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FORT WORTH, Texas, July 24, 2019 (GLOBE NEWSWIRE) -- FirstCash, Inc. (the “Company”) (Nasdaq: FCFS), the leading international operator of over 2,600 retail pawn stores in the U.S. and Latin America, today announced operating results, including record revenues and earnings per share and significant store additions, for the three and six month periods ended June 30, 2019. Additionally, the Board of Directors declared a $0.25 per share quarterly cash dividend.
Mr. Rick Wessel, chief executive officer, stated, “Our second quarter results saw strong revenue, earnings and margin growth from core pawn operations, highlighted by 13% growth in diluted earnings per share and 17% growth on an adjusted, non-GAAP basis. In addition, we added 73 locations in four countries from acquisitions and new store openings during the quarter, bringing year-to-date store additions to 237 units. With these results, we begin the second half of 2019 with good momentum in our core pawn operations, and despite the earnings headwind from our decision to exit our non-core consumer lending business in Ohio this quarter, we have increased the lower end of the previous earnings guidance range by $0.05 per share.”
This release contains adjusted earnings measures, which exclude merger and other acquisition expenses, certain non-cash foreign currency exchange gains and losses and non-recurring consumer lending wind-down costs, 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 June 30, | ||||||||||||||||
As Reported (GAAP) | Adjusted (Non-GAAP) | |||||||||||||||
In thousands, except per share amounts | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenue | $ | 446,014 | $ | 419,972 | $ | 446,014 | $ | 419,972 | ||||||||
Net income | $ | 33,048 | $ | 30,171 | $ | 35,297 | $ | 31,683 | ||||||||
Diluted earnings per share | $ | 0.76 | $ | 0.67 | $ | 0.82 | $ | 0.70 | ||||||||
EBITDA (non-GAAP measure) | $ | 64,189 | $ | 59,012 | $ | 67,094 | $ | 61,125 | ||||||||
Weighted-average diluted shares | 43,256 | 45,043 | 43,256 | 45,043 |
Six Months Ended June 30, | ||||||||||||||||
As Reported (GAAP) | Adjusted (Non-GAAP) | |||||||||||||||
In thousands, except per share amounts | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenue | $ | 913,618 | $ | 869,772 | $ | 913,618 | $ | 869,772 | ||||||||
Net income | $ | 75,703 | $ | 71,806 | $ | 77,818 | $ | 73,502 | ||||||||
Diluted earnings per share | $ | 1.74 | $ | 1.57 | $ | 1.79 | $ | 1.61 | ||||||||
EBITDA (non-GAAP measure) | $ | 141,072 | $ | 131,291 | $ | 143,786 | $ | 133,643 | ||||||||
Weighted-average diluted shares | 43,456 | 45,757 | 43,456 | 45,757 |
Earnings Highlights
Acquisitions 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 the three-month period ended June 30, 2019 was 19.1 pesos / dollar, a favorable change of 2% versus the comparable prior-year period, and for the six-month period ended June 30, 2019 was 19.2 pesos / dollar, an unfavorable change of 1% versus the prior-year period.
Latin America Operations
U.S. Operations
Consumer Lending Contraction and Ohio Wind-Down Costs
Cash Dividend and Stock Repurchases
Liquidity and Return Metrics
2019 Outlook
Additional Commentary and Analysis
Mr. Wessel further commented, “FirstCash had another record quarter, posting record revenues and generating diluted earnings per share growth of 13% on a GAAP basis and 17% on an adjusted non-GAAP basis. The earnings growth was driven by exceptional revenue growth in Latin America and continued margin improvements in the core pawn business in the U.S.
“In Latin America, second quarter revenues grew by 27% (26% on a constant currency basis), which represents the highest quarterly growth rate in over seven years. Importantly, pawn receivables at June 30 increased 40%, or 35% on a constant currency basis, over the prior year, which is historically a leading indicator of future revenue growth. The growth in pawn receivables was primarily driven by the significant store additions that totaled 420 over the past twelve months and the impressive 14% growth, 10% on a constant currency basis, in same-store pawn loans.
“The Company’s new store openings in Latin America continued at a record pace and we plan to complete the majority of the expected openings of 80 to 85 new locations by early fall, which will allow undivided operational focus on the important fourth quarter sales season. We remain excited about the de novo store opening opportunities in the newer markets of Colombia and Guatemala and are encouraged about the early results from most locations in these markets.
“Acquisition activity remains strong in Mexico as well, with the addition of 40 stores this quarter and 158 stores year-to-date. All of the acquired locations this year are franchised Prendamex locations where we continue to see significant opportunities to enhance their retail operations and increase overall revenues and profitability by integrating them onto the First Pawn IT platform and training personnel in FirstCash operating best practices. As an example, for the initial set of 126 Prendamex stores acquired in early 2018 and which entered the comp base for the first time this quarter, second quarter 2019 revenues increased over 100% compared to last year, primarily from increased retail sales, while pawn loans outstanding increased by over 40% year-over-year.
“Turning to the U.S., our results were also extremely encouraging as we posted positive growth in core revenues and gross profit, including a 2% increase in same-store pawn fees and 5% increase in retail gross profit. We continue to realize further store expense savings, primarily from optimizing labor costs and reducing technology expenses in the legacy Cash America stores, where we continue to believe there are still additional margin expansion opportunities.
