FirstCash Reports First Quarter Revenues and Earnings; Adds 67 Locations with Acquisition & New Store Openings; Provides COVID-19 Update
Mr.
“At this time, approximately 98% of the Company’s 2,740 stores in
“FirstCash’s balance sheet and liquidity remain strong. As of
“Our first quarter earnings results were better than expected, driven in large part by an acceleration of retail demand in March that has continued thus far in April. Even so, the outlook for the rest of the year is clearly less predictable due to the impact of COVID-19. Based on historical patterns for tightened consumer credit and increased customer liquidity needs during times of economic uncertainty, we anticipate demand for pawn loans will build given the expected economic volatility. At the same time, there are still significant uncertainties around the effects of government stimulus programs and new retail spending patterns in general. The amount and timing of such impacts on both pawn lending and retail demand over the balance of the year is difficult to predict. Adding to the uncertainty is the volatility of foreign currencies, including the Mexican peso. Although the Company reinvests its LatAm earnings in-market, currency volatility will have a significant impact on our earnings when translated into
“In short, while COVID-19 has created challenging times, we believe
This release contains adjusted earnings measures, which exclude, among other things, merger and other acquisition expenses, certain non-cash foreign currency exchange gains and losses, non-cash write-offs of certain lease intangibles and the impairment of certain other assets 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 |
||||||||||||||||
As Reported (GAAP) | Adjusted (Non-GAAP) | |||||||||||||||
In thousands, except per share amounts | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Revenue | $ | 466,490 | $ | 467,604 | $ | 466,490 | $ | 467,604 | ||||||||
Net income | $ | 32,918 | $ | 42,655 | $ | 40,295 | $ | 42,521 | ||||||||
Diluted earnings per share | $ | 0.78 | $ | 0.98 | $ | 0.96 | $ | 0.97 | ||||||||
EBITDA (non-GAAP measure) | $ | 64,624 | $ | 76,883 | $ | 74,606 | $ | 76,692 | ||||||||
Weighted-average diluted shares | 42,007 | 43,658 | 42,007 | 43,658 |
Consolidated Earnings Highlights
- Diluted earnings per share decreased 20% on a GAAP basis and 1% on an adjusted non-GAAP basis in the first quarter of 2020 compared to the prior-year quarter.
- Tax-effected non-GAAP adjustments to earnings per share during the quarter included a
$0.07 non-cash foreign currency loss related to the remeasurement ofU.S. dollar denominated lease liabilities inMexico and$0.11 of non-cash write-offs and impairments of certain intangible and other assets. For further information, see the “Reconciliations of Non-GAAP Financial Measures to GAAP Financial Measures” section.
- Tax-effected non-GAAP adjustments to earnings per share during the quarter included a
- Year-over-year comparative earnings per share on both a GAAP and adjusted non-GAAP basis were negatively impacted by the continued and expected contraction in non-core consumer lending revenues, driven primarily by the discontinuance of consumer lending products in
Ohio inApril 2019 .- First quarter 2020 earnings from non-core consumer lending operations were reduced by approximately
$0.06 per share on both a GAAP and adjusted non-GAAP basis compared to the prior-year quarter as a result of the continued wind down of the non-core consumer lending business.
- First quarter 2020 earnings from non-core consumer lending operations were reduced by approximately
- While consolidated revenues for the first quarter of 2020 were essentially flat compared to the prior-year quarter, revenues from core pawn operations (retail merchandise sales and pawn fees) increased 3%. The increase was offset by an expected 87% decline in non-core consumer lending revenue. Total revenues for the trailing twelve months totaled
$1.9 billion . - For the trailing twelve months ended
March 31, 2020 , consolidated net income was$155 million and adjusted EBITDA totaled$302 million . Growth in trailing twelve months adjusted EBITDA was 5% compared to the prior-year period, despite the significant year-over-year decline in pre-tax earnings from consumer lending operations. - Cash flow from operating activities for the trailing twelve months ended
March 31, 2020 totaled$237 million , while adjusted free cash flow, a non-GAAP financial measure, was$238 million for the twelve months endedMarch 31, 2020 .
Acquisitions and Store Opening Highlights
- A total of 31 de novo locations were opened during the first quarter, all in
Latin America . The new store openings included 26 locations inMexico , four inColombia and one in Guatemala. - The Company acquired a 36-store independent chain of small-format pawnshops located in central
Mexico during the first quarter of 2020. The purchase price for the all-cash transaction was approximately$165 million Mexican pesos, which translated into approximately$7 million U.S. dollars as ofMarch 31, 2020 , the date the transaction closed. - Over the trailing twelve month period ended
March 31, 2020 , the Company has added a total of 182 locations, representing a 7% increase in the number of pawn stores.
