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First Cash Reports First Quarter Adjusted Earnings of $0.48 per Share; Increases Earnings Guidance for 2016; and Declares Quarterly Dividend of $0.125

ARLINGTON, Texas, Apr 28, 2016 (BUSINESS WIRE) -- First Cash Financial Services, Inc. FCFS, +2.23% 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 month period ended March 31, 2016.

Mr. Rick Wessel, chief executive officer, stated, “Our first quarter earnings results exceeded our expectations driven by accelerating growth in pawn revenues and receivables coupled with the addition of 200 new and acquired stores. Core pawn revenues in Latin America increased 31% on a currency-adjusted basis and same-store core revenues in the region grew 8% compared to the prior-year period. We also saw positive sequential pawn lending trends in our U.S. operations. Given this combined momentum across the major regions, we are raising our full year earnings guidance.

“While we are pleased with the strong start to the year, we are particularly excited about our separately announced merger agreement with Cash America International. This is a transformational combination that we believe will create significant shareholder value,” Mr. Wessel concluded.

The Company today also announced that the Board of Directors has declared a second quarter cash dividend of $0.125 per common share. The dividend is payable on June 15, 2016 to stockholders of record as of June 1, 2016.

Note: All growth rates presented above and in “Revenue Highlights” and “Pawn Operating Metrics” are calculated on a constant currency basis, a non-GAAP measure defined elsewhere in this release. The average Mexican peso to U.S. dollar exchange rate for the three-month period ended March 31, 2016 was 18.0 pesos / dollar versus 14.9 pesos / dollar in the comparable prior-year period.

Earnings Highlights

  • Diluted earnings per share for the first quarter of 2016 totaled $0.47, which includes the impact of non-recurring acquisition expenses of $0.01 per share. Excluding these expenses, adjusted diluted earnings per share were $0.48 for the first quarter of 2016 compared to $0.59 in the prior-year period. Adjusted net income and adjusted net income per share are defined in the detailed reconciliation of non-GAAP financial measures provided elsewhere in this release.
  • Adjusted earnings for the first quarter of 2016 were negatively impacted by $0.07 per share due to the strong U.S. dollar and the resulting 21% year-over-year decline in the average value of the Mexican peso. There were approximately $0.05 per share of additional earnings impacts due to expected revenue declines in non-core jewelry scrapping and payday lending operations.
  • Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and certain non-recurring charges) for the trailing twelve months ended March 31, 2016 totaled $128.7 million and net income was $57.1 million for the same trailing twelve month period. A reconciliation of adjusted EBITDA to net income is provided elsewhere in this release.

Revenue Highlights

  • Consolidated core revenue from retail merchandise sales and pawn service fees increased 18% during the first quarter of 2016 compared to the first quarter of 2015. Total revenue increased 14% to $183 million, reflecting the strong growth in core pawn revenues partially offset by expected declines in total non-core payday lending and jewelry scrapping revenues.
  • Core pawn revenues in Latin America grew 31% in the first quarter of 2016 and represented 58% of total core revenues. U.S. core pawn revenues increased over 4% for the quarter.
  • Retail merchandise sales in pawn stores increased by 19% for the first quarter of 2016 compared to the prior-year period, driven by increased sales of 31% in Latin America and 6% in the U.S.
  • Pawn fee revenue grew 17% in total compared to the prior-year period, with increases of 31% in Latin America and 1% in the U.S.
  • Consolidated same-store core revenue increased 3% for the first quarter, driven by same-store core pawn revenue growth in Latin America of 8%. U.S. core same-store revenue decreased 2%, primarily the result of lower pawn fees resulting from lower pawn receivable balances.

