Attached files
| file | filename |
|---|---|
| EX-31.1 - EXHIBIT 31.1 - FIRSTCASH, INC | fcfs03312017exhibit311.htm |
| EX-32.2 - EXHIBIT 32.2 - FIRSTCASH, INC | fcfs03312017exhibit322.htm |
| EX-32.1 - EXHIBIT 32.1 - FIRSTCASH, INC | fcfs03312017exhibit321.htm |
| EX-31.2 - EXHIBIT 31.2 - FIRSTCASH, INC | fcfs03312017exhibit312.htm |
| EX-10.1 - EXHIBIT 10.1 - FIRSTCASH, INC | fcfs03312017exhibit101.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2017
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to ___________
Commission file number 001-10960
FIRSTCASH, INC.
(Exact name of registrant as specified in its charter)
Delaware | 75-2237318 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1600 West 7th Street, Fort Worth, Texas | 76102 |
(Address of principal executive offices) | (Zip Code) |
(817) 335-1100
(Registrant’s telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. xYes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). xYes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
x Large accelerated filer | o Accelerated filer |
o Non-accelerated filer (Do not check if a smaller reporting company) | o Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). oYes x No
As of May 1, 2017, there were 48,302,192 shares of common stock outstanding.
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
FIRSTCASH, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2017
INDEX
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS
Forward-Looking Information
This quarterly report contains forward-looking statements about the business, financial condition and prospects of FirstCash, Inc. and its wholly owned subsidiaries (together, the “Company”). 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,” “would,” “anticipates,” “potential,” “confident,” “optimistic” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy, objectives, estimates, guidance, expectations and future plans. 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.
These forward-looking 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 quarterly report. Such factors may include, without limitation, the risks, uncertainties and regulatory developments discussed and described in (i) the Company’s 2016 annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2017, including the risks described in Part 1, Item 1A, “Risk Factors” thereof, (ii) in this quarterly report, and (iii) the 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 quarterly report speak only as of the date of this quarterly report, 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.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRSTCASH, INC. | ||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||||||
(unaudited, in thousands) | ||||||||||||
March 31, | December 31, | |||||||||||
2017 | 2016 | 2016 | ||||||||||
ASSETS | ||||||||||||
Cash and cash equivalents | $ | 73,148 | $ | 54,150 | $ | 89,955 | ||||||
Fees and service charges receivable | 38,021 | 17,070 | 41,013 | |||||||||
Pawn loans | 314,505 | 126,620 | 350,506 | |||||||||
Consumer loans, net | 22,209 | 985 | 29,204 | |||||||||
Inventories | 308,165 | 90,714 | 330,683 | |||||||||
Income taxes receivable | 18,419 | 2,351 | 25,510 | |||||||||
Prepaid expenses and other current assets | 14,331 | 4,560 | 25,264 | |||||||||
Total current assets | 788,798 | 296,450 | 892,135 | |||||||||
Property and equipment, net | 237,258 | 120,712 | 236,057 | |||||||||
Goodwill | 835,567 | 315,439 | 831,151 | |||||||||
Intangible assets, net | 101,594 | 6,124 | 104,474 | |||||||||
Other assets | 69,088 | 4,167 | 71,679 | |||||||||
Deferred tax assets | 11,249 | 10,993 | 9,707 | |||||||||
Total assets | $ | 2,043,554 | $ | 753,885 | $ | 2,145,203 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Accounts payable and accrued liabilities | $ | 79,726 | $ | 39,014 | $ | 109,354 | ||||||
Customer deposits | 36,983 | 15,482 | 33,536 | |||||||||
Income taxes payable | 1,041 | 1,433 | 738 | |||||||||
Total current liabilities | 117,750 | 55,929 | 143,628 | |||||||||
Revolving unsecured credit facilities | 137,000 | 40,000 | 260,000 | |||||||||
Senior unsecured notes | 196,721 | 196,037 | 196,545 | |||||||||
Deferred tax liabilities | 74,368 | 22,632 | 61,275 | |||||||||
Other liabilities | 30,480 | — | 33,769 | |||||||||
Total liabilities | 556,319 | 314,598 | 695,217 | |||||||||
Stockholders’ equity: | ||||||||||||
Preferred stock | — | — | — | |||||||||
Common stock | 493 | 403 | 493 | |||||||||
Additional paid-in capital | 1,217,756 | 203,143 | 1,217,969 | |||||||||
Retained earnings | 410,874 | 653,248 | 387,401 | |||||||||
Accumulated other comprehensive loss | (96,801 | ) | (80,899 | ) | (119,806 | ) | ||||||
Common stock held in treasury, at cost | (45,087 | ) | (336,608 | ) | (36,071 | ) | ||||||
Total stockholders’ equity | 1,487,235 | 439,287 | 1,449,986 | |||||||||
Total liabilities and stockholders’ equity | $ | 2,043,554 | $ | 753,885 | $ | 2,145,203 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements. | ||||||||||||
1
