Market Overview

First Cash Reports Strong Second Quarter Operating Results Driven by Growth of Latin American Revenue and Pawn Receivables; Company Declares Quarterly Cash Dividend

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ARLINGTON, Texas, July 28, 2016 (GLOBE NEWSWIRE) -- First Cash Financial Services, Inc. (the "Company") (NASDAQ: FCFS), a leading international operator of retail pawn stores in the U.S. and Latin America, today announced revenue, net income and earnings per share for the three and six month periods ended June 30, 2016.

Mr. Rick Wessel, chief executive officer, stated, "We are excited about our second quarter results that exceeded both our internal forecast and consensus earnings expectations. Exceptionally strong revenue growth in Latin America was fueled by impressive same-store revenue increases and contributions from new stores including the 211 recently acquired locations in Mexico, Guatemala and El Salvador. Based on the strength of these results, including record pawn receivable balances in Latin America and improving trends in our U.S. pawn business, we have great momentum entering the second half of the year. Additionally, the Company believes it is on track to complete the announced merger with Cash America International, Inc. ("Cash America") in the third quarter of 2016. The Company today also announced that the Board of Directors has declared a third quarter cash dividend of $0.125 per common share. The dividend is payable on August 24, 2016 to stockholders of record as of August 10, 2016."

Earnings Highlights

  • Diluted GAAP earnings per share for the second quarter of 2016, which include the impact of significant merger-related expenses, totaled $0.41. Excluding these non-recurring expenses, which totaled $0.10 per share, adjusted diluted earnings per share were $0.51 for the second quarter of 2016 which equaled adjusted diluted earnings per share of $0.51 in the prior year. Strong growth in local-currency operating income in Latin America was offset by an 18% decline in the average value of the Mexican peso, which reduced year-over-year comparable earnings by approximately $0.09 per share for the quarter. Anticipated decreases in net earnings from non-core jewelry scrapping and payday lending operations further reduced comparable earnings by an additional $0.02 per share. Adjusted diluted earnings per share is a non-GAAP measure and is defined and reconciled in the detailed reconciliation of non-GAAP financial measures provided elsewhere in this release.
  • Year-to-date GAAP diluted earnings per share were $0.88. Excluding the non-recurring expenses related to the merger and other acquisitions, adjusted diluted earnings per share were $0.98 compared to $1.10 in the prior year. Comparative adjusted diluted earnings for the six months ended June 30, 2016 were impacted by $0.16 per share due to a 19% decline in the average value of the Mexican peso and approximately $0.07 per share due to decreases in earnings from non-core jewelry scrapping and payday lending operations.
  • Net income and adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and certain non-recurring charges) for the trailing twelve months ended June 30, 2016 totaled $55.4 million and $130.1 million, respectively. Adjusted EBITDA is a non-GAAP measure and is defined and reconciled in the detailed reconciliation of non-GAAP financial measures provided elsewhere in this release.

Note: All growth rates presented in "Revenue Highlights" and "Pawn Operating Metrics" are calculated on a constant currency basis, a non-GAAP measure defined elsewhere in this release and reconciled to the most comparable GAAP measures in the financial statements in this release. The average Mexican peso to U.S. dollar exchange rate for the three-month period ended June 30, 2016 was 18.1 pesos / dollar versus 15.3 pesos / dollar in the comparable prior-year period and for the six-month period ended June 30, 2016 was 18.0 pesos / dollar versus 15.1 pesos / dollar in the comparable prior-year period.

Revenue Highlights

  • Consolidated core revenue from retail merchandise sales and pawn service fees increased 20% during the second quarter of 2016 compared to the second quarter of 2015. Core pawn revenues in Latin America grew 33% in the second quarter of 2016 and represented 59% of total core revenues. Core U.S. pawn revenues increased 4% for the quarter.

  • Retail merchandise sales in pawn stores increased by 21% for the second quarter of 2016 compared to the prior-year period, driven by sales increases of 31% in Latin America and 6% in the U.S.

  • Pawn fee revenue grew 20% in total compared to the prior-year period, with an increase of 37% in Latin America that was partially offset by a minimal 1% decrease in the U.S.

  • Consolidated same-store core revenue increased 5% for the second quarter, driven by impressive growth in Latin America of over 10%. While U.S. same-store core revenue decreased 1%, it represented the third straight quarter of sequential improvement in this metric.

