Cash America International, Inc. (CSH)

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Cash America International, Inc (CSH)

Q1 2010 Earnings Call

April 22, 2010, 10:45 a.m. ET

Executives

Daniel Feehan - President, Chief Executive Officer

Thomas Bessant - Chief Financial Officer

Analysts

David Burtzlaff - Stephens Inc.

Elizabeth Pierce - Roth Capital Partners

Richard Shane - Jefferies & Co.

Bill Carcache - Macquarie Research

John Hecht - JMP Securities

William Armstrong - C.L. King & Associates

Isabel Sterk - C.K. Cooper

John Rowan - Sidoti & Company

Joshua Elving - Feltl & Company

Henry Coffey - Stern Agee

Gregg Hillman - First Wilshire Securities

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Cash America International, Incorporated quarterly 2010 earnings release conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded Thursday, April 22, 2010. It is now my pleasure to introduce Daniel Feehan, Chief Executive Officer and President. You may go ahead, sir.

Daniel Feehan

Thank you. Good morning, ladies and gentlemen. Welcome to our call for the first quarter of 2010. Joining me this morning, as usual, is Tom Bessant, our Chief Financial Officer. Tom will lead off the review today of our financial performance for the quarter. I will then rejoin the call to provide my perspective as well as my views on our near-term outlook. We'll then have an opportunity to open the call for questions following my remarks.

Before beginning, please bear with me while I read our Safe Harbor disclosure. While on this call comments made by Tom or me may contain forward-looking statements about the business, financial condition and prospects of Cash America International Inc. and its subsidiaries. The actual results of the company could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties including without limitation, the risks and uncertainties contained in the company’s filing with the Securities and Exchange Commission.

These risks and uncertainties are beyond the ability of the company to control nor can the company predict in many cases all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. When used in this call, terms such as believes, estimates, plans, expects, anticipates and similar expressions or variations as they relate to the company and its management are intended to identity forward-looking statements. The company disclaims any intention or obligation to update or revise any forward-looking statements.

I also want to mention before we proceed that a reconciliation of any non-GAAP information provided on this call to the most directly comparable GAAP information is included in the financial statements issued with the earnings release today. It is also available on the investor relations section of our website at www.cashamerica.com.

Non-GAAP financial information is not meant as a substitute for GAAP results but is included solely for informational and comparative purposes.

Now I'll turn it over to Tom for his financial report.

Thomas Bessant

Thanks, Dan. Good morning, everyone and welcome to the first quarter 2010 earnings conference call. I'll start this morning with a reference to our fourth quarter 2009 conference call comments because as we ended 2009 we had a great deal of momentum in our cash advance business entering 2010.

This was particularly true for our storefront operations and our card services business, which were experiencing higher year-over-year loan balances. Also, our international online market in the United Kingdom was emerging and our US online cash advance business had restored a great deal of the assets that it lost in early 2009.

I'm pleased to report that we expected strength from this momentum. It did in fact manifest itself in a stronger year-over-year growth net of our cash advance segment in the first quarter of 2010.

Our storefront cash advance business, which now includes pawn lending and gold buying in most locations, and our international online cash advance distribution platform all posted strong results and significant year-over-year growth and profit contribution for the quarter.

In addition, the cash advance segment benefited from the continued momentum of our card services business on the strength of higher loan volumes starting the New Year which were sustained throughout the quarter.

The company's pawn operations continued its historical trend of strong performance led by the US pawn activities which finished the fourth quarter 2009 with higher pawn loan balances and well-positioned inventory levels. US pawn business rode that momentum into the first quarter and enjoyed success as our realized gold prices moved upward and liquidation of our fine gold and loose diamonds produced strong margins.

US pawn business also benefited from the timing and size of personal US federal income tax refunds, which many of our customers received during the period and were reportedly 10% greater than the prior year.

As our customers get their tax refunds they frequently enjoy our value priced shopping opportunities within our stores which further boosted our merchandise disposition in the first quarter translating into strong growth in retail profitability across the counter during Q1 in 2010.

Pawn loan balances performed well in the quarter as pawn services charges were up year-over-year producing outstanding results for our US pawn business which was comping to a pretty good first quarter of 2009. The afore mentioned highlights led Cash America to report in this morning's earnings release that consolidated total revenue rose 17% to $313.1 million, leading to a 30% increase in year-over-year income from operations which reached $56.4 million.

Consolidated earnings per share for the first quarter of 2010 finished at $1.01 a share and $32 million in net income attributable to the company, up 34% year-over-year. This $1.01 a share exceeds the high end of the company's previously announced guidance of $0.94 a share attributable to strong performance in each of the businesses I just referenced.

Now I'll turn to some of the financial metrics and highlights for the pawn lending segment and we'll follow that up with a discussion of the cash advance lending segment concluding with our outlook for the second quarter of 2010 and full year 2010 expectations.

As you look at the total pawn lending segment you'll see that revenue is up 7% and operating income is up 12%. However, on further revue you'll notice that the US pawn business performed at levels better than the overall pawn segment with an increase in operating income on 16% on a revenue increase that's just 7%.

The company's Mexico-based pawn operations, which added 62 gross locations over the last 12 months, did not experience the typical recovery from its seasonal loan balance declines which normally occur in December and January. This caused our Mexico pawn business to report lower operating income than the prior year finishing below our expectations for the quarter.

Pawn loan balance denominated in Mexico Pesos finished the quarter at MXN 282.3 million, up 13% year-over-year. However, you may remember that we finished the fourth quarter of 2009 up 40% year-over-year. Given this model's reliance on pawn loan asset levels to drive revenue, this drop off generated only a 14% increase in revenue year-over-year while expenses from opening almost 50% more stores over the last 12 months continued to grow, rising 46%, and operating income came in about $1.2 million below the prior year.

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