EZCORP INC 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to inform the reader about matters affecting the financial condition and results of operations of EZCORP, Inc. and its subsidiaries (collectively, “we,” “us”, “our”, "EZCORP" or the “Company”). The following discussion should be read together with our condensed consolidated financial statements and related notes included elsewhere within this report. This discussion contains forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements. See "Part I, Item 1A — Risk Factors" of our Annual Report on Form 10-K for the year ended September 30, 2021, as supplemented by the information set forth in “Part I, Item 3 — Quantitative and Qualitative Disclosures about Market Risk” and "Part II, Item 1A — Risk Factors" of this Report, for a discussion of certain risks, uncertainties and assumptions associated with these statements. Business Overview EZCORP is a Delaware corporation headquartered in Austin, Texas. We are a leading provider of pawn services in the United States and Latin America. Pawn loans are nonrecourse loans collateralized by personal property. We also sell merchandise, primarily collateral forfeited from unpaid loans or goods purchased directly from customers. We exist to serve our customers’ short-term cash needs, helping them to live and enjoy their lives. We are focused on three strategic pillars: Strengthen the Core Relentless focus on superior execution and operational excellence in our core pawn business Cost Efficiency and Simplification Shape a culture of cost efficiency through ongoing focus on simplification and optimization Innovate and Grow Broaden customer engagement to service more customers more frequently in more locations Pawn Activities At our pawn stores, we advance cash against the value of collateralized tangible personal property. We earn pawn service charges (“PSC”) for those cash advances, and the PSC rate varies by state and transaction size. At the time of the transaction, we take possession of the pawned collateral, which consists of tangible personal property, generally jewelry, consumer electronics, tools, sporting goods and musical instruments. If the customer chooses to redeem their pawn, they will repay the amount advanced plus any accrued PSC. If the customer chooses not to redeem their pawn, the pawned collateral becomes our inventory, which we sell in our retail merchandise sales activities or, in some cases, scrap for its inherent gold or precious stone content. Consequently, the success of our pawn business is largely dependent on our ability to accurately assess the probability of pawn redemption and the estimated resale or scrap value of the collateralized personal property. Our ability to offer quality second-hand goods at prices significantly lower than original retail prices attracts value-conscious customers. The gross profit on sales of inventory depends primarily on our assessment of the estimated resale or scrap value at the time the property is either accepted as pawn collateral or purchased and our ability to sell that merchandise in a timely manner. As a significant portion of our inventory and sales involve gold and jewelry, our results can be influenced by the market price of gold and diamonds. Growth and Expansion Our strategy is to expand the number of locations we operate through opening new (“de novo”) locations and through acquisitions and investments in both Latin America, the United States and potential new markets. Our ability to open de novo stores, acquire new stores and make other related investments is dependent on several variables, such as projected achievement of internal investment hurdles, the availability of acceptable sites or acquisition candidates, the alignment of acquirer/seller price expectations, the regulatory environment, local zoning ordinances, access to capital and the availability of qualified personnel. Seasonality and Quarterly Results In the United States, PSC is historically highest in our fourth fiscal quarter (July through September) due to a higher average loan balance during the summer lending season. PSC is historically lowest in our third fiscal quarter (April through June) following the tax refund season and merchandise sales are highest in our first and second fiscal quarters (October through March) due to the holiday season, jewelry sales 21 Table of Contents surrounding Valentine’s Day and the availability of tax refunds. In Latin America, most of our customers receive additional compensation from their employers in December, and many receive additional compensation in June or July, applying downward pressure on loan balances and fueling some merchandise sales in those periods. As a net effect of these and other factors and excluding discrete charges, our consolidated 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. Financial Highlights We remain focused on optimizing our balance of pawn loans outstanding (“PLO”) and the resulting higher PSC. 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. 