FIRSTCASH, INC. | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||
(unaudited, in thousands, except per share amounts) | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2017 | 2016 | |||||||
Revenue: | ||||||||
Retail merchandise sales | $ | 259,994 | $ | 118,776 | ||||
Pawn loan fees | 128,251 | 51,433 | ||||||
Consumer loan and credit services fees | 21,220 | 5,686 | ||||||
Wholesale scrap jewelry sales | 38,111 | 7,308 | ||||||
Total revenue | 447,576 | 183,203 | ||||||
Cost of revenue: | ||||||||
Cost of retail merchandise sold | 165,635 | 74,422 | ||||||
Consumer loan and credit services loss provision | 4,092 | 1,047 | ||||||
Cost of wholesale scrap jewelry sold | 34,949 | 5,871 | ||||||
Total cost of revenue | 204,676 | 81,340 | ||||||
Net revenue | 242,900 | 101,863 | ||||||
Expenses and other income: | ||||||||
Store operating expenses | 136,744 | 55,411 | ||||||
Administrative expenses | 33,238 | 17,268 | ||||||
Depreciation and amortization | 14,243 | 4,937 | ||||||
Interest expense | 6,113 | 4,460 | ||||||
Interest income | (327 | ) | (274 | ) | ||||
Merger and other acquisition expenses | 647 | 400 | ||||||
Total expenses and other income | 190,658 | 82,202 | ||||||
Income before income taxes | 52,242 | 19,661 | ||||||
Provision for income taxes | 19,597 | 6,487 | ||||||
Net income | $ | 32,645 | $ | 13,174 | ||||
Net income per share: | ||||||||
Basic | $ | 0.67 | $ | 0.47 | ||||
Diluted | $ | 0.67 | $ | 0.47 | ||||
Dividends declared per common share | $ | 0.190 | $ | 0.125 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements. | ||||||||
2
FIRSTCASH, INC. | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | ||||||||
(unaudited, in thousands) | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2017 | 2016 | |||||||
Net income | $ | 32,645 | $ | 13,174 | ||||
Other comprehensive income (loss): | ||||||||
Currency translation adjustment | 23,005 | (2,489 | ) | |||||
Comprehensive income | $ | 55,650 | $ | 10,685 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements. | ||||||||
FIRSTCASH, INC. | |||||||||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||||||||||||||||
(unaudited, in thousands) | |||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Accum- ulated Other Compre- hensive Loss | Common Stock Held in Treasury | Total Stock- holders’ Equity | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||
Balance at 12/31/2016 | — | $ | — | 49,276 | $ | 493 | $ | 1,217,969 | $ | 387,401 | $ | (119,806 | ) | 769 | $ | (36,071 | ) | $ | 1,449,986 | ||||||||||||||||||
Shares issued under share-based com-pensation plan | — | — | — | — | (440 | ) | — | — | (10 | ) | 440 | — | |||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | (549 | ) | — | — | (13 | ) | 549 | — | |||||||||||||||||||||||||
Share-based compensa-tion expense | — | — | — | — | 776 | — | — | — | — | 776 | |||||||||||||||||||||||||||
Net income | — | — | — | — | — | 32,645 | — | — | — | 32,645 | |||||||||||||||||||||||||||
Dividends paid | — | — | — | — | — | (9,172 | ) | — | — | — | (9,172 | ) | |||||||||||||||||||||||||
Currency translation adjustment | — | — | — | — | — | — | 23,005 | — | — | 23,005 | |||||||||||||||||||||||||||
Repurchases of treasury stock | — | — | — | — | — | — | — | 228 | (10,005 | ) | (10,005 | ) | |||||||||||||||||||||||||
Balance at 3/31/2017 | — | $ | — | 49,276 | $ | 493 | $ | 1,217,756 | $ | 410,874 | $ | (96,801 | ) | 974 | $ | (45,087 | ) | $ | 1,487,235 | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements. | |||||||||||||||||||||||||||||||||||||
3
FIRSTCASH, INC. | |||||||||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||||||||||||||||
CONTINUED | |||||||||||||||||||||||||||||||||||||
(unaudited, in thousands) | |||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Accum- ulated Other Compre- hensive Loss | Common Stock Held in Treasury | Total Stock- holders’ Equity | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||
Balance at 12/31/2015 | — | $ | — | 40,288 | $ | 403 | $ | 202,393 | $ | 643,604 | $ | (78,410 | ) | 12,052 | $ | (336,608 | ) | $ | 431,382 | ||||||||||||||||||
Shares issued under share-based com-pensation plan | — | — | 7 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Share-based compensation expense | — | — | — | — | 750 | — | — | — | — | 750 | |||||||||||||||||||||||||||
Net income | — | — | — | — | — | 13,174 | — | — | — | 13,174 | |||||||||||||||||||||||||||
Dividends paid | — | — | — | — | — | (3,530 | ) | — | — | — | (3,530 | ) | |||||||||||||||||||||||||
Currency translation adjustment | — | — | — | — | — | — | (2,489 | ) | — | — | (2,489 | ) | |||||||||||||||||||||||||
Balance at 3/31/2016 | — | $ | — | 40,295 | $ | 403 | $ | 203,143 | $ | 653,248 | $ | (80,899 | ) | 12,052 | $ | (336,608 | ) | $ | 439,287 | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements. | |||||||||||||||||||||||||||||||||||||
4
FIRSTCASH, INC. | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(unaudited, in thousands) | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2017 | 2016 | |||||||
