EZCORP INC 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to inform the reader about matters affecting the financial condition and results of operations of EZCORP, Inc. and its subsidiaries (collectively, “we,” “us”, “our”, "EZCORP" or the “Company”). The following discussion should be read together with our condensed consolidated financial statements and related notes included elsewhere within this report. This discussion contains forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements. See "Part I, Item 1A — Risk Factors" of our Annual Report on Form 10-K for the year ended September 30, 2020 , as supplemented by the information set forth in “Part I, Item 3 — Quantitative and Qualitative Disclosures about Market Risk” and "Part II, Item 1A — Risk Factors" of this Report, for a discussion of certain risks, uncertainties and assumptions associated with these statements. Business Overview EZCORP is a Delaware corporation headquartered in Austin, Texas. We are a leading provider of pawn loans in the United States and Latin America. Pawn loans are nonrecourse loans collateralized by personal property. We also sell merchandise, primarily collateral forfeited from unpaid loans or goods purchased directly from customers. We exist to serve our customers’ short-term cash needs, helping them to live and enjoy their lives. We are focused on three strategic pillars: Strengthen the Core Renewed focus on the unique and essential elements of our pawn business Cost Reduction and Simplification Significant and sustained adjustment of cost base through ongoing simplification Innovate and Grow Broaden customer engagement to service more customers more frequently in more locations Pawn Activities At our pawn stores, we offer pawn loans, which are typically small, nonrecourse loans collateralized by tangible personal property. We earn pawn service charges on our pawn loans, which varies by state and loan size. Collateral for our pawn loans consists of tangible personal property, generally jewelry, consumer electronics, tools, sporting goods and musical instruments. Security for our pawn loans is provided via the estimated resale value of the collateralized personal property and the perceived probability of the loans' redemption. Our ability to offer quality pre-owned goods at prices significantly lower than original retail prices attracts value-conscious customers. The gross profit on sales of inventory depends primarily on our assessment of the loan or purchase value at the time the property is either accepted as loan collateral or purchased and our ability to sell that merchandise in a timely manner. As a significant portion of our inventory and sales involve gold and jewelry, our results can be influenced by the market price of gold and diamonds. Growth and Expansion Our strategy is to expand the number of locations we operate through opening new (“de novo”) locations and through acquisitions in both Latin America and the United States and potential new markets. Our ability to add new stores is dependent on several variables, such as projected achievement of internal investment hurdles, the availability of acceptable sites or acquisition candidates, the alignment of acquirer/seller price expectations, the regulatory environment, local zoning ordinances, access to capital and the availability of qualified personnel. We see opportunity for further expansion through acquisitions and de novo openings in Latin America and acquisitions in the United States. Seasonality and Quarterly Results In the United States, pawn service charges are historically highest in our fourth fiscal quarter (July through September) due to a higher average loan balance during the summer lending season and lowest in our third fiscal quarter (April through June) following the tax refund season and merchandise sales are highest in our first and second fiscal quarters (October through March) due to the holiday season, jewelry sales surrounding Valentine’s Day and the availability of tax refunds. In Latin America, most of our customers receive additional compensation from their employers in December, and many receive additional compensation in June or July, applying downward pressure on loan balances and fueling some merchandise sales in those periods. As a net effect of these and other factors and excluding discrete charges, our consolidated profit before tax is generally highest in our first fiscal quarter (October through December) and lowest in our third 21 Table of Contents fiscal quarter (April through June). These historical trends have been impacted by COVID-19. However, we expect these historical trends to return in the future. Financial Highlights We remain focused on optimizing our balance of pawn loans outstanding (“PLO”) and the resulting higher pawn