FIRST CASH FINANCIAL SERVICES, INC. Investor Presentation June 2015

Transcription

1 FIRST CASH FINANCIAL SERVICES, INC. Investor Presentation June 2015

2 SAFE HARBOR STATEMENT This 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 INVESTMENT HIGHLIGHTS Leading pawn-focused operator Most pawn locations Largest market cap Pawn operations generate 96% of revenue Significant opportunities for continued growth Mexico U.S. Future LatAm markets Strong balance sheet and cash flows

4 PAWNSHOP PROFILE Neighborhood-based stores serve cashconstrained customers Buy and sell popular pre-owned consumer products including: Consumer electronics & appliances Jewelry, diamonds & watches Power tools, musical instruments & sporting goods Ready and immediate source of cash for customers looking to sell items Source of small, short-term loans: Fully collateralized No collections/credit reporting

5 Store count SIGNIFICANT PAWN STORE GROWTH Driven primarily by organic growth coupled with strategic acquisitions 1,005 1, Q ,100 1, U.S. Mexico

6 MOST CONSISTENT GROWTH AMONGST PEER GROUP Pawn Stores Pawn Store Count History 1, CAGR 17% 800-2% 10% First Cash Cash America EZ Pawn*

7 REVENUE GEOGRAPHIC DISTRIBUTION Operations in two countries with the same business model and format Majority of store base and revenues from Mexico Continued growth potential in both markets Opportunity to expand this proven model to other Latin American countries Trailing Twelve Months Ended March 31, % 55% United States Mexico

8 COMPOSITION OF PAWN COLLATERAL U.S. reflects historical mix; Mexico focused on general merchandise, where competition is limited United States As of March 31, 2015 Mexico Consolidated 89% 11% 66% 34% Electronics, tools, and other general merchandise items Jewelry Note: Historically, over 75% of all pawn loans are redeemed, and the collateral is returned to the customer.

9 LIMITED GROSS PROFIT FROM SCRAP JEWELRY OPERATIONS Scrap GP $ Millions $40 $35 $30 $25 % GP Contribution 16% 14% 12% 10% $20 $37 8% $15 $28 $27 6% $10 4% $5 $ $10 $8 2% 0% Scrap GP % GP Contribution Gross profit from scrap jewelry operations accounted for only 1% of net revenue during the first quarter of 2015.

10 FOCUSED ON RETAIL OPPORTUNITY Merchandise sales (including retail and scrap) accounted for 67% of total revenues for the trailing twelve months ended March 31, 2015 Merchandise acquired through: INVENTORY MIX As of March 31, 2015 Forfeiture of pawn loan collateral Direct buys from customers 19% Emphasis on driving foot traffic High inventory turnover (3.6x for the twelve months ended March 31, 2015) 10% 30% 41% Gross retail margins exceed those of traditional value-oriented retailers FCFS retail margin of 39% for 2014 Peer group average retail margin for 2013: 31% Peer group includes: Dollar General, Ross Stores, Dollar Tree, PriceSmart, Tuesday Morning and Big Lots; LTM as of MRQ Electronics & Appliances Jewelry Tools Other 10

11 PROPRIETARY IT SYSTEMS DRIVE MARGINS Proprietary sales and transaction histories drive industry leading yields & sales margins Merchandise sales database provides realtime pricing, turnover & margin data Pawn transaction database provides product & customer performance histories

12 MULTIPLE RETAIL TRAFFIC DRIVERS In-store transactions Retail sales Pawn loans Merchandise buys from customers Pawn payments and redemptions Layaway programs drive multiple store visits Interest-free installment payments collected weekly and/or monthly Opportunity for customers to Treasure Hunt in stores Automatic price markdown timing As seen on TV pawnshops are focus of popular reality shows

13 CONSISTENT DEMAND FOR PAWN Many consumers in the U.S. and Mexico remain cash-constrained and extremely value-conscious Unbanked and under-banked customer base continues to be significant 30% of U.S. households 70% of households in Mexico Strong customer value proposition Immediate source of credit less than 10 minutes No underwriting, credit check, or bank account required No collection activities or negative credit reporting Customer is not obligated to pay back the loan Traditional retailers and lenders do not effectively serve this customer due to: Small transaction sizes Weak (or lack of) credit history Regulatory restrictions on other short-term credit & bank products

