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Item 7. Management’s Discussion and Analysis

2021-11-17 compared with 2020-12-14 · 180 added, 263 removed, 201 unchanged (69% of the section changed)

ITEM 7 — MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

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See “Part I, Item 1A — Risk Factors” and “Cautionary Statement Regarding Risks and Uncertainties That May Affect Future Results” below.

Impact of COVID-19

In December 2019, a novel strain of coronavirus, ("COVID-19") was identified in Wuhan, China.

This new coronavirus has caused a global health emergency and was declared a pandemic by the World Health Organization in March 2020.

In an effort to contain and slow the spread of COVID-19, governments, beginning in March 2020, implemented various measures, such as ordering non-essential businesses to close, issuing travel advisories, canceling large scale public events, ordering shelter-in-place for residents and requiring the public to practice social distancing.

Many of these measures have expired or been rescinded, but some are continuing and others are being reimplemented or considered for reimplementation in November 2020 as COVID-19 continues to spread at rapid rates in many parts of the U.S.

We began to see the impact of COVID-19 to our operations in mid-March.

Since that time and continuing through the fourth quarter and into fiscal 2021, we have been able to keep virtually all of our stores open for business, although operating under enhanced safety measures and, in some cases, restrictions on occupancy.

We have seen tighter restrictions in our Latin America countries:

In Mexico (368 stores), retail sales in all stores were prohibited by regulators during the last three weeks of May;

in Guatemala (87 stores), regulators imposed country-wide lockdowns on many weekends and 39 mall-based locations were closed for extended periods;

in El Salvador (18 stores), our stores were closed from late March through mid-June;

in Honduras (16 stores), the majority of our stores were closed through mid April;

and in Peru (11 stores), our stores were closed from mid-March through varying dates through mid-May and mid-June.

Beginning in mid-March and continuing through most of the fourth quarter, we have experienced a significant decline in pawn loan originations and associated loan balances in both the U.S.

and Latin America, as a result of a change in customer borrowing behaviors related to COVID-19.

Pawn loan balances at fiscal year end 2020 were down $51.1 million (32)% in U.S.

Pawn and $16.7 million (40%) in Latin America Pawn (down $16.7 million, or 34% on a constant currency basis), compared to the prior-year end.

The overall decline in pawn loan balances led to significantly reduced pawn service charge revenue.

Offsetting this net revenue loss, we saw a strong increase in merchandise sales during March and continuing into the third quarter, before stabilizing in the fourth quarter.

As a result of this increased sales activity, combined with the decrease in loan originations and our liquidity initiatives described below, our cash balance has grown to $312.6 million at the end of fiscal 2020.

Sustained lower pawn portfolios will lead to lower pawn service charge revenue and may lead to less inventory available for sale, which in turn may lead to lower merchandise sales volume in fiscal 2021.

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

We recorded 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 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, all in the second quarter of 2020.

In order to maximize our ability to meet an expected increase in pawn loan originations, we have implemented several measures to increase liquidity.

We have suspended repurchases of shares under our authorized stock repurchase program, have renegotiated certain supplier and vendor agreements, have slowed the pace of de novo store openings in Latin America, have delayed certain capital expenditures and were able to delay payments of certain taxes as a result of the economic relief in the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress in response to COVID-19.

In June 2021, we completed the acquisition of 100% of the common shares of PLO del Bajio S.

(“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 was 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, the 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.

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.

The pandemic has had an adverse effect on our net revenues and earnings in fiscal 2020, producing operating losses in the fourth quarter.

We expect the impact of the pandemic, and the recovery therefrom, will continue to adversely affect net revenues and earnings into fiscal 2021.

The impact of the pandemic, and the recovery therefrom, continued to adversely affect net revenues and earnings in fiscal 2021.

During the latter part of fiscal 2021, we saw pawn transaction activity continue to rebuild, driving PLO balances closer to pre-pandemic levels, which will drive accelerating PSC revenue in the coming quarters given the natural lag between pawn originations and related fees.

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

See "Part I, Item 1A - Risk Factors."

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 the Company for sustainable growth.

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

As a result of these initiatives, we incurred the following pre-tax charges during the fourth quarter of fiscal 2020:

• $6.4 million in severance and other payroll-related costs related to a headcount reduction in the corporate office;

• $4.9 million in costs related to the closure of the CASHMAX business and related operations, primarily consisting of severance and other payroll-related costs, net asset write-offs, impairment of internally developed software and contract termination costs;

• $4.1 million in costs primarily related to the closure of four stores in U.S.

Pawn and three stores in Latin America Pawn, consisting primarily of severance and other payroll-related costs and reserves on net assets;

• $5.0 million in other miscellaneous charges, primarily consisting of impairment of internally developed software and contract termination costs.

In addition to optimizing our cost structure to improve profitability and better align with near-term pawn loans outstanding trends, we are focused on creating long-term shareholder value by strengthening our core business operations and continuing to innovate and grow.

Our optimization of pricing, lending and transactional efficiencies, and the modernization of our IT and data assets, will drive more consistent profitability.

Our efforts to give customers more convenient choices, both in-store and through our Lana platform, will result in a superior customer experience, and our continued de novo store growth will give us the opportunity to expand our platform.

In late May and early June 2020, protests and demonstrations in some cities escalated into riots and lootings in neighborhoods where our stores are located.

As a result, 30 stores suffered losses and damages during the riots and looting activity.

A total of four stores in the U.S.

suffered total losses, and two of these stores were permanently closed as of September 30, 2020.

