Document

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

FORM 8-K

Current Report
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

January 31, 2019
(Date of Report - Date of Earliest Event Reported)
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FIRSTCASH, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation)
001-10960
(Commission
File Number)
75-2237318
(IRS Employer
Identification No.)

1600 West 7th Street, Fort Worth, Texas 76102
(Address of principal executive offices, including zip code)

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

NONE
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company    o

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



Item 2.02 Results of Operations and Financial Condition.

On January 31, 2019, FirstCash, Inc. (the “Company”) issued a press release announcing its financial results for the three and twelve month periods ended December 31, 2018 and the Board of Directors’ declaration of a first quarter cash dividend of $0.25 per common share (the “Earnings Release”). The Earnings Release is attached hereto as Exhibit 99.1 and is incorporated by reference in its entirety into this Item 2.02.

The information provided in this Item 2.02, including the Earnings Release, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by the specific reference in such filing.

Item 9.01 Financial Statements and Exhibits.
 
(d) Exhibits:
 
 
 
 
 
 
99.1


2


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: January 31, 2019
FIRSTCASH, INC.
 
(Registrant)
 
 
 
/s/ R. DOUGLAS ORR
 
R. Douglas Orr
 
Executive Vice President and Chief Financial Officer
 
(As Principal Financial and Accounting Officer)


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Exhibit

EXHIBIT 99.1
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FirstCash Reports Fourth Quarter and Full-Year Earnings Results;
Declares Quarterly Dividend and Issues 2019 Earnings Outlook
_________________________________________________________________________________________

Fort Worth, Texas (January 31, 2019) -- FirstCash, Inc. (the “Company”) (Nasdaq: FCFS), the leading international operator of more than 2,450 retail pawn stores in the U.S. and four countries in Latin America, today announced earnings per share for the fourth quarter and the full year ended December 31, 2018. In addition, the Board of Directors declared a $0.25 per share quarterly cash dividend to be paid in February 2019. The Company also initiated its fiscal full-year 2019 earnings guidance.

Mr. Rick Wessel, chief executive officer, stated, “Fiscal 2018 was another outstanding year for FirstCash, marked by continued growth in operating margins, net income and store counts. The fourth quarter results produced strong profitability and growth metrics in both the U.S. and Latin America, highlighted by increasing year-over-year pawn fees and retail margins in the U.S. and sequential improvement in same-store loan growth and retail margins in Latin America. In addition, the Company added 445 new locations in 2018 through acquisitions and new store openings, which resulted in an increase of more than 20% in the number of pawn locations. Our fourth quarter momentum and the significant increase in store count should position us for further revenue and earnings expansion from core pawn operations in 2019.”

This release contains adjusted earnings measures, which exclude, among other things, merger and other acquisition expenses, and 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 December 31,
 
 
2018
 
2017
 
 
As Reported
 
Adjusted
 
As Reported
 
Adjusted
In thousands, except per share amounts
 
(GAAP)
 
(Non-GAAP)
 
(GAAP)
 
(Non-GAAP)
Revenue
 
$
481,208

 
$
481,208

 
$
480,205

 
$
480,205

Net income
 
$
48,075

 
$
49,201

 
$
67,734

 
$
44,181

Diluted earnings per share
 
$
1.09

 
$
1.12

 
$
1.43

 
$
0.94

EBITDA (non-GAAP measure)
 
$
81,404

 
$
84,987

 
$
75,213

 
$
81,111

Weighted-average diluted shares
 
43,936

 
43,936

 
47,212

 
47,212

 
 
Twelve Months Ended December 31,
 
 
2018
 
2017
 
 
As Reported
 
Adjusted
 
As Reported
 
Adjusted
In thousands, except per share amounts
 
(GAAP)
 
(Non-GAAP)
 
(GAAP)
 
(Non-GAAP)
Revenue
 
$
1,780,858

 
$
1,780,858

 
$
1,779,822

 
$
1,779,822

Net income
 
$
153,206

 
$
158,290

 
$
143,892

 
$
131,225

Diluted earnings per share
 
$
3.41

 
$
3.53

 
$
3.00

 
$
2.74

EBITDA (non-GAAP measure)
 
$
274,999

 
$
284,156

 
$
249,983

 
$
273,159

Weighted-average diluted shares
 
44,884

 
44,884

 
47,888

 
47,888




As a reminder, in the fourth quarter of 2017, the Company recorded a provisional net income tax benefit of $27 million, or $0.57 per share, as a result of the passage of the Tax Cuts and Jobs Act (“Tax Act”). In the fourth quarter of 2018, the Company finalized certain estimates and tax positions used in the analysis of the 2017 provisional net income tax benefit and recorded an additional income tax benefit of $1.5 million, or $0.03 per share. The Company has excluded the non-recurring net income tax benefits realized during fiscal 2018 and 2017 as a result of the Tax Act in its adjusted earnings measures.
Earnings Highlights
As noted above, comparable fourth quarter and full-year diluted earnings per share and net income on a GAAP basis were impacted in particular by the Tax Act and the resulting $27 million non-recurring tax benefit recorded in the fourth quarter of 2017. As a result, diluted earnings per share, on a GAAP basis, decreased 24% in the fourth quarter of 2018 and increased 14% for fiscal 2018 compared to the prior-year periods. Net income, on a GAAP basis, for the fourth quarter of 2018 decreased 29% compared to the fourth quarter of 2017 and increased 6% for the full year compared to the prior-year period.
Adjusted diluted earnings per share increased 19% for the fourth quarter and 29% for the full year compared to the respective prior-year periods. Adjusted net income increased 11% for the fourth quarter and 21% for the full year compared to the respective prior-year periods. Non-GAAP adjusted earnings per share and net income exclude the non-recurring tax benefits as described above, and certain merger, acquisition, consumer lending impairment expenses and debt extinguishment costs, which are further described in the reconciliations to GAAP earnings measures at the end of this release.
Consolidated revenues for 2018 totaled $1.8 billion, while net income was $153 million and adjusted EBITDA, a non-GAAP financial measure, totaled $284 million.
Cash flow from operating activities for 2018 totaled a record $243 million, an increase of 10% compared to $220 million in 2017. Adjusted free cash flow, a non-GAAP financial measure, was $225 million for 2018 compared to $242 million in 2017.
The pre-tax profit margin for the fourth quarter of 2018 increased to 13.1% compared to 11.9% in the prior-year quarter, and for the full year increased to 11.5% compared to 9.7% last year. The adjusted pre-tax profit margin, a non-GAAP financial measure, increased to 13.9% for the quarter and 12.0% for the full year, compared to 13.1% and 11.0% for the respective prior-year periods.
The net income margin, on a GAAP basis, for the fourth quarter of 2018 was 10.0% compared to 14.1% in the prior-year quarter and was 8.6% for the full year of 2018 compared to 8.1% last year. Prior-year quarter and full-year net income margin on a GAAP basis included the non-recurring benefit from the Tax Act. The adjusted net income margin, a non-GAAP financial measure, improved to 10.2% for the quarter and 8.9% year-to-date, compared to 9.2% and 7.4% for the respective prior-year periods.
Other items of note which impacted the comparability of both GAAP and adjusted earnings measures included a $4 million, or $0.10 per share, benefit from the lower U.S. corporate tax rate as compared to the fourth quarter of 2017 and a $14 million benefit, or $0.32 per share, for the full year. This tax benefit was largely offset by the contraction in non-core consumer lending operations, which negatively impacted earnings per share by approximately $0.07 for the quarter and $0.26 for the full year, as compared to the same prior-year periods. In addition, the impact of a weaker Mexican peso in 2018 negatively impacted comparative dollar-denominated earnings per share by $0.02 in the fourth quarter and full-year periods.


