EZCORP Reports Fourth Quarter Fiscal Year 2020 Results
12/14/2020 - 05:21 PM
EZCORP, Inc. (NASDAQ: EZPW) today announced results for its fourth quarter and fiscal year ended September 30, 2020.
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.
Results for the fourth quarter of fiscal 2020 were impacted by lower pawn service charges related to stimulus payments and ongoing COVID-19 headwinds, as well as charges and non-cash write-downs associated with the Company's efforts to simplify and streamline its business and other COVID-19 impacts. Given the typical delay between growth in pawn loan originations and pawn service charges, near-term pawn service charge revenue trends will continue to lag the recent stabilization and rebound in new loans made and pawn loans outstanding.
CEO COMMENTARY AND OUTLOOK
Chief Executive Officer Jason Kulas stated, "We continue to make progress on key strategic initiatives. First, we implemented a number of initiatives that will result in a reduction of annual corporate expenses of more than $12 million beginning in fiscal 2021. We have also lowered store-level operating costs by $14 million on an annualized basis. While a majority of those store-level savings will be added back as transaction activity continues to grow, we are realizing significant expense reductions, with an ongoing focus on extracting further operating efficiencies. Second, we continue to strengthen our core pawn business by increasingly leveraging data analytics across geographies to optimize pricing, productivity and returns. Third, recent efforts to rationalize non-core activities have included closing our CASHMAX business in Canada. Finally, we remain focused on innovation to broaden customer engagement across channels, improve the customer experience and capture new business. Our digital pawn servicing platform, Lana, and our other digital efforts have been refocused on achieving these goals.
"At EZCORP, we are focused on optimizing the unique and essential elements of our core pawn business to address customers’ short-term cash needs. We have implemented a culture of continuous operational improvements that will drive operating leverage as we grow and will improve earnings power and shareholder value over time. As we sharpen our focus on continuous improvement in our pawn business, our team is viewing all initiatives through the lens of whether they benefit our core business. We look forward to providing updates on these initiatives in future quarters."
RESULTS FOR FOURTH QUARTER OF FISCAL 2020
Total revenues declined 22% to $166.9 million , and net revenues declined 26% to $89.6 million . These declines were driven by a reduction in revenue from pawn service charges (PSC), which was down 34% to $55.2 million as a result of lower average pawn loans outstanding (PLO) during the quarter.
PLO balance at the end of the quarter was $131.3 million , 34% below the prior-year quarter. Pawn loan demand was significantly reduced in the third quarter and into the fourth quarter following economic stimulus actions in the U.S. and constrained traffic in Latin America. Activity levels have started to normalize, with PLO increasing $18.0 million during the quarter as compared to the third quarter of fiscal 2020.
Operations expenses were $78.2 million , down $13.3 million , or 15% , $3.9 million of which is due to a reduction in accrued short-term and long-term incentive compensation. Administrative expenses decreased by $11.1 million due to a $17.0 million reduction in accrued short-term and long-term incentive compensation, offset by $4.9 million in increased labor costs.
Management implemented strategic initiatives to remove over $12 million in annual corporate expenses beginning in fiscal 2021 and $14 million related to store-level operating costs, a majority of which will be added back as transaction activity continues to increase.
Loss before taxes was $28.7 million and diluted loss per share was $0.42, compared to income before taxes of $0.4 million and diluted loss per share of $0.01, respectively, in the prior-year quarter. On an adjusted basis1 , loss before taxes was $2.9 million and diluted earnings per share was $0.07, compared to profit before taxes of $10.0 million and diluted earnings per share of $0.13, respectively, in the prior-year quarter.
Net inventory of $95.9 million decreased 47% , reflecting annualized inventory turnover of 2.8x. Merchandise sales gross margin of 31% decreased 200 bps, but when excluding a $2.6 million increase in reserves resulting from the impact of COVID-19, merchandise sales gross margin was flat at 33% .
Cash and cash equivalents increased $147.0 million to $304.5 million as of the end of the quarter, with most of the increase attributable to the decline in PLO.
