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

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

For the quarterly period ended June 30, 2020
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
https://cdn.kscope.io/5aba96fc59fec365b8bce56057e60bd3-fcfslogo.jpg
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)

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

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.     Yes   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).     Yes   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.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
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.    

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

As of July 21, 2020, there were 41,440,498 shares of common stock outstanding.






FIRSTCASH, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2020

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 (1) related to the COVID-19 pandemic, which include risks and uncertainties related to the current unknown duration of the COVID-19 pandemic, the impact of governmental responses that have been, and may in the future be, imposed in response to the pandemic, including stimulus programs which could adversely impact lending demand and regulations which could adversely affect the Company’s ability to continue to fully operate, potential changes in consumer behavior and shopping patterns which could impact demand for both the Company’s pawn loan and retail products, the deterioration in the economic conditions in the United States and Latin America which potentially could have an impact on discretionary consumer spending, and currency fluctuations, primarily involving the Mexican peso and (2) those discussed and described in the Company’s 2019 annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 3, 2020, including the risks described in Part 1, Item 1A, “Risk Factors” thereof and other reports filed with the SEC, including the Company’s quarterly report on Form 10-Q filed with the SEC on April 27, 2020. 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)
 
 
 
 
 
 
 
June 30,
 
December 31,
 
 
2020
 
2019
 
2019
ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 
$
70,956

 
$
67,012

 
$
46,527

Fees and service charges receivable
 
30,418

 
46,991

 
46,686

Pawn loans
 
230,383

 
375,167

 
369,527

Consumer loans, net
 
176

 
3,850

 
751

Inventories
 
179,967

 
266,440

 
265,256

Income taxes receivable
 
4,988

 
1,041

 
875

Prepaid expenses and other current assets
 
10,689

 
9,590

 
11,367

Total current assets
 
527,577

 
770,091

 
740,989

 
 
 
 
 
 
 
Property and equipment, net
 
341,114

 
290,725

 
336,167

Operating lease right of use asset
 
283,063

 
293,357

 
304,549

Goodwill
 
929,575

 
940,653

 
948,643

Intangible assets, net
 
84,389

 
87,200

 
85,875

Other assets
 
9,037

 
10,890

 
11,506

Deferred tax assets
 
7,764

 
11,570

 
11,711

Total assets
 
$
2,182,519

 
$
2,404,486

 
$
2,439,440

 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
69,810

 
$
71,410

 
$
72,398

Customer deposits
 
35,439

 
40,665

 
39,736

Income taxes payable
 
13,230

 
317

 
4,302

Lease liability, current
 
83,580

 
84,513

 
86,466

Total current liabilities
 
202,059

 
196,905

 
202,902

 
 
 
 
 
 
 
Revolving unsecured credit facilities
 
200,000

 
340,000

 
335,000

Senior unsecured notes
 
296,923

 
296,222

 
296,568

Deferred tax liabilities
 
67,842

 
60,069

 
61,431

Lease liability, non-current
 
182,915

 
184,348

 
193,504

Total liabilities
 
949,739

 
1,077,544

 
1,089,405

 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
Common stock
 
493

 
493

 
493

Additional paid-in capital
 
1,226,512

 
1,227,478

 
1,231,528

Retained earnings
 
763,810

 
660,845

 
727,476

Accumulated other comprehensive loss
 
(172,150
)
 
(103,932
)
 
(96,969
)
Common stock held in treasury, at cost
 
(585,885
)
 
(457,942
)
 
(512,493
)
Total stockholders’ equity
 
1,232,780

 
1,326,942

 
1,350,035

Total liabilities and stockholders’ equity
 
$
2,182,519

 
$
2,404,486

 
$
2,439,440

 
 
 
 
 
 
 
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
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2020
 
2019
 
2020
 
2019
Revenue:
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$
287,400

 
$
278,754

 
$
584,029

 
$
562,995

Pawn loan fees
 
101,990

 
136,923

 
244,105

 
278,115

Wholesale scrap jewelry sales
 
22,785

 
24,981

 
49,156

 
56,691

Consumer loan and credit services fees
 
571

 
5,356

 
1,946

 
15,817

Total revenue
 
412,746

 
446,014

 
879,236

 
913,618

 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
Cost of retail merchandise sold
 
