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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
[ X ]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019
OR
[    ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________

Commission file number 001-10960
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12879958&doc=11
FIRSTCASH, INC.
(Exact name of registrant as specified in its charter)
Delaware
75-2237318
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1600 West 7th Street, Fort Worth, Texas
76102
(Address of principal executive offices)
(Zip Code)

(817) 335-1100
(Registrant’s telephone number, including area code)

NONE
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     xYes   o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     xYes   o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
x  Large accelerated filer
o  Accelerated filer
o  Non-accelerated filer
o  Smaller reporting company
 
o  Emerging growth company




If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     oYes   x No

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, par value $.01 per share
FCFS
The Nasdaq Stock Market

As of April 23, 2019, there were 43,127,980 shares of common stock outstanding.






FIRSTCASH, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2019

INDEX

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS

Forward-Looking Information

This quarterly report contains forward-looking statements about the business, financial condition and prospects of FirstCash, Inc. and its wholly owned subsidiaries (together, the “Company”). Forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, can be identified by the use of forward-looking terminology such as “believes,” “projects,” “expects,” “may,” “estimates,” “should,” “plans,” “targets,” “intends,” “could,” “would,” “anticipates,” “potential,” “confident,” “optimistic” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy, objectives, estimates, guidance, expectations and future plans. Forward-looking statements can also be identified by the fact these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties.

While the Company believes the expectations reflected in forward-looking statements are reasonable, there can be no assurances such expectations will prove to be accurate. Security holders are cautioned such forward-looking statements involve risks and uncertainties. Certain factors may cause results to differ materially from those anticipated by the forward-looking statements made in this quarterly report. Such factors may include, without limitation, the risks, uncertainties and regulatory developments discussed and described in (1) the Company’s 2018 annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 5, 2019, including the risks described in Part 1, Item 1A, “Risk Factors” thereof, (2) in this quarterly report on Form 10-Q, and (3) other reports filed with the SEC. Many of these risks and uncertainties are beyond the ability of the Company to control, nor can the Company predict, in many cases, all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. The forward-looking statements contained in this quarterly report speak only as of the date of this quarterly report, and the Company expressly disclaims any obligation or undertaking to report any updates or revisions to any such statement to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.





PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
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
 
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
 
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
 
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

 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.

1


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
 
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
 
(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

 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.

2


FIRSTCASH, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
 
 
 
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
Net income
 
$
42,655

 
$
41,635

Other comprehensive income:
 
 
 
 
Currency translation adjustment
 
5,423

 
21,834

Comprehensive income
 
$
48,078

 
$
63,469

 
 
 
 
 
 The accompanying notes are an integral part of these consolidated financial statements.

FIRSTCASH, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accum-
ulated
Other
Compre-
hensive
Loss
 
Common Stock
Held in Treasury
 
Total
Stock-
holders’
Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
Shares
 
Amount
 
 
As of 12/31/2018
 

 
$

 
49,276

 
$
493

 
$
1,224,608

 
$
606,810

 
$
(113,117
)
 
5,673

 
$
(400,690
)
 
$
1,318,104

Shares issued under share-based com-pensation plan
 

 

 

 

 
(1,441
)
 

 

 
(21
)
 
1,441

 

Share-based compensa-tion expense
 

 

 

 

 
2,315

 

 

 

 

 
2,315

Net income
 

 

 

 

 

 
42,655

 

 

 

 
42,655

Cash dividends ($0.25 per share)
 

 

 

 

 

 
(10,891
)
 

 

 

 
(10,891
)
Currency translation adjustment
 

 

 

 

 

 

 
5,423

 

 

 
5,423

Purchases of treasury stock
 

 

 

 

 

 

 

 
343

 
(29,190
)
 
(29,190
)
As of 3/31/2019
 

 
$

 
49,276

 
$
493

 
$
1,225,482

 
$
638,574

 
$
(107,694
)
 
5,995

 
$
(428,439
)
 
$
1,328,416

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.

