What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-03 compared with 2022-05-04 · 114 added, 106 removed, 309 unchanged (42% of the section changed)

34 unchanged sentences

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 fiscal quarter (April through June).

As a net effect of these and other factors and excluding discrete charges, our consolidated income/loss before tax is generally highest in our first fiscal quarter (October through December) and lowest in our third fiscal quarter (April through June).

These historical trends have been impacted by COVID-19, but we expect these historical trends to return in the future.

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We remain focused on optimizing our balance of pawn loans outstanding (“PLO”) and the resulting higher 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 six months ended March 31, 2022 and 2021:

The following chart presents sources of net revenues by geographic disbursement for the three and six months ended March 31, 2022 and 2021:

The following chart presents sources of gross profit*, 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, 2022 and 2021:

The following chart presents sources of gross profit by geographic disbursement for the three and nine months ended June 30, 2022 and 2021:

* We have relabeled "net revenues" to "gross profit" throughout our filings, which we believe will improve comparability across industries and companies.

This change is effective for this and future filings.

Business Developments

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

and global economies, as disclosed in our 2021 Annual Report on Form 10-K.

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

The impact of the pandemic, and the recovery therefrom, continued to adversely effect net revenues and earnings into 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.

We continue to assess what type of impact various COVID-19 variants may have to our business net revenues and operating expenses in fiscal year 2022.

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

The COVID-19 pandemic adversely affected our gross profit and earnings during the latter half of fiscal 2020 and into fiscal 2021.

During the latter part of fiscal 2021, we saw pawn transaction activity start to rebuild.

That has continued to date, and our pawn loans outstanding ("PLO") balances now exceed pre-pandemic levels, which will drive accelerating pawn service charges ("PSC") revenue in the coming quarters given the natural lag between pawn originations and related fees.

Despite the recovery in pawn transaction activity, the continuing pandemic, driven by the proliferation of various COVID-19 variants, continues to affect portions of our business, such as managing appropriate staffing at the store level.

Our estimates, judgments and assumptions related to COVID-19 could vary over time, and there can be no assurance that the continuing pandemic will not have an adverse effect on our results of operations, financial position and cash flows in future periods.

Share Repurchase Program

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Under the new program, the Company is authorized to repurchase up to $50 million of its outstanding Class A Non-Voting common share over the next three years.

"Liquidity and Capital Resources — Sources and Uses of Cash" below.

Investments in Unconsolidated Entities

Refer to "Liquidity and Capital Resources — Sources and Uses of Cash" below.

Investment in Cash Converters International

On March 10, 2022, we purchased an additional 5.5 million shares of Cash Converters for $1.0 million.

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Additionally, on April 14, 2022, we received a cash dividend of $1.8 million from Cash Converters.

Executive Management Changes

On March 3, 2022, Lachlan P.

Given was appointed Chief Executive Officer (principal executive officer) and John Blair Powell, Jr.

was appointed Chief Operating Officer (principal operating officer).

Given and Mr.

Powell had been serving as Co-Interim Chief Executive Officers (co-principal executive officers) since January 12, 2022.

A description of Mr.

Given's and Mr.

Powell's respective backgrounds and experiences can be found in "Part III, Item 10 — Directors, Officers and Corporate Governance — Executive Officers" of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

Results of Operations

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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 six months ended March 31, 2022 and March 31, 2021 were as follows:

dollars as of and for the three and nine months ended June 30, 2022 and June 30, 2021 were as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

2022 2021 2022 2021 2022 2021

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Store Count by Segment

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Pawn Latin America Pawn Consolidated

As of December 31, 2021 516 633 1,149

New locations opened — 3 3

As of March 31, 2022

516 636 1,152

Three Months Ended March 31, 2021

Pawn Latin America Pawn Consolidated

As of December 31, 2020 505 500 1,005

New locations opened — 8 8

Locations acquired 3 — 3

As of June 30, 2022

519 644 1,163

Three Months Ended June 30, 2021

Pawn Latin America Pawn Consolidated

As of March 31, 2021

505 506 1,011

Six Months Ended March 31, 2022

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

Nine Months Ended June 30, 2022

Pawn Latin America Pawn Consolidated

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New locations opened — 12 12

As of March 31, 2022

Locations acquired 3 — 3

As of June 30, 2022

519 644 1,163

Six Months Ended March 31, 2021

Nine Months Ended June 30, 2021

Pawn Latin America Pawn Consolidated

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New locations opened — 10 10

As of March 31, 2021

Locations acquired 11 128 139

Locations sold, combined or closed — (11) (11)

As of June 30, 2021

516 627 1,143

Three Months Ended March 31, 2022 vs.