171,511

 
176,272

 
356,206

 
355,621

Cost of wholesale scrap jewelry sold
 
18,357

 
23,934

 
41,204

 
54,287

Consumer loan and credit services loss provision
 
(223
)
 
1,503

 
(584
)
 
3,606

Total cost of revenue
 
189,645

 
201,709

 
396,826

 
413,514

 
 
 
 
 
 
 
 
 
Net revenue
 
223,101

 
244,305

 
482,410

 
500,104

 
 
 
 
 
 
 
 
 
Expenses and other income:
 
 
 
 
 
 
 
 
Store operating expenses
 
141,051

 
148,347

 
294,551

 
295,199

Administrative expenses
 
28,386

 
31,696

 
61,288

 
63,850

Depreciation and amortization
 
10,324

 
10,510

 
20,998

 
20,384

Interest expense
 
6,974

 
8,548

 
15,392

 
16,918

Interest income
 
(525
)
 
(155
)
 
(710
)
 
(359
)
Merger and other acquisition expenses
 
134

 
556

 
202

 
705

(Gain) loss on foreign exchange
 
(614
)
 
(483
)
 
2,071

 
(722
)
Write-offs and impairments of certain lease intangibles and other assets
 
182

 

 
5,712

 

Total expenses and other income
 
185,912

 
199,019

 
399,504

 
395,975

 
 
 
 
 
 
 
 
 
Income before income taxes
 
37,189

 
45,286

 
82,906

 
104,129

 
 
 
 
 
 
 
 
 
Provision for income taxes
 
11,316

 
12,238

 
24,115

 
28,426

 
 
 
 
 
 
 
 
 
Net income
 
$
25,873

 
$
33,048

 
$
58,791

 
$
75,703

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
0.62

 
$
0.77

 
$
1.41

 
$
1.75

Diluted
 
$
0.62

 
$
0.76

 
$
1.41

 
$
1.74

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

2


FIRSTCASH, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2020
 
2019
 
2020
 
2019
Net income
 
$
25,873

 
$
33,048

 
$
58,791

 
$
75,703

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Currency translation adjustment
 
8,322

 
3,762

 
(75,181
)
 
9,185

Comprehensive income (loss)
 
$
34,195

 
$
36,810

 
$
(16,390
)
 
$
84,888

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


3


FIRSTCASH, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited, in thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2020
 
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
 
 
As of 12/31/2019
49,276

 
$
493

 
$
1,231,528

 
$
727,476

 
$
(96,969
)
 
6,947

 
$
(512,493
)
 
$
1,350,035

Shares issued under share-based com-pensation plan, net of 46 shares net-settled

 

 
(10,266
)
 

 

 
(93
)
 
6,939

 
(3,327
)
Share-based compensation expense

 

 
2,851

 

 

 

 

 
2,851

Net income

 

 

 
32,918

 

 

 

 
32,918

Cash dividends ($0.27 per share)

 

 

 
(11,268
)
 

 

 

 
(11,268
)
Currency translation adjustment

 

 

 

 
(83,503
)
 

 

 
(83,503
)
Purchases of treasury stock

 

 

 

 

 
981

 
(80,331
)
 
(80,331
)
As of 3/31/2020
49,276

 
$
493

 
$
1,224,113

 
$
749,126

 
$
(180,472
)
 
7,835

 
$
(585,885
)
 
$
1,207,375

Share-based compensation expense

 

 
2,399

 

 

 

 

 
2,399

Net income

 

 

 
25,873

 

 

 

 
25,873

Cash dividends ($0.27 per share)

 

 

 
(11,189
)
 

 

 

 
(11,189
)
Currency translation adjustment

 

 

 

 
8,322

 

 

 
8,322

As of 6/30/2020
49,276

 
$
493

 
$
1,226,512

 
$
763,810

 
$
(172,150
)
 
7,835

 
$
(585,885
)
 