3


FIRSTCASH, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
CONTINUED
(unaudited, in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accum-
ulated
Other
Compre-
hensive
Loss
 
Common Stock
Held in Treasury
 
Total
Stock-
holders’
Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
Shares
 
Amount
 
 
As of 12/31/2017
 

 
$

 
49,276

 
$
493

 
$
1,220,356

 
$
494,457

 
$
(111,877
)
 
2,362

 
$
(128,096
)
 
$
1,475,333

Shares issued under share-based com-pensation plan
 

 

 

 

 
(1,240
)
 

 

 
(22
)
 
1,240

 

Share-based compensa-tion expense
 

 

 

 

 
1,375

 

 

 

 

 
1,375

Net income
 

 

 

 

 

 
41,635

 

 

 

 
41,635

Cash dividends ($0.22 per share)
 

 

 

 

 

 
(10,245
)
 

 

 

 
(10,245
)
Currency translation adjustment
 

 

 

 

 

 

 
21,834

 

 

 
21,834

Purchases of treasury stock
 

 

 

 

 

 

 

 
1,378

 
(105,646
)
 
(105,646
)
As of 3/31/2018
 

 
$

 
49,276

 
$
493

 
$
1,220,491

 
$
525,847

 
$
(90,043
)
 
3,718

 
$
(232,502
)
 
$
1,424,286

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.

4


FIRSTCASH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
Cash flow from operating activities:
 
 
 
 
Net income
 
$
42,655

 
$
41,635

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Non-cash portion of credit loss provision
 
1,335

 
1,874

Share-based compensation expense
 
2,315

 
1,375

Depreciation and amortization expense
 
9,874

 
11,283

Amortization of debt issuance costs
 
473

 
480

Amortization of favorable/(unfavorable) lease intangibles, net
 

 
(466
)
Deferred income taxes, net
 
2,855

 
1,609

Changes in operating assets and liabilities, net of business combinations:
 
 
 
 
Fees and service charges receivable
 
2,093

 
3,844

Inventories
 
5,874

 
7,715

Prepaid expenses and other assets
 
776

 
(3,174
)
Accounts payable, accrued liabilities and other liabilities
 
(3,560
)
 
(2,478
)
Income taxes
 
7,007

 
27,619

Net cash flow provided by operating activities
 
71,697

 
91,316

Cash flow from investing activities:
 
 
 
 
Loan receivables, net of cash repayments
 
42,216

 
56,220

Purchases of furniture, fixtures, equipment and improvements
 
(9,658
)
 
(5,388
)
Purchases of store real property
 
(22,145
)
 
(3,449
)
Acquisitions of pawn stores, net of cash acquired
 
(24,520
)
 
(13,364
)
Net cash flow provided by (used in) investing activities
 
(14,107
)
 
34,019

Cash flow from financing activities:
 
 
 
 
Borrowings from revolving unsecured credit facility
 
43,000

 
61,000

Repayments of revolving unsecured credit facility
 
(83,000
)
 
(85,000
)
Purchases of treasury stock
 
(29,599
)
 
(100,019
)
Dividends paid
 
(10,891
)
 
(10,245
)
Net cash flow used in financing activities
 
(80,490
)
 
(134,264
)
Effect of exchange rates on cash
 
770

 
4,914

Change in cash and cash equivalents
 
(22,130
)
 
(4,015
)
Cash and cash equivalents at beginning of the period
 
71,793

 
114,423

Cash and cash equivalents at end of the period
 
$
49,663

 
$
110,408

 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.

5


FIRSTCASH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Note 1 - Significant Accounting Policies

Basis of Presentation

The accompanying consolidated balance sheet as of December 31, 2018, which is derived from audited financial statements, and the unaudited consolidated financial statements, including the notes thereto, include the accounts of FirstCash, Inc. and its wholly-owned subsidiaries (together, the “Company”). The Company regularly makes acquisitions and the results of operations for the acquired stores have been consolidated since the acquisition dates. All significant intercompany accounts and transactions have been eliminated.

These unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include certain information and disclosures required for comprehensive financial statements. These interim period financial statements should be read in conjunction with the Company’s consolidated financial statements, which are included in the Company’s annual report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (the “SEC”) on February 5, 2019. The consolidated financial statements as of March 31, 2019 and 2018, and for the three month periods ended March 31, 2019 and 2018, are unaudited, but in management’s opinion include all adjustments (consisting of only normal recurring adjustments) considered necessary to present fairly the financial position, results of operations and cash flow for such interim periods. Operating results for the period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the full year.

The Company has significant operations in Latin America, where in Mexico, Guatemala and Colombia the functional currency is the Mexican peso, Guatemalan quetzal and Colombian peso, respectively. Accordingly, the assets and liabilities of these subsidiaries are translated into U.S. dollars at the exchange rate in effect at each balance sheet date, and the resulting adjustments are accumulated in other comprehensive income (loss) as a separate component of stockholders’ equity. Revenues and expenses are translated at the average exchange rates occurring during the three month periods ended March 31, 2019 and 2018. The Company also has operations in El Salvador where the reporting and functional currency is the U.S. dollar.

Reclassifications

A loss on foreign exchange of $0.2 million for the three months ended March 31, 2018 was reclassified on the consolidated statements of income in order to conform with the presentation for the three months ended March 31, 2019. The loss on foreign exchange was reclassified from store operating expenses and reported separately on the consolidated statements of income.

Purchases of store real property of $3.4 million for the three months ended March 31, 2018 were reclassified on the consolidated statements of cash flows in order to conform with the presentation for the three months ended March 31, 2019. Purchases of store real property were reclassified from purchases of furniture, fixtures, equipment and improvements and reported separately on the consolidated statements of cash flows. As a result, purchases of furniture, fixtures, equipment and improvements include expenditures for improvements to existing stores, de novo store openings and corporate assets, and excludes discretionary store real property purchases.

Recent Accounting Pronouncements

On January 1, 2019, the Financial Accounting Standards Board’s lease accounting standard (“ASC 842”) became effective requiring lessees to recognize, in the statement of financial position, 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 “ROU” asset). Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. Lessor accounting remains largely unchanged. ASC 842 provides for a modified retrospective transition approach, which requires lessees to recognize and measure leases on the balance sheet at the beginning of the earliest period presented, or a cumulative effect adjustment transition approach, which requires prospective application from the adoption date. The Company adopted ASC 842 prospectively as of January 1, 2019 using the cumulative effect adjustment approach. As a result of the transition method used, ASC 842 was not applied to periods prior to adoption and the adoption of ASC 842 had no impact on the Company’s comparative prior periods presented.


6


ASC 842 provides a number of optional practical expedients in transition. The Company elected the package of practical expedients, which permit it to not reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs but did not elect any other practical expedient available under ASC 842.

The adoption of ASC 842 resulted in a material increase in the assets and liabilities reflected on the Company’s consolidated balance sheets, but did not have a material impact on its consolidated statements of income or consolidated statements of cash flows. See Note 4.

In June 2016, the Financial Accounting Standards Board issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. In November 2018, the Financial Accounting Standards Board issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” (“ASU 2018-19”) which clarifies that receivables arising from operating leases are accounted for using lease guidance and not as financial instruments. ASU 2016-13 and ASU 2018-19 are effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently assessing the potential impact of ASU 2016-13 and ASU 2018-19 on its consolidated financial statements.

In January 2017, the Financial Accounting Standards Board issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which eliminates step 2 from the goodwill impairment test. ASU 2017-04 also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017 and should be adopted on a prospective basis. The Company does not expect ASU 2017-04 to have a material effect on the Company’s current financial position, results of operations or financial statement disclosures.

