What changed in this filing

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Item 1. Financial Statements

2020-08-04 compared with 2020-05-11 · 182 added, 171 removed, 480 unchanged (42% of the section changed)

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issued and outstanding:

52,097,590 as of March 31, 2020;

52,475,070 as of March 31, 2019;

52,097,590 as of June 30, 2020;

52,475,070 as of June 30, 2019;

and 52,565,064 as of September 30, 2019

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31,

Six Months Ended March 31,

Three Months Ended June 30,

Nine Months Ended June 30,

(in thousands, except per share amounts)

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Depreciation and amortization

Loss (gain) on sale or disposal of assets and other

Loss on sale or disposal of assets and other

Total operating expenses

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(Loss) income from continuing operations before income taxes

Income tax expense

Income tax (benefit) expense

(Loss) income from continuing operations, net of tax

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Three Months Ended March 31,

Six Months Ended March 31,

Three Months Ended June 30,

Nine Months Ended June 30,

(in thousands)

Net (loss) income

Other comprehensive loss:

Foreign currency translation loss, net of income tax benefit for our investment in unconsolidated affiliate of $517 and $380 for the three and six months ended March 31, 2020, respectively, and $602 and $515 for the three and six months ended March 31, 2019.

Other comprehensive (loss) income:

Foreign currency translation loss, net of income tax benefit for our investment in unconsolidated affiliate of $561 and $181 for the three and nine months ended June 30, 2020, respectively, and $45 and ($470) for the three and nine months ended June 30, 2019.

Comprehensive (loss) income

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Balances as of March 31, 2019

Stock compensation

Foreign currency translation gain

Balances as of June 30, 2019

Comprehensive Loss

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Balances as of March 31, 2020

Stock compensation

Foreign currency translation gain

Balances as of June 30, 2020

See accompanying notes to unaudited interim condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands)

Operating activities:

Adjustments to reconcile net loss to net cash flows from operating activities:

Net (loss) income

Adjustments to reconcile net (loss) income to net cash flows from operating activities:

Depreciation and amortization

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Stock compensation expense

Loss from investment in unconsolidated affiliates

Equity in net loss (gain) from investment in unconsolidated affiliates

Changes in operating assets and liabilities, net of business acquisitions:

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Principal collections on notes receivable

Net cash provided by investing activities

Net cash provided by (used in) investing activities

Financing activities:

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Effect of exchange rate changes on cash and cash equivalents and restricted cash

Net increase in cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

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Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

March 31, 2020

June 30, 2020

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Pawn loans are non-recourse loans collateralized by tangible property.

We also sell merchandise, primarily collateral forfeited from pawn lending operations and used merchandise purchased from customers, and operate a small number of financial services stores in Canada.

We also sell merchandise, primarily collateral forfeited from pawn lending operations and used merchandise purchased from customers.

Additionally, we operate a small number of financial services stores in Canada.

Basis of Presentation

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The balance sheet as of September 30, 2019 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

Our business is subject to seasonal variations, and operating results for the three and six months ended March 31, 2020 and 2019 (the "current quarter" and "current six-months" and "prior-year quarter" and "prior-year six-months," respectively) are not necessarily indicative of the results of operations for the full fiscal year.

Our business is subject to seasonal variations, and operating results for the three and nine months ended June 30, 2020 and 2019 (the "current quarter" and "current nine-months" and "prior-year quarter" and "prior-year nine-months," respectively) are not necessarily indicative of the results of operations for the full fiscal year.

There have been no changes in significant accounting policies as described in our Annual Report on Form 10-K for the year ended September 30, 2019 , other than those described below and in Note 12 .

Use of Estimates and Assumptions

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.

On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventories, loan loss allowances, long-lived and intangible assets, share-based compensation, income taxes, contingencies and litigation.

We base our estimates on historical experience, observable trends and various other assumptions that we believe are reasonable under the circumstances.

We use this information to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ materially from these estimates under different assumptions or conditions.

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.

The Company regularly evaluates estimates and judgments, including those related to revenue recognition, inventories, loan loss allowances, long-lived and intangible assets, share-based compensation, income taxes, contingencies and litigation.

The Company bases its estimates on historical experience, observable trends and various other assumptions that it believes to be reasonable under the circumstances.

We use this information to make judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.

Actual results may differ materially and adversely from the Company's estimates under different assumptions or conditions.

Impact of COVID-19

The novel coronavirus disease known as “COVID-19” was characterized as a worldwide pandemic by the World Health Organization on March 11, 2020.

It has significantly disrupted businesses around the world.

We began to see the impact of COVID-19 to our operations in mid-March, when the closure of non-essential businesses and the implementation of stay-at-home requirements began in our geographic locations.

and Mexico, we have been able to keep most of our stores open for business and operating under enhanced safety measures and restrictions on occupancy.

Store closure orders in our GPMX countries (Guatemala, El Salvador, Honduras and Peru) have had a more severe impact on our business.

In addition, we have experienced a significant decline in pawn loan originations and associated loan balances since mid-March as a result of a change in customer borrowing behaviors due to COVID-19.

These declines continued into April and are ongoing.

See Note 14 (Subsequent Event).

This reduced activity resulted in net revenue losses during the current quarter, which were partially offset with a strong increase in merchandise sales during the period.

The full extent and duration of the COVID-19 impact on the global economy generally, and on our business specifically, is currently unknown.

We expect, however, that the pandemic will have an adverse effect on our net revenues and earnings in

fiscal 2020, and if it continues, it may have an adverse effect on our results of operations, financial position and liquidity in future periods.