Three Months Ended March 31, 2021

Three Months Ended June 30, 2022 vs.

Three Months Ended June 30, 2021

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

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Pawn segment:

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands) 2022 2021

Net revenues:

Gross profit:

Pawn service charges $ 59,322 $ 44,039 35%

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Other revenues 21 32 (34)%

Net revenues 100,929 92,053 10%

Gross profit 98,361 83,256 18%

Segment operating expenses:

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Depreciation and amortization 2,572 2,600 (1)%

Segment operating contribution 29,753 18,149 64%

Other segment income (1) — *

Segment contribution $ 29,754 $ 18,149 64%

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Pawn loan redemption rate 85 % 88 % (300)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.

PLO increased 40% to $133.5 million due to increased loan demand reflecting a recovery towards pre-COVID levels.

Pawn service charges increased 19% as a result of higher average PLO for the quarter.

PLO increased 36% to $159.7 million (36% on a same store basis), our highest level to-date, due to increased loan demand reflecting a recovery above pre-COVID levels.

Total revenue was up 22%, and gross profit increased 18% driven by increased pawn service charges, which were up 35% as a result of higher average PLO for the quarter.

Merchandise sales increased 11% due to our improved retail strategy.

This increase was offset by a 1% decrease in merchandise sales gross profit to $41.5 million, as well as a 400 bps decrease in merchandise sales gross profit margin, reflecting a return to more normalized margins.

Store expenses increased 1% primarily due to increased store count.

Segment contribution increased $8.1 million or 31%, due to the changes in net revenues and store expenses described above.

Offsetting the sales increase, merchandise sales gross margin decreased to 41% from 46% reflecting a return to more normalized margins.

Inventory turnover decreased to 2.5x from 2.8x due to increased inventory levels in the current quarter and stimulus impacts in the prior year.

Store expenses increased 6% primarily due to increased store count and labor increases in line with business activity.

Segment contribution increased $11.6 million or 64%, due to the changes described above.

Segment store count increased by three acquired stores during the quarter.

Latin America Pawn

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dollars from its functional currencies noted above under “Results of Operations — Non-GAAP Constant Currency and Same Store Financial Information."

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands) 2022 (GAAP)

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Change (Constant Currency)

Net revenues:

Gross profit:

Pawn service charges $ 20,969 $ 16,392 28% $ 20,953 28%

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Gross margin on jewelry scrapping sales 6 % 5 % 100bps 6 % 100bps

Net revenues 27,970 21,521 30% 28,107 31%

Other revenues, net 7 — —% 7 —%

Gross profit 31,126 24,676 26% 31,109 26%

Segment operating expenses:

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Depreciation and amortization 1,987 1,806 10% 1,986 10%

Other Charges — 497 * — *

Segment operating contribution 5,745 3,077 87% 5,740 87%

Other segment expense (income) 70 (385) (118)% (66) (83)%

Other segment income (352) (489) (28)% (352) (28)%

Segment contribution $ 6,097 $ 3,566 71% $ 6,092 71%

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Pawn loan redemption rate (c) 79 % 79 % —bps 79 % —bps

* Represents a percentage computation that is not mathematically meaningful.

(a) Balance includes pawn loans and inventory.

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Store Expenses 4% 6%

In the current quarter, we opened three de novo stores, bringing total segment store-count to 636.

In the current quarter, we opened eight de novo stores, bringing total segment store-count to 644.

PLO increased 11% to $44.5 million (13% on constant currency basis).

On a same store basis, PLO increased 15% (13% on a constant currency basis) due to increased loan demand reflecting a recovery towards pre-COVID levels.

On a same store basis, PLO increased 9% (10% on a constant currency basis), also the highest level to-date, due to increased loan demand reflecting a recovery above pre-COVID levels.

Total revenue was up 31% (31% on a constant currency basis), while gross profit increased 26% (26% on a constant currency basis).

PSC increased 28% in the current quarter to $21.0 million (up 28% to $21.0 million on a constant currency basis) as a result of higher average PLO for the quarter.

Merchandise sales increased 47% (47% on a constant currency basis) and 29% on a same store basis (29% on a constant currency basis) reflecting a renewed focus on customer engagement.

