FirstCash Reports Second Quarter Results; Announces Second Quarter Acquisitions and Openings Totaling 73 Stores; Declares Quarterly Dividend of $0.25 per Share; Tightens Guidance Towards Upper End of Range
Mr.
This release contains adjusted earnings measures, which exclude merger and other acquisition expenses, certain non-cash foreign currency exchange gains and losses and non-recurring consumer lending wind-down costs, 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 June 30, | ||||||||||||||||
As Reported (GAAP) | Adjusted (Non-GAAP) | |||||||||||||||
In thousands, except per share amounts | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenue | $ | 446,014 | $ | 419,972 | $ | 446,014 | $ | 419,972 | ||||||||
Net income | $ | 33,048 | $ | 30,171 | $ | 35,297 | $ | 31,683 | ||||||||
Diluted earnings per share | $ | 0.76 | $ | 0.67 | $ | 0.82 | $ | 0.70 | ||||||||
EBITDA (non-GAAP measure) | $ | 64,189 | $ | 59,012 | $ | 67,094 | $ | 61,125 | ||||||||
Weighted-average diluted shares | 43,256 | 45,043 | 43,256 | 45,043 |
Six Months Ended June 30, | ||||||||||||||||
As Reported (GAAP) | Adjusted (Non-GAAP) | |||||||||||||||
In thousands, except per share amounts | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenue | $ | 913,618 | $ | 869,772 | $ | 913,618 | $ | 869,772 | ||||||||
Net income | $ | 75,703 | $ | 71,806 | $ | 77,818 | $ | 73,502 | ||||||||
Diluted earnings per share | $ | 1.74 | $ | 1.57 | $ | 1.79 | $ | 1.61 | ||||||||
EBITDA (non-GAAP measure) | $ | 141,072 | $ | 131,291 | $ | 143,786 | $ | 133,643 | ||||||||
Weighted-average diluted shares | 43,456 | 45,757 | 43,456 | 45,757 |
Earnings Highlights
- Diluted earnings per share increased 13% on a GAAP basis and 17% on a non-GAAP adjusted basis in the second quarter of 2019 compared to the prior-year quarter. For the six month year-to-date period, diluted earnings per share increased 11% on a GAAP and adjusted non-GAAP basis, respectively.
- Further contraction in non-core consumer lending operations and wind-down costs in
Ohio negatively impacted earnings per share by approximately$0.10 on a GAAP basis for the second quarter and$0.05 on an adjusted non-GAAP basis, compared to the same prior-year period.
- Further contraction in non-core consumer lending operations and wind-down costs in
- Net income, on a GAAP basis, increased 10% for the second quarter of 2019 compared to the second quarter of 2018. On a non-GAAP adjusted basis, net income increased 11% for the second quarter compared to the prior-year period.
- Segment earnings in
Latin America increased 23% on a U.S. dollar basis and 21% on a constant currency basis for the second quarter compared to the prior-year quarter. While U.S. segment earnings on a GAAP basis declined 4% for the second quarter, excluding the contribution from non-core consumer lending operations and wind-down costs inOhio , U.S. segment earnings on a non-GAAP basis increased 5% for the quarter compared to the prior-year quarter. - EBITDA and adjusted EBITDA increased 9% and 10%, respectively, in the second quarter of 2019 compared to the prior-year quarter.
- For the trailing twelve months ended
June 30, 2019 , consolidated revenues totaled$1.8 billion , net income was$157 million and adjusted EBITDA totaled$294 million . - Cash flow from operating activities for the trailing twelve months ended
June 30, 2019 totaled$229 million , while adjusted free cash flow, a non-GAAP financial measure, was$189 million for the twelve months endedJune 30, 2019 .
Acquisitions and Store Opening Highlights
- The Company acquired a total of 50 full-service pawn stores in the second quarter of 2019 as it completed nine separate transactions for a total purchase price of
$13 million . The acquisitions included 40 franchised Prendamex locations, primarily in centralMexico , and 10 large format locations inTexas . Year-to-date, a total of 178 stores have been acquired, including 158 stores inLatin America and 20 stores in the U.S. - A total of 23 de novo locations were opened during the second quarter in
Latin America , including 18 stores inMexico , three stores inColombia and two stores inGuatemala . Year-to-date, a total of 59 new stores have been opened, which compares to 27 new stores opened at the same point a year ago. - Over the trailing twelve-month period ended
June 30, 2019 , the Company has added a total of 449 locations and has increased the number of pawn stores by 17%. Over 93% of the stores added in the last twelve months are located inLatin America where the number of pawn stores has increased by 35% over the same twelve-month period. - As of
June 30, 2019 , the Company operated 2,646 stores, with 1,592 stores inLatin America , representing 60% of the total store base, and 1,054 stores in the U.S. The Latin American locations include 1,519 stores inMexico , 52 stores inGuatemala , 13 stores inEl Salvador and eight stores inColombia , while the U.S. stores are located in 24 states and theDistrict of Columbia .
Note: Certain growth rates in “Latin America Operations” below are calculated on a constant currency basis, a non-GAAP financial measure defined at the end of this release and reconciled to the most comparable GAAP measures in the financial statements in this release. The average Mexican peso to U.S. dollar exchange rate for the three-month period ended June 30, 2019 was
Latin America Operations
- LatAm segment pre-tax operating income for the quarter increased 23%, or 21% on a constant currency basis, compared to the second quarter of 2018. The year-to-date segment contribution increased 21% on both a U.S. dollar and constant currency basis.
- Driven by store additions and increasing same-store revenues, total
Latin America revenues for the second quarter of 2019 were a record$166 million , an increase of 27% on a U.S. dollar basis and 26% on a constant currency basis, as compared to the second quarter of 2018. - The strong revenue growth included a 33% increase in pawn fees and a 23% increase in retail sales compared to the prior-year quarter. On a constant currency basis, pawn fees and retail merchandise sales increased 32% and 22%, respectively, as compared to the prior-year quarter.
- Same-store core pawn revenues increased 7% on a U.S. dollar translated basis, consisting of an 8% increase in same-store pawn fees and 6% increase in same-store retail sales compared to the prior-year quarter. On a constant currency basis, same-store core pawn revenues increased 5%, composed of a 7% increase in same-store pawn fees and a 5% increase in same-store retail sales compared to the prior-year quarter.
- Pawn loans outstanding increased 40% on a U.S. dollar translated basis and 35% on a constant currency basis versus the prior year and totaled a record
$113 million atJune 30, 2019 . Same-store pawn loans at quarter end increased 14% on a U.S. dollar translated basis, while they increased 10% on a constant currency basis, compared to the same prior-year quarter. As a comparison, same-store pawn loans a year ago were up only 2% on a constant currency basis. - Segment retail margins were 35% in the second quarter, which was consistent with the prior-year quarter. Year-to-date retail margins were 36% compared to 35% in the comparative prior-year period.