We continue to focus on the health and safety of our employees and customers while serving our customers’ needs.

In December 2019, a novel strain of coronavirus “COVID-19” was identified in Wuhan, China.

COVID-19 has caused a global health emergency and was declared a worldwide pandemic by the World Health Organization on March 11, 2020.

In an effort to slow and contain the spread of COVID-19, local, state and national governments implemented various measures, which have impacted businesses worldwide.

The Company began to see the impact of COVID-19 to our operations in mid-March when the closure of non-essential businesses and the implementation of stay-at-home requirements began in our geographic locations.

During the third quarter, we were able to keep virtually all of our stores in the U.S.

and Mexico open for business and operating under enhanced safety measures and restrictions on occupancy, but store closure orders in our GPMX countries (Guatemala, El Salvador, Honduras and Peru) had a more severe impact on our business.

Starting in mid-March and continuing through most of the third quarter, we experienced a significant decline in pawn loan originations and associated loan balances as a result of a change in customer borrowing behaviors due to COVID-19.

reduced activity resulted in net revenue losses during the current quarter, which were partially offset by a strong increase in merchandise sales during the period.

The full extent and duration of the COVID-19 impact on the global economy generally, and on our business specifically, is currently unknown and cannot be reasonably estimated.

The pandemic will have an adverse effect on our net revenues and earnings in fiscal 2020 and we expect the impact of the pandemic, and the recovery therefrom, will continue to adversely affect net revenues and earnings into fiscal 2021.

A prolonged pandemic and recovery may have an adverse effect on our results of operations, financial position and liquidity in future periods.

Recently Adopted Accounting Policies

On October 1, 2019, we adopted ASC Topic 842, Leases, which requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets.

We adopted this using the optional prospective transition method provided under ASU 2018-11, Leases, (Topic 842):

Targeted Improvement as of October 1, 2019.

We additionally elected the package of practical expedients under Accounting Standards Codification (“ASC”) 842-10-65-1(f) as well as the practical expedient not to separate lease and non-lease components for all real estate leases under ASC 842-10-15-37.

Further, we have elected an accounting policy not to record right-of-use assets and lease liabilities for all leases which have a duration of less than 12-months.

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate.

ASU 2020-04 is effective upon issuance through December 31, 2022.

This ASU has not had a significant impact on the Company's consolidated financial statements and related disclosures to date.

The Company will continue to assess the applicability to any future arrangements.

Effective October 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), which requires companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet using the optional prospective transition method provided under ASU 2018-11, Leases- (Topic 842):

Targeted Improvements.

Additionally, the Company elected the package of practical expedients under Accounting Standards Codification ("ASC") 842 as well as the transition guidance elections to not separate lease and non-lease components for leases under ASC 842.

Further, the Company has elected an accounting policy to not record right-of-use assets and lease liabilities for leases that have a duration of 12-months or less.

See Note 5 for additional discussion.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

This ASU, along with subsequently issued related ASUs, requires financial assets (or groups of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected, among other provisions.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326) (ASU 2016-13").

ASU 2016-13 modifies the measurement of expected credit losses of certain financial instruments, requiring entities to estimate an expected lifetime credit loss on financial assets.

The ASU amends the impairment model to utilize an expected loss methodology and replaces the incurred loss methodology for financial instruments including trade receivables.

The amendment requires entities to consider other factors, such as economic conditions and future economic conditions.

A reporting entity should generally apply the amendment on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the amendment is effective.

We have not identified any impacts to our financial statements that we believe will be material as a result of the adoption of the ASU, although we continue to evaluate the impact of adoption.

We believe we are following an appropriate timeline to allow for proper recognition, presentation and disclosure upon adoption of this ASU which is effective for the first quarter of our fiscal 2021.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This ASU provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate.

This ASU was issued on of March 12, 2020 and is effective upon issuance through December 31, 2022.

We have not identified any impacts to our financial statements that we believe will be material as a result of the adoption of the ASU, although we will continue to evaluate the impact.

Please refer to Note 1 of Notes to Consolidated Financial Statements included in "Part II, Item 8 — Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the year ended September 30, 2019 for discussion of our significant accounting policies and other accounting pronouncements issued but not yet adopted.

The Company is still assessing the amendments in ASU 2016-13 and does not expect the amendments will have a significant impact on the Company's consolidated financial statements and related disclosures.

ASU 2016-13 is effective for the first quarter of fiscal 2021.

GOODWILL AND INTANGIBLE ASSETS

We test goodwill and intangible assets with indefinite useful lives for potential impairment annually, or more frequently when there are events or circumstances that indicate it is more likely than not that an impairment exists.

During the current quarter, we evaluated such events and circumstances and concluded there was an indicator of impairment due to a decline in our market capitalization.

During the second quarter of fiscal 2020, we evaluated such events and circumstances and concluded there was an indicator of impairment due to a decline in our market capitalization.

We performed a quantitative analysis as of March 31, 2020 utilizing the income approach.

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These factors impacted the forecast of future net revenues and earnings and resulted in lower present value of future cash flows.

This led to a goodwill impairment charge of $ 41.3 million in the current quarter.

In addition, we (a) determined an impairment had occurred in the fair values of acquired trade names of previously acquired entities in our Mexico and GPMX reporting units and recorded a related impairment of $ 2.9 million and $ 1.7 million respectively, and (b) determined the carrying amount of certain long-lived asset groups were not recoverable and recorded a related impairment of $ 1.1 million .

This led to a goodwill impairment charge of $ 41.3 million in the second quarter of fiscal 2020.

