First Cash Financial Services : FirstCash Reports Fourth Quarter and Full Year Results; Declares Quarterly Dividend and Issues 2017 Earnings Outlook

February 07, 2017 at 03:59 am EST

FirstCash Reports Fourth Quarter and Full Year Results; Declares Quarterly Dividend and Issues 2017 Earnings Outlook

FORT WORTH, Texas--(BUSINESS WIRE)-- FirstCash, Inc. (the 'Company') (NYSE: FCFS), a leading international operator of more than 2,000 retail pawn stores in the U.S. and Latin America, today announced revenue, net income and earnings per share for the fourth quarter and full year ended December 31, 2016. The Board of Directors also declared a $0.19 quarterly dividend payable on February 28, 2017 to stockholders of record as of February 14, 2017.

Mr. Rick Wessel, chief executive officer, stated, '2016 was a transformational year in the 28 year history of FirstCash. Early in the first quarter, we completed the acquisition of the Maxi Prenda stores in Mexico, Guatemala and El Salvador. This was our largest Latin American acquisition and expanded our operations outside of Mexico. In the third quarter, we almost tripled the size of our U.S. operations by merging with Cash America, the largest U.S. pawnshop operator with more than 800 stores in 20 U.S. states. Today, FirstCash has a market cap and combined assets of over $2 billion and is the largest pawn operator in the Americas with more than 2,000 stores serving under banked and value conscious customers in four countries.

'The core operating results in the fourth quarter were encouraging. Despite further currency headwinds impacting dollar-translated results, our Latin American stores had double digit increases in local currency same-store pawn loans and core revenues. In the U.S., the legacy First Cash stores posted a fourth quarter increase in same-store pawn loans, marking the first positive comparative in this metric in several quarters. The merger integration with Cash America remains on track as we are beginning to realize the expected cost synergies and are rapidly integrating our store operating systems on the FirstPawn IT platform. While the integration efforts and further currency headwinds will provide certain challenges in 2017, we believe the earnings, synergies and cash flow opportunities from our expansion and growth will drive long-term shareholder value,' Mr. Wessel concluded.

Earnings Highlights

Consolidated operating results of the Company for the year ended December 31, 2016 include the revenues and operating results of Cash America for the last four months of the year and include merger related expenses and other adjustments of approximately $35.4 million pre-tax, or $0.72 per share, net of tax for 2016.
The Company reported the following consolidated results for the fourth quarter and full year of 2016. Adjusted measures exclude merger related expenses and other adjustments, which are further defined and reconciled in the detailed reconciliation of non-GAAP financial measures including EBITDA and adjusted EBITDA, provided elsewhere in this release (in thousands except per share amounts):

For the quarter ended December 31, 2016, which includes the results of the Cash America operations for the full quarter, GAAP net income increased 89% while adjusted net income increased 82% compared to the same prior-year period. The smaller increases in GAAP and adjusted earnings per share of 10% and 5%, respectively, were a result of an increase in the weighted average diluted shares outstanding from the merger. Additionally, both GAAP and adjusted net income per share for the fourth quarter of 2016 were negatively impacted by approximately $0.06 per share due to the 19% decline in the value of the Mexican peso compared to the fourth quarter last year.
GAAP net income for the full year declined approximately 1%. The added earnings contribution from Latin American growth and the post-merger earnings contribution from Cash America were offset by $35 million in merger related costs and other adjustments and the 18% decline in the average value of the Mexican peso. Full year GAAP and adjusted earnings per share were reduced by approximately $0.28 per share due to the currency fluctuation.
EBITDA for the fourth quarter and full year totaled $77 million and $145 million, respectively. Adjusted EBITDA, which excludes merger costs, totaled $78 million for the current quarter, an increase of 109% compared to the fourth quarter of 2015. For the full year, adjusted EBITDA increased 36% to $180 million, as compared to $132 million in 2015. EBITDA and adjusted EBITDA are non-GAAP measures and are calculated in the detailed reconciliation of non-GAAP financial measures provided elsewhere in this release.
The Company is providing segment level reporting beginning with this release. The two identified segments are the U.S. operations segment and the Latin America operations segment. The pre-tax operating income in the Latin America segment increased 13% and 19% for the fourth quarter and full year periods, respectively, primarily due to the acquisition of Maxi Prenda and the strong same-store sales results that were partially offset by the currency impact. On a constant currency basis, the Latin America segment pre-tax operating income increased 32% and 39%, respectively. The pre-tax operating income in the U.S. increased 262% and 83% for the fourth quarter and full year periods, respectively, primarily due to the merger with Cash America. The operating results for each segment are further detailed elsewhere in this release.

