Ezcorp Inc: Form 10-Q for the period ended Mar 31, 2025

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to inform the reader about matters affecting the financial condition and results of operations of EZCORP, Inc. and its subsidiaries (collectively, “we,” “us”, “our”, “EZCORP” or the “Company”). The following discussion should be read together with our condensed consolidated financial statements and related notes included elsewhere within this report. This discussion contains forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements. See “Part I, Item 1A — Risk Factors” of our Annual Report on Form 10-K for the year ended September 30, 2024, as supplemented by the information set forth in “Part I, Item 3 — Quantitative and Qualitative Disclosures about Market Risk” and “Part II, Item 1A — Risk Factors” of this Report, for a discussion of certain risks, uncertainties and assumptions associated with these statements.

Business Developments

2032 Senior Notes

In March 2025, we issued $300.0 million aggregate principal amount of the Company’s 7.375% senior notes due 2032 (the “2032 Senior Notes”), for which $300.0 million remains outstanding as of March 31, 2025. See Note 7 of Notes to Condensed Consolidated Financial Statements included in "Part I, Item 1 — Financial Statements" of this Report for further discussion.

Termination of Acquisition Agreement

On March 19, 2025, the Company announced the termination of an acquisition agreement with Presta Dinero, S.A. de C.V. for the purchase of 53 pawn stores in Mexico.

Business Overview

EZCORP is a Delaware corporation headquartered in Austin, Texas. We are a leading provider of pawn services in the United States and Latin America. Pawn loans are nonrecourse loans collateralized by personal property. We also sell merchandise, primarily collateral forfeited from unpaid loans and pre-owned merchandise purchased from customers.

We exist to serve our customers’ short-term cash needs, helping them to live and enjoy their lives. We are focused on three strategic pillars:

Pawn Activities

At our pawn stores, we advance cash against the value of collateralized tangible personal property. We earn pawn service charges (“PSC”) for those cash advances, and the PSC rate varies by state and transaction size. At the time of the transaction, we take possession of the pawned collateral, which consists of tangible personal property, generally jewelry, consumer electronics, tools, sporting goods and musical instruments. If the customer chooses to redeem their pawn, they will repay the amount advanced plus any accrued PSC. If the customer chooses not to redeem their pawn, the pawned collateral becomes our inventory, which we sell in our retail merchandise sales activities or, in some cases, scrap for its inherent gold or precious stone content. Consequently, the success of our pawn business is largely dependent on our ability to accurately assess the probability of pawn redemption and the estimated resale or scrap value of the collateralized personal property.

Our ability to offer quality pre-owned goods at prices significantly lower than original retail prices attracts value-conscious customers. The gross profit on sales of inventory depends primarily on our assessment of the estimated resale or scrap value at the time the property is either accepted as pawn collateral or purchased and our ability to sell that merchandise in a timely manner. As a significant portion of our inventory and sales involve gold and jewelry, our results can be influenced by the market price of gold and diamonds.

Growth and Expansion

Our strategy is to expand the number of locations we operate through opening new (“de novo”) locations and through acquisitions and investments in both Latin America, the United States and potential new markets. Our ability to open de novo stores, acquire new stores and make other related investments is dependent on several variables, such as projected achievement of internal investment hurdles, the availability of acceptable sites or acquisition candidates, the alignment of acquirer/seller price expectations, the regulatory environment, local zoning ordinances, access to capital and the availability of qualified personnel.

Seasonality and Quarterly Results

In the United States, PSC is historically highest in our fourth fiscal quarter (July through September) due to a higher average loan balance during the summer lending season. PSC is historically lowest in our third fiscal quarter (April through June) following the tax refund season and merchandise sales are highest in our first and second fiscal quarters (October through March) due to the holiday season, jewelry sales surrounding Valentine’s Day and the availability of tax refunds. In Latin America, most of our customers receive additional compensation from their employers in December, and many receive additional compensation in June or July, applying downward pressure on loan balances and fueling some merchandise sales in those periods. In Mexico, we saw similar downward pressure in loan balances during the third quarter of fiscal 2023 due to a change in law related to company profit sharing payments to employees. We anticipated this change would impact pawn loan redemptions annually in May and June; however, in fiscal 2024, the demand for pawn loans in Mexico exceeded any downward pressure related to profit sharing payments. As a net effect of these and other factors and excluding discrete charges, our consolidated income before tax is generally highest in our first fiscal quarter (October through December) and lowest in our third fiscal quarter (April through June).

