What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-03 compared with 2023-02-01 · 185 added, 58 removed, 220 unchanged (52% of the section changed)

37 unchanged sentences

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 months ended December 31, 2022 and 2021:

The following chart presents sources of gross profit by geographic disbursement for the three months ended December 31, 2022 and 2021:

Business Developments

Convertible Debt

In December 2022, we issued $230.0 million aggregate principal amount of 3.750% Convertible Senior Notes Due 2029 (the “2029 Convertible Notes”).

In conjunction with the issuance of the 2029 Convertible Notes, we extinguished approximately $109.4 million aggregate principal amount of our 2024 Convertible Notes for approximately $117.5 million plus accrued interest and approximately $69.1 million aggregate principal amount of our 2025 Convertible Notes for approximately $62.9 million plus accrued interest.

In addition, we used approximately $5.0 million of the net proceeds from the 2029 Convertible Notes offering to repurchase 578,703 shares of our Class A common stock from purchasers of the notes in privately negotiated transactions.

See Note 7 of Notes to Interim Condensed Consolidated Financial Statements included in "Part I, Item 1 — Financial Statements."

Investment in Cash Converters International

On November 2, 2022, we purchased an additional 13 million shares of Cash Converters for $2.1 million.

This purchase increased our total ownership in Cash Converters to 273,939,157 shares, representing a 43.7% ownership interest.

Additionally, during November 2022, we received a cash dividend of $1.8 million from Cash Converters.

During December 2022, we made additional investments in Founders One, LLC ("Founders") in the form of a $15.0 million additional capital contribution and a $15.0 million loan.

The proceeds of these additional investments were passed on to Simple Management Group, Inc.

("SMG") and used by SMG to complete the acquisition of FFI Holdings, Inc.

SMG owns and operates 73 pawn stores in the Caribbean and Florida.

See Note 5 of Notes to Interim Condensed Consolidated Financial Statements included in "Part I, Item 1 — Financial Statements."

The following chart presents sources of gross profit by geographic disbursement for the three and six months ended March 31, 2023 and 2022:

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 months ended December 31, 2022 and December 31, 2021 were as follows:

dollars as of and for the three and six months ended March 31, 2023 and March 31, 2022 were as follows:

Three Months Ended

Six Months Ended

2023 2022 2023 2022 2023 2022

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Store Count by Segment

Three Months Ended December 31, 2022

Three Months Ended March 31, 2023

Pawn Latin America Pawn Consolidated

As of September 30, 2022

As of December 31, 2022

525 661 1,186

New locations opened 2 11 13

Locations acquired 10 — 10

Locations sold, combined or closed — (1) (1)

As of March 31, 2023

527 672 1,199

Three Months Ended March 31, 2022

Pawn Latin America Pawn Consolidated

As of December 31, 2021

516 633 1,149

Three Months Ended December 31, 2021

New locations opened — 3 3

As of March 31, 2022

516 636 1,152

Six Months Ended March 31, 2023

Pawn Latin America Pawn Consolidated

As of September 30, 2022 515 660 1,175

New locations opened 2 13 15

Locations acquired 10 — 10

Locations sold, combined or closed — (1) (1)

As of March 31, 2023

527 672 1,199

Six Months Ended March 31, 2022

Pawn Latin America Pawn Consolidated

As of September 30, 2021 516 632 1,148

New locations opened — 4 4

As of December 31, 2021

As of March 31, 2022

516 636 1,152

Three Months Ended December 31, 2022 vs.

Three Months Ended December 31, 2021

Three Months Ended March 31, 2023 vs.

Three Months Ended March 31, 2022

These tables, as well as the discussion that follows, should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and related notes.

1 unchanged sentence

Pawn segment:

Three Months Ended December 31,

Three Months Ended March 31,

(in thousands) 2023 2022

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Loss on sale or disposal of assets and other 81 — *

Segment operating contribution 37,751 33,812 12%

Other segment (income) expense (1) — *

Segment contribution $ 37,752 $ 33,812 12%

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PLO ended the quarter at $157.0 million, up 18% (14% on a same store basis).