- Total domestic revenues for the first quarter decreased 2% compared to the first quarter of 2019 due to the anticipated 87% decline in non-core consumer loan and credit services fees. Excluding consumer loan fees and scrap jewelry sales, core revenues increased 3% for the quarter compared to the prior-year quarter.
- Net revenues (or gross profit), which were also impacted by the decline in non-core consumer lending operations, increased less than 1% for the first quarter of 2020. Excluding consumer lending operations and wholesale scrap sales, gross profit from core pawn operations increased 4% compared to the prior-year quarter, primarily as a result of improvements in retail sales margins and pawn yields as highlighted below.
U.S. retail sales were especially strong in the latter part of the first quarter, increasing 5% in total and 4% on a same-store basis compared to the prior-year quarter.- Retail sales margins increased to 39% for the first quarter of 2020 compared to 37% in the prior-year period. Coupled with the increase in top-line retail sales, total gross profit from retail operations increased 11% for the quarter.
- Total and same-store pawn fees in the first quarter were consistent with the prior-year quarter, as a 460 basis point increase in the average effective annualized pawn yield was offset by slightly lower pawn receivable balances.
- Pawn loans outstanding at
March 31, 2020 totaled$224 million , a decrease of 4% in total and on a same-store basis.
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
Latin America Operations
- Although COVID-19 had a limited impact on Latin American operations in the first quarter, revenues for the first quarter of 2020 increased 4% on a
U.S. dollar basis and 7% on a constant currency basis, as compared to the first quarter of 2019. - Revenue growth was driven primarily by a 3% increase in retail sales, or 7% on a constant currency basis, compared to the prior-year quarter, while scrap jewelry sales, which are dollar denominated, increased 22%. Pawn fees increased 2%, or 5% on a constant currency basis, as compared to the prior-year quarter.
- Same-store retail sales decreased 3% on a
U.S. dollar basis and were flat on a constant currency basis, while same-store pawn fees decreased 4% on aU.S. dollar basis and were flat on a constant currency basis compared to the prior-year quarter. - Given the sharp decline in the value of LatAm currencies in March, pawn loans outstanding decreased 19% on a
U.S. dollar translated basis. On a constant currency basis, the decline was 3% versus the prior year. Same-store pawn loans at quarter end decreased 24% on aU.S. dollar translated basis and 8% on a constant currency basis compared to the prior year. - Cash collections of interest on pawn loans were strong, with an increase in the average effective annualized yield on pawn receivables of 860 basis points above the same quarter last year.
- Segment retail sales margins were 35% in the first quarter and, while down versus the prior year, were up significantly over the 32% margins in the prior sequential quarter.
Liquidity
- The Company’s strong liquidity position at
March 31, 2020 includes cash balances of$75 million and availability under its bank lines of credit of$167 million . - Cash flow from operations totaled
$237 million and adjusted free cash flow was$238 million for the trailing twelve month period endedMarch 31, 2020 . - In March, the Company added an additional
$600 million Mexican peso denominated revolving unsecured credit facility with a bank inMexico . The facility represents$26 million USD at theMarch 31, 2020 exchange rate. The Company fully drew on the facility in March in order to fund the 36-store acquisition inMexico and to increase available cash reserves inMexico . - The Company continues to maintain excellent liquidity ratios. The net debt ratio, which is calculated using a non-GAAP financial measure, for the trailing twelve months ended
March 31, 2020 was 1.9 to 1 compared to 1.8 to 1 a year ago.
Cash Dividend and Stock Repurchases
- The Board of Directors declared a
$0.27 per share second quarter cash dividend on common shares outstanding, which will be paid onMay 29, 2020 to stockholders of record as ofMay 15, 2020 . This represents an annual cash dividend of$1.08 per share. Any future dividends are subject to approval by the Company’s Board of Directors. - The Company completed the
$100 million share repurchase authorization initiated inMay 2019 by repurchasing 344,000 shares duringJanuary 2020 . During February andMarch 2020 , the Company repurchased 637,000 shares under the new$100 million share repurchase program initiated inJanuary 2020 . For the quarter in total, the Company repurchased 981,000 shares at an aggregate cost of$80 million . The Company has temporarily suspended the current share repurchase program; future share repurchases are subject to expected liquidity, debt covenant restrictions and other relevant factors including the impact of COVID-19. - Since the merger with Cash America in
September 2016 and through the first quarter of 2020, the Company has repurchased a total of 7,245,000 shares, or 36% of the shares issued as a result of the merger, resulting in a 15% reduction in the total number of shares outstanding immediately following the merger.
