Release Details

AUSTIN, Texas--(BUSINESS WIRE)-- EZCORP, Inc. (NASDAQ: EZPW) today announced results for its first quarter ended December 31, 2018.

All amounts in this release are from EZCORP continuing operations and in conformity with U.S. generally accepted accounting principles ("GAAP") unless otherwise noted. Comparisons shown in this release are to the same period in the prior year unless otherwise noted.

HIGHLIGHTS FOR FIRST QUARTER OF FISCAL 2019

• Exceptional pawn operating performance:
  • Strong growth in pawn loans outstanding (PLO), pawn service charges (PSC) and revenue in Latin America and U.S. pawn segments contributed to exceptional pawn operating performance during the quarter.
  • PLO, the most influential driver of revenue and profitability, expanded 10% to $194.0 million, and PSC rose 10% to $83.7 million.
  • U.S. Pawn segment same store PLO rose 7% to $155.0 million, and same store PSC increased 8% to $59.7 million.
  • Latin America Pawn total PLO grew 26% to $39.0 million (up 27% to $39.5 million on a constant currency basis¹). Same store PLO increased 10% (11% higher on a constant currency basis).
• Non-cash charges of $20.6 million, as well as discretionary growth investments and other discrete costs, contributed to a loss before tax of $5.6 million, or ($0.07) per share. Excluding those items, adjusted² income before tax was $22.5 million and adjusted diluted earnings per share improved 15% to $0.31.
• The Company continued investing to sustain strong competitive advantages, including pawn store openings and acquisitions; the development of a new customer-centric digital platform; predictive product and customer analytics; and upgrades to its point of sale and other systems.
• Cash and cash equivalents rose 162% to $297.0 million. The improved liquidity was driven by $167.0 million of net proceeds from a convertible debt issuance in May 2018. Strong operating cash flow in the quarter increased 18% to $22.8 million, and the company collected another $7.3 million of principal under the Alpha Credit / Grupo Finmart notes receivable.

CEO COMMENTARY AND OUTLOOK

Chief Executive Officer Stuart Grimshaw commented, "We continue to deliver exceptional pawn operating performance leading to market share gains in the quarter. We maintained our intense focus on outstanding customer service and meeting our customers' need for cash.

"Our strong balance sheet and free cash flow generation enhances our ability to invest in initiatives that sustain our strong competitive advantages, leveraging our best-in-industry customer insights. Investments include: opening and acquiring more pawn stores; developing a digital platform that will provide transaction and lending services connected to a ledger of physical assets; and upgrading our POS2 that encompasses predictive product and customer analytics. These investments will build on our core pawn businesses and further differentiate us through data-driven, physical and digital customer engagement. We continually assess opportunities to better serve our customers and attract new ones. Identifying and acting on the best opportunities will allow us to further drive long-term shareholder value."

• The loss before tax of $5.6 million, or ($0.07) per share, includes $20.6 million in non-cash charges, as well as discretionary growth investments and other discrete costs. Excluding those items, adjusted diluted earnings per share improved 15% to $0.31.
• A strong 10% increase in average PLO drove an equivalent 10% improvement in PSC and 6% higher net revenues to $130.2 million (up 7% to $131.5 million on a constant currency basis). Consolidated merchandise sales gross profit grew 4% to $43.9 million on a 7% rise in merchandise sales. On a constant currency basis, PSC expanded 11% and merchandise sales gross profit improved 4%.
• Operations expenses rose 7% to $89.5 million (up 8% to $90.4 million on a constant currency basis) primarily from the inclusion of recently acquired and new stores. The Company expects expanded operating leverage as acquired stores are further integrated and recent new stores mature and build scale.
• Administrative expense increased 16% to $15.5 million principally as a result of a $2.1 million discretionary strategic investment in the development of a customer-centric digital platform that is not capitalizable in its early stages of build-out.
• The Company’s global pawn businesses (consisting of U.S. Pawn and Latin America Pawn) generated consolidated segment contribution of $33.6 million, down 9% from the prior year. On an adjusted basis, consolidated global pawn segment contribution increased 6%, or $2.3 million, to $39.0 million.
• Non-cash charges totaled $20.6 million, consisting of a $13.3 million impairment to the carrying value of our investment in Cash Converters International Limited, an unconsolidated affiliate; $2.9 million attributable to our equity interest in Cash Converter's recognition of its settlement of a class action lawsuit; and $4.4 million to fully reserve our exposure to Republic Metals Corporation, our primary gold scrap refiner, which declared Chapter 11 bankruptcy in November 2018.

