FirstCash, Inc. (the “Company”) (Nasdaq: FCFS), the leading
international operator of over 2,700 retail pawn stores in the U.S.
and Latin America, today provided a COVID-19 update and announced
operating results for the three month period ended March 31,
2020.
Mr. Rick Wessel, chief executive officer,
stated, “During these unprecedented times related to the COVID-19
pandemic, we are focused on ensuring the health and safety of our
employees and customers. FirstCash also remains committed to
providing essential financial services to our customers who depend
on us for their short-term cash needs, especially during uncertain
economic times. In addition, our stores are a source of essential
merchandise, such as laptops and other electronic products, needed
to facilitate remote working and learning. Our customers, many of
whom are tradespeople, purchase our tools and equipment for
essential maintenance and security for homes and businesses. We are
doing our best to continue serving all of our customers and
communities safely, with as little disruption as possible.
“At this time, approximately 98% of the
Company’s 2,740 stores in the United States and Latin America
remain open, where in most jurisdictions, pawnshops have been
designated as essential financial institutions by federal
guidelines and local regulations. We take this responsibility
seriously, and are taking necessary healthcare precautions in
accordance with the guidelines of the Centers for Disease Control
and state and local authorities. This includes the adoption of
strict social distancing and hygiene protocols in our stores and
promoting remote work solutions for corporate and support staff
where feasible. We are very proud and appreciative of our dedicated
employees who are working under challenging circumstances.
“FirstCash’s balance sheet and liquidity remain
strong. As of April 21, we have over $80 million of cash on hand
and $200 million of available borrowing capacity under our
unsecured lines of credit. Additional working capital also includes
over $500 million in fully collateralized, short-term pawn loans
and highly liquid, fast-turning inventories. Year-to-date operating
and free cash flows remain very strong and are running well ahead
of the prior year. While we are temporarily suspending our share
buyback program, we currently intend to continue paying our
quarterly dividend.
“Our first quarter earnings results were better
than expected, driven in large part by an acceleration of retail
demand in March that has continued thus far in April. Even so, the
outlook for the rest of the year is clearly less predictable due to
the impact of COVID-19. Based on historical patterns for tightened
consumer credit and increased customer liquidity needs during times
of economic uncertainty, we anticipate demand for pawn loans will
build given the expected economic volatility. At the same time,
there are still significant uncertainties around the effects of
government stimulus programs and new retail spending patterns in
general. The amount and timing of such impacts on both pawn lending
and retail demand over the balance of the year is difficult to
predict. Adding to the uncertainty is the volatility of foreign
currencies, including the Mexican peso. Although the Company
reinvests its LatAm earnings in-market, currency volatility will
have a significant impact on our earnings when translated into U.S.
dollars. The degree and timing of these combined impacts make it
impractical at this time to provide accurate earnings guidance for
2020, and for this reason we are withdrawing the guidance we gave
in our fourth quarter 2019 earnings release.
“In short, while COVID-19 has created
challenging times, we believe FirstCash is very well-positioned to
continue meeting the needs of our customers and the communities in
which we operate,” concluded Mr. Wessel.
This release contains adjusted earnings
measures, which exclude, among other things, merger and other
acquisition expenses, certain non-cash foreign currency exchange
gains and losses, non-cash write-offs of certain lease intangibles
and the impairment of certain other assets which are non-GAAP
financial measures. Please refer to the descriptions and
reconciliations to GAAP of these and other non-GAAP financial
measures at the end of this release.
|
|
Three Months Ended March 31, |
|
|
As Reported (GAAP) |
|
Adjusted (Non-GAAP) |
In thousands, except per share
amounts |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Revenue |
|
$ |
466,490 |
|
|
$ |
467,604 |
|
|
$ |
466,490 |
|
|
$ |
467,604 |
|
Net income |
|
$ |
32,918 |
|
|
$ |
42,655 |
|
|
$ |
40,295 |
|
|
$ |
42,521 |
|
Diluted earnings per
share |
|
$ |
0.78 |
|
|
$ |
0.98 |
|
|
$ |
0.96 |
|
|
$ |
0.97 |
|
EBITDA (non-GAAP measure) |
|
$ |
64,624 |
|
|
$ |
76,883 |
|
|
$ |
74,606 |
|
|
$ |
76,692 |
|
Weighted-average diluted
shares |
|
42,007 |
|
|
43,658 |
|
|
42,007 |
|
|
43,658 |
|
Consolidated Earnings
Highlights
- Diluted earnings per share decreased 20% on a GAAP basis and 1%
on an adjusted non-GAAP basis in the first quarter of 2020 compared
to the prior-year quarter.
- Tax-effected non-GAAP adjustments to earnings per share during
the quarter included a $0.07 non-cash foreign currency loss related
to the remeasurement of U.S. dollar denominated lease liabilities
in Mexico and $0.11 of non-cash write-offs and impairments of
certain intangible and other assets. For further information, see
the “Reconciliations of Non-GAAP Financial Measures to GAAP
Financial Measures” section.
- Year-over-year comparative earnings per share on both a GAAP
and adjusted non-GAAP basis were negatively impacted by the
continued and expected contraction in non-core consumer lending
revenues, driven primarily by the discontinuance of consumer
lending products in Ohio in April 2019.
- First quarter 2020 earnings from non-core consumer lending
operations were reduced by approximately $0.06 per share on both a
GAAP and adjusted non-GAAP basis compared to the prior-year quarter
as a result of the continued wind down of the non-core consumer
lending business.
- While consolidated revenues for the first quarter of 2020 were
essentially flat compared to the prior-year quarter, revenues from
core pawn operations (retail merchandise sales and pawn fees)
increased 3%. The increase was offset by an expected 87% decline in
non-core consumer lending revenue. Total revenues for the trailing
twelve months totaled $1.9 billion.
- For the trailing twelve months ended March 31, 2020,
consolidated net income was $155 million and adjusted EBITDA
totaled $302 million. Growth in trailing twelve months adjusted
EBITDA was 5% compared to the prior-year period, despite the
significant year-over-year decline in pre-tax earnings from
consumer lending operations.
- Cash flow from operating activities for the trailing twelve
months ended March 31, 2020 totaled $237 million, while adjusted
free cash flow, a non-GAAP financial measure, was $238 million for
the twelve months ended March 31, 2020.
Acquisitions and Store Opening
Highlights
- A total of 31 de novo locations were opened during the first
quarter, all in Latin America. The new store openings included 26
locations in Mexico, four in Colombia and one in
Guatemala.
- The Company acquired a 36-store independent chain of
small-format pawnshops located in central Mexico during the first
quarter of 2020. The purchase price for the all-cash transaction
was approximately $165 million Mexican pesos, which translated into
approximately $7 million U.S. dollars as of March 31, 2020, the
date the transaction closed.
- Over the trailing twelve month period ended March 31, 2020, the
Company has added a total of 182 locations, representing a 7%
increase in the number of pawn stores.
U.S. Operations
- Total domestic revenues for the first quarter decreased 2%
compared to the first quarter of 2019 due to the anticipated 87%
decline in non-core consumer loan and credit services fees.
Excluding consumer loan fees and scrap jewelry sales, core revenues
increased 3% for the quarter compared to the prior-year
quarter.