Financial Highlights

We remain focused on optimizing our balance of pawn loans outstanding (“PLO”) and the resulting higher PSC. The following chart presents sources of gross profit, including PSC, merchandise sales gross profit (“Merchandise sales GP”) and jewelry scrapping gross profit (“Jewelry Scrapping GP”) for the three and six months ended March 31, 2025 and 2024:

The following chart presents sources of gross profit by geographic disbursement for the three and six months ended March 31, 2025 and 2024:

Results of Operations

Non-GAAP Constant Currency and Same-Store Financial Information

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide certain other non-GAAP financial information on a constant currency basis (“constant currency”) and “same-store” basis. We use constant currency results to evaluate our Latin America Pawn operations, which are denominated primarily in Mexican pesos, Guatemalan quetzales and other Latin American currencies. We analyze results on a same-store basis (which is defined as stores open during the entirety of the comparable periods) to better understand existing store performance without the influence of increases or decreases resulting solely from changes in store count. We believe presentation of constant currency and same-store results is meaningful and useful in understanding the activities and business metrics of our Latin America Pawn operations and reflects an additional way of viewing aspects of our business that, when viewed with GAAP results, provides a better understanding and evaluation 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 rather than 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 consolidated balance sheet and consolidated statement of operations items denominated in local currency to U.S. dollars using the exchange rate from the prior-year comparable period, as opposed to the current period, in order to exclude the effects of foreign currency rate fluctuations. In addition, we have an equity method investment that is denominated in Australian dollars and is translated into U.S. dollars. We used the end-of-period rate for balance sheet items and the average closing daily exchange rate on a monthly basis during the appropriate period for statement of operations items. Our statement of operations constant currency results reflect the monthly exchange rate fluctuations and are not directly calculable from the rates below. Constant currency results, where presented, also exclude the foreign currency gain or loss. The end-of-period and approximate average exchange rates for each applicable currency as compared to U.S. dollars as of and for the three and six months ended March 31, 2025 and 2024 were as follows:

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Operating Results

Segments

We manage our business and report our financial results in three reportable segments:

• U.S. Pawn — Represents all pawn activities in the United States;
• Latin America Pawn — Represents all pawn activities in Mexico and other parts of Latin America; and
• Other Investments — Represents our equity interest in Cash Converters and our investment in and notes receivable from Founders.

Store Count by Segment

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Three Months Ended March 31, 2025 vs. Three Months Ended March 31, 2024

These tables, as well as the discussion that follows, should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and related notes.

U.S. Pawn

The following table presents selected summary financial data for our U.S. Pawn segment:

(in thousands)

(a) Balance includes pawn loans and inventory.

(b) Balance is calculated based upon the average of the monthly ending balances during the applicable period.

PLO ended the quarter at $199.4 million, up 15% on a total and same-store basis due to increase in average loan size, increased loan demand and improved operational performance.

Total revenues increased 7% and gross profit increased 8%, reflecting higher PSC.

PSC increased 9% as a result of higher average PLO, partially offset by lower PLO yield.

Merchandise sales increased 2%, and gross margin decreased to 36% from 37%. Aged general merchandise, which is inventory over one year old, decreased by 14 basis points to 2.8%, or $1.3 million of total general merchandise inventory. Excluding our three Max Pawn luxury stores in Las Vegas, aged general merchandise was 1.5%.

Net inventory increased 29%, due to the increase in PLO, increase in customer layaways and a decrease in inventory turnover to 2.3x, from 2.6x.

Store expenses increased 3% (2% on a same-store basis) primarily due to labor, the majority of which was offset by a decrease in expenses related to our loyalty program.

Segment contribution increased 16% to $47.1 million, due to the changes noted above.

Segment store count remained at 542.

Latin America Pawn

The following table presents selected summary financial data for the Latin America Pawn segment, including constant currency results, after translation to U.S. dollars from its functional currencies noted above under “Results of Operations — Non-GAAP Constant Currency and Same-Store Financial Information.”

(in thousands)

* Represents a percentage computation that is not mathematically meaningful.

(a) Balance includes pawn loans and inventory.

(b) Balance is calculated based upon the average of the monthly ending balances during the applicable period.