Pawn Operating Metrics

  • During the first quarter of 2016, pawn loans outstanding increased by 37% in Latin America, 2% in the U.S. and 19% in total compared to the prior-year period. Same-store pawn loans receivable in Mexico increased 5% compared to the prior-year period, while U.S. same-store pawn loans decreased less than 4%, reflecting a significant sequential improvement over the previous quarter’s decrease of over 6%.
  • Consolidated gross margins on retail merchandise sales remained strong at 37% during the first quarter of 2016. Excluding the impact of slightly lower retail margins in the newly acquired stores in Latin America, retail margins were 38%, which was consistent with the prior-year period.
  • First quarter wholesale scrap jewelry margins increased significantly to 20% compared to 14% in the prior-year period. However, the trend of weaker scrap jewelry volumes continued.
  • The average monthly pawn loan portfolio yield was approximately 13.5% for the first quarter of 2016, which was consistent with the prior-year period yield of 13.7%.
  • The combined yield from pawn gross profits (pawn fees plus sales gross profit), as a percentage of pawn assets (pawn receivables plus inventories), was 176% in the first quarter of 2016.
  • Total inventories at March 31, 2016 increased 17% compared to March 31, 2015, which is in-line with store growth and acquisitions. Annualized inventory turns for the trailing twelve months ended March 31, 2016 were 3.4 times per year. Aged inventories (items held for over a year) accounted for approximately 5% of total inventories at March 31, 2016, which is a sequential improvement over aged inventories of 6% at December 31, 2015.

Store Count Activity

  • A total of 200 pawn stores were added in the first quarter of 2016, which was composed of 199 new and acquired stores in Latin America and one store acquired in the U.S. For the twelve months ended March 31, 2016, the Company has added 250 pawn stores in Latin America and 29 pawn stores in the U.S., representing increases of 38% and 11%, respectively.
  • As previously announced in January 2016, the Company acquired 166 stores in Mexico on January 6, 2016 and 13 stores in El Salvador on February 2, 2016.
  • As of March 31, 2016, the Company operated 1,273 stores, of which 95% or 1,204 were pawn stores. There are 936 stores in Latin America, of which 908 are pawn stores, and 337 stores in the U.S., of which 296 are pawn stores.

Financial Metrics

  • The adjusted EBITDA margin was 18% for the trailing twelve months ended March 31, 2016. Excluding the impacts of currency, non-core payday lending and wholesale scrap jewelry operations, the adjusted EBITDA margin decreased 1% compared to the prior-year period. The calculation of adjusted EBITDA margin is provided elsewhere in this release.
  • Pre-tax store operating margin was 24% for the trailing twelve months ended March 31, 2016, as compared to 26% in the prior-year period, primarily reflecting contraction in same-store payday lending, scrap sales and the impact of recent acquisitions.
  • The Company’s adjusted return on equity for the trailing twelve months ended March 31, 2016 was 15% and the adjusted return on assets was 9% for the same period. These financial ratios include the impact of the strong U.S. dollar, but are adjusted to exclude non-recurring expense items described in more detail elsewhere in this release.

Liquidity

  • As of March 31, 2016, the Company had $54 million in cash on its balance sheet and $180 million of availability for future borrowings under its long-term revolving bank credit facilities. The average interest rate on the Company’s $40 million outstanding bank debt at quarter end was 3.00%.
  • The Company’s leverage ratio at March 31, 2016 (outstanding indebtedness divided by trailing twelve months adjusted EBITDA) was 1.9:1. Net debt, defined as funded debt less invested cash, was $201 million at March 31, 2016. The leverage ratio of adjusted EBITDA to net debt was 0.6:1 and the ratio of net debt to equity was 0.5:1.
  • Cash provided by operating activities was $90 million for the trailing twelve months ended March 31, 2016, while free cash flow totaled $61 million. Free cash flow is defined in the detailed reconciliation of non-GAAP financial measures provided elsewhere in this release.
  • For the trailing twelve months ended March 31, 2016, the Company invested $71 million in acquisitions, $23 million in capital expenditures, $23 million in stock repurchases and $4 million in dividend payments, funded primarily with operating cash flows and a $44 million increase in net debt.

Cash Dividends

  • The Company paid a cash dividend of $0.125 per share during the first quarter of 2016.
  • The Board of Directors declared a $0.125 per share second quarter cash dividend on common shares outstanding, which will be paid on June 15, 2016 to stockholders of record as of June 1, 2016.