14 FIRST CASH PAWN METRICS Trailing Twelve Months Ended March 31, 2015 Pawn Receivables Average loan size as of March 31, 2015: $172 in U.S. $64 in Mexico Term: 30 days Typical monthly service charge: 4% to 20% Varies with size of loan All loans fully collateralized: nonperforming pawns become retail store inventory Retail sales margin 39% Effective monthly yield on pawn receivables 14% Inventory turnover, annualized 3.6x Store operating profit margin 26%

15 SIGNIFICANT BARRIERS TO ENTRY UNITED STATES Key established markets for First Cash have significant licensing restrictions limiting ability of competitors to develop new, competing locations Texas - per state law, in large counties (over 250,000 population) new licenses not granted within 2 miles of any other pawnshop Maryland/DC/Virginia - most counties and DC have hard caps on the number of licenses and are not granting new ones Colorado - larger cities and suburbs have limited issuance of new pawn licenses MEXICO First Cash has significant first-mover advantage De novo strategy requires significant capital investment, operating expertise, and development of human capital Other public pawn operators are currently not growing significantly in Mexico Must allow for a long time horizon to compete with First Cash Extremely limited acquisition opportunities in large format space New regulations and reporting requirements work in favor of larger, more sophisticated operators such as First Cash 15

16 STABLE PAWN REGULATORY ENVIRONMENT UNITED STATES Pawn regulated primarily at state level First Cash operates in states with favorable regulatory environment No material changes to pawn regulations in 30+ years Federal regulator (CFPB) recently published proposed rules significantly affecting payday loans, title loans and other small consumer loans (specifically excludes pawn loans) 30% of our stores offering a payday product are located in cities that have already enacted local ordinances imposing similar restrictions MEXICO Pawn regulated at the federal level by Mexico s consumer protection bureau ( PROFECO ) Regulates store-front operations No rate-setting authority Current law (2013) provides for : Registration and inspection of pawn locations Approval of customer contracts and required disclosures Customer identification procedures and reporting of suspicious transactions Failure to meet requirements may lead to suspension or closure of non-compliant operators

17 CFPB PAYDAY PROPOSAL IMPACTS ONLY 4% OF REVENUES In March 2015, the CFPB published proposed rules significantly affecting payday loans, vehicle loans, title loans and various other small consumer loan products (not likely to become effective until 2017) Offer two different approaches and lenders may choose which approach to follow Prevention method lenders would have to determine at the outset that the consumer is not taking on unaffordable debt Protection method lenders would have to comply with various restrictions designed to ensure that consumers can affordably repay their debt Generally, a 60 day cooling off period is required between loans Rollovers capped at two (three loans total) The principal balance must decrease with each rollover loan or a no-cost off-ramp is required after the third loan to allow for repayment without additional fees The proposed rules do not impose new regulatory requirements on non-recourse pawn loans with a contractual duration of 45 days or less where the lender takes possession of the collateral

18 UNIQUELY POSITIONED WITH LIMITED EXPOSURE & CONTINUED DE-EMPHASIS ON PAYDAY PRODUCT First Cash has strategically divested its payday business over time YTD 2015 closed 7 consumer loan stores in Texas 2014 closed 3 consumer loan stores in Texas 2013 discontinued Cash & Go payday/check cashing joint venture 2012 and 2013 closed 17 consumer loan stores in Texas 2011 sold 10 Illinois locations 2010 discontinued non-texas internet lending 2009 sold 22 West Coast locations 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FIRST CASH REVENUE DISTRIBUTION 14% 11% 9% 7% 5% 86% 89% 91% 93% 95% Pawn Revenue* Payday Revenue** * Includes pawn loan fees, retail sales, and wholesale scrap jewelry revenue ** Includes revenues from payday operations presented as discontinued operations in the consolidated financial statements

19 MEXICO OPERATIONS SIGNIFICANT GROWTH OPPORTUNITY

20 MEXICO GROWTH STRATEGY Pawn industry has long standing history in Mexico Pawn market remains bifurcated 4,000 to 5,000 small format, gold jewelry-focused stores Significant contraction across the industry No operator has demonstrated ability to diversify away from gold 1,000 to 1,200 large format, full-service stores First Cash has well over 50% market share Proven consistent ability to open 60 to 70 de novo stores per year Only one other U.S. public pawn company operates in Mexico and they are not currently expanding pawn operations in Mexico Locally-based competition remains fragmented and limited