Cash flow from operating activities: | ||||||||
Net income | $ | 32,645 | $ | 13,174 | ||||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||||||
Non-cash portion of credit loss provision | 2,639 | 222 | ||||||
Share-based compensation expense | 776 | 750 | ||||||
Depreciation and amortization expense | 14,243 | 4,937 | ||||||
Amortization of debt issuance costs | 467 | 230 | ||||||
Amortization of favorable/(unfavorable) lease intangibles, net | (237 | ) | — | |||||
Deferred income taxes, net | 12,550 | 1,678 | ||||||
Changes in operating assets and liabilities, net of business combinations: | ||||||||
Fees and service charges receivable | 3,865 | 173 | ||||||
Inventories | 6,796 | 1,812 | ||||||
Prepaid expenses and other assets | 11,594 | 3,281 | ||||||
Accounts payable, accrued liabilities and other liabilities | (29,071 | ) | (645 | ) | ||||
Income taxes payable | 7,598 | (536 | ) | |||||
Net cash flow provided by operating activities | 63,865 | 25,076 | ||||||
Cash flow from investing activities: | ||||||||
Loan receivables, net of cash repayments | 67,189 | 5,293 | ||||||
Purchases of property and equipment | (8,076 | ) | (6,343 | ) | ||||
Acquisitions of pawn stores, net of cash acquired | (854 | ) | (26,045 | ) | ||||
Net cash flow provided by (used in) investing activities | 58,259 | (27,095 | ) | |||||
Cash flow from financing activities: | ||||||||
Borrowings from revolving credit facilities | 15,000 | 11,500 | ||||||
Repayments of revolving credit facilities | (138,000 | ) | (29,500 | ) | ||||
Repayments of debt assumed from acquisitions | — | (6,532 | ) | |||||
Purchases of treasury stock | (10,005 | ) | — | |||||
Dividends paid | (9,172 | ) | (3,530 | ) | ||||
Net cash flow used in financing activities | (142,177 | ) | (28,062 | ) | ||||
Effect of exchange rates on cash | 3,246 | (2,723 | ) | |||||
Change in cash and cash equivalents | (16,807 | ) | (32,804 | ) | ||||
Cash and cash equivalents at beginning of the period | 89,955 | 86,954 | ||||||
Cash and cash equivalents at end of the period | $ | 73,148 | $ | 54,150 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements. | ||||||||
5
FIRSTCASH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(In thousands except per share amounts, unless otherwise indicated)
Note 1 - Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated balance sheet at December 31, 2016, which is derived from audited financial statements, and the unaudited condensed consolidated financial statements, including the notes thereto, include the accounts of FirstCash, Inc. and its wholly-owned subsidiaries (together, the “Company”). The Company regularly makes acquisitions and the results of operations for the acquired stores have been consolidated since the acquisition dates. All significant intercompany accounts and transactions have been eliminated.
These unaudited consolidated financial statements are condensed and do not include all disclosures and footnotes required by generally accepted accounting principles in the United States of America for complete financial statements. These interim period financial statements should be read in conjunction with the Company’s consolidated financial statements, which are included in the Company’s annual report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2017. The condensed consolidated financial statements as of March 31, 2017 and 2016, and for the three month periods ended March 31, 2017 and 2016, are unaudited, but in management’s opinion include all adjustments (consisting of only normal recurring adjustments) considered necessary to present fairly the financial position, results of operations and cash flow for such interim periods. Operating results for the period ended March 31, 2017 are not necessarily indicative of the results that may be expected for the full fiscal year.
On September 1, 2016, the Company completed its previously announced merger with Cash America International, Inc. (“Cash America”), whereby Cash America merged with and into a wholly owned subsidiary of the Company (the “Merger”). The accompanying unaudited condensed consolidated results of operations for the three months ended March 31, 2017 include the results of operations for Cash America, affecting comparability of 2017 and 2016 amounts. The Company has performed a valuation analysis of identifiable assets acquired and liabilities assumed and allocated the aggregate Merger consideration based on the fair values of those identifiable assets and liabilities. The purchase price allocation is subject to change as the Company finalizes the analysis of the fair value at the date of the Merger. The final determination of the fair value of assets acquired and liabilities assumed will be completed within the twelve month measurement period from the date of the Merger as required by applicable accounting guidance. Due to the significance of the Merger, the Company may use all of this measurement period to adequately analyze and assess the fair values of assets acquired and liabilities assumed.