service charges (“PSC”). The following chart presents sources of net revenues, including PSC, merchandise sales gross profit ("Merchandise sales GP") and jewelry scrapping gross profit ("Jewelry Scrapping GP") for the three and nine months ended June 30, 2021 and 2020: The following chart presents sources of net revenues by geographic disbursement for the three and nine months ended June 30, 2021 and 2020: 22 Table of Contents Business Developments COVID-19 The COVID-19 pandemic continues to affect the U.S. and global economies, and as disclosed in our 2020 Annual Report on Form 10-K, the pandemic also affected our business in a variety of ways beginning in the second quarter of fiscal 2020 and continuing into fiscal 2021. 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 the impact of the pandemic, and the recovery therefrom, will continue to adversely affect net revenues and earnings in fiscal 2021. A prolonged pandemic and recovery may have an adverse effect on our results of operations, financial position and liquidity in future periods. Reinvestment of Dividends On February 21, 2021, Cash Converters International announced that its board of directors declared an interim dividend of AUD $0.01 per share, which was payable on April 14, 2021 to ordinary shareholders of record as of the close of business on March 25, 2021. We elected to receive our dividend entitlement in the form of additional ordinary shares pursuant to Cash Converters International's pre-existing Dividend Reinvestment Plan. Under that plan, on April 14, 2021, we received an additional 9,519,277 shares, bringing our total ownership to 223,702,991 shares, representing 35.65% of Cash Converters International's total outstanding ordinary shares. Acquisitions On June 9, 2021, we completed the acquisition of 100% of the common shares of PLO del Bajio S. de R.L. de C.V. (“Bajio”) and gained control of the entity, further expanding our geographic footprint within Mexico with the addition of 128 pawn stores. These stores, operating under the name "Cash Apoyo Efectivo," are located principally in the Mexico City metropolitan area and have strong brand recognition in that market. This is our largest acquisition to date in terms of store-count. The total consideration paid for Bajio was $23.6 million, consisting of cash of $17.4 million, of which $11.6 million was paid in cash at closing and the remaining $5.8 million is accrued and held as restricted cash to be paid out per the acquisition agreement, and 212,870 shares of our Class A Non-Voting Common Stock valued at $1.6 million. In addition, t h e sellers may be entitled to additional payments of up to $4.6 million over the next two years, contingent on the performance of the acquired stores with growing its loan portfolio. We also repaid $14.9 million of Bajio’s existing debt assumed in the acquisition. In May 2021, we acquired 11 pawn stores in the Houston, Texas area, providing an immediate market-leading position in the South Houston area and enhancing our already strong position in the strategically important Houston metro market. Strategic Initiatives 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 us for sustainable growth. During the third quarter of fiscal 2021, due to uneconomic rate caps and limited synergies across our platform, we finalized our decision for the closure of our 11 stores in Peru and incurred costs of $0.5 million related to the closure. Results of Operations Non-GAAP Constant Currency Financial Information To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide certain other non-GAAP financial information on a constant currency basis ("constant currency"). We use constant currency results to evaluate our Latin America Pawn operations, which are denominated primarily in Mexican pesos, Guatemalan quetzales and other Latin American currencies. We believe presentation of constant currency results is meaningful and useful in understanding the activities and business metrics of our Latin America Pawn operations and reflect an additional way of viewing aspects of our business that, when viewed with GAAP results, provide a better understanding and evaluation of factors and trends affecting our business. We provide non-GAAP financial information for informational purposes and to enhance understanding of our GAAP consolidated financial statements. We use this non-GAAP financial information to evaluate and compare operating results across accounting periods. Readers should consider the information in addition to, but not rather than or superior to, our financial statements prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes. Constant currency results reported herein are calculated by translating consolidated balance sheet and consolidated statement of operations items denominated in local currency to U.S. dollars using the exchange rate from the prior-year comparable period, as opposed to the current period, in order to exclude the effects of foreign currency rate fluctuations. We used the end-of-period rate for balance sheet items and the average closing daily exchange rate on a monthly basis during the appropriate period for statement of operations items. Our statement of operations constant currency results reflect the monthly exchange rate fluctuations and are not directly calculable from the rates below. 