These impairments were recorded under "Impairment of goodwill and intangible assets" in the condensed consolidated statements of operations.

We further evaluated events and circumstances as of June 30, 2020 and determined there were no impairment indicators.

We will continue to evaluate our goodwill and intangible assets in future quarters, and note that we could be required to record additional impairments based on events and circumstances.

The changes in the carrying amount of goodwill by reportable segment for fiscal 2020 were as follows:

Six Months Ended March 31, 2020

Nine Months Ended June 30, 2020

Latin America Pawn

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Impairment charge

Balance at March 31, 2020

Balance at June 30, 2020

Cumulative goodwill impairment charges

In June 2019, we acquired assets related to seven pawn stores operating under the name "Metro Pawn" in Nevada, entering the Reno market and expanding our presence in the Las Vegas metropolitan area, for an aggregate purchase price of $ 7.0 million in cash, of which $ 3.9 million was recorded as goodwill.

In June 2019, the Company acquired assets related to seven pawn stores operating under the name "Metro Pawn" in Nevada, entering the Reno market and expanding our presence in the Las Vegas metropolitan area, for an aggregate purchase price of $ 7.0 million in cash, of which $ 3.9 million was recorded as goodwill.

In December 2018, we acquired assets related to five pawn stores in Mexico for an aggregate purchase price of $ 0.3 million in cash, of which $ 0.1 million was recorded as goodwill.

Substantially all goodwill attributable to the fiscal 2019 acquisitions will be deductible for tax purposes.

Substantially all goodwill attributable to the fiscal 2019 acquisitions is deductible for tax purposes.

We have concluded that these acquisitions were immaterial to our overall consolidated financial results and, therefore, have omitted information that would otherwise be required.

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Components of basic and diluted earnings per share and excluded antidilutive potential common shares are as follows:

Three Months Ended March 31,

Six Months Ended March 31,

Three Months Ended June 30,

Nine Months Ended June 30,

(in thousands, except per share amounts)

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Restricted stock**

Includes time-based share-based awards and Convertible Note Warrants.

See Note 8 for discussion of the terms and conditions of the potential impact of the 2019 Convertible Notes Warrants, 2024 Convertible Notes and 2025 Convertible Notes.

Includes antidilutive share-based awards as well as performance-based and market conditioned share-based awards that are contingently issuable, but for which the condition for issuance has not been met as of the end of the reporting period.

As described in Note 1, we adopted ASC Topic 842 as of October 1, 2019.

We lease our pawn locations and corporate offices under operating leases and determine if an arrangement is or contains a lease at inception.

After an initial lease term of generally three to ten years , our real property lease agreements typically allow renewals in three to five -year increments.

We generally account for the initial lease term of our pawn locations as up to ten years , including renewal options.

Our corporate office is leased through March 2029 with annually escalating rent and includes two five -year extension options at the end of the initial lease term.

Our pawn location lease agreements generally include rent escalations throughout the initial lease term, with certain future rental payments contingent on increases in a consumer price index, included in variable lease expense.

Many leases include both lease and non-lease components, which we have elected not to account for separately.

Effective October 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842).

The Company's lease portfolio consists primarily of operating leases for pawn locations and corporate offices.

Those leases have initial terms ranging from three to ten years and typically allows for renewals in increments of three to five -years.

The Company generally accounts for the initial lease term of our pawn locations as up to ten years , including renewal options.

Our primary corporate office is leased through March 2029 with escalating rent payments annually and includes two five -year extension options at the end of the initial lease term.

Our pawn location lease agreements generally include rent escalations throughout the initial lease term, with certain future rental payments contingent on increases in the consumer price index, included in variable lease expense.

The Company elected to utilize the transition guidance accounting policy elections available, including to not account for lease and non-lease components separately.

Lease components generally include rent, taxes and insurance, while non-lease components generally include common area or other maintenance.

The weighted-average remaining lease term for operating leases as of March 31, 2020 was 5.72 years .

The Company determines if an arrangement is or contains a lease at inception.

The weighted-average remaining lease term for operating leases as of June 30, 2020 was 5.58 years .

As our leases generally do not include an implicit rate, we compute our incremental borrowing rate based on information available at the lease commencement date applying the portfolio approach to groups of leases with similar characteristics.

We used incremental borrowing rates that match the duration of the remaining lease terms of our operating leases on a fully collateralized basis upon adoption as of October 1, 2019 to initially measure our lease liability.

The weighted average incremental borrowing rate used to measure our lease liability as of March 31, 2020 was 8.25 % .

The details of our right-of-use asset and lease liability recognized upon adoption of ASC 842 computed based on the consumer price index and foreign currency exchange rate as applicable then in effect and excluding executory costs on October 1, 2019 are as follows (in thousands):

The Company used incremental borrowing rates that match the duration of the remaining lease terms of our operating leases on a fully collateralized basis upon adoption to initially measure our lease liability.

The weighted average incremental borrowing rate used to measure the lease liability as of June 30, 2020 was 8.25 % .

The details of the Company's right-of-use asset and lease liability recognized upon adoption of ASC 842, computed based on the consumer price index and foreign currency exchange rate as applicable then in effect and excluding executory costs on October 1, 2019 are as follows (in thousands):

Right-of-use asset

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Lease expense is recognized on a straight-line basis over the lease term with variable lease expense recognized in the period in which the costs are incurred.

The components of lease expense included in "Operations" and "Administrative" expense, based on the underlying lease use, in our condensed consolidated statements of operations for the three and six months ended March 31, 2020 are as follows (in thousands):

Three Months Ended March 31,

Six Months Ended March 31,

The components of lease expense included in "Operations" and "Administrative" expense, based on the underlying lease use, in our condensed consolidated statements of operations for the three and nine months ended June 30, 2020 are as follows (in thousands):

Three Months Ended June 30,

Nine Months Ended June 30,

Operating lease expense

Variable lease expense

Maturity of our lease liabilities as of March 31, 2020 is as follows (in thousands):

Six months ending September 30, 2020

As of June 30, 2020 , maturities of lease liabilities by fiscal year were as follows (in thousands):

Three months ending September 30, 2020

Portion representing interest

Prior to our adoption of ASC 842, future minimum undiscounted rentals due under non-cancelable leases as of September 30, 2019 for each subsequent fiscal year were as follows (in thousands):

We present the changes in our lease right-of-use asset and lease liabilities gross in our condensed consolidated statements of cash flows.

The supplemental cash flow information relating to our operating leases for the six months ended March 31, 2020 is as follows (in thousands):

Lease right-of-use assets obtained in exchange for operating lease liabilities subsequent to adoption of ASC 842

Current portion

Total long term lease liability

Prior to the adoption of ASC 842, future minimum undiscounted lease payments due under non-cancelable leases as of September 30, 2019 for each subsequent fiscal year were as follows (in thousands):

We present changes in the lease right-of-use asset and lease liabilities gross in the Company's condensed consolidated statements of cash flows.

The supplemental cash flow information relating to our operating leases for the nine months ended

June 30, 2020 is as follows (in thousands):

Lease right-of-use assets obtained in exchange for operating lease liabilities subsequent to adoption of Topic 842

STRATEGIC INVESTMENTS

As of March 31, 2020 , we owned 214,183,714 shares, or approximately 34.75 % , of Cash Converters International Limited ("Cash Converters International").

As of June 30, 2020 , the Company owned 214,183,714 shares, or approximately 34.75 % , of Cash Converters International Limited ("Cash Converters International").

The following tables present summary financial information for Cash Converters International’s most recently reported results at December 31, 2019 after translation to U.S.

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Cash Converters International agreed to pay AUD $ 42.5 million , subject to court approval.

We recorded a charge, net of tax, of $ 7.1 million for our proportionate share of the settlement in the first quarter of fiscal 2020 related to this event, in addition to our regularly included share of earnings from Cash Converters International.

See Note 7 for the fair value and carrying value of our investment in Cash Converters International.

The Company recorded a charge, net of tax, of $ 7.1 million for its proportionate share of the settlement in the first quarter of fiscal 2020 related to this event, in addition to the Company's share of earnings from Cash Converters International.

See Note 7 for the fair value and carrying value of the Company's investment in Cash Converters International.

FAIR VALUE MEASUREMENTS

Our assets and liabilities discussed below are classified in one of the following three categories based on the inputs used to develop their fair values:

The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The fair value hierarchy prioritizes the quality and reliability of the information used to determine fair values.

Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The fair value hierarchy is defined into the following three categories:

Level 1 — Quoted market prices in active markets for identical assets or liabilities.

Level 2 — Other observable market-based inputs or unobservable inputs that are corroborated by market data.

and Level 3 — Unobservable inputs that are not corroborated by market data.

Level 3 — Unobservable inputs that are not corroborated by market data.

We have elected not to measure at fair value any eligible items for which fair value measurement is optional.

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Estimated Fair Value

March 31, 2020

June 30, 2020

Fair Value Measurement Using

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Estimated Fair Value

March 31, 2019

June 30, 2019

Fair Value Measurement Using

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Zero-coupon convertible promissory note due January 2021

2.89% promissory note receivable due April 2024

Investments in unconsolidated affiliates

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2025 Convertible Notes

8.5% unsecured debt due 2024

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CASHMAX secured borrowing facility

As a result of the impact of the novel coronavirus disease (“COVID-19”), certain of the above fair values as of March 31, 2020 may be highly volatile.

We estimate that the carrying value of our cash and cash equivalents, pawn loans, pawn service charges receivable, current consumer loans, fees and interest receivable and other debt approximate fair value.

As a result of the impact of COVID-19, certain of the above fair values as of June 30, 2020 may be highly volatile.

We estimate the carrying value of our cash and cash equivalents, pawn loans, pawn service charges receivable, current consumer loans, fees and interest receivable and other debt approximate fair value.

We consider our cash and cash equivalents to be measured using Level 1 inputs and our pawn loans, pawn service charges receivable, consumer loans, fees and interest receivable and other debt to be measured using Level 3 inputs.

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("Grupo Finmart") to Alpha Holding, S.A.

(“AlphaCredit”) in September 2016 as of March 31, 2020 under a discounted cash flow approach considering the estimated credit ratings for Grupo Finmart and AlphaCredit, with discount rates of primarily 7 % .

(“AlphaCredit”) in September 2016 as of June 30, 2020 under a discounted cash flow approach considering the estimated credit ratings for Grupo Finmart and AlphaCredit, with discount rates of primarily 5 % .

Certain of the significant inputs used for the valuation were not observable in the market.

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In March 2020, AlphaCredit paid $ 4.0 million of the remaining deferred compensation into an escrow account pending resolution of the claim;

we recorded that amount under “Prepaid expenses and other current assets, net” in our condensed consolidated balance sheet as of March 31, 2020.

we recorded that amount under “Restricted cash” in our condensed consolidated balance sheet as of June 30, 2020 .

We reviewed the financial statements of Grupo Finmart and AlphaCredit including the calculation of synthetic credit spreads as described above in making our determination that the Parent Loan Notes are collectible on an ongoing basis.

The equity method of accounting is followed for our 13 % ownership in a previously consolidated variable interest entity ("RDC") over which we no longer have the power to direct the activities that most significantly affect its economic performance.

We believe that its fair value approximates carrying value although such fair value is highly variable and includes significant unobservable inputs.

We measured the fair value of the 2024 and 2025 Convertible Notes using quoted price inputs.

The Company uses the equity method of accounting for its 13 % ownership in a previously consolidated variable interest entity ("RDC") over which we no longer have the power to direct the activities that most significantly affect its economic performance.

We believe its fair value approximates carrying value although such fair value is highly variable and includes significant unobservable inputs.

The Company measured the fair value of the 2024 and 2025 Convertible Notes using quoted price inputs.

The notes are not actively traded, and thus the price inputs represent a Level 2 measurement.

As the quoted price inputs are highly variable from day to day, the fair value estimates disclosed above could significantly increase or decrease.

The following tables present our debt instruments outstanding, contractual maturities and interest expense:

March 31, 2020

March 31, 2019

The following tables present the Company's debt instruments outstanding, contractual maturities and interest expense:

June 30, 2020

June 30, 2019

September 30, 2019

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2025 Convertible Notes

8.5% unsecured debt due 2024*

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CASHMAX secured borrowing facility

Excludes the potential impact of embedded derivatives.

Three Months Ended March 31,

Six Months Ended March 31,

Excludes the potential impact of embedded derivatives as discussed below.

Three Months Ended June 30,

Nine Months Ended June 30,

(in thousands)

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2.375 % Convertible Senior Notes Due 2025

In May 2018, we issued $ 172.5 million aggregate principal amount of 2.375 % Convertible Senior Notes Due 2025 (the “2025 Convertible Notes”).

The 2025 Convertible Notes were issued pursuant to an indenture dated May 14, 2018 (the "2018 Indenture") by and between us and Wells Fargo Bank, National Association, as the original trustee.

In May 2018, the Company issued $ 172.5 million aggregate principal amount of 2.375 % Convertible Senior Notes Due 2025 (the “2025 Convertible Notes”).

The 2025 Convertible Notes were issued pursuant to an indenture dated May 14, 2018 (the "2018 Indenture") by and between the Company and Wells Fargo Bank, National Association, as the original trustee.

The 2025 Convertible Notes were issued in a private offering under Rule 144A under the Securities Act of 1933.

The 2025 Convertible Notes pay interest semi-annually in arrears at a rate of 2.375 % per annum on May 1 and November 1 of each year, commencing November 1, 2018, and mature on May 1, 2025 (the "2025 Maturity Date"), unless converted, redeemed or repurchased in accordance with their terms prior to such date.

The carrying amount of the 2025 Convertible Notes as a separate equity-classified instrument (the “2025 Convertible Notes Embedded Derivative”) included in “Additional paid-in capital” in our condensed consolidated balance sheets of March 31, 2020 was $ 39.0 million .

The effective interest rate for the three and six months ended March 31, 2020 was approximately 9 % .

As of March 31, 2020 , the remaining unamortized debt discount and issuance costs will be amortized through the 2025 Maturity Date assuming no early conversion.

The 2025 Convertible Notes are convertible into cash or shares of Class A Non-voting Common Stock ("Class A Common Stock"), or any combination thereof, at our option subject to satisfaction of certain conditions and during the periods described in the 2018 Indenture, based on an initial conversion rate of 62.8931 shares of Class A Common Stock per $1,000 principal amount of 2025 Convertible Notes (equivalent to an initial conversion price of $ 15.90 per share of our Class A Common Stock).

We account for the Class A Common Stock issuable upon conversion under the treasury stock method.

To the extent our average share price is over $ 15.90 per share for any fiscal quarter or year-to-date period, we are required to recognize incremental dilution of our earnings per share.

If, among other triggers described in the 2018 Indenture, the market price of our Class A Common Stock meets the threshold based on at least 20 of the final 30 trading days of the quarter for the 2025 Convertible Notes to become convertible at the option of the holders during the subsequent quarter, we may be required to classify the 2025 Convertible Notes as current on our condensed consolidated balance sheets for each quarter in which such triggers are met.

The stock trading price condition and other triggers are measured on a quarter-by-quarter basis and were not met as of March 31, 2020 .

As of March 31, 2020 , the if-converted value of the 2025 Convertible Notes did not exceed the principal amount.

The effective interest rate for the three and nine months ended June 30, 2020 was approximately 9 % .

As of June 30, 2020 , the remaining unamortized debt discount and issuance costs will be amortized through the 2025 Maturity Date assuming no early conversion.

The 2025 Convertible Notes are convertible into cash or shares of Class A Non-voting Common Stock ("Class A Common Stock"), or any combination thereof, at the Company's option subject to satisfaction of certain conditions and during the periods described in the 2018 Indenture, based on an initial conversion rate of 62.8931 shares of Class A Common Stock per $1,000 principal amount of 2025 Convertible Notes (equivalent to an initial conversion price of $ 15.90 per share of the Company's Class A Common Stock).

The Company accounts for the Class A Common Stock issuable upon conversion under the treasury stock method.

To the extent the Company's average share price is over $ 15.90 per share for any fiscal quarter or year-to-date period, the Company is required to recognize incremental dilution of the Company's earnings per share.