The Company has significant operations in Latin America, where in Mexico and Guatemala the functional currency is the Mexican peso and Guatemalan quetzal, respectively. Accordingly, the assets and liabilities of these subsidiaries are translated into U.S. dollars at the exchange rate in effect at each balance sheet date, and the resulting adjustments are accumulated in other comprehensive income (loss) as a separate component of stockholders’ equity. Revenues and expenses are translated at the average exchange rates occurring during the three month periods ended March 31, 2017 and 2016. The Company also has operations in El Salvador where the reporting and functional currency is the U.S. dollar.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the Financial Accounting Standards Board issued ASU No. 2015-14 “Revenue from Contracts with Customers (Topic 606),” which delayed the effective date of ASU 2014-09 by one year. In addition, between March 2016 and December 2016, the Financial Accounting Standards Board issued ASU No. 2016-08, “Revenue from Contracts with Customers - Principal versus Agent Considerations (Reporting revenue gross versus net)” (“ASU 2016-08”), ASU No. 2016-10, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”), ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), and ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” (“ASU 2016-20”). ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 clarify certain aspects of ASU 2014-09 and provide additional implementation guidance. ASU 2014-09, ASU 2016-08, ASU 2016-10, ASU 2016-12 and
6
ASU 2016-20 become effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2017 for public companies. Early adoption is permitted but not before annual reporting periods beginning after December 15, 2016. Entities are permitted to apply ASU 2014-09, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 either retrospectively or through an alternative transition model. The Company is currently assessing the potential impact of ASU 2014-09, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 on its consolidated financial statements.
In July 2015, the Financial Accounting Standards Board issued ASU No. 2015-11, “Simplifying the Measurement of Inventory” (“ASU 2015-11”). ASU 2015-11 requires inventory be measured at the lower of cost or net realizable value. ASU 2015-11 defines net realizable value as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventory measured using last-in, first-out (“LIFO”) or the retail inventory method are excluded from the scope of this update. ASU 2015-11 requires prospective application and is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2015-11 as of January 1, 2017 and the guidance was applied prospectively. The Company determined there were no changes to the Company’s financial position, results of operations, financial statement disclosures or valuation of inventory.
In February 2016, the Financial Accounting Standards Board issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires a lessee to recognize, in the statement of financial position, a liability to make lease payments (the lease liability) and a right-to-use asset representing its right to use the underlying asset for the lease term. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. Lessor accounting remains largely unchanged. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, with early adoption permitted. An entity will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently assessing the potential impact of ASU 2016-02 on its consolidated financial statements.
In June 2016, the Financial Accounting Standards Board issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. ASU 2016-13 is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently assessing the potential impact of ASU 2016-13 on its consolidated financial statements.
In August 2016, the Financial Accounting Standards Board issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing existing diversity in practice. ASU 2016-15 is effective for public entities for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company is currently assessing the potential impact of ASU 2016-15 on its consolidated financial statements.
In January 2017, the Financial Accounting Standards Board issued ASU No. 2017-01, “Business Combinations (Topic 805) - Clarifying the Definition of a Business” (“ASU 2017-01”). ASU 2017-01 provides amendments to clarify the definition of a business and affects all companies and other reporting organizations that must determine whether they have acquired or sold a business. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and should be applied prospectively as of the beginning of the period of adoption. Early adoption is permitted under certain circumstances. The Company does not expect ASU 2017-01 to have a material effect on the Company’s current financial position, results of operations or financial statement disclosures.
In January 2017, the Financial Accounting Standards Board issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). These amendments eliminate step 2 from the goodwill impairment test. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017 and should be adopted on a prospective basis. The Company does not expect ASU 2017-04 to have a material effect on the Company’s current financial position, results of operations or financial statement disclosures.
7
Note 2 - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended | ||||||||
March 31, | ||||||||
2017 | 2016 | |||||||
Numerator: | ||||||||
Net income | $ | 32,645 | $ | 13,174 | ||||
Denominator (in thousands): | ||||||||
Weighted-average common shares for calculating basic earnings per share | 48,389 | 28,241 | ||||||
Effect of dilutive securities: | ||||||||
Stock options and nonvested awards | 13 | — | ||||||
Weighted-average common shares for calculating diluted earnings per share | 48,402 | 28,241 | ||||||
Net income per share: | ||||||||
Basic | $ | 0.67 | $ | 0.47 | ||||
Diluted | $ | 0.67 | $ | 0.47 | ||||
Note 3 - Long-Term Debt
Senior Unsecured Notes
On March 24, 2014, the Company issued $200,000 of 6.75% senior notes due on April 1, 2021 (the “Notes”), all of which are currently outstanding. Interest on the Notes is payable semi-annually in arrears on April 1 and October 1. The Notes carry optional redemption features whereby the Company has the option to redeem the notes, in whole or in part, on or after April 1, 2020 at par, plus accrued and unpaid interest, if any, and on or after April 1, 2017 at par plus a premium declining ratably to par, plus accrued and unpaid interest, if any. The Notes are fully and unconditionally guaranteed on a senior unsecured basis jointly and severally by all of the Company's existing and future domestic subsidiaries that guarantee the 2016 Credit Facility (as defined below). The Notes permit the Company to make certain restricted payments, such as purchasing shares of its stock and paying cash dividends, within certain parameters, the most restrictive of which generally limits such restricted payments to 50% of net income, adjusted for certain items as described in the indenture. As of March 31, 2017, 2016 and December 31, 2016, deferred debt issuance costs of $3,279, $3,963 and $3,455, respectively, are included as a direct deduction from the carrying amount of the Notes in the accompanying condensed consolidated balance sheets.