2020 Outlook
- Due to the uncertainty around COVID-19 and the associated volatility of the Mexican peso, the Company is withdrawing its previous earnings guidance given on
January 29, 2020 . As the Company evaluates its 2020 earning results, the following factors could or are expected to impact its comparisons to prior-year results:- Impact of COVID-19: The extent to which COVID-19 impacts the Company’s operations 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 impact on customer retail traffic and borrowing demand, among others. There can be no assurance that the Company will remain designated as an essential service or that government officials will not expand business closures, which would have a material adverse effect on the Company’s operations and financial condition. In addition, the operation of the Company’s stores is critically dependent on its employees who staff each location, and COVID-19 could impact the Company’s ability to safely staff its stores. The direct impacts of COVID-19 could also significantly change consumer behavior and shopping patterns in each country in which the Company operates, which could materially impact demand for the Company’s pawn loan and retail products, as could actions taken to limit the economic impact of COVID-19, such as the robust government stimulus programs enacted in the
U.S. - Currency volatility: Global economic uncertainty due to the COVID-19 pandemic has strengthened the relative value of the
U.S. dollar and negatively impacted developing market currencies, including the Mexican peso. The current peso to dollar exchange rate of approximately 24 to 1 compares to an average rate of 19.2 to 1 and 19.9 to 1 for the first quarter of 2019 and 2020, respectively. Each full Mexican peso change in the exchange rate to theU.S. dollar represents approximately$0.10 to$0.12 per share of annualized earnings impact to the Company. - Wind-down of unsecured consumer lending operations: The Company continues to strategically reduce its consumer lending operations. Earnings associated with consumer lending declined approximately
$0.06 per share during the first quarter compared to the prior-year quarter. - Income tax rate: The effective income tax rate is expected to range from 27.0% to 28.0% for 2020 compared to the actual rate of 26.7% in 2019, which represents approximately
$0.02 to$0.07 of earnings per share headwind. - New store openings: In connection with its previous, now withdrawn guidance, the Company had announced that it intended to open approximately 90 to 100 new locations in 2020. A total of 31 stores were opened in the first quarter and there is a strong pipeline of new stores under lease and in development. While we are currently on pace to meet the full year target, future store openings are subject to uncertainties related to the COVID-19 pandemic, including but not limited to, the ability to continue construction projects and obtain necessary licenses, permits, utility services, store equipment, supplies and staffing. As a reminder, the average investment in new Latin American stores is relatively small. At current exchange rates, the average capital expenditure to open a new store in
Latin America is approximately$150,000 USD per store.
- Impact of COVID-19: The extent to which COVID-19 impacts the Company’s operations 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 impact on customer retail traffic and borrowing demand, among others. There can be no assurance that the Company will remain designated as an essential service or that government officials will not expand business closures, which would have a material adverse effect on the Company’s operations and financial condition. In addition, the operation of the Company’s stores is critically dependent on its employees who staff each location, and COVID-19 could impact the Company’s ability to safely staff its stores. The direct impacts of COVID-19 could also significantly change consumer behavior and shopping patterns in each country in which the Company operates, which could materially impact demand for the Company’s pawn loan and retail products, as could actions taken to limit the economic impact of COVID-19, such as the robust government stimulus programs enacted in the
Additional Commentary and Analysis
To expand on some of the key areas of focus noted earlier in the release,
Customer and Employee Protection
“To keep our customers and employees safe,
“FirstCash remains ready and able to provide fast, short-term cash liquidity to our customers through pawn loans or buying merchandise from them. Pawns remain essential non-recourse loans that are easily accessible to unbanked and underbanked customers and don’t require credit approvals or proof of income. We are further supporting our customers at this time by voluntarily lengthening grace periods on pawn loans in certain markets and by providing additional accommodations to customers directly impacted by COVID-19. As always, we don’t charge late fees, customers are never obligated to repay pawn loans, we don’t pursue collection activities and we don’t report defaults to credit reporting agencies.
“At this time, we have not had to furlough or lay off any employees. We have implemented an emergency leave pay plan to ensure that employees continue to be paid when they are unable to work due to COVID-19 and we are offering flexible work arrangements for those with other medical risks and care-giver responsibilities. The Company is also covering all out of pocket medical expenses related to COVID-19 for employees who participate in its medical benefit plans.
Current Status of Store Operations
“Another important priority is to ensure that our stores remain open in order to continue delivering essential financial services in a manner that is safe for our customers and employees. It’s also important for us to remain open so that customers can redeem existing pawn loans and pick up their collateral.
