FirstCash, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2021. The filing identifies the registrant as FirstCash, Inc. and presents unaudited U.S. GAAP interim results. The company operated 2,771 pawn stores across the United States and Latin America at quarter-end.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $407.9 million | $466.5 million | Down 13% |
| Net revenue | $233.6 million | $259.3 million | Down 10% |
| Income before taxes | $46.3 million | $45.7 million | Up 1% |
| Net income | $33.7 million | $32.9 million | Up 2% |
| Diluted EPS | $0.82 | $0.78 | Up $0.04 |
| Operating cash flow | $69.2 million | $77.4 million | Down 11% |
| Free cash flow | $102.1 million | $119.1 million | Down 14% |
Retail merchandise sales were $272.0 million, pawn loan fees were $115.5 million, and wholesale scrap jewelry sales were $20.4 million. Consumer loan and credit services fees were zero because the U.S. consumer lending product was discontinued in 2020.
Retail merchandise gross margins improved materially, particularly in the United States. Consolidated net income benefited from lower operating expenses, interest expense, foreign-exchange losses and unusual charges. The effective tax rate was 27.1%, compared with 28.0% in the prior-year quarter.
At March 31, 2021, cash and cash equivalents were $54.6 million, working capital was $345.6 million, and current assets totaled $557.6 million against current liabilities of $212.0 million. Pawn loans were $265.4 million and inventories were $185.3 million.
Total debt at principal or carrying amounts was approximately $537.1 million, comprising $44.0 million drawn under the revolving credit facility and $500.0 million of senior unsecured notes, net of issuance costs. The company had $452.6 million of availability under its $500.0 million U.S. credit facility, subject to covenants, and $600.0 million Mexican pesos available under its Mexico facility. The company reported compliance with applicable debt covenants. The Net Debt Ratio was 2.1 to 1.
Material changes versus the prior comparable period
- U.S. pawn loan receivables decreased 24%, while Latin American pawn loan receivables increased 6% as reported but decreased 6% on a constant-currency basis.
- Consolidated pawn loan balances were approximately 16% below the prior-year quarter, primarily reflecting U.S. government stimulus payments that reduced demand for pawn loans.
- U.S. retail sales declined 3%, but the U.S. retail sales margin increased to 44% from 39%; U.S. retail gross profit increased 9%.
- Latin American retail sales declined 18% as reported and 17% on a constant-currency basis. The Latin American segment pre-tax operating margin declined to 19% from 21%.
- Consolidated segment pre-tax operating income decreased 10% to $86.6 million. U.S. segment pre-tax operating income declined 5% to $60.9 million, while Latin America declined 19% to $25.7 million.
- Store operating expenses decreased 11% to $137.3 million, reflecting COVID-19-related cost-saving initiatives.
- Interest expense decreased 14% to $7.2 million, and foreign-exchange losses declined to $0.3 million from $2.7 million.
- The company recorded $0.9 million of Cash America merger-related lease-intangible write-offs, compared with $3.6 million in Q1 2020; the prior-year period also included a $1.9 million asset impairment.
- Cash flow was used for $79.0 million of net credit-facility repayments, $11.1 million of dividends, $5.0 million of share repurchases, $9.5 million of capital expenditures, and $14.4 million of store real-estate purchases.
Guidance, outlook, risks and unusual items
Management expected COVID-19 impacts to remain uncertain. Government stimulus and transfer programs may continue to suppress pawn-loan demand, particularly in the United States, while store closures, reduced customer traffic, changing consumer behavior, virus variants, vaccine availability and economic conditions could affect revenue, liquidity and cash flow.
The company opened 24 stores during the quarter and indicated that COVID-19 conditions would likely limit 2021 openings to approximately 50 to 60 new full-service pawn locations in Latin America. It also acquired two U.S. pawn stores for $1.3 million and purchased real estate at 12 store locations for $14.4 million.
The board declared a second-quarter dividend of $0.30 per share, expected to aggregate approximately $12.3 million. Future dividends and repurchases remain subject to financial condition, debt covenants, liquidity, business conditions and COVID-19 impacts. Approximately $116.9 million remained authorized for share repurchases at March 31, 2021.
The company had contractual commitments to deliver 12,000 gold ounces from April through December 2021 at a weighted-average price of $1,855 per ounce. Management expected to have sufficient historical scrap-gold volumes to satisfy these commitments.
Regulatory risk remains material. Illinois enacted a 36% annual effective interest-rate cap on most consumer loans; the company believes the law does not apply to collateralized pawn loans, but noted that regulators or other stakeholders could interpret it differently. The company had 25 Illinois pawn stores at quarter-end.
Other key risks include foreign-currency movements, interest rates, gold prices, regulatory changes, store expansion execution, acquisition integration, inventory availability and the company’s reliance on physical stores because it does not currently offer an online pawn-lending or payment platform.
Investor verification points
- Confirm the pace of recovery in pawn-loan balances, particularly whether U.S. demand improves after stimulus effects fade.
- Monitor retail inventory levels, merchandise availability and whether elevated retail margins are sustainable.
- Reconcile reported GAAP results with adjusted net income, adjusted EBITDA, free cash flow and constant-currency measures.
- Review debt-covenant capacity, the 2.1-to-1 Net Debt Ratio, variable-rate exposure and the maturity profile of the 2028 notes and revolving facilities.
- Assess the effect of COVID-19 developments, government programs and potential store restrictions on liquidity and operating cash flow.
- Track the interpretation and enforcement of Illinois lending regulations and other jurisdictional pawn-lending requirements.
- Evaluate the sustainability of dividends, share repurchases and planned Latin American store expansion relative to cash generation and leverage.