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F2Q09 Earnings Call

April 23, 2009 4:30 pm ET


Joe Rotunda - President & Chief Executive Officer

Dan Tonissen - Senior Vice President & Chief Financial Officer


David Burtzlaff - Stephens, Inc

Jordan Hymowitz - Philadelphia

Chuck Ruff - Insight Investments

Henry Coffey Ferris - Baker Watts

Elizabeth Pierce - Roth Capital Partners LLC

John Rowan - Sidoti & Company

Ted Hillenmeyer - Northstar Partners

Dan Mazur - JMP Asset Managers



Good afternoon, ladies and gentlemen, and welcome to the EZCORP second 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, John. Good afternoon everyone. I would like to thank you all for joining us today for our second quarter fiscal year 2009 earnings call. With me is Dan Tonissen, our Chief Financial Officer. I would like to begin with a high level overview of the quarter’s performance, provide an update on our two recent acquisitions and how they contributed to the quarters results. I will conclude with a brief commentary on each of our business segments with a key remarks on how the economic environments impacting our business.

Dan will follow on and he is going to focus his time on the consolidated results.

Overall, the March quarter was an excellent quarter for the Company. We grew our net income to $18.3 million from $13 million for the second quarter last year. That is an increase of $5.3 million or 41% over last year.

On a diluted earnings per share basis, we grew to $0.37 from $0.30 last year and we additionally exceeded our guidance of $0.36 for the quarter. The percentage growth in earnings per share was 23%. Last time the percentage growth in net income dollars due to the additional shares issue in conjunction with our two recent acquisitions but still a very healthy growth rate particularly in today’s economic climate.

I am also pleased to point out that this quarter represents now 27 consecutive quarters of year-on-year earnings improvements. During this quarter we also had the benefit of two recent acquisitions. The 11 Pawn Plus Stores located in the Las Vegas metro area which closed in November and DAEWOO point Acquisition with 67 stores primarily located in Florida which closed on mid year’s eve.

In the Pawn Plus stores we made a substantial investment in CapEx and just completed a rebranding of the stores to EZPAWN with signage and other identification. We also invested in expansion and fixturing of the showrooms to allow more merchandise to be displayed with better presentation of our retailer inventory in the stores.

Although Pawn portfolios are large, we filled our substantial sales enhancement opportunities in the Pawn Plus stores. In conjunction with the build ups we added on the average 3 additional full time associates per store to better serve our customers.

During the quarter we also relocated one of the acquired stores. A 3,000 square foot facility with over $700,000 in Pawn loans in a downtown area of Las Vegas to 10,000 square foot store in the same neighborhood but right on Las Vegas Boulevard with plenty of parking.

In May, we run a Grand Rio Main Event for the entire market supported with a strong promotional campaign. During the quarter these acquisitions stores contributed approximately $900,000 in store level operating income.

Our Value Pawn represents a business of much greater scale. Our biggest challenge was converting all of these stores to a proprietary operating system and transferring all the loan inventory human resource and accounting information into our servers and database.

This was completed in conjunction with the simulation of full backroom functions into the EZCORP support center which will be completed at the end of this month.

We will continue to operate under the Value Pawn brand. I believe that Value is the most recognized pawn brand in Florida and has developed the excellent customer win early. These stores have been led past eight years by our veteran pawn operator who has been instrumental in building the business in the Value organization. This operation’s team continues to be supported with an experienced group of human resource professionals that are responsible for recruitment and training.

During this quarter, Value Pawn generated approximately $5.3 million in store level operating income. This is particularly strong considering the current economic environment as well as the distractions that have caused when you install a whole new POS system that changes the way every single store transactions handle as well as going through the transition of their administrative support functions from Orlando to Austin, Texas.

I could not be more pleased with the attitude, commitment, dedication, and professionalism of both the Value Pawn and the Pawn Plus teams. I would be remiss if I did not acknowledge the additional effort of over 100 EZPAWN and EZCORP associates who took on additional responsibility to assist with this integration in a very short period of time.

Together Pawn Plus and Value Pawn contributed approximately $0.02 per share net accretion in this quarter. We expect this will increase in future quarters as we complete the consolidation of administrative functions and realize other synergies and combination scale.

With these acquisitions we added approximately 78 additional store managers and more than 20 multi unit managers to the EZCORP team. I think it is noteworthy to point out that during these three to four month assimilation process that we have been through we have lost only 3 management associates and if you explode this to a run rate, a turnover that is barely 10% annually for the management team.

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