EZCORP Reports Second Quarter Fiscal 2021 Results

EZCORP, Inc. (NASDAQ: EZPW) today announced results for its second quarter ended March 31, 2021.

All amounts in this release are 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.

CEO COMMENTARY AND OUTLOOK

Chief Executive Officer Jason Kulas stated, “We remain focused on meeting our customers’ short-term cash needs and providing access to affordable pre-owned general merchandise and jewelry, and we believe we have the right people, platform, footprint and cost structure in place to continue to strengthen and grow our core pawn business. Key highlights for the second quarter of fiscal 2021 included GAAP earnings per share of $0.10 and adjusted EPS of $0.17. The adjusted EPS was steady on a year-over-year basis despite lower pawn loans outstanding, pawn service charges and merchandise sales related to COVID-19 and related stimulus program headwinds. Merchandise sales gross profit continued to grow driven by improving inventory turns and rising merchandise margins, and we made further progress on our expense reduction initiatives. Looking ahead, even assuming store-level costs trend higher consistent with increasing transaction activity, we remain well positioned to drive higher operating margins as revenue rebuilds reflecting ongoing cost savings and simplification efforts across the business.

“In the near term, lingering impacts from the second stimulus package as well as an extended tax filing season have continued to temporarily reduce demand for pawn loans in the U.S., and in Latin America we continue to be challenged with constrained traffic, limited operating hours and increased remittances. That said, we remain confident pawn loans outstanding will rebuild given several ongoing initiatives. First, we continue to broaden customer engagement via our digital pawn servicing platform and expanded payment options. Second, our differentiated technology and data analytics capabilities are increasingly driving improving loan-to-value ratios and redemption rates. Third, we remain committed to optimizing team member development, productivity and retention through enhanced training and diversity and inclusion programs.

"Finally, we remain focused on increasingly leveraging our strong balance sheet to fund pawn loans outstanding growth and capitalize on strategic and financially accretive acquisitions to complement de novo store growth. We have opened 8 de novo stores in Latin America so far this year and recently completed the acquisition of 11 stores in the Houston, Texas metropolitan area.”

RESULTS FOR SECOND QUARTER OF FISCAL 2021

• Diluted earnings per share was $0.10, compared to $(0.74) in the prior-year quarter. On an adjusted basis¹, diluted earnings per share was $0.17, consistent with the prior-year quarter. Income before taxes increased by $40.9 million to $6.8 million.
• Total revenues decreased $38.3 million or 17%, primarily due to a $16.8 million or 21% decrease in pawn service charges (PSC) and a $14.6 million or 11% decrease in merchandise sales.
• The decrease in PSC was due to a $34.9 million or 22% decrease in pawn loans outstanding (PLO). Pawn loan demand was significantly reduced due to the impacts of government stimulus which led to higher loan redemptions compared to the prior year quarter.
• Although merchandise sales decreased by $14.6 million, merchandise sales gross profit improved by 12%, driven by effective inventory management and less aged inventory leading to a 900 bps improvement in merchandise sales gross profit margin to 43%. The sales margin in the prior year quarter was negatively impacted by 200 bps due to greater sales volume of aged merchandise.
• Total operating expenses were down $55.0 million or 35% to $103.1 million primarily due to a $47.1 million impairment charge in the prior year quarter with no similar charge in the current year quarter. Excluding the prior year impairment charge, total operating expenses decreased by 7% or $7.9 million largely driven by the decrease in store expenses of $6.5 million or 7% due to a continued focus on expense control.
• Net inventory was $86.2 million, down 50% year-over-year and 9% sequentially. Inventory turnover improved to 3.1x from 2.1x and on a sequential basis improved 7% from 2.9x.
• Cash and cash equivalents at the end of the quarter was $335.6 million, an increase of $141.9 million or 73% from the prior-year quarter due to the year-over-year reduction in earning assets. On a sequential basis, cash and cash equivalents increased $45.2 million or 16%, due to higher loan redemptions and merchandise sales. 

CONSOLIDATED RESULTS

• Total revenues decreased 17% to $184.9 million. PSC was down 21% to $63.4 million due to lower average PLO. On a sequential basis, PLO decreased 15% from the prior quarter, compared to an 18% sequential decrease in the same period of the prior year.
• Net revenues were down 11% to $113.7 million.
• Consolidated merchandise sales gross profit increased 12% to $49.4 million.
• Consolidated store expenses decreased 7% primarily due to a reduction of expenses in line with reduced activity at the store level. Total store count decreased by 16 stores or 2% since the end of the prior-year quarter due to the closure of 22 financial services stores in Canada. General and administrative expense decreased 10% to $13.8 million, due to a continued focus on expense control.