Revolving Credit Facilities
At March 31, 2017, the Company maintained a line of credit with a group of U.S. based commercial lenders (the “2016 Credit Facility”) in the amount of $400,000, which matures in September 2021. At March 31, 2017, the Company had $137,000 in outstanding borrowings and $5,956 in outstanding letters of credit under the 2016 Credit Facility, leaving $257,044 available for future borrowings. The 2016 Credit Facility bears interest, at the Company’s option, at either (i) the prevailing London Interbank Offered Rate (“LIBOR”) (with interest periods of 1 week or 1, 2, 3 or 6 months at the Company’s option) plus a fixed spread of 2.5% or (ii) the prevailing prime or base rate plus a fixed spread of 1.5%. The agreement has a LIBOR floor of 0%. Additionally, the Company is required to pay an annual commitment fee of 0.50% on the average daily unused portion of the 2016 Credit Facility commitment. The weighted-average interest rate on amounts outstanding under the 2016 Credit Facility at March 31, 2017 was 3.50% based on 1 week LIBOR. Under the terms of the 2016 Credit Facility, the Company is required to maintain certain financial ratios and comply with certain financial covenants and the Company is allowed to make certain restricted payments, such as purchasing shares of its stock, within certain parameters provided the Company maintains compliance with those financial ratios and covenants after giving effect to such restricted payments. The 2016 Credit Facility also contains customary restrictions on the Company’s ability to incur additional debt, grant liens, make investments, consummate acquisitions and similar negative covenants with customary carve-outs and baskets. The Company was in compliance with the requirements and covenants of the 2016 Credit Facility as of March 31, 2017. During the three months ended March 31, 2017, the Company made net payments of $123,000 pursuant to the 2016 Credit Facility.
8
At March 31, 2017, the Company maintained a U.S. dollar denominated line of credit with a bank in Mexico (the “Mexico Credit Facility”) in the amount of $10,000. The Mexico Credit Facility bears interest at 30-day LIBOR plus a fixed spread of 2.0% and matures in December 2017. Under the terms of the Mexico Credit Facility, the Company is required to maintain certain financial ratios and comply with certain financial covenants. The Company was in compliance with the requirements and covenants of the Mexico Credit Facility as of March 31, 2017. The Company is required to pay a one-time commitment fee of $25 due when the first amount is drawn/borrowed. At March 31, 2017, the Company had no amount outstanding under the Mexico Credit Facility and $10,000 was available for borrowings.
Note 4 - Fair Value of Financial Instruments
The fair value of financial instruments is determined by reference to various market data and other valuation techniques, as appropriate. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The three fair value levels are (from highest to lowest):
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
Recurring Fair Value Measurements
Prior to the Merger, Cash America had a nonqualified savings plan that was available to certain members of management whereby participants could contribute up to 100% of their annual bonus and up to 50% of their other eligible compensation to the plan. Upon completion of the Merger, the nonqualified savings plan was terminated and during the three months ended March 31, 2017, the Company dissolved the plan and distributed the remaining assets to the participants.
As of December 31, 2016, the assets included marketable equity securities, which were classified as Level 1 and the fair values were based on quoted market prices. The nonqualified savings plan assets were included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet with an offsetting liability of equal amount, which is included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheet.
The Company’s financial assets that are measured at fair value on a recurring basis as of December 31, 2016 were as follows:
December 31, | Fair Value Measurements Using | |||||||||||||||
Financial assets: | 2016 | Level 1 | Level 2 | Level 3 | ||||||||||||
Cash America nonqualified savings plan-related assets | $ | 12,663 | $ | 12,663 | $ | — | $ | — | ||||||||
$ | 12,663 | $ | 12,663 | $ | — | $ | — | |||||||||
Fair Value Measurements on a Nonrecurring Basis
The Company measures non-financial assets and liabilities such as property and equipment and intangible assets at fair value on a nonrecurring basis or when events or circumstances indicate that the carrying amount of the assets may be impaired.
