What changed in this filing

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Item 1. Financial Statements

2021-02-03 compared with 2020-08-04 · 302 added, 405 removed, 257 unchanged (73% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(in thousands, except share and per share amounts) December 31,

September 30,

2 unchanged sentences

Restricted cash 8,011 — 8,011

Pawn loans 147,852 195,586 131,323

Pawn service charges receivable, net 24,825 32,250 20,580

6 unchanged sentences

Lease right-of-use asset 177,308 225,950 183,809

Goodwill 258,453 301,282 257,582

Intangible assets, net 58,794 68,995 58,638

1 unchanged sentence

Deferred tax asset, net 10,000 2,123 8,931

Other assets 5,534 5,012 4,221

Total assets $ 1,197,164 $ 1,300,942 $ 1,197,023

Liabilities and equity:

15 unchanged sentences

issued and outstanding:

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

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

52,628,588 as of December 31, 2020;

52,886,122 as of December 31, 2019;

and 52,332,848 as of September 30, 2020

5 unchanged sentences

Accumulated other comprehensive loss ( 56,791 ) ( 46,327 ) ( 68,068 )

Total equity 664,502 751,600 649,127

Total liabilities and equity $ 1,197,164 $ 1,300,942 $ 1,197,023

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended June 30,

Nine Months Ended June 30,

(in thousands, except per share amounts)

Three Months Ended

(in thousands, except per share amount) 2020 2019

Merchandise sales $ 107,783 $ 126,728

6 unchanged sentences

Other cost of revenues — 536

Net revenues 108,390 130,069

Operating expenses:

Administrative

Impairment of goodwill and intangible assets

Store expenses 79,309 89,275

General and administrative 12,510 18,839

Depreciation and amortization 7,572 7,733

Loss on sale or disposal of assets and other

(Gain) loss on sale or disposal of assets and other ( 22 ) 744

Total operating expenses 99,369 116,591

Operating (loss) income

Operating income 9,021 13,478

Interest expense 5,455 5,329

1 unchanged sentence

Equity in net (income) loss of unconsolidated affiliates ( 516 ) 5,897

Impairment of investment in unconsolidated affiliates

Other (income) expense ( 599 ) 98

(Loss) income from continuing operations before income taxes

Income tax (benefit) expense

(Loss) income from continuing operations, net of tax

Loss from discontinued operations, net of tax

Net (loss) income

Net loss attributable to noncontrolling interest

Net (loss) income attributable to EZCORP, Inc.

Basic (loss) earnings per share attributable to EZCORP, Inc.

— continuing operations

Diluted (loss) earnings per share attributable to EZCORP, Inc.

— continuing operations

Income before income taxes 5,502 2,997

Income tax expense 1,203 1,759

Net income $ 4,299 $ 1,238

Basic earnings per share $ 0.08 $ 0.02

Diluted earnings per share $ 0.08 $ 0.02

Weighted-average basic shares outstanding 55,361 55,666

1 unchanged sentence

See accompanying notes to unaudited interim condensed consolidated financial statements

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Three Months Ended June 30,

Nine Months Ended June 30,

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended

(in thousands) 2020 2019

Net (loss) income

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

Comprehensive loss attributable to noncontrolling interest

Comprehensive (loss) income attributable to EZCORP, Inc.

Net income $ 4,299 $ 1,238

Other comprehensive income:

Foreign currency translation adjustment 11,277 6,071

Comprehensive income $ 15,576 $ 7,309

See accompanying notes to unaudited interim condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Comprehensive Loss

Noncontrolling Interest

(Unaudited, except balances as of September 30, 2018)

(in thousands)

(Unaudited except for balances as of September 30, 2020 and September 30, 2019)

Common Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive Loss Total Equity

(in thousands) Shares Par Value

Balances as of September 30, 2020 55,303 $ 551 $ 398,475 $ 318,169 $ ( 68,068 ) $ 649,127

2 unchanged sentences

Taxes paid related to net share settlement of equity awards — — ( 730 ) — — ( 730 )

Transfer of subsidiary shares to noncontrolling interest

Foreign currency translation loss

Balances as of December 31, 2018

Stock compensation

Deconsolidation of subsidiary

Foreign currency translation loss

Net income (loss)

Balances as of March 31, 2019

Stock compensation

Foreign currency translation gain — — — — 11,277 11,277

Balances as of June 30, 2019

Comprehensive Loss

(Unaudited, except balances as of September 30, 2019)

