EZCORP Reports Second Quarter Fiscal Year 2019 Results

AUSTIN, Texas–(BUSINESS WIRE)–EZCORP, Inc. (NASDAQ:EZPW) today announced results for its second
quarter ended March 31, 2019.

All amounts in this release are from EZCORP continuing operations and
in conformity with U.S. generally accepted accounting principles
(“GAAP”) unless otherwise noted. Comparisons shown in this release are
to the same period in the prior year unless otherwise noted.

HIGHLIGHTS FOR SECOND QUARTER OF FISCAL 2019

  • Strong revenue growth, up 6% to $214.7 million, reflects the company’s
    long-standing focus on best meeting customers’ need for cash. Growth
    in pawn loans outstanding (PLO), pawn service charges (PSC) and
    merchandise sales in U.S. and Latin America pawn segments contributed
    to improvement in key pawn operating metrics during the quarter.

    • PLO, the most influential driver of revenue and profitability,
      expanded 9% to $173.1 million, and PSC rose 10% to $81.8 million.
    • U.S. Pawn segment same store PLO and PSC each rose 5%, driving
      total ending PLO of $130.6 million and PSC of $61.8 million.
    • Latin America Pawn total PLO grew 20% to $42.6 million (up 27% to
      $44.7 million on a constant currency basis1). Same
      store PLO increased 4% (9% higher on a constant currency basis).
      PSC rose 33% to $20.0 million (increasing 37% to $20.6 million on
      a constant currency basis).
  • Income before tax of $5.0 million and diluted earnings per share of
    $0.06 were each down 71%, impacted by non-cash charges of $6.5 million
    as well as growth investments and other discrete costs. Excluding
    those items and adjusting for constant currency, adjusted2
    income before tax was $16.6 million, down 10%, and adjusted diluted
    earnings per share was flat to the prior-year quarter at $0.22.
  • The company continued investing to sustain strong competitive
    advantages, including ongoing progress on developing a new
    customer-centric digital platform, predictive product and customer
    analytics, and upgrading its point-of-sale and other systems. Capital
    and other expenditures related directly to growth initiatives totaled
    $7.0 million in the quarter.
  • Cash and cash equivalents ended the current quarter at $347.8 million,
    providing liquidity to retire the $195.0 million cash convertible
    notes due in June 2019 and continue investment in the company’s
    growth. Fiscal year-to-date operating cash flow increased 11% to $50.6
    million and the company collected another $14.6 million of principal
    under the Alpha Credit / Grupo Finmart notes receivable.

CEO COMMENTARY AND OUTLOOK

Chief Executive Officer Stuart Grimshaw commented, “Fundamental trends
remain healthy, with strong PLO growth driving accelerated revenue for
the quarter compared to prior year levels. Rising demand for pawn loans
and stable yields bode well for the near-term trajectory of PSC, while
our proactive investing initiatives centered on digital engagement and
data analytics position us well to increasingly differentiate our
services and enhance profitable client acquisition and retention over
time.

As our liquidity and free cash flow continue to build, we maintain
financial flexibility to de-lever the balance sheet and enhance our
organic growth through incremental acquisitions, assuming our strict
strategic and financial criteria are met. We remain committed to
delivering accretive, sustainable growth – regardless of the broader
economic environment – across multiple avenues to drive long-term
shareholder value.”

CONSOLIDATED RESULTS

     

Three Months Ended March 31

in thousands, except per share amounts

As Reported Adjusted2
2019   2018 2019   2018
 
Total Revenues $ 214,730 $ 202,398 $ 215,028 $ 202,398
Income from Continuing Operations, Before Tax $ 5,019 $ 17,504 $ 16,591 $ 18,518
Net Income from Continuing Operations $ 2,659 $ 11,707 $ 11,648 $ 12,450
Diluted Earnings Per Share $ 0.06 $ 0.21 $ 0.22 $ 0.22
Adjusted EBITDA2 $ 17,494 $ 25,516 $ 24,586 $ 25,272
 