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Financial Assets and Liabilities Not Measured at Fair Value
The Company’s financial assets and liabilities as of March 31, 2017, 2016 and December 31, 2016 that are not measured at fair value in the condensed consolidated balance sheets are as follows:
Carrying Value | Estimated Fair Value | |||||||||||||||||||
March 31, | March 31, | Fair Value Measurements Using | ||||||||||||||||||
Financial assets: | 2017 | 2017 | Level 1 | Level 2 | Level 3 | |||||||||||||||
Cash and cash equivalents | $ | 73,148 | $ | 73,148 | $ | 73,148 | $ | — | $ | — | ||||||||||
Pawn loans | 314,505 | 314,505 | — | — | 314,505 | |||||||||||||||
Consumer loans, net | 22,209 | 22,209 | — | — | 22,209 | |||||||||||||||
Fees and service charges receivable | 38,021 | 38,021 | — | — | 38,021 | |||||||||||||||
$ | 447,883 | $ | 447,883 | $ | 73,148 | $ | — | $ | 374,735 | |||||||||||
Financial liabilities: | ||||||||||||||||||||
Revolving unsecured credit facilities | $ | 137,000 | $ | 137,000 | $ | — | $ | 137,000 | $ | — | ||||||||||
Senior unsecured notes, outstanding principal | 200,000 | 208,000 | — | 208,000 | — | |||||||||||||||
$ | 337,000 | $ | 345,000 | $ | — | $ | 345,000 | $ | — | |||||||||||
Carrying Value | Estimated Fair Value | |||||||||||||||||||
March 31, | March 31, | Fair Value Measurements Using | ||||||||||||||||||
Financial assets: | 2016 | 2016 | Level 1 | Level 2 | Level 3 | |||||||||||||||
Cash and cash equivalents | $ | 54,150 | $ | 54,150 | $ | 54,150 | $ | — | $ | — | ||||||||||
Pawn loans | 126,620 | 126,620 | — | — | 126,620 | |||||||||||||||
Consumer loans, net | 985 | 985 | — | — | 985 | |||||||||||||||
Fees and service charges receivable | 17,070 | 17,070 | — | — | 17,070 | |||||||||||||||
$ | 198,825 | $ | 198,825 | $ | 54,150 | $ | — | $ | 144,675 | |||||||||||
Financial liabilities: | ||||||||||||||||||||
Revolving unsecured credit facilities | $ | 40,000 | $ | 40,000 | $ | — | $ | 40,000 | $ | — | ||||||||||
Senior unsecured notes, outstanding principal | 200,000 | 193,000 | — | 193,000 | — | |||||||||||||||
$ | 240,000 | $ | 233,000 | $ | — | $ | 233,000 | $ | — | |||||||||||
Carrying Value | Estimated Fair Value | |||||||||||||||||||
December 31, | December 31, | Fair Value Measurements Using | ||||||||||||||||||
Financial assets: | 2016 | 2016 | Level 1 | Level 2 | Level 3 | |||||||||||||||
Cash and cash equivalents | $ | 89,955 | $ | 89,955 | $ | 89,955 | $ | — | $ | — | ||||||||||
Pawn loans | 350,506 | 350,506 | — | — | 350,506 | |||||||||||||||
Consumer loans, net | 29,204 | 29,204 | — | — | 29,204 | |||||||||||||||
Fees and service charges receivable | 41,013 | 41,013 | — | — | 41,013 | |||||||||||||||
$ | 510,678 | $ | 510,678 | $ | 89,955 | $ | — | $ | 420,723 | |||||||||||
Financial liabilities: | ||||||||||||||||||||
Revolving unsecured credit facilities | $ | 260,000 | $ | 260,000 | $ | — | $ | 260,000 | $ | — | ||||||||||
Senior unsecured notes, outstanding principal | 200,000 | 208,000 | — | 208,000 | — | |||||||||||||||
$ | 460,000 | $ | 468,000 | $ | — | $ | 468,000 | $ | — | |||||||||||
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As cash and cash equivalents have maturities of less than three months, the carrying values of cash and cash equivalents approximate fair value. Due to their short-term maturities, the carrying value of pawn loans and loan fees and service charges receivable approximate fair value. Short-term loans and installment loans, collectively, represent consumer loans, net on the accompanying condensed consolidated balance sheets and are carried net of the allowance for estimated loan losses, which is calculated by applying historical loss rates combined with recent default trends to the gross consumer loan balance. The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and estimated remaining loan terms; therefore, the carrying value approximated the fair value.
The carrying value of the Company’s prior credit facilities approximated fair value as of March 31, 2016. The carrying value of the Company’s current credit facilities (the 2016 Credit Facility and the Mexico Credit Facility) approximated fair value as of March 31, 2017 and December 31, 2016. The fair value of the senior unsecured notes have been estimated based on a discounted cash flow analysis using a discount rate representing the Company’s estimate of the rate that would be used by market participants. Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.