“As previously announced, and in conjunction with the change in law in Ohio, we discontinued all non-secured consumer lending products in Ohio and closed 52 Cashland stores that were primarily focused on unsecured consumer lending products. We will continue to operate 61 Cashland stores in Ohio that have larger pawn operations where we believe there is an opportunity to grow our pawn business as customers look for alternatives to traditional unsecured consumer lending products. Additionally, we operate six large format Cash America stores in Ohio that we believe should benefit from the change in law as well.
“The Company continues to maintain a strong balance sheet and cash flows. The majority of our store and asset growth continues to be funded primarily with operating cash flows and net leverage remains low at less than two times adjusted EBITDA. We continue to prioritize acquisitions and store investment opportunities while still repurchasing stock at what we believe are attractive prices. Year-to-date, we have committed over $35 million for acquisitions and repurchased 671,000 shares at a total cost of $59 million and an average price per share of $88.62. Additionally, this year we are on pace to pay dividends to shareholders of approximately $43 million.
“We are confident in our business model and growth opportunities both in Latin America and the U.S. and intend to use our free cash flow to continue to build new stores, pursue strategic acquisitions, repurchase shares and pay dividends. As a result, we believe that we are well positioned to continue to increase shareholder value over time,” concluded Mr. Wessel, chief executive officer.
About FirstCash
FirstCash is the leading international operator of pawn stores with more than 2,600 retail pawn 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 21,000 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 non-recourse pawn loans secured by pledged personal property.
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 that 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 2018 annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 5, 2019, 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 | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenue: | ||||||||||||||||
Retail merchandise sales | $ | 278,754 | $ | 255,742 | $ | 562,995 | $ | 525,583 | ||||||||
Pawn loan fees | 136,923 | 123,012 | 278,115 | 252,805 | ||||||||||||
Wholesale scrap jewelry sales | 24,981 | 27,475 | 56,691 | 62,200 | ||||||||||||
Consumer loan and credit services fees | 5,356 | 13,743 | 15,817 | 29,184 | ||||||||||||
Total revenue | 446,014 | 419,972 | 913,618 | 869,772 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Cost of retail merchandise sold | 176,272 | 163,574 | 355,621 | 338,071 | ||||||||||||
Cost of wholesale scrap jewelry sold | 23,934 | 24,076 | 54,287 | 56,571 | ||||||||||||
Consumer loan and credit services loss provision | 1,503 | 3,894 | 3,606 | 7,621 | ||||||||||||
Total cost of revenue | 201,709 | 191,544 | 413,514 | 402,263 | ||||||||||||
Net revenue | 244,305 | 228,428 | 500,104 | 467,509 | ||||||||||||
Expenses and other income: | ||||||||||||||||
Store operating expenses (1) | 148,347 | 138,043 | 295,199 | 276,391 | ||||||||||||
Administrative expenses | 31,696 | 29,720 | 63,850 | 57,722 | ||||||||||||
Depreciation and amortization | 10,510 | 10,952 | 20,384 | 22,235 | ||||||||||||
Interest expense | 8,548 | 6,529 | 16,918 | 12,727 | ||||||||||||
Interest income | (155 | ) | (740 | ) | (359 | ) | (1,721 | ) | ||||||||
Merger and other acquisition expenses | 556 | 2,113 | 705 | 2,352 | ||||||||||||
Gain on foreign exchange (1) | (483 | ) | (460 | ) | (722 | ) | (247 | ) | ||||||||
Total expenses and other income | 199,019 | 186,157 | 395,975 | 369,459 | ||||||||||||
Income before income taxes | 45,286 | 42,271 | 104,129 | 98,050 | ||||||||||||
Provision for income taxes | 12,238 | 12,100 | 28,426 | 26,244 | ||||||||||||
Net income | $ | 33,048 | $ | 30,171 | $ | 75,703 | $ | 71,806 | ||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | 0.77 | $ | 0.67 | $ | 1.75 | $ | 1.57 | ||||||||
Diluted | $ | 0.76 | $ | 0.67 | $ | 1.74 | $ | 1.57 | ||||||||
Weighted-average shares outstanding: | ||||||||||||||||
Basic | 43,081 | 44,942 | 43,298 | 45,680 | ||||||||||||
Diluted | 43,256 | 45,043 | 43,456 | 45,757 | ||||||||||||
Dividends declared per common share | $ | 0.25 | $ | 0.22 | $ | 0.50 | $ | 0.44 |