If, among other triggers described in the 2018 Indenture, the market price of the Company's Class A Common Stock meets the threshold based on at least 20 of the final 30 trading days of the quarter for the 2025 Convertible Notes to become convertible at the option of the holders during the subsequent quarter, the Company may be required to classify the 2025 Convertible Notes as current on the Company's condensed consolidated balance sheets for each quarter in which such triggers are met.

trading price condition and other triggers are measured on a quarter-by-quarter basis and were not met as of June 30, 2020 .

As of June 30, 2020 , the if-converted value of the 2025 Convertible Notes did not exceed the principal amount.

2.875 % Convertible Senior Notes Due 2024

In July 2017, we issued $ 143.75 million aggregate principal amount of 2.875 % Convertible Senior Notes Due 2024 (the “2024 Convertible Notes”).

The 2024 Convertible Notes were issued pursuant to an indenture dated July 5, 2017 (the "2017 Indenture") by and between us and Wells Fargo Bank, National Association, as the original trustee.

In July 2017, the Company issued $ 143.75 million aggregate principal amount of 2.875 % Convertible Senior Notes Due 2024 (the “2024 Convertible Notes”).

The 2024 Convertible Notes were issued pursuant to an indenture dated July 5, 2017 (the "2017 Indenture") by and between the Company and Wells Fargo Bank, National Association, as the original trustee.

The 2024 Convertible Notes were issued in a private offering under Rule 144A under the Securities Act of 1933.

The 2024 Convertible Notes pay interest semi-annually in arrears at a rate of 2.875 % per annum on January 1 and July 1 of each year, commencing January 1, 2018, and mature on July 1, 2024 (the "2024 Maturity Date"), unless converted, redeemed or repurchased in accordance with their terms prior to such date.

The carrying amount of the 2024 Convertible Notes as a separate equity-classified instrument (the “2024 Convertible Notes Embedded Derivative”) included in “Additional paid-in capital” in our condensed consolidated balance

sheets of March 31, 2020 was $ 25.3 million .

The effective interest rate for the three and six months ended March 31, 2020 was approximately 9 % .

As of March 31, 2020 , the remaining unamortized debt discount and issuance costs will be amortized through the 2024 Maturity Date assuming no early conversion.

The 2024 Convertible Notes are convertible into cash or shares of Class A Common Stock, or any combination thereof, at our option subject to satisfaction of certain conditions and during the periods described in the 2017 Indenture, based on an initial conversion rate of 100 shares of Class A Common Stock per $1,000 principal amount of 2024 Convertible Notes (equivalent to an initial conversion price of $ 10.00 per share of our Class A Common Stock).

We account for the Class A Common Stock issuable upon conversion under the treasury stock method.

To the extent our average share price is over $ 10.00 per share for any fiscal quarter, we are required to recognize incremental dilution of our earnings per share.

If, among other triggers described in the 2017 Indenture, the market price of our Class A Common Stock meets the threshold based on at least 20 of the final 30 trading days of the quarter for the 2024 Convertible Notes to become convertible at the option of the holders during the subsequent quarter, we may be required to classify the 2024 Convertible Notes as current on our condensed consolidated balance sheets for each quarter in which such triggers are met.

The stock trading price condition and other triggers are measured on a quarter-by-quarter basis and were not met as of March 31, 2020 .

As of March 31, 2020 , the if-converted value of the 2024 Convertible Notes did not exceed the principal amount.

The effective interest rate for the three and nine months ended June 30, 2020 was approximately 9 % .

As of June 30, 2020 , the remaining unamortized debt discount and issuance costs will be amortized through the 2024 Maturity Date assuming no early conversion.

The 2024 Convertible Notes are convertible into cash or shares of Class A Common Stock, or any combination thereof, at the Company's option subject to satisfaction of certain conditions and during the periods described in the 2017 Indenture, based on an initial conversion rate of 100 shares of Class A Common Stock per $1,000 principal amount of 2024 Convertible Notes (equivalent to an initial conversion price of $ 10.00 per share of the Company's Class A Common Stock).

The Company accounts for the Class A Common Stock issuable upon conversion under the treasury stock method.

To the extent the Company's average share price is over $ 10.00 per share for any fiscal quarter, the Company is required to recognize incremental dilution of our earnings per share.

If, among other triggers described in the 2017 Indenture, the market price of the Company's Class A Common Stock meets the threshold based on at least 20 of the final 30 trading days of the quarter for the 2024 Convertible Notes to become convertible at the option of the holders during the subsequent quarter, the Company may be required to classify the 2024 Convertible Notes as current on the Company's condensed consolidated balance sheets for each quarter in which such triggers are met.

The stock trading price condition and other triggers are measured on a quarter-by-quarter basis and were not met as of June 30, 2020 .

As of June 30, 2020 , the if-converted value of the 2024 Convertible Notes did not exceed the principal amount.

2.125 % Cash Convertible Senior Notes Due 2019

In June 2014, we issued $ 200 million aggregate principal amount of 2.125 % Cash Convertible Senior Notes Due 2019 (the "2019 Convertible Notes"), with an additional $ 30 million principal amount of 2019 Convertible Notes issued in July 2014.

In July 2017, we used $ 34.4 million of net proceeds from the 2024 Convertible Notes offering to repurchase and retire $ 35.0 million aggregate principal amount of 2019 Convertible Notes.

In June 2014, the Company issued $ 200 million aggregate principal amount of 2.125 % Cash Convertible Senior Notes Due 2019 (the "2019 Convertible Notes"), with an additional $ 30 million principal amount of 2019 Convertible Notes issued in July 2014.

In July 2017, the Company used $ 34.4 million of net proceeds from the 2024 Convertible Notes offering to repurchase and retire $ 35.0 million aggregate principal amount of 2019 Convertible Notes.