23 Table of Contents Constant currency results, where presented, also exclude the foreign currency gain or loss. The end-of-period and approximate average exchange rates for each applicable currency as compared to U.S. dollars as of and for the three and nine months ended June 30, 2021 and June 30, 2020 were as follows: June 30, Three Months Ended June 30, Nine Months Ended June 30, 2021 2020 2021 2020 2021 2020 Mexican peso 19.9 23.1 20.0 23.3 20.3 20.8 Guatemalan quetzal 7.6 7.5 7.6 7.5 7.6 7.5 Honduran lempira 23.6 24.4 23.7 24.4 23.8 24.3 Peruvian sol 3.9 3.5 3.8 3.4 3.7 3.4 Operating Results Segments We manage our business and report our financial results in three reportable operating segments; • U.S. Pawn — Represents all pawn activities in the United States; • Latin America Pawn — Represents all pawn activities in Mexico and other parts of Latin America; and • Other International — Represents our equity interest in the net income of Cash Converters International and Rich Data Corporation and our financial services stores in Canada, operating under the CASHMAX brand. In the fourth quarter of fiscal 2020, we closed our stores in Canada, and closing activities related to CASHMAX in fiscal year 2021 are not material. See Note 14 (Segment Information) for information regarding changes in reportable segments. Our historical segment results have been recast to conform to current presentation. Store Data by Segment Three Months Ended June 30, 2021 U.S. Pawn Latin America Pawn Consolidated As of March 31, 2021 505 506 1,011 New locations opened — 4 4 Locations acquired 11 128 139 Locations sold, combined or closed — (11) (11) As of June 30, 2021 516 627 1,143 Three Months Ended June 30, 2020 U.S. Pawn Latin America Pawn Other International Consolidated As of March 31, 2020 512 493 22 1,027 New locations opened — 3 — 3 Locations sold, combined or closed (1) — — (1) As of June 30, 2020 511 496 22 1,029 Nine Months Ended June 30, 2021 U.S. Pawn Latin America Pawn Consolidated As of September 30, 2020 505 500 1,005 New locations opened — 10 10 Locations acquired 11 128 139 Locations sold, combined or closed — (11) (11) As of June 30, 2021 516 627 1,143 24 Table of Contents Nine Months Ended June 30, 2020 U.S. Pawn Latin America Pawn Other International Consolidated As of September 30, 2019 512 480 22 1,014 New locations opened — 16 — 16 Locations sold, combined or closed (1) — — (1) As of June 30, 2020 511 496 22 1,029 25 Table of Contents Three Months Ended June 30, 2021 vs. Three Months Ended June 30, 2020 These tables, as well as the discussion that follows, should be read in conjunction with the accompanying condensed consolidated financial statements and related notes. U.S. Pawn The following table presents selected summary financial data for our U.S. Pawn segment: Three Months Ended June 30, Change (in thousands) 2021 2020 Net revenues: Pawn service charges $ 44,039 $ 41,069 7% Merchandise sales 84,465 116,258 (27)% Merchandise sales gross profit 39,155 40,420 (3)% Gross margin on merchandise sales 46 % 35 % 1,100bps Jewelry scrapping sales 1,908 17,129 (89)% Jewelry scrapping sales gross profit 30 4,254 (99)% Gross margin on jewelry scrapping sales 2 % 25 % (2,300)bps Other revenues 32 40 (20)% Net revenues 83,256 85,783 (3)% Segment operating expenses: Store expenses 62,507 66,243 (6)% Depreciation and amortization 2,600 2,749 (5)% Loss on sale or disposal of assets and other — 234 (100)% Segment contribution $ 18,149 $ 16,557 10% Other data: Net earning assets (a) $ 186,322 $ 176,866 5% Inventory turnover 2.8 3.2 (13)% Average monthly ending pawn loan balance per store (b) $ 206 $ 172 20% Monthly average yield on pawn loans outstanding 14 % 14 % —bps Pawn loan redemption rate 88 % 88 % —bps * Represents a percentage computation that is not mathematically meaningful. (a) Balance includes pawn loans and inventory. (b) Balance is calculated based upon the average of the monthly ending balances during the applicable period. Pawn service charges increased by 7% as a result of higher average PLO for the quarter. Same stores pawn service charges also increased by 7%. Merchandise sales decreased 27% on both a total and same store basis resulting from the increased demand in the prior year quarter