$
1,232,780

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

4


FIRSTCASH, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
CONTINUED
(unaudited, in thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2019
 
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
 
 
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 compensation 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

Exercise of stock options

 

 
(319
)
 

 

 
(10
)
 
719

 
400

Share-based compensation expense

 

 
2,315

 

 

 

 

 
2,315

Net income

 

 

 
33,048

 

 

 

 
33,048

Cash dividends ($0.25 per share)

 

 

 
(10,777
)
 

 

 

 
(10,777
)
Currency translation adjustment

 

 

 

 
3,762

 

 

 
3,762

Purchases of treasury stock

 

 

 

 

 
328

 
(30,222
)
 
(30,222
)
As of 6/30/2019
49,276

 
$
493

 
$
1,227,478

 
$
660,845

 
$
(103,932
)
 
6,313

 
$
(457,942
)
 
$
1,326,942

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

5


FIRSTCASH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
 
Six Months Ended
 
 
June 30,
 
 
2020
 
2019
Cash flow from operating activities:
 
 
 
 
Net income
 
$
58,791

 
$
75,703

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Non-cash portion of credit loss provision
 
(833
)
 
2,262

Share-based compensation expense
 
5,250

 
4,630

Depreciation and amortization expense
 
20,998

 
20,384

Amortization of debt issuance costs
 
772

 
949

Non-cash write-offs and impairments of certain lease intangibles and other assets
 
5,712

 

Deferred income taxes, net
 
8,557

 
5,594

Changes in operating assets and liabilities, net of business combinations:
 
 
 
 
Fees and service charges receivable
 
14,265

 
(537
)
Inventories purchased directly from customers, wholesalers or manufacturers
 
21,143

 
4,461

Prepaid expenses and other assets
 
271

 
508

Accounts payable, accrued liabilities and other liabilities
 
4,294

 
(7,879
)
Income taxes
 
4,079

 
(102
)
Net cash flow provided by operating activities
 
143,299

 
105,973

Cash flow from investing activities:
 
 
 
 
Loan receivables, net (1)
 
178,279

 
19,574

Purchases of furniture, fixtures, equipment and improvements
 
(20,476
)
 
(22,904
)
Purchases of store real property
 
(19,596
)
 
(31,894
)
Acquisitions of pawn stores, net of cash acquired
 
(7,764
)
 
(38,241
)
Net cash flow provided by (used in) investing activities
 
130,443

 
(73,465
)
Cash flow from financing activities:
 
 
 
 
Borrowings from unsecured credit facilities
 
143,925

 
144,000

Repayments of unsecured credit facilities
 
(282,433
)
 
(99,000
)
Debt issuance costs paid
 
(134
)
 

Purchases of treasury stock
 
(80,331
)
 
(61,554
)
Proceeds from exercise of stock options
 

 
400

Payment of withholding taxes on net share settlements of restricted stock unit awards
 
(3,327
)
 

Dividends paid
 
(22,457
)
 
(21,668
)
Net cash flow used in financing activities
 
(244,757
)
 
(37,822
)
Effect of exchange rates on cash
 
(4,556
)
 
533

Change in cash and cash equivalents
 
24,429

 
(4,781
)
Cash and cash equivalents at beginning of the period
 
46,527

 
71,793

Cash and cash equivalents at end of the period
 
$
70,956

 
$
67,012

 
 
 
 
 
(1) Includes the funding of new loans net of cash repayments and recovery of principal through the sale of inventories acquired from forfeiture of pawn collateral.
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.


6


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

Note 1 - General

Basis of Presentation

The accompanying consolidated balance sheet as of December 31, 2019, 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, 2019, filed with the Securities and Exchange Commission (the “SEC”) on February 3, 2020. The consolidated financial statements as of June 30, 2020 and 2019, and for the three month and six month periods ended June 30, 2020 and 2019, 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 periods ended June 30, 2020 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 respective period. The Company also has operations in El Salvador where the reporting and functional currency is the U.S. dollar.