(in thousands)

Net income — — — 4,299 — 4,299

Balances as of December 31, 2020 55,599 $ 556 $ 398,269 $ 322,468 $ ( 56,791 ) $ 664,502

Common Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive Loss Total Equity

(in thousands) Shares Par Value

Balances as of September 30, 2019 55,535 $ 556 $ 407,628 $ 389,163 $ ( 52,398 ) $ 744,949

4 unchanged sentences

Purchase and retirement of treasury stock ( 142 ) ( 2 ) ( 488 ) ( 473 ) — ( 963 )

Net income — — — 1,238 — 1,238

Balances as of December 31, 2019 55,856 $ 559 $ 407,440 $ 389,928 $ ( 46,327 ) $ 751,600

Stock compensation

Release of restricted stock

Taxes paid related to net share settlement of equity awards

Foreign currency translation loss

Purchase and retirement of treasury stock

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

Nine Months Ended June 30,

Three Months Ended

(in thousands) 2020 2019

Operating activities:

Net (loss) income

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

Net income $ 4,299 $ 1,238

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

Depreciation and amortization 7,572 7,733

4 unchanged sentences

Impairment of goodwill and intangible assets — —

Impairment of investment in unconsolidated affiliate

Other adjustments ( 167 ) 1,298

Reserve on jewelry scrap receivable

Provision for inventory reserve ( 1,510 ) 329

Stock compensation expense 524 1,695

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

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

Equity in net (income) loss of unconsolidated affiliates ( 516 ) 5,897

Changes in operating assets and liabilities:

Service charges and fees receivable ( 4,034 ) ( 355 )

Inventory 1,323 ( 1,921 )

Prepaid expenses, other current assets and other assets ( 713 ) ( 9,649 )

1 unchanged sentence

Customer layaway deposits ( 1,311 ) ( 467 )

Net cash provided by operating activities

Income taxes 68 ( 1,188 )

Net cash used in operating activities ( 4,513 ) ( 10,918 )

Investing activities:

Loans made ( 142,936 ) ( 187,362 )

Loans repaid 77,116 109,623

Recovery of pawn loan principal through sale of forfeited collateral 53,981 76,515

Additions to property and equipment, net

Acquisitions, net of cash acquired

Principal collections on notes receivable

Net cash provided by (used in) investing activities

Capital expenditures, net ( 3,223 ) ( 5,574 )

Net cash used in investing activities ( 15,062 ) ( 6,798 )

Financing activities:

6 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents and restricted cash 6,266 1,349

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

Net decrease in cash, cash equivalents and restricted cash ( 14,092 ) ( 19,301 )

Cash, cash equivalents and restricted cash at beginning of period 312,553 162,442

Cash, cash equivalents and restricted cash at end of period $ 298,461 $ 143,141

Supplemental disclosure of cash flow information

Cash and cash equivalents $ 290,450 $ 143,141

Restricted cash 8,011 —

Total cash and cash equivalents and restricted cash $ 298,461 $ 143,141

Non-cash investing and financing activities:

1 unchanged sentence

See accompanying notes to unaudited interim condensed consolidated financial statements.

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

June 30, 2020

Notes to Interim Condensed Consolidated Financial Statements

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

When used in this report, the terms “we,” “us,” “our,” “EZCORP” and the “Company” mean EZCORP, Inc.

and its consolidated subsidiaries, collectively.

We are a leading provider of pawn loans in the United States and Latin America.

(collectively with its subsidiaries, the “Company”, “we”, “us” or “our”) is a leading provider of pawn loans in the United States and Latin America.

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.

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

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

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.

Our management has included all adjustments it considers necessary for a fair presentation and which are of a normal, recurring nature.

All intercompany accounts and transactions have been eliminated in consolidation.

Certain prior year amounts have been reclassified to conform to current year presentation.

The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended September 30, 2019 .

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 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 accompanying interim unaudited condensed consolidated financial statements (“Condensed Consolidated Financial Statements”) have been prepared in accordance with U.S.

generally accepted accounting principles (“U.S.

GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X.

Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

These Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2 020 , filed with the SEC on December 14, 2020 (“2020 Annual Report”).

In the opinion of management, the accompanying Condensed Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation.

Financial results for the three-month period ended December 31, 2020 are not necessarily indicative of results that may be expected for the fiscal year ending September 30, 2021.