Note:Certain growth rates in 'Revenue Highlights' and 'Pawn Operating Metrics' are calculated on a constant currency basis, a non-GAAP measure defined elsewhere in 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 2016 was 18.7 pesos / dollar versus 15.8 pesos / dollar in the comparable prior-year period. The average exchange rate for the fourth quarter of 2016 was 19.8 pesos / dollar versus 16.7 pesos / dollar in the comparable prior year period.

Revenue Highlights

Consolidated revenue for fiscal 2016 was $1.1 billion, an increase of 54%. For the fourth quarter of 2016, revenues increased 141% and totaled $462 million. On a constant currency basis, total revenues increased 64% for the full year and 152% for the fourth quarter.
Fiscal 2016 U.S. segment revenues increased 99% due primarily to the partial year contribution from the Cash America operations and totaled $334 million. Core U.S. same-store pawn revenues, which are composed of pawn lending fees and retail merchandise sales, in the legacy First Cash locations decreased slightly at 1% for the quarter. Fourth quarter same-store core revenues in the legacy Cash America stores declined approximately 5%, which primarily reflected lower average pawn receivables for the quarter.
Revenues for fiscal 2016 in Latin America increased 13% on a dollar-translated basis and increased an impressive 32% on a constant currency basis, driven by strong same-store sales results and the contribution of $65 million from the 211 Maxi Prenda stores acquired in late 2015 and early 2016. While core Latin America same-store pawn revenues declined 6% and 7% on a U.S. dollar basis during the fourth quarter and full year of 2016, respectively, Latin America core same-store pawn revenues increased by 11% and 9% on a constant currency basis, respectively.

Pawn Operating Metrics

Consolidated retail merchandise sales margins were 37% for both the fourth quarter and the full 2016 fiscal year, down one percentage point compared to prior-year periods. Retail margins in the Latin America segment were 36% and 37% for the fourth quarter and full year, respectively, while U.S. retail margins were 37% and 38% for the fourth quarter and full year, respectively.
Pawn loans outstanding in Latin America at December 31, 2016 increased by 16% on a U.S. dollar basis and 37% on a constant currency basis. U.S. pawn loans outstanding at December 31, 2016 totaled $293 million, which included $224 million from the Cash America locations. Pawn loans in the legacy U.S. First Cash stores increased 1% year-over-year.
Significantly impacted by the 18% year-over-year decline in the value of the Mexican peso compared to the U.S. dollar, same-store pawn loans in Latin America at December 31, 2016 declined 8% on a dollar-denominated basis. On a constant currency basis, pawn loans increased 11%, matching the largest same-store increase in the Latin American stores over the past four years.
U.S. same-store pawn loan balances in the legacy First Cash locations increased 1%, which represented continued sequential improvement in this metric. Same-store pawn receivables at the Cash America stores remained down mid-single digits, reflecting the prior quarter trend and caused, in part, by actively reducing the number of delinquent pawn loans outstanding to conform with First Cash operating practices.

Store Count Activity

During fiscal 2016, a total of 1,038 stores were added, composed of 815 U.S. locations from the merger with Cash America, 220 new and acquired pawn stores in Latin America and three additional pawn stores acquired in the U.S. The Company closed 18 consumer loan stores during fiscal 2016 as part of its strategic plan to further reduce payday lending exposure. The year-over-year store count has increased 30% in Latin America and 94% overall.
As of December 31, 2016, the Company operated 2,085 stores, of which 96% or 2,012 were pawn stores. There are 955 total stores in Latin America and 1,130 total stores in the U.S. In addition, there were 70 check cashing locations, previously part of Cash America, that are operated by independent franchisees under franchising agreements with the Company.

Liquidity

As previously announced, the Company entered into a new $400 million unsecured revolving bank credit facility in conjunction with the merger. The credit facility has a five year term from the closing date of the merger, September 1, 2016, and bears interest at either the prevailing London Interbank Offered Rate (LIBOR) plus a fixed spread of 2.5% or the prevailing prime or base rate plus a fixed spread of 1.5%. The interest rate on the outstanding balance was 3.25% at year end.
At December 31, 2016, the Company had $260 million drawn on the facility and an additional $6 million of outstanding letters of credit. During the fourth quarter, the Company utilized proceeds from the sale of the Enova stock holdings and normal seasonal cash flows to reduce the outstanding balance on the facility by $100 million.
As of December 31, 2016, the Company had $90 million in cash on its balance sheet and $134 million of availability for future borrowings under its long-term U.S. revolving bank credit facility.
As a result of the merger with Cash America, the Company had owned approximately six million shares of Enova International, Inc. on September 1, 2016. As previously announced, all of the shares were sold in open market transactions with the final sales completed on December 6, 2016. The Company generated net proceeds of $62.1 million, which was used to pay down the balance on the unsecured revolving bank credit facility.