Total revenue was up 19%, and gross profit increased 13%, driven by increased pawn service charges, higher merchandise sales and improved merchandise sales gross profit.

Total revenue was up 16% and gross profit increased 11%, reflecting increased PSC and higher merchandise sales..

PSC increased 19% as a result of higher average PLO.

Merchandise sales gross margin decreased to 38% from 43%, reflecting a more normalized operating environment.

Store expenses increased 13% primarily due to increased labor in-line with store activity and, to a lesser extent, expenses related to our loyalty program and rent associated with lease renewals.

Merchandise sales increased 9% and gross margin decreased to 38% from 41%, reflecting a more normalized operating environment.

Aged general merchandise increased to 1.4% of total general merchandise inventory, primarily driven by recent acquisitions.

Net inventory increased 20% reflecting a return towards normalized inventory levels.

Inventory turnover remained flat at 2.6x.

Store expenses increased 12%, primarily due to increased labor in-line with store activity, higher store count and, to a lesser extent, expenses related to our loyalty program.

Segment contribution increased 12% to $37.8 million, due to the changes noted above.

Segment store count increased by 10 stores during this quarter due to two acquisitions.

Segment store count increased by two de novo stores during this 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 December 31,

Three Months Ended March 31,

(in thousands) 2023 (GAAP)

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Depreciation and amortization 2,332 1,891 23% 2,160 14%

Other Charges — — * — *

Other (2,465) — * (2,336) *

Segment operating contribution 7,644 4,828 58% 7,166 48%

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Total revenue was up 30% (22% on constant currency basis), while gross profit increased 32% (23% on a constant currency basis), reflecting increased PSC, higher merchandise sales and improved merchandise sales gross profit.

PSC increased 20% (15% on a constant currency basis) as a result of higher average PLO.

Merchandise sales gross margin increased slightly from 29% to 30%.

Store expenses increased 25% (20% on a constant currency basis), primarily due to increased labor in-line with store activity and, to a lesser extent, expenses related to our loyalty program and rent associated with lease renewals.

PSC increased 29% (21% on a constant currency basis) as a result of higher average PLO and yield.

Merchandise sales gross margin increased from 29% to 32%.

Aged general merchandise inventory increased to 3.2% from 1.0% of total merchandise inventory.

Net inventory increased 44% (33% on a constant currency basis), reflecting a return towards normalized inventory levels.

Inventory turnover remains strong at 3.5x.

Store expenses increased 38% (29% on a constant currency basis), primarily due to increased labor in line with store activity and higher store count.

Same-store expenses increased 32% (24% on a constant currency basis).

Segment contribution increased 16% (15% on a constant currency basis) to $7.5 million, due to the changes noted above.

Segment store count increased by one store due to the net impact of opening two de novo stores and the consolidation of one store during the quarter.

Segment contribution increased 68% (60% on a constant currency basis) to $8.0 million, this increase was primarily due to the reversal of a contingent consideration liability in connection with a previously completed acquisition, which was recorded to "Other," and the changes in revenue and store expenses described above..

Segment store count increased by 11 de novo stores during the quarter.

Other Investments

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dollars from its functional currency of primarily Australian dollars:

Three Months Ended December 31,

Three Months Ended March 31,

(in thousands) 2023 2022

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Segment operating expenses:

Equity in net income of unconsolidated affiliates (1,584) (1,138) 39%

Segment operating contribution 1,606 1,181 36%

Equity in net loss of unconsolidated affiliates 32,501 1,439 2,159%

Segment operating loss (32,491) (1,410) 2,204%

Other segment expense 6 8 (25)%

Segment loss $ (32,497) $ (1,418) 2,192%

Segment loss was $32.5 million, a decrease of $31.1 million due to the net loss on our share of Cash Converters related to their non-cash goodwill impairment charge taken d uring the quarter ended March 31, 2023.

