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EZCORP Announces First Quarter Fiscal 2017 Results

  • Total revenue up $5.1 million to $192.6 million (up $9.8 million to $197.4 million on a constant currency basis1).

  • Profit before tax more than doubled to $13.0 million ($13.9 million on a constant currency basis); four consecutive quarters of YOY profit growth.

  • Earnings per share from continuing operations increased to $0.15 from $0.06.

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.

AUSTIN, Texas, Feb. 02, 2017 (GLOBE NEWSWIRE) -- EZCORP, Inc. (NASDAQ:EZPW), a leading provider of pawn loans in the United States and Mexico, today announced results for its first quarter ended December 31, 2016.

HIGHLIGHTS FOR FIRST QUARTER FISCAL 2017

Improvements to earning assets generated revenue and profit growth:

  • Positive PLO growth in U.S. and Mexico:

    – Market leading growth in same store pawn loans outstanding (PLO) up 3% in U.S. and down 4% in Mexico (up 14% on a constant currency basis).

    – Leading the U.S. market with average PLO of $287,000 per store.

  • Delivering profitable growth:

    – Growth in revenue and profit before tax, four consecutive quarters of YOY profit growth.

    – Corporate expense savings of 30%; on track for $50 million in FY18.

    – Significant investment in field leadership and customer-facing team members in U.S. Pawn, adding 224 store Team Members, nine field human resources managers, six District Managers and two Divisional Vice Presidents to improve customer experience, particularly during peak sales season; offset impacts of staff turnover; and better coach & mentor store managers.

Strong liquidity position to support growth:

  • $63.7 million cash balance at quarter-end plus $50 million undrawn on our credit facility.

  • Collected $7.8 million in principal on notes receivable from the Grupo Finmart sale during the current quarter, and anticipate collection of an additional $37.4 million in principal during the remainder of fiscal 2017.

CEO COMMENTARY AND OUTLOOK

Stuart Grimshaw, EZCORP's Chief Executive Officer, said: "Our first quarter results reflect the continued intense focus on market leadership in meeting our customers' desire for cash whenever they want it, combined with consistent execution in pawn fundamentals. We delivered strong operating results in our pawn businesses in the U.S. and Mexico with continued growth in same store pawn loans outstanding (PLO), the most influential driver of revenue and profitability.

"We continue to drive corporate expense savings as we move to a leaner business model and remain on track to reduce corporate expense to $50 million in FY18 from $68 million in FY16. We are reinvesting a portion of the savings into initiatives to better serve our customers, including product and customer data analytics and feedback; upgrading our technology; and training, coaching and mentoring programs for our field team. We have also made significant investments in field leadership and customer-facing Team Members. We plan to open about ten new stores in Mexico in FY17.

"We are confident that all these initiatives will continue to improve our pawn operating performance and provide a platform for profitable growth."

1In addition to the financial information prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), we provide certain financial information on a “constant currency” basis, which excludes the impact of foreign currency exchange rate fluctuations. For additional information about the constant currency calculations, as well as a reconciliation of the constant currency financial measures to the comparable GAAP financial measures, see “Non-GAAP Financial Information” at the end of this release.

CONSOLIDATED RESULTS

  • Total revenue up $5.1 million to $192.6 million, and income from continuing operations net of tax increased $4.8 million to $8.3 million. (On a constant currency basis, total revenue was up $9.8 million to $197.4 million and income from continuing operations net of tax was up $5.6 million to $9.1 million.) These results were driven by continued intense focus on market leadership in meeting our customers' desire for cash.

  • Total operating expenses decreased $7.4 million, or 7% (5% on a constant currency basis). This included a corporate expense decrease of $6.1 million to $13.9 million, or 30% lower, driven by a leaner business model.

OPERATING METRICS

U.S. Pawn Segment

  • Continued focus on meeting customers' desire for cash resulted in an increase in total PLO of 4% to $148.6 million, up 3% on a same store basis.

  • Pawn Service Charges (PSC) increased 4% to $61.0 million, up 3% on a same store basis.

  • Merchandise sales increased 3%, both in total and on a same store basis. The merchandise sales gross margin of 36% remained within our target range of 35-38%, although it was 400bps lower than the prior-year quarter.

  • Slight increase in aged inventory to 9% from 8% of total inventory at the end of the previous quarter, although improved to 9% from 11% at the end of the prior-year quarter.

  • Operations expense increased $3.8 million, or up 6%, primarily due to:

    – 224 customer-facing store Team Members, and field leadership positions including two Divisional Vice Presidents, six District Managers and nine field Human Resources Managers; and

    – Commenced store preventative maintenance program.

