Presentation on theme: "FIRST CASH FINANCIAL SERVICES, INC."— Presentation transcript:
1 FIRST CASH FINANCIAL SERVICES, INC. Investor Presentation May 2014
2 SAFE HARBOR STATEMENTThis presentation contains “forward-looking statements,” as defined by the Private Securities Litigation Reform Act of 1995, that can be identified by words such as “believes,” “expects,” “projects,” and similar expressions and involve numerous risks and uncertainties. The Company’s actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those set forth in the Company’s filings with the Securities and Exchange Commission.
3 25 YEARS OF LEADERSHIP IN PAWN Founded in 1988Based in Arlington, TXPublic in 1991with 12 storesCurrent market cap of $1.4 billion*, largest market cap of any pawn operatorU.S. Operations310 stores12 U.S. statesMexico OperationsStarted with 4 stores in 1999Currently operating 605 stores in 26 statesLargest full-service, large format pawn operator in Mexico*As of May 2, 2014
4 PAWNSHOP PROFILENeighborhood-based stores serving cash- constrained consumers:Buy and sell popular pre-owned consumer products includingConsumer electronics & appliancesJewelry, diamonds & watchesPower tools, musical instruments & sporting goodsReady and immediate source of cash for customers looking to sell itemsSource of small, short-term loansFully collateralizedNon-recourse
5 SIGNIFICANT PAWN STORE GROWTH Driven primarily by organic growth coupled with strategic acquisitionsStore count
6 REVENUE – GEOGRAPHIC DISTRIBUTION Operations in two countries with the same business model and format310 stores in the U.S.605 stores in MexicoContinued growth potential in both marketsOpportunity to expand this proven model to other Latin American countriesTrailing Twelve Months Ended March 31, 2014
7 FOCUSED ON RETAIL OPPORTUNITY Merchandise sales (including retail and scrap) account for 66% of total revenues, of which retail is a significant portionMerchandise acquired through forfeiture of pawn loan collateral and direct buys from customersEmphasis on driving foot trafficHigh inventory turnover (3.6x in 2013)Gross retail margins exceed those of traditional value-oriented retailersFCFS retail margin of 39.7%Peer Group average retail margin: 31.1%First Cash REVENUE DISTRIBUTION66%MerchandiseSalesPeer group includes: Dollar General, Ross Stores, Dollar Tree, PriceSmart, Tuesday Morning and Big Lots; LTM as of MRQ
8 RETAIL TRAFFIC DRIVERS In-store transactionsRetail salesPawn loans and buysPawn payments and redemptionsLayaway programs drive multiple store visitsInterest-free installment payments collected weekly and/or monthlyOpportunity for customers to “Treasure Hunt” in storesAutomatic price markdown timing“As seen on TV” – pawnshops are focus of popular reality shows
9 GROWING DEMAND FOR PAWNSHOPS Many consumers in the U.S. and Mexico remain cash-constrained and value-conscious“Unbanked and under-banked” customer base continues to be significant30% of U.S. households70% of households in MexicoStrong customer value propositionImmediate source of credit – less than 10 minutesNo underwriting, credit check, or bank account requiredNo collection activities or negative credit reportingTraditional retailers and lenders do not effectively serve this customer due to:Small transaction sizesWeak (or lack of) credit historyRegulatory restrictions on other short-term credit & bank products
10 FIRST CASH PAWN METRICS Trailing Twelve Months Ended March 31, 2014Pawn ReceivablesAverage loan size:$173 in U.S.$69 in MexicoTerm: 30 daysTypical monthly service charge:5% to 20%Varies with size of loanAll loans fully collateralized: non-performing pawns become inventoryRetail sales margin %Effective monthly yield on pawn receivables 14%Inventory turnover, annualized 3.6xStore operating profit margin 26%
11 SIGNIFICANT BARRIERS TO ENTRY Significant barriers to entry in both the United States and Mexico make it difficultfor new competitors to enter the spaceUnited StatesMexicoFirst Cash has significant first-mover advantageDe novo strategy requires significant capital investment, operating expertise, and development of human capitalOther public pawn operators are currently not growing significantly in MexicoMust allow for a long time horizon to compete with FCFSExtremely limited acquisition opportunities in large format spaceNew regulations and reporting requirements work in favor of larger, more sophisticated operators such as FCFSKey markets for First Cash have significant licensing restrictions limiting ability of competitors to establish new, competing locationsTexas - per state law, in large counties (over 250,000 population) new licenses not granted within 2 miles of any other pawn shopMaryland/DC/Virginia - most counties and DC have hard caps on the number of licenses and are not granting new onesColorado - most larger, metropolitan cities and suburbs have ceased issuing new pawn licenses