(1) The gain on foreign exchange of $0.5 million and $0.2 million for the three and six months ended June 30, 2018, respectively, was reclassified on the consolidated statements of income in order to conform with the presentation for the three and six months ended June 30, 2019. 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)
June 30, | December 31, | |||||||||||
2019 | 2018 | 2018 | ||||||||||
ASSETS | ||||||||||||
Cash and cash equivalents | $ | 67,012 | $ | 83,127 | $ | 71,793 | ||||||
Fees and service charges receivable | 46,991 | 42,920 | 45,430 | |||||||||
Pawn loans | 375,167 | 348,295 | 362,941 | |||||||||
Consumer loans, net | 3,850 | 17,256 | 15,902 | |||||||||
Inventories | 266,440 | 249,689 | 275,130 | |||||||||
Income taxes receivable | 1,041 | 486 | 1,379 | |||||||||
Prepaid expenses and other current assets | 9,590 | 19,913 | 17,317 | |||||||||
Total current assets | 770,091 | 761,686 | 789,892 | |||||||||
Property and equipment, net | 290,725 | 236,434 | 251,645 | |||||||||
Operating lease right of use asset (1) | 293,357 | — | — | |||||||||
Goodwill | 940,653 | 857,070 | 917,419 | |||||||||
Intangible assets, net | 87,200 | 89,962 | 88,140 | |||||||||
Other assets | 10,890 | 52,193 | 49,238 | |||||||||
Deferred tax assets | 11,570 | 12,295 | 11,640 | |||||||||
Total assets | $ | 2,404,486 | $ | 2,009,640 | $ | 2,107,974 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Accounts payable and accrued liabilities | $ | 71,410 | $ | 79,961 | $ | 96,928 | ||||||
Customer deposits | 40,665 | 34,300 | 35,368 | |||||||||
Income taxes payable | 317 | 3,207 | 749 | |||||||||
Lease liability, current (1) | 84,513 | — | — | |||||||||
Total current liabilities | 196,905 | 117,468 | 133,045 | |||||||||
Revolving unsecured credit facility | 340,000 | 221,500 | 295,000 | |||||||||
Senior unsecured notes | 296,222 | 295,560 | 295,887 | |||||||||
Deferred tax liabilities | 60,069 | 51,011 | 54,854 | |||||||||
Lease liability, non-current (1) | 184,348 | — | — | |||||||||
Other liabilities | — | 14,057 | 11,084 | |||||||||
Total liabilities | 1,077,544 | 699,596 | 789,870 | |||||||||
Stockholders’ equity: | ||||||||||||
Preferred stock | — | — | — | |||||||||
Common stock | 493 | 493 | 493 | |||||||||
Additional paid-in capital | 1,227,478 | 1,221,572 | 1,224,608 | |||||||||
Retained earnings | 660,845 | 546,097 | 606,810 | |||||||||
Accumulated other comprehensive loss | (103,932 | ) | (114,668 | ) | (113,117 | ) | ||||||
Common stock held in treasury, at cost | (457,942 | ) | (343,450 | ) | (400,690 | ) | ||||||
Total stockholders’ equity | 1,326,942 | 1,310,044 | 1,318,104 | |||||||||
Total liabilities and stockholders’ equity | $ | 2,404,486 | $ | 2,009,640 | $ | 2,107,974 |
(1) The Company adopted ASC 842 prospectively as of January 1, 2019, using the transition method that required prospective application from the adoption date. As a result of the transition method used, ASC 842 was not applied to periods prior to adoption and the adoption of ASC 842 had no impact on the Company’s comparative prior periods presented.
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 June 30, 2019 as compared to June 30, 2018 (dollars in thousands, except as otherwise noted):
Constant Currency Basis | |||||||||||||||||||||
As of | |||||||||||||||||||||
June 30, | Increase / | ||||||||||||||||||||
As of June 30, | Increase / | 2019 | (Decrease) | ||||||||||||||||||
2019 | 2018 | (Decrease) | (Non-GAAP) | (Non-GAAP) | |||||||||||||||||
Latin America Operations Segment | |||||||||||||||||||||
Earning assets: | |||||||||||||||||||||
Pawn loans | $ | 112,811 | $ | 80,709 | 40 | % | $ | 109,152 | 35 | % | |||||||||||
Inventories | 93,565 | 65,158 | 44 | % | 90,507 | 39 | % | ||||||||||||||
Consumer loans, net (1) | — | 147 | (100 | )% | — | (100 | )% | ||||||||||||||
$ | 206,376 | $ | 146,014 | 41 | % | $ | 199,659 | 37 | % | ||||||||||||
Average outstanding pawn loan amount (in ones) | $ | 69 | $ | 62 | 11 | % | $ | 66 | 6 | % | |||||||||||
Composition of pawn collateral: | |||||||||||||||||||||
General merchandise | 73 | % | 79 | % | |||||||||||||||||
Jewelry | 27 | % | 21 | % | |||||||||||||||||
100 | % | 100 | % | ||||||||||||||||||
Composition of inventories: | |||||||||||||||||||||
General merchandise | 74 | % | 75 | % | |||||||||||||||||
Jewelry | 26 | % | 25 | % | |||||||||||||||||
100 | % | 100 | % | ||||||||||||||||||
Percentage of inventory aged greater than one year | 1 | % | 1 | % |
(1) The Company discontinued offering an unsecured consumer loan product in Latin America effective June 30, 2018.