Pawn Operating Metrics

  • Pawn loans outstanding at June 30, 2016 increased by 43% in Latin America and 17% overall as compared to a year ago, while loans decreased 4% in the U.S. Consolidated same-store pawn loans outstanding at quarter end increased 3%. Same-store pawn loans outstanding at quarter end increased 11% in Latin America compared to the prior-year period, while U.S. same-store pawn loans decreased 4%.
  • Consolidated retail merchandise sales margins improved slightly to 38.3% during the second quarter of 2016, compared to the prior-year period. Second quarter wholesale scrap jewelry margins remained consistent at 19% compared to the prior-year period.
  • The average monthly pawn loan portfolio yield was approximately 13.3% for the second quarter of 2016, which was consistent with the prior-year.
  • The combined annualized yield on total pawn assets (pawn fees plus merchandise sales gross profit), as a percentage of pawn assets (pawn receivables plus inventories), was 176% in the second quarter of 2016, in line with 180% in the prior-year period.
  • Total inventories at June 30, 2016 increased 13% compared to June 30, 2015, which is in line with store growth and acquisitions. Annualized inventory turns for the trailing twelve months ended June 30, 2016 were 3.4 times per year. Aged inventories (items held for over a year) accounted for approximately 4% of total inventories at June 30, 2016, which is a sequential improvement over aged inventories of 5% at March 31, 2016.

Store Count Activity

  • During the quarter, the Company opened 10 new locations in Mexico and one in Guatemala. Year-to-date, a total of 211 stores were added as the Company opened 31 stores and acquired 179 stores in Latin America, and one store in the U.S.
  • For the twelve months ended June 30, 2016, the Company has added 256 pawn stores in Latin America and added five pawn stores in the U.S. The year-over-year store count has increased 36% in Latin America and 22% overall.
  • As of June 30, 2016, the Company operated 1,271 stores, of which 95% or 1,212 were pawn stores. There were 947 stores in Latin America, of which 919 were pawn stores, and 324 stores in the U.S., of which 293 were pawn stores.

  • During the quarter, the Company closed 10 consumer loan stores and two small format pawn stores (which primarily focused on consumer loans) located in Texas and plans to close at least seven additional U.S. consumer loan stores during the third quarter of 2016. By the end of the third quarter, the Company expects to be operating less than 25 consumer loan stores in the U.S., all located in Texas. The Company anticipates that this number will continue to decrease as the Company continues to de-emphasize this non-core product offering. 

Financial Metrics

  • Pre-tax store operating margin was 24% for the trailing twelve months ended June 30, 2016, as compared to 25% in the prior-year period, primarily reflecting contraction in non-core payday lending and scrap jewelry sales.
  • The adjusted EBITDA margin was 18% for the trailing twelve months ended June 30, 2016. Excluding the impact of currency, non-core payday lending and wholesale scrap jewelry operations, the adjusted EBITDA margin was consistent with the prior-year period. Adjusted EBITDA margin is a non-GAAP measure and is calculated in the detailed reconciliation of non-GAAP financial measures provided elsewhere in this release.

Liquidity

  • As of June 30, 2016, the Company had $46 million in cash on its balance sheet and $169.5 million of availability for future borrowings under its long-term revolving bank credit facilities. The average interest rate on the Company's $50.5 million outstanding bank debt at quarter end was 3.00%.
  • In anticipation of the Cash America merger, the Company entered into a $400 million unsecured revolving bank credit facility for the combined company, which will become effective upon the completion of the proposed transaction, subject to the satisfaction of customary closing conditions. The credit facility includes eight participating commercial lenders led by Wells Fargo. The credit facility will have a five year term from the closing date of the merger and will bear interest at either the prevailing London Interbank Offered Rate (LIBOR) plus a fixed spread of 2.5% or the prevailing prime or base rate plus a fixed spread of 1.5%. 
  • The Company's leverage ratio at June 30, 2016 (outstanding indebtedness divided by trailing twelve months adjusted EBITDA) was 1.9:1 and net debt, defined as funded debt less invested cash, was $217 million. The leverage ratio is a non-GAAP measure and is calculated in the detailed reconciliation of non-GAAP financial measures provided elsewhere in this release.
  • Cash provided by operating activities was $90 million for the trailing twelve months ended June 30, 2016, while free cash flow totaled $52 million. Free cash flow is a non-GAAP measure and is defined and reconciled in the detailed reconciliation of non-GAAP financial measures provided elsewhere in this release.
  • For the trailing twelve months ended June 30, 2016, the Company invested $43 million in acquisitions, $30 million in capital expenditures, $17 million in stock repurchases and $7 million in dividend payments, funded primarily with operating cash flows and a $28 million increase in net debt. 

Cash Dividends

  • The Board of Directors declared a $0.125 per share third quarter cash dividend on common shares outstanding, which will be paid on August 24, 2016 to stockholders of record as of August 10, 2016.
  • The Board of Directors approved a plan to increase the annual dividend to $0.76 per share, or $0.19 per share quarterly, beginning in the fourth quarter, subject to the closing of the merger.