Note 5 - Segment Information
The Company organizes its operations into two reportable segments as follows:
• | U.S. operations - Includes all pawn and consumer loan operations in the U.S. |
• | Latin America operations - Includes all pawn and consumer loan operations in Latin America, which currently includes operations in Mexico, Guatemala and El Salvador |
The following tables present reportable segment information for the three month period ended March 31, 2017 and 2016:
Three Months Ended March 31, 2017 | ||||||||||||||||
U.S. Operations | Latin America Operations | Corporate | Consolidated | |||||||||||||
Revenue: | ||||||||||||||||
Retail merchandise sales | $ | 193,666 | $ | 66,328 | $ | — | $ | 259,994 | ||||||||
Pawn loan fees | 101,818 | 26,433 | — | 128,251 | ||||||||||||
Consumer loan and credit services fees | 20,815 | 405 | — | 21,220 | ||||||||||||
Wholesale scrap jewelry sales | 32,897 | 5,214 | — | 38,111 | ||||||||||||
Total revenue | 349,196 | 98,380 | — | 447,576 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Cost of retail merchandise sold | 123,497 | 42,138 | — | 165,635 | ||||||||||||
Consumer loan and credit services loss provision | 3,990 | 102 | — | 4,092 | ||||||||||||
Cost of wholesale scrap jewelry sold | 30,682 | 4,267 | — | 34,949 | ||||||||||||
Total cost of revenue | 158,169 | 46,507 | — | 204,676 | ||||||||||||
Net revenue | 191,027 | 51,873 | — | 242,900 | ||||||||||||
Expenses and other income: | ||||||||||||||||
Store operating expenses | 107,968 | 28,776 | — | 136,744 | ||||||||||||
Administrative expenses | — | — | 33,238 | 33,238 | ||||||||||||
Depreciation and amortization | 6,419 | 2,397 | 5,427 | 14,243 | ||||||||||||
Interest expense | — | — | 6,113 | 6,113 | ||||||||||||
Interest income | — | — | (327 | ) | (327 | ) | ||||||||||
Merger and other acquisition expenses | — | — | 647 | 647 | ||||||||||||
Total expenses and other income | 114,387 | 31,173 | 45,098 | 190,658 | ||||||||||||
Income before income taxes | $ | 76,640 | $ | 20,700 | $ | (45,098 | ) | $ | 52,242 | |||||||
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Three Months Ended March 31, 2016 | ||||||||||||||||
U.S. Operations | Latin America Operations | Corporate | Consolidated | |||||||||||||
Revenue: | ||||||||||||||||
Retail merchandise sales | $ | 55,061 | $ | 63,715 | $ | — | $ | 118,776 | ||||||||
Pawn loan fees | 24,245 | 27,188 | — | 51,433 | ||||||||||||
Consumer loan and credit services fees | 5,209 | 477 | — | 5,686 | ||||||||||||
Wholesale scrap jewelry sales | 4,794 | 2,514 | — | 7,308 | ||||||||||||
Total revenue | 89,309 | 93,894 | — | 183,203 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Cost of retail merchandise sold | 33,667 | 40,755 | — | 74,422 | ||||||||||||
Consumer loan and credit services loss provision | 907 | 140 | — | 1,047 | ||||||||||||
Cost of wholesale scrap jewelry sold | 3,862 | 2,009 | — | 5,871 | ||||||||||||
Total cost of revenue | 38,436 | 42,904 | — | 81,340 | ||||||||||||
Net revenue | 50,873 | 50,990 | — | 101,863 | ||||||||||||
Expenses and other income: | ||||||||||||||||
Store operating expenses | 27,869 | 27,542 | — | 55,411 | ||||||||||||
Administrative expenses | — | — | 17,268 | 17,268 | ||||||||||||
Depreciation and amortization | 1,498 | 2,650 | 789 | 4,937 | ||||||||||||
Interest expense | — | — | 4,460 | 4,460 | ||||||||||||
Interest income | — | — | (274 | ) | (274 | ) | ||||||||||
Merger and other acquisition expenses | — | — | 400 | 400 | ||||||||||||
Total expenses and other income | 29,367 | 30,192 | 22,643 | 82,202 | ||||||||||||
Income before income taxes | $ | 21,506 | $ | 20,798 | $ | (22,643 | ) | $ | 19,661 | |||||||
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Note 6 - Condensed Consolidating Guarantor Financial Statements
In connection with the issuance of the Notes, certain of the Company’s domestic subsidiaries (collectively, “Guarantor Subsidiaries”), fully, unconditionally, jointly and severally guaranteed the payment obligations under the Notes. Each of the Guarantor Subsidiaries is 100% owned, directly or indirectly, by the Company. In conjunction with the Merger, Frontier Merger Sub, LLC, the surviving entity in the Merger and a wholly owned subsidiary of the Company, is included as a Guarantor Subsidiary. The following supplemental financial information sets forth, on a consolidating basis, the balance sheets, statements of comprehensive income (loss) and statements of cash flows of FirstCash, Inc. (the “Parent Company”), the Guarantor Subsidiaries and the Parent Company’s other subsidiaries (the “Non-Guarantor Subsidiaries”).