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 June 30, 2019 as compared to the three months ended June 30, 2018 (dollars in thousands):
Constant Currency Basis | ||||||||||||||||||||||
Three Months | ||||||||||||||||||||||
Ended | ||||||||||||||||||||||
Three Months Ended | June 30, | Increase / | ||||||||||||||||||||
June 30, | Increase / | 2019 | (Decrease) | |||||||||||||||||||
2019 | 2018 | (Decrease) | (Non-GAAP) | (Non-GAAP) | ||||||||||||||||||
Latin America Operations Segment | ||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||
Retail merchandise sales | $ | 109,836 | $ | 89,301 | 23 | % | $ | 108,622 | 22 | % | ||||||||||||
Pawn loan fees | 46,797 | 35,187 | 33 | % | 46,277 | 32 | % | |||||||||||||||
Wholesale scrap jewelry sales | 9,193 | 5,342 | 72 | % | 9,193 | 72 | % | |||||||||||||||
Consumer loan fees | — | 342 | (100 | )% | — | (100 | )% | |||||||||||||||
Total revenue | 165,826 | 130,172 | 27 | % | 164,092 | 26 | % | |||||||||||||||
Cost of revenue: | ||||||||||||||||||||||
Cost of retail merchandise sold | 71,610 | 58,302 | 23 | % | 70,828 | 21 | % | |||||||||||||||
Cost of wholesale scrap jewelry sold | 9,081 | 5,121 | 77 | % | 8,984 | 75 | % | |||||||||||||||
Consumer loan loss provision | — | 84 | (100 | )% | — | (100 | )% | |||||||||||||||
Total cost of revenue | 80,691 | 63,507 | 27 | % | 79,812 | 26 | % | |||||||||||||||
Net revenue | 85,135 | 66,665 | 28 | % | 84,280 | 26 | % | |||||||||||||||
Segment expenses: | ||||||||||||||||||||||
Store operating expenses (1) | 45,338 | 34,418 | 32 | % | 44,927 | 31 | % | |||||||||||||||
Depreciation and amortization | 3,579 | 2,740 | 31 | % | 3,550 | 30 | % | |||||||||||||||
Total segment expenses | 48,917 | 37,158 | 32 | % | 48,477 | 30 | % | |||||||||||||||
Segment pre-tax operating income | $ | 36,218 | $ | 29,507 | 23 | % | $ | 35,803 | 21 | % |
(1) The gain on foreign exchange for the Latin America operations segment of $0.5 million for the three months ended June 30, 2018 was reclassified on the consolidated statements of income in order to conform with the presentation for the three months ended June 30, 2019. 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 six months ended June 30, 2019 as compared to the six months ended June 30, 2018 (dollars in thousands):
Constant Currency Basis | ||||||||||||||||||||||
Six Months | ||||||||||||||||||||||
Ended | ||||||||||||||||||||||
Six Months Ended | June 30, | Increase / | ||||||||||||||||||||
June 30, | Increase / | 2019 | (Decrease) | |||||||||||||||||||
2019 | 2018 | (Decrease) | (Non-GAAP) | (Non-GAAP) | ||||||||||||||||||
Latin America Operations Segment | ||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||
Retail merchandise sales | $ | 207,262 | $ | 173,090 | 20 | % | $ | 208,658 | 21 | % | ||||||||||||
Pawn loan fees | 90,113 | 68,738 | 31 | % | 90,713 | 32 | % | |||||||||||||||
Wholesale scrap jewelry sales | 18,118 | 10,610 | 71 | % | 18,118 | 71 | % | |||||||||||||||
Consumer loan fees | — | 744 | (100 | )% | — | (100 | )% | |||||||||||||||
Total revenue | 315,493 | 253,182 | 25 | % | 317,489 | 25 | % | |||||||||||||||
Cost of revenue: | ||||||||||||||||||||||
Cost of retail merchandise sold | 133,215 | 112,183 | 19 | % | 134,123 | 20 | % | |||||||||||||||
Cost of wholesale scrap jewelry sold | 18,164 | 9,963 | 82 | % | 18,280 | 83 | % | |||||||||||||||
Consumer loan loss provision | — | 167 | (100 | )% | — | (100 | )% | |||||||||||||||
Total cost of revenue | 151,379 | 122,313 | 24 | % | 152,403 | 25 | % | |||||||||||||||
Net revenue | 164,114 | 130,869 | 25 | % | 165,086 | 26 | % | |||||||||||||||
Segment expenses: | ||||||||||||||||||||||
Store operating expenses (1) | 88,306 | 68,383 | 29 | % | 88,948 | 30 | % | |||||||||||||||
Depreciation and amortization | 6,884 | 5,449 | 26 | % | 6,938 | 27 | % | |||||||||||||||
Total segment expenses | 95,190 | 73,832 | 29 | % | 95,886 | 30 | % | |||||||||||||||
Segment pre-tax operating income | $ | 68,924 | $ | 57,037 | 21 | % | $ | 69,200 | 21 | % |
(1) The gain on foreign exchange for the Latin America operations segment of $0.2 million for the six months ended June 30, 2018 was reclassified on the consolidated statements of income in order to conform with the presentation for the six months ended June 30, 2019. 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 June 30, 2019 as compared to June 30, 2018 (dollars in thousands, except as otherwise noted):
As of June 30, | Increase / | |||||||||||
2019 | 2018 | (Decrease) | ||||||||||
U.S. Operations Segment | ||||||||||||
Earning assets: | ||||||||||||
Pawn loans | $ | 262,356 | $ | 267,586 | (2 | )% | ||||||
Inventories | 172,875 | 184,531 | (6 | )% | ||||||||
Consumer loans, net (1) | 3,850 | 17,109 | (77 | )% | ||||||||
$ | 439,081 | $ | 469,226 | (6 | )% | |||||||
Average outstanding pawn loan amount (in ones) | $ | 166 | $ | 160 | 4 | % | ||||||
Composition of pawn collateral: | ||||||||||||
General merchandise | 37 | % | 37 | % | ||||||||
Jewelry | 63 | % | 63 | % | ||||||||
100 | % | 100 | % | |||||||||
Composition of inventories: | ||||||||||||
General merchandise | 44 | % | 41 | % | ||||||||
Jewelry | 56 | % | 59 | % | ||||||||
100 | % | 100 | % | |||||||||
Percentage of inventory aged greater than one year | 4 | % | 4 | % |
(1) The Company ceased offering unsecured consumer lending and credit services products in all 119 Ohio locations on April 26, 2019 and closed 52 Ohio locations during the second quarter of 2019. See “Consumer Lending Contraction and Ohio Wind-Down Costs” for further discussion.