Offsetting the sales increase, merchandise sales gross profit margin decreased from 35% to 29% reflecting a return to more normalized margins.

Overall, merchandise sales gross profit increased 33% to $9.9 million (34% to $9.9 million on a constant currency basis).

Store expenses increased $3.8 million or 21% (22% on a constant currency basis) primarily due to growth in store count.

On a same-store basis, store expenses decreased by $0.2 million or 1% (1% on a constant currency basis).

Segment contribution increased $2.1 million, or 82%, to $4.8 million ($2.3 million or 86% on a constant currency basis), due to the changes in net revenues and store expenses described above.

Offsetting the sales increase, merchandise sales gross margin decreased from 35% to 29% reflecting a return to more normalized margins.

Net inventory increased 34% (35% on a constant currency basis).

Inventory turnover remains strong at 3.7x, down from 4.0x.

Store expenses increased $4.1 million or 21% (21% on a constant currency basis) primarily due to growth in labor and year-over-year store count in line with increased business activity.

On a same-store basis, store expenses increased by $0.2 million or 4% (6% on a constant currency basis).

Segment contribution increased $2.5 million, or 71%, to $6.1 million ($2.5 million or 71% on a constant currency basis).

Other Investments

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dollars from its functional currency of primarily Australian dollars:

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands) 2022 2021

Net revenues:

Gross profit:

Consumer loan fees, interest and other $ 21 $ 89 (76)%

Net revenues 29 174 (83)%

Gross profit 21 89 (76)%

Segment operating expenses:

Equity in net loss (income) of unconsolidated affiliates 1,439 (1,250) (215)%

Segment operating (loss) contribution (1,410) 1,424 (199)%

Equity in net income of unconsolidated affiliates (1,758) (643) 173%

Segment operating contribution 1,779 732 143%

Other segment expense 19 18 6%

Segment (loss) contribution $ (1,418) $ 1,415 (200)%

Segment loss was $1.4 million, a decrease of $2.8 million due to the decrease in equity income for our unconsolidated affiliates.

The equity in net loss in the current quarter was primarily due to our equity pickup of Cash Converters' net loss, which included an impairment, primarily of its ROU leased assets, that was attributed to COVID-19.

Segment contribution $ 1,760 $ 714 146%

Segment contribution was $1.8 million, an increase of $1.0 million due to the increase in equity income for our unconsolidated affiliates.

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 March 31,

Three Months Ended June 30,

Percentage Change

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Depreciation and amortization 3,187 3,013 6%

(Gain) loss on sale or disposal of assets and other (688) 11 *

Interest expense 2,693 5,569 (52)%

Interest income — (28) (100)%

Other expense 29 51 *

Income before income taxes 20,123 6,799 196%

Other (income) expense (66) 52 *

Income (loss) before income taxes 13,082 (766) 1,808%

Income tax expense 867 1,804 (52)%

Net income $ 14,887 $ 5,330 179%

Net income (loss) $ 12,215 $ (2,570) 575%

* Represents a percentage computation that is not mathematically meaningful.

Segment contribution increased $15.2 million or 68% over the prior year quarter primarily due to the improved operating results of the segments above.

General and administrative expenses decreased $1.5 million or 11%, primarily driven by the reversal of incentive compensation for the departing CEO.

General and administrative expenses increased $4.1 million or 28%, primarily due to a litigation accrual and increased performance-based incentive compensation.

Interest expense decreased $2.9 million primarily driven by the ASU 2020-06 accounting policy change which no longer requires debt discount be included on our balance sheet effective October 1, 2021.

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Organization And Summary Of Significant Accounting Policies to the consolidated financials for further discussion of this recently adopted accounting policy.

Income tax expense increased $3.8 million primarily due to an increase in income before income taxes of $13.3 million this quarter compared to the prior year same quarter.

Income tax expense decreased $0.9 million primarily due to the expiration of the statute of limitations on certain FIN 48 reserves this quarter, partially offset by an increase in income before income taxes of $13.8 million this quarter compared to the prior year quarter.

Income tax expense includes other items that do not necessarily correspond to pre-tax earnings and create volatility in our effective tax rate.

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

Six Months Ended March 31, 2022 vs.

Six Months Ended March 31, 2021

Nine Months Ended June 30, 2022 vs.

Nine Months Ended June 30, 2021

The tables below and discussion that follows should be read in conjunction with the accompanying condensed consolidated financial statements and related notes.

1 unchanged sentence

Pawn segment:

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands) 2022 2021

Net revenues:

Gross profit:

Pawn service charges $ 174,651 $ 143,836 21%

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Other revenues 67 83 (19)%

Net revenues 202,759 177,649 14%

Gross profit 301,120 260,905 15%

Segment operating expenses:

2 unchanged sentences

Segment operating contribution 98,036 64,677 52%

Other segment expense — 27 *

Other segment (income) expense (1) 27 *

Segment contribution $ 98,037 $ 64,650 52%

6 unchanged sentences

Merchandise sales increased 14% compared to the prior year.

Offsetting the sales increase, merchandise sales gross profit margin decreased 100 bps reflecting a return to more normalized margins.

Store expenses increased by 3% due to increased store count and increased labor expenses resulting from growing transaction volume.

Segment contribution increased $21.8 million primarily due to the changes in net revenues and store expenses described above.

Offsetting the sales increase, merchandise sales gross margin decreased 200 bps reflecting a return to more normalized margins.

Store expenses increased by 4% primarily due to increased store count and labor expenses associated with increased business activity.

Segment contribution increased $33.4 million primarily due to the changes described above.

Latin America Pawn

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See “Results of Operations — Non-GAAP Constant Currency and Same Store Financial Information” above.

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands) 2022 (GAAP)

1 unchanged sentence

Change (Constant Currency)

Net revenues:

Gross profit:

Pawn service charges $ 58,348 $ 43,520 34% $ 58,497 34%

6 unchanged sentences

Other revenues, net 247 7 * 248 *

Net revenues 58,208 44,240 32% 58,546 32%

Gross profit 89,334 68,916 30% 89,653 30%

Segment operating expenses:

1 unchanged sentence

Depreciation and amortization 5,858 5,459 7% 5,883 8%

Other Charges — 497 * — *

Segment operating contribution 16,749 8,955 87% 16,741 87%

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Store Expenses 4% 6%

During the six months ended March 31, 2022, our Latin America pawn segment opened four de novo stores.

During the nine months ended June 30, 2022, our Latin America pawn segment opened twelve de novo stores.

PSC increased 34% to $58.3 million (34% to $58.5 million on a constant currency basis) as a result of higher average PLO for the year.

Merchandise sales increased 47% (48% on a constant currency basis) and 21% on a same store basis (21% on a constant currency basis).

Offsetting the sales increase, merchandise sales gross profit margin decreased 600 bps from 35% to 29% (29% on a constant currency basis) reflecting a return to more normalized margins.

Offsetting the sales increase, merchandise sales gross margin decreased 600 bps from 35% to 29% (29% on a constant currency basis) reflecting a return to more normalized margins.

Store expenses increased by 24% (24% on a constant currency basis) primarily due to growth in store count.

5 unchanged sentences

dollars from its functional currency of primarily Australian dollars:

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands) 2022 2021

Net revenues:

Gross profit:

Consumer loan fees, interest and other 93 338 (72)%

Net revenues 72 249 (71)%

Gross profit 93 338 (72)%

Segment operating expenses:

Equity in net loss (income) of unconsolidated affiliates 301 (1,766) (117)%

Segment operating (loss) contribution (229) 2,015 (111)%

Other segment income (4) (201) (98)%

Segment (loss) contribution $ (225) $ 2,216 (110)%

Segment loss was $0.2 million, a decrease of $2.4 million from the prior-year six months ended March 31, 2021, primarily due to the decrease in equity income for our unconsolidated affiliates.

The equity in net loss in the current six months ended March 31, 2022 was primarily due to our equity pickup of Cash Converters' net results which included an impairment, primarily of its ROU leased assets, that was attributed to COVID-19.

Equity in net income of unconsolidated affiliates (1,457) (2,409) (40)%

Segment operating contribution 1,550 2,747 (44)%

Other segment loss (income) 15 (183) (108)%

Segment contribution $ 1,535 $ 2,930 (48)%

Segment income was $1.5 million, a decrease of $1.4 million from the prior-year nine months ended June 30, 2022, primarily due to the decrease in equity income for our unconsolidated affiliates.

The decrease in equity in net income in the current nine months ended June 30, 2022 was primarily due to our equity pickup of Cash Converters' net results which included an impairment, primarily of its ROU leased assets, that was attributed to COVID-19.

Six Months Ended March 31,

Nine Months Ended June 30,

Percentage Change

7 unchanged sentences

Interest income (122) (99) 23%

Other expense 55 117 (53)%

Other (income) expense (11) 169 (107)%

Income from continuing operations before income taxes 54,552 11,535 373%

2 unchanged sentences

* Represents a percentage computation that is not mathematically meaningful.

Segment contribution increased $23.0 million or 41% over the prior year 6 months ended March 31, 2021, primarily due to the improved operating results of the segments above.

Segment contribution increased $38.2 million or 49% over the prior year 9 months ended June 30, 2021, primarily due to the improved operating results of the segments above.

General and administrative expenses increased $5.6 million or 14%, primarily due to a litigation accrual and increased salaries, including performance-based incentive compensation.

Interest expense decreased $8.9 million primarily driven by the ASU 2020-06 accounting policy change which no longer requires debt discount be included on our balance sheet effective October 1, 2021.

1 unchanged sentence

Organization And Summary Of Significant Accounting Policies to the consolidated financials for further discussion of this recently adopted accounting policy.

Income tax expense increased $8.2 million primarily due to an increase in income before income taxes of $29.2 million this six months ended March 31, 2022 compared to the prior year same 6 months period ended.

Income tax expense increased $7.3 million primarily due to an increase in income before income taxes of $43.0 million for the nine months ended June 30, 2022 compared to the same prior year nine month period.

Income tax expense includes other items that do not necessarily correspond to pre-tax earnings and create volatility in our effective tax rate.

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Cash and Cash Equivalents

Our cash and equivalents balance was $255.0 million at March 31, 2022 compare d to $253.7 million at September 30, 2021.

At March 31, 2022, our cash and equivalents were held in cash depository accounts with major banks or invested in high quality, short-term liquid investments.

Our cash and equivalents balance was $222.3 million at June 30, 2022 compare d to $253.7 million at September 30, 2021.

At June 30, 2022, our cash and equivalents were held in cash depository accounts with major banks or invested in high quality, short-term liquid investments.

The table and discussion below presents a summary of the selected sources and uses of our cash:

Six Months Ended

Nine Months Ended

(in thousands) 2022 2021

Cash flows provided by operating activities $ 48,494 $ 33,122 46%

Cash flows (used in) provided by investing activities (31,887) 9,080 (451)%

Cash flows used in investing activities (81,589) (37,086) 120%

Cash flows used in financing activities (792) (16,202) (95)%

Effect of exchange rate changes on cash, cash equivalents and restricted cash 1,219 5,076 (76)%

Net increase in cash, cash equivalents and restricted cash $ 53 $ 31,091 (100)%

The increase in cash flows provided by operating activities year-over-year was primarily due to a $21.0 million increase in net income.

The $41.0 million increase in cash flows used in investing activities year-over-year was primarily due to $16.5 million in outgoing cash flows used to fund other investments and an increase of $38.0 million in net pawn lending, offset by an $20.3 million increase in the sale of forfeited collateral.

Net decrease in cash, cash equivalents and restricted cash $ (32,668) $ (15,090) 116%

The increase in cash flows provided by operating activities year-over-year was primarily due to a $35.8 million increase in net income, partially offset by cash outflows used to purchase inventory and other changes to working capital.

The $44.5 million increase in cash flows used in investing activities year-over-year was primarily due to $16.5 million in outgoing cash flows used to fund other investments and an increase of $66.2 million in net pawn lending, partially offset by an $35.5 million increase in the sale of forfeited collateral.

Of the $16.5 million used to fund other investments, $15.0 million was invested in Founders, as discussed in Note 6:

Strategic Investments in Part I, Item 1 - Notes to Interim Condensed Consolidated Financial Statements.

The net effect of these changes was a $0.1 million increase in cash on hand during the current year to date period, resulting in a $263.7 million ending cash and restricted cash balance.

The net effect of these changes was a $32.7 million decrease in cash on hand during the current year to date period, resulting in a $231.0 million ending cash and restricted cash balance.

Sources and Uses of Cash

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The Board of Directors has reserved the right to modify, suspend or terminate the program at any time.

Under the previous share repurchase program authorized in December 2019, the Company had repurchased and retired 943,149 shares of our Class A Common Stock for $5.2 million.

During the six months ended March 31, 2022, there were no stock repurchases.

To date, there were no stock repurchases under the new program.

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.

29 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis