EZPW

EZCORP, Inc. (EZPW)

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Industry: Consumer Services
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EZCORP, Inc. (EZPW)

F4Q08 (Qtr End 9/30/08) Earnings Call Transcript

November 6, 2008, 4:30 pm ET

Executives

Joe Rotunda – President and CEO

Dan Tonissen – SVP and CFO

Analysts

Dennis Telzrow – Stephens Inc.

John Rowan – Sidoti & Company

Charles Ruff – Insight Investments

Alan Brochstein – AB Analytical Services

Elizabeth Pierce – Roth Capital Partners

Ted Helenmeyer [ph] – Lone Star Partners

Jay Rosnehan [ph] – WestPark Capital

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to the EZCORP Fiscal 2008 Fourth Quarter Earnings Release Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Joe Rotunda. Mr. Rotunda, you may begin.

Joe Rotunda

Thank you, Kim. Good afternoon everyone. Thank you for joining us today. With me is Dan Tonissen, our Chief Financial Officer. We’ll be addressing our fourth quarter and fiscal year 2008 results. I will begin with a high level overview of the quarter and the year. Dan will follow with a more in-depth discussion of the financials and will conclude with guidance for 2009.

Before I address this period’s performance, I would like to comment on our results over a longer time horizon. I am pleased to point out that this quarter marks our twenty-fifth consecutive quarter of compounded growth in earnings. It’s also the eighth consecutive fiscal year of earnings growth. I believe this amplifies the strong dynamics within our business. When one component is adversely impacted by an external factor primarily associated with economic conditions, another strengthens and vice versa. This is true both between and within the business segments.

It also reflects the strong management and the competent associate team in our field operations at the point of customer contact that continues to strengthen. I’d also like to note we will shortly be discussing several unusual events that influenced our financial results in the quarter. Some of these were favorable and some not, some recurring and some not. But the good news is that we believe the beneficial elements will continue as we move forward.

For our fourth quarter, we are reporting net income of $16 million. That’s an increase of 44% over last year. Diluted earnings per share were $0.37 compares favorably to $0.26 last year. If you adjust for two unusual elements, which you will be hearing about, the drag of Hurricane Ike and the advantage of a foreign tax benefit related to prior period’s earnings, you will find that there is about $0.03 of cumulative net benefit in this quarter’s $0.37. So if you adjust for that, the resultant earnings per share without these would be approximately $0.34 for the quarter. That $0.34 per share is a 31% increase over last year.

Before I move on to the business segments I’d like to take a moment and address the impact of Hurricane Ike. This is one of those unusual events. Ike’s impact on our Texas stores began September 12th with evacuation and business closure orders in the Houston-Galveston area the day before the storm hit. We had a total of 155 stores impacted. 63 stores were EZPAWN and 92 EZMONEY. This represents approximately 20% of the store locations in each of our two domestic businesses.

During the balance of September, these 155 stores accumulated a combined loss of more than 1000 business days. The majority of this can be directly attributed to power outages at Houston and its surrounding communities experienced after the hurricane. We were fortunate to only sustain significant physical damage in 14 of those 155 locations. All have since returned to normal operations except for our four Galveston stores.

We estimate that the financial impact to our earnings in the quarter was approximately $2.5 million net of insurance recoveries on a pre-tax basis. That’s about a $0.04 negative impact on earnings. Dan will segment these costs in just a few minutes.

In spite of Hurricane Ike, our EZPAWN segment had an excellent performance. We saw a strong demand for pawn loans throughout the period. Our U.S. Pawn loan portfolio ended the quarter up 18% over the same time last year and that’s on a same-store basis. This is particularly positive given that the portfolio growth was accompanied with a 300 basis point improvement in both yield, which increased to 148% and redemption rate, which grew to 78%. These metrics represent quality portfolio growth and they position us well for the upcoming holiday season. I anticipate that the demand for cash via pawn loans will continue given the current economic environment.

The overall net revenue growth for EZPAWN U.S. was 20% in the quarter. This was driven by the strong growth in pawn service charges coupled with increased jewelry scrapping activity and higher margin levels than a year ago. With operating expenses well contained, the flow through of incremental revenues was strong. The resultant operating income in our U.S. Pawn segment was $25 million and it represents growth of $5.8 million, which is 30% over the last year.

The full fiscal year’s performance was equally impressive. Net revenues grew by 21%. Operating income for this segment increased by about $23 million over last year. That’s an increase of 35%. And the resultant operating income margin exceeded 47%. All in all, our pawn operators did a terrific job and delivered an excellent quarter to cap an excellent year for our U.S. EZPAWN operation.

Moving on to EZMONEY, you will see that the hurricane had a more dramatic impact on this segment than on U.S. Pawn. What made this event even more significant for EZMONEY is the fact that the 92 affected stores in the Houston area represent many of the most mature and profitable in EZMONEY. 35 of these stores were closed eight days or more and we experienced a total loss of 609 business days.

New loans, fee revenue, and default rates were all significantly impacted. Yet for the quarter our fee revenue in EZMONEY grew by 12% over last year. And if you exclude the impact of Hurricane Ike, if you look at our fee growth on a same-store basis, we would have been up approximately 7% over last year.

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