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 June 30, 2019 as compared to the three months ended June 30, 2018 (dollars in thousands):
Three Months Ended | |||||||||||||
June 30, | Increase / | ||||||||||||
2019 | 2018 | (Decrease) | |||||||||||
U.S. Operations Segment | |||||||||||||
Revenue: | |||||||||||||
Retail merchandise sales | $ | 168,918 | $ | 166,441 | 1 | % | |||||||
Pawn loan fees | 90,126 | 87,825 | 3 | % | |||||||||
Wholesale scrap jewelry sales | 15,788 | 22,133 | (29 | )% | |||||||||
Consumer loan and credit services fees | 5,356 | 13,401 | (60 | )% | |||||||||
Total revenue | 280,188 | 289,800 | (3 | )% | |||||||||
Cost of revenue: | |||||||||||||
Cost of retail merchandise sold | 104,662 | 105,272 | (1 | )% | |||||||||
Cost of wholesale scrap jewelry sold | 14,853 | 18,955 | (22 | )% | |||||||||
Consumer loan and credit services loss provision | 1,503 | 3,810 | (61 | )% | |||||||||
Total cost of revenue | 121,018 | 128,037 | (5 | )% | |||||||||
Net revenue | 159,170 | 161,763 | (2 | )% | |||||||||
Segment expenses: | |||||||||||||
Store operating expenses | 103,009 | 103,625 | (1 | )% | |||||||||
Depreciation and amortization | 5,269 | 5,037 | 5 | % | |||||||||
Total segment expenses | 108,278 | 108,662 | — | % | |||||||||
Segment pre-tax operating income | $ | 50,892 | $ | 53,101 | (4 | )% |
FIRSTCASH, INC.
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
The following table presents segment pre-tax operating income of the U.S. operations segment for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018 (dollars in thousands):
Six Months Ended | |||||||||||||
June 30, | Increase / | ||||||||||||
2019 | 2018 | (Decrease) | |||||||||||
U.S. Operations Segment | |||||||||||||
Revenue: | |||||||||||||
Retail merchandise sales | $ | 355,733 | $ | 352,493 | 1 | % | |||||||
Pawn loan fees | 188,002 | 184,067 | 2 | % | |||||||||
Wholesale scrap jewelry sales | 38,573 | 51,590 | (25 | )% | |||||||||
Consumer loan and credit services fees | 15,817 | 28,440 | (44 | )% | |||||||||
Total revenue | 598,125 | 616,590 | (3 | )% | |||||||||
Cost of revenue: | |||||||||||||
Cost of retail merchandise sold | 222,406 | 225,888 | (2 | )% | |||||||||
Cost of wholesale scrap jewelry sold | 36,123 | 46,608 | (22 | )% | |||||||||
Consumer loan and credit services loss provision | 3,606 | 7,454 | (52 | )% | |||||||||
Total cost of revenue | 262,135 | 279,950 | (6 | )% | |||||||||
Net revenue | 335,990 | 336,640 | — | % | |||||||||
Segment expenses: | |||||||||||||
Store operating expenses | 206,893 | 208,008 | (1 | )% | |||||||||
Depreciation and amortization | 10,314 | 10,592 | (3 | )% | |||||||||
Total segment expenses | 217,207 | 218,600 | (1 | )% | |||||||||
Segment pre-tax operating income | $ | 118,783 | $ | 118,040 | 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 | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Consolidated Results of Operations | |||||||||||||||
Segment pre-tax operating income: | |||||||||||||||
Latin America operations segment pre-tax operating income (1) | $ | 36,218 | $ | 29,507 | $ | 68,924 | $ | 57,037 | |||||||
U.S. operations segment pre-tax operating income | 50,892 | 53,101 | 118,783 | 118,040 | |||||||||||
Consolidated segment pre-tax operating income | 87,110 | 82,608 | 187,707 | 175,077 | |||||||||||
Corporate expenses and other income: | |||||||||||||||
Administrative expenses | 31,696 | 29,720 | 63,850 | 57,722 | |||||||||||
Depreciation and amortization | 1,662 | 3,175 | 3,186 | 6,194 | |||||||||||
Interest expense | 8,548 | 6,529 | 16,918 | 12,727 | |||||||||||
Interest income | (155 | ) | (740 | ) | (359 | ) | (1,721 | ) | |||||||
Merger and other acquisition expenses | 556 | 2,113 | 705 | 2,352 | |||||||||||
Gain on foreign exchange (1) | (483 | ) | (460 | ) | (722 | ) | (247 | ) | |||||||
Total corporate expenses and other income | 41,824 | 40,337 | 83,578 | 77,027 | |||||||||||
Income before income taxes | 45,286 | 42,271 | 104,129 | 98,050 | |||||||||||