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PLO improved to $62.4 million, up 1% (17% on constant currency basis). On a same-store basis, PLO decreased 2% (14% increase on a constant currency basis). The constant currency increase was due to improved operational performance and increased loan demand.

Total revenues were up 9% (25% on constant currency basis), and gross profit increased 3% (18% on a constant currency basis), mainly due to increased PSC.

PSC increased to $28.3 million, up 4% (19% on a constant currency basis) as a result of higher average PLO.

Merchandise sales increased 5% (21% on constant currency basis) and merchandise sales gross margin decreased to 30% from 33%. Aged general merchandise increased to 1.9% from 1.4% of total general merchandise inventory.

Net inventory increased 23% (44% on a constant currency basis) due to increase in PLO and decrease in inventory turnover to 3.2x, from 3.6x.

Store expenses decreased 2% (13% increase on a constant currency basis) and decreased 4% on a same-store basis (11% increase on a constant currency basis). The constant currency increase was primarily due to increased labor, in line with store activity and minimum wage increases, offset by a decrease in expenses related to our loyalty program.

Segment contribution increased 30% to $10.6 million (43% on a constant currency basis), due to the changes noted above.

Segment store count increased by one to 742 due to the addition of nine de novo stores, the acquisition of one store, and the consolidation of nine stores.

Other Investments

The following table presents selected financial data for our Other Investments segment after translation to U.S. dollars from its functional currency of primarily Australian dollars:

(in thousands)

Segment contribution was $2.5 million, an increase of $0.1 million primarily due to the increase in our share of equity in net income of Cash Converters.

Other Items

The following table reconciles our consolidated segment contribution discussed above to net income attributable to EZCORP, Inc., including items that affect our consolidated financial results but are not allocated among segments:

(in thousands)

Segment contribution increased $9.0 million or 18% over the prior year quarter, primarily due to improved operating results of the U.S. Pawn and Latin America Pawn segments above.

General and administrative expense increased $1.4 million or 8%, primarily due to labor and a gain on a corporate lease termination in the prior year.

Income tax expense increased $1.9 million primarily due to an increase in income before taxes of $5.8 million, as well as an increase in the effective tax rate due to an increase in non-deductible officer’s compensation and non-deductible expenses.

Income tax expense includes other items that do not necessarily correspond to pre-tax earnings and create volatility in our effective tax rate. These items include the net effect of state taxes, non-deductible items and the foreign rate differential. See our Annual Report on Form 10-K for the year ended September 30, 2024, Note 9: Income Taxes of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for quantification of these items.

Six Months Ended March 31, 2025 vs. Six Months Ended March 31, 2024

The tables below and discussion that follows should be read in conjunction with the accompanying condensed consolidated financial statements and related notes.

U.S. Pawn

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

(in thousands)

* Represents a percentage computation that is not mathematically meaningful.

(a) Balance is calculated based upon the average of the monthly ending balances during the applicable period.

During the six months ended March 31, 2025, segment store count remained at 542.

Pawn service charges increased 10% as a result of higher average PLO, partially offset by lower PLO yield.

Merchandise sales increased 2%, and merchandise sale gross profit increased 1%, reflecting a 100bps decrease in gross margin.

Store expenses increased 5% (4% on a same-store basis), primarily due to labor, offset by a decrease in expenses related to our loyalty program.

Segment contribution increased $11.8 million, or 13%, primarily due to the changes described above.

Latin America Pawn

The following table presents selected summary financial data our Latin America Pawn segment, including constant currency results, after translation to U.S. dollars from functional currencies. See “Results of Operations — Non-GAAP Constant Currency and Same-Store Financial Information” above.

(in thousands)

(a) Balance is calculated based upon the average of the monthly ending balances during the applicable period.

During the six months ended March 31, 2025, net store count increased by five due to the opening of 13 de novo stores, the acquisition of one store and the consolidation of nine stores.

PSC increased 5% to $57.5 million (18% to $64.2 million on a constant currency basis) as a result of higher average PLO.

Merchandise sales increased 6% (20% on a constant currency basis) and 3% on a same-store basis (17% on a constant currency basis). Merchandise sales gross margin decreased 300 bps to 30% from 33%.

Store expenses decreased by 1% (12% increase on a constant currency basis) and decreased by 3% (10% increase on a constant currency basis) on a same-store basis. The constant currency increase was primarily due to increased labor, in line with store activity and minimum wage increases, offset by a decrease in expenses related to our loyalty program.

