FirstCash Reports Record First Quarter Results; Announces Acquisitions and Openings Totaling 164 Stores; Declares Quarterly Dividend of $0.25 per Share; Increases 2019 Earnings Guidance
Mr.
This release contains adjusted earnings measures, which exclude merger and other acquisition expenses and certain non-cash foreign currency exchange gains and losses, which are non-GAAP financial measures. Please refer to the descriptions and reconciliations to GAAP of these and other non-GAAP financial measures at the end of this release.
Three Months Ended March 31, | ||||||||||||||||
As Reported (GAAP) | Adjusted (Non-GAAP) | |||||||||||||||
In thousands, except per share amounts | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenue | $ | 467,604 | $ | 449,800 | $ | 467,604 | $ | 449,800 | ||||||||
Net income | $ | 42,655 | $ | 41,635 | $ | 42,521 | $ | 41,819 | ||||||||
Diluted earnings per share | $ | 0.98 | $ | 0.90 | $ | 0.97 | $ | 0.90 | ||||||||
EBITDA (non-GAAP measure) | $ | 76,883 | $ | 72,279 | $ | 76,692 | $ | 72,518 | ||||||||
Weighted-average diluted shares | 43,658 | 46,479 | 43,658 | 46,479 |
Earnings Highlights
- Diluted earnings per share increased 9% on a GAAP basis in the first quarter of 2019 compared to the first quarter of 2018, while increasing 8% on a non-GAAP adjusted basis.
- Net income for the first quarter of 2019 increased 2% compared to the first quarter of 2018 on both a GAAP and non-GAAP adjusted basis. EBITDA and adjusted EBITDA, which are non-GAAP financial measures, increased 6% in the first quarter of 2019 compared to the prior-year quarter.
- For the trailing twelve months ended
March 31, 2019 , consolidated revenues totaled$1.8 billion , net income was$154 million and adjusted EBITDA, a non-GAAP financial measure, totaled$288 million . - Cash flow from operating activities for the trailing twelve months ended
March 31, 2019 totaled$224 million , while adjusted free cash flow, a non-GAAP financial measure, was$186 million for the twelve months endedMarch 31, 2019 . - Pre-tax profit margin for the first quarter of 2019 was 12.6% while the adjusted pre-tax profit margin, a non-GAAP financial measure, was 12.5%.
- Items which impacted the comparability of year-over-year earnings per share for the first quarter of 2019 included the following:
° Further contraction in non-core consumer lending operations in 2019 negatively impacted earnings per share by approximately$0.03 for the quarter as compared to the same prior-year period.
° An increase in the effective tax rate to 27.5% for the first quarter of 2019, compared to 25.4% during the first quarter of 2018, negatively impacted comparative earnings per share by approximately$0.03 .
° An increased step up in the level of administrative expenses inLatin America , due primarily to the extraordinary level of store growth over the past twelve months, negatively impacted comparable earnings per share by approximately$0.04 . As additional acquisition synergies begin to be realized in the latter part of the year, the Company believes the growth rate in administrative expenses will moderate.
° The impact of a weaker Mexican peso in 2019 negatively impacted comparative dollar-denominated earnings per share by$0.01 .
Acquisition and Store Opening Highlights
- The Company completed four acquisitions during the first quarter of 2019, which added a total of 128 full-service pawn stores. The total purchase price of the acquisitions was
$24 million which included 118 former Prendamex franchise locations in central and southernMexico and 10 full format locations inTexas . - During the first quarter, the Company opened a record 36 new locations in
Latin America , which included 24 stores inMexico , 11 stores inGuatemala and one store inColombia . - In total, the Company opened and acquired 164 store locations across four countries during the first quarter of 2019.
- Over the twelve-month period ended
March 31, 2019 , the Company has added 469 locations, increasing its number of pawn stores 22%. Over 90% of the stores added in the last twelve months are located inLatin America . - As of
March 31, 2019 , the Company operated 2,630 stores, with 1,530 stores inLatin America , representing 58% of the total store base, and 1,100 stores in the U.S. The Latin American locations include 1,462 stores inMexico , 50 stores inGuatemala , 13 stores inEl Salvador and five stores inColombia while the U.S. stores are located in 24 states and theDistrict of Columbia . - In early
April 2019 , subsequent to quarter end, the Company completed three additional multi-store acquisitions adding a total of 18 stores, 10 of which are inTexas and eight inMexico , which are not included in the first quarter totals above.