Fiscal 2016 Outlook

  • The 2016 outlook for adjusted earnings per share and store growth does not include any assumptions regarding earnings or store additions related to the announced merger with Cash America.
  • The Company is raising the lower end of its guidance range by $0.10 per share and expects its fiscal full-year 2016 guidance for adjusted earnings, which excludes non-recurring merger transaction costs, to be in the range of $2.35 to $2.45 per diluted share. The previous guidance range provided on April 28th, 2016, was $2.25 to $2.45 per share. These revised estimates reflect the following assumptions:
    • An estimated foreign exchange rate of approximately 18.5 Mexican pesos / U.S. dollar for the balance of fiscal 2016.
    • The estimate excludes the impact of non-recurring transaction expenses of $0.10 per share in the first half of 2016 and excludes any such transaction or restructuring expenses that will be incurred during the remainder of fiscal 2016, which are primarily expenses related to the pending merger with Cash America International, Inc.
  • Excluding the impact of the merger or additional acquisitions, the Company expects to add approximately 220 to 225 new stores in 2016.

Additional Commentary and Analysis

Mr. Wessel further commented on the second quarter results, "We experienced especially strong growth in revenue and pawn loans in Latin America, driven by new stores, acquisitions and impressive same-store results. Of significant note was the 11% growth in currency-adjusted same-store pawn loans and 43% growth in total currency-adjusted pawn receivables in Latin America, which has historically been a strong leading indicator of future revenue growth. This strength is also reflected in currency-adjusted same-store core revenues in Latin America, which were up 10% for the quarter.

"The second quarter results for the 211 stores recently acquired in Mexico, Guatemala and El Salvador in December and early this year were encouraging as well. We have already completed the integration of over 75% of these stores onto our proprietary point-of-sale and pawn management technology platform. With our technology platform in place, we can rapidly implement our best practice lending and retailing policies at these stores, which we believe will drive additional long-term improvements in retail sales and margins, loan yields and profitability of the stores.  We also believe that we can implement significant administrative cost synergies in the second half of the year that will drive further earnings accretion as we enter 2017.

"Based on the record pace and success of our store growth in Latin America thus far, coupled with our strong second quarter operating results, we are well-positioned as we begin the second half of 2016. As a result, we have updated our guidance and tightened our adjusted earnings per share expectations to be at the upper end of our original $2.25 to $2.45 estimate for the full year," Mr. Wessel concluded.

The Company's guidance is based solely on the Company's expected stand-alone operational performance and excludes any future merger-related expenses or any expected results of the combined company in the event the merger transaction is completed during the remainder of 2016. As announced in the joint press release filed by Cash America on July 26, 2016, the Company currently expects the merger transaction to close in the third quarter of 2016.

Forward-Looking Information

This release contains forward-looking statements about the business, financial condition and prospects of First Cash Financial Services, Inc. and its wholly owned subsidiaries and the Company's previously announced all-stock merger of equals transaction with Cash America. Forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, can be identified by the use of forward-looking terminology such as "believes," "projects," "expects," "may," "estimates," "should," "plans," "targets," "intends," "could," or "anticipates," or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy or objectives. Forward-looking statements can also be identified by the fact these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties.

Forward-looking statements in this release include, without limitation, the Company's expectations of earnings per share, earnings growth, expansion strategies, the impact of new or existing regulations, store openings, liquidity (including the availability of capital under existing credit facilities), cash flow, consumer demand for the Company's products and services, income tax rates, currency exchange rates, future share repurchases and anticipated dividend payments, the price of gold and the impacts thereof, future earnings accretion and related transaction expenses from acquisitions and mergers, the successful completion of expected acquisitions, anticipated debt repayments, the ability to successfully integrate acquisitions and other performance results. These forward-looking statements with respect to the proposed transaction with Cash America include, without limitation, the benefits of the proposed transaction and the expected completion of the transaction. These statements are made to provide the public with management's current assessment of the Company's business. Although the Company believes the expectations reflected in forward-looking statements are reasonable, there can be no assurances such expectations will prove to be accurate. Security holders are cautioned such forward-looking statements involve risks and uncertainties. Certain factors may cause results to differ materially from those anticipated by the forward-looking statements made in this release. Such factors are difficult to predict and many are beyond the control of the Company and may include, without limitation, the following:

  • changes in foreign currency exchange rates and the U.S. dollar to the Mexican peso and Guatemalan quetzal exchange rates in particular;

  • new federal, state or local legislative initiatives or governmental regulations (or changes to existing laws and regulations) affecting pawn businesses, consumer loan businesses and credit services organizations (in the United States, Mexico, Guatemala and El Salvador), including administrative or legal interpretations thereto;

  • changes in consumer demand, including purchasing, borrowing and repayment behaviors;

  • changes in regional, national or international economic conditions, including inflation rates, unemployment rates and energy prices;