The supplemental condensed consolidating financial information has been prepared pursuant to SEC rules and regulations for interim condensed financial information and does not include the more complete disclosures included in annual financial statements. Investments in consolidated subsidiaries have been presented under the equity method of accounting. The principal eliminating entries eliminate investments in subsidiaries, intercompany balances and intercompany revenues and expenses. The condensed financial information may not necessarily be indicative of the results of operations or financial position had the Guarantor Subsidiaries or Non-Guarantor Subsidiaries operated as independent entities.
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Condensed Consolidating Balance Sheet | ||||||||||||||||||||
March 31, 2017 | ||||||||||||||||||||
Parent Company | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Eliminations | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Cash and cash equivalents | $ | 5,765 | $ | 26,431 | $ | 40,952 | $ | — | $ | 73,148 | ||||||||||
Fees and service charges receivable | — | 26,789 | 11,232 | — | 38,021 | |||||||||||||||
Pawn loans | — | 237,340 | 77,165 | — | 314,505 | |||||||||||||||
Consumer loans, net | — | 21,811 | 398 | — | 22,209 | |||||||||||||||
Inventories | — | 249,818 | 58,347 | — | 308,165 | |||||||||||||||
Income taxes receivable | — | 23,095 | 1,991 | (6,667 | ) | 18,419 | ||||||||||||||
Prepaid expenses and other current assets | 2,702 | 8,707 | 2,922 | — | 14,331 | |||||||||||||||
Intercompany receivable | — | — | 1,993 | (1,993 | ) | — | ||||||||||||||
Total current assets | 8,467 | 593,991 | 195,000 | (8,660 | ) | 788,798 | ||||||||||||||
Property and equipment, net | 5,444 | 175,695 | 56,119 | — | 237,258 | |||||||||||||||
Goodwill | — | 719,495 | 116,072 | — | 835,567 | |||||||||||||||
Intangible assets, net | — | 100,256 | 1,338 | — | 101,594 | |||||||||||||||
Other assets | 3,080 | 63,613 | 2,395 | — | 69,088 | |||||||||||||||
Deferred tax assets | — | — | 11,249 | — | 11,249 | |||||||||||||||
Investments in subsidiaries | 1,830,639 | — | — | (1,830,639 | ) | — | ||||||||||||||
Total assets | $ | 1,847,630 | $ | 1,653,050 | $ | 382,173 | $ | (1,839,299 | ) | $ | 2,043,554 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
Accounts payable and accrued liabilities | $ | 18,014 | $ | 46,240 | $ | 15,472 | $ | — | $ | 79,726 | ||||||||||
Customer deposits | — | 26,689 | 10,294 | — | 36,983 | |||||||||||||||
Income taxes payable | 6,667 | — | 1,041 | (6,667 | ) | 1,041 | ||||||||||||||
Intercompany payable | 1,993 | — | — | (1,993 | ) | — | ||||||||||||||
Total current liabilities | 26,674 | 72,929 | 26,807 | (8,660 | ) | 117,750 | ||||||||||||||
Revolving unsecured credit facilities | 137,000 | — | — | — | 137,000 | |||||||||||||||
Senior unsecured notes | 196,721 | — | — | — | 196,721 | |||||||||||||||
Deferred tax liabilities | — | 71,094 | 3,274 | — | 74,368 | |||||||||||||||
Other liabilities | — | 30,480 | — | — | 30,480 | |||||||||||||||
Total liabilities | 360,395 | 174,503 | 30,081 | (8,660 | ) | 556,319 | ||||||||||||||
Total stockholders’ equity | 1,487,235 | 1,478,547 | 352,092 | (1,830,639 | ) | 1,487,235 | ||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,847,630 | $ | 1,653,050 | $ | 382,173 | $ | (1,839,299 | ) | $ | 2,043,554 | |||||||||
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Condensed Consolidating Balance Sheet | ||||||||||||||||||||
March 31, 2016 | ||||||||||||||||||||
Parent Company | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Eliminations | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Cash and cash equivalents | $ | 8,216 | $ | 2,838 | $ | 43,096 | $ | — | $ | 54,150 | ||||||||||
Fees and service charges receivable | — | 6,511 | 10,559 | — | 17,070 | |||||||||||||||
Pawn loans | — | 52,809 | 73,811 | — | 126,620 | |||||||||||||||
Consumer loans, net | — | 497 | 488 | — | 985 | |||||||||||||||
Inventories | — | 41,163 | 49,551 | — | 90,714 | |||||||||||||||
Income taxes receivable | 2,351 | — | — | — | 2,351 | |||||||||||||||
Prepaid expenses and other current assets | 1,949 | — | 2,611 | — | 4,560 | |||||||||||||||
Intercompany receivable | 10,570 | — | 1,601 | (12,171 | ) | — | ||||||||||||||
Total current assets | 23,086 | 103,818 | 181,717 | (12,171 | ) | 296,450 | ||||||||||||||
Property and equipment, net | 3,856 | 57,101 | 59,755 | — | 120,712 | |||||||||||||||
Goodwill | — | 196,733 | 118,706 | — | 315,439 | |||||||||||||||
Intangible assets, net | — | 4,138 | 1,986 | — | ||||||||||||||||