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FORT WORTH, Texas, Jan. 31, 2019 (GLOBE NEWSWIRE) -- FirstCash, Inc. (the “Company”) (Nasdaq: FCFS), the leading international operator of more than 2,450 retail pawn stores in the U.S. and four countries in Latin America, today announced earnings per share for the fourth quarter and the full year ended December 31, 2018. In addition, the Board of Directors declared a $0.25 per share quarterly cash dividend to be paid in February 2019. The Company also initiated its fiscal full-year 2019 earnings guidance.
Mr. Rick Wessel, chief executive officer, stated, “Fiscal 2018 was another outstanding year for FirstCash, marked by continued growth in operating margins, net income and store counts. The fourth quarter results produced strong profitability and growth metrics in both the U.S. and Latin America, highlighted by increasing year-over-year pawn fees and retail margins in the U.S. and sequential improvement in same-store loan growth and retail margins in Latin America. In addition, the Company added 445 new locations in 2018 through acquisitions and new store openings, which resulted in an increase of more than 20% in the number of pawn locations. Our fourth quarter momentum and the significant increase in store count should position us for further revenue and earnings expansion from core pawn operations in 2019.”
This release contains adjusted earnings measures, which exclude, among other things, merger and other acquisition expenses, and 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 December 31, | |||||||||||||||
2018 | 2017 | ||||||||||||||
As Reported | Adjusted | As Reported | Adjusted | ||||||||||||
In thousands, except per share amounts | (GAAP) | (Non-GAAP) | (GAAP) | (Non-GAAP) | |||||||||||
Revenue | $ | 481,208 | $ | 481,208 | $ | 480,205 | $ | 480,205 | |||||||
Net income | $ | 48,075 | $ | 49,201 | $ | 67,734 | $ | 44,181 | |||||||
Diluted earnings per share | $ | 1.09 | $ | 1.12 | $ | 1.43 | $ | 0.94 | |||||||
EBITDA (non-GAAP measure) | $ | 81,404 | $ | 84,987 | $ | 75,213 | $ | 81,111 | |||||||
Weighted-average diluted shares | 43,936 | 43,936 | 47,212 | 47,212 |
Twelve Months Ended December 31, | |||||||||||||||
2018 | 2017 | ||||||||||||||
As Reported | Adjusted | As Reported | Adjusted | ||||||||||||
In thousands, except per share amounts | (GAAP) | (Non-GAAP) | (GAAP) | (Non-GAAP) | |||||||||||
Revenue | $ | 1,780,858 | $ | 1,780,858 | $ | 1,779,822 | $ | 1,779,822 | |||||||
Net income | $ | 153,206 | $ | 158,290 | $ | 143,892 | $ | 131,225 | |||||||
Diluted earnings per share | $ | 3.41 | $ | 3.53 | $ | 3.00 | $ | 2.74 | |||||||
EBITDA (non-GAAP measure) | $ | 274,999 | $ | 284,156 | $ | 249,983 | $ | 273,159 | |||||||
Weighted-average diluted shares | 44,884 | 44,884 | 47,888 | 47,888 | |||||||||||
As a reminder, in the fourth quarter of 2017, the Company recorded a provisional net income tax benefit of $27 million, or $0.57 per share, as a result of the passage of the Tax Cuts and Jobs Act (“Tax Act”). In the fourth quarter of 2018, the Company finalized certain estimates and tax positions used in the analysis of the 2017 provisional net income tax benefit and recorded an additional income tax benefit of $1.5 million, or $0.03 per share. The Company has excluded the non-recurring net income tax benefits realized during fiscal 2018 and 2017 as a result of the Tax Act in its adjusted earnings measures.
Earnings Highlights
Acquisition and Store Opening Highlights
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 fiscal 2018 was 19.2 pesos / dollar, an unfavorable change of 2% versus the comparable prior-year period, and for the fourth quarter of 2018 was 19.8 pesos / dollar, an unfavorable change of 5% versus the prior-year period.
Latin America Operations
U.S. Operations
Consumer Lending Contraction and Asset Impairments
Cash Dividend and Stock Repurchases
Liquidity and Return Metrics
Fiscal 2019 Outlook
Additional Commentary and Analysis
Mr. Wessel further commented on the 2018 results, “We finished fiscal 2018 on a strong note, with fourth quarter results highlighted by accelerating segment margins in the U.S. and record revenues and pawn loan growth in Latin America. In addition to our outstanding financial results in 2018, we opened or acquired almost 450 stores which are now fully integrated into our proprietary operating platforms. As we begin 2019, we have significant operating momentum to further enhance profitability in our existing store base and a strong pipeline of planned store openings and potential acquisitions to drive additional store count growth.
“Operationally in Latin America, we experienced solid fourth quarter retail sales growth and a sequential increase in retail gross margins. During the fourth quarter, we focused on improving our retail margins in Latin America while driving loan growth. We also delivered a 34% increase in pawn receivables, driven not only by acquisitions and new store openings, but also from a 7% increase in same-store pawn loans on our large base of mature stores. These metrics represent a significant rebound from the lower than normal loan growth experienced in the second and third quarters.
“Store growth in Latin America was driven by a record 418 locations added in 2018 through a combination of 52 de novo openings and 366 store acquisitions. As noted in previous releases, most of the 2018 acquisitions were smaller format stores with limited retail operations. These stores are similar to the Maxi Prenda stores acquired more than two years ago that have experienced significant revenue and profitability growth since we acquired them. Driven by our FirstPawn IT platform and pawn best practice operating model, we believe that the recent acquisitions have similar upside potential over the next two to three years. The large format de novo openings were also significant during 2018 in both number and scope, with 52 openings across three countries, including our first stores in Colombia.