Note: Certain growth rates in “Latin America Operations” below are calculated on a constant currency basis, a non-GAAP financial measure defined at the end of this release and reconciled to the most comparable GAAP measures in the financial statements in this release. The average Mexican peso to U.S. dollar exchange rate for the three-month period ended March 31, 2019 was
Latin America Operations
- Revenues for the first quarter of 2019 totaled a record
$150 million , an increase of 22% on a U.S. dollar basis and 25% on a constant currency basis, as compared to the first quarter of 2018. - Core pawn revenues, which are composed of pawn fees and retail merchandise sales, increased 20% for the quarter on a U.S. dollar basis, driven by a 29% increase in pawn fees and a 16% increase in retail sales compared to the prior-year quarter. On a constant currency basis, core pawn revenues for the quarter increased 23% with pawn fees and retail merchandise sales increasing 32% and 19%, respectively, as compared to the prior-year quarter.
- Segment pre-tax operating income for the quarter increased 19%, or 21% on a constant currency basis, compared to the first quarter of 2018, driven by increased store additions and increased same-store revenues.
- Pre-tax segment margin for the first quarter of 2019 was 22% and consistent with the prior year despite the impacts of the significant acquisition activity last year and in the first quarter of 2019, the earnings drag from the increased pace of new store openings in 2019 and the discontinuance of non-core unsecured consumer lending products in
Mexico in June of 2018. - Pawn loans outstanding totaled a record
$112 million atMarch 31, 2019 , an increase of 30% on a U.S. dollar translated basis and 38% on a constant currency basis versus the prior year. Same-store pawn loans at quarter end increased 3% on a U.S. dollar translated basis, while they increased 9% on a constant currency basis, compared to the same prior-year quarter. - Despite a 2% decline in the value of the Mexican peso compared to the prior-year quarter, same-store core pawn revenues increased 1% on a U.S. dollar translated basis, consisting of a 5% increase in same-store pawn fees and flat same-store retail sales compared to the prior-year quarter. On a constant currency basis, same-store core pawn revenues increased 4%, composed of an 8% increase in same-store pawn fees and a 3% increase in same-store retail sales compared to the prior-year quarter.
- Segment retail margins increased to 37% in the first quarter, compared to 36% in the prior-year quarter, driven primarily by focused efforts on merchandise valuation and lending practices.
- Inventories at
March 31, 2019 increased$16 million to $83 million compared to$67 million a year ago. The increase was driven by the net addition of 425 pawn stores over the past twelve months and continued maturation of existing stores. As ofMarch 31, 2019 , inventories aged greater than one year remained extremely low at 1% and inventory turns inLatin America for the trailing twelve months endedMarch 31, 2019 remained strong at 3.8 times. - Total store operating expenses increased 27% for the quarter, or 30% on a constant currency basis, due primarily to store additions. Same-store operating expenses increased only 2% in the first quarter of 2019, or 4% on a constant currency basis.
U.S. Operations
- Segment pre-tax operating income for the quarter increased 5% compared to the first quarter of 2018, driven primarily by increased pawn fees, retail margins and continued store-level expense reductions. The increase in the segment contribution was partially offset by an expected reduction in non-core consumer lending operating profits.
- Segment pre-tax operating margin improved to 21% for the first quarter of 2019 as compared to 20% in the prior-year quarter primarily due to improved retail margins, pawn loan fees and operating efficiencies.
- Total revenues for the first quarter were
$318 million , a decrease of 3% compared to the first quarter of 2018, and included the expected impact of a 30% decline, or$5 million , in non-core consumer loan and credit services fees and a 23% decline, or$7 million , in non-core scrap jewelry sales. Core revenues from pawn fees and retail sales increased by 1%. - Net revenue (or gross profit) for the first quarter of 2019 increased 1%, despite the declines in non-core revenues. More importantly, net revenue from core pawn operations increased 3% compared to the prior-year quarter as a result of the continued improvements in retail sales margins and pawn yields as highlighted below.
- Retail sales margin increased to 37% for the quarter compared to 35% in the prior-year quarter. The increase in margins has been driven primarily by optimizing loan-to-value ratios and reduced aged inventory levels in the legacy Cash America stores. Despite continued growth of online retailing in general, the Company’s retail sales, which are all store-generated, were flat compared to the first quarter of 2018 and same-store retail sales declined only 1% compared to the prior-year quarter.
- Pawn fees increased 2% and same-store pawn fee revenues increased 1% in the first quarter compared to the prior-year quarter as pawn yields improved by 3% quarter-over-quarter.
- Pawn loans outstanding at
March 31, 2019 totaled$234 million , a decrease of 1% 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 21% increase in the percentage of such direct purchase transactions for the quarter as compared to the prior-year quarter. - Inventories at
March 31, 2019 declined$12 million , or 7%, to$175 million compared to$188 million a year ago, primarily from strategic reductions in overall inventory levels. As ofMarch 31, 2019 , U.S. inventories aged greater than one year were 4%, which was an improvement over the 5% aged level in the prior-year comparable quarter. - Inventory turns in the U.S. for the trailing twelve month period were 2.7 times, which represents the sixth sequential quarterly increase and compares to 2.5 times for the twelve month period ended
March 31, 2018 . 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 inLatin America . - Total store operating expenses for the quarter were flat, while on a same-store basis they declined 1% in the first quarter of 2019, primarily due to continued efforts to realize purchasing synergies and optimize labor efficiencies.
