FIRSTCASH, INC.
In June 2016, the Financial Accounting Standards Board issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. In November 2018, the Financial Accounting Standards Board issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” (“ASU 2018-19”) which clarifies that receivables arising from operating leases are accounted for using lease guidance and not as financial instruments. In April 2019, the Financial Accounting Standards Board issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” (“ASU 2019-04”) which clarifies treatment of certain credit losses. In May 2019, the Financial Accounting Standards Board issued ASU No. 2019-05, “Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief ” (“ASU 2019-05”) which provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. In November 2019, the Financial Accounting Standards Board issued ASU No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” (“ASU 2019-11”), which provides guidance around how to report expected recoveries. In February 2020, the Financial Accounting Standards Board issued ASU No. 2020-02, “Financial Instruments - Credit Losses (Topic 326) (“ASU 2020-02”) which provides updated guidance on how an entity should measure credit losses on financial instruments and delayed the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13, isASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-11 and ASU 2020-02 (collectively, “ASC 326”) are effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently assessing the potential impactadoption of ASU 2016-13 on its consolidated financial statements.
In January 2017, the Financial Accounting Standards Board issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). These amendments eliminate, which eliminates step 2two from the goodwill impairment test. The amendments also eliminatetest and, instead, requires an entity to perform its annual or interim goodwill impairment test by comparing the requirements for anyfair value of a reporting unit with a zero or negativeits carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step 2 of the goodwill impairment test.amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1,
The following table sets forth the computation of basic and diluted earnings per share:share (in thousands, except per share amounts):
The following table details the Company’s long-term debt at the respective principal amounts, net of unamortized debt issuance costs:costs on the senior unsecured notes (in thousands):
|
| | | | | | | | | | | |
| | September 30, | | December 31, |
| | 2017 | | 2016 | | 2016 |
| Senior unsecured notes: | | | | | |
5.375% senior notes due 2024 (1) | $ | 294,961 |
| | $ | — |
| | $ | — |
|
6.75% senior notes due 2021 (2) | — |
| | 196,373 |
| | 196,545 |
|
| | $ | 294,961 |
| | $ | 196,373 |
| | $ | 196,545 |
|
| | | | | | |
| Revolving unsecured credit facility, maturing 2022 | $ | 140,000 |
| | $ | 360,000 |
| | $ | 260,000 |
|
| |
(1)
| As of September 30, 2017, deferred debt issuance costs of $5,039 are included as a direct deduction from the carrying amount of the senior unsecured notes due 2024 in the accompanying condensed consolidated balance sheets. |
| |
(2)
| As of September 30, 2016 and December 31, 2016, deferred debt issuance costs of $3,627 and $3,455, respectively, are included as a direct deduction from the carrying amount of the senior unsecured notes due 2021 in the accompanying condensed consolidated balance sheets. |
Senior Unsecured Notes Due 2028
On May 30, 2017,August 26, 2020, the Company completed an offering of $300,000$500.0 million of 5.375%4.625% senior unsecured notes due on JuneSeptember 1, 20242028 (the “Notes”)., all of which are currently outstanding. Interest on the Notes will beis payable semi-annually in arrears on JuneMarch 1 and DecemberSeptember 1, commencing on DecemberMarch 1, 2017.2021. The Notes were sold to thein a private placement agents as initial purchasers for resale only to qualified institutional buyers in accordance withreliance on Rule 144A and Regulation S under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States in accordance with Regulation S under the Securities Act.. The Company used the proceeds from the offering to repurchase, or otherwise redeem its outstanding $200,000, 6.75%$300.0 million, 5.375% senior notes due 20212024 (the “2021“2024 Notes”), to repay borrowings underpay down a portion of the Company’s credit facilityCredit Facility and to pay for related fees and expenses associated with the Notes offering and the repurchase and redemption of the 20212024 Notes. The Company capitalized approximately $5,200$7.3 million in debt issuance costs, which consisted primarily of placement agentthe initial purchaser’s discount and fees and legal and other professional expenses. The debt issuance costs are being amortized over the life of the Notes as a component of interest expense and are carried as a direct deduction from the carrying amount of the Notes in the accompanying condensed consolidated balance sheets.
The Notes are fully and unconditionally guaranteed on a senior unsecured basis jointly and severally by all of the Company's existing and future domestic subsidiaries that guarantee its primary revolving bank credit facility.Credit Facility. The Notes will permit the Company to make share repurchases of up to $100,000 with the net proceeds of the Notes and other available funds and to make restricted payments, such as purchasing shares of its stock and paying cash dividends, in an unlimited amount if, after giving pro forma effect to the incurrence of any indebtedness to make such payment, the Company's consolidated total debt ratio (“Net Debt Ratio”) is less than 2.252.75 to 1.00.1. The Net Debt Ratio is defined generally in the indenture governing the Notes (the “Indenture”) as the ratio of (1) the total consolidated debt of the Company minus cash and cash equivalents of the Company to (2) the Company’s consolidated trailing twelve months EBITDA, as adjusted to exclude certain non-recurring expenses and giving pro forma effect to operations acquired during the measurement period.
The Company may redeem some or all of the Notes at any time on or after JuneSeptember 1, 2020,2023, at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any. In addition, prior to JuneSeptember 1, 2020,2023, the Company may redeem some or all of the Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, plus a “make-whole” premium set forth in the Indenture. The Company may redeem up to 35%40% of the Notes on or prior to JuneSeptember 1, 2020,2023 with the proceeds of certain equity offerings at athe redemption price of 105.375% ofprices set forth in the principal amount of the Notes redeemed, plus accrued and unpaid interest, if any. In addition, upon a change of control, noteholders have the right to requireIndenture. If the Company sells certain assets or consummates certain change in control transactions, the Company will be required to purchasemake an offer to repurchase the Notes at a price equal to 101%Notes.
Redemption of 2024 Notes
During the principal amount of the Notes, plus accrued and unpaid interest, if any.
For the ninethree months ended September 30, 2017,2020, the Company redeemed all outstanding 2024 Notes. As a result, the Company recognized a $14,114 loss on extinguishment of debt related to the repurchase or redemption of the 2021 Notes$11.7 million, which includes the tender or redemption premiumspremium paid over the outstanding $200,000$300.0 million principal amount of the 20212024 Notes and other reacquisitionredemption costs of $10,895$8.8 million and the write offwrite-off of unamortized debt issuance costs of $3,219.$2.9 million.
Revolving Credit Facilities
At September 30, 2017, the Company maintained a line of credit with a group of U.S. based commercial lenders (the “2016 Credit Facility”) in the amount of $400,000. In May 2017, the term of the 2016 Credit Facility was extended through September 2, 2022. The calculation of the fixed charge coverage ratio was also amended to remove share repurchases from the calculation to provide greater flexibility for making future share repurchases and paying cash dividends.
At September 30, 2017, the Company had $140,000 in outstanding borrowings and a $4,456 outstanding letter of credit under the 2016 Credit Facility, leaving $255,544 available for future borrowings. The 2016 Credit Facility bears interest, at the Company’s option, at either (i) the prevailing London Interbank Offered Rate (“LIBOR”) (with interest periods of 1 week or 1, 2, 3 or 6 months at the Company’s option) plus a fixed spread of 2.5% or (ii) the prevailing prime or base rate plus a fixed spread of 1.5%. The agreement has a LIBOR floor of 0%. Additionally, the Company is required to pay an annual commitment fee of 0.50% on the average daily unused portion of the 2016 Credit Facility commitment. The weighted-average interest rate on amounts outstanding under the 2016 Credit Facility at September 30, 2017 was 3.75% based on 1 week LIBOR. Under the terms of the 2016 Credit Facility, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The 2016 Credit Facility also contains customary restrictions on the Company’s ability to incur additional debt, grant liens, make investments, consummate acquisitions and similar negative covenants with customary carve-outs and baskets. The Company was in compliance with the requirements and covenants of the 2016 Credit Facility as of September 30, 2017. During the nine months ended September 30, 2017, the Company made net payments of $120,000 pursuant to the 2016 Credit Facility.
At September 30, 2017, the Company maintained a U.S. dollar denominated line of credit with a bank in Mexico (the “Mexico Credit Facility”) in the amount of $10,000. The Mexico Credit Facility bears interest at 30-day LIBOR plus a fixed spread of 2.0% and matures in December 2017. Under the terms of the Mexico Credit Facility, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Company was in compliance with the requirements and covenants of the Mexico Credit Facility as of September 30, 2017. The Company is required to pay a one-time commitment fee of $25 due when the first amount is drawn/borrowed. At September 30, 2017, the Company had no amount outstanding under the Mexico Credit Facility and $10,000 was available for borrowings.
Note 46 - Fair Value of Financial Instruments
The fair value of financial instruments is determined by reference to various market data and other valuation techniques, as appropriate. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The three fair value levels are (from highest to lowest):
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
Recurring Fair Value Measurements
As of September 30, 2017,2020, 2019 and December 31, 2019, the Company did not have any financial assets or liabilities that are measured at fair value on a recurring basis. The Company’s financial assets that were measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2016 were as follows:
|
| | | | | | | | | | | | | | | | |
| | | September 30, | | Fair Value Measurements Using |
| Financial assets: | | 2016 | | Level 1 | | Level 2 | | Level 3 |
| Cash America nonqualified savings plan-related assets | | $ | 12,229 |
| | $ | 12,229 |
| | $ | — |
| | $ | — |
|
| Investment in common stock of Enova | | 54,786 |
| | 54,786 |
| | — |
| | — |
|
| | | $ | 67,015 |
| | $ | 67,015 |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | |
| | | December 31, | | Fair Value Measurements Using |
| | | 2016 | | Level 1 | | Level 2 | | Level 3 |
| Financial assets: | | | | | | | | |
| Cash America nonqualified savings plan-related assets | | $ | 12,663 |
| | $ | 12,663 |
| | $ | — |
| | $ | — |
|
| | | $ | 12,663 |
| | $ | 12,663 |
| | $ | — |
| | $ | — |
|
Prior to the Merger, Cash America had a nonqualified savings plan that was available to certain members of its management. Upon completion of the Merger, the nonqualified savings plan was terminated and during the three months ended March 31, 2017, the Company dissolved the plan and distributed the remaining assets to the participants. As of September 30, 2016 and December 31, 2016, the assets of the nonqualified savings plan included marketable equity securities, which were classified as Level 1 and the fair values were based on quoted market prices. The nonqualified savings plan assets were included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet with an offsetting liability of equal amount, which is included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheet.
The Company’s investment in common stock of Enova represented the Company’s available-for-sale shares of Enova International, Inc. (“Enova”) common stock. As of September 30, 2016, the equity securities representing Enova common stock were classified as Level 1 and based on the market determined stock price of Enova. During 2016, the Company sold all of the Enova shares in open market transactions.
Fair Value Measurements on a NonrecurringNon-Recurring Basis
The Company measures non-financial assets and liabilities, such as property and equipment and intangible assets, at fair value on a nonrecurringnon-recurring basis, or when events or circumstances indicate that the carrying amount of the assets may be impaired. During the nine months ended September 30, 2020, the Company recorded a $1.9 million impairment related to a non-financial, non-operating asset that was included in other assets in the consolidated balance sheets.
Financial Assets and Liabilities Not Measured at Fair Value
The Company’s financial assets and liabilities as of September 30, 2017, 20162020, 2019 and December 31, 20162019 that are not measured at fair value in the condensed consolidated balance sheets are as follows:follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying Value | | Estimated Fair Value | | | | | | |
| | September 30, | | September 30, | | Fair Value Measurements Using | | | | |
| | 2020 | | 2020 | | Level 1 | | Level 2 | | Level 3 |
| Financial assets: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 78,844 | | | $ | 78,844 | | | $ | 78,844 | | | $ | 0 | | | $ | 0 | |
| Fees and service charges receivable | | 36,423 | | | 36,423 | | | 0 | | | 0 | | | 36,423 | |
| Pawn loans | | 270,619 | | | 270,619 | | | 0 | | | 0 | | | 270,619 | |
| | | | | | | | | | |
| | $ | 385,886 | | | $ | 385,886 | | | $ | 78,844 | | | $ | 0 | | | $ | 307,042 | |
| | | | | | | | | | |
| Financial liabilities: | | | | | | | | | | |
| Revolving unsecured credit facilities | | $ | 40,000 | | | $ | 40,000 | | | $ | 0 | | | $ | 40,000 | | | $ | 0 | |
| Senior unsecured notes (outstanding principal) | | 500,000 | | | 508,000 | | | 0 | | | 508,000 | | | 0 | |
| | $ | 540,000 | | | $ | 548,000 | | | $ | 0 | | | $ | 548,000 | | | $ | 0 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Carrying Value | | Estimated Fair Value |
| | | September 30, | | September 30, | | Fair Value Measurements Using |
| | | 2017 | | 2017 | | Level 1 | | Level 2 | | Level 3 |
| Financial assets: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 93,411 |
| | $ | 93,411 |
| | $ | 93,411 |
| | $ | — |
| | $ | — |
|
| Pawn loans | | 371,367 |
| | 371,367 |
| | — |
| | — |
| | 371,367 |
|
| Consumer loans, net | | 24,515 |
| | 24,515 |
| | — |
| | — |
| | 24,515 |
|
| Fees and service charges receivable | | 45,134 |
| | 45,134 |
| | — |
| | — |
| | 45,134 |
|
| | | $ | 534,427 |
| | $ | 534,427 |
| | $ | 93,411 |
| | $ | — |
| | $ | 441,016 |
|
| | | | | | | | | | | |
| Financial liabilities: | | | | | | | | | | |
| Revolving unsecured credit facilities | | $ | 140,000 |
| | $ | 140,000 |
| | $ | — |
| | $ | 140,000 |
| | $ | — |
|
| Senior unsecured notes, outstanding principal | | 300,000 |
| | 314,000 |
| | — |
| | 314,000 |
| | — |
|
| | | $ | 440,000 |
| | $ | 454,000 |
| | $ | — |
| | $ | 454,000 |
| | $ | — |
|
| | | | | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value | |
| | | September 30, | | September 30, | | Fair Value Measurements Using | | September 30, | | September 30, | | Fair Value Measurements Using | |
| | | 2016 | | 2016 | | Level 1 | | Level 2 | | Level 3 | | 2019 | | 2019 | | Level 1 | | Level 2 | | Level 3 |
| Financial assets: | | | | | | | | | | | Financial assets: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 83,356 |
| | $ | 83,356 |
| | $ | 83,356 |
| | $ | — |
| | $ | — |
| Cash and cash equivalents | | $ | 61,183 | | | $ | 61,183 | | | $ | 61,183 | | | $ | 0 | | | $ | 0 | |
| Fees and service charges receivable | | Fees and service charges receivable | | 48,587 | | | 48,587 | | | 0 | | | 0 | | | 48,587 | |
| Pawn loans | | 373,169 |
| | 373,169 |
| | — |
| | — |
| | 373,169 |
| Pawn loans | | 385,907 | | | 385,907 | | | 0 | | | 0 | | | 385,907 | |
| Consumer loans, net | | 27,792 |
| | 27,792 |
| | — |
| | — |
| | 27,792 |
| Consumer loans, net | | 895 | | | 895 | | | 0 | | | 0 | | | 895 | |
| Fees and service charges receivable | | 45,708 |
| | 45,708 |
| | — |
| | — |
| | 45,708 |
| |
| | | $ | 530,025 |
| | $ | 530,025 |
| | $ | 83,356 |
| | $ | — |
| | $ | 446,669 |
| | $ | 496,572 | | | $ | 496,572 | | | $ | 61,183 | | | $ | 0 | | | $ | 435,389 | |
| | | | | | | | | | | | | | | | | | | | | |
| Financial liabilities: | | | | | | | | | | | Financial liabilities: | |
| Revolving unsecured credit facilities | | $ | 360,000 |
| | $ | 360,000 |
| | $ | — |
| | $ | 360,000 |
| | $ | — |
| |
| Senior unsecured notes, outstanding principal | | 200,000 |
| | 210,000 |
| | — |
| | 210,000 |
| | — |
| |
| Revolving unsecured credit facility | | Revolving unsecured credit facility | | $ | 340,000 | | | $ | 340,000 | | | $ | 0 | | | $ | 340,000 | | | $ | 0 | |
| Senior unsecured notes (outstanding principal) | | Senior unsecured notes (outstanding principal) | | 300,000 | | | 309,000 | | | 0 | | | 309,000 | | | 0 | |
| | | $ | 560,000 |
| | $ | 570,000 |
| | $ | — |
| | $ | 570,000 |
| | $ | — |
| | $ | 640,000 | | | $ | 649,000 | | | $ | 0 | | | $ | 649,000 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying Value | | Estimated Fair Value | | | | | | |
| | December 31, | | December 31, | | Fair Value Measurements Using | | | | |
| | 2019 | | 2019 | | Level 1 | | Level 2 | | Level 3 |
| Financial assets: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 46,527 | | | $ | 46,527 | | | $ | 46,527 | | | $ | 0 | | | $ | 0 | |
| Fees and service charges receivable | | 46,686 | | | 46,686 | | | 0 | | | 0 | | | 46,686 | |
| Pawn loans | | 369,527 | | | 369,527 | | | 0 | | | 0 | | | 369,527 | |
| Consumer loans, net | | 751 | | | 751 | | | 0 | | | 0 | | | 751 | |
| | $ | 463,491 | | | $ | 463,491 | | | $ | 46,527 | | | $ | 0 | | | $ | 416,964 | |
| | | | | | | | | | |
| Financial liabilities: | | | | | | | | | | |
| Revolving unsecured credit facility | | $ | 335,000 | | | $ | 335,000 | | | $ | 0 | | | $ | 335,000 | | | $ | 0 | |
| Senior unsecured notes (outstanding principal) | | 300,000 | | | 310,000 | | | 0 | | | 310,000 | | | 0 | |
| | $ | 635,000 | | | $ | 645,000 | | | $ | 0 | | | $ | 645,000 | | | $ | 0 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Carrying Value | | Estimated Fair Value |
| | | December 31, | | December 31, | | Fair Value Measurements Using |
| | | 2016 | | 2016 | | Level 1 | | Level 2 | | Level 3 |
| Financial assets: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 89,955 |
| | $ | 89,955 |
| | $ | 89,955 |
| | $ | — |
| | $ | — |
|
| Pawn loans | | 350,506 |
| | 350,506 |
| | — |
| | — |
| | 350,506 |
|
| Consumer loans, net | | 29,204 |
| | 29,204 |
| | — |
| | — |
| | 29,204 |
|
| Fees and service charges receivable | | 41,013 |
| | 41,013 |
| | — |
| | — |
| | 41,013 |
|
| | | $ | 510,678 |
| | $ | 510,678 |
| | $ | 89,955 |
| | $ | — |
| | $ | 420,723 |
|
| | | | | | | | | | | |
| Financial liabilities: | | | | | | | | | | |
| Revolving unsecured credit facilities | | $ | 260,000 |
| | $ | 260,000 |
| | $ | — |
| | $ | 260,000 |
| | $ | — |
|
| Senior unsecured notes, outstanding principal | | 200,000 |
| | 208,000 |
| | — |
| | 208,000 |
| | — |
|
| | | $ | 460,000 |
| | $ | 468,000 |
| | $ | — |
| | $ | 468,000 |
| | $ | — |
|
As cash and cash equivalents have maturities of less than three months, the carrying value of cash and cash equivalents approximates fair value. Due to their short-term maturities, the carrying value of pawn loans and fees and service charges receivable approximate fair value. Short-termConsumer loans, and installment loans, collectively, represent consumer loans, net on the accompanying condensed consolidated balance sheets and are carried net of the allowance for estimated loan losses, which is calculated by applying historical loss rates combined with recent default trends to the gross consumer loan balance. The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and estimated remaining loan terms; therefore,Therefore, the carrying value approximates the fair value.