“As of
First Quarter and Early April Business Trends
“During the first three months of the year, and in March in particular, both the
“In the
“Our
“Accordingly, the
“Offsetting much of the near term impact of lower pawn balances is the strength of the
“First quarter results in
“For April, we see trends in
Cash Flow and Liquidity
“Consolidated cash flow from operations for the trailing twelve months ended
“We currently have over
In Summary
“Pawnshops have historically served unbanked and underbanked consumers well in periods of economic uncertainty and credit contraction. Based on historical patterns, we expect strong future demand for pawn loans, given potential longer term weakness in the employment market and tightening of unsecured underwriting requirements by other small dollar lenders. The timing of the expected demand cycle will be subject, in the short run, to the offsetting impacts of government stimulus programs and consumer spending patterns.
“We continue to closely monitor the COVID-19 situation with a vigilant focus on the health and well being of our employees and customers. We have implemented significant safety protocols in our stores so they can remain open to offer essential services and we are diligently protecting our strong cash flows and liquidity positions,” concluded
About
Forward-Looking Information
This release contains forward-looking statements about the business, financial condition and prospects of
While the Company believes the expectations reflected in forward-looking statements are reasonable, there can be no assurances such expectations will prove to be accurate. Security holders are cautioned such forward-looking statements involve risks and uncertainties. Certain factors may cause results to differ materially from those anticipated by the forward-looking statements made in this release. Such factors may include, without limitation, the risks, uncertainties and regulatory developments (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 regulations that have been, and may in the future be, imposed in response to the pandemic, including regulations which could adversely affect the Company’s ability to continue to operate as an “essential business,” potential changes in consumer behavior and shopping patterns, which could impact demand for both the Company’s pawn loan and retail products, the potential effects of government stimulus packages, the deterioration in the economic conditions in
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share amounts)
Three Months Ended | ||||||||
2020 | 2019 | |||||||
Revenue: | ||||||||
Retail merchandise sales | $ | 296,629 | $ | 284,241 | ||||
Pawn loan fees | 142,115 | 141,192 | ||||||
Wholesale scrap jewelry sales | 26,371 | 31,710 | ||||||
Consumer loan and credit services fees | 1,375 | 10,461 | ||||||
Total revenue | 466,490 | 467,604 | ||||||
Cost of revenue: | ||||||||
Cost of retail merchandise sold | 184,695 | 179,349 | ||||||
Cost of wholesale scrap jewelry sold | 22,847 | 30,353 | ||||||
Consumer loan and credit services loss provision | (361 | ) | 2,103 | |||||
Total cost of revenue | 207,181 | 211,805 | ||||||
Net revenue | 259,309 | 255,799 | ||||||
Expenses and other income: | ||||||||
Store operating expenses | 153,500 | 146,852 | ||||||
Administrative expenses | 32,902 | 32,154 | ||||||
Depreciation and amortization | 10,674 | 9,874 | ||||||
Interest expense | 8,418 | 8,370 | ||||||
Interest income | (185 | ) | (204 | ) | ||||
Merger and other acquisition expenses | 68 | 149 | ||||||
Loss (gain) on foreign exchange | 2,685 | (239 | ) | |||||
Write-offs and impairments of certain lease intangibles and other assets | 5,530 | — | ||||||
Total expenses and other income | 213,592 | 196,956 | ||||||
Income before income taxes | 45,717 | 58,843 | ||||||
Provision for income taxes | 12,799 | 16,188 | ||||||
Net income | $ | 32,918 | $ | 42,655 | ||||
Earnings per share: | ||||||||
Basic | $ | 0.79 | $ | 0.98 | ||||
Diluted | $ | 0.78 | $ | 0.98 | ||||
Weighted-average shares outstanding: | ||||||||
Basic | 41,912 | 43,518 | ||||||
Diluted | 42,007 | 43,658 | ||||||
Dividends declared per common share | $ | 0.27 | $ | 0.25 |