Segment contribution increased $3.9 million, or 21% ($5.9 million, or 32%, on a constant currency basis), due to the changes noted above.

Other Investments

The following table presents selected financial data for our Other Investments segment after translation to U.S. dollars from its functional currency of primarily Australian dollars:

(in thousands)

Segment income was $4.7 million, an increase of $0.6 million from the prior-year six months ended March 31, 2024, primarily due to the increase in our share of equity in net income of Cash Converters.

Other Items

The following table reconciles our consolidated segment contribution discussed above to net income attributable to EZCORP, Inc., including items that affect our consolidated financial results but are not allocated among segments:

(in thousands)

* Represents a percentage computation that is not mathematically meaningful.

Segment contribution increased $16.3 million or 15% over the prior year six months ended March 31, 2024, primarily due to improved operating results of the U.S. Pawn and Latin America Pawn segments above.

General and administrative expenses increased $3.5 million or 10%, primarily due to labor.

Income tax expense increased $3.0 million, primarily due to an increase in income before income taxes of $9.4 million for the six months ended March 31, 2025 compared to the same prior year six month period as well as an increase in the effective tax rate due to an increase in non-deductible officer’s compensation and non-deductible expenses.

Income tax expense includes other items that do not necessarily correspond to pre-tax earnings and create volatility in our effective tax rate. These items include the net effect of state taxes, non-deductible items and the foreign rate differential. See Annual Report on Form 10-K for the year ended September 30, 2024, Note 9: Income Taxes of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for quantification of these items.

Liquidity and Capital Resources

Cash and Cash Equivalents

Our cash and cash equivalents balance was $505.2 million at March 31, 2025 compared to $170.5 million at September 30, 2024. At March 31, 2025, our cash and equivalents were held in cash depository accounts with major banks or invested in high quality, short-term liquid investments.

Cash Flows

The table and discussion below presents a summary of the selected sources and uses of our cash:

(in thousands)

* Represents a percentage computation that is not mathematically meaningful.

The $26.4 million increase in cash flows provided by operating activities year-over-year was primarily due to an increase in net income as well as changes in working capital primarily related to the timing of payments of accounts payable, prepaid expenses, customer layaway deposits, inventory and income taxes.

The $3.5 million decrease in cash flows used in investing activities year-over-year was primarily due to a $23.7 million decrease in net cash flows used related to investments, acquisitions and capital expenditures, a $10.0 million increase in cash inflows from the sale of forfeited collateral, partially offset by an $30.3 million increase in net pawn lending outflows.

The $296.0 million increase in cash flows provided by financing activities was primarily related to the March 2025 financing of the 2032 Senior Notes, in which we issued $300.0 million principal amount (less issuance costs) of 7.375% senior notes due 2032.

The net effect of these changes was a $334.9 million increase in cash on hand during the current year to date period, resulting in a $514.7 million ending cash and restricted cash balance.

Sources and Uses of Cash

In March 2025, we issued $300.0 million aggregate principal amount of the Company’s 7.375% senior notes due 2032 (the “2032 Senior Notes”), for which $300.0 million remains outstanding as of March 31, 2025. See Note 7 of Notes to Condensed Consolidated Financial Statements included in “Part I, Item 1 — Financial Statements” of this Report for further discussion. If the 2025 Convertible Notes holders do not convert, the Company expects to use approximately $103.4 million of the net proceeds from the offering of the Notes to repay its outstanding 2025 Convertible Notes at maturity and any excess proceeds for general corporate purposes.

On May 3, 2022, our Board authorized the repurchase of up to $50 million of our Class A Common Stock over three years. As of March 31, 2025, we have repurchased 3,178,147 shares of our Class A Common Stock under the program for $30.0 million. Execution of the program will be responsive to fluctuating market conditions and valuations, liquidity needs and the expected return on investment compared to other opportunities.

Under the stock repurchase program, we may purchase Class A Non-Voting common stock from time to time at management’s discretion in accordance with applicable securities laws, including through open market transactions, block or privately negotiated transactions, or any combination thereof. In addition, we may purchase shares pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934.

The amount and timing of purchases will be dependent on a variety of factors, including stock price, trading volume, general market conditions, legal and regulatory requirements, general business conditions, the level of cash flows and corporate considerations determined by management and the Board, such as liquidity and capital needs and the availability of attractive alternative investment opportunities. The Board of Directors has reserved the right to modify, suspend or terminate the program at any time. See Note 8 of Notes to Condensed Consolidated Financial Statements included in “Part I, Item 1 — Financial Statements.”

We anticipate that cash flows from operations and cash on hand will be adequate to fund ongoing operations, current debt service requirements, tax payments, any future stock repurchases, strategic investments, our contractual obligations, planned de novo store growth, capital expenditures and working capital requirements through the next twelve months. We continue to explore acquisition opportunities, both large and small, and may choose to pursue additional debt, equity or equity-linked financings in the future should the need arise. Depending on the level of acquisition activity and other factors, our ability to repay our longer-term debt obligations, including the convertible debt maturing in May 2025 and 2029 and the 2032 Senior Notes maturing in April 2032, may require us to refinance these obligations through the issuance of new debt securities, equity securities, convertible securities or through new credit facilities.

Contractual Obligations

In “Part II, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended September 30, 2024, we reported that we had $673.5 million in total contractual obligations as of September 30, 2024. There have been no material changes to this total obligation since September 30, 2024, other than the 2032 Senior Notes financing as further discussed in Note 7: Debt of Notes to Condensed Consolidated Financial Statements included in “Part I, Item 1 — Financial Statements.”

We are responsible for the maintenance, property taxes and insurance at most of our locations. In the fiscal year ended September 30, 2024, these collectively amounted to $17.7 million.

Recently Adopted Accounting Policies and Recently Issued Accounting Pronouncements

See Note 1 of the Notes to Condensed Consolidated Financial Statements included in “Part I, Item 1 — Financial Statements” of this Quarterly Report for recently issued accounting pronouncements including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements.

Cautionary Statement Regarding Risks and Uncertainties that May Affect Future Results

This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend that all forward-looking statements be subject to the safe harbors created by these laws. All statements, other than statements of historical facts, regarding our strategy, future operations, financial position, future revenues, projected costs, prospects, plans and objectives are forward-looking statements. These statements are often, but not always, made with words or phrases like “may,” “should,” “could,” “will,” “predict,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “projection” and similar expressions. Such statements are only predictions of the outcome and timing of future events based on our current expectations and currently available information and, accordingly, are subject to substantial risks, uncertainties and assumptions. Actual results could differ materially from those expressed in the forward-looking statements due to a number of risks and uncertainties, many of which are beyond our control. In addition, we cannot predict all of the risks and uncertainties that could cause our actual results to differ from those expressed in the forward-looking statements. Accordingly, you should not regard any forward-looking statements as a representation that the expected results will be achieved. Important risk factors that could cause results or events to differ from current expectations are identified and described in “Part I, Item 1A — Risk Factors” of our Annual Report on Form 10-K for the year ended September 30, 2024 and “Part II, Item 1A — Risk Factors” of this Report.

We specifically disclaim any responsibility to publicly update any information contained in a forward-looking statement except as required by law. All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.

Market risks relating to our operations result primarily from changes in interest rates, gold values and foreign currency exchange rates, and are described in detail in “Part II, Item 7A — Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for the year ended September 30, 2024. There have been no material changes in our reported market risks or risk management policies since the filing of our Annual Report on Form 10-K for the year ended September 30, 2024.

This report includes the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the Securities Exchange Act of 1934 (the “Exchange Act”). See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2025. Our principal executive officer and principal financial officer have concluded that as of March 31, 2025, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Internal Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Important risk factors that could affect our operations and financial performance, or that could cause results or events to differ from current expectations, are described in “Part I, Item 1A — Risk Factors” of our Annual Report on Form 10-K for the year ended September 30, 2024, as supplemented by the information set forth below.

Our incurrence of debt in the form of the 2032 Senior Notes could have a material adverse effect on our financial condition and results of operations

In March 2025, we incurred debt in the aggregate principal amount of $300.0 million in the form of the 2032 Senior Notes. See Note 7 of Notes to Condensed Consolidated Financial Statements included in "Part I, Item 1 — Financial Statements" of this Report. The indebtedness could increase the cost of future financing or otherwise limit our ability to obtain financing, including the refinancing of existing debt. The application of cash flow to repayment of our indebtedness could restrict funds available for other uses, including working capital, growth, and other general corporate purposes, which could adversely affect our financial condition and results of operations.