12 STABLE REGULATORY ENVIRONMENT Regulator and consumer advocate groups have been focused on the “cycle-of-debt” and collection practices of the payday lending industry. First Cash’s business is dominated by pawn retail sales and pawn lending, which provides non-recourse loans with no collection activity, mitigating much of the regulatory focus United StatesMexicoPawn regulated primarily at state levelFCFS operates in states with favorable regulatory environmentNo material changes to pawn regulations in 30+ yearsWhile pawn is technically covered at the federal level by Consumer Financial Protection Bureau (“CFPB”), pawn remains a low priority for CFPBFocused on paydayCycle of debtCollectionsPawn regulated at the federal level by Federal Consumer Protection Bureau (“PROFECO”)Regulates terms of pawn loanNo rate-setting authorityJanuary 2013 law requires all pawn businesses to register with PROFECORequires compliance with additional customer notice and disclosuresNew PROFECO requirements have led to suspension or closure of certain non- compliant pawn stores in Mexico
13 UNIQUELY POSITIONED - LIMITED EXPOSURE TO PAYDAY PRODUCT Other large public pawn operators generate significant revenue from payday, payroll, online lending, title and installment lending productsOther pawn operators average payday as percentage of total revenue: 45.8%First Cash has continued to divest its payday business over timeIn 2013, discontinued Cash & Go payday/check cashing joint ventureIn 2012 and 2013, closed 21 consumer loan stores in TexasIn 2010, discontinued internet-based credit services in MarylandIn 2009, sold 30 payday/consumer loan stores across four statesFirst Cash is now uniquely positioned as the only large “pure” (~90%) pawn operatorFirst Cash REVENUE DISTRIBUTIONRevenue Distribution of Other Pawn OperatorsCash America InternationalEZCORP, Inc.DFC Global Corp.Other pawn operators include: Cash America International, DFC Global Corp. and EZCORP, Inc.; LTM as of most recent quarter.
15 MEXICO REMAINS UNDERBANKED An estimated 70% of population is unbanked or under-bankedPer capita consumer credit remains very low in comparison to U.S. and other LatAm countriesMexico remains a cash-driven societyEven employees paid on company-issued debit cards quickly convert funds to cashTypical payday lines in Mexico: lines form at ATMs for cash withdrawals
16 MEXICO CONSUMER CREDIT PENETRATION Consumer credit to GDP in Mexico remains at the bottom of Latin AmericaSource: Central Banks, Credit Suisse estimates
17 FIRST CASH MEXICO OPERATIONS IN 2008 As of September 30, 2008241 STORES – 13 STATES:200 Large format pawn stores41 Consumer loan storesChihuahuaCoahuilaNuevo LeonBaja CaliforniaTamaulipasSan Luis PotosiSonoraGuanajuatoQueretaroDurangoPueblaAguascalientesJalisco
18 MEXICO OPERATIONS NOW 605 STORES – 26 STATES As of March 31, 2014605 STORES – 26 STATES560 Large format pawn stores17 Small format pawn stores28 Consumer loan storesChihuahuaCoahuilaNuevo LeonBaja CaliforniaTamaulipasBaja California SurSan Luis PotosiSonoraGuanajuatoQueretaroYucatanSinaloaDurangoHidalgoZacatecasPueblaQuintana RooVeracruzAguascalientesJaliscoColimaMichoacanEdo de MexicoDistrito Federal(Mexico City)GuerreroMorelos
19 MEXICO MARKET PENETRATION As of December 31, 2013Significant growth opportunity in both new and existing marketsTijuanaEnsenadaFirst Cash Large Format PenetrationPopulation */ store8High<100k per store14Moderate100k – 300k per storeMonterrey4Low>300,000 per store*Based on 115 million population in MexicoCancúnCabo San LucasMexico CityBy comparison, Texas total pawn shop penetration averages approximately 20k in population per store
20 COMPETITIVE LANDSCAPE IN MEXICO U.S.-BASED OPERATORS EZCorp (EZPW)In June, announced store closings in Mexico:52 small format stores5 large format storesApproximately 12% of revenue derived out of Mexico in 2012Cash America (CSH)Fall 2012, announced significant store closings in Mexico148 mostly small format storesNo large format openings in 2013; limited number planned in 2014Large format store count(1)(2)(1)As of September 30, 2013As of June 30, 2013
21 CABO/LA PAZ ACQUISITION In Q3 2013, First Cash exercised an option to acquire 8 stores under the “Cash$Go” name in Baja California Sur (Cabo/La Paz)Adds an additional state, making 26 total states in MexicoSystems and management consolidation already completed