During the quarter, management began to implement cost savings and refocus initiatives designed to improve bottom line performance and position the Company for sustainable growth focused on the core pawn business. As a result of these initiatives, we recorded the following pre-tax charges in the quarter:
$6.4 million in severance benefits related to the elimination of certain management positions;
$4.9 million associated with the closure of the CASHMAX business in Canada and related operations;
$4.1 million associated with the closure of four stores in U.S. Pawn and three stores in Latin America Pawn; and
$5.0 million of other miscellaneous charges.
CONSOLIDATED RESULTS
Three Months Ended September 30
in millions, except per share amounts
As Reported
Adjusted1
2020
2019
2020
2019
Total Revenues
$
166.9
$
214.3
$
170.9
$
214.3
Net Revenues
$
89.6
$
120.9
$
91.3
$
121.1
(Loss) Income from Continuing Operations, Before Tax
$
(28.7
)
$
0.4
$
2.9
$
10.0
Net (Loss) Income from Continuing Operations
$
(23.3
)
$
(0.6
)
$
3.8
$
7.4
Diluted Earnings Per Share from Continuing Operations
$
(0.42
)
$
(0.01
)
$
0.07
$
0.13
Adjusted EBITDA1
$
(16.0
)
$
12.1
$
12.0
$
19.3
Total revenues decreased 22% to $166.9 million . PSC was down 34% to $55.2 million due to lower average PLO during the quarter. PLO increased 16% from June 30 to September 30, compared to a 5% sequential gain in the same period of the prior year.
Merchandise sales declined 2% , driven primarily by lower inventory levels.
Scrap sales declined 72% due to a lack of diamond scrap sales in the quarter as compared to the prior year. Jewelry scrap activity was lower than the prior year in response to lower inventory levels, but the impact of lower volume was lessened by margin improvement to 28% , as compared to 10% in the prior-year quarter. Gross profit on scrap sales decreased 24% to $1.7 million .
Net revenues were down 26% to $89.6 million . Consolidated merchandise sales gross profit decreased 7% to $32.3 million , while consolidated merchandise sales gross margin was 31% . When excluding a $2.6 million increase in inventory reserves resulting from the impact of COVID-19, consolidated merchandise sales gross margin was 33% .
Consolidated operations expenses decreased 15% primarily due to cost-cutting initiatives at the store level. Total pawn store count increased 1% , consisting of a net 13 stores opened since the end of the prior-year quarter. Administrative expense decreased 78% to $3.1 million , primarily due to a $17.0 million reduction in accrued short-term and long-term incentive compensation, offset by $4.9 million in increased labor costs.
SEGMENT RESULTS
U.S. Pawn
Total revenue was down 23% , reflecting the impact of lower average PLO on PSC revenue, which was down 32% .
PLO decreased 32% to $106.3 million , but increased $19.5 million , or 23% , since the end of June, compared to a 6% sequential increase during the same period of the prior year.
Gross profit on merchandise sales grew $0.7 million , or 2% , reflecting expanded sales margins, partially offset by a 3% reduction in merchandise sales volume, driven primarily by lower inventory levels. Merchandise sales gross margin was 37% (39% , when excluding an increase in inventory reserves of $1.4 million resulting from the impact of COVID-19), at the high end of our targeted range. Annualized inventory turns were 2.5x, a 32% increase over the prior year. Aged general merchandise inventory improved to 4% from 6% in the prior year.
Segment contribution decreased $14.6 million to $7.6 million . This decrease was the result of a $20.5 million reduction in PSC, partially offset by a $8.4 million reduction in operating expenses ($2.4 million of which attributable to a reduction in accrued short-term and long-term incentive compensation).
Latin America Pawn
Merchandise sales grew 2% , to $27.3 million (11% to $30.0 million on a constant currency basis). Merchandise sales gross margin was 13% (17% when excluding an increase in inventory reserves of $1.2 million resulting from the impact of COVID-19). Aged general merchandise inventory increased to 8% from 6% in the prior year, but declined sequentially from 19% at the end of the prior quarter.