We recorded $1.9 million in inventory losses, $0.2 million in loan restitution losses and $0.2 million in property, plant and equipment losses during the fiscal year.

The inventory losses were recorded under "Merchandise cost of goods sold" in our consolidated statement of operations.

Results of Operations

Non-GAAP 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") and “same store” basis.

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 analyze results on a same store basis (which is defined as stores open during the entirety of the comparable periods) to better understand existing store performance without the influence of increases or decreases resulting solely from changes in store count.

We believe presentation of constant currency and same store 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.

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 twelve months ended September 30, 2021 and 2020 were as follows:

September 30, Twelve Months Ended

September 30,

2021 2020 2021 2020

Mexican peso 20.5 22.3 20.2 21.1

Guatemalan quetzal 7.6 7.6 7.6 7.5

Honduran lempira 23.9 24.2 23.8 24.3

Peruvian sol 4.1 3.6 3.7 3.4

Operating Results

Fiscal 2021 vs.

These tables, as well as the discussion that follows, should be read in conjunction with the accompanying condensed consolidated financial statements and related notes.

Summary Financial Data

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Net revenues 449,485 449,201 *

Operating expenses 422,565 447,439 (6)%

Store Expenses 330,837 336,770 (2)%

General and administrative 56,495 54,133 4%

Impairment of goodwill, intangible and other assets — 54,666 (100)%

Depreciation and Amortization 30,672 30,827 (1)%

Loss on sale or disposal of assets and other 83 801 (90)%

Other charges 229 20,388 (99)%

Non-operating expenses 21,711 42,835 (49)%

(Loss) income from continuing operations before income taxes (70,095) 4,174 (1,779)%

Total operating expenses 418,316 497,585 (16)%

Interest expense 22,177 22,472 (1)%

Interest income (2,445) (3,173) (23)%

Equity in net (income) loss of unconsolidated affiliates (3,803) 2,429 257%

Other (income) expense (822) (17) *

Total non-operating expenses 15,107 21,711 (30)%

Income (loss) from continuing operations before income taxes 16,062 (70,095) 123%

Income tax (benefit) expense 7,450 (1,632) 556%

(Loss) income from continuing operations, net of tax (68,463) 1,768 (3,972)%

Loss from discontinued operations, net of tax — (457) (100)%

Net (loss) income (68,463) 1,311 (5,322)%

Net loss attributable to noncontrolling interest — (1,230) (100)%

Net (loss) income attributable to EZCORP, Inc.

Net income (loss) attributable to EZCORP, Inc.

$ 8,612 $ (68,463) 113%

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* Represents a percentage computation that is not mathematically meaningful.

Net revenues for fiscal 2020 were $449.2 million compared to $494.4 million in the prior year.

Pawn service charges (“PSC”) decreased 17% as a result of lower loan demand and increased loan redemptions believed to be related to the federal economic stimulus in response to the COVID-19 pandemic.

Pawn loans outstanding decreased 34% during fiscal 2020.

Merchandise sales increased 10%, but gross margin on merchandise sales declined 100 bps to 33%, resulting in a net 5% increase in merchandise sales gross profit.

Excluding looting charges of $2.3 million and a $2.6 million increase in inventory reserves due to an increase in aged inventory resulting from the impact of COVID-19, gross margin on merchandise sales was flat at 34%.

Jewelry scrapping sales decreased 21%, primarily reflecting disruption in the diamond auction market.

Jewelry scrapping gross profit increased 32% due to a 900 bps increase in gross margin, partially driven by an increase in gold prices.

Operating expenses decreased 6% due to a $21.0 million reversal in accrued short-term and long-term incentive compensation as well as the implementation of strategic initiatives, including cost cutting at the store level due to reduced transaction activity.

During the second and fourth quarters, we recorded goodwill, intangible and other assets impairment charges of $47.1 million and $7.6 million respectively, totaling $54.7 million for the fiscal year, as further described in Note 8 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data .

Other charges of $20.4 million consist of charges recorded in the fourth quarter of fiscal year 2020 due to the implementation of strategic initiatives, as further described in Note 2 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.”

Total non-operating expenses decreased $21.1 million, or 49%, primarily due to an impairment of $19.7 million in unconsolidated subsidiaries in the prior year with no similar impairment in the current year.

The following table presents selected summary financial data from the U.S.

Net revenues for fiscal 2021 were $449.5 million compared to $449.2 million in the prior year, reflecting lower average PLO (driving lower PSC), offset by improved sales profit margins.

PSC decreased 5% due to a decline in new loans activity and PLO as customer borrowing behaviors were impacted by COVID-19 during the latter half of fiscal 2020 and through much of fiscal 2021.

PLO increased 34% during fiscal 2021 as pawn transaction activity steadily rebuilt through the year.

Merchandise sales decreased 11% compared to fiscal 2020 when the

COVID-19 pandemic drove significant increases in sales volume in the latter half of year.

Gross margin on merchandise sales grew 900 bps to 42%, resulting in a 13% increase in merchandise sales gross profit, primarily driven by effective inventory management.

Operating expenses decreased $79.3 million or 16%, primarily due to the $54.7 million goodwill impairment charge and the other charges of $20.4 million recorded during the prior year.

In fiscal 2020, a reversal of incentive compensation for $20.9 million was recorded resulting from the termination of certain executives ($12.0 million) and the impact of COVID-19 to long-term and short-term incentive plans ($8.9 million).

Excluding these charges and the reversal of incentive compensation, operating expenses decreased $25.1 million or 6%, primarily due to the strategic initiatives implemented in the fourth quarter of fiscal 2020, including cost optimization at the corporate level and cost cutting at the store level due to reduced transaction activity.

During fiscal 2020, we recorded goodwill, intangible and other assets impairment charges of $54.7 million, as further described in Note 8:

Goodwill and Intangible Assets of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.”

During fiscal 2020, we recorded other charges of $20.4 million due to the implementation of strategic initiatives, as further described in Note 2:

Other Charges of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.”

Total non-operating expenses decreased $6.6 million, or 30%, primarily due to non-recurring costs incurred in the prior year of a $7.1 million charge ($10.1 million, net of a $3.0 million tax benefit) for our share of the Cash Converters settlement of a class action lawsuit and a $5.0 million charge for the closure of our CASHMAX business in Canada.

Income tax expense increased $9.1 million primarily due to an increase in income before income taxes of $86.2 million, offset by a decrease in income tax expense of approximately $9.0 million due to non-deductible goodwill impairments booked in the second quarter of fiscal 2020.

The following table presents selected summary financial data from our U.S.

Pawn segment:

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Segment contribution:

Operations expense 261,608 269,003 (3)%

Store expenses 253,344 261,608 (3)%

Impairment of goodwill, intangible and other assets — 10,000 (100)%

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Segment contribution $ 85,520 $ 73,106 17%

Net earning assets — continuing operations (a) $ 182,147 $ 299,674 (39)%

Inventory turnover 2.3 1.9 0.4x

Average monthly ending pawn loan balance per store (b) $ 235 $ 292 (20)%

Average monthly ending pawn loan balance per store (a) $ 227 $ 235 (3)%

Monthly average yield on pawn loans outstanding 14 % 14 % — bps

Pawn loan redemption rate 86 % 88 % (200) bps

* Represents a percentage computation that is not mathematically meaningful.

(a) Balance includes pawn loans and inventory.

(b) Balance is calculated based on the average of the monthly ending balance averages during the applicable period.

Segment contribu tion decreased $28.6 million, primarily due to a $26.7 million decrease in net revenues.

The decrease in net revenues split between same stores and stores closed during the year is summa rized as follows:

Change in Net Revenue

Pawn Service Charges Merchandise Sales Gross Profit Total

(in millions)

Same stores $ (39.5) $ 8.6 $ (30.9)

Closed stores and other 1.2 0.9 2.1

Total $ (38.3) $ 9.5 $ (28.7)

Change in jewelry scrapping sales gross profit and other revenues 2.0

Total change in net revenue $ (26.7)

PSC decreased 15% primarily due to a substantial decline in new loan originations and associated loan balances because of a change in customer borrowing behaviors during the COVID-19 pandemic.

Merchandise sales increased 10% and merchandise sales gross profit increased 7% to $140.4 million primarily due to the impact of federal economic stimulus measures, with gross margin on merchandise sales down 100 bps to 36%, falling within our target range of 35-38%.

Excluding looting charges of $2.1 million and a $1.4 million increase in inventory reserves due to an increase in aged inventory resulting from the impact of COVID-19, gross margin on merchandise sales remained flat at 37%.

Jewelry scrapping sales gross profit increased 33% to $8.6 million, due primarily to higher scrapping margins as a result of higher gold prices and a reduction in demand for diamond scrap sales.

Jewelry scrap sales margins increased 1,000 bps to 24%.

Total expenses increased $1.8 million, or 1%.

Excluding an impairment charge of $10.0 million and other charges of $3.1 million, total expenses decreased $11.3 million, or 4%, primarily due to a $7.4 million decrease in operating expenses ($5.0 million attributable to cost reduction initiatives and $2.4 million attributable to the reversal of accrued short-term and long-term incentive compensation) and a $3.0 million decrease in loss on sale or disposal of assets.

Non-GAAP Financial Information

In addition to the financial information prepared in conformity with generally accepted accounting principles in the United States ("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 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 more complete understanding of factors and trends affecting our business.

We provide non-GAAP financial information for informational purposes and to enhance understanding of our GAAP consolidated financial statements.

We use this non-GAAP financial information to evaluate and compare operating results across accounting periods.

Readers should consider the information in addition to, but not instead of or superior to, our financial statements prepared in accordance with GAAP.

This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.

Constant currency results reported herein are calculated by translating consolidated balance sheet and consolidated statement of operations items denominated in local currency to U.S.

dollars using the exchange rate from the prior-year comparable period, as opposed to the current period, in order to exclude the effects of foreign currency rate fluctuations.

We used the end-of-period rate for balance sheet items and the average closing daily exchange rate on a monthly basis during the appropriate period for statement of operations items.

The end-of-period and approximate average exchange rates for each applicable currency as compared to U.S.

dollars as of and for the three and twelve months ended September 30, 2020 and 2019 were as follows:

September 30, Three Months Ended

September 30, Twelve Months Ended

September 30,

2020 2019 2020 2019 2020 2019

Mexican peso 21.6 19.7 22.1 19.4 21.0 19.4

Guatemalan quetzal 7.6 7.6 7.5 7.5 7.5 7.6

Honduran lempira 24.3 24.2 24.3 24.1 24.3 24.1

Peruvian sol 3.5 3.4 3.5 3.3 3.4 3.3

Our statement of operations constant currency results reflect the monthly exchange rate fluctuations and so are not directly calculable from the above rates.