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Acquisition and Store Opening Highlights
The Company continued to grow its store base, completing four separate multi-store acquisitions during the fourth quarter of 2018, which combined, added an aggregate total of 33 full-service pawn stores. The acquisitions included nine stores from two transactions in Texas and 24 stores from two transactions in Mexico. In total, for the full year of 2018, the Company completed aggregated acquisitions of 393 stores, which included 366 stores in Latin America and 27 stores in the U.S., for a total purchase price of $125 million.
The Company opened nine new locations in Latin America during the fourth quarter. For the year, 52 de novo stores were opened in three countries, which included 42 stores in Mexico, six stores in Guatemala and four stores in Colombia.
In total, the Company opened and acquired 445 store locations across four countries in 2018, increasing the number of pawn stores more than 20% for the year. Approximately 94% of the stores added in 2018 were located in Latin America.
As of December 31, 2018, the Company operated 2,473 stores, with 1,379 stores in Latin America, representing 56% of total store base, and 1,094 stores in the U.S., representing 44% of the store base. The Latin American locations include 1,323 stores in Mexico, 39 stores in Guatemala, 13 stores in El Salvador and four stores in Colombia while the U.S. stores are located in 24 states and the District 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 fiscal 2018 was 19.2 pesos / dollar, an unfavorable change of 2% versus the comparable prior-year period, and for the fourth quarter of 2018 was 19.8 pesos / dollar, an unfavorable change of 5% versus the prior-year period.

Latin America Operations
Revenues for the fourth quarter of 2018 totaled $162 million, an increase of 13% on a U.S. dollar translated basis and 18% on a constant currency basis, as compared to the fourth quarter of 2017. For the full year, revenues totaled $557 million and increased 14% on a U.S. dollar translated basis and 16% on a constant currency basis.
Core pawn revenues, which are composed of pawn fees and retail merchandise sales, increased 14% for the quarter on a U.S. dollar translated basis, driven by a 22% increase in pawn fees and a 12% increase in retail sales compared to the prior-year quarter. On a constant currency basis, core pawn revenues for the quarter increased 20% with pawn fees and retail merchandise sales increasing 28% and 17%, respectively, as compared to the prior-year quarter.
Segment pre-tax operating income for the quarter increased 10%, or 14% on a constant currency basis, compared to the fourth quarter of 2017 and increased 10%, or 12% on a constant currency basis, during the full year compared to the prior year. Pre-tax profit margin growth in 2018 was partially impacted by the significant acquisition and integration activity in 2018 and the discontinuance of non-core, unsecured consumer lending products in Mexico.
Reflecting the 5% decline in the value of the Mexican peso compared to the prior-year quarter, same-store core pawn revenues declined 2% on a U.S. dollar translated basis, consisting of a 2% decrease in same-store retail sales and a 1% decrease in same-store pawn fees compared to the prior-year quarter. On a constant currency basis, same-store core pawn revenues increased 3%, composed of a 3% increase in same-store retail sales and a 4% increase in same-store pawn fees compared to the prior-year quarter.
Pawn loans outstanding totaled $91 million at December 31, 2018, an increase of 34% on both a U.S. dollar translated and constant currency basis versus the prior year. The significant growth was driven by a combination of the acquisitions, new stores and a 7% increase in same-store pawn loans (both on a U.S. dollar translated and constant currency basis), compared to the prior year. The same-store increase as of year end represented a significant sequential improvement over the second and third quarters, when adjustments made to loan-to-value ratios and macro demand factors contributed to slower same-store loan growth.

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While the overall environment in Latin America remains highly competitive, segment retail margins were 36% in the fourth quarter, which equaled the prior-year quarter and improved sequentially compared to 35% in the third quarter of 2018.
Inventories at December 31, 2018 increased $15 million to $75 million compared to $60 million a year ago. The increase was driven by the net addition of 408 pawn stores during the year and continued maturation of existing stores. As of December 31, 2018, inventories aged greater than one year remained extremely low at 1% and inventory turns in Latin America for the year ended December 31, 2018 remained strong at 3.9 times.
U.S. Operations
Segment pre-tax operating income for the quarter increased 5% compared to the fourth quarter of 2017, driven primarily by increased retail margins and store-level expense reductions. The increase in the segment contribution was partially offset by an expected reduction in non-core consumer lending operating profits. Excluding locations whose revenues are generated primarily from non-core consumer lending products (primarily small stores located in Ohio), segment pre-tax operating income increased 11% in the fourth quarter compared to the prior-year.
The segment pre-tax operating margin improved to 22% for the fourth quarter of 2018 as compared to 20% in the prior-year quarter. For the full year of 2018, the margin improved from 19% to 20%.
Total revenues for the fourth quarter were $319 million, a decrease of 5% compared to the fourth quarter of 2017, and included the expected impact of a 27% decline, or $5 million, in non-core consumer loan and credit services fees and a 45% decline, or $12 million, in non-core scrap jewelry sales.
While gross revenue declined, net revenue (or gross profit) for the fourth quarter of 2018 increased 1%. More importantly, net revenue from core pawn operations increased 5% compared to the prior-year quarter as a result of the continued improvements in retail sales margins and pawn yields as highlighted below.
Total retail sales decreased 2% compared to the fourth quarter of 2017, while same-store retail sales declined 3% compared to the prior-year quarter. The quarter-over-quarter decline in top line retail sales was impacted by higher than normal retail sales in the fourth quarter of 2017 when there was a significant focus on the liquidation of excess and aged inventories in the Cash America locations.
Although total retail sales declined, net revenue (or gross profit) from retail sales increased 8% compared to the fourth quarter of 2017 as retail sales margins improved to 37% for the current quarter compared to 34% in the prior-year quarter. The margin improvements were driven primarily by the legacy Cash America locations as new employee compensation plans were implemented in the second quarter and aged inventory levels normalized during 2018.
Pawn loans outstanding at December 31, 2018 totaled $272 million, a decrease of 2% in total and 3% on a same-store basis. The decrease was partially due to the continued focus on increasing the volume of direct purchases of goods from customers in the legacy Cash America stores, which resulted in a 17% increase in the percentage of such direct purchase transactions for the quarter as compared to the prior-year quarter. Although these transactions negatively impacted pawn loan growth, the Company believes that offering to purchase goods directly from customers who do not necessarily want or intend to repay their pawn loan improves redemption rates and yields on loans written, and improves inventory turns at better retail margins.
Despite the slight decline in pawn loans outstanding, total pawn fees increased 3% and same-store pawn fee revenues increased 2% in the fourth quarter compared to the prior-year quarter as pawn yields improved by 4% quarter-over-quarter.
Segment expenses as a percentage of net revenue declined from 62% in the fourth quarter of last year to 61% in the fourth quarter of 2018, primarily due to continued efforts to integrate and optimize domestic store operations.