The carrying value of the Company’s priorunsecured credit facilities approximatesapproximate fair value as of September 30, 2016.2020, 2019 and December 31, 2019. The carryingfair value of the Company’s currentunsecured credit facilities (the 2016 Credit Facilityis estimated based on market values for debt issuances with similar characteristics or rates currently available for debt with similar terms. In addition, the unsecured credit facilities have a variable interest rate based on a fixed spread over LIBOR or TIIE and the Mexico Credit Facility) approximates fair value as of September 30, 2017 and December 31, 2016.reprice with any changes in LIBOR or TIIE. The fair value of the senior unsecured notes have beenis estimated based on a discounted cash flow analysis using a discount rate representing the Company’s estimate of the ratequoted prices in markets that would be used by market participants. Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.are not active.
Note 57 - Segment Information
The Company organizes its operations into two2 reportable segments as follows:
•U.S. operations - Includes all pawn and consumer loan operations in the U.S.
•Latin America operations - Includes all pawn and consumer loan operations in Latin America, which currently includes operations in Mexico, Guatemala, and El Salvador and Colombia
Corporate expenses and income, which include administrative expenses, corporate depreciation and amortization, interest expense, interest income, merger and other acquisition expenses and (gain) loss on foreign exchange, are incurred or earned in both the U.S. and Latin America, but presented on a consolidated basis and are not allocated between the U.S. operations segment and Latin America operations segment.
The following tables present reportable segment information for the three and nine month periods ended September 30, 20172020 and 2016:2019 (in thousands):
| | | | | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2020 | |
| | | U.S. Operations | | Latin America Operations | | Corporate | | Consolidated | | | U.S.
Operations | | Latin America
Operations | | Corporate | | Consolidated |
| Revenue: | | | | | | | | | Revenue: | | | | | | | | |
| Retail merchandise sales | | $ | 160,598 |
| | $ | 85,736 |
| | $ | — |
| | $ | 246,334 |
| Retail merchandise sales | | $ | 151,618 | | | $ | 83,364 | | | $ | 0 | | | $ | 234,982 | |
| Pawn loan fees | | 95,266 |
| | 37,279 |
| | — |
| | 132,545 |
| Pawn loan fees | | 66,180 | | | 33,390 | | | 0 | | | 99,570 | |
| Wholesale scrap jewelry sales | | 32,397 |
| | 5,131 |
| | — |
| | 37,528 |
| Wholesale scrap jewelry sales | | 12,692 | | | 12,589 | | | 0 | | | 25,281 | |
| Consumer loan and credit services fees | | 18,525 |
| | 480 |
| | — |
| | 19,005 |
| Consumer loan and credit services fees | | 57 | | | 0 | | | 0 | | | 57 | |
| Total revenue | | 306,786 |
| | 128,626 |
| | — |
| | 435,412 |
| Total revenue | | 230,547 | | | 129,343 | | | 0 | | | 359,890 | |
| | | | | | | | | | | | | | | | | |
| Cost of revenue: | | | | | | | | | Cost of revenue: | | | | | | | | |
| Cost of retail merchandise sold | | 107,561 |
| | 53,789 |
| | — |
| | 161,350 |
| Cost of retail merchandise sold | | 84,673 | | | 52,557 | | | 0 | | | 137,230 | |
| Cost of wholesale scrap jewelry sold | | 31,518 |
| | 5,313 |
| | — |
| | 36,831 |
| Cost of wholesale scrap jewelry sold | | 10,316 | | | 9,502 | | | 0 | | | 19,818 | |
| Consumer loan and credit services loss provision | | 6,068 |
| | 117 |
| | — |
| | 6,185 |
| Consumer loan and credit services loss provision | | 104 | | | 0 | | | 0 | | | 104 | |
| Total cost of revenue | | 145,147 |
| | 59,219 |
| | — |
| | 204,366 |
| Total cost of revenue | | 95,093 | | | 62,059 | | | 0 | | | 157,152 | |
| | | | | | | | | | | | | | | | | |
| Net revenue | | 161,639 |
| | 69,407 |
| | — |
| | 231,046 |
| Net revenue | | 135,454 | | | 67,284 | | | 0 | | | 202,738 | |
| | | | | | | | | | | | | | | | | |
| Expenses and other income: | | | | | | | | | Expenses and other income: | | | | | | | | |
| Store operating expenses | | 104,555 |
| | 34,411 |
| | — |
| | 138,966 |
| Store operating expenses | | 92,678 | | | 39,383 | | | 0 | | | 132,061 | |
| Administrative expenses | | — |
| | — |
| | 29,999 |
| | 29,999 |
| Administrative expenses | | 0 | | | 0 | | | 24,354 | | | 24,354 | |
| Depreciation and amortization | | 5,919 |
| | 2,704 |
| | 5,249 |
| | 13,872 |
| Depreciation and amortization | | 5,390 | | | 3,903 | | | 1,133 | | | 10,426 | |
| Interest expense | | — |
| | — |
| | 6,129 |
| | 6,129 |
| Interest expense | | 0 | | | 0 | | | 6,561 | | | 6,561 | |
| Interest income | | — |
| | — |
| | (418 | ) | | (418 | ) | Interest income | | 0 | | | 0 | | | (499) | | | (499) | |
| Merger and other acquisition expenses | | — |
| | — |
| | 911 |
| | 911 |
| Merger and other acquisition expenses | | 0 | | | 0 | | | 7 | | | 7 | |
| Gain on foreign exchange | | Gain on foreign exchange | | 0 | | | 0 | | | (432) | | | (432) | |
| Loss on extinguishment of debt | | — |
| | — |
| | 20 |
| | 20 |
| Loss on extinguishment of debt | | 0 | | | 0 | | | 11,737 | | | 11,737 | |
| Write-offs and impairments of certain lease intangibles and other assets | | Write-offs and impairments of certain lease intangibles and other assets | | 0 | | | 0 | | | 837 | | | 837 | |
| Total expenses and other income | | 110,474 |
| | 37,115 |
| | 41,890 |
| | 189,479 |
| Total expenses and other income | | 98,068 | | | 43,286 | | | 43,698 | | | 185,052 | |
| | | | | | | | | | | | | | | | | |
| Income (loss) before income taxes | | $ | 51,165 |
| | $ | 32,292 |
| | $ | (41,890 | ) | | $ | 41,567 |
| Income (loss) before income taxes | | $ | 37,386 | | | $ | 23,998 | | | $ | (43,698) | | | $ | 17,686 | |
| | | | | Three Months Ended September 30, 2016 | | Three Months Ended September 30, 2019 | |
| | | U.S. Operations | | Latin America Operations | | Corporate | | Consolidated | | | U.S.
Operations | | Latin America
Operations | | Corporate | | Consolidated |
| Revenue: | | | | | | | | | Revenue: | | | | | | | | |
| Retail merchandise sales | | $ | 84,547 |
| | $ | 67,668 |
| | $ | — |
| | $ | 152,215 |
| Retail merchandise sales | | $ | 168,092 | | | $ | 113,266 | | | $ | 0 | | | $ | 281,358 | |
| Pawn loan fees | | 48,840 |
| | 30,665 |
| | — |
| | 79,505 |
| Pawn loan fees | | 95,125 | | | 47,754 | | | 0 | | | 142,879 | |
| Wholesale scrap jewelry sales | | 15,046 |
| | 3,910 |
| | — |
| | 18,956 |
| Wholesale scrap jewelry sales | | 18,369 | | | 7,292 | | | 0 | | | 25,661 | |
| Consumer loan and credit services fees | | 9,991 |
| | 486 |
| | — |
| | 10,477 |
| Consumer loan and credit services fees | | 2,561 | | | 0 | | | 0 | | | 2,561 | |
| Total revenue | | 158,424 |
| | 102,729 |
| | — |
| | 261,153 |
| Total revenue | | 284,147 | | | 168,312 | | | 0 | | | 452,459 | |
| | | | | | | | | | | | | | | | | |
| Cost of revenue: | | | | | | | | | Cost of revenue: | | | | | | | | |
| Cost of retail merchandise sold | | 51,922 |
| | 41,477 |
| | — |
| | 93,399 |
| Cost of retail merchandise sold | | 103,728 | | | 74,869 | | | 0 | | | 178,597 | |
| Cost of wholesale scrap jewelry sold | | 13,955 |
| | 3,022 |
| | — |
| | 16,977 |
| Cost of wholesale scrap jewelry sold | | 16,217 | | | 6,443 | | | 0 | | | 22,660 | |
| Consumer loan and credit services loss provision | | 3,275 |
| | 138 |
| | — |
| | 3,413 |
| Consumer loan and credit services loss provision | | 223 | | | 0 | | | 0 | | | 223 | |
| Total cost of revenue | | 69,152 |
| | 44,637 |
| | — |
| | 113,789 |
| Total cost of revenue | | 120,168 | | | 81,312 | | | 0 | | | 201,480 | |
| | | | | | | | | | | | | | | | | |
| Net revenue | | 89,272 |
| | 58,092 |
| | — |
| | 147,364 |
| Net revenue | | 163,979 | | | 87,000 | | | 0 | | | 250,979 | |
| | | | | | | | | | | | | | | | | |
| Expenses and other income: | | | | | | | | | Expenses and other income: | | | | | | | | |
| Store operating expenses | | 52,480 |
| | 28,094 |
| | — |
| | 80,574 |
| Store operating expenses | | 103,315 | | | 46,504 | | | 0 | | | 149,819 | |
| Administrative expenses | | — |
| | — |
| | 24,500 |
| | 24,500 |
| Administrative expenses | | 0 | | | 0 | | | 30,576 | | | 30,576 | |
| Depreciation and amortization | | 2,906 |
| | 2,602 |
| | 1,773 |
| | 7,281 |
| Depreciation and amortization | | 5,213 | | | 3,795 | | | 1,666 | | | 10,674 | |
| Interest expense | | — |
| | — |
| | 5,073 |
| | 5,073 |
| Interest expense | | 0 | | | 0 | | | 8,922 | | | 8,922 | |
| Interest income | | — |
| | — |
| | (138 | ) | | (138 | ) | Interest income | | 0 | | | 0 | | | (429) | | | (429) | |
| Merger and other acquisition expenses | | — |
| | — |
| | 29,398 |
| | 29,398 |
| Merger and other acquisition expenses | | 0 | | | 0 | | | 805 | | | 805 | |
| Net loss on sale of common stock of Enova | | — |
| | — |
| | 253 |
| | 253 |
| |
| Loss on foreign exchange | | Loss on foreign exchange | | 0 | | | 0 | | | 1,648 | | | 1,648 | |
| | Total expenses and other income | | 55,386 |
| | 30,696 |
| | 60,859 |
| | 146,941 |
| Total expenses and other income | | 108,528 | | | 50,299 | | | 43,188 | | | 202,015 | |
| | | | | | | | | | | | | | | | | |
| Income (loss) before income taxes | | $ | 33,886 |
| | $ | 27,396 |
| | $ | (60,859 | ) | | $ | 423 |
| Income (loss) before income taxes | | $ | 55,451 | | | $ | 36,701 | | | $ | (43,188) | | | $ | 48,964 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 | | | | | | |
| | U.S.
Operations | | Latin America
Operations | | Corporate | | Consolidated |
| Revenue: | | | | | | | | |
| Retail merchandise sales | | $ | 556,528 | | | $ | 262,483 | | | $ | 0 | | | $ | 819,011 | |
| Pawn loan fees | | 235,937 | | | 107,738 | | | 0 | | | 343,675 | |
| Wholesale scrap jewelry sales | | 37,727 | | | 36,710 | | | 0 | | | 74,437 | |
| Consumer loan and credit services fees | | 2,003 | | | 0 | | | 0 | | | 2,003 | |
| Total revenue | | 832,195 | | | 406,931 | | | 0 | | | 1,239,126 | |
| | | | | | | | |
| Cost of revenue: | | | | | | | | |
| Cost of retail merchandise sold | | 325,863 | | | 167,573 | | | 0 | | | 493,436 | |
| Cost of wholesale scrap jewelry sold | | 32,754 | | | 28,268 | | | 0 | | | 61,022 | |
| Consumer loan and credit services loss provision | | (480) | | | 0 | | | 0 | | | (480) | |
| Total cost of revenue | | 358,137 | | | 195,841 | | | 0 | | | 553,978 | |
| | | | | | | | |
| Net revenue | | 474,058 | | | 211,090 | | | 0 | | | 685,148 | |
| | | | | | | | |
| Expenses and other income: | | | | | | | | |
| Store operating expenses | | 303,686 | | | 122,926 | | | 0 | | | 426,612 | |
| Administrative expenses | | 0 | | | 0 | | | 85,642 | | | 85,642 | |
| Depreciation and amortization | | 16,352 | | | 11,568 | | | 3,504 | | | 31,424 | |
| Interest expense | | 0 | | | 0 | | | 21,953 | | | 21,953 | |
| Interest income | | 0 | | | 0 | | | (1,209) | | | (1,209) | |
| Merger and other acquisition expenses | | 0 | | | 0 | | | 209 | | | 209 | |
| Loss on foreign exchange | | 0 | | | 0 | | | 1,639 | | | 1,639 | |
| Loss on extinguishment of debt | | 0 | | | 0 | | | 11,737 | | | 11,737 | |
| Write-offs and impairments of certain lease intangibles and other assets | | 0 | | | 0 | | | 6,549 | | | 6,549 | |
| Total expenses and other income | | 320,038 | | | 134,494 | | | 130,024 | | | 584,556 | |
| | | | | | | | |
| Income (loss) before income taxes | | $ | 154,020 | | | $ | 76,596 | | | $ | (130,024) | | | $ | 100,592 | |
|
| | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, 2017 |
| | | U.S. Operations | | Latin America Operations | | Corporate | | Consolidated |
| Revenue: | | | | | | | | |
| Retail merchandise sales | | $ | 519,116 |
| | $ | 231,034 |
| | $ | — |
| | $ | 750,150 |
|
| Pawn loan fees | | 287,338 |
| | 96,090 |
| | — |
| | 383,428 |
|
| Wholesale scrap jewelry sales | | 91,430 |
| | 15,855 |
| | — |
| | 107,285 |
|
| Consumer loan and credit services fees | | 57,425 |
| | 1,329 |
| | — |
| | 58,754 |
|
| Total revenue | | 955,309 |
| | 344,308 |
| | — |
| | 1,299,617 |
|
| | | | | | | | | |
| Cost of revenue: | | | | | | | | |
| Cost of retail merchandise sold | | 337,789 |
| | 145,669 |
| | — |
| | 483,458 |
|
| Cost of wholesale scrap jewelry sold | | 87,600 |
| | 14,770 |
| | — |
| | 102,370 |
|
| Consumer loan and credit services loss provision | | 15,115 |
| | 304 |
| | — |
| | 15,419 |
|
| Total cost of revenue | | 440,504 |
| | 160,743 |
| | — |
| | 601,247 |
|
| | | | | | | | | |
| Net revenue | | 514,805 |
| | 183,565 |
| | — |
| | 698,370 |
|
| | | | | | | | | |
| Expenses and other income: | | | | | | | | |
| Store operating expenses | | 318,044 |
| | 94,736 |
| | — |
| | 412,780 |
|
| Administrative expenses | | — |
| | — |
| | 93,542 |
| | 93,542 |
|
| Depreciation and amortization | | 18,759 |
| | 7,723 |
| | 16,322 |
| | 42,804 |
|
| Interest expense | | — |
| | — |
| | 17,827 |
| | 17,827 |
|
| Interest income | | — |
| | — |
| | (1,138 | ) | | (1,138 | ) |
| Merger and other acquisition expenses | | — |
| | — |
| | 3,164 |
| | 3,164 |
|
| Loss on extinguishment of debt | | — |
| | — |
| | 14,114 |
| | 14,114 |
|
| Total expenses and other income | | 336,803 |
| | 102,459 |
| | 143,831 |
| | 583,093 |
|
| | | | | | | | | |
| Income (loss) before income taxes | | $ | 178,002 |
| | $ | 81,106 |
| | $ | (143,831 | ) | | $ | 115,277 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2019 | | | | | | |
| | U.S.
Operations | | Latin America
Operations | | Corporate | | Consolidated |
| Revenue: | | | | | | | | |
| Retail merchandise sales | | $ | 523,825 | | | $ | 320,528 | | | $ | 0 | | | $ | 844,353 | |
| Pawn loan fees | | 283,127 | | | 137,867 | | | 0 | | | 420,994 | |
| Wholesale scrap jewelry sales | | 56,942 | | | 25,410 | | | 0 | | | 82,352 | |
| Consumer loan and credit services fees | | 18,378 | | | 0 | | | 0 | | | 18,378 | |
| Total revenue | | 882,272 | | | 483,805 | | | 0 | | | 1,366,077 | |
| | | | | | | | |
| Cost of revenue: | | | | | | | | |
| Cost of retail merchandise sold | | 326,134 | | | 208,084 | | | 0 | | | 534,218 | |
| Cost of wholesale scrap jewelry sold | | 52,340 | | | 24,607 | | | 0 | | | 76,947 | |
| Consumer loan and credit services loss provision | | 3,829 | | | 0 | | | 0 | | | 3,829 | |
| Total cost of revenue | | 382,303 | | | 232,691 | | | 0 | | | 614,994 | |
| | | | | | | | |
| Net revenue | | 499,969 | | | 251,114 | | | 0 | | | 751,083 | |
| | | | | | | | |
| Expenses and other income: | | | | | | | | |
| Store operating expenses | | 310,208 | | | 134,810 | | | 0 | | | 445,018 | |
| Administrative expenses | | 0 | | | 0 | | | 94,426 | | | 94,426 | |
| Depreciation and amortization | | 15,527 | | | 10,679 | | | 4,852 | | | 31,058 | |
| Interest expense | | 0 | | | 0 | | | 25,840 | | | 25,840 | |
| Interest income | | 0 | | | 0 | | | (788) | | | (788) | |
| Merger and other acquisition expenses | | 0 | | | 0 | | | 1,510 | | | 1,510 | |
| Loss on foreign exchange | | 0 | | | 0 | | | 926 | | | 926 | |
| | | | | | | | |
| | | | | | | | |
| Total expenses and other income | | 325,735 | | | 145,489 | | | 126,766 | | | 597,990 | |
| | | | | | | | |
| Income (loss) before income taxes | | $ | 174,234 | | | $ | 105,625 | | | $ | (126,766) | | | $ | 153,093 | |
|
| | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, 2016 |
| | | U.S. Operations | | Latin America Operations | | Corporate | | Consolidated |
| Revenue: | | | | | | | | |
| Retail merchandise sales | | $ | 186,673 |
| | $ | 199,861 |
| | $ | — |
| | $ | 386,534 |
|
| Pawn loan fees | | 94,929 |
| | 87,887 |
| | — |
| | 182,816 |
|
| Wholesale scrap jewelry sales | | 25,910 |
| | 9,996 |
| | — |
| | 35,906 |
|
| Consumer loan and credit services fees | | 19,619 |
| | 1,460 |
| | — |
| | 21,079 |
|
| Total revenue | | 327,131 |
| | 299,204 |
| | — |
| | 626,335 |
|
| | | | | | | | | |
| Cost of revenue: | | | | | | | | |
| Cost of retail merchandise sold | | 114,632 |
| | 124,534 |
| | — |
| | 239,166 |
|
| Cost of wholesale scrap jewelry sold | | 22,914 |
| | 7,787 |
| | — |
| | 30,701 |
|
| Consumer loan and credit services loss provision | | 5,380 |
| | 400 |
| | — |
| | 5,780 |
|
| Total cost of revenue | | 142,926 |
| | 132,721 |
| | — |
| | 275,647 |
|
| | | | | | | | | |
| Net revenue | | 184,205 |
| | 166,483 |
| | — |
| | 350,688 |
|
| | | | | | | | | |
| Expenses and other income: | | | | | | | | |
| Store operating expenses | | 107,196 |
| | 83,367 |
| | — |
| | 190,563 |
|
| Administrative expenses | | — |
| | — |
| | 58,277 |
| | 58,277 |
|
| Depreciation and amortization | | 5,827 |
| | 7,919 |
| | 3,419 |
| | 17,165 |
|
| Interest expense | | — |
| | — |
| | 13,859 |
| | 13,859 |
|
| Interest income | | — |
| | — |
| | (636 | ) | | (636 | ) |
| Merger and other acquisition expenses | | — |
| | — |
| | 33,877 |
| | 33,877 |
|
| Net loss on sale of common stock of Enova | | — |
| | — |
| | 253 |
| | 253 |
|
| Total expenses and other income | | 113,023 |
| | 91,286 |
| | 109,049 |
| | 313,358 |
|
| | | | | | | | | |
| Income (loss) before income taxes | | $ | 71,182 |
| | $ | 75,197 |
| | $ | (109,049 | ) | | $ | 37,330 |
|
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of financial condition, results of operations, liquidity and capital resources of FirstCash, Inc. and its wholly-owned subsidiaries (the(together, the “Company”) should be read in conjunction with the Company’s condensed consolidated financial statements and accompanying notes included under Part I, Item 1 of this quarterly report on Form 10-Q, as well as with the audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s annual report on Form 10-K for the year ended December 31, 2016.2019. References in this quarterly report on Form 10-Q to “year-to-date” refer to the nine-monthnine month period from January 1, 20172020 to September 30, 2017.2020.