With total revenues up $12.3 million, or 6%, on growth in both pawn
service charges and merchandise sales, income from continuing operations
before tax decreased $12.5 million from the prior year quarter on a GAAP
basis and $1.9 million on an adjusted basis, including the effect of
expenses at new and same stores. Included in the unadjusted
year-over-year change in results is a $6.5 million non-cash impairment
on an equity investment and $0.4 million lower income from this
investment, a $3.9 million increase in net interest expense primarily
from debt issued in May 2018, the effect of 77 net new and acquired
stores that do not yet fully reflect the company’s historical store
performance, additional investment in the company’s Evergreen
customer-centric digital platform, and other operating and
administrative expense growth. While consolidated merchandise sales
gross profit increased $0.7 million, related sales margins decreased 130
basis points to 35.8%, reflecting both the effective liquidation of aged
general merchandise in U.S. Pawn from 9% to 7% and a greater portion of
total sales derived from Latin America, where average margins are lower
due to the concentration in general merchandise.

  • Ending and average PLO grew 9%, driving a 10% increase in PSC and
    a 6% improvement in net revenues to $127.7 million (up 7% to $128.5
    million on a constant currency basis). Consolidated merchandise sales
    gross profit grew 2% to $43.5 million on a 5% rise in merchandise
    sales. On a constant currency basis, PSC expanded 11% and merchandise
    sales gross profit improved 2%.
  • Consolidated operations expenses rose 7% to $88.2 million (up 8% to
    $88.8 million on a constant currency basis) from a net increase of 74
    stores acquired or opened since the prior year quarter (79 new and
    acquired stores in Latin America net of five closures in the U.S. and
    Canada) and increases in same stores. Same store operations expense
    increased 5% primarily due to labor and benefit cost increases,
    including reduced vacancies, an increase in robbery losses in the
    period and other smaller items. The company expects operating
    efficiencies to increasingly take hold as acquired stores are further
    integrated and new stores season and build scale.
  • Administrative expense increased 24% to $16.5 million principally as a
    result of a $1.5 million strategic investment that is not
    capitalizable related to the development of the Evergreen
    customer-centric digital platform, which remains pre-revenue. Another
    $1.0 million related to this project was capitalized in the quarter,
    based on the nature of the specific work performed.
  • The company’s global pawn businesses (consisting of U.S. Pawn and
    Latin America Pawn) generated consolidated segment contribution of
    $37.9 million, up 18% from the prior year quarter. Included in this is
    a $0.8 million recovery from a refiner that was fully reserved in the
    first fiscal quarter of 2019 and a $1.1 million PSC-related
    indemnification claim settlement from the previous owners of GPMX. On
    an adjusted basis, consolidated global pawn segment contribution
    increased 2%, or $0.8 million, to $36.2 million.
  • Non-cash charges consisted of a $6.5 million impairment to the
    carrying value of the company’s investment in Cash Converters
    International Limited, an unconsolidated affiliate, based on its share
    price at the end of the period. The current quarter equity in
    underlying earnings of this investment decreased $0.4 million from the
    prior year quarter.
  • Net interest expense increased $3.9 million, driven by additional debt
    issued in May 2018, and lower interest income on the declining balance
    of notes receivable as principal collections are received monthly. The
    cash convertible senior notes expected to be repaid in June 2019
    represent $3.6 million of total interest expense in the current
    quarter.

SEGMENT RESULTS

U.S. Pawn

  • Same store PLO and PSC both rose 5%, with ending PLO per store of
    $257,000, up 6% on a year-over-year basis. The growth reflected
    disciplined lending practices, a focus on meeting customers’ need for
    cash and stronger performance from stores affected by hurricanes in
    the prior-year quarter.
  • Same store sales improved 2% and merchandise margins remained strong
    at 37%. Aged general merchandise inventory was reduced during the
    quarter from 9% to 7%.
  • U.S. Pawn’s revenue rose 3% to $166.4 million, with a 3% rise in
    combined operating expenses and depreciation to $70.5 million,
    resulting in a 1% increase in segment contribution to $28.4 million.
    Adjusted segment contribution decreased 1% to $28.4 million. Operating
    expense growth was primarily attributable to increased labor and
    benefit costs including vacancy reduction and higher robbery losses.

