EZPW

EZCORP, Inc. (EZPW)

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EZCORP, Inc. (EZPW)

F1Q09 (Qtr End 12/31/08) Earnings Call

January 22, 2009 4.30 pm ET

Executives

Joe Rotunda – President & Chief Executive Officer

Dan Tonissen – Senior Vice President & Chief Financial Officer

Analysts

John Rowan – Sidoti & Company

David Burtzlaff – Stephens, Inc

Chuck Ruff – Insight Investments

Ted Hillenmeyer – North Star Partners

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to the First Quarter 2009 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, President and CEO. Mr. Rotunda, you may begin.

Joe Rotunda

Thank you, Jamie. Good afternoon everyone. Welcome and thank you for joining us today. With me on the call is Dan Tonissen, our Chief Financial Officer. We had a little delay in getting the release out, PR Newswire has informed us that it has now hit and it should be available and we have distributed our copies here. I am going to begin with a high level overview of the quarter's performance, make a few comments on the economy and how it relates to our business. And then a brief commentary on each of our business segments. Dan will follow and he will provide more detail on our financial statements.

Overall, our first quarter was a good quarter for the company. You will see when we get into the metrics of our business, that each of our segments is sound. I am also pleased to point out that this is the 26th consecutive quarter of year-on-year earnings improvements. We grew our net income to $14.8 million in the quarter, an improvement of $2.3 million or 18% over the same period a year ago.

On a diluted earnings per share basis, we grew to $0.33 from last year's $0.29. As you will see in the press release, included in the quarter is an unusual pretax charge of approximately $1.1 million, which had a negative impact of $0.02 in earnings per share. Excluding this charge, the company earned $0.35 per share, an increase of 21% to last year. In the quarter, we also completed two significant acquisitions. The first on November was the asset purchase of 11 pawnshops in the Las Vegas-Henderson area for $34.4 million of stock and cash.

The second and the largest was the acquisition of Value Pawn with 67 stores located primarily in Florida for $77.4 million of stock and cash, plus the assumption of $30.4 million of Value Pawn's debt. The transaction was closed on December 31 New Year's eve. Before we look at the segments results, I’d like to make a few comments on the macroeconomic environment. Nearly, every economic consumer group and business in our country has been affected by the most challenging economic environment in decades. In December, the unemployment rate jumped to 7.2% and consumer confidence declined an all time low. All types of credit from home mortgages to car loans to almost any type of consumer loan has either become very restricted in its availability or the underwriting for the credit has tightened considerably.

And on a daily basis the media continually reports and reinforces the economic uncertainty. And with all of this, the question is how these external conditions impact our business. My response is no different than it's been in the past. We are relatively well insulated from most macroeconomic conditions. Although, there were periods of adjustment since economic changes occur, it's really all about consumer behavior and our operating model. The customer's behavior will soon adjust and the business model works such that a weakness in one component typically contrasts with the strengthening in another and vice versa. And when you look at our business globally in the U.S., this is what you see in this kind of environment, loan demand strong, but it’s much more pronounced in pawn than in the payday loan segment in the quarter.

However, the demand in both loan products has shown growth over the years, which also include the good times as well as these difficult times. It’s noteworthy to mention here that a primary difference between our two loan products is that to obtain a payday loan the customer must be employed. In pawn, we recorded same-store sales growth in the mid single-digit range, now we normally consider this a modest increase, but if you compare it to traditional retail, it appears quite strong. But it's not dramatically stronger than our trend has been over the years. And our redemption rates and our inventory turnover metrics have remained consistent and strong as well.

In payday loans, we have also seen a return to historic lower levels of bad debt. This is probably more a product of internal rather than any type of external factor. Now, I should point out there is another actually more quantifiable economic impact, and it’s associated with the recent strengthening of the U.S. dollar. The result has been the relative devaluation of peso and pound to the U.S. dollar. As we convert foreign earnings from their currency in Mexico and the United Kingdom to U.S. dollars. We’ve experienced an adverse earnings per share impact of about $0.005 in the quarter. But there is also another more positive factor for our company that fits well into the discussion of the U.S. economy.

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