“As we look to 2019 in Latin America, we enter the year with a robust pipeline of new store openings and potential acquisitions. Our expectation is to open 30 to 35 new stores in the first quarter alone, with a full-year target of 80 to 85 new stores across three countries. Coupled with an ongoing acquisition pipeline, we believe that there is opportunity to have another year of significant unit growth.
“Turning to the Company’s U.S. operations, we again reported solid growth in segment profitability, driven primarily by the 3% growth in pawn fees and continued retail margin expansion. Although fourth quarter retail sales were down 2% versus last year, both inventory turns and retail margins improved which drove an 8% increase in retail gross profit. Likewise, pawn fees grew 3% on a lower pawn receivable balance, a result of increased yields on a higher quality pawn loan portfolio. Much of these improvements are in the legacy Cash America stores, which are now realizing the benefits of the FirstPawn IT platform and the implementation of the integrated compensation plans put in place in early 2018 to drive greater store efficiencies.
“As a result of these actions, we made significant progress in improving the overall efficiency and returns on earning assets in the U.S. during 2018. The net revenues derived from domestic pawn loans and inventories (collectively “earning assets”) yielded an annual return of 138% in 2018, which was significantly better as compared to the 122% return in the prior year. The number of U.S. pawnshops also grew in 2018, driven by acquisitions that added 27 locations to our existing markets. Looking ahead to 2019, the U.S. acquisition pipeline remains strong and we have the potential to acquire as many domestic stores as last year.
“From a financial perspective, the Company’s balance sheet and cash flows remain exceptionally strong, as reflected in a record $243 million in operating cash flows during 2018, which we invested in store growth and shareholder payouts. In addition to the record $125 million of acquisition investments, 2018 was also a record year for stock repurchases and dividends with $315 million in total shareholder payouts. Since the merger with Cash America in September 2016, we have reduced our share count by 10% and doubled the dividend. Dividend payouts since the merger total $87 million. Even with the rapid expansion and increased shareholder payouts, the leverage ratio of net debt to adjusted EBITDA is a modest 1.8 to 1. Looking to 2019, we intend to continue to repurchase shares and pay a dividend, again targeting a shareholder payout ratio equal to at least 100% of net income.
“Our guidance for 2019 reflects strong growth in earnings from our core pawn operations, both domestically and in Latin America. In the mature U.S. market, we expect continued expansion of margins and profitability in 2019, continuing the improved trend we began to experience in the second half of 2018. In regard to the recent U.S. Government shutdown, the Company has seen no measurable impact thus far on its U.S. operations. In Latin America, we expect solid revenue increases from existing stores, a full year of incremental contributions and operating improvements from the 418 stores added in 2018 and the significant pipeline of new stores anticipated to be added in 2019. As a result, our guidance provides significant growth in core earnings over the prior year, despite expected headwinds from consumer lending contraction, foreign currency effects and a higher estimated tax rate. While the continued contraction of consumer lending operations and potential Mexican peso weakness creates some drag on consolidated 2019 earnings, it is far outweighed by further focus on revenue and earnings growth from core pawn operations.
“In summary, we start 2019 better than ever with a dominant market position, a strong growth platform and potential to drive additional margin expansion. Coupled with our significant cash flows and strong balance sheet, we believe this formula positions us to drive further long-term growth and returns for our shareholders,” concluded Rick Wessel, FirstCash chief executive officer.
About FirstCash
FirstCash is the leading international operator of pawn stores with more than 2,450 retail pawn and consumer lending locations in 24 U.S. states and the District of Columbia and in Latin America, which includes all the states in Mexico and the countries of Guatemala, El Salvador and Colombia. The Company employs approximately 19,000 people between the U.S. and Latin America. FirstCash focuses on serving cash and credit constrained consumers primarily through its retail pawn locations, which buy and sell a wide variety of jewelry, consumer electronics, tools, household appliances, sporting goods, musical instruments and other merchandise, and make small consumer pawn loans secured by pledged personal property. Approximately 97% of the Company's revenues are from pawn operations.
FirstCash is a component company in both the Standard & Poor’s SmallCap 600 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 discussed and described in the Company’s 2017 annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 20, 2018, including the risks described in Part 1, Item 1A, “Risk Factors” thereof, and the other reports filed subsequently by the Company with the SEC, including the Company’s forthcoming annual report on Form 10-K. 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 | Twelve Months Ended | ||||||||||||||
December 31, | December 31, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenue: | |||||||||||||||
Retail merchandise sales | $ | 309,614 | $ | 300,949 | $ | 1,091,614 | $ | 1,051,099 | |||||||
Pawn loan fees | 137,728 | 127,477 | 525,146 | 510,905 | |||||||||||
Wholesale scrap jewelry sales | 20,971 | 33,557 | 107,821 | 140,842 | |||||||||||
Consumer loan and credit services fees | 12,895 | 18,222 | 56,277 | 76,976 | |||||||||||
Total revenue | 481,208 | 480,205 | 1,780,858 | 1,779,822 | |||||||||||
Cost of revenue: | |||||||||||||||
Cost of retail merchandise sold | 195,308 | 196,245 | 696,666 | 679,703 | |||||||||||
Cost of wholesale scrap jewelry sold | 19,534 | 30,424 | 99,964 | 132,794 | |||||||||||
Consumer loan and credit services loss provision | 4,366 | 4,400 | 17,461 | 19,819 | |||||||||||
Total cost of revenue | 219,208 | 231,069 | 814,091 | 832,316 | |||||||||||
Net revenue | 262,000 | 249,136 | 966,767 | 947,506 | |||||||||||
Expenses and other income: | |||||||||||||||
Store operating expenses (1) | 145,210 | 139,468 | 563,321 | 552,191 | |||||||||||
Administrative expenses | 32,343 | 28,931 | 120,042 | 122,473 | |||||||||||
Depreciation and amortization | 9,876 | 12,429 | 42,961 | 55,233 | |||||||||||
Interest expense | 8,580 | 6,208 | 29,173 | 24,035 | |||||||||||
Interest income | (228 | ) | (459 | ) | (2,444 | ) | (1,597 | ) | |||||||
Merger and other acquisition expenses | 2,069 | 5,898 | 7,643 | 9,062 | |||||||||||
(Gain) loss on foreign exchange (1) | 974 | (374 | ) | 762 | (317 | ) | |||||||||
Loss on extinguishment of debt | — | — | — | 14,114 | |||||||||||
Total expenses and other income | 198,824 | 192,101 | 761,458 | 775,194 | |||||||||||
Income before income taxes | 63,176 | 57,035 | 205,309 | 172,312 | |||||||||||
Income tax expense (benefit) | 15,101 | (10,699 | ) | 52,103 | 28,420 | ||||||||||
Net income | $ | 48,075 | $ | 67,734 | $ | 153,206 | $ | 143,892 | |||||||
Earnings per share: | |||||||||||||||
Basic | $ | 1.10 | $ | 1.44 | $ | 3.42 | $ | 3.01 | |||||||
Diluted | 1.09 | 1.43 | 3.41 | 3.00 | |||||||||||
Weighted-average shares outstanding: | |||||||||||||||
Basic | 43,795 | 47,154 | 44,777 | 47,854 | |||||||||||
Diluted | 43,936 | 47,212 | 44,884 | 47,888 | |||||||||||
Dividends declared per common share | $ | 0.25 | $ | 0.20 | $ | 0.91 | $ | 0.77 |
(1) The gain on foreign exchange of $0.4 million and $0.3 million for the three and twelve months ended December 31, 2017, respectively, was reclassified on the consolidated statements of income in order to conform with the presentation for the year ended December 31, 2018. The gain on foreign exchange was reclassified from store operating expenses and reported separately on the consolidated statements of income.
FIRSTCASH, INC.
CONSOLIDATED BALANCE SHEETS (unaudited, in thousands) |
|||||||
December 31, | |||||||
2018 | 2017 | ||||||
ASSETS | |||||||
Cash and cash equivalents | $ | 71,793 | $ | 114,423 | |||
Fees and service charges receivable | 45,430 | 42,736 | |||||
Pawn loans | 362,941 | 344,748 | |||||
Consumer loans, net | 15,902 | 23,522 | |||||
Inventories | 275,130 | 276,771 | |||||
Income taxes receivable | 1,379 | 19,761 | |||||
Prepaid expenses and other current assets | 17,317 | 20,236 | |||||
Total current assets | 789,892 | 842,197 | |||||
Property and equipment, net | 251,645 | 230,341 | |||||
Goodwill | 917,419 | 831,145 | |||||
Intangible assets, net | 88,140 | 93,819 | |||||
Other assets | 49,238 | 54,045 | |||||
Deferred tax assets | 11,640 | 11,237 | |||||
Total assets | $ | 2,107,974 | $ | 2,062,784 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Accounts payable and accrued liabilities | $ | 96,928 | $ | 84,331 | |||
Customer deposits | 35,368 | 32,019 | |||||
Income taxes payable | 749 | 4,221 | |||||
Total current liabilities | 133,045 | 120,571 | |||||
Revolving unsecured credit facility | 295,000 | 107,000 | |||||
Senior unsecured notes | 295,887 | 295,243 | |||||
Deferred tax liabilities | 54,854 | 47,037 | |||||
Other liabilities | 11,084 | 17,600 | |||||
Total liabilities | 789,870 | 587,451 | |||||
Stockholders’ equity: | |||||||
Preferred stock | — | — | |||||
Common stock | 493 | 493 | |||||
Additional paid-in capital | 1,224,608 | 1,220,356 | |||||
Retained earnings | 606,810 | 494,457 | |||||
Accumulated other comprehensive loss | (113,117 | ) | (111,877 | ) | |||
Common stock held in treasury, at cost | (400,690 | ) | (128,096 | ) | |||
Total stockholders’ equity | 1,318,104 | 1,475,333 | |||||
Total liabilities and stockholders’ equity | $ | 2,107,974 | $ | 2,062,784 | |||
FIRSTCASH, INC.
OPERATING INFORMATION
(UNAUDITED)
The Company’s reportable segments are as follows:
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.
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 scrap jewelry generated in Latin America is sold and settled in U.S. dollars, and therefore wholesale scrap jewelry sales revenue is not affected by foreign currency translation. A small percentage of the operating and administrative expenses in Latin America are also billed and paid in U.S. dollars, which are not affected by foreign currency translation. 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.
FIRSTCASH, INC.