- Inventories at
June 30, 2019 were$94 million compared to$65 million a year ago. The increase was driven by the net addition of 410 pawn stores over the past twelve months and continued maturation of existing stores. As ofJune 30, 2019 , inventories aged greater than one year remained consistent and low at 1%. - Inventory turns in
Latin America for the trailing twelve months endedJune 30, 2019 remained strong at 3.8 times. - Total store operating expenses increased 32% for the quarter, or 31% on a constant currency basis, driven primarily by the net addition of 410 pawn stores over the past twelve months. Same-store operating expenses increased 7% in the second quarter of 2019, or 6% on a constant currency basis, and were impacted by slightly higher operating costs in some regions related to acquisition integration and minor inflationary pressures in
Latin America . The Company believes that there are unrealized operating expense synergy opportunities related to the extensive acquisition activity over the past 18 months.
U.S. Operations
- U.S. segment pre-tax operating income for the quarter decreased 4% compared to the second quarter of 2018 and was impacted by the accelerated contraction in non-core consumer lending operations in 2019 (see the “Consumer Lending Contraction and Ohio Wind-Down Costs” section below). Excluding the contribution from non-core consumer lending and
Ohio wind-down costs, the adjusted segment pre-tax operating income (a non-GAAP measure) for the quarter increased 5% compared to the prior-year quarter, primarily due to improved retail margins, pawn loan yields and operating expense reductions. Year-to-date, the segment contribution increased 1% and, on an adjusted non-GAAP basis, increased 7%. - Total revenues for the second quarter were
$280 million , a decrease of 3% compared to the second quarter of 2018, and included the expected impact of a 60% decline, or$8 million , in non-core consumer loan and credit services fees and a 29% decline, or$6 million , in non-core scrap jewelry sales. Core revenues from pawn fees and retail sales increased by 2%. - Net revenue (or gross profit) for the second quarter of 2019 decreased 2%, reflecting the declines in non-core revenues. More importantly, net revenue from core pawn operations increased 4% compared to the prior-year quarter as a result of the continued improvements in retail sales margins and pawn yields as highlighted below.
- Retail sales margin increased to 38% for the quarter compared to 37% in the prior-year quarter. Despite continued growth of online retailing in general, the Company’s retail sales, which are all store-generated, increased 1% compared to the second quarter of 2018 and same-store retail sales were equal to the prior-year quarter.
- Pawn fees increased 3% and same-store pawn fee revenues increased 2% in the second quarter compared to the prior-year quarter as pawn yields improved by 4% quarter-over-quarter.
- Pawn loans outstanding at
June 30, 2019 totaled$262 million , a decrease of 2% in total and 3% on a same-store basis. While same-store pawn balances slightly improved sequentially, the overall decrease was due primarily to the continued focus on increasing the volume of direct purchases of goods from customers in the legacy Cash America stores not interested in a pawn loan, which resulted in a 23% increase in the percentage of such direct purchase transactions for the quarter as compared to the prior-year quarter. Additionally, purchased inventory typically turns faster and has higher margins than forfeited items. - Inventories at
June 30, 2019 declined$12 million , or 6%, to$173 million compared to$185 million a year ago, primarily from strategic reductions in overall inventory levels. As ofJune 30, 2019 , U.S. inventories aged greater than one year were 4%. - Inventory turns in the U.S. increased for the seventh sequential quarter and were 2.8 times for the trailing twelve month period ended
June 30, 2019 compared to 2.6 times for the twelve month period endedJune 30, 2018 . Inventory turns in the U.S. are slower than inLatin America due to the larger jewelry component in the U.S. compared to a greater general merchandise inventory component inLatin America . - Total store operating expenses for the quarter decreased 1% in total and on a same-store basis compared to the prior-year quarter, primarily due to continued efforts to realize cost savings from real estate, technology and labor expenses.
Consumer Lending Contraction and Ohio Wind-Down Costs
- As previously disclosed, the Company stopped offering unsecured consumer lending products in all of its
Ohio locations, effectiveApril 26, 2019 , in response to certain regulatory developments inOhio impacting such products. As a result, 52 of the Ohio Cashland locations, whose revenue was derived primarily from unsecured consumer lending products, were closed during the second quarter. The remaining 67 locations inOhio are expected to have sufficient pawn revenues to continue operating as full-service pawnshops. - As a result of the wind-down of the Company’s
Ohio consumer lending business, the Company incurred non-recurring exit costs of approximately$2 million , net of tax, for the quarter endedJune 30, 2019 , which have been excluded from adjusted net income and adjusted earnings per share. These charges include increased loan loss provisions, employee severance costs, lease termination costs and other exit costs. - In addition to the discontinuance of consumer lending activities in
Ohio , the Company closed two other stand-alone consumer loan stores and ceased offering unsecured consumer loans and/or credit services products in 78 of its pawnshops located inTexas ,Louisiana andKentucky during the first half of 2019. The Company currently offers unsecured consumer loans and/or credit services in only 81 remaining locations, of which 75 are full-service pawnshops that offer consumer loans/credit services as minor ancillary products. The Company expects to further reduce locations offering such products in the future. - Driven by the
Ohio store closings and the Company’s continued de-emphasis on consumer lending operations, U.S. consumer lending revenues declined$8 million in the second quarter, or 60%, and$13 million for the year-to-date period, or 44%, compared to the respective prior year periods. The Company expects revenues from unsecured consumer lending products in the second half of 2019 to be approximately$4 million , which accounts for less than 0.5% of total second half revenues.
Cash Dividend and Stock Repurchases
- The Board of Directors declared a
$0.25 per share third quarter cash dividend on common shares outstanding, which will be paid on August 30, 2019 to stockholders of record as of August 15, 2019. Any future dividends are subject to approval by the Company’s Board of Directors. - During the second quarter, the Company repurchased 328,000 shares at an aggregate cost of
$30 million and an average per share cost of$92.24 . Year-to-date, the Company has repurchased 671,000 shares for an aggregate price of$59 million at an average price of$88.62 per share, leaving$83 million available for future repurchases under the current share repurchase programs. Future share repurchases are subject to expected liquidity, debt covenant restrictions and other relevant factors. - Since the merger with Cash America in
September 2016 and through the second quarter of 2019, the Company has repurchased a total of 5,630,000 shares, or 28% of the shares issued as a result of the merger, at an average repurchase price of$75.84 per share, resulting in a 12% reduction in the total number of shares outstanding immediately following the merger.
Liquidity and Return Metrics
- The Company generated
$229 million of cash flow from operations and$189 million in adjusted free cash flow during the twelve months endedJune 30, 2019 compared to$238 million of cash flow from operations and$254 million of adjusted free cash flow during the same prior-year period. Current period free cash flow includes the impact of accelerated loan growth inLatin America and store expansion activities, while the prior-year comparative amount included a$21 million cash inflow from a non-recurring tax refund related to the merger and larger than normal cash inflows related to the liquidation of excess inventories in the legacy Cash America stores. - The Company continues to maintain excellent liquidity ratios while funding share repurchases totaling
$117 million , dividends of$42 million and acquisitions of$118 million during the trailing twelve months endedJune 30, 2019 . The net debt ratio, which is calculated using a non-GAAP financial measure, for the trailing twelve months endedJune 30, 2019 was 1.9 to 1. - Return on assets for the trailing twelve months ended
June 30, 2019 was 7% while return on tangible assets was 15% for the same period, which compared to 8% and 15% returns, respectively, for the comparable prior-year period. The return on assets for the trailing twelve months endedJune 30, 2019 was negatively impacted by the first-time inclusion of the operating lease right of use asset, arising from the implementation of the Financial Accounting Standards Board’s new lease accounting standard, which was not included on the balance sheet prior toJanuary 1, 2019 . Return on tangible assets is a non-GAAP financial measure and is calculated by excluding goodwill, intangible assets, net and the operating lease right of use asset from the respective return calculations. - Return on equity was 12% for the trailing twelve months ended
June 30, 2019 , while return on tangible equity was 49%. This compares to returns of 12% and 34%, respectively, for the comparable prior-year period. Return on tangible equity is a non-GAAP financial measure and is calculated by excluding goodwill and intangible assets, net from the respective return calculations.
