FirstCash Reports Fourth Quarter and Full-Year Earnings Results; Declares Quarterly Dividend and Issues 2019 Earnings Outlook
Mr.
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
Earnings Highlights
- As noted above, comparable fourth quarter and full-year diluted earnings per share and net income on a GAAP basis were impacted in particular by the Tax Act and the resulting
$27 million non-recurring tax benefit recorded in the fourth quarter of 2017. As a result, diluted earnings per share, on a GAAP basis, decreased 24% in the fourth quarter of 2018 and increased 14% for fiscal 2018 compared to the prior-year periods. Net income, on a GAAP basis, for the fourth quarter of 2018 decreased 29% compared to the fourth quarter of 2017 and increased 6% for the full year compared to the prior-year period. - Adjusted diluted earnings per share increased 19% for the fourth quarter and 29% for the full year compared to the respective prior-year periods. Adjusted net income increased 11% for the fourth quarter and 21% for the full year compared to the respective prior-year periods. Non-GAAP adjusted earnings per share and net income exclude the non-recurring tax benefits as described above, and certain merger, acquisition, consumer lending impairment expenses and debt extinguishment costs, which are further described in the reconciliations to GAAP earnings measures at the end of this release.
- Consolidated revenues for 2018 totaled
$1.8 billion , while net income was$153 million and adjusted EBITDA, a non-GAAP financial measure, totaled$284 million . - Cash flow from operating activities for 2018 totaled a record
$243 million , an increase of 10% compared to$220 million in 2017. Adjusted free cash flow, a non-GAAP financial measure, was$225 million for 2018 compared to$242 million in 2017. - The pre-tax profit margin for the fourth quarter of 2018 increased to 13.1% compared to 11.9% in the prior-year quarter, and for the full year increased to 11.5% compared to 9.7% last year. The adjusted pre-tax profit margin, a non-GAAP financial measure, increased to 13.9% for the quarter and 12.0% for the full year, compared to 13.1% and 11.0% for the respective prior-year periods.
- The net income margin, on a GAAP basis, for the fourth quarter of 2018 was 10.0% compared to 14.1% in the prior-year quarter and was 8.6% for the full year of 2018 compared to 8.1% last year. Prior-year quarter and full-year net income margin on a GAAP basis included the non-recurring benefit from the Tax Act. The adjusted net income margin, a non-GAAP financial measure, improved to 10.2% for the quarter and 8.9% year-to-date, compared to 9.2% and 7.4% for the respective prior-year periods.
- Other items of note which impacted the comparability of both GAAP and adjusted earnings measures included a
$4 million , or$0.10 per share, benefit from the lower U.S. corporate tax rate as compared to the fourth quarter of 2017 and a$14 million benefit, or$0.32 per share, for the full year. This tax benefit was largely offset by the contraction in non-core consumer lending operations, which negatively impacted earnings per share by approximately$0.07 for the quarter and$0.26 for the full year, as compared to the same prior-year periods. In addition, the impact of a weaker Mexican peso in 2018 negatively impacted comparative dollar-denominated earnings per share by$0.02 in the fourth quarter and full-year periods.
Acquisition and Store Opening Highlights
- The Company continued to grow its store base, completing four separate multi-store acquisitions during the fourth quarter of 2018, which combined, added an aggregate total of 33 full-service pawn stores. The acquisitions included nine stores from two transactions in
Texas and 24 stores from two transactions inMexico . In total, for the full year of 2018, the Company completed aggregated acquisitions of 393 stores, which included 366 stores inLatin America and 27 stores in the U.S., for a total purchase price of$125 million . - The Company opened nine new locations in
Latin America during the fourth quarter. For the year, 52 de novo stores were opened in three countries, which included 42 stores inMexico , six stores inGuatemala and four stores inColombia . - In total, the Company opened and acquired 445 store locations across four countries in 2018, increasing the number of pawn stores more than 20% for the year. Approximately 94% of the stores added in 2018 were located in
Latin America . - As of
December 31, 2018 , the Company operated 2,473 stores, with 1,379 stores inLatin America , representing 56% of total store base, and 1,094 stores in the U.S., representing 44% of the store base. The Latin American locations include 1,323 stores inMexico , 39 stores inGuatemala , 13 stores inEl Salvador and four stores inColombia while the U.S. stores are located in 24 states and the District of Columbia.
