EZCORP Announces Second Quarter Fiscal 2016 Results

CONSOLIDATED RESULTS

Three-Months Ended March 31, 2016

• For the quarter ended March 31, 2016, net loss from continuing operations attributable to EZCORP was $73.0 million ($1.33 per share), compared to a net loss of $3.4 million ($0.06 per share). This year-over-year difference reflects ongoing challenges in Grupo Finmart, including a non-cash goodwill impairment charge of $73.9 million ($1.26 per share impact). The U.S. and Mexico pawn businesses continue to deliver improved performance.
   
• Total revenue for the current quarter was $201.9 million, down 2%, and net revenue was flat at $113.8 million.  On a constant currency basis1, total revenue was $209.6 million, up 2%, with net revenue of $117.5 million, up 3%. The increase in both total revenue and net revenue (stated in constant currency) is primarily due to higher pawn service charges and merchandise margin, offset by higher bad debt levels in Grupo Finmart.
   
• Operating expenses for the current quarter increased 3% (6% on a constant currency basis), primarily due to continued investment in store labor costs to improve employee and customer satisfaction and costs from new stores.
   
• Annualized return on pawn earning assets2 increased to 152% in the current quarter versus 150%.

Six-Months Ended March 31, 2016

• For the six months ended March 31, 2016, net loss from continuing operations attributable to EZCORP was $80.3 million ($1.46 per share), compared to net income of $1.3 million ($0.02 per share). This year-over-year difference reflects continued improvement in our U.S. and Mexico pawn businesses (as discussed below) that was more than offset by losses attributable to Grupo Finmart, including the non-cash goodwill impairment charge of $73.9 million in the current quarter.
   
• Total revenue for the six months ended March 31, 2016 was $400.4 million, 4% lower, with net revenue of $225.3 million, a 2% decrease.  On a constant currency basis, total revenue was $415.5 million, 1% lower, and net revenue was flat at $231.7 million.
   
• Operating expenses for the six months ended March 31, 2016 increased 8% (13% on a constant currency basis), primarily due to continued investment in store labor costs to improve employee and customer satisfaction, as well as costs from new stores, restatement expenses, increased accrued incentive compensation and investment in strengthening the Grupo Finmart management team.
   
• Annualized return on pawn earning assets2 increased to 152% from 147%.

OPERATING METRICS

U.S. Pawn Segment

Three-Months Ended March 31, 2016

• Focus on the customer experience drove pawn lending momentum, resulting in an increase in PLO of 9% in total and 7% on a same store basis. The pawn loan redemption rate for the quarter was 85%, unchanged from the prior-year period.
   
• PSC increased 8% in total, 6% on a same store basis, as a result of strong PLO growth. Annualized yield on PLO decreased to 168% from 169%.
   
• Merchandise sales gross margin improved to 39% from 34% attributable to discipline in pricing cadences and healthy loan valuations, driving merchandise sales gross profit growth.
   
• Net revenue growth of 8% led to a 15% improvement in segment contribution. Operations expenses increased 6% as we continue to invest in labor costs to improve employee and customer satisfaction.
   
• Aged inventory reduced to 10% of total inventory from 13%.

1 In addition to the financial information prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), we provide certain financial information on a “constant currency” basis, which excludes the impact of foreign currency exchange rate fluctuations.  For additional information about the constant currency calculations, as well as a reconciliation of the constant currency financial measures to the comparable GAAP financial measures, see “Non-GAAP Financial Information” at the end of this release.

2 Annualized return on pawn earning assets is equal to the annualized merchandise and scrap sales gross profit and pawn service charges, divided by average pawn loans and inventory balances outstanding.

Six-Months Ended March 31, 2016

• Same store PLO growth has continued to strengthen from a 6% decline in the September 2015 quarter, to a 0.5% increase as of the December 2015 quarter, to a 7% increase in the March 2016 quarter, generating same store PSC growth of 3% in the six-month period ended March 31, 2016.
   
• Annualized PLO yield and pawn loan redemption rate are both unchanged from the prior-year period at 166% and 84%, respectively.
   
• Merchandise sales gross margin increased to 39% from 34%, resulting in an 18% increase in merchandise sales gross profit.
   
