What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-05 compared with 2023-02-06 · 262 added, 258 removed, 383 unchanged (58% of the section changed)

6 unchanged sentences

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 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.

1 unchanged sentence

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

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

and the Latin America pawn segment consists of all pawn operations in Mexico, Guatemala, Colombia and El Salvador.

pawn segment consists of pawn operations in the U.S., while the Latin America pawn segment consists of pawn operations in Mexico, Guatemala, Colombia and El Salvador.

The retail POS payment solutions segment consists of the operations of AFF in the U.S.

and Puerto Rico.

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.

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

The Company also has operations in El Salvador, where the reporting and functional currency is the U.S.

The following table provides exchange rates for the Mexican peso, Guatemalan quetzal and Colombian peso for the current and prior-year periods:

2022 2021 2020

Rate % Change

(Unfavorable) Rate % Change

(Unfavorable) Rate

Mexican peso / U.S.

dollar exchange rate:

End-of-period 19.4 6 % 20.6 (4) % 19.9

Twelve months ended 20.1 1 % 20.3 6 % 21.5

Guatemalan quetzal / U.S.

dollar exchange rate:

End-of-period 7.9 (3) % 7.7 1 % 7.8

Twelve months ended 7.7 — % 7.7 — % 7.7

Colombian peso / U.S.

dollar exchange rate:

End-of-period 4,810 (21) % 3,981 (16) % 3,433

Twelve months ended 4,253 (14) % 3,742 (1) % 3,693

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 which are billed and paid in U.S.

Amounts presented on a constant currency basis are denoted as such.

See “Non-GAAP Financial Information” for additional discussion of constant currency operating results.

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

Critical Accounting Estimates

18 unchanged sentences

The Company presents merchandise sales net of any sales or value-added taxes collected.

Some jewelry inventory is melted and processed at third-party facilities, and the precious metal and diamond content is sold at either prevailing market commodity prices or a previously agreed upon price with a commodity buyer.

Some jewelry inventory is melted and processed at third-party facilities, and the precious metal and diamond content is sold at either

prevailing market commodity prices or a previously agreed upon price with a commodity buyer.

The Company records revenue from these wholesale scrap jewelry transactions when a price has been agreed upon and the Company ships the commodity to the buyer.

2 unchanged sentences

The Company maintains ownership of the leased merchandise until all payment obligations are satisfied under the lease agreement.

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 and 24 months.

The customer has the right to cancel the lease at any time by returning the merchandise.

Leased merchandise contracts can typically be renewed for weekly, bi-weekly, semi-monthly, and monthly renewal periods and are generally renewed for between six and 24 months.

Leased merchandise is stated at depreciated cost.

15 unchanged sentences

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 and 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 to 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.

21 unchanged sentences

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 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 performs its goodwill impairment assessment annually as of October 1, 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’s reporting units, which are tested for impairment, are U.S.

18 unchanged sentences

See “Non-GAAP Financial Information—Adjusted Net Income and Adjusted Diluted Earnings Per Share and —Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and Adjusted EBITDA” below.

The following charts present net income, adjusted net income, diluted earnings per share, adjusted diluted earnings per share, EBITDA, adjusted EBITDA and earning assets, which consist of pawn loans, finance receivables, inventories and leased merchandise, as of and for the years ended December 31, 2022, 2021 and 2020 (in millions, except per share amounts):

The following charts present net income, adjusted net income, diluted earnings per share, adjusted diluted earnings per share, EBITDA, adjusted EBITDA, revenue and adjusted revenue for the years ended December 31, 2023, 2022 and 2021 (in millions, except per share amounts):

* Non-GAAP financial measures.

4 unchanged sentences

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.

Inflationary pressures on the Company’s customer base helped drive further demand for consumer credit, 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, 2023 and 2022.