Cash Dividends and Share Repurchases

The Board of Directors declared a $0.19 per share first quarter cash dividend on common shares outstanding, which will be paid on February 28, 2017 to stockholders of record as of February 14, 2017. This represents a 52% increase over the dividend paid to First Cash Financial Services, Inc. stockholders in the first quarter of 2016.
The Company currently has approximately 1.1 million shares of its common stock available for repurchase under its current buyback authorization. While the Company did not repurchase shares in fiscal 2016 because of the merger, it expects to begin repurchases in fiscal 2017, subject to expected liquidity and other factors it normally considers when making share repurchases.

Fiscal 2017 Outlook

The outlook for 2017 is tempered by the continued volatility and decline in the value of the Mexican peso relative to the strong U.S. dollar. The Company's currency forecast for 2017 assumes an exchange rate of approximately 22.0 Mexican pesos to 1.0 U.S. dollar. This represents a potential decline of almost 20% compared to the average exchange rate of 18.7 to 1.0 in 2016. The anticipated year-over-year earnings drag is approximately $0.17 to $0.21 per share. For reference, it is anticipated that for 2017 a one point change in the average peso to dollar exchange rate will impact annual earnings by approximately $0.06 to $0.08 per share.
The Company is initiating its fiscal full-year 2017 guidance for adjusted earnings per share, a non-GAAP measure that excludes merger and other acquisition expenses, to be in the range of $2.45 to $2.60 based on an expected full year weighted average share count of approximately 48.2 million shares. This compares to 2016 adjusted earnings per share of $2.44 which was based on only 35.0 million weighted average shares outstanding.
- Adjusted net income, a non-GAAP measure that excludes merger and other acquisition expenses, is projected to be in the range of approximately $118 million to $125 million, which at the midpoint, implies an increase of 43% over 2016 adjusted net income of $85 million.
- The earnings guidance range implies adjusted EBITDA to be in the range of approximately $257 to $268 million for fiscal 2017. This compares to adjusted EBITDA of $180 million in fiscal 2016 and $132 million in fiscal 2015.
- The guidance for fiscal 2017 is presented on a non-GAAP basis, as it does not include the impact of expenses related to the Cash America merger or any future acquisitions. Given the difficulty in predicting the amount and timing of merger related expenses, the Company cannot reasonably provide a full reconciliation of adjusted earnings per share to GAAP earnings per share.
These estimates of expected adjusted earnings per share include the following assumptions:
- An estimated average exchange rate of approximately 22.0 Mexican pesos / U.S. dollar for fiscal 2017 compared to the foreign exchange rate of 18.7 Mexican pesos / U.S. dollar in fiscal 2016.
- The expected conversion of all the Cash America stores to the FirstPawn IT platform and the implementation of new operating protocols during 2017 that could have a short term negative impact on pawn receivables, inventories and margins.
- An expected earnings drag of approximately $0.03 per share due to expected reductions in consumer lending (payday) operations during 2017.
- An expected effective income tax rate for fiscal 2017 of approximately 36%, which compares to the 2016 effective rate of 33.8% (adjusted for merger costs). The increase in the tax rate is a result of the full year of incremental earnings from Cash America being taxed at approximately 37%.
- As previously announced, the Company currently plans to open or acquire approximately 85 stores in 2017, primarily focused on Latin America, including its first stores in Colombia.

Additional Commentary and Analysis

Mr. Wessel further commented on the Company's fiscal 2016 results, 'Our Latin America operations team had a phenomenal year in 2016, as evidenced by the strong local currency growth in same-store pawn loans and revenues during 2016. We are excited and encouraged that the rate of revenue growth continued to accelerate over the course of the year. The integration of the Maxi Prenda stores was successfully completed and their initial performance has exceeded our expectations. With over 900 stores in Latin America, we are well-positioned for continued growth in this important market that now includes our planned expansion into Colombia in 2017.

'As discussed in previous releases during 2016, the U.S. operating environment has been challenging; however, we are encouraged by the steady stabilization in certain parts of the business, as seen in the legacy First Cash U.S. stores which recorded their first increase in same-store pawn loans in several quarters. This is a positive leading indicator for these legacy stores where we have remained disciplined in maintaining proper loan to value ratios and managing other operating fundamentals.