• Net revenue was up 7%, driving a 7% increase in segment contribution. Store operations expenses increased 6%, primarily due to higher labor costs to drive customer and employee satisfaction, including store team member incentive programs.

Mexico Pawn Segment

Three-Months Ended March 31, 2016

• Focus on improving the customer experience along with operational execution refinements led to a 26% increase in total and a 28% increase in same-store PLO on a constant currency basis (up 11% in total and 13% in same-stores on a GAAP basis). This represents the seventh consecutive quarter with double-digit same store PLO growth on a constant currency basis. The redemption rate on pawn loans decreased slightly to 78% from 79%.
   
• Same store PSC grew 27% on a constant currency basis (up 5% on a GAAP basis). Annualized PLO yield was a strong 197% compared to 203%.
   
• Merchandise sales gross margin increased to 31% from 28% as the result of continued improvement in pawn loan valuations and discipline in pricing cadences. Merchandise sales gross profit increased 30% on a constant currency basis (up 7% on a GAAP basis).
   
• Net revenue increased 25% on a constant currency basis (up 4% on a GAAP basis).
   
• Operating expenses increased 5% on a constant currency basis (decreased 13% on a GAAP basis), driven primarily by investments in labor to drive employee and customer satisfaction and increased advertising expense.
   
• Increase in segment contribution of $2.5 million on a constant currency basis (increase of $2.1 million from nominal loss in the prior-year quarter on a GAAP basis).
   
• Aged inventory ended the quarter at 3% of total inventory compared to 11%.

Six-Months Ended March 31, 2016

• Same store PSC increased 25% on a constant currency basis (up 4% on a GAAP basis). Annualized yield on pawn loans decreased to 195% from 199%. The redemption rate on pawn loans in the first half was unchanged at 78%.
   
• Merchandise sales gross margin increased to 33% from 30%, driving a merchandise sales gross profit increase of 21% on a constant currency basis (flat on a GAAP basis).
   
• Net revenue was up 21% on a constant currency basis (flat on a GAAP basis).
   
• Operations expense increased 17% on a constant currency basis (decreased 3% on a GAAP basis) driven primarily by investments in labor to drive employee and customer satisfaction and increased advertising expense.
   
• Increase in segment contribution of $2.4 million on a constant currency basis ($1.6 million on a GAAP basis).

Grupo Finmart Segment

Three Months Ended March 31, 2016

• Segment loss of $82.9 million on a constant currency basis ($81.2 million on a GAAP basis) compared to a segment loss of $2.6 million on a GAAP basis. The increase in the segment loss was due primarily to a non-cash goodwill impairment charge of $73.9 million, in addition to increased bad debt expenses driven predominately by delays in payment timing. A valuation of Grupo Finmart of $46.5 million was determined as part of the goodwill valuation process.
   
• During the quarter, operational initiatives yielded performance improvements. Comparison of current quarter to immediately preceding quarter showed:

- Loan collections up 33%, including accelerated receipts on previously reserved loans more than doubling.
- Cost reduction program delivering cash SG&A savings.
- Originations focused on higher quality, better performing government agencies.

• Operations expenses increased 36% on a constant currency basis (13% increase on a GAAP basis) primarily attributed to investment in strengthening the management team and an increase in deferred commissions.
   
• EZCORP provided $6 million of funding to Grupo Finmart in the quarter, including $2 million for working capital requirements and $4 million to repay Grupo Finmart maturing debt.
   
• In light of the changing industry dynamics and business environment, a strategic review of Grupo Finmart was announced in February 2016 with a view toward maximizing long-term shareholder value. That strategic review was completed in April 2016, with sale of the business identified as the preferred alternative.

Six Months Ended March 31, 2016

• Segment loss of $102.4 million on a constant currency basis ($98.1 million on a GAAP basis) compared to a segment loss of $10.8 million on a GAAP basis in the prior year. The increase in the segment loss was primarily attributable to the goodwill impairment charge in addition to an increase in bad debt expense.
   
• The bad debt expense was offset by $10.2 million received in collections in the current six months on loans that were fully reserved.
   
