EZCORP, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2012. The filing is unaudited. EZCORP operates pawn, retail and consumer lending businesses in the U.S., Canada and Mexico, and holds equity-method investments in two international businesses.
Financial performance
Amounts below are in millions of dollars except per-share data.
| Metric | Three months ended March 31, 2012 | Three months ended March 31, 2011 | Six months ended March 31, 2012 | Six months ended March 31, 2011 |
|---|---|---|---|---|
| Total revenue | $256.3 | $213.3 | $505.2 | $432.1 |
| Operating income | $55.7 | $44.9 | $110.5 | $84.3 |
| Net income attributable to EZCORP | $37.3 | $31.8 | $76.6 | $59.3 |
| Diluted EPS | $0.73 | $0.63 | $1.51 | $1.18 |
| Net cash provided by operating activities | Not separately presented for the quarter | $91.7 | $69.9 |
- Quarter revenue rose 20.2% and EZCORP-attributable net income rose 17.0% year over year. Six-month revenue increased 16.9% and attributable net income increased 29.3%.
- Quarter same-store revenue grew 4%; new and acquired stores contributed $33.9 million. For the six-month period, same-store revenue grew 3%, while new and acquired stores contributed $60.5 million.
- Operating margins, calculated as operating income divided by revenue, were approximately 21.7% for the quarter versus 21.1% a year earlier, and 21.9% for six months versus 19.5%.
- At March 31, cash was $47.5 million, current assets $383.6 million and current liabilities $106.3 million. Total assets were $1.029 billion.
- Total debt was $132.4 million: $30.0 million drawn on the domestic revolving facility and $102.4 million of Crediamigo-related non-recourse debt. The balance sheet classifies $23.3 million as current and $109.1 million as long-term. EZCORP reported $145.0 million available on its $175 million revolver and compliance with all covenants.
Material changes and significant items
- On January 30, EZCORP acquired 60% of Mexican lender Crediamigo. It contributed $7.4 million of revenue and $0.2 million of income during the reported six-month period. The acquisition brought 45 locations and introduced payroll-deduction, long-term consumer lending in Mexico. The purchase-price allocation remained preliminary; the agreement includes contingent earn-out payments and a put option over the remaining shares.
- EZCORP also acquired 39 U.S. locations and one Canadian location during the six months. Goodwill rose to $320.7 million from $173.2 million at September 30, 2011, primarily reflecting acquisitions.
- The company reorganized reportable segments by geography—U.S. & Canada, Latin America and Other International—and recast prior-period segment information.
- On April 13, EZCORP acquired nine pawn stores in Minnesota for approximately $11.4 million cash. On April 14, it acquired 72% of U.K. online lender Cash Genie and a related debt collection company for $16.9 million cash and 207,000 shares valued at $5.5 million.
- Cash flows from investing were negative $71.2 million, including $83.2 million of acquisition spending net of cash acquired and $22.2 million of property and equipment additions. Financing cash flow was positive $3.4 million; cash increased $23.5 million over the six months.
Outlook, risks and contingencies
- No earnings or revenue guidance is provided. Management planned approximately 56 new stores in the remaining six months of fiscal 2012, with $9.4 million of capital expenditures plus working capital and start-up costs. It cautioned that new stores may weigh on earnings and liquidity until their second year.
- Management said operating cash flow, cash on hand and revolver availability should cover contractual obligations, planned growth, capital expenditures and working capital for the coming year. Reported contractual obligations total $343.3 million, including debt, estimated debt interest and operating leases.
- Market risks include variable-rate debt, gold-price exposure and foreign currency fluctuations. The company began using gold collars; they are not designated for hedge accounting, can limit gains when gold prices rise, and their fair-value changes affect earnings. A 50-basis-point increase in interest rates was estimated to add about $75,000 of interest expense in the remaining six months of fiscal 2012.
- EZCORP’s credit-services letters of credit create off-balance-sheet exposure: maximum potential losses were $21.7 million at March 31, including $4.3 million secured by vehicle titles; the recorded expected-loss allowance was $1.4 million.
- Management cited seasonal variation: net revenue and income are typically strongest in the fourth fiscal quarter and weakest in the third. The filing also discusses proposed Australian consumer-loan restrictions that could adversely affect investee Cash Converters if enacted; the proposal was referred for committee review.
- The company is involved in legal and regulatory proceedings and says it does not expect a material adverse effect, while noting outcomes cannot be assured. Management reported disclosure controls were effective as of March 31, 2012.
Most important facts for investors to verify
- Reconcile operating cash flow: the cash flow statement reports $91.7 million for the six months, while MD&A describes $89.8 million.
- Track Crediamigo’s final purchase accounting, loan performance and bad-debt experience, as well as the cost and timing of contingent payments and the sellers’ put rights.
- Assess whether acquisition-led growth translates into sustainable same-store growth and stronger segment contribution, particularly in Latin America.
- Monitor the mix shift from jewelry to general merchandise, gold-scrap volumes and margins, and the effect of gold collars on earnings.
- Review debt maturities and Crediamigo’s high-rate notes, revolver capacity and covenant headroom, alongside the $21.7 million maximum letters-of-credit exposure and lease commitments.
- Evaluate regulatory developments affecting consumer lending, including the Australian proposal, and foreign-exchange exposure across Mexico, Canada, the U.K. and Australia.