On September 1, 2016, the Company completed its merger with Cash America International, Inc. (“Cash America”), whereby Cash America merged with and into a wholly owned subsidiary of the Company (the “Merger”). The accompanying unaudited condensed consolidated results of operations for the three month and nine month periods ended September 30, 2017 include the results of operations for Cash America, while the comparable prior-year periods include the results of operations for Cash America for the period September 2, 2016 to September 30, 2016, affecting comparability of 2017 and 2016 amounts. The Company has performed a valuation analysis of identifiable assets acquired and liabilities assumed and allocated the aggregate Merger consideration based on the fair values of those identifiable assets and liabilities.
In thousands except share and per share amounts, unless otherwise indicated.
GENERAL
The Company is a leading operator of retail-based pawn stores with over 2,1002,700 store locations in the U.S. and Latin America. The Company’s pawn stores generate significant retail sales primarily from the merchandise acquired through collateral forfeitures and over-the-counter purchases from customers. TheIn addition, the stores also offer pawn loans to help customers meet small short-term cash needs.needs by providing non-recourse pawn loans and buying merchandise directly from customers. Personal property, such as consumerjewelry, electronics, jewelry, power tools, household appliances, sporting goods and musical instruments is pledged as collateral for the pawn loans and held by the Company over the lifetypical 30-day term of the loan. In addition, some of the Company’s pawn stores offer consumer loans or credit services products. loan plus a stated grace period.
The Company’s strategy is to focus on growing its retail-basedgrow revenues and income by opening new (“de novo”) retail pawn operationslocations, acquiring existing pawn stores in the U.S.strategic markets and Latin America through new store openingsincreasing revenue and strategic acquisition opportunities as they arise.operating profits in existing stores. Pawn operations, which include retail merchandise sales, pawn loan fees and wholesale scrap jewelry sales, accounted for 95%more than 99% and 97%approximately 99% of the Company’s consolidated revenue during the nine month periods ended September 30, 20172020 and 2016,2019, respectively.
Effective June 30, 2020, the Company ceased offering domestic payday and installment loans and no longer has any unsecured consumer lending or credit services operations in the U.S. or Latin America. See “Results of Operations - Consumer Lending Operations” for further discussion.
The Company organizes its operations into two reportable segments. The U.S. operations segment consists of all pawn and consumer loan operations in the U.S. and the Latin America operations segment consists of all pawn and consumer loan operations in Latin America, which currently includes operations in Mexico, Guatemala, El Salvador and El Salvador.Colombia.
The Company recognizes pawn loan fee revenue on a constant-yield basis over the life of the pawn loan for all pawn loans of which the Company deems collection to be probable based on historical redemption statistics. If a pawn loan is not repaid prior to the expiration of the loan term, including any extension or grace period, if applicable, the property is forfeited to the Company and transferred to inventory at a value equal to the principal amount of the loan, exclusive of accrued pawn fee revenue. The Company records merchandise sales revenue at the time of the sale and presents merchandise sales net of any sales or value-added taxes collected. The Company does not provide direct financing to customers for the purchase of its merchandise, but does permit its customers to purchase merchandise on an interest-free layaway plan. Should the customer fail to make a required payment pursuant to a layaway plan, the previous payments are typically forfeited to the Company. Interim payments from customers on layaway sales are recorded as deferred revenue and subsequently recorded as income during the period in which final payment is received or when previous payments are forfeited to the Company. Some jewelry is melted at a third-party facility and the precious metal and diamond content is sold at either prevailing market commodity prices or a previously agreed upon price with a commodity buyer. The Company records revenue from these wholesale scrap jewelry transactions when a price has been agreed upon and the Company ships the commodity to the buyer.
The Company operates a small number of stand-alone consumer finance stores in the U.S. and Mexico. These stores provide consumer financial services products including credit services, consumer loans and check cashing. In addition, 366 of the Company’s pawn stores also offer credit services and/or consumer loans as an ancillary product. Consumer loan and credit services revenue accounted for 5% and 3% of consolidated revenue during the nine month periods ended September 30, 2017 and 2016, respectively. The increase in consumer loan and credit services revenue as a percentage of consolidated revenue was solely the result of the Merger as the Company continues to de-emphasize its consumer lending operations in light of increasing regulatory constraints on these operations.
The Company recognizes service fee income on consumer loan transactions on a constant-yield basis over the life of the loan and recognizes credit services fees ratably over the life of the extension of credit made by independent third-party lenders. Changes in the valuation reserve on consumer loans and credit services transactions are charged or credited to the consumer loan credit loss provision. The credit loss provision associated with the Company’s credit services organization program and consumer loans is based primarily upon historical credit loss experience, with consideration given to recent credit loss trends, delinquency rates, economic conditions and management’s expectations of future credit losses.
Stores included in the same-store calculations presented in this report are those stores that were opened or acquired prior to the beginning of the prior-year comparative period and remained open through the end of the reporting period. Also included are stores that were relocated during the applicable period within a specified distance serving the same market where there is not a significant change in store size and where there is not a significant overlap or gap in timing between the opening of the new store and the closing of the existing store. Unless otherwise noted, same-store calculations exclude the results of the merged Cash America stores. Legacy Cash America same-store calculations refer to Cash America stores that were opened prior to the beginning of the prior-year comparative period (although not then owned by the Company) and remained open through the end of the reporting period.
Operating expenses consist of all items directly related to the operation of the Company’s stores, including salaries and related payroll costs, rent, utilities, facilities maintenance, advertising, property taxes, licenses, supplies and security. Administrative expenses consist of items relating to the operation of the corporate offices, including the compensation and benefit costs of corporate management, area supervisors and other operations management personnel, collection operations and personnel, accounting and administrative costs, information technology costs, liability and casualty insurance, outside legal and accounting fees and stockholder-related expenses. Merger and other acquisition expenses primarily include incremental costs directly associated with the Merger and integration of Cash America, including professional fees, legal expenses, severance, retention and other employee-related costs, accelerated vesting of certain equity compensation awards, contract breakage costs and costs related to consolidation of technology systems and corporate facilities.
The Company’s business is subject to seasonal variations and operating results for the current quarter and year-to-date periods are not necessarily indicative of the results of operations for the full year. Typically, the Company experiences seasonal growth of service fees in the third and fourth quarter of each year due to loan balance growth. Service fees generally decline in the first and second quarter of each year after the heavy repayment period of pawn and consumer loans associated with statutory bonuses received by customers in the fourth quarter in Mexico and with tax refund proceeds received by customers in the first quarter in the U.S. Retail sales are seasonally higher in the fourth quarter associated with holiday shopping and, to a lesser extent, in the first quarter associated with tax refunds.
OPERATIONS AND LOCATIONS
As of September 30, 2017,2020, the Company had 2,1062,750 store locations composed of 1,030 stores in 2624 U.S. states and the District of Columbia, 1,635 stores in 32 states in Mexico, 58 stores in Guatemala, and13 stores in El Salvador which represents a net store-count increase of 1% over the number ofand 14 stores at September 30, 2016.in Colombia.
The following table detailstables detail store count activity foractivity:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 | | | | |
| | U.S. | | Latin America | | |
| | | Operations Segment (2) | | Operations Segment (3) | | Total Locations |
| Total locations, beginning of period | | 1,035 | | | 1,710 | | | 2,745 | |
| New locations opened | | — | | | 13 | | | 13 | |
| | | | | | |
| | | | | | |
| | | | | | |
| Consolidation of existing pawn locations | | (5) | | | (3) | | | (8) | |
| | | | | | |
| Total locations, end of period | | 1,030 | | | 1,720 | | | 2,750 | |
| | | | | | |
| | | | | | |
| | Nine Months Ended September 30, 2020 | | | | |
| | U.S. | | Latin America | | |
| | | Operations Segment (2) | | Operations Segment (3) | | Total Locations |
| Total locations, beginning of period | | 1,056 | | | 1,623 | | | 2,679 | |
| New locations opened | | — | | | 64 | | | 64 | |
| Locations acquired | | — | | | 40 | | | 40 | |
| | | | | | |
Closure of consumer loan stores (1) | | (13) | | | — | | | (13) | |
| Consolidation of existing pawn locations | | (13) | | | (7) | | | (20) | |
| | | | | | |
| Total locations, end of period | | 1,030 | | | 1,720 | | | 2,750 | |
(1)Effective June 30, 2020, the three months ended September 30, 2017:Company ceased offering unsecured consumer lending and credit services products, which include all payday and installment loans, in the U.S.
(2)The table does not include 42 Mr. Payroll check cashing locations operated by independent franchisees under franchising agreements with the Company. |
| | | | | | | | | |
| | | | | Consumer | | |
| | | Pawn | | Loan | | Total |
| | | Locations (1) | | Locations (2) | | Locations |
| U.S.: | | | | | | |
| Total locations, beginning of period | | 1,073 |
| | 44 |
| | 1,117 |
|
| New locations opened | | 1 |
| | — |
| | 1 |
|
| Locations closed or consolidated | | (1 | ) | | — |
| | (1 | ) |
| Total locations, end of period | | 1,073 |
| | 44 |
| | 1,117 |
|
| | | | | | | |
| Latin America: | | | | | | |
| Total locations, beginning of period | | 952 |
| | 28 |
| | 980 |
|
| New locations opened | | 9 |
| | — |
| | 9 |
|
| Total locations, end of period | | 961 |
| | 28 |
| | 989 |
|
| | | | | | | |
| Total: | | | | | | |
| Total locations, beginning of period | | 2,025 |
| | 72 |
| | 2,097 |
|
| New locations opened | | 10 |
| | — |
| | 10 |
|
| Locations closed or consolidated | | (1 | ) | | — |
| | (1 | ) |
| Total locations, end of period | | 2,034 |
| | 72 |
| | 2,106 |
|
| |
(1)
| At September 30, 2017, 317 of the U.S. pawn stores, which are primarily located in Texas and Ohio, also offered consumer loans or credit services products, while 49 Mexico pawn stores offered consumer loan products.
|
| |
(2)
| The Company’s U.S. free-standing consumer loan locations offer consumer loans and/or a credit services product and are located in Ohio, Texas, California and limited markets in Mexico. The table does not include 63 check cashing locations operated by independent franchisees under franchising agreements with the Company. |
(3) The table does not include 27 Prendamex pawn locations operated by independent franchisees under franchising agreements with the Company.
The following table details store count activity for the nine months ended September 30, 2017:
|
| | | | | | | | | |
| | | | | Consumer | | |
| | | Pawn | | Loan | | Total |
| | | Locations (1) | | Locations (2) | | Locations |
| U.S.: | | | | | | |
| Total locations, beginning of period | | 1,085 |
| | 45 |
| | 1,130 |
|
| New locations opened | | 2 |
| | — |
| | 2 |
|
| Locations acquired | | 1 |
| | — |
| | 1 |
|
| Locations closed or consolidated | | (15 | ) | | (1 | ) | | (16 | ) |
| Total locations, end of period | | 1,073 |
| | 44 |
| | 1,117 |
|
| | | | | | | |
| Latin America: | | | | | | |
| Total locations, beginning of period | | 927 |
| | 28 |
| | 955 |
|
| New locations opened | | 32 |
| | — |
| | 32 |
|
| Locations acquired | | 5 |
| | — |
| | 5 |
|
| Locations closed or consolidated | | (3 | ) | | — |
| | (3 | ) |
| Total locations, end of period | | 961 |
| | 28 |
| | 989 |
|
| | | | | | | |
| Total: | | | | | | |
| Total locations, beginning of period | | 2,012 |
| | 73 |
| | 2,085 |
|
| New locations opened | | 34 |
| | — |
| | 34 |
|
| Locations acquired | | 6 |
| | — |
| | 6 |
|
| Locations closed or consolidated | | (18 | ) | | (1 | ) | | (19 | ) |
| Total locations, end of period | | 2,034 |
| | 72 |
| | 2,106 |
|
| |
(1)
| At September 30, 2017, 317 of the U.S. pawn stores, which are primarily located in Texas and Ohio, also offered consumer loans or credit services products, while 49 Mexico pawn stores offer consumer loan products. |
| |
(2)
| The Company’s U.S. free-standing consumer loan locations offer consumer loans and/or a credit services product and are located in Ohio, Texas, California and limited markets in Mexico. The table does not include 63 check cashing locations operated by independent franchisees under franchising agreements with the Company. |
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements have been prepared in conformityaccordance with accounting principles generally accepted in the United States of America requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, related revenue and expenses, and disclosure of gain and loss contingencies at the date of the financial statements. Such estimates, assumptions and judgments are subject to a number of risks and uncertainties, which may cause actual results to differ materially from the Company’s estimates.(“GAAP��). The significant accounting policies that the Company believes are the most critical to aid in fully understanding and evaluating its reported financial results have been reported in the Company’s 20162019 annual report on Form 10-K. There have been no changes to the Company’s significant accounting policies for the nine months ended September 30, 2017.2020.
Recent Accounting Pronouncements
21
See Note 1 - Significant Accounting Policies of the condensed consolidated financial statements contained in Part I, Item 1 of this report for a discussion of recent accounting pronouncements that the Company has adopted or will adopt in future periods.
RESULTS OF CONTINUING OPERATIONS (unaudited)
Continuing Impact of COVID-19
The broad shutdowns in response to COVID-19 during the end of the first quarter and the first part of the second quarter caused significantly reduced levels of personal spending by consumers in the U.S. and Latin America. This resulted in a significant decline in pawn lending activities, including increased redemptions of existing loans and decreased originations of new loans. Further impacting pawn loan demand during the second quarter were federal stimulus payments, forbearance programs and enhanced unemployment benefits in the U.S. and increased cross-border remittance payments from the U.S. to many Latin American countries. Beginning in approximately May and continuing through September 30, 2020, pawn loan originations began to recover, although pawn loan balances as of September 30, 2020 were still significantly lower than balances in the prior year. Resulting pawn loan fees and inventory levels were negatively impacted during the second and third quarters as a result of the lower pawn loan balances.
As most of the Company’s pawn stores were able to remain open as an essential business during the broad shutdowns, retail sales during the second quarter benefited from strong demand for stay-at-home products, such as consumer electronics, tools and sporting goods and were further enhanced by federal stimulus payments in the U.S., which drove additional demand across most product categories, including jewelry. These positive impacts on second quarter retail sales in Latin America were largely offset by a three-week regulatory prohibition of retail transactions in Mexico the last three weeks of May and closures of stores in El Salvador and Colombia during much of the second quarter. The strong retail demand experienced in the U.S. in the second quarter continued through much of the third quarter, although lower inventory balances also negatively impacted retail sales. Latin America’s sales were further impacted by a slower economic recovery compared to the U.S. As a result of the increased retail sales, especially in the second quarter, and less forfeited inventory from lower pawn receivable balances, inventory balances as of September 30, 2020 were significantly lower than balances in the prior year.
See also “Note 1 – General – Impact of COVID-19” of Notes to Consolidated Financial Statements for a further discussion on the impact of COVID-19 on the Company, its business and results of operations.
Constant Currency 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 yearcurrent-year results at prior yearprior-year average exchange rates. The wholesale scrap jewelry generatedsales in Latin America is soldare priced and settled in U.S. dollars and is thereforeare not affected by foreign currency translation. Atranslation, as are a small percentage of the operating and administrative expenses in Latin America, which are also billed and paid in U.S. dollars which are not affected by foreign currency translation.dollars.
Business operations in Mexico, Guatemala and GuatemalaColombia are transacted in Mexican pesos, and Guatemalan quetzales and Colombian pesos, respectively. The Company also has operations in El Salvador where the reporting and functional currency is the U.S. dollar. The following table provides exchange rates for the Mexican peso, and Guatemalan quetzal and Colombian peso for the current and prior yearprior-year periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, | | | | Favorable / | | |
| | | 2020 | | 2019 | | (Unfavorable) | | |
| Mexican peso / U.S. dollar exchange rate: | | | | | | | | |
| End-of-period | | 22.5 | | 19.6 | | | (15) | % | |
| Three months ended | | 22.1 | | 19.4 | | | (14) | % | |
| Nine months ended | | 21.8 | | 19.3 | | | (13) | % | |
| | | | | | | | |
| Guatemalan quetzal / U.S. dollar exchange rate: | | | | | | | | |
| End-of-period | | 7.8 | | 7.7 | | | (1) | % | |
| Three months ended | | 7.7 | | 7.7 | | | — | % | |
| Nine months ended | | 7.7 | | 7.7 | | | — | % | |
| | | | | | | | |
| Colombian peso / U.S. dollar exchange rate: | | | | | | | | |
| End-of-period | | 3,879 | | 3,462 | | | (12) | % | |
| Three months ended | | 3,730 | | 3,339 | | | (12) | % | |
| Nine months ended | | 3,703 | | 3,239 | | | (14) | % | |
|
| | | | | | | | | |
| | | September 30, | | Favorable / |
| | | 2017 | | 2016 | | (Unfavorable) |
| Mexican peso / U.S. dollar exchange rate: | | | | | | | | |
| End-of-period | | 18.2 | | 19.5 | | | 7 | % | |
| Three months ended | | 17.8 | | 18.7 | | | 5 | % | |
| Nine months ended | | 18.9 | | 18.3 | | | (3 | )% | |
| | | | | | | | | |
| Guatemalan quetzal / U.S. dollar exchange rate: | | | | | | | | |
| End-of-period | | 7.3 | | 7.5 | | | 3 | % | |
| Three months ended | | 7.3 | | 7.6 | | | 4 | % | |
| Nine months ended | | 7.4 | | 7.6 | | | 3 | % | |
Amounts presented on a constant currency basis are denoted as such. See “—Non-GAAP“Non-GAAP Financial Information” for additional discussion of constant currency operating results.
