What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-02 compared with 2023-05-03 · 82 added, 81 removed, 324 unchanged (33% 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.

In Mexico, we saw similar downward pressure in loan balances during the quarter due to a recent change in law related to company profit sharing payments to employees.

We believe this change will impact pawn loan balances in May and June going forward.

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).

1 unchanged sentence

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 six months ended March 31, 2023 and 2022:

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

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, 2023 and 2022:

The following chart presents sources of gross profit by geographic disbursement for the three and nine months ended June 30, 2023 and 2022:

Results of Operations

15 unchanged sentences

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, 2023 and March 31, 2022 were as follows:

dollars as of and for the three and nine months ended June 30, 2023 and June 30, 2022 were as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

2023 2022 2023 2022 2023 2022

7 unchanged sentences

• Latin America Pawn — Represents all pawn activities in Mexico and other parts of Latin America;

• Other Investments — Represents our equity interest in the net income of Cash Converters along with our investment in Founders and RDC.

• Other Investments — Represents our equity interest in the net income of Cash Converters along with our investments in Founders and RDC.

Store Count by Segment

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Pawn Latin America Pawn Consolidated

As of December 31, 2022

As of March 31, 2023

527 672 1,199

New locations opened 1 12 13

As of March 31, 2023

As of June 30, 2023

528 684 1,212

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Pawn Latin America Pawn Consolidated

As of December 31, 2021

As of March 31, 2022

516 636 1,152

New locations opened — 8 8

As of March 31, 2022

Locations acquired 3 — 3

As of June 30, 2022

519 644 1,163

Six Months Ended March 31, 2023

Nine Months Ended June 30, 2023

Pawn Latin America Pawn Consolidated

3 unchanged sentences

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

As of March 31, 2023

As of June 30, 2023

528 684 1,212

Six Months Ended March 31, 2022

Nine Months Ended June 30, 2022

Pawn Latin America Pawn Consolidated

1 unchanged sentence

New locations opened — 12 12

As of March 31, 2022

Locations acquired 3 — 3

As of June 30, 2022

519 644 1,163

Three Months Ended March 31, 2023 vs.

Three Months Ended March 31, 2022

Three Months Ended June 30, 2023 vs.

Three Months Ended June 30, 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 March 31,

Three Months Ended June 30,

(in thousands) 2023 2022

12 unchanged sentences

Depreciation and amortization 2,505 2,572 (3)%

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

Segment operating contribution 32,298 29,753 9%

Other segment (income) expense (1) — *

Other segment income (1) (1) —%

Segment contribution $ 32,299 $ 29,754 9%

9 unchanged sentences

PSC increased 16% as a result of higher average PLO.

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.

Merchandise sales increased 9% and gross margin decreased to 39% from 41%, within our target range.

Aged general merchandise was 1.0% of total general merchandise inventory.

Net inventory increased 13%, as expected with the growth in PLO.

Inventory turnover increased to 2.6x from 2.5x.

Store expenses increased 14%, 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 9% to $32.3 million, due to the changes noted above.

Segment store count increased by two de novo stores during this quarter.

Segment store count increased by one de novo store during this quarter.

Latin America Pawn

1 unchanged sentence

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) 2023 (GAAP)

31 unchanged sentences

PLO improved to $50.5 million, up 14% (1% on constant currency basis).

On a same store basis, PLO increased 19% (12% on a constant currency basis).

On a same store basis, PLO increased 11% (decreased 2% on a constant currency basis).

PLO balance was lower than expected with a greater pay down during the quarter driven by a change in Mexican law, which significantly increased profit share required to be paid by companies to employees by May 30.

Total revenue was up 26% (15% on constant currency basis), while gross profit increased 24% (14% on a constant currency basis), reflecting increased PSC, higher merchandise sales and improved merchandise sales gross profit.

1 unchanged sentence

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

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.

Aged general merchandise increased to 2.4% from 1.3% of total merchandise inventory.

Net inventory increased 30% (13% on a constant currency basis), as expected with the growth in PLO.

Inventory turnover remained strong at 3.4x, down from 3.7x.

Store expenses increased 26% (14% on a constant currency basis), primarily due to rent linked to inflation, higher store count and, to a lesser extent, expenses related to our loyalty program.

Same-store expenses increased 21% (9% on a constant currency basis).

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 contribution increased 59% (48% on a constant currency basis) to $9.7 million, primarily due to the reversal of 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 12 de novo stores during the quarter.

2 unchanged sentences

dollars from its functional currency of primarily Australian dollars:

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands) 2023 2022

3 unchanged sentences

Segment operating expenses:

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

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

Equity in net income of unconsolidated affiliates (1,523) (1,758) (13)%

Segment operating contribution 1,538 1,779 (14)%

Other segment expense 10 19 (47)%

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.

Segment contribution $ 1,528 $ 1,760 (13)%

Segment contribution was $1.5 million, a decrease of $0.2 million due to the decrease in our share of equity in income of Cash Converters.

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

4 unchanged sentences

Depreciation and amortization 3,218 3,187 1%

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

Interest expense 3,414 2,693 27%

Interest income (2,327) — *

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)%

Other expense (income) 50 (66) (176)%

Income before income taxes 21,310 13,082 63%

Income tax expense 3,088 867 *

Net income $ 18,222 $ 12,215 49%

* 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.

Segment contribution increased $5.9 million or 16% over the prior year quarter primarily due to 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.

General and administrative expense decreased $0.8 million or 4%, primarily due to the litigation accrual charge of $2.0 million recorded in prior period, offset by an increase in costs primarily related to our Workday implementation.

Interest income increased $2.3 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.

Income tax expense increased $2.2 million primarily due to an increase in income before income taxes of $8.2 million this quarter compared to the prior year quarter as a result of improved operating results within the U.S.

Pawn segment and the Latin American Pawn segment.

3 unchanged sentences

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

Nine Months Ended June 30, 2023 vs.

Nine Months Ended June 30, 2022

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) 2023 2022

14 unchanged sentences

Segment operating contribution 109,340 98,036 12%

Other segment (income) expense (1) — *

Other segment income (2) (1) 100%

Segment contribution $ 109,342 $ 98,037 12%

6 unchanged sentences

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.

Offsetting the sales increase, merchandise sales gross margin decreased 400 bps, within our target range.

Store expenses increased 13%, 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 $11.3 million, primarily due to the changes described above.

3 unchanged sentences

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) 2023 (GAAP)

27 unchanged sentences

Store Expenses 25% 16%

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

During the nine months ended June 30, 2023, our Latin America pawn segment opened twenty-five de novo stores.

PSC increased 22% to $71.4 million (15% to $67.1 million on a constant currency basis) as a result of higher average PLO for the year.

1 unchanged sentence

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.

Merchandise sales gross margin increased 200 bps from 29% to 31% and on a constant currency basis, within our target range.

Store expenses increased by 29% (21% on a constant currency basis) primarily due to higher store count and increased labor in-line with store activity.

1 unchanged sentence

Segment contribution increased $7.9 million, or 46%, to $25.2 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.

This increase was primarily due to the reversal of 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

1 unchanged sentence

dollars from its functional currency of primarily Australian dollars:

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands) 2023 2022

3 unchanged sentences

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) *

Equity in net loss (income) of unconsolidated affiliates 29,394 (1,457) *

Segment operating (loss) contribution (29,347) 1,550 *

Other segment loss 20 15 33%

Segment (loss) contribution $ (29,367) $ 1,535 *

* 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.

Segment loss was $29.4 million, a decrease of $30.9 million from the prior-year nine months ended June 30, 2022, primarily due to the net loss on our share of Cash Converters related to their non-cash goodwill impairment charge.

Six Months Ended March 31,

Nine Months Ended June 30,

Percentage Change

4 unchanged sentences

Depreciation and amortization 9,307 9,045 3%

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

Gain on sale or disposal of assets — (688) (100)%

Interest expense 12,994 7,651 70%

Interest income (4,421) (122) *

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

Other income (138) (11) *

Income from continuing operations before income taxes 38,508 54,552 (29)%

2 unchanged sentences

* Represents a percentage computation that is not mathematically meaningful.

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.

Segment contribution decreased $11.7 million or 10% over the prior year nine months ended June 30, 2022, primarily due to the net loss on our share of losses in Cash Converters’ net results related to their non-cash goodwill impairment charge, partially offset by the improved operating results of the segments above.

General and administrative expenses increased $2.5 million or 5%, 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 and costs primarily related to our Workday implementation, partially offset by the litigation accrual charge of $2.0 million recorded in prior period.

Interest expense increased $5.3 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 decreased $1.4 million, primarily due to a decrease in income before income taxes of $16.0 million for the nine months ended June 30, 2023 compared to the same prior year nine month period offset by an increase in tax expense for the non-deductible loss realized on the refinancing of the convertible notes in the current year.

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

4 unchanged sentences

Cash and Cash Equivalents

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.

Our cash and equivalents balance was $238.0 million at June 30, 2023 compared to $206.0 million at September 30, 2022.

At June 30, 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:

Six Months Ended

Nine Months Ended

(in thousands) 2023 2022

3 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents and restricted cash 1,420 1,219 16%

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

Net increase (decrease) in cash, cash equivalents and restricted cash $ 32,154 $ (32,668) (198)%

* 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 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 $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:

The $11.0 million decrease in cash flows used in investing activities year-over-year was primarily due to a $60.5 million increase in cash inflows from the sale of forfeited collateral, offset by $20.2 million increase in cash flows used to fund acquisitions and strategic investments and an increase of $19.7 million in net pawn lending outflows.

Of the $20.2 million increase year-over-year used in funding acquisitions and 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.

1 unchanged sentence

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.

Further, the Company repurchased and retired 1,037,703 shares of our Class A Common Stock for $9.0 million under the Common Stock Repurchase Program for the nine month period ended June 30, 2023.

The net effect of these changes was a $32.2 million increase in cash on hand during the current year to date period, resulting in a $246.5 million ending cash and restricted cash balance.

3 unchanged sentences

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.

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

As of June 30, 2023, we have repurchased 1,275,646 shares of our Class A Common Stock under the program for $11.0 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.

4 unchanged sentences

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 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