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F2Q13 Earnings Call

April 30, 2013 5:00 p.m. ET


Mark Kuchenrither – EVP and CFO

Paul Rothamel – President and CEO


Robert Ramsey – FBR Capital Markets

John Rowan – Sidoti & Company



Welcome to the EZCORP Fiscal 2013 Quarter Two Earnings Release Conference Call. My name is Adrian and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we’ll conclude a question-and-answer session. Please note that this conference is being recorded.

I’ll now turn the call over to Mark Kuchenrither. Mr. Kuchenrither, you may begin.

Mark Kuchenrither

Thank you, Adrian and good afternoon everyone. This call will address our second quarter 2013 results. We issued a press release earlier today with supporting documents that are available on the Investor Relations portion of our website at www.ezcorp.com.

I’d like to remind everyone that this conference call will contain certain forward-looking statements, including statements about our expected financial and operating performance in future periods. These statements are based on our current expectations, actual results in future periods may differ materially from current expectations, due to a number of risks, uncertainties and other factors, which are discussed in our press release and in our filings with the Securities and Exchange Commission.

On the call with me today is Paul Rothamel, our President and Chief Executive Officer. Paul will discuss a few macroeconomic issues and then I will review business segment highlights and provide our guidance. Paul will then comment on our outlook before providing an opportunity for questions.

I will now turn the call over to Paul.

Paul Rothamel

Thank you, Mark and good afternoon everyone. I will review (ph) two key issues at the outset that have obvious effects on our customers and our business. First, let me address gold in the marketplace. For the first two quarters of our fiscal year, gold behaved as we expected. Gram volumes available per scrap were off significantly to last year as our customers had left to sell and kept the jewelry in our loan portfolios longer before paying their fees in full and redeeming.

Our scrap margin rates were under pressure as well as we aggressively pursued market share. The end result of all of this was that gold negatively affected us by roughly $0.21 earnings per share for the first half versus last year. This significant decline in grams, margin and earnings was unwelcomed but expected.

We also expected to begin to see moderation of this effect in the back half of this year as we began to anniversary gram and spot price declines. What happened recently with the dramatic drop in the price of gold to below $1400 per ounce was unexpected and should that volatility continue it would put pressure on short-term earnings. Mark will provide those details in just a bit.

In spite of all of this we expect to deliver the financial trajectory that we originally planned this year: negative earnings growth in Q1, moderating in Q2 and Q3 and growing earnings again in Q4 and end of 2014. Investments that we've made in the last two and half years have positioned us to return to double-digit growth.

Second issue is regulatory. Our efforts on the regulatory front related to pawn and financial services have been very successful across multiple local state and federal levels. Our customers benefit from these actions everyday through better transparency, flexible products and services in a very competitive environment.

In the United States, the CFPB recently released a white paper on payday and payroll advance products, supplied by banks and our industry. I encourage you to read this paper as I clearly spell out the growing need for our products and services. The U.S. consumer like so many others around the world most have access to non-traditional credits as more and more are abandoned by traditional providers. Beyond that it would be premature for me to comment on the intentions of the agency.

In Texas, the legislature is in session until May 27 and there is currently a Senate bill pending in the House that we do not support in its current form. And it’s far too limiting on our ability to provide the products and services a customer clearly wants. We continue to communicate with legislators to find the right balance between transparency and consumer protections and customer choice to drive the market. I will make no further comment or take any questions beyond that as it would be inappropriate to speculate further at this time.

With that, I will ask Mark to take you through the quarter and I will finish with a few brought comments before taking questions.

Mark Kuchenrither

Thank you, Paul. As discussed last quarter, this is another year of significant investment for EZCORP as we transitioned from a primarily U.S.-based storefront focused company to a multi-channel leading provider of cash solutions across the world. Execution of our strategy is on track and our team delivered earnings of $0.63 per share during the quarter within the upper half of our guidance range.

Our earnings release provides consolidated financial highlights for the second quarter. I will focus primarily on our performance by operating segment. The U.S. and Canada operating segment now includes 1058 stores, 499 U.S. pawn and retail locations, 490 U.S. financial service locations and 69 buy, sell, and financial service locations in Canada. More than half of these storefronts utilize our store within a store concept today offering customers multiple options to solve their immediate cash needs.

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