22 NEW STORE OPENING PROCESS Experienced real estate development teamProven site selection strategyStandardized store layouts, fixtures and equipmentState of the art security technologyConsistent process ensures that new stores are delivered on time and on budgetUndeveloped SiteSame Site AfterRedevelopment
23 MEXICO STORE – INTERIOR OPERATIONS Proprietary systems allow us to optimize loan-to-value ratios for lending transactionsEmployees have access to real time sales data from all storesTrack customer profiles to determine the optimal loan sizeReal time sales data also optimizes the margins for merchandise purchased from customers
25 TYPICAL MEXICO TRAINING FACILITY Extensive training program supports rapid store growth:Approximately 600 stores provide a deep and well-established employee base for developing and training future store and area managersCollaborative environment for sharing best practicesKey areas of store operations trainingProprietary FCFS systemsMerchandise valuationCustomer serviceNegotiation & selling skillsLeadership development
26 MEXICO NEW STORE INVESTMENT Earnings drag associated with new store ramp-up presents compelling future earnings potentialNew Store Cash FlowStore InvestmentCap ExLeasehold improvements &fixtures- Computer & securityequipment$175,000Start-up Losses- Pre-opening- First six months of operation$30,000Total Store Investment$205,000Working CapitalFirst Year for New Store- Operating cashLoan fundingInventory$125,000Typical Mexico New Store Ramp($ in Thousands)1 Revenue reflects peso exchange rate of 13:12 Store-level operating profit before administrative expense & taxesMexico Store Additions by Year
27 30% of all stores are less than 3 years old MEXICO STORE AGINGAs of March 31, 2014Average Age:5 Years605556363666529330% of all stores are less than 3 years old
28 NEW MARKET OPPORTUNITIES Long-term, we believe that the First Cash model can be replicated in other Latin American marketsStill significant runway in Mexico, but looking opportunistically for expansion opportunities in other markets with:Large unbanked and under-banked populationsLimited competition in large format, full-service modelFirst Cash has a strong balance sheet and recent tax restructuring facilitates funding and development in other Lat Am markets
30 U.S. OPERATIONSAs of March 31, 2014328110D.C.42129744181192357310 STORES – 12 STATESLarge Format Pawn StoresConsumer Loan StoresSmall Format Pawn Stores
31 U.S. GROWTH OPPORTUNITY U.S. Large-Format Store Additions by Year U.S. pawn industry IS highly fragmentedAttractive Industry Fundamentals25% of U.S. households used alternative financial services products in last 12 months20% of U.S. households are underbanked (~24 million households)8% of U.S. households are unbanked (~10 million households)29% of U.S. households do not have a savings accountApproximately 10,000 to 15,000 pawn locationsThe three largest public operators currently operate a small percentage of total storesContinued opportunities for acquisitionsTarget 5-6X EBITDA for acquisitions – highly accretiveU.S. Large-Format Store Additions by YearKey AcquisitionsDecember 2013: Money Man (SC)June 2013: Valu + Pawn (TX)September 2012: Fast Cash (CO)June 2012: Mister Money (CO/KY)Source: 2011 FDIC National Survey of Unbanked and Underbanked Households – published September 2012Note: 2010 new stores includes two payday stores that were converted to pawn stores
32 RECENT U.S. ACQUISITIONS Valu+PawnAcquired June 201319 store locations in TexasProvides new pawn market for First Cash in Houston with 11 storesMoney ManAcquired December 201312 store locations in South CarolinaProvides new pawn market for First Cash in Charleston, S.C.
35 COMPOSITION OF PAWN COLLATERAL U.S. reflects historical mix; Mexico focused on general merchandise, where competition is limitedAs of March 31, 2014United StatesMexicoConsolidatedElectronics, tools, and other general merchandise itemsJewelryNote: Historically, over 75% of all pawn loans are redeemed, and the collateral is returned to the customer.
36 SOURCE OF GROSS PROFIT CONTRIBUTION 98% of YTD gross profit from retail sales and lending activity; limited jewelry scrap sales contribution% GP Contribution
37 SOLID LOAN GROWTH DESPITE HEADWINDS CAUSED BY LOWER GOLD PRICES Pawn loan balance compared to loan countPawn loans (USD in millions)Pawn loan count (in thousands)Consolidated growth in pawn loans due primarily to increased number of outstanding loans (transactions)18% increase in general merchandise (non-jewelry) loans offset reduced levels of gold lending in both the U.S. and Mexico
38 GOLD PRICE VS. AVERAGE PAWN LOAN Average loan size has been less volatile than gold prices.Note: Foreign operations were translated at a constant currency rate of 12.5 MXN to USD for all periods presented.