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

There have been no changes that have had a material impact in significant accounting policies as described in our Annual Report on Form 10-K for the year ended September 30, 20 20 .

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of EZCORP, Inc., and its wholly owned subsidiaries.

We use the equity method of accounting for entities in which we have a 50% or less investment and exercise significant influence.

We account for equity investments for which we do not have significant influence and without readily determinable fair values at cost with adjustments for observable changes in price in orderly transactions for identical or similar investments of the same issuer or impairments.

All inter-company accounts and transactions have been eliminated in consolidation.

Reclassifications

The Company has reclassified certain amounts in prior-period financial statements to conform to the current periods presentation.

Use of Estimates

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.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Such estimates and assumptions include the determination of revenue recognition, inventory reserves, expected credit losses, useful lives of long-lived and intangible assets, valuation of share-based compensation, valuation of equity investments, valuation of deferred tax assets and liabilities, loss contingencies related to litigation and discount rates used for operating leases.

Actual results may result in actual amounts differing from reported amounts.

Impact of COVID-19

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.

The COVID-19 pandemic continues to affect the U.S.

and global economies, and as previously disclosed in our 2020 Annual Report, the pandemic also affected our businesses in a variety of ways beginning in the second quarter of fiscal 2020 and continuing into fiscal 2021.

We cannot estimate the length or severity of the COVID-19 pandemic or the related financial consequences on our business and operations, including whether and when historic economic and operating conditions will resume or the extent to which the disruption may impact our

business, financial position, results of operations or cash flows.

Our estimates, judgments and assumptions related to COVID-19 could ultimately differ over time.

Recently Adopted Accounting Policies

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) (ASU 2016-13").

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.

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 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.

The income approach is based on the present value of future cash flows, which are derived from our long-term financial forecasts, and requires significant assumptions, including, among others, a discount rate and terminal value.

There is inherent uncertainty associated with these key assumptions including the duration of the economic downturn associated with COVID-19 and the recovery period.

As a result of our quantitative analysis, we determined the fair value of each of our reporting units was below its carrying value because of the impact of COVID-19, including a significant decline in pawn loan balances due to changes in typical customer behavior and mandated store closures in our GPMX countries.

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 second quarter of fiscal 2020.

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 in the second quarter of 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:

Nine Months Ended June 30, 2020

Latin America Pawn

(in millions)

Balance at September 30, 2019

Impairment charge

Balance at June 30, 2020

Cumulative goodwill impairment charges

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 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.

The amendment requires entities to consider other factors, such as historical loss experience, current conditions and reasonable and supportable forecasts.

ASU 2016-13 was effective on October 1, 2020.

We adopted ASU 2016-13 effective October 1, 2020 using the modified retrospective approach.

There was no net cumulative effect adjustment to retained earnings as of October 1, 2020 as a result of this adoption.

This amendment did not have a material impact on our balance sheets or cash flows from operations and did not have a significant impact on our operating results.

Recently Issued Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current U.S.

ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas.

ASU 2020-06 is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020 and adoption must be as of the beginning of our annual fiscal year.

We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.

EXPECTED CREDIT LOSSES

We adopted ASU 2016-13 effective October 1, 2020.

The Company has financing receivables within the scope of ASU 2016-13, specifically pawn loans receivables and related pawn service charges receivables.

Our pawn loans are short-term in nature, typically 30-120 days for U.S.

Pawn loans and 30 days for Latin America Pawn loans.

Under our existing accounting policy, if a pawn loan is deemed to be uncollectible, we do not recognize an allowance for doubtful accounts due to the expected recovery of the loan principal amount through the sale of the collateral.

We record the forfeited collateral as inventory at the pawn loan principal amount.

Pawn service charges are recorded under the interest method over the term of the related pawn loan.

Under our existing accounting policy, we accrue for any earned but unpaid pawn service charges at the end each month.

We then apply a reserve to pawn service charges receivable at the end of each month using a pawn loan forfeiture rate derived from a trailing twelve-month average, adjusted for seasonality factors.

We have evaluated, on a collective basis, our pawn loans receivables and pawn service charges receivables and determined the new credit loss standard will not have a material impact on our consolidated financial statements, as our current polices appropriately capture lifetime expected credit losses.

The presentation of pawn loans and pawn service charges receivable as separate line items on our consolidated balance sheet will remain unchanged under the new credit loss standard.

As of December 31, 2020, pawn loans and related pawn service charges receivable, net were $ 147.9 million and $ 24.8 million, respectively.