4


Inventories at December 31, 2018 declined $17 million, or 8%, to $200 million compared to $217 million a year ago and declined 29% compared to $283 million at December 31, 2016, following the Cash America merger. The declines are primarily a result of strategic reductions in overall inventory levels, including focused liquidation of aged inventories in the legacy Cash America stores. As of December 31, 2018, U.S. inventories aged greater than one year were 4%, which was a significant improvement over the 6% aged level at December 31, 2017 and the 11% aged level at December 31, 2016, following the merger.
Inventory turns in the U.S. for the year ended December 31, 2018 were 2.7 times, which represents the fifth sequential quarterly increase and compares to 2.3 times for the year ended December 31, 2017. Inventory turns in the U.S. are slower than in Latin America due to the larger jewelry component in the U.S. compared to a greater general merchandise inventory component in Latin America.
Consumer Lending Contraction and Asset Impairments
The Company further contracted its U.S. consumer lending operations during the fourth quarter of 2018 by closing an additional 13 stand-alone consumer lending locations and discontinuing ancillary unsecured consumer loan products in 39 domestic pawn locations.
For the full year, the Company closed 55 stand-alone consumer lending locations, including 27 in the U.S. and the remaining 28 in Mexico. In addition, consumer lending products were discontinued in 45 U.S. pawnshops and 49 pawnshops in Mexico, which previously offered them as ancillary products. The Company no longer offers an unsecured consumer loan product in Latin America.
In the original fiscal 2018 guidance issued on February 1, 2018, the earnings drag from the contraction of consumer lending operations was estimated to be between $0.14 and $0.17 per share. As a result of the Company more aggressively closing consumer loan stores and discontinuing ancillary unsecured consumer loan products in certain pawnshops, the actual fiscal 2018 earnings drag from consumer lending operations was approximately $0.26 per share when compared to fiscal 2017. Consolidated revenues from consumer lending products declined by 27% for the full year of 2018 and by 29% in the fourth quarter as compared to the prior-year period. Consumer lending represented 3% of total revenues in the fourth quarter and the full year of 2018 versus 4% in the prior-year respective periods.
The provisions of the Ohio Fairness in Lending Act (the “Ohio Act”) passed in 2018 are to become effective on April 26, 2019 and are expected to significantly impact the consumer loan industry in Ohio. The Ohio Act essentially eliminates most single pay consumer loan products and the use of credit service organizations (CSOs) in Ohio, both of which are elements of the Company’s current consumer lending product offerings in Ohio. The Company continues to analyze the expected impact of the Ohio Act and the regulatory and economic viability of potential replacement products for its 119 stores located in Ohio that currently offer consumer loan and credit services products. While most of these stores also offer pawn products, the Company expects a significant decrease in consumer lending revenue after the Ohio Act becomes effective and that up to a third of the stores may become unprofitable and be closed. Further discussion of the projected results is provided in the “Fiscal 2019 Outlook” section of this release. As a result of expected negative impacts, the Company recorded a fixed asset impairment charge of approximately $1 million, net of tax, or $0.03 per share, during the fourth quarter of 2018. This non-cash, non-recurring charge has been excluded in the Company’s adjusted earnings measures.
Cash Dividend and Stock Repurchases
The Board of Directors declared a $0.25 per share first quarter cash dividend on common shares outstanding, which will be paid on February 28, 2019 to stockholders of record as of February 14, 2019. This represents a 14% increase over the dividend of $0.22 per share paid in the first quarter of 2018. Any future dividends are subject to approval by the Company’s Board of Directors.
During the fourth quarter, the Company repurchased 229,000 shares at an aggregate cost of $17 million and an average per share cost of $75.37, leaving $143 million available under the current share repurchase programs for future repurchases. Future share repurchases are subject to expected liquidity, debt covenant restrictions and other relevant factors.

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During fiscal 2018, the Company repurchased 3,343,000 shares for an aggregate price of $275 million at an average price of $82.12 per share. Since the merger with Cash America in September 2016 and through the fourth quarter of 2018, the Company has repurchased a total of 4,959,000 shares at an average repurchase price of $74.12 per share, resulting in a 10% reduction in the number of shares outstanding immediately following the merger.
Liquidity and Return Metrics
The Company generated a record $243 million in cash flows from operations and $225 million in adjusted free cash flows during fiscal 2018 compared to $220 million of cash flow from operations and $242 million of adjusted free cash flow during fiscal 2017.
The Company continues to maintain excellent liquidity ratios even with the significant share repurchases totaling $275 million, dividends of $41 million and acquisitions of $125 million during fiscal 2018. Given the strength of operating cash flows, total debt increased only $188 million during the year, while significantly growing the Company’s store count and returning a considerable amount of capital to its shareholders. The net debt ratio, which is calculated using a non-GAAP financial measure, for the year ended December 31, 2018 was 1.8 to 1.
The return on assets for fiscal 2018 was 7.4%, while the return on tangible assets was 14.0% for the same period, which compared favorably to 6.9% and 12.4% returns, respectively, for fiscal 2017.
The return on equity was 11.2% for the year, while the return on tangible equity was 37.7%. This compares positively against returns of 9.8% and 26.6%, respectively, for the prior year.
Fiscal 2019 Outlook
The Company is initiating fiscal full-year 2019 guidance for diluted earnings per share to be in a range of $3.75 to $3.95, which is an increase of 6% to 12% over the prior-year adjusted earnings per share of $3.53. As described below, the guidance for 2019 includes the impact of an expected net reduction in earnings from U.S. unsecured consumer lending operations of approximately $0.25 to $0.30 per share, a forecast foreign currency drag of approximately $0.08 to $0.10 per share and a $0.04 to $0.07 per share impact from a higher blended effective income tax rate. Excluding these impacts at their midpoint estimates, estimated earnings per share in 2019 would increase in a range of 18% to 24% compared to 2018.
The estimate of expected earnings per share for 2019 includes the following assumptions:
An anticipated earnings drag of approximately $0.25 to $0.30 per share during 2019 primarily due to the impact of the Ohio Act and further strategic reductions in consumer lending operations outside of Ohio. We are currently modeling total consumer lending revenues for 2019 to be in a range of $25 million to $31 million, which represents a 47% to 56% reduction compared to 2018 consumer lending revenues. Consumer lending operations are expected to contribute less than 2% of total revenue in 2019.
In Ohio, the Company is currently evaluating certain consumer loan products that could potentially be used to replace a portion of the anticipated reduction in existing consumer loan revenue as a result of the Ohio Act. Such replacement products will likely result in a smaller loan portfolio and a reduction in the yield of the loan portfolio.
Outside of Ohio, the Company expects to continue to strategically reduce consumer lending operations primarily by discontinuing unsecured consumer loan products in certain domestic pawn locations which currently offer consumer loans and/or credit services as an ancillary product.
An estimated average foreign currency exchange rate of approximately 20.0 Mexican pesos / U.S. dollar for fiscal 2019 compared to the average exchange rate of 19.2 Mexican pesos / U.S. dollar in fiscal 2018. The projected change in the exchange rate represents an earnings headwind of approximately $0.08 to $0.10 per share for 2019 when compared to 2018 results. Each full Mexican peso change in the exchange rate to the U.S. dollar represents approximately $0.10 to $0.12 per share of annualized earnings impact.