  • changes in pawn forfeiture rates and credit loss provisions;

  • changes in the market value of pawn collateral and merchandise inventories, including gold prices and the value of consumer electronics and other products;

  • changes or increases in competition;

  • the ability to locate, open and staff new stores and successfully integrate acquisitions;

  • the availability or access to sources of used merchandise inventory;

  • changes in credit markets, interest rates and the ability to establish, renew and/or extend the Company's debt financing;

  • the ability to maintain banking relationships for treasury services and processing of certain consumer lending transactions;

  • the ability to hire and retain key management personnel;

  • risks and uncertainties related to foreign operations in Mexico, Guatemala and El Salvador;

  • changes in import/export regulations and tariffs or duties;

  • changes in banking, anti-money laundering or gun control regulations;

  • unforeseen litigation;

  • changes in tax rates or policies in the U.S., Mexico, Guatemala and El Salvador;

  • inclement weather, natural disasters and public health issues;

  • security breaches, cyber attacks or fraudulent activity;

  • a prolonged interruption in the Company's operations of its facilities, systems, and business functions, including its information technology and other business systems;

  • the implementation of new, or changes in the interpretation of existing, accounting principles or financial reporting requirements;

  • future business decisions;

  • the risk that the required stockholder approvals to approve the proposed transaction with Cash America may not be obtained;

  • the risks that condition(s) to closing of the proposed transaction may not be satisfied;

  • the length of time necessary to consummate the proposed transaction;

  • the conditions to closing the credit facility may not be satisfied;

  • the risk that the Company and Cash America businesses will not be integrated successfully;

  • the risk that the cost savings, synergies and growth from the proposed transaction may not be fully realized or may take longer to realize than expected;

  • the diversion of management time on transaction-related issues;

  • the risk that costs associated with the integration of the Company and Cash America are higher than anticipated; and

  • litigation risk related to the proposed transaction.

These and other risks, uncertainties and regulatory developments are further and more completely described in the Company's 2015 annual report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on February 17, 2016, including the risks described in Part 1, Item 1A, "Risk Factors" of the Company's annual report, and other reports filed with the SEC. Many of these risks and uncertainties are beyond the ability of the Company to control, nor can the Company predict, in many cases, all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. The forward-looking statements contained in this release speak only as of the date of this release, and the Company expressly disclaims any obligation or undertaking to report any updates or revisions to any such statement to reflect any change in the Company's expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.

About First Cash

With over 1,270 retail and consumer lending locations in the U.S., Mexico, Guatemala and El Salvador, First Cash Financial Services, Inc. is a leading international operator of pawn stores. First Cash focuses on serving cash and credit constrained consumers through its retail pawn locations, which buy and sell a wide variety of jewelry, consumer electronics, power tools, household appliances, sporting goods, musical instruments and other merchandise, and make small consumer pawn loans secured by pledged personal property. Approximately 97% of the Company's revenues are from pawn operations.

First Cash is a component company in both the Standard & Poor's SmallCap 600 Index® and the Russell 2000 Index®. First Cash's common stock (ticker symbol "FCFS") is traded on the NASDAQ Global Select Market, which has the highest initial listing standards of any stock exchange in the world based on financial and liquidity requirements.

 
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 
  Three Months Ended Six Months Ended
  June 30, June 30,
  2016 2015 2016 2015
  (in thousands, except per share amounts)
Revenue:        
Retail merchandise sales $115,543  $105,625  $234,319  $216,079 
Pawn loan fees 51,878  47,583  103,311  96,237 
Consumer loan and credit services fees 4,916  6,710  10,602  14,305 
Wholesale scrap jewelry revenue 9,642  7,705  16,950  17,025 
Total revenue 181,979  167,623  365,182  343,646 
         
Cost of revenue:        
Cost of retail merchandise sold 71,345  65,636  145,767  133,882 
Consumer loan and credit services loss provision 1,320  1,709  2,367  2,706 
Cost of wholesale scrap jewelry sold 7,853  6,232  13,724  14,241 
Total cost of revenue 80,518  73,577  161,858  150,829 
         
Net revenue 101,461  94,046  203,324  192,817 
         
Expenses and other income:        
Store operating expenses 54,578  51,746  109,989  104,067 
Administrative expenses 16,509  13,559  33,777  27,332 
Acquisition and integration expenses 4,079  1,110  4,479  1,175 
Depreciation and amortization 4,947  4,467  9,884  9,014 
Interest expense 4,326  4,126  8,786  8,146 
Interest income (224) (393) (498) (737)
Total expenses and other income 84,215  74,615  166,417  148,997 
         