Fiscal 2016 Outlook

  • The 2016 outlook for earnings and stores does not include any assumptions regarding earnings or store additions related to the announced merger with Cash America International.
  • Based on first quarter results and a slightly improved outlook for the peso exchange rate, the Company is raising its fiscal full-year 2016 guidance for earnings to be in the range of $2.25 to $2.45 per diluted share. This is $0.05 above its previously announced range of $2.20 to $2.40 per diluted share. These estimates reflect the following assumptions:
    • Using an estimated exchange rate of approximately 18.0 Mexican pesos / U.S. dollar for fiscal 2016, the guidance assumes approximately $0.30 to $0.35 of earnings per share drag, net of tax, as compared to the actual average rate of 15.8 in fiscal 2015.
    • Fiscal 2016 estimates continue to be tempered by expected declines in earnings from payday lending operations of approximately $0.08 to $0.12 per share, net of tax. The Company expects total U.S. payday lending revenues to be less than 3% of consolidated revenues in 2016.
    • The fiscal 2016 guidance range excludes the impact of non-recurring acquisition expenses of $0.01 per share in the first quarter and any such acquisition expenses incurred during the remainder of fiscal 2016, including expenses related to the merger announced today.
  • Excluding any significant acquisitions, the Company expects to add approximately 210 to 225 new stores in 2016, of which 200 additions have already occurred in the first quarter. Additionally, the Company will continue to look opportunistically for full-service pawn acquisitions in strategic markets in both Latin America and the U.S., which could further drive revenue and result in additional EBITDA growth for 2016.

Additional Commentary and Analysis

Mr. Wessel further commented on the first 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 37% growth in currency-adjusted pawn receivables in Latin America, which has historically been a strong leading indicator of future revenue growth. Although the dollar value of the Mexican peso stabilized during the quarter and the average exchange rate improved over our original expectations, currency still impacted our earnings by approximately $0.07 per share given the 21% year-over year decline in the Mexican peso. Although the U.S. pawn environment has been challenging, we are excited about the sequential improvement in same-store pawn demand and better than expected retail sales results.

“The first quarter results for the 211 stores recently acquired in Mexico, Guatemala and El Salvador in December and early this year were encouraging. We are well under way in our efforts to integrate these stores onto our proprietary point-of-sale and pawn management technology platform. We intend to implement our best practice lending and retailing policies at these stores as we believe this will drive long-term improvements in retail sales and margins, loan yields and the overall return on pawn assets. We also believe that we can achieve additional administrative cost synergies in the second half of the year that will drive further earnings accretion.

“We continue to believe our pawn operations in both Mexico and the U.S. are well positioned to provide affordable short-term credit to unbanked and underbanked consumers in targeted markets with favorable population and demographic trends. Although we continue to be challenged by headwinds from weaker foreign currency exchange rates and the expected decline in our non-core payday and jewelry scrapping operations, First Cash has demonstrated a history of consistent revenue and earnings growth in our core, currency-adjusted pawn operations,” Mr. Wessel concluded.

Conference Call and Webcast

First Cash Financial Services, Inc. and Cash America International, Inc. will host a joint conference call and webcast today, April 28, at 8:00 a.m. ET (7:00 a.m. CT) to discuss the merger transaction as well as both companies’ first quarter 2016 financial results, which were separately announced today.

The dial-in number is (212) 231-2930. Participants should dial in 10 minutes prior to the scheduled start time.

A link to the live Webcast of the conference call will be available on the investor relations section of each company’s website at www.cashamerica.com and www.firstcash.com.

A link to the webcast replay will be available shortly after the call concludes on the companies’ investor relations websites. A replay may also be accessed for 72 hours by dialing toll-free: (800) 633-8284 or +1-402-977-9140 for international callers. The replay confirmation code is 21776991.

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 (together, the “Company”) and the proposed transaction with Cash America International. 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...


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