EZCORP, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2021. Amounts are in U.S. dollars; financial statement figures below are in millions unless noted. EZCORP provides pawn loans and sells merchandise in the United States and Latin America.
Financial performance and position
| Metric | Three months ended March 31, 2021 | Prior-year quarter | Six months ended March 31, 2021 | Prior-year period |
|---|---|---|---|---|
| Total revenue | $184.9 | $223.3 | $363.1 | $445.7 |
| Net revenues | $113.7 | $127.4 | $222.1 | $257.4 |
| Operating income (loss) | $10.6 | $(30.7) | $19.6 | $(17.2) |
| Net income (loss) | $5.3 | $(40.9) | $9.6 | $(39.6) |
| Diluted earnings (loss) per share | $0.10 | $(0.74) | $0.17 | $(0.71) |
- Quarterly total revenue fell about 17% year over year; six-month revenue fell about 19%. Net revenue, after merchandise and jewelry scrapping costs, declined about 11% and 14%, respectively.
- Net income improved substantially from the prior-year loss, which included $47.1 million of goodwill, intangible and other asset impairment charges. Excluding those charges, management said segment contribution declined year over year, reflecting lower pawn service charges.
- Quarterly merchandise gross margins improved: U.S. Pawn rose to 45% from 36%, and Latin America Pawn to 35% from 25%. Higher margins and lower store and corporate costs partly offset reduced pawn lending activity.
- For the six months, operating cash flow was $18.7 million, versus $21.3 million. Investing cash flow provided $9.1 million, versus $28.6 million; financing used $1.7 million, versus $7.3 million. Cash, cash equivalents and restricted cash increased $31.1 million to $343.6 million.
- At March 31, cash and cash equivalents were $335.6 million and restricted cash was $8.0 million. Total assets were $1.196 billion and total liabilities $527.0 million.
- Debt had a $257.1 million carrying value, comprising $143.8 million principal of 2024 convertible notes and $172.5 million principal of 2025 convertible notes, net of discounts and issuance costs. No current debt maturities were reported. Lease liabilities totaled $179.7 million.
Material changes and management commentary
- COVID-19-related changes in customer borrowing behavior, increased loan redemptions and constrained traffic reduced pawn loan balances and pawn service charges in both regions. Latin America was additionally affected by limited operating hours and increased remittances from the United States.
- Lower loan balances reduced merchandise available for sale. Management attributed improved merchandise margins to continued demand for value-priced goods, less aged inventory and improved inventory turnover.
- EZCORP closed its Canadian CASHMAX operations in fiscal 2020 and continued strategic cost-reduction and simplification initiatives. It operated 1,011 pawn stores at March 31, 2021, including 505 in the U.S. and 506 in Latin America.
- The company reported no quantified earnings guidance. Management expects the pandemic and recovery to continue adversely affecting net revenue and earnings in fiscal 2021, while stating that available capital and projected operating cash flow should be adequate for anticipated needs through fiscal 2021. The duration and financial effects of the pandemic remain uncertain.
- The $60 million share-repurchase authorization remained suspended to preserve liquidity; no shares were repurchased in the reported six-month period. Management may adjust capital spending and may pursue financing for future needs, including refinancing convertible debt due in 2024 and 2025.
Risks, contingencies and unusual items
- Illinois enacted the Predatory Loan Prevention Act in March 2021. EZCORP believes pawn transactions are not covered, but an Illinois regulator’s fact sheet listed pawn loans among covered consumer loans. The company is seeking formal confirmation; if the law applies, its 20 Illinois stores could be adversely affected and civil penalties could apply.
- The company is involved in various legal and regulatory matters but stated it does not believe any individual matter will materially adversely affect its financial condition, results or liquidity. Outcomes remain uncertain.
- Management cited exposure to interest rates, gold and diamond values, and foreign exchange rates. The company also noted that seasonal patterns have been affected by COVID-19.
- There were no similar strategic-initiative charges in the six months ended March 31, 2021 to the $20.4 million recorded in fiscal 2020; $4.5 million of related accruals remained at March 31, 2021.
Important facts for investors to verify
- Whether pawn loan balances and pawn service charges recover as customer borrowing behavior, store traffic and operating hours normalize.
- Whether improved merchandise margins can persist despite lower inventory and sales volumes.
- The application and potential effects of the Illinois law on EZCORP’s 20 stores in that state.
- Cash availability, convertible-note refinancing or repayment plans, and any decision to resume share repurchases.
- The ongoing effects of COVID-19, foreign exchange movements, gold prices and seasonal operating patterns.