EZCORP, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2022; comparisons are with the corresponding 2021 periods. EZCORP operates pawn stores in the U.S. and Latin America and earns revenue from pawn service charges and merchandise sales. Unless otherwise stated, amounts are in U.S. dollars.
Financial performance
| Metric | Three months ended March 31, 2022 | Year-over-year change | Six months ended March 31, 2022 | Year-over-year change |
|---|---|---|---|---|
| Total revenue | $216.0 million | +17% | $437.0 million | +20% |
| Net revenue (after merchandise and scrap costs) | $128.9 million | +13% | $261.0 million | +18% |
| Operating income | $24.2 million | +$13.6 million | $46.4 million | +$26.8 million |
| Net income | $14.9 million | +$9.6 million | $30.6 million | +$21.0 million |
| Basic / diluted EPS | $0.26 / $0.20 | Prior year: $0.10 / $0.10 | $0.54 / $0.42 | Prior year: $0.17 / $0.17 |
- Quarterly pawn service charges rose 21% to $76.7 million; merchandise sales rose 16% to $133.6 million. Merchandise sales gross profit was $48.6 million, with U.S. and Latin America merchandise margins lower than the prior-year quarter as margins normalized.
- Quarterly operating expenses increased 2% to $104.7 million. The operating-income improvement reflected higher pawn activity and revenue, lower general and administrative expense, and lower interest expense.
- For the six months, operating cash flow was $30.6 million, versus $18.7 million. Investing activities used $31.9 million, including $16.5 million for investments and increased net pawn lending; financing activities used $0.8 million. Capital expenditures were $10.5 million.
- At March 31, cash and cash equivalents were $255.0 million and restricted cash was $8.7 million. Current assets were $612.8 million and current liabilities $137.2 million.
- Debt comprised $316.3 million principal of convertible notes, with a $312.2 million carrying amount. The notes mature in 2024 ($143.8 million) and 2025 ($172.5 million). Cash exceeded the debt carrying amount by about $57.2 million; this simple comparison excludes restricted cash and other obligations. Lease liabilities totaled $216.0 million.
Changes and material developments
- Pawn loans outstanding at March 31 were $173.6 million, up from $125.3 million a year earlier. Management attributed growth to recovering loan demand; U.S. quarterly pawn loans outstanding rose 40%, while Latin America rose 34% on a reported basis.
- U.S. Pawn quarterly segment contribution increased 31% to $33.8 million; Latin America Pawn increased 82% to $4.8 million. Other Investments recorded a $1.4 million quarterly loss, primarily reflecting EZCORP’s share of Cash Converters’ loss, including an impairment attributed to COVID-19.
- EZCORP early adopted ASU 2020-06 on October 1, 2021. The accounting change reduced reported interest expense by $3.4 million for the quarter and $6.8 million for the six months, without a cash-flow or liquidity effect. It also changed diluted EPS to the if-converted method, adding 25.2 million shares to diluted weighted-average shares in the quarter.
- On October 1, 2021, EZCORP invested $15.0 million in Founders One, which invested in a Caribbean pawn-store operator. EZCORP’s maximum disclosed exposure to loss on this investment is its $15.0 million contribution. Its Cash Converters ownership was 38.60% at quarter-end and rose to 40.67% after a further purchase in April.
- On May 3, 2022, the Board authorized a new share-repurchase program of up to $50 million over three years. No shares were repurchased during the reported six-month period.
Outlook, risks and contingencies
- Management said available capital and projected operating cash flow were expected to fund working capital, planned capital expenditures and growth, taxes, and debt service. It anticipated cash on hand and operating cash flow would be adequate for fiscal 2022 needs. The filing provides no numerical earnings or revenue guidance.
- Management expected recovering pawn transaction activity and higher pawn-loan balances to support accelerating pawn service-charge revenue, subject to the natural lag between originations and fees. It cautioned that pandemic effects and variants remain uncertain and could adversely affect results, financial position, and liquidity.
- Results are seasonal: U.S. pawn service charges are historically highest in the fourth fiscal quarter, while merchandise sales are typically strongest in the first and second quarters. Management cautioned that reported interim results are not necessarily indicative of full-year results.
- Key exposures include changes in gold values, foreign exchange rates, interest rates, consumer demand, and the ability to assess collateral values and resale potential. Management also noted possible future refinancing needs for the 2024 and 2025 notes, depending on acquisitions and other factors.
- A Florida lawsuit alleges text-message solicitation violations and seeks class certification. EZCORP is defending the matter and had recorded no liability at March 31; an unfavorable resolution could materially affect results in the period recorded. The filing states other known proceedings are not expected to have a material adverse effect.
Important facts for investors to verify
- How much of earnings growth reflects underlying operations versus the non-cash interest benefit from ASU 2020-06, and how the if-converted share count affects diluted EPS.
- Whether pawn-loan growth and service-charge revenue continue, and whether normalized merchandise margins or labor and store costs pressure segment profitability.
- Cash conversion and working-capital trends: operating cash flow included a $50.3 million decrease in accounts payable, accrued expenses, and other liabilities.
- Debt repayment or refinancing plans for the 2024 and 2025 convertible notes, alongside lease obligations and the planned share repurchases and investments.
- Developments in the Florida lawsuit and the performance and valuation of the Founders and Cash Converters investments.