Firstcash reports strong third quarter earnings results driven by
impressive latam revenue growth and continued u.s. improvement; declares
increased quarterly cash dividend of $0.20 per share and adds additional
$100 million share repurchase authorization
Fort worth, texas--(business wire)--firstcash, inc. (the “company”) (nyse: fcfs), the leading international operator of over 2,100 retail pawn stores in the u.s. and latin america, today announced revenue, net income and earnings per share for the three and nine month periods ended september 30, 2017. in addition, the company announced that the board of directors increased the annualized dividend to $0.80 per share, or $0.20 per share quarterly, beginning with the dividend to be paid on november 30, 2017 and authorized an additional $100 million for future share repurchases. mr. rick wessel, chief executive officer, stated, “we posted strong third quarter results, again driven by remarkable growth in latin america and continued realization of merger synergies. our results in latin america saw same-store pawn loans grow 22%, or 14% on a constant currency basis, compared to the prior-year quarter, while same-store pawn lending fees and retail merchandise sales, collectively, “core pawn revenues,” grew 23%, or 17% on a constant currency basis, compared to the prior-year quarter. likewise, the u.s. also saw continued sequential improvements with same-store pawn loans up 5% in the legacy first cash stores compared to the prior-year quarter. supported by our strong cash flows and balance sheet, the board of directors has increased the dividend by 5%, to $0.80 per share on an annualized basis. additionally, we remain active in the market and have repurchased 1,115,000 shares through october 25th under our current repurchase authorization. the board also announced an additional $100 million share repurchase authorization to become effective upon the completion of the current plan that has approximately $35 million remaining. it is expected that the current plan will be completed later this year or very early in 2018,” mr. wessel concluded. earnings highlights the company reported the following consolidated results for the three and nine months ended september 30, 2017 (in thousands, except per share amounts): * other than ebitda, which is a non-gaap financial measure. see the detailed reconciliation of non-gaap financial measures provided elsewhere in this release. * other than ebitda, which is a non-gaap financial measure. see the detailed reconciliation of non-gaap financial measures provided elsewhere in this release. adjusted earnings measures exclude merger related expenses in both the 2017 and 2016 periods, the loss on extinguishment of debt as a result of the senior notes refinancing in may of 2017 and certain other adjustments, which are further described in the detailed reconciliation of non-gaap financial measures provided elsewhere in this release. results of operations for the three month and nine month periods ended september 30, 2017 include the results of operations for cash america which merged with firstcash on september 1, 2016 (the “merger”). the comparable prior-year periods include the results of operations for cash america for the period september 2, 2016 to september 30, 2016, affecting comparability of 2017 and 2016 amounts. unless noted otherwise, same-store results reported herein exclude cash america results, as the stores were not in the comparative base for the full prior-year quarter or the year-to-date period. despite an unprecedented series of hurricanes and earthquakes in the third quarter, which impacted approximately 250 locations in markets that included coastal texas, florida, louisiana, alabama, georgia, south carolina and central and southern mexico, the company was able to quickly reopen most stores, resulting in no material impact to reported earnings results for the quarter. for the trailing twelve months ended september 30, 2017, consolidated revenues totaled $1.8 billion, net income totaled $113 million and adjusted ebitda totaled $270 million. ebitda and adjusted ebitda are non-gaap measures and are calculated in the detailed reconciliation of non-gaap financial measures provided elsewhere in this release. note: certain growth rates in “revenue highlights” and “pawn operating metrics” are calculated on a constant currency basis, a non-gaap measure defined elsewhere in this release and reconciled to the most comparable gaap measures in the financial statements in this release. the average mexican peso to u.s. dollar exchange rate for the three-month period ended september 30, 2017 was 17.8 pesos / dollar, a favorable change of 5% versus the comparable prior-year period, and for the nine-month period ended september 30, 2017 was 18.9 pesos / dollar, an unfavorable change of 3% versus the prior-year period. revenue highlights consolidated core pawn revenues grew 64% for the quarter and 99% for the year-to-date period (61% and 101%, respectively, on a constant currency basis) compared to the respective prior-year periods, primarily due to the merger and continued revenue