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F2Q 2014 Earnings Conference Call

April 23, 2014 5:00 PM ET


Mark Trinske – Vice President of Investor Relations and Communications

Mark E. Kuchenrither – Executive Vice President and Chief Financial Officer

Paul E. Rothamel – President and Chief Executive Officer


William R. Armstrong – C.L. King & Associates, Inc.

Bob H. Ramsey – FBR Capital Markets & Co.



Good afternoon, ladies and gentlemen. And welcome to the EZCORP Second Quarter of Fiscal Year 2014 Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Mr. Mark Trinske, Vice President of Investor Relations and Communications. Sir, you may begin.

Mark Trinske

Thank you, operator and good afternoon, everyone. I’m Mark Trinske, EZCORP’s Vice President of Investor Relations and Communications. On the call with me today is, Paul Rothamel, our President and Chief Executive Officer; and Mark Kuchenrither, our Executive Vice President and Chief Financial Officer.

Today’s conference call contains certain forward-looking statements regarding the Company’s expected operating and financial performance for future periods. These statements are based on the company’s current expectations. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of uncertainties and other factors including fluctuations in gold prices for the desire of our customers to pawn or sell their gold items, changes in the regulatory environment, changes in market conditions in the overall economy, and in the industry and consumer demand for the Company’s services and merchandize.

For a discussion of these and other factors affecting the Company’s business and prospects see the Company’s annual, quarterly and other reports filed with the Securities and Exchange Commission. Also we’ve provided supplemental information on our website. This information gives more detail on the impact of gold and jewelry scrap on earnings per share and a breakdown of our net earning assets by segment. These materials can be found at ezcorp.com in the Investor Relation section of our website.

On today’s call Paul Rothamel, will present his opening comments, Mark Kuchenrither, will talk about a few items on our financial statements and then we will open the call to your questions.

Now, I would like to turn the call over to Paul Rothamel. Paul.

Paul E. Rothamel

Thank you, Mark and good afternoon everyone. I want to take just a few minutes and share with you what we’re seeing in marketplace in our business today. First, we continue to see growing demand for our loan and retail services and we’re seeing across all of our products geographies and channels. We are constantly looking at our own transactional data, third-party data as well as survey in market data.

All of that information continues to point to our customer demographic gaining access to cash more than ever, coupled this with the macro trend of trading credit; you see the growing need for our various products. Our largest businesses in the U.S. today, the consumer is definitely feeling the pressure these converging influences.

On both the loan and retail side of our business, we see the consumer activity growing over the mid and long-term. We see similar trends in the data coming out of Mexico, Canada and U.K. with Mexico and the U.K. being the most disrupted markets today due to shifting competition and regulatory changes.

The second areas is the negative impact of the gold marketplace, obviously we and the industry saw significant negative financial impact beginning in 2013 in the first half of this year. We do expect to see material moderation in the second half, as year-over-year scrap profits and gold driven pawn service charge comparison should improve as we anniversary the gold volume declines.

Coupled that with expected continued strong jewelry retail sales and our largest business U.S. pawn should return to financial growth by the end of the fiscal year. With that business contributing roughly 65% of the company’s segment contribution, it bodes well for the expected consolidated performance.

Lastly, we continue to see increased regulatory activity at the local, state and federal levels. While this activity is generally seen as negative to our business in the short-run it also creates significant challenges for company’s that are unprepared or lack the necessary infrastructure. Those competitors the lack flexible systems, structures and resources to deal with the rapidly changing landscape are disappearing.

At EZCORP, we simply expect to grow our market share with lower yielding, longer-term products that are well received by the consumer. These products will continue to the best cheapest choice for our customers. For us it means a longer cash cycle and lower overall yield than historically seen by our industry, but as it is ancillary to our pawn and retail business we expect solid earnings in cash flow to complement or main business.

I believe that its worth mentioning again that the investments that we have made over the last three years to our systems, structures and processes uniquely position us to capitalize on the changing marketplace. Examples like our storefront lending and retailing system improvements. Our investment in online selling technology and processes and our investment in gold processing from the loan customer for the retail customer or refiner are just a few of the examples.

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