OTHER CHARGES

During the fourth quarter of fiscal 2020, we began to implement strategic initiatives to refocus on our core pawn business and optimize our cost structure in order to improve our bottom line performance and position the Company for sustainable growth.

The initiatives focused on workforce reductions, closure of our CASHMAX operations, store closures, write-offs and other miscellaneous charges.

We recorded $ 20.4 million of such charges for the quarter ended September 30, 2020, and had accrued charges of $ 10.7 million remaining at September 30, 2020.

We had no similar charges for the quarter ended December 31, 2020.

(in millions) Accrued Charges at September 30, 2020 Charges Payments and Adjustments Accrued Charges at December 31, 2020

Cash charges:

Labor reduction costs $ 5.9 $ — $ ( 2.3 ) $ 3.6

CASHMAX shutdown costs 0.8 — ( 0.4 ) 0.4

Store closure costs 1.8 — ( 1.8 ) —

Other 2.2 — ( 0.1 ) 2.1

$ 10.7 $ — $ ( 4.6 ) $ 6.1

EARNINGS PER SHARE

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

Three Months Ended June 30,

Nine Months Ended June 30,

The following table reconciles the number of common shares used to compute basic and diluted earnings per share attributable to EZCORP Inc., shareholders:

Three Months Ended

(in thousands, except per share amounts) 2020 2019

Net (loss) income from continuing operations attributable to EZCORP (A)

Loss from discontinued operations, net of tax (B)

Net (loss) income attributable to EZCORP (C)

Weighted-average outstanding shares of common stock (D)

Dilutive effect of restricted stock*

Weighted-average common stock and common stock equivalents (E)

Basic (loss) earnings per share attributable to EZCORP:

Continuing operations (A / D)

Discontinued operations (B / D)

Basic (loss) earnings per share (C / D)

Diluted (loss) earnings per share attributable to EZCORP:

Continuing operations (A / E)

Discontinued operations (B / E)

Diluted (loss) earnings per share (C / E)

Net income $ 4,299 $ 1,238

Earnings per common share

Average common share outstanding (denominator) 55,361 55,666

Earnings per common share $ 0.08 $ 0.02

Diluted earnings per common share

Average common share outstanding 55,361 55,666

Dilutive effect of restricted stock and convertible notes* 67 21

Diluted average common shares outstanding (denominator) 55,428 55,687

Diluted earnings per common share $ 0.08 $ 0.02

Potential common shares excluded from the calculation of diluted earnings per share above*:

Restricted stock** 657 2,216

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.

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 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.

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):

* Includes time-based share-based awards and Convertible Notes.

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

** Includes antidilutive share-based awards as well as performance-based 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.

We determine if a contract contains a lease at inception.

Our lease portfolio consists primarily of operating leases for pawn store locations and corporate offices with lease terms ranging from three to ten years .

The information below provides a summary of our leasing activities.

See Note 12 in our 2020 Annual Report for additional information about our leasing activities.

The table below presents balances of our operating leases:

(in thousands) December 31, 2020 December 31, 2019 September 30,

Right-of-use asset $ 177,308 $ 225,950 $ 183,809

Straight-line rent accrual

Lease liability, current $ 45,351 $ 48,052 $ 49,742

Lease liability, non-current 143,620 186,352 153,040

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 nine months ended June 30, 2020 are as follows (in thousands):

Three Months Ended June 30,

Nine Months Ended June 30,

Total lease liability $ 188,971 $ 234,404 $ 202,782

The table below provides the composition of our lease costs:

Three Months Ended

(in thousands) 2020 2019

Operating lease expense $ 15,199 $ 16,526

Variable lease expense 3,045 2,807

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

Three months ending September 30, 2020

Total lease expense $ 18,244 $ 19,333

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 are included in "Store" and "General and Administrative" expense, based on the underlying lease use.

Other supplemental information includes the following for our operating leases:

Three Months Ended

Weighted-average remaining contractual lease term (years)

Weighted-average incremental borrowing rate 7.85 % 8.44 %

Maturities of lease liabilities as of December 31, 2020 were as follows (in thousands):

Remaining 2021

Thereafter 42,260

Total lease payments $ 229,985

Portion representing interest 41,014

Present value of operating lease liabilities $ 188,971

Current portion 45,351

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

Non-current portion $ 143,620

We recorded $ 1.6 million and $ 0.8 million in non-cash additions to our right of use assets and lease liabilities for the quarters ended December 31, 2020 and December 31, 2019, respectively.