Additionally, See "Part II, Item 1A — Risk Factors" of this Report.

A decline in future operating results of Cash Converters, if any, resulting from the change of law could adversely affect our investment.

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,

Percentage Change

(in thousands) 2023 2022

Segment contribution $ 13,251 $ 37,152 (64)%

Segment contribution was $1.6 million, an increase of $0.4 million due to the increase in equity income for our unconsolidated affiliate Cash Converters.

A recent law change in Australia could adversely impact Cash Converters' operations and financial position.

See "Part II, Item 1A — Risk Factors" of this Report.

Corporate expenses (income):

General and administrative 15,609 12,227 28%

Depreciation and amortization 3,071 2,934 5%

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

Interest expense 3,390 2,527 34%

Interest income (1,599) — *

Other expense 120 29 *

(Loss) income before income taxes (7,340) 20,123 (136)%

Income tax (benefit) expense (550) 5,236 (111)%

Net (loss) income $ (6,790) $ 14,887 (146)%

* Represents a percentage computation that is not mathematically meaningful.

Segment contribution decreased $23.9 million or 64% over the prior year quarter primarily due to the decrease in Other Investments segment due to the net loss on our share of Cash Converters, offset by improved operating results of the U.S.

Pawn and Latin America Pawn segments above.

General and administrative expense increased $3.4 million or 28%, primarily due to the impact related to the reversal of incentive compensation for the departed CEO in the prior period and to a lesser extent, an overall increase in incentive-based compensation.

Interest income increased $1.6 million, due primarily to our treasury management with increased market interest rates, and, to a lesser extent, loans to certain strategic investees.

Income tax expense decreased $5.8 million primarily due to a decrease in income before income taxes of $27.5 million this quarter compared to the prior year associated with the net loss on our share of Cash Converters, offset by the improved operating results within the U.S.

Pawn segment and the Latin American Pawn segment.

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, 2022 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.

Six Months Ended March 31, 2023 vs.

Six Months Ended March 31, 2022

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

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

Pawn segment:

Six Months Ended March 31,

(in thousands) 2023 2022

Gross profit:

Pawn service charges $ 139,255 $ 115,329 21%

Merchandise sales 227,054 202,142 12%

Merchandise sales gross profit 86,155 85,697 1%

Gross margin on merchandise sales 38 % 42 % (400)bps

Jewelry scrapping sales 16,990 8,460 101%

Jewelry scrapping sales gross profit 2,224 1,687 32%

Gross margin on jewelry scrapping sales 13 % 20 % (700)bps

Other revenues 57 46 24%

Gross profit 227,691 202,759 12%

Segment operating expenses:

Store expenses 145,250 129,181 12%

Depreciation and amortization 5,315 5,295 —%

Loss on sale or disposal of assets and other 84 *

Segment operating contribution 77,042 68,283 13%

Other segment (income) expense (1) — *

Segment contribution $ 77,043 $ 68,283 13%

Average monthly ending pawn loan balance per store (a) $ 312 $ 270 16%

Monthly average yield on pawn loans outstanding 14 % 14 % —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 12% compared to the prior year.

Merchandise sales increase was driven primarily by our continued focus on customer engagement and pricing merchandise to maintain strong inventory turnover.

Offsetting the sales increase, merchandise sales gross margin decreased 400 bps reflecting a return toward more normalized margins.

Store expenses increased 12%, primarily due to increased labor in-line with store activity, higher store count and expenses associated with our loyalty program.

Segment contribution increased $8.8 million, primarily due to the changes described above.

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.

Six Months Ended March 31,

(in thousands) 2023 (GAAP)

Change (GAAP) 2023 (Constant Currency)

Change (Constant Currency)

Gross profit:

Pawn service charges $ 46,368 $ 37,379 24% $ 44,153 18%

Merchandise sales 89,240 69,134 29% 84,289 22%

Merchandise sales gross profit 27,923 20,222 38% 26,300 30%

Gross margin on merchandise sales 31 % 29 % 200bps 31 % 200bps

Jewelry scrapping sales 3,719 4,174 (11)% 3,518 (16)%

Jewelry scrapping sales gross profit (370) 367 (201)% (343) (193)%

Gross margin on jewelry scrapping sales (10) % 9 % (1,900)bps (10) % (1,900)bps

Other revenues, net 35 240 * 32 *

Gross profit 73,956 58,208 27% 70,142 21%

Segment operating expenses:

Store expenses 56,822 43,333 31% 53,836 24%

Depreciation and amortization 4,547 3,871 17% 4,285 11%

Other (2,465) — * (2,336) *

Segment operating contribution 15,052 11,004 37% 14,357 30%

Other segment income (a) (473) (241) 96% (723) 200%

Segment contribution $ 15,525 $ 11,245 38% $ 15,080 34%

Average monthly ending pawn loan balance per store (a) $ 71 $ 60 18% $ 71 18%

Monthly average yield on pawn loans outstanding 17 % 16 % 100bps 17 % 100bps

* 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.

(Constant Currency)

Same Store data:

Merchandise Sales 24% 17%

Merchandise Sales Gross Profit 56% 47%

Store Expenses 20% 14%

During the six months ended March 31, 2023, our Latin America pawn segment opened thirteen de novo stores.

PSC increased 24% to $46.4 million (18% to $44.2 million on a constant currency basis) as a result of higher average PLO for the year.

Merchandise sales increased 29% (22% on a constant currency basis) and 24% on a same store basis (17% on a constant currency basis).

Merchandise sales increase was driven primarily by our continued focus on customer engagement, pricing merchandise to maintain strong inventory turnover and increase in stores.

Merchandise sales gross margin increased 200 bps from 29% to 31% and on a constant currency basis, reflecting a return to more normalized margins.

Store expenses increased by 31% (24% on a constant currency basis) primarily due to higher store count and increased labor in-line with store activity.

On a same-store basis, store expenses increased 20% (14% on a constant currency basis) due to rising labor costs resulting from growing transaction volume.

Segment contribution increased $4.3 million, or 38%, to $15.5 million.

This increase was primarily due to the reversal of a contingent consideration liability in connection with a previously completed acquisition, which was recorded to "Other," and 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:

Six Months Ended March 31,

(in thousands) 2023 2022

Gross profit:

Consumer loan fees, interest and other 32 72 (56)%

Gross profit 32 72 (56)%

Segment operating expenses:

Equity in net loss of unconsolidated affiliates 30,917 301 *

Segment operating loss (30,885) (229) *

Other segment loss (income) 10 (4) (350)%

Segment loss $ (30,895) $ (225) *

* Represents a percentage computation that is not mathematically meaningful.

Segment loss was $30.9 million, a decrease of $30.7 million from the prior-year six months ended March 31, 2022, primarily due to the net loss on our share of Cash Converters related to their non-cash goodwill impairment charge.

Three Months Ended December 31,

Six Months Ended March 31,

Percentage Change

4 unchanged sentences

Depreciation and amortization 6,089 5,858 4%

(Gain) loss on sale or disposal of assets — (688) *

Interest expense 9,580 4,958 93%

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Other (income) expense (188) 55 (442)%

Income before income taxes 24,538 21,347 15%

Income from continuing operations before income taxes 17,198 41,470 (59)%

Income tax expense 7,210 10,862 (34)%

1 unchanged sentence

* Represents a percentage computation that is not mathematically meaningful.

Segment contribution increased $6.3 million or 15% over the prior year quarter primarily due to the improved operating results of the segments above.

In December 2022, the Company repurchased approximately $109.4 million aggregate principal amount of 2.875% Convertible Senior Notes Due 2024 for approximately $117.5 million plus accrued interest and approximately $69.1 million aggregate principal amount of 2.375% Convertible Senior Notes Due 2025 for approximately $62.9 million plus accrued interest and recorded a $3.5 million loss on extinguishment of debt.