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
The following table details earning assets, which consist of pawn loans, inventories and consumer loans, net, as well as other earning asset metrics of the Latin America operations segment as of December 31, 2018 as compared to December 31, 2017 (dollars in thousands, except as otherwise noted):
Constant Currency Basis | |||||||||||||||||||||
Balance at | |||||||||||||||||||||
December 31, | Increase / | ||||||||||||||||||||
Balance at December 31, | Increase / | 2018 | (Decrease) | ||||||||||||||||||
2018 | 2017 | (Decrease) | (Non-GAAP) | (Non-GAAP) | |||||||||||||||||
Latin America Operations Segment | |||||||||||||||||||||
Earning assets: | |||||||||||||||||||||
Pawn loans | $ | 91,357 | $ | 68,178 | 34 | % | $ | 91,285 | 34 | % | |||||||||||
Inventories | 75,152 | 60,032 | 25 | % | 75,069 | 25 | % | ||||||||||||||
Consumer loans, net (1) | — | 343 | (100 | )% | — | (100 | )% | ||||||||||||||
$ | 166,509 | $ | 128,553 | 30 | % | $ | 166,354 | 29 | % | ||||||||||||
Average outstanding pawn loan amount | |||||||||||||||||||||
(in ones) | $ | 68 | $ | 64 | 6 | % | $ | 68 | 6 | % | |||||||||||
Composition of pawn collateral: | |||||||||||||||||||||
General merchandise | 74 | % | 80 | % | |||||||||||||||||
Jewelry | 26 | % | 20 | % | |||||||||||||||||
100 | % | 100 | % | ||||||||||||||||||
Composition of inventories: | |||||||||||||||||||||
General merchandise | 68 | % | 75 | % | |||||||||||||||||
Jewelry | 32 | % | 25 | % | |||||||||||||||||
100 | % | 100 | % | ||||||||||||||||||
Percentage of inventory aged greater | |||||||||||||||||||||
than one year | 1 | % | 1 | % |
(1) Effective June 30, 2018, the Company no longer offers an unsecured consumer loan product in Latin America.
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 December 31, 2018 as compared to the three months ended December 31, 2017 (dollars in thousands):
Constant Currency Basis | ||||||||||||||||||||||
Three Months | ||||||||||||||||||||||
Three Months | Ended | |||||||||||||||||||||
Ended | December 31, | Increase / | ||||||||||||||||||||
December 31, | Increase / | 2018 | (Decrease) | |||||||||||||||||||
2018 | 2017 | (Decrease) | (Non-GAAP) | (Non-GAAP) | ||||||||||||||||||
Latin America Operations Segment | ||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||
Retail merchandise sales | $ | 114,514 | $ | 102,575 | 12 | % | $ | 119,910 | 17 | % | ||||||||||||
Pawn loan fees | 41,733 | 34,219 | 22 | % | 43,689 | 28 | % | |||||||||||||||
Wholesale scrap jewelry sales | 5,647 | 5,790 | (2 | )% | 5,647 | (2 | )% | |||||||||||||||
Consumer loan fees | — | 438 | (100 | )% | — | (100 | )% | |||||||||||||||
Total revenue | 161,894 | 143,022 | 13 | % | 169,246 | 18 | % | |||||||||||||||
Cost of revenue: | ||||||||||||||||||||||
Cost of retail merchandise sold | 73,050 | 65,507 | 12 | % | 76,490 | 17 | % | |||||||||||||||
Cost of wholesale scrap jewelry sold | 5,429 | 5,557 | (2 | )% | 5,682 | 2 | % | |||||||||||||||
Consumer loan loss provision | 17 | 84 | (80 | )% | 18 | (79 | )% | |||||||||||||||
Total cost of revenue | 78,496 | 71,148 | 10 | % | 82,190 | 16 | % | |||||||||||||||
Net revenue | 83,398 | 71,874 | 16 | % | 87,056 | 21 | % | |||||||||||||||
Segment expenses: | ||||||||||||||||||||||
Store operating expenses (1) | 42,076 | 34,298 | 23 | % | 43,943 | 28 | % | |||||||||||||||
Depreciation and amortization | 2,969 | 2,588 | 15 | % | 3,101 | 20 | % | |||||||||||||||
Total segment expenses | 45,045 | 36,886 | 22 | % | 47,044 | 28 | % | |||||||||||||||
Segment pre-tax operating income | $ | 38,353 | $ | 34,988 | 10 | % | $ | 40,012 | 14 | % |
(1) The gain on foreign exchange for the Latin America operations segment of $0.4 million for the three months ended December 31, 2017 was reclassified on the consolidated statements of income in order to conform with the presentation for the year ended December 31, 2018. The gain on foreign exchange was reclassified from store operating expenses and reported separately on the consolidated statements of income.
FIRSTCASH, INC.
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
The following table presents segment pre-tax operating income of the Latin America operations segment for the twelve months ended December 31, 2018 as compared to the twelve months ended December 31, 2017 (dollars in thousands):
Constant Currency Basis | ||||||||||||||||||||||
Twelve Months | ||||||||||||||||||||||
Twelve Months | Ended | |||||||||||||||||||||
Ended | December 31, | Increase / | ||||||||||||||||||||
December 31, | Increase / | 2018 | (Decrease) | |||||||||||||||||||
2018 | 2017 | (Decrease) | (Non-GAAP) | (Non-GAAP) | ||||||||||||||||||
Latin America Operations Segment | ||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||
Retail merchandise sales | $ | 382,020 | $ | 333,609 | 15 | % | $ | 388,102 | 16 | % | ||||||||||||
Pawn loan fees | 151,740 | 130,309 | 16 | % | 154,144 | 18 | % | |||||||||||||||
Wholesale scrap jewelry sales | 22,103 | 21,645 | 2 | % | 22,103 | 2 | % | |||||||||||||||
Consumer loan fees | 860 | 1,767 | (51 | )% | 874 | (51 | )% | |||||||||||||||
Total revenue | 556,723 | 487,330 | 14 | % | 565,223 | 16 | % | |||||||||||||||
Cost of revenue: | ||||||||||||||||||||||
Cost of retail merchandise sold | 246,150 | 211,176 | 17 | % | 250,069 | 18 | % | |||||||||||||||
Cost of wholesale scrap jewelry sold | 21,656 | 20,327 | 7 | % | 21,998 | 8 | % | |||||||||||||||
Consumer loan loss provision | 238 | 388 | (39 | )% | 242 | (38 | )% | |||||||||||||||
Total cost of revenue | 268,044 | 231,891 | 16 | % | 272,309 | 17 | % | |||||||||||||||
Net revenue | 288,679 | 255,439 | 13 | % | 292,914 | 15 | % | |||||||||||||||
Segment expenses: | ||||||||||||||||||||||
Store operating expenses (1) | 149,224 | 128,977 | 16 | % | 151,414 | 17 | % | |||||||||||||||
Depreciation and amortization | 11,333 | 10,311 | 10 | % | 11,499 | 12 | % | |||||||||||||||
Total segment expenses | 160,557 | 139,288 | 15 | % | 162,913 | 17 | % | |||||||||||||||
Segment pre-tax operating income | $ | 128,122 | $ | 116,151 | 10 | % | $ | 130,001 | 12 | % |
(1) The gain on foreign exchange for the Latin America operations segment of $0.3 million for fiscal 2017 was reclassified on the consolidated statements of income in order to conform with the presentation for the year ended December 31, 2018. The gain on foreign exchange was reclassified from store operating expenses and reported separately on the consolidated statements of income.