Operating Results for the Three Months Ended September 30, 20172020 Compared to the Three Months Ended September 30, 20162019
U.S. Operations Segment
The following table details earning assets, which consist of pawn loans, inventories and unsecured consumer loans, net, and inventories as well as other earning asset metrics of the U.S. operations segment as of September 30, 2017 as2020 compared to September 30, 2016:2019 (dollars in thousands, except as otherwise noted):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, | | | | | | Increase / | | |
| | 2020 | | | 2019 | | | (Decrease) | | |
| U.S. Operations Segment | | | | | | | | | |
| Earning assets: | | | | | | | | | |
| Pawn loans | $ | 188,819 | | | $ | 270,659 | | | | (30) | % | |
| Inventories | | 120,397 | | | | 185,369 | | | | (35) | % | |
Consumer loans, net (1) | | — | | | | 895 | | | | (100) | % | |
| $ | 309,216 | | | $ | 456,923 | | | | (32) | % | |
| | | | | | | | | |
| Average outstanding pawn loan amount (in ones) | $ | 188 | | | $ | 167 | | | | 13 | % | |
| | | | | | | | | |
| Composition of pawn collateral: | | | | | | | | | |
| General merchandise | 34 | % | | | 36 | % | | | | | |
| Jewelry | 66 | % | | | 64 | % | | | | | |
| | 100 | % | | | 100 | % | | | | | |
| | | | | | | | | |
| Composition of inventories: | | | | | | | | | |
| General merchandise | 42 | % | | | 47 | % | | | | | |
| Jewelry | 58 | % | | | 53 | % | | | | | |
| 100 | % | | | 100 | % | | | | | |
| | | | | | | | | |
| Percentage of inventory aged greater than one year | 2 | % | | | 3 | % | | | | | |
| | | | | | | | | |
| Inventory turns (trailing twelve months retail sales divided by average inventories) | 3.2 times | | | 2.8 times | | | | | |
|
| | | | | | | | | | | | |
| | Balance at September 30, | | Increase / |
| | 2017 | | 2016 | | (Decrease) |
| U.S. Operations Segment | | | | | | | | | |
| Earning assets: | | | | | | | | | |
| Pawn loans | $ | 281,217 |
| | $ | 300,646 |
| | | (6 | )% | |
Consumer loans, net (1) | | 24,108 |
| | | 27,381 |
| | | (12 | )% | |
| Inventories | | 240,384 |
| | | 280,429 |
| | | (14 | )% | |
| | $ | 545,709 |
| | $ | 608,456 |
| | | (10 | )% | |
| | | | | | | | | | |
| Average outstanding pawn loan amount (in ones) | $ | 152 |
| | $ | 145 |
| | | 5 | % | |
| | | | | | | | | | |
| Composition of pawn collateral: | | | | | | | | | |
| General merchandise | 36 | % | | 39 | % | | | | |
| Jewelry | 64 | % | | 61 | % | | | | |
| | 100 | % | | 100 | % | | | | |
| | | | | | | | | | |
| Composition of inventories: | | | | | | | | | |
| General merchandise | 43 | % | | 48 | % | | | | |
| Jewelry | 57 | % | | 52 | % | | | | |
| | 100 | % | | 100 | % | | | | |
| | | | | | | | | | |
| Percentage of inventory aged greater than one year | 9 | % | | 6 | % | | | | |
| |
(1)
| Does not include the off-balance sheet principal portion of active CSO extensions of credit made by independent third-party lenders. These amounts, net of the Company’s estimated fair value of its liability for guaranteeing the extensions of credit, totaled $9,251 and $11,641 as of September 30, 2017 and 2016, respectively. |
The following table presents segment pre-tax operating income of the U.S. operations segment for the three months ended September 30, 2017 as2020 compared to the three months ended September 30, 2016.2019 (dollars in thousands). 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | |
| | September 30, | | | | Increase / | | |
| | 2020 | | 2019 | | (Decrease) | | |
| U.S. Operations Segment | | | | | | | | |
| Revenue: | | | | | | | | |
| Retail merchandise sales | | $ | 151,618 | | | $ | 168,092 | | | | (10) | % | |
| Pawn loan fees | | 66,180 | | | 95,125 | | | | (30) | % | |
| Wholesale scrap jewelry sales | | 12,692 | | | 18,369 | | | | (31) | % | |
Consumer loan and credit services fees (1) | | 57 | | | 2,561 | | | | (98) | % | |
| Total revenue | | 230,547 | | | 284,147 | | | | (19) | % | |
| | | | | | | | |
| Cost of revenue: | | | | | | | | |
| Cost of retail merchandise sold | | 84,673 | | | 103,728 | | | | (18) | % | |
| Cost of wholesale scrap jewelry sold | | 10,316 | | | 16,217 | | | | (36) | % | |
Consumer loan and credit services loss provision (1) | | 104 | | | 223 | | | | (53) | % | |
| Total cost of revenue | | 95,093 | | | 120,168 | | | | (21) | % | |
| | | | | | | | |
| Net revenue | | 135,454 | | | 163,979 | | | | (17) | % | |
| | | | | | | | |
| Segment expenses: | | | | | | | | |
| Store operating expenses | | 92,678 | | | 103,315 | | | | (10) | % | |
| Depreciation and amortization | | 5,390 | | | 5,213 | | | | 3 | % | |
| Total segment expenses | | 98,068 | | | 108,528 | | | | (10) | % | |
| | | | | | | | |
| Segment pre-tax operating income | | $ | 37,386 | | | $ | 55,451 | | | | (33) | % | |
|
| | | | | | | | | | | | | |
| | | Three Months Ended | | | | |
| | | September 30, | | |
| | | 2017 | | 2016 | | Increase |
| U.S. Operations Segment | | | | | | | | |
| Revenue: | | | | | | | | |
| Retail merchandise sales | | $ | 160,598 |
| | $ | 84,547 |
| | | 90 | % | |
| Pawn loan fees | | 95,266 |
| | 48,840 |
| | | 95 | % | |
| Wholesale scrap jewelry sales | | 32,397 |
| | 15,046 |
| | | 115 | % | |
| Consumer loan and credit services fees | | 18,525 |
| | 9,991 |
| | | 85 | % | |
| Total revenue | | 306,786 |
| | 158,424 |
| | | 94 | % | |
| | | | | | | | | |
| Cost of revenue: | | | | | | | | |
| Cost of retail merchandise sold | | 107,561 |
| | 51,922 |
| | | 107 | % | |
| Cost of wholesale scrap jewelry sold | | 31,518 |
| | 13,955 |
| | | 126 | % | |
| Consumer loan and credit services loss provision | | 6,068 |
| | 3,275 |
| | | 85 | % | |
| Total cost of revenue | | 145,147 |
| | 69,152 |
| | | 110 | % | |
| | | | | | | | | |
| Net revenue | | 161,639 |
| | 89,272 |
| | | 81 | % | |
| | | | | | | | | |
| Segment expenses: | | | | | | | | |
| Store operating expenses | | 104,555 |
| | 52,480 |
| | | 99 | % | |
| Depreciation and amortization | | 5,919 |
| | 2,906 |
| | | 104 | % | |
| Total segment expenses | | 110,474 |
| | 55,386 |
| | | 99 | % | |
| | | | | | | | | |
| Segment pre-tax operating income | | $ | 51,165 |
| | $ | 33,886 |
| | | 51 | % | |
Retail Merchandise Sales Operations
U.S. retail merchandise sales increased 90%decreased 10% to $160,598$151.6 million during the third quarter of 20172020 compared to $84,547$168.1 million for the third quarter of 2016. The increase was primarily due to the third quarter of 2016 only including the results of operations for Cash America for the period September 2, 2016 to September 30, 2016 (“Cash America 2016 Partial Quarter”) as the Merger was completed on September 1, 2016.2019. Same-store retail sales also decreased 1% in both legacy First Cash and Cash America stores10% in the third quarter of 20172020 compared to the third quarter of 2016. During2019. The decrease in total and same-store retail sales was primarily due to lower inventory balances as described below. Offsetting the third quarter of 2017,decline in retail sales revenue, the gross profit margin on retail merchandise sales in the U.S. was 33%44% during the third quarter of 2020 compared to a margin of 39%38% during the third quarter of 2016, reflecting the impact of historically lower margins2019, which resulted in the Cash America stores and a focus during4% increase in net revenue (gross profit) from retail sales for the third quarter of 2017 on clearing2020 compared to the third quarter of 2019. The increase in retail sales margin was primarily driven by continued retail demand, increased buying of fresh merchandise directly from customers and lower levels of aged inventory levels inwhich limited the Cash America stores.need for normal discounting.
U.S. inventories decreased 14%35% from $280,429$185.4 million at September 30, 20162019 to $240,384$120.4 million at September 30, 2017.2020. The decrease was primarily a result of lower than normal third quarter inventory levels as a result of record second quarter retail sales due to COVID-19 related demand and a 19% decline in legacy Cash America store inventories as the Company continues to optimize inventory levels and clear aged inventory in the Cash America stores,generated from forfeited pawn loans. These decreases were partially offset by a 6%an increase in legacy First Cash store inventories.merchandise purchased directly from customers during the quarter compared to the prior-year quarter. Inventories aged greater than one year were 11% and 5% in the legacy Cash America stores and legacy First Cash U.S. stores, respectively.were 2% at September 30, 2020 compared to 3% at September 30, 2019.
Pawn Lending Operations
U.S. pawn loan fees increased 95% totaling $95,266decreased 30% to $66.2 million during the third quarter of 20172020 compared to $48,840$95.1 million for the third quarter of 2016. The increase was primarily due to the Cash America 2016 Partial Quarter. Legacy First Cash same-store2019. Same-store pawn loan fees increased 3%, while legacy Cash America same-store pawn loan fees decreased 11% in the third quarter of 20172020 also decreased 30% compared to the third quarter of 2016.2019. Pawn loan receivables in the U.S. as of September 30, 20172020 decreased 6%30% in total and on a same-store basis compared to September 30, 2016. Legacy First Cash2019. The decline in total and same-store pawn receivables increased 5%, while legacy Cash America same-store pawn receivables decreased 13% as of September 30, 2017 compared to September 30, 2016. The decline in legacy Cash America same-store pawn receivables and resulting pawn loan fees was primarily due to the expected impactsignificant reduction in pawn loan originations during the second and third quarters of reducing2020. The reduced origination activity reflected improved customer liquidity due to reduced levels of personal spending during the holding period on delinquent pawn loans, continued optimization of loan-to-value ratiosCOVID-19 lockdowns, government stimulus programs and to a lesser extent,consumer forbearance programs, among other things. Beginning in approximately May and continuing through the impactend of the hurricane onthird quarter of 2020, pawn loan originations improved compared to prior-year originations, which resulted in a 19% sequential increase in pawn receivables in coastal Texas markets.during the quarter.
Wholesale Scrap Jewelry Operations
U.S. wholesale scrap jewelry revenue, consisting primarily of gold sales, increased 115%decreased 31% to $32,397$12.7 million during the third quarter of 20172020 compared to $15,046$18.4 million during the third quarter of 2016.2019. The increasedecline in wholesalescrap revenue relates primarily to reductions in inventory levels as discussed above. The scrap jewelry revenue was primarily due to the Cash America 2016 Partial Quarter. The scrap gross profit margin in the U.S. was 3%19% compared to the prior-year margin of 7%12%, with the increase in scrap margin primarily asdue to an increase in the average selling price of gold during the third quarter of 2020 compared to 2019.
Consumer Lending Operations
The Company ceased offering unsecured consumer lending and credit services products (collectively, consumer lending operations), which include all payday and installment loans, in the U.S. effective June 30, 2020. As a result, service fees from U.S. consumer lending operations were $57,000 during the third quarter of the typically higher cost basis in scrap jewelry sold by the Cash America stores. Scrap jewelry profits accounted for less than 1% of U.S. net revenue (gross profit)2020 compared to $2.6 million for the third quarter of 2017 compared to 1% in the third quarter of 2016.2019.
Consumer Lending Operations
Service fees from U.S. consumer loans and credit services transactions (collectively, consumer lending operations) increased 85% to $18,525 during the third quarter of 2017 compared to $9,991 for the third quarter of 2016. The increase in fees was due to the Cash America 2016 Partial Quarter. Excluding the increase due to the Cash America 2016 Partial Quarter, consumer loan and credit services fees decreased 32% as the Company continues to de-emphasize consumer lending operations in light of increasing regulatory constraints. Revenues from consumer lending operations comprised 6% of total U.S. revenue during the third quarter of 2017 and 2016.
Segment Expenses and Segment Pre-Tax Operating Income
U.S. store operating expenses increased 99%decreased 10% to $104,555$92.7 million during the third quarter of 20172020 compared to $52,480$103.3 million during the third quarter of 2016,2019 and same-store operating expenses also decreased 10% compared with the prior-year period. The decrease in same-store operating expenses was primarily due to payroll savings from normal attrition, reduced store operating hours and other cost saving initiatives as a result of the Merger. Same-store operating expenses increased 2% and decreased 3% in the legacy First Cash and Cash America stores, respectively, compared with the prior-year period.COVID-19.
U.S. store depreciation and amortization increased 104%3% to $5,919$5.4 million during the third quarter of 20172020 compared to $2,906$5.2 million during the third quarter of 2016, primarily as a result of the Merger.2019.
The U.S. segment pre-tax operating income for the third quarter of 20172020 was $51,165,$37.4 million, which generated a pre-tax segment operating margin of 17%16% compared to $33,886$55.5 million and 21%20% in the prior year, respectively. The declinedecrease in the segment pre-tax operating income and margin was primarily due to historically lower operating marginsreflected decreases in pawn fee revenue as a result of the Cash America storesdecline in pawn loan receivables and net revenue from consumer loan and credit services products as a result of discontinuing consumer lending operations, partially offset by an increase in gross profit from both retail and scrap sales and a focus during the third quarter of 2017 on clearing aged inventory levelsdecrease in Cash America stores, resulting in lower gross profit margins on retail merchandise sales.operating expenses.
Latin America Operations Segment
Latin American results of operations for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 were impacted by a 14% unfavorable change in the average value of the Mexican peso compared to the U.S. dollar. The translated value of Latin American earning assets as of September 30, 2020 compared to September 30, 2019 was also impacted by a 15% unfavorable change in the end-of-period value of the Mexican peso compared to the U.S. dollar.