- Net revenues (or gross profit), which were also impacted by the
decline in non-core consumer lending operations, increased less
than 1% for the first quarter of 2020. Excluding consumer lending
operations and wholesale scrap sales, gross profit from core pawn
operations increased 4% compared to the prior-year quarter,
primarily as a result of improvements in retail sales margins and
pawn yields as highlighted below.
- U.S. retail sales were especially strong in the latter part of
the first quarter, increasing 5% in total and 4% on a same-store
basis compared to the prior-year quarter.
- Retail sales margins increased to 39% for the first quarter of
2020 compared to 37% in the prior-year period. Coupled with the
increase in top-line retail sales, total gross profit from retail
operations increased 11% for the quarter.
- Total and same-store pawn fees in the first quarter were
consistent with the prior-year quarter, as a 460 basis point
increase in the average effective annualized pawn yield was offset
by slightly lower pawn receivable balances.
- Pawn loans outstanding at March 31, 2020 totaled $224 million,
a decrease of 4% in total and on a same-store basis.
Note: Certain growth rates in “Latin America
Operations” below are calculated on a constant currency basis, a
non-GAAP financial measure defined at the end of this release and
reconciled to the most comparable GAAP measures in the financial
statements in this release. The average Mexican peso to U.S. dollar
exchange rate for the three month period ended March 31, 2020
was 19.9 pesos / dollar, an unfavorable change of 4% versus the
comparable prior-year period.
Latin America Operations
- Although COVID-19 had a limited impact on Latin American
operations in the first quarter, revenues for the first quarter of
2020 increased 4% on a U.S. dollar basis and 7% on a constant
currency basis, as compared to the first quarter of 2019.
- Revenue growth was driven primarily by a 3% increase in retail
sales, or 7% on a constant currency basis, compared to the
prior-year quarter, while scrap jewelry sales, which are dollar
denominated, increased 22%. Pawn fees increased 2%, or 5% on
a constant currency basis, as compared to the prior-year
quarter.
- Same-store retail sales decreased 3% on a U.S. dollar basis and
were flat on a constant currency basis, while same-store pawn fees
decreased 4% on a U.S. dollar basis and were flat on a constant
currency basis compared to the prior-year quarter.
- Given the sharp decline in the value of LatAm currencies in
March, pawn loans outstanding decreased 19% on a U.S. dollar
translated basis. On a constant currency basis, the decline was 3%
versus the prior year. Same-store pawn loans at quarter end
decreased 24% on a U.S. dollar translated basis and 8% on a
constant currency basis compared to the prior year.
- Cash collections of interest on pawn loans were strong, with an
increase in the average effective annualized yield on pawn
receivables of 860 basis points above the same quarter last
year.
- Segment retail sales margins were 35% in the first quarter and,
while down versus the prior year, were up significantly over the
32% margins in the prior sequential quarter.
Liquidity
- The Company’s strong liquidity position at March 31, 2020
includes cash balances of $75 million and availability under its
bank lines of credit of $167 million.
- Cash flow from operations totaled $237 million and adjusted
free cash flow was $238 million for the trailing twelve month
period ended March 31, 2020.
- In March, the Company added an additional $600 million Mexican
peso denominated revolving unsecured credit facility with a
bank in Mexico. The facility represents $26 million USD at the
March 31, 2020 exchange rate. The Company fully drew on the
facility in March in order to fund the 36-store acquisition in
Mexico and to increase available cash reserves in Mexico.
- The Company continues to maintain excellent liquidity ratios.
The net debt ratio, which is calculated using a non-GAAP financial
measure, for the trailing twelve months ended March 31, 2020 was
1.9 to 1 compared to 1.8 to 1 a year ago.
Cash Dividend and Stock
Repurchases
- The Board of Directors declared a $0.27 per share second
quarter cash dividend on common shares outstanding, which will be
paid on May 29, 2020 to stockholders of record as of
May 15, 2020. This represents an annual cash dividend of $1.08
per share. Any future dividends are subject to approval by the
Company’s Board of Directors.
- The Company completed the $100 million share repurchase
authorization initiated in May 2019 by repurchasing 344,000 shares
during January 2020. During February and March 2020, the Company
repurchased 637,000 shares under the new $100 million share
repurchase program initiated in January 2020. For the quarter in
total, the Company repurchased 981,000 shares at an aggregate cost
of $80 million. The Company has temporarily suspended the current
share repurchase program; future share repurchases are subject to
expected liquidity, debt covenant restrictions and other relevant
factors including the impact of COVID-19.
- Since the merger with Cash America in September 2016 and
through the first quarter of 2020, the Company has repurchased a
total of 7,245,000 shares, or 36% of the shares issued as a result
of the merger, resulting in a 15% reduction in the total number of
shares outstanding immediately following the merger.
2020 Outlook
- Due to the uncertainty around COVID-19 and the associated
volatility of the Mexican peso, the Company is withdrawing its
previous earnings guidance given on January 29, 2020. As the
Company evaluates its 2020 earning results, the following factors
could or are expected to impact its comparisons to prior-year
results:
- Impact of COVID-19: The extent to which COVID-19 impacts
the Company’s operations will depend on future developments, which
are highly uncertain and cannot be predicted with confidence,
including the duration, severity and scope of the outbreak and
impact on customer retail traffic and borrowing demand, among
others. There can be no assurance that the Company will remain
designated as an essential service or that government officials
will not expand business closures, which would have a material
adverse effect on the Company’s operations and financial condition.
In addition, the operation of the Company’s stores is critically
dependent on its employees who staff each location, and COVID-19
could impact the Company’s ability to safely staff its stores. The
direct impacts of COVID-19 could also significantly change consumer
behavior and shopping patterns in each country in which the Company
operates, which could materially impact demand for the Company’s
pawn loan and retail products, as could actions taken to limit the
economic impact of COVID-19, such as the robust government stimulus
programs enacted in the U.S.
- Currency volatility: Global economic uncertainty due to the
COVID-19 pandemic has strengthened the relative value of the U.S.
dollar and negatively impacted developing market currencies,
including the Mexican peso. The current peso to dollar exchange
rate of approximately 24 to 1 compares to an average rate of 19.2
to 1 and 19.9 to 1 for the first quarter of 2019 and 2020,
respectively. Each full Mexican peso change in the exchange rate to
the U.S. dollar represents approximately $0.10 to $0.12 per share
of annualized earnings impact to the Company.
- Wind-down of unsecured consumer lending operations: The Company
continues to strategically reduce its consumer lending operations.
Earnings associated with consumer lending declined approximately
$0.06 per share during the first quarter compared to the prior-year
quarter.
- Income tax rate: The effective income tax rate is expected to
range from 27.0% to 28.0% for 2020 compared to the actual rate of
26.7% in 2019, which represents approximately $0.02 to $0.07 of
earnings per share headwind.
- New store openings: In connection with its previous, now
withdrawn guidance, the Company had announced that it intended to
open approximately 90 to 100 new locations in 2020. A total of 31
stores were opened in the first quarter and there is a strong
pipeline of new stores under lease and in development. While we are
currently on pace to meet the full year target, future store
openings are subject to uncertainties related to the COVID-19
pandemic, including but not limited to, the ability to continue
construction projects and obtain necessary licenses, permits,
utility services, store equipment, supplies and staffing. As a
reminder, the average investment in new Latin American stores is
relatively small. At current exchange rates, the average capital
expenditure to open a new store in Latin America is approximately
$150,000 USD per store.