Income before income taxes 17,246  19,431  36,907  43,820 
         
Provision for income taxes 5,573  6,092  12,060  13,693 
         
Net income $11,673  $13,339  $24,847  $30,127 
         
Net income per share:        
Basic $0.41  $0.47  $0.88  $1.06 
Diluted $0.41  $0.47  $0.88  $1.06 
         
Weighted average shares outstanding:        
Basic 28,243  28,196  28,242  28,299 
Diluted 28,243  28,411  28,242  28,515 
         
Dividends declared per common share $0.125  $  $0.25  $ 



 
FIRST CASH FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
  June 30, December 31,
  2016 2015 2015
  (in thousands)
ASSETS      
Cash and cash equivalents $46,274  $77,430  $86,954 
Pawn loan fees and service charges receivable 18,259  17,611  16,406 
Pawn loans 134,658  124,969  117,601 
Consumer loans, net 1,060  1,070  1,118 
Inventories 91,861  88,080  93,458 
Prepaid expenses and other current assets 7,781  3,853  9,897 
Total current assets 299,893  313,013  325,434 
       
Property and equipment, net 123,895  111,754  112,447 
Goodwill 312,488  300,378  295,609 
Other non-current assets 9,608  10,738  10,084 
Deferred tax assets 10,720  8,687  9,321 
Total assets $756,604  $744,570  $752,895 
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
Accounts payable and accrued liabilities $51,056  $39,496  $42,252 
Income taxes payable 1,559  1,333  3,923 
Total current liabilities 52,615  40,829  46,175 
       
Revolving unsecured credit facility 50,500  56,000  58,000 
Senior unsecured notes 196,203  195,564  195,874 
Deferred tax liabilities 23,800  18,322  21,464 
Total liabilities 323,118  310,715  321,513 
       
Stockholders' equity:      
Preferred stock      
Common stock 403  399  403 
Additional paid-in capital 203,414  193,977  202,393 
Retained earnings 661,390  613,021  643,604 
Accumulated other comprehensive loss from      
cumulative foreign currency translation adjustments (95,113) (53,934) (78,410)
Common stock held in treasury, at cost (336,608) (319,608) (336,608)
Total stockholders' equity 433,486  433,855  431,382 
Total liabilities and stockholders' equity $756,604  $744,570  $752,895 
 

Note: Certain balances as of June 30, 2015 and December 31, 2015 have been reclassified in order to conform to current year presentation. In addition, foreign currency translation adjustments affecting certain deferred tax balances and accumulated other comprehensive loss as of June 30, 2015 have been revised to conform with the current year presentation. As of June 30, 2016, 2015 and December 31, 2015, deferred debt issuance costs of $3,797,000, $4,436,000 and $4,126,000, respectively, are included as a direct deduction from the carrying amount of the senior unsecured notes.

FIRST CASH FINANCIAL SERVICES, INC.
OPERATING INFORMATION
(UNAUDITED)

The following table details the components of revenue for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015 (in thousands). Constant currency results exclude the effects of foreign currency translation and are calculated by translating current year results at prior year average exchange rates, which is more fully described elsewhere in this release. 

       
        Constant Currency Basis
  Three Months Ended   Three Months Ended Increase /
  June 30, Increase / June 30, 2016 (Decrease)
  2016 2015 (Decrease) (Non-GAAP) (Non-GAAP)
U.S. revenue:          
Retail merchandise sales $47,065  $44,323  6% $47,065  6%
Pawn loan fees 21,844  22,060  (1)% 21,844  (1)%
Consumer loan and credit services fees 4,419  6,174  (28)% 4,419  (28)%
Wholesale scrap jewelry revenue 6,070  4,410  38% 6,070  38%
  79,398  76,967  3% 79,398  3%
Latin America revenue:          
Retail merchandise sales 68,478  61,302  12% 80,278  31%
Pawn loan fees 30,034  25,523  18% 35,065  37%
Consumer loan and credit services fees 497  536  (7)% 586  9%
Wholesale scrap jewelry revenue 3,572  3,295  8% 3,572  8%
  102,581  90,656  13% 119,501  32%
Total revenue:          
Retail merchandise sales 115,543  105,625  9% 127,343  21%
Pawn loan fees 51,878  47,583  9% 56,909  20%
Consumer loan and credit services fees 4,916  6,710  (27)% 5,005  (25)%
Wholesale scrap jewelry revenue (1) 9,642  7,705  25% 9,642  25%
  $181,979  $167,623  9% $198,899  19%
 

(1) Wholesale scrap jewelry revenue during the three months ended June 30, 2016 consisted primarily of gold sales, of which approximately 6,447 ounces were sold at an average price of $1,268 per ounce, compared to approximately 5,600 ounces of gold sold at $1,203 per ounce in the prior-year period.

