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Q1 2010 Earnings Call

January 21, 2010 4:30 p.m. ET


Joe Rotunda – President, CEO

Brad Wolfe – CFO


David Burtzlaff - Stephens, Inc.

Bill Armstrong - CL King & Associates

Liz Pierce - Roth Capital Partners

John Rowan - Sidoti & Company

Isabel Sterk - C.K. Cooper & Company

Ted Hillenmeyer - Northstar Partners

Chuck Raff - Insight Investments

Alan Borchstein - AB Analytical Services

Gary – Hubert Capital



Good afternoon, ladies and gentlemen, and welcome to the EZCORP fiscal year 2010 first 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, President and Chief Executive Officer. Mr. Rotunda, you may begin.

Joe Rotunda

Thank you, [Christine]. Good afternoon, everyone, thank you for joining us today. As previously announced, Dan Tonissen, our CFO retired in December just as planned. With me today is Brad Wolfe, our new Chief Financial Officer. Brad brings over 17 years of financial and operating experience in a variety of industries in both the private and public sectors. Not only does he have an MBA in finance, MIS in marketing from the Kellogg School of Business is also an attorney. We're all pleased to have him as a member of our team and we're excited about the experience and knowledge he brings to the company.

Today we’ll be addressing our first quarter 2010 results. I'll begin with the high level overview of the quarter and a few remarks about each of our business segments. Brad will then provide more detail with the review of our consolidated results. We'll conclude with earnings guidance for the second quarter and increased guidance for the full year before providing an opportunity for questions.

This quarter marks our 30th consecutive quarter of year-on-year earnings growth. That's an outstanding accomplishment, which clearly demonstrates our ability to consistently enhance earnings and provide shareholder value. Coupled with this strong financial performance is an expanding extending worldwide presence with our store growth in Mexico entry into Canada and our strategic affiliations with Albemarle and Bond in UK and Cash Converters in Australia.

Quarter one was an outstanding quarter for EZCORP. Our net income was $25.7 million, a 73% increase over last year. Diluted earnings per share are $0.52 compare to $0.33 last year and they reflect a 57% improvement. Included in these results are the Value Pawn and Pawn Plus acquisitions, which incrementally contributed $5.8 million or about $0.5 earnings improvement over last year.

They were also accretive approximately $0.07 per share, this is after netting the effect of the additional equity we issued in conjunction with those acquisitions. I believe these results continue to demonstrate the value of quality acquisitions as part of our overall strategy of an intense focus on building earning assets.

You should note beginning with the second quarter all the acquired stores will be in the results for both this year and last year's numbers. As you study these first quarter results you also see that they reflect substantial growth generated organically in our core business. In all segments of our business we saw strong loan demand. It appears that our broaden range of loan offerings provides solutions to customer’s cash needs and are found to be more attractive than other available options. Our domestic pawn and EZMONEY segments both delivered exceptionally strong financial performances for our operations in Mexico and Canada grew and made significant strategic progress.

Now let’s take a look by segment. I’ll begin with our domestic pawn operations. In the December quarter, we opened one new EZPAWN shop in Texas. And although it’s still early, we’ve been very pleased with initial results. Shortly after the close of the quarter, we opened one more new store, a Value Pawn store in Florida. These in the first two domestic pawn shop openings and over a decade and we planned to open at least four more in the reminder of this year as we build on our core strengths in this business segments.

The financial results for our U.S. pawn operations are presented in the first column of figures on page five of our release. To note that U.S. pawn had more than $14 million increase in store level operating income, a 61% improvement over last year. That $14 million improvement is inclusive of both same store organic growth and the contribution of last year’s acquisitions. I’ve already pointed out the impact of the acquisitions, so our direct [audio gap] distributed between both [audio gap] general merchandize and the jewelry categories.

Coupled with the strong loan growth is a rising redemption rate, which tells us that the loans are high quality. This I believe demonstrates that our pawn operators are doing a nice job with the loan counter with loan values for our customers. All of this comes together and it generates the pawn service charge revenue stream, which grew by 19% on a same store basis compared to our portfolio growth of 10%. The other side of the pawn equation, the sale of forfeit the (Inaudible) and merchandize purchases. We do that via retail and scrap sales.

Retail sales did show some resiliency in the quarter with modest growth just a little over 1% on a same store basis. Although not as strongest we like this is our first same store sales increase since the same quarter a year ago. This year benefited substantially from the pay out of (Inaudible) sales initiated during our Christmas in July [audio gap] season (Inaudible) program. With retail margins down about a percentage point the last year at 38% our same store retail gross profit dollars was down slightly.

Also on a same store basis, scrapping gross profit dollars increased almost $2 million, which is 32% over last year with margins at 37%. In most cases what we didn’t sell we were able to scrap at almost the same level was the retail margin. Combining all these components, net revenues in U.S. pawn still on a same store basis increased by more than $6 million, a 13% increase.

One of the positive attributes of our pawn proposition is our ability to leverage revenue growth with relatively fixed operating cost. That 13% increase at the net revenue line translates on a same store basis the very impressive 21% increase in operating income. I think we’ll miss if I didn’t point out the operating income margin on line 21 of our combined U.S. pawn operations, which is at 49% that’s an improvement of almost two percentage points over the last year. All in all it was a very strong quarter for the U.S. pawn segment with a 61% increase in operating income to $38 million.

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