the level of cash balances, liquidity needs, credit availability, debt covenant restrictions, general business and economic conditions, regulatory requirements, the market price of the Company’s stock, the Company’s dividend policy and the availability of alternative investment opportunities.

Sources of Liquidity

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through funding of capital expenditures, acquisitions, operating expenses or other similar cash needs of the Company’s foreign operations.

Primarily as a result of reduced store opening and acquisition activity, primarily due to the impacts of COVID-19, the Company elected to repatriate $10.0 million from certain foreign subsidiaries during 2021.

The continued developments and fluidity of the COVID-19 pandemic make it difficult to predict the ongoing impact of COVID-19 on the Company’s liquidity and presents a material uncertainty, which could adversely affect the Company’s results of operations, financial condition and cash flows in the future.

Other factors, such as changes in general customer traffic and demand, pawn loan balances, loan-to-value ratios, collection of pawn fees, merchandise sales, inventory levels, LTO and finance receivable originations, collection of lease and finance receivable payments, seasonality, operating expenses, administrative expenses, expenses related to merger and acquisition activities, tax rates, gold prices, foreign currency exchange rates and the pace of new pawn store expansion and acquisitions, affect the Company’s liquidity.

The Company elected to repatriate cash of $47.5 million from certain foreign subsidiaries during 2022.

The Company’s liquidity is affected by a number of factors, including changes in general customer traffic and demand, pawn loan balances, loan-to-value ratios, collection of pawn fees, merchandise sales, inventory levels, LTO merchandise, finance receivable balances, collection of lease and finance receivable payments, seasonality, operating expenses, administrative expenses, expenses related to merger and acquisition activities, litigation-related expenses, interest rates, tax rates, gold prices, foreign currency exchange rates and the pace of new pawn store expansion and acquisitions.

Additionally, a prolonged reduction in earnings and EBITDA could limit the Company’s future ability to fully borrow on its credit facilities under current leverage covenants.

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Business—Governmental Regulation.”

If needed, the Company could seek to raise additional funds from a variety of sources, including but not limited to, repatriation of excess cash held in Latin America, the sale of assets, reductions in operating expenses, capital expenditures and dividends, the forbearance or deferral of operating expenses, the issuance of debt or equity securities, leveraging currently unencumbered real estate owned by the Company and/or changes to its management of current assets.

The characteristics of the Company’s current assets, specifically the ability to rapidly liquidate gold jewelry inventory, which accounts for approximately 49% of total inventory, gives the Company flexibility to quickly increase cash flow, if necessary.

If needed, the Company could seek to raise additional funds from a variety of sources, including, but not limited to, repatriation of excess cash held in Latin America, the sale of assets, reductions in operating expenses, capital expenditures and dividends, the forbearance or deferral of operating expenses, the issuance of debt or equity securities, the leveraging of currently unencumbered real estate owned by the Company and/or changes to its management of current assets.

The characteristics of the Company’s current assets, specifically the ability to rapidly liquidate gold jewelry inventory, which accounts for 50% of total inventory, give the Company flexibility to quickly increase cash flow if necessary.

Cash Flows and Liquidity Metrics

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Cash flow provided by operating activities

$ 469,305 $ 223,304 $ 222,264

Cash flow used in investing activities

Cash flow provided by (used in) financing activities 576,993 (186,502) (120,806)

(336,443) (744,637) (20,352)

Cash flow (used in) provided by financing activities

(139,273) 576,993 (186,502)

As of December 31,

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Cash Flow Provided by Operating Activities

Net cash provided by operating activities increased $1.0 million from $222.3 million for 2020 to $223.3 million for 2021, due to net changes in certain non-cash adjustments to reconcile net income to operating cash flow and net changes in other operating assets and liabilities (as detailed in the consolidated statements of cash flows), and an increase in net income of $18.3 million.

Net cash provided by operating activities increased $246.0 million, or 110%, from $223.3 million for 2021 to $469.3 million for 2022, due to net changes in certain non-cash adjustments to reconcile net income to operating cash flow and net changes in other operating assets and liabilities (as detailed in the consolidated statements of cash flows), and an increase in net income of $128.6 million.

Cash Flow Used in Investing Activities

Net cash used in investing activities increased $724.3 million, or 3,559%, from $20.4 million during 2020 to $744.6 million during 2021.

Net cash used in investing activities decreased $408.2 million, or 55%, from $744.6 million during 2021 to $336.4 million during 2022.

Cash flows from investing activities are utilized primarily to fund acquisitions, purchases of furniture, fixtures, equipment and improvements, which includes capital expenditures for improvements to existing pawn stores and for new pawn store openings and other corporate assets, and discretionary purchases of store real property.

In addition, cash flows related to 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 and finance receivables, are included in investing activities.

The portion of the AFF Acquisition consideration paid in cash, net of cash acquired, was $462.1 million while the Company also paid $81.8 million in cash related to current and prior-year pawn store acquisitions, $42.0 million for furniture, fixtures, equipment and improvements and $79.5 million for discretionary pawn store real property purchases during 2021 compared to $44.3 million, $37.5 million and $45.5 million in 2020, respectively.

The Company funded a net increase in pawn loans of $73.3 million during 2021, whereas the Company received funds from a net decrease in pawn loans of $105.4 million during 2020, and the Company funded a net increase in finance receivables of $5.8 million during 2021.

Cash Flow Provided by Financing Activities

Net cash provided by financing activities increased $763.5 million, or 409%, from net cash used in financing activities of $186.5 million during 2020 to net cash provided by financing activities of $577.0 million during 2021.

Net borrowings on the credit facilities were $136.0 million during 2021 compared to net payments of $215.5 million during 2020.

During 2021, the Company received $550.0 million in proceeds from the private offering of senior unsecured notes and paid $10.6 million in debt issuance costs which was used primarily to fund the acquisition of AFF.

During 2020, the Company received $500.0 million in proceeds from the private offering of senior unsecured notes and paid $8.0 million in debt issuance costs.

Using part of the proceeds from these senior unsecured notes, the Company redeemed $300.0 million of senior unsecured notes and paid redemption premiums and other redemption costs of $8.8 million during 2020.

The portion of the AFF Acquisition consideration paid in cash, net of cash acquired, was $25.0 million.

The Company also paid $71.8 million in cash related to current and prior-year pawn store acquisitions, $35.6 million for furniture, fixtures, equipment and improvements and $82.9 million for discretionary pawn store real property purchases during 2022 compared to $462.1 million, $81.8 million, $42.0 million and $79.5 million in 2021, respectively.

The Company funded a net increase in pawn loans of $35.8 million during 2022 and $73.3 million during 2021.

The Company funded a net increase in finance receivables of $85.4 million during 2022 and $5.8 million during 2021.

Cash Flow Used in Financing Activities

Net cash provided by financing activities decreased $716.3 million, or 124%, from net cash provided by financing activities of $577.0 million during 2021 to net cash used in financing activities of $139.3 million during 2022.

Net borrowings on the credit facilities were $80.0 million during 2022 compared to net borrowings of $136.0 million during 2021.

During 2022, the Company paid debt issuance costs of $1.8 million.

During 2021, the Company received $550.0 million in proceeds from the private offering of senior unsecured notes which were used primarily to fund the AFF Acquisition and pay $10.6 million in debt issuance costs.

The Company funded $157.9 million for share repurchases and paid dividends of $59.6 million during 2022, compared to funding $49.6 million of share repurchases and dividends paid of $47.5 million during 2021.

In addition, the Company paid $1.7 million in withholding taxes on net share settlements of restricted stock unit awards and stock options exercised and received $0.4 million in proceeds from the exercise of stock options during 2021, compared to $3.7 million and $1.1 million, during 2020, respectively.

During 2021, the Company paid $1.7 million in withholding taxes on net share settlements of restricted stock awards and stock options exercised and received $0.4 million in proceeds from the exercise of stock options.

Non-GAAP Financial Information

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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 to allow more accurate comparisons of the financial results to prior periods, which include the Company’s transaction expenses incurred in connection with its acquisition of AFF.

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, including the Company’s transaction expenses incurred in connection with its acquisition of AFF and the impacts of purchase accounting with respect to the AFF acquisition, 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.

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The Company has certain leases in Mexico which are denominated in U.S.

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 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 to improve comparability of current periods presented with prior periods.

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.

In conjunction with the Cash America Merger in 2016, the Company recorded certain lease intangibles related to above- or below-market lease liabilities of Cash America, which are included in the operating lease right of use asset on the consolidated balance sheets.

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Merger and acquisition expenses 2,878 0.06 11,872 0.29 991 0.02

Non-cash foreign currency loss (gain) related to lease liability 451 0.01 874 0.02 (653) (0.01)

AFF purchase accounting adjustments, net (1)

Non-cash foreign currency (gain) loss related to lease liability

(930) (0.02) 451 0.01 874 0.02

Impairments and dispositions of certain other assets 730 0.02 6,979 0.17 2,659 0.06

AFF purchase accounting adjustments (1)

82,432 1.74 37,278 0.91 — —

Gain on revaluation of contingent acquisition consideration (2)

(90,035) (1.91) (13,761) (0.33) — —

Other expenses (income), net (2,103) (0.04) 730 0.02 6,979 0.17

Loss on extinguishment of debt — — — — 9,037 0.22

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Adjusted net income and diluted earnings per share $ 245,737 $ 5.19 $ 161,479 $ 3.94 $ 125,153 $ 3.01

(1) Includes $34.1 million related to the establishment of the initial allowance for expected lifetime credit losses for purchased AFF finance receivables that are not considered credit deteriorated (non-PCD loans), which is recorded as an expense in the provision for loan losses, $1.6 million related to the amortization of acquired intangible assets and $1.6 million related to other non-cash purchase accounting adjustments, partially offset by the $13.8 million gain on revaluation of AFF contingent acquisition consideration (all shown net of tax).

(1) See detail of the AFF purchase accounting adjustments in tables below.

(2) See Note 3 and Note 6 of Notes to Consolidated Financial Statements.

The following table provides a reconciliation of the gross amounts, the impact of income taxes and the net amounts for the adjustments included in the table above (unaudited, in thousands):

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Merger and acquisition expenses $ 3,739 $ 861 $ 2,878 $ 15,449 $ 3,577 $ 11,872 $ 1,316 $ 325 $ 991

Non-cash foreign currency loss (gain) related to lease liability 644 193 451 1,249 375 874 (933) (280) (653)

AFF purchase accounting adjustments, net 30,542 7,025 23,517 — — — — — —

Impairment and dispositions of certain other assets 949 219 730 9,064 2,085 6,979 3,454 795 2,659

Non-cash foreign currency (gain) loss related to lease liability

(1,329) (399) (930) 644 193 451 1,249 375 874

AFF purchase accounting adjustments (1)

107,055 24,623 82,432 48,413 11,135 37,278 — — —

Gain on revaluation of contingent acquisition consideration

(109,549) (19,514) (90,035) (17,871) (4,110) (13,761) — — —

Other expenses (income), net (2,731) (628) (2,103) 949 219 730 9,064 2,085 6,979

Loss on extinguishment of debt — — — — — — 11,737 2,700 9,037

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Total adjustments $ (2,815) $ 4,943 $ (7,758) $ 47,584 $ 11,014 $ 36,570 $ 23,366 $ 4,792 $ 18,574

(1) The following table details AFF purchase accounting adjustments (in thousands):

Year Ended December 31,

Pre-tax Tax After-tax Pre-tax Tax After-tax

Amortization of fair value adjustment on acquired finance receivables

$ 42,657 $ 9,811 $ 32,846 $ 1,708 $ 392 $ 1,316

Amortization of fair value adjustment on acquired leased merchandise 7,697 1,772 5,925 404 93 311

Amortization of acquired intangible assets 56,701 13,040 43,661 2,051 472 1,579

Provision for loan losses (establish initial allowance for expected lifetime credit losses for non-purchase credit deteriorated (”PCD”) loans) — — — 44,250 10,178 34,072

Total AFF purchase accounting adjustments $ 107,055 $ 24,623 $ 82,432 $ 48,413 $ 11,135 $ 37,278

The fair value adjustments on acquired finance receivables and leased merchandise resulted from the recognition of these acquired assets at fair value in purchase accounting, the amortization of which is non-cash.

The fair value adjustments related to acquired finance receivables and acquired leased merchandise were fully amortized as of December 31, 2022.

The acquired intangible assets will be amortized through 2028.

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

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Merger and acquisition expenses 3,739 15,449 1,316

Non-cash foreign currency loss (gain) related to lease liability 644 1,249 (933)

AFF purchase accounting adjustments, net (1)

Impairments and dispositions of certain other assets 949 9,064 3,454

Non-cash foreign currency (gain) loss related to lease liability

(1,329) 644 1,249

AFF purchase accounting adjustments (1)

50,354 46,362 —

Gain on revaluation of contingent acquisition consideration

(109,549) (17,871) —

Other expenses (income), net (2,731) 949 9,064

Loss on extinguishment of debt — — 11,737

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$ 437,344 $ 289,631 $ 236,974

(1) Excludes $2.1 million of amortization expense related to identifiable intangible assets for the twelve months ended December 31, 2021, which is already included in the add back of depreciation and amortization to calculate EBITDA.

(1) Excludes $56.7 million and $2.1 million of amortization expense related to identifiable intangible assets as a result of the AFF Acquisition for the twelve months ended December 31, 2022 and 2021, respectively, which is already included in the add-back of depreciation and amortization to net income used to calculate EBITDA.

Free Cash Flow and Adjusted Free Cash Flow

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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 an additional measure 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, 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.

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.

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See the retail POS payment solutions segment tables in “Results of Operations” above for additional reconciliation of certain amounts adjusted to exclude the impacts of purchase accounting to as reported GAAP amounts.

Additionally, the following table provides a reconciliation of consolidated total revenue, presented in accordance with GAAP, to adjusted total revenue, which excludes the impacts of purchase accounting (in thousands):

Year Ended December 31,

2022 2021 2020

Total revenue, as reported $ 2,728,942 $ 1,698,965 $ 1,631,284

AFF purchase accounting adjustments (1)

42,657 1,708 —

Adjusted total revenue $ 2,771,599 $ 1,700,673 $ 1,631,284

(1) Adjustment relates to the net amortization of the fair value premium on acquired finance receivables, which is recognized as an adjustment to interest income on an effective yield basis over the lives of the acquired finance receivables.

See the retail POS payment solutions segment tables in “Results of Operations” above for additional segment-level reconciliations.

Constant Currency Results

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Effects of Inflation

During 2021, the Company does not believe inflation had a material effect on the volume of pawn loans originated by the Company or AFF’s transaction volume, merchandise sales of the Company, or the Company’s results of operations during 2021.

During 2022, the Company does not believe inflation had a material effect on the Company’s results of operations or on the volume of pawn loans originated by the Company or AFF’s transaction volume.

Widely reported inflation has occurred, however, and may be ongoing into the foreseeable future.

Depending on the severity and persistence of these inflationary pressures, the Company could see a negative impact on its customers’ ability to pay (including an impact on the collectability of its accounts receivable) for its goods and services as well as increases in wages and other operating costs.

However, inflationary economic environments could also benefit the Company by increasing customer demand for value priced products and lending services in its pawn stores.

Depending on the severity and persistence of these inflationary pressures, the Company could see a negative impact on its customers’ ability to pay for its goods and services, including an impact on the collectability of its accounts receivable which could result in increased charge-offs of AFF’s finance receivables and leased merchandise, as well as increases in wages and other operating costs.

However, inflationary economic environments could also benefit the Company by increasing customer demand for value-priced products, lending services in its pawn stores and demand for POS payment solutions provided by AFF.

The Company’s business is subject to seasonal variations, and operating results for each quarter and year-to-date periods are not necessarily indicative of the results of operations for the full year.

Typically, the Company experiences seasonal growth of pawn service fees in the third and fourth quarter of each year due to pawn loan balance growth.

Pawn service fees generally decline in the first and second quarter of each year after the typical repayment period of pawn loans associated with statutory bonuses received by customers in the fourth quarter in Mexico and with tax refund proceeds received by customers in the first quarter in the U.S.

In addition, AFF customers generally exercise the early buyout option on their existing lease or finance receivable more frequently during the first quarter associated with tax refund proceeds.

Retail sales are seasonally higher in the fourth quarter associated with holiday shopping and, to a lesser extent, in the first quarter associated with tax refunds in the U.S.

Pawn service fees generally decline in the first and second quarter of each year after the typical repayment period of pawn loans due to statutory bonuses received by customers in the fourth quarter in Mexico and with tax refund proceeds received by customers in the first quarter in the U.S.

In addition, AFF customers generally exercise the early buyout option on their existing lease or finance receivable more frequently during the first quarter due to tax refund proceeds.

Retail sales are seasonally higher in the fourth quarter associated with holiday shopping and, to a lesser extent, in the first quarter due to tax refunds in the U.S.

Recent Accounting Pronouncements

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What changed 10-K

Item 7. Management’s Discussion and Analysis