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
2020 | 2019 | 2019 | ||||||||||
ASSETS | ||||||||||||
Cash and cash equivalents | $ | 75,464 | $ | 49,663 | $ | 46,527 | ||||||
Fees and service charges receivable | 40,121 | 43,993 | 46,686 | |||||||||
Pawn loans | 314,296 | 345,200 | 369,527 | |||||||||
Consumer loans, net | 410 | 11,017 | 751 | |||||||||
Inventories | 227,876 | 257,803 | 265,256 | |||||||||
Income taxes receivable | 4,279 | 1,096 | 875 | |||||||||
Prepaid expenses and other current assets | 10,326 | 9,329 | 11,367 | |||||||||
Total current assets | 672,772 | 718,101 | 740,989 | |||||||||
Property and equipment, net | 329,066 | 276,397 | 336,167 | |||||||||
Operating lease right of use asset | 280,840 | 298,167 | 304,549 | |||||||||
927,290 | 932,773 | 948,643 | ||||||||||
Intangible assets, net | 84,999 | 87,810 | 85,875 | |||||||||
Other assets | 9,188 | 10,927 | 11,506 | |||||||||
Deferred tax assets | 8,718 | 11,608 | 11,711 | |||||||||
Total assets | $ | 2,312,873 | $ | 2,335,783 | $ | 2,439,440 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Accounts payable and accrued liabilities | $ | 74,805 | $ | 77,363 | $ | 72,398 | ||||||
Customer deposits | 39,728 | 40,055 | 39,736 | |||||||||
Income taxes payable | 9,832 | 7,484 | 4,302 | |||||||||
Lease liability, current | 82,355 | 84,946 | 86,466 | |||||||||
Total current liabilities | 206,720 | 209,848 | 202,902 | |||||||||
Revolving unsecured credit facilities | 355,519 | 255,000 | 335,000 | |||||||||
Senior unsecured notes | 296,744 | 296,053 | 296,568 | |||||||||
Deferred tax liabilities | 64,728 | 57,496 | 61,431 | |||||||||
Lease liability, non-current | 181,787 | 188,970 | 193,504 | |||||||||
Total liabilities | 1,105,498 | 1,007,367 | 1,089,405 | |||||||||
Stockholders’ equity: | ||||||||||||
Common stock | 493 | 493 | 493 | |||||||||
Additional paid-in capital | 1,224,113 | 1,225,482 | 1,231,528 | |||||||||
Retained earnings | 749,126 | 638,574 | 727,476 | |||||||||
Accumulated other comprehensive loss | (180,472 | ) | (107,694 | ) | (96,969 | ) | ||||||
Common stock held in treasury, at cost | (585,885 | ) | (428,439 | ) | (512,493 | ) | ||||||
Total stockholders’ equity | 1,207,375 | 1,328,416 | 1,350,035 | |||||||||
Total liabilities and stockholders’ equity | $ | 2,312,873 | $ | 2,335,783 | $ | 2,439,440 |
OPERATING INFORMATION
(UNAUDITED)
The Company’s reportable segments are as follows:
U.S. operations - Includes all pawn and consumer loan operations in theU.S. Latin America operations - Includes all pawn operations inLatin America , which includes operations inMexico ,Guatemala ,El Salvador andColombia .
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.
The following table details earning assets, which consist of pawn loans, inventories and unsecured consumer loans, net as well as other earning asset metrics of the
As of |
Increase / | ||||||||||
2020 | 2019 | (Decrease) | |||||||||
Earning assets: | |||||||||||
Pawn loans | $ | 224,121 | $ | 233,649 | (4)% | ||||||
Inventories | 162,142 | 175,236 | (7)% | ||||||||
Consumer loans, net | 410 | 11,017 | (96)% | ||||||||
$ | 386,673 | $ | 419,902 | (8)% | |||||||
Average outstanding pawn loan amount (in ones) | $ | 182 | $ | 173 | 5% | ||||||
Composition of pawn collateral: | |||||||||||
General merchandise | 31 | % | 34 | % | |||||||
Jewelry | 69 | % | 66 | % | |||||||
100 | % | 100 | % | ||||||||
Composition of inventories: | |||||||||||
General merchandise | 42 | % | 42 | % | |||||||
Jewelry | 58 | % | 58 | % | |||||||
100 | % | 100 | % | ||||||||
Percentage of inventory aged greater than one year | 3 | % | 4 | % | |||||||
Inventory turns (trailing twelve months retail sales divided by average inventories) | 2.9 times | 2.7 times |
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
The following table presents segment pre-tax operating income of the
Three Months Ended | |||||||||||
Increase / | |||||||||||
2020 | 2019 | (Decrease) | |||||||||
Revenue: | |||||||||||
Retail merchandise sales | $ | 195,966 | $ | 186,815 | 5% | ||||||
Pawn loan fees | 97,857 | 97,876 | —% | ||||||||