Consumer Lending Contraction and Asset Impairments
- As expected, U.S. consumer lending revenues declined
$5 million in the first quarter, or 30%, compared to the same quarter a year ago as the Company continues to de-emphasize consumer lending operations in light of increasing regulatory constraints and internet-based competition, with plans for further contraction in the future. - As previously disclosed, 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 . Once the Ohio Act becomes effective, the Company will continue to look for opportunities to service customers seeking loans. Any services offered will likely result in reduced revenues in theOhio locations compared to the prior year. While most of the Company’sOhio stores also offer pawn products, the decrease or elimination of consumer lending revenue or other customer services could cause one-third or more of itsOhio stores to become unprofitable or inoperable. Further discussion of the projected results is provided in the “2019 Outlook” section of this release.
Cash Dividend and Stock Repurchases
- The Board of Directors declared a
$0.25 per share second quarter cash dividend on common shares outstanding, which will be paid on May 31, 2019 to stockholders of record as of May 15, 2019. Any future dividends are subject to approval by the Company’s Board of Directors. - During the first quarter, the Company repurchased 343,000 shares at an aggregate cost of
$29 million and an average per share cost of$85.17 , leaving$114 million available for future repurchases under the current share repurchase programs. Future share repurchases are subject to expected liquidity, debt covenant restrictions and other relevant factors. - Since the merger with Cash America in
September 2016 and through the first quarter of 2019, the Company has repurchased a total of 5.3 million shares at an average repurchase price of$74.83 per share, resulting in an 11% reduction from the number of shares outstanding immediately following the merger.
Liquidity and Return Metrics
- The Company generated
$224 million of cash flow from operations and$186 million in adjusted free cash flow during the twelve months endedMarch 31, 2019 compared to$248 million of cash flow from operations and$259 million of adjusted free cash flow during the same prior-year period. Current period free cash flow includes the impact of accelerated store expansion activities, while the prior-year comparative amount 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. - The Company continues to maintain excellent liquidity ratios while funding share repurchases totaling
$198 million , dividends of$41 million and acquisitions of$133 million during the trailing twelve months endedMarch 31, 2019 . The net debt ratio, which is calculated using a non-GAAP financial measure, for the trailing twelve months endedMarch 31, 2019 was 1.8 to 1. - On
January 1, 2019 , the Financial Accounting Standards Board’s new lease accounting standard (“ASC 842”) became effective requiring lessees to recognize a liability for the present value of future minimum lease payments (the lease liability) and an asset representing its right to use the underlying leased property for the lease term (the right of use asset). The adoption of ASC 842 resulted in a$298 million right of use asset, an$85 million current lease liability and a$189 million non-current lease liability as ofMarch 31, 2019 . The adoption did not have a material impact to the consolidated statements of income, consolidated statements of cash flows or any of the Company's financial debt covenants. - Return on assets for the trailing twelve months ended
March 31, 2019 was 7.3%, while return on tangible assets was 14.4% for the same period, which compared to 7.4% and 13.5% returns, respectively, for the comparable prior-year period. The return on assets for the trailing twelve months endedMarch 31, 2019 was negatively impacted by the first-time inclusion of the right of use asset, arising from the implementation of ASC 842, which was not included on the balance sheet prior toJanuary 1, 2019 . Return on tangible assets is a non-GAAP financial measure and is calculated by excluding goodwill, intangible assets, net and the right of use asset from the respective return calculations. - Return on equity was 11.5% for the trailing twelve months ended
March 31, 2019 , while return on tangible equity was 43.1%. This compares positively against returns of 10.4% and 28.5%, respectively, for the comparable prior-year period. Return on tangible equity is a non-GAAP financial measure and is calculated by excluding goodwill and intangible assets, net from the respective return calculations.
2019 Outlook
- The Company is raising its full-year 2019 guidance for diluted earnings per share to be in a range of
$3.80 to $4.00 compared to the previous guidance of$3.75 to $3.95 . - The revised guidance range represents an increase of 8% to 13% 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 20% to 25% 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 of Ohio. The Company is currently modeling total consumer lending revenues for 2019 to be in a range of$25 million to $31 million , which represents a 45% to 56% reduction compared to 2018 consumer lending revenues. Consumer lending operations are expected to contribute less than 2% of total revenue in 2019.
