What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-01 compared with 2024-01-31 · 187 added, 54 removed, 223 unchanged (52% of the section changed)

10 unchanged sentences

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 also sell merchandise, primarily collateral forfeited from unpaid loans and pre-owned merchandise purchased from customers.

We exist to serve our customers’ short-term cash needs, helping them to live and enjoy their lives.

20 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 third quarter of prior year 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.

In Mexico, we saw similar downward pressure in loan balances during the third quarter of fiscal 2023 due to a change in law related to company profit sharing payments to employees.

We believe this change will continue to 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 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 months ended December 31, 2023 and 2022:

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

Business Developments

During October 2023, we contributed an additional $15.0 million to Founders One, LLC (“Founders”) associated with our preferred interest, bringing our total equity investment in Founders to $45.0 million.

See Note 5 of Notes to 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, 2024 and 2023:

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 months ended December 31, 2023 and 2022 were as follows:

dollars as of and for the three and six months ended March 31, 2024 and 2023 were as follows:

Three Months Ended

Six Months Ended

2024 2023 2024 2023 2024 2023

9 unchanged sentences

Store Count by Segment

Three Months Ended December 31, 2023

Three Months Ended March 31, 2024

Pawn Latin America Pawn Consolidated

As of September 30, 2023

As of December 31, 2023

530 707 1,237

1 unchanged sentence

Locations acquired 6 — 6

Locations combined or closed (1) (5) (6)

As of March 31, 2024

535 711 1,246

Three Months Ended March 31, 2023

Pawn Latin America Pawn Consolidated

As of December 31, 2022

525 661 1,186

Three Months Ended December 31, 2022

New locations opened 2 11 13

As of March 31, 2023

527 672 1,199

Six Months Ended March 31, 2024

Pawn Latin America Pawn Consolidated

As of September 30, 2023 529 702 1,231

New locations opened — 14 14

Locations acquired 7 — 7

Locations combined or closed (1) (5) (6)

As of March 31, 2024

535 711 1,246

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 December 31, 2022

Locations combined or closed — (1) (1)

As of March 31, 2023

527 672 1,199

Three Months Ended December 31, 2023 vs.

Three Months Ended December 31, 2022

Three Months Ended March 31, 2024 vs.

Three Months Ended March 31, 2023

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) 2024 2023

12 unchanged sentences

Depreciation and amortization 2,516 2,560 (2)%

Loss on sale or disposal of assets and other 26 3 *

(Gain) loss on sale or disposal of assets and other (30) 81 137%

Segment operating contribution $ 40,656 $ 37,751 8%

Other segment income — (1) (100)%

Segment contribution $ 40,656 $ 37,752 8%

5 unchanged sentences

Jewelry as a % of PLO 67 % 66 % 100bps

* Represents a percentage computation that is not mathematically meaningful.

(a) Balance includes pawn loans and inventory.

1 unchanged sentence

PLO ended the quarter at $173.7 million, up 11% (9% on a same store basis).

Total revenue was up 12% and gross profit increased 10%, reflecting increased PSC and higher merchandise sales.

Total revenues and gross profit was up 10%, reflecting increased PSC and higher merchandise sales.

PSC increased 14% as a result of higher average PLO.

Merchandise sales increased 6% and gross margin decreased to 37% from 38%.

Aged general merchandise was 1.1% of total general merchandise inventory.

Aged general merchandise, which is inventory over one year old, increased to 3.0% of total general merchandise inventory, primarily driven by luxury handbags in our Max Pawn stores.

Net inventory increased 9%, as expected with the growth in PLO.

Inventory turnover increased to 2.7x from 2.6x.

Store expenses increased 5%, primarily due to wage inflationary pressures, higher store count and, to a lesser extent, rent.

Inventory turnover remained flat at 2.6x.

Store expenses increased 12%, primarily due to salaries and benefits as we continue to support our team members as a part of People, Pawn and Passion focus, higher store count and, to a lesser extent, expenses related to our loyalty program.

Segment contribution increased 8% to $40.7 million, due to the changes noted above.

Segment store count increased by 1 store during the quarter due to an acquisition.

During the quarter, net store count increased by five due to the acquisition of six stores and the consolidation of one store.

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 December 31,

Three Months Ended March 31,

(in thousands) 2024 (GAAP)

14 unchanged sentences

Depreciation and amortization 2,392 2,332 3% 2,212 (5)%

Other income — (2,465) (100)% — 100%

Gain on sale or disposal of assets and other (66) (8) * (67) *

17 unchanged sentences

PLO improved to $62.0 million, up 26% (19% on constant currency basis).

On a same store basis, PLO increased 19% (8% on a constant currency basis).

Total revenue was up 19% (9% on constant currency basis) and gross profit increased 22% (11% on a constant currency basis), reflecting increased PSC, higher merchandise sales and improved merchandise sales gross profit.

On a same store basis, PLO increased 22% (15% on a constant currency basis) due to improved operational performance and continued strong pawn demand.

Total revenues was up 12% (4% on constant currency basis), and gross profit increased 18% (10% on a constant currency basis), reflecting increased PSC, higher merchandise sales and improved merchandise sales gross profit.

PSC increased 18% (10% on a constant currency basis) as a result of higher average PLO.

Merchandise sales gross margin increased from 30% to 32%.

Merchandise sales gross margin increased to 33% from 32%.

Aged general merchandise was 1.4% of total merchandise inventory.

Net inventory remained flat (decreased 11% on a constant currency basis) due to PLO growth, offset by increased inventory turnover at 3.8x, up from 3.3x.

Store expenses increased 21% (10% on a constant currency basis), primarily due to increases in minimum wage and headcount, higher store count and, to a lesser extent, rent.

Net inventory increased 9% (2% on a constant currency basis).

Inventory turnover increased to 3.6x from 3.5x.

Store expenses increased 15% (7% on a constant currency basis), primarily due to higher store count.

Same-store expenses increased 10% (2% on a constant currency basis).

Segment contribution increased 35% (27% on a constant currency basis) to $10.1 million, due to the changes noted above.

Segment store count increased by 5 de novo stores opened during the quarter.

Segment contribution increased 2% (decreased 3% on a constant currency basis) to $8.1 million, due to the changes noted above, in addition to the impact of the prior year reversal of contingent consideration liability in connection with a previously completed acquisition, which was recorded to “Other income.”

During the quarter, net store count increased by four due to the opening of nine de novo stores and the consolidation of five stores.

Other Investments

1 unchanged sentence

dollars from its functional currency of primarily Australian dollars:

Three Months Ended December 31,

Three Months Ended March 31,

(in thousands) 2024 2023

4 unchanged sentences

Interest income (633) — *

Equity in net income of unconsolidated affiliates (1,153) (1,584) (27)%

Segment operating contribution 1,730 1,606 8%

Equity in net (income) loss of unconsolidated affiliates (1,719) 32,501 105%

Segment operating contribution (loss) 2,383 (32,491) 107%

Other segment loss 14 6 133%

Segment contribution (loss) $ 2,369 $ (32,497) 107%

* Represents a percentage computation that is not mathematically meaningful.

Segment contribution was $2.4 million, an increase of $34.9 million primarily due to our share of the net loss from Cash Converters related to their non-cash goodwill impairment charge taken during the prior year quarter.

The following table reconciles our consolidated segment contribution discussed above to net income (loss) 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) 2024 2023

Segment contribution $ 51,143 $ 13,251 286%

Corporate expenses (income):

General and administrative 18,266 15,609 17%

Depreciation and amortization 3,311 3,071 8%

Loss on sale or disposal of assets and other 99 — *

Other income (765) — *

Interest expense 3,402 3,390 —%

Interest income (1,641) (1,599) 3%

Other (income) expense (180) 120 250%

Income (loss) before income taxes 28,651 (7,340) *

Income tax expense (benefit) 7,172 (550) *

Net income (loss) $ 21,479 $ (6,790) *

* Represents a percentage computation that is not mathematically meaningful.

Segment contribution was $1.7 million, an increase of $0.1 million due to interest income on our notes receivable to Founders, partially offset by the decrease in our share of equity in income of Cash Converters.

Segment contribution increased $37.9 million over the prior year quarter.

That increase was primarily attributable to the increase in our Other Investments segment due to our share of the net loss from Cash Converters during the prior year quarter and the improved operating results of the U.S.

Pawn and Latin America Pawn segments above.

General and administrative expense increased $2.7 million or 17%, primarily due to labor driven by incentive compensation related to an increase in share price and, to a lesser extent, costs related to the implementation of Workday.

Income tax expense increased $7.7 million primarily due to an increase in income before income taxes of $36.0 million this quarter compared to the prior year quarter.

That increase was primarily attributable to our share of the net loss from Cash Converters in the prior year quarter and the improved operating results this quarter 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 the foreign rate differential.

See our Annual Report on Form 10-K for the year ended September 30, 2023, 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, 2024 vs.