Additional Commentary and Analysis
Mr. Wessel continued, “While the Company’s first
quarter results for our pawn operations were strong, our focus in
March turned to navigating these unprecedented times and dealing
with an operational environment unlike any we have seen in the
past. Our priorities have naturally turned to community and
employee safety and maintaining customer accessibility to essential
financial services.”
To expand on some of the key areas of focus
noted earlier in the release, Mr. Wessel provided the following
additional insights:
Customer and Employee Protection
“To keep our customers and employees safe,
FirstCash has implemented strict social distancing protocols
throughout all of our stores and offices, including limiting the
number of customers and employees in our locations as necessary. We
have installed protective barriers at our retail counters and
sanitizers are available for customers and employees. There are
disinfecting protocols in all of our stores and offices, especially
in high traffic areas and frequent contact points. Our employees
are being provided with appropriate personal protective equipment
as it becomes available. Additionally, store hours have been
modified in many locations to comply with local orders and ease
employee scheduling demands.
“FirstCash remains ready and able to provide
fast, short-term cash liquidity to our customers through pawn loans
or buying merchandise from them. Pawns remain essential
non-recourse loans that are easily accessible to unbanked and
underbanked customers and don’t require credit approvals or proof
of income. We are further supporting our customers at this time by
voluntarily lengthening grace periods on pawn loans in certain
markets and by providing additional accommodations to customers
directly impacted by COVID-19. As always, we don’t charge late
fees, customers are never obligated to repay pawn loans, we don’t
pursue collection activities and we don’t report defaults to credit
reporting agencies.
“At this time, we have not had to furlough or
lay off any employees. We have implemented an emergency leave pay
plan to ensure that employees continue to be paid when they are
unable to work due to COVID-19 and we are offering flexible work
arrangements for those with other medical risks and care-giver
responsibilities. The Company is also covering all out of pocket
medical expenses related to COVID-19 for employees who participate
in its medical benefit plans.
Current Status of Store Operations
“Another important priority is to ensure that
our stores remain open in order to continue delivering essential
financial services in a manner that is safe for our customers and
employees. It’s also important for us to remain open so that
customers can redeem existing pawn loans and pick up their
collateral.
“As of April 21, 2020, approximately 98% of our
2,740 stores were open for business. All of the U.S. stores are
currently open and, at this time, we are not aware of any state or
local jurisdictions that have determined our stores to be
non-essential. In Mexico, where we have 1,608 locations, pawn
stores have been deemed an essential operation by PROFECO, the
federal regulator for all retailers, including FirstCash. Currently
there are approximately 30 stores in Mexico that are closed
primarily due to orders by local authorities. In addition, there
are approximately 100 stores in Mexico which are able to provide
all lending services but have restrictions on most retailing
activities at this time. In Central and South America, 27 of our
stores are currently closed, due primarily to broad-based
lock-downs of almost all business activities in Colombia and El
Salvador for the time being.
First Quarter and Early April Business
Trends
“During the first three months of the year, and
in March in particular, both the U.S. and Latin America
segments experienced stronger than expected retail sales and
solid sequential improvements in retail margins and pawn yields.
First quarter cash flows were especially robust, with the Company
generating $77 million of cash flow from operations and $119
million of adjusted free cash flow during the quarter, and $237
million of cash flow from operations and $238 million of adjusted
free cash flow for the trailing twelve month period.
“In the U.S., the seasonal impact from the
normal first quarter tax refunds, which averaged approximately
$3,125 per household, was slightly greater than expected. The
refunds contributed to better than expected retail sales volumes
and margins in February and March along with strong seasonal
pay-downs of pawn receivables of 17% over the full quarter. This
compares to the typical first quarter reduction in pawn loans of
approximately 15%.
“Our U.S. business has been further impacted in
April as customers started receiving federal stimulus payments,
which are in effect a “second tax refund,” assuming a stimulus
payment of $3,400 for the typical family of four. Despite the
severe and broad-based economic impacts of COVID-19 on so many
businesses and individuals, many of our U.S. customers appear to be
somewhat more liquid than would be expected given increased
unemployment rates. In addition to stimulus payments, we believe
that many of our customers have temporarily reduced their normal
levels of spending significantly, as they adhere to strict
“shelter-in-place” regulations resulting in reduced expenditures on
gasoline, dining out, travel, entertainment, childcare and other
services.
“Accordingly, the U.S. results so far in April
have seen both extremely strong retail sales and loan redemptions,
coupled with a lower than normal volume of new loans being written.
Currently, U.S. pawn loans are down 14% since the beginning of
April, when normal seasonal trends for the month would typically
see flat to slightly increased pawn balances. While the increased
volume of loan redemptions is to date driving a 12% increase in
collected pawn fees for April compared to last year, expected fee
income after April will be impacted by the reduced loan
balances.
“Offsetting much of the near term impact of
lower pawn balances is the strength of the U.S. retail business,
where same-store retail sales in the first three weeks of April are
up approximately 29% versus the same period last year while being
able to maintain margins consistent with the first quarter. Much of
the retail sales growth has been driven by strong demand for
essential “stay at home” product categories, including electronics
utilized for remote work or online learning and other “home-based”
recreational products, such as gaming consoles and sporting
goods.
“First quarter results in Latin America were
solid as well. Retail results in particular were encouraging, with
retail sales up 3% in U.S. dollars and 7% on a constant currency
basis. Retail margins were 35%, which was much improved over the
prior sequential quarter margins of 32%, while scrap jewelry
margins and pawn yields improved as well.
“For April, we see trends in Latin America being
similar to those in the U.S., though less pronounced given the lack
of large, broad-based direct payment stimulus programs thus far in
our Latin America markets. Pawn loans outstanding in Mexico are
down approximately 8% since the beginning of April when we would
normally experience slight seasonal growth. Retail sales in LatAm
were slightly above trend in most stores, excluding locations where
stores are currently closed or have restricted retail operations.
Similar to consumer behavior in the U.S., we also believe that many
of our Latin American customers are staying close to home, and as a
result, are limiting personal spending and borrowing activities to
some extent at this time.
Cash Flow and Liquidity
“Consolidated cash flow from operations for the
trailing twelve months ended March 31, 2020 was $237 million and
adjusted free cash flow totaled $238 million, of which $229 million
was utilized for discretionary share buybacks and real estate
purchases over this same period. As almost all of our stores
continue to operate as essential businesses, operating and free
cash flows in April so far remain especially strong and well ahead
of the prior year. This shows the resiliency of the FirstCash
business model in the face of the pandemic’s impact on the U.S. and
LatAm economies.
“We currently have over $80 million of cash on
hand and significant availability on our existing $500 million
unsecured U.S. bank line of credit. Since the beginning of April,
we have paid down $33 million on the U.S. line of credit and
current availability as of April 21 totals $200 million. During
March, we also added a $600 million Mexican peso unsecured line of
credit with a major bank in Mexico. This new line of credit, which
is approximately $25 million USD at the current exchange rate, was
utilized to pay for the recent 36-store acquisition in Mexico and
we fully drew down the remainder of the line to maintain larger
cash reserves in Latin America.
In Summary
“Pawnshops have historically served unbanked and
underbanked consumers well in periods of economic uncertainty and
credit contraction. Based on historical patterns, we expect strong
future demand for pawn loans, given potential longer term weakness
in the employment market and tightening of unsecured underwriting
requirements by other small dollar lenders. The timing of the
expected demand cycle will be subject, in the short run, to the
offsetting impacts of government stimulus programs and consumer
spending patterns.