growth in latin america. u.s. segment revenues for the third quarter totaled $307 million, an increase of 94% compared to the third quarter of 2016, due primarily to the merger. u.s. same-store core pawn revenues in the legacy first cash stores increased by 1% for the quarter. in the u.s. segment, same-store pawn fee revenues for the quarter in the legacy first cash stores increased 3%, driven by 5% growth in same-store pawn receivables, while same-store retail sales in these stores declined 1% compared to the prior-year quarter. same-store retail sales in the legacy cash america stores improved on a sequential basis to down 1% compared to a decline of 3% in the second quarter of 2017. while same-store pawn fee revenues for the quarter in these stores declined 11% compared to the prior-year quarter, they have stabilized sequentially and the pawn yield is improving compared to the prior year. latin america segment revenues for the third quarter totaled $129 million, an increase of 25% on a u.s. dollar translated basis and 20% on a constant currency basis as compared to the third quarter of 2016, driven by strong same-store sales results, which included a same-store retail sales increase of 59%, or 52% on a constant currency basis, in the maxi prenda stores, and contributions from new stores. latin america same-store core pawn revenues for the quarter increased 23% on a u.s. dollar translated basis, driven by a 24% increase in retail sales and a 20% increase in pawn fees compared to the prior-year quarter. on a constant currency basis, latin america same-store core pawn revenues for the quarter increased 17% with a 19% increase in retail sales and a 14% increase in pawn fees compared to the prior-year quarter. pawn operating metrics retail margins in latin america for the quarter remained strong at 37%, especially given the significant volume of consumer electronic sales. u.s. segment retail margins for the quarter were 33%, which reflected the expected impact of the merger, including the current focus on clearing aged inventory levels in the cash america stores. pawn loans in latin america totaled $90 million at september 30, 2017 and increased by 24% on a u.s. dollar translated basis and 16% on a constant currency basis from september 30, 2016. same-store pawn loans in latin america at quarter end increased 22% on a dollar translated basis and increased 14% on a constant currency basis compared to the prior-year. u.s. segment pawn loans outstanding at september 30, 2017 totaled $281 million, which included $209 million from the cash america locations. pawn loans in the legacy u.s. first cash stores increased 5% on a same-store basis from september 30, 2016, marking the fourth sequential quarter of positive year-over-year comparisons, and was significantly better than the 3% decline at this point a year ago. excluding coastal texas markets affected by the hurricane, cash america same-store pawn receivables declined 11%, which was a sequential improvement over the 13% decline last quarter. the year-over-year decrease was driven in large part by continued efforts to improve portfolio yields and optimize loan-to-value ratios. total inventories at september 30, 2017 were reduced to $309 million, compared to $333 million a year ago, as the company continues to make significant progress in optimizing inventory levels in the cash america operations. as of september 30, 2017, inventories aged greater than one year in the latin america stores remained extremely low at 1% while they were 9% in the u.s. aged inventories in the legacy first cash u.s. stores were 5%, while aged inventories in the cash america stores were 11%, a significant sequential improvement over the 14% aged level last quarter. store expansion activity during the third quarter of 2017, the company added nine new stores in mexico and one new location in the u.s. for the nine months ended september 30, 2017, the company added 37 pawn stores in latin america and three pawn stores in the u.s. in colombia, the company has signed leases for one store and a corporate office and has additional retail locations in the leasing pipeline. additionally, the company has started hiring key local employees with the expectation for the first store to open in early 2018. as of september 30, 2017, firstcash operated 2,106 stores, composed of 989 stores in latin america and 1,117 stores in the u.s. in addition, there were 63 check cashing locations operated by independent franchisees under franchising agreements with the company at quarter end. cash dividend and stock repurchases the company’s board of directors approved an increase in the annual dividend of 5% from $0.76 per share to $0.80 per share, or $0.20 per share quarterly, beginning in the fourth quarter of 2017. the $0.20 per share fourth quarter cash dividend on common shares outstanding declared by the board of directors will be paid on november 30, 2017 to stockholders of record as of november 13, 2017. any future dividends are subject to approval by the company’s board of directors. under the company’s current $100 million share repurchase authorization, the