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An expected blended effective income tax rate of between 26.5% and 27.5% for 2019. This represents an increase over the 2018 effective rate of 26.1% (adjusted for the $1.5 million non-recurring tax benefit as a result of the Tax Act) due in part to the increasing share of earnings from Latin America where corporate tax rates are higher than those in the U.S. The expected increase in the effective tax rate represents an additional earnings headwind of approximately $0.04 to $0.07 per share as compared to 2018 results.
Plans to open approximately 80 to 85 new full-service pawn stores in 2019, primarily in Mexico, which includes targeted openings of approximately 15 stores in Guatemala and 10 stores in Colombia. The Company also expects to acquire at least 70 stores between the U.S. and Latin America during the first quarter of 2019.
The Company expects to continue repurchasing shares in 2019, with a targeted shareholder payout ratio, which includes share repurchases and dividends, of approximately 100% of net income.

Additional Commentary and Analysis

Mr. Wessel further commented on the 2018 results, “We finished fiscal 2018 on a strong note, with fourth quarter results highlighted by accelerating segment margins in the U.S. and record revenues and pawn loan growth in Latin America. In addition to our outstanding financial results in 2018, we opened or acquired almost 450 stores which are now fully integrated into our proprietary operating platforms. As we begin 2019, we have significant operating momentum to further enhance profitability in our existing store base and a strong pipeline of planned store openings and potential acquisitions to drive additional store count growth.

“Operationally in Latin America, we experienced solid fourth quarter retail sales growth and a sequential increase in retail gross margins. During the fourth quarter, we focused on improving our retail margins in Latin America while driving loan growth. We also delivered a 34% increase in pawn receivables, driven not only by acquisitions and new store openings, but also from a 7% increase in same-store pawn loans on our large base of mature stores. These metrics represent a significant rebound from the lower than normal loan growth experienced in the second and third quarters.

“Store growth in Latin America was driven by a record 418 locations added in 2018 through a combination of 52 de novo openings and 366 store acquisitions. As noted in previous releases, most of the 2018 acquisitions were smaller format stores with limited retail operations. These stores are similar to the Maxi Prenda stores acquired more than two years ago that have experienced significant revenue and profitability growth since we acquired them. Driven by our FirstPawn IT platform and pawn best practice operating model, we believe that the recent acquisitions have similar upside potential over the next two to three years. The large format de novo openings were also significant during 2018 in both number and scope, with 52 openings across three countries, including our first stores in Colombia.

“As we look to 2019 in Latin America, we enter the year with a robust pipeline of new store openings and potential acquisitions. Our expectation is to open 30 to 35 new stores in the first quarter alone, with a full-year target of 80 to 85 new stores across three countries. Coupled with an ongoing acquisition pipeline, we believe that there is opportunity to have another year of significant unit growth.

“Turning to the Company’s U.S. operations, we again reported solid growth in segment profitability, driven primarily by the 3% growth in pawn fees and continued retail margin expansion. Although fourth quarter retail sales were down 2% versus last year, both inventory turns and retail margins improved which drove an 8% increase in retail gross profit. Likewise, pawn fees grew 3% on a lower pawn receivable balance, a result of increased yields on a higher quality pawn loan portfolio. Much of these improvements are in the legacy Cash America stores, which are now realizing the benefits of the FirstPawn IT platform and the implementation of the integrated compensation plans put in place in early 2018 to drive greater store efficiencies.


7


“As a result of these actions, we made significant progress in improving the overall efficiency and returns on earning assets in the U.S. during 2018. The net revenues derived from domestic pawn loans and inventories (collectively “earning assets”) yielded an annual return of 138% in 2018, which was significantly better as compared to the 122% return in the prior year. The number of U.S. pawnshops also grew in 2018, driven by acquisitions that added 27 locations to our existing markets. Looking ahead to 2019, the U.S. acquisition pipeline remains strong and we have the potential to acquire as many domestic stores as last year.

“From a financial perspective, the Company’s balance sheet and cash flows remain exceptionally strong, as reflected in a record $243 million in operating cash flows during 2018, which we invested in store growth and shareholder payouts. In addition to the record $125 million of acquisition investments, 2018 was also a record year for stock repurchases and dividends with $315 million in total shareholder payouts. Since the merger with Cash America in September 2016, we have reduced our share count by 10% and doubled the dividend. Dividend payouts since the merger total $87 million. Even with the rapid expansion and increased shareholder payouts, the leverage ratio of net debt to adjusted EBITDA is a modest 1.8 to 1. Looking to 2019, we intend to continue to repurchase shares and pay a dividend, again targeting a shareholder payout ratio equal to at least 100% of net income.

“Our guidance for 2019 reflects strong growth in earnings from our core pawn operations, both domestically and in Latin America. In the mature U.S. market, we expect continued expansion of margins and profitability in 2019, continuing the improved trend we began to experience in the second half of 2018. In regard to the recent U.S. Government shutdown, the Company has seen no measurable impact thus far on its U.S. operations. In Latin America, we expect solid revenue increases from existing stores, a full year of incremental contributions and operating improvements from the 418 stores added in 2018 and the significant pipeline of new stores anticipated to be added in 2019. As a result, our guidance provides significant growth in core earnings over the prior year, despite expected headwinds from consumer lending contraction, foreign currency effects and a higher estimated tax rate. While the continued contraction of consumer lending operations and potential Mexican peso weakness creates some drag on consolidated 2019 earnings, it is far outweighed by further focus on revenue and earnings growth from core pawn operations.

“In summary, we start 2019 better than ever with a dominant market position, a strong growth platform and potential to drive additional margin expansion. Coupled with our significant cash flows and strong balance sheet, we believe this formula positions us to drive further long-term growth and returns for our shareholders,” concluded Rick Wessel, FirstCash chief executive officer.

About FirstCash

FirstCash is the leading international operator of pawn stores with more than 2,450 retail pawn and consumer lending locations in 24 U.S. states and the District of Columbia and in Latin America, which includes all the states in Mexico and the countries of Guatemala, El Salvador and Colombia. The Company employs approximately 19,000 people between the U.S. and Latin America. FirstCash focuses on serving cash and credit constrained consumers primarily through its retail pawn locations, which buy and sell a wide variety of jewelry, consumer electronics, tools, household appliances, sporting goods, musical instruments and other merchandise, and make small consumer pawn loans secured by pledged personal property. Approximately 97% of the Company's revenues are from pawn operations.

FirstCash is a component company in both the Standard & Poor’s SmallCap 600 Index® and the Russell 2000 Index®. FirstCash’s common stock (ticker symbol “FCFS”) is traded on the Nasdaq, the creator of the world’s first electronic stock market. For additional information regarding FirstCash and the services it provides, visit FirstCash’s websites located at http://www.firstcash.com and http://www.cashamerica.com.