FIRST CASH FINANCIAL SERVICES, INC.
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)

The following table details the components of revenue for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015 (in thousands). Constant currency results exclude the effects of foreign currency translation and are calculated by translating current year results at prior year average exchange rates, which is more fully described elsewhere in this release. 

       
        Constant Currency Basis
  Six Months Ended   Six Months Ended Increase /
  June 30, Increase / June 30, 2016 (Decrease)
  2016 2015 (Decrease) (Non-GAAP) (Non-GAAP)
U.S. revenue:          
Retail merchandise sales $102,126  $96,329  6% $102,126  6%
Pawn loan fees 46,089  45,966  % 46,089  %
Consumer loan and credit services fees 9,628  13,238  (27)% 9,628  (27)%
Wholesale scrap jewelry revenue 10,864  10,148  7% 10,864  7%
  168,707  165,681  2% 168,707  2%
Latin America revenue:          
Retail merchandise sales 132,193  119,750  10% 156,754  31%
Pawn loan fees 57,222  50,271  14% 67,584  34%
Consumer loan and credit services fees 974  1,067  (9)% 1,162  9%
Wholesale scrap jewelry revenue 6,086  6,877  (12)% 6,086  (12)%
  196,475  177,965  10% 231,586  30%
Total revenue:          
Retail merchandise sales 234,319  216,079  8% 258,880  20%
Pawn loan fees 103,311  96,237  7% 113,673  18%
Consumer loan and credit services fees 10,602  14,305  (26)% 10,790  (25)%
Wholesale scrap jewelry revenue (1) 16,950  17,025  % 16,950  %
  $365,182  $343,646  6% $400,293  16%
  

(1) Wholesale scrap jewelry revenue during the six months ended June 30, 2016 consisted primarily of gold, of which approximately 11,687 ounces sold at an average selling price of $1,237 per ounce, compared to approximately 12,200 ounces of gold sold at $1,201 per ounce in the prior-year period.

FIRST CASH FINANCIAL SERVICES, INC.
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)

The following table details customer loans and inventories held by the Company and active credit service organization ("CSO") credit extensions from an independent third-party lender as of June 30, 2016 as compared to June 30, 2015 (in thousands). Constant currency results exclude the effects of foreign currency translation and are calculated by translating current-year balances at the prior-year end-of-period exchange rate, which is more fully described elsewhere in this release. 

       
        Constant Currency Basis
        Balance at  
        June 30, Increase /
  Balance at June 30, Increase / 2016 (Decrease)
  2016 2015 (Decrease) (Non-GAAP) (Non-GAAP)
U.S.:          
Pawn loans $66,457  $69,080  (4)% $66,457  (4)%
CSO credit extensions held by independent third-party (1) 5,161  8,440  (39)% 5,161  (39)%
Other consumer loans 653  626  4% 653  4%
Combined customer loans (2) 72,271  78,146  (8)% 72,271  (8)%
Latin America:          
Pawn loans 68,201  55,889  22% 80,105  43%
Other consumer loans 407  444  (8)% 483  9%
Combined customer loans 68,608  56,333  22% 80,588  43%
Total:          
Pawn loans 134,658  124,969  8% 146,562  17%
CSO credit extensions held by independent third-party (1) 5,161  8,440  (39)% 5,161  (39)%
Other consumer loans 1,060  1,070  (1)% 1,136  6%
Combined customer loans (2) $140,879  $134,479  5% $152,859  14%
Pawn inventories:          
U.S. $47,934  $48,492  (1)% $47,934  (1)%
Latin America 43,927  39,588  11% 51,849  31%
Combined inventories $91,861  $88,080  4% $99,783  13%
 

(1) CSO amounts outstanding are composed of the principal portion of active CSO extensions of credit by an independent third-party lender, which are not included on the Company's balance sheet, net of the Company's estimated fair value of its liability under the letters of credit guaranteeing the extensions of credit.

(2) Combined customer loans is a non-GAAP measure as it includes CSO credit extensions held by an independent third-party not included on the Company's balance sheet. The Company believes this non-GAAP measure provides investors with important information needed to evaluate the magnitude of potential loan losses and the opportunity for revenue performance of the consumer loan portfolio on an aggregate basis. The Company also believes the comparison of the aggregate amounts from period to period is more meaningful than comparing only the amounts reflected on the Company's balance sheet since both credit services fees revenue and the corresponding loss provision are impacted by the aggregate amount of loans owned by the Company and those guaranteed by the Company as reflected in its financial statements.

FIRST CASH FINANCIAL SERVICES, INC.
OPERATING INFORMATION (CONTINUED)
(UNAUDITED)

The following tables detail the composition of pawn collateral and the average outstanding pawn loan receivable as of June 30, 2016 as compared to June 30, 2015. 