2019 Outlook
- As expected, first half results saw strong growth in the Company’s core pawn business, partially offset by further contraction in the non-core consumer lending business. While consumer lending, and
Ohio in particular, will further drag on earnings in the second half of 2019, the Company is raising the lower end of its full-year 2019 guidance for adjusted diluted earnings per share by$0.05 , based on year-to-date strength in core pawn earnings. - Adjusted diluted earnings per share are now expected to be in the range of
$3.85 to $4.00 . The tightened full-year 2019 guidance range represents an increase of 9% to 13% over the prior-year adjusted earnings per share of$3.53 . As described below, the guidance for 2019 includes the impact of an expected net reduction in U.S. segment earnings from unsecured consumer lending operations and wind-down costs inOhio of approximately$0.25 to $0.30 per share, a forecast foreign currency drag of approximately$0.03 to $0.05 per share and a$0.05 to $0.08 per share impact from a higher blended effective income tax rate. Excluding these impacts at their midpoint estimates, estimated earnings per share in 2019 would increase in a range of 20% to 24% compared to 2018. - Due primarily to the impact of the recent decision to discontinue
Ohio consumer lending as described above, the Company is providing quarterly guidance for third quarter 2019. Adjusted diluted earnings per share is expected to be in the range of$0.80 to $0.85 , reflecting an expected decrease in third quarter consumer lending revenues of approximately 85% compared to the prior-year quarter. The Company expects the incremental decline in consumer lending revenues to be substantially offset by additional growth in core pawn revenues, including fourth quarterLatin America retail sales in particular. - The earnings guidance for full-year and third quarter 2019 is presented on a non-GAAP basis, as it does not include merger and other acquisition expenses, certain non-cash foreign currency exchange gains and losses and non-recurring consumer lending wind-down costs. Estimated GAAP basis full-year 2019 diluted earnings per share represents an increase of 11% to 16% over the prior-year GAAP basis diluted earnings per share of
$3.41 . - The estimate of expected earnings per share for 2019 includes the following assumptions:
- An anticipated earnings drag of approximately
$0.25 to $0.30 per share during 2019 primarily due to the wind-down of unsecured consumer loan products inOhio and further strategic reductions in consumer lending operations outside ofOhio . The Company is currently modeling total consumer lending revenues for 2019 to be approximately$20 million , which represents an estimated 65% reduction compared to 2018 consumer lending revenues. - Given continued volatility, the Company continues to use an estimated average foreign currency exchange rate of 20.0 Mexican pesos / U.S. dollar for the remainder of 2019 compared to the average exchange rate of 19.2 Mexican pesos / U.S. dollar for 2018. The projected change in the exchange rate represents an earnings headwind of approximately
$0.03 to $0.05 per share for 2019 when compared to 2018 results. Each full Mexican peso change in the exchange rate to the U.S. dollar represents approximately$0.10 to $0.12 per share of annualized earnings impact. - The effective income tax rate is expected to range from 27.0% to 27.5% for 2019. This represents an increase over the 2018 effective rate of 26.1% (adjusted for the
$1.5 million non-recurring tax benefit recognized in 2018 as a result of the Tax Cuts and Jobs Act) due in part to the increasing share of earnings fromLatin America , where corporate tax rates are higher, and an increase in certain non-deductible expenses resulting from the Tax Cuts and Jobs Act, which combined, represents an additional earnings headwind of approximately$0.05 to $0.08 per share as compared to 2018 results. - Plans to open a total of approximately 80 to 85 new full-service pawn stores in 2019 in
Latin America , which includes targeted openings of 57 to 62 stores inMexico , 15 stores inGuatemala and eight stores inColombia . The increased number of projected store openings in 2019 combined with the first half front-loading of new store openings will cause an expected additional drag to earnings of approximately$0.02 to $0.03 per share compared to last year. The Company expects to complete additional acquisitions in 2019, primarily inLatin America , which are not reflected in the guidance.
- An anticipated earnings drag of approximately
Additional Commentary and Analysis
Mr. Wessel further commented, “FirstCash had another record quarter, posting record revenues and generating diluted earnings per share growth of 13% on a GAAP basis and 17% on an adjusted non-GAAP basis. The earnings growth was driven by exceptional revenue growth in
“In Latin America, second quarter revenues grew by 27% (26% on a constant currency basis), which represents the highest quarterly growth rate in over seven years. Importantly, pawn receivables at
“The Company’s new store openings in
“Acquisition activity remains strong in
“Turning to the U.S., our results were also extremely encouraging as we posted positive growth in core revenues and gross profit, including a 2% increase in same-store pawn fees and 5% increase in retail gross profit. We continue to realize further store expense savings, primarily from optimizing labor costs and reducing technology expenses in the legacy Cash America stores, where we continue to believe there are still additional margin expansion opportunities.
