Business Context and Reporting Period
This is a transition report (Form 10-Q) for First Cash Financial Services, Inc. covering the period from November 1, 1998, to December 31, 1998. The Company changed its fiscal year-end from July 31 to December 31, effective December 7, 1998. The Company operates pawnshops and check cashing stores, with a total of 133 stores owned as of December 31, 1998.
Key Financial Metrics
| Metric | Five Months Ended Dec 31, 1998 | Five Months Ended Dec 31, 1997 |
|---|---|---|
| Total Revenues | $34,078,000 | $23,160,000 |
| Net Income | $2,569,000 | $1,453,000 |
| Diluted EPS | $0.29 | $0.24 |
| Net Cash from Operating Activities | $1,522,000 | $446,000 |
| Net Cash Used in Investing Activities | ($6,861,000) | ($1,902,000) |
| Net Cash from Financing Activities | $8,215,000 | $1,905,000 |
| Cash and Cash Equivalents (Ending) | $4,458,000 | $1,588,000 |
| Total Debt (Revolving + Long-term) | $39,733,000 | Filing text does not provide a clear comparable total for 1997 |
| Working Capital | $39,470,000 | Filing text does not provide a clear comparable value |
Debt and Liquidity: The Company maintains a $40,000,000 revolving credit facility. As of December 31, 1998, $33,450,000 was outstanding, with $5,985,000 available. The Company reported a total liabilities to equity ratio of 0.87 to 1.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 47% to $34.1 million for the five-month period, driven primarily by the acquisition or opening of 75 stores since August 1, 1997. Same-store revenue for the 58 stores operating in both periods declined 3%.
- Expense Increases: Operating expenses rose 71% and administrative expenses rose 39%, attributed to the expansion of the store base and the addition of corporate personnel.
- Receivables: Aggregate receivables (pawn loans and payday advances) increased 52% to $20.4 million. The annualized yield on average receivables improved to 159% from 141%.
- Acquisitions: The Company acquired 20 pawnshops and 16 check cashing stores during the five-month period, entering new markets in El Paso, Texas; South Carolina; and Chicago, Illinois.
Guidance, Outlook, and Risks
- Expansion Strategy: Management intends to continue growth through acquisitions and new store openings. A letter of intent exists to acquire 22 check cashing stores in Mississippi, subject to due diligence.
- Capital Needs: The Company expects to seek additional capital to facilitate future expansion. Current liquidity (cash, receivables, and credit facility availability) is deemed sufficient for operations for the next twelve months.
- Year 2000 Compliance: Management believes its point-of-sale system will be fully compliant by August 1999 and does not anticipate material adverse impacts or additional expenditures.
- Risks: Forward-looking statements are subject to uncertainties including economic conditions, regulatory changes, interest rate fluctuations, and gold market prices. Liquidity is sensitive to loan forfeiture rates and inventory turnover.
Investor Verification Checklist
- Verify the sustainability of the 47% revenue growth given the 3% decline in same-store sales.
- Confirm the utilization rate of the $40 million credit facility and compliance with the 325% EBITDA borrowing base covenant.
- Assess the integration risks and performance of the 36 new stores acquired between August 1998 and February 1999.
- Review the status of the proposed acquisition of 22 check cashing stores in Mississippi.
- Monitor the impact of the fiscal year change on future reporting comparability.