40 Q1 2014 OPERATING HIGHLIGHTS Net Income from continuing operations of $0.78 per share in Q115% increaseStrong growth in core pawn revenues (pawn fees & retail sales): *20% increaseRetail sales increased 24% in Q1 *Up 35% in U.S.Up 16% in MexicoPawn loan fees increased 13%, despite lower average loan sizes due to gold depreciationNumber of pawn loans at March 31 up 16% over prior year* Constant currency basis
41 EARNINGS PER SHARE GROWTH From Continuing OperationsFrom :158% growth21% 5-year CAGR*As of the earnings release dated March 31, 2014
42 HISTORICAL FINANCIAL PERFORMANCE RevenueGross Profit & Margin($ in Millions)($ in Millions)EBITDA & Margin 1Free Cash Flow 2($ in Millions)($ in Millions)2 From Continuing and Discontinued Operations. Defined as CFO - CapEx - Δ Loan ReceivablesNote: 2009 free cash flow impacted by liquidation of Auto Master1 From Continuing Operations
43 STRONG BALANCE SHEET Senior note offering: Provides liquidity for expansion, acquisitions, and stock buybacksSenior note offering:Completed private offering of $200 million of senior notesProvides long-term, fixed-rate financing – due in 2021Diversifies capital structure to add non-bank debtFavorable bank credit facility$160 million facility w/ all availableOption of interest rates (LIBOR + 2.5%)Matures in 2019Debt to EBITDA Ratio: 1.45 to 1As of March 31, 2014
44 FREE CASH FLOW Stable cash generation with limited volatility Trailing Twelve Months Ended March 31, 2014Stable cash generation with limited volatilityStrong correlation between cash flows and earnings
46 INVESTMENT THESIS Pawn-focused business model Proven growth strategy Strong margins & cash flowsSteady across economic cyclesLimited regulatory exposureProven growth strategyLong-runway for growth in Mexico where competition is limited and barriers to entry are highRoll-up and consolidation strategy in the U.S. where the business is fragmented and new competition is limited
49 EBITDA FROM CONTINUING OPERATIONS Note: See discussion of non-GAAP financial information herein.
50 FREE CASH FLOWNote: See discussion of non-GAAP financial information herein.
51 NON-GAAP FINANCIAL INFORMATION The Company uses certain financial calculations, such as free cash flow, EBITDA from continuing operations and constant currency results, which are not considered measures of financial performance under U.S. generally accepted accounting principles ("GAAP"). Items excluded from the calculation of free cash flow, EBITDA from continuing operations and constant currency results are significant components in understanding and assessing the Company’s financial performance. Since free cash flow, EBITDA from continuing operations and constant currency results are not measures determined in accordance with GAAP and are thus susceptible to varying calculations, free cash flow, EBITDA from continuing operations and constant currency results, as presented, may not be comparable to other similarly titled measures of other companies. Free cash flow, EBITDA from continuing operations and constant currency results should not be considered as alternatives to net income, cash flow provided by or used in operating, investing or financing activities or other financial statement data presented in the Company’s consolidated financial statements as indicators of financial performance or liquidity. Non-GAAP financial measures should be evaluated in conjunction with, and are not a substitute for, GAAP financial measures.
52 RESEARCH ANALYSTSThe following is a list of analysts who provide research:CompanyAnalystPhoneLatin America*Retail/Consumer*Specialty Finance*Ascendiant Capital MarketsElizabeth Pierce(949)xCL King & AssociatesWilliam Armstrong(518)FBR Capital Markets & Co.Robert H. Ramsey(703)HSBCFrancisco J. Chavez(212)Janney Capital MarketsSameer Gokhale(646)Jefferies & Company, Inc.Dan Furtado(415)J.P. MorganNur Cristiani(55)JMP SecuritiesDavid Scharf(415)Roth Capital PartnersDave King(949)Sidoti & Company, LLCJohn J. Rowan(212)Stephens, Inc.John Hecht(415)Sterne Agee & Leech, Inc.Henry Coffey(615)Wells Fargo Securities, LLCJoel Houck(443)*Industry Focus
53 FIRST CASH FINANCIAL SERVICES, INC. Investor Contact Information(817) Gar JacksonGlobal IR Group(949)