8


Forward-Looking Information

This release contains forward-looking statements about the business, financial condition and prospects of FirstCash, Inc. and its wholly owned subsidiaries (together, the “Company”). Forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, can be identified by the use of forward-looking terminology such as “outlook,” “believes,” “projects,” “expects,” “may,” “estimates,” “should,” “plans,” “targets,” “intends,” “could,” “would,” “anticipates,” “potential,” “confident,” “optimistic,” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy, objectives, estimates, guidance, expectations and future plans. Forward-looking statements can also be identified by the fact these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties.
 
While the Company believes the expectations reflected in forward-looking statements are reasonable, there can be no assurances such expectations will prove to be accurate. Security holders are cautioned such forward-looking statements involve risks and uncertainties. Certain factors may cause results to differ materially from those anticipated by the forward-looking statements made in this release. Such factors may include, without limitation, the risks, uncertainties and regulatory developments discussed and described in the Company’s 2017 annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 20, 2018, including the risks described in Part 1, Item 1A, “Risk Factors” thereof, and the other reports filed subsequently by the Company with the SEC, including the Company’s forthcoming annual report on Form 10-K. Many of these risks and uncertainties are beyond the ability of the Company to control, nor can the Company predict, in many cases, all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. The forward-looking statements contained in this release speak only as of the date of this release, and the Company expressly disclaims any obligation or undertaking to report any updates or revisions to any such statement to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.


9


FIRSTCASH, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share amounts)
 
 
Three Months Ended
 
Twelve Months Ended
 
 
December 31,
 
December 31,
 
 
2018
 
2017
 
2018
 
2017
Revenue:
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$
309,614

 
$
300,949

 
$
1,091,614

 
$
1,051,099

Pawn loan fees
 
137,728

 
127,477

 
525,146

 
510,905

Wholesale scrap jewelry sales
 
20,971

 
33,557

 
107,821

 
140,842

Consumer loan and credit services fees
 
12,895

 
18,222

 
56,277

 
76,976

Total revenue
 
481,208

 
480,205

 
1,780,858

 
1,779,822

 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
Cost of retail merchandise sold
 
195,308

 
196,245

 
696,666

 
679,703

Cost of wholesale scrap jewelry sold
 
19,534

 
30,424

 
99,964

 
132,794

Consumer loan and credit services loss provision
 
4,366

 
4,400

 
17,461

 
19,819

Total cost of revenue
 
219,208

 
231,069

 
814,091

 
832,316

 
 
 
 
 
 
 
 
 
Net revenue
 
262,000

 
249,136

 
966,767

 
947,506

 
 
 
 
 
 
 
 
 
Expenses and other income:
 
 
 
 
 
 
 
 
Store operating expenses (1)
 
145,210

 
139,468

 
563,321

 
552,191

Administrative expenses
 
32,343

 
28,931

 
120,042

 
122,473

Depreciation and amortization
 
9,876

 
12,429

 
42,961

 
55,233

Interest expense
 
8,580

 
6,208

 
29,173

 
24,035

Interest income
 
(228
)
 
(459
)
 
(2,444
)
 
(1,597
)
Merger and other acquisition expenses
 
2,069

 
5,898

 
7,643

 
9,062

(Gain) loss on foreign exchange (1)
 
974

 
(374
)
 
762

 
(317
)
Loss on extinguishment of debt
 

 

 

 
14,114

Total expenses and other income
 
198,824

 
192,101

 
761,458

 
775,194

 
 
 
 
 
 
 
 
 
Income before income taxes
 
63,176

 
57,035

 
205,309

 
172,312

 
 
 
 
 
 
 
 
 
Income tax expense (benefit)
 
15,101

 
(10,699
)
 
52,103

 
28,420

 
 
 
 
 
 
 
 
 
Net income
 
$
48,075

 
$
67,734

 
$
153,206

 
$
143,892

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
1.10

 
$
1.44

 
$
3.42

 
$
3.01

Diluted
 
1.09

 
1.43

 
3.41

 
3.00

 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
43,795

 
47,154

 
44,777

 
47,854

Diluted
 
43,936

 
47,212

 
44,884

 
47,888

 
 
 
 
 
 
 
 
 
Dividends declared per common share
 
$
0.25

 
$
0.20

 
$
0.91

 
$
0.77


(1) 
The gain on foreign exchange of $0.4 million and $0.3 million for the three and twelve months ended December 31, 2017, respectively, was reclassified on the consolidated statements of income in order to conform with the presentation for the year ended December 31, 2018. The gain on foreign exchange was reclassified from store operating expenses and reported separately on the consolidated statements of income.

10


FIRSTCASH, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 
 
December 31,
 
 
2018
 
2017
ASSETS
 
 
 
 
Cash and cash equivalents
 
$
71,793

 
$
114,423

Fees and service charges receivable
 
45,430

 
42,736

Pawn loans
 
362,941

 
344,748

Consumer loans, net
 
15,902

 
23,522

Inventories
 
275,130

 
276,771

Income taxes receivable
 
1,379

 
19,761

Prepaid expenses and other current assets
 
17,317

 
20,236

Total current assets
 
789,892

 
842,197

 
 
 
 
 
Property and equipment, net
 
251,645

 
230,341

Goodwill
 
917,419

 
831,145

Intangible assets, net
 
88,140

 
93,819

Other assets
 
49,238

 
54,045

Deferred tax assets
 
11,640

 
11,237

Total assets
 
$
2,107,974

 
$
2,062,784

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Accounts payable and accrued liabilities
 
$
96,928

 
$
84,331

Customer deposits
 
35,368

 
32,019

Income taxes payable
 
749

 
4,221

Total current liabilities
 
133,045

 
120,571

 
 
 
 
 
Revolving unsecured credit facility
 
295,000

 
107,000

Senior unsecured notes
 
295,887

 
295,243

Deferred tax liabilities
 
54,854

 
47,037

Other liabilities
 
11,084

 
17,600

Total liabilities
 
789,870

 
587,451

 
 
 
 
 
Stockholders’ equity:
 
 
 
 
Preferred stock
 

 

Common stock
 
493

 
493

Additional paid-in capital
 
1,224,608

 
1,220,356

Retained earnings
 
606,810

 
494,457

Accumulated other comprehensive loss
 
(113,117
)
 
(111,877
)
Common stock held in treasury, at cost
 
(400,690
)
 
(128,096
)
Total stockholders’ equity
 
1,318,104

 
1,475,333

Total liabilities and stockholders’ equity
 
$
2,107,974

 
$
2,062,784




11


FIRSTCASH, INC.
OPERATING INFORMATION
(UNAUDITED)

The Company’s reportable segments are as follows:

Latin America operations - Includes all pawn and consumer loan operations in Latin America, which includes operations in Mexico, Guatemala, El Salvador and Colombia.
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 Latin America on a constant currency basis because the Company believes this better represents the Company’s underlying business trends. Constant currency results are non-GAAP financial measures, which exclude the effects of foreign currency translation and are calculated by translating current-year results at prior-year average exchange rates. The scrap jewelry generated in Latin America is sold and settled in U.S. dollars, and therefore wholesale scrap jewelry sales revenue is not affected by foreign currency translation. A small percentage of the operating and administrative expenses in Latin America are also billed and paid in U.S. dollars, which are not affected by foreign currency translation. Amounts presented on a constant currency basis are denoted as such. See the “Constant Currency Results” section below for additional discussion of constant currency results.



