EZCORP's Management Discusses F3Q2012 Results - Earnings Call Transcript

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

Welcome to the EZCORP Fiscal 2012 Third Quarter Earnings Release Conference Call. My name is Christine. I'll be your operator for today's conference.

(Operator instructions) Later we will conduct an question-and-answer session. Please note today's conference is being recorded. I will now turn the call over to Paul Rothamel, Chief Executive Officer. You may begin.

Stephen Stamp

Thanks Christine. Actually, it's Stephen Stamp that's going to start the call. And good afternoon, everyone.

This call will address our Third Quarter Fiscal 2012 results. We issued a press release earlier today that is available on our website, www.excorp.com.

I would like to remind everyone that this conference call will contain certain forward-looking statements, including statements about our financial and operating performance in future periods. These statements are based on our current expectations. Actual results in future periods may differ materially from current expectations due to a number of risks, uncertainties and other factors which are discussed in our press release and in our filings with the Securities and Exchange Commission.

On the call with me today is Paul Rothamel, our President and Chief Executive Officer and Mark Kuchenrither, our Executive Vice President. I'll cover our results for the quarter and then Paul will provide some perspective before we open the lines for questions.

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.

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