Provision for income taxes | 12,238 | 12,100 | 28,426 | 26,244 | |||||||||||
Net income | $ | 33,048 | $ | 30,171 | $ | 75,703 | $ | 71,806 |
(1) The gain on foreign exchange for the Latin America operations segment of $0.5 million and $0.2 million for the three and six months ended June 30, 2018 was reclassified on the consolidated statements of income in order to conform with the presentation for the three and six months ended June 30, 2019. 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 June 30, 2019:
Consumer | |||||||||
Pawn | Loan | Total | |||||||
Locations (1) | Locations | Locations | |||||||
Latin America operations segment: | |||||||||
Total locations, beginning of period | 1,530 | — | 1,530 | ||||||
New locations opened | 23 | — | 23 | ||||||
Locations acquired | 40 | — | 40 | ||||||
Locations closed or consolidated | (1 | ) | — | (1 | ) | ||||
Total locations, end of period | 1,592 | — | 1,592 | ||||||
U.S. operations segment: | |||||||||
Total locations, beginning of period | 1,085 | 15 | 1,100 | ||||||
Locations acquired | 10 | — | 10 | ||||||
Locations closed or consolidated (2) | (47 | ) | (9 | ) | (56 | ) | |||
Total locations, end of period | 1,048 | 6 | 1,054 | ||||||
Total: | |||||||||
Total locations, beginning of period | 2,615 | 15 | 2,630 | ||||||
New locations opened | 23 | — | 23 | ||||||
Locations acquired | 50 | — | 50 | ||||||
Locations closed or consolidated (2) | (48 | ) | (9 | ) | (57 | ) | |||
Total locations, end of period | 2,640 | 6 | 2,646 |
(1) At June 30, 2019, 75 of the U.S. pawn stores, primarily located in Texas, also offered consumer loans and/or credit services primarily as an ancillary product. This compares to 307 U.S. pawn locations which offered such products as of June 30, 2018.
(2) Includes the closing of 52 Ohio locations primarily focused on consumer lending products. See “Consumer Lending Contraction and Ohio Wind-Down Costs” for additional discussion of these store closings.
FIRSTCASH, INC.
STORE COUNT ACTIVITY (CONTINUED)
The following table details store count activity for the six months ended June 30, 2019:
Consumer | |||||||||
Pawn | Loan | Total | |||||||
Locations (1) | Locations | Locations | |||||||
Latin America operations segment: | |||||||||
Total locations, beginning of period | 1,379 | — | 1,379 | ||||||
New locations opened | 59 | — | 59 | ||||||
Locations acquired | 158 | — | 158 | ||||||
Locations closed or consolidated | (4 | ) | — | (4 | ) | ||||
Total locations, end of period | 1,592 | — | 1,592 | ||||||
U.S. operations segment: | |||||||||
Total locations, beginning of period | 1,077 | 17 | 1,094 | ||||||
Locations acquired | 20 | — | 20 | ||||||
Locations closed or consolidated (2) | (49 | ) | (11 | ) | (60 | ) | |||
Total locations, end of period | 1,048 | 6 | 1,054 | ||||||
Total: | |||||||||
Total locations, beginning of period | 2,456 | 17 | 2,473 | ||||||
New locations opened | 59 | — | 59 | ||||||
Locations acquired | 178 | — | 178 | ||||||
Locations closed or consolidated (2) | (53 | ) | (11 | ) | (64 | ) | |||
Total locations, end of period | 2,640 | 6 | 2,646 |
(1) At June 30, 2019, 75 of the U.S. pawn stores, primarily located in Texas, also offered consumer loans and/or credit services primarily as an ancillary product. This compares to 307 U.S. pawn locations which offered such products as of June 30, 2018.
(2) Includes the closing of 52 Ohio locations and two other locations outside of Ohio primarily focused on consumer lending products. See “Consumer Lending Contraction and Ohio Wind-Down Costs” for additional discussion of these store closings.
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, EBITDA, adjusted EBITDA, free cash flow, adjusted free cash flow, constant currency results, return on tangible assets and return on tangible equity 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 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.