SEGMENT RESULTS

U.S. Pawn

• The U.S. Pawn segment same store PLO rose 7% and same store PSC grew 8%. The segment delivered ending PLO per store of $305,000, up 7%. This was driven by disciplined lending practices, a focus on meeting customers' need for cash and stronger performance from stores affected by hurricanes in the prior-year quarter.
• Same store sales improved 5% and merchandise margins remained strong at 38%.
• U.S. Pawn's segment revenue rose 4% to $166.0 million and the segment contribution decreased 1% to $27.4 million due to the $2.9 million non-cash charge to fully reserve a receivable from Republic Metals Corporation. Adjusted segment contribution, excluding the non-cash charge, increased 8% to $30.2 million.

Latin America Pawn

• Latin America Pawn's PLO grew 26% to $39.0 million (up 27% to $39.5 million on a constant currency basis). Same store PLO increased 10% (11% on a constant currency basis). The segment delivered ending PLO per store of $84,000, up 4%.
• The company added nine stores in the quarter ended December 31, 2018, consisting of four new stores and five acquired. Pawn store count in Latin America has expanded 88% in the last 15 months to a total of 462 stores, with 201 acquired and 16 opened.
• The acquired stores offer significant opportunity for higher revenue and profit by increasing focus on general merchandise pawn loan and retail activities and implementing EZCORP's proven systems and operating practices. The company continues to see a robust pipeline of acquisition opportunities.
• Net revenues expanded 15% to $27.6 million (up 20% to $28.8 million on a constant currency basis). PSC jumped 16% to $19.4 million (increasing 22% to $20.3 million on a constant currency basis).
• Operations expense increased 28% to $18.8 million primarily from recently acquired and new stores and discretionary growth investments. Operating leverage is expected to increase as acquired stores are further integrated and recent new stores mature and build scale.
• The segment incurred a $1.5 million non-cash charge to fully reserve a receivable from, and assets held by, Republic Metals Corporation, due to the refiner's bankruptcy proceedings.
• Segment contribution is $6.2 million ($6.4 million on a constant currency basis). Adjusted segment contribution is $8.8 million, excluding the non-cash charge, discretionary growth investments, foreign currency impacts and other discrete costs.

CONFERENCE CALL

EZCORP will host a conference call on Thursday, January 31, 2019, at 7:30am Central Time to discuss first quarter results. Analysts and institutional investors may participate on the conference call by dialing (877) 201-0168, Conference ID: 7987578, or internationally by dialing (647) 788-4901. The conference call will be webcast simultaneously to the public through this link: http://investors.ezcorp.com/. A replay of the conference call will be available online at http://investors.ezcorp.com/ shortly after the call ends.

ABOUT EZCORP

Formed in 1989, EZCORP has grown into a leading provider of pawn loans in the United States and Latin America. It also sells merchandise, primarily collateral forfeited from pawn lending operations and used merchandise purchased from customers. We are dedicated to satisfying the short-term cash needs of consumers who are both cash and credit constrained, focusing on an industry-leading customer experience. EZCORP is traded on NASDAQ under the symbol EZPW and is a member of the Russell 2000 Index, S&P SmallCap 600 Index, S&P 1000 Index and Nasdaq Composite Index.

FORWARD-LOOKING STATEMENTS

This announcement contains certain forward-looking statements regarding the company’s strategy, initiatives and expected performance. These statements are based on the company’s current expectations as to the outcome and timing of future events. All statements, other than statements of historical facts, including all statements regarding the company's strategy, initiatives and future performance, that address activities or results that the company plans, expects, believes, projects, estimates or anticipates, will, should or may occur in the future, including future financial or operating results, are forward-looking statements. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of uncertainties and other factors, including operating risks, liquidity risks, legislative or regulatory developments, market factors or current or future litigation. For a discussion of these and other factors affecting the company’s business and prospects, see the company’s annual, quarterly and other reports filed with the Securities and Exchange Commission. The company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

Non-GAAP Financial Information (Unaudited)

In addition to the financial information prepared in conformity with accounting principles generally accepted in the United States ("GAAP"), we provide certain non-GAAP financial information on a constant currency basis ("constant currency") and adjusted basis. We use constant currency results to evaluate our Latin America Pawn operations, which are denominated primarily in Mexican pesos and other Latin American currencies. We believe that presentation of constant currency results is meaningful and useful in understanding the activities and business metrics of our Latin America Pawn operations and reflect an additional way of viewing aspects of our business that, when viewed with GAAP results, provide a more complete understanding of factors and trends affecting our business.

We believe that presentation of adjusted results is meaningful and useful in understanding the activities and business metrics of our operations exclusive of certain non-core operating or other infrequent charges. This will assist users of our financial statements in forecasting, and assessing the performance of the Company’s businesses, providing a meaningful comparison of results of the current period against results of past periods, and performing a comparable analysis to peers. This is intended to provide users of our financial statements with a view of the business's results similarly to how management of the company views and evaluates it.

In addition to constant currency adjustments, we have recorded the following adjustments to present our financial results consistent with the core operating results of our business:

• Non-cash interest income and expenses regarding our Notes receivable and Convertible debt instruments to reflect the underlying cash flows of our investments and debt;
• Discrete equity method charges for our investment in Cash Converters International Limited ("CCV"), including a non-cash impairment of our investment to fair value and non-cash litigation charges recorded in our proportionate share of CCV's earnings, neither of which are related to the core operating earnings of CCV;
• Reserves related to receivables from, and assets held by, a gold scrap refiner based on our understanding of potential collectability or return given knowledge of current bankruptcy proceedings;
• Discretionary strategic investment in the development of a digital platform representing start-up costs for the incubation of new strategic ventures not included in our core pawn operations;
• Charge off of aged assets related to historical out-of period adjustments not representative of results of operations for current or comparable periods;
• Acquisition related costs not related to current revenue generating activities; and
• Tax effects of each adjustment at the effective rate for the applicable jurisdiction.

We provide non-GAAP financial information for informational purposes and to enhance understanding of our GAAP consolidated financial statements. Readers should consider the information in addition to, but not instead of or superior to, our financial statements prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.

Constant currency results reported herein are calculated by translating consolidated balance sheet and consolidated statement of operations items denominated in Mexican pesos, Guatemalan quetzals, Honduran lempiras and Peruvian sols to U.S. dollars using the exchange rate from the prior-year comparable period, as opposed to the current period, in order to exclude the effects of foreign currency rate fluctuations. We used the end-of-period rate for balance sheet items and the average closing daily exchange rate on a monthly basis during the appropriate period for statement of operations items. The end-of-period and approximate average exchange rates for each currency as compared to U.S. dollars as of and for the three months ended December 31, 2018 and 2017 were as follows:

Our statement of operations constant currency results reflect the monthly exchange rate fluctuations and so are not directly calculable from the above rates. Constant currency results, where presented, also exclude the foreign currency gain or loss. We have experienced a prolonged weakening of the Mexican peso to the U.S. dollar and may continue to experience further weakening in future reporting periods, which may adversely impact our future operating results when stated on a GAAP basis.

The following information provides reconciliations of certain non-GAAP financial measures presented in this press release to the most directly comparable financial measures calculated and presented in accordance with GAAP as of and for the three months ended December 31, 2018 and 2017 (2019 Q1 and 2018 Q1, respectively).

Miscellaneous Non-GAAP Financial Measures

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Jeff Christensen
Vice President, Investor Relations
Email: jeff_christensen@ezcorp.com
Phone: (512) 437-3545

Source: EZCORP, Inc.