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Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2022

The fair value of financial instruments is determined by reference to various market data and other valuation techniques, as appropriate. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The three fair value levels are (from highest to lowest):

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

Recurring Fair Value Measurements

The Company’s financial assets and liabilities as of March 31, 2022 and December 31, 2021 that are measured at fair value on a recurring basis are as follows (in thousands):


	Estimated Fair Value
	March 31,		Fair Value Measurements Using
	2022		Level 1		Level 2		Level 3
Financial liabilities:
Contingent AFF acquisition consideration (1)	$	112,119	$	—	$	—	$	112,119

(1)The current portion of $98.2 million is included in accounts payable and accrued liabilities, and the non-current portion of $14.0 million is included in other liabilities in the accompanying consolidated balance sheets.


	Estimated Fair Value
	December 31,		Fair Value Measurements Using
	2021		Level 1		Level 2		Level 3
Financial liabilities:
Contingent AFF acquisition consideration (1)	$	109,549	$	—	$	—	$	109,549

(1)The current portion of $95.6 million is included in accounts payable and accrued liabilities and the non-current portion of $14.0 million is included in other liabilities in the accompanying consolidated balance sheets.

The Company revalues the contingent AFF acquisition consideration to fair value at the end of each reporting period. The estimate of the fair value of contingent AFF acquisition consideration is determined by applying a Monte Carlo simulation, which includes inputs not observable in the market, such as the risk-free rate, risk-adjusted discount rate, the volatility of the underlying financial metrics and projected financial forecast of AFF over the earn-out period, and therefore represents a Level 3 measurement. Significant increases or decreases in these inputs could result in a significantly lower or higher fair value measurement of the contingent AFF acquisition consideration.

The changes in financial assets and liabilities that are measured and recorded at fair value on a recurring basis using Level 3 fair value measurements for the three months ended March 31, 2022 is as follows (in thousands):


	Contingent Consideration
Contingent AFF acquisition consideration as of December 31, 2021	$	109,549
Change in fair value (1)	2,570
Balance at March 31, 2022	$	112,119

(1) The Company recognized a $2.6 million loss during the three months ended March 31, 2022 as a result of the change in fair value of the contingent AFF acquisition consideration, which is included in loss on revaluation of contingent acquisition consideration in the accompanying consolidated statement of income.

There were no transfers in or out of Level 1, 2 or 3 during the three months ended March 31, 2022, and the Company did not have any financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2021.

Fair Value Measurements on a Non-Recurring Basis

The Company measures non-financial assets and liabilities, such as property and equipment and intangible assets, at fair value on a non-recurring basis, or when events or circumstances indicate that the carrying amount of the assets may be impaired.

Financial Assets and Liabilities Not Measured at Fair Value, But for Which Fair Value is Disclosed

The Company’s financial assets and liabilities as of March 31, 2022, 2021 and December 31, 2021 that are not measured at fair value in the consolidated balance sheets are as follows (in thousands):


	Carrying Value		Estimated Fair Value
	March 31,		March 31,		Fair Value Measurements Using
	2022		2022		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	113,317	$	113,317	$	113,317	$	—	$	—
Accounts receivable, net	52,017		52,017		—		—		52,017
Pawn loans	344,101		344,101		—		—		344,101
Finance receivables, net	140,481		180,819		—		—		180,819
	$	649,916	$	690,254	$	113,317	$	—	$	576,937

Financial liabilities:
Revolving unsecured credit facilities	$	218,000	$	218,000	$	—	$	218,000	$	—
Senior unsecured notes (outstanding principal)	1,050,000		992,000		—		992,000		—
	$	1,268,000	$	1,210,000	$	—	$	1,210,000	$	—


	Carrying Value		Estimated Fair Value
	March 31,		March 31,		Fair Value Measurements Using
	2021		2021		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	54,641	$	54,641	$	54,641	$	—	$	—
Accounts receivable, net	35,334		35,334		—		—		35,334
Pawn loans	265,438		265,438		—		—		265,438

	$	355,413	$	355,413	$	54,641	$	—	$	300,772

Financial liabilities:
Revolving unsecured credit facilities	$	44,000	$	44,000	$	—	$	44,000	$	—
Senior unsecured notes (outstanding principal)	500,000		506,000		—		506,000		—
	$	544,000	$	550,000	$	—	$	550,000	$	—


	Carrying Value		Estimated Fair Value
	December 31,		December 31,		Fair Value Measurements Using
	2021		2021		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	120,046	$	120,046	$	120,046	$	—	$	—
Accounts receivable, net	55,356		55,356		—		—		55,356
Pawn loans	347,973		347,973		—		—		347,973
Finance receivables, net	181,021		233,000		—		—		233,000
	$	704,396	$	756,375	$	120,046	$	—	$	636,329

Financial liabilities:
Revolving unsecured credit facilities	$	259,000	$	259,000	$	—	$	259,000	$	—
Senior unsecured notes (outstanding principal)	1,050,000		1,058,000		—		1,058,000		—
	$	1,309,000	$	1,317,000	$	—	$	1,317,000	$	—

As cash and cash equivalents have maturities of less than three months, the carrying value of cash and cash equivalents approximates fair value. Due to their short-term maturities, the carrying value of pawn loans and accounts receivable, net approximate fair value.

Finance receivables are measured at amortized cost, net of an allowance for loan losses on the consolidated balance sheets. In estimating fair value for finance receivables, the Company utilized a discounted cash flow methodology. The Company used various unobservable inputs reflecting its own assumptions, such as contractual future principal and interest cash flows, future charge-off rates and discount rates (which consider current interest rates and are adjusted for credit risk, among other factors).

The carrying value of the unsecured credit facilities approximates fair value as of March 31, 2022, 2021 and December 31, 2021. The fair value of the unsecured credit facilities is estimated based on market values for debt issuances with similar characteristics or rates currently available for debt with similar terms. In addition, the unsecured credit facilities have a variable interest rate based on a fixed spread over LIBOR or the Mexican Central Bank’s interbank equilibrium rate (“TIIE”) and reprice with any changes in LIBOR or TIIE. The fair value of the senior unsecured notes is estimated based on quoted prices in markets that are not active.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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