12


FIRSTCASH, INC.
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 Latin America operations segment as of December 31, 2018 as compared to December 31, 2017 (dollars in thousands, except as otherwise noted):

 
 
 
 
 
 
 
 
 
 
 
Constant Currency Basis
 
 
 
 
 
 
 
 
 
 
 
 
Balance at
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
Increase /
 
Balance at December 31,
 
Increase /
 
2018
 
(Decrease)
 
2018
 
2017
 
(Decrease)
 
(Non-GAAP)
 
(Non-GAAP)
Latin America Operations Segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pawn loans
$
91,357

 
$
68,178

 
 
34
 %
 
 
$
91,285

 
 
34
 %
 
Inventories
 
75,152

 
 
60,032

 
 
25
 %
 
 
75,069

 
 
25
 %
 
Consumer loans, net (1)
 

 
 
343

 
 
(100
)%
 
 

 
 
(100
)%
 
 
$
166,509

 
$
128,553

 
 
30
 %
 
 
$
166,354

 
 
29
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average outstanding pawn loan amount (in ones)
$
68

 
$
64

 
 
6
 %
 
 
$
68

 
 
6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Composition of pawn collateral:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General merchandise
74
%
 
80
%
 
 
 
 
 
 
 
 
 
 
Jewelry
26
%
 
20
%
 
 
 
 
 
 
 
 
 
 
 
100
%
 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Composition of inventories:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General merchandise
68
%
 
75
%
 
 
 
 
 
 
 
 
 
 
Jewelry
32
%
 
25
%
 
 
 
 
 
 
 
 
 
 
 
100
%
 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of inventory aged greater than one year
1
%
 
1
%
 
 
 
 
 
 
 
 
 
 

(1) 
Effective June 30, 2018, the Company no longer offers an unsecured consumer loan product in Latin America.

13


FIRSTCASH, INC.
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)

The following table presents segment pre-tax operating income of the Latin America operations segment for the three months ended December 31, 2018 as compared to the three months ended December 31, 2017 (dollars in thousands):

 
 
 
 
 
 
 
 
 
 
Constant Currency Basis
 
 
 
 
 
 
 
 
 
 
Three Months
 
 
 
 
 
 
Three Months
 
 
 
 
 
Ended
 
 
 
 
 
 
Ended
 
 
 
 
 
December 31,
 
Increase /
 
 
December 31,
 
Increase /
 
2018
 
(Decrease)
 
 
2018
 
2017
 
(Decrease)
 
(Non-GAAP)
 
(Non-GAAP)
Latin America Operations Segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$
114,514

 
$
102,575

 
 
12
 %
 
 
$
119,910

 
 
17
 %
 
Pawn loan fees
 
41,733

 
34,219

 
 
22
 %
 
 
43,689

 
 
28
 %
 
Wholesale scrap jewelry sales
 
5,647

 
5,790

 
 
(2
)%
 
 
5,647

 
 
(2
)%
 
Consumer loan fees
 

 
438

 
 
(100
)%
 
 

 
 
(100
)%
 
Total revenue
 
161,894

 
143,022

 
 
13
 %
 
 
169,246

 
 
18
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of retail merchandise sold
 
73,050

 
65,507

 
 
12
 %
 
 
76,490

 
 
17
 %
 
Cost of wholesale scrap jewelry sold
 
5,429

 
5,557

 
 
(2
)%
 
 
5,682

 
 
2
 %
 
Consumer loan loss provision
 
17

 
84

 
 
(80
)%
 
 
18

 
 
(79
)%
 
Total cost of revenue
 
78,496

 
71,148

 
 
10
 %
 
 
82,190

 
 
16
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenue
 
83,398

 
71,874

 
 
16
 %
 
 
87,056

 
 
21
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Store operating expenses (1)
 
42,076

 
34,298

 
 
23
 %
 
 
43,943

 
 
28
 %
 
Depreciation and amortization
 
2,969

 
2,588

 
 
15
 %
 
 
3,101

 
 
20
 %
 
Total segment expenses
 
45,045

 
36,886

 
 
22
 %
 
 
47,044

 
 
28
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment pre-tax operating income
 
$
38,353

 
$
34,988

 
 
10
 %
 
 
$
40,012

 
 
14
 %
 

(1) 
The gain on foreign exchange for the Latin America operations segment of $0.4 million for the three months ended December 31, 2017 was reclassified on the consolidated statements of income in order to conform with the presentation for the year ended December 31, 2018. The gain on foreign exchange was reclassified from store operating expenses and reported separately on the consolidated statements of income.







14


FIRSTCASH, INC.
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)

The following table presents segment pre-tax operating income of the Latin America operations segment for the twelve months ended December 31, 2018 as compared to the twelve months ended December 31, 2017 (dollars in thousands):

 
 
 
 
 
 
 
 
 
 
Constant Currency Basis
 
 
 
 
 
 
 
 
Twelve Months
 
 
 
 
Twelve Months
 
 
 
 
 
Ended
 
 
 
 
Ended
 
 
 
 
 
December 31,
 
Increase /
 
 
December 31,
 
Increase /
 
2018
 
(Decrease)
 
 
2018
 
2017
 
(Decrease)
 
(Non-GAAP)
 
(Non-GAAP)
Latin America Operations Segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$
382,020

 
$
333,609

 
 
15
 %
 
 
$
388,102

 
 
16
 %
 
Pawn loan fees
 
151,740

 
130,309

 
 
16
 %
 
 
154,144

 
 
18
 %
 
Wholesale scrap jewelry sales
 
22,103

 
21,645

 
 
2
 %
 
 
22,103

 
 
2
 %
 
Consumer loan fees
 
860

 
1,767

 
 
(51
)%
 
 
874

 
 
(51
)%
 
Total revenue
 
556,723

 
487,330

 
 
14
 %
 
 
565,223

 
 
16
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of retail merchandise sold
 
246,150

 
211,176

 
 
17
 %
 
 
250,069

 
 
18
 %
 
Cost of wholesale scrap jewelry sold
 
21,656

 
20,327

 
 
7
 %
 
 
21,998

 
 
8
 %
 
Consumer loan loss provision
 
238

 
388

 
 
(39
)%
 
 
242

 
 
(38
)%
 
Total cost of revenue
 
268,044

 
231,891

 
 
16
 %
 
 
272,309

 
 
17
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenue
 
288,679

 
255,439

 
 
13
 %
 
 
292,914

 
 
15
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Store operating expenses (1)
 
149,224

 
128,977

 
 
16
 %
 
 
151,414

 
 
17
 %
 
Depreciation and amortization
 
11,333

 
10,311

 
 
10
 %
 
 
11,499

 
 
12
 %
 
Total segment expenses
 
160,557

 
139,288

 
 
15
 %
 
 
162,913

 
 
17
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment pre-tax operating income
 
$
128,122

 
$
116,151

 
 
10
 %
 
 
$
130,001

 
 
12
 %
 

(1) 
The gain on foreign exchange for the Latin America operations segment of $0.3 million for fiscal 2017 was reclassified on the consolidated statements of income in order to conform with the presentation for the year ended December 31, 2018. The gain on foreign exchange was reclassified from store operating expenses and reported separately on the consolidated statements of income.