company repurchased 1,115,000 shares consisting of 954,000 shares at quarter end and an additional 161,000 shares through october 25th at an aggregate cost of approximately $65 million, or an average repurchase price of $58.03 per share, leaving approximately $35 million available for future share repurchases under the current buyback authorization. the company expects to complete the remaining authorization later this year or early in 2018, subject to expected liquidity, debt covenant restrictions and other relevant factors. given the progress of repurchases under the existing plan and the strong cash flows from the business, the company’s board of directors authorized an additional $100 million share repurchase program that will become effective following the completion of the current plan. liquidity the company generated $205 million in operating cash flow and $195 million in adjusted free cash flow during the twelve months ended september 30, 2017 compared to $68 million and $46 million, respectively, during the same prior-year period. adjusted free cash flow is a non-gaap measure and is calculated in the detailed reconciliation of non-gaap financial measures provided elsewhere in this release. total outstanding debt at september 30, 2017 was $440 million which includes the $300 million senior notes due in 2024 and $140 million drawn on the $400 million unsecured credit facility. this compares to $560 million of outstanding debt at september 30, 2016. the ratio of net debt, defined as total debt less cash and cash equivalents, to trailing twelve months adjusted ebitda, as defined in the company’s senior notes covenants, was 1.3 to 1. as of september 30, 2017, the company had $93 million in cash on its balance sheet and $256 million of availability for future borrowings under its long-term, unsecured credit facility. fiscal 2017 outlook the company is reiterating its fiscal full-year 2017 guidance for adjusted earnings per share, a non-gaap measure that excludes merger related expenses and the loss on extinguishment of debt as a result of the senior notes refinancing in may 2017, to be in the range of $2.60 to $2.70. the guidance for fiscal 2017 is presented on a non-gaap basis, as it does not include the impact of merger and other acquisition expenses or the loss on extinguishment of debt. given the difficulty in predicting the amount and timing of future ongoing merger expenses, the company cannot reasonably provide a full reconciliation of adjusted guidance to gaap guidance. the company’s current guidance also includes the following estimates: 2017 adjusted net income, a non-gaap measure that excludes merger related expenses and the loss on extinguishment of debt, is projected to be in the range of approximately $124 million to $129 million versus 2016 adjusted net income of $85 million. adjusted ebitda, also a non-gaap measure, is projected to be in the range of approximately $268 million to $275 million for fiscal 2017. this compares to adjusted ebitda of $180 million in fiscal 2016 and $132 million in fiscal 2015. 2017 adjusted net income, a non-gaap measure that excludes merger related expenses and the loss on extinguishment of debt, is projected to be in the range of approximately $124 million to $129 million versus 2016 adjusted net income of $85 million. adjusted ebitda, also a non-gaap measure, is projected to be in the range of approximately $268 million to $275 million for fiscal 2017. this compares to adjusted ebitda of $180 million in fiscal 2016 and $132 million in fiscal 2015. these estimates of expected adjusted earnings per share, adjusted net income and adjusted ebitda include the following assumptions: an estimated fourth quarter exchange rate of 19.0 mexican pesos / u.s. dollar, which implies a full year 2017 average rate of 19.0 mexican pesos / u.s. dollar. an anticipated fourth quarter negative impact on pawn loan fees of $0.02 to $0.03 per share due to the unprecedented series of hurricanes and earthquakes experienced in the third quarter and the resulting negative impact on pawn receivables, especially in the coastal texas markets. the company discontinued its small online consumer lending operation during the third quarter. this action, combined with consumer lending store closures, are anticipated to contribute to a 10% decline in fourth quarter consumer lending revenues compared to 2016. plans to open or acquire approximately 50 to 60 stores in 2017. an estimated fourth quarter exchange rate of 19.0 mexican pesos / u.s. dollar, which implies a full year 2017 average rate of 19.0 mexican pesos / u.s. dollar. an anticipated fourth quarter negative impact on pawn loan fees of $0.02 to $0.03 per share due to the unprecedented series of hurricanes and earthquakes experienced in the third quarter and the resulting negative impact on pawn receivables, especially in the coastal texas markets. the company discontinued its small online consumer lending operation during the third quarter. this action, combined with consumer lending store closures, are anticipated to contribute to a 10% decline in fourth quarter consumer lending