Delivering Significant Growth. Second Quarter Fiscal 2018 Conference Call May 3, 2018

Transcription

1 Delivering Significant Growth Second Quarter Fiscal 2018 Conference Call May 3, 2018

2 Preliminary Statements Forward Looking Statements This document contains certain forward-looking statements. These statements are based on the company s current expectations as to the outcome and timing of future events. All statements, other than statements of historical facts, that address activities or results that the company plans, expects, believes, projects, estimates or anticipates will, should or may occur in the future are forward-looking statements. 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 operating risks, liquidity risks, legislative or regulatory developments, market factors and current or future litigation. 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. The company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time. Other Information This information should be read in conjunction with, and not in lieu of, the company s annual, quarterly and other reports filed with the Securities and Exchange Commission. Those reports contain important information about the company s business and performance, including financial statements prepared in accordance with U.S. generally accepted accounting principles, as well as a description of the important risk factors that may materially and adversely affect our business, financial condition or results of operations. All market comparisons are based on available information from similar publicly traded companies. 2

3 Q2FY18 Highlights Business Execution Drives Outstanding Profit Growth 1 Net Income up 47% with strong cash flow Net Income up 47% and basic EPS up 53% to $0.23 (GAAP); ninth consecutive quarter of YOY earnings growth PLO up 11% to $159m and PSC up 11% to $74m (GAAP) Net revenue up 10% to $121m, merchandise margin increase of 100bps to 37% and retail sales gross profit up 9% (GAAP) Strong balance sheet with cash balance up 33% YOY to $160m (GAAP) 2 U.S. Pawn leading the market Adjusted profit before tax up 5%* Significant scale and strong segment contribution Same Store PLO up 2% in stores unaffected by hurricanes; led the market in 10 consecutive quarters. PLO recovery from hurricanes continues Strong PLO per store at $243k (GAAP), despite hurricane impact; led the market in 7 consecutive quarters 3 Latin America Pawn earnings more than doubled LatAm profit before tax up 112% to $7m; more than doubled YOY for the second consecutive quarter PLO increased 96% to $35m 16 th consecutive quarter of positive Same Store PLO growth, up 9% PLO per store up 21% to $90k; led the market 4 Business expansion provides springboard for continued growth Opened four stores in LatAm in Q2FY18, 57% increase in LatAm stores in FY18 to 387 stores High growth LatAm segment is now 43% of total pawn stores Strong store presence in five LatAm countries Mexico, Guatemala, El Salvador, Honduras, and Peru springboard to growth within these countries and other high growth LatAm markets Relatively low capital investment and high return *Excludes estimated impact of hurricanes on PSC and discrete technology change related costs. Amounts in this presentation are continuing operations only and comparisons are Q2FY18 relative to same period in prior year unless stated. Amounts in this slide are adjusted for discrete items and constant currency unless identified as GAAP. EZCORP Same Store amounts in this presentation exclude pawn stores acquired. See EZCORP GAAP Results and GAAP to Non-GAAP Reconciliation. 3

4 Successful Execution of Business Strategy Drives Strong EBITDA Growth Growth Potential Being Realized EBITDA Consolidated Focused Execution Delivers PLO and Strong EBITDA Growth EBITDA U.S. Pawn Proven Pawn Expertise and Outstanding Results in Growth Market EBITDA Latin America Pawn Geographic Diversification and Significant Growth Potential in Latin America EZCORP Pawn Store Count 3/31/18 Latin America Stores on 9/30/17 27% 43% of EZCORP total pawn stores are in Latin America as of March 31, 2018, specifically Mexico, Guatemala, El Salvador, Honduras, and Peru U.S. Pawn 57% Acquired and built stores in LatAm in 1HFY18 16% Acquired 133 pawn stores and built eight pawn stores in Latin America in 1HFY18 *Excludes estimated impact of hurricanes on PSC and discrete technology change related costs. Amounts in this slide are in millions except for store count and are adjusted for discrete items and constant currency. See EZCORP GAAP Results and GAAP to Non-GAAP Reconciliation. 4