3 unchanged sentences

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.

pawn segment, as of December 31, 2022 as compared to December 31, 2021 (dollars in thousands, except as otherwise noted):

As of December 31,

2022 2021 Increase

Earning assets:

Pawn loans $ 282,089 $ 256,311 10 %

Inventories 202,594 197,486 3 %

$ 484,683 $ 453,797 7 %

Average outstanding pawn loan amount (in ones) $ 247 $ 222 11 %

Composition of pawn collateral:

General merchandise 30 % 34 %

Jewelry 70 % 66 %

Composition of inventories:

General merchandise 41 % 45 %

Jewelry 59 % 55 %

Percentage of inventory aged greater than one year 1 % 1 %

Inventory turnover (trailing twelve months cost of merchandise sales divided by average inventories) 2.7 times 2.8 times

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

20 unchanged sentences

Segment pre-tax operating margin 25 % 23 %

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 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 increase in store count.

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

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 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 a 13% increase in net revenue, further leveraged by a 7% increase in segment expenses.

Latin America Pawn Segment

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, 2022 Increase

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

Latin America Pawn Segment

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

pawn segment, as of December 31, 2023 as compared to December 31, 2022 (dollars in thousands, except as otherwise noted):

As of December 31,

2023 2022 Increase

Earning assets:

11 unchanged sentences

Inventory turnover (trailing twelve months cost of merchandise sales divided by average inventories) 2.8 times 2.7 times

Retail Merchandise Sales Operations

retail merchandise sales increased 4% to $854.2 million during 2023 compared to $818.5 million for 2022.

Same-store retail sales decreased 2% during 2023 compared to 2022.

The increase in total retail sales was primarily due to sales contributions from acquired stores, whereas the decrease in same-store retail sales was primarily due to lower than normal inventory levels in these locations during much of 2023 compared to 2022.

During 2023, the gross profit margin on retail merchandise sales in the U.S.

was 43% compared to a margin of 42% during 2022, reflecting continued demand for value-priced, pre-owned merchandise and low levels of aged inventory.

inventories increased 10% from $202.6 million at December 31, 2022 to $221.8 million at December 31, 2023.

The increase was primarily due to inventories at acquired stores and a modest increase in same-store inventories.

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

were 1% at both December 31, 2023 and 2022.

Pawn Lending Operations

pawn loan receivables as of December 31, 2023 increased 22% in total and 14% on a same-store basis compared to December 31, 2022.

The increase in total pawn receivables was due to incremental pawn loans from acquired stores and an increase in same-store pawn receivables, which the Company believes was primarily due to continued inflationary pressures driving additional demand for pawn loans and tightened underwriting for other competing forms of consumer credit.

pawn loan fees increased 17% to $435.8 million during 2023 compared to $373.4 million for 2022.

Same-store pawn loan fees increased 11% during 2023 compared to 2022.

The increase in total and same-store pawn loan fees was primarily due to higher average pawn receivables and increased portfolio yield, driven by slightly improved customer redemption rates.

Segment Expenses

store operating expenses increased 11% to $451.5 million during 2023 compared to $407.0 million during 2022.

The increase in operating expenses was primarily due to acquired stores and a 5% increase in same-store operating expenses primarily due to inflationary increases in wages and certain other operating costs and increased store-level incentive compensation, driven by increased net revenues and segment profit during 2023 compared to 2022.

Segment Pre-Tax Operating Income

segment pre-tax operating income for 2023 was $336.3 million, which generated a pre-tax segment operating margin of 25% compared to $291.1 million and 23% in the prior year, respectively.

The increase in the segment pre-tax operating income and margin reflected an improved net revenue margin partially offset by the increase in segment expenses.

Latin America Pawn Segment

Latin America pawn segment pre-tax operating income for 2023 compared to 2022 benefited from an 11% 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, 2023 compared to December 31, 2022 also benefited from a 13% favorable change in the end-of-period Mexican peso compared to the U.S.

See the “Constant Currency Results” section in “Non-GAAP Financial Information” below for additional discussion of constant currency operating results.

The following table presents segment pre-tax operating income and other operating metrics of the Latin America pawn segment for the year ended December 31, 2023 as compared to the year ended December 31, 2022 (dollars in thousands).