revenues compared to 2016. plans to open or acquire approximately 50 to 60 stores in 2017. additional commentary and analysis mr. wessel further commented, “our operating results for the third quarter were even more impressive in light of the recent hurricanes and earthquakes, which impacted approximately 250 stores in markets that included coastal texas, florida, louisiana, alabama, georgia, south carolina and central and southern mexico. i am pleased to say that through the diligent efforts of our operations team, our employees remained safe and all but two stores are now back online. there was minimal financial impact during the third quarter and we believe that lost retail sales at closed stores were quickly recovered after reopening. retail sales were strong during the quarter as our momentum continued in latin america with same-store sales driven by the successful completion of the integration of the maxi prenda stores that are now included in our same-store sales results. retail sales in these stores increased 59%, or 52% on a constant currency basis, further validating that our best practices can be successfully integrated into our acquired store base. additionally, same-store retail sales at the cash america stores improved sequentially as these stores began to utilize the firstpawn it platform that has now rolled out to all of our large format pawn stores across the country. given the difficult environment for brick and mortar focused retailers, we are encouraged by our performance and believe that our stores offer a unique treasure hunt format with changing, value focused merchandise available for our customers daily, something that cannot be easily replicated online. for cash constrained customers, our interest free layaway program, which typically is not offered by online retailers, is also an attractive option for their retail purchases. most importantly, we ended the quarter with same-store loan demand up an impressive 22%, or 14% on a constant currency basis, in latin america and 5% in the legacy u.s. first cash same-stores, which is significant given the maturity of the u.s. pawn market. this key leading indicator bodes well for the future quarters as we continue to see solid demand for our collateralized, low dollar, short term lending product. while same-store pawn receivables contracted in the cash america stores, the decline was consistent with our expectations and we believe it will ultimately generate a higher yielding loan portfolio and inventory sold at higher margins. as we have noted before, the cash america stores also operated with higher inventory levels per store than the comparative first cash stores, which we have been working diligently to reduce. although we saw a decrease in our retail margins during the quarter, largely as a result of this transition, we reduced our inventory position in the u.s. by 14% or $40 million versus the prior-year period. achieving normalized inventory levels per store should allow us to improve turns and increase margins over time. additionally, we are tracking to meet or exceed our ambitious merger run-rate synergy targets of approximately $65 million in early 2018. it has been an extremely busy year for the operations teams who have not only been focused on new store openings, including the upcoming stores in colombia, but also on the integration of over 1,000 stores that include both cash america and maxi prenda locations. when the natural disasters impacted approximately 250 of our stores during the third quarter, we set our priorities on getting those stores back up and running. as a result, we are slightly reducing our store opening expectation to approximately 50 to 60 stores this year, which we believe is prudent under the circumstances. we reported record levels of adjusted free cash flows of $195 million for the trailing twelve month period. these incremental cash flows from organic growth, acquisitions and the merger have allowed us to increase our dividend to $0.80 per share annually and repurchase approximately 1.2 million shares of common stock through the third quarter of this year. even with the $65 million in share repurchases over the last twelve months, we have still been able to reduce debt by $120 million over the same period. additionally, the board of directors has demonstrated their confidence in the business and increased our share buyback authorization by $100 million. in closing, we are excited about the opportunities ahead for firstcash and our stable, recession and internet resistant business model that has limited regulatory exposure, a clear path to significant organic store growth in latin america and excellent cash flows generated in the u.s. to pay dividends and repurchase shares. with the added scale and continued growth, we are now consistently at or near a $3 billion market cap. this is an amazing achievement for a small texas company that went public in 1991 with just eight stores at that time,” mr. wessel concluded. forward-looking information this release 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 release. 