21 MEXICO OPERATIONS As of March 31, 2015 Chihuahua Coahuila 686 STORES 29 STATES 643 Large format pawn stores 15 Small format pawn stores 28 Consumer loan stores Baja California Baja California Sur Sonora Nuevo Leon Tamaulipas San Luis Potosi Guanajuato Sinaloa Durango Nayarit Zacatecas Aguascalientes Jalisco Queretaro Hidalgo Puebla Veracruz Tabasco Yucatan Quintana Roo Colima Michoacan Edo de Mexico Guerrero Distrito Federal (Mexico City) Morelos Chiapas

22 MEXICO MARKET PENETRATION As of March 31, 2015 Ensenada Tijuana Significant growth opportunity in both new and existing markets First Cash Large Format Penetration 9 High Population */ store <100k per store Monterrey 15 Moderate 5 Low 100k 300k per store >300,000 per store *Based on 115 million population in Mexico Cabo San Lucas Cancún Mexico City By comparison, Texas total pawnshop penetration averages approximately 20k in population per store

23 CONSISTENT STORE GROWTH REMAINS STRONG First Cash Mexico Store Additions by Year Q New stores Acquired stores

24 CASH AMERICA MEXICO ACQUISITION August large format stores acquired from Cash America when they exited the market in Mexico Stores located in 13 states Includes two new states for First Cash Chiapas & Tabasco Anticipated to be accretive in 2015

25 NEW STORE OPENING PROCESS Undeveloped Site Same Site After Redevelopment Experienced real estate development team Proven site selection strategy Standardized store layouts, fixtures and equipment State of the art security technology Consistent process ensures that new stores are delivered on time and on budget Ability to open 60 to 70 stores per year in Mexico

26 MEXICO STORE RETAIL OPERATIONS To precisely value merchandise our employees have access to proprietary real-time retail sales data that is captured in all stores Real-time tracking of customer histories and preferences allow us to speed transaction times and optimize loan-to-value ratios for each customer Real-time sales and inventory data used to: Value pawn collateral Set retail prices and promotional strategies Monitor margins and inventory levels Evaluate employee performance

27 MEXICO TRAINING PROGRAM Extensive training programs support store growth and development: Over 650 stores provide a deep and well-established employee base for identifying, developing and training future store and area managers Collaborative and open environment promotes sharing best of practices Key areas of store operations training: Pawn fundamentals and proprietary FCFS systems Merchandise valuation Customer service, negotiation & selling skills Leadership development

28 MEXICO STORE - WAREHOUSE Approximately 2/3 of the total square footage in each store is allocated to secure warehouse space Customers pawn collateral is tagged and stored at each location Layaway items are also stored on-site in the warehouse

29 MEXICO NEW STORE INVESTMENT PROVEN RAPID PAYBACK MODEL Revenue Store Profit New Store Cash Flow Store Investment Cap Ex - Leasehold improvements & fixtures - Computer & security equipment Start-up Losses - Pre-opening - First six months of operation $175,000 $30,000 Total Store Investment $205,000 Working Capital First Year for New Store - Operating cash - Loan funding - Inventory $125,000 ($ in Thousands) $800 $600 $400 $200 TYPICAL MEXICO NEW STORE RAMP $0 Year 1 Year 2 Year 3 Year 4 Year 5 Revenue 1 2 Store Profit $400 $300 $200 $100 1 Revenue reflects peso exchange rate of 13:1 2 Store-level operating profit before administrative expense & taxes $0

30 MEXICO STORE AGING As of March 31, Average Age: 6.0 Years % of all stores are less than 3 years old Years 4 Years 3 Years 2 Years 1 Year < 1 Year All Stores

31 NEW MARKET OPPORTUNITIES Long-term, we believe the First Cash model can be replicated in other Latin American markets Still significant runway in Mexico, but looking opportunistically for expansion opportunities in other markets with: Large unbanked and under-banked populations Limited competition in large format, full-service model First Cash has a strong balance sheet and recent tax restructuring facilitates funding and development in other Latin American markets