Constant currency results, where presented, also exclude the foreign currency gain or loss.

(a) Balance is calculated based on the average of the monthly ending balance averages during the applicable period.

Pawn service charges decreased 6% primarily due to a decline in new loans activity and PLO as customer borrowing behaviors were impacted by COVID-19 and related government stimulus initiatives during the latter half of fiscal 2020 and through the first half of fiscal 2021.

Merchandise sales decreased 13% compared to fiscal 2020 when the COVID-19 pandemic drove significant increases in sales volume in the latter half of year.

Gross margin on merchandise sales grew 800 bps to 44%, resulting in a 7% increase in merchandise sales gross profit, primarily driven by effective inventory management.

Store expenses decreased 3%.

In fiscal 2020, a reversal of incentive compensation for $2.4 million was recorded resulting from the termination of certain executives ($1.2 million) and the impact of COVID-19 to long-term and short-term incentive plans ($1.2 million).

Excluding the reversal of incentive compensation, store expenses decreased $10.7 million or 4%, primarily due to the strategic initiatives implemented in the fourth quarter of fiscal year 2020, including cost cutting at the store level due to reduced transaction activity.

Segment contribution increased $12.4 million primarily due to the $10.0 million goodwill impairment charge and the other charges of $3.1 million recorded during the prior year.

Excluding these charges and the reversal of incentive compensation described above, segment contribution increased $1.7 million due to the changes in net revenues and store expenses described above.

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 of the Mexican peso, Guatemalan quetzal, Honduran lempira and Peruvian sol.

The following table presents selected summary financial data from 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.

Fiscal Year Ended September 30,

(in thousands) 2021

(Constant Currency)

Change (Constant Currency)

(in thousands) (in thousands)

Net revenues:

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Gross margin on jewelry scrapping sales 9 % 11 % (200) bps 9 % (200) bps

Other (expenses) revenues, net (101) 179 (156)% (164) (192)%

Other revenues (expenses), net 7 (101) 107% 6 106%

Net revenues 99,524 87,096 14% 96,409 11%

Segment contribution:

Operations expense 69,916 74,199 (6)% 73,377 (1)%

Impairment of goodwill, intangible and other assets 35,938 — * 37,745 *

Store expenses 77,493 69,916 11% 75,251 8%

Depreciation and amortization 7,371 7,315 1% 7,749 6%

Impairment of goodwill, intangible and other assets — 35,938 (100)% — (100)%

Other charges 229 1,715 (87)% 222 (87)%

Segment operating (loss) contribution (27,788) 24,730 (212)% (29,138) (218)%

Other segment (income) expense (a) (1,129) 606 (286)% (1,625) *

Segment (loss) contribution $ (26,659) $ 24,124 (211)% $ (27,513) (214)%

Net earning assets — continuing operations (b) $ 45,067 $ 78,739 (43)% $ 49,163 (38)%

Inventory turnover 2.8 2.4 0.4x 2.4 —x

Average monthly ending pawn loan balance per store (c) $ 70 $ 89 (21)% $ 92 3%

Segment operating contribution (loss) 14,431 (27,788) 152% 13,187 147%

Other segment income (a) (2,862) (1,129) 153% (2,782) 146%

Segment contribution (loss) $ 17,293 $ (26,659) 165% $ 15,969 160%

Average monthly ending pawn loan balance per store (b) $ 59 $ 70 (16)% $ 57 (19)%

Monthly average yield on pawn loans outstanding 17 % 15 % 200 bps 17 % 200 bps

Pawn loan redemption rate (d) 78 % 78 % — bps 78 % — bps

* Represents a percentage computation that is not mathematically meaningful.

(a) Fiscal 2020 constant currency amount excludes net GAAP basis foreign currency transaction gains of $0.5 million resulting from movement in exchange rates.

(b) Balance includes pawn loans and inventory.

(d) Rate is solely inclusive of results from Empeño Fácil.

During fiscal 2020, we opened 23 de novo stores in Latin America.

Segment contribution decreased $50.8 million, or 211%, to $(26.7) million (down 214% on a constant currency basis), primarily due to the goodwill impairment charges of $35.9 million recorded during the second quarter.

Excluding those charges, segment contribution decreased $14.5 million, primarily due to a decrease in net revenues.

The decrease in net revenues split between same stores and stores added/closed during the year is summa rized as follows:

Change in Net Revenue (GAAP)

Pawn Service Charges Merchandise Sales Gross Profit Total

(in millions)

Same stores $ (17.8) $ (3.4) $ (21.2)

Stores added/closed and other 1.4 1.7 3.1

Total $ (16.4) $ (1.7) $ (18.1)

Change in jewelry scrapping sales gross profit and other revenues —

Total change in net revenue $ (18.1)

Change in Net Revenue (Constant Currency)

Pawn Service Charges Merchandise Sales Gross Profit Total

(in millions)

Same stores $ (14.9) $ (2.0) $ (16.9)

Stores added/closed and other 1.2 0.8 2.0

Total $ (13.7) $ (1.2) $ (14.9)

Change in jewelry scrapping sales gross profit and other revenues —

Total change in net revenue $ (14.9)

Net revenues decreased $ 18.1 million, or 17%, primarily due to a decrease in PSC of $16.4 million.

PSC decreased 21%, or 17% on a constant currency basis, primarily due to a substantial decline in new loan originations and associated loan balances because of a change in customer borrowing behaviors during the COVID-19 pandemic.