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
Latin America Operations
- Revenues for the fourth quarter of 2018 totaled
$162 million , an increase of 13% on a U.S. dollar translated basis and 18% on a constant currency basis, as compared to the fourth quarter of 2017. For the full year, revenues totaled$557 million and increased 14% on a U.S. dollar translated basis and 16% on a constant currency basis. - Core pawn revenues, which are composed of pawn fees and retail merchandise sales, increased 14% for the quarter on a U.S. dollar translated basis, driven by a 22% increase in pawn fees and a 12% increase in retail sales compared to the prior-year quarter. On a constant currency basis, core pawn revenues for the quarter increased 20% with pawn fees and retail merchandise sales increasing 28% and 17%, respectively, as compared to the prior-year quarter.
- Segment pre-tax operating income for the quarter increased 10%, or 14% on a constant currency basis, compared to the fourth quarter of 2017 and increased 10%, or 12% on a constant currency basis, during the full year compared to the prior year. Pre-tax profit margin growth in 2018 was partially impacted by the significant acquisition and integration activity in 2018 and the discontinuance of non-core, unsecured consumer lending products in
Mexico . - Reflecting the 5% decline in the value of the Mexican peso compared to the prior-year quarter, same-store core pawn revenues declined 2% on a U.S. dollar translated basis, consisting of a 2% decrease in same-store retail sales and a 1% decrease in same-store pawn fees compared to the prior-year quarter. On a constant currency basis, same-store core pawn revenues increased 3%, composed of a 3% increase in same-store retail sales and a 4% increase in same-store pawn fees compared to the prior-year quarter.
- Pawn loans outstanding totaled
$91 million atDecember 31, 2018 , an increase of 34% on both a U.S. dollar translated and constant currency basis versus the prior year. The significant growth was driven by a combination of the acquisitions, new stores and a 7% increase in same-store pawn loans (both on a U.S. dollar translated and constant currency basis), compared to the prior year. The same-store increase as of year end represented a significant sequential improvement over the second and third quarters, when adjustments made to loan-to-value ratios and macro demand factors contributed to slower same-store loan growth. - While the overall environment in
Latin America remains highly competitive, segment retail margins were 36% in the fourth quarter, which equaled the prior-year quarter and improved sequentially compared to 35% in the third quarter of 2018. - Inventories at
December 31, 2018 increased$15 million to $75 million compared to$60 million a year ago. The increase was driven by the net addition of 408 pawn stores during the year and continued maturation of existing stores. As ofDecember 31, 2018 , inventories aged greater than one year remained extremely low at 1% and inventory turns inLatin America for the year endedDecember 31, 2018 remained strong at 3.9 times.
U.S. Operations
- Segment pre-tax operating income for the quarter increased 5% compared to the fourth quarter of 2017, driven primarily by increased retail margins and store-level expense reductions. The increase in the segment contribution was partially offset by an expected reduction in non-core consumer lending operating profits. Excluding locations whose revenues are generated primarily from non-core consumer lending products (primarily small stores located in
Ohio ), segment pre-tax operating income increased 11% in the fourth quarter compared to the prior-year. - The segment pre-tax operating margin improved to 22% for the fourth quarter of 2018 as compared to 20% in the prior-year quarter. For the full year of 2018, the margin improved from 19% to 20%.
- Total revenues for the fourth quarter were
$319 million , a decrease of 5% compared to the fourth quarter of 2017, and included the expected impact of a 27% decline, or$5 million , in non-core consumer loan and credit services fees and a 45% decline, or$12 million , in non-core scrap jewelry sales. - While gross revenue declined, net revenue (or gross profit) for the fourth quarter of 2018 increased 1%. More importantly, net revenue from core pawn operations increased 5% compared to the prior-year quarter as a result of the continued improvements in retail sales margins and pawn yields as highlighted below.