 
  Balance at June 30,
  2016 2015
Composition of pawn collateral:    
U.S. pawn loans:    
General merchandise 47% 47%
Jewelry 53% 53%
  100% 100%
Latin America pawn loans:    
General merchandise 82% 88%
Jewelry 18% 12%
  100% 100%
Total pawn loans:    
General merchandise 65% 66%
Jewelry 35% 34%
  100% 100%
 



        Constant Currency Basis
        Balance at  
        June 30,  
  Balance at June 30, Increase / 2016 Increase
  2016 2015 (Decrease) (Non-GAAP) (Non-GAAP)
Average outstanding pawn loan amount:          
U.S. pawn loans $160  $159  1% $160  1%
Latin America pawn loans 62  64  (3)% 73  14%
Total pawn loans 89  95  (6)% 97  2%
                

FIRST CASH FINANCIAL SERVICES, INC.
STORE COUNT ACTIVITY

The following table details store count activity for the six months ended June 30, 2016:

       
    Consumer  
  Pawn Loan Total
  Locations (1) Locations (2) Locations
U.S.:      
Total locations, beginning of period 296  42  338 
Locations acquired 1    1 
Locations closed or consolidated (4) (11) (15)
Total locations, end of period 293  31  324 
       
Latin America:      
Total locations, beginning of period 709  28  737 
New locations opened 31    31 
Locations acquired 179    179 
Total locations, end of period 919  28  947 
       
Total:      
Total locations, beginning of period 1,005  70  1,075 
New locations opened 31    31 
Locations acquired 180    180 
Locations closed or consolidated (4) (11) (15)
Total locations, end of period 1,212  59  1,271 
 

(1) At June 30, 2016, 135 of the U.S. pawn stores, which are primarily located in Texas, 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 a credit services product and are all located in Texas. The Mexico locations offer small, short-term consumer loans.

FIRST CASH FINANCIAL SERVICES, INC.
NON-GAAP FINANCIAL INFORMATION
(UNAUDITED)

The Company uses certain financial calculations such as adjusted net income, adjusted net income per share, adjusted EBITDA, 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"), primarily by excluding from a comparable GAAP measure certain items that 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") rules. The Company uses these financial calculations 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 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, adjusted EBITDA, free cash flow and constant currency results 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, adjusted EBITDA, free cash flow and constant currency results as presented may not be comparable to other similarly titled measures of other companies.

Adjusted Net Income and Adjusted Net Income Per Share

Management believes the presentation of adjusted net income and adjusted net income per share ("Adjusted Income Measures") provides investors with greater transparency and provides a more complete understanding of the Company's financial performance and prospects for the future. In addition, management believes the adjustments shown below are useful to investors in order to allow them to compare the Company's financial results for the current periods presented with the prior periods presented.

FIRST CASH FINANCIAL SERVICES, INC.
NON-GAAP FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)

The following tables provide a reconciliation between the net income and diluted earnings per share calculated in accordance with GAAP to the Adjusted Income Measures, which are shown net of tax (in thousands, except per share data):

 
 Three Months Ended June 30, Six Months Ended June 30,
 2016 2015 2016 2015
 In Thousands Per Share In Thousands Per Share In Thousands Per Share In Thousands Per Share
Net income, as reported$11,673  $0.41  $13,339  $0.47  $24,847  $0.88  $30,127  $1.06 
Adjustments, net of tax:               
Non-recurring restructuring expenses related to U.S. consumer loan operations    208  0.01      299  0.01 
Non-recurring acquisition expenses2,651  0.10  754  0.03  2,911  0.10  799  0.03 
Adjusted net income$14,324  $0.51  $14,301  $0.51  $27,758  $0.98  $31,225  $1.10 
 

The following table provides 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 (in thousands):

 
 Three Months Ended June 30,
 2016 2015
 Pre-tax Tax After-tax Pre-tax Tax After-tax
Non-recurring restructuring expenses related to U.S. consumer loan operations$  $  $  $310  $102  $208 
Non-recurring acquisition expenses4,079  1,428  2,651  1,110  356  754 
Total adjustments$4,079  $1,428  $2,651  $1,420  $458  $962 
 



 Six Months Ended June 30,
 2016 2015
 Pre-tax Tax After-tax Pre-tax Tax After-tax
Non-recurring restructuring expenses related to U.S. consumer loan operations$  $  $  $439  $140  $299 
Non-recurring acquisition expenses4,479  1,568  2,911  1,175  376  799 
Total adjustments$4,479  $1,568  $2,911  $1,614  $516  $1,098 
 

FIRST CASH FINANCIAL SERVICES, INC.
NON-GAAP FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization

The Company defines adjusted EBITDA as net income before income taxes, depreciation and amortization, interest expense, interest income and non-recurring charges as listed below. The Company believes adjusted EBITDA is commonly used by investors to assess a company's leverage capacity, liquidity and financial performance. However, adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for net income or other statement of income data prepared in accordance with GAAP. The following table provides a reconciliation of net income to adjusted EBITDA (in thousands):           

