What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-31 compared with 2024-05-01 · 76 added, 76 removed, 334 unchanged (31% of the section changed)

34 unchanged sentences

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.

We anticipated this change would impact pawn loan redemptions annually in May and June;

however, in 2024, the demand for pawn loans in Mexico exceeded any downward pressure related to profit sharing payments.

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 and six months ended March 31, 2024 and 2023:

The following chart presents sources of gross profit by geographic disbursement for the three and six months ended March 31, 2024 and 2023:

The following chart presents sources of gross profit by geographic disbursement for the three and nine months ended June 30, 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 and six months ended March 31, 2024 and 2023 were as follows:

dollars as of and for the three and nine months ended June 30, 2024 and 2023 were as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

2024 2023 2024 2023 2024 2023

9 unchanged sentences

Store Count by Segment

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024

Pawn Latin America Pawn Consolidated

As of December 31, 2023

As of March 31, 2024

535 711 1,246

1 unchanged sentence

Locations acquired 5 — 5

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

As of March 31, 2024

As of June 30, 2024

541 717 1,258

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

Six Months Ended March 31, 2024

Nine Months Ended June 30, 2024

Pawn Latin America Pawn Consolidated

3 unchanged sentences

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

As of March 31, 2024

As of June 30, 2024

541 717 1,258

Six Months Ended March 31, 2023

Nine Months Ended June 30, 2023

Pawn Latin America Pawn Consolidated

3 unchanged sentences

Locations combined or closed — (1) (1)

As of March 31, 2023

As of June 30, 2023

528 684 1,212

Three Months Ended March 31, 2024 vs.

Three Months Ended March 31, 2023

Three Months Ended June 30, 2024 vs.

Three Months Ended June 30, 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 March 31,

Three Months Ended June 30,

(in thousands) 2024 2023

12 unchanged sentences

Depreciation and amortization 2,408 2,505 (4)%

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

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

Segment operating contribution $ 36,087 $ 32,298 12%

7 unchanged sentences

Jewelry as a % of PLO 66 % 65 % 100bps

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

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

PLO ended the quarter at $199.3 million, up 11% or 10% on a same-store basis.

Total revenues was up 8% and gross profit was up 9%, reflecting increased PSC and higher merchandise sales.

PSC increased 13% as a result of higher average PLO.

Merchandise sales increased 6%, and gross margin decreased to 38% from 39%.

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.

Aged general merchandise, which is inventory over one year old, increased to 5.0% to $2.0 million of total general merchandise inventory.

Excluding luxury handbags in our three Max Pawn stores in Las Vegas, aged general merchandise remains under 1%.

Net inventory increased 6%, as expected with the growth in PLO.

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.

Store expenses increased 8% and 6% on a same-store basis, primarily due to increased labor in-line with store activity and to a lesser extent, expenses related to our loyalty program.

Segment contribution increased 12% to $36.1 million, due to the changes noted above.

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

During the quarter, store count increased by six, due to the acquisition of five stores and opening of one de novo 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 March 31,

Three Months Ended June 30,

(in thousands) 2024 (GAAP)

8 unchanged sentences

Jewelry scrapping sales gross profit 42 (24) 275% 43 279%

Gross margin on jewelry scrapping sales 3 % (11) % * 3 % *

Gross margin on jewelry scrapping sales 3 % (3) % 600bps 3 % 600bps

Other revenues, net 28 40 (30)% 26 (35)%

4 unchanged sentences

Other income — (2,632) (100)% — (100)%

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

Loss (gain) on sale or disposal of assets and other 22 (29) (176)% 21 (172)%

Segment operating contribution 9,787 9,393 4% 9,670 3%

16 unchanged sentences

PLO improved to $62.4 million, up 24% (30% on constant currency basis).

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

On a same-store basis, PLO increased 20% (26% on a constant currency basis) due to improved operational performance and increased loan demand.

Total revenues was up 15% (13% on constant currency basis), and gross profit increased 21% (19% 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 to 32% from 30%.

Aged general merchandise was 1.4% of total merchandise inventory.

Aged general merchandise was less than 1% of total merchandise inventory.

Net inventory increased 25% (32% 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 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.

Inventory turnover decreased to 3.0x, from 3.4x.

Store expenses increased 18% (15% on a constant currency basis) and 14% (12% on a constant currency basis) on a same-store basis, primarily due to increased labor, in line with store activity and to a lesser extent, rent.

Segment contribution increased 6% (5% on a constant currency basis) to $10.3 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, store count increased by six de novo stores.

Other Investments

1 unchanged sentence

dollars from its functional currency of primarily Australian dollars:

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands) 2024 2023

4 unchanged sentences

Interest income (605) — *

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

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

Equity in net income of unconsolidated affiliates (1,406) (1,523) (8)%

Segment operating contribution 2,011 1,538 31%

Other segment loss 12 10 20%

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

Segment contribution $ 1,999 $ 1,528 31%

* 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,

Segment contribution was $2.0 million, an increase of $0.5 million primarily due to our interest income from our notes receivable investment in Founders offset by 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 June 30,

Percentage Change

4 unchanged sentences

Depreciation and amortization 3,660 3,218 14%

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

Other income (765) — *

Interest expense 3,539 3,414 4%

Interest income (1,956) (2,327) (16)%

Equity in net loss of unconsolidated affiliates 143 — *

Other (income) expense (19) 50 138%

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

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

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

Income before income taxes 23,000 21,310 8%

Income tax expense 5,050 3,088 64%

Net income $ 17,950 $ 18,222 (1)%

* Represents a percentage computation that is not mathematically meaningful.