Latin America Pawn

  • Latin America Pawn’s PLO grew 20% to $42.6 million (up 27% to $44.7
    million on a constant currency basis). Same store PLO increased 4% (9%
    on a constant currency basis), with ending PLO per store of $91,000,
    up 32%.
  • The company added four stores in the quarter. Pawn store count in
    Latin America has expanded 20% in the last 12 months to a total of 466
    stores, with 68 acquired and 11 opened. New stores drive attractive
    long-term profit enhancement but create a short-term drag on earnings
    as they ramp. Acquired stores are generally less efficient than our
    same stores until fully integrated, but typically are accretive in
    their first full quarter of ownership.
  • Net revenues grew 27% to $28.0 million (up 31% to $28.8 million on a
    constant currency basis). PSC rose 33% to $20.0 million (increasing
    37% to $20.6 million on a constant currency basis). PSC in the current
    period includes $1.1 million attributable to settling certain
    PSC-related indemnification claims with the previous owners of GPMX.
  • Operations expense increased 21% to $18.2 million primarily from 79
    stores acquired or opened since the prior year quarter and increases
    in same stores. Same store operations expense increased 10%, primarily
    as a result of incremental administrative and professional fees
    incurred to support the integration of previous acquisitions and
    enhance the administrative staff, as well as an increase in robbery
    losses.
  • Segment contribution increased 39% to $9.5 million ($9.7 million on a
    constant currency basis). Adjusted segment contribution increased 20%
    to $7.8 million, excluding foreign currency impacts and other discrete
    costs, as well as the $0.8 million recovery from a refiner that was
    fully reserved in the first fiscal quarter of 2019 and a $1.1 million
    PSC-related indemnification claim settlement from the previous owners
    of GPMX.

CORRECTIONS TO PRIOR PERIOD FINANCIAL STATEMENTS

During the current quarter, the company identified errors in its
previously reported financial statements during the ordinary course of
account reviews and subsequent investigation of related accounts. None
of the identified errors was material to any previously reported period.
These have now been corrected in all periods presented. The errors
relate primarily to the overstatement of historical balances of pawn
service charges receivable resulting from errors in the configuration of
information technology reports. Compared to amounts previously reported,
the corrections reduced income from continuing operations, net of tax by
$0.2 million (no change to diluted earnings per share) and $0.3 million
($0.01 diluted earnings per share) in the three and six- month periods
ended March 31, 2018. In the first quarter of fiscal 2019 included in
the current year-to-date results, the correction increased previously
reported income from continuing operations, net of tax by $0.9 million
($0.01 diluted earnings per share). Prior to correction, these errors
resulted in an overstatement of October 1, 2017 beginning retained
earnings of $3.8 million. Greater detail on this is included in Note 1
to our Condensed Consolidated Financial Statements on Form 10-Q.

CONFERENCE CALL

EZCORP will host a conference call on Thursday, May 9, 2019, at 7:30am
Central Time to discuss first quarter results. Analysts and
institutional investors may participate on the conference call by
dialing (877) 201-0168, Conference ID: 2278077, or internationally by
dialing (647) 788-4901. The conference call will be webcast
simultaneously to the public through this link: http://investors.ezcorp.com/.
A replay of the conference call will be available online at http://investors.ezcorp.com/
shortly after the end of the call.

ABOUT EZCORP

Formed in 1989, EZCORP has grown into a leading provider of pawn loans
in the United States and Latin America. It also sells merchandise,
primarily collateral forfeited from pawn lending operations and used
merchandise purchased from customers. We are dedicated to satisfying the
short-term cash needs of consumers who are both cash and credit
constrained, focusing on an industry-leading customer experience. EZCORP
is traded on NASDAQ under the symbol EZPW and is a member of the Russell
2000 Index, S&P SmallCap 600 Index, S&P 1000 Index and Nasdaq Composite
Index.