PSC decreased 38% to $12.0 million (down 32% to $13.1 million on a constant currency basis) as a result of lower average PLO for the quarter and a lower yield on pawn loans, reflecting our commitment to work with customers by negotiating reduced interest payments on a case-by-case basis.
Net revenues decreased 40% to $16.0 million (down 33% to $17.8 million on a constant currency basis) primarily due to lower PSC.
Operations expense was tightly managed, down 16% to $16.4 million .
Latin America Pawn added seven de novo stores in the quarter. New store openings typically pressure earnings in the short term as they ramp up, but drive higher profitability over time.
Segment loss for the quarter was $3.9 million ($4.2 million on a constant currency basis), compared to a contribution of $5.8 million in the prior year quarter, primarily reflecting lower PSC revenues.
FORM 10-K
EZCORP’s Annual Report on Form 10-K for fiscal 2020 has been filed with the Securities and Exchange Commission. The report is available in the Investor Relations section of the Company’s website at http://investors.ezcorp.com . EZCORP shareholders may obtain a paper copy of the report, free of charge, by sending a request to the investor relations contact below.
CONFERENCE CALL
EZCORP will host a conference call on Tuesday, December 15, 2020, at 7:00 am Central Time to discuss fiscal fourth quarter results. Analysts and institutional investors may participate on the conference call by dialing (877) 407-0789, Conference ID: 13713707, or internationally by dialing (201) 689-8562. 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 end of the call.
ABOUT EZCORP
Formed in 1989, EZCORP has grown into a leading provider of pawn loans in the United States and Latin America. We also sell 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 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, current or future litigation and risks associated with the COVID-19 pandemic. 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.
1 “Adjusted” basis, which is a non-GAAP measure, excludes certain items. “Constant currency” basis, which is a non-GAAP measure, excludes the impact of foreign currency exchange rate fluctuations. “Free cash flow,” which is a non-GAAP measure, includes certain adjustments to cash flow from operating activities.
For additional information about these calculations, as well as a reconciliation to the most comparable GAAP financial measures, see “Non-GAAP Financial Information” at the end of this release.
EZCORP, Inc.
Three Months Ended
Fiscal Year Ended
2020
2019
2020
2019
(Unaudited)
(in thousands, except per share amounts)
Revenues:
Merchandise sales
$
105,118
$
107,189
$
498,213
$
453,375
Jewelry scrapping sales
6,244
22,572
47,953
60,445
Pawn service charges
55,231
83,068
272,638
327,366
Other revenues
267
1,510
4,007
6,043
Total revenues
166,860
214,339
822,811
847,229
Merchandise cost of goods sold
72,770
72,325
334,481
297,508
Jewelry scrapping cost of goods sold
4,512
20,287
38,041
52,935
Other cost of revenues
(39
)
871
1,054
2,338
Net revenues
89,617
120,856
449,235
494,448
Operating expenses:
Operations
78,205
91,525
341,040
358,253
Administrative
3,100
14,167
49,897
55,990
Impairment of goodwill, intangible and other assets
7,606
—
54,666
—
Depreciation and amortization
7,653
7,683
30,827
28,797
Loss on sale or disposal of assets and other
(459
)
756
801
4,399
Other charges
20,388
—
20,388
—
Total operating expenses
116,493
114,131
497,619
447,439
Operating (loss) income
(26,876
)
6,725
(48,384
)
47,009
Interest expense
5,883
5,425
22,472
32,637
Interest income
(761
)
(1,449
)
(3,173
)
(11,086
)
Equity in net loss (income) of unconsolidated affiliates
(3,467
)
767
2,429
135
Impairment of investment in unconsolidated affiliates
—
—
—
19,725
Other (income) expense
198
1,545
(17
)
1,424
Income from continuing operations before income taxes
(28,729
)
437
(70,095
)
4,174
Income tax (benefit) expense
(5,389
)
1,029
(1,632
)
2,406
(Loss) income from continuing operations, net of tax
(23,340
)
(592
)
(68,463
)
1,768
Loss from discontinued operations, net of tax
—
(53
)
—
(457
)
Net (loss) income
(23,340
)
(645
)
(68,463
)
1,311
Net loss attributable to noncontrolling interest
—
—
—
(1,230
)
Net (loss) income attributable to EZCORP, Inc.