In June 2018, the Financial Accounting Standards Board issued ASU No. 2018-07, “Compensation-Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”). ASU 2018-07 simplifies the accounting for nonemployee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. ASU 2018-07 is effective for public entities for fiscal years beginning after December 15, 2018. The adoption of ASU 2018-07 did not have a material effect on the Company’s current financial position, results of operations or financial statement disclosures.

In July 2018, the Financial Accounting Standards Board issued ASU No. 2018-09, “Codification Improvements” (“ASU 2018-09”). ASU 2018-09 does not prescribe any new accounting guidance, but instead makes minor improvements and clarifications of several different Financial Accounting Standards Board Accounting Standards Codification areas based on comments and suggestions made by various stakeholders. Certain updates are applicable immediately while others provide for a transition period to adopt in fiscal years beginning after December 15, 2018. The adoption of ASU 2018-09 did not have a material effect on the Company’s current financial position, results of operations or financial statement disclosures.

In August 2018, the Financial Accounting Standards Board issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted for any removed or modified disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company does not expect ASU 2018-13 to have a material effect on the Company’s current financial position, results of operations or financial statement disclosures.


7


Note 2 - Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
Numerator:
 
 
 
 
Net income
 
$
42,655

 
$
41,635

 
 
 
 
 
Denominator:
 
 
 
 
Weighted-average common shares for calculating basic earnings per share
 
43,518

 
46,426

Effect of dilutive securities:
 
 
 
 
Stock options and restricted stock unit awards
 
140

 
53

Weighted-average common shares for calculating diluted earnings per share
 
43,658

 
46,479

 
 
 
 
 
Earnings per share:
 
 
 
 
Basic
 
$
0.98

 
$
0.90

Diluted
 
$
0.98

 
$
0.90



Note 3 - Acquisitions

Consistent with the Company’s strategy to continue its expansion of pawn stores in selected markets, during the three months ended March 31, 2019, the Company acquired 118 pawn stores in Mexico in two separate transactions and 10 pawn stores located in the U.S. in two separate transactions. The aggregate purchase prices for these acquisitions totaled $23.5 million, net of cash acquired and subject to future post-closing adjustments. The aggregate purchase price was comprised of $20.7 million in cash paid during the three months ended March 31, 2019 and remaining short-term amounts payable to the sellers of approximately $2.8 million.

The purchase price of each of the 2019 acquisitions was allocated to assets acquired and liabilities assumed based upon the estimated fair market values at the date of acquisition. The excess purchase price over the estimated fair market value of the net assets acquired has been recorded as goodwill. The goodwill arising from these acquisitions consists largely of the synergies and economies of scale expected from combining the operations of the Company and the pawn stores acquired. These acquisitions were not material individually or in the aggregate to the Company’s consolidated financial statements.

Note 4 - Operating Leases

As described in Note 1, the Company adopted ASC 842 prospectively as of January 1, 2019. The Company leases the majority of its pawnshop locations under operating leases and determines if an arrangement is or contains a lease at inception. Many leases include both lease and non-lease components, which the Company accounts for separately. Lease components include rent, taxes and insurance costs while non-lease components include common area or other maintenance costs. Operating leases are included in right of use assets, lease liability, current and lease liability, non-current in the consolidated balance sheets. The Company does not have any finance leases.


8


The following table details the components of the ROU asset and lease liability recognized upon adoption of ASC 842 on January 1, 2019 (in thousands):

Initial measurement of right of use asset (present value of the future minimum lease payments)
$
295,063

Accrued straight-line rent liability
(4,237
)
Amounts previously recognized in respect of business combinations:
 
Favorable lease intangible asset
45,596

Unfavorable lease intangible liability
(17,275
)
Total initial right of use asset
$
319,147

 
 
Lease liability, current
$
(87,608
)
Lease liability, non-current
(207,455
)
Total initial lease liability (present value of the future minimum lease payments)
$
(295,063
)


Leased facilities are generally leased for a term of three to five years with one or more options to renew, typically at the Company’s sole discretion. In addition, the majority of these leases can be terminated early upon an adverse change in law which negatively affects the store’s profitability. The Company regularly evaluates renewal and termination options to determine if the Company is reasonably certain to exercise the option, and excludes these options from the lease term included in the recognition of the ROU asset and lease liability until such certainty exists. The weighted-average remaining lease term for operating leases as of March 31, 2019 was 4.0 years.