FIRSTCASH, INC.
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
U.S. Operations Segment Results
The following table details earning assets, which consist of pawn loans, inventories and consumer loans, net, as well as other earning asset metrics of the U.S. operations segment as of December 31, 2018 as compared to December 31, 2017 (dollars in thousands, except as otherwise noted):
Balance at December 31, | Increase / | |||||||||||
2018 | 2017 | (Decrease) | ||||||||||
U.S. Operations Segment | ||||||||||||
Earning assets: | ||||||||||||
Pawn loans | $ | 271,584 | $ | 276,570 | (2 | )% | ||||||
Inventories | 199,978 | 216,739 | (8 | )% | ||||||||
Consumer loans, net | 15,902 | 23,179 | (31 | )% | ||||||||
$ | 487,464 | $ | 516,488 | (6 | )% | |||||||
Average outstanding pawn loan amount (in ones) | $ | 172 | $ | 162 | 6 | % | ||||||
Composition of pawn collateral: | ||||||||||||
General merchandise | 34 | % | 34 | % | ||||||||
Jewelry | 66 | % | 66 | % | ||||||||
100 | % | 100 | % | |||||||||
Composition of inventories: | ||||||||||||
General merchandise | 42 | % | 42 | % | ||||||||
Jewelry | 58 | % | 58 | % | ||||||||
100 | % | 100 | % | |||||||||
Percentage of inventory aged greater than one year | 4 | % | 6 | % | ||||||||
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 December 31, 2018 as compared to the three months ended December 31, 2017 (dollars in thousands).
Three Months Ended | |||||||||||||
December 31, | Increase / | ||||||||||||
2018 | 2017 | (Decrease) | |||||||||||
U.S. Operations Segment | |||||||||||||
Revenue: | |||||||||||||
Retail merchandise sales | $ | 195,100 | $ | 198,374 | (2 | )% | |||||||
Pawn loan fees | 95,995 | 93,258 | 3 | % | |||||||||
Wholesale scrap jewelry sales | 15,324 | 27,767 | (45 | )% | |||||||||
Consumer loan and credit services fees | 12,895 | 17,784 | (27 | )% | |||||||||
Total revenue | 319,314 | 337,183 | (5 | )% | |||||||||
Cost of revenue: | |||||||||||||
Cost of retail merchandise sold | 122,258 | 130,738 | (6 | )% | |||||||||
Cost of wholesale scrap jewelry sold | 14,105 | 24,867 | (43 | )% | |||||||||
Consumer loan and credit services loss provision | 4,349 | 4,316 | 1 | % | |||||||||
Total cost of revenue | 140,712 | 159,921 | (12 | )% | |||||||||
Net revenue | 178,602 | 177,262 | 1 | % | |||||||||
Segment expenses: | |||||||||||||
Store operating expenses | 103,134 | 105,170 | (2 | )% | |||||||||
Depreciation and amortization | 5,144 | 5,314 | (3 | )% | |||||||||
Total segment expenses | 108,278 | 110,484 | (2 | )% | |||||||||
Segment pre-tax operating income | $ | 70,324 | $ | 66,778 | 5 | % | |||||||
FIRSTCASH, INC.
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
The following table presents segment pre-tax operating income of the U.S. operations segment for the twelve months ended December 31, 2018 as compared to the twelve months ended December 31, 2017 (dollars in thousands):
Twelve Months Ended | |||||||||||||
December 31, | |||||||||||||
2018 | 2017 | Decrease | |||||||||||
U.S. Operations Segment | |||||||||||||
Revenue: | |||||||||||||
Retail merchandise sales | $ | 709,594 | $ | 717,490 | (1 | )% | |||||||
Pawn loan fees | 373,406 | 380,596 | (2 | )% | |||||||||
Wholesale scrap jewelry sales | 85,718 | 119,197 | (28 | )% | |||||||||
Consumer loan and credit services fees | 55,417 | 75,209 | (26 | )% | |||||||||
Total revenue | 1,224,135 | 1,292,492 | (5 | )% | |||||||||
Cost of revenue: | |||||||||||||
Cost of retail merchandise sold | 450,516 | 468,527 | (4 | )% | |||||||||
Cost of wholesale scrap jewelry sold | 78,308 | 112,467 | (30 | )% | |||||||||
Consumer loan and credit services loss provision | 17,223 | 19,431 | (11 | )% | |||||||||
Total cost of revenue | 546,047 | 600,425 | (9 | )% | |||||||||
Net revenue | 678,088 | 692,067 | (2 | )% | |||||||||
Segment expenses: | |||||||||||||
Store operating expenses | 414,097 | 423,214 | (2 | )% | |||||||||
Depreciation and amortization | 21,021 | 24,073 | (13 | )% | |||||||||
Total segment expenses | 435,118 | 447,287 | (3 | )% | |||||||||
Segment pre-tax operating income | $ | 242,970 | $ | 244,780 | (1 | )% | |||||||
FIRSTCASH, INC.