Wholesale scrap jewelry sales | 15,478 | 22,785 | (32)% | ||||||||
Consumer loan and credit services fees | 1,375 | 10,461 | (87)% | ||||||||
Total revenue | 310,676 | 317,937 | (2)% | ||||||||
Cost of revenue: | |||||||||||
Cost of retail merchandise sold | 119,529 | 117,744 | 2% | ||||||||
Cost of wholesale scrap jewelry sold | 14,006 | 21,270 | (34)% | ||||||||
Consumer loan and credit services loss provision | (361 | ) | 2,103 | (117)% | |||||||
Total cost of revenue | 133,174 | 141,117 | (6)% | ||||||||
Net revenue | 177,502 | 176,820 | —% | ||||||||
Segment expenses: | |||||||||||
Store operating expenses | 107,706 | 103,884 | 4% | ||||||||
Depreciation and amortization | 5,401 | 5,045 | 7% | ||||||||
Total segment expenses | 113,107 | 108,929 | 4% | ||||||||
Segment pre-tax operating income | $ | 64,395 | $ | 67,891 | (5)% |
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
Latin America Operations Segment Results
The Company’s management reviews and analyzes certain operating results in
The following table provides exchange rates for the Mexican peso, Guatemalan quetzal and Colombian peso for the current and prior-year periods:
Favorable / | |||||||
2020 | 2019 | (Unfavorable) | |||||
Mexican peso / |
|||||||
End-of-period | 23.5 | 19.4 | (21)% | ||||
Three months ended | 19.9 | 19.2 | (4)% | ||||
Guatemalan quetzal / |
|||||||
End-of-period | 7.7 | 7.7 | —% | ||||
Three months ended | 7.7 | 7.7 | —% | ||||
Colombian peso / |
|||||||
End-of-period | 4,065 | 3,175 | (28)% | ||||
Three months ended | 3,533 | 3,137 | (13)% |
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
The following table details earning assets, which consist of pawn loans and inventories as well as other earning asset metrics of the
Constant Currency Basis | ||||||||||||||||||||
As of | ||||||||||||||||||||
As of |
2020 | Decrease | ||||||||||||||||||
2020 | 2019 | Decrease | (Non-GAAP) | (Non-GAAP) | ||||||||||||||||
Latin America Operations Segment | ||||||||||||||||||||
Earning assets: | ||||||||||||||||||||
Pawn loans | $ | 90,175 | $ | 111,551 | (19)% | $ | 108,337 | (3)% | ||||||||||||
Inventories | 65,734 | 82,567 | (20)% | 79,030 | (4)% | |||||||||||||||
$ | 155,909 | $ | 194,118 | (20)% | $ | 187,367 | (3)% | |||||||||||||
Average outstanding pawn loan amount (in ones) | $ | 56 | $ | 68 | (18)% | $ | 67 | (1)% | ||||||||||||
Composition of pawn collateral: | ||||||||||||||||||||
General merchandise | 70 | % | 74 | % | ||||||||||||||||
Jewelry | 30 | % | 26 | % | ||||||||||||||||
100 | % | 100 | % | |||||||||||||||||
Composition of inventories: | ||||||||||||||||||||
General merchandise | 62 | % | 70 | % | ||||||||||||||||
Jewelry | 38 | % | 30 | % | ||||||||||||||||
100 | % | 100 | % | |||||||||||||||||
Percentage of inventory aged greater than one year | 1 | % | 1 | % | ||||||||||||||||
Inventory turns (trailing twelve months retail sales divided by average inventories) | 3.9 times | 3.8 times |
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
The following table presents segment pre-tax operating income of the
Constant Currency Basis | |||||||||||||||||||||
Three Months | |||||||||||||||||||||
Ended | |||||||||||||||||||||
Three Months Ended | Increase / | ||||||||||||||||||||
Increase / | 2020 | (Decrease) | |||||||||||||||||||
2020 | 2019 | (Decrease) | (Non-GAAP) | (Non-GAAP) | |||||||||||||||||
Latin America Operations Segment | |||||||||||||||||||||
Revenue: | |||||||||||||||||||||
Retail merchandise sales | $ | 100,663 | $ | 97,426 | 3 | % | $ | 103,856 | 7 | % | |||||||||||
Pawn loan fees | 44,258 | 43,316 | 2 | % | 45,659 | 5 | % | ||||||||||||||
Wholesale scrap jewelry sales | 10,893 | 8,925 | 22 | % | 10,893 | 22 | % | ||||||||||||||
Total revenue | 155,814 | 149,667 | 4 | % | 160,408 | 7 | % | ||||||||||||||
Cost of revenue: | |||||||||||||||||||||
Cost of retail merchandise sold | 65,166 | 61,605 | 6 | % | 67,227 | 9 | % | ||||||||||||||
Cost of wholesale scrap jewelry sold | 8,841 | 9,083 | (3) | % | 9,133 | 1 | % | ||||||||||||||
Total cost of revenue | 74,007 | 70,688 | 5 | % | 76,360 | 8 | % | ||||||||||||||
Net revenue | 81,807 | 78,979 | 4 | % | 84,048 | 6 | % | ||||||||||||||