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) the company’s quarterly report on form 10-q filed with the sec on august 7, 2017, including the risks described in part ii, item 1a, “risk factors” thereof, and (iii) the other reports filed with the sec, including the company’s forthcoming quarterly report on form 10-q. many of these risks and uncertainties are beyond the ability of the company to control, nor can the company predict, in many cases, all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. the forward-looking statements contained in this release speak only as of the date of this release, and the company expressly disclaims any obligation or undertaking to report any updates or revisions to any such statement to reflect any change in the company’s expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law. about firstcash firstcash is the leading international operator of pawn stores with over 2,100 retail pawn and consumer lending locations in 26 u.s. states and latin america, which includes all the states in mexico and the countries of guatemala and el salvador. the company employs more than 16,000 people between the u.s. and latin america. firstcash focuses on serving cash and credit constrained consumers primarily through its retail pawn locations, which buy and sell a wide variety of jewelry, consumer electronics, power tools, household appliances, sporting goods, musical instruments and other merchandise, and make small consumer pawn loans secured by pledged personal property. approximately 95% of the company’s revenues are from pawn operations. firstcash is a component company in both the standard & poor’s smallcap 600 index® and the russell 2000 index®. firstcash’s common stock (ticker symbol “fcfs”) is traded on the nyse, home to many of the world’s most iconic brands, technology business leaders and emerging growth companies shaping today’s global economic landscape. for additional information regarding firstcash and the services it provides, visit firstcash’s websites located at http://www.firstcash.com and http://www.cashamerica.com. firstcash, inc.condensed consolidated statements of income(unaudited, in thousands, except per share amounts) firstcash, inc.condensed consolidated balance sheets(unaudited, in thousands) firstcash, inc.operating information(unaudited) the company’s reportable segments are 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 company provides revenues, cost of revenues, store operating expenses, pre-tax operating income and earning assets by segment. store operating expenses include salary and benefit expense of store-level employees, occupancy costs, bank charges, security, insurance, utilities, supplies and other costs incurred by the stores. u.s. operations segment results the following table details earning assets, which consist of pawn loans, consumer loans, net and inventories as well as other earning asset metrics of the u.s. operations segment as of september 30, 2017 as compared to september 30, 2016 (in thousands): does not include the off-balance sheet principal portion of active cso extensions of credit made by independent third-party lenders. these amounts, net of the company’s estimated fair value of its liability for guaranteeing the extensions of credit, totaled $9,251 and $11,641 as of september 30, 2017 and 2016, respectively. firstcash, inc.operating information (continued)(unaudited) the following table presents segment pre-tax operating income of the u.s. operations segment for the three months ended september 30, 2017 as compared to the three months ended september 30, 2016 (in thousands): firstcash, inc.operating information (continued)(unaudited) the following table presents segment pre-tax operating income of the u.s. operations segment for the nine months ended september 30, 2017 as compared to the nine months ended september 30, 2016 (in thousands): firstcash, inc.operating information (continued)(unaudited) latin america operations segment results the company’s management reviews and analyzes certain operating results in latin america on a constant currency basis because the company believes this better represents the company’s underlying business trends. constant currency results are non-gaap measures, which exclude the effects of foreign currency translation and are calculated by translating current year results at prior year average exchange rates. the scrap jewelry generated in latin america is sold and settled in u.s. dollars and is therefore not affected by foreign currency translation. a small percentage of the operating and administrative expenses in latin america are also billed and paid in u.s. dollars which are not affected by foreign currency translation. amounts presented on a constant currency basis are denoted as such. see the “constant currency results” section below for additional discussion of constant currency results. the following table details earning assets, which consist of pawn loans, consumer loans, net and inventories as well as other earning asset metrics of the latin america operations segment as of september 30, 2017 as compared to september 30, 2016 (in thousands): firstcash, inc.operating