due to the impact of federal economic stimulus. Merchandise sales gross profit decreased 3% to $39.2 million offset by a 1,100 bps improvement in merchandise sales gross profit margin, primarily due to reduced aged inventory levels. ( There was a 900 bps improvement when excluding a loss from looting of $2.2 million from merchandise cost of goods sold in the prior year). Store expenses decreased by 6% driven by a reduction in labor expense. Segment contribution increased $1.6 million or 10%. When excluding the looting charge taken in the prior year quarter, segment contribution decreased $0.6 million, 26 Table of Contents Latin America Pawn The following table presents selected summary financial data for the Latin America Pawn segment, including constant currency results, after translation to U.S. dollars from its functional currencies noted above under “Results of Operations — Non-GAAP Financial Information." Three Months Ended June 30, (in thousands) 2021 (GAAP) 2020 (GAAP) Change (GAAP) 2021 (Constant Currency) Change (Constant Currency) Net revenues: Pawn service charges $ 16,392 $ 11,391 44% $ 14,829 30% Merchandise sales 23,343 20,279 15% 20,844 3% Merchandise sales gross profit 8,114 4,258 91% 7,179 69% Gross margin on merchandise sales 35 % 21 % 1,400bps 34 % 1,300bps Jewelry scrapping sales 3,765 3,174 19% 3,429 8% Jewelry scrapping sales gross profit 170 (109) (256)% 165 (251)% Gross margin on jewelry scrapping sales 5 % (3) % 800bps 5 % 800bps Other revenues, net — (32) (100)% — (100)% Net revenues 24,676 15,508 59% 22,173 43% Segment operating expenses: Store Expenses 19,296 15,041 28% 17,276 15% Depreciation and amortization 1,806 1,647 10% 1,622 (2)% Other Charges 497 — * 491 * Segment operating contribution 3,077 (1,180) 361% 3,275 378% Other segment income (a) (489) (442) 11% 65 (115)% Segment contribution $ 3,566 $ (738) 583% $ 3,210 535% Other data: Net earning assets (b) $ 63,075 $ 59,441 6% $ 56,453 (5)% Inventory turnover 4.0 2.2 82% 4.0 82% Average monthly ending pawn loan balance per store (c) $ 65 $ 59 10% $ 59 —% Monthly average yield on pawn loans outstanding 16 % 12 % 400bps 16 % 400bps Pawn loan redemption rate (d) 79 % 77 % 200bps 79 % 200bps * Represents a percentage computation that is not mathematically meaningful. (a) Fiscal 2021 constant currency amount excludes a nominal net GAAP basis foreign currency transaction adjustment resulting from movement in exchange rates. The net foreign currency transaction adjustment for fiscal 2020 was nominal and are included in the above results. (b) Balance includes pawn loans and inventory. (c) Balance is calculated based upon the average of the monthly ending balances during the applicable period. (d) Rate is solely inclusive of results from Mexico Pawn. In the current quarter, we acquired 128 stores and opened four de novo stores, bringing total segment store-co unt to 627 at t he end of the quarter (net of the closure of 11 stores in Peru). Pawn service charges increased 44% (30% on a constant currency basis). Same store pawn service charges increased by 38% (24% on a constant currency basis) as a result of higher average PLO for the quarter. Merchandise sales increased 15% (3% on a constant currency basis) and 8% on a same store basis (4% decrease on a constant currency basis). Merchandise sales gross profit increased 91% to $8.1 million (69% to $7.2 million on a constant currency basis) driven by a 1,400 basis points improvement in merchandise sales gross profit margin primarily due to reduced aged inventory levels and improved inventory turnover. Store expenses increased by 28% (15% on a constant currency bas is) primarily due to an increase in transaction volume and costs resulting from the re-opening of stores impacted by the COVID-19 pandemic last year. 27 Table of Contents Segment contribution increased $4.3 million primarily due to the shutdown of stores related to the COVID-19 pandemic last year. Other International The following table presents selected financial data for our Other International segment after translation to U.S. dollars from its functional currency of primarily Australian and Canadian dollars: Three Months Ended June 30, Change (in thousands) 2021 2020 Net revenues: Consumer loan fees, interest and other $ 89 $ 884 (90)% Consumer loan debt — — * Net revenues 89 884 (90)% Segment operating expenses: Store expenses — 1,057 * Depreciation and amortization — 3 * Gain on sale or disposal of assets — (20) * Equity in net (income) loss of unconsolidated affiliates (643) 1,183 (154)% Segment operating contribution 732 (1,339) 155% Other segment expense 18 135 (87)% Segment contribution (loss) $ 714 $ (1,474) 148% * Represents a percentage computation that is not mathematically meaningful. Segment contribution was $0.7 million, an