Segment expenses: | |||||||||||||||||||||
Store operating expenses | 45,794 | 42,968 | 7 | % | 47,164 | 10 | % | ||||||||||||||
Depreciation and amortization | 4,063 | 3,305 | 23 | % | 4,189 | 27 | % | ||||||||||||||
Total segment expenses | 49,857 | 46,273 | 8 | % | 51,353 | 11 | % | ||||||||||||||
Segment pre-tax operating income | $ | 31,950 | $ | 32,706 | (2) | % | $ | 32,695 | — | % |
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
Consolidated Results of Operations
The following table reconciles pre-tax operating income of the Company’s
Three Months Ended | |||||||
2020 | 2019 | ||||||
Consolidated Results of Operations | |||||||
Segment pre-tax operating income: | |||||||
$ | 64,395 | $ | 67,891 | ||||
31,950 | 32,706 | ||||||
Consolidated segment pre-tax operating income | 96,345 | 100,597 | |||||
Corporate expenses and other income: | |||||||
Administrative expenses | 32,902 | 32,154 | |||||
Depreciation and amortization | 1,210 | 1,524 | |||||
Interest expense | 8,418 | 8,370 | |||||
Interest income | (185 | ) | (204 | ) | |||
Merger and other acquisition expenses | 68 | 149 | |||||
Loss (gain) on foreign exchange | 2,685 | (239 | ) | ||||
Write-offs and impairments of certain lease intangibles and other assets | 5,530 | — | |||||
Total corporate expenses and other income | 50,628 | 41,754 | |||||
Income before income taxes | 45,717 | 58,843 | |||||
Provision for income taxes | 12,799 | 16,188 | |||||
Net income | $ | 32,918 | $ | 42,655 |
STORE COUNT ACTIVITY
The following table details store count activity:
Three Months Ended |
|||||||||
Operations Segment (1) | Operations Segment (2) | Total Locations | |||||||
Total locations, beginning of period | 1,056 | 1,623 | 2,679 | ||||||
New locations opened | — | 31 | 31 | ||||||
Locations acquired | — | 36 | 36 | ||||||
Locations closed or consolidated | (4 | ) | (2 | ) | (6 | ) | |||
Total locations, end of period | 1,052 | 1,688 | 2,740 |
(1) | At |
(2) | The table does not include 37 Mexico pawn locations operated by independent franchisees under franchising agreements with the Company. |
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES
(UNAUDITED)
The Company uses certain financial calculations such as adjusted net income, adjusted diluted earnings per share, EBITDA, adjusted EBITDA, free cash flow, adjusted free cash flow and constant currency results as factors in the measurement and evaluation of the Company’s operating performance and period-over-period growth. The Company derives these financial calculations on the basis of methodologies other than generally accepted accounting principles (“GAAP”), primarily by excluding from a comparable GAAP measure certain items the Company does not consider to be representative of its actual operating performance. These financial calculations are “non-GAAP financial measures” as defined in
While acquisitions are an important part of the Company’s overall strategy, the Company has adjusted the applicable financial calculations to exclude merger and other acquisition expenses to allow more accurate comparisons of the financial results to prior periods and because the Company does not consider these merger and other acquisition expenses to be related to the organic operations of the acquired businesses or its continuing operations and such expenses are generally not relevant to assessing or estimating the long-term performance of the acquired businesses. 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 and Adjusted Diluted Earnings Per Share
Management believes the presentation of adjusted net income and adjusted diluted earnings per share provides investors with greater transparency and provides a more complete understanding of the Company’s financial performance and prospects for the future by excluding items that management believes are non-operating in nature and not representative of the Company’s core operating performance of its continuing operations. In addition, management believes the adjustments shown below are useful to investors in order to allow them to compare the Company’s financial results for the current periods presented with the prior periods presented.