FORWARD LOOKING STATEMENTS

This announcement contains certain forward-looking statements regarding
the company’s strategy, initiatives and expected performance. These
statements are based on the company’s current expectations as to the
outcome and timing of future events. All statements, other than
statements of historical facts, including all statements regarding the
company’s strategy, initiatives and future performance, that address
activities or results that the company plans, expects, believes,
projects, estimates or anticipates, will, should or may occur in the
future, including future financial or operating results, are
forward-looking statements. Actual results for future periods may differ
materially from those expressed or implied by these forward-looking
statements due to a number of uncertainties and other factors, including
operating risks, liquidity risks, legislative or regulatory
developments, market factors or current or future litigation. For a
discussion of these and other factors affecting the company’s business
and prospects, see the company’s annual, quarterly and other reports
filed with the Securities and Exchange Commission. The company
undertakes no obligation to update or revise forward-looking statements
to reflect changed assumptions, the occurrence of unanticipated events
or changes to future operating results over time.

1“Constant currency” basis, which is a non-GAAP
measure, excludes the impact of foreign currency exchange rate
fluctuations. For additional information about these calculations, as
well as a reconciliation to the most comparable GAAP financial measures,
see “Non-GAAP Financial Information” at the end of this release.

2Adjusted
basis, which is a non-GAAP measure, excludes certain items. For
additional information about these calculations, as well as a
reconciliation to the most comparable GAAP financial measures, see
“Non-GAAP Financial Information” at the end of this release.

 
EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
   
Three Months Ended March 31, Six Months Ended March 31,
2019   2018 2019   2018
(Unaudited)
 
(in thousands, except per share amounts)
Revenues:
Merchandise sales $ 121,260 $ 114,945 $ 242,284 $ 228,533
Jewelry scrapping sales 10,380 11,525 19,661 23,738
Pawn service charges 81,799 74,031 165,318 150,053
Other revenues 1,291   1,897   3,162   4,244  
Total revenues 214,730 202,398 430,425 406,568
Merchandise cost of goods sold 77,800 72,220 154,912 143,387
Jewelry scrapping cost of goods sold 8,833 9,574 16,883 19,911
Other cost of revenues 407   347   891   924  
Net revenues 127,690 120,257 257,739 242,346
Operating expenses:
Operations 88,243 82,180 177,029 165,826
Administrative 16,487 13,341 31,742 26,420
Depreciation and amortization 7,012 6,451 13,860 12,174
(Gain) loss on sale or disposal of assets and other (823 ) 100   3,619   139  
Total operating expenses 110,919   102,072   226,250   204,559  
Operating income 16,771 18,185 31,489 37,787
Interest expense 8,589 5,829 17,380 11,676
Interest income (3,126 ) (4,268 ) (6,465 ) (8,538 )
Equity in net (income) loss of unconsolidated affiliates (431 ) (876 ) 688 (2,326 )
Impairment of investment in unconsolidated affiliates 6,451 19,725
Other expense (income) 269   (4 ) (117 ) (186 )
Income from continuing operations before income taxes 5,019 17,504 278 37,161
Income tax expense 2,360   5,797   1,279   13,208  
Income (loss) from continuing operations, net of tax 2,659 11,707 (1,001 ) 23,953
Loss from discontinued operations, net of tax (18 ) (500 ) (201 ) (722 )
Net income (loss) 2,641 11,207 (1,202 ) 23,231
Net loss attributable to noncontrolling interest (753 ) (374 ) (1,230 ) (989 )
Net income attributable to EZCORP, Inc. $ 3,394   $ 11,581   $ 28   $ 24,220  
 
Basic earnings per share attributable to EZCORP, Inc. — continuing
operations
$ 0.06 $ 0.22 $ $ 0.46
Diluted earnings per share attributable to EZCORP, Inc. — continuing
operations
$ 0.06 $ 0.21 $ $ 0.44
 
Weighted-average basic shares outstanding 55,445 54,464 55,236 54,447
Weighted-average diluted shares outstanding 55,463 57,624 55,247 56,642
 
 
EZCORP, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

     