The 2019 Convertible Notes paid interest semi-annually in arrears at a rate of 2.125 % per annum on June 15 and December 15 of each year.

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2019 Convertible Notes Warrants

In connection with the issuance of the 2019 Convertible Notes, we also sold net-share-settled warrants (the “2019 Convertible Notes Warrants”).

The 2019 Convertible Notes Warrants allowed for the purchase of up to approximately 14.3 million shares of our Class A Common Stock at a strike price of $ 20.83 per share.

We account for the Class A Common Stock issuable upon exercise under the treasury stock method.

As a result of the 2019 Convertible Notes Warrants, we will experience dilution to our diluted earnings per share if our average closing stock price exceeds $ 20.83 for any fiscal quarter before expiration of the warrants.

The unexpired 2019 Convertible Notes Warrants expire in April 2020 and, if exercised, must be settled in net shares of our Class A Common Stock.

Therefore, upon expiration of the 2019 Convertible Notes Warrants, we would issue shares of Class A Common Stock to the purchasers of the 2019 Convertible Notes Warrants that represent the value by which the price of the Class A Common Stock exceeds the strike price stipulated within the particular warrant agreement, if any.

As of March 31, 2020 , there are approximately 1.4 million shares of Class A Common Stock issuable under the 2019 Convertible Notes Warrants outstanding.

In connection with the issuance of the 2019 Convertible Notes, the Company also sold net-share-settled warrants (the “2019 Convertible Notes Warrants”).

The 2019 Convertible Notes Warrants allowed for the purchase of up to approximately 14.3 million shares of the Company's Class A Common Stock at a strike price of $ 20.83 per share.

The Company accounted for the Class A Common Stock issuable upon exercise under the treasury stock method.

The 2019 Convertible Notes Warrants began to expire on a daily basis after we repaid the 2019 Convertible Notes and the last of the unexpired 2019 Convertible Notes Warrants expired in May 2020.

As of June 30, 2020, there were no 2019 Convertible Notes Warrants outstanding, and no shares of Class A Common Stock were ever issued pursuant to the 2019 Convertible Notes Warrants.

CASHMAX Secured Borrowing Facility

In November 2018, we entered into a receivables securitization facility with a third-party lender (the "lender") to provide funding for installment loan originations in our Canadian CASHMAX business.

In November 2018, the Company entered into a receivable's securitization facility with a third-party lender (the "lender") to provide funding for installment loan originations in our Canadian CASHMAX business.

Under the facility, a variable interest entity (the "trust") has the right, subject to various conditions, to borrow up to CAD $ 25 million from the lender (the "third-party loan") and use the proceeds to purchase interests in installment loan receivables generated by CASHMAX.

The trust uses collections on the transferred receivables to pay various amounts in accordance with an agreed priority arrangement, including expenses, its obligations under the third-party loan and, to the extent available, amounts owned to CASHMAX with respect to the purchase price of the transferred receivables and CASHMAX's retained interest in the receivables.

CASHMAX has no obligation with respect to the third-party loan or the transferred receivables except to (a) service the underlying installment loans on behalf of the trust and (b) pay amounts owing under or repurchase the underlying installment loans in the event of a breach by CASHMAX or in certain other limited circumstances.

CASHMAX has no obligation with respect to the third-party loan or the transferred receivables except to (a) service the underlying installment loans on behalf of the trust and (b) pay amounts owed under or repurchase the underlying installment loans in the event of a breach by CASHMAX or in certain other limited circumstances.

The facility is nonrecourse to EZCORP (subject to certain limited guaranty obligations), allowed borrowing through November 2019, and fully matures in November 2021.

Our obligation under the facility as of March 31, 2020 was $ 0.3 million .

The Company's obligation under the facility as of June 30, 2020 was $ 0.3 million .

COMMON STOCK AND STOCK COMPENSATION

Common Stock Repurchase Program

In December 2019, our Board of Directors authorized the repurchase of up to $ 60.0 million of our Class A Common Stock over three years .

During the three and six months ended March 31, 2020 , we repurchased and retired 800,740 and 943,149 shares of our Class A Common Stock for $ 4.2 million and $ 5.2 million , respectively, which amount was allocated between "Additional paid-in capital" and "Retained earnings" in our condensed consolidated balance sheets.

On March 20, 2020, we suspended our repurchase of shares under the program to preserve current liquidity as a result of uncertainties regarding the COVID-19 pandemic.

In December 2019, the Company's Board of Directors (the "Board") authorized the repurchase of up to $ 60.0 million of our Class A Common Stock over three years .

Repurchases under the program were suspended in March 2020 in order to preserve liquidity as a result of uncertainties regarding the COVID-19 pandemic.

No share repurchases under the program were made during the third quarter.

During the nine months ended June 30, 2020 , the Company repurchased and retired 943,149 shares of our Class A Common Stock for $ 5.2 million , which amount was allocated between "Additional paid-in capital" and "Retained earnings" in the Company's condensed consolidated balance sheets.

Stock Compensation

As of September 30, 2019, the EZCORP, Inc.

2010 Long-Term Incentive Plan, which has been approved by our Board of Directors, permitted grants of options, restricted stock awards and stock appreciation rights covering up to 5,485,649 shares of our Class A Common Stock.

During the first quarter of fiscal 2020, we granted a total of 222,912 restricted stock awards to our nine non-employee directors.

2010 Long-Term Incentive Plan, which has been approved by the Company's Board, permitted grants of options, restricted stock awards and stock appreciation rights covering up to 5,485,649 shares of the Company's Class A Common Stock.

During the first quarter of fiscal 2020, the Company granted a total of 222,912 restricted stock awards to nine non-employee directors.

These awards vest on September 30, 2020 and are subject only to service conditions.

The number of long-term incentive award shares and units granted are generally determined based on our share price as of the beginning of the fiscal year, which was $ 6.46 for fiscal 2020 awards.

The number of long-term incentive award shares and units granted are generally determined based on the Company share price as of the beginning of the fiscal year, which was $ 6.46 for fiscal 2020 awards.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law and includes certain income tax provisions relevant to businesses.

The Company is required to recognize the effect on the consolidated financial statements in the period the law was enacted, which is the period ended March 31, 2020.

For the period ended March 31, 2020, the CARES Act did not have a material impact on the Company’s consolidated financial statements.

At this time, the Company does not expect the impact of the CARES Act to have a material impact on the Company’s consolidated financial statements for the year ended December 31, 2020.

The Company recognized the effect on the consolidated financial statements in the period the law was enacted in, the period ended March 31, 2020.

For the period ended June 30, 2020, the CARES Act has not had a material impact on the Company’s consolidated financial statements.

At this time, the Company does not expect the impact of the CARES Act to have a material impact on the Company’s consolidated financial statements for the year ending September 30, 2020.

CONTINGENCIES

Currently and from time to time, we are involved in various claims, suits, investigations and legal proceedings.

Currently and from time to time, the Company is involved in various claims, suits, investigations and legal proceedings.

While we are unable to determine the ultimate outcome of any current litigation or regulatory actions, we believe their resolution will not have a material adverse effect on our financial condition, results of operations or liquidity.

SEGMENT INFORMATION

During the first quarter of fiscal 2020, we revised the financial information our chief operating decision maker (currently our chief executive officer) reviews for operational decision-making purposes and for allocation of capital to include the separate financial results of our Lana business.

Our historical segment results have been recast to conform to current presentation.

We currently report our segments as follows:

During the first quarter of fiscal 2020, the Company revised its financial information our chief operating decision maker (our chief executive officer) reviews for operational decision-making purposes and for allocation of capital to include the separate financial results of our Lana business.

The Company's historical segment results have been recast to conform to current presentation.

The Company currently reports segment information as follows:

Pawn — all pawn activities in the United States;

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Lana — our differentiated customer-centric engagement platform;

and Other International — primarily our equity interest in the net income of Cash Converters International and consumer finance activities in Canada.

There are no inter-segment revenues presented below, and the amounts below were determined in accordance with the same accounting principles used in our condensed consolidated financial statements.

While we expect the operations of the Lana segment to have a positive impact on our pawn loan redemption rates and therefore our pawn service charges and yield, the pawn service charges will all be reported in our pawn segments rather than allocated to the Lana segment.

and Other International — primarily the Company's equity interest in the net income of Cash Converters International and consumer finance activities in Canada.

There are no inter-segment revenues presented below, and the amounts below were determined in accordance with the same accounting principles used in the Company's condensed consolidated financial statements.

While we expect the operations of the Lana segment to have a positive impact on pawn loan redemption rates and therefore pawn service charges and yield, the pawn service charges will all be reported in our pawn segments rather than allocated to the Lana segment.

Only discrete revenues related to the Lana segment will be reported in the Lana segment results.

As a digital offering, Lana has no separate physical store locations.

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Latin America Pawn

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Interest income

Equity in net income of unconsolidated affiliates

Equity in net loss of unconsolidated affiliates

Impairment of goodwill and intangible assets

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Segment contribution (loss)

Loss from continuing operations before income taxes

Three Months Ended March 31, 2019

Income (loss) from continuing operations before income taxes

Three Months Ended June 30, 2019

Latin America Pawn

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Income from continuing operations before income taxes

Six Months Ended March 31, 2020

Nine Months Ended June 30, 2020

Latin America Pawn

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Income (loss) from continuing operations before income taxes

Six Months Ended March 31, 2019

Nine Months Ended June 30, 2019

Latin America Pawn

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SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION

Supplemental Consolidated Financial Information

The following table provides supplemental information on net amounts included in our condensed consolidated balance sheets and condensed consolidated statements of cash flows:

March 31, 2020

March 31, 2019

The following table provides supplemental information on net amounts included in the Company's condensed consolidated balance sheets and condensed consolidated statements of cash flows:

June 30, 2020

June 30, 2019

September 30, 2019

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SUBSEQUENT EVENTS

Since March 31, 2020, the decline in pawn loan balances has accelerated and is continuing.

The decline in pawn loan balances will have a negative impact on net revenues and earnings for the remainder of fiscal 2020 and future periods until we are able to rebuild the loan balances.

Since March 31, 2020, we have continued to experience strong merchandise sales, partially offsetting the impact of the declining loan balances.

As a result of this increased sales activity, the decrease in loan originations and liquidity initiatives, our cash balance has continued to grow, increasing to greater than $ 250.0 million at the end of April 2020.

During July 2020, in conjunction with the ongoing evaluation of our strategic direction, we reviewed a variety of strategic alternatives for our CashMax business and related operations in Canada and concluded that a shutdown of the business was the preferred alternative.

We do not expect this shutdown will have a major effect on the Company's operations and financial results as this business represents approximately 1 % of total revenues and less than 1 % of total assets as of June 30, 2020 and does not represent a major geographical area.

We expect the shutdown will be completed during the fourth quarter of fiscal 2020 and will result in charges of approximately $ 8.0 - $ 10.0 million , which will be recorded in the results of operations for the fourth quarter.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements