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EZCORP Reports Second Quarter Revenues Of $260 Million

AUSTIN, Texas, April 29, 2014 (GLOBE NEWSWIRE) -- EZCORP, Inc. (Nasdaq:EZPW), a leading provider of easy cash solutions for consumers, today announced its financial results for the second quarter of fiscal 2014.

For the quarter, total revenues were $260 million, with net income of $8 million and earnings per share of $0.15. Excluding the negative impact of certain one-time charges discussed below, as well as minimal losses related to our immature online lending businesses, adjusted net income was $20 million and adjusted earnings per share were $0.36, both non-GAAP measures.

Paul Rothamel, EZCORP's President and Chief Executive Officer, stated, "We are pleased with the continued momentum demonstrated in our core businesses. From an operations standpoint, the second quarter was consistent with the improving year-over-year revenue and expense trends that we reported in the first quarter. As we discussed previously, we expected these year-over-year financial comparisons to be challenging as our pawn and financial services businesses continue to anniversary gold volume declines and regulatory changes respectively. We also continue to believe those quarterly comparisons will improve significantly in the back half of the year.

"We experienced very strong demand at our storefront jewelry business and saw continued growth in our online retail channel. Demand for our financial service offerings in the U.S. and Mexico was also very strong. Retail margins, jewelry scrap margins and bad debt provisions were all at, or ahead of, our expectations. Our expense reduction initiatives were also on track, delivering the quarter-on-quarter improvement that we expected. The demand for our products is greater than it has ever been, as our customers have fewer alternatives to access immediate cash."

Consolidated Financial Highlights — Second Quarter of Fiscal 2014 vs. Prior Year Quarter
  • Total revenues were $260 million compared to $268 million in the same period last year. Excluding an expected decrease in gold scrapping, total revenues were up 4%, driven by excellent jewelry sales and consumer loan fee growth in the United States and Mexico.  
  • Adjusted net income for the quarter was $20 million, net of the after-tax impacts of the Albemarle & Bond impairment charge ($6 million), the retirement benefit accrual for our long-time Executive Chairman ($6 million) and performance of our online businesses ($0.6 million).  
  • Earning assets, including CSO loans, were $417 million at quarter-end, an increase of 7%, as a result of growth in payroll withholding, installment and auto title loans, as well as inventory in the U.S.  
  • Cash and cash equivalents, including restricted cash, were $63 million at quarter-end, with debt of $228 million, including $145 million of Grupo Finmart third-party debt, which is non-recourse to EZCORP.

  U.S. & Canada

Pawn —
  • Total merchandise sales increased 4% in total and on a same-store basis driven by growth in storefront jewelry sales and strong online performance. Gross margin on merchandise sales remained strong at 39%. Both the merchandise sales and gross margin metrics compare favorably to the U.S. and Canadian marketplace for the quarter.  
  • Jewelry sales were very strong, increasing 27% in total and 25% on a same-store basis, with gross margin of 43%. Coupled with our strong performance in the first quarter, jewelry sales growth was 30% in total and 27% on a same-store basis for the first half of the fiscal year.  
  • Online sales grew 63% over the same quarter last year and accounted for roughly 8% of the segment's total merchandise sales. Gross margin remained strong at 44% as compared to 43% for the same quarter last year.  
  • Pawn loan balances were $113 million at quarter-end, down 6% in total, driven primarily by a decrease in average loan size related to jewelry.This expected decline moderated in April, and we expect pawn loan balances to stabilize and be roughly flat by the end of the year.  
  • Redemption rates were 85%, up 100 basis points compared to a year ago, driven by a 200 basis point increase in the jewelry redemption rate to 89%, while the general merchandise redemption rate remained flat at 79%.

Financial Services —
  • Total loan balances including CSO loans, net of reserves, were $43 million at quarter-end, a 17% increase over the same quarter last year. This increase was driven by solid growth at our 500 storefronts as well as our online channel. For the quarter, including CSO loans, installment loans were up 77% and auto title loans grew 22% while traditional payday loans declined 12%.  
  • Loan fees were $46 million, up 8%. The gap in growth between loan balances and fees year-over-year is the result of a shift in product mix to lower yielding products driven by a competitive marketplace and regulatory impact. We expect to grow loan balances aggressively as consumer demand for our loan products remains high.  
  • Bad debt as a percentage of fees was 20%, up 500 basis points driven primarily by the impact of regulatory changes at the local and federal level. Secondarily, new store growth and the online penetration negatively impacted the year-over-year comparisons. We expect both of these factors to moderate over the next several quarters as the new stores naturally mature and online bad debt continues its quarter-over-quarter improvement.

Latin America

Payroll Withholding Lending —
  • Total fees were $14 million, up 21% as compared to the same period last year.  
  • Total loan balances at the end of the quarter were $113 million, up 23%, driven primarily by significant growth in new loan originations and greater penetration in existing contracts. Grupo Finmart now has approximately 100 active contracts providing access to over 6 million customers.  
  • Bad debt as a percentage of fees was 3%, ahead of our expectations.  
  • Financing activities for the quarter included a structured asset sale by Grupo Finmart and a public securitization of a portion of its receivables. The asset sale accelerated $16 million in cash flow, which was received in April, as well as a $5 million gain included in "Other Revenues." The securitization of $56 million, our second securitization in twelve months, reduced the cost of capital for the receivables financed to 6.3%. We incurred approximately $1 million in expenses during the quarter associated with this securitization. We expect to continue to use these and other types of structured transactions to finance the rapidly growing Grupo Finmart business going forward.

Pawn —
  • Pawn loan balances were $16 million, down 16%. Pawn service fees were down 7% during the quarter as Empeño Fácil focused on better quality lending. The yield on the loan balance improved 200 basis points to 200%.  
  • Empeño Fácil's merchandise sales decreased 1% compared to last year with margins of 38%. We expect to continue to see a challenging marketplace for the foreseeable future as more jewelry-only providers attempt to enter the general merchandise pawn market.

Other International

Online Lending —
  • Cash Genie, our U.K. online lending business, reported a nominal operating loss, showing continued improvement as compared to an operating loss of approximately $2 million in the first quarter of fiscal 2014. We expect to spend nearly $1 million in the second half of the year in direct costs associated with the implementation of the new FCA regulations.

Strategic Affiliates —
  • Our income from affiliates was down $4 million, 88% year-over-year. This decrease was driven by a profit decline at Cash Converters International in the first half of their fiscal year due to the effect of the transition to new regulatory requirements in Australia. Cash Converters recently announced significantly improved performance in their third fiscal quarter which will be reflected in our third quarter results. Income from affiliates was also impacted by a decrease from Albemarle & Bond as it is no longer reporting any earnings. In addition, we adjusted our remaining investment in Albemarle & Bond down to zero, resulting in a $6 million after-tax write off.

CEO Commentary

Mr. Rothamel added, "Historically, this time of year is a challenging time for our customers and their need for cash is very high. This usually manifests itself in rapidly growing loan balances at EZCORP, and this year is no different. In fact, based on what we are seeing from our customers, we continue to expect that our year-over-year financial comparisons will improve in the second half of the fiscal year.

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