° Given recent currency volatility and the potential for further volatility, the Company continues to use an estimated average foreign currency exchange rate of 20.0 Mexican pesos / U.S. dollar for the remainder of 2019 compared to the average exchange rate of 19.2 Mexican pesos / U.S. dollar for 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, and an increase in certain non-deductible expenses resulting from the Tax Cuts and Jobs Act which combined 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 inLatin America , which includes targeted openings of 55 to 60 stores inMexico and approximately 15 stores inGuatemala and 10 stores in Colombia. The Company is on target to open at least 30 full service pawn stores during the second quarter. The increased number of projected store openings in 2019 combined with the first half frontloading of new store openings will cause an expected additional drag to earnings of approximately$0.02 to $0.03 per share compared to last year. The Company expects to complete additional acquisitions in 2019, primarily inLatin America , which are not reflected in the guidance
° 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, “We are very pleased with the first quarter results highlighted by strong revenue and earnings growth in
“We now operate over 1,500 stores in four countries in
“All of the stores acquired to date have been fully migrated onto the FirstPawn IT platform. While most of the Prendamex stores acquired over the past year are smaller footprint locations, we believe over time these stores have the opportunity to increase retail sales and margins through our superior point of sale system and other retail strategies. Additionally, as we look at the entire Latin American marketplace, we are optimistic about the potential for additional acquisitions.
“We are also excited about the increased pace of de novo, or new store, openings this year in
“As expected, our U.S. operating results continue to improve as well, highlighted by growth in segment earnings despite expected declines in non-core consumer lending earnings. This marks the second sequential quarter we have posted an increase in same-store pawn fees. The increase in pawn fees is driven primarily by improving the quality of our pawn receivable portfolio and optimizing loan-to-value ratios, which has resulted in higher cash yields from the performing loans. Our focus on retail margins is also paying off with 37% retail margins during the quarter versus 35% in the same prior-year period. Additionally, we continue to see opportunities to drive store level operating efficiencies with same-store operating expenses declining versus the same quarter a year ago.
“We believe that there are also additional opportunities to further expand U.S. operations, as evidenced by the announced acquisitions of 10 stores in
“Cash flows remain strong, as evidenced by a
“With these outstanding first quarter results, we are off to a great start in 2019. We have raised our full year earnings guidance despite additional short-term earnings drags from the front loading of our de novo store openings and additional administrative expenses in
“In summary, we remain extremely optimistic about continued revenue growth, store expansion in multiple markets and further opportunities to improve margins. Coupled with our strong cash flows and commitment to shareholder returns, we believe that we are driving significant shareholder value,” concluded Mr. Wessel, chief executive officer.
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 2018 annual report on Form 10-K filed with the
FIRSTCASH, INC. CONSOLIDATED STATEMENTS OF INCOME (unaudited, in thousands, except per share amounts) |
|||||||
Three Months Ended | |||||||
March 31, | |||||||
2019 | 2018 | ||||||
Revenue: | |||||||
Retail merchandise sales | $ | 284,241 | $ | 269,841 | |||
Pawn loan fees | 141,192 | 129,793 | |||||
Wholesale scrap jewelry sales | 31,710 | 34,725 | |||||
Consumer loan and credit services fees | 10,461 | 15,441 | |||||
Total revenue | 467,604 | 449,800 | |||||
Cost of revenue: | |||||||
Cost of retail merchandise sold | 179,349 | 174,497 | |||||
Cost of wholesale scrap jewelry sold | 30,353 | 32,495 | |||||
Consumer loan and credit services loss provision | 2,103 | 3,727 | |||||
Total cost of revenue | 211,805 | 210,719 | |||||
Net revenue | 255,799 | 239,081 | |||||
Expenses and other income: | |||||||
Store operating expenses (1) | 146,852 | 138,348 | |||||
Administrative expenses | 32,154 | 28,002 | |||||
Depreciation and amortization | 9,874 | 11,283 | |||||
Interest expense | 8,370 | 6,198 | |||||
Interest income | (204 | ) | (981 | ) | |||
Merger and other acquisition expenses | 149 | 239 | |||||
(Gain) loss on foreign exchange (1) | (239 | ) | 213 | ||||
Total expenses and other income | 196,956 | 183,302 | |||||
Income before income taxes | 58,843 | 55,779 | |||||
Provision for income taxes | 16,188 | 14,144 | |||||
Net income | $ | 42,655 | $ | 41,635 | |||
Earnings per share: | |||||||
Basic | $ | 0.98 | $ | 0.90 | |||
Diluted | $ | 0.98 | $ | 0.90 | |||
Weighted-average shares outstanding: | |||||||
Basic | 43,518 | 46,426 | |||||
Diluted | 43,658 | 46,479 | |||||
Dividends declared per common share | $ | 0.25 | $ | 0.22 |
(1) The loss on foreign exchange of
FIRSTCASH, INC. CONSOLIDATED BALANCE SHEETS (unaudited, in thousands) |
|||||||||||
March 31, | December 31, | ||||||||||
2019 | 2018 | 2018 | |||||||||
ASSETS | |||||||||||
Cash and cash equivalents | $ | 49,663 | $ | 110,408 | $ | 71,793 | |||||
Fees and service charges receivable | 43,993 | 40,022 | 45,430 | ||||||||
Pawn loans | 345,200 | 322,625 | 362,941 | ||||||||
Consumer loans, net | 11,017 | 17,447 | 15,902 | ||||||||
Inventories | 257,803 | 254,298 | 275,130 | ||||||||
Income taxes receivable | 1,096 | 24 | 1,379 | ||||||||
Prepaid expenses and other current assets | 9,329 | 21,575 | 17,317 | ||||||||
Total current assets | 718,101 | 766,399 | 789,892 | ||||||||
Property and equipment, net | 276,397 | 234,126 | 251,645 | ||||||||
Right of use asset (1) | 298,167 | — | — | ||||||||
Goodwill | 932,773 | 844,516 | 917,419 | ||||||||
Intangible assets, net | 87,810 | 91,764 | 88,140 | ||||||||
Other assets | 10,927 | 54,392 | 49,238 | ||||||||
Deferred tax assets | 11,608 | 12,499 | 11,640 | ||||||||
Total assets | $ | 2,335,783 | $ | 2,003,696 | $ | 2,107,974 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
Accounts payable and accrued liabilities | $ | 77,363 | $ | 88,328 | $ | 96,928 | |||||
Customer deposits | 40,055 | 35,692 | 35,368 | ||||||||
Income taxes payable | 7,484 | 12,266 | 749 | ||||||||
Lease liability, current (1) | 84,946 | — | — | ||||||||
Total current liabilities | 209,848 | 136,286 | 133,045 | ||||||||
Revolving unsecured credit facility | 255,000 | 83,000 | 295,000 | ||||||||
Senior unsecured notes | 296,053 | 295,400 | 295,887 | ||||||||
Deferred tax liabilities | 57,496 | 49,063 | 54,854 | ||||||||
Lease liability, non-current (1) | 188,970 | — | — | ||||||||
Other liabilities | — | 15,661 | 11,084 | ||||||||
Total liabilities | 1,007,367 | 579,410 | 789,870 | ||||||||
Stockholders’ equity: | |||||||||||
Preferred stock | — | — | — | ||||||||
Common stock | 493 | 493 | 493 | ||||||||
Additional paid-in capital | 1,225,482 | 1,220,491 | 1,224,608 | ||||||||
Retained earnings | 638,574 | 525,847 | 606,810 | ||||||||
Accumulated other comprehensive loss | (107,694 | ) | (90,043 | ) | (113,117 | ) | |||||
Common stock held in treasury, at cost | (428,439 | ) | (232,502 | ) | (400,690 | ) | |||||
Total stockholders’ equity | 1,328,416 | 1,424,286 | 1,318,104 | ||||||||
Total liabilities and stockholders’ equity | $ | 2,335,783 | $ | 2,003,696 | $ | 2,107,974 |
(1) The Company adopted ASC 842 prospectively as of
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 | ||||||||||||||||||||
As of | ||||||||||||||||||||
March 31, | Increase / | |||||||||||||||||||
As of March 31, | Increase / | 2019 | (Decrease) | |||||||||||||||||
2019 | 2018 | (Decrease) | (Non-GAAP) | (Non-GAAP) | ||||||||||||||||
Latin America Operations Segment | ||||||||||||||||||||
Earning assets: | ||||||||||||||||||||
Pawn loans | $ | 111,551 | $ | 85,603 | 30 | % | $ | 117,708 | 38 | % | ||||||||||
Inventories | 82,567 | 66,772 | 24 | % | 87,133 | 30 | % | |||||||||||||
Consumer loans, net (1) | — | 363 | (100 | )% | — | (100 | )% | |||||||||||||
$ | 194,118 | $ | 152,738 | 27 | % | $ | 204,841 | 34 | % | |||||||||||
Average outstanding pawn loan amount (in ones) | $ | 68 | $ | 67 | 1 | % | $ | 72 | 7 | % | ||||||||||
Composition of pawn collateral: | ||||||||||||||||||||
General merchandise | 74 | % | 81 | % | ||||||||||||||||
Jewelry | 26 | % | 19 | % | ||||||||||||||||
100 | % | 100 | % | |||||||||||||||||
Composition of inventories: | ||||||||||||||||||||
General merchandise | 70 | % | 75 | % | ||||||||||||||||
Jewelry | 30 | % | 25 | % | ||||||||||||||||
100 | % | 100 | % | |||||||||||||||||
Percentage of inventory aged greater than one year | 1 | % | 1 | % |
(1) The Company discontinued offering an unsecured consumer loan product in
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
The following table presents segment pre-tax operating income of the
Constant Currency Basis | |||||||||||||||||||||
Three Months | |||||||||||||||||||||
Ended | |||||||||||||||||||||
Three Months Ended | March 31, | Increase / | |||||||||||||||||||
March 31, | Increase / | 2019 | (Decrease) | ||||||||||||||||||
2019 | 2018 | (Decrease) | (Non-GAAP) | (Non-GAAP) | |||||||||||||||||
Latin America Operations Segment | |||||||||||||||||||||
Revenue: | |||||||||||||||||||||
Retail merchandise sales | $ | 97,426 | $ | 83,789 | 16 | % | $ | 99,872 | 19 | % | |||||||||||
Pawn loan fees | 43,316 | 33,551 | 29 | % | 44,399 | 32 | % | ||||||||||||||
Wholesale scrap jewelry sales | 8,925 | 5,268 | 69 | % | 8,925 | 69 | % | ||||||||||||||
Consumer loan fees | — | 402 | (100 | )% | — | (100 | )% | ||||||||||||||
Total revenue | 149,667 | 123,010 | 22 | % | 153,196 | 25 | % | ||||||||||||||
Cost of revenue: | |||||||||||||||||||||
Cost of retail merchandise sold | 61,605 | 53,881 | 14 | % | 63,154 | 17 | % | ||||||||||||||
Cost of wholesale scrap jewelry sold | 9,083 | 4,842 | 88 | % | 9,306 | 92 | % | ||||||||||||||
Consumer loan loss provision | — | 83 | (100 | )% | — | (100 | )% | ||||||||||||||
Total cost of revenue | 70,688 | 58,806 | 20 | % | 72,460 | 23 | % | ||||||||||||||
Net revenue | 78,979 | 64,204 | 23 | % | 80,736 | 26 | % | ||||||||||||||
Segment expenses: | |||||||||||||||||||||
Store operating expenses (1) | 42,968 | 33,965 | 27 | % | 44,008 | 30 | % | ||||||||||||||
Depreciation and amortization | 3,305 | 2,709 | 22 | % | 3,386 | 25 | % | ||||||||||||||
Total segment expenses | 46,273 | 36,674 | 26 | % | 47,394 | 29 | % | ||||||||||||||
Segment pre-tax operating income | $ | 32,706 | $ | 27,530 | 19 | % | $ | 33,342 | 21 | % |
(1) The loss 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 March 31, 2019 as compared to March 31, 2018 (dollars in thousands, except as otherwise noted):
As of March 31, | Increase / | ||||||||||
2019 | 2018 | (Decrease) | |||||||||
U.S. Operations Segment | |||||||||||
Earning assets: | |||||||||||
Pawn loans | $ | 233,649 | $ | 237,022 | (1 | )% | |||||
Inventories | 175,236 | 187,526 | (7 | )% | |||||||
Consumer loans, net | 11,017 | 17,084 | (36 | )% | |||||||
$ | 419,902 | $ | 441,632 | (5 | )% | ||||||
Average outstanding pawn loan amount (in ones) | $ | 173 | $ | 164 | 5 | % | |||||
Composition of pawn collateral: | |||||||||||
General merchandise | 34 | % | 34 | % | |||||||
Jewelry | 66 | % | 66 | % | |||||||
100 | % | 100 | % | ||||||||
Composition of inventories: | |||||||||||
General merchandise | 42 | % | 39 | % | |||||||
Jewelry | 58 | % | 61 | % | |||||||
100 | % | 100 | % | ||||||||
Percentage of inventory aged greater than one year | 4 | % | 5 | % | |||||||
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
The following table presents segment pre-tax operating income of the U.S. operations segment for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018 (dollars in thousands):
Three Months Ended | |||||||||||
March 31, | Increase / | ||||||||||
2019 | 2018 | (Decrease) | |||||||||
U.S. Operations Segment | |||||||||||
Revenue: | |||||||||||
Retail merchandise sales | $ | 186,815 | $ | 186,052 | — | % | |||||
Pawn loan fees | 97,876 | 96,242 | 2 | % | |||||||
Wholesale scrap jewelry sales | 22,785 | 29,457 | (23 | )% | |||||||
Consumer loan and credit services fees | 10,461 | 15,039 | (30 | )% | |||||||
Total revenue | 317,937 | 326,790 | (3 | )% | |||||||
Cost of revenue: | |||||||||||
Cost of retail merchandise sold | 117,744 | 120,616 | (2 | )% | |||||||
Cost of wholesale scrap jewelry sold | 21,270 | 27,653 | (23 | )% | |||||||
Consumer loan and credit services loss provision | 2,103 | 3,644 | (42 | )% | |||||||
Total cost of revenue | 141,117 | 151,913 | (7 | )% | |||||||
Net revenue | 176,820 | 174,877 | 1 | % | |||||||
Segment expenses: | |||||||||||
Store operating expenses | 103,884 | 104,383 | — | % | |||||||
Depreciation and amortization | 5,045 | 5,555 | (9 | )% | |||||||
Total segment expenses | 108,929 | 109,938 | (1 | )% | |||||||
Segment pre-tax operating income | $ | 67,891 | $ | 64,939 | 5 | % | |||||
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
Consolidated Results of Operations
The following table reconciles pre-tax operating income of the Company’s
Three Months Ended | |||||||
March 31, | |||||||
2019 | 2018 | ||||||
Consolidated Results of Operations | |||||||
Segment pre-tax operating income: | |||||||
Latin America operations segment pre-tax operating income (1) | $ | 32,706 | $ | 27,530 | |||
U.S. operations segment pre-tax operating income | 67,891 | 64,939 | |||||
Consolidated segment pre-tax operating income | 100,597 | 92,469 | |||||
Corporate expenses and other income: | |||||||
Administrative expenses | 32,154 | 28,002 | |||||
Depreciation and amortization | 1,524 | 3,019 | |||||
Interest expense | 8,370 | 6,198 | |||||
Interest income | (204 | ) | (981 | ) | |||
Merger and other acquisition expenses | 149 | 239 | |||||
(Gain) loss on foreign exchange (1) | (239 | ) | 213 | ||||
Total corporate expenses and other income | 41,754 | 36,690 | |||||
Income before income taxes | 58,843 | 55,779 | |||||
Provision for income taxes | 16,188 | 14,144 | |||||
Net income | $ | 42,655 | $ | 41,635 |
(1) The loss on foreign exchange for the
STORE COUNT ACTIVITY
The following table details store count activity for the three months ended March 31, 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 | 36 | — | 36 | |||||
Locations acquired | 118 | — | 118 | |||||
Locations closed or consolidated | (3 | ) | — | (3 | ) | |||
Total locations, end of period | 1,530 | — | 1,530 | |||||
U.S. operations segment: | ||||||||
Total locations, beginning of period | 1,077 | 17 | 1,094 | |||||
Locations acquired | 10 | — | 10 | |||||
Locations closed or consolidated | (2 | ) | (2 | ) | (4 | ) | ||
Total locations, end of period | 1,085 | 15 | 1,100 | |||||
Total: | ||||||||
Total locations, beginning of period | 2,456 | 17 | 2,473 | |||||
New locations opened | 36 | — | 36 | |||||
Locations acquired | 128 | — | 128 | |||||
Locations closed or consolidated | (5 | ) | (2 | ) | (7 | ) | ||
Total locations, end of period | 2,615 | 15 | 2,630 |
(1) At March 31, 2019, 261 of the U.S. pawn stores, primarily located 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, 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
The Company has adjusted the applicable financial measures to exclude 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 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
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, Adjusted Net Income Margin, Return on Tangible Assets and Return on Tangible Equity
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 March 31, | |||||||||||||||
2019 | 2018 | ||||||||||||||
In Thousands | Per Share | In Thousands | Per Share | ||||||||||||
Net income and diluted earnings per share, as reported | $ | 42,655 | $ | 0.98 | $ | 41,635 | $ | 0.90 | |||||||
Adjustments, net of tax: | |||||||||||||||
Merger and other acquisition expenses | 104 | — | 184 | — | |||||||||||
Non-cash foreign currency gain related to lease liability | (238 | ) | (0.01 | ) | — | — | |||||||||
Adjusted net income and diluted earnings per share | $ | 42,521 | $ | 0.97 | $ | 41,819 | $ | 0.90 |
The following table provides a reconciliation of the gross amounts, the impact of income taxes and the net amounts for the adjustments included in the table above (in thousands):
Three Months Ended March 31, | |||||||||||||||||||||||
2019 | 2018 | ||||||||||||||||||||||
Pre-tax | Tax | After-tax | Pre-tax | Tax | After-tax | ||||||||||||||||||
Merger and other acquisition expenses | $ | 149 | $ | 45 | $ | 104 | $ | 239 | $ | 55 | $ | 184 | |||||||||||
Non-cash foreign currency gain related to lease liability | (340 | ) | (102 | ) | (238 | ) | — | — | — | ||||||||||||||
Total adjustments | $ | (191 | ) | $ | (57 | ) | $ | (134 | ) | $ | 239 | $ | 55 | $ | 184 |
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 | |||||||
March 31, | |||||||
2019 | 2018 | ||||||
Adjusted pre-tax profit margin calculated as follows: | |||||||
Income before income taxes, as reported | $ | 58,843 | $ | 55,779 | |||
Merger and other acquisition expenses | 149 | 239 | |||||
Non-cash foreign currency gain related to lease liability | (340 | ) | — | ||||
Adjusted income before income taxes | $ | 58,652 | $ | 56,018 | |||
Total revenue | $ | 467,604 | $ | 449,800 | |||
Adjusted pre-tax profit margin | 12.5 | % | 12.5 | % |
The following table provides a calculation of return on tangible assets and return on tangible equity (dollars in thousands):
March 31, | |||||||
2019 | 2018 | ||||||
Return on tangible assets calculated as follows: | |||||||
Average total assets | $ | 2,114,715 | $ | 2,069,216 | |||
Adjustments: | |||||||
Average goodwill | (891,620 | ) | (836,844 | ) | |||
Average intangible assets, net | (89,315 | ) | (96,366 | ) | |||
Average right of use asset | (59,633 | ) | — | ||||
Average tangible assets | $ | 1,074,147 | $ | 1,136,006 | |||
Net income for the trailing twelve months | $ | 154,226 | $ | 152,882 | |||
Return on tangible assets | 14.4 | % | 13.5 | % | |||
Return on tangible equity calculated as follows: | |||||||
Average stockholders’ equity | $ | 1,338,516 | $ | 1,469,193 | |||
Adjustments: | |||||||
Average goodwill | (891,620 | ) | (836,844 | ) | |||
Average intangible assets, net | (89,315 | ) | (96,366 | ) | |||
Average tangible equity | $ | 357,581 | $ | 535,983 | |||
Net income for the trailing twelve months | $ | 154,226 | $ | 152,882 | |||
Return on tangible equity | 43.1 | % | 28.5 | % |
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 | Months Ended | ||||||||||||||
March 31, | March 31, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net income | $ | 42,655 | $ | 41,635 | $ | 154,226 | $ | 152,882 | |||||||
Income taxes | 16,188 | 14,144 | 54,147 | 22,967 | |||||||||||
Depreciation and amortization | 9,874 | 11,283 | 41,552 | 52,273 | |||||||||||
Interest expense | 8,370 | 6,198 | 31,345 | 24,120 | |||||||||||
Interest income | (204 | ) | (981 | ) | (1,667 | ) | (2,251 | ) | |||||||
EBITDA | 76,883 | 72,279 | 279,603 | 249,991 | |||||||||||
Adjustments: | |||||||||||||||
Merger and other acquisition expenses | 149 | 239 | 7,553 | 8,654 | |||||||||||
Non-cash foreign currency gain related to lease liability | (340 | ) | — | (340 | ) | — | |||||||||
Asset impairments related to consumer loan operations | — | — | 1,514 | — | |||||||||||
Loss on extinguishment of debt | — | — | — | 14,114 | |||||||||||
Adjusted EBITDA | $ | 76,692 | $ | 72,518 | $ | 288,330 | $ | 272,759 | |||||||
Net debt ratio calculation: | |||||||||||||||
Total debt (outstanding principal) | $ | 555,000 | $ | 383,000 | |||||||||||
Less: cash and cash equivalents | (49,663 | ) | (110,408 | ) | |||||||||||
Net debt | $ | 505,337 | $ | 272,592 | |||||||||||
Adjusted EBITDA | $ | 288,330 | $ | 272,759 | |||||||||||
Net debt ratio (net debt divided by adjusted EBITDA) | 1.8:1 | 1.0:1 | |||||||||||||
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):
Trailing Twelve | |||||||||||||||
Three Months Ended | Months Ended | ||||||||||||||
March 31, | March 31, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Cash flow from operating activities | $ | 71,697 | $ | 91,316 | $ | 223,810 | $ | 247,808 | |||||||
Cash flow from investing activities: | |||||||||||||||
Loan receivables, net of cash repayments | 42,216 | 56,220 | (3,879 | ) | 29,766 | ||||||||||
Purchases of furniture, fixtures, equipment and improvements | (9,658 | ) | (5,388 | ) | (39,947 | ) | (25,277 | ) | |||||||
Free cash flow | 104,255 | 142,148 | 179,984 | 252,297 | |||||||||||
Merger and other acquisition expenses paid, net of tax benefit | 104 | 1,568 | 5,608 | 6,425 | |||||||||||
Adjusted free cash flow | $ | 104,359 | $ | 143,716 | $ | 185,592 | $ | 258,722 | |||||||
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:
March 31, | |||||
2019 | 2018 | Unfavorable | |||
Mexican peso / U.S. dollar exchange rate: | |||||
End-of-period | 19.4 | 18.3 | (6)% | ||
Three months ended | 19.2 | 18.8 | (2)% | ||
Guatemalan quetzal / U.S. dollar exchange rate: | |||||
End-of-period | 7.7 | 7.4 | (4)% | ||
Three months ended | 7.7 | 7.4 | (4)% | ||
Colombian peso / U.S. dollar exchange rate: | |||||
End-of-period | 3,175 | 2,780 | (14)% | ||
Three months ended | 3,137 | 2,859 | (10)% | ||
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: investors.firstcash.com
Source: FirstCash, Inc.