STRATEGIC INVESTMENTS

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.

As of December 31, 2020, we 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 June 30, 2020 after translation to U.S.

(in thousands) 2020 2019

1 unchanged sentence

Non-current assets 172,833 152,483

Total assets $ 330,016 $ 326,309

Current liabilities $ 68,028 $ 77,434

2 unchanged sentences

Total liabilities and shareholders’ equity $ 330,016 $ 326,309

Half-Year Ended December 31,

Fiscal Year Ended June 30,

(in thousands) 2020 2019

Gross revenues $ 187,025 $ 201,365

On October 21, 2019, Cash Converters International agreed to settle a class action lawsuit previously filed on behalf of borrowers residing in Queensland, Australia who took out personal loans from Cash Converters International between July 30, 2009 and June 30, 2013.

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

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.

Gross profit 112,511 111,932

Net loss ( 7,032 ) ( 1,210 )

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

FAIR VALUE MEASUREMENTS

8 unchanged sentences

There were no transfers in or out of Level 1, Level 2 or Level 3 for financial assets or liabilities measured at fair value on a recurring basis during the periods presented.

The tables below present our financial assets and liabilities that are not measured at fair value on a recurring basis:

Carrying Value

Estimated Fair Value

June 30, 2020

Fair Value Measurement Using

(in thousands)

Fair Value Measurement on a Recurring Basis

As of December 31, 2020 and September 30, 2020, we did not have any financial assets or liabilities measured at fair value on a recurring basis.

Financial Assets and Liabilities Not Measured at Fair Value

The tables below present our estimates of fair value of financial assets and liabilities that were not measured at fair value:

Carrying Value Estimated Fair Value

December 31, 2020 December 31, 2020 Fair Value Measurement Using

(in thousands) Level 1 Level 2 Level 3

Financial assets:

Notes receivable from Grupo Finmart, net

2.89 % promissory note receivable due April 2024

$ 1,156 $ 1,156 $ — $ — $ 1,156

Investments in unconsolidated affiliates 31,773 44,716 37,039 — 7,677

3 unchanged sentences

8.5 % unsecured debt due 2024

CASHMAX secured borrowing facility

Carrying Value

Estimated Fair Value

June 30, 2019

Fair Value Measurement Using

(in thousands)

816 816 — — 816

Carrying Value Estimated Fair Value

December 31, 2019 December 31, 2019 Fair Value Measurement Using

(in thousands) Level 1 Level 2 Level 3

Financial assets:

Notes receivable from Grupo Finmart, net $ 7,450 $ 7,729 $ — $ — $ 7,729

Zero-coupon convertible promissory note due January 2021

2.89 % promissory note receivable due April 2024

1,124 1,124 — — 1,124

Investments in unconsolidated affiliates 29,272 42,460 34,555 — 7,905

3 unchanged sentences

8.5 % unsecured debt due 2024

1,042 1,042 — — 1,042

CASHMAX secured borrowing facility ( 260 ) 404 — — 404

Carrying Value

Estimated Fair Value

Carrying Value Estimated Fair Value

September 30,

1 unchanged sentence

Fair Value Measurement Using

(in thousands)

(in thousands) Level 1 Level 2 Level 3

Financial assets:

Notes receivable from Grupo Finmart, net

2.89 % promissory note receivable due April 2024

$ 1,148 $ 1,148 $ — $ — $ 1,148

Investments in unconsolidated affiliates 32,458 32,597 24,833 — 7,764

3 unchanged sentences

8.5 % unsecured debt due 2024

CASHMAX secured borrowing facility

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.

872 872 — — 872

Due to the short-term nature of cash and cash equivalents, pawn loans, pawn service charges receivable and other debt, we estimate that the carrying value approximates fair value.

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

Significant increases or decreases in the underlying assumptions used to value pawn loans, pawn service charges receivable, consumer loans, fees and interest receivable and other debt could significantly increase or decrease these fair value estimates.

We measured the fair value of the remaining deferred compensation fee due in September 2020 from the sale of Prestaciones Finmart, S.A.P.I.

de C.V., SOFOM, E.N.R.

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

(“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.

Significant increases or decreases in the underlying assumptions used to value the notes receivable could significantly increase or decrease these fair value estimates.