“As previously announced, and in conjunction with the change in law in
“The Company continues to maintain a strong balance sheet and cash flows. The majority of our store and asset growth continues to be funded primarily with operating cash flows and net leverage remains low at less than two times adjusted EBITDA. We continue to prioritize acquisitions and store investment opportunities while still repurchasing stock at what we believe are attractive prices. Year-to-date, we have committed over
“We are confident in our business model and growth opportunities both in
About
Forward-Looking Information
This release contains forward-looking statements about the business, financial condition and prospects of
While the Company believes the expectations reflected in forward-looking statements are reasonable, there can be no assurances such expectations will prove to be accurate. Security holders are cautioned such forward-looking statements involve risks and uncertainties. Certain factors may cause results to differ materially from those anticipated by the forward-looking statements made in this release. Such factors may include, without limitation, the risks, uncertainties and regulatory developments discussed and described in the Company’s 2018 annual report on Form 10-K filed with the
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share amounts)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenue: | ||||||||||||||||
Retail merchandise sales | $ | 278,754 | $ | 255,742 | $ | 562,995 | $ | 525,583 | ||||||||
Pawn loan fees | 136,923 | 123,012 | 278,115 | 252,805 | ||||||||||||
Wholesale scrap jewelry sales | 24,981 | 27,475 | 56,691 | 62,200 | ||||||||||||
Consumer loan and credit services fees | 5,356 | 13,743 | 15,817 | 29,184 | ||||||||||||
Total revenue | 446,014 | 419,972 | 913,618 | 869,772 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Cost of retail merchandise sold | 176,272 | 163,574 | 355,621 | 338,071 | ||||||||||||
Cost of wholesale scrap jewelry sold | 23,934 | 24,076 | 54,287 | 56,571 | ||||||||||||
Consumer loan and credit services loss provision | 1,503 | 3,894 | 3,606 | 7,621 | ||||||||||||
Total cost of revenue | 201,709 | 191,544 | 413,514 | 402,263 | ||||||||||||
Net revenue | 244,305 | 228,428 | 500,104 | 467,509 | ||||||||||||
Expenses and other income: | ||||||||||||||||
Store operating expenses (1) | 148,347 | 138,043 | 295,199 | 276,391 | ||||||||||||
Administrative expenses | 31,696 | 29,720 | 63,850 | 57,722 | ||||||||||||
Depreciation and amortization | 10,510 | 10,952 | 20,384 | 22,235 | ||||||||||||
Interest expense | 8,548 | 6,529 | 16,918 | 12,727 | ||||||||||||
Interest income | (155 | ) | (740 | ) | (359 | ) | (1,721 | ) | ||||||||
Merger and other acquisition expenses | 556 | 2,113 | 705 | 2,352 | ||||||||||||
Gain on foreign exchange (1) | (483 | ) | (460 | ) | (722 | ) | (247 | ) | ||||||||
Total expenses and other income | 199,019 | 186,157 | 395,975 | 369,459 | ||||||||||||
Income before income taxes | 45,286 | 42,271 | 104,129 | 98,050 | ||||||||||||
Provision for income taxes | 12,238 | 12,100 | 28,426 | 26,244 | ||||||||||||
Net income | $ | 33,048 | $ | 30,171 | $ | 75,703 | $ | 71,806 | ||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | 0.77 | $ | 0.67 | $ | 1.75 | $ | 1.57 | ||||||||
Diluted | $ | 0.76 | $ | 0.67 | $ | 1.74 | $ | 1.57 | ||||||||
Weighted-average shares outstanding: | ||||||||||||||||
Basic | 43,081 | 44,942 | 43,298 | 45,680 | ||||||||||||
Diluted | 43,256 | 45,043 | 43,456 | 45,757 | ||||||||||||
Dividends declared per common share | $ | 0.25 | $ | 0.22 | $ | 0.50 | $ | 0.44 |
(1) The gain on foreign exchange of
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
June 30, | December 31, | |||||||||||
2019 | 2018 | 2018 | ||||||||||
ASSETS | ||||||||||||
Cash and cash equivalents | $ | 67,012 | $ | 83,127 | $ | 71,793 | ||||||
Fees and service charges receivable | 46,991 | 42,920 | 45,430 | |||||||||
Pawn loans | 375,167 | 348,295 | 362,941 | |||||||||
Consumer loans, net | 3,850 | 17,256 | 15,902 | |||||||||
Inventories | 266,440 | 249,689 | 275,130 | |||||||||
Income taxes receivable | 1,041 | 486 | 1,379 | |||||||||
Prepaid expenses and other current assets | 9,590 | 19,913 | 17,317 | |||||||||
Total current assets | 770,091 | 761,686 | 789,892 | |||||||||
Property and equipment, net | 290,725 | 236,434 | 251,645 | |||||||||
Operating lease right of use asset (1) | 293,357 | — | — | |||||||||
Goodwill | 940,653 | 857,070 | 917,419 | |||||||||
Intangible assets, net | 87,200 | 89,962 | 88,140 | |||||||||
Other assets | 10,890 | 52,193 | 49,238 | |||||||||
Deferred tax assets | 11,570 | 12,295 | 11,640 | |||||||||
Total assets | $ | 2,404,486 | $ | 2,009,640 | $ | 2,107,974 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Accounts payable and accrued liabilities | $ | 71,410 | $ | 79,961 | $ | 96,928 | ||||||
Customer deposits | 40,665 | 34,300 | 35,368 | |||||||||
Income taxes payable | 317 | 3,207 | 749 | |||||||||
Lease liability, current (1) | 84,513 | — | — | |||||||||
Total current liabilities | 196,905 | 117,468 | 133,045 | |||||||||
Revolving unsecured credit facility | 340,000 | 221,500 | 295,000 | |||||||||
Senior unsecured notes | 296,222 | 295,560 | 295,887 | |||||||||
Deferred tax liabilities | 60,069 | 51,011 | 54,854 | |||||||||
Lease liability, non-current (1) | 184,348 | — | — | |||||||||
Other liabilities | — | 14,057 | 11,084 | |||||||||
Total liabilities | 1,077,544 | 699,596 | 789,870 | |||||||||
Stockholders’ equity: | ||||||||||||
Preferred stock | — | — | — | |||||||||
Common stock | 493 | 493 | 493 | |||||||||
Additional paid-in capital | 1,227,478 | 1,221,572 | 1,224,608 | |||||||||
Retained earnings | 660,845 | 546,097 | 606,810 | |||||||||
Accumulated other comprehensive loss | (103,932 | ) | (114,668 | ) | (113,117 | ) | ||||||
Common stock held in treasury, at cost | (457,942 | ) | (343,450 | ) | (400,690 | ) | ||||||
Total stockholders’ equity | 1,326,942 | 1,310,044 | 1,318,104 | |||||||||
Total liabilities and stockholders’ equity | $ | 2,404,486 | $ | 2,009,640 | $ | 2,107,974 |
(1) The Company adopted ASC 842 prospectively as of
OPERATING INFORMATION
(UNAUDITED)
The Company’s reportable segments are as follows:
Latin America operations - Includes all pawn and consumer loan operations inLatin America , which includes operations inMexico ,Guatemala ,El Salvador andColombia .- U.S. operations - Includes all pawn and consumer loan operations in the U.S.
The Company provides revenues, cost of revenues, store operating expenses, pre-tax operating income and earning assets by segment. Store operating expenses include salary and benefit expense of store-level employees, occupancy costs, bank charges, security, insurance, utilities, supplies and other costs incurred by the stores.
Latin America Operations Segment Results
The Company’s management reviews and analyzes certain operating results in
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
The following table details earning assets, which consist of pawn loans, inventories and consumer loans, net as well as other earning asset metrics of the
Constant Currency Basis | |||||||||||||||||||||
As of | |||||||||||||||||||||
June 30, | Increase / | ||||||||||||||||||||
As of June 30, | Increase / | 2019 | (Decrease) | ||||||||||||||||||
2019 | 2018 | (Decrease) | (Non-GAAP) | (Non-GAAP) | |||||||||||||||||
Latin America Operations Segment | |||||||||||||||||||||
Earning assets: | |||||||||||||||||||||
Pawn loans | $ | 112,811 | $ | 80,709 | 40 | % | $ | 109,152 | 35 | % | |||||||||||
Inventories | 93,565 | 65,158 | 44 | % | 90,507 | 39 | % | ||||||||||||||
Consumer loans, net (1) | — | 147 | (100 | )% | — | (100 | )% | ||||||||||||||
$ | 206,376 | $ | 146,014 | 41 | % | $ | 199,659 | 37 | % | ||||||||||||
Average outstanding pawn loan amount (in ones) | $ | 69 | $ | 62 | 11 | % | $ | 66 | 6 | % | |||||||||||
Composition of pawn collateral: | |||||||||||||||||||||
General merchandise | 73 | % | 79 | % | |||||||||||||||||
Jewelry | 27 | % | 21 | % | |||||||||||||||||
100 | % | 100 | % | ||||||||||||||||||
Composition of inventories: | |||||||||||||||||||||
General merchandise | 74 | % | 75 | % | |||||||||||||||||
Jewelry | 26 | % | 25 | % | |||||||||||||||||
100 | % | 100 | % | ||||||||||||||||||
Percentage of inventory aged greater than one year | 1 | % | 1 | % |
(1) The Company discontinued offering an unsecured consumer loan product in
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
The following table presents segment pre-tax operating income of the
Constant Currency Basis | ||||||||||||||||||||||
Three Months | ||||||||||||||||||||||
Ended | ||||||||||||||||||||||
Three Months Ended | June 30, | Increase / | ||||||||||||||||||||
June 30, | Increase / | 2019 | (Decrease) | |||||||||||||||||||
2019 | 2018 | (Decrease) | (Non-GAAP) | (Non-GAAP) | ||||||||||||||||||
Latin America Operations Segment | ||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||
Retail merchandise sales | $ | 109,836 | $ | 89,301 | 23 | % | $ | 108,622 | 22 | % | ||||||||||||
Pawn loan fees | 46,797 | 35,187 | 33 | % | 46,277 | 32 | % | |||||||||||||||
Wholesale scrap jewelry sales | 9,193 | 5,342 | 72 | % | 9,193 | 72 | % | |||||||||||||||
Consumer loan fees | — | 342 | (100 | )% | — | (100 | )% | |||||||||||||||
Total revenue | 165,826 | 130,172 | 27 | % | 164,092 | 26 | % | |||||||||||||||
Cost of revenue: | ||||||||||||||||||||||
Cost of retail merchandise sold | 71,610 | 58,302 | 23 | % | 70,828 | 21 | % | |||||||||||||||
Cost of wholesale scrap jewelry sold | 9,081 | 5,121 | 77 | % | 8,984 | 75 | % | |||||||||||||||
Consumer loan loss provision | — | 84 | (100 | )% | — | (100 | )% | |||||||||||||||
Total cost of revenue | 80,691 | 63,507 | 27 | % | 79,812 | 26 | % | |||||||||||||||
Net revenue | 85,135 | 66,665 | 28 | % | 84,280 | 26 | % | |||||||||||||||
Segment expenses: | ||||||||||||||||||||||
Store operating expenses (1) | 45,338 | 34,418 | 32 | % | 44,927 | 31 | % | |||||||||||||||
Depreciation and amortization | 3,579 | 2,740 | 31 | % | 3,550 | 30 | % | |||||||||||||||
Total segment expenses | 48,917 | 37,158 | 32 | % | 48,477 | 30 | % | |||||||||||||||
Segment pre-tax operating income | $ | 36,218 | $ | 29,507 | 23 | % | $ | 35,803 | 21 | % |
(1) The gain on foreign exchange for the
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
The following table presents segment pre-tax operating income of the
Constant Currency Basis | ||||||||||||||||||||||
Six Months | ||||||||||||||||||||||
Ended | ||||||||||||||||||||||
Six Months Ended | June 30, | Increase / | ||||||||||||||||||||
June 30, | Increase / | 2019 | (Decrease) | |||||||||||||||||||
2019 | 2018 | (Decrease) | (Non-GAAP) | (Non-GAAP) | ||||||||||||||||||
Latin America Operations Segment | ||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||
Retail merchandise sales | $ | 207,262 | $ | 173,090 | 20 | % | $ | 208,658 | 21 | % | ||||||||||||
Pawn loan fees | 90,113 | 68,738 | 31 | % | 90,713 | 32 | % | |||||||||||||||
Wholesale scrap jewelry sales | 18,118 | 10,610 | 71 | % | 18,118 | 71 | % | |||||||||||||||
Consumer loan fees | — | 744 | (100 | )% | — | (100 | )% | |||||||||||||||
Total revenue | 315,493 | 253,182 | 25 | % | 317,489 | 25 | % | |||||||||||||||
Cost of revenue: | ||||||||||||||||||||||
Cost of retail merchandise sold | 133,215 | 112,183 | 19 | % | 134,123 | 20 | % | |||||||||||||||
Cost of wholesale scrap jewelry sold | 18,164 | 9,963 | 82 | % | 18,280 | 83 | % | |||||||||||||||
Consumer loan loss provision | — | 167 | (100 | )% | — | (100 | )% | |||||||||||||||
Total cost of revenue | 151,379 | 122,313 | 24 | % | 152,403 | 25 | % | |||||||||||||||
Net revenue | 164,114 | 130,869 | 25 | % | 165,086 | 26 | % | |||||||||||||||
Segment expenses: | ||||||||||||||||||||||
Store operating expenses (1) | 88,306 | 68,383 | 29 | % | 88,948 | 30 | % | |||||||||||||||
Depreciation and amortization | 6,884 | 5,449 | 26 | % | 6,938 | 27 | % | |||||||||||||||
Total segment expenses | 95,190 | 73,832 | 29 | % | 95,886 | 30 | % | |||||||||||||||
Segment pre-tax operating income | $ | 68,924 | $ | 57,037 | 21 | % | $ | 69,200 | 21 | % |
(1) The gain on foreign exchange for the
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
U.S. Operations Segment Results
The following table details earning assets, which consist of pawn loans, inventories and consumer loans, net as well as other earning asset metrics of the U.S. operations segment as of June 30, 2019 as compared to June 30, 2018 (dollars in thousands, except as otherwise noted):
As of June 30, | Increase / | |||||||||||
2019 | 2018 | (Decrease) | ||||||||||
U.S. Operations Segment | ||||||||||||
Earning assets: | ||||||||||||
Pawn loans | $ | 262,356 | $ | 267,586 | (2 | )% | ||||||
Inventories | 172,875 | 184,531 | (6 | )% | ||||||||
Consumer loans, net (1) | 3,850 | 17,109 | (77 | )% | ||||||||
$ | 439,081 | $ | 469,226 | (6 | )% | |||||||
Average outstanding pawn loan amount (in ones) | $ | 166 | $ | 160 | 4 | % | ||||||
Composition of pawn collateral: | ||||||||||||
General merchandise | 37 | % | 37 | % | ||||||||
Jewelry | 63 | % | 63 | % | ||||||||
100 | % | 100 | % | |||||||||
Composition of inventories: | ||||||||||||
General merchandise | 44 | % | 41 | % | ||||||||
Jewelry | 56 | % | 59 | % | ||||||||
100 | % | 100 | % | |||||||||
Percentage of inventory aged greater than one year | 4 | % | 4 | % |
(1) The Company ceased offering unsecured consumer lending and credit services products in all 119 Ohio locations on
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
The following table presents segment pre-tax operating income of the U.S. operations segment for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018 (dollars in thousands):
Three Months Ended | |||||||||||||
June 30, | Increase / | ||||||||||||
2019 | 2018 | (Decrease) | |||||||||||
U.S. Operations Segment | |||||||||||||
Revenue: | |||||||||||||
Retail merchandise sales | $ | 168,918 | $ | 166,441 | 1 | % | |||||||
Pawn loan fees | 90,126 | 87,825 | 3 | % | |||||||||
Wholesale scrap jewelry sales | 15,788 | 22,133 | (29 | )% | |||||||||
Consumer loan and credit services fees | 5,356 | 13,401 | (60 | )% | |||||||||
Total revenue | 280,188 | 289,800 | (3 | )% | |||||||||
Cost of revenue: | |||||||||||||
Cost of retail merchandise sold | 104,662 | 105,272 | (1 | )% | |||||||||
Cost of wholesale scrap jewelry sold | 14,853 | 18,955 | (22 | )% | |||||||||
Consumer loan and credit services loss provision | 1,503 | 3,810 | (61 | )% | |||||||||
Total cost of revenue | 121,018 | 128,037 | (5 | )% | |||||||||
Net revenue | 159,170 | 161,763 | (2 | )% | |||||||||
Segment expenses: | |||||||||||||
Store operating expenses | 103,009 | 103,625 | (1 | )% | |||||||||
Depreciation and amortization | 5,269 | 5,037 | 5 | % | |||||||||
Total segment expenses | 108,278 | 108,662 | — | % | |||||||||
Segment pre-tax operating income | $ | 50,892 | $ | 53,101 | (4 | )% |
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
The following table presents segment pre-tax operating income of the U.S. operations segment for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018 (dollars in thousands):
Six Months Ended | |||||||||||||
June 30, | Increase / | ||||||||||||
2019 | 2018 | (Decrease) | |||||||||||
U.S. Operations Segment | |||||||||||||
Revenue: | |||||||||||||
Retail merchandise sales | $ | 355,733 | $ | 352,493 | 1 | % | |||||||
Pawn loan fees | 188,002 | 184,067 | 2 | % | |||||||||
Wholesale scrap jewelry sales | 38,573 | 51,590 | (25 | )% | |||||||||
Consumer loan and credit services fees | 15,817 | 28,440 | (44 | )% | |||||||||
Total revenue | 598,125 | 616,590 | (3 | )% | |||||||||
Cost of revenue: | |||||||||||||
Cost of retail merchandise sold | 222,406 | 225,888 | (2 | )% | |||||||||
Cost of wholesale scrap jewelry sold | 36,123 | 46,608 | (22 | )% | |||||||||
Consumer loan and credit services loss provision | 3,606 | 7,454 | (52 | )% | |||||||||
Total cost of revenue | 262,135 | 279,950 | (6 | )% | |||||||||
Net revenue | 335,990 | 336,640 | — | % | |||||||||
Segment expenses: | |||||||||||||
Store operating expenses | 206,893 | 208,008 | (1 | )% | |||||||||
Depreciation and amortization | 10,314 | 10,592 | (3 | )% | |||||||||
Total segment expenses | 217,207 | 218,600 | (1 | )% | |||||||||
Segment pre-tax operating income | $ | 118,783 | $ | 118,040 | 1 | % |
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)
Consolidated Results of Operations
The following table reconciles pre-tax operating income of the Company’s
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Consolidated Results of Operations | |||||||||||||||
Segment pre-tax operating income: | |||||||||||||||
Latin America operations segment pre-tax operating income (1) | $ | 36,218 | $ | 29,507 | $ | 68,924 | $ | 57,037 | |||||||
U.S. operations segment pre-tax operating income | 50,892 | 53,101 | 118,783 | 118,040 | |||||||||||
Consolidated segment pre-tax operating income | 87,110 | 82,608 | 187,707 | 175,077 | |||||||||||
Corporate expenses and other income: | |||||||||||||||
Administrative expenses | 31,696 | 29,720 | 63,850 | 57,722 | |||||||||||
Depreciation and amortization | 1,662 | 3,175 | 3,186 | 6,194 | |||||||||||
Interest expense | 8,548 | 6,529 | 16,918 | 12,727 | |||||||||||
Interest income | (155 | ) | (740 | ) | (359 | ) | (1,721 | ) | |||||||
Merger and other acquisition expenses | 556 | 2,113 | 705 | 2,352 | |||||||||||
Gain on foreign exchange (1) | (483 | ) | (460 | ) | (722 | ) | (247 | ) | |||||||
Total corporate expenses and other income | 41,824 | 40,337 | 83,578 | 77,027 | |||||||||||
Income before income taxes | 45,286 | 42,271 | 104,129 | 98,050 | |||||||||||
Provision for income taxes | 12,238 | 12,100 | 28,426 | 26,244 | |||||||||||
Net income | $ | 33,048 | $ | 30,171 | $ | 75,703 | $ | 71,806 |
(1) The gain on foreign exchange for the
STORE COUNT ACTIVITY
The following table details store count activity for the three months ended June 30, 2019:
Consumer | |||||||||
Pawn | Loan | Total | |||||||
Locations (1) | Locations | Locations | |||||||
Latin America operations segment: | |||||||||
Total locations, beginning of period | 1,530 | — | 1,530 | ||||||
New locations opened | 23 | — | 23 | ||||||
Locations acquired | 40 | — | 40 | ||||||
Locations closed or consolidated | (1 | ) | — | (1 | ) | ||||
Total locations, end of period | 1,592 | — | 1,592 | ||||||
U.S. operations segment: | |||||||||
Total locations, beginning of period | 1,085 | 15 | 1,100 | ||||||
Locations acquired | 10 | — | 10 | ||||||
Locations closed or consolidated (2) | (47 | ) | (9 | ) | (56 | ) | |||
Total locations, end of period | 1,048 | 6 | 1,054 | ||||||
Total: | |||||||||
Total locations, beginning of period | 2,615 | 15 | 2,630 | ||||||
New locations opened | 23 | — | 23 | ||||||
Locations acquired | 50 | — | 50 | ||||||
Locations closed or consolidated (2) | (48 | ) | (9 | ) | (57 | ) | |||
Total locations, end of period | 2,640 | 6 | 2,646 |
(1) At June 30, 2019, 75 of the U.S. pawn stores, primarily located in
(2) Includes the closing of 52 Ohio locations primarily focused on consumer lending products. See “Consumer Lending Contraction and Ohio Wind-Down Costs” for additional discussion of these store closings.
STORE COUNT ACTIVITY (CONTINUED)
The following table details store count activity for the six months ended June 30, 2019:
Consumer | |||||||||
Pawn | Loan | Total | |||||||
Locations (1) | Locations | Locations | |||||||
Latin America operations segment: | |||||||||
Total locations, beginning of period | 1,379 | — | 1,379 | ||||||
New locations opened | 59 | — | 59 | ||||||
Locations acquired | 158 | — | 158 | ||||||
Locations closed or consolidated | (4 | ) | — | (4 | ) | ||||
Total locations, end of period | 1,592 | — | 1,592 | ||||||
U.S. operations segment: | |||||||||
Total locations, beginning of period | 1,077 | 17 | 1,094 | ||||||
Locations acquired | 20 | — | 20 | ||||||
Locations closed or consolidated (2) | (49 | ) | (11 | ) | (60 | ) | |||
Total locations, end of period | 1,048 | 6 | 1,054 | ||||||
Total: | |||||||||
Total locations, beginning of period | 2,456 | 17 | 2,473 | ||||||
New locations opened | 59 | — | 59 | ||||||
Locations acquired | 178 | — | 178 | ||||||
Locations closed or consolidated (2) | (53 | ) | (11 | ) | (64 | ) | |||
Total locations, end of period | 2,640 | 6 | 2,646 |
(1) At June 30, 2019, 75 of the U.S. pawn stores, primarily located in
(2) Includes the closing of 52 Ohio locations and two other locations outside of
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, constant currency results, return on tangible assets and return on tangible equity as factors in the measurement and evaluation of the Company’s operating performance and period-over-period growth. The Company derives these financial calculations on the basis of methodologies other than generally accepted accounting principles (“GAAP”), primarily by excluding from a comparable GAAP measure certain items the Company does not consider to be representative of its actual operating performance. These financial calculations are “non-GAAP financial measures” as defined in
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. The Company believes that providing adjusted non-GAAP measures, which exclude these items, allows management and investors to consider the ongoing operations of the business both with, and without, such expenses. Merger and other acquisition expenses include incremental costs directly associated with merger and acquisition activities, including professional fees, legal expenses, severance, retention and other employee-related costs, contract breakage costs and costs related to the consolidation of technology systems and corporate facilities, among others.
The Company has certain leases in
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES (CONTINUED)
(UNAUDITED)
Adjusted Net Income, Adjusted Diluted Earnings Per Share, Return on Tangible Assets and Return on Tangible Equity
Management believes the presentation of adjusted net income, adjusted diluted earnings per share, return on tangible assets and return on tangible equity 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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||||||
In Thousands | Per Share | In Thousands | Per Share | In Thousands | Per Share | In Thousands | Per Share | ||||||||||||||||||||||||
Net income and diluted earnings per share, as reported | $ | 33,048 | $ | 0.76 | $ | 30,171 | $ | 0.67 | $ | 75,703 | $ | 1.74 | $ | 71,806 | $ | 1.57 | |||||||||||||||
Adjustments, net of tax: | |||||||||||||||||||||||||||||||
Merger and other acquisition expenses | 426 | 0.01 | 1,512 | 0.03 | 530 | 0.01 | 1,696 | 0.04 | |||||||||||||||||||||||
Non-cash foreign currency gain related to lease liability | (136 | ) | — | — | — | (374 | ) | (0.01 | ) | — | — | ||||||||||||||||||||
Ohio consumer lending wind-down costs | 1,959 | 0.05 | — | — | 1,959 | 0.05 | — | — | |||||||||||||||||||||||
Adjusted net income and diluted earnings per share | $ | 35,297 | $ | 0.82 | $ | 31,683 | $ | 0.70 | $ | 77,818 | $ | 1.79 | $ | 73,502 | $ | 1.61 |
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES (CONTINUED)
(UNAUDITED)
The following tables provide a reconciliation of the gross amounts, the impact of income taxes and the net amounts for the adjustments included in the table above (in thousands):
Three Months Ended June 30, | |||||||||||||||||||||||
2019 | 2018 | ||||||||||||||||||||||
Pre-tax | Tax | After-tax | Pre-tax | Tax | After-tax | ||||||||||||||||||
Merger and other acquisition expenses | $ | 556 | $ | 130 | $ | 426 | $ | 2,113 | $ | 601 | $ | 1,512 | |||||||||||
Non-cash foreign currency gain related to lease liability | (195 | ) | (59 | ) | (136 | ) | — | — | — | ||||||||||||||
Ohio consumer lending wind-down costs | 2,544 | 585 | 1,959 | — | — | — | |||||||||||||||||
Total adjustments | $ | 2,905 | $ | 656 | $ | 2,249 | $ | 2,113 | $ | 601 | $ | 1,512 |
Six Months Ended June 30, | |||||||||||||||||||||||
2019 | 2018 | ||||||||||||||||||||||
Pre-tax | Tax | After-tax | Pre-tax | Tax | After-tax | ||||||||||||||||||
Merger and other acquisition expenses | $ | 705 | $ | 175 | $ | 530 | $ | 2,352 | $ | 656 | $ | 1,696 | |||||||||||
Non-cash foreign currency gain related to lease liability | (535 | ) | (161 | ) | (374 | ) | — | — | — | ||||||||||||||
Ohio consumer lending wind-down costs | 2,544 | 585 | 1,959 | — | — | — | |||||||||||||||||
Total adjustments | $ | 2,714 | $ | 599 | $ | 2,115 | $ | 2,352 | $ | 656 | $ | 1,696 |
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES (CONTINUED)
(UNAUDITED)
The following table provides a calculation of return on tangible assets and return on tangible equity (dollars in thousands):
June 30, | |||||||||
2019 | 2018 | ||||||||
Return on tangible assets calculation: | |||||||||
Average total assets | $ | 2,194,873 | $ | 2,062,433 | |||||
Adjustments: | |||||||||
Average goodwill | (910,847 | ) | (841,145 | ) | |||||
Average intangible assets, net | (88,402 | ) | (94,040 | ) | |||||
Average operating lease right of use asset | (118,305 | ) | — | ||||||
Average tangible assets | $ | 1,077,319 | $ | 1,127,248 | |||||
Net income for the trailing twelve months | $ | 157,103 | $ | 167,814 | |||||
Return on tangible assets | 15 | % | 15 | % | |||||
Return on tangible equity calculation: | |||||||||
Average stockholders’ equity | $ | 1,319,047 | $ | 1,433,755 | |||||
Adjustments: | |||||||||
Average goodwill | (910,847 | ) | (841,145 | ) | |||||
Average intangible assets, net | (88,402 | ) | (94,040 | ) | |||||
Average tangible equity | $ | 319,798 | $ | 498,570 | |||||
Net income for the trailing twelve months | $ | 157,103 | $ | 167,814 | |||||
Return on tangible equity | 49 | % | 34 | % |
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES (CONTINUED)
(UNAUDITED)
The following table provides a calculation of segment pre-tax operating income excluding contribution from consumer lending operations and
Three Months Ended | |||||||||||||
June 30, | Increase / | ||||||||||||
2019 | 2018 | (Decrease) | |||||||||||
U.S. Operations Segment: | |||||||||||||
Segment pre-tax operating income | $ | 50,892 | $ | 53,101 | (4 | )% | |||||||
Contribution from consumer lending operations and Ohio store closures | (1,290 | ) | (5,842 | ) | (78 | )% | |||||||
Adjusted segment pre-tax operating income | $ | 49,602 | $ | 47,259 | 5 | % | |||||||
Six Months Ended | |||||||||||||
June 30, | Increase / | ||||||||||||
2019 | 2018 | (Decrease) | |||||||||||
U.S. Operations Segment: | |||||||||||||
Segment pre-tax operating income | $ | 118,783 | $ | 118,040 | 1 | % | |||||||
Contribution from consumer lending operations and Ohio store closures | (6,863 | ) | (13,206 | ) | (48 | )% | |||||||
Adjusted segment pre-tax operating income | $ | 111,920 | $ | 104,834 | 7 | % |
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 | Six Months Ended | Months Ended | ||||||||||||||||||||||
June 30, | June 30, | June 30, | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
Net income | $ | 33,048 | $ | 30,171 | $ | 75,703 | $ | 71,806 | $ | 157,103 | $ | 167,814 | ||||||||||||
Income taxes | 12,238 | 12,100 | 28,426 | 26,244 | 54,285 | 28,838 | ||||||||||||||||||
Depreciation and amortization | 10,510 | 10,952 | 20,384 | 22,235 | 41,110 | 48,536 | ||||||||||||||||||
Interest expense | 8,548 | 6,529 | 16,918 | 12,727 | 33,364 | 25,064 | ||||||||||||||||||
Interest income | (155 | ) | (740 | ) | (359 | ) | (1,721 | ) | (1,082 | ) | (2,598 | ) | ||||||||||||
EBITDA | 64,189 | 59,012 | 141,072 | 131,291 | 284,780 | 267,654 | ||||||||||||||||||
Adjustments: | ||||||||||||||||||||||||
Merger and other acquisition expenses | 556 | 2,113 | 705 | 2,352 | 5,996 | 9,161 | ||||||||||||||||||
Non-cash foreign currency gain related to lease liability | (195 | ) | — | (535 | ) | — | (535 | ) | — | |||||||||||||||
Ohio consumer lending wind-down costs | 2,544 | — | 2,544 | — | 2,544 | — | ||||||||||||||||||
Asset impairments related to consumer loan operations | — | — | — | — | 1,514 | — | ||||||||||||||||||
Loss on extinguishment of debt | — | — | — | — | — | 20 | ||||||||||||||||||
Adjusted EBITDA | $ | 67,094 | $ | 61,125 | $ | 143,786 | $ | 133,643 | $ | 294,299 | $ | 276,835 | ||||||||||||
Net debt ratio calculation: | ||||||||||||||||||||||||
Total debt (outstanding principal) | $ | 640,000 | $ | 521,500 | ||||||||||||||||||||
Less: cash and cash equivalents | (67,012 | ) | (83,127 | ) | ||||||||||||||||||||
Net debt | $ | 572,988 | $ | 438,373 | ||||||||||||||||||||
Adjusted EBITDA | $ | 294,299 | $ | 276,835 | ||||||||||||||||||||
Net debt ratio (net debt divided by adjusted EBITDA) | 1.9:1 | 1.6:1 |
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES (CONTINUED)
(UNAUDITED)
Free Cash Flow and Adjusted Free Cash Flow
For purposes of its internal liquidity assessments, the Company considers free cash flow and adjusted free cash flow. The Company defines free cash flow as cash flow from operating activities less purchases of furniture, fixtures, equipment and improvements and net fundings/repayments of pawn and consumer loans, which are considered to be operating in nature by the Company but are included in cash flow from investing activities. Adjusted free cash flow is defined as free cash flow adjusted for merger and other acquisition expenses paid that management considers to be non-operating in nature.
The Company previously included store real property purchases as a component of purchases of property and equipment. Management considers the store real property purchases to be discretionary in nature and not required to operate or grow its pawn operations. To further enhance transparency of these distinct items, the Company now reports purchases of store real property and purchases of furniture, fixtures, equipment and improvements separately on the consolidated statements of cash flows. As a result, the current definitions of free cash flow and adjusted free cash flow differ from prior period definitions as they now exclude discretionary purchases of store real property and the Company has retrospectively applied the current definitions to prior-period results.
Free cash flow and adjusted free cash flow are commonly used by investors as an additional measure of cash generated by business operations that may be used to repay scheduled debt maturities and debt service or, following payment of such debt obligations and other non-discretionary items, may be available to invest in future growth through new business development activities or acquisitions, repurchase stock, pay cash dividends or repay debt obligations prior to their maturities. These metrics can also be used to evaluate the Company’s ability to generate cash flow from business operations and the impact that this cash flow has on the Company’s liquidity. However, free cash flow and adjusted free cash flow have limitations as analytical tools and should not be considered in isolation or as a substitute for cash flow from operating activities or other income statement data prepared in accordance with GAAP. The following table reconciles cash flow from operating activities to free cash flow and adjusted free cash flow (in thousands):
Trailing Twelve | ||||||||||||||||||||||||
Three Months Ended | Six Months Ended | Months Ended | ||||||||||||||||||||||
June 30, | June 30, | June 30, | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
Cash flow from operating activities | $ | 34,276 | $ | 28,651 | $ | 105,973 | $ | 119,967 | $ | 229,435 | $ | 237,511 | ||||||||||||
Cash flow from investing activities: | ||||||||||||||||||||||||
Loan receivables, net of cash repayments | (22,642 | ) | (25,307 | ) | 19,574 | 30,913 | (1,214 | ) | 37,685 | |||||||||||||||
Purchases of furniture, fixtures, equipment and improvements | (13,246 | ) | (9,080 | ) | (22,904 | ) | (14,468 | ) | (44,113 | ) | (27,684 | ) | ||||||||||||
Free cash flow | (1,612 | ) | (5,736 | ) | 102,643 | 136,412 | 184,108 | 247,512 | ||||||||||||||||
Merger and other acquisition expenses paid, net of tax benefit | 426 | 1,531 | 530 | 3,099 | 4,503 | 6,213 | ||||||||||||||||||
Adjusted free cash flow (1) | $ | (1,186 | ) | $ | (4,205 | ) | $ | 103,173 | $ | 139,511 | $ | 188,611 | $ | 253,725 |
(1) The six months and trailing twelve months ended
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES (CONTINUED)
(UNAUDITED)
Constant Currency Results
The Company’s reporting currency is the U.S. dollar. However, certain performance metrics discussed in this release are presented on a “constant currency” basis, which is considered a non-GAAP financial measure. The Company’s management uses constant currency results to evaluate operating results of business operations in
The Company believes constant currency results provide investors with valuable supplemental information regarding the underlying performance of its business operations in
The following table provides exchange rates for the Mexican peso, Guatemalan quetzal and Colombian peso for the current and prior-year periods:
June 30, | Favorable | ||||||||
2019 | 2018 | (Unfavorable) | |||||||
Mexican peso / U.S. dollar exchange rate: | |||||||||
End-of-period | 19.2 | 19.9 | 4 | % | |||||
Three months ended | 19.1 | 19.4 | 2 | % | |||||
Six months ended | 19.2 | 19.1 | (1 | )% | |||||
Guatemalan quetzal / U.S. dollar exchange rate: | |||||||||
End-of-period | 7.7 | 7.5 | (3 | )% | |||||
Three months ended | 7.7 | 7.4 | (4 | )% | |||||
Six months ended | 7.7 | 7.4 | (4 | )% | |||||
Colombian peso / U.S. dollar exchange rate: | |||||||||
End-of-period | 3,206 | 2,931 | (9 | )% | |||||
Three months ended | 3,240 | 2,839 | (14 | )% | |||||
Six months ended | 3,188 | 2,849 | (12 | )% |
For further information, please contact:
Gar Jackson
Global IR Group
Phone: (817) 886-6998
Email: gar@globalirgroup.com
Phone: (817) 258-2650
Email: investorrelations@firstcash.com
Website: investors.firstcash.com
Source: FirstCash, Inc.