- Total retail sales decreased 2% compared to the fourth quarter of 2017, while same-store retail sales declined 3% compared to the prior-year quarter. The quarter-over-quarter decline in top line retail sales was impacted by higher than normal retail sales in the fourth quarter of 2017 when there was a significant focus on the liquidation of excess and aged inventories in the Cash America locations.
- Although total retail sales declined, net revenue (or gross profit) from retail sales increased 8% compared to the fourth quarter of 2017 as retail sales margins improved to 37% for the current quarter compared to 34% in the prior-year quarter. The margin improvements were driven primarily by the legacy Cash America locations as new employee compensation plans were implemented in the second quarter and aged inventory levels normalized during 2018.
- Pawn loans outstanding at
December 31, 2018 totaled$272 million , a decrease of 2% in total and 3% on a same-store basis. The decrease was partially due to the continued focus on increasing the volume of direct purchases of goods from customers in the legacy Cash America stores, which resulted in a 17% increase in the percentage of such direct purchase transactions for the quarter as compared to the prior-year quarter. Although these transactions negatively impacted pawn loan growth, the Company believes that offering to purchase goods directly from customers who do not necessarily want or intend to repay their pawn loan improves redemption rates and yields on loans written, and improves inventory turns at better retail margins. - Despite the slight decline in pawn loans outstanding, total pawn fees increased 3% and same-store pawn fee revenues increased 2% in the fourth quarter compared to the prior-year quarter as pawn yields improved by 4% quarter-over-quarter.
- Segment expenses as a percentage of net revenue declined from 62% in the fourth quarter of last year to 61% in the fourth quarter of 2018, primarily due to continued efforts to integrate and optimize domestic store operations.
- Inventories at
December 31, 2018 declined$17 million , or 8%, to$200 million compared to$217 million a year ago and declined 29% compared to$283 million atDecember 31, 2016 , following the Cash America merger. The declines are primarily a result of strategic reductions in overall inventory levels, including focused liquidation of aged inventories in the legacy Cash America stores. As ofDecember 31, 2018 , U.S. inventories aged greater than one year were 4%, which was a significant improvement over the 6% aged level atDecember 31, 2017 and the 11% aged level atDecember 31, 2016 , following the merger. - Inventory turns in the U.S. for the year ended
December 31, 2018 were 2.7 times, which represents the fifth sequential quarterly increase and compares to 2.3 times for the year endedDecember 31, 2017 . Inventory turns in the U.S. are slower than inLatin America due to the larger jewelry component in the U.S. compared to a greater general merchandise inventory component in Latin America.
Consumer Lending Contraction and Asset Impairments
- The Company further contracted its U.S. consumer lending operations during the fourth quarter of 2018 by closing an additional 13 stand-alone consumer lending locations and discontinuing ancillary unsecured consumer loan products in 39 domestic pawn locations.