15


FIRSTCASH, INC.
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 December 31, 2018 as compared to December 31, 2017 (dollars in thousands, except as otherwise noted):

 
Balance at December 31,
 
Increase /
 
2018
 
2017
 
(Decrease)
U.S. Operations Segment
 
 
 
 
 
 
 
 
 
Earning assets:
 
 
 
 
 
 
 
 
 
Pawn loans
$
271,584

 
$
276,570

 
 
(2
)%
 
Inventories
 
199,978

 
 
216,739

 
 
(8
)%
 
Consumer loans, net
 
15,902

 
 
23,179

 
 
(31
)%
 
 
$
487,464

 
$
516,488

 
 
(6
)%
 
 
 
 
 
 
 
 
 
 
 
Average outstanding pawn loan amount (in ones)
$
172

 
$
162

 
 
6
 %
 
 
 
 
 
 
 
 
 
 
 
Composition of pawn collateral:
 
 
 
 
 
 
 
 
 
General merchandise
34
%
 
34
%
 
 
 
 
Jewelry
66
%
 
66
%
 
 
 
 
 
100
%
 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Composition of inventories:
 
 
 
 
 
 
 
 
 
General merchandise
42
%
 
42
%
 
 
 
 
Jewelry
58
%
 
58
%
 
 
 
 
 
100
%
 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of inventory aged greater than one year
4
%
 
6
%
 
 
 
 



16


FIRSTCASH, INC.
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)

The following table presents segment pre-tax operating income of the U.S. operations segment for the three months ended December 31, 2018 as compared to the three months ended December 31, 2017 (dollars in thousands).

 
 
Three Months Ended
 
 
 
 
 
 
December 31,
 
Increase /
 
 
2018
 
2017
 
(Decrease)
U.S. Operations Segment
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$
195,100

 
$
198,374

 
 
(2
)%
 
Pawn loan fees
 
95,995

 
93,258

 
 
3
 %
 
Wholesale scrap jewelry sales
 
15,324

 
27,767

 
 
(45
)%
 
Consumer loan and credit services fees
 
12,895

 
17,784

 
 
(27
)%
 
Total revenue
 
319,314

 
337,183

 
 
(5
)%
 
 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
Cost of retail merchandise sold
 
122,258

 
130,738

 
 
(6
)%
 
Cost of wholesale scrap jewelry sold
 
14,105

 
24,867

 
 
(43
)%
 
Consumer loan and credit services loss provision
 
4,349

 
4,316

 
 
1
 %
 
Total cost of revenue
 
140,712

 
159,921

 
 
(12
)%
 
 
 
 
 
 
 
 
 
 
Net revenue
 
178,602

 
177,262

 
 
1
 %
 
 
 
 
 
 
 
 
 
 
Segment expenses:
 
 
 
 
 
 
 
 
Store operating expenses
 
103,134

 
105,170

 
 
(2
)%
 
Depreciation and amortization
 
5,144

 
5,314

 
 
(3
)%
 
Total segment expenses
 
108,278

 
110,484

 
 
(2
)%
 
 
 
 
 
 
 
 
 
 
Segment pre-tax operating income
 
$
70,324

 
$
66,778

 
 
5
 %
 




17


FIRSTCASH, INC.
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)

The following table presents segment pre-tax operating income of the U.S. operations segment for the twelve months ended December 31, 2018 as compared to the twelve months ended December 31, 2017 (dollars in thousands):

 
 
Twelve Months Ended
 
 
 
 
 
 
December 31,
 
 
 
 
2018
 
2017
 
Decrease
U.S. Operations Segment
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
Retail merchandise sales
 
$
709,594

 
$
717,490

 
 
(1
)%
 
Pawn loan fees
 
373,406

 
380,596

 
 
(2
)%
 
Wholesale scrap jewelry sales
 
85,718

 
119,197

 
 
(28
)%
 
Consumer loan and credit services fees
 
55,417

 
75,209

 
 
(26
)%
 
Total revenue
 
1,224,135

 
1,292,492

 
 
(5
)%
 
 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
Cost of retail merchandise sold
 
450,516

 
468,527

 
 
(4
)%
 
Cost of wholesale scrap jewelry sold
 
78,308

 
112,467

 
 
(30
)%
 
Consumer loan and credit services loss provision
 
17,223

 
19,431

 
 
(11
)%
 
Total cost of revenue
 
546,047

 
600,425

 
 
(9
)%
 
 
 
 
 
 
 
 
 
 
Net revenue
 
678,088

 
692,067

 
 
(2
)%
 
 
 
 
 
 
 
 
 
 
Segment expenses:
 
 
 
 
 
 
 
 
Store operating expenses
 
414,097

 
423,214

 
 
(2
)%
 
Depreciation and amortization
 
21,021

 
24,073

 
 
(13
)%
 
Total segment expenses
 
435,118

 
447,287

 
 
(3
)%
 
 
 
 
 
 
 
 
 
 
Segment pre-tax operating income
 
$
242,970

 
$
244,780

 
 
(1
)%
 




















18


FIRSTCASH, INC.
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)

Consolidated Results of Operations

The following table reconciles pre-tax operating income of the Company’s Latin America operations segment and U.S. operations segment discussed above to consolidated net income (in thousands):

 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2018
 
2017
 
2018
 
2017
Consolidated Results of Operations
 
 
 
 
 
 
 
Segment pre-tax operating income:
 
 
 
 
 
 
 
Latin America operations segment pre-tax operating income (1)
$
38,353

 
$
34,988

 
$
128,122

 
$
116,151

U.S. operations segment pre-tax operating income
70,324

 
66,778

 
242,970

 
244,780

Consolidated segment pre-tax operating income
108,677

 
101,766

 
371,092

 
360,931

 
 
 
 
 
 
 
 
Corporate expenses and other income:
 
 
 
 
 
 
 
Administrative expenses
32,343

 
28,931

 
120,042

 
122,473

Depreciation and amortization
1,763

 
4,527

 
10,607

 
20,849

Interest expense
8,580

 
6,208

 
29,173

 
24,035

Interest income
(228
)
 
(459
)
 
(2,444
)
 
(1,597
)
Merger and other acquisition expenses
2,069

 
5,898

 
7,643

 
9,062

(Gain) loss on foreign exchange (1)
974

 
(374
)
 
762

 
(317
)
Loss on extinguishment of debt

 

 

 
14,114

Total corporate expenses and other income
45,501

 
44,731

 
165,783

 
188,619

 
 
 
 
 
 
 
 
Income before income taxes
63,176

 
57,035

 
205,309

 
172,312

 
 
 
 
 
 
 
 
Income tax expense (benefit)
15,101

 
(10,699
)
 
52,103

 
28,420

 
 
 
 
 
 
 
 
Net income
$
48,075

 
$
67,734

 
$
153,206

 
$
143,892


(1) 
The gain on foreign exchange for the Latin America operations segment of $0.4 million and $0.3 million for the three and twelve months ended December 31, 2017, respectively, was reclassified on the consolidated statements of income in order to conform with the presentation for the year ended December 31, 2018. The gain on foreign exchange was reclassified from store operating expenses and reported separately on the consolidated statements of income.