$
(23,340
)
$
(645
)
$
(68,463
)
$
2,541
Basic (loss) earnings per share attributable to EZCORP, Inc. — continuing operations
$
(0.42
)
$
(0.01
)
$
(1.24
)
$
0.05
Diluted (loss) earnings per share attributable to EZCORP, Inc. — continuing operations
$
(0.42
)
$
(0.01
)
$
(1.24
)
$
0.05
Weighted-average basic shares outstanding
55,070
55,446
55,313
55,341
Weighted-average diluted shares outstanding
55,070
55,446
55,313
55,984
EZCORP, Inc.
(in thousands, except share and per share amounts)
September 30,
2020
2019
Assets:
Current assets:
Cash and cash equivalents
$
304,542
$
157,567
Restricted cash
8,011
4,875
Pawn loans
131,323
199,058
Pawn service charges receivable, net
20,580
31,802
Inventory, net
95,891
179,355
Notes receivable, net
—
7,182
Prepaid expenses and other current assets
32,903
25,921
Total current assets
593,250
605,760
Investments in unconsolidated affiliates
32,458
34,516
Property and equipment, net
56,986
67,357
Lease right-of-use asset
183,809
—
Goodwill
257,582
300,527
Intangible assets, net
58,638
68,044
Notes receivable, net
1,148
1,117
Deferred tax asset, net
8,931
1,998
Other assets
4,221
4,383
Total assets
$
1,197,023
$
1,083,702
Liabilities and equity:
Current liabilities:
Current maturities of long-term debt, net
$
213
$
214
Accounts payable, accrued expenses and other current liabilities
71,504
77,957
Customer layaway deposits
11,008
12,915
Lease liability
49,742
—
Total current liabilities
132,467
91,086
Long-term debt, net
251,016
238,380
Deferred tax liability, net
524
1,985
Lease liability
153,040
—
Other long-term liabilities
10,849
7,302
Total liabilities
547,896
338,753
Commitments and contingencies
Stockholders’ equity:
Class A Non-Voting Common Stock, par value $0.01 per share; shares authorized: 100 million; issued and outstanding: 52,332,848 as of September 30, 2020 and 52,565,064 as of September 30, 2019
521
526
Class B Voting Common Stock, convertible, par value $0.01 per share; shares authorized: 3 million; issued and outstanding: 2,970,171 as of September 30, 2020 and 2019
30
30
Additional paid-in capital
398,475
407,628
Retained earnings
318,169
389,163
Accumulated other comprehensive loss
(68,068
)
(52,398
)
Total equity
649,127
744,949
Total liabilities and equity
$
1,197,023
$
1,083,702
EZCORP, Inc.