We remain obligated to indemnify AlphaCredit for any tax obligations arising from the Grupo Finmart business that are attributable to periods prior to the completion of the sale in September 2016, referred to as “pre-closing taxes.” Those obligations continue until the expiration of the statute of limitations applicable to the pre-closing periods.

In August 2019, AlphaCredit notified us of an indemnity claim for certain pre-closing taxes, but the nature, extent and validity of such claim has yet to be determined.

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 “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 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.

In March 2019, we received $ 1.1 million in previously escrowed seller funds as a result of settling certain indemnification claims with the seller of GPMX.

In April 2019, we loaned the $ 1.1 million back to the seller of GPMX in exchange for a promissory note.

The note bears interest at the rate of 2.89 % per annum and is secured by certain marketable securities owned by the seller and held in a U.S.

brokerage account.

All principal and accrued interest is due and payable in April 2024.

The note approximated its carrying value as of December 31, 2020.

We use the equity method of accounting to account for our 34.75 % ownership in Cash Converters International.

The inputs used to generate the fair value of the investment were considered Level 1 inputs.

These inputs are comprised of (a) the quoted stock price on the Australian

Stock Exchange multiplied by (b) the number of shares we owned multiplied by (c) the applicable foreign currency exchange rate as of the end of our reporting period.

We included no control premium for owning a large percentage of outstanding shares.

We use the equity method of accounting to account for our 13.14 % ownership in Rich Data Corporation, a previously consolidated variable interest entity for 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.

We 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 the Company's debt instruments outstanding, contractual maturities and interest expense:

June 30, 2020

June 30, 2019

September 30, 2019

Debt Discount and Issuance Costs

Carrying Amount

Debt Discount and Issuance Costs

Carrying Amount

Debt Discount and Issuance Costs

Carrying Amount

(in thousands)

In September 2020, we received the final payment from AlphaCredit on the notes receivable related to the sale of Grupo Finmart and recorded the amount under “Restricted cash” in our consolidated balance sheet as of December 31, 2020.

In August 2019, AlphaCredit notified us of an indemnity claim for certain pre-closing taxes, but the nature, extent and validity of such claim has yet to be determined.

The following table presents the Company's debt instruments outstanding:

December 31, 2020 December 31, 2019 September 30, 2020

(in thousands) Gross Amount Debt Discount and Issuance Costs Carrying Amount Gross Amount Debt Discount and Issuance Costs Carrying Amount Gross Amount Debt Discount and Issuance Costs Carrying Amount

2024 Convertible Notes $ 143,750 $ ( 25,014 ) $ 118,736 $ 143,750 $ ( 31,010 ) $ 112,740 $ 143,750 $ ( 26,557 ) $ 117,193

1 unchanged sentence

8.5 % unsecured debt due 2024*

816 — 816 1,042 — 1,042 872 — 872

CASHMAX secured borrowing facility* — — — 404 ( 664 ) ( 260 ) — — —

Total $ 317,066 $ ( 62,531 ) $ 254,535 $ 317,696 $ ( 76,272 ) $ 241,424 $ 317,122 $ ( 65,893 ) $ 251,229

Less current portion 213 — 213 215 — 215 213 — 213

2 unchanged sentences

Certain disclosures omitted due to materiality considerations.

The following table presents the Company's contractual maturities related to the debt instruments as of December 31, 2020:

Schedule of Contractual Maturities

Less Than 1 Year

More Than 5 Years

(in thousands)

(in thousands) Total Less Than 1 Year 1 - 3 Years 3 - 5 Years More Than 5 Years

2024 Convertible Notes* $ 143,750 $ — $ — $ 143,750 $ —

1 unchanged sentence

8.5 % unsecured debt due 2024

CASHMAX secured borrowing facility

816 213 425 178 —

$ 317,066 $ 213 $ 425 $ 316,428 $ —

* Excludes the potential impact of embedded derivatives as discussed below.

Three Months Ended June 30,

Nine Months Ended June 30,

The following table presents the Company's interest expense related to the Convertible Notes for the three months ended December 31, 2020 and 2019:

Three Months Ended

(in thousands) 2020 2019

7 unchanged sentences

Total interest expense $ 2,843 $ 2,715

2025 Convertible Notes:

Contractual interest expense

Amortization of debt discount and deferred financing costs

Total interest expense

2.875 % Convertible Senior Notes Due 2024

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 the 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 as of June 30, 2020 was $ 39.0 million .

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

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 the Company and Wells Fargo Bank, National Association, as the original trustee.