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
Consolidated Results of Operations
The following table reconciles pre-tax operating income of the Company’s Latin America operations segment and U.S. operations segment discussed above to consolidated net income (in thousands):
Three Months Ended | Twelve Months Ended | ||||||||||||||
December 31, | December 31, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Consolidated Results of Operations | |||||||||||||||
Segment pre-tax operating income: | |||||||||||||||
Latin America operations segment pre-tax operating income (1) | $ | 38,353 | $ | 34,988 | $ | 128,122 | $ | 116,151 | |||||||
U.S. operations segment pre-tax operating income | 70,324 | 66,778 | 242,970 | 244,780 | |||||||||||
Consolidated segment pre-tax operating income | 108,677 | 101,766 | 371,092 | 360,931 | |||||||||||
Corporate expenses and other income: | |||||||||||||||
Administrative expenses | 32,343 | 28,931 | 120,042 | 122,473 | |||||||||||
Depreciation and amortization | 1,763 | 4,527 | 10,607 | 20,849 | |||||||||||
Interest expense | 8,580 | 6,208 | 29,173 | 24,035 | |||||||||||
Interest income | (228 | ) | (459 | ) | (2,444 | ) | (1,597 | ) | |||||||
Merger and other acquisition expenses | 2,069 | 5,898 | 7,643 | 9,062 | |||||||||||
(Gain) loss on foreign exchange (1) | 974 | (374 | ) | 762 | (317 | ) | |||||||||
Loss on extinguishment of debt | — | — | — | 14,114 | |||||||||||
Total corporate expenses and other income | 45,501 | 44,731 | 165,783 | 188,619 | |||||||||||
Income before income taxes | 63,176 | 57,035 | 205,309 | 172,312 | |||||||||||
Income tax expense (benefit) |
15,101 | (10,699 | ) | 52,103 | 28,420 | ||||||||||
Net income | $ | 48,075 | $ | 67,734 | $ | 153,206 | $ | 143,892 |
(1) The gain on foreign exchange for the Latin America operations segment of $0.4 million and $0.3 million for the three and twelve months ended December 31, 2017, respectively, was reclassified on the consolidated statements of income in order to conform with the presentation for the year ended December 31, 2018. The gain on foreign exchange was reclassified from store operating expenses and reported separately on the consolidated statements of income.
FIRSTCASH, INC.
STORE COUNT ACTIVITY
The following table details store count activity for the three months ended December 31, 2018:
Consumer | |||||||||
Pawn | Loan | Total | |||||||
Locations (1), (2) | Locations | Locations | |||||||
Latin America operations segment: | |||||||||
Total locations, beginning of period | 1,346 | — | 1,346 | ||||||
New locations opened | 9 | — | 9 | ||||||
Locations acquired | 24 | — | 24 | ||||||
Total locations, end of period | 1,379 | — | 1,379 | ||||||
U.S. operations segment: | |||||||||
Total locations, beginning of period | 1,070 | 30 | 1,100 | ||||||
Locations acquired | 9 | — | 9 | ||||||
Locations closed or consolidated | (2 | ) | (13 | ) | (15 | ) | |||
Total locations, end of period | 1,077 | 17 | 1,094 | ||||||
Total: | |||||||||
Total locations, beginning of period | 2,416 | 30 | 2,446 | ||||||
New locations opened | 9 | — | 9 | ||||||
Locations acquired | 33 | — | 33 | ||||||
Locations closed or consolidated | (2 | ) | (13 | ) | (15 | ) | |||
Total locations, end of period | 2,456 | 17 | 2,473 |
(1) At December 31, 2018, 262 of the U.S. pawn stores, primarily located in Texas and Ohio, also offered consumer loans and/or credit services primarily as an ancillary product. This compares to 313 U.S. pawn locations which offered such products as of December 31, 2017. Effective June 30, 2018, the Company no longer offers an unsecured consumer loan product in Latin America.
(2) The Company closed two pawn stores in the U.S. during the three months ended December 31, 2018, which were primarily smaller format stores emphasizing payday lending or underperforming locations which were consolidated into existing stores, an opportunity driven by merger and acquisition activity.
FIRSTCASH, INC.
STORE COUNT ACTIVITY (CONTINUED)
The following table details store count activity for the twelve months ended December 31, 2018:
Consumer | |||||||||
Pawn | Loan | Total | |||||||
Locations (1), (2) | Locations | Locations | |||||||
Latin America operations segment: | |||||||||
Total locations, beginning of period | 971 | 28 | 999 | ||||||
New locations opened | 52 | — | 52 | ||||||
Locations acquired | 366 | — | 366 | ||||||
Locations closed or consolidated | (10 | ) | (28 | ) | (38 | ) | |||
Total locations, end of period | 1,379 | — | 1,379 | ||||||
U.S. operations segment: | |||||||||
Total locations, beginning of period | 1,068 | 44 | 1,112 | ||||||
Locations acquired | 27 | — | 27 | ||||||
Locations closed or consolidated | (18 | ) | (27 | ) | (45 | ) | |||
Total locations, end of period | 1,077 | 17 | 1,094 | ||||||
Total: | |||||||||
Total locations, beginning of period | 2,039 | 72 | 2,111 | ||||||
New locations opened | 52 | — | 52 | ||||||
Locations acquired | 393 | — | 393 | ||||||
Locations closed or consolidated | (28 | ) | (55 | ) | (83 | ) | |||
Total locations, end of period | 2,456 | 17 | 2,473 |
(1) At December 31, 2018, 262 of the U.S. pawn stores, primarily located in Texas and Ohio, also offered consumer loans and/or credit services primarily as an ancillary product. This compares to 313 U.S. pawn locations which offered such products as of December 31, 2017. Effective June 30, 2018, the Company no longer offers an unsecured consumer loan product in Latin America.