The following table details earning assets, which consist of pawn loans consumer loans, net and inventories as well as other earning asset metrics of the Latin America operations segment as of September 30, 2017 as2020 compared to September 30, 2016:2019 (dollars in thousands, except as otherwise noted):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Constant Currency Basis | | | | |
| | | | | | | | | | | As of | | | | |
| | | | | | | | | | | September 30, | | Increase / | | |
| As of September 30, | | | | | | | | | | 2020 | | (Decrease) | | |
| | 2020 | | | 2019 | | | Decrease | | | | (Non-GAAP) | | (Non-GAAP) | | |
| Latin America Operations Segment | | | | | | | | | | | | | | | |
| Earning assets: | | | | | | | | | | | | | | | |
| Pawn loans | $ | 81,800 | | | $ | 115,248 | | | | (29) | % | | | $ | 93,105 | | | | (19) | % | |
| Inventories | | 48,267 | | | | 96,552 | | | | (50) | % | | | 54,770 | | | | (43) | % | |
| | | | | | | | | | | | | | | |
| $ | 130,067 | | | $ | 211,800 | | | | (39) | % | | | $ | 147,875 | | | | (30) | % | |
| | | | | | | | | | | | | | | |
| Average outstanding pawn loan amount (in ones) | $ | 64 | | | $ | 66 | | | | (3) | % | | | $ | 73 | | | | 11 | % | |
| | | | | | | | | | | | | | | |
| Composition of pawn collateral: | | | | | | | | | | | | | | | |
| General merchandise | 66 | % | | | 72 | % | | | | | | | | | | | |
| Jewelry | 34 | % | | | 28 | % | | | | | | | | | | | |
| 100 | % | | | 100 | % | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Composition of inventories: | | | | | | | | | | | | | | | |
| General merchandise | 60 | % | | | 73 | % | | | | | | | | | | | |
| Jewelry | 40 | % | | | 27 | % | | | | | | | | | | | |
| 100 | % | | | 100 | % | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Percentage of inventory aged greater than one year | 2 | % | | | 1 | % | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Inventory turns (trailing twelve months retail sales divided by average inventories) | 4.1 times | | | 3.7 times | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Constant Currency Basis | |
| | | | | | | | | | | | Balance at | | | | |
| | | | | | | | | | | | September 30, | | Increase / |
| | Balance at September 30, | | Increase / | | 2017 | | (Decrease) |
| | 2017 | | 2016 | | (Decrease) | | (Non-GAAP) | | (Non-GAAP) |
| Latin America Operations Segment | | | | | | | | | | | | | | | |
| Earning assets: | | | | | | | | | | | | | | | |
| Pawn loans | $ | 90,150 |
| | $ | 72,523 |
| | | 24 | % | | | $ | 84,378 |
| | | 16 | % | |
| Consumer loans, net | | 407 |
| | | 411 |
| | | (1 | )% | | | 380 |
| | | (8 | )% | |
| Inventories | | 68,299 |
| | | 52,433 |
| | | 30 | % | | | 63,855 |
| | | 22 | % | |
| | $ | 158,856 |
| | $ | 125,367 |
| | | 27 | % | | | $ | 148,613 |
| | | 19 | % | |
| | | | | | | | | | | | | | | | |
| Average outstanding pawn loan amount (in ones) | $ | 67 |
| | $ | 59 |
| | | 14 | % | | | $ | 63 |
| | | 7 | % | |
| | | | | | | | | | | | | | | | |
| Composition of pawn collateral: | | | | | | | | | | | | | | | |
| General merchandise | 82 | % | | 82 | % | | | | | | | | | | |
| Jewelry | 18 | % | | 18 | % | | | | | | | | | | |
| | 100 | % | | 100 | % | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Composition of inventories: | | | | | | | | | | | | | | | |
| General merchandise | 75 | % | | 80 | % | | | | | | | | | | |
| Jewelry | 25 | % | | 20 | % | | | | | | | | | | |
| | 100 | % | | 100 | % | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Percentage of inventory aged greater than one year | 1 | % | | 1 | % | | | | | | | | | | |
The following table presents segment pre-tax operating income of the Latin America operations segment for the three months ended September 30, 2017 as2020 compared to the three months ended September 30, 2016.2019 (dollars in thousands). 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Constant Currency Basis | | | | |
| | | | | | | | | | Three Months | | | | |
| | | | | | | | | | Ended | | | | |
| | Three Months Ended | | | | | | | | September 30, | | Increase / | | |
| | September 30, | | | | Increase / | | | | 2020 | | (Decrease) | | |
| | | 2020 | | 2019 | | (Decrease) | | | | (Non-GAAP) | | (Non-GAAP) | | |
| Latin America Operations Segment | | | | | | | | | | | | | | |
| Revenue: | | | | | | | | | | | | | | |
| Retail merchandise sales | | $ | 83,364 | | | $ | 113,266 | | | | (26) | % | | | $ | 94,326 | | | | (17) | % | |
| Pawn loan fees | | 33,390 | | | 47,754 | | | | (30) | % | | | 37,869 | | | | (21) | % | |
| Wholesale scrap jewelry sales | | 12,589 | | | 7,292 | | | | 73 | % | | | 12,589 | | | | 73 | % | |
| | | | | | | | | | | | | | |
| Total revenue | | 129,343 | | | 168,312 | | | | (23) | % | | | 144,784 | | | | (14) | % | |
| | | | | | | | | | | | | | |
| Cost of revenue: | | | | | | | | | | | | | | |
| Cost of retail merchandise sold | | 52,557 | | | 74,869 | | | | (30) | % | | | 59,447 | | | | (21) | % | |
| Cost of wholesale scrap jewelry sold | | 9,502 | | | 6,443 | | | | 47 | % | | | 10,816 | | | | 68 | % | |
| | | | | | | | | | | | | | |
| Total cost of revenue | | 62,059 | | | 81,312 | | | | (24) | % | | | 70,263 | | | | (14) | % | |
| | | | | | | | | | | | | | |
| Net revenue | | 67,284 | | | 87,000 | | | | (23) | % | | | 74,521 | | | | (14) | % | |
| | | | | | | | | | | | | | |
| Segment expenses: | | | | | | | | | | | | | | |
| Store operating expenses | | 39,383 | | | 46,504 | | | | (15) | % | | | 44,204 | | | | (5) | % | |
| Depreciation and amortization | | 3,903 | | | 3,795 | | | | 3 | % | | | 4,370 | | | | 15 | % | |
| Total segment expenses | | 43,286 | | | 50,299 | | | | (14) | % | | | 48,574 | | | | (3) | % | |
| | | | | | | | | | | | | | |
| Segment pre-tax operating income | | $ | 23,998 | | | $ | 36,701 | | | | (35) | % | | | $ | 25,947 | | | | (29) | % | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Constant Currency Basis |
| | | | | | | | | | | Three Months | | | | |
| | | | | | | | | Ended | | | | |
| | | Three Months Ended | | | | | | September 30, | | Increase / |
| | | September 30, | | Increase / | | 2017 | | (Decrease) |
| | | 2017 | | 2016 | | (Decrease) | | (Non-GAAP) | | (Non-GAAP) |
| Latin America Operations Segment | | | | | | | | | | | | | | |
| Revenue: | | | | | | | | | | | | | | |
| Retail merchandise sales | | $ | 85,736 |
| | $ | 67,668 |
| | | 27 | % | | | $ | 81,686 |
| | | 21 | % | |
| Pawn loan fees | | 37,279 |
| | 30,665 |
| | | 22 | % | | | 35,534 |
| | | 16 | % | |
| Wholesale scrap jewelry sales | | 5,131 |
| | 3,910 |
| | | 31 | % | | | 5,131 |
| | | 31 | % | |
| Consumer loan and credit services fees | | 480 |
| | 486 |
| | | (1 | )% | | | 457 |
| | | (6 | )% | |
| Total revenue | | 128,626 |
| | 102,729 |
| | | 25 | % | | | 122,808 |
| | | 20 | % | |
| | | | | | | | | | | | | | | |
| Cost of revenue: | | | | | | | | | | | | | | |
| Cost of retail merchandise sold | | 53,789 |
| | 41,477 |
| | | 30 | % | | | 51,252 |
| | | 24 | % | |
| Cost of wholesale scrap jewelry sold | | 5,313 |
| | 3,022 |
| | | 76 | % | | | 5,068 |
| | | 68 | % | |
| Consumer loan and credit services loss provision | | 117 |
| | 138 |
| | | (15 | )% | | | 111 |
| | | (20 | )% | |
| Total cost of revenue | | 59,219 |
| | 44,637 |
| | | 33 | % | | | 56,431 |
| | | 26 | % | |
| | | | | | | | | | | | | | | |
| Net revenue | | 69,407 |
| | 58,092 |
| | | 19 | % | | | 66,377 |
| | | 14 | % | |
| | | | | | | | | | | | | | | |
| Segment expenses: | | | | | | | | | | | | | | |
| Store operating expenses | | 34,411 |
| | 28,094 |
| | | 22 | % | | | 32,920 |
| | | 17 | % | |
| Depreciation and amortization | | 2,704 |
| | 2,602 |
| | | 4 | % | | | 2,587 |
| | | (1 | )% | |
| Total segment expenses | | 37,115 |
| | 30,696 |
| | | 21 | % | | | 35,507 |
| | | 16 | % | |
| | | | | | | | | | | | | | | |
| Segment pre-tax operating income | | $ | 32,292 |
| | $ | 27,396 |
| | | 18 | % | | | $ | 30,870 |
| | | 13 | % | |
Retail Merchandise Sales Operations
Latin America retail merchandise sales increased 27% (21%decreased 26% (17% on a constant currency basis) to $85,736$83.4 million during the third quarter of 20172020 compared to $67,668$113.3 million for the third quarter of 2016.2019. The increasedecrease was primarily due to a 24% increase (19%lower inventory levels as noted below and limited economic recovery in Latin America in general, partially offset by additional revenue contributions from recent acquisitions and new store openings. Same-store retail sales decreased 29% (20% on a constant currency basis). Partially offsetting the declines in same-store retail sales which included a same-store retail sales increase of 59% (52% on a constant currency basis) inrevenue, the Maxi Prenda stores acquired in the fourth quarter of 2015 and first quarter of 2016. Excluding the Maxi Prenda stores, same-store retail sales increased 19% (14% on a constant currency basis), which was primarily due to strong retail demand trends and the maturation of existing stores. The gross profit margin on retail merchandise sales was 37% during the third quarter of 20172020 compared to 39%34% during the third quarter of 2016.2019, resulting in a decrease of 20% (9% on a constant currency basis) in net revenue (gross profit) from retail sales for the third quarter of 2020 compared to the third quarter of 2019. The increase in retail sales margin was primarily due to limited discounting on fresher inventories and increased focus on optimizing loan-to-value ratios.
Inventories in Latin America increased 30% (22%decreased 50% (43% on a constant currency basis) from $52,433$96.6 million at September 30, 20162019 to $68,299$48.3 million at September 30, 2017. Increased2020. The decrease was primarily due to the decline in pawn receivable balances creating less forfeited inventory levelsas noted below and an increase in the Maxi Prenda stores, which historically carried lower inventory balancesscrapping activities. Inventories aged greater than the typical First Cash store, accounted for 32% of the increase with growth from new store openingsone year in Latin America were 2% at September 30, 2020 and the maturation of existing stores accounting for the remainder of the increase.1% at September 30, 2019.
Pawn Lending Operations
Pawn loan fees in Latin America increased 22% (16%decreased 30% (21% on a constant currency basis), totaling $37,279$33.4 million during the third quarter of 20172020 compared to $30,665$47.8 million for the third quarter of 2016, primarily as a result of the 24% (16%2019. Same-store pawn fees decreased 32% (23% on a constant currency basis) increase in pawnthe third quarter of 2020 compared to the third quarter of 2019. Pawn loan receivables as of September 30, 2017 compared to September 30, 2016. The increase in pawn receivables reflects a same-store pawn receivable increase of 22% (14%decreased 29% (19% on a constant currency basis) and new store additions. The increase inas of September 30, 2020 compared to September 30, 2019, while same-store pawn receivables decreased 31% (21% on a constant currency basis). The decline in total and same-store pawn receivables and resulting pawn loan fees was primarily due to strong demand forthe significant reduction in pawn loansloan originations during the second and third quarters of 2020. The reduced origination activity reflected improved customer liquidity due to reduced levels of personal spending during the maturationCOVID-19 lockdowns, among other things. While there were limited government stimulus programs in the region in response to the pandemic, an increase in cross-border remittance payments from the U.S. also provided additional liquidity to consumers. Beginning in approximately May and continuing through the end of existing stores.the third quarter of 2020, pawn loan originations improved compared to prior-year originations, which resulted in a 13% sequential increase in pawn receivables during the quarter.
Wholesale Scrap Jewelry Operations
Latin America wholesale scrap jewelry revenue, consisting primarily of gold sales, increased 31%73% (also 73% on a constant currency basis) to $5,131$12.6 million during the third quarter of 20172020 compared to $3,910$7.3 million during the third quarter of 2016.2019. The increase in wholesale scrap jewelry revenue was primarily due to increased volume contributions from recently acquired stores which carried a greater percentage of jewelry inventories as well as an increase in general scrapping volumes as a result of retail restrictions and reduced scrapping activities in the Maxi Prenda stores during the third quarter of 2016 as those stores were being converteddemand related to the Company’s proprietary point of sale and loan management system.COVID-19. The scrap jewelry gross profit margin in Latin America was a loss of 4% (1% profit25% (14% on a constant currency basis) during the third quarter of 2020 compared to the prior-year margin of 23%. Scrap jewelry profits or losses accounted for less than 1%12%, with the increase in scrap margin primarily due to an increase in the average selling price of Latin America net revenue (gross profit) forgold during the third quarter of 20172020 compared to 2% in the third quarter of 2016.2019.
Segment Expenses and Segment Pre-Tax Operating Income
Store operating expenses increased 22% (17%decreased 15% (5% on a constant currency basis) to $34,411$39.4 million during the third quarter of 20172020 compared to $28,094$46.5 million during the third quarter of 2016 and same-store2019. Total store operating expenses increased 14% (9%decreased primarily due to cost saving initiatives as a result of COVID-19, partially offset by the 7% increase in the Latin America weighted-average store count. Same-store operating expenses decreased 19% (10% on a constant currency basis).
Latin America store depreciation and amortization increased 3% (15% on a constant currency basis) to $3.9 million during the third quarter of 2020 compared to $3.8 million during the prior-year period. Thethird quarter of 2019, primarily due to the increase in both total and same-store operating expenses was due in large part to increased compensation expense related to incentive pay and entry level wage competition.the number of new store openings since the third quarter of 2019.
The segment pre-tax operating income for the third quarter of 20172020 was $32,292,$24.0 million, which generated a pre-tax segment operating margin of 25%19% compared to $27,396$36.7 million and 27%22% in the prior year, respectively. The decline in the segment pre-tax operating income and margin was primarily due to declines in retail sales and pawn loan fees, in part due to the 14% unfavorable change in the average value of the Mexican peso, partially offset by an increase in retail sales margins, an increase in gross profit from scrapping activities and declines in store operating expenses.
Consolidated Results of Operations
The following table reconciles pre-tax operating income of the Company’s U.S. operations segment and Latin America operations segment discussed above to consolidated net income for the three months ended September 30, 2017 as2020 compared to the three months ended September 30, 2016:2019 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | |
| | September 30, | | | | Increase / | | |
| | | 2020 | | 2019 | | (Decrease) | | |
| Consolidated Results of Operations | | | | | | | | |
| Segment pre-tax operating income: | | | | | | | | |
| U.S. operations | | $ | 37,386 | | | $ | 55,451 | | | | (33) | % | |
| Latin America operations | | 23,998 | | | 36,701 | | | | (35) | % | |
| Consolidated segment pre-tax operating income | | 61,384 | | | 92,152 | | | | (33) | % | |
| | | | | | | | |
| Corporate expenses and other income: | | | | | | | | |
| Administrative expenses | | 24,354 | | | 30,576 | | | | (20) | % | |
| Depreciation and amortization | | 1,133 | | | 1,666 | | | | (32) | % | |
| Interest expense | | 6,561 | | | 8,922 | | | | (26) | % | |
| Interest income | | (499) | | | (429) | | | | 16 | % | |
| Merger and other acquisition expenses | | 7 | | | 805 | | | | (99) | % | |
| (Gain) loss on foreign exchange | | (432) | | | 1,648 | | | | 126 | % | |
| Loss on extinguishment of debt | | 11,737 | | | — | | | | — | % | |
| Write-offs and impairments of certain lease intangibles and other assets | | 837 | | | — | | | | — | % | |
| Total corporate expenses and other income | | 43,698 | | | 43,188 | | | | 1 | % | |
| | | | | | | | |
| Income before income taxes | | 17,686 | | | 48,964 | | | | (64) | % | |
| | | | | | | | |
| Provision for income taxes | | 2,624 | | | 14,203 | | | | (82) | % | |
| | | | | | | | |
| Net income | | $ | 15,062 | | | $ | 34,761 | | | | (57) | % | |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | |
| | | Three Months Ended | | | | |
| | | September 30, | | Increase / |
| | | 2017 | | 2016 | | (Decrease) |
| Consolidated Results of Operations | | | | | | | | |
| U.S. operations segment pre-tax operating income | | $ | 51,165 |
| | $ | 33,886 |
| | | 51 | % | |
| Latin America operations segment pre-tax operating income | | 32,292 |
| | 27,396 |
| | | 18 | % | |
| Consolidated segment pre-tax operating income | | 83,457 |
| | 61,282 |
| | | 36 | % | |
| | | | | | | | | |
| Corporate expenses and other income: | | | | | | | | |
| Administrative expenses | | 29,999 |
| | 24,500 |
| | | 22 | % | |
| Depreciation and amortization | | 5,249 |
| | 1,773 |
| | | 196 | % | |
| Interest expense | | 6,129 |
| | 5,073 |
| | | 21 | % | |
| Interest income | | (418 | ) | | (138 | ) | | | 203 | % | |
| Merger and other acquisition expenses | | 911 |
| | 29,398 |
| | | (97 | )% | |
| Loss on extinguishment of debt | | 20 |
| | — |
| | | — | % | |
| Net loss on sale of common stock of Enova | | — |
| | 253 |
| | | (100 | )% | |
| Total corporate expenses and other income | | 41,890 |
| | 60,859 |
| | | (31 | )% | |
| | | | | | | | | |
| Income before income taxes | | 41,567 |
| | 423 |
| | | 9,727 | % | |
| | | | | | | | | |
| Provision for income taxes | | 13,293 |
| | 1,835 |
| | | 624 | % | |
| | | | | | | | | |
| Net income (loss) | | $ | 28,274 |
| | $ | (1,412 | ) | | | 2,102 | % | |
| | | | | | | | | |
| Comprehensive income (loss) | | $ | 23,293 |
| | $ | (15,413 | ) | | | 251 | % | |
Corporate Expenses and Taxes
Administrative expenses increased 22%decreased 20% to $29,999$24.4 million during the third quarter of 20172020 compared to $24,500 during$30.6 million in the third quarter of 2016,2019, primarily due to a reduction in incentive-based compensation expense, reduced travel costs, other cost saving initiatives as a result of the Merger,COVID-19 and a 37% increase in the weighted-average store count resulting in additional management and supervisory compensation and other support expenses required for such growth and by a 5% favorable14% unfavorable change in the average value of the Mexican peso which increased comparative administrativeresulting in lower U.S. dollar translated expenses, partially offset by a 3% increase in Mexico. As a percentagethe consolidated weighted-average store count. Administrative expenses were 7% of revenue administrative expensesduring both the third quarter of 2020 and 2019.
Interest expense decreased from 9%26% to $6.6 million during the third quarter of 20162020 compared to 7%$8.9 million in the third quarter of 2019, primarily due to lower average balances outstanding on the Company’s unsecured credit facilities and lower average interest rates during the third quarter of 2017, primarily due to synergies realized from the Merger and the Maxi Prenda acquisition.
Depreciation and amortization increased to $5,249 during the third quarter of 2017 compared to $1,773 during the third quarter of 2016 primarily due to the assumption of substantial corporate property and equipment from the Merger and $2,313 in amortization expense related to intangible assets acquired as a result of the Merger.
Interest expense increased to $6,129 in the third quarter of 2017 compared to $5,073 for the third quarter of 2016. See “—Liquidity and Capital Resources.”
Merger and other acquisition expenses decreased to $911 during the third quarter of 2017 compared to $29,398 during the third quarter of 2016, reflecting timing in transaction and integration costs primarily related to the Merger. See “—Non-GAAP Financial Information” for additional details of Merger related expenses.
For the third quarter of 2017 and 2016, the Company’s effective federal income tax rates were 32.0% and 433.8%, respectively. The effective tax rate for the third quarter of 2016 was impacted by certain significant Merger related expenses being non-deductible for income tax purposes. The effective tax rate for the third quarter included changes in certain tax estimates made during the third quarter of 2017 as a result of finalizing the 2016 tax returns.
Net Income, Adjusted Net Income, Net Income Per Share and Adjusted Net Income Per Share
The following table sets forth revenue, net revenue, net income, net income per share, adjusted net income and adjusted net income per share for the third quarter of 20172020 compared to the third quarter of 2016:2019. See “Liquidity and Capital Resources.”
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, |
| | | 2017 | | 2016 |
| | | As Reported | | Adjusted | | As Reported | | Adjusted |
| | | (GAAP) | | (Non-GAAP) | | (GAAP) | | (Non-GAAP) |
| Revenue | | $ | 435,412 |
| | $ | 435,412 |
| | $ | 261,153 |
| | $ | 261,153 |
|
| Net revenue | | $ | 231,046 |
| | $ | 231,046 |
| | $ | 147,364 |
| | $ | 147,364 |
|
| Net income (loss) | | $ | 28,274 |
| | $ | 28,861 |
| | $ | (1,412 | ) | | $ | 20,126 |
|
| Diluted earnings (loss) per share | | $ | 0.59 |
| | $ | 0.61 |
| | $ | (0.04 | ) | | $ | 0.58 |
|
| Weighted avg diluted shares | | 47,668 |
| | 47,668 |
| | 34,631 |
| | 34,631 |
|
GAAP and adjusted earnings per share forDuring the three months ended September 30, 2017 compared to the three months ended September 30, 2016 were positively impacted by $0.02 per share due to the year-over-year 5% favorable change in the average valuethird quarter of the Mexican peso. Adjusted net income removes certain items from GAAP net income that2020, the Company does not consider to be representative ofredeemed its actual operating performance, such as Merger and other acquisition expenses andoutstanding $300.0 million, 5.375% senior notes due 2024, incurring a loss on extinguishment of debt but does not adjust forof $11.7 million, which includes an early redemption premium and other redemption costs of $8.8 million and the effectswrite-off of foreign currency rate fluctuations. See “—Non-GAAP Financial Information—Adjusted Net Income and Adjusted Net Income Per Share” below.unamortized debt issuance costs of $2.9 million.