Impact of COVID-19

In December 2019, a novel strain of coronavirus (“COVID-19”) surfaced in China, which has and is continuing to spread throughout the world. In March of 2020, the World Health Organization declared the outbreak a pandemic. The global impact of the pandemic has been rapidly evolving, and many countries, states and other local government officials have reacted by instituting quarantines, shelter-in-place and other orders mandating non-essential business closures and restricting travel in an effort to reduce the spread of COVID-19, as well as instituting broad based stimulus packages in an effort to limit the resulting economic impact.

The Company’s business depends heavily on the uninterrupted operation of its stores. In most jurisdictions where the Company has stores, pawnshops have been designated an essential service by federal guidelines and/or local regulations and remained open during the second quarter with enhanced safety protocols. However, retail sales in all of the Company’s stores in Mexico were prohibited by regulators during the last three weeks of May, all 13 stores in El Salvador were closed from late March through the end of May and all 13 stores in Colombia were closed from late March through various dates in June and early July as a result of broad government imposed lock-downs.

As most of the Company’s pawn stores were able to remain open as an essential business, retail sales benefited from strong demand for stay-at-home products such as consumer electronics, tools and sporting goods. Retail sales in the U.S. were further enhanced by federal stimulus payments, which drove additional demand across most categories including jewelry. These positive impacts on retail sales in Latin America were largely offset by the three-week regulatory prohibition of retail transactions in Mexico and the closures of stores in El Salvador and Colombia.

Conversely, pawn lending activities declined in the U.S. and Latin America due to an increase in pawn loan redemptions and a decrease in pawn loan originations, which the Company attributes to significantly reduced levels of personal spending due to broad shutdowns of the economy as a result of COVID-19. Pawn loan balances were further impacted in the U.S. by federal stimulus payments, forbearance programs and enhanced unemployment benefits, and in Latin America by increased cross-border remittance payments from the U.S. The resulting impact of the lower pawn loan balances was a negative impact to pawn loan fee revenue during the quarter.

7


In addition, the economic global uncertainty resulting from COVID-19 has resulted in increased currency volatility that has resulted in adverse currency rate fluctuations, especially with respect to the Mexican peso.

The extent to which COVID-19 impacts the Company’s operations, results of operations, liquidity and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, severity and scope of the outbreak, and the actions taken to contain its impact, as well as actions taken to limit the resulting economic impact, among others.

Use of Estimates

The preparation of interim financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and related revenue and expenses, and the disclosure of gain and loss contingencies at the date of the financial statements. The extent to which COVID-19 impacts the Company’s operations, results of operations, liquidity and financial condition, including estimates and assumptions used by the Company in the calculation and evaluation of the accrual for earned but uncollected pawn loan fees, impairment of goodwill and other intangible assets and current and deferred tax assets and liabilities, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, severity and scope of the outbreak, and the actions taken to contain its impact, as well as actions taken to limit the resulting economic impact, among others. The Company’s future assessment of the magnitude and duration of the COVID-19 pandemic, as well as other factors, could result in material impacts to the Company’s financial statements in future reporting periods.

Recent Accounting Pronouncements

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. In April 2019, the Financial Accounting Standards Board issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” (“ASU 2019-04”) which clarifies treatment of certain credit losses. In May 2019, the Financial Accounting Standards Board issued ASU No. 2019-05, “Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief ” (“ASU 2019-05”) which provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. In November 2019, the Financial Accounting Standards Board issued ASU No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” (“ASU 2019-11”), which provides guidance around how to report expected recoveries. In February 2020, the Financial Accounting Standards Board issued ASU No. 2020-02, “Financial Instruments - Credit Losses (Topic 326) (“ASU 2020-02”) which provides updated guidance on how an entity should measure credit losses on financial instruments and delayed the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13, ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-11 and ASU 2020-02 (collectively, “ASC 326”) are effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. The adoption of ASC 326 did not have a material impact on the Company’s recognition of financial instruments within the scope of the standard.

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 two from the goodwill impairment test and instead requires an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. 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 and should be adopted on a prospective basis. The adoption of ASU 2017-04 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 adoption of ASU 2018-13 did not have a material effect on the Company’s current financial position, results of operations or financial statement disclosures.