- For the full year, the Company closed 55 stand-alone consumer lending locations, including 27 in the U.S. and the remaining 28 in
Mexico . In addition, consumer lending products were discontinued in 45 U.S. pawnshops and 49 pawnshops inMexico , which previously offered them as ancillary products. The Company no longer offers an unsecured consumer loan product inLatin America . - In the original fiscal 2018 guidance issued on
February 1, 2018 , the earnings drag from the contraction of consumer lending operations was estimated to be between$0.14 and $0.17 per share. As a result of the Company more aggressively closing consumer loan stores and discontinuing ancillary unsecured consumer loan products in certain pawnshops, the actual fiscal 2018 earnings drag from consumer lending operations was approximately$0.26 per share when compared to fiscal 2017. Consolidated revenues from consumer lending products declined by 27% for the full year of 2018 and by 29% in the fourth quarter as compared to the prior-year period. Consumer lending represented 3% of total revenues in the fourth quarter and the full year of 2018 versus 4% in the prior-year respective periods. - The provisions of the Ohio Fairness in Lending Act (the “Ohio Act”) passed in 2018 are to become effective on
April 26, 2019 and are expected to significantly impact the consumer loan industry inOhio . The Ohio Act essentially eliminates most single pay consumer loan products and the use of credit service organizations (CSOs) inOhio , both of which are elements of the Company’s current consumer lending product offerings inOhio . The Company continues to analyze the expected impact of the Ohio Act and the regulatory and economic viability of potential replacement products for its 119 stores located inOhio that currently offer consumer loan and credit services products. While most of these stores also offer pawn products, the Company expects a significant decrease in consumer lending revenue after the Ohio Act becomes effective and that up to a third of the stores may become unprofitable and be closed. Further discussion of the projected results is provided in the “Fiscal 2019 Outlook” section of this release. As a result of expected negative impacts, the Company recorded a fixed asset impairment charge of approximately$1 million , net of tax, or$0.03 per share, during the fourth quarter of 2018. This non-cash, non-recurring charge has been excluded in the Company’s adjusted earnings measures.
Cash Dividend and Stock Repurchases
- The Board of Directors declared a
$0.25 per share first quarter cash dividend on common shares outstanding, which will be paid on February 28, 2019 to stockholders of record as of February 14, 2019. This represents a 14% increase over the dividend of$0.22 per share paid in the first quarter of 2018. Any future dividends are subject to approval by the Company’s Board of Directors. - During the fourth quarter, the Company repurchased 229,000 shares at an aggregate cost of
$17 million and an average per share cost of$75.37 , leaving$143 million available under the current share repurchase programs for future repurchases. Future share repurchases are subject to expected liquidity, debt covenant restrictions and other relevant factors. - During fiscal 2018, the Company repurchased 3,343,000 shares for an aggregate price of
$275 million at an average price of$82.12 per share. Since the merger with Cash America inSeptember 2016 and through the fourth quarter of 2018, the Company has repurchased a total of 4,959,000 shares at an average repurchase price of$74.12 per share, resulting in a 10% reduction in the number of shares outstanding immediately following the merger.
Liquidity and Return Metrics
- The Company generated a record
$243 million in cash flows from operations and$225 million in adjusted free cash flows during fiscal 2018 compared to$220 million of cash flow from operations and$242 million of adjusted free cash flow during fiscal 2017.
- The Company continues to maintain excellent liquidity ratios even with the significant share repurchases totaling
$275 million , dividends of$41 million and acquisitions of$125 million during fiscal 2018. Given the strength of operating cash flows, total debt increased only$188 million during the year, while significantly growing the Company’s store count and returning a considerable amount of capital to its shareholders. The net debt ratio, which is calculated using a non-GAAP financial measure, for the year endedDecember 31, 2018 was 1.8 to 1.
- The return on assets for fiscal 2018 was 7.4%, while the return on tangible assets was 14.0% for the same period, which compared favorably to 6.9% and 12.4% returns, respectively, for fiscal 2017.
- The return on equity was 11.2% for the year, while the return on tangible equity was 37.7%. This compares positively against returns of 9.8% and 26.6%, respectively, for the prior year.
Fiscal 2019 Outlook
- The Company is initiating fiscal full-year 2019 guidance for diluted earnings per share to be in a range of
$3.75 to $3.95 , which is an increase of 6% to 12% over the prior-year adjusted earnings per share of$3.53 . As described below, the guidance for 2019 includes the impact of an expected net reduction in earnings from U.S. unsecured consumer lending operations of approximately$0.25 to $0.30 per share, a forecast foreign currency drag of approximately$0.08 to $0.10 per share and a$0.04 to $0.07 per share impact from a higher blended effective income tax rate. Excluding these impacts at their midpoint estimates, estimated earnings per share in 2019 would increase in a range of 18% to 24% compared to 2018.