1 unchanged sentence

Constant Currency Basis

Year Ended December 31,

December 31, 2022 Increase

Year Ended December 31, Increase /

December 31, 2023 (Decrease)

2023 2022 Increase (Non-GAAP) (Non-GAAP)

19 unchanged sentences

Segment pre-tax operating margin 19 % 21 % 20 %

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, 2023 as compared to December 31, 2022 (dollars in thousands, except as otherwise noted):

Constant Currency Basis

December 31, Increase /

As of December 31, 2023 (Decrease)

2023 2022 Increase (Non-GAAP) (Non-GAAP)

Latin America Pawn Segment

Earning assets:

Pawn loans $ 127,694 $ 108,528 18 % $ 112,110 3 %

Inventories 90,246 85,745 5 % 79,218 (8) %

$ 217,940 $ 194,273 12 % $ 191,328 (2) %

Average outstanding pawn loan amount (in ones) $ 95 $ 83 14 % $ 84 1 %

Composition of pawn collateral:

General merchandise 63 % 67 %

Jewelry 37 % 33 %

Composition of inventories:

General merchandise 67 % 71 %

Jewelry 33 % 29 %

Percentage of inventory aged greater than one year 1 % 1 %

Inventory turnover (trailing twelve months cost of merchandise sales divided by average inventories) 4.4 times 4.2 times

Retail Merchandise Sales Operations

Latin America retail merchandise sales increased 19% (6% on a constant currency basis) to $533.6 million during 2023 compared to $447.5 million for 2022.

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

Same-store retail sales increased 18% (5% on a constant currency basis) during 2023 compared to 2022.

The increase in total and same-store retail sales was primarily due to greater demand for value-priced consumer goods, with such demand believed to be driven in part by the impact of increases in government-mandated minimum wage and benefit programs in Mexico benefiting many cash-constrained consumers.

The gross profit margin on retail merchandise sales was 35% during 2023 compared to 36% during 2022.

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.

Latin America inventories increased 5% (8% decrease on a constant currency basis) from $85.7 million at December 31, 2022 to $90.2 million at December 31, 2023.

The decrease in constant currency inventories was primarily due to the greater demand for value-priced consumer goods mentioned above and slightly lower pawn loan forfeiture rates in 2023 compared to 2022.

Inventories aged greater than one year in Latin America were 1% at both December 31, 2023 and 2022.

Pawn Lending Operations

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.

Latin America pawn loan receivables increased 18% (3% on a constant currency basis) as of December 31, 2023 compared to December 31, 2022.

On a same-store basis, pawn loan receivables increased 17% (3% on a constant currency basis) as of December 31, 2023 compared to December 31, 2022.

The smaller than expected increase in constant currency total and same-store pawn receivables is believed to be driven in part by the impact of increases in government-mandated minimum wage and benefit programs in Mexico that benefited many cash-constrained consumers.

Latin America pawn loan fees increased 19% (5% on a constant currency basis), to $222.8 million during 2023 compared to $188.0 million for 2022.

Same-store pawn loan fees increased 18% (5% on a constant currency basis) during 2023 compared to 2022.

The increase in total and same-store constant currency pawn loan fees was primarily due to increased pawn receivable balances.

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.

Store operating expenses increased 26% (13% on a constant currency basis) to $243.1 million during 2023 compared to $193.3 million during 2022.

Same-store operating expenses increased 24% (11% on a constant currency basis) compared to the prior year.

The increase in total and same-store operating expenses was primarily driven by general inflationary impacts and increases in the federally mandated minimum wage and increased costs of required employee benefit programs.

Segment Pre-Tax Operating Income

The segment pre-tax operating income for 2023 was $156.2 million, which generated a pre-tax segment operating margin of 19% compared to $142.0 million and 21% in the prior year, respectively.

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.

The increase in the segment pre-tax operating income reflected an increase in net revenue, partially offset by the increase in segment expenses.

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.

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

Less allowance for loan losses (75,574) — (75,574)

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

(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.

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)

(5,442) (61,526) (66,968)

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.

(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.

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).

Retail POS Payment Solutions Operating Results

The following table presents segment pre-tax operating income of the retail POS payment solutions segment for the year ended December 31, 2023 as compared to the year ended December 31, 2022 (dollars 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)

2022 Increase

2023 2022 Increase (Non-GAAP) (Non-GAAP)

Retail POS Payment Solutions Segment

13 unchanged sentences

Segment pre-tax operating income $ 132,016 $ 59,191 123 % $ 109,545 21 %

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).