increase of $2.2 million from the prior-year quarter primarily due to the increase in equity income for our unconsolidated affiliates. We operated 22 financial services stores in Canada under the CASHMAX brand during fiscal year 2020. During the fourth quarter of fiscal year 2020, we closed our CASHMAX business and are no longer operating stores in Canada. Other Items The following table reconciles our consolidated segment contribution discussed above to net income attributable to EZCORP, Inc., including items that affect our consolidated financial results but are not allocated among segments: Three Months Ended June 30, Percentage Change (in thousands) 2021 2020 Segment contribution $ 22,429 $ 14,345 56% Corporate expenses (income): General and administrative 14,589 16,176 (10)% Depreciation and amortization 3,013 3,280 (8)% Gain on sale or disposal of assets and other — 18 (100)% Interest expense 5,569 5,239 6% Interest income (28) (224) (88)% Other expense 52 94 * Loss before income taxes (766) (10,238) 93% Income tax expense (benefit) 1,804 (4,751) (138)% Net loss $ (2,570) $ (5,487) 53% * Represents a percentage computation that is not mathematically meaningful. Segment contribution increased $8.1 million over the prior-year quarter or 56% primarily due to the increase in the Latin America Pawn segment contribution resulting from the re-opening of stores impacted by COVID-19 last year. 28 Table of Contents General and administrative expenses decreased $1.6 million or 10% due to strategic initiatives implemented in the fourth quarter of fiscal year 2020 to optimize our cost structure at the corporate level. Income tax expense increased $6.6 million for the quarter primarily due to a n increase in income taxes for the current year due to an approximately $9.5 million increase in income before income taxes. Income tax expense includes other items that do not necessarily correspond to pre-tax earnings and create volatility in our effective tax rate. These items include the net effect of state taxes, non-deductible items and changes in valuation allowances for certain foreign operations. Nine Months Ended June 30, 2021 vs. Nine Months Ended June 30, 2020 The tables below and discussion that follows should be read in conjunction with the accompanying condensed consolidated financial statements and related notes. U.S. Pawn The following table presents selected summary financial data for the U.S. Pawn segment: Nine Months Ended June 30, Change (in thousands) 2021 2020 Net revenues: Pawn service charges $ 143,836 $ 166,859 (14)% Merchandise sales 260,545 314,059 (17)% Merchandise sales gross profit 115,364 111,571 3% Gross margin on merchandise sales 44 % 36 % 800bps Jewelry scrapping sales 9,493 32,905 (71)% Jewelry scrapping sales gross profit 1,622 7,475 (78)% Gross margin on jewelry scrapping sales 17 % 23 % (600)bps Other revenues 83 107 (22)% Net revenues 260,905 286,012 (9)% Segment operating expenses: Store expenses 188,256 201,921 (7)% Impairment of goodwill, intangibles and other assets — 10,000 * Depreciation and amortization 7,972 8,325 (4)% Segment operating contribution 64,677 65,766 (2)% Other segment expense 27 234 * Segment contribution $ 64,650 $ 65,532 (1)% Other data: Average monthly ending pawn loan balance per store (a) $ 218 $ 248 (12)% Monthly average yield on pawn loans outstanding 14 % 14 % —bps Pawn loan redemption rate 87 % 87 % —bps * Represents a percentage computation that is not mathematically meaningful. (a) Balance is calculated based upon the average of the monthly ending balances during the applicable period. Pawn service charges decreased 14% in total and on a same store basis. This decrease reflects a substantial decline in new loans activity and associated loan balances as customer borrowing behaviors were impacted by COVID-19. Merchandise sales decreased 17% in total and on a same store basis due to lower inventory levels. Merchandise sales gross profit increased 3% to $115.4 million driven by a 800 bps improvement in merchandise sales gross profit margin, primarily driven by reduced aged inventory levels and improved inventory turnover. Store expenses decreased by 7% due to a reduction in labor expense. 29 Table of Contents Segment contribution decreased $0.9 million primarily due to the changes in revenue and store expenses described above, offset by the $10.0 million goodwill impairment charge recorded during the prior year quarter. Excluding the goodwill impairment charge, segment contribution decreased $10.9 million, or 14%, to $64.7 million. Latin America Pawn The following table presents selected summary financial data our Latin America Pawn segment, including constant currency results, after translation to U.S. dollars from functional currencies. See “Results of Operations — Non-GAAP Financial Information” above. Nine Months Ended June 30, (in thousands) 2021 (GAAP) 2020 (GAAP) Change (GAAP) 2021 (Constant Currency) Change (Constant Currency) Net revenues: Pawn service charges $ 43,520 $ 50,548 (14)% $ 42,873 (15)% Merchandise sales 70,271 79,036 (11)% 69,431 (12)% Merchandise sales gross profit 24,580 19,813 24% 24,191 22% Gross margin on merchandise sales 35 % 25 % 1,000bps 35 % 1,000bps Jewelry scrapping sales 9,014 8,804 2% 8,757 (1)% Jewelry scrapping sales gross profit 809 705 15% 833 18% Gross margin on jewelry scrapping sales 9 % 8 % 100bps 10 % 200bps Other revenues, net 7 (19) (137)% 6 (132)% Net revenues 68,916 71,047 (3)% 67,903 (4)% Segment operating expenses: Store expenses 54,005 53,493 1% 53,395 —% Depreciation and amortization 5,459 5,476 —% 5,407 (1)% Impairment of goodwill, intangibles and other assets — 35,936 (100)% — (100)% Other Charges 497 — * 491 * Segment operating contribution (loss) 8,955 (23,858) 138% 8,610 136% Other segment income (a) (2,194) (1,106) 98% (2,110) 91% Segment contribution (loss) $ 11,149 $ (22,752) 149% $ 10,720 147% Other data: Average monthly ending pawn loan balance per store (b) $ 58 $ 77 (25)% $ 57 (26)% Monthly average yield on pawn loans outstanding 16 % 15 % 100bps 16 % 100bps Pawn loan redemption rate 81 % 77 % 400bps 81 % 400bps * Represents a percentage computation that is not mathematically meaningful. (a) Fiscal 2021 constant currency amount excludes a nominal net GAAP basis foreign currency transaction adjustment resulting from movement in exchange rates. The net foreign currency transaction adjustment for fiscal 2020 was nominal and are included in the above results. (b) Balance is calculated based upon the average of the monthly ending balances during the applicable period. During the nine months ended June 30, 2021, our Latin America pawn segment acquired 128 stores and opened ten de novo stores. The change in net revenue attributable to same stores and new stores added since the prior-year is summarized as follows: Pawn service charges decreased 14% (15% on a constant currency basis). Same stores pawn service charges also decreased by 16% (17% on a constant currency basis). The average ending monthly pawn loan balance outstanding during the nine month period was down 25% (26% on a constant currency basis). During most of this period, we have experienced a substantial decline in new loans activity and associated loan balances as the result of the impact of constrained traffic, limited operating hours and increased remittances from the U.S. Merchandise sales decreased 11% (12% on a constant currency basis) and 14% on a same store basis due to lower inventory levels. This decrease in merchandise sales was offset by an increase in merchandise sales gross profit of 24% to $24.6 million (22% to $24.2 million on a 30 Table of Contents constant currency basis) driven by a 1,000 bps improvement in merchandise sales gross profit margin primarily due to reduced aged inventory levels and improved inventory turnover. Store expenses decreased by 1% (flat on a constant currency basis) driven by a reduction in labor expense. Segment contribution increased $33.9 million primarily due to the impairment charges of $35.9 million recorded during the prior year quarter. Excluding the impairment charges, segment contribution decrease d $2.0 million, or 15%, to $11.1 milli on. This decrease was primarily due to the changes in revenue and store expenses described above. Other International The following table presents selected financial data for our Other International segment after translation to U.S. dollars from its functional currency of primarily Australian and Canadian dollars: Nine Months Ended June 30, Change (in thousands) 2021 2020 Net revenues: Consumer loan fees, interest and other $ 338 $ 3,570 (91)% Consumer loan debt — 1,024 (100)% Net revenues 338 2,546 (87)% Segment operating expenses: Store expenses — 3,850 (100)% Impairment of goodwill, intangible and other assets — 1,124 (100)% Gain on sale or disposal of assets — (20) (100)% Equity in net (income) loss on unconsolidated affiliates (2,409) 5,896 141% Segment operating contribution 2,747 (8,304) 133% Other segment (income) expense (183) 538 134% Segment contribution (loss) $ 2,930 $ (8,842) 133% Segment contribution was $2.9 million, an increase of $11.8 million from the prior-year quarter primarily due to a an increase of $5.0 million of net segment operating contribution resulting from the closure of our Canada operations and a $7.1 million charge, ($10.1 million, net of a $3.0 million tax benefit) in the first quarter of fiscal 2020 for the our share of the Cash Converters International settlement of a class action lawsuit. During the fourth quarter of fiscal year 2020, we closed our CASHMAX