Consolidated effective income tax rates for the third quarter of 2020 and 2019 were 14.8% and 29.0%, respectively. The decrease in the effective tax rate was primarily due to the Internal Revenue Service finalizing regulations in July 2020 for the global intangible low-taxed income tax (“GILTI”) provisions for foreign operations in the U.S. federal tax code. The GILTI tax became effective in 2018, and based on preliminary IRS guidance, the impact to the Company has been included in its tax provisions since 2018. The finalized regulations issued in July essentially eliminated the impact of the incremental GILTI tax for the Company’s 2018, 2019 and current tax years and permitted retroactive application.
Operating Results for the Nine Months Ended September 30, 20172020 Compared to the Nine Months Ended September 30, 20162019
Operating results for the nine months ended September 30, 2020 were significantly impacted by COVID-19 during the second and third quarters as described in the “Operating Results for the Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019” section above and the “Operating Results for the Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019” section in the Company’s June 30, 2020 quarterly report on Form 10-Q.
U.S. Operations Segment
The following table presents segment pre-tax operating income of the U.S. operations segment for the nine months ended September 30, 2017 as2020 compared to the nine months ended September 30, 2016.2019 (dollars in thousands). 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | | | | | | |
| | September 30, | | | | Increase / | | |
| | 2020 | | 2019 | | (Decrease) | | |
| U.S. Operations Segment | | | | | | | | |
| Revenue: | | | | | | | | |
| Retail merchandise sales | | $ | 556,528 | | | $ | 523,825 | | | | 6 | % | |
| Pawn loan fees | | 235,937 | | | 283,127 | | | | (17) | % | |
| Wholesale scrap jewelry sales | | 37,727 | | | 56,942 | | | | (34) | % | |
Consumer loan and credit services fees (1) | | 2,003 | | | 18,378 | | | | (89) | % | |
| Total revenue | | 832,195 | | | 882,272 | | | | (6) | % | |
| | | | | | | | |
| Cost of revenue: | | | | | | | | |
| Cost of retail merchandise sold | | 325,863 | | | 326,134 | | | | — | % | |
| Cost of wholesale scrap jewelry sold | | 32,754 | | | 52,340 | | | | (37) | % | |
Consumer loan and credit services loss provision (1) | | (480) | | | 3,829 | | | | (113) | % | |
| Total cost of revenue | | 358,137 | | | 382,303 | | | | (6) | % | |
| | | | | | | | |
| Net revenue | | 474,058 | | | 499,969 | | | | (5) | % | |
| | | | | | | | |
| Segment expenses: | | | | | | | | |
| Store operating expenses | | 303,686 | | | 310,208 | | | | (2) | % | |
| Depreciation and amortization | | 16,352 | | | 15,527 | | | | 5 | % | |
| Total segment expenses | | 320,038 | | | 325,735 | | | | (2) | % | |
| | | | | | | | |
| Segment pre-tax operating income | | $ | 154,020 | | | $ | 174,234 | | | | (12) | % | |
(1) Effective June 30, 2020, the Company ceased offering unsecured consumer lending and credit services products, which include all payday and installment loans, in the U.S. See “— Consumer Lending Operations” for further discussion.
|
| | | | | | | | | | | | | |
| | | Nine Months Ended | | | | |
| | | September 30, | | |
| | | 2017 | | 2016 | | Increase |
| U.S. Operations Segment | | | | | | | | |
| Revenue: | | | | | | | | |
| Retail merchandise sales | | $ | 519,116 |
| | $ | 186,673 |
| | | 178 | % | |
| Pawn loan fees | | 287,338 |
| | 94,929 |
| | | 203 | % | |
| Wholesale scrap jewelry sales | | 91,430 |
| | 25,910 |
| | | 253 | % | |
| Consumer loan and credit services fees | | 57,425 |
| | 19,619 |
| | | 193 | % | |
| Total revenue | | 955,309 |
| | 327,131 |
| | | 192 | % | |
| | | | | | | | | |
| Cost of revenue: | | | | | | | | |
| Cost of retail merchandise sold | | 337,789 |
| | 114,632 |
| | | 195 | % | |
| Cost of wholesale scrap jewelry sold | | 87,600 |
| | 22,914 |
| | | 282 | % | |
| Consumer loan and credit services loss provision | | 15,115 |
| | 5,380 |
| | | 181 | % | |
| Total cost of revenue | | 440,504 |
| | 142,926 |
| | | 208 | % | |
| | | | | | | | | |
| Net revenue | | 514,805 |
| | 184,205 |
| | | 179 | % | |
| | | | | | | | | |
| Segment expenses: | | | | | | | | |
| Store operating expenses | | 318,044 |
| | 107,196 |
| | | 197 | % | |
| Depreciation and amortization | | 18,759 |
| | 5,827 |
| | | 222 | % | |
| Total segment expenses | | 336,803 |
| | 113,023 |
| | | 198 | % | |
| | | | | | | | | |
| Segment pre-tax operating income | | $ | 178,002 |
| | $ | 71,182 |
| | | 150 | % | |
Retail Merchandise Sales Operations
U.S. retail merchandise sales increased 178%6% to $519,116$556.5 million during the nine months ended September 30, 20172020 compared to $186,673$523.8 million for the nine months ended September 30, 2016. The increase was primarily due to the nine months ended September 30, 2016 only including the results of operations for Cash America for the period September 2, 2016 to September 30, 2016 (“Cash America 2016 Partial Period”) as the Merger was completed on September 1, 2016.2019. Same-store retail sales decreased 1% in legacy First Cash stores and decreased 4% in legacy Cash America storesalso increased 6% during the nine months ended September 30, 20172020 compared to the nine months ended September 30, 2016. Gross2019. During the nine months ended September 30, 2020, the gross profit margin on retail merchandise sales in the U.S. was 35%41% compared to a margin of 38% during the nine months ended September 30, 2017 compared to2019, which resulted in a margin of 39% during the nine months ended September 30, 2016, reflecting the impact of historically lower margins17% increase in the Cash America stores and a focus during 2017 on clearing aged inventory levels in the Cash America stores.
Pawn Lending Operations
U.S. pawn loan fees increased 203% totaling $287,338 during the nine months ended September 30, 2017 compared to $94,929net revenue (gross profit) from retail sales for the nine months ended September 30, 2016. The increase was primarily due to the Cash America 2016 Partial Period. Legacy First Cash same-store pawn loan fees increased 4%, while legacy Cash America same-store pawn loan fees decreased 8% during the nine months ended September 30, 20172020 compared to the nine months ended September 30, 2016.2019. The increase in retail sales and retail sales margin was primarily driven by the impacts of COVID-19 as described in the quarter-to-date section above and in the June 30, 2020 quarterly report on Form 10-Q.
Pawn Lending Operations
U.S. pawn loan fees decreased 17%, totaling $235.9 million during the nine months ended September 30, 2020 compared to $283.1 million for the nine months ended September 30, 2019. Same-store pawn fees also decreased 17% during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. Pawn loan receivables in the U.S. as of September 30, 20172020 decreased 6%30% in total and on a same-store basis compared to September 30, 2016. Legacy First Cash same-store pawn receivables increased 5%, while legacy Cash America same-store pawn receivables decreased 13% as of September 30, 2017 compared to September 30, 2016.2019. The decline in legacy Cash Americatotal and same-store pawn receivables and pawn loan fees wasrelates primarily due to the expected impactimpacts of reducingCOVID-19 as described in the holding periodquarter-to-date section above and in the June 30, 2020 quarterly report on delinquent pawn loans, continued optimization of loan-to-value ratios and to a lesser extent, the impact of the hurricane on pawn receivables in coastal Texas markets.Form 10-Q.
Wholesale Scrap Jewelry Operations
U.S. wholesale scrap jewelry revenue, consisting primarily of gold sales, increased 253%decreased 34% to $91,430$37.7 million during the nine months ended September 30, 20172020 compared to $25,910$56.9 million during the nine months ended September 30, 2016.2019. The increasedecline in wholesalescrap revenue relates primarily to reductions in inventory levels as described in the quarter-to-date section above and in the June 30, 2020 quarterly report on Form 10-Q. The scrap jewelry revenue was primarily due to the Cash America 2016 Partial Period. The scrap gross profit margin in the U.S. was 4%13% compared to the prior-year margin of 12%, primarily as a result of the typically higher cost basis8%. The increase in scrap jewelry sold bymargin was primarily due to an increase in the Cash America stores. Scrap jewelry profits accounted for 1%average selling price of gold during the nine months ended September 30, 2020 compared to 2019.
Consumer Lending Operations
The Company ceased offering unsecured consumer lending and credit services products (collectively, consumer lending operations), which include all payday and installment loans, in the U.S. net revenue (gross profit)effective June 30, 2020. Service fees from U.S. consumer lending operations decreased 89% to $2.0 million during the nine months ended September 30, 2020 compared to $18.4 million for the nine months ended September 30, 2017 compared to 2% in the nine months ended September 30, 2016.2019.
Consumer Lending Operations
Service fees from U.S. consumer loans and credit services transactions (collectively, consumer lending operations) increased 193% to $57,425 during the nine months ended September 30, 2017 compared to $19,619 for the nine months ended September 30, 2016. The increase in fees was due to the Cash America 2016 Partial Period. Excluding the increase due to the Cash America 2016 Partial Period, consumer loan and credit services fees decreased 30% as the Company continues to de-emphasize consumer lending operations in light of increasing regulatory constraints. Revenues from consumer lending operations comprised 6% of total U.S. revenue during the nine months ended September 30, 2017 and 2016.
Segment Expenses and Segment Pre-Tax Operating Income
U.S. store operating expenses increased 197%decreased 2% to $318,044$303.7 million during the nine months ended September 30, 20172020 compared to $107,196$310.2 million during the nine months ended September 30, 2016,2019 and same-store operating expenses decreased 1% compared with the prior-year period. The decrease in same-store operating expenses was primarily due to cost saving initiatives as a result of COVID-19, partially offset by an increase in store-level incentive based compensation as a result of the Merger. Same-store operating expenses increased 1%significant increase in retail sales and decreased 3%margins as described in the legacy First Cashquarter-to-date section above and Cash America stores, respectively, compared within the prior-year period.June 30, 2020 quarterly report on Form 10-Q.
U.S. store depreciation and amortization increased 222%5% to $18,759$16.4 million during the nine months ended September 30, 20172020 compared to $5,827$15.5 million during the nine months ended September 30, 2016, primarily as a result of the Merger.2019.
The U.S. segment pre-tax operating income for the nine months ended September 30, 20172020 was $178,002,$154.0 million, which generated a pre-tax segment operating margin of 19% compared to $71,182$174.2 million and 22%20% in the prior year, respectively. The declinedecrease in the segment pre-tax operating income and margin was primarily due to historically lower operating marginsreflected decreases in pawn fee revenue as a result of the Cash America storesdecline in pawn loan receivables and net revenue from consumer loan and credit services products as a result of discontinuing consumer lending operations, partially offset by an increase in gross profit from both retail and scrap sales and a focus during 2017 on clearing aged inventory levelsdecrease in Cash America stores, resulting in lower gross profit margins on retail merchandise sales.
operating expenses.
Latin America Operations Segment
Latin American results of operations for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 were impacted by a 13% unfavorable change in the average value of the Mexican peso compared to the U.S. dollar.
The following table presents segment pre-tax operating income of the Latin America operations segment for the nine months ended September 30, 2017 as2020 compared to the nine months ended September 30, 2016.2019 (dollars in thousands). 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Constant Currency Basis | | | | |
| | | | | | | | | | Nine Months | | | | |
| | | | | | | | | | Ended | | | | |
| | Nine Months Ended | | | | | | | | September 30, | | Increase / | | |
| | September 30, | | | | Increase / | | | | 2020 | | (Decrease) | | |
| | | 2020 | | 2019 | | (Decrease) | | | | (Non-GAAP) | | (Non-GAAP) | | |
| Latin America Operations Segment | | | | | | | | | | | | | | |
| Revenue: | | | | | | | | | | | | | | |
| Retail merchandise sales | | $ | 262,483 | | | $ | 320,528 | | | | (18) | % | | | $ | 295,523 | | | | (8) | % | |
| Pawn loan fees | | 107,738 | | | 137,867 | | | | (22) | % | | | 121,324 | | | | (12) | % | |
| Wholesale scrap jewelry sales | | 36,710 | | | 25,410 | | | | 44 | % | | | 36,710 | | | | 44 | % | |
| | | | | | | | | | | | | | |
| Total revenue | | 406,931 | | | 483,805 | | | | (16) | % | | | 453,557 | | | | (6) | % | |
| | | | | | | | | | | | | | |
| Cost of revenue: | | | | | | | | | | | | | | |
| Cost of retail merchandise sold | | 167,573 | | | 208,084 | | | | (19) | % | | | 188,607 | | | | (9) | % | |
| Cost of wholesale scrap jewelry sold | | 28,268 | | | 24,607 | | | | 15 | % | | | 31,892 | | | | 30 | % | |
| | | | | | | | | | | | | | |
| Total cost of revenue | | 195,841 | | | 232,691 | | | | (16) | % | | | 220,499 | | | | (5) | % | |
| | | | | | | | | | | | | | |
| Net revenue | | 211,090 | | | 251,114 | | | | (16) | % | | | 233,058 | | | | (7) | % | |
| | | | | | | | | | | | | | |
| Segment expenses: | | | | | | | | | | | | | | |
| Store operating expenses | | 122,926 | | | 134,810 | | | | (9) | % | | | 137,211 | | | | 2 | % | |
| Depreciation and amortization | | 11,568 | | | 10,679 | | | | 8 | % | | | 12,886 | | | | 21 | % | |
| Total segment expenses | | 134,494 | | | 145,489 | | | | (8) | % | | | 150,097 | | | | 3 | % | |
| | | | | | | | | | | | | | |
| Segment pre-tax operating income | | $ | 76,596 | | | $ | 105,625 | | | | (27) | % | | | $ | 82,961 | | | | (21) | % | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Constant Currency Basis |
| | | | | | | | | | | Nine Months | | | | |
| | | | | | | | | Ended | | | | |
| | | Nine Months Ended | | | | | | September 30, | | Increase / |
| | | September 30, | | Increase / | | 2017 | | (Decrease) |
| | | 2017 | | 2016 | | (Decrease) | | (Non-GAAP) | | (Non-GAAP) |
| Latin America Operations Segment | | | | | | | | | | | | | | |
| Revenue: | | | | | | | | | | | | | | |
| Retail merchandise sales | | $ | 231,034 |
| | $ | 199,861 |
| | | 16 | % | | | $ | 238,833 |
| | | 19 | % | |
| Pawn loan fees | | 96,090 |
| | 87,887 |
| | | 9 | % | | | 99,272 |
| | | 13 | % | |
| Wholesale scrap jewelry sales | | 15,855 |
| | 9,996 |
| | | 59 | % | | | 15,855 |
| | | 59 | % | |
| Consumer loan and credit services fees | | 1,329 |
| | 1,460 |
| | | (9 | )% | | | 1,377 |
| | | (6 | )% | |
| Total revenue | | 344,308 |
| | 299,204 |
| | | 15 | % | | | 355,337 |
| | | 19 | % | |
| | | | | | | | | | | | | | | |
| Cost of revenue: | | | | | | | | | | | | | | |
| Cost of retail merchandise sold | | 145,669 |
| | 124,534 |
| | | 17 | % | | | 150,536 |
| | | 21 | % | |
| Cost of wholesale scrap jewelry sold | | 14,770 |
| | 7,787 |
| | | 90 | % | | | 15,238 |
| | | 96 | % | |
| Consumer loan and credit services loss provision | | 304 |
| | 400 |
| | | (24 | )% | | | 315 |
| | | (21 | )% | |
| Total cost of revenue | | 160,743 |
| | 132,721 |
| | | 21 | % | | | 166,089 |
| | | 25 | % | |
| | | | | | | | | | | | | | | |
| Net revenue | | 183,565 |
| | 166,483 |
| | | 10 | % | | | 189,248 |
| | | 14 | % | |
| | | | | | | | | | | | | | | |
| Segment expenses: | | | | | | | | | | | | | | |
| Store operating expenses | | 94,736 |
| | 83,367 |
| | | 14 | % | | | 97,565 |
| | | 17 | % | |
| Depreciation and amortization | | 7,723 |
| | 7,919 |
| | | (2 | )% | | | 7,956 |
| | | — | % | |
| Total segment expenses | | 102,459 |
| | 91,286 |
| | | 12 | % | | | 105,521 |
| | | 16 | % | |
| | | | | | | | | | | | | | | |
| Segment pre-tax operating income | | $ | 81,106 |
| | $ | 75,197 |
| | | 8 | % | | | $ | 83,727 |
| | | 11 | % | |
Retail Merchandise Sales Operations
Latin America retail merchandise sales increased 16% (19%decreased 18% (8% on a constant currency basis) to $231,034$262.5 million during the nine months ended September 30, 20172020 compared to $199,861$320.5 million for the nine months ended September 30, 2016.2019. The increasedecrease was primarily due to a 9% increasethe impacts of COVID-19 as described in the quarter-to-date section above and in the June 30, 2020 quarterly report on Form 10-Q, partially offset by additional revenue contributions from recent acquisitions and new store openings. Same-store retail sales decreased 22% (13% on a constant currency basis) in same-store retail sales, which included a same-store retail sales increase of 25% (20% on a constant currency basis) in the Maxi Prenda stores acquired in the fourth quarter of 2015 and first quarter of 2016. Excluding the Maxi Prenda stores, same-store retail sales increased 9% (13% on a constant currency basis), which was primarily due to strong retail demand trends and the maturation of existing stores. During the nine months ended September 30, 2017, the. The gross profit margin on retail merchandise sales was 37% compared to 38%36% during the nine months ended September 30, 2016.2020 compared to 35% during the nine months ended September 30, 2019.
Pawn Lending Operations
Pawn loan fees in Latin America increased 9% (13%decreased 22% (12% on a constant currency basis) totaling $96,090$107.7 million during the nine months ended September 30, 20172020 compared to $87,887$137.9 million for the nine months ended September 30, 2016 as a result of the 24%2019. Same-store pawn fees decreased 26% (16% on a constant currency basis) increase in pawnduring the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. Pawn loan receivables as of September 30, 2017 compared to September 30, 2016. The increase in pawn receivables reflects a same-store pawn receivable increase of 22% (14%decreased 29% (19% on a constant currency basis) and new store additions. The increase inas of September 30, 2020 compared to September 30, 2019, while same-store pawn receivables wasdecreased by 31% (21% on a constant currency basis). The decline in total and same-store pawn receivables and resulting pawn loan fees relates primarily due to strong demand for pawn loansthe impacts of COVID-19 as described in the quarter-to-date section above and in the maturation of existing stores.June 30, 2020 quarterly report on Form 10-Q.
Wholesale Scrap Jewelry Operations
Latin America wholesale scrap jewelry revenue, consisting primarily of gold sales, increased 59%44% (also 44% on a constant currency basis) to $15,855$36.7 million during the nine months ended September 30, 20172020 compared to $9,996$25.4 million during the nine months ended September 30, 2016.2019. The increase in wholesale scrap jewelry revenue was primarily due to reducedincreased volume contributions from recently acquired stores which carried a greater percentage of jewelry inventories, as well as an increase in general scrapping activitiesvolumes as a result of retail restrictions and demand related to COVID-19. The scrap jewelry gross profit margin in the Maxi Prenda storesLatin America was 23% (13% on a constant currency basis) during the nine months ended September 30, 2016 as those stores were being converted2020 compared to the Company’s proprietary pointprior-year margin of sale3%, with the increase in scrap margin primarily due to an increase in the average selling price of gold during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.