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. The Company believes that providing adjusted non-GAAP measures, which exclude these items, allows management and investors to consider the ongoing operations of the business both with, and without, such expenses. 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 MEASURES
TO GAAP FINANCIAL MEASURES (CONTINUED)
(UNAUDITED)
Adjusted Net Income, Adjusted Diluted Earnings Per Share, Return on Tangible Assets and Return on Tangible Equity
Management believes the presentation of adjusted net income, adjusted diluted earnings per share, return on tangible assets and return on tangible equity 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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||||||
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 | $ | 33,048 | $ | 0.76 | $ | 30,171 | $ | 0.67 | $ | 75,703 | $ | 1.74 | $ | 71,806 | $ | 1.57 | |||||||||||||||
Adjustments, net of tax: | |||||||||||||||||||||||||||||||
Merger and other acquisition expenses | 426 | 0.01 | 1,512 | 0.03 | 530 | 0.01 | 1,696 | 0.04 | |||||||||||||||||||||||
Non-cash foreign currency gain related to lease liability | (136 | ) | — | — | — | (374 | ) | (0.01 | ) | — | — | ||||||||||||||||||||
Ohio consumer lending wind-down costs | 1,959 | 0.05 | — | — | 1,959 | 0.05 | — | — | |||||||||||||||||||||||
Adjusted net income and diluted earnings per share | $ | 35,297 | $ | 0.82 | $ | 31,683 | $ | 0.70 | $ | 77,818 | $ | 1.79 | $ | 73,502 | $ | 1.61 |
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 June 30, | |||||||||||||||||||||||
2019 | 2018 | ||||||||||||||||||||||
Pre-tax | Tax | After-tax | Pre-tax | Tax | After-tax | ||||||||||||||||||
Merger and other acquisition expenses | $ | 556 | $ | 130 | $ | 426 | $ | 2,113 | $ | 601 | $ | 1,512 | |||||||||||
Non-cash foreign currency gain related to lease liability | (195 | ) | (59 | ) | (136 | ) | — | — | — | ||||||||||||||
Ohio consumer lending wind-down costs | 2,544 | 585 | 1,959 | — | — | — | |||||||||||||||||
Total adjustments | $ | 2,905 | $ | 656 | $ | 2,249 | $ | 2,113 | $ | 601 | $ | 1,512 |
Six Months Ended June 30, | |||||||||||||||||||||||
2019 | 2018 | ||||||||||||||||||||||
Pre-tax | Tax | After-tax | Pre-tax | Tax | After-tax | ||||||||||||||||||
Merger and other acquisition expenses | $ | 705 | $ | 175 | $ | 530 | $ | 2,352 | $ | 656 | $ | 1,696 | |||||||||||
Non-cash foreign currency gain related to lease liability | (535 | ) | (161 | ) | (374 | ) | — | — | — | ||||||||||||||
Ohio consumer lending wind-down costs | 2,544 | 585 | 1,959 | — | — | — | |||||||||||||||||
Total adjustments | $ | 2,714 | $ | 599 | $ | 2,115 | $ | 2,352 | $ | 656 | $ | 1,696 |
FIRSTCASH, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES (CONTINUED)
(UNAUDITED)
The following table provides a calculation of return on tangible assets and return on tangible equity (dollars in thousands):
June 30, | |||||||||
2019 | 2018 | ||||||||
Return on tangible assets calculation: | |||||||||
Average total assets | $ | 2,194,873 | $ | 2,062,433 | |||||
Adjustments: | |||||||||
Average goodwill | (910,847 | ) | (841,145 | ) | |||||
Average intangible assets, net | (88,402 | ) | (94,040 | ) | |||||
Average operating lease right of use asset | (118,305 | ) | — | ||||||
Average tangible assets | $ | 1,077,319 | $ | 1,127,248 | |||||
Net income for the trailing twelve months | $ | 157,103 | $ | 167,814 | |||||
Return on tangible assets | 15 | % | 15 | % | |||||
Return on tangible equity calculation: | |||||||||
Average stockholders’ equity | $ | 1,319,047 | $ | 1,433,755 | |||||
Adjustments: | |||||||||
Average goodwill | (910,847 | ) | (841,145 | ) | |||||
Average intangible assets, net | (88,402 | ) | (94,040 | ) | |||||
Average tangible equity | $ | 319,798 | $ | 498,570 | |||||
Net income for the trailing twelve months | $ | 157,103 | $ | 167,814 | |||||
Return on tangible equity | 49 | % | 34 | % |
FIRSTCASH, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES (CONTINUED)
(UNAUDITED)
The following table provides a calculation of segment pre-tax operating income excluding contribution from consumer lending operations and Ohio store closures (“Adjusted Segment Pre-tax Operating Income”) (dollars in thousands):
Three Months Ended | |||||||||||||
June 30, | Increase / | ||||||||||||
2019 | 2018 | (Decrease) | |||||||||||
U.S. Operations Segment: | |||||||||||||
Segment pre-tax operating income | $ | 50,892 | $ | 53,101 | (4 | )% | |||||||
Contribution from consumer lending operations and Ohio store closures | (1,290 | ) | (5,842 | ) | (78 | )% | |||||||
Adjusted segment pre-tax operating income | $ | 49,602 | $ | 47,259 | 5 | % | |||||||