Effective October 1, 2019, Truist (formerly BB&T) assumed the duties and responsibilities as trustee under the 2017 Indenture.

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 the 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 June 30, 2020 was $ 25.3 million .

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, 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.

The 2019 Convertible Notes matured on June 15, 2019 (the "2019 Maturity Date") , and the remaining $ 195.0 million aggregate principal amount outstanding plus accrued interest was repaid using cash on hand.

2019 Convertible Notes Warrants

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, 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 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.

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

COMMON STOCK AND STOCK COMPENSATION

At maturity, the holders of the 2024 Convertible Notes will be entitled to receive cash equal to the principal of the 2024 Convertible Notes plus accrued interest.

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

As of December 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 Class A Common Stock).

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

To the extent the 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 the 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 December 31, 2020.

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

2.375 % 2025 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”).

Effective October 1, 2019, Truist (formerly BB&T) assumed the duties and responsibilities as trustee under the 2018 Indenture.

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

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

As of December 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 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 Class A Common Stock).

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

To the extent the 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 the 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 December 31, 2020.

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

CASHMA X Secured Borrowing Facility

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

We terminated this facility in September 2020 as part of the closure of the operations of our CASHMAX business.

See our 2020 Annual Report for additional information regarding the closure of our Canadian operations.

Prior to the termination of the facility, a variable interest entity (the "trust") had 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 used 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 had 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 was nonrecourse to EZCORP (subject to certain limited guaranty obligations), allowed borrowing through November 2019, and was to fully mature in November 2021.

SHARE-BASED COMPENSATION

Common Stock Repurchase Program

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.

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

No share repurchases under the program were made during the first quarter of fiscal 2021.

During fiscal 2020, we repurchased and retired 943,149 shares of our Class A Common Stock for $ 5.2 million, which was allocated between "Additional paid-in capital" and "Retained earnings" in our condensed consolidated balance sheets.

Stock Compensation

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

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 the Company share price as of the beginning of the fiscal year, which was $ 6.46 for fiscal 2020 awards.

We maintain a Board-approved incentive plan to retain the services of our valued officers, directors and employees and to incentivize such persons to make contributions to our company and motivate excellent performance (the "Incentive Plan").

Under the Incentive Plan, we grant awards of restricted stock or restricted stock units to employees and non-employee directors.

Awards granted to employees are typically subject to performance and service conditions.

Awards granted to non-employee directors are time-based awards subject only to service conditions.

Awards granted under the Incentive Plan are measured at the grant date fair value with compensation costs associated with the awards recognized over the requisite service period, usually the vesting period, on a straight-line basis.

During the first quarter of fiscal 2021, we granted a total of 143,145 restricted stock awards to our non-employee directors.

These awards vest on March 31, 2021 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 $ 5.03 for fiscal 2021 awards.

During the first quarter of fiscal 2020, we granted a total of 222,912 shares of restricted stock awards to non-employee directors based on a share price of $ 6.46 .

These awards vested on September 30, 2020.

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 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, 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.

We recognized the effect on the consolidated financial statements in the period ended March 31, 2020.

For the period ended December 31, 2020, the CARES Act has not had a material impact on our consolidated financial statements.

At this time,

we do not expect the impact of the CARES Act to have a material impact on our consolidated financial statements for the year ending September 30, 2021.

COMMITMENTS AND CONTINGENCIES

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

We accrue for contingencies if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

Because these matters are inherently unpredictable and unfavorable developments or resolutions can occur, assessing contingencies requires judgments and is highly subjective about future events.

The amount of resulting loss may differ from these estimates.

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

SEGMENT INFORMATION

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:

Our operations are primarily managed on a geographical basis and are comprised of three reportable segments.

The factors for determining our reportable segments include the manner in which our chief operating decision maker (CODM) evaluates performance for purposes of allocating resources and assessing performance.

During the first quarter of fiscal 2021, the financial information of our Lana business activities were no longer reviewed by the CODM for evaluating performance since Lana no longer has business activities.

Rather, Lana offers support activities to U.S.

As a result, Lana is no longer an operating or reportable segment.

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

We currently report our segments as follows:

Pawn — all pawn activities in the United States;

• Latin America Pawn — all pawn activities in Mexico and other parts of Latin America;

Lana — our differentiated customer-centric engagement platform;

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 June 30, 2020

Latin America Pawn

International

Total Segments

Corporate Items

(in thousands)

• Other International — primarily our equity interest in the net income of Cash Converters International and Rich Data Corporation.

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.

The following tables present revenue for each reportable segment, disaggregated revenue within our three reportable segments and Corporate, segment profits and segment contribution.

Three Months Ended December 31, 2020

(in thousands) U.S.

Pawn Latin America Pawn Other International Total Segments Corporate Items Consolidated

Merchandise sales $ 82,253 $ 25,530 $ — $ 107,783 $ — $ 107,783

5 unchanged sentences

Jewelry scrapping cost of goods sold 2,844 2,358 — 5,202 — 5,202

Other cost of revenues

Net revenues 85,596 22,719 75 108,390 — 108,390

Segment and corporate expenses (income):

Administrative

Store expenses 62,092 17,217 — 79,309 — 79,309

General and administrative — — — — 12,510 12,510

Depreciation and amortization 2,736 1,860 — 4,596 2,976 7,572

2 unchanged sentences

Interest income — ( 764 ) — ( 764 ) ( 57 ) ( 821 )

Equity in net loss of unconsolidated affiliates

Impairment of goodwill and intangible assets

Other (income) expense

Segment contribution (loss)

Income (loss) from continuing operations before income taxes

Three Months Ended June 30, 2019

Latin America Pawn

International

Total Segments

Corporate Items

(in thousands)

Merchandise sales

Jewelry scrapping sales

Pawn service charges

Other revenues

Total revenues

Merchandise cost of goods sold

Jewelry scrapping cost of goods sold

Other cost of revenues

Segment and corporate expenses (income):

Administrative

Depreciation and amortization

(Gain) loss on sale or disposal of assets and other

Interest expense

Interest income

Equity in net income of unconsolidated affiliates — — ( 516 ) ( 516 ) — ( 516 )

Impairment of investment in unconsolidated affiliates

Other expense (income)

Segment contribution (loss)

Income from continuing operations before income taxes

Nine Months Ended June 30, 2020

Latin America Pawn

International

Total Segments

Corporate Items

(in thousands)

Merchandise sales

Jewelry scrapping sales

Pawn service charges

Other revenues

Total revenues

Merchandise cost of goods sold

Jewelry scrapping cost of goods sold

Other cost of revenues

Segment and corporate expenses (income):

Administrative

Depreciation and amortization

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

Interest expense

Interest income

Equity in net loss of unconsolidated affiliates

Impairment of goodwill and intangible assets

Other (income) expense — ( 455 ) ( 210 ) ( 665 ) 66 ( 599 )

Segment contribution (loss)

Income (loss) from continuing operations before income taxes

Nine Months Ended June 30, 2019

Latin America Pawn

International

Total Segments

Corporate Items

(in thousands)

Segment contribution $ 20,741 $ 4,962 $ 801 $ 26,504

Income (loss) before income taxes $ 26,504 $ ( 21,002 ) $ 5,502

Three Months Ended December 31, 2019

(in thousands) U.S.

Pawn Latin America Pawn Other International Total Segments Corporate Items Consolidated

Merchandise sales $ 95,354 $ 31,374 $ — $ 126,728 $ — $ 126,728

6 unchanged sentences

Other cost of revenues — — 536 536 — 536

Net revenues 99,478 29,734 857 130,069 — 130,069

Segment and corporate expenses (income):

Administrative

Store expenses 68,059 19,983 1,233 89,275 — 89,275

General and administrative — — — — 18,839 18,839

Depreciation and amortization 2,865 1,889 34 4,788 2,945 7,733

3 unchanged sentences

Equity in net loss of unconsolidated affiliates — — 5,897 5,897 — 5,897

Impairment of investment in unconsolidated affiliates

Other (income) expense

Other expense (income) — 67 ( 1 ) 66 32 98

Segment contribution (loss) $ 28,554 $ 8,127 $ ( 6,476 ) $ 30,205

Income from continuing operations before income taxes

Income (loss) before income taxes $ 30,205 $ ( 27,208 ) $ 2,997

SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION

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

(in thousands)

Cash and cash equivalents

Restricted cash

Cash and cash equivalents and restricted cash

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

(in thousands) December 31, 2020 December 31, 2019 September 30,

Gross pawn service charges receivable $ 31,721 $ 40,887 $ 27,259

14 unchanged sentences

Accounts payable, accrued expenses and other current liabilities $ 67,777 $ 51,621 $ 71,504

SUBSEQUENT EVENTS

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