Segment Expenses and loan management system. The scrap gross profit marginSegment Pre-Tax Operating Income
Store operating expenses decreased 9% (2% increase on a constant currency basis) to $122.9 million during the nine months ended September 30, 2020 compared to $134.8 million during the nine months ended September 30, 2019. Total store operating expenses decreased primarily due to cost saving initiatives as a result of COVID-19, partially offset by the 8% increase in the Latin America was 7% (4%weighted-average store count. Same-store operating expenses decreased 15% (5% on a constant currency basis) compared to the prior-year margin of 22%. Scrap jewelry profits accounted for 1% of Latin America net revenue (gross profit) for the nine months ended September 30, 2017, which equaled the nine months ended September 30, 2016.period.
Segment Expenses and Segment Pre-Tax Operating Income
Store operating expenses increased 14% (17% on a constant currency basis) to $94,736 during the nine months ended September 30, 2017 compared to $83,367 during the nine months ended September 30, 2016 and same-store operating expenses increased 4% (7% on a constant currency basis) compared to the prior-year period. The increase in both total and same-store operating expenses was due in large part to increased compensation expense related to incentive pay and entry level wage competition.
The segment pre-tax operating income for the nine months ended September 30, 20172020 was $81,106,$76.6 million, which generated a pre-tax segment operating margin of 24%19% compared to $75,197$105.6 million and 25%22% in the prior year, respectively. The decline in the segment pre-tax operating income and margin was primarily due to declines in retail sales and pawn loan fees and a 13% unfavorable change in the average value of the Mexican peso, partially offset by an increase in gross profit from scrapping activities and declines in store operating expenses.
Consolidated Results of Operations
The following table reconciles pre-tax operating income of the Company’s U.S. operations segment and Latin America operations segment discussed above to consolidated net income for the nine months ended September 30, 2017 as2020 compared to the nine months ended September 30, 2016:2019 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | | | | | | |
| | September 30, | | | | Increase / | | |
| | | 2020 | | 2019 | | (Decrease) | | |
| Consolidated Results of Operations | | | | | | | | |
| Segment pre-tax operating income: | | | | | | | | |
| U.S. operations | | $ | 154,020 | | | $ | 174,234 | | | | (12) | % | |
| Latin America operations | | 76,596 | | | 105,625 | | | | (27) | % | |
| Consolidated segment pre-tax operating income | | 230,616 | | | 279,859 | | | | (18) | % | |
| | | | | | | | |
| Corporate expenses and other income: | | | | | | | | |
| Administrative expenses | | 85,642 | | | 94,426 | | | | (9) | % | |
| Depreciation and amortization | | 3,504 | | | 4,852 | | | | (28) | % | |
| Interest expense | | 21,953 | | | 25,840 | | | | (15) | % | |
| Interest income | | (1,209) | | | (788) | | | | 53 | % | |
| Merger and other acquisition expenses | | 209 | | | 1,510 | | | | (86) | % | |
| Loss on foreign exchange | | 1,639 | | | 926 | | | | 77 | % | |
| Loss on extinguishment of debt | | 11,737 | | | — | | | | — | % | |
| Write-offs and impairments of certain lease intangibles and other assets | | 6,549 | | | — | | | | — | % | |
| Total corporate expenses and other income | | 130,024 | | | 126,766 | | | | 3 | % | |
| | | | | | | | |
| Income before income taxes | | 100,592 | | | 153,093 | | | | (34) | % | |
| | | | | | | | |
| Provision for income taxes | | 26,739 | | | 42,629 | | | | (37) | % | |
| | | | | | | | |
| Net income | | $ | 73,853 | | | $ | 110,464 | | | | (33) | % | |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | |
| | | Nine Months Ended | | | | |
| | | September 30, | | Increase / |
| | | 2017 | | 2016 | | (Decrease) |
| Consolidated Results of Operations | | | | | | | | |
| U.S. operations segment pre-tax operating income | | $ | 178,002 |
| | $ | 71,182 |
| | | 150 | % | |
| Latin America operations segment pre-tax operating income | | 81,106 |
| | 75,197 |
| | | 8 | % | |
| Consolidated segment pre-tax operating income | | 259,108 |
| | 146,379 |
| | | 77 | % | |
| | | | | | | | | |
| Corporate expenses and other income: | | | | | | | | |
| Administrative expenses | | 93,542 |
| | 58,277 |
| | | 61 | % | |
| Depreciation and amortization | | 16,322 |
| | 3,419 |
| | | 377 | % | |
| Interest expense | | 17,827 |
| | 13,859 |
| | | 29 | % | |
| Interest income | | (1,138 | ) | | (636 | ) | | | 79 | % | |
| Merger and other acquisition expenses | | 3,164 |
| | 33,877 |
| | | (91 | )% | |
| Loss on extinguishment of debt | | 14,114 |
| | — |
| | | — | % | |
| Net loss on sale of common stock of Enova | | — |
| | 253 |
| | | (100 | )% | |
| Total corporate expenses and other income | | 143,831 |
| | 109,049 |
| | | 32 | % | |
| | | | | | | | | |
| Income before income taxes | | 115,277 |
| | 37,330 |
| | | 209 | % | |
| | | | | | | | | |
| Provision for income taxes | | 39,119 |
| | 13,895 |
| | | 182 | % | |
| | | | | | | | | |
| Net income | | $ | 76,158 |
| | $ | 23,435 |
| | | 225 | % | |
| | | | | | | | | |
| Comprehensive income (loss) | | $ | 107,519 |
| | $ | (7,269 | ) | | | 1,579 | % | |
Corporate Expenses and Taxes
Administrative expenses increased 61%decreased 9% to $93,542$85.6 million during the nine months ended September 30, 20172020 compared to $58,277$94.4 million during the nine months ended September 30, 2016,2019, primarily due to a reduction in incentive-based compensation expense, reduced travel costs, other cost saving initiatives as a result of the MergerCOVID-19 and a 54% increase in the weighted-average store count resulting in additional management and supervisory compensation and other support expenses required for such growth, partially offset by a 3%13% unfavorable change in the average value of the Mexican peso which reduced comparative administrativeresulting in lower U.S. dollar translated expenses, partially offset by a 4% increase in Mexico. As a percentagethe consolidated weighted-average store count. Administrative expenses were 7% of revenue administrative expensesduring both the nine months ended September 30, 2020 and 2019.
Interest expense decreased from 9%15% to $22.0 million during the nine months ended September 30, 20162020 compared to 7%$25.8 million for the nine months ended September 30, 2019, primarily due to lower average balances outstanding on the Company’s unsecured credit facilities and lower average interest rates during the nine months ended September 30, 2017, primarily due2020 compared to synergies realized from the Merger and the Maxi Prenda acquisition.
Depreciation and amortization increased to $16,322 during the nine months ended September 30, 2017 compared to $3,419 during the nine months ended September 30, 2016 primarily due to the assumption of substantial corporate property and equipment from the Merger and $7,428 in amortization expense related to intangible assets acquired as a result of the Merger.
Interest expense increased to $17,827 during the nine months ended September 30, 2017 compared to $13,859 for the nine months ended September 30, 2016.2019. See “—Liquidity“Liquidity and Capital Resources.”
Merger and other acquisition expenses decreased to $3,164 during the nine months ended September 30, 2017 compared to $33,877 for the nine months ended September 30, 2016, reflecting timing in transaction and integration costs primarily related to the Merger. See “—Non-GAAP Financial Information” for additional details of Merger related expenses.
During the nine months ended September 30, 2017,2020, the Company repurchased through a tender offer, or otherwise redeemed its outstanding $200,000, 6.75%$300.0 million, 5.375% senior notes due 20212024, incurring a loss on extinguishment of debt of $14,114.$11.7 million, which includes an early redemption premium and other redemption costs of $8.8 million and the write-off of unamortized debt issuance costs of $2.9 million.
For
During the nine months ended September 30, 20172020, the Company recorded a $4.6 million write-off of certain merger related lease intangibles and a $1.9 million impairment of other assets. The lease intangibles, which subsequent to the adoption of ASC 842 are included in the operating lease right of use asset on the consolidated balance sheets (see Note 4 of Notes to Consolidated Financial Statements), were recorded in conjunction with the Cash America merger in 2016 and were written-off primarily as a result of the Company’sCompany purchasing the store real estate from the landlords of certain existing legacy Cash America stores. The $1.9 million impairment related to a non-operating asset in which the Company determined that an other than temporary impairment existed as of March 31, 2020.
Consolidated effective federal income tax rates for the nine months ended September 30, 2020 and 2019 were 33.9%26.6% and 37.2%27.8%, respectively. The decrease in the effective tax rate was primarily due to certain significant Merger related expenses being non-deductible for income tax purposes during the nine months ended September 30, 2016, the tax impact of the loss on extinguishment of debt and changesInternal Revenue Service finalizing regulations in certain tax estimates made during 2017 as a result of finalizing the 2016 tax returns.
Net Income, Adjusted Net Income, Net Income Per Share and Adjusted Net Income Per Share
The following table sets forth revenue, net revenue, net income, net income per share, adjusted net income and adjusted net income per shareJuly 2020 for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016:
|
| | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, |
| | | 2017 | | 2016 |
| | | As Reported | | Adjusted | | As Reported | | Adjusted |
| | | (GAAP) | | (Non-GAAP) | | (GAAP) | | (Non-GAAP) |
| Revenue | | $ | 1,299,617 |
| | $ | 1,299,617 |
| | $ | 626,335 |
| | $ | 626,335 |
|
| Net revenue | | $ | 698,370 |
| | $ | 698,370 |
| | $ | 350,688 |
| | $ | 350,688 |
|
| Net income | | $ | 76,158 |
| | $ | 87,044 |
| | $ | 23,435 |
| | $ | 47,884 |
|
| Diluted earnings per share | | $ | 1.58 |
| | $ | 1.81 |
| | $ | 0.77 |
| | $ | 1.58 |
|
| Weighted avg diluted shares | | 48,117 |
| | 48,117 |
| | 30,372 |
| | 30,372 |
|
GAAP and adjusted earnings per shareGILTI provisions for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 were negatively impacted by $0.03 per share due to the year-over-year 3% unfavorable changeforeign operations in the average value ofU.S. federal tax code as noted in the Mexican peso. Adjusted net income removes certain items from GAAP net income that the Company does not consider to be representative of its actual operating performance, such as Merger and other acquisition expenses, but does not adjust for the effects of foreign currency rate fluctuations. See “—Non-GAAP Financial Information—Adjusted Net Income and Adjusted Net Income Per Share” below.quarter-to-date section above.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2017,2020, the Company’s primary sources of liquidity were $93,411$78.8 million in cash and cash equivalents, $265,544$483.7 million of available and unused funds under the Company’s long-term lines ofrevolving unsecured credit with its commercial lenders, $441,016facilities, $307.0 million in customer loans and fees and service charges receivable and $308,683$168.7 million in inventories. As of September 30, 2017, the amount of cash associated with indefinitely reinvested foreign earnings was $42,329, which is primarily held in Mexican pesos. The Company had working capital of $758,637$371.4 million as of September 30, 20172020.
As of September 30, 2020, the Company maintained an unsecured line of credit with a group of U.S. based commercial lenders (the “Credit Facility”) in the amount of $500.0 million. The Credit Facility matures on December 19, 2024. As of September 30, 2020, the Company had $40.0 million in outstanding borrowings and total equity exceeded liabilities$3.0 million in outstanding letters of credit under the Credit Facility, leaving $457.0 million available for future borrowings, subject to certain financial covenants. The Credit Facility is unsecured and bears interest, at the Company’s option, of either (1) the prevailing London Interbank Offered Rate (“LIBOR”) (with interest periods of 1 week or 1, 2, 3 or 6 months at the Company’s option) plus a fixed spread of 2.5% or (2) the prevailing prime or base rate plus a fixed spread of 1.5%. The agreement has a LIBOR floor of 0%. Additionally, the Company is required to pay an annual commitment fee of 0.50% on the average daily unused portion of the Credit Facility commitment. The weighted-average interest rate on amounts outstanding under the Credit Facility at September 30, 2020 was 2.63% based on 1 week LIBOR. Under the terms of the Credit Facility, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Credit Facility also contains customary restrictions on the Company’s ability to incur additional debt, grant liens, make investments, consummate acquisitions and similar negative covenants with customary carve-outs and baskets. The Company was in compliance with the covenants of the Credit Facility as of September 30, 2020, and currently has the capacity to borrow a significant amount of the availability under the Credit Facility under the most restrictive covenant. During the nine months ended September 30, 2020, the Company made net payments of $295.0 million pursuant to the Credit Facility.
During March 2020, the Company’s primary subsidiary in Mexico, First Cash S.A. de C.V., entered into an unsecured and uncommitted line of credit guaranteed by FirstCash, Inc. with a ratiobank in Mexico (the “Mexico Credit Facility”) in the amount of 2.2$600.0 million Mexican pesos. The Mexico Credit Facility bears interest at the Mexican Central Bank’s interbank equilibrium rate plus a fixed spread of 2.5% and matures on March 9, 2023. Under the terms of the Mexico Credit Facility, the Company is required to 1.maintain certain financial ratios and comply with certain financial covenants. The Company was in compliance with the covenants of the Mexico Credit Facility as of September 30, 2020. At September 30, 2020, the Company had no amount outstanding under the Mexico Credit Facility and $600.0 million Mexican pesos available for borrowings.
On May 30, 2017,August 26, 2020, the Company completed an offering of $300,000$500.0 million of 5.375%4.625% senior unsecured notes due on JuneSeptember 1, 20242028 (the “Notes”)., all of which are currently outstanding. Interest on the Notes will beis payable semi-annually in arrears on JuneMarch 1 and DecemberSeptember 1, commencing on DecemberMarch 1, 2017.2021. The Notes were sold to thein a private placement agents as initial purchasers for resale only to qualified institutional buyers in accordance withreliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States in accordance with Regulation S under the Securities Act. The Company used the proceeds from the offering to repurchase, or otherwise redeem its outstanding $200,000, 6.75%$300.0 million, 5.375% senior notes due 20212024 (the “2021“2024 Notes”), to repay borrowings underpay down a portion of the Company’s credit facilityCredit Facility and to pay for related fees and expenses associated with the Notes offering and the repurchase and redemption of the 20212024 Notes. The Company capitalized approximately $5,200$7.3 million in debt issuance costs, which consisted primarily of placement agentthe initial purchaser’s discount and fees and legal and other professional expenses. The debt issuance costs are being amortized over the life of the Notes as a component of interest expense and are carried as a direct deduction from the carrying amount of the Notes in the accompanying condensed consolidated balance sheets.
The Notes are fully and unconditionally guaranteed on a senior unsecured basis jointly and severally by all of the Company's existing and future domestic subsidiaries that guarantee its primary revolving bank credit facility.Credit Facility. The Notes will permit the Company to make share repurchases of up to $100,000 with the net proceeds of the Notes and other available funds and to make restricted payments, such as purchasing shares of its stock and paying cash dividends, in an unlimited amount if, after giving pro forma effect to the incurrence of any indebtedness to make such payment, the Company's consolidated total debt ratio (“Net Debt
Ratio”) is less than 2.252.75 to 1.00.1. The Net Debt Ratio is defined generally in the indenture governing the Notes (the “Indenture”) as the ratio of (1) the total consolidated debt of the Company minus cash and cash equivalents of the Company to (2) the Company’s consolidated trailing twelve months EBITDA, as adjusted to exclude certain non-recurring expenses and giving pro forma effect to operations acquired during the measurement period. As of September 30, 2020, the Net Debt Ratio was 1.7 to 1. See “Non-GAAP Financial Information” for additional information on the calculation of the Net Debt Ratio.
The Company may redeem some or all of the Notes at any time on or after JuneSeptember 1, 2020,2023, at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any. In addition, prior to JuneSeptember 1, 2020,2023, the Company may redeem some or all of the Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, plus a “make-whole” premium set forth in the Indenture. The Company may redeem up to 35%40% of the Notes on or prior to JuneSeptember 1, 2020,2023 with the proceeds of certain equity offerings at athe redemption price of 105.375% ofprices set forth in the principal amount of the Notes redeemed, plus accrued and unpaid interest, if any. In addition, upon a change of control, noteholders have the right to requireIndenture. If the Company sells certain assets or consummates certain change in control transactions, the Company will be required to purchasemake an offer to repurchase the Notes at a price equal to 101% ofNotes.
During the principal amount of the Notes, plus accrued and unpaid interest, if any.
For the ninethree months ended September 30, 2017,2020, the Company redeemed all outstanding 2024 Notes. As a result, the Company recognized a $14,114 loss on extinguishment of debt related to the repurchase or redemption of the 2021 Notes$11.7 million, which includes the tender oran early redemption premiums paid over the outstanding $200,000 principal amount of the 2021 Notespremium and other reacquisitionredemption costs of $10,895$8.8 million and the write offwrite-off of unamortized debt issuance costs of $3,219.$2.9 million.
At September 30, 2017, the Company maintained a line of credit with a group of U.S. based commercial lenders (the “2016 Credit Facility”) in the amount of $400,000. In May 2017, the term of the 2016 Credit Facility was extended through September 2, 2022. The calculation of the fixed charge coverage ratio was also amended to remove share repurchases from the calculation to provide greater flexibility for making future share repurchases and paying cash dividends.
At September 30, 2017, the Company had $140,000 in outstanding borrowings and a $4,456 outstanding letter of credit under the 2016 Credit Facility, leaving $255,544 available for future borrowings. The 2016 Credit Facility bears interest, at the Company’s option, at either (i) the prevailing London Interbank Offered Rate (“LIBOR”) (with interest periods of 1 week or 1, 2, 3 or 6 months at the Company’s option) plus a fixed spread of 2.5% or (ii) the prevailing prime or base rate plus a fixed spread of 1.5%. The agreement has a LIBOR floor of 0%. Additionally, the Company is required to pay an annual commitment fee of 0.50% on the average daily unused portion of the 2016 Credit Facility commitment. The weighted-average interest rate on amounts outstanding under the 2016 Credit Facility at September 30, 2017 was 3.75% based on 1 week LIBOR. Under the terms of the 2016 Credit Facility, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The 2016 Credit Facility also contains customary restrictions on the Company’s ability to incur additional debt, grant liens, make investments, consummate acquisitions and similar negative covenants with customary carve-outs and baskets. The Company was in compliance with the requirements and covenants of the 2016 Credit Facility as of September 30, 2017, and believes it has the capacity to borrow a substantial portion of the amount available under the 2016 Credit Facility under the most restrictive covenant. During the nine months ended September 30, 2017, the Company made net payments of $120,000 pursuant to the 2016 Credit Facility.
At September 30, 2017, the Company maintained a U.S. dollar denominated line of credit with a bank in Mexico (the “Mexico Credit Facility”) in the amount of $10,000. The Mexico Credit Facility bears interest at 30-day LIBOR plus a fixed spread of 2.0% and matures in December 2017. Under the terms of the Mexico Credit Facility, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Company was in compliance with the requirements and covenants of the Mexico Credit Facility as of September 30, 2017, and believes it has the capacity to borrow the full amount available under the Mexico Credit Facility under the most restrictive covenant. The Company is required to pay a one-time commitment fee of $25 due when the first amount is drawn/borrowed. At September 30, 2017, the Company had no amount outstanding under the Mexico Credit Facility and $10,000 was available for borrowings.