5 47% Net Income Growth EZCORP GAAP Results Strong performance in Q2 despite impact of hurricanes Growth and expansion in Latin America driving significant increase in PLO 11% growth in PSC revenues and 9% increase in retail gross profit produced strong net revenue growth Merchandise margin increased 100bps to 37% Increased operations expenses due primarily to acquired stores. Operations expenses in Q2FY18 consistent with Q1FY18 at 68% of Net Revenue Strong operating leverage as 25% of net revenue growth flows to EBITDA Reduction in net interest expense due to continued interest income on promissory note associated with Grupo Finmart sale Successful pawn store acquisitions, strong organic growth, and cost control deliver strong profit before tax increase 47% net income growth Nine consecutive quarters of YOY net income growth NM = not meaningful. 5

6 Adjusted Net Income Up 38% EZCORP Continuing Operations Adjusted Results* 10% PSC growth and 6% Merchandise Gross Profit increase produced strong net revenue growth Merchandise margin increased 120bps to 37% Increased operations expenses due primarily to acquired stores. Operations expenses in Q2FY18 consistent with Q1FY18 at 68% of Net Revenue Continued compounded growth in EBITDA and Profit Before Tax 38% net income growth Nine consecutive quarters of YOY profit growth *Adjusted for discrete items and constant currency. See EZCORP GAAP Results and GAAP to Non-GAAP Reconciliation. NM = not meaningful. 6

7 Continued Focus on Business Execution and Pawn Fundamentals U.S. Pawn Solid results excluding lingering short-term impacts of FY17 Hurricanes Harvey and Irma Merchandise margin of 38%, up 150bps; within our target range of 35-38% Strong Business Execution YOY Change U.S. Pawn *1HFY18 was affected by Hurricanes Harvey and Irma Excludes estimated impact of hurricanes on PSC and discrete technology change related costs. Amounts in this slide are adjusted for discrete items. See EZCORP GAAP Results and GAAP to Non-GAAP Reconciliation. 7

8 Continued Focus on Business Execution and Pawn Fundamentals U.S. Pawn Q2FY18 ASSETS INCOME STATEMENT Pawn Loans Outstanding Total Down 1% SAME STORE UP 2% 1 Pawn Service Charges Total Down 1% to $59m SAME STORE UP 2% 1 3% increase in Same Store PLO drove similar increase in pawn service charges Continued recovery from FY17 hurricanes negatively affected PLO, PSC and sales relative to prior year Serving and satisfying customers need for cash fuels continued Same Store Same PLO store growth PLO increased 2% in stores unaffected by hurricanes SAME STORE UP 16% 1 Purchases + Forfeitures Inventory Total Up 11% Quality Store Manager + = - = Same Store Sales Flat Sales Gross Profit Up 5% to $38m Merchandise Margin 38% GROSS PROFIT SAME STORE UP 8% 1 ADJUSTED NET REVENUE UP 4% TO $100m Up 1% to $97m ADJUSTED TOTAL EXPENSES Up 3% to $69m Up 4% to $69m ADJUSTED PROFIT BEFORE TAX Up 5% to $31m Down 6% to $28m Sales gross profit up 5% during annual tax refund season with merchandise margin up 150bps to 38%, within our target range of 35% to 38% Market leading PLO per store at $243k (GAAP), as business continues recovery from hurricanes Continued focus on customer experience and business execution led to Same Store PLO growth in stores unaffected by hurricanes PLO monthly yield of 15% vs. 14% (GAAP) Inventory turns of 1.9x vs 2.2x (GAAP) Return on Earning Assets of 143% vs 147% (GAAP) 1 Excludes estimated impact of hurricanes and discrete technology change related costs. Amounts in this slide are adjusted for discrete items. See EZCORP GAAP Results and GAAP to Non-GAAP Reconciliation. Sales Gross Profit includes Merchandise, Scrap Gross Profit, and Other Revenue. 8