  • Segment profit before tax decreased $1.7 million, or 6%, to $27.1 million as a result of increased investments in store operations (as shown above).

Mexico Pawn Segment

  • PLO decreased 3% to $14.1 million, compared to an increase of 13% in the prior-year quarter (up 16% to $16.8 million on a constant currency basis. PSC remained flat at $8.0 million, but was up 18% to $9.4 million on a constant currency basis.

  • Merchandise sales were flat, both in total and on a same store basis (up 19% in constant currency). Merchandise margin of 31%, 400bps lower than the prior-year quarter.

  • Segment profit before tax increased 194%, or $2.8 million, to $4.2 million (up 249%, or $3.6 million on a constant currency basis).

  • Maintained aged inventory levels at 5% of gross inventory, although slight increase from 3% at the end of the previous quarter.

CONFERENCE CALL

EZCORP will host a conference call on Friday, February 3, 2017, 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: 62600120, international 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 call.

ABOUT EZCORP

EZCORP is a leading provider of pawn loans in the United States and Mexico. At our pawn stores, we also sell merchandise, primarily collateral forfeited from pawn lending operations and used merchandise purchased from customers.

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.

EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended December 31,
2016 2015
(Unaudited)
(in thousands, except per share amounts)
Revenues:
Merchandise sales$111,513 $108,584
Jewelry scrapping sales9,798 9,621
Pawn service charges69,013 66,594
Other revenues2,300 2,758
Total revenues192,624 187,557
Merchandise cost of goods sold71,732 66,259
Jewelry scrapping cost of goods sold8,344 8,076
Other cost of revenues583 612
Net revenues111,965 112,610
Operating expenses:
Operations77,646 76,018
Administrative13,927 19,983
Depreciation and amortization6,373 7,542
(Gain) loss on sale or disposal of assets(77) 33
Restructuring 1,692
Total operating expenses97,869 105,268
Operating income14,096 7,342
Interest expense5,565 4,127
Interest income(2,616) (9)
Equity in net income of unconsolidated affiliate(1,478) (2,055)
Other (income) expense(423) 102
Income from continuing operations before income taxes13,048 5,177
Income tax expense4,782 1,758
Income from continuing operations, net of tax8,266 3,419
Loss from discontinued operations, net of tax(1,228) (11,685)
Net income (loss)7,038 (8,266)
Net loss attributable to noncontrolling interest(127) (792)
Net income (loss) attributable to EZCORP, Inc.$7,165 $(7,474)
Basic earnings per share attributable to EZCORP, Inc. — continuing operations$0.15 $0.06
Diluted earnings per share attributable to EZCORP, Inc. — continuing operations$0.15 $0.06
Weighted-average basic shares outstanding54,158 54,895
Weighted-average diluted shares outstanding54,214 54,909


EZCORP, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
December 31,
2016
September 30,
2016
(Unaudited)
Assets:
Current assets:
Cash and cash equivalents$63,707 $65,737
Pawn loans162,696 167,329
Pawn service charges receivable, net30,967 31,062
Inventory, net143,440 140,224
Notes receivable, net36,180 41,946
Income taxes receivable1,518 2,533
Prepaid expenses and other current assets34,724 33,312
Total current assets473,232 482,143
Investment in unconsolidated affiliate39,875 37,128
Property and equipment, net54,881 58,455
Goodwill253,585 253,976
Intangible assets, net31,708 30,681
Non-current notes receivable, net39,365 41,119
Deferred tax asset, net34,667 35,303
Other assets, net37,187 44,439
Total assets$964,500 $983,244
Liabilities and equity:
Current liabilities:
Accounts payable, accrued expenses and other current liabilities$68,694 $84,285
Customer layaway deposits9,729 10,693
Total current liabilities78,423 94,978
Long-term debt, net278,936 283,611
Other long-term liabilities8,259 10,450
Total liabilities365,618 389,039
Commitments and contingencies
Stockholders’ equity:
Class A Non-voting Common Stock, par value $.01 per share; shares authorized:100 million as of December 31, 2016 and September 30, 2016;
issued and outstanding: 51,306,608 as of December 31, 2016 and 51,129,144 as of September 30, 2016
513 511
Class B Voting Common Stock, convertible, par value $.01 per share; 3 million shares authorized; issued and outstanding: 2,970,17130 30
Additional paid-in capital319,825 318,723
Retained earnings326,973 319,808
Accumulated other comprehensive loss(47,577) (44,089)
EZCORP, Inc. stockholders’ equity599,764 594,983
Noncontrolling interest(882) (778)
Total equity598,882 594,205
Total liabilities and equity$964,500 $983,244


EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31,
2016 2015
(Unaudited)
(in thousands)
Operating activities:
Net income (loss)$7,038 $(8,266)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization6,373 8,090
Amortization of debt discount and deferred financing costs2,826 3,195
Amortization of prepaid commissions 4,023
Accretion of notes receivable discount(1,029)
Consumer loan loss provision583 9,691
Deferred income taxes750 (4,744)
Other adjustments295 (1,966)
(Gain) loss on sale or disposal of assets(77) 33
Stock compensation1,808 833
Income from investment in unconsolidated affiliate(1,478) (2,055)
Changes in operating assets and liabilities:
Service charges and fees receivable(83) 6,381
Inventory(615) (2,107)
Prepaid expenses, other current assets and other assets(3,856) (5,592)
Accounts payable and other, deferred gains and other long-term liabilities(21,948) (10,776)
Customer layaway deposits(881) (310)
Income taxes receivable and payable, current, net of excess tax benefit from stock compensation5,004 4,045
Payments of restructuring charges (4,943)
Net cash used in operating activities(5,290) (4,468)
Investing activities:
Loans made(156,457) (173,162)
Loans repaid91,283 106,372
Recovery of pawn loan principal through sale of forfeited collateral64,430 58,566
Additions to property and equipment(2,326) (1,139)
Principal collections on notes receivable7,831
Net cash provided by (used in) investing activities4,761 (9,363)
Financing activities:
Taxes paid related to net share settlement of equity awards(706)
Payout of deferred consideration (8,915)
Proceeds from settlement of forward currency contracts 3,557
Change in restricted cash (1,261)
Proceeds from borrowings, net of issuance costs 14,302
Payments on borrowings (29,358)
Net cash used in financing activities(706) (21,675)
Effect of exchange rate changes on cash and cash equivalents(795) (837)
Net decrease in cash and cash equivalents(2,030) (36,343)
Cash and cash equivalents at beginning of period65,737 59,124
Cash and cash equivalents at end of period$63,707 $22,781


EZCORP, Inc.
OPERATING SEGMENT RESULTS (UNAUDITED)
Three Months Ended December 31, 2016
U.S. Pawn Mexico
Pawn
Other
International
Total
Segments
Corporate
Items
Consolidated
(in thousands)
Revenues:
Merchandise sales$94,861 $16,652 $ $111,513 $ $111,513
Jewelry scrapping sales8,845 953 9,798 9,798
Pawn service charges61,045 7,968 69,013 69,013
Other revenues51 131 2,118 2,300 2,300
Total revenues164,802 25,704 2,118 192,624 192,624
Merchandise cost of goods sold60,248 11,484 71,732 71,732
Jewelry scrapping cost of goods sold7,550 794 8,344 8,344
Other cost of revenues 583 583 583
Net revenues97,004 13,426 1,535 111,965 111,965
Segment and corporate expenses (income):
Operations67,350 8,640 1,656 77,646 77,646
Administrative 13,927 13,927
Depreciation and amortization2,617 631 50 3,298 3,075 6,373
Gain on sale or disposal of assets(71) (6) (77) (77)
Interest expense 2 2 5,563 5,565
Interest income (67) (67) (2,549) (2,616)
Equity in net income of unconsolidated affiliate (1,478) (1,478) (1,478)
Other (income) expense(5) 11 (1) 5 (428) (423)
Segment contribution$27,113 $4,215 $1,308 $32,636
Income from continuing operations before income taxes $32,636 $(19,588) $13,048



EZCORP, Inc.
OPERATING SEGMENT RESULTS (UNAUDITED)
Three Months Ended December 31, 2015
U.S. Pawn Mexico
Pawn
Other
International
Total
Segments
Corporate
Items
Consolidated
(in thousands)
Revenues:
Merchandise sales$91,994 $16,586 $4 $108,584 $ $108,584
Jewelry scrapping sales9,600 21 9,621 9,621
Pawn service charges58,621 7,973 66,594 66,594
Other revenues193 191 2,374 2,758 2,758
Total revenues160,408 24,750 2,399 187,557 187,557
Merchandise cost of goods sold55,461 10,798 66,259 66,259
Jewelry scrapping cost of goods sold8,060 16 8,076 8,076
Other cost of revenues 612 612 612
Net revenues96,887 13,952 1,771 112,610 112,610
Segment and corporate expenses (income):
Operations63,545 11,193 1,280 76,018 76,018
Administrative 19,983 19,983
Depreciation and amortization3,560 801 51 4,412 3,130 7,542
Loss on sale or disposal of assets7 26 33 33
Interest expense86 40 126 4,001 4,127
Interest income(1) (1) (8) (9)
Equity in net income of unconsolidated affiliate (2,055) (2,055) (2,055)
Restructuring891 328 204 1,423 269 1,692
Other expense (income) 128 (3) 125 (23) 102
Segment contribution$28,799 $1,436 $2,294 $32,529
Income from continuing operations before income taxes $32,529 $(27,352) $5,177