'During the fourth quarter, we successfully transitioned 65 of the Cash America stores onto the FirstPawn IT platform and anticipate that these stores will begin to operate more efficiently with improved tools for assessing loan to value ratios, managing inventory and implementing incentive compensation plans focused on earnings quality. In the short term, the transition will likely cause pawn loans and inventories to contract in these locations which may soften pawn fees and negatively affect retail margins during 2017. Over the long term though, we expect the transition to drive improved efficiency and profitability metrics. This year we have already transitioned 96 stores onto the FirstPawn platform and completed 161 stores in total, which puts us on target to integrate all of the remaining Cash America stores during 2017.

'We remain confident in our ability to meet or exceed the full run rate of our targeted synergies by the first half of 2018. From a corporate perspective, the merger integration and realization of expected corporate synergies remains on track. The corporate staff will be fully combined in the downtown Fort Worth location owned by Cash America by the end of the first quarter, and we are already generating significant savings through the elimination of overlapping administrative functions and processes.

'Most importantly, the merger with Cash America significantly enhances our overall cash flows. We are guiding adjusted EBITDA for 2017 to be in a range of $257 to $268 million, which represents an increase of approximately 100% over adjusted EBITDA in 2015, the last full year before the merger. Additionally, our Latin American profits, which are generated in local currencies, are being reinvested in loan balances, new stores and further expansion activities in Latin American markets. At year end, we had $134 million of availability on our U.S. credit facility that could be used for future U.S. investments and stock repurchases. During 2017, in addition to continued quarterly dividend payments, the Company intends to resume stock repurchases under its existing share repurchase plan, targeting a total shareholder payout ratio of up to 50% of GAAP net income.

'Our adjusted EPS guidance for 2017 is tempered by macro factors primarily related to foreign currency translation, conservatism in our outlook for the transitioning and consolidating of our merged U.S. operations and a higher tax rate. Despite these headwinds, we still expect adjusted net income growth in 2017 to be in the range of 39% to 47% compared to 2016. We remain optimistic and committed to our pawn-focused long-term strategies in both the U.S. and Latin America and anticipate adding approximately 85 stores this year. Through continued additions of new stores and accretive acquisitions, we believe that we are building a diversified multi-country earnings platform. Coupled with our capacity to repurchase stock and pay cash dividends, we are confident in our prospects for delivering long-term shareholder value,' concluded Rick Wessel, FirstCash chief executive officer.

Forward-Looking Information

This release contains forward-looking statements about the business, financial condition and prospects of FirstCash, Inc. and its wholly owned subsidiaries. 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 '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.

These forward-looking statements are made to provide the public with management's current assessment of the Company's business. Although 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 (i) the Company's 2015 annual report on Form 10-K filed with the Securities and Exchange Commission (the 'SEC') on February 17, 2016, including the risks described in Part 1, Item 1A, 'Risk Factors' thereof (ii) the Company's quarterly report on Form 10-Q filed with the SEC on November 9, 2016, including the risks described in Part II, Item 1A, 'Risk Factors' thereof, and (iii) the other reports filed 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.

About FirstCash

With over 2,000 retail pawn and consumer lending locations in the U.S., Mexico, Guatemala and El Salvador, FirstCash is the leading international operator of pawn stores. FirstCash focuses on serving cash and credit constrained consumers through its retail pawn locations, which buy and sell a wide variety of jewelry, consumer electronics, power tools, household appliances, sporting goods, musical instruments and other merchandise, and make small consumer pawn loans secured by pledged personal property. Approximately 96% 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 NYSE, home to many of the world's most iconic brands, technology business leaders and emerging growth companies shaping today's global economic landscape. 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.

FIRSTCASH, INC.
OPERATING INFORMATION
(UNAUDITED)

The Company is providing segment level reporting beginning with this release. The Company's new reportable segments are as follows:

U.S. operations - Includes all pawn and consumer loan operations in the United States
Latin America operations - Includes all pawn and consumer loan operations in Latin America, which currently includes operations in Mexico, Guatemala and El Salvador

The Company has provided a detail of pre-tax operating income by segment, which is a measure of pre-tax store-level operating performance. Store operating expenses include salary and benefit expense of store-level employees, occupancy costs, bank charges, security, insurance, utilities, supplies, cash shortages and other costs incurred by the stores.

Operating Results for the Three Months Ended December 31, 2016 Compared to the Three Months Ended December 31, 2015

The following table presents segment pre-tax operating income of the U.S. operations segment for the three months ended December 31, 2016 as compared to the three months ended December 31, 2015 (in thousands).