• Operations expense increased 38% on a constant currency basis (14% increase on a GAAP basis) primarily attributed to investment in strengthening management team and increase in deferred commissions.
   
• EZCORP provided $17 million of funding to Grupo Finmart in the current six-month period, including $5 million for working capital requirements and $12 million to repay Grupo Finmart maturing debt.

CONFERENCE CALL

EZCORP will host a conference call on Tuesday, May 10, 2016, at 7:30am Central Time to discuss second quarter results.  Analysts and institutional investors may participate on the conference call by dialing (888) 734-0328, Conference ID:  8428284, International dialing (678) 894-3054. 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 athttp://investors.ezcorp.com/ shortly after the call.

ABOUT EZCORP

EZCORP is 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.

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.

EZCORP, Inc.
SELECTED OPERATING SEGMENT RESULTS (UNAUDITED)

U.S. Pawn

The following table presents selected summary financial data from continuing operations for the U.S. Pawn segment:

Mexico Pawn

The following table presents selected summary financial data from continuing operations for the Mexico Pawn segment, including constant currency results, after translation to U.S. dollars from its functional currency of the Mexican peso. See “Non-GAAP Financial Information” below.

Grupo Finmart

The table below presents selected summary financial data from continuing operations for the Grupo Finmart segment, including constant currency results, after translation to U.S. dollars from its functional currency of the Mexican peso. See “Non-GAAP Financial Information” below.

U.S. Pawn

The following table presents selected summary financial data from continuing operations for the U.S. Pawn segment:

Mexico Pawn

The following table presents selected summary financial data from continuing operations for the Mexico Pawn segment, including constant currency results, after translation to U.S. dollars from its functional currency of the Mexican peso. See “Non-GAAP Financial Information” below.

Grupo Finmart

The table below presents selected summary financial data from continuing operations for the Grupo Finmart segment, including constant currency results, after translation to U.S. dollars from its functional currency of the Mexican peso. See “Non-GAAP Financial Information” below.

EZCORP, Inc.
STORE COUNT ACTIVITY

NON-GAAP FINANCIAL INFORMATION

In addition to the financial information prepared in conformity with generally accepted accounting principles in the United States of America ("GAAP"), we provide certain other non-GAAP financial information on a constant currency basis ("constant currency"). We use constant currency results to evaluate results of the Mexico Pawn and Grupo Finmart segment operations, which are denominated in Mexican pesos and believe that presentation of constant currency results is meaningful and useful in understanding the activities and business metrics of our Mexico Pawn and Grupo Finmart operations and reflect an additional way of viewing aspects of our business that, when viewed with its GAAP results, provide a more complete understanding of factors and trends affecting our business. We provide non-GAAP financial information for informational purposes and to enhance understanding of our GAAP consolidated financial statements. We use this non-GAAP financial information to evaluate and compare operating results across accounting periods. Readers should consider the information in addition to, but not instead of or superior to, our financial statements prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.

Constant currency results reported herein are calculated by translating condensed consolidated balance sheet and condensed consolidated statement of operations items denominated in Mexican pesos to U.S. dollars using the exchange rate from the prior-year comparable period, as opposed to the current comparable period, in order to exclude the effects of foreign currency rate fluctuations. For balance sheet items, the end of period rate as of March 31, 2016 of 17.3 to 1 was used, compared to the end of period rate as of March 31, 2015 of 15.2 to 1. For statement of operations items, the average closing daily exchange rate for the appropriate period was used. The average exchange rates for the current three and six-months ended March 31, 2016 were 18.0 to 1 and 17.4 to 1, respectively, as compared to the prior year three and six-months ended March 31, 2015 rates of 14.9 to 1 and 14.4 to 1, respectively. Constant currency results, where presented, also exclude foreign currency gain or loss and the related foreign currency derivative gain or loss impact.

The following information provides reconciliations of certain non-GAAP financial measures presented in this press release to the most directly comparable financial measures calculated and presented in accordance with GAAP, where not already included in constant currency segment results above.

Miscellaneous Non-GAAP Financial Measures

Contact:
Jeff Christensen
Vice President, Investor Relations
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.
Phone: (512) 437-3545