In general, revenue growth is dependent upon the Company’s ability to fund the addition of store locations (both de novo openings and acquisitions) and growth in customer loan balances and inventories. In addition to these factors, changes in loan balances, collection of pawn fees, merchandise sales, inventory levels, seasonality, operating expenses, administrative expenses, expenses related to the Merger, tax rates, gold prices, foreign currency exchange rates and the pace of new store expansions and acquisitions, affect the Company’s liquidity. Management believes cash on hand, the borrowings available under its credit facilities, anticipated cash generated from operations (including the normal seasonal increases in operating cash flows occurring in the first and fourth quarters) and other current working capital will be sufficient to meet the Company’s anticipated capital requirements for its business for at least the next twelve months. Where appropriate or desirable, in connection with the Company’s efficient management of its liquidity position, the Company could seek to raise additional funds from a variety of sources, including the sale of assets, reductions in capital spending, the issuance of debt or equity securities and/or changes to its management of current assets. The characteristics of the Company’s current assets, specifically the ability to rapidly liquidate gold jewelry inventory and adjust outflows of cash in its lending practices, gives the Company flexibility to quickly modify its business strategy to increase cash
flow from its business, if necessary. Regulatory developments affecting the Company’s operations may also impact profitability and liquidity. See “—Regulatory Developments.”
The Company regularly evaluates opportunities to optimize its capital structure, including through consideration of the issuance of debt or equity, to refinance existing debt and to enter into interest rate hedge transactions, such as interest rate swap agreements, to fund ongoing cash needs, such as general corporate purposes, growth initiatives and its dividend and stock repurchase program.
The following tables set forth certain historical informationcontinued developments and fluidity of the COVID-19 situation make it difficult to predict the impact of COVID-19 on the Company’s liquidity and presents a material uncertainty which could adversely affect the Company’s results of operations, financial condition and cash flows in the future. The Company’s cash flows depend heavily on the uninterrupted operation of its stores with respectsufficient customer activity. If the Company’s pawnshops were deemed non-essential and became subject to closure, or customer demand for the Company’s retail and lending products materially declines, the Company’s cash flows would be materially impaired and the Company could seek to raise additional funds from a variety of sources, including but not limited to, repatriation of excess cash held in Latin America, the sale of assets, reductions in operating expenses, capital expenditures and dividends, the forbearance or deferral of operating expenses, the issuance of debt or equity securities, leveraging currently unencumbered real estate owned by the Company and/or changes to its management of current assets. The characteristics of the Company’s current assets, specifically the ability to rapidly liquidate gold jewelry inventory, which accounts for approximately 53% of total inventory, gives the Company flexibility to quickly increase cash flow, if necessary.
Other factors such as changes in general customer traffic and demand, loan balances, loan-to-value ratios, collection of pawn fees, merchandise sales, inventory levels, seasonality, operating expenses, administrative expenses, expenses related to merger and acquisition activities, tax rates, gold prices, foreign currency exchange rates and the pace of new store expansion and acquisitions, affect the Company’s liquidity. Regulatory developments affecting the Company’s operations may also impact profitability and liquidity. See “Regulatory Developments.” A prolonged reduction in earnings and EBITDA could limit the Company’s future ability to fully borrow under its lines of credit under its current leverage covenants. Additionally, potential disruptions to the Company’s sources and uses of cash and other key indicators of liquidity:
|
| | | | | | | | |
| | | Nine Months Ended |
| | | September 30, |
| | | 2017 | | 2016 |
| Cash flow provided by operating activities | | $ | 148,846 |
| | $ | 40,474 |
|
| Cash flow used in investing activities | | $ | (22,475 | ) | | $ | (88,957 | ) |
| Cash flow provided by (used in) financing activities | | $ | (128,365 | ) | | $ | 50,537 |
|
|
| | | | | | | | |
| | | Balance at September 30, |
| | | 2017 | | 2016 |
| Working capital | | $ | 758,637 |
| | $ | 817,559 |
|
| Current ratio | 6.57:1 | | 5.85:1 | |
| Liabilities to equity ratio | 0.45:1 | | 0.59:1 | |
Net Debt Ratio (1) | 1.28:1 | | 3.42:1 | |
| |
(1)
| Pursuant to the covenants of the Notes, the Company may make restricted payments, such as purchasing shares of its stock and paying cash dividends, in an unlimited amount if, after giving pro forma effect to the incurrence of any indebtedness to make such payment, the Company's Net Debt Ratio is less than 2.25 to 1.00. Adjusted EBITDA, a component of the Net Debt Ratio, is a non-GAAP measure. See “—Non-GAAP Financial Information” for a calculation of the Net Debt Ratio. |
Net cash provided by operating activities increased $108,372, or 268%,business resulting from $40,474 forCOVID-19 could adversely impact the nine months ended September 30, 2016 to $148,846 for the nine months ended September 30, 2017, due primarily to an increase in net income of $52,723 and net changes in certain adjustments and operating assets and liabilities (as detailedCompany’s liquidity in the condensed consolidated statements of cash flows).future.
Net cash used in investing activities decreased $66,482, or 75%, from $88,957 for the nine months ended September 30, 2016 to $22,475 for the nine months ended September 30, 2017. Cash flows from investing activities are utilized primarily to fund pawn store acquisitions and purchases of property and equipment. In addition, net cash flows related to fundings/repayments of pawn and consumer loans are included in investing activities. The Company paid $1,141intends to continue expansion through new store openings in cash relatedLatin America and through acquisitions both in the U.S. and Latin America. Additionally, as opportunities arise at reasonable valuations, the Company may continue to acquisitionspurchase real estate from its landlords at existing stores.
A total of 64 stores were opened during the nine months ended September 30, 2017 compared2020. The impacts of COVID-19 will likely limit the number of 2020 openings to $28,756 ina total of 70 to 75 stores. Future store openings remain subject to uncertainties related to the prior-year period. In addition,COVID-19 pandemic, including but not limited to, the portion of the aggregate Merger consideration paid in cash upon closing of the Merger, net of cash acquired, was $8,251 during nine months ended September 30, 2016. The Company received net repayments on loan receivables of $5,261 during the nine months ended September 30, 2017 comparedability to net fundings of $31,486 during the nine months ended September 30, 2016continue construction projects and received proceeds of $2,962 from the sale of 317,000 shares of common stock of Enova International, Inc. during the nine months ended September 30, 2016.obtain necessary licenses and permits, utility services, store equipment, supplies and staffing.
Net cash used in financing activities increased $178,902, or 354%, from net cash provided by financing activities of $50,537 for the nine months ended September 30, 2016 to net cash used in financing activities of $128,365 for the nine months ended September 30, 2017. Net payments on the Company’s credit facilities were $120,000 during the nine months ended September 30, 2017 compared to net proceeds of $302,000 during the nine months ended September 30, 2016. During the nine months ended September 30, 2017, the Company received $300,000 in proceeds from the private offering of the Notes and paid $5,342 in debt issuance costs. Using part of the proceeds from the Notes, the Company repurchased, or otherwise redeemed, the $200,000 2021 Notes and paid tender or redemption premiums over the face value of the 2021 Notes and other reacquisition costs of $10,895 during the nine months ended September 30, 2017. In addition, the Company repaid $6,532 in peso-denominated debt assumed from the Maxi Prenda acquisition and $232,000 in debt assumed in conjunction with the Merger during the nine months ended September 30, 2016. The Company repurchased $65,035 worth of shares of its common stock, realized proceeds from the exercise
of stock options of $307 and paid dividends of $27,400 during the nine months ended September 30, 2017, compared to dividends paid of $10,591 during the nine months ended September 30, 2016.
During the nine months ended September 30, 2017, the Company opened 32 new pawn stores in Latin America, acquired five pawn stores in Latin America, opened two pawn stores in the U.S. and acquired one pawn store in the U.S. The cumulative purchase price of the 2017 acquisitions was $1,154, net of cash acquired and certain post-closing adjustments. The purchases were composed of $1,124 in cash paid during the nine months ended September 30, 2017 and $30 of deferred purchase price payable to the sellers in 2017. During the nine months ended September 30, 2017, the Company also paid $17 of deferred purchase price amounts payable related to prior-year acquisitions. The Company funded $26,595 in capital expenditures during the nine months ended September 30, 2017, related primarily to maintenance capital expenditures and new store additions.
The Company intends to continue expansion primarily through acquisitions and new store openings. For fiscal 2017, the Company expects to add approximately 50 to 60 stores, primarily in Latin America. The Company expects that total capital expenditures for 2017, including expenditures for new and remodeled stores and other corporate assets, will total approximately $32,000 to $37,000. Management believes that cash on hand, the amounts available to be drawn under the credit facilities and cash generated from operations will be sufficient to accommodate the Company’s current operations and store expansion plans for the remainder of 2017.
The Company continually looks for, and is presented with, potential acquisition opportunities. The Company currently has no other contractual commitments for materially significant future acquisitions, business combinations or capital commitments. The Companyopportunities and will evaluate potential acquisitions based upon growth potential, purchase price, available liquidity, debt covenant restrictions, strategic fit and quality of management personnel, among other factors. IfThe Company acquired 40 pawn stores in Latin America during the nine months ended September 30, 2020 for a cumulative purchase price of $7.2 million, net of cash acquired and subject to future post-closing adjustments. In addition, the Company encounters an attractive opportunitypurchased the real estate at 17 store locations from landlords at existing stores for a cumulative purchase price of $20.9 million during the nine months ended September 30, 2020.
The following tables set forth certain historical information with respect to acquire new storesthe Company’s sources and uses of cash and other key indicators of liquidity (dollars in thousands):
| | | | | | | | | | | | | | |
| | | Nine Months Ended | | |
| | September 30, | | |
| | 2020 | | 2019 |
| Cash flow provided by operating activities | | $ | 177,366 | | | $ | 163,824 | |
| Cash flow provided by (used in) investing activities | | $ | 87,791 | | | $ | (121,042) | |
| Cash flow used in financing activities | | $ | (229,878) | | | $ | (54,230) | |
| | | | | | | | | | | | | | |
| | As of September 30, | | |
| | 2020 | | 2019 |
| Working capital | | $ | 371,410 | | | $ | 581,986 | |
| Current ratio | 2.8:1 | | 3.8:1 | |
| Liabilities to equity ratio | 0.8:1 | | 0.8:1 | |
Net Debt Ratio (1) | 1.7:1 | | 1.9:1 | |
(1) Adjusted EBITDA, a component of the Net Debt Ratio, is a non-GAAP financial measure. See “Non-GAAP Financial Information” for a calculation of the Net Debt Ratio.
Net cash provided by operating activities increased $13.5 million, or 8%, from $163.8 million for the nine months ended September 30, 2019 to $177.4 million for the nine months ended September 30, 2020 due to net changes in certain non-cash adjustments to reconcile net income to operating cash flow and net changes in other operating assets and liabilities (as detailed in the near future,consolidated statements of cash flows), partially offset by a decrease in net income of $36.6 million.
Net cash provided by investing activities increased $208.8 million, or 173%, from net cash used in investing activities of $121.0 million for the nine months ended September 30, 2019 to net cash provided by investing activities of $87.8 million for the nine months ended September 30, 2020. Cash flows from investing activities are utilized primarily to fund pawn store acquisitions, purchases of furniture, fixtures, equipment and improvements, which includes capital expenditures for improvements to existing stores, new store openings and other corporate assets, and discretionary purchases of store real property. In addition, cash flows related to net fundings/repayments of pawn and consumer loans are included in investing activities. The Company paid $9.3 million in cash related to current and prior-year store acquisitions, $27.9 million for furniture, fixtures, equipment and improvements and $20.9 million for discretionary store real property purchases during the nine months ended September 30, 2020 compared to $42.0 million, $33.1 million and $43.0 million in the prior-year period, respectively. The Company received funds from a net decrease in pawn and consumer loans of $145.9 million during the nine months ended September 30, 2020 compared to funding a net increase in pawn and consumer loans of $3.0 million during the nine months ended September 30, 2019.
Net cash used in financing activities increased $175.6 million, or 324%, from $54.2 million for the nine months ended September 30, 2019 to $229.9 million for the nine months ended September 30, 2020. Net payments on the credit facilities were $298.5 million during the nine months ended September 30, 2020 compared to net borrowings of $45.0 million during the nine months ended September 30, 2019. During the nine months ended September 30, 2020, the Company may seek additional financing,received $500.0 million in proceeds from the termsprivate offering of which will be negotiated on a case-by-case basis.
Asthe Notes and paid $5.3 million in debt issuance costs. Using part of the proceeds from the Notes, the Company redeemed the $300.0 million 2024 Notes and paid redemption premiums over the face value of the 2024 Notes and other redemption costs of $8.8 million during the nine months ended September 30, 2017,2020. The Company funded $80.3 million worth of share repurchases and paid dividends of $33.6 million during the nine months ended September 30, 2020, compared to funding $67.2 million worth of share repurchases and dividends paid of $32.4 million during the nine months ended September 30, 2019. In addition, the Company has contractual commitments to deliver a totalpaid $3.3 million in withholding taxes on net share settlements of 7,475 gold ounces overrestricted stock unit awards during the nine months of October through December 31, 2017. The ounces required to be delivered over this time period are well within historical scrap gold volumes and the Company expects to have the required gold ounces to meet the commitments as they come due.ended September 30, 2020.
In January 2015,October 2020, the Company’s Board of Directors authorizeddeclared a common stock repurchase program for up to 2,000,000 shares of the Company’s outstanding common stock. During the first quarter of 2017, the Company repurchased 228,000 shares of its common stock at an aggregate cost of $10,005 and an average cost per share of $43.94. In May 2017, the Company’s Board of Directors authorized a new common stock repurchase program for up to $100,000 of the Company’s outstanding common stock. The new share repurchase program replaced the Company’s prior share repurchase plan, which was terminated in May 2017. Under the May 2017 stock repurchase program, the Company has repurchased 954,000 shares of its common stock at an aggregate cost of $55,030 and an average cost per share of $57.65 and $44,970 remains available for repurchases as of September 30, 2017. The Company intends to continue repurchases under its repurchase program in 2017 through open market transactions under trading plans in accordance with Rule 10b5-1 and Rule 10b-18 under the Exchange Act of 1934, as amended, subject to a variety of factors, including, but not limited to, the level of cash balances, credit availability, debt covenant restrictions, general business conditions, regulatory requirements, the market price of the Company’s stock, dividend policy and the availability of alternative investment opportunities.
In October 2017, the Company’s Board of Directors authorized an additional common stock repurchase program for up to $100,000 of the Company’s outstanding common stock to become effective upon completion of the May 2017 program.
In October 2017, the Company’s Board of Directors approved a plan to increase the annual dividend 5% from $0.76 per share to $0.80 per share, or $0.20 per share quarterly, beginning in the fourth quarter of 2017. The $0.20$0.27 per share fourth quarter cash dividend on common shares outstanding, or an aggregate of $9,470$11.2 million based on the September 30, 20172020 share counts, declared by the Board of Directorscount, which will be paid on November 30, 201727, 2020 to stockholders of record as of November 13, 2017. The2020. While the Company currently expects to continue the payment of quarterly cash dividends, the declaration and payment of cash dividends in the future (quarterly or otherwise) will be made by the Board of Directors, from time to time, subject to the Company’s financial condition, results of operations, business requirements, compliance with legal requirements, andexpected liquidity, debt covenant restrictions.restrictions and other relevant factors including the impact of COVID-19.
In October 2020, the Company lifted the temporary suspension of its stock repurchase program put in place in April at the onset of the COVID-19 pandemic. Future stock repurchases are subject to a variety of factors, including, but not limited to, the level of cash balances, credit availability, debt covenant restrictions, general business conditions, regulatory requirements, the market price of the Company’s stock, dividend policy, the availability of alternative investment opportunities and the impact of COVID-19.
As of September 30, 2020, the Company had contractual commitments to deliver a total of 30,500 gold ounces between the months of October 2020 and August 2021 at a weighted-average price of $1,734 per ounce. The ounces required to be delivered over this time period are within historical scrap gold volumes and the Company expects to have the required gold ounces to meet the commitments as they come due.
The Company uses certain financial calculations such as adjusted net income, adjusted net incomediluted earnings per share, EBITDA, adjusted EBITDA, free cash flow, adjusted free cash flow and constant currency results (as defined or explained below) 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”),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 Securities and Exchange Commission (“SEC”)under the 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 core 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 adjusted net income, adjusted net income per share, EBITDA, adjusted EBITDA, free cash flow, adjusted free cash flow and constant currency resultsthese 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, adjusted net income, adjusted net income per share, EBITDA, adjusted EBITDA, free cash flow, adjusted free cash flow and constant currency results,the non-GAAP financial measures, as presented, may not be comparable to other similarly titled measures of other companies.
The following tables provide a reconciliation of the gross amounts, the impact of income taxes and the net amounts for each of the adjustments included in the table above:above (in thousands):
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and Adjusted EBITDA
The Company defines EBITDA as net income before income taxes, depreciation and amortization, interest expense and interest income and adjusted EBITDA as EBITDA adjusted for certain items as listed below that management considers to be non-operating in nature and not representative of its actual operating performance. The Company believes EBITDA and adjusted EBITDA are commonly used by investors to assess a company’s financial performance, and adjusted EBITDA is used in the calculation of the Net Debt Ratio as defined in the Company’s senior unsecured notes covenants. The following table provides a reconciliation of net income to EBITDA and adjusted EBITDA:EBITDA (dollars in thousands):
For purposes of its internal liquidity assessments, the Company considers free cash flow and adjusted free cash flow. The Company defines free cash flow as cash flow from operating activities less purchases of propertyfurniture, fixtures, equipment and equipmentimprovements and net fundings/repayments of pawn and consumer loans, which are considered to be operating in nature by the Company but are included in cash flow from investing activities, and adjustedactivities. Adjusted free cash flow is defined as free cash flow adjusted for Merger relatedmerger and other acquisition expenses paid that management considers to be non-operating in nature.
Free cash flow and adjusted free cash flow are commonly used by investors as an additional measure of cash generated by business operations that may be used to repay scheduled debt maturities and debt service or, following payment of such debt obligations and other non-discretionary items, may be available to invest in future growth through new business development activities or acquisitions, repurchase stock, pay cash dividends or repay debt obligations prior to their maturities. These metrics can also be used to evaluate the Company’s ability to generate cash flow from business operations and the impact that this cash flow has on the Company’s liquidity. However, free cash flow and adjusted free cash flow have limitations as analytical tools and should not be considered in isolation or as a substitute for cash flow from operating activities or other income statement data prepared in accordance with GAAP. Free cash flow during the periods ended September 30, 2020 was significantly improved due primarily to increased cash flows from retail sales and a net reduction in pawn loans outstanding associated with impacts of COVID-19 as further described in the “Operating Results for the Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019” section above. The following table reconciles net cash flow from operating activities to free cash flow and adjusted free cash flow:flow (in thousands):
The Company’s reporting currency is the U.S. dollar. However, certain performance metrics discussed in this report are presented on a “constant currency” basis, which is considered a non-GAAP measurement of financial performance.measure. The Company’s management uses constant currency results to evaluate operating results of business operations in Latin America, which are primarily transacted in local currencies.