Six Months Ended | |||||||||||||
June 30, | Increase / | ||||||||||||
2019 | 2018 | (Decrease) | |||||||||||
U.S. Operations Segment: | |||||||||||||
Segment pre-tax operating income | $ | 118,783 | $ | 118,040 | 1 | % | |||||||
Contribution from consumer lending operations and Ohio store closures | (6,863 | ) | (13,206 | ) | (48 | )% | |||||||
Adjusted segment pre-tax operating income | $ | 111,920 | $ | 104,834 | 7 | % |
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):
Trailing Twelve | ||||||||||||||||||||||||
Three Months Ended | Six Months Ended | Months Ended | ||||||||||||||||||||||
June 30, | June 30, | June 30, | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
Net income | $ | 33,048 | $ | 30,171 | $ | 75,703 | $ | 71,806 | $ | 157,103 | $ | 167,814 | ||||||||||||
Income taxes | 12,238 | 12,100 | 28,426 | 26,244 | 54,285 | 28,838 | ||||||||||||||||||
Depreciation and amortization | 10,510 | 10,952 | 20,384 | 22,235 | 41,110 | 48,536 | ||||||||||||||||||
Interest expense | 8,548 | 6,529 | 16,918 | 12,727 | 33,364 | 25,064 | ||||||||||||||||||
Interest income | (155 | ) | (740 | ) | (359 | ) | (1,721 | ) | (1,082 | ) | (2,598 | ) | ||||||||||||
EBITDA | 64,189 | 59,012 | 141,072 | 131,291 | 284,780 | 267,654 | ||||||||||||||||||
Adjustments: | ||||||||||||||||||||||||
Merger and other acquisition expenses | 556 | 2,113 | 705 | 2,352 | 5,996 | 9,161 | ||||||||||||||||||
Non-cash foreign currency gain related to lease liability | (195 | ) | — | (535 | ) | — | (535 | ) | — | |||||||||||||||
Ohio consumer lending wind-down costs | 2,544 | — | 2,544 | — | 2,544 | — | ||||||||||||||||||
Asset impairments related to consumer loan operations | — | — | — | — | 1,514 | — | ||||||||||||||||||
Loss on extinguishment of debt | — | — | — | — | — | 20 | ||||||||||||||||||
Adjusted EBITDA | $ | 67,094 | $ | 61,125 | $ | 143,786 | $ | 133,643 | $ | 294,299 | $ | 276,835 | ||||||||||||
Net debt ratio calculation: | ||||||||||||||||||||||||
Total debt (outstanding principal) | $ | 640,000 | $ | 521,500 | ||||||||||||||||||||
Less: cash and cash equivalents | (67,012 | ) | (83,127 | ) | ||||||||||||||||||||
Net debt | $ | 572,988 | $ | 438,373 | ||||||||||||||||||||
Adjusted EBITDA | $ | 294,299 | $ | 276,835 | ||||||||||||||||||||
Net debt ratio (net debt divided by adjusted EBITDA) | 1.9:1 | 1.6:1 |
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):
Trailing Twelve | ||||||||||||||||||||||||
Three Months Ended | Six Months Ended | Months Ended | ||||||||||||||||||||||
June 30, | June 30, | June 30, | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
Cash flow from operating activities | $ | 34,276 | $ | 28,651 | $ | 105,973 | $ | 119,967 | $ | 229,435 | $ | 237,511 | ||||||||||||
Cash flow from investing activities: | ||||||||||||||||||||||||
Loan receivables, net of cash repayments | (22,642 | ) | (25,307 | ) | 19,574 | 30,913 | (1,214 | ) | 37,685 | |||||||||||||||
Purchases of furniture, fixtures, equipment and improvements | (13,246 | ) | (9,080 | ) | (22,904 | ) | (14,468 | ) | (44,113 | ) | (27,684 | ) | ||||||||||||
Free cash flow | (1,612 | ) | (5,736 | ) | 102,643 | 136,412 | 184,108 | 247,512 | ||||||||||||||||
Merger and other acquisition expenses paid, net of tax benefit | 426 | 1,531 | 530 | 3,099 | 4,503 | 6,213 | ||||||||||||||||||
Adjusted free cash flow (1) | $ | (1,186 | ) | $ | (4,205 | ) | $ | 103,173 | $ | 139,511 | $ | 188,611 | $ | 253,725 |
(1) The six months and trailing twelve months ended June 30, 2019 include the impact of accelerated loan growth in Latin America and store expansion activities, while the prior-year comparative periods included a $21 million cash inflow from a non-recurring tax refund related to the merger and larger than normal cash inflows related to the liquidation of excess inventories in the legacy Cash America stores.
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:
June 30, | Favorable | ||||||||
2019 | 2018 | (Unfavorable) | |||||||
Mexican peso / U.S. dollar exchange rate: | |||||||||
End-of-period | 19.2 | 19.9 | 4 | % | |||||
Three months ended | 19.1 | 19.4 | 2 | % | |||||
Six months ended | 19.2 | 19.1 | (1 | )% | |||||
Guatemalan quetzal / U.S. dollar exchange rate: | |||||||||
End-of-period | 7.7 | 7.5 | (3 | )% | |||||
Three months ended | 7.7 | 7.4 | (4 | )% | |||||
Six months ended | 7.7 | 7.4 | (4 | )% | |||||
Colombian peso / U.S. dollar exchange rate: | |||||||||
End-of-period | 3,206 | 2,931 | (9 | )% | |||||
Three months ended | 3,240 | 2,839 | (14 | )% | |||||
Six months ended | 3,188 | 2,849 | (12 | )% |
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: investors.firstcash.com