(in thousands)
Fiscal Year Ended September 30,
2020
2019
2018
(in thousands)
Operating activities:
Net (loss) income
$
(68,463
)
$
1,311
$
36,294
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization
30,827
28,797
25,484
Amortization of debt discount and deferred financing costs
13,200
19,759
17,595
Amortization of lease right-of-use asset
45,649
—
—
Accretion of notes receivable discount and deferred compensation fee
(821
)
(4,524
)
(9,150
)
Deferred income taxes
(8,393
)
1,616
7,916
Impairment of goodwill, intangibles and other assets
54,666
—
—
Other adjustments
1,652
5,776
2,607
Reserve on jewelry scrap receivable
—
3,646
—
Stock compensation expense
(5,094
)
9,751
10,784
Equity in net loss (gain) from investment in unconsolidated affiliates
2,429
135
(5,529
)
Impairment of investment in unconsolidated affiliates
—
19,725
11,712
Changes in operating assets and liabilities, net of business acquisitions:
Pawn service charges receivable
11,021
(732
)
(1,788
)
Inventory
17,043
(493
)
(1,074
)
Prepaid expenses, other current assets and other assets
(875
)
5,732
477
Accounts payable, accrued expenses and other liabilities
(37,401
)
22,246
(3,271
)
Customer layaway deposits
(1,647
)
1,176
709
Income taxes, net of excess tax benefit from stock compensation
(4,715
)
(10,404
)
(3,785
)
Net cash provided by operating activities
49,078
103,517
88,981
Investing activities:
Loans made
(568,368
)
(737,585
)
(707,220
)
Loans repaid
394,469
434,142
421,331
Recovery of pawn loan principal through sale of forfeited collateral
304,323
288,502
266,962
Capital expenditures, net
(28,526
)
(38,839
)
(40,474
)
Acquisitions, net of cash acquired
—
(8,116
)
(93,165
)
Investment in unconsolidated affiliate
—
—
(14,036
)
Principal collections on notes receivable
8,000
34,067
32,396
Net cash provided by (used in) investing activities
109,898
(27,829
)
(134,206
)
Financing activities:
Taxes paid related to net share settlement of equity awards
(1,459
)
(3,288
)
(311
)
Payout of deferred consideration
(350
)
—
—
Proceeds from borrowings, net of issuance costs
912
1,064
171,409
Payments on borrowings
(198
)
(196,093
)
(3,510
)
Repurchase of common stock
(5,158
)
—
—
Net cash (used in) provided by financing activities
(6,253
)
(198,317
)
167,588
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(2,612
)
(507
)
(654
)
Net increase (decrease) in cash and cash equivalents and restricted cash
150,111
(123,136
)
121,709
Cash and cash equivalents and restricted cash at beginning of period
162,442
285,578
163,869
Cash and cash equivalents and restricted cash at end of period
$
312,553
$
162,442
$
285,578
Supplemental disclosure of cash flow information
Cash and cash equivalents
$
304,542
$
157,567
$
285,311
Restricted cash
8,011
4,875
267
Total cash and cash equivalents and restricted cash
$
312,553
$
162,442
$
285,578
Cash paid during the period for interest
$
8,489
$
12,900
$
8,412
Cash paid during the period for income taxes, net
$
9,753
$
11,132
$
13,676
Non-cash investing and financing activities:
Pawn loans forfeited and transferred to inventory
$
241,252
$
301,357
$
274,590
EZCORP, Inc.
(Unaudited and in thousands)
Three Months Ended September 30, 2020
U.S. Pawn
Latin America Pawn
Lana
Other International
Total Segments
Corporate Items
Consolidated
(in thousands)
Revenues:
Merchandise sales
$
77,862
$
27,256
$
—
$
—
$
105,118
$
—
$
105,118
Jewelry scrapping sales
3,786
2,458
—
—
6,244
—
6,244
Pawn service charges
43,222
12,009
—
—
55,231
—
55,231
Other revenues
43
(50
)
21
253
267
—
267
Total revenues
124,913
41,673
21
253
166,860
—
166,860
Merchandise cost of goods sold
49,056
23,714
—
—
72,770
—
72,770
Jewelry scrapping cost of goods sold
2,634
1,878
—
—
4,512
EZPW Rankings
#3148 Ranked by Stock Gains
EZPW Stock Data
Industry
Consumer Lending
Sector
Finance and Insurance
Tags
Finance, Finance/Rental/Leasing, Finance and Insurance, Consumer Lending
Country
United States
City
Austin
About EZPW
formed with 16 pawn stores in 1989, ezcorp has grown into a leading provider of pawn loans in the united states and mexico and consumer loans in mexico. at our pawn stores, we also sell 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. we provide numerous convenient options to obtain short-term cash, including non-recourse pawn loans collateralized by personal property. we also sell pre-owned merchandise to consumers seeking good value. headquartered in austin, texas, ezcorp is traded on nadaq under the ticker symbol ezpw. discover your future. come grow with us! at ezcorp, you’ll find lots of opportunity for career growth. we’re expanding both domestically and internationally, and we’re dedicated to empowering and developing our team members so they can reach their professional goals. work with great peopl