Pawn loans outstanding decreased by 40% during the current year.

Merchandise sales increased 9% (16% on a constant currency basis) as we continued with efforts to reduce aged general merchandise at a higher cost basis, with an offsetting 400 bps decline in margins to 22% (400 bps on a constant currency basis).

Excluding the $1.2 million increase in inventory reserves due to an increase in aged inventory resulting from the impact of COVID-19, gross margin on merchandise sales decreased to 23% from 26%.

Jewelry scrapping gross profit increased 27% (33% on a constant currency basis) due to a 400 bps increase in margins (400 bps on a constant currency basis), as a result of higher gold prices.

Operations expense decreased $4.3 million or 6% (1% on a constant currency basis) due to cost reduction initiatives.

Of the total decrease, $1.1 million is related to the reversal of accrued short-term and long-term incentive compensation.

The following table presents selected summary financial data from the Lana segment:

Fiscal Year Ended

September 30, Change

(in thousands)

Segment contribution:

Operations 4,270 7,675 (44)%

Depreciation and amortization 1,058 10 *

Other charges 3,258 — *

Operations expense and other 8,586 7,685 12%

Segment loss $ (8,552) $ (7,685) 11%

* Represents a percentage computation that is not mathematically meaningful.

Discrete revenues to date are minimal as the Lana product offering launched late in the first quarter of fiscal 2020 and all fees from pawn loan extensions, including those made through the Lana platform, are reported in our pawn segments.

Operations expense decreased 44% due to the initial investment of non-capitalizable costs in the Lana platform in the prior year.

Segment loss increased 11% primarily as a result of the $3.3 million increase in other charges primarily related to the impairment of Lana software of $3.0 million and an increase in depreciation of $1.0 million (as the product offering was launched in the first quarter of fiscal 2020) offset by the decrease in operations expense.

The impairment was due to a strategic initiative to focus on significantly improving and strengthening our core pawn business, which led to scaling back our expectations and development of Lana to a digital customer service platform to support our pawn businesses.

Pawn loan redemption rate (c) 80 % 78 % 200 bps 80 % 200 bps

(a) Fiscal 2021 and 2020 constant currency amounts exclude net GAAP basis foreign currency transaction gains of $0.1 million and $0.5 million, respectively, resulting from movement in exchange rates.

(b) Balance is calculated based on the average of the monthly ending balance averages during the applicable period.

(GAAP) 2021 Change

(Constant Currency)

Same Store data:

PSC (4)% (7)%

Merchandise Sales (12)% (14)%

Merchandise Sales Gross Profit 41% 37%

Store Expenses 4% 1%

(a) Stores open at the end of the period included in the same store calculation were 466.

During fiscal 2021, we acquired 128 stores and opened 15 de novo stores.

PLO increased 60% to $40.0 million (51% on constant currency basis).

On a same store basis, PLO increased 37% (29% on a constant currency basis).

Though PLO has significantly improved, the average monthly ending PLO per store during the year was down 16% (19% on

a constant currency basis) resulting from a substantial decline in new loans activity and associated loan balances due to the COVID-19 effects on the business in fiscal 2020.

PSC increased 1% (decreased 2% on a constant currency basis) and same store PSC decreased by 4% (7% on a constant currency basis) due to the lower average PLO during the year offset by a higher yield.

Merchandise sales decreased 5% (8% on a constant currency basis) and 12% on a same store basis (14% on a constant currency basis).

This decrease in merchandise sales was offset by an increase in merchandise sales gross profit driven by a substantial improvement in merchandise sales gross profit margin primarily due to effective inventory management.

Store expenses increased $7.6 million or 11% (8% on a constant currency basis) primarily due to growth in store count during the year.

On a same-store basis, store expenses increased by $2.8 million or 4% (1% on a constant currency basis).

Segment contribution increased $44.0 million, or 165%, to $17.3 million (160% on a constant currency basis).

Excluding the $35.9 million goodwill impairment charge and the other charges of $1.7 million recorded during the prior year, segment contribution increased $6.3 million, primarily due to the changes in net revenues and store expenses described above.

Other International

The following table presents selected summary financial data for the Other International segment after translation to U.S.

dollars from its reporting units’ functional currencies of primarily Canadian and Australian dollars:

The following table presents selected summary financial data for our Other International segment after translation to U.S.

dollars from its functional currency of primarily Australian and Canadian dollars:

Fiscal Year Ended

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Net revenues 420 2,870 (85)%

Segment operating loss:

Operating expenses 5,314 7,595 (30)%

Segment operating expenses:

Store expenses — 5,314 (100)%

Impairment of goodwill, intangible and other assets — 1,149 (100)%

Impairment of investment — 19,725 *

Other charges — 3,802 (100)%

Equity in net loss of unconsolidated affiliates 2,429 135 *

Segment operating loss (9,824) (24,162)

Other segment expense 535 2,668 (80)%

Segment loss $ (10,359) $ (26,830) (61)%

* Represents a percentage computation that is not mathematically meaningful.

Segment loss was $10.4 million, an improvement of $16.5 million from the prior year primarily due to an impairment of our investment in Cash Converters International in the amount of $19.7 million in the prior year with no similar impairment in the current year, offset by a $7.1 million charge, ($10.1 million, net of a $3.0 million tax benefit) in the first quarter of fiscal 2020 for our share of the Cash Converters International settlement of a class action lawsuit.

We operated 22 fina ncial services stores in Canada under the CASHMAX brand during the fiscal year.

All of the stores were located in the Ontario province, in and around Toronto.

During the fourth quarter, we closed our CASHMAX business.

We recorded other charges of $4.9 million in this segment, primarily consisting of severance and other payroll-related costs, net asset write-offs, impairment of internally developed software and contract termination costs.

In October 2019, Cash Converters International agreed to settle the sole remaining class action lawsuit previously lodged 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 in two tranches, subject to court approval.

We recorded a charge of approximately $10.0 million for our share of the settlement from Cash Converters International in fiscal 2020 related to this event, in addition to our regularly included share of their earnings.

Equity in net (income) loss of unconsolidated affiliates (3,803) 2,429 257%

Segment operating contribution (loss) 4,223 (9,824) 143%

Other segment (income) expense (173) 535 132%

Segment contribution (loss) $ 4,396 $ (10,359) 142%

Segment contribution was $4.4 million.

When excluding the $7.1 million charge ($10.1 million, net of a $3.0 million tax benefit) for our share of the Cash Converters settlement of a class action lawsuit and a $5.0 million charge for the closure of our CASHMAX business in Canada in the prior year, segment contribution increased $2.7 million, primarily due to the elimination of store losses from CASHMAX.

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:

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Corporate expenses (income):

Administrative 49,897 55,990 (11)%

General and administrative 56,495 54,133 4%

Impairment of goodwill and intangibles — 7,579 (100)%

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Interest income (461) (1,587) (71)%

Other income 133 (378) *

(Loss) income from continuing operations before income taxes (70,095) 4,174 *

Income tax (benefit) expense (1,632) 2,406 (168)%

(Loss) income from continuing operations, net of tax (68,463) 1,768 *

Loss from discontinued operations, net of tax — (457) (100)%

Net (loss) income (68,463) 1,311 *

Net loss attributable to noncontrolling interest — (1,230) *

Net (loss) income attributable to EZCORP, Inc.

$ (68,463) $ 2,541 *

* Represents a percentage computation that is not mathematically meaningful.

Administrative expenses decreased $6.1 million, or 11%, primarily due to the reduction of short-term and long-term incentive compensation of approximately $17.0 million, offset by a $10.9 million increase in labor costs.

Other charges include $8.5 million of charges resulting from the implementation of cost saving initiatives and rationalizing non-core activities.

These charges include $5.4 million in severance costs and other payroll-related costs and $3.1 million of miscellaneous charges.

Interest expense decreased $9.3 million, or 30%, primarily due to the repayment in June 2019 of our 2.125% Cash Convertible Senior Notes Due 2019.

Prior to repayment, the principal amount of these notes was $195.0 million.

For additional information about our financing transactions, see “Note 9 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.”

Interest income decreased $7.9 million, or 83%, primarily due to the declining principal balance on the Grupo Finmart notes receivable, in addition to the reduction of interest earned on outstanding cash balances after our 2019 Convertible Notes were repaid in June 2019.

Income taxes decreased $4.0 million due primarily to:

• A $74.3 million decrease in income from continuing operations before income taxes;

• A $9 million increase in income tax expense resulting from non-deductible goodwill impairments.

Other expense 223 133 68%

Income (loss) before income taxes 16,062 (70,095) 123%

Income tax expense (benefit) 7,450 (1,632) 556%

Net income (loss) $ 8,612 $ (68,463) 113%

Segment contribution increased $71.1 million, primarily due to a $47.1 million impairment charge of certain long-lived assets, $8.6 million in other charges and a $7.1 million charge ($10.1 million, net of a $3.0 million tax benefit) for our share of the Cash Converters settlement of a class action lawsuit in fiscal 2020.

Excluding those charges, segment contribution increased by $8.3 million or 8% primarily due to the improvements of the Latin America pawn segment.

General and administrative expenses increased $2.4 million, or 4%.

In fiscal 2020, a reversal of incentive compensation for $17.0 million was recorded resulting from the termination of certain executives ($10.3 million) and the impact of COVID-19 to long-term and short-term incentive plans ($6.7 million).

Excluding the reversal of incentive compensation, general and administrative expenses decreased $14.6 million or 21%, due to expense optimization initiatives that started at the end of the fourth quarter of fiscal 2020.

Other charges of $11.8 million incurred in the prior year resulted from the implementation of cost saving initiatives and rationalizing non-core activities.

Income tax expense increased $9.1 million primarily due to an increase in income before income taxes of $86.2 million offset by a decrease in income tax expense of approximately $9.0 million due to non-deductible goodwill impairments booked in the second quarter of fiscal 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.

See Note 11 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for quantification of these items.

Income Taxes of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for quantification of these items.

Fiscal 2020 vs.

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Cash flows from operating activities $ 46,438 $ 49,078 (5)%

Cash flows from (used in) investing activities 109,898 (27,829) 495%

Cash flows (used in) provided by investing activities (84,611) 109,898 (177)%

Cash flows used in financing activities (16,253) (6,253) (160)%

Effect of exchange rate changes on cash and cash equivalents (2,612) (507) *

Net increase (decrease) in cash and cash equivalents and restricted cash $ 150,111 $ (123,136) 222%

Effect of exchange rate changes on cash and cash equivalents and restricted cash 5,497 (2,612) *

Net (decrease) increase in cash and cash equivalents and restricted cash $ (48,929) $ 150,111 (133)%

* Represents a percentage computation that is not mathematically meaningful.

The decrease in cash flows from operating activities year-over-year was due to $33.2 million of changes in working capital and a $20.3 million change in net income, exclusive of non-cash items.

Changes in working capital included certain required prepayments and payments of accounts payable, including certain discrete items, accrued as of September 30, 2019.

The increase in cash flows from investing activities year-over-year was primarily due to a $129.5 million net decrease in new loan originations and associated loan balances because of a change in customer borrowing behaviors during the COVID-19 pandemic and a $15.8 million increase in the sale of forfeited collateral, partially offset by a $26.1 million net decrease in principal collections on the Grupo Finmart notes receivable.

The decrease in cash flows used in financing activities was due primarily to repayment of $195.0 million principal amount of 2.125% Cash Convertible Senior Notes Due 2019 in the prior year, partially offset by $5.2 million in common stock repurchases in the current year.

The net effect of these changes was a $150.1 million increase in cash on hand during the current year, resulting in a $312.6 million ending cash and restricted cash balance.

Of the ending cash balance on September 30, 2020, $49.0 million was unavailable to fund domestic operations as we intend to permanently reinvest those funds in our foreign operations and $8.0 million was also unavailable as these funds are being held in an escrow account pending resolution of an indemnification claim related to the sale of Grupo Finmart.

The decrease in cash flows from operating activities year-over-year was due to a $31.2 million decrease from changes in working capital, offset by a $28.6 million increase in net income, exclusive of non-cash items.

Changes in working capital are primarily related to the timing of collections in pawn service charges receivable, inventory purchases and the timing of payments of accounts payable and prepaid expenses.

The decrease in cash flows from investing activities year-over-year was primarily due to a $95.8 million decrease in the sale of forfeited collateral, a decrease of $76.6 million in net pawn lending and collections and acquisitions of $19.0 million.

The decrease in sale of forfeited collateral and decrease in net pawn lending and collections was primarily attributable to a change in customer borrowing behaviors during the COVID-19 pandemic.

The $19.0 million in acquisitions is primarily attributable to the CAE acquisition discussed in Note 3:

Acquisitions of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.”

The increase in cash flows used in financing activities year-over-year was primarily due to the payment of assumed debt of $14.9 million from the CAE acquisition, offset by a $5.2 million decrease from the repurchase of common stock in the prior year.

The net effect of these changes was a $48.9 million decrease in cash on hand during the current year, resulting in a $263.6 million ending cash and restricted cash balance.

Sources and Uses of Cash

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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.

The resumption of our stock repurchase program and the amount and timing of purchases will be dependent on a variety of factors.

These factors include the return to normal business conditions, stock price, trading volume, general market conditions, legal and regulatory requirements, cash flow levels, and corporate considerations determined by management and the Board, such as liquidity and capital needs and the availability of attractive alternative investment opportunities.

As of September 30, 2021, 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 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 year ended September 30, 2020, we repurchased and retired 943,149 shares of our Class A Common Stock for $5.2 million.

We did not make any stock repurchases during the year ended September 30, 2021.

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 2022.

We continue to explore accretive 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 continue to adjust our capital or other expenditures.

Convertible Notes

For a description of the terms of our convertible notes, including the associated conversion and other related features and transactions, see Note 9 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.”

In June 2019, we repaid $195.0 million principal amount of 2.125% Cash Convertible Senior Notes Due 2019 at maturity using cash on hand.

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.

Grupo Finmart Notes

In connection with the sale of Grupo Finmart to Alpha Holding, S.A.

(“AlphaCredit”) in September 2016, Grupo Finmart issued two promissory notes (the “Parent Loan Notes”) to us in the aggregate principal amount of $60.2 million.

The repayment terms of the Parent Loan Notes were amended in September 2017, and since that time, we received all scheduled payments when due.

During the year ended September 30, 2020, we received the remaining deferred compensation fees of $8.0 million, which was placed into escrow pending resolution of a potential indemnity claim.

Convertible Notes

For a description of the terms of our convertible notes, including the associated conversion and other related features and transactions, see Note 9:

Debt of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.”

Contractual Obligations

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Payments due by Period

Contractual Obligations Total Less than

(in thousands) Total Less than

1 year 1-3 years 3-5 years More than

(in thousands)

Debt obligations (a) $ 316,250 $ — $ 143,750 $ 172,500 $ —

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(c) No provision for uncertain tax benefits has been reflected in the contractual obligations table as the timing of any such payment is uncertain.

See Note 11 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.” Additionally, no provision for insurance reserves, deferred compensation arrangements, or other liabilities totaling $6.1 million has been included as the timing of such payments are uncertain.

Income Taxes of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.” Additionally, no provision for insurance reserves, deferred compensation arrangements, or other liabilities totaling $7.6 million has been included as the timing of such payments are uncertain.

(d) Total excludes contractual obligations already recorded on our consolidated balance sheets as current liabilities, except for the accrued portions of interest and lease obligations which are included in interest on long-term debt obligations and lease obligations captions above.

In addition to the lease obligations in the table above, we are responsible for the maintenance, property taxes and insurance at most of our locations.

During the fiscal year ended September 30, 2020, these collectively am ounted to $24.7 million.

Critical Accounting Policies and Estimates

In addition to the lease obligations in the table above, we are responsible for the ma intenance, property taxes and insurance at most of our locations.

During the fiscal year ended September 30, 2021, these collectively amounted to $25.5 million.

Critical Accounting Estimates

The preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

On an on-going basis, we evaluate our estimates and judgments including those related to revenue recognition, inventory, loan loss allowances, long-lived and intangible assets, income taxes, contingencies and litigation.