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.

Segment contribution increased $4.9 million or 11% 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 $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.

General and administrative expense increased $2.2 million or 12%, primarily due to labor, incentive compensation and, to a lesser extent, costs related to the implementation and ongoing support of Workday.

Income tax expense increased $2.0 million primarily due to an increase in the effective tax rate this quarter compared to the prior year.

In the prior year there was a benefit to the effective tax rate due to the reversal of contingent consideration liability in connection with a previously completed acquisition.

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

2 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, 2024 vs.

Six Months Ended March 31, 2023

Nine Months Ended June 30, 2024 vs.

Nine Months Ended June 30, 2023

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) 2024 2023

19 unchanged sentences

(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.

During the nine months ended June 30, 2024, net store count increased by 12 due to the acquisition of 12 stores, opening of one de novo store, 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.

Store expenses increased 9%, primarily due to increased labor in-line with store activity and to a lesser extent, expenses related to our loyalty program.

Segment contribution increased $14.9 million, or 14%, 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) 2024 (GAAP)

28 unchanged sentences

Store Expenses 14% 7%

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.

During the nine months ended June 30, 2024, net store count increased by 15 due to the opening of twenty de novo stores and the consolidation of five stores.

PSC increased 19% to $84.9 million (13% to $80.4 million on a constant currency basis) as a result of higher average PLO.

1 unchanged sentence

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).

Store expenses increased by 18% (11% on a constant currency basis) and 14% (7% on a constant currency basis) on a same-store basis, primarily due to increased labor, in line with store activity and to a lesser extent, rent.

Segment contribution increased $3.4 million, or 13% ($2.2 million, or 9%, 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.”

2 unchanged sentences

dollars from its functional currency of primarily Australian dollars:

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands) 2024 2023

9 unchanged sentences

* 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.

Segment income was $6.1 million, an increase of $35.5 million from the prior-year nine months ended June 30, 2023, primarily due to our share of the prior year net loss from Cash Converters related to their non-cash goodwill impairment charge.

Six Months Ended March 31,

Nine Months Ended June 30,

Percentage Change

8 unchanged sentences

Interest income (5,243) (4,421) 19%

Equity in net loss of unconsolidated affiliates 143 — *

Other income (423) (138) 207%

3 unchanged sentences

* Represents a percentage computation that is not mathematically meaningful.

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.

Segment contribution increased $53.8 million or 51% over the prior year nine months ended June 30, 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 $5.9 million or 12%, primarily due to labor, incentive compensation and, to a lesser extent, costs related to the implementation and ongoing support of Workday.

Interest expense decreased $2.6 million, primarily due to the loss on extinguishment of debt in the prior year.

1 unchanged sentence

Interest income increased $0.8 million, due primarily to our treasury management with increased market interest rates.

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 increased $11.2 million, primarily due to an increase in income before income taxes of $50.8 million for the nine months ended June 30, 2024 compared to the same prior year nine month period due to our share of the net loss from Cash Converters in the prior year quarter, the non-deductible loss on the convertible debt refinancing during the first quarter of 2023, and an increase in the effective tax rate this quarter compared to the prior year.

In the prior year there was a benefit to the effective tax rate due to the reversal of contingent consideration liability in connection with a previously completed acquisition.

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 $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.

Our cash and equivalents balance was $218.0 million at June 30, 2024 compared to $220.6 million at September 30, 2023.

At June 30, 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:

Six Months Ended

Nine Months Ended

(in thousands) 2024 2023

3 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents and restricted cash (108) 1,420 (108)%

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.

Net (decrease) increase in cash, cash equivalents and restricted cash $ (1,726) $ 32,154 (105)%

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 and income taxes, offset by an increase in net income (when considering adjustments for non-cash items affecting net income).

The $11.3 million decrease in cash flows used in investing activities year-over-year was primarily due to a $29.6 million decrease in cash flows used to fund acquisitions, strategic investments and capital expenditures and a $21.2 million increase in cash inflows from the sale of forfeited collateral, offset by an increase of $43.0 million in net pawn lending outflows.

The $39.6 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 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.

The net effect of these changes was an $1.7 million decrease in cash on hand during the current year to date period, resulting in a $227.2 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 March 31, 2024, we have repurchased 2,287,402 shares of our Class A Common Stock under the program for $20.0 million.

As of June 30, 2024, we have repurchased 2,572,794 shares of our Class A Common Stock under the program for $23.0 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 Condensed Consolidated Financial Statements included in “Part I, Item 1 — Financial Statements.”

On July 1, 2024, the 2024 Convertible Notes matured and the remaining $34.4 million aggregate principal amount outstanding plus accrued interest was repaid using cash on hand.

We anticipate that cash flows from operations and cash on hand will be adequate to fund ongoing operations, current 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 the next twelve months.

21 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