business and are no longer operating stores in Canada. Other Items The following table reconciles our consolidated segment contribution discussed above to net income attributable to EZCORP, Inc., including items that affect our consolidated financial results but are not allocated among segments: Nine Months Ended June 30, Percentage Change (in thousands) 2021 2020 Segment contribution $ 78,729 $ 33,938 132% Corporate expenses (income): General and administrative 40,870 50,355 (19)% Depreciation and amortization 9,649 9,313 4% Loss on sale or disposal of assets 63 1,118 (94)% Interest expense 16,542 15,695 5% Interest income (99) (1,251) (92)% Other expense 169 74 128% Income (loss) from continuing operations before income taxes 11,535 (41,366) 128% Income tax expense 4,476 3,757 19% Net income (loss) attributable to EZCORP, Inc. $ 7,059 $ (45,123) 116% Segment contribution increased $44.8 million or 132% over the prior-year period, primarily due to a $47.1 million impairment charge of certain long-lived assets in the second quarter of fiscal 2020. Excluding the impairment charges, segment contribution decreased by $2.3 million or 31 Table of Contents 3% primarily due to reduced pawn service charges from a decline in new loan activity and associated loan balances as a result of a change in customer borrowing behaviors due to COVID-19, partially offset by increased merchandise sales gross profit and decreased store expenses. General and administrative expenses decreased $9.5 million due to strategic initiatives implemented in the fourth quarter of fiscal year 2020 to optimize our cost structure at the corporate level. Income tax expense increased $0.7 million primarily due to an increase in income taxes for the current year due to an approximately $52.9 million increase in income before income taxes offset by a decrease in income tax expense of approximately $14.0 million due to non-deductible goodwill impairments booked in the quarter ended March 31, 2020. Income tax expense includes other items that do not necessarily correspond to pre-tax earnings and create volatility in our effective tax rate. These items include the net effect of state taxes, non-deductible items and changes in valuation allowances for certain foreign operations. Liquidity and Capital Resources We currently believe that, based on available capital resources and projected operating cash flow, we have adequate capital resources to fund working capital needs, currently anticipated capital expenditures, currently anticipated business growth and expansion, tax payments, and current and projected debt service requirements. Cash and Cash Equivalents Our cash and equivalents balance was $283.7 million at June 30, 2021 compare d to $304.5 million at September 30, 2020. At June 30, 2021, our cash and equivalents were held in cash depository accounts with major banks or invested in high quality, short-term liquid investments. Cash Flows The table and discussion below presents a summary of the selected sources and uses of our cash: Nine Months Ended June 30, Percentage Change (in thousands) 2021 2020 Cash flows provided by operating activities $ 33,122 $ 56,365 (41)% Cash flows (used in) provided by investing activities (37,086) 110,389 (134)% Cash flows used in financing activities (16,202) (7,388) (119)% Effect of exchange rate changes on cash, cash equivalents and restricted cash 5,076 (6,678) 176% Net (decrease) increase in cash, cash equivalents and restricted cash $ (15,090) $ 152,688 (110)% Net cash provided by operating activities decreased $23.2 million or 41% year-over-year due to a decrease of $4.5 million in net income adjusted for non-cash items, and a decrease of $18.7 million in changes to working capital. Changes in working capital are primarily related to the timing of collections in pawn service charges receivable, layaway deposits, inventory purchases, and the timing of outgoing payments of accounts payable and prepaid expenses. Net cash provided by investing activities decreased by $147.5 million, or 134%, year-over-year primarily due to a $92.7 million decrease in the sale of forfeited collateral, a decrease of $41.9 million in net pawn loan lending and collections and acquisitions of $15.1 million. Net cash used in financing activities increased $8.8 million, or 119%, year-over-year primarily due to the payment of assumed debt of $14.9 million from the Bajio acquisition (discussed in Note 2), offset by a $5.2 million decrease in the repurchase of common stock paid during the prior year. The net effect of cash flows was a $15.1 million decrease in cash on hand during the current year-to-date period, resulting in a $297.5 million ending cash and restricted cash balance. Sources and Uses of Cash In December 2019, our Board of Directors authorized