The ROU asset and lease liability is recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The Company’s leases do not provide an implicit rate and therefore, it uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The Company utilizes a portfolio approach for determining the incremental borrowing rate to apply to groups of leases with similar characteristics. The weighted-average discount rate used to measure the lease liability as of March 31, 2019 was 7.2%.

The Company has certain operating leases in Mexico which are denominated in U.S. dollars. The liability related to these leases is considered a monetary liability, and requires remeasurement into the functional currency (Mexican pesos) using reporting date exchange rates. The remeasurement results in the recognition of foreign currency exchange gains or losses, producing a certain level of earnings volatility. The Company recognized a foreign currency gain of $0.3 million during the three months ended March 31, 2019 related to the remeasurement of these U.S. dollar denominated operating leases, which is included in (gain) loss on foreign exchange in the accompanying consolidated statements of income.

Lease expense is recognized on a straight-line basis over the lease term, with variable lease expense recognized in the period such payments are incurred. The following table details the components of lease expense included in store operating expenses in the consolidated statements of income during the three months ended March 31, 2019 (in thousands):

Operating lease expense
$
30,980

Variable lease expense (1)
2,075

Total operating lease expense
$
33,055


(1) 
Variable lease costs consist primarily of taxes, insurance and common area or other maintenance costs paid based on actual costs incurred by the lessor and can therefore vary over the lease term.




9


The following table details the maturity of lease liabilities for all operating leases as of March 31, 2019 (in thousands):

Nine months ending December 31, 2019
$
78,583

2020
85,863

2021
65,433

2022
42,233

2023
23,021

Thereafter
20,221

Total
$
315,354

Less amount of lease payments representing interest
(41,438
)
Total present value of lease payments
$
273,916



The following table details supplemental cash flow information related to operating leases for the three months ended March 31, 2019 (in thousands):

Cash paid for amounts included in the measurement of operating lease liabilities
$
28,840

Leased assets obtained in exchange for new operating lease liabilities
$
2,551



Note 5 - Long-Term Debt

The following table details the Company’s long-term debt at the respective principal amounts, net of unamortized debt issuance costs on the senior unsecured notes (in thousands):

 
As of March 31, 2019
 
As of December 31,
 
2019
 
2018
 
2018
Revolving unsecured credit facility, maturing 2023 (1)
$
255,000

 
$
83,000

 
$
295,000

5.375% senior unsecured notes due 2024 (2)
296,053

 
295,400

 
295,887

Total long-term debt
$
551,053

 
$
378,400

 
$
590,887


(1) 
Debt issuance costs related to the Company’s revolving unsecured credit facility are included in other assets in the accompanying consolidated balance sheets.

(2)
As of March 31, 2019, 2018 and December 31, 2018, deferred debt issuance costs of $3.9 million, $4.6 million and $4.1 million, respectively, are included as a direct deduction from the carrying amount of the senior unsecured notes in the accompanying consolidated balance sheets.

Revolving Unsecured Credit Facility

As of March 31, 2019, the Company maintained an unsecured line of credit with a group of U.S. based commercial lenders (the “Credit Facility”) in the amount of $425.0 million, which matures on October 4, 2023. As of March 31, 2019, the Company had $255.0 million in outstanding borrowings and $3.7 million in outstanding letters of credit under the Credit Facility, leaving $166.3 million available for future borrowings. The Credit Facility bears interest, at the Company’s option, at either (1) the prevailing London Interbank Offered Rate (“LIBOR”) (with interest periods of 1 week or 1, 2, 3 or 6 months at the Company’s option) plus a fixed spread of 2.5% or (2) the prevailing prime or base rate plus a fixed spread of 1.5%. The agreement has a LIBOR floor of 0%. Additionally, the Company is required to pay an annual commitment fee of 0.50% on the average daily unused portion of the Credit Facility commitment. The weighted-average interest rate on amounts outstanding under the Credit Facility at March 31, 2019 was 4.94% based on 1 week LIBOR. Under the terms of the Credit Facility, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Credit Facility also contains customary restrictions on the Company’s ability to incur additional debt, grant liens, make investments, consummate acquisitions and similar negative covenants with customary carve-outs and baskets. The Company was in compliance with the covenants of the Credit Facility as of March 31, 2019. During the three months ended March 31, 2019, the Company made net payments of $40.0 million pursuant to the Credit Facility.


10


Senior Unsecured Notes

On May 30, 2017, the Company issued $300.0 million of 5.375% senior unsecured notes due on June 1, 2024 (the “Notes”), all of which are currently outstanding. Interest on the Notes is payable semi-annually in arrears on June 1 and December 1. The Notes are fully and unconditionally guaranteed on a senior unsecured basis jointly and severally by all of the Company's existing and future domestic subsidiaries that guarantee its Credit Facility. The Notes will permit the Company to make restricted payments, such as purchasing shares of its stock and paying cash dividends, in an unlimited amount if, after giving pro forma effect to the incurrence of any indebtedness to make such payment, the Company's consolidated total debt ratio (“Net Debt Ratio”) is less than 2.25 to 1. The Net Debt Ratio is defined generally in the indenture governing the Notes as the ratio of (1) the total consolidated debt of the Company minus cash and cash equivalents of the Company to (2) the Company’s consolidated trailing twelve months EBITDA, as adjusted to exclude certain non-recurring expenses and giving pro forma effect to operations acquired during the measurement period.

Note 6 - Fair Value of Financial Instruments

The fair value of financial instruments is determined by reference to various market data and other valuation techniques, as appropriate. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The three fair value levels are (from highest to lowest):

Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.

Recurring Fair Value Measurements

As of March 31, 2019, 2018 and December 31, 2018, the Company did not have any financial assets or liabilities measured at fair value on a recurring basis.

Fair Value Measurements on a Nonrecurring Basis

The Company measures non-financial assets and liabilities, such as property and equipment and intangible assets, at fair value on a nonrecurring basis or when events or circumstances indicate that the carrying amount of the assets may be impaired.

Financial Assets and Liabilities Not Measured at Fair Value

The Company’s financial assets and liabilities as of March 31, 2019, 2018 and December 31, 2018 that are not measured at fair value in the consolidated balance sheets are as follows (in thousands):


11


 
 
Carrying Value
 
Estimated Fair Value
 
 
March 31,
 
March 31,
 
Fair Value Measurements Using
 
 
2019
 
2019
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
49,663

 
$
49,663

 
$
49,663

 
$

 
$

Fees and service charges receivable
 
43,993

 
43,993

 

 

 
43,993

Pawn loans
 
345,200

 
345,200

 

 

 
345,200

Consumer loans, net
 
11,017

 
11,017

 

 

 
11,017

 
 
$
449,873

 
$
449,873

 
$
49,663

 
$

 
$
400,210

 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
Revolving unsecured credit facility
 
$
255,000

 
$
255,000

 
$

 
$
255,000

 
$

Senior unsecured notes (outstanding principal)
 
300,000

 
306,000

 

 
306,000

 

 
 
$
555,000

 
$
561,000

 
$

 
$
561,000

 
$


 
 
Carrying Value
 
Estimated Fair Value
 
 
March 31,
 
March 31,
 
Fair Value Measurements Using
 
 
2018
 
2018
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
110,408

 
$
110,408

 
$
110,408

 
$

 
$

Fees and service charges receivable
 
40,022

 
40,022

 

 

 
40,022

Pawn loans
 
322,625

 
322,625

 

 

