EZCORP, Inc. (EZPW) F3Q2012 Earnings Call July 24, 2012 4:30 p.m. ET Executives Paul Rothamel – President and Chief Executive Officer Stephen Stamp – Senior Vice President and Chief Financial Officer Mark Kuchenrither – Executive Vice President Analysts John Rowan – Sidoti & Company Bill Carcache - Nomura Securities Bill Armstrong - CL King & Associates Bob Ramsey - Friedman Billings Ramsey Jordan Hymowitz - Philadelphia Financial Kyle Joseph - Stephens Incorporated Presentation Operator
I'll begin with our consolidated results. The third quarters record net income of $28.5 million was up 8% and diluted earnings-per-share of $0.56 were up 6%. For the nine months, net income and earnings-per-share increased 23% and 20%, respectively, on a GAAP basis and 13% and 11% on a non-GAAP basis.Compared to the prior year, our third quarter results were positively impacted by our international businesses, specifically, continued growth of Empeno Facil and the consolidation for the first time of Crediamigo and Cash Genie. At a consolidated level the big movers, in revenue terms, were jewelry scrapping sales and consumer loan fees. I'll talk about scrap and gold in particular, inside the U.S. and Canada segment discussion. The 38% in consumer loan fees to $53.5 million in the quarter was driven almost entirely by Crediamigo and Cash Genie. The two acquisitions diversify our unsecured lending business, both geographically and in terms of product mix. The two businesses are also expected to provide accelerated growth in our unsecured lending business. Lastly at the consolidation level, $4.9 million of the $8.3 million increase in administrative expenses resulted from the two acquisitions. Neither Crediamigo nor Cash Genie, are store-based businesses, and therefore, the majority of their cost-base is included in administrative expenses. The remainder of the increase includes the company's continued investment in broadening the management team and infrastructure to support the company's globalization strategy and other domestic and profitability initiatives. I'll now move on to the segments. As you might remember from last quarter, the company's now reporting segment results based on geographic lines. I'll start with our largest segment, U.S. and Canada which includes our 914 stores in the U.S. offering pawn buy/sell, and/or financial services and our 68 Cash Advance and buy/sell stores in Canada. The U.S. and Canada deliver segment contribution of $44.4 million, a $1.9 million decrease compared with the prior quarter driven by the challenges related to jewelry merchandise sales and scrap sales, specifically gold, inside the U.S. pawn business. We estimate that on a same-store basis, the changing gold metrics, both price and volume, from the year-over-year quarter caused a decrease around $6 million in net revenue for the U.S. and Canada segment. And that's assuming we've been flat for last year.
So, let's discuss for a minute on the impact gold had on the U.S. business. In dollar terms, jewelry is a percentage of the total U.S. pawn loan balance has remained largely unchanged. In terms of grams, it has declined as prices have risen.The jewelry redemption rate has however, increased over time reaching 86% in the third quarter, resulting, obviously, in less jewelry dropping out of the loan portfolio into inventory for sale. At the same time, volume of jewelry purchases in the quarter decreased 38% on a same-store basis. With a less forfeited-gold collateral and fewer purchases, it's not surprising that jewelry and gold dispositions were also down. Jewelry sales in the U.S. decreased 19% same-store and scrap sales declined 26%, again, same-store. It was these same-store decreases that drove a $6 million net revenue shortfall referenced earlier. Other elements of the U.S. pawn business, however, showed continued strength offsetting to a large extent the challenges in the gold and jewelry environment. Sales of jewelry merchandise, that is everything other than jewelry, increased 23% in total and 9% on a same-store basis. Pawn service sizes increased 14% in total and 7% on a same-store basis underpinned by a 7% growth in total pawn loan balances or 2% on a same-store basis. Growth in the pawn loan balance is a compelling indicator of the overall health of our pawn loan business. Read the rest of this transcript for free on seekingalpha.com