Cash America International, Inc. (CSH)

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Cash America International, Inc. (CSH)

Q2 2010 Earnings Call Transcript

July 22, 2010 8:00 am ET

Executives

Daniel Feehan – President and CEO

Tom Bessant – EVP and CFO

Analysts

David Burtzlaff – Stephens, Inc.

John Hecht – JMP Securities

John Rowan – Sidoti & Company

Bill Armstrong – C.L. King & Associates

Liz Pierce – Roth Capital Partners

Henry Coffey – Sterne Agee

Gregg Hillman – First Wilshire Security Management

Tulu Yunus – Macquarie

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the quarterly 2010 earnings release conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded, Thursday, July the 22nd, 2010. I would now like to turn the conference over to Daniel Feehan, President and CEO with Cash America International, Inc. Please go ahead, sir.

Daniel Feehan

Thank you. Good morning, ladies and gentlemen. Welcome to our call for the second quarter of 2010. Joining me this morning is Tom Bessant, our Chief Financial Officer, who will lead off with a review of the financial performance for the quarter. I will rejoin the call to provide my perspective on the quarter and near term outlook. I will then open the call for questions following my remarks.

Before beginning our comments, please bear with me while I read our Safe Harbor disclosure. While on this call, comments made by Tom or me may contain forward-looking statements about the business, financial condition, and prospects of Cash America International, Inc. and its subsidiaries.

The actual results of the company could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties, including, without limitation, the risks and uncertainties contained in the company's filings with the Securities and Exchange Commission.

These risks and uncertainties are beyond the ability of the company to control nor can the company predict, in many cases, all the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. When used in this call, terms such as believes, estimates, plans, expects, and anticipates, and similar expressions or variations as they relate to the company or its management are intended to identify forward-looking statements. The company disclaims any intention or obligation to update our – or revise any forward-looking statements.

I also want to mention, before we proceed, that a reconciliation of any non-GAAP information provided on this call to the most directly comparable GAAP information is included in the financial statements issued with the earnings release today, and is also available on the Investor Relations section of our Web site at www.cashamerica.com. Non-GAAP financial information is not meant as a substitute for GAAP results, but is included solely for the informational and comparative purposes.

Now with that, we move on to Tom's report.

Tom Bessant

Thanks. Good morning, and welcome to our listeners this morning. If you'll see from our press release, earnings this second quarter ended June 30th, 2010 posted an increase in net earnings attributable to the company of 26% or $20.9 million, representing $0.66 per share, compared to $0.54 per share in the second quarter of 2009. This 26% increase in net income was driven by a 16% increase in total revenue, which reached $292.1 million in the second quarter of 2010.

The increase in performance in the quarter was due to continued growth from our online lending platforms, specifically growth from our international lending business and our card-based services activity. In addition, US pawn operations post an impressive growth continuing a run of strong quarters.

Before I get into the specifics of the quarter, let me take a few minutes and introduce our new business segment structure, which you may have observed in our press release attachments from this morning. Cash America began realigning its business strategy and focus in early 2009 into two key distribution platforms, specifically, a retail or four-walled distribution platform designed around the classic multi-unit operating disciplines and strategies with the full suite of lending and retail services, and electronic or e-commerce platform dominated by our online consumer loan business and card-based services products is the other distribution platform.

As many of you know, we operate these businesses with two distinct presidents, one for our retail services division and one for our e-commerce division. As a result, the company has adjusted its formal segment structure to be consistent with its business strategy and our decisions relating to the allocation of resources and the evaluation of those two distribution platforms. For your reference, the company has filed an 8-K this morning, providing historical reconciliations of prior quarters realigned between the two new segments.

So let me summarize a few segments for you. The retail services segment is now comprised of all the company's storefront operations including what was formally referred to as the pawn segment, which includes both the US and foreign pawn lending business, as well as what we previously called a cash-advance storefront business, which today, mostly offers all the same services that our pawn stores provide to customers, including pawn loans; gold buying; and, in many cases, retail sales activities.

The e-commerce segment is comprised only of our online lending business, which provides cash advance loans, installment loans, and card-based services businesses. In both cases, we have provided a breakout of our foreign operations from our domestic operations. And you can see the US activities as well as the international activities for each of the two segments.

One more housekeeping item, we relabeled cash advance fees and related headings to consumer loans because we are including more than just cash advance products in this category. Consumer loans include cash advance activities, but also include installment loans and our auto equity loan products. We've also changed card services to micro-line of credit to more accurately reflect the characteristics of this loan product. Hopefully, that orientation to our new segment reporting and labeling is helpful to you. I think you'll find, as we have, that this new differentiation of businesses is more useful as we look at the operations of the company.

So let's look at the same quarter of 2010. You'll see that a large part of the success in the second quarter is due to the retail services division, which performed very well, posting a 23% increase in income from operations and a 4% increase in total revenue. Driving the performance for the quarter was a 10% increase in financing service charges on pawn loans and a 12% increase in the gross profit on the disposition of merchandise. The performance of this segment was led by US pawn activities, which was recovering from a significant drop in pawn loan balances during the first quarter of 2010 as a result of higher tax refunds during the quarter.

And I remember that we discussed in our April call that US pawn loan balances dropped 18% sequentially from December 2009 to March 2010. We finished the first quarter of 2010 with US pawn loan balances up 2.5%. And we saw a slow to steady growth during the second quarter of 2010 as we finish the quarter with US pawn loan balances at 4.4%, which led to an 8% increase in financing service charges within the domestic retail services group.

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