- The estimate of expected earnings per share for 2019 includes the following assumptions:
° An anticipated earnings drag of approximately$0.25 to $0.30 per share during 2019 primarily due to the impact of the Ohio Act and further strategic reductions in consumer lending operations outside ofOhio . We are currently modeling total consumer lending revenues for 2019 to be in a range of$25 million to $31 million , which represents a 47% to 56% reduction compared to 2018 consumer lending revenues. Consumer lending operations are expected to contribute less than 2% of total revenue in 2019.
• In Ohio, the Company is currently evaluating certain consumer loan products that could potentially be used to replace a portion of the anticipated reduction in existing consumer loan revenue as a result of the Ohio Act. Such replacement products will likely result in a smaller loan portfolio and a reduction in the yield of the loan portfolio.
• Outside ofOhio , the Company expects to continue to strategically reduce consumer lending operations primarily by discontinuing unsecured consumer loan products in certain domestic pawn locations which currently offer consumer loans and/or credit services as an ancillary product.
° An estimated average foreign currency exchange rate of approximately 20.0 Mexican pesos / U.S. dollar for fiscal 2019 compared to the average exchange rate of 19.2 Mexican pesos / U.S. dollar in fiscal 2018. The projected change in the exchange rate represents an earnings headwind of approximately$0.08 to $0.10 per share for 2019 when compared to 2018 results. Each full Mexican peso change in the exchange rate to the U.S. dollar represents approximately$0.10 to $0.12 per share of annualized earnings impact.
° An expected blended effective income tax rate of between 26.5% and 27.5% for 2019. This represents an increase over the 2018 effective rate of 26.1% (adjusted for the$1.5 million non-recurring tax benefit as a result of the Tax Act) due in part to the increasing share of earnings fromLatin America where corporate tax rates are higher than those in the U.S. The expected increase in the effective tax rate represents an additional earnings headwind of approximately$0.04 to $0.07 per share as compared to 2018 results.
° Plans to open approximately 80 to 85 new full-service pawn stores in 2019, primarily inMexico , which includes targeted openings of approximately 15 stores inGuatemala and 10 stores inColombia . The Company also expects to acquire at least 70 stores between the U.S. andLatin America during the first quarter of 2019.
° The Company expects to continue repurchasing shares in 2019, with a targeted shareholder payout ratio, which includes share repurchases and dividends, of approximately 100% of net income.
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
“Operationally in
“Store growth in
“As we look to 2019 in
“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
“Our guidance for 2019 reflects strong growth in earnings from our core pawn operations, both domestically and in
“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
About
Forward-Looking Information
This release contains forward-looking statements about the business, financial condition and prospects of
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
FIRSTCASH, INC. CONSOLIDATED STATEMENTS OF INCOME (unaudited, in thousands, except per share amounts) |
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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
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 | |||
OPERATING INFORMATION
(UNAUDITED)
The Company’s reportable segments are as follows:
Latin America operations - Includes all pawn and consumer loan operations inLatin America , which includes operations inMexico ,Guatemala ,El Salvador andColombia .- U.S. operations - Includes all pawn and consumer loan operations in the U.S.
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
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
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
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
The following table presents segment pre-tax operating income of the
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
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
The following table presents segment pre-tax operating income of the
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
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 | % | ||||||||
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 | % | |||||||
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 | )% | |||||||
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
Consolidated Results of Operations
The following table reconciles pre-tax operating income of the Company’s
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
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
(2) The Company closed two pawn stores in the U.S. during the three months ended
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
(2) The Company closed 28 pawn stores, 18 in the U.S. and 10 in
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
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.
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 | |||||||||||||||
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 | ) | ||||||||||
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 | % | |||||||
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 | |||||||||||||
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 | |||
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
The Company believes constant currency results provide investors with valuable supplemental information regarding the underlying performance of its business operations in
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
Phone: (817) 258-2650
Email: investorrelations@firstcash.com
Website: ir.firstcash.com
Source: FirstCash, Inc.