22 Table of Contents Business Developments COVID-19 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 On May 3, 2022, the Company's Board of Directors approved a new share repurchase program, which will replace the previous program that was suspended in March 2020. 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. 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. This purchase increased our total ownership in Cash Converters to 242,239,157 shares, representing a 38.60% ownership interest. On April 5, 2022, we acquired an additional 13 million shares for $2.5 million, bringing our total ownership to 255,239,157 shares, representing an ownership interest of 40.67%. Additionally, on April 14, 2022, we received a cash dividend of $1.8 million from Cash Converters. Results of Operations Non-GAAP Constant Currency and Same Store 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 three and nine months ended June 30, 2022 and June 30, 2021 were as follows: 23 Table of Contents June 30, Three Months Ended June 30, Nine Months Ended June 30, 2022 2021 2022 2021 2022 2021 Mexican peso 20.2 19.9 20.0 20.0 20.4 20.3 Guatemalan quetzal 7.6 7.6 7.5 7.6 7.5 7.6 Honduran lempira 24.2 23.6 24.2 23.7 24.1 23.8 Peruvian sol 3.7 3.9 3.7 3.8 3.8 3.7 Operating Results Segments We manage our business and report our financial results in three reportable segments; • U.S. Pawn — Represents all pawn activities in the United States; • Latin America Pawn — Represents all pawn activities in Mexico and other parts of Latin America; and • Other Investments — Represents our equity interest in the net income of Cash Converters International and Rich Data Corporation, along with our investment in Founders. Store Count by Segment Three Months Ended June 30, 2022 U.S. Pawn Latin America Pawn Consolidated As of March 31, 2022 516 636 1,152 New locations opened — 8 8 Locations acquired 3 — 3 As of June 30, 2022 519 644 1,163 Three Months Ended June 30, 2021 U.S. Pawn Latin America Pawn Consolidated As of March 31, 2021 505 506 1,011 New locations opened — 4 4 Locations acquired 11 128 139 Locations sold, combined or closed — (11) (11) As of June 30, 2021 516 627 1,143 Nine Months Ended June 30, 2022 U.S. Pawn Latin America Pawn Consolidated As of September 30, 2021 516 632 1,148 New locations opened — 12 12 Locations acquired 3 — 3 As of June 30, 2022 519 644 1,163 24 Table of Contents Nine Months Ended June 30, 2021 U.S. Pawn Latin America Pawn Consolidated As of September 30, 2020 505 500 1,005 New locations opened — 10 10 Locations acquired 11 128 139 Locations sold, combined or closed — (11) (11) As of June 30, 2021 516 627 1,143 25 Table of Contents 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. U.S. Pawn The following table presents selected summary financial data for our U.S. Pawn segment: Three Months Ended June 30, Change (in thousands) 2022 2021 Gross profit: Pawn service charges $ 59,322 $ 44,039 35% Merchandise sales 94,005 84,465 11% Merchandise sales gross profit 38,120 39,155 (3)% Gross margin on merchandise sales 41 % 46 % (500)bps Jewelry scrapping sales 5,404 1,908 183% Jewelry scrapping sales gross profit 898 30 2,893% Gross margin on jewelry scrapping sales 17 % 2 % 1,500bps Other revenues 21 32 (34)% Gross profit 98,361 83,256 18% Segment operating expenses: Store expenses 66,036 62,507 6% 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% Other data: Net earning assets (a) $ 261,511 $ 186,322 40% Inventory turnover 2.5 2.8 (11)% Average monthly ending pawn loan balance per store (b) $ 290 $ 206 41% Monthly average yield on pawn loans outstanding 14 % 14 % —bps 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 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. 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. 26 Table of Contents Segment store count increased by three acquired stores during the quarter. Latin America Pawn The following table presents selected summary financial data for the Latin America Pawn segment, including constant currency results, after translation to U.S. dollars from its functional currencies noted above under “Results of Operations — Non-GAAP Constant Currency and Same Store Financial Information." Three Months Ended June 30, (in thousands) 2022 (GAAP) 2021 (GAAP) Change (GAAP) 2022 (Constant Currency) Change (Constant Currency) Gross profit: Pawn service charges $ 20,969 $ 16,392 28% $ 20,953 28% Merchandise sales 34,329 23,343 47% 34,315 47% Merchandise sales gross profit 10,047 8,114 24% 10,046 24% Gross margin on merchandise sales 29 % 35 % (600)bps 29 % (600)bps Jewelry scrapping sales 1,764 3,765 (53)% 1,761 (53)% Jewelry scrapping sales gross profit 103 170 (39)% 103 (39)% Gross margin on jewelry scrapping sales 6 % 5 % 100bps 6 % 100bps Other revenues, net 7 — —% 7 —% Gross profit 31,126 24,676 26% 31,109 26% Segment operating expenses: Store expenses 23,394 19,296 21% 23,383 21% 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 income (352) (489) (28)% (352) (28)% Segment contribution $ 6,097 $ 3,566 71% $ 6,092 71% Other data: Net earning assets (a) $ 75,357 $ 63,075 19% $ 76,323 21% Inventory turnover 3.7 4.0 (8)% 3.7 (8)% Average monthly ending pawn loan balance per store (b) $ 69 $ 65 6% $ 69 6% Monthly average yield on pawn loans outstanding 16 % 16 % —bps 16 % —bps 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. (b) Balance is calculated based upon the average of the monthly ending balances during the applicable period. (c) Rate is solely inclusive of results from Mexico Pawn. 2022 Change (GAAP) 2022 Change (Constant Currency) Same Store data: PLO 9% 10% PSC 17% 17% Merchandise Sales 29% 29% Merchandise Sales Gross Profit 9% 9% Store Expenses 4% 6% 27 Table of Contents 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 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 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 The following table presents selected financial data for our Other Investments segment after translation to U.S. dollars from its functional currency of primarily Australian dollars: Three Months Ended June 30, Change (in thousands) 2022 2021 Gross profit: Consumer loan fees, interest and other $ 21 $ 89 (76)% Gross profit 21 89 (76)% Segment operating expenses: 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 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. 28 Table of Contents Other Items The following table reconciles our consolidated segment contribution discussed above to net income attributable to EZCORP, Inc., including items that affect our consolidated financial results but are not allocated among segments: Three Months Ended June 30, Percentage Change (in thousands) 2022 2021 Segment contribution $ 37,611 $ 22,429 68% Corporate expenses (income): General and administrative 18,715 14,589 28% Depreciation and amortization 3,187 3,013 6% Interest expense 2,693 5,569 (52)% Interest income — (28) (100)% Other (income) expense (66) 52 * Income (loss) before income taxes 13,082 (766) 1,808% Income tax expense 867 1,804 (52)% 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 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. The policy change eliminates the non-cash interest amortization of that debt discount. See Note 1: Organization And Summary Of Significant Accounting Policies to the consolidated financials for further discussion of this recently adopted accounting policy. 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. These items include the net effect of state taxes, non-deductible items and changes in valuation allowances for certain foreign operations. See Annual Report on Form 10-K for the year ended September 30, 2021 Note 11: Income Taxes of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for quantification of these items. 29 Table of Contents 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. U.S. Pawn The following table presents selected summary financial data for the U.S. Pawn segment: Nine Months Ended June 30, Change (in thousands) 2022 2021 Gross profit: Pawn service charges $ 174,651 $ 143,836 21% Merchandise sales 296,147 260,545 14% Merchandise sales gross profit 123,817 115,364 7% Gross margin on merchandise sales 42 % 44 % (200)bps Jewelry scrapping sales 13,864 9,493 46% Jewelry scrapping sales gross profit 2,585 1,622 59% Gross margin on jewelry scrapping sales 19 % 17 % 200bps Other revenues 67 83 (19)% Gross profit 301,120 260,905 15% Segment operating expenses: Store expenses 195,217 188,256 4% Depreciation and amortization 7,867 7,972 (1)% Segment operating contribution 98,036 64,677 52% Other segment (income) expense (1) 27 * Segment contribution $ 98,037 $ 64,650 52% Other data: Average monthly ending pawn loan balance per store (a) $ 290 $ 218 33% Monthly average yield on pawn loans outstanding 14 % 14 % —bps Pawn loan redemption rate 84 % 87 % (300)bps * Represents a percentage computation that is not mathematically meaningful. (a) Balance is calculated based upon the average of the monthly ending balances during the applicable period. Pawn service charges increased 21% as a result of higher average PLO for the year. Merchandise sales increased 14% compared to the prior year. 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. 30 Table of Contents Latin America Pawn The following table presents selected summary financial data our Latin America Pawn segment, including constant currency results, after translation to U.S. dollars from functional currencies. See “Results of Operations — Non-GAAP Constant Currency and Same Store Financial Information” above. Nine Months Ended June 30, (in thousands) 2022 (GAAP) 2021 (GAAP) Change (GAAP) 2022 (Constant Currency) Change (Constant Currency) Gross profit: Pawn service charges $ 58,348 $ 43,520 34% $ 58,497 34% Merchandise sales 103,463 70,271 47% 104,031 48% Merchandise sales gross profit 30,269 24,580 23% 30,436 24% Gross margin on merchandise sales 29 % 35 % (600)bps 29 % (600)bps Jewelry scrapping sales 5,938 9,014 (34)% 5,948 (34)% Jewelry scrapping sales gross profit 470 809 (42)% 472 (42)% Gross margin on jewelry scrapping sales 8 % 9 % (100)bps 8 % (100)bps Other