“We continue to closely monitor the COVID-19
situation with a vigilant focus on the health and well being of our
employees and customers. We have implemented significant safety
protocols in our stores so they can remain open to offer essential
services and we are diligently protecting our strong cash flows and
liquidity positions,” concluded Mr. Wessel, chief executive
officer.
About FirstCash
FirstCash is the leading international operator
of pawn stores with more than 2,700 retail pawn locations and
20,000 employees in 24 U.S. states, the District of Columbia and
four countries in Latin America including Mexico, Guatemala, El
Salvador and Colombia. FirstCash focuses on serving cash and credit
constrained consumers through its retail pawn locations, which buy
and sell a wide variety of jewelry, electronics, tools, appliances,
sporting goods, musical instruments and other merchandise, and make
small consumer pawn loans secured by pledged personal property.
FirstCash is a component company in both the
Standard & Poor’s MidCap 400 Index® and the
Russell 2000 Index®. FirstCash’s common stock
(ticker symbol “FCFS”) is traded on the Nasdaq,
the creator of the world’s first electronic stock market. For
additional information regarding FirstCash and the services it
provides, visit FirstCash’s websites located at
http://www.firstcash.com and http://www.cashamerica.com.
Forward-Looking Information
This release contains forward-looking statements
about the business, financial condition and prospects of FirstCash,
Inc. and its wholly owned subsidiaries (together, the “Company”).
Forward-looking statements, as that term is defined in the Private
Securities Litigation Reform Act of 1995, can be identified by the
use of forward-looking terminology such as “outlook,” “believes,”
“projects,” “expects,” “may,” “estimates,” “should,” “plans,”
“targets,” “intends,” “could,” “would,” “anticipates,” “potential,”
“confident,” “optimistic,” or the negative thereof, or other
variations thereon, or comparable terminology, or by discussions of
strategy, objectives, estimates, guidance, expectations and future
plans. Forward-looking statements can also be identified by the
fact these statements do not relate strictly to historical or
current matters. Rather, forward-looking statements relate to
anticipated or expected events, activities, trends or results.
Because forward-looking statements relate to matters that have not
yet occurred, these statements are inherently subject to risks and
uncertainties.
While the Company believes the expectations
reflected in forward-looking statements are reasonable, there can
be no assurances such expectations will prove to be accurate.
Security holders are cautioned such forward-looking statements
involve risks and uncertainties. Certain factors may cause results
to differ materially from those anticipated by the forward-looking
statements made in this release. Such factors may include, without
limitation, the risks, uncertainties and regulatory developments
(1) related to the COVID-19 pandemic, which include risks and
uncertainties related to the current unknown duration of the
COVID-19 pandemic, the impact of governmental regulations that have
been, and may in the future be, imposed in response to the
pandemic, including regulations which could adversely affect the
Company’s ability to continue to operate as an “essential
business,” potential changes in consumer behavior and shopping
patterns, which could impact demand for both the Company’s pawn
loan and retail products, the potential effects of government
stimulus packages, the deterioration in the economic conditions in
the United States and Latin America, which potentially could have
an impact on discretionary consumer spending, and currency
fluctuations, primarily involving the Mexican peso and (2) those
discussed and described in the Company’s 2019 annual report on Form
10-K filed with the Securities and Exchange Commission (the “SEC”)
on February 3, 2020, including the risks described in Part 1,
Item 1A, “Risk Factors” thereof, and other reports filed
subsequently by the Company with the SEC. Many of these risks and
uncertainties are beyond the ability of the Company to control, nor
can the Company predict, in many cases, all of the risks and
uncertainties that could cause its actual results to differ
materially from those indicated by the forward-looking statements.
The forward-looking statements contained in this release speak only
as of the date of this release, and the Company expressly disclaims
any obligation or undertaking to report any updates or revisions to
any such statement to reflect any change in the Company’s
expectations or any change in events, conditions or circumstances
on which any such statement is based, except as required by
law.
FIRSTCASH,
INC.CONSOLIDATED STATEMENTS OF
INCOME(unaudited, in thousands, except per share
amounts)
|
|
Three Months Ended |
|
|
March 31, |
|
|
2020 |
|
2019 |
Revenue: |
|
|
|
|
Retail merchandise sales |
|
$ |
296,629 |
|
|
$ |
284,241 |
|
Pawn loan fees |
|
142,115 |
|
|
141,192 |
|
Wholesale scrap jewelry sales |
|
26,371 |
|
|
31,710 |
|
Consumer loan and credit services fees |
|
1,375 |
|
|
10,461 |
|
Total revenue |
|
466,490 |
|
|
467,604 |
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
Cost of retail merchandise sold |
|
184,695 |
|
|
179,349 |
|
Cost of wholesale scrap jewelry sold |
|
22,847 |
|
|
30,353 |
|
Consumer loan and credit services loss provision |
|
(361 |
) |
|
2,103 |
|
Total cost of revenue |
|
207,181 |
|
|
211,805 |
|
|
|
|
|
|
Net revenue |
|
259,309 |
|
|
255,799 |
|
|
|
|
|
|
Expenses and other
income: |
|
|
|
|
Store operating expenses |
|
153,500 |
|
|
146,852 |
|
Administrative expenses |
|
32,902 |
|
|
32,154 |
|
Depreciation and amortization |
|
10,674 |
|
|
9,874 |
|
Interest expense |
|
8,418 |
|
|
8,370 |
|
Interest income |
|
(185 |
) |
|
(204 |
) |
Merger and other acquisition expenses |
|
68 |
|
|
149 |
|
Loss (gain) on foreign exchange |
|
2,685 |
|
|
(239 |
) |
Write-offs and impairments of certain lease intangibles and other
assets |
|
5,530 |
|
|
— |
|
Total expenses and other income |
|
213,592 |
|
|
196,956 |
|
|
|
|
|
|
Income before income
taxes |
|
45,717 |
|
|
58,843 |
|
|
|
|
|
|
Provision for income taxes |
|
12,799 |
|
|
16,188 |
|
|
|
|
|
|
Net income |
|
$ |
32,918 |
|
|
$ |
42,655 |
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
Basic |
|
$ |
0.79 |
|
|
$ |
0.98 |
|
Diluted |
|
$ |
0.78 |
|
|
$ |
0.98 |
|
|
|
|
|
|
Weighted-average shares
outstanding: |
|
|
|
|
Basic |
|
41,912 |
|
|
43,518 |
|
Diluted |
|
42,007 |
|
|
43,658 |
|
|
|
|
|
|
Dividends declared per common
share |
|
$ |
0.27 |
|
|
$ |
0.25 |
|
FIRSTCASH,
INC.CONSOLIDATED BALANCE
SHEETS(unaudited, in thousands)
|
|
March 31, |
|
December 31, |
|
|
2020 |
|
2019 |
|
2019 |
ASSETS |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
75,464 |
|
|
$ |
49,663 |
|
|
$ |
46,527 |
|
Fees and service charges
receivable |
|
40,121 |
|
|
43,993 |
|
|
46,686 |
|
Pawn loans |
|
314,296 |
|
|
345,200 |
|
|
369,527 |
|
Consumer loans, net |
|
410 |
|
|
11,017 |
|
|
751 |
|
Inventories |
|
227,876 |
|
|
257,803 |
|
|
265,256 |
|
Income taxes receivable |
|
4,279 |
|
|
1,096 |
|
|
875 |
|
Prepaid expenses and other
current assets |
|
10,326 |
|
|
9,329 |
|
|
11,367 |
|
Total current assets |
|
672,772 |
|
|
718,101 |
|
|
740,989 |
|
|
|
|
|
|
|
|
Property and equipment,
net |
|
329,066 |
|
|
276,397 |
|
|
336,167 |
|
Operating lease right of use
asset |
|
280,840 |
|
|
298,167 |
|
|
304,549 |
|
Goodwill |
|
927,290 |
|
|
932,773 |
|
|
948,643 |
|
Intangible assets, net |
|
84,999 |
|
|
87,810 |
|
|
85,875 |
|
Other assets |
|
9,188 |
|
|
10,927 |
|
|
11,506 |
|
Deferred tax assets |
|
8,718 |
|
|
11,608 |
|
|
11,711 |
|
Total assets |
|
$ |
2,312,873 |
|
|
$ |
2,335,783 |
|
|
$ |
2,439,440 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
Accounts payable and accrued
liabilities |
|
$ |
74,805 |
|
|
$ |
77,363 |
|
|
$ |
72,398 |
|
Customer deposits |
|
39,728 |
|
|
40,055 |
|
|
39,736 |
|
Income taxes payable |
|
9,832 |
|
|
7,484 |
|
|
4,302 |
|
Lease liability, current |
|
82,355 |
|
|
84,946 |
|
|
86,466 |
|
Total current liabilities |
|
206,720 |
|
|
209,848 |
|
|
202,902 |
|
|
|
|
|
|
|
|
Revolving unsecured credit
facilities |
|
355,519 |
|
|
255,000 |
|
|
335,000 |
|
Senior unsecured notes |
|
296,744 |
|
|
296,053 |
|
|
296,568 |
|
Deferred tax liabilities |
|
64,728 |
|
|
57,496 |
|
|
61,431 |
|
Lease liability,
non-current |
|
181,787 |
|
|
188,970 |
|
|
193,504 |
|
Total liabilities |
|
1,105,498 |
|
|
1,007,367 |
|
|
1,089,405 |
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
Common stock |
|
493 |
|
|
493 |
|
|
493 |
|
Additional paid-in capital |
|
1,224,113 |
|
|
1,225,482 |
|
|
1,231,528 |
|
Retained earnings |
|
749,126 |
|
|
638,574 |
|
|
727,476 |
|
Accumulated other comprehensive loss |
|
(180,472 |
) |
|
(107,694 |
) |
|
(96,969 |
) |
Common stock held in treasury, at cost |
|
(585,885 |
) |
|
(428,439 |
) |
|
(512,493 |
) |
Total stockholders’ equity |
|
1,207,375 |
|
|
1,328,416 |
|
|
1,350,035 |
|
Total liabilities and stockholders’ equity |
|
$ |
2,312,873 |
|
|
$ |
2,335,783 |
|
|
$ |
2,439,440 |
|
FIRSTCASH, INC.OPERATING
INFORMATION(UNAUDITED)
The Company’s reportable segments are as
follows:
- U.S. operations - Includes all pawn and consumer loan
operations in the U.S.
- Latin America operations - Includes all pawn operations in
Latin America, which includes operations in Mexico, Guatemala, El
Salvador and Colombia.
The Company provides revenues, cost of revenues,
store operating expenses, pre-tax operating income and earning
assets by segment. Store operating expenses include salary and
benefit expense of store-level employees, occupancy costs, bank
charges, security, insurance, utilities, supplies and other costs
incurred by the stores.
U.S. Operations Segment Results
The following table details earning assets,
which consist of pawn loans, inventories and unsecured consumer
loans, net as well as other earning asset metrics of the U.S.
operations segment as of March 31, 2020 as compared to
March 31, 2019 (dollars in thousands, except as otherwise
noted):
|
As of March 31, |
|
Increase / |
|
2020 |
|
2019 |
|
(Decrease) |
U.S. Operations
Segment |
|
|
|
|
|
|
|
|
|
Earning assets: |
|
|
|
|
|
|
|
|
|
Pawn loans |
$ |
224,121 |
|
|
$ |
233,649 |
|
|
|
(4)% |
|
Inventories |
|
162,142 |
|
|
|
175,236 |
|
|
|
(7)% |
|
Consumer loans, net |
|
410 |
|
|
|
11,017 |
|
|
|
(96)% |
|
|
$ |
386,673 |
|
|
$ |
419,902 |
|
|
|
(8)% |
|
|
|
|
|
|
|
|
|
|
|
Average outstanding pawn loan
amount (in ones) |
$ |
182 |
|
|
$ |
173 |
|
|
|
5% |
|
|
|
|
|
|
|
|
|
|
|
Composition of pawn
collateral: |
|
|
|
|
|
|
|
|
|
General merchandise |
31 |
% |
|
34 |
% |
|
|
|
|
Jewelry |
69 |
% |
|
66 |
% |
|
|
|
|
|
100 |
% |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of
inventories: |
|
|
|
|
|
|
|
|
|
General merchandise |
42 |
% |
|
42 |
% |
|
|
|
|
Jewelry |
58 |
% |
|
58 |
% |
|
|
|
|
|
100 |
% |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of inventory aged
greater than one year |
3 |
% |
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory turns (trailing
twelve months retail sales divided by average inventories) |
2.9 times |
|
2.7 times |
|
|
|
|
FIRSTCASH, INC.OPERATING
INFORMATION (CONTINUED)(UNAUDITED)
The following table presents segment pre-tax
operating income of the U.S. operations segment for the three
months ended March 31, 2020 as compared to the three months
ended March 31, 2019 (dollars in thousands):
|
Three Months Ended |
|
|
|
|
March 31, |
|
Increase / |
|
2020 |
|
2019 |
|
(Decrease) |
U.S. Operations
Segment |
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
Retail merchandise sales |
$ |
195,966 |
|
|
$ |
186,815 |
|
|
|
5% |
|
Pawn loan fees |
97,857 |
|
|
97,876 |
|
|
|
—% |
|
Wholesale scrap jewelry sales |
15,478 |
|
|
22,785 |
|
|
|
(32)% |
|
Consumer loan and credit services fees |
1,375 |
|
|
10,461 |
|
|
|
(87)% |
|
Total revenue |
310,676 |
|
|
317,937 |
|
|
|
(2)% |
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
Cost of retail merchandise sold |
119,529 |
|
|
117,744 |
|
|
|
2% |
|
Cost of wholesale scrap jewelry sold |
14,006 |
|
|
21,270 |
|
|
|
(34)% |
|
Consumer loan and credit services loss provision |
(361 |
) |
|
2,103 |
|
|
|
(117)% |
|
Total cost of revenue |
133,174 |
|
|
141,117 |
|
|
|
(6)% |
|
|
|
|
|
|
|
|
Net revenue |
177,502 |
|
|
176,820 |
|
|
|
—% |
|
|
|
|
|
|
|
|
Segment expenses: |
|
|
|
|
|
|
Store operating expenses |
107,706 |
|
|
103,884 |
|
|
|
4% |
|
Depreciation and amortization |
5,401 |
|
|
5,045 |
|
|
|
7% |
|
Total segment expenses |
113,107 |
|
|
108,929 |
|
|
|
4% |
|
|
|
|
|
|
|
|
Segment pre-tax operating
income |
$ |
64,395 |
|
|
$ |
67,891 |
|
|
|
(5)% |
|
FIRSTCASH, INC.OPERATING
INFORMATION (CONTINUED)(UNAUDITED)
Latin America Operations Segment
Results
The Company’s management reviews and analyzes
certain 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. dollars.
Amounts presented on a constant currency basis are denoted as such.
See the “Constant Currency Results” section below for additional
discussion of constant currency results.
The following table provides exchange rates for
the Mexican peso, Guatemalan quetzal and Colombian peso for the
current and prior-year periods:
|
March 31, |
|
Favorable / |
|
2020 |
|
2019 |
|
(Unfavorable) |
Mexican peso / U.S. dollar
exchange rate: |
|
|
|
|
|
|
End-of-period |
23.5 |
|
19.4 |
|
|
(21)% |
|
Three months ended |
19.9 |
|
19.2 |
|
|
(4)% |
|
|
|
|
|
|
|
|
Guatemalan quetzal / U.S.
dollar exchange rate: |
|
|
|
|
|
|
End-of-period |
7.7 |
|
7.7 |
|
|
—% |
|
Three months ended |
7.7 |
|
7.7 |
|
|
—% |
|
|
|
|
|
|
|
|
Colombian peso / U.S. dollar
exchange rate: |
|
|
|
|
|
|
End-of-period |
4,065 |
|
3,175 |
|
|
(28)% |
|
Three months ended |
3,533 |
|
3,137 |
|
|
(13)% |
|
FIRSTCASH, INC.OPERATING
INFORMATION (CONTINUED)(UNAUDITED)
The following table details earning assets,
which consist of pawn loans and inventories as well as other
earning asset metrics of the Latin America operations segment as of
March 31, 2020 as compared to March 31, 2019 (dollars in
thousands, except as otherwise noted):
|
|
|
|
|
|
|
|
|
|
|
Constant Currency Basis |
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
As of March 31, |
|
|
|
2020 |
|
Decrease |
|
2020 |
|
2019 |
|
Decrease |
|
(Non-GAAP) |
|
(Non-GAAP) |
Latin America
Operations Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pawn loans |
$ |
90,175 |
|
|
$ |
111,551 |
|
|
|
(19)% |
|
|
|
$ |
108,337 |
|
|
|
(3)% |
|
Inventories |
|
65,734 |
|
|
|
82,567 |
|
|
|
(20)% |
|
|
|
79,030 |
|
|
|
(4)% |
|
|
$ |
155,909 |
|
|
$ |
194,118 |
|
|
|
(20)% |
|
|
|
$ |
187,367 |
|
|
|
(3)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average outstanding pawn loan
amount (in ones) |
$ |
56 |
|
|
$ |
68 |
|
|
|
(18)% |
|
|
|
$ |
67 |
|
|
|
(1)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of pawn
collateral: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General merchandise |
70 |
% |
|
74 |
% |
|
|
|
|
|
|
|
|
|
Jewelry |
30 |
% |
|
26 |
% |
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of
inventories: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General merchandise |
62 |
% |
|
70 |
% |
|
|
|
|
|
|
|
|
|
Jewelry |
38 |
% |
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of inventory aged
greater than one year |
1 |
% |
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory turns (trailing
twelve months retail sales divided by average inventories) |
3.9 times |
|
3.8 times |
|
|
|
|
|
|
|
|
|
FIRSTCASH, INC.OPERATING
INFORMATION (CONTINUED)(UNAUDITED)
The following table presents segment pre-tax
operating income of the Latin America operations segment for the
three months ended March 31, 2020 as compared to the three
months ended March 31, 2019 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Constant Currency Basis |
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
March 31, |
|
Increase / |
|
|
March 31, |
|
Increase / |
|
2020 |
|
(Decrease) |
|
|
2020 |
|
2019 |
|
(Decrease) |
|
(Non-GAAP) |
|
(Non-GAAP) |
Latin America
Operations Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail merchandise sales |
|
$ |
100,663 |
|
|
$ |
97,426 |
|
|
|
3 |
% |
|
|
$ |
103,856 |
|
|
|
7 |
% |
Pawn loan fees |
|
44,258 |
|
|
43,316 |
|
|
|
2 |
% |
|
|
45,659 |
|
|
|
5 |
% |
Wholesale scrap jewelry sales |
|
10,893 |
|
|
8,925 |
|
|
|
22 |
% |
|
|
10,893 |
|
|
|
22 |
% |
Total revenue |
|
155,814 |
|
|
149,667 |
|
|
|
4 |
% |
|
|
160,408 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of retail merchandise sold |
|
65,166 |
|
|
61,605 |
|
|
|
6 |
% |
|
|
67,227 |
|
|
|
9 |
% |
Cost of wholesale scrap jewelry sold |
|
8,841 |
|
|
9,083 |
|
|
|
(3) |
% |
|
|
9,133 |
|
|
|
1 |
% |
Total cost of revenue |
|
74,007 |
|
|
70,688 |
|
|
|
5 |
% |
|
|
76,360 |
|
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
81,807 |
|
|
78,979 |
|
|
|
4 |
% |
|
|
84,048 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Store operating expenses |
|
45,794 |
|
|
42,968 |
|
|
|
7 |
% |
|
|
47,164 |
|
|
|
10 |
% |
Depreciation and amortization |
|
4,063 |
|
|
3,305 |
|
|
|
23 |
% |
|
|
4,189 |
|
|
|
27 |
% |
Total segment expenses |
|
49,857 |
|
|
46,273 |
|
|
|
8 |
% |
|
|
51,353 |
|
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment pre-tax operating
income |
|
$ |
31,950 |
|
|
$ |
32,706 |
|
|
|
(2) |
% |
|
|
$ |
32,695 |
|
|
|
— |
% |
FIRSTCASH, INC.OPERATING
INFORMATION (CONTINUED)(UNAUDITED)
Consolidated Results of Operations
The following table reconciles pre-tax operating
income of the Company’s U.S. operations segment and Latin
America operations segment discussed above to consolidated net
income (in thousands):
|
Three Months Ended |
|
March 31, |
|
2020 |
|
2019 |
Consolidated Results
of Operations |
|
|
|
Segment pre-tax operating
income: |
|
|
|
U.S. operations segment pre-tax operating income |
$ |
64,395 |
|
|
$ |
67,891 |
|
Latin America operations segment pre-tax operating income |
31,950 |
|
|
32,706 |
|
Consolidated segment pre-tax operating income |
96,345 |
|
|
100,597 |
|
|
|
|
|
Corporate expenses and other
income: |
|
|
|
Administrative expenses |
32,902 |
|
|
32,154 |
|
Depreciation and amortization |
1,210 |
|
|
1,524 |
|
Interest expense |
8,418 |
|
|
8,370 |
|
Interest income |
(185 |
) |
|
(204 |
) |
Merger and other acquisition expenses |
68 |
|
|
149 |
|
Loss (gain) on foreign exchange |
2,685 |
|
|
(239 |
) |
Write-offs and impairments of certain lease intangibles and other
assets |
5,530 |
|
|
— |
|
Total corporate expenses and other income |
50,628 |
|
|
41,754 |
|
|
|
|
|
Income before income
taxes |
45,717 |
|
|
58,843 |
|
|
|
|
|
Provision for income taxes |
12,799 |
|
|
16,188 |
|
|
|
|
|
Net income |
$ |
32,918 |
|
|
$ |
42,655 |
|
FIRSTCASH, INC.STORE
COUNT ACTIVITY
The following table details store count
activity:
|
|
Three Months Ended March 31, 2020 |
|
|
U.S. |
|
Latin America |
|
|
|
|
Operations Segment (1) |
|
Operations Segment (2) |
|
Total Locations |
Total locations, beginning of period |
|
1,056 |
|
|
1,623 |
|
|
2,679 |
|
New locations opened |
|
— |
|
|
31 |
|
|
31 |
|
Locations acquired |
|
— |
|
|
36 |
|
|
36 |
|
Locations closed or consolidated |
|
(4 |
) |
|
(2 |
) |
|
(6 |
) |
Total locations, end of period |
|
1,052 |
|
|
1,688 |
|
|
2,740 |
|
(1) |
At March 31, 2020, includes six consumer loan locations
located in Texas, which only offer credit services products. This
compares to 15 consumer loan locations which only offered consumer
loans and/or credit services as of March 31, 2019. At
March 31, 2020, 40 of the pawn stores, primarily located in
Texas, also offered consumer loans and/or credit services primarily
as an ancillary product. This compares to 261 U.S. pawn locations
which offered such products as of March 31, 2019. The table
does not include 43 check cashing locations operated by independent
franchisees under franchising agreements with the Company. |
|
|
(2) |
The table does not include 37 Mexico pawn locations operated by
independent franchisees under franchising agreements with the
Company. |
FIRSTCASH,
INC.RECONCILIATIONS OF NON-GAAP FINANCIAL
MEASURESTO GAAP FINANCIAL
MEASURES(UNAUDITED)
The Company uses certain financial calculations
such as adjusted net income, adjusted diluted earnings per share,
EBITDA, adjusted EBITDA, free cash flow, adjusted free cash flow
and constant currency results as factors in the measurement and
evaluation of the Company’s operating performance and
period-over-period growth. The Company derives these financial
calculations on the basis of methodologies other than generally
accepted accounting principles (“GAAP”), primarily by excluding
from a comparable GAAP measure certain items the Company does not
consider to be representative of its actual operating performance.
These financial calculations are “non-GAAP financial measures” as
defined in SEC rules. The Company uses these non-GAAP financial
measures in operating its business because management believes they
are less susceptible to variances in actual operating performance
that can result from the excluded items, other infrequent charges
and currency fluctuations. The Company presents these financial
measures to investors because management believes they are useful
to investors in evaluating the primary factors that drive the
Company’s core operating performance and provide greater
transparency into the Company’s results of operations. However,
items that are excluded and other adjustments and assumptions that
are made in calculating these non-GAAP financial measures are
significant components in understanding and assessing the Company’s
financial performance. These non-GAAP financial measures should be
evaluated in conjunction with, and are not a substitute for, the
Company’s GAAP financial measures. Further, because these non-GAAP
financial measures are not determined in accordance with GAAP and
are thus susceptible to varying calculations, the non-GAAP
financial measures, as presented, may not be comparable to other
similarly titled measures of other companies.
While acquisitions are an important part of the
Company’s overall strategy, the Company has adjusted the applicable
financial calculations to exclude merger and other acquisition
expenses to allow more accurate comparisons of the financial
results to prior periods and because the Company does not consider
these merger and other acquisition expenses to be related to the
organic operations of the acquired businesses or its continuing
operations and such expenses are generally not relevant to
assessing or estimating the long-term performance of the acquired
businesses. Merger and other acquisition expenses include
incremental costs directly associated with merger and acquisition
activities, including professional fees, legal expenses, severance,
retention and other employee-related costs, contract breakage costs
and costs related to the consolidation of technology systems and
corporate facilities, among others.
The Company has certain leases in Mexico which
are denominated in U.S. dollars. The lease liability of these U.S.
dollar denominated leases, which is considered a monetary
liability, is remeasured into Mexican pesos using current period
exchange rates which results 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 due to the adoption of ASC 842 on
January 1, 2019.
FIRSTCASH,
INC.RECONCILIATIONS OF NON-GAAP FINANCIAL
MEASURESTO GAAP FINANCIAL MEASURES
(CONTINUED)(UNAUDITED)
Adjusted Net Income and Adjusted Diluted
Earnings Per Share
Management believes the presentation of adjusted
net income and adjusted diluted earnings per share provides
investors with greater transparency and provides a more complete
understanding of the Company’s financial performance and prospects
for the future by excluding items that management believes are
non-operating in nature and not representative of the Company’s
core operating performance of its continuing operations. In
addition, management believes the adjustments shown below are
useful to investors in order to allow them to compare the Company’s
financial results for the current periods presented with the prior
periods presented.
The following table provides a reconciliation
between net income and diluted earnings per share calculated in
accordance with GAAP to adjusted net income and adjusted diluted
earnings per share, which are shown net of tax (in thousands,
except per share amounts):
|
Three Months Ended March 31, |
|
2020 |
|
2019 |
|
In Thousands |
|
Per Share |
|
In Thousands |
|
Per Share |
Net income and diluted earnings per share, as reported |
$ |
32,918 |
|
|
$ |
0.78 |
|
|
$ |
42,655 |
|
|
$ |
0.98 |
|
Adjustments, net of tax: |
|
|
|
|
|
|
|
Merger and other acquisition expenses |
50 |
|
|
— |
|
|
104 |
|
|
— |
|
Non-cash foreign currency loss (gain) related to lease
liability |
3,069 |
|
|
0.07 |
|
|
(238 |
) |
|
(0.01 |
) |
Non-cash write-off of certain merger related lease intangibles
(1) |
2,795 |
|
|
0.07 |
|
|
— |
|
|
— |
|
Non-cash impairment of certain other assets (2) |
1,463 |
|
|
0.04 |
|
|
— |
|
|
— |
|
Adjusted net income and
diluted earnings per share |
$ |
40,295 |
|
|
$ |
0.96 |
|
|
$ |
42,521 |
|
|
$ |
0.97 |
|
(1) |
The Company recorded a $2.8 million write-off, net of tax, of
certain merger related lease intangibles. The lease intangibles,
which subsequent to the adoption of ASC 842 are included in the
operating right of use asset on the consolidated balance sheets,
were recorded in conjunction with the Cash America merger in 2016
and were written-off as a result of the Company purchasing the
store real estate from the landlords of certain existing legacy
Cash America stores. |
|
|
(2) |
The Company recorded a $1.5 million impairment, net of tax, related
to a non-operating asset in which the Company determined that an
other than temporary impairment existed as of March 31, 2020. |
FIRSTCASH,
INC.RECONCILIATIONS OF NON-GAAP FINANCIAL
MEASURESTO GAAP FINANCIAL MEASURES
(CONTINUED)(UNAUDITED)
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 (in thousands):
|
Three Months Ended March 31, |
|
2020 |
|
2019 |
|
Pre-tax |
|
Tax |
|
After-tax |
|
Pre-tax |
|
Tax |
|
After-tax |
Merger and other acquisition expenses |
$ |
68 |
|
|
$ |
18 |
|
|
$ |
50 |
|
|
$ |
149 |
|
|
$ |
45 |
|
|
$ |
104 |
|
Non-cash foreign currency loss
(gain) related to lease liability |
4,384 |
|
|
1,315 |
|
|
3,069 |
|
|
(340 |
) |
|
(102 |
) |
|
(238 |
) |
Non-cash write-off of certain
merger related lease intangibles |
3,630 |
|
|
835 |
|
|
2,795 |
|
|
— |
|
|
— |
|
|
— |
|
Non-cash impairment of certain
other assets |
1,900 |
|
|
437 |
|
|
1,463 |
|
|
— |
|
|
— |
|
|
— |
|
Total adjustments |
$ |
9,982 |
|
|
$ |
2,605 |
|
|
$ |
7,377 |
|
|
$ |
(191 |
) |
|
$ |
(57 |
) |
|