information (continued)(unaudited) the following table presents segment pre-tax operating income of the latin america operations segment for the three months ended september 30, 2017 as compared to the three months ended september 30, 2016 (in thousands): firstcash, inc.operating information (continued)(unaudited) the following table presents segment pre-tax operating income of the latin america operations segment for the nine months ended september 30, 2017 as compared to the nine months ended september 30, 2016 (in thousands): firstcash, inc.operating information (continued)(unaudited) consolidated results of operations the following table reconciles pre-tax operating income of the company’s u.s. operations segment and latin america operations segment discussed above to consolidated net income (in thousands): firstcash, inc.store count activity the following table details store count activity for the nine months ended september 30, 2017: at september 30, 2017, 317 of the u.s. pawn stores, which are primarily located in texas and ohio, also offered consumer loans or credit services products, while 49 mexico pawn stores offer consumer loan products. the company’s u.s. free-standing consumer loan locations offer consumer loans and/or a credit services product and are located in ohio, texas, california and limited markets in mexico. the table does not include 63 check cashing locations operated by independent franchises under franchising agreements with the company. firstcash, inc.reconciliations of non-gaap financial measuresto gaap financial measures(unaudited) the company uses certain financial calculations such as adjusted net income, adjusted net income per share, ebitda, adjusted ebitda, free cash flow, adjusted free cash flow and constant currency results (as defined or explained below) as factors in the measurement and evaluation of the company’s operating performance and period-over-period growth. the company derives these financial calculations on the basis of methodologies other than generally accepted accounting principles (“gaap”), primarily by excluding from a comparable gaap measure certain items the company does not consider to be representative of its actual operating performance. these financial calculations are “non-gaap financial measures” as defined in sec rules. the company uses these non-gaap financial measures in operating its business because management believes they are less susceptible to variances in actual operating performance that can result from the excluded items, other infrequent charges and currency fluctuations. the company presents these financial measures to investors because management believes they are useful to investors in evaluating the primary factors that drive the company’s operating performance and because management believes they provide greater transparency into the company’s results of operations. however, items that are excluded from and other adjustments and assumptions that are made in calculating adjusted net income, adjusted net income per share, ebitda, adjusted ebitda, free cash flow, adjusted free cash flow and constant currency results are significant components in understanding and assessing the company’s financial performance. these non-gaap financial measures should be evaluated in conjunction with, and are not a substitute for, the company’s gaap financial measures. further, because these non-gaap financial measures are not determined in accordance with gaap and are thus susceptible to varying calculations, adjusted net income, adjusted net income per share, ebitda, adjusted ebitda, free cash flow, adjusted free cash flow and constant currency results, as presented, may not be comparable to other similarly titled measures of other companies. the company expects to incur additional expenses in 2017 and 2018 in connection with its merger and integration of cash america. the company has adjusted the applicable financial measures to exclude these items because it generally would not incur such costs and expenses as part of its continuing operations. the merger related expenses are predominantly incremental costs directly associated with the merger and integration of cash america, including professional fees, legal expenses, severance and retention payments, accelerated vesting of certain equity compensation awards, contract breakage costs and costs related to consolidation of technology systems and corporate facilities. firstcash, inc.reconciliations of non-gaap financial measuresto gaap financial measures (continued)(unaudited) adjusted net income and adjusted net income per share management believes the presentation of adjusted net income and adjusted net income per share (“adjusted income measures”) provides investors with greater transparency and provides a more complete understanding of the company’s financial performance and prospects for the future by excluding items that management believes are non-operating in nature and not representative of the company’s core operating performance. in addition, management believes the adjustments shown below are useful to investors in order to allow them to compare the company’s financial results for the current periods presented with the prior periods presented. the following table provides a reconciliation between the net income and diluted earnings per share calculated in accordance with gaap to the adjusted income measures, which are shown net of tax (in thousands, except per share data): firstcash, inc.reconciliations of non-gaap financial measuresto gaap financial measures (continued)(unaudited) the following tables provide a reconciliation of the gross amounts, the impact of income taxes and the net amounts for each of the adjustments included in the table above (in thousands): resulting tax benefit for the three and nine months ended september 30, 2016 is less than the statutory rate as a portion of the transaction costs were not deductible for tax purposes. firstcash, inc.reconciliations of non-gaap financial measuresto gaap financial measures (continued)(unaudited) earnings before interest, taxes, depreciation and amortization (ebitda) and adjusted ebitda the company defines ebitda as net income before income taxes, depreciation and amortization, interest expense and interest income and adjusted ebitda as ebitda adjusted for certain items as listed below that management considers to be non-operating in nature and not representative of its actual operating performance. the company believes ebitda and adjusted ebitda are commonly used by investors to assess a company’s financial performance and adjusted ebitda is used in the calculation of the net debt ratio as defined in the company’s senior notes covenants. the following table provides a reconciliation of net income to ebitda and adjusted ebitda (in thousands): 1.28:1 3.42:1 firstcash, inc.reconciliations of non-gaap financial measuresto gaap financial measures (continued)(unaudited) free cash flow and adjusted free cash flow for purposes of its internal liquidity assessments, the company considers free cash flow and adjusted free cash flow. the company defines free cash flow as cash flow from operating activities less purchases of property and equipment and net fundings/repayments of pawn and consumer loans, which are considered to be operating in nature by the company but are included in cash flow from investing activities, and adjusted free cash flow as free cash flow adjusted for merger related expenses paid that management considers to be non-operating in nature. free cash flow and adjusted free cash flow are commonly used by investors as an additional measure of cash generated by business operations that may be used to repay scheduled debt maturities and debt service or, following payment of such debt obligations and other non-discretionary items, may be available to invest in future growth through new business development activities or acquisitions, repurchase stock, pay cash dividends or repay debt obligations prior to their maturities. these metrics can also be used to evaluate the company’s ability to generate cash flow from business operations and the impact that this cash flow has on the company’s liquidity. however, free cash flow and adjusted free cash flow have limitations as analytical tools and should not be considered in isolation or as a substitute for cash flow from operating activities or other income statement data prepared in accordance with gaap. the following table reconciles net cash flow from operating activities to free cash flow and adjusted free cash flow (in thousands): constant currency results the company’s reporting currency is the u.s. dollar. however, certain performance metrics discussed in this release are presented on a “constant currency” basis, which is considered a non-gaap measurement of financial performance. the company’s management uses constant currency results to evaluate operating results of business operations in latin america, which are primarily transacted in local currencies. the company believes constant currency results provide investors with valuable supplemental information regarding the underlying performance of its business operations in latin america, consistent with how the company’s management evaluates such performance and operating results. constant currency results reported herein are calculated by translating certain balance sheet and income statement items denominated in local currencies using the exchange rate from the prior-year comparable period, as opposed to the current comparable period, in order to exclude the effects of foreign currency rate fluctuations for purposes of evaluating period-over-period comparisons. business operations in mexico and guatemala are transacted in mexican pesos and guatemalan quetzales, respectively. the company also has operations in el salvador where the reporting and functional currency is the u.s. dollar. see the latin america operations segment tables elsewhere in this release for an additional reconciliation of certain constant currency amounts to as reported gaap amounts. the following table provides exchange rates for the mexican peso and guatemalan quetzal for the current and prior year periods: favorable / (unfavorable)