Six Months Ended March 31, 2023

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) 2024 2023

Gross profit:

Pawn service charges $ 159,083 $ 139,255 14%

Merchandise sales 240,362 227,054 6%

Merchandise sales gross profit 88,855 86,155 3%

Gross margin on merchandise sales 37 % 38 % (100)bps

Jewelry scrapping sales 25,501 16,990 50%

Jewelry scrapping sales gross profit 3,423 2,224 54%

Gross margin on jewelry scrapping sales 13 % 13 % —bps

Other revenues 66 57 16%

Gross profit 251,427 227,691 10%

Segment operating expenses:

Store expenses 158,095 145,250 9%

Depreciation and amortization 5,140 5,315 (3)%

(Gain) loss on sale or disposal of assets and other (4) 84 105%

Segment operating contribution 88,196 77,042 14%

Other segment income — (1) (100)%

Segment contribution $ 88,196 $ 77,043 14%

Average monthly ending pawn loan balance per store (a) $ 352 $ 312 13%

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

(a) Balance is calculated based upon the average of the monthly ending balances during the applicable period.

During the six months ended March 31, 2024, net store count increased by six due to the acquisition of seven stores and the consolidation of one store.

Pawn service charges increased 14% as a result of higher average PLO.

Merchandise sales increased 6% and merchandise sale gross profit increased 3%, reflecting a 100bps decrease in gross margin.

Store expenses increased 9%, primarily due to primarily due to wage inflationary pressures, higher store count and, to a lesser extent, expenses related to our loyalty program.

Segment contribution increased $11.2 million, or 14%, 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) 2024 (GAAP)

Change (GAAP) 2024 (Constant Currency)

Change (Constant Currency)

Gross profit:

Pawn service charges $ 54,529 $ 46,368 18% $ 50,579 9%

Merchandise sales 103,728 89,240 16% 95,275 7%

Merchandise sales gross profit 33,766 27,923 21% 30,984 11%

Gross margin on merchandise sales 33 % 31 % 200bps 33 % 200bps

Jewelry scrapping sales 2,295 3,719 (38)% 2,142 (42)%

Jewelry scrapping sales gross profit 377 (370) 202% 342 192%

Gross margin on jewelry scrapping sales 16 % (10) % * 16 % *

Other revenues, net 31 35 (11)% 28 (20)%

Gross profit 88,703 73,956 20% 81,933 11%

Segment operating expenses:

Store expenses 67,042 56,822 18% 61,683 9%

Depreciation and amortization 4,731 4,547 4% 4,340 (5)%

Other income — (2,465) (100)% — (100)%

Gain on sale or disposal of assets and other (262) (27) * (255) *

Segment operating contribution 17,192 15,079 14% 16,165 7%

Other segment income (1,075) (446) 141% (1,170) 162%

Segment contribution $ 18,267 $ 15,525 18% $ 17,335 12%

Average monthly ending pawn loan balance per store (a) $ 79 $ 71 11% $ 74 4%

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

(Constant Currency)

Same Store data:

Merchandise Sales 12% 2%

Merchandise Sales Gross Profit 21% 11%

Store Expenses 13% 4%

During the six months ended March 31, 2024, net store count increased by nine due to the opening of fourteen de novo stores and the consolidation of five stores.

PSC increased 18% to $54.5 million (9% to $50.6 million on a constant currency basis) as a result of higher average PLO.

Merchandise sales increased 16% (7% on a constant currency basis) and 12% on a same store basis (2% on a constant currency basis).

Merchandise sales gross margin increased 200 bps to 33% from 31%.

Store expenses increased by 18% (9% on a constant currency basis) primarily due to increases in minimum wage and headcount, higher store count and, to a lesser extent, rent.

On a same-store basis, store expenses increased 13% (4% on a constant currency basis).

Segment contribution increased $2.7 million, or 18% ($1.8 million, or 12%, on a constant currency basis), due to the changes noted above, in addition to the impact of the prior year reversal of contingent consideration liability in connection with a previously completed acquisition, which was recorded to “Other income.”

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) 2024 2023

Gross profit:

Consumer loan fees, interest and other $ 35 $ 32 9%

Gross profit 35 32 9%

Segment operating expenses:

Interest income (1,206) — *

Equity in net (income) loss of unconsolidated affiliates (2,872) 30,917 109%

Segment operating contribution (loss) 4,113 (30,885) 113%

Other segment loss 15 10 50%

Segment contribution (loss) $ 4,098 $ (30,895) 113%

* Represents a percentage computation that is not mathematically meaningful.

Segment income was $4.1 million, an increase of $35.0 million from the prior-year six months ended March 31, 2023, primarily due to our share of the prior year net loss from Cash Converters related to their non-cash goodwill impairment charge.

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 December 31,

Six Months Ended March 31,

Percentage Change

4 unchanged sentences

Depreciation and amortization 6,913 6,089 14%

Gain on sale or disposal of assets and other (2) — *

Gain on sale or disposal of assets 97 — *

Other income (765) — *

Interest expense 6,842 9,580 (29)%

5 unchanged sentences

* Represents a percentage computation that is not mathematically meaningful.

Segment contribution increased $11.0 million or 23% 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 $1.1 million or 7%, primarily due to annual salary increases and an increase in costs related to the implementation of Workday.

Interest expense decreased $2.8 million, primarily due to the loss on extinguishment of debt in the prior year quarter.

Segment contribution increased $48.9 million or 79% over the prior year six months ended March 31, 2023, primarily due to our share of the net loss from Cash Converters related to their non-cash goodwill impairment charge during the prior year and the improved operating results of the segments above.

General and administrative expenses increased $3.7 million or 12%, primarily due to labor driven by incentive compensation related to increase in share price and, to a lesser extent, costs related to the implementation of Workday.

Interest expense decreased $2.7 million, primarily due to the loss on extinguishment of debt in the prior year.

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.

Interest income increased $1.2 million, due primarily to our treasury management with increased market interest rates.

Income tax expense increased $1.5 million primarily due to an increase in income before income taxes of $13.2 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.

Income tax expense increased $9.2 million, primarily due to an increase in income before income taxes of $49.2 million for the six months ended March 31, 2024 compared to the same prior year six month period due to our share of the net loss from Cash Converters in the prior year quarter and the non-deductible loss on the convertible debt refinancing during the first quarter of 2023.

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.

These items include the net effect of state taxes, non-deductible items and the foreign rate differential.

See Annual Report on Form 10-K for the year ended September 30, 2023, Note 11:

2 unchanged sentences

Cash and Cash Equivalents

Our cash and equivalents balance was $218.5 million at December 31, 2023 compared to $220.6 million at September 30, 2023.

At December 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 $229.1 million at March 31, 2024 compared to $220.6 million at September 30, 2023.

At March 31, 2024, 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) 2024 2023

3 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents and restricted cash (43) 1,056 *

Net (decrease) increase in cash, cash equivalents and restricted cash $ (1,982) $ 1,648 *

The increase in cash flows provided by operating activities quarter-over-quarter was primarily due to an increase in net income as well as changes in working capital primarily related to the timing of payments of prepaid expenses and accounts payable.

The $27.8 million decrease in cash flows used in investing activities year-over-year was primarily due to a $29.8 million decrease in cash flows used to fund acquisitions and strategic investments, offset by a $10.2 million increase in cash inflows from the sale of forfeited collateral and an increase of $14.0 million in net pawn lending outflows.

The $40.4 million decrease in cash flows provided by financing activities was primarily related to the December 2022 financing of the 2029 Convertible Notes, in which we issued $230.0 million (less issuance costs) principal amount of 3.750% Convertible Senior Notes Due 2029 offset by the extinguishment of 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.

Net increase in cash, cash equivalents and restricted cash $ 8,724 $ 37,210 (77)%

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

The $22.4 million decrease in cash flows used in investing activities year-over-year was primarily due to a $21.1 million decrease in cash flows used to fund acquisitions and strategic investments and a $16.8 million increase in cash inflows from the sale of forfeited collateral, offset by an increase of $22.1 million in net pawn lending outflows.

The $39.5 million decrease in cash flows provided by financing activities was primarily related to the December 2022 financing of the 2029 Convertible Notes, in which we issued $230.0 million principal amount of 3.750% Convertible Senior Notes Due 2029 offset by the extinguishment of 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.

The net effect of these changes was a $2.0 million decrease in cash on hand during the current year to date period, resulting in a $227.0 million ending cash and restricted cash balance.

The net effect of these changes was an $8.7 million increase in cash on hand during the current year to date period, resulting in a $237.7 million ending cash and restricted cash balance.

Sources and Uses of Cash

4 unchanged sentences

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, 2023, we have repurchased 1,981,927 shares of our Class A Common Stock under the program for $17.0 million.

As of March 31, 2024, we have repurchased 2,287,402 shares of our Class A Common Stock under the program for $20.0 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.

27 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