$ |
(134 |
) |
FIRSTCASH,
INC.RECONCILIATIONS OF NON-GAAP FINANCIAL
MEASURESTO GAAP FINANCIAL MEASURES
(CONTINUED)(UNAUDITED)
Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) and Adjusted EBITDA
The Company defines EBITDA as net income before
income taxes, depreciation and amortization, interest expense and
interest income and adjusted EBITDA as EBITDA adjusted for certain
items as listed below that management considers to be non-operating
in nature and not representative of its actual operating
performance. The Company believes EBITDA and adjusted EBITDA are
commonly used by investors to assess a company’s financial
performance, and adjusted EBITDA is used in the calculation of the
net debt ratio as defined in the Company’s senior unsecured notes
covenants. The following table provides a reconciliation of net
income to EBITDA and adjusted EBITDA (dollars in
thousands):
|
|
|
|
|
|
|
Trailing Twelve |
|
Three Months Ended |
|
Months Ended |
|
March 31, |
|
March 31, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Net income |
$ |
32,918 |
|
|
$ |
42,655 |
|
|
$ |
154,881 |
|
|
$ |
154,226 |
|
Income taxes |
|
12,799 |
|
|
|
16,188 |
|
|
|
56,604 |
|
|
|
54,147 |
|
Depreciation and amortization |
|
10,674 |
|
|
|
9,874 |
|
|
|
42,704 |
|
|
|
41,552 |
|
Interest expense |
|
8,418 |
|
|
|
8,370 |
|
|
|
34,083 |
|
|
|
31,345 |
|
Interest income |
|
(185 |
) |
|
|
(204 |
) |
|
|
(1,036 |
) |
|
|
(1,667 |
) |
EBITDA |
|
64,624 |
|
|
|
76,883 |
|
|
|
287,236 |
|
|
|
279,603 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Merger and other acquisition expenses |
|
68 |
|
|
|
149 |
|
|
|
1,685 |
|
|
|
7,553 |
|
Non-cash foreign currency loss (gain) related to lease
liability |
|
4,384 |
|
|
|
(340 |
) |
|
|
3,791 |
|
|
|
(340 |
) |
Non-cash write-off of certain merger related lease intangibles |
|
3,630 |
|
|
|
— |
|
|
|
3,630 |
|
|
|
— |
|
Non-cash impairment of certain other assets |
|
1,900 |
|
|
|
— |
|
|
|
1,900 |
|
|
|
— |
|
Ohio consumer lending wind-down costs and asset impairments |
|
— |
|
|
|
— |
|
|
|
3,454 |
|
|
|
1,514 |
|
Adjusted EBITDA |
$ |
74,606 |
|
|
$ |
76,692 |
|
|
$ |
301,696 |
|
|
$ |
288,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt ratio
calculation: |
|
|
|
|
|
|
|
|
|
|
|
Total debt (outstanding principal) |
|
|
|
|
|
|
$ |
655,519 |
|
|
$ |
555,000 |
|
Less: cash and cash equivalents |
|
|
|
|
|
|
|
(75,464 |
) |
|
|
(49,663 |
) |
Net debt |
|
|
|
|
|
|
$ |
580,055 |
|
|
$ |
505,337 |
|
Adjusted EBITDA |
|
|
|
|
|
|
$ |
301,696 |
|
|
$ |
288,330 |
|
Net debt ratio (net debt
divided by adjusted EBITDA) |
|
|
|
|
|
|
1.9:1 |
|
|
1.8:1 |
|
FIRSTCASH,
INC.RECONCILIATIONS OF NON-GAAP FINANCIAL
MEASURESTO GAAP FINANCIAL MEASURES
(CONTINUED)(UNAUDITED)
Free Cash Flow and Adjusted Free Cash Flow
For purposes of its internal liquidity
assessments, the Company considers free cash flow and adjusted free
cash flow. The Company defines free cash flow as cash flow from
operating activities less purchases of furniture, fixtures,
equipment and improvements and net fundings/repayments of pawn and
consumer loans, which are considered to be operating in nature by
the Company but are included in cash flow from investing
activities. Adjusted free cash flow is defined as free cash flow
adjusted for merger and other 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.
These metrics can also be used to evaluate the Company’s ability to
generate cash flow from business operations and the impact that
this cash flow has on the Company’s liquidity. However, free cash
flow and adjusted free cash flow have limitations as analytical
tools and should not be considered in isolation or as a substitute
for cash flow from operating activities or other income statement
data prepared in accordance with GAAP. The following table
reconciles cash flow from operating activities to free cash flow
and adjusted free cash flow (in thousands):
|
|
|
|
|
Trailing Twelve |
|
Three Months Ended |
|
Months Ended |
|
March 31, |
|
March 31, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Cash flow from operating activities |
$ |
77,385 |
|
|
$ |
71,697 |
|
|
$ |
237,284 |
|
|
$ |
223,810 |
|
Cash flow from investing
activities: |
|
|
|
|
|
|
|
Loan receivables, net of cash repayments |
52,279 |
|
|
42,216 |
|
|
44,469 |
|
|
(3,879 |
) |
Purchases of furniture, fixtures, equipment and improvements |
(10,581 |
) |
|
(9,658 |
) |
|
(45,234 |
) |
|
(39,947 |
) |
Free cash flow |
119,083 |
|
|
104,255 |
|
|
236,519 |
|
|
179,984 |
|
Merger and other acquisition expenses paid, net of tax benefit |
50 |
|
|
104 |
|
|
1,222 |
|
|
5,608 |
|
Adjusted free cash flow |
$ |
119,133 |
|
|
$ |
104,359 |
|
|
$ |
237,741 |
|
|
$ |
185,592 |
|
FIRSTCASH,
INC.RECONCILIATIONS OF NON-GAAP FINANCIAL
MEASURESTO GAAP FINANCIAL MEASURES
(CONTINUED)(UNAUDITED)
Constant Currency Results
The Company’s reporting currency is the U.S.
dollar. However, certain performance metrics discussed in this
release are presented on a “constant currency” basis, which is
considered a non-GAAP financial measure. The Company’s management
uses constant currency results to evaluate operating results of
business operations in Latin America, which are primarily
transacted in local currencies.
The Company believes constant currency results
provide investors with 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, respectively. The Company also has
operations in El Salvador where the reporting and functional
currency is the U.S. dollar. See the Latin America operations
segment tables elsewhere in this release for an additional
reconciliation of certain constant currency amounts to as reported
GAAP amounts.
For further information, please contact:Gar
JacksonGlobal IR GroupPhone: (817)
886-6998Email: gar@globalirgroup.com
Doug Orr, Executive Vice President and Chief Financial
OfficerPhone: (817)
258-2650Email: investorrelations@firstcash.comWebsite: investors.firstcash.com
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