Income tax expense increased $2.1 million primarily due to an increase in income before income taxes of $3.2 million this quarter compared to the prior year quarter as well as the non-deductible loss on the convertible debt refinancing.

Segment contribution decreased $17.6 million or 22% over the prior year six months ended March 31, 2022, primarily due to the equity pickup of Cash Converters' net results partially offset by the improved operating results of the segments above.

General and administrative expenses increased $3.3 million or 12%, primarily due to the impact related to the reversal of incentive compensation for the departed CEO in the prior period and to a lesser extent, an overall increase in incentive-based compensation.

Interest expense increased $4.6 million, primarily driven by the net loss recorded on the partial extinguishments of the 2024 convertible notes and 2025 convertible notes, and higher average total debt outstanding at overall higher average effective interest rates due to the issuance of the 2029 convertible notes during December 2022.

Debt to the consolidated financials for further discussion.

Income tax expense decreased $3.7 million, primarily due to a decrease in income before income taxes of $24.3 million for the six months ended March 31, 2022 compared to the same prior year six 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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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 $207.7 million at December 31, 2022 compared to $206.0 million at September 30, 2022.

At December 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 $243.1 million at March 31, 2023 compared to $206.0 million at September 30, 2022.

At March 31, 2023, 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:

Three Months Ended

Six Months Ended

(in thousands) 2023 2022

3 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents and restricted cash 1,056 2,157 (51)%

Net increase (decrease) in cash, cash equivalents and restricted cash $ 1,648 $ (21,658) (108)%

Net increase in cash, cash equivalents and restricted cash $ 37,210 $ 53 *

* Represents a percentage computation that is not mathematically meaningful.

The increase in cash flows provided by operating activities year-over-year was primarily due to favorable changes in working capital primarily related to the timing of payments of accounts payable, partially offset by a $1.1 million increase in net income and a higher change in the provision for inventory reserve.

The increase in cash flows provided by operating activities year-over-year was primarily due to an increase in net income (when considering adjustments for non-cash items affecting net income) as well as changes in working capital primarily related to the timing of payments of accounts payable.

The $8.8 million increase in cash flows used in investing activities year-over-year was primarily due to $24.5 million higher outgoing cash flows used to fund acquisitions and strategic investments and an increase of $18.5 million in net pawn lending, partially offset by an $42.2 million increase in the sale of forfeited collateral.

Of the $26.5 million used to fund other investments, the largest amount is $15.0 million related to a note receivable from Founders, as discussed in Note 5:

Of the $24.5 million increase year-over-year used to fund other investments, the largest amount is $15.0 million related to a note receivable from Founders, as discussed in Note 5:

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

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See Note 7 of Notes to Interim Condensed Consolidated Financial Statements included in "Part I, Item 1 — Financial Statements".

The shares repurchased in conjunction with the transactions discussed above were authorized separately from, and not considered part of, the publicly announced share repurchase program referred to below.

On May 3, 2022, our Board authorized the repurchase of up to $50 million of our Class A Common Stock over three years.

As of December 31, 2022, we have repurchased 481,005 shares of our Class A Common Stock under the program for $4.1 million.

As of March 31, 2023, we have repurchased 929,336 shares of our Class A Common Stock under the program for $8.0 million.

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.

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See Note 8 of Notes to Interim Condensed Consolidated Financial Statements included in "Part I, Item 1 — Financial Statements."

We anticipate that cash flows from operations and cash on hand will be adequate to fund any future stock repurchases, strategic investments, our contractual obligations, planned de novo store growth, capital expenditures and working capital requirements through fiscal 2023.

We anticipate that cash flows from operations and cash on hand will be adequate to fund ongoing operations, debt service requirements, tax payments, any future stock repurchases, strategic investments, our contractual obligations, planned de novo store growth, capital expenditures and working capital requirements through fiscal 2023.

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.

22 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