19


FIRSTCASH, INC.
STORE COUNT ACTIVITY

The following table details store count activity for the three months ended December 31, 2018:

 
 
 
 
Consumer
 
 
 
 
Pawn
 
Loan
 
Total
 
 
Locations (1), (2)
 
Locations
 
Locations
Latin America operations segment:
 
 
 
 
 
 
Total locations, beginning of period
 
1,346

 

 
1,346

New locations opened
 
9

 

 
9

Locations acquired
 
24

 

 
24

Total locations, end of period
 
1,379

 

 
1,379

 
 
 
 
 
 
 
U.S. operations segment:
 
 
 
 
 
 
Total locations, beginning of period
 
1,070

 
30

 
1,100

Locations acquired
 
9

 

 
9

Locations closed or consolidated
 
(2
)
 
(13
)
 
(15
)
Total locations, end of period
 
1,077

 
17

 
1,094

 
 
 
 
 
 
 
Total:
 
 
 
 
 
 
Total locations, beginning of period
 
2,416

 
30

 
2,446

New locations opened
 
9

 

 
9

Locations acquired
 
33

 

 
33

Locations closed or consolidated
 
(2
)
 
(13
)
 
(15
)
Total locations, end of period
 
2,456

 
17

 
2,473


(1) 
At December 31, 2018, 262 of the U.S. pawn stores, primarily located in Texas and Ohio, also offered consumer loans and/or credit services primarily as an ancillary product. This compares to 313 U.S. pawn locations which offered such products as of December 31, 2017. Effective June 30, 2018, the Company no longer offers an unsecured consumer loan product in Latin America.

(2) 
The Company closed two pawn stores in the U.S. during the three months ended December 31, 2018, which were primarily smaller format stores emphasizing payday lending or underperforming locations which were consolidated into existing stores, an opportunity driven by merger and acquisition activity.


20


FIRSTCASH, INC.
STORE COUNT ACTIVITY (CONTINUED)

The following table details store count activity for the twelve months ended December 31, 2018:

 
 
 
 
Consumer
 
 
 
 
Pawn
 
Loan
 
Total
 
 
Locations (1), (2)
 
Locations
 
Locations
Latin America operations segment:
 
 
 
 
 
 
Total locations, beginning of period
 
971

 
28

 
999

New locations opened
 
52

 

 
52

Locations acquired
 
366

 

 
366

Locations closed or consolidated
 
(10
)
 
(28
)
 
(38
)
Total locations, end of period
 
1,379

 

 
1,379

 
 
 
 
 
 
 
U.S. operations segment:
 
 
 
 
 
 
Total locations, beginning of period
 
1,068

 
44

 
1,112

Locations acquired
 
27

 

 
27

Locations closed or consolidated
 
(18
)
 
(27
)
 
(45
)
Total locations, end of period
 
1,077

 
17

 
1,094

 
 
 
 
 
 
 
Total:
 
 
 
 
 
 
Total locations, beginning of period
 
2,039

 
72

 
2,111

New locations opened
 
52

 

 
52

Locations acquired
 
393

 

 
393

Locations closed or consolidated
 
(28
)
 
(55
)
 
(83
)
Total locations, end of period
 
2,456

 
17

 
2,473


(1) 
At December 31, 2018, 262 of the U.S. pawn stores, primarily located in Texas and Ohio, also offered consumer loans and/or credit services primarily as an ancillary product. This compares to 313 U.S. pawn locations which offered such products as of December 31, 2017. Effective June 30, 2018, the Company no longer offers an unsecured consumer loan product in Latin America.

(2) 
The Company closed 28 pawn stores, 18 in the U.S. and 10 in Latin America, during fiscal 2018, which were primarily smaller format stores emphasizing payday lending or underperforming locations which were consolidated into existing stores, an opportunity driven by merger and acquisition activity.


21


FIRSTCASH, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES
(UNAUDITED)

The Company uses certain financial calculations such as adjusted net income, adjusted diluted earnings per share, adjusted pre-tax profit margin, adjusted net income margin, EBITDA, adjusted EBITDA, free cash flow, adjusted free cash flow 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 SEC rules. The Company uses these non-GAAP financial measures in operating its business because management believes they are less susceptible to variances in actual operating performance that can result from the excluded items, other infrequent charges and currency fluctuations. The Company presents these financial measures to investors because management believes they are useful to investors in evaluating the primary factors that drive the Company’s operating performance and because management believes they provide greater transparency into the Company’s results of operations. However, items that are excluded and other adjustments and assumptions that are made in calculating these non-GAAP financial measures are significant components in understanding and assessing the Company’s financial performance. These non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, the Company’s GAAP financial measures. Further, because these non-GAAP financial measures are not determined in accordance with GAAP and are thus susceptible to varying calculations, the non-GAAP financial measures, as presented, may not be comparable to other similarly titled measures of other companies.

The Company has adjusted the applicable financial measures to exclude, among other expenses and benefits, merger and other acquisition expenses because it generally would not incur such costs and expenses as part of its continuing operations. Merger and other acquisition expenses include incremental costs directly associated with 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.






22


FIRSTCASH, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES (CONTINUED)
(UNAUDITED)

Adjusted Net Income, Adjusted Diluted Earnings Per Share, Adjusted Pre-Tax Profit Margin and Adjusted Net Income Margin
Management believes the presentation of adjusted net income, adjusted diluted earnings per share, adjusted pre-tax profit margin and adjusted net income margin provides investors with greater transparency and provides a more complete understanding of the Company’s financial performance and prospects for the future by excluding items that management believes are non-operating in nature and not representative of the Company’s core operating performance. In addition, management believes the adjustments shown below are useful to investors in order to allow them to compare the Company’s financial results for the current periods presented with the prior periods presented.

The following table provides a reconciliation between net income and diluted earnings per share calculated in accordance with GAAP to adjusted net income and adjusted diluted earnings per share, which are shown net of tax (in thousands, except per share amounts):
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
 
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
$
48,075

 
$
1.09

 
$
67,734

 
$
1.43

 
$
153,206

 
$
3.41

 
$
143,892

 
$
3.00

Adjustments, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Merger and other acquisition expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transaction
1,297

 
0.03

 

 

 
4,686

 
0.11

 

 

Severance and retention
62

 

 
1,598

 
0.03

 
105

 

 
2,456

 
0.05

Other
95

 

 
2,118

 
0.05

 
621

 
0.01

 
3,254

 
0.07

Total merger and other acquisition expenses
1,454

 
0.03

 
3,716

 
0.08

 
5,412

 
0.12

 
5,710

 
0.12

Asset impairments related to consumer loan operations
1,166

 
0.03

 

 

 
1,166

 
0.03

 

 

Net tax benefit from Tax Act
(1,494
)
 
(0.03
)
 
(27,269
)
 
(0.57
)
 
(1,494
)
 
(0.03
)
 
(27,269
)
 
(0.57
)
Loss on extinguishment of debt

 

 

 

 

 

 
8,892

 
0.19

Adjusted net income and diluted earnings per share
$
49,201

 
$
1.12

 
$
44,181

 
$
0.94