9 Public Pawn Competitors EZCORP Market Leading U.S. Same Store PLO Growth U.S. PAWN EZCORP achieved ten consecutive quarters of market leading Same Store PLO growth YOY Same Store PLO Growth¹ Two-Year Stacked YOY Change Strong business execution driving U.S. operating leverage U.S. Pawn Net Revenue and Profit Before Tax YOY Change EZCORP Same Store PLO up 2% in Mar 18, and up 3% in Dec 17 and Sept 17 in stores unaffected by Hurricanes Harvey and Irma *1HFY18 was affected by Hurricanes Harvey and Irma Excludes estimated impact of hurricanes on PSC and discrete technology change related costs. ¹Weighted average based on available information from each company s public filings. This information may be determined or calculated differently by companies, limiting the usefulness of these measures for comparative purposes. Amounts in this slide are adjusted for discrete items. See EZCORP GAAP Results and GAAP to Non-GAAP Reconciliation. 9

10 U.S. Pawn Per Store Economics vs. Competition SUPERIOR PAWN SERVICE CHARGES AND YIELD FROM PAWN LOAN PORTFOLIO Quarter Ended March 31, 2018 SUPERIOR EBITDA GROWTH EZCORP Public Pawn Competitors EZCORP Relative to Competitors Store Count EBITDA (YOY Growth) (2%) (15)% 1700bps Pawn Loans Outstanding per store $243 $223 9% Pawn Service Charges per store $116 $90 28% Average Monthly PLO Yield 15% 12% 300bps Sales per store $185 $175 6% Sales Gross Profit per store $71 $61 16% Merchandise Sales Margin 38.2% 35.2% 300bps Inventory Turns 1.9x 3.0x (1.1x) Amounts in this slide are based on company GAAP results and per store amounts are in thousands. 10

11 Profit More Than Doubled in Latin America Latin America Pawn Successful pawn store acquisitions, strong organic growth and operating leverage deliver more than double profit before tax to $6.8m PLO up 96% to $35m; added 141 Latin America pawn stores 1HFY18, 133 via acquisitions and 8 store openings Acquisitions, Compound Same Store PLO Growth and Operating Leverage Delivering Profit Growth Latin America Pawn *Includes stores acquired and new stores opened in 1HFY18 Amounts in this slide are adjusted for discrete items and constant currency. See EZCORP GAAP Results and GAAP to Non-GAAP Reconciliation. 11

12 Profit More Than Doubled in Latin America Latin America Pawn Q2FY18 ASSETS INCOME STATEMENT Pawn Loans Outstanding Total Up 96% SAME STORE UP 9% Pawn Service Charges Total Up 96% to $15m SAME STORE UP 7% Same store PLO up 9%. Continued focus on customer experience led to organic growth Successful pawn store acquisitions, strong organic growth, and operating leverage deliver more than double profit before tax to $7m SAME STORE UP 13% Purchases + Forfeitures Inventory Total Up 50% Quality Store Manager NET REVENUE TOTAL EXPENSES + = Up 69% to $21m - Up 54% to 14m = Sales Up 28% Sales Gross Profit Total Up 29% to $6m Merchandise Margin 32% GROSS PROFIT SAME STORE UP 1% PROFIT BEFORE TAX Up 112% to $7m Added 141 stores through acquisition and new store strategy YTD Market leading PLO per store of $90k, up 21% PLO monthly yield of 15% vs 16% Inventory turns of 2.7x vs 2.6x Return on earning assets 151% vs 154% Amounts in this slide are adjusted for discrete items and constant currency. See EZCORP GAAP Results and GAAP to Non-GAAP Reconciliation. Sales Gross Profit includes Merchandise, Scrap Gross Profit and Other Revenue. 12

13 Public Pawn Competitors EZCORP Acquisitions and Compound PLO Growth Drive Latin America Profit LATIN AMERICA PAWN EZCORP achieved 16 consecutive quarters of positive Same Store PLO growth YOY Acquisitions, compound PLO growth, and expense control drives operating leverage Same Store PLO Growth¹ Two-Year Stacked YOY Growth Latin America Net Revenue and Profit Before Tax YOY Growth *Includes stores acquired and new stores opened in 1HFY18 ¹Weighted average based on available information from each company s public filings. This information may be determined or calculated differently by companies, limiting the usefulness of these measures for comparative purposes. Amounts in this slide are adjusted for discrete items and constant currency. See EZCORP GAAP Results and GAAP to Non-GAAP Reconciliation. 13

14 Latin America Pawn Per Store Economics vs. Competition SUPERIOR PAWN SERVICE CHARGES AND YIELD FROM PAWN LOAN PORTFOLIO Industry highest PLO, PSC, and PLO yield driven by disciplined lending Quarter Ended March 31, 2018 SUPERIOR EBITDA GROWTH EZCORP Public Pawn Competitors EZCORP Relative to Competitors Store Count EBITDA (YOY Growth) +103% +30% 3.4x Pawn Loans Outstanding per store $91 $77 18% Pawn Service Charges per store $40 $32 25% Average Monthly PLO Yield 15% 14% 100bps Sales per store $52 $81 (36%) Sales Gross Profit per store $17 $29 (41%) Merchandise Sales Margin 32.2% 35.7% (350bps) Inventory Turns 2.7x 3.8x (1.1x) Amounts in this slide are based on company GAAP results and per store amounts are in thousands. 14

15 Initiatives to Drive Long-Term Growth Investing in Pawn Fundamentals Strengthen Competitive Advantage in Customer Experience Leadership Upgrading POS and PLO Growth New intelligent predictive analytics of customer behavior and product data to deliver improved experience to customers Continuous measurement of customer experience and feedback Training, coaching and mentoring of field team Transforming Customer and Team Member Experience Creates Significant Opportunities Best-in-class systems Cloud-based infrastructure Upgraded IT will provide: Efficient integration of acquisitions Streamlined team Member onboarding and training Speed to market of new capabilities Ability to plug and play Performance based store incentive program Process innovation Potential To Accelerate Growth Via Disciplined Store Acquisitions And New Stores 57% increase in pawn store count in Latin America from 240 stores on 9/30/17 to 387 on 3/31/17 Larger scale with 43% of total pawn stores in Latin America, a high growth market Geographic diversification. Large and fragmented markets. Quality management team in place with in-country expertise Continued market share gains and growth leadership Continued economic efficiency, scalability, strong margins and operating leverage Significant potential of store openings and acquisitions 15

16 Why EZCORP Is An Attractive Investment Market Leadership in Key Drivers of Growth Proven Management Execution Accelerating Earnings Growth EZCORP Investment Appeal New Technologies To Accelerate Growth Geographic Diversification in High Growth Markets Attractive Industry Dynamics 16

17 Additional Information 17

18 Receiving Notes Receivable Payments Within Schedule AlphaCredit has already paid $49.4m principal and interest owed to EZCORP in connection with the sale of Grupo Finmart We have received all payments to-date as contractually obligated As of April 30, 2018 Notes Receivable Cash Received Notes Receivable (Principal as of 4/30/18) $60.8 $49.3 Expect to collect an additional $21.0m principal in the remainder of FY18 and $28.3m in FY19 in addition to interest and a deferred compensation fee of $14.0m, payable $6.0m in September 2019, $4.0m in March 2020 and $4.0m in September 2020² $32.5 $21.0 $28.3 $11.5 $11.5 $0 FY18 FY19 FY20 Total GAAP Interest Income From Notes¹ $14.8 $5.6 $0.8 $21.2 Detail: Amortization of Deferred Compensation Fee² $9.2 $4.0 $0.8 $14.0 Cash Interest Income $5.6 $1.6 $0.0 $7.2 ¹Interest income on notes receivable from AlphaCredit. ²Total Deferred Compensation Fee will be reduced to $10m if the notes are pre-paid on or prior to June 30, Amounts above are in millions of U.S. dollars and based on exchange rates in effect historically or as of March 31, 2018 for all future amounts. 18

19 2.875% Convertible Senior Notes Due 2024 Potential EPS Dilution The following is provided for purposes of calculating the potentially dilutive shares to be included in accounting for diluted EPS at a hypothetical conversion price of $10 or higher: Average Share Estimated Incremental Price for Period Dilutive Shares for Period $ $ ,306,818 $ ,395,833 $ ,317,308 $ ,107,143 $ ,791,667 $ ,390,625 $ ,919,118 $ ,388,889 $ ,809,211 $ ,187,500 At higher share prices above $20, there is a potential for further increase in dilution In July 2017, we issued $ million aggregate principal amount of 2.875% Convertible Senior Notes Due The Convertible Notes are convertible into cash or shares of Class A Non-voting Common Stock, or any combination thereof, at our option subject to satisfaction of certain conditions and during certain periods, based on an initial conversion rate of 100 shares of Class A Common Stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of $10.00 per share of our Class A Common Stock). We have included above an estimate of the incremental shares we would need to include in our calculation of fully diluted EPS using the treasury stock method of accounting, if our average share price is above $10.00 while the Convertible Notes due 2024 are outstanding. This method of accounting assumes conversion into shares even though the company could opt to settle only in cash, eliminating share dilution. 19

20 Definition of Terms Monthly PLO Yield = pawn service charges days in period average PLO X 365 / 12 Inventory Yield = sales gross profit days in period average net inventory X 365 Return on Earning Assets = sales gross profit + PSC days in period X 365 average net inventory + average PLO Inventory Turnover = total cost of sales days in period average net inventory X 365 EBITDA Margin = EBITDA net revenue 20

21 GAAP to Non-GAAP Reconciliation In addition to the financial information prepared in conformity with generally accepted accounting principles in the United States of America ("GAAP"), we provide certain other financial information that is adjusted to exclude the impact of restructuring and restatement charges and other discreet items and to reflect the results of our Latin America Pawn operations on a constant currency basis. We believe that presentation of the non-gaap financial information is meaningful and useful in evaluating and comparing our operating results across accounting periods and understanding the operating and financial performance of our business. We believe that the non-gaap financial information reflects an additional way of viewing aspects of our business that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our business. We provide non-gaap financial information for informational purposes and to enhance understanding of our GAAP consolidated financial statements. You should consider the non-gaap information in addition to, but not instead of or superior to, our results prepared in accordance with GAAP. Non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of that information for comparative purposes. 21

22 GAAP to Non-GAAP Reconciliation Q2 Continuing Operations* (A) (B) (D) (C) (E) Footnote * - Includes immaterial presentation reclassifications and rounding Footnote (A) Amount includes $0.3m true up of estimated cost to settle loans destroyed in hurricanes Footnote (B) Amount includes $0.1m asset write-off for sold stores. Footnote (C) Amount includes tax impact of items listed above Footnote (D) Amount includes $0.2m loss on FX Footnote (E) Amount includes tax impact of item D *We used the end-of-period rate for balance sheet items and the average closing daily exchange rate on a monthly basis during the appropriate period for statement of operations items. As the results of GPMX are not included in fiscal 2017, such results included on a constant currency basis reflect the actual exchange rates in effect during the current quarter without adjustment. The end-of-period Mexican peso to U.S. dollar exchange rate as of March 31, 2018 and 2017 was 18.3 to 1 and 18.7 to 1, respectively. The approximate average Mexican peso to U.S. dollar exchange rate for the three months ended March 31, 2018 and 2017 was 18.7 to 1 and 20.4 to 1, respectively. The approximate average Mexican peso to U.S. dollar exchange rate for the six months ended March 31, 2018 and 2017 was 18.8 to 1 and 20.1 to 1, respectively, however our statement of operations constant currency results reflect the impact of monthly effects of exchange rates and so are not directly calculable from the above rates. 22

23 GAAP to Non-GAAP Reconciliation Q2 U.S. Pawn* (A) (B) (C) Footnote * - Includes immaterial presentation reclassifications and rounding Footnote (A) Amount includes $0.3m true up of estimated cost to settle loans destroyed in hurricanes Footnote (B) Amount includes $0.1m from closed stores. Footnote (C) Hurricane adjusted EBITDA of $34.3m includes estimated impact of hurricanes of $2.1m and discrete technology change related costs of $0.7m. 23