a stock repurchase program that will allow us to repurchase up to $60 million of our Class A Non-voting Common Stock over three years. On March 20, 2020, we suspended the repurchase of shares under the program in order to preserve current liquidity given the uncertainty of the impact of the COVID-19 pandemic to our operations. As of September 30, 2020, we had repurchased and retired 943,149 shares of our Class A Common Stock for $5.2 million. The resumption of our stock repurchase program and the amount and timing of purchases will be dependent on a variety of factors, such as the return to normal business conditions, stock price, trading volume, general market conditions, legal and regulatory requirements, cash flow levels, and corporate 32 Table of Contents considerations determined by management and the Board, such as liquidity and capital needs and the availability of attractive alternative investment opportunities. The Board of Directors has reserved the right to modify, suspend or terminate the program at any time. During the three and nine months ended June 30, 2021, there were no stock repurchases. We anticipate that cash flows from operations and cash on hand will be adequate to fund any future stock repurchases, our contractual obligations, planned de novo store growth, capital expenditures and working capital requirements through fiscal 2021. We continue to explore acquisition opportunities, both large and small, and may choose to pursue additional debt, equity or equity-linked financings in the future should the need arise. Given the current uncertainty related to the COVID-19 pandemic, we may adjust our capital or other expenditures. Depending on the level of acquisition activity and other factors, our ability to repay our longer term debt obligations, including the convertible debt maturing in 2024 and 2025, may require us to refinance these obligations through the issuance of new debt securities, equity securities, convertible securities or through new credit facilities. Contractual Obligations In "Part II, Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended September 30, 2020 , we reported that we had $604.6 million in total contractual obligations as of September 30, 2020. There have been no material changes to this total obligation since September 30, 2020, other than changes as the result of adoption of accounting standards as further discussed in Note 1 of Notes to Interim Condensed Consolidated Financial Statements included in "Part I, Item 1 — Financial Statements." We are responsible for the maintenance, property taxes and insurance at most of our locations. In the fiscal year ended September 30, 2020, these collectively amounted to $12.3 million. Recently Adopted Accounting Policies and Recently Issued Accounting Pronouncements See Note 1 of Notes to Interim Condensed Consolidated Financial Statements included in "Part I, Item 1 — Financial Statements." Cautionary Statement Regarding Risks and Uncertainties that May Affect Future Results This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend that all forward-looking statements be subject to the safe harbors created by these laws. All statements, other than statements of historical facts, regarding our strategy, future operations, financial position, future revenues, projected costs, prospects, plans and objectives are forward-looking statements. These statements are often, but not always, made with words or phrases like "may," "should," "could," "will," "predict," "anticipate," "believe," "estimate," "expect," "intend," "plan," "projection" and similar expressions. Such statements are only predictions of the outcome and timing of future events based on our current expectations and currently available information and, accordingly, are subject to substantial risks, uncertainties and assumptions. Actual results could differ materially from those expressed in the forward-looking statements due to a number of risks and uncertainties, many of which are beyond our control. In addition, we cannot predict all of the risks and uncertainties that could cause our actual results to differ from those expressed in the forward-looking statements. Accordingly, you should not regard any forward-looking statements as a representation that the expected results will be achieved. Important risk factors that could cause results or events to differ from current expectations are identified and described in "Part I, Item 1A — Risk Factors" of our Annual Report on Form 10-K for the year ended September 30, 2020 and "Part II, Item 1A — Risk Factors" of this Report. We specifically disclaim any responsibility to publicly update any information contained in a forward-looking statement except as required by law. All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.