December 17, 2021 - December 31, 2021

As Reported Adjusted

(GAAP) Adjustments (Non-GAAP)

Retail POS Payment Solutions Segment

Leased merchandise income $ 22,720 $ — $ 22,720

Interest and fees on finance receivables 9,024 1,708 10,732

Total revenue 31,744 1,708 33,452

Cost of revenue:

Depreciation of leased merchandise 12,826 (404) 12,422

(1) As a result of purchase accounting, AFF’s as reported amounts for 2022 contain significant fair value adjustments.

The adjusted amounts for 2022 exclude these fair value purchase accounting adjustments.

The following table provides a detail of gross transaction volumes originated during the year ended December 31, 2023 as compared to the year ended December 31, 2022 (dollars in thousands):

2023 2022 Increase

Leased merchandise $ 623,069 $ 518,173 20 %

Finance receivables 405,765 333,052 22 %

Total gross transaction volume $ 1,028,834 $ 851,225 21 %

The following table details retail POS payment solutions earning assets as of December 31, 2023 as compared to December 31, 2022 (dollars in thousands):

As of December 31,

2023 2022 Increase

Leased merchandise, net:

Leased merchandise, before allowance for lease losses $ 267,458 $ 233,974 14 %

Less allowance for lease losses (95,752) (79,576) 20 %

Leased merchandise, net (1)

$ 171,706 $ 154,398 11 %

Finance receivables, net:

Finance receivables, before allowance for loan losses $ 210,355 $ 188,327 12 %

Less allowance for loan losses (96,454) (84,833) 14 %

Finance receivables, net $ 113,901 $ 103,494 10 %

(1) Includes $0.5 million and $1.1 million of intersegment transactions as of December 31, 2023 and 2022, respectively, related to the Company offering AFF’s LTO payment solution in its U.S.

pawn stores that are eliminated upon consolidation.

Excluding the intersegment transactions, consolidated net leased merchandise as of December 31, 2023 and 2022 totaled $171.2 million and $153.3 million, respectively.

The following table details the changes in the allowance for lease and loan losses and other portfolio metrics during the year ended December 31, 2023 as compared to the year ended December 31, 2022 (dollars in thousands):

2022 Increase

2023 2022 Increase (Non-GAAP) (Non-GAAP)

Allowance for lease losses:

Balance at beginning of period $ 79,576 $ 5,442 1,362 % $ 66,968 19 %

Provision for lease losses (1)

177,418 140,118 27 % 140,118 27 %

Charge-offs (167,952) (70,343) 139 % (131,869) 27 %

Recoveries 6,710 4,359 54 % 4,359 54 %

Balance at end of period $ 95,752 $ 79,576 20 % $ 79,576 20 %

Leased merchandise portfolio metrics:

Provision rate (2)

Average monthly net charge-off rate (3)

Delinquency rate (4)

21.7 % 21.0 %

Allowance for loan losses:

Balance at beginning of period $ 84,833 $ 75,574 12 %

Provision for loan losses 123,030 118,502 4 %

Charge-offs (117,961) (114,535) 3 %

Recoveries 6,552 5,292 24 %

Balance at end of period $ 96,454 $ 84,833 14 %

Finance receivables portfolio metrics:

Provision rate (2)

Average monthly net charge-off rate (3)

Delinquency rate (4)

21.8 % 20.7 %

Total cost of revenue 67,220 (44,654) 22,566

Net revenue (loss) (35,476) 46,362 10,886

(1) Includes a provision increase of $1.6 million and $0.6 million from intersegment transactions during 2023 and 2022, respectively, related to the Company offering AFF’s LTO payment solution in its U.S.

pawn stores that are eliminated upon consolidation.

Excluding the intersegment transactions, the provision for lease losses during 2023 and 2022 totaled $175.9 million and $139.5 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 (adjusted to exclude any fair value purchase accounting adjustments, as applicable).

(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).

(5) As a result of purchase accounting, AFF’s as reported allowance for lease losses during 2022 contains significant fair value adjustments.

The adjusted amounts during 2022 exclude these fair value purchase accounting adjustments.

As a result of the significance of these accounting adjustments, the Company does not believe that the unadjusted leased merchandise portfolio metrics during 2022 provide a useful comparison against the 2023 amounts.

LTO Operations

Leased merchandise, before allowance for lease losses, increased 14% as of December 31, 2023 compared to December 31, 2022.

This increase was primarily due to increased transaction volumes from new merchant locations added since December 31, 2022.

The allowance for lease losses increased 20% to $95.8 million as of December 31, 2023 compared to $79.6 million as of December 31, 2022.

As a percentage of lease merchandise, the allowance increased from 34% at December 31, 2022 to 36% at December 31, 2023.

This increase was primarily due to the 20% increase in gross transaction volume and a slight increase in lease loss provisioning rates used during 2023 compared to 2022.

Leased merchandise income increased 21% to $752.7 million during 2023 compared to $622.2 million during 2022, which was primarily due to the higher leased merchandise balances.

Depreciation of leased merchandise increased 17% to $413.5 million during 2023 compared to $354.1 million during 2022.

On an adjusted basis, excluding the impacts of fair value purchase accounting, depreciation of leased merchandise increased 19%.

The increase was primarily due to higher leased merchandise balances.

As a percentage of leased merchandise income, depreciation of leased merchandise decreased slightly from 56% during 2022 (adjusted to exclude purchase accounting adjustments) to 55% during 2023.

Provision for lease losses increased 27% to $177.4 million during 2023 compared to $140.1 million during 2022, which was primarily due to the 20% increase in gross transaction volumes and an increase in lease loss provisioning rates used during 2023 compared to 2022, as a result of slightly higher net charge-off rates during 2023 compared to 2022 and slightly higher delinquency rates as of December 31, 2023 compared to December 31, 2022.

As a percentage of gross transaction volume, the provision for lease losses increased from 27% during 2022 to 28% during 2023.

Retail Finance Operations

Finance receivables, before allowance for loan losses, increased 12% as of December 31, 2023 compared to December 31, 2022.

This increase in the outstanding receivable balance was primarily due to increased transaction volumes from new merchant locations added since December 31, 2022.

The allowance for loan losses increased 14% to $96.5 million as of December 31, 2023 compared to $84.8 million as of December 31, 2022.

As a percentage of finance receivables, the allowance increased from 45% at December 31, 2022 to 46% at December 31, 2023.

This increase was primarily due to the 22% increase in gross transaction volume compared to 2022.

Interest and fees on finance receivables increased 29% to $233.8 million during 2023 compared to $181.3 million during 2022.

On an adjusted basis, excluding the impacts of fair value purchase accounting, interest and fees on finance receivables increased 4% which was primarily due to higher average year-over-year finance receivable balances, partially offset by a slight decline in portfolio yield primarily as a result of AFF expanding its offerings and merchant relationships in certain services sector verticals in 2023, some of which provide slightly lower interest rates.

Provision for loan losses increased 4% to $123.0 million during 2023 compared to $118.5 million during 2022, which was primarily due to the 22% increase in gross transaction volumes, mostly offset by a decrease in loan loss provisioning rates used during 2023 compared to 2022.

As a percentage of gross transaction volume, the provision for loan losses decreased from 36% during 2022 to 30% during 2023.

The 2022 loan loss provisioning rates, especially during the third and fourth quarters of 2022, were elevated as a result of slightly higher expected charge-offs on certain loan products.

However, those actual charge-offs came in lower than expected, resulting in some release of loan loss reserves in the first half of 2023.

Segment Expenses

Operating expenses 4,917 — 4,917

Depreciation and amortization 122 — 122

Total segment expenses 5,039 — 5,039

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 provision for loan losses.

See Note 3 of Notes to Consolidated Financial Statements.

Operating expenses increased 7% to $137.5 million during 2023 compared to $128.6 million during 2022, which was primarily due to the 21% increase in gross transaction volumes, partially offset by lower receivable acquisition costs and the realization of information technology cost synergies from the Company’s acquisition of AFF.

As a percentage of segment revenues, operating expenses decreased slightly from 15% during 2022 (adjusted to exclude purchase accounting adjustments) to 14% during 2023.

Segment Pre-Tax Operating Income

The retail POS payment solutions segment pre-tax operating income during 2023 was $132.0 million compared to $59.2 million during 2022.

The increase was primarily the result of fair value purchase accounting and increased segment income resulting from increases in net revenue, partially offset by the increase in segment expenses.

On an adjusted basis, excluding the impacts of fair value purchase accounting, segment pre-tax operating income during 2022 was $109.5 million.

Consolidated Results of Operations

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Consolidated Results of Operations

Segment pre-tax operating income (loss):

Segment pre-tax operating income:

pawn $ 336,306 $ 291,113 16 %

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Interest income (1,469) (1,313) 12 %

(Gain) loss on foreign exchange

Gain on foreign exchange

(1,529) (585) 161 %

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Net income $ 219,301 $ 253,495 (13) %

(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.

(1) The AFF segment results for 2022 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.

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

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

Corporate Expenses and Taxes

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.

Administrative expenses increased 19% to $176.3 million during 2023 compared to $147.9 million during 2022, primarily due to increased incentive compensation expense, certain non-recurring AFF administrative expenses, the increase in pawn store count, including recent acquisitions, and an 11% change in the average value of the Mexican peso resulting in higher U.S.

dollar translated administrative expenses in Latin America.

As a percentage of revenue, administrative expenses increased from 5% during 2022 to 6% during 2023.

Interest expense increased 32% to $93.2 million during 2023 compared to $70.7 million for 2022, primarily due to both higher floating interest rates and increased amounts outstanding on the Company’s unsecured bank credit facilities.

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

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.

Merger and acquisition expenses increased 112% to $7.9 million during 2023 compared to $3.7 million during 2022, reflecting an increased level of acquisition activity in 2023 compared to 2022.

The Company recognized a gain on revaluation of contingent acquisition consideration of $109.5 million during 2022 as a result of a decrease in the liability for the estimated fair value of certain contingent consideration related to the AFF Acquisition.

See Note 6 of Notes to Consolidated Financial Statements.

Consolidated effective income tax rates for 2023 and 2022 were 25.1% and 21.7%, 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.

The increase in the effective tax rate was primarily due to a $4.6 million permanent domestic tax benefit recognized during 2022 related to the $109.5 million gain on revaluation of certain contingent consideration related to the AFF acquisition and a decreased foreign permanent tax benefit recorded in 2023 compared to 2022, all related to a decreased inflation index adjustment allowed in Mexico as a result of moderating inflation.

See Note 12 of Notes to Consolidated Financial Statements.

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Material Capital Requirements

The Company’s primary capital requirements include:

• 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;

The Company’s primary capital requirements include the following:

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

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

◦ 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.

• 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), maintenance capital expenditures related to its facilities, technology platforms, general corporate operating activities, income tax payments and debt service, among others.

Net interest expense is expected to increase in 2024 compared to 2023 due to (i) increased borrowings primarily undertaken to fund recent acquisitions and (ii) anticipated 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 over the next 12 months and also in the longer term beyond the next 12 months.

Expand Pawn Operations

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.

The Company intends to continue expansion of its pawn operations through growth of pawn receivables and inventories in existing stores along with new store openings and acquisitions.

During 2023, the Company acquired 91 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.

and acquired two pawn licenses to open pawn stores in the state of Nevada for a cumulative purchase price of $178.6 million, net of cash acquired and subject to future post-closing adjustments.

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

For 2024, the Company expects to add approximately 75 store locations through new store openings and acquisitions.

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.

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

The Company purchased the real estate at 44 store locations, primarily from landlords at existing stores, for a cumulative purchase price of $70.5 million during 2023.

Expand Retail POS Payment Solutions Operations

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

AFF expects to expand its business primarily 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.

In addition to utilizing cash flows generated from its own operations to fund expected 2024 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 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.

In January 2024, the Company’s Board declared a $0.35 per share first quarter cash dividend on common shares outstanding, or an aggregate of $15.8 million based on the December 31, 2023 share count, to be paid on February 28, 2024 to stockholders of record as of February 14, 2024.

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.

During 2023, the Company repurchased a total of 1,248,000 shares of common stock at an aggregate cost of $114.4 million and an average cost per share of $91.58.

The aggregate cost and average cost per share does not include the effect of the 1% excise tax on certain share repurchases enacted under the inflation Reduction Act of 2022.

The Company incurred $1.1 million of excise taxes during 2023.

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.

All repurchases during 2023 were conducted under the Company’s $100.0 million share repurchase program authorized in April 2022 and the $100.0 million share repurchase program authorized in October 2022 and such repurchases complete the authorizations under these programs.

In July 2023, the Company’s Board of Directors authorized a new common stock repurchase program for up to $200.0 million of the Company’s outstanding common stock, of which the entire $200.0 million is currently remaining.

The Company intends to continue repurchases under its active share repurchase program, including through open market transactions under trading plans in accordance with Rule 10b5-1 and Rule 10b-18 under the Exchange Act of 1934, as amended, 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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The Company had working capital of $971.0 million as of December 31, 2023.

On October 18, 2023, the Company amended its domestic Credit Facility.

The total lender commitment under the amended facility, which is provided by a group of twelve commercial banks, was increased by $50.0 million, from $590.0 million to $640.0 million.

The amended credit facility remains unsecured, and all other terms remained unchanged.

In addition, in August 2023, the Company renewed and extended into 2027 the Mexico Credit Facility in the amount of $600.0 million Mexican pesos.

The Company’s cash and cash equivalents as of December 31, 2023 included $39.9 million held by its foreign subsidiaries.

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The Company elected to repatriate cash of $31.0 million from certain foreign subsidiaries during 2023.

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.

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, 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, the leveraging of currently unencumbered real estate owned by the Company and/or changes to its management of current assets.

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 utilizing other structured financing arrangements, 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.

7 unchanged sentences

(462,332) (336,443) (744,637)

Cash flow (used in) provided by financing activities

Cash flow provided by (used in) financing activities

51,313 (139,273) 576,993

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Cash Flow Provided by Operating Activities

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.

Net cash provided by operating activities decreased $53.2 million, or 11%, from $469.3 million for 2022 to $416.1 million for 2023, as a decrease in net income of $34.2 million was partially offset by 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).

Cash Flow Used in Investing Activities

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

Net cash used in investing activities increased $125.9 million, or 37%, from $336.4 million during 2022 to $462.3 million during 2023.

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 $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.

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 changes in net finance receivables, are included in investing activities.

During 2022, the portion of the AFF Acquisition consideration paid in cash, net of cash acquired, was $25.0 million.

The Company paid $60.1 million for furniture, fixtures, equipment and improvements and $70.5 million for discretionary pawn store real property purchases during 2023 compared to $35.6 million and $82.9 million in 2022, respectively.

The Company paid $181.3 million in cash related to pawn store acquisitions during 2023 compared to $71.8 million during 2022.

The Company funded a net increase in pawn loans of $35.0 million during 2023 and $35.8 million during 2022.

The Company funded a net increase in finance receivables of $115.4 million during 2023 and $85.4 million during 2022.

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.

Cash Flow Provided by Financing Activities

Net cash provided by financing activities increased $190.6 million, or 137%, from net cash used in financing activities of $139.3 million during 2022 to net cash provided by financing activities of $51.3 million during 2023.

Net borrowings on the credit facilities were $230.3 million during 2023 compared to net borrowings of $80.0 million during 2022.

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 paid debt issuance costs of $0.3 million during 2023 compared to $1.8 million during 2022.

The Company funded $114.4 million for share repurchases and paid dividends of $61.9 million during 2023, compared to funding $157.9 million of share repurchases and dividends paid of $59.6 million during 2022.

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.

In addition, the Company paid withholding taxes on net share settlements of restricted stock awards during 2023 of $2.5 million.

Non-GAAP Financial Information

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(1,778) (0.04) (930) (0.02) 451 0.01

AFF purchase accounting adjustments (1)

AFF purchase accounting and other adjustments (1)

54,341 1.19 82,432 1.74 37,278 0.91

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Other expenses (income), net (1,079) (0.02) (2,103) (0.04) 730 0.02

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

Accrual of pre-merger Cash America income tax liability — — — — 693 0.02

Adjusted net income and diluted earnings per share $ 276,874 $ 6.06 $ 245,737 $ 5.19 $ 161,479 $ 3.94

(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.

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

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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(2,540) (762) (1,778) (1,329) (399) (930) 644 193 451

AFF purchase accounting adjustments (1)

AFF purchase accounting and other adjustments (i)

70,574 16,233 54,341 107,055 24,623 82,432 48,413 11,135 37,278

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Other expenses (income), net (1,402) (323) (1,079) (2,731) (628) (2,103) 949 219 730

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

Accrual of pre-merger Cash America income tax liability — — — — — — — (693) 693

Total adjustments $ 74,554 $ 16,981 $ 57,573 $ (2,815) $ 4,943 $ (7,758) $ 47,584 $ 11,014 $ 36,570

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

(i) The following table details AFF purchase accounting and other 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

2023 2022 2021

Pre-tax Tax After-tax 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 56,606 13,020 43,586 56,701 13,040 43,661 2,051 472 1,579

Other non-recurring costs included in administrative expenses related to a discontinued finance product

13,968 3,213 10,755 — — — — — —

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.

Total AFF purchase accounting and other adjustments

$ 70,574 $ 16,233 $ 54,341 $ 107,055 $ 24,623 $ 82,432 $ 48,413 $ 11,135 $ 37,278

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

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Interest income (1,469) (1,313) (696)

496,860 244,098 213,608

EBITDA 493,784 496,860 244,098

Merger and acquisition expenses 7,922 3,739 15,449

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(2,540) (1,329) 644

AFF purchase accounting adjustments (1)

AFF purchase accounting and other adjustments (1)

13,968 50,354 46,362

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Other expenses (income), net (1,402) (2,731) 949

Loss on extinguishment of debt — — 11,737

Adjusted EBITDA $ 511,732 $ 437,344 $ 289,631

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

(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.

(1) Excludes $56.6 million, $56.7 million and $2.1 million of amortization expense related to identifiable intangible assets as a result of the AFF Acquisition for 2023, 2022 and 2021, respectively, which is already included in the add-back of depreciation and amortization to net income used to calculate EBITDA.

See detail of AFF purchase accounting and other adjustments in the “Adjusted Net Income and Adjusted Diluted Earnings Per Share” section above.

Free Cash Flow and Adjusted Free Cash Flow

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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):

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

Year Ended December 31,

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Total revenue, as reported $ 3,151,796 $ 2,728,942 $ 1,698,965

AFF purchase accounting adjustments (1)

AFF purchase accounting and other adjustments (1)

— 42,657 1,708

Adjusted total revenue $ 3,151,796 $ 2,771,599 $ 1,700,673

(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.

Total net revenue, as reported $ 1,507,239 $ 1,264,586 $ 919,152

AFF purchase accounting and other adjustments (1)

— 50,354 46,362

Adjusted total net revenue $ 1,507,239 $ 1,314,940 $ 965,514

(1) As a result of purchase accounting, AFF’s as reported amounts for 2022 and 2021 contain significant fair value adjustments.

The adjusted amounts for 2022 and 2021 exclude these fair value purchase accounting adjustments.

Constant Currency Results

The Company’s reporting currency is the U.S.

However, certain performance metrics discussed in this report 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 primarily transacted in local currencies.

dollar, however, certain performance metrics discussed in this report 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.

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.

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

The Company also has operations in El Salvador, where the reporting and functional currency is the U.S.

See the Latin America pawn segment tables in “Results of Operations” above for additional reconciliation of certain constant currency amounts to as reported GAAP amounts.

The following table provides exchange rates for the Mexican peso, Guatemalan quetzal and Colombian peso for the current and prior-year periods:

2023 2022 2021

Rate % Change

(Unfavorable) Rate % Change

(Unfavorable) Rate

Mexican peso / U.S.

dollar exchange rate:

End-of-period 16.9 13 % 19.4 6 % 20.6

Twelve months ended 17.8 11 % 20.1 1 % 20.3

Guatemalan quetzal / U.S.

dollar exchange rate:

End-of-period 7.8 1 % 7.9 (3) % 7.7

Twelve months ended 7.8 (1) % 7.7 — % 7.7

Colombian peso / U.S.

dollar exchange rate:

End-of-period 3,822 21 % 4,810 (21) % 3,981

Twelve months ended 4,328 (2) % 4,253 (14) % 3,742

Effects of Inflation

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.

While the impacts of inflation have been widely reported and may be ongoing into the foreseeable future, the Company does not believe inflation had a material effect on the Company’s overall results of operations in 2023.

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.

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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.

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

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis