EZCORP Reports 163% Increase in Third Quarter Net Income
AUSTIN, Texas--(BUSINESS WIRE)--Aug 1, 2018--EZCORP, Inc. (NASDAQ: EZPW), a leading provider of pawn loans in the United States and Latin America, today announced results for its third quarter ended June 30, 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 in this release are to the same period in the prior year unless otherwise noted.
HIGHLIGHTS FOR THIRD QUARTER OF FISCAL 2018Net income increased 163% to $14.5 million, and basic earnings per share increased 170% to $0.27 - Included in the quarter is a $5.2 million pre-tax gain on litigation settlement and an unrelated $3.3 million tax benefit. Adjusting for these and other discrete items 1, net income increased by 27%, representing a strong operating result and the 10th consecutive quarter of year-over-year (YOY) growth in both net income and earnings per share (EPS). Latin America Pawn accelerates earnings growth - Contribution from the Latin America Pawn segment increased 63% to $8.8 million on a 102% increase in pawn loans outstanding (PLO) to $39.3 million, driven by the contribution from acquired stores. Same store PLO led the industry, down 2% (up 8% on a constant currency basis 2 ), following 16% growth (13% on a constant currency basis) in the prior year quarter. Latin America Pawn now comprises 47% of the company’s total consolidated pawn stores and produced 29% of consolidated pawn contribution in the current quarter, up from 18% in the prior year quarter. U.S. Pawn continues its significant earnings and cash flow contribution with industry leading returns - Industry-high PLO per store of $282,000 and monthly pawn loan yield of 14% combined to drive 33% higher pawn service charges (PSC) per store compared to the industry. U.S. Pawn achieved a 4% higher sales gross profit YOY and industry leading margins of 38%, up 110bps, while reducing inventory balances by $9.2 million in the quarter. The U.S. Pawn segment contributed $21.4 million of profit before tax as it continues recovery from the impact of Hurricanes Harvey and Irma. Consolidated PLO increased 9% - Total consolidated PLO grew 9% and PSC increased 11%, including acquired stores. Same store PLO was 2% lower (increased 8% on a constant currency basis) in the fast growing Latin America Pawn segment, marking the segment’s 17 th consecutive quarter of same store PLO growth on a constant currency basis. Liquidity strengthened - Cash and cash equivalents increased 151% to $285.0 million. A convertible debt issuance in the current quarter raised $167.0 million of net proceeds, significantly increasing liquidity and the company’s ability to capitalize on attractive acquisition opportunities.
In June 2018, the company expanded its store presence in the Latin America pawn market by acquiring 63 pawn stores in Mexico City and the surrounding states in two separate transactions, for total cash consideration of $30.2 million. The acquisitions are expected to provide earnings accretion in their first full quarter ending September 30, 2018.
CEO COMMENTARY AND OUTLOOK
Chief Executive Officer Stuart Grimshaw said, “We delivered significantly higher net revenues and net income in the quarter relative to the same quarter last year, and continued strengthening our balance sheet and liquidity position.
“Our strong organic growth and successful pawn store acquisitions continue in high-growth Latin America. The segment’s net revenue and profit before tax increased 67% and 63% on a GAAP basis and 73% and 66% on a constant currency basis. We acquired 63 pawn stores in Mexico in the third quarter, bringing our year-to-date Latin America pawn store additions to 205 through acquisition and store openings. That represents an 83% increase in our Latin America store count since the beginning of the fiscal year, reaching 451 stores. It also provides strategic positions for further penetration and expansion in existing and adjacent geographical areas.
“In the U.S. Pawn segment, our disciplined approach to pawn lending delivered industry leading PLO, PLO yield and PSC per store. Effective inventory management initiatives almost doubled inventory reduction relative to the prior year quarter while, at the same time, delivering industry high sales and sales gross profit per store. Merchandise margin increased 110bps to an industry leading 38%, while inventory turns accelerated to 2.1x from 1.9x in the immediately preceding quarter. The segment’s net revenues were flat to the prior year quarter and pre-tax contribution was down 10%, reflecting the continuing impact of last year’s hurricanes and higher expenses that included investments made to enhance customer experience and drive future profit improvement.