(2) The Company closed 28 pawn stores, 18 in the U.S. and 10 in Latin America, during fiscal 2018, which were primarily smaller format stores emphasizing payday lending or underperforming locations which were consolidated into existing stores, an opportunity driven by merger and acquisition activity.
FIRSTCASH, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES
(UNAUDITED)
The Company uses certain financial calculations such as adjusted net income, adjusted diluted earnings per share, adjusted pre-tax profit margin, adjusted net income margin, 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 operating performance and because management believes they 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.
The Company has adjusted the applicable financial measures to exclude, among other expenses and benefits, merger and other acquisition expenses because it generally would not incur such costs and expenses as part of its continuing operations. Merger and other acquisition expenses include incremental costs directly associated with 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.
FIRSTCASH, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES (CONTINUED)
(UNAUDITED)
Adjusted Net Income, Adjusted Diluted Earnings Per Share, Adjusted Pre-Tax Profit Margin and Adjusted Net Income Margin
Management believes the presentation of adjusted net income, adjusted diluted earnings per share, adjusted pre-tax profit margin and adjusted net income margin 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. 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 December 31, | Twelve Months Ended December 31, | ||||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||||||
In Thousands |
Per Share | In Thousands |
Per Share | In Thousands |
Per Share | In Thousands |
Per Share | ||||||||||||||||||||||||
Net income and diluted earnings per share, as reported | $ | 48,075 | $ | 1.09 | $ | 67,734 | $ | 1.43 | $ | 153,206 | $ | 3.41 | $ | 143,892 | $ | 3.00 | |||||||||||||||
Adjustments, net of tax: | |||||||||||||||||||||||||||||||
Merger and other acquisition expenses: | |||||||||||||||||||||||||||||||
Transaction | 1,297 | 0.03 | — | — | 4,686 | 0.11 | — | — | |||||||||||||||||||||||
Severance and retention | 62 | — | 1,598 | 0.03 | 105 | — | 2,456 | 0.05 | |||||||||||||||||||||||
Other | 95 | — | 2,118 | 0.05 | 621 | 0.01 | 3,254 | 0.07 | |||||||||||||||||||||||
Total merger and other acquisition expenses | 1,454 | 0.03 | 3,716 | 0.08 | 5,412 | 0.12 | 5,710 | 0.12 | |||||||||||||||||||||||
Asset impairments related to consumer loan operations | 1,166 | 0.03 | — | — | 1,166 | 0.03 | — | — | |||||||||||||||||||||||
Net tax benefit from Tax Act | (1,494 | ) | (0.03 | ) | (27,269 | ) | (0.57 | ) | (1,494 | ) | (0.03 | ) | (27,269 | ) | (0.57 | ) | |||||||||||||||
Loss on extinguishment of debt | — | — | — | — | — | — | 8,892 | 0.19 | |||||||||||||||||||||||
Adjusted net income and diluted earnings per share | $ | 49,201 | $ | 1.12 | $ | 44,181 | $ | 0.94 | $ | 158,290 | $ | 3.53 | $ | 131,225 | $ | 2.74 | |||||||||||||||
FIRSTCASH, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES (CONTINUED)
(UNAUDITED)
The following tables provide 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 December 31, | |||||||||||||||||||||||
2018 | 2017 | ||||||||||||||||||||||
Pre-tax | Tax | After-tax | Pre-tax | Tax | After-tax | ||||||||||||||||||
Merger and other acquisition expenses | $ | 2,069 | $ | 615 | $ | 1,454 | $ | 5,898 | $ | 2,182 | $ | 3,716 | |||||||||||
Asset impairments related to consumer loan operations | 1,514 | 348 | 1,166 | — | — | — | |||||||||||||||||
Net tax benefit from Tax Act | — | 1,494 | (1,494 | ) | — | 27,269 | (27,269 | ) | |||||||||||||||
Total adjustments | $ | 3,583 | $ | 2,457 | $ | 1,126 | $ | 5,898 | $ | 29,451 | $ | (23,553 | ) |
Twelve Months Ended December 31, | |||||||||||||||||||||||
2018 | 2017 | ||||||||||||||||||||||
Pre-tax | Tax | After-tax | Pre-tax | Tax | After-tax | ||||||||||||||||||
Merger and other acquisition expenses | $ | 7,643 | $ | 2,231 | $ | 5,412 | $ | 9,062 | $ | 3,352 | $ | 5,710 | |||||||||||
Asset impairments related to consumer loan operations | 1,514 | 348 | 1,166 | — | — | — | |||||||||||||||||
Net tax benefit from Tax Act | — | 1,494 | (1,494 | ) | — | 27,269 | (27,269 | ) | |||||||||||||||
Loss on extinguishment of debt | — | — | — | 14,114 | 5,222 | 8,892 | |||||||||||||||||
Total adjustments | $ | 9,157 | $ | 4,073 | $ | 5,084 | $ | 23,176 | $ | 35,843 | $ | (12,667 | ) | ||||||||||
FIRSTCASH, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES (CONTINUED)
(UNAUDITED)
The following table provides a calculation of the adjusted pre-tax profit margin and the adjusted net income margin (dollars in thousands):
Three Months Ended | Twelve Months Ended | ||||||||||||||
December 31, | December 31, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Adjusted pre-tax profit margin calculated as follows: | |||||||||||||||