32 U.S. OPERATIONS

33 U.S. GROWTH STRATEGY Continued focus on unit growth in selected markets with: Favorable regulations Growing populations Opportunity to scale U.S. store growth primarily driven by acquisitions Supplemented with a smaller number of de novo store openings Typical acquisition transaction metrics: Typical valuations of 4x to 6x store-level EBITDA Typical price of $1 to $2 million per store

34 U.S. OPERATIONS As of March 31, D.C STORES 13 STATES 58 Large Format Pawn Stores Area of Focus for Future Growth Small Format Pawn Stores Consumer Loan Stores

35 U.S. GROWTH OPPORTUNITY U.S. PAWN INDUSTRY IS HIGHLY FRAGMENTED Estimated 10,000 to 15,000 pawn locations The three largest public operators currently operate a small percentage of total stores Continued opportunities for acquisitions Target 4X to 6X EBITDA for acquisitions highly accretive U.S. LARGE FORMAT STORE ADDITIONS BY YEAR Key Acquisitions October 2014: PHC (15 stores KY/SC/MO/TN) August 2014: Cash America (five stores in CO) August 2014: Four store chain (four stores in TX) December 2013: Money Man (12 stores in SC) June 2013: Valu + Pawn (19 stores in TX) September 2012: Fast Cash (16 stores in CO) New stores Acquired stores June 2012: Mister Money (24 stores primarily in CO/KY) 35

36 Q OPERATING HIGHLIGHTS* Net Income of $0.59 per share for the first quarter of 2015 Core pawn revenues (pawn fees & retail sales) increased 16% for the first quarter of 2015 compared to the prior-year period Retail sales increased 19% in the first quarter compared to the prior-year period Up 14% in U.S. Up 24% in Mexico Same-store revenue from pawn store operations (excluding jewelry scrapping) was up 9% in Mexico and 3% overall compared to the prior-year period Trailing twelve months EBITDA growth of 10% in the first quarter of 2015 compared to the prior-year period * All Revenue amounts presented on a constant currency basis

37 REVENUE GROWTH ($ in Millions) $800 $700 From : 104% growth 15% 5-year CAGR $661 $713 $600 $592 $500 $400 $417 $514 $281 $322 $363 $388 $300 $222 $200 $100 $195 $233 $270 $298 $325 $ U.S. Mexico

38 EBITDA GROWTH EBITDA ($ in Millions) $160 $140 From : 107% growth 16% 5-year CAGR Gold Price $1,800 $1,700 $120 $1,600 $100 $1,500 $80 $60 $118 $136 $139 $147 $1,400 $1,300 $40 $90 $1,200 $20 $1,100 $ $1,000 EBITDA Average gold price Continued growth through economic cycles and downturn in gold prices

39 EARNINGS PER SHARE GROWTH From Continuing Operations EPS $3.00 $2.50 From : 135% growth 19% 5-year CAGR $2.00 $1.50 $1.00 $0.50 $1.64 $2.23 $2.72 $2.86 $2.94 $

40 CUMULATIVE CASH REINVESTMENT HISTORY $ Millions $ Year Cumulative Total $800 $700 $298M $600 $500 $400 $336M $300 $200 $100 $214M $ Capital Expenditures Acquisitions Stock Repurchases Outstanding Debt

41 STOCKHOLDERS EQUITY $ Millions $500 $450 $400 Key Return Metrics* ROE: 19% ROA: 12% $350 $300 $250 $200 $150 $298 $315 $352 $414 $449 $100 $50 $ *Twelve Months Ending December 31, 2014

42 2015 GUIDANCE* Fiscal 2015 expectations are for 8% to 13% constant currency EBITDA growth Full-year 2015 earnings guidance is anticipated to be $2.75 to $2.90 per share Q2 earnings guidance of $0.48 to $0.52 per share Headwinds to full-year guidance includes: $0.25 to $0.28 of earnings per share drag, net of tax, due to the full year impact of an assumed exchange rate of 15.0 Mexican pesos / U.S. dollar as compared to the actual rate of 13.3 in 2014 $0.18 to $0.21 of earnings per share impact due to expected increase in the effective tax rate from 27% in 2014 to the 2015 rate of 31% to 32% Strategic downsizing of payday operations anticipated to cause approximately $0.06 of earnings drag versus the prior year * As provided by the Company on January 27, 2015 and April 16, 2015

