FirstCash, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019; filed October 28, 2019. The company operated 2,665 pawn and consumer-loan locations, including 1,053 in the U.S. and 1,612 in Latin America. Pawn operations generated approximately 99% of nine-month revenue.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Total revenue | $452.5 million | $429.9 million | $1,366.1 million | $1,299.7 million |
| Net revenue | $251.0 million | $237.3 million | $751.1 million | $704.8 million |
| Income before taxes | $49.0 million | $44.1 million | $153.1 million | $142.1 million |
| Net income | $34.8 million | $33.3 million | $110.5 million | $105.1 million |
| Diluted EPS | $0.81 | $0.76 | $2.55 | $2.33 |
| Operating cash flow | Not separately provided | Not separately provided | $163.8 million | $174.2 million |
- Q3 revenue increased 5%, net income increased 4%, and diluted EPS increased 7%. Nine-month revenue increased 5%, net income increased 5%, and diluted EPS increased 9%.
- Approximate net margins were 7.7% in Q3 2019 versus 7.8% in Q3 2018, and 8.1% for both nine-month periods.
- Q3 adjusted net income was $36.2 million, or $0.84 per diluted share, versus $35.6 million, or $0.81, in the prior-year quarter. Nine-month adjusted net income was $114.1 million, or $2.63 per diluted share, versus $109.1 million, or $2.41.
- Adjusted EBITDA was $70.2 million for Q3, $214.0 million for the nine months, and $298.9 million for the trailing twelve months.
- Cash and cash equivalents were $61.2 million at September 30, 2019, compared with $71.8 million at December 31, 2018. Working capital was $582.0 million and the current ratio was 3.8:1; comparability with 2018 is affected by the adoption of lease accounting.
- Pawn loans were $385.9 million and inventories were $281.9 million at quarter-end. Consumer loans declined to $0.9 million from $15.9 million at December 31, 2018.
- Debt consisted of $340.0 million drawn under the revolving credit facility and approximately $300.0 million of senior unsecured notes. Total debt outstanding was $640.0 million, with $82.2 million of credit-facility availability. The weighted-average revolving-facility rate was 4.50%, and the company was in covenant compliance.
- The reported net debt ratio was 1.9:1, compared with 2.0:1 at September 30, 2018.
Material changes versus the prior comparable period
- Latin America was the principal growth driver. Q3 Latin America revenue increased 19% as reported and 21% in constant currency; segment pre-tax operating income increased 12% as reported and 14% in constant currency. Nine-month revenue increased 23% as reported and 24% in constant currency.
- U.S. segment revenue declined 1% in Q3 and 2% for the nine months, but segment pre-tax operating income increased 2% in Q3 and 1% year to date. Higher retail margins and pawn yields offset reduced consumer-lending activity.
- U.S. consumer-loan and credit-services fees fell 82% in Q3 and 57% for the nine months. The company discontinued those products in Ohio on April 26, 2019 and closed 52 Ohio locations, plus two other primarily consumer-lending locations.
- U.S. retail merchandise gross margin improved to 38% in Q3 from 37% and to 38% for the nine months from 36%. U.S. inventory declined 8% year over year.
- During the nine months, the company opened 75 pawn stores in Latin America and acquired 163 Mexican pawn stores and 20 U.S. pawn stores. Aggregate acquisition consideration was $37.4 million, net of cash acquired.
- The company repurchased 751,000 shares for $66.9 million during the nine months, compared with 3.114 million shares for $257.3 million in the prior-year period. It paid $32.4 million in dividends versus $29.9 million.
- Operating cash flow declined 6% year over year, while investing cash outflows declined 15%, primarily because acquisition spending was lower. Financing cash outflows declined 40%, mainly because share repurchases and net debt funding were lower.
- ASC 842 lease accounting was adopted prospectively on January 1, 2019, adding a $288.5 million operating lease right-of-use asset and $264.6 million of lease liabilities at September 30. Management stated that the adoption did not materially affect income or cash flow.
Guidance, outlook, risks and unusual items
- Management expected to add approximately 85 or more de novo full-service pawn locations in Latin America during 2019 and forecast approximately $37.5 million of 2019 purchases of furniture, fixtures, equipment and improvements, excluding discretionary real-estate purchases.
- Management expected cash on hand, operating cash flow and available credit to fund operations and planned expansion for at least the next twelve months.
- Management declared a fourth-quarter dividend of $0.27 per share, payable November 29, 2019. Future dividends and repurchases remain subject to financial condition, business needs, debt covenants and other factors.
- Q3 included approximately $0.6 million of after-tax Ohio consumer-lending wind-down costs; the nine-month amount was approximately $2.5 million. Adjusted results also excluded acquisition expenses and certain non-cash foreign-currency items.
- Foreign exchange remains a material source of volatility. Q3 included a $1.6 million foreign-exchange loss, including a $0.5 million loss from remeasuring U.S.-dollar-denominated Mexican lease liabilities. Latin America results were also affected by unfavorable currency translation.
- The company had commitments to deliver 38,000 gold ounces from October 2019 through August 2020 at a weighted-average price of $1,381 per ounce and expected historical scrap-gold volumes to satisfy the commitments.
- Key risks include regulatory changes affecting pawn and consumer lending, interest-rate exposure, gold prices, foreign currency movements, seasonal operating trends, acquisition integration, store expansion, inventory valuation and compliance with debt covenants. No material changes to previously reported legal proceedings or regulatory developments were disclosed.
Investor verification checklist
- Verify the sustainability of Latin America’s acquisition-driven growth, same-store trends and constant-currency performance.
- Assess the impact of the Ohio consumer-lending exit and whether related wind-down charges are complete.
- Reconcile reported debt, lease liabilities, credit availability and covenant calculations, including the 1.9:1 net debt ratio.
- Evaluate operating cash-flow conversion after acquisitions, capital expenditures, real-estate purchases, dividends and share repurchases.
- Monitor foreign exchange, gold prices and the company’s gold-delivery commitments.
- Review the effects of ASC 842 on leverage, liquidity metrics and future lease obligations.
- Distinguish GAAP results from adjusted net income, adjusted EBITDA, free cash flow and constant-currency measures.