24 GAAP to Non-GAAP Reconciliation Q2 Latin America Pawn* Footnote * - Includes immaterial presentation reclassifications and rounding We used the end-of-period rate for balance sheet items and the average closing daily exchange rate on a monthly basis during the appropriate period for statement of operations items. As the results of GPMX are not included in fiscal 2017, such results included on a constant currency basis reflect the actual exchange rates in effect during the current quarter without adjustment. The end-of-period Mexican peso to U.S. dollar exchange rate as of March 31, 2018 and 2017 was 18.3 to 1 and 18.7 to 1, respectively. The approximate average Mexican peso to U.S. dollar exchange rate for the three months ended March 31, 2018 and 2017 was 18.7 to 1 and 20.4 to 1, respectively. The approximate average Mexican peso to U.S. dollar exchange rate for the six months ended March 31, 2018 and 2017 was 18.8 to 1 and 20.1 to 1, respectively, however our statement of operations constant currency results reflect the impact of monthly effects of exchange rates and so are not directly calculable from the above rates. 24

25 GAAP to Non-GAAP Reconciliation YTD Continuing Operations* (A) (B) (D) (C) (E) Footnote * - Includes immaterial presentation reclassifications and rounding Footnote (A) Amount includes $0.4m of Acquisition Expenses Footnote (B) Amount includes $0.3m Loss on FX and $0.1m asset write-off for sold stores Footnote (C) Amount includes tax impact of items A and B as well as $1.6m gain from reversal of Fin-48 reserves and $2.8m loss from tax reform impact on deferred tax assets Footnote (D) Amount includes $0.2m Loss on FX Footnote (E) Amount includes tax impact of item D *We used the end-of-period rate for balance sheet items and the average closing daily exchange rate on a monthly basis during the appropriate period for statement of operations items. As the results of GPMX are not included in fiscal 2017, such results included on a constant currency basis reflect the actual exchange rates in effect during the current quarter without adjustment. The end-of-period Mexican peso to U.S. dollar exchange rate as of March 31, 2018 and 2017 was 18.3 to 1 and 18.7 to 1, respectively. The approximate average Mexican peso to U.S. dollar exchange rate for the three months ended March 31, 2018 and 2017 was 18.7 to 1 and 20.4 to 1, respectively. The approximate average Mexican peso to U.S. dollar exchange rate for the six months ended March 31, 2018 and 2017 was 18.8 to 1 and 20.1 to 1, respectively, however our statement of operations constant currency results reflect the impact of monthly effects of exchange rates and so are not directly calculable from the above rates. 25

26 GAAP to Non-GAAP Reconciliation YTD U.S. Pawn* (A) Footnote * - Includes immaterial presentation reclassifications and rounding Footnote (A) Amount includes $0.1m asset write-off for sold stores 26

27 GAAP to Non-GAAP Reconciliation YTD Latin America Pawn* (A) (B) Footnote * - Includes immaterial presentation reclassifications and rounding Footnote (A) Amount includes ~$0.1m loss on FX Footnote (B) Amount includes ~$0.1m loss on FX We used the end-of-period rate for balance sheet items and the average closing daily exchange rate on a monthly basis during the appropriate period for statement of operations items. As the results of GPMX are not included in fiscal 2017, such results included on a constant currency basis reflect the actual exchange rates in effect during the current quarter without adjustment. The end-of-period Mexican peso to U.S. dollar exchange rate as of March 31, 2018 and 2017 was 18.3 to 1 and 18.7 to 1, respectively. The approximate average Mexican peso to U.S. dollar exchange rate for the three months ended March 31, 2018 and 2017 was 18.7 to 1 and 20.4 to 1, respectively. The approximate average Mexican peso to U.S. dollar exchange rate for the six months ended March 31, 2018 and 2017 was 18.8 to 1 and 20.1 to 1, respectively, however our statement of operations constant currency results reflect the impact of monthly effects of exchange rates and so are not directly calculable from the above rates. 27

28 Pawn Quarterly Growth Reconciliation* Footnote * - Includes immaterial presentation reclassifications and rounding 28

29 Consolidated Growth Reconciliation* Footnote * - Includes immaterial presentation reclassifications and rounding 29