On an on-going basis, we evaluate our estimates and judgments including those related to revenue recognition, inventory, loan loss allowances, goodwill and indefinite-lived intangible assets, long-lived and other intangible assets, income taxes, contingencies and litigation.

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

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

The critical accounting policies and estimates that could have a significant impact on our results of operations, as well as relevant recent accounting pronouncements, are described in Note 1 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.” Certain accounting policies regarding the quantification of the sensitivity of certain critical estimates are discussed further below.

The critical accounting policies and estimates that could have a significant impact on our results of operations, as well as relevant recent accounting pronouncements, are described in Note 1:

Organization and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.” Certain accounting policies regarding the quantification of the sensitivity of certain critical estimates are discussed further below.

Pawn Loan Revenue Recognition

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As of September 30, 2021, the gross balance of our inventory was $115.3 million, for which we have included reserves of $4.3 million.

Assuming the reserve rate s were increased or decreased by 10%, our inventory reserve balance as of September 30, 2020 would have increased or decreased by approximately $1.2 million.

Goodwill and Other Intangible Assets

We perform our impairment analyses utilizing the income approach.

This approach uses future cash flows and estimated terminal values for each of our reporting units (discounted using a market participant perspective) to determine the fair value of each reporting unit, which is then compared to the carrying value of the reporting unit to determine if there is an impairment.

We have determined that our reporting units are equivalent to our operating segments for fiscal 2020.

The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-average cost of capital derived from other publicly traded companies that are similar but not identical from an operational and economic standpoint.

Assuming the reserve rates were increased or decreased by 10%, our inventory reserve balance as of September 30, 2021 would have increased or decreased by approximately $0.4 million.

Goodwill and Indefinite-Lived Intangible Assets

When testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the estimated fair value of a reporting unit is less than its carrying amount.

If we elect to perform a qualitative assessment and determine an impairment is more-likely-than-not, we are then required to perform a quantitative impairment test;

otherwise, no further analysis is required.

We also may elect not to perform a qualitative assessment and, instead, proceed directly to a quantitative impairment test.

When performing a quantitative impairment test, we apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

When we perform a quantitative goodwill impairment test, we estimate the fair value of the reporting unit using an income approach based on the present value of expected future cash flows, including terminal value, utilizing a market-based weighted average cost of capital (“WACC”) determined separately for each reporting unit.

The determination of fair value involves the use of estimates and assumptions, including revenue growth rates, operating margins and terminal growth rates discounted by an estimated WACC derived from other publicly traded companies that are similar but not identical to us from an operational and economic standpoint.

We use discount rates that are commensurate with the risks and uncertainties inherent in the respective businesses and in our internally developed forecasts.

Discount rates used in fiscal 2020 goodwill valuations ranged from 11% to 19%, compared to 10% to 15% used in fiscal 2019.

In testing other intangible assets for potential impairment, we apply key assumptions that are consistent with those utilized in our goodwill impairment test.

We may perform a qualitative assessment in making our determination of whether it is more likely than not that goodwill and other intangible assets are impaired under appropriate accounting guidance on an annual basis in future reporting periods.

In addition to the assumptions discussed above pertaining to the income approach, we consider the assessment of potential triggering events to be a critical estimate.

The results of impairment analyses for fiscal year 2020 are described in Note 8 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.”

We test indefinite-lived intangible assets for impairment by first assessing qualitative factors to determine whether it is necessary to perform a quantitative impairment test.

If we believe as a result of the qualitative assessment that it is more-likely-than-not that the fair value of the indefinite-lived intangible asset is less than its carrying amount, a quantitative impairment test is required.

Otherwise, no further testing is required.

We consider the assessment of the occurrence of triggering events or substantive changes in circumstances that may indicate the fair value of goodwill may be impaired to be a critical estimate.

Furthermore, we consider the assumptions discussed above pertaining to the income approach we use in the quantitative testing of impairment to be critical estimates.

The results of the impairment analyses for fiscal year 2021 and fiscal year 2020 are discussed in Note 8:

Goodwill and Intangible Assets of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.”

Management believes that it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with future reversals of existing taxable temporary differences, will be sufficient to fully recover the net recorded deferred tax assets.

In the event that we determine all or part of the net deferred tax assets are not realizable in the future, we will make an adjustment to the valuation allowance that would be charged to earnings in the period such determination is made.

In the event we determine all or part of the net deferred tax assets are not realizable in the future, we will make an adjustment to the valuation allowance that would be charged to earnings in the period such determination is made.

We have included valuation allowances against deferred tax assets for net operating losses and tax credits not expected to be utilized based on specific facts and estimates for each jurisdiction.

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We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes.

We adjust these reserves in light of changing facts and circumstances, such as the closing

of an audit or the refinement of an estimate.

We adjust these reserves in light of changing facts and circumstances, such as the closing of an audit or the refinement of an estimate.

Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

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Such risks and uncertainties include, among other things:

• Expected operating losses and uncertainties relating to the COVID-19 pandemic, including the impact of renewed economic stimulus measures;

• The need to sustain focus on internal controls;

• Changes in laws and regulations;

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• Our ability to continue growing our store count through acquisitions and de novo openings;

• Our ability to successfully develop and commercialize a digital transaction and lending services platform;

• Continuing indemnification obligations for pre-closing taxes related to our sale of Grupo Finmart;

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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-K

Item 7. Management’s Discussion and Analysis