8


In December 2019, the Financial Accounting Standards Board issued ASU No 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general principles in Topic 740 in Generally Accepted Accounting Principles. ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company does not expect ASU 2019-12 to have a material effect on the Company’s current financial position, results of operations or financial statement disclosures.

In March 2020, the Financial Accounting Standards Board issued ASU 2020-03, “Codification Improvements to Financial Instruments” (“ASU 2020-03”). ASU 2020-03 improves and clarifies various financial instruments topics. ASU 2020-03 includes seven different issues that describe the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The Company adopted ASU 2020-03 upon issuance, which did not have a material effect on the Company’s current financial position, results of operations or financial statement disclosures.

In March 2020, the Financial Accounting Standards Board issued ASU No 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. ASU 2020-04 is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company does not expect ASU 2020-04 to have a material effect on the Company’s current financial position, results of operations or financial statement disclosures.

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
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2020
 
2019
 
2020
 
2019
Numerator:
 
 
 
 
 
 
 
 
Net income
 
$
25,873

 
$
33,048

 
$
58,791

 
$
75,703

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Weighted-average common shares for calculating basic earnings per share
 
41,440

 
43,081

 
41,676

 
43,298

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options and restricted stock unit awards
 
91

 
175

 
93

 
158

Weighted-average common shares for calculating diluted earnings per share
 
41,531

 
43,256

 
41,769

 
43,456

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
0.62

 
$
0.77

 
$
1.41

 
$
1.75

Diluted
 
$
0.62

 
$
0.76

 
$
1.41

 
$
1.74




9


Note 3 - Acquisitions

Consistent with the Company’s strategy to continue its expansion of pawn stores in selected markets, during the six months ended June 30, 2020, the Company acquired 40 pawn stores in Mexico in two separate transactions. The aggregate purchase price for these acquisitions totaled $6.7 million, net of cash acquired and subject to future post-closing adjustments. The aggregate purchase price was composed of $5.5 million in cash paid during the six months ended June 30, 2020 and remaining short-term amounts payable to the seller of approximately $1.2 million.

The purchase price of each of the 2020 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

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 operating lease 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.

Leased facilities are generally leased for a term of three to five years with one or more options to renew for an additional three to five years, 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 operating lease right of use asset and lease liability until such certainty exists. The weighted-average remaining lease term for operating leases as of June 30, 2020 and 2019 was 3.9 years.

The operating lease right of use 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 June 30, 2020 and 2019 was 7.6% and 7.4%, respectively.

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 each reporting period into the functional currency (Mexican pesos) using reporting date exchange rates. The remeasurement results in the recognition of foreign currency exchange gains or losses each reporting period, which can produce a certain level of earnings volatility. The Company recognized a foreign currency gain of $0.4 million and $0.2 million during the three months ended June 30, 2020 and 2019, respectively, 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. During the six months ended June 30, 2020 and 2019, the Company recognized a foreign currency loss of $3.9 million and a gain of $0.5 million, respectively.


10


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 and six months ended June 30, 2020 and 2019 (in thousands):

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2020
 
2019
 
2020
 
2019
Operating lease expense
$
29,425

 
$
31,292

 
$
60,635

 
$
62,272

Variable lease expense (1)
3,403

 
2,179

 
6,948

 
4,254

Total operating lease expense
$
32,828

 
$
33,471

 
$
67,583

 
$
66,526


(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.

The following table details the maturity of lease liabilities for all operating leases as of June 30, 2020 (in thousands):

Six months ending December 31, 2020
$
52,555

2021
90,527

2022
68,117

2023
49,021

2024
27,972

Thereafter
19,033

Total
$
307,225

Less amount of lease payments representing interest
(40,730
)
Total present value of lease payments
$
266,495



The following table details supplemental cash flow information related to operating leases for the six months ended June 30, 2020 and 2019 (in thousands):