The following table provides a reconciliation between net income and diluted earnings per share calculated in accordance with GAAP to adjusted net income and adjusted diluted earnings per share, which are shown net of tax (in thousands, except per share amounts):
Three Months Ended |
|||||||||||||||
2020 | 2019 | ||||||||||||||
In Thousands | Per Share | In Thousands | Per Share | ||||||||||||
Net income and diluted earnings per share, as reported | $ | 32,918 | $ | 0.78 | $ | 42,655 | $ | 0.98 | |||||||
Adjustments, net of tax: | |||||||||||||||
Merger and other acquisition expenses | 50 | — | 104 | — | |||||||||||
Non-cash foreign currency loss (gain) related to lease liability | 3,069 | 0.07 | (238 | ) | (0.01 | ) | |||||||||
Non-cash write-off of certain merger related lease intangibles (1) | 2,795 | 0.07 | — | — | |||||||||||
Non-cash impairment of certain other assets (2) | 1,463 | 0.04 | — | — | |||||||||||
Adjusted net income and diluted earnings per share | $ | 40,295 | $ | 0.96 | $ | 42,521 | $ | 0.97 |
(1) | The Company recorded a |
(2) | The Company recorded a |
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES (CONTINUED)
(UNAUDITED)
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 |
|||||||||||||||||||||||
2020 | 2019 | ||||||||||||||||||||||
Pre-tax | Tax | After-tax | Pre-tax | Tax | After-tax | ||||||||||||||||||
Merger and other acquisition expenses | $ | 68 | $ | 18 | $ | 50 | $ | 149 | $ | 45 | $ | 104 | |||||||||||
Non-cash foreign currency loss (gain) related to lease liability | 4,384 | 1,315 | 3,069 | (340 | ) | (102 | ) | (238 | ) | ||||||||||||||
Non-cash write-off of certain merger related lease intangibles | 3,630 | 835 | 2,795 | — | — | — | |||||||||||||||||
Non-cash impairment of certain other assets | 1,900 | 437 | 1,463 | — | — | — | |||||||||||||||||
Total adjustments | $ | 9,982 | $ | 2,605 | $ | 7,377 | $ | (191 | ) | $ | (57 | ) | $ | (134 | ) |
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 | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Net income | $ | 32,918 | $ | 42,655 | $ | 154,881 | $ | 154,226 | |||||||
Income taxes | 12,799 | 16,188 | 56,604 | 54,147 | |||||||||||
Depreciation and amortization | 10,674 | 9,874 | 42,704 | 41,552 | |||||||||||
Interest expense | 8,418 | 8,370 | 34,083 | 31,345 | |||||||||||
Interest income | (185 | ) | (204 | ) | (1,036 | ) | (1,667 | ) | |||||||
EBITDA | 64,624 | 76,883 | 287,236 | 279,603 | |||||||||||
Adjustments: | |||||||||||||||
Merger and other acquisition expenses | 68 | 149 | 1,685 | 7,553 | |||||||||||
Non-cash foreign currency loss (gain) related to lease liability | 4,384 | (340 | ) | 3,791 | (340 | ) | |||||||||
Non-cash write-off of certain merger related lease intangibles | 3,630 | — | 3,630 | — | |||||||||||
Non-cash impairment of certain other assets | 1,900 | — | 1,900 | — | |||||||||||
— | — | 3,454 | 1,514 | ||||||||||||
Adjusted EBITDA | $ | 74,606 | $ | 76,692 | $ | 301,696 | $ | 288,330 | |||||||
Net debt ratio calculation: | |||||||||||||||
Total debt (outstanding principal) | $ | 655,519 | $ | 555,000 | |||||||||||
Less: cash and cash equivalents | (75,464 | ) | (49,663 | ) | |||||||||||
Net debt | $ | 580,055 | $ | 505,337 | |||||||||||
Adjusted EBITDA | $ | 301,696 | $ | 288,330 | |||||||||||
Net debt ratio (net debt divided by adjusted EBITDA) | 1.9:1 | 1.8:1 |
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.
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 | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Cash flow from operating activities | $ | 77,385 | $ | 71,697 | $ | 237,284 | $ | 223,810 | |||||||
Cash flow from investing activities: | |||||||||||||||
Loan receivables, net of cash repayments | 52,279 | 42,216 | 44,469 | (3,879 | ) | ||||||||||
Purchases of furniture, fixtures, equipment and improvements | (10,581 | ) | (9,658 | ) | (45,234 | ) | (39,947 | ) | |||||||
Free cash flow | 119,083 | 104,255 | 236,519 | 179,984 | |||||||||||
Merger and other acquisition expenses paid, net of tax benefit | 50 | 104 | 1,222 | 5,608 | |||||||||||
Adjusted free cash flow | $ | 119,133 | $ | 104,359 | $ | 237,741 | $ | 185,592 |
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES (CONTINUED)
(UNAUDITED)
Constant Currency Results
The Company’s reporting currency is the
The Company believes constant currency results provide investors with valuable supplemental information regarding the underlying performance of its business operations in
For further information, please contact:
Phone: (817) 886-6998
Email: gar@globalirgroup.com
Phone: (817) 258-2650
Email: investorrelations@firstcash.com
Website: investors.firstcash.com
Source: FirstCash, Inc.