SEGMENT RESULTS

U.S. Pawn

• Total revenue was down 15% to $147.0 million, reflecting the impact of lower PLO driving a decrease in PSC revenue.
• PLO decreased 22% year-over-year to $95.4 million. On a sequential basis, PLO decreased 22% compared to a 23% sequential decrease in the prior-year quarter.
• PSC decreased 20% to $49.6 million as a result of lower average PLO for the quarter, offset by an increase in PLO yield to 180% from 173%.
• Merchandise sales declined 8% to $93.8 million. Inventory turnover improved to 2.9x from 2.0x. Merchandise sales gross profit was up 13% and related margins grew to 45% from 36%, above our targeted range. Aged general merchandise inventory improved to 1.6% from 6.4%.
• Net revenues decreased 9% to $92.1 million primarily due to lower PSC, partially offset by increased merchandise sales gross profit.
• Store expenses were down 6% to $63.7 million driven by a reduction in labor expense.
• Segment contribution increased $5.3 million to $25.8 million due to a $4.0 million decrease in store expenses and a $10.0 million impairment charge taken in the prior year quarter with no similar charge in the current year quarter, partially offset by a $8.7 million decrease in net revenues driven by the decrease in PSC described above.

Latin America Pawn

• Total revenue was down 22% to $37.8 million, reflecting the impact of lower PLO driving a decrease in PSC revenue in addition to decreased merchandise sales.
• PLO decreased 22% year-over-year to $29.9 million as the result of the impact of constrained traffic, limited operating hours and increased remittances from the U.S. On a sequential basis, PLO increased 15% compared to a 6% decrease in the prior-year quarter.
• PSC decreased 25% to $13.9 million (down 24% to $14.1 million on a constant currency basis) as a result of lower average PLO for the quarter, offset by an increase in yield to 199% from 184% in the prior year.
• Merchandise sales declined 22% to $21.4 million (down 20% to $21.8 million on a constant currency basis), but merchandise sales gross profit was up 10% and related margins were 35%, up from 25%. Inventory turnover improved to 4.0x from 2.5x. Aged general merchandise inventory decreased to 3.1% from 11.4%.
• Net revenues decreased 17% to $21.5 million (down 15% to $21.9 million on a constant currency basis) primarily due to lower PSC.
• Store expenses were down 5% to $17.5 million driven by a reduction in labor expense.
• Segment contribution for the quarter was $2.6 million ($2.7 million on a constant currency basis), compared to a segment loss of $30.1 million in the prior year quarter, primarily due to a $35.9 million impairment charge of goodwill, intangible and other assets taken in the prior year quarter with no similar charge in the current quarter.
• Latin America Pawn added four de novo stores in the quarter. New store openings typically pressure earnings in the short term as they ramp up, but drive higher profitability over time.

FORM 10-Q

EZCORP’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 has been filed with the Securities and Exchange Commission and is available in the Investor Relations section of the Company’s website at http://investors.ezcorp.com.

CONFERENCE CALL

EZCORP will host a conference call on Thursday, May 6, 2021, at 7:00 am Central Time to discuss fiscal second quarter results. Analysts and institutional investors may participate on the conference call by dialing (866) 269-4260, Conference ID: 5433254, or internationally by dialing (323) 347-3277. 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. We also sell merchandise, primarily collateral forfeited from pawn lending operations and pre-owned 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 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, current or future litigation and risks associated with the COVID-19 pandemic. 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 Adjusted basis, which is a non-GAAP measure, excludes certain items. Constant currency basis, which is a non-GAAP measure, excludes the impact of foreign currency exchange rate fluctuations. Free cash flow, which is a non-GAAP measure, includes certain adjustments to cash flow from operating activities.

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.

Non-GAAP Financial Information (Unaudited)

In addition to the financial information prepared in conformity with accounting principles generally accepted in the United States ("GAAP"), we provide certain other non-GAAP financial information on a constant currency ("constant currency") and adjusted basis. We use constant currency results to evaluate our Latin America Pawn operations, which are denominated primarily in Mexican pesos and other Latin American currencies. We believe that presentation of constant currency and adjusted results is meaningful and useful in understanding the activities and business metrics of our operations and reflect an additional way of viewing aspects of our business that, when viewed with GAAP results, provide a more complete understanding of factors and trends affecting our business. We provide non-GAAP financial information for informational purposes and to enhance understanding of our GAAP consolidated financial statements. We use this non-GAAP financial information primarily to evaluate and compare operating results across accounting periods.

Readers should consider the information in addition to, but not instead of or superior to, our financial statements prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.

Constant currency results reported herein are calculated by translating consolidated balance sheet and consolidated statement of operations items denominated in local currency to U.S. dollars using the exchange rate from the prior-year comparable period, as opposed to the current period, in order to exclude the effects of foreign currency rate fluctuations. We used the end-of-period rate for balance sheet items and the average closing daily exchange rate on a monthly basis during the appropriate period for statement of operations items. The end-of-period and approximate average exchange rates for each applicable currency as compared to U.S. dollars as of and for the three and six months ended March 31, 2021 and 2020 were as follows:

Our statement of operations constant currency results reflect the monthly exchange rate fluctuations and so are not directly calculable from the above rates. Constant currency results, where presented, also exclude the foreign currency gain or loss.

Miscellaneous Non-GAAP Financial Measures