March 31,
2019

March 31,
2018

September 30,
2018

 
(Unaudited)
Assets:
Current assets:
Cash and cash equivalents $ 347,786 $ 159,216 $ 285,311
Pawn loans 173,138 159,410 198,463
Pawn service charges receivable, net 27,097 24,130 30,959
Inventory, net 173,348 158,642 166,997
Notes receivable, net 23,450 38,091 34,199
Prepaid expenses and other current assets 32,984   29,533   33,456  
Total current assets 777,803 569,022 749,385
Investment in unconsolidated affiliates 29,387 46,509 49,500
Property and equipment, net 67,518 64,833 73,649
Goodwill 296,881 290,884 299,248
Intangible assets, net 58,503 45,728 54,923
Notes receivable, net 8,509 18,660 3,226
Deferred tax asset, net 10,119 15,087 7,986
Other assets 4,395   19,773   3,863  
Total assets $ 1,253,115   $ 1,070,496   $ 1,241,780  
 
Liabilities and equity:
Current liabilities:
Current maturities of long-term debt, net $ 192,901 $ 103,287 $ 190,181
Accounts payable, accrued expenses and other current liabilities 58,696 60,538 57,958
Customer layaway deposits 13,564   12,225   11,824  
Total current liabilities 265,161 176,050 259,963
Long-term debt, net 232,733 198,338 226,702
Deferred tax liability, net 9,012 2,525 8,817
Other long-term liabilities 6,450   9,359   6,890  
Total liabilities 513,356 386,272 502,372
Commitments and contingencies
Stockholders’ equity:
Class A Non-voting Common Stock, par value $.01 per share; shares
authorized: 100 million; issued and outstanding: 52,475,070 as of
March 31, 2019; 51,494,246 as of March 31, 2018; and 51,614,746 as
of September 30, 2018
524 515 516
Class B Voting Common Stock, convertible, par value $.01 per share;
shares authorized: 3 million; issued and outstanding: 2,970,171
30 30 30
Additional paid-in capital 402,505 353,698 397,927
Retained earnings 386,650 373,560 386,622
Accumulated other comprehensive loss (49,950 ) (40,247 ) (42,356 )
EZCORP, Inc. stockholders’ equity 739,759 687,556 742,739
Noncontrolling interest   (3,332 ) (3,331 )
Total equity 739,759   684,224   739,408  
Total liabilities and equity $ 1,253,115   $ 1,070,496   $ 1,241,780  
 
 
EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Six Months Ended March 31,
2019   2018
(Unaudited)
(in thousands)
Operating activities:
Net (loss) income $ (1,202 ) $ 23,231
Adjustments to reconcile net (loss) income to net cash flows from
operating activities:
Depreciation and amortization 13,860 12,174
Amortization of debt discount and deferred financing costs 11,225 7,439
Accretion of notes receivable discount and deferred compensation fee (2,492 ) (5,032 )
Deferred income taxes 358 2,801
Impairment of investment in unconsolidated affiliate 19,725
Other adjustments 1,265 1,081
Reserve on jewelry scrap receivable 3,646
Stock compensation expense 4,697 5,534
Loss (income) from investment in unconsolidated affiliates 688 (2,326 )
Changes in operating assets and liabilities, net of business
acquisitions:
Service charges and fees receivable 3,797 4,644
Inventory 421 (628 )
Prepaid expenses, other current assets and other assets (3,590 ) (2,982 )
Accounts payable, accrued expenses and other liabilities (409 ) (5,357 )
Customer layaway deposits 1,810 1,128
Income taxes, net of excess tax benefit from stock compensation (3,176 ) 3,937  
Net cash provided by operating activities 50,623 45,644
Investing activities:
Loans made (353,537 ) (330,732 )
Loans repaid 225,695 220,267
Recovery of pawn loan principal through sale of forfeited collateral 142,656 134,870
Additions to property and equipment, net (13,863 ) (19,251 )
Acquisitions, net of cash acquired (627 ) (63,780 )
Principal collections on notes receivable 14,591   9,152  
Net cash provided by (used in) investing activities 14,915 (49,474 )
Financing activities:
Taxes paid related to net share settlement of equity awards (3,288 ) (311 )
Proceeds from borrowings, net of issuance costs 1,066
Payments on borrowings (509 )  
Net cash used in financing activities (2,731 ) (311 )
Effect of exchange rate changes on cash and cash equivalents and
restricted cash
(599 ) (238 )
Net increase (decrease) in cash, cash equivalents and restricted cash 62,208 (4,379 )
Cash, cash equivalents and restricted cash at beginning of period 285,578   163,868  
Cash, cash equivalents and restricted cash at end of period $ 347,786   $ 159,489  
 