 
322,625

Consumer loans, net
 
17,447

 
17,447

 

 

 
17,447

 
 
$
490,502

 
$
490,502

 
$
110,408

 
$

 
$
380,094

 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
Revolving unsecured credit facility
 
$
83,000

 
$
83,000

 
$

 
$
83,000

 
$

Senior unsecured notes (outstanding principal)
 
300,000

 
305,000

 

 
305,000

 

 
 
$
383,000

 
$
388,000

 
$

 
$
388,000

 
$


 
 
Carrying Value
 
Estimated Fair Value
 
 
December 31,
 
December 31,
 
Fair Value Measurements Using
 
 
2018
 
2018
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
71,793

 
$
71,793

 
$
71,793

 
$

 
$

Fees and service charges receivable
 
45,430

 
45,430

 

 

 
45,430

Pawn loans
 
362,941

 
362,941

 

 

 
362,941

Consumer loans, net
 
15,902

 
15,902

 

 

 
15,902

 
 
$
496,066

 
$
496,066

 
$
71,793

 
$

 
$
424,273

 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
Revolving unsecured credit facility
 
$
295,000

 
$
295,000

 
$

 
$
295,000

 
$

Senior unsecured notes (outstanding principal)
 
300,000

 
293,000

 

 
293,000

 

 
 
$
595,000

 
$
588,000

 
$

 
$
588,000

 
$




12


As cash and cash equivalents have maturities of less than three months, the carrying value of cash and cash equivalents approximates fair value. Due to their short-term maturities, the carrying value of pawn loans and fees and service charges receivable approximate fair value. Consumer loans, net are carried net of the allowance for estimated loan losses, which is calculated by applying historical loss rates combined with recent default trends to the gross consumer loan balance. Therefore, the carrying value approximates the fair value.

The carrying value of the revolving unsecured credit facility approximates fair value as of March 31, 2019, 2018 and December 31, 2018. The fair value of the revolving unsecured credit facility is estimated based on market values for debt issuances with similar characteristics or rates currently available for debt with similar terms. In addition, the revolving unsecured credit facility has a variable interest rate based on a fixed spread over LIBOR and reprices with any changes in LIBOR. The fair value of the senior unsecured notes is estimated based on quoted prices in markets that are not active.

Note 7 - Segment Information

The Company organizes its operations into two reportable segments as follows:

U.S. operations - Includes all pawn and consumer loan operations in the U.S.
Latin America operations - Includes all pawn and consumer loan operations in Latin America, which includes operations in Mexico, Guatemala, El Salvador and Colombia.

The following tables present reportable segment information for the three month period ended March 31, 2019 and 2018 (in thousands):

 
 
Three Months Ended March 31, 2019
 
 
U.S.
Operations
 
Latin America
Operations
 
Corporate
 
Consolidated
Revenue:
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$
186,815

 
$
97,426

 
$

 
$
284,241

Pawn loan fees
 
97,876

 
43,316

 

 
141,192

Wholesale scrap jewelry sales
 
22,785

 
8,925

 

 
31,710

Consumer loan and credit services fees
 
10,461

 

 

 
10,461

Total revenue
 
317,937

 
149,667

 

 
467,604

 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
Cost of retail merchandise sold
 
117,744

 
61,605

 

 
179,349

Cost of wholesale scrap jewelry sold
 
21,270

 
9,083

 

 
30,353

Consumer loan and credit services loss provision
 
2,103

 

 

 
2,103

Total cost of revenue
 
141,117

 
70,688

 

 
211,805

 
 
 
 
 
 
 
 
 
Net revenue
 
176,820

 
78,979

 

 
255,799

 
 
 
 
 
 
 
 
 
Expenses and other income:
 
 
 
 
 
 
 
 
Store operating expenses
 
103,884

 
42,968

 

 
146,852

Administrative expenses
 

 

 
32,154

 
32,154

Depreciation and amortization
 
5,045

 
3,305

 
1,524

 
9,874

Interest expense