EZCORP, Inc.
STORE COUNT ACTIVITY (UNAUDITED)
Three Months Ended December 31, 2016
Company-owned Stores
U.S. Pawn Mexico
Pawn
Other
International
Consolidated
As of September 30, 2016520 239 27 786
New locations opened
Locations sold, combined or closed(3) (3)
As of December 31, 2016517 239 27 783


Three Months Ended December 31, 2015
Company-owned Stores
U.S. Pawn Mexico
Pawn
Other
International
Consolidated Franchises
As of September 30, 2015522 237 27 786 1
New locations opened 1 1
Locations sold, combined or closed(6) (1) (7)
As of December 31, 2015516 237 27 780 1

Non-GAAP Financial Information (Unaudited)

In addition to the financial information prepared in conformity with generally accepted accounting principles in the United States of America ("GAAP"), we provide certain other non-GAAP financial information on a constant currency basis ("constant currency"). We use constant currency and ongoing segment contribution results to evaluate results of our Mexico Pawn operations, which are denominated in Mexican pesos and believe that presentation of constant currency results are meaningful and useful in understanding the activities and business metrics of our Mexico Pawn 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 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 Mexican pesos 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 exchange rate as of December 31, 2016 and 2015 was 20.7 to 1 and 17.3 to 1, respectively. The approximate average exchange rate for the three months ended December 31, 2016 and 2015 was 19.8 to 1 and 16.8 to 1, respectively, however our statement of operations constant currency results reflect the impact of monthly effects of exchange rates and so are not directly calculable from the above rates. Constant currency results, where presented, also exclude the foreign currency gain or loss and the related foreign currency derivative gain or loss impact.

The following information provides reconciliations of certain non-GAAP financial measures presented in this press release to the most directly comparable financial measures calculated and presented in accordance with GAAP as of and for the three months ended December 31, 2016.

Miscellaneous Non-GAAP Financial Measures

U.S. Dollar
Amount
Percentage
Change YOY
(in millions)
Consolidated revenue$192.6 3 %
Currency exchange rate fluctuations 4.8
Constant currency consolidated revenue$197.4 5 %
Consolidated income from continuing operations before income taxes$13.0 152 %
Currency exchange rate fluctuations 0.9
Constant currency income from continuing operations before income taxes$13.9 167 %
Mexico Pawn same store loans outstanding$13.7 (4)%
Currency exchange rate fluctuations 2.6
Constant currency Mexico Pawn same store loans outstanding$16.3 14 %
Consolidated income from continuing operations, net of tax$8.3 142 %
Currency exchange rate fluctuations 0.8
Constant currency income from continuing operations, net of tax$9.1 165 %
Consolidated operating expenses$97.9 (7)%
Currency exchange rate fluctuations 1.7
Constant currency consolidated operating expenses$99.6 (5)%
Mexico Pawn loans outstanding$14.1 (3)%
Currency exchange rate fluctuations 2.7
Constant currency Mexico Pawn loans outstanding$16.8 16 %
Mexico Pawn service charges$8.0 %
Currency exchange rate fluctuations 1.4
Constant currency Mexico Pawn service charges$9.4 18 %
Mexico Pawn merchandise revenue$16.7 %
Currency exchange rate fluctuations 3.1
Constant currency Mexico Pawn merchandise revenue$19.8 19 %
Mexico Pawn same store merchandise revenue$16.1 %
Currency exchange rate fluctuations 3.0
Constant currency Mexico Pawn same store merchandise revenue$19.1 19 %
Mexico Pawn segment profit before tax$4.2 194 %
Currency exchange rate fluctuations 0.8
Constant currency Mexico Pawn segment profit before tax$5.0 249 %


Contact: Jeff Christensen Vice President, Investor Relations Email: jeff_christensen@ezcorp.com Phone: (512) 437-3545

Source:EZCORP, Inc.