Income before income taxes, as reported | $ | 63,176 | $ | 57,035 | $ | 205,309 | $ | 172,312 | |||||||
Merger and other acquisition expenses | 2,069 | 5,898 | 7,643 | 9,062 | |||||||||||
Asset impairments related to consumer loan operations | 1,514 | — | 1,514 | — | |||||||||||
Loss on extinguishment of debt | — | — | — | 14,114 | |||||||||||
Adjusted income before income taxes | $ | 66,759 | $ | 62,933 | $ | 214,466 | $ | 195,488 | |||||||
Total revenue | $ | 481,208 | $ | 480,205 | $ | 1,780,858 | $ | 1,779,822 | |||||||
Adjusted pre-tax profit margin | 13.9 | % | 13.1 | % | 12.0 | % | 11.0 | % | |||||||
Adjusted net income margin calculated as follows: | |||||||||||||||
Adjusted net income | $ | 49,201 | $ | 44,181 | $ | 158,290 | $ | 131,225 | |||||||
Total revenue | $ | 481,208 | $ | 480,205 | $ | 1,780,858 | $ | 1,779,822 | |||||||
Adjusted net income margin | 10.2 | % | 9.2 | % | 8.9 | % | 7.4 | % | |||||||
FIRSTCASH, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO 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):
Three Months Ended | Twelve Months Ended | ||||||||||||||
December 31, | December 31, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Net income | $ | 48,075 | $ | 67,734 | $ | 153,206 | $ | 143,892 | |||||||
Income taxes | 15,101 | (10,699 | ) | 52,103 | 28,420 | ||||||||||
Depreciation and amortization | 9,876 | 12,429 | 42,961 | 55,233 | |||||||||||
Interest expense | 8,580 | 6,208 | 29,173 | 24,035 | |||||||||||
Interest income | (228 | ) | (459 | ) | (2,444 | ) | (1,597 | ) | |||||||
EBITDA | 81,404 | 75,213 | 274,999 | 249,983 | |||||||||||
Adjustments: | |||||||||||||||
Merger and other acquisition expenses | 2,069 | 5,898 | 7,643 | 9,062 | |||||||||||
Asset impairments related to consumer loan operations | 1,514 | — | 1,514 | — | |||||||||||
Loss on extinguishment of debt | — | — | — | 14,114 | |||||||||||
Adjusted EBITDA | $ | 84,987 | $ | 81,111 | $ | 284,156 | $ | 273,159 | |||||||
Net debt ratio calculation: | |||||||||||||||
Total debt (outstanding principal) | $ | 595,000 | $ | 407,000 | |||||||||||
Less: cash and cash equivalents | (71,793 | ) | (114,423 | ) | |||||||||||
Net debt | $ | 523,207 | $ | 292,577 | |||||||||||
Adjusted EBITDA | $ | 284,156 | $ | 273,159 | |||||||||||
Net debt ratio (net debt divided by adjusted EBITDA) | 1.8:1 | 1.1:1 | |||||||||||||
FIRSTCASH, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO 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.
The Company previously included store real property purchases as a component of purchases of property and equipment. Management considers the store real property purchases to be discretionary in nature and not required to operate or grow its pawn operations. To further enhance transparency of these distinct items, the Company now reports purchases of store real property and purchases of furniture, fixtures, equipment and improvements separately on the consolidated statements of cash flows. As a result, the current definitions of free cash flow and adjusted free cash flow differ from prior-period definitions as they now exclude discretionary purchases of store real property and the Company has retrospectively applied the current definitions to prior-period results.
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):
Twelve Months Ended | |||||||
December 31, | |||||||
2018 | 2017 | ||||||
Cash flow from operating activities | $ | 243,429 | $ | 220,357 | |||
Cash flow from investing activities: | |||||||
Loan receivables, net of cash repayments | 10,125 | 40,735 | |||||
Purchases of furniture, fixtures, equipment and improvements | (35,677 | ) | (25,971 | ) | |||
Free cash flow | 217,877 | 235,121 | |||||
Merger and other acquisition expenses paid, net of tax benefit | 7,072 | 6,659 | |||||
Adjusted free cash flow | $ | 224,949 | $ | 241,780 | |||
FIRSTCASH, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO 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.
The following table provides exchange rates for the Mexican peso, Guatemalan quetzal and Colombian peso for the current and prior-year periods:
December 31, | Favorable / | |||||||
2018 | 2017 | (Unfavorable) | ||||||
Mexican peso / U.S. dollar exchange rate: | ||||||||
End-of-period | 19.7 | 19.7 | — | % | ||||
Three months ended | 19.8 | 18.9 | (5 | )% | ||||
Twelve months ended | 19.2 | 18.9 | (2 | )% | ||||
Guatemalan quetzal / U.S. dollar exchange rate: | ||||||||
End-of-period | 7.7 | 7.3 | (5 | )% | ||||
Three months ended | 7.7 | 7.3 | (5 | )% | ||||
Twelve months ended | 7.5 | 7.4 | (1 | )% | ||||
Colombian peso / U.S. dollar exchange rate: | ||||||||
End-of-period | 3,250 | 2,984 | (9 | )% | ||||
Three months ended | 3,166 | 2,986 | (6 | )% | ||||
Twelve months ended | 2,956 | 2,951 | — | % | ||||
For further information, please contact:
Gar Jackson
Global IR Group
Phone: (817) 886-6998
Email: gar@globalirgroup.com
Doug Orr, Executive Vice President and Chief Financial Officer
Phone: (817) 258-2650
Email: investorrelations@firstcash.com
Website: ir.firstcash.com