43 INVESTMENT RECAP Pawn-focused business model Strong margins & cash flows Steady across economic cycles Limited regulatory exposure Proven growth strategy Long runway for growth in Mexico where competition is limited and barriers to entry are high Roll-up and consolidation strategy in the U.S. where the business is fragmented and new competition is limited Strong balance sheet to fund growth, acquisitions and stock buybacks

44 APPENDIX

45 TOP 10 FCFS SHAREHOLDERS Institution Name Shares * (FCFS) % S/O (FCFS) Genesis Asset Managers, LP 2,726, BlackRock Fund Advisors 2,428, The Vanguard Group, Inc. 1,820, William Blair & Company, LLC (Asset Management) 1,428, Kayne Anderson Rudnick Investment Management, LLC 1,339, Thornburg Investment Management, Inc. 1,156, Vaughan Nelson Investment Management, L.P. 1,101, NewSouth Capital Management, Inc. 776, Dimensional Fund Advisors, L.P. 617, Lazard Asset Management, LLC (U.S.) 594, *Holdings are as of 3/31/15.

46 REVENUE DETAIL (Unaudited) Increase/(Decrease) Three Months Ended March 31, Constant Currency Increase/(Decrease) Basis Domestic revenue: Retail merchandise sales $ 52,006 $ 45,575 $ 6,431 14% 14% Pawn loan fees 23,906 22,902 1,004 4% 4% Consumer loan and credit services fees 7,064 9,112 (2,048) -22% -22% Wholesale scrap jewelry revenue 5,738 8,543 (2,805) -33% -33% 88,714 86,132 2,582 3% 3% International revenue: Retail merchandise sales 58,448 53,133 5,315 10% 24% Pawn loan fees 24,748 24, % 13% Consumer loan and credit services fees (141) -21% -11% Wholesale scrap jewelry revenue 3,582 5,104 (1,522) -30% -30% 87,309 83,645 3,664 4% 17% Total revenue: Retail merchandise sales 110,454 98,708 11,746 12% 19% Pawn loan fees 48,654 47,638 1,016 2% 9% Consumer loan and credit services fees 7,595 9,784 (2,189) -22% -22% Wholesale scrap jewelry revenue 9,320 13,647 (4,327) -32% -32% $ 176,023 $ 169,777 $ 6,246 4% 10%

47 EBITDA Note: See discussion of non-gaap financial information herein. Trailing Twelve Months Ended March 31, Net income $ 79,272 $ 86,264 Adjustments: Income taxes 33,089 30,781 Depreciation and amortization 17,751 16,008 Interest expense 16,111 4,209 Interest income (945) (256) EBITDA 145, ,006 Loss from discontinued operations, net of tax EBITDA from continuing operations $ 145,278 $ 137,995 EBITDA from continuing operations margin calculated as follows: Total revenue from continuing operations $ 719,123 $ 670,713 EBITDA from continuing operations 145, ,995 EBITDA from continuing operations as a percentage of revenue 20% 21%

48 FREE CASH FLOW Note: See discussion of non-gaap financial information herein. Trailing Twelve Months Ended March 31, Cash flow from operating activities, including discontinued operations $ 99, ,717 Cash flow from investing activities: Loan receivables 217 2,226 Purchases of property and equipment (22,666) (27,642) Free cash flow $ 77,319 $ 81,301

49 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.

50 RESEARCH ANALYSTS The following is a list of analysts who provide research: Company Analyst Phone Latin America* Retail/Consumer* Specialty Finance* Burke & Quick Partners, LLC Michael Taiano (516) x CL King & Associates William Armstrong (518) x FBR Capital Markets & Co. Robert H. Ramsey (703) x HSBC Richard Cathcart (55) x x Janney Capital Markets Sameer Gokhale (646) x Jefferies & Company, Inc. John Hecht (415) x J.P. Morgan Nur Cristiani (52) x JMP Securities David Scharf (415) x Sterne Agee CRT Henry Coffey (615) x Wells Fargo Securities, LLC Joel Houck (443) x *Industry Focus

51 FIRST CASH FINANCIAL SERVICES, INC. Investor Contact Information (817) Gar Jackson Global IR Group (949)