“We have a strong and proven focus on delivering an outstanding customer experience and meeting our customers’ need for cash, which drives our industry-leading store operating performance. We continue to invest in our core pawn business, and with our strong cash position, we will open and acquire more pawn stores, particularly in Latin America, to further expand our diversified, multi-country earnings platform. We are confident that both of these strategies will continue to drive long-term shareholder value.”
CONSOLIDATED RESULTSNet income increased 163% to $14.5 million. This reflects the successful pawn store acquisitions and strong organic growth in Latin America, as well as a $5.2 million pre-tax gain on litigation settlement and an unrelated discrete tax benefit of $3.3 million. A 9% increase in PLO led to an 11% improvement in PSC and a 9% improvement in net revenues to $115.1 million (up 10% to $115.8 million on a constant currency basis). Consolidated sales gross profit improved 7% to $37.8 million on a 7% rise in merchandise sales, while sales margins remained flat at 36%. On a constant currency basis, PSC expanded 11% and merchandise sales grew 8%. Expenses rose 12% to $83.0 million (up 12% to $83.5 million on a constant currency basis) due primarily to acquired stores. The increase also reflects an increased number of team members per store, as well as other investments made in U.S. stores to enhance customer experience and drive future profit growth. Cash and cash equivalents at the end of the quarter improved 151% to $285.0 million. During the quarter, the company enhanced liquidity through completion of a $172.5 million offering of convertible senior notes due 2025, yielding net proceeds of $167.0 million. Year-to-date, the company has collected $20.7 million in principal and interest, as scheduled, on the notes receivable related to the sale of Grupo Finmart in September 2016. Basic EPS jumped 170% to $0.27 and diluted EPS rose 150% to $0.25. On an adjusted basis 1, basic EPS was $0.15 (up 25%) and diluted EPS was $0.14 (up 17%). The fully diluted shares calculation includes the hypothetical conversion of our convertible notes to the extent the company’s average share price in the quarter exceeded the conversion price on the notes. However, the 2019 convertible notes must be settled in cash and the company may choose to satisfy all or some of its 2024 and 2025 convertible notes with cash rather than shares to minimize actual share dilution.
U.S. PawnDelivered industry high PLO, PLO yield and PSC per store, driven by disciplined lending practices and a focus on meeting customers’ need for cash. Same store PLO declined 3% including stores affected by the hurricanes. In unaffected stores, same store PLO declined 1%. Effective inventory management reduced inventory by almost 7%, or $9.2 million in the quarter, simultaneously delivering industry leading sales and sales gross profit per store. Merchandise margins increased 110bps to an industry high 38%. Net revenues were flat and pre-tax contribution was down 10% to $21.4 million, reflecting the PSC impact of last year’s hurricanes on PLO, as well as higher expenses. Expenses reflect an increased number of team members per store and other investments to enhance customer experience and drive future profit growth.
Latin America PawnThe Latin America segment again delivered outstanding growth. Its contribution increased 63% to $8.8 million (up 66% to $9.0 million on a constant currency basis). Pawn store count expanded 83% year-to-date, including 63 stores acquired in the third quarter. Ten new stores have been opened fiscal year-to-date, including two in the third quarter. The company believes there is significant opportunity for growth and profit enhancement in the acquired stores by increasing focus on general merchandise pawn loan and retail activities and implementing EZCORP’s systems and operating practices. The company continues to see a robust pipeline of acquisition opportunities in Latin America. Segment operations expenses increased to 63% of net revenues from 62% in the prior-year quarter, primarily due to acquired stores. PLO rose 102% to $39.3 million (up 116% to $41.9 million on a constant currency basis). Same store PLO was 2% lower (increased 8% on a constant currency basis). Net revenues expanded 67% to $24.1 million (up 73% to $24.9 million on a constant currency basis), and PSC increased 90% to $17.3 million (up 95% to $17.8 million on a constant currency basis), reflecting the significantly higher PLO. Merchandise sales improved 37% in total and were up 5% on a same store basis (up 42% in total and up 11% in same stores on a constant currency basis).
CONFERENCE CALL & WEBCAST INFORMATION
EZCORP will host a conference call on Thursday, August 2, 2018, at 7:30am Central Time to discuss third quarter results. Analysts and institutional investors may participate on the conference call by dialing (877) 201-0168, Conference ID: 9691918, 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.
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.
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