Non-cash investing and financing activities:
Pawn loans forfeited and transferred to inventory $ 151,211 $ 134,952
 
 
EZCORP, Inc.
OPERATING SEGMENT RESULTS

(Unaudited and in thousands)

 
Three Months Ended March 31, 2019
U.S. Pawn  

Latin
America
Pawn

 

Other
International

 

Total
Segments

 

Corporate
Items

  Consolidated
 
Revenues:
Merchandise sales $ 96,632 $ 24,628 $ $ 121,260 $ $ 121,260
Jewelry scrapping sales 7,916 2,464 10,380 10,380
Pawn service charges 61,798 20,001 81,799 81,799
Other revenues 43   25   1,223   1,291     1,291  
Total revenues 166,389 47,118 1,223 214,730 214,730
Merchandise cost of goods sold 60,928 16,872 77,800 77,800
Jewelry scrapping cost of goods sold 6,571 2,262 8,833 8,833
Other cost of revenues     407   407     407  
Net revenues 98,890 27,984 816 127,690 127,690
Segment and corporate expenses (income):
Operations 67,475 18,223 2,545 88,243 88,243
Administrative 16,487 16,487
Depreciation and amortization 2,982 1,495 77 4,554 2,458 7,012
(Gain) loss on sale or disposal of assets and other (839 ) 16 (823 ) (823 )
Interest expense 50 132 182 8,407 8,589
Interest income (431 ) (431 ) (2,695 ) (3,126 )
Equity in net income of unconsolidated affiliates (431 ) (431 ) (431 )
Impairment of investment in unconsolidated affiliates 6,451 6,451 6,451
Other expense (income)   29   262   291   (22 ) 269  
Segment contribution (loss) $ 28,433   $ 9,457   $ (8,236 ) $ 29,654  
Income from continuing operations before income taxes $ 29,654   $ (24,635 ) $ 5,019  
 
 
Three Months Ended March 31, 2018
U.S. Pawn  

Latin
America
Pawn

 

Other
International

 

Total
Segments

 

Corporate
Items

  Consolidated
 
Revenues:
Merchandise sales $ 94,753 $ 20,192 $ $ 114,945 $ $ 114,945
Jewelry scrapping sales 8,177 3,348 11,525 11,525
Pawn service charges 59,027 15,004 74,031 74,031
Other revenues 76   174   1,647   1,897     1,897  
Total revenues 162,033 38,718 1,647 202,398 202,398
Merchandise cost of goods sold 58,537 13,683 72,220 72,220
Jewelry scrapping cost of goods sold 6,512 3,062 9,574 9,574
Other cost of revenues     347   347     347  
Net revenues 96,984 21,973 1,300 120,257 120,257
Segment and corporate expenses (income):
Operations 65,190 15,015 1,975 82,180 82,180
Administrative 13,341 13,341
Depreciation and amortization 3,531 916 47 4,494 1,957 6,451
Loss (gain) on sale or disposal of assets 107 (5 ) 102 (2 ) 100
Interest expense 2 2 5,827 5,829
Interest income (763 ) (763 ) (3,505 ) (4,268 )
Equity in net income of unconsolidated affiliates (876 ) (876 ) (876 )
Other (income) expense 1   (1 ) (35 ) (35 ) 31   (4 )
Segment contribution $ 28,155   $ 6,809   $ 189   $ 35,153  
Income from continuing operations before income taxes $ 35,153   $ (17,649 ) $ 17,504  
 

Contacts

Email: Investor_Relations@ezcorp.com
Phone:
(512) 314-2220

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