           
          Trailing Twelve
  Three Months Ended Six Months Ended Months Ended
  June 30, June 30, June 30,
  2016 2015 2016 2015 2016 2015
Net income $11,673  $13,339  $24,847  $30,127  $55,430  $76,596 
Income taxes 5,573  6,092  12,060  13,693  25,338  31,797 
Depreciation and amortization (1) 4,947  4,327  9,884  8,785  18,545  17,664 
Interest expense 4,326  4,126  8,786  8,146  17,527  16,327 
Interest income (224) (393) (498) (737) (1,327) (1,076)
EBITDA 26,295  27,491  55,079  60,014  115,513  141,308 
Adjustments:            
Non-recurring restructuring expenses related to U.S. consumer loan operations   310    439  8,439  439 
Non-recurring acquisition expenses 4,079  1,110  4,479  1,175  6,179  2,117 
Adjusted EBITDA $30,374  $28,911  $59,558  $61,628  $130,131  $143,864 
             
Adjusted EBITDA margin calculated as follows:            
Total revenue         $726,138  $721,420 
Adjusted EBITDA         $130,131  $143,864 
Adjusted EBITDA as a percentage of revenue         18% 20%
             
Leverage ratio calculated as follows (indebtedness divided by adjusted EBITDA):            
Indebtedness (2)         $250,500  $256,000 
Adjusted EBITDA         $130,131  $143,864 
Leverage ratio         1.9:1 1.8:1
 

(1) For the three months ended June 30, 2015, excludes $140,000 of depreciation and amortization, for the six months and trailing twelve months ended June 30, 2015, excludes $229,000 of depreciation and amortization and for the trailing twelve months ended June 30, 2016, excludes $264,000 of depreciation and amortization, which are included in the non-recurring restructuring expenses related to U.S. consumer loan operations.

(2) Excludes deferred debt issuance costs of $3,797,000 and $4,436,000 as of June 30, 2016 and 2015, respectively, which are included as a direct deduction from the carrying amount of the senior unsecured notes in the condensed consolidated balance sheets.

FIRST CASH FINANCIAL SERVICES, INC.
NON-GAAP FINANCIAL INFORMATION (CONTINUED)
(UNAUDITED)

Free Cash Flow

For purposes of its internal liquidity assessments, the Company considers free cash flow, which is defined as cash flow from operating activities reduced by purchases of property and equipment and net cash outflow from loan receivables. Free cash flow is commonly used by investors as a measure of cash generated by business operations that will be used to repay scheduled debt maturities and can be used 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 has limitations as an analytical tool and should not be considered in isolation or as a substitute for cash flow from operating activities, including discontinued operations, or other income statement data prepared in accordance with GAAP. The following table reconciles "net cash flow from operating activities" to "free cash flow" (in thousands):

   
  Trailing Twelve Months Ended
  June 30,
  2016 2015
Cash flow from operating activities $90,413  $91,049 
Cash flow from investing activities:    
Loan receivables (9,211) 1,517 
Purchases of property and equipment (29,546) (20,495)
Free cash flow $51,656  $72,071 
         

Constant Currency

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 may be considered a non-GAAP measurement of financial performance. 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. Constant currency results reported herein are calculated by translating certain balance sheet and income statement items denominated in local currencies using the exchange rate from the prior-year comparable period, as opposed to the current comparable period, in order to exclude the effects of foreign currency rate fluctuations for purposes of evaluating period-over-period comparisons. Business operations in Mexico and Guatemala are transacted in Mexican pesos and Guatemalan quetzales, respectively. As the Company acquired the Guatemala stores on December 31, 2015, there are no prior year comparisons and current year results were translated at an average exchange rate of 7.7 Guatemalan quetzales / U.S. dollar. The Company also has operations in El Salvador where the reporting and functional currency is the U.S. dollar. In addition, see the table detailing the components of revenue in "Operating Information" provided elsewhere in this release for additional reconciliation of revenues to constant currency revenues.

 The following table provides exchange rates for the Mexican peso for the current and prior year periods:

  
  June 30,    
  2016 2015 Decrease
Mexican peso / U.S. dollar exchange rate:        
End-of-period 18.5 15.6  (19)% 
Three months ended 18.1 15.3  (18)% 
Six months ended 18.0 15.1  (19)% 
          

 

For further information, please contact: Gar Jackson Global IR Group Phone: (949) 873-2789 Email: gar@globalirgroup.com Doug Orr, Executive Vice President and Chief Financial Officer Phone: (817) 505-3199 Email: investorrelations@firstcash.com Website: www.firstcash.com

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