 
Six Months Ended
 
June 30,
 
2020
 
2019
Cash paid for amounts included in the measurement of operating lease liabilities
$
56,165

 
$
58,336

Leased assets obtained in exchange for new operating lease liabilities
$
46,096

 
$
16,628




11


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 June 30,
 
As of December 31,
 
2020
 
2019
 
2019
Revolving unsecured credit facility, maturing 2024 (1)
$
200,000

 
$
340,000

 
$
335,000

5.375% senior unsecured notes due 2024 (2)
296,923

 
296,222

 
296,568

Total long-term debt
$
496,923

 
$
636,222

 
$
631,568


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

(2)
As of June 30, 2020, 2019 and December 31, 2019, deferred debt issuance costs of $3.1 million, $3.8 million and $3.4 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 June 30, 2020, the Company maintained an unsecured line of credit with a group of U.S. based commercial lenders (the “Credit Facility”) in the amount of $500.0 million. The Credit Facility matures on December 19, 2024, which would accelerate to 90 days prior to the maturity of the Company’s senior unsecured notes due June 1, 2024 if the Company’s senior unsecured notes have not been refinanced or otherwise extended past December 19, 2024 by such date. As of June 30, 2020, the Company had $200.0 million in outstanding borrowings and $3.3 million in outstanding letters of credit under the Credit Facility, leaving $296.7 million available for future borrowings. The Credit Facility is unsecured and bears interest, at the Company’s option, of 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 June 30, 2020 was 2.63% 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 June 30, 2020. During the six months ended June 30, 2020, the Company made net payments of $135.0 million pursuant to the Credit Facility.

Revolving Unsecured Uncommitted Credit Facility

During March 2020, the Company’s primary subsidiary in Mexico, First Cash S.A. de C.V., entered into an unsecured and uncommitted line of credit guaranteed by FirstCash, Inc. with a bank in Mexico (the “Mexico Credit Facility”) in the amount of $600.0 million Mexican pesos. The Mexico Credit Facility bears interest at the Mexican Central Bank’s interbank equilibrium rate (“TIIE”) plus a fixed spread of 2.5% and matures on March 9, 2023. Under the terms of the Mexico Credit Facility, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Company was in compliance with the covenants of the Mexico Credit Facility as of June 30, 2020. At June 30, 2020, the Company had no amount outstanding under the Mexico Credit Facility and $600.0 million Mexican pesos available for borrowings.

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

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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 June 30, 2020, 2019 and December 31, 2019, the Company did not have any financial assets or liabilities measured at fair value on a recurring basis.

Fair Value Measurements on a Non-Recurring Basis

The Company measures non-financial assets and liabilities, such as property and equipment and intangible assets, at fair value on a non-recurring basis or when events or circumstances indicate that the carrying amount of the assets may be impaired. During the six months ended June 30, 2020, the Company recorded a $1.9 million impairment related to a non-financial, non-operating asset that was included in other assets in the consolidated balance sheets.

Financial Assets and Liabilities Not Measured at Fair Value

The Company’s financial assets and liabilities as of June 30, 2020, 2019 and December 31, 2019 that are not measured at fair value in the consolidated balance sheets are as follows (in thousands):

 
 
Carrying Value
 
Estimated Fair Value
 
 
June 30,
 
June 30,
 
Fair Value Measurements Using
 
 
2020
 
2020
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
70,956

 
$
70,956

 
$
70,956

 
$

 
$

Fees and service charges receivable
 
30,418

 
30,418

 

 

 
30,418

Pawn loans
 
230,383

 
230,383

 

 

 
230,383

Consumer loans, net
 
176

 
176

 

 

 
176

 
 
$
331,933

 
$
331,933

 
$
70,956

 
$

 
$
260,977

 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
Revolving unsecured credit facilities
 
$
200,000

 
$
200,000

 
$

 
$
200,000

 
$

Senior unsecured notes (outstanding principal)
 
300,000

 
300,000

 

 
300,000

 

 
 
$
500,000

 
$
500,000

 
$

 
$
500,000

 
$



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Carrying Value
 
Estimated Fair Value
 
 
June 30,
 
June 30,
 
Fair Value Measurements Using
 
 
2019
 
2019
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
67,012

 
$
67,012

 
$
67,012

 
$

 
$

Fees and service charges receivable
 
46,991

 
46,991

 

 

 
46,991