revenues, net 247 7 * 248 * Gross profit 89,334 68,916 30% 89,653 30% Segment operating expenses: Store expenses 66,727 54,005 24% 67,029 24% 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% Other segment income (a) (593) (2,194) (73)% (696) (68)% Segment contribution $ 17,342 $ 11,149 56% $ 17,437 56% Other data: Average monthly ending pawn loan balance per store (a) $ 63 $ 58 9% $ 63 9% Monthly average yield on pawn loans outstanding 16 % 16 % —bps 16 % —bps Pawn loan redemption rate (b) 80 % 81 % (100)bps 80 % (100)bps * Represents a percentage computation that is not mathematically meaningful. (a) Balance is calculated based upon the average of the monthly ending balances during the applicable period. (b) Rate is solely inclusive of results from Mexico Pawn. 2022 Change (GAAP) 2022 Change (Constant Currency) Same Store data: PLO 9% 10% PSC 21% 21% Merchandise Sales 24% 25% Merchandise Sales Gross Profit 7% 8% Store Expenses 4% 6% 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 margin decreased 600 bps from 35% to 29% (29% on a constant currency basis) reflecting a return to more normalized margins. 31 Table of Contents Store expenses increased by 24% (24% on a constant currency basis) primarily due to growth in store count. On a same-store basis, store expenses increased by $0.9 million or 4% (6% on a constant currency basis) due to rising labor costs resulting from growing transaction volume. Segment contribution increased $6.2 million, or 56%, to $17.3 million. This increase was primarily due to the changes in revenue and store expenses described above. Other Investments The following table presents selected financial data for our Other Investments segment after translation to U.S. dollars from its functional currency of primarily Australian dollars: Nine Months Ended June 30, Change (in thousands) 2022 2021 Gross profit: Consumer loan fees, interest and other 93 338 (72)% Gross profit 93 338 (72)% Segment operating expenses: 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. 32 Table of Contents Other Items The following table reconciles our consolidated segment contribution discussed above to net income attributable to EZCORP, Inc., including items that affect our consolidated financial results but are not allocated among segments: Nine Months Ended June 30, Percentage Change (in thousands) 2022 2021 Segment contribution $ 116,914 $ 78,729 49% Corporate expenses (income): General and administrative 46,487 40,870 14% Depreciation and amortization 9,045 9,649 (6)% (Gain) loss on sale or disposal of assets (688) 63 * Interest expense 7,651 16,542 (54)% Interest income (122) (99) 23% Other (income) expense (11) 169 (107)% Income from continuing operations before income taxes 54,552 11,535 373% Income tax expense 11,729 4,476 162% Net income $ 42,823 $ 7,059 507% * Represents a percentage computation that is not mathematically meaningful. 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. The policy change eliminates the non-cash interest amortization of that debt discount. See Note 1: Organization And Summary Of Significant Accounting Policies to the consolidated financials for further discussion of this recently adopted accounting policy. 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. These items include the net effect of state taxes, non-deductible items and changes in valuation allowances for certain foreign operations. See Annual Report on Form 10-K for the year ended September 30, 2021 Note 11: Income Taxes of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for quantification of these items. Liquidity and Capital Resources We currently believe that, based on available capital resources and projected operating cash flow, we have adequate capital resources to fund working capital needs, currently anticipated capital expenditures, currently anticipated business growth and expansion, tax payments, and current and projected debt service requirements. Cash and Cash Equivalents Our cash and equivalents balance was $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. 33 Table of Contents Cash Flows The table and discussion below presents a summary of the selected sources and uses of our cash: Nine Months Ended June 30, Percentage Change (in thousands) 2022 2021 Cash flows provided by operating activities $ 48,494 $ 33,122 46% 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 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 $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 On May 3, 2022, our Board of Directors approved a new share repurchase program, which replaced the previous program that was suspended in March 2020. Under the new program, the Company is authorized to repurchase up to $50 million of our Class A Non-Voting common shares over the next three years. Execution of the program will be responsive to fluctuating market conditions and valuations, liquidity needs and the expected return on investment compared to other opportunities. Under the stock repurchase program, we may purchase Class A Non-Voting common stock from time to time at management’s discretion in accordance with applicable securities laws, including through open market transactions, block or privately negotiated transactions, or any combination thereof. In addition, we may purchase shares pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934. The amount and timing of purchases will be dependent on a variety of factors, including stock price, trading volume, general market conditions, legal and regulatory requirements, general business conditions, the level of cash flows, 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. 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. We continue to explore acquisition opportunities, both large and small, and may choose to pursue additional debt, equity or equity-linked financings in the future should the need arise. Given the current uncertainty related to the COVID-19 pandemic, we may adjust our capital or other expenditures. Depending on the level of acquisition activity and other factors, our ability to repay our longer term debt obligations, including the convertible debt maturing in 2024 and 2025, may require us to refinance these obligations through the issuance of new debt securities, equity securities, convertible securities or through new credit facilities. Contractual Obligations In "Part II, Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended September 30, 202 1, we reported that we had $602.6 million in total contractual obligations as of September 30, 2021. There have been no material changes to this total obligation since September 30, 2021, other than changes as the result of adoption of accounting standards as further discussed in Note 1: Organization And Summary Of Significant Accounting Policies of Notes to Interim Condensed Consolidated Financial Statements included in "Part I, Item 1 — Financial Statements." 34 Table of Contents We are responsible for the maintenance, property taxes and insurance at most of our locations. In the fiscal year ended September 30, 2021, these collectively amounted to $25.5 million. Recently Adopted Accounting Policies and Recently Issued Accounting Pronouncements In August 2020, the FASB issued its Accounting Standards Update (“ASU”) 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40) , (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Additionally, ASU 2020-06 eliminates beneficial conversion feature and cash conversion models resulting in more convertible instruments being accounted for as a single unit. We early adopted this standard on October 1, 2021 under the modified retrospective basis. The effect of eliminating our debt discount on the 2024 and 2025 Convertible Notes will decrease non-cash interest expense amortization on our Condensed Consolidated Statement of Operations, and the reduction of interest expense will affect our basic earnings per common share. When calculating net income per share of common stock attributable to common shareholders, the Company uses the if-converted method as required under ASU 2020-06 to determine the dilutive effect of the Convertible Notes. The Company did not incur any impact to liquidity or cash flows with recently adopted accounting policy. Cautionary Statement Regarding Risks and Uncertainties that May Affect Future Results This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend that all forward-looking statements be subject to the safe harbors created by these laws. All statements, other than statements of historical facts, regarding our strategy, future operations, financial position, future revenues, projected costs, prospects, plans and objectives are forward-looking statements. These statements are often, but not always, made with words or phrases like "may," "should," "could," "will," "predict," "anticipate," "believe," "estimate," "expect," "intend," "plan," "projection" and similar expressions. Such statements are only predictions of the outcome and timing of future events based on our current expectations and currently available information and, accordingly, are subject to substantial risks, uncertainties and assumptions. Actual results could differ materially from those expressed in the forward-looking statements due to a number of risks and uncertainties, many of which are beyond our control. In addition, we cannot predict all of the risks and uncertainties that could cause our actual results to differ from those expressed in the forward-looking statements. Accordingly, you should not regard any forward-looking statements as a representation that the expected results will be achieved. Important risk factors that could cause results or events to differ from current expectations are identified and described in "Part I, Item 1A — Risk Factors" of our Annual Report on Form 10-K for the year ended September 30, 2021 and "Part II, Item 1A — Risk Factors" of this Report. We specifically disclaim any responsibility to publicly update any information contained in a forward-looking statement except as required by law. All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.