EZCORP INC (EZPW)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to inform the reader about matters affecting the financial condition and results of operations of EZCORP, Inc. and its subsidiaries (collectively, “we,” “us”, “our” or the “Company”) for the two-year period ended September 30, 2024. The following discussion should be read together with our consolidated financial statements and accompanying notes included in “Part II, Item 8 — Financial Statements and Supplementary Data.” This discussion and analysis contains forward-looking statements, and our actual results could differ materially from those anticipated in these forward-looking statements. See “Part I, Item 1A — Risk Factors” and “Cautionary Statement Regarding Risks and Uncertainties That May Affect Future Results” below.

Business Development

On September 11, 2024, the Company announced entry into an acquisition agreement with Presta Dinero, S.A. de C.V. for the purchase of 53 pawn stores in Mexico. While at the time we expected to complete the transaction by October 31, 2024, the transaction has not yet closed and the parties remain in discussion.

Results of Operations

Non-GAAP Financial Information

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide certain other non-GAAP financial information on a constant currency basis (“constant currency”) and “same store” basis. We use constant currency results to evaluate our Latin America Pawn operations, which are denominated primarily in Mexican pesos, Guatemalan quetzales and other Latin American currencies. We analyze results on a same store basis (which is defined as stores open during the entirety of the comparable periods) to better understand existing store performance without the influence of increases or decreases resulting solely from changes in store count. We believe presentation of constant currency and same store results is meaningful and useful in understanding the activities and business metrics of our Latin America Pawn operations (in the case of constant currency) and our store operations (in the case of same store results) and reflect an additional way of viewing aspects of our business that, when viewed with GAAP results, provide a better understanding and evaluation 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. We use this non-GAAP financial information to evaluate and compare operating results across accounting periods. Readers should consider the information in addition to, but not rather than or superior to, our financial statements prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.

Constant currency results reported herein are calculated by translating consolidated balance sheet and consolidated statement of operations items denominated in local currency to U.S. dollars using the exchange rate from the prior-year comparable period, as opposed to the current period, in order to exclude the effects of foreign currency rate fluctuations. 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. Our statement of operations constant currency results reflect the monthly exchange rate fluctuations and are not directly calculable from the rates below. Constant currency results, where presented, also exclude the foreign currency gain or loss. The end-of-period and approximate average exchange rates for each applicable currency as compared to U.S. dollars as of and for the fiscal years ended September 30, 2024 and 2023 were as follows:

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Operating Results

Fiscal 2024 vs. Fiscal 2023

These tables, as well as the discussion that follows, should be read in conjunction with the accompanying consolidated financial statements and related notes.

Summary Financial Data

The following table presents selected summary consolidated financial data for fiscal 2024 and fiscal 2023.

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Pawn loans outstanding (“PLO”) increased $28.3 million (12%) to $274.1 million due to improved operational performance and continued strong pawn demand.

Total revenues increased $112.6 million (11%) and gross profit increased 12%, reflecting improved pawn service charge (“PSC”) revenue, merchandise sales and merchandise sales gross profit.

PSC increased $52.8 million (14%) as a result of higher average PLO. Merchandise sales increased $48.3 million (8%). Merchandise sales gross margin remains within our targeted range at 36%.

Operating expenses increased $52.1 million (10%) primarily due to (a) a $42.5 million increase in store expenses as a result of increased labor driven by inflationary and minimum wage increases and, to a lesser extent, expenses related to rent and (b) a $8.0 million increase in general and administrative expenses, primarily due to labor, incentive compensation and to a lesser extent, cost related to the implementation and ongoing support for our Workday ERP system.

Total non-operating income increased $43.6 million (108%), primarily due to recognition in the prior year of our share of losses in Cash Converters’ net results related to their non-cash goodwill impairment charge, a reduction of interest expense and an increase in interest income. Interest expense decreased $2.9 million, primarily driven by the prior year net loss recorded on the partial extinguishments of the 2024 convertible notes and 2025 convertible notes. See Note 7: Debt of Notes to Consolidated Financial Statements in “Part II, Item 8 — Financial Statements and Supplemental Data” for further discussion. The interest income increase is primarily due to our treasury management with increased market interest rates.

Income tax expense increased $19.3 million, primarily due to the increase in income before income taxes of $64.0 million, an increase in non-deductible expense in Latin America and accrued withholding taxes on prior earnings that are no longer permanently reinvested. Income tax expense includes other items that do not necessarily correspond to pre-tax earnings and create volatility in our effective tax rate. These items include the net effect of state taxes, non-deductible items and changes in valuation allowances for certain foreign operations. See Note 9: Income Taxes of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for quantification of these items.

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U.S. Pawn

The following table presents selected summary financial data from our U.S. Pawn segment:

PLO ended the year at $214.3 million, up 12% on a total and same store basis.

Total revenues increased 10% and gross profit increased 10%, primarily due to increased PSC and higher merchandise sales.

PSC increased 13% as a result of higher average PLO.

Merchandise sales increased 6%. Offsetting the sales increase, merchandise sales gross margin decreased 100 bps to 37%.

Store expenses increased 9% (8% on a same store basis), primarily due to labor costs driven by inflation.

Segment contribution increased $18.8 million due to the changes described above.

During fiscal 2024, segment net store count in our U.S. pawn segment increased by 13 due to the acquisition of 13 stores, the addition of one de novo store and the consolidation of one store.

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Latin America Pawn

The following table presents selected summary financial data from our Latin America Pawn segment, including constant currency results, after translation to U.S. dollars from functional currencies. See “Results of Operations — Non-GAAP Financial Information” above.

PLO improved to $59.8 million, up 8% (18% on constant currency basis). On a same store basis, PLO increased 7% (16% on a constant currency basis) due to improved operational performance and increased loan demand.

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Total revenues were up 13% (11% on a constant currency basis), and gross profit increased by 18% (15% on a constant currency basis), reflecting increased PSC, higher merchandise sales and improved gross profit.

PSC increased 17% (14% on constant currency basis) as a result of higher average PLO.

Merchandise sales increased 12% (9% on a constant currency basis) and 11% on a same store basis (8% on a constant currency basis). Merchandise sales gross margin increased 100 bps to 32%.

Store expenses increased $16.0 million, up 13% (11% on a constant currency basis), primarily due to increased labor headcount, in line with store activity and minimum wage increases and, to a lesser extent, rent associated with lease renewals.. Same-store expenses increased 12% (9% on a constant currency basis).

Segment contribution was up 23% to $38.8 million (21% on a constant currency basis), due to the changes noted above, in addition to the impact of the prior year reversal of contingent consideration liability in connection with a previously completed acquisition, which was recorded to “Other operating income.”

During fiscal 2024, net store count in our Latin America pawn segment increased by 35 due to the opening of 40 de novo stores and the consolidation of five stores.

Other Investments

The following table presents selected summary financial data for our Other Investments segment after translation to U.S. dollars from its functional currency of primarily Australian dollars:

Segment income was $7.5 million, an increase of $34.4 million, primarily due to the prior year net loss on our share of Cash Converters’ net results related to their non-cash goodwill impairment charge.

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Other Items

The following table reconciles our consolidated segment contribution discussed above to net income attributable to EZCORP, Inc., including items that affect our consolidated financial results but are not allocated among segments:

Segment contribution increased $60.3 million or 40%, primarily due to the improved operating results of the segments, as discussed above.

General and administrative expenses increased $8.0 million (12%), primarily due to labor, incentive compensation and, to a lesser extent, costs related to the implementation and ongoing support of our Workday ERP system.

Interest expense decreased $2.9 million (17%), primarily driven by the prior year net loss recorded on the partial extinguishments of the 2024 convertible notes and 2025 convertible notes. See Note 7: Debt of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for further discussion.

Interest income increased $1.7 million, due primarily to our treasury management with increased market interest rates.

Income tax expense increased $19.3 million primarily due to the increase in income before income taxes of $64.0 million, an increase in non-deductible expense in Latin America and accrued withholding taxes on prior earnings that are no longer permanently reinvested. Income tax expense includes other items that do not necessarily correspond to pre-tax earnings and create volatility in our effective tax rate. These items include the net effect of state taxes, non-deductible items and changes in valuation allowances for certain foreign operations. See Note 9: Income Taxes of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for quantification of these items.

Fiscal 2023 vs. Fiscal 2022

The Results of Operations discussion for fiscal 2023 vs. fiscal 2022 is located in “Part II, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended September 30, 2023.

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Liquidity and Capital Resources

Cash and Cash Equivalents

Our cash and equivalents balance was $170.5 million at September 30, 2024 compared to $220.6 million at September 30, 2023. Our cash and equivalents were held in cash depository accounts with major banks or invested in high quality, short-term liquid investments.

Cash Flows

The table and discussion below present a summary of the sources and uses of our cash:

The $11.8 million increase in cash flows provided by operating activities was primarily due to an increase in net income (when considering adjustments for non-cash items affecting net income) as well as changes in working capital primarily related to the timing of payments of income taxes, prepaid expenses, accounts payable and inventory.

The $1.0 million increase in cash flows used in investing activities was primarily due to an increase of $51.7 million in net pawn lending outflows, offset by a $27.0 million increase in cash inflows from the sale of forfeited collateral and a $23.7 million net decrease in cash flows used to fund strategic investments, capital expenditures and acquisitions.

The $73.9 million increase in cash flows used in financing activities was primarily related to the December 2022 financing of the 2029 Convertible Notes, in which we issued $230.0 million principal amount of 3.750% Convertible Senior Notes Due 2029 offset by the extinguishment of approximately $109.4 million aggregate principal amount of our 2024 Convertible Notes for approximately $117.5 million plus accrued interest and approximately $69.1 million aggregate principal amount of our 2025 Convertible Notes for approximately $62.9 million plus accrued interest. In addition, we used approximately $5.0 million of the net proceeds from the 2029 Convertible Notes offering to repurchase 578,703 shares of our Class A common stock from purchasers of the notes in privately negotiated transactions. Further, on July 1, 2024, the 2024 Convertible Notes matured and the remaining $34.4 million aggregate principal amount outstanding plus accrued interest was repaid using cash on hand. During 2024, the Company repurchased and retired 1,218,503 shares of our Class A Common Stock for $12.0 million under the Common Stock Repurchase Program.

The net effect of these changes was a $49.2 million decrease in cash on hand during the current year, resulting in a $179.8 million ending cash and restricted cash balance.

Sources and Uses of Cash

In December 2022, we issued $230.0 million aggregate principal amount of 2029 Convertible Notes. In conjunction with the issuance of the 2029 Convertible Notes, we extinguished approximately $109.4 million aggregate principal amount of our 2024 Convertible Notes for approximately $117.5 million plus accrued interest and approximately $69.1 million aggregate principal amount of our 2025 Convertible Notes for approximately $62.9 million plus accrued interest. In addition, we used approximately $5.0 million of the net proceeds from the 2029 Convertible Notes offering to repurchase 578,703 shares of our Class A common stock from purchasers of the notes in privately negotiated transactions. See Note 7: Debt of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.” The shares repurchased in conjunction with the transactions discussed above were authorized separately from, and not considered part of, the publicly announced share repurchase program referred to below.

On May 3, 2022, our Board authorized the repurchase of up to $50 million of our Class A Common Stock over three years. As of September 30, 2024, we have repurchased 2,845,548 shares of our Class A Common Stock under the program for $26.0 million which amount was allocated between “Additional paid-in capital” and “Retained earnings” in our Consolidated Balance Sheets. Execution of the program will be responsive to fluctuating market conditions and valuations, liquidity needs and the expected return on investment compared to other opportunities.

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Under the stock repurchase program, we may purchase Class A Non-Voting common stock from time to time at management’s discretion in accordance with applicable securities laws, including through open market transactions, block or privately negotiated transactions, or any combination thereof. In addition, we may purchase shares pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934.

The amount and timing of purchases will be dependent on a variety of factors, including stock price, trading volume, general market conditions, legal and regulatory requirements, general business conditions, the level of cash flows and corporate considerations determined by management and the Board, such as liquidity and capital needs and the availability of attractive alternative investment opportunities. The Board has reserved the right to modify, suspend or terminate the program at any time.

On July 1, 2024, the 2024 Convertible Notes matured and the remaining $34.4 million aggregate principal amount outstanding plus accrued interest was repaid using cash on hand.

We anticipate that cash flows from operations and cash on hand will be adequate to fund ongoing operations, debt service requirements, tax payments, any future stock repurchases, strategic investments, our contractual obligations, planned de novo store growth, capital expenditures and working capital requirements through fiscal 2025. We continue to explore acquisition opportunities, both large and small, and may choose to pursue additional debt, equity or equity-linked financings in the future should the need arise. Depending on the level of acquisition activity and other factors, our ability to repay our longer term debt obligations, including the convertible debt maturing in May 2025 and December 2029, may require us to refinance these obligations through the issuance of new debt securities, equity securities, convertible securities or through new credit facilities.

Convertible Notes

For a description of the terms of our convertible notes, including the associated conversion and other related features and transactions, see Note 7: Debt of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.”

Contractual Obligations

Below is a summary of our cash needs to meet future aggregate contractual obligations as of September 30, 2024:

(a)    Excludes debt discount and deferred financing costs as well as convertible features.

(b)    Excludes $5.6 million in sublease payments expected to be received.

(c)    No provision for uncertain tax benefits has been reflected in the contractual obligations table as the timing of any such payment is uncertain. See Note 9: Income Taxes of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.” Additionally, no provision for insurance reserves, deferred compensation arrangements, or other liabilities totaling $8.5 million has been included as the timing of such payments are uncertain.

(d)    Total excludes contractual obligations already recorded on our consolidated balance sheets as current liabilities, except for current maturities of long-term debt, which are included in the debt obligations caption above and accrued portions of interest and lease obligations, which are included in the interest on long-term debt obligations and lease obligations captions above.

In addition to the lease obligations in the table above, we are responsible for the maintenance, property taxes and insurance at most of our locations. During the fiscal year ended September 30, 2024, these collectively amounted to $17.7 million.

Critical Accounting Estimates

The preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments including those related to revenue recognition, inventory, loan loss allowances, goodwill and indefinite-lived intangible assets, long-lived and other intangible assets, income taxes, contingencies and litigation. We base our estimates on historical experience, observable trends and various other assumptions that we believe to be reasonable under the circumstances. We use this information to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from the estimates under different assumptions or conditions.

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The critical accounting policies and estimates that could have a significant impact on our results of operations, as well as relevant recent accounting pronouncements, are described in Note 1: Organization And Summary Of Significant Accounting Policies of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.” Certain accounting policies regarding the quantification of the sensitivity of certain critical estimates are discussed further below.

Pawn Loan Revenue Recognition

We record PSC using the effective interest method over the life of the loan for all pawn loans we believe to be collectible. We base our estimate of collectible loans on several inputs, including recent redemption rates, historical trends in redemption rates and the amount of loans due in the following months. Unexpected variations in any of these factors could change our estimate of collectible loans, affecting our earnings and financial condition. As of September 30, 2024, the balance of our PSC receivable was $44.0 million. Assuming the average forfeiture rate increased or decreased by 10%, our pawn service charges receivable balance as of September 30, 2024 would have increased or decreased by approximately $1.4 million.

Inventory and Cost of Goods Sold

We consider our estimates of obsolete or slow-moving inventory and shrinkage in determining the appropriate overall valuation allowance for inventory. We monitor our sales margins for each type of inventory on an ongoing basis and compare to historical margins. Significant variances in those margins may require a revision to future inventory reserve estimates. We have historically revised our reserve pertaining to jewelry inventory depending on the current price of gold and resulting trends in margins. Future declines in gold prices may cause an increase in reserve rates pertaining to jewelry inventory. As of September 30, 2024, the gross balance of our inventory was $194.7 million, for which we have included reserves of $2.7 million. Assuming the reserve rates were increased or decreased by 10%, our inventory reserve balance as of September 30, 2024 would have increased or decreased by approximately $0.3 million.

Goodwill and Indefinite-Lived Intangible Assets

When testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine an impairment is more-likely-than-not, we are then required to perform a quantitative impairment test; otherwise, no further analysis is required. We also may elect not to perform a qualitative assessment and, instead, proceed directly to a quantitative impairment test. When performing a quantitative impairment test, we apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

When we perform a quantitative goodwill impairment test, we estimate the fair value of the reporting unit using an income approach based on the present value of expected future cash flows, including terminal value, utilizing a market-based weighted average cost of capital (“WACC”) determined separately for each reporting unit. The determination of fair value involves the use of estimates and assumptions, including revenue growth rates, operating margins and terminal growth rates discounted by an estimated WACC derived from other publicly traded companies that are similar but not identical to us from an operational and economic standpoint. We use discount rates that are commensurate with the risks and uncertainties inherent in the respective businesses and in our internally developed forecasts.

We test indefinite-lived intangible assets for impairment by first assessing qualitative factors to determine whether it is necessary to perform a quantitative impairment test. If we believe as a result of the qualitative assessment that it is more-likely-than-not that the fair value of the indefinite-lived intangible asset is less than its carrying amount, a quantitative impairment test is required. Otherwise, no further testing is required.

We consider the assessment of the occurrence of triggering events or substantive changes in circumstances that may indicate the fair value of goodwill may be impaired to be a critical estimate. Furthermore, we consider the assumptions discussed above pertaining to the income approach we use in the quantitative testing of impairment to be critical estimates.

The results of the impairment analyses for fiscal 2024 and fiscal 2023 are discussed in Note 6: Goodwill And Intangible Assets of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.”

Income Taxes

Management believes that it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with future reversals of existing taxable temporary differences, will be sufficient to fully recover the net recorded deferred tax assets. In the event we determine all or part of the net deferred tax assets are not realizable in the future, we will make an adjustment to the valuation allowance that would be charged to earnings in the period such determination is made. We have included valuation allowances against deferred tax assets for net operating losses and tax credits not expected to be utilized based on specific facts and estimates for each jurisdiction.

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We consider the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the U.S. on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. We have not recorded a deferred tax liability related to foreign withholding taxes of our undistributed earnings of foreign subsidiaries indefinitely invested outside the U.S.

We may be subject to income tax audits by the respective tax authorities in any or all of the jurisdictions in which we operate or have operated within a relevant period. Significant judgment is required in determining uncertain tax positions. We utilize the required two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. We adjust these reserves in light of changing facts and circumstances, such as the closing of an audit or the refinement of an estimate. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We believe adequate provisions for income taxes have been made for all periods.

Cautionary Statement Regarding Risks and Uncertainties That May Affect Future Results

This Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend that all forward-looking statements be subject to the safe harbors created by these laws. All statements, other than statements of historical facts, regarding our strategy, future operations, financial position, future revenues, projected costs, prospects, plans and objectives are forward-looking statements. The words “may,” "can," “should,” “could,” “will,” "would," “predict,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such statements are only predictions of the outcome and timing of future events based on our current expectations and currently available information. Actual results could differ materially from those expressed in the forward-looking statements due to a number of risks and uncertainties, many of which are beyond our control. Accordingly, you should not regard any forward-looking statement as a representation that the expected results will be achieved. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report. Such risks and uncertainties include, among other things:

•Changes in laws and regulations;

•Negative characterizations of our industry;

•Concentration of business in Texas and Florida;

•Changes in gold prices or volumes;

•Changes in sales, pawn loan balances, sales margins, pawn redemption rates or other important operating metrics;

•Our ability to continue growing our store count through acquisitions and de novo openings;

•Continuing indemnification obligations for pre-closing taxes related to our sale of Grupo Finmart;

•Our controlled ownership structure;

•Potential regulatory fines and penalties, lawsuits and related liabilities related to firearms business;

•Potential robberies, burglaries and other crimes at our stores;

•Changes in the competitive landscape;

•Our ability to design or acquire, deploy and maintain adequate information technology and other business systems;

•Failure to achieve adequate return on investments;

•Potential uninsured property, casualty or other losses;

•Potential natural disasters;

•Financial statement impact of potential impairment of goodwill or other intangible assets such as trade names;

•Potential conversion of Convertible Notes into cash (which could adversely affect liquidity) or stock (which will cause dilution of existing stockholders);

•Limited number of unreserved shares available for future issuance;

•Public health issues that could adversely affect our financial condition or results of operations;

•Changes in the business, regulatory, political or social climate in Latin America;

•Changes in foreign currency exchange rates;

•The outcome of future litigation and regulatory proceedings;

•Potential disruptive effect of acquisitions, investments and new businesses;

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•Potential exposure under anti-corruption, anti-bribery, anti-money laundering and other general business laws and regulations;

•Changes in liquidity, capital requirements or access to debt and capital markets;

•Potential data security breaches or other cyber-attacks; and

•Potential civil unrest or government overthrow and other events beyond our control.

For a discussion of these important risk factors, see “Part I, Item 1A — Risk Factors.”

In addition, we cannot predict all of the risks and uncertainties that could cause our actual results to differ from those expressed in the forward-looking statements. You should not place undue reliance on our forward-looking statements. Although forward-looking statements reflect our good faith beliefs, forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Accordingly, you should not regard any forward-looking statements as a representation that the expected results will be achieved.

We specifically disclaim any responsibility to publicly update any information contained in a forward-looking statement except as required by law. All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to inform the reader about matters affecting the financial condition and results of operations of EZCORP, Inc. and its subsidiaries (collectively, “we,” “us”, “our” or the “Company”) for the two-year period ended September 30, 2023. The following discussion should be read together with our consolidated financial statements and accompanying notes included in “Part II, Item 8 — Financial Statements and Supplementary Data.” This discussion and analysis contains forward-looking statements, and our actual results could differ materially from those anticipated in these forward-looking statements. See “Part I, Item 1A — Risk Factors” and “Cautionary Statement Regarding Risks and Uncertainties That May Affect Future Results” below.

Results of Operations

Non-GAAP Financial Information

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide certain other non-GAAP financial information on a constant currency basis (“constant currency”) and “same store” basis. We use constant currency results to evaluate our Latin America Pawn operations, which are denominated primarily in Mexican pesos, Guatemalan quetzales and other Latin American currencies. We analyze results on a same store basis (which is defined as stores open during the entirety of the comparable periods) to better understand existing store performance without the influence of increases or decreases resulting solely from changes in store count. We believe presentation of constant currency and same store results is meaningful and useful in understanding the activities and business metrics of our Latin America Pawn operations (in the case of constant currency) and our store operations (in the case of same store results) and reflect an additional way of viewing aspects of our business that, when viewed with GAAP results, provide a better understanding and evaluation 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. We use this non-GAAP financial information to evaluate and compare operating results across accounting periods. Readers should consider the information in addition to, but not rather than or superior to, our financial statements prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.

Constant currency results reported herein are calculated by translating consolidated balance sheet and consolidated statement of operations items denominated in local currency to U.S. dollars using the exchange rate from the prior-year comparable period, as opposed to the current period, in order to exclude the effects of foreign currency rate fluctuations. 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. Our statement of operations constant currency results reflect the monthly exchange rate fluctuations and are not directly calculable from the rates below. Constant currency results, where presented, also exclude the foreign currency gain or loss. The end-of-period and approximate average exchange rates for each applicable currency as compared to U.S. dollars as of and for the fiscal years ended September 30, 2023 and 2022 were as follows:

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Operating Results

Fiscal 2023 vs. Fiscal 2022

These tables, as well as the discussion that follows, should be read in conjunction with the accompanying consolidated financial statements and related notes.

Summary Financial Data

The following table presents selected summary consolidated financial data for fiscal 2023 and fiscal 2022.

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Pawn loans outstanding (“PLO”) increased $35.8 million (17%) to $245.8 million due to improved operational performance and continued strong pawn demand.

Total revenues increased $162.8 million (18%) and gross profit increased 15%, reflecting improved pawn service charge (“PSC”) revenue, merchandise sales and merchandise sales gross profit.

PSC increased $62.9 million (20%) as a result of higher average PLO and yields. Merchandise sales increased $82.6 million (15%), driven primarily by our continued focus on customer engagement, pricing merchandise to maintain strong inventory turnover and an increase in stores. Merchandise sales gross margin remains within our targeted range at 36%.

Operating expenses increased $64.5 million (14%) primarily due to (a) a $61.2 million increase in store expenses as a result of increased labor in-line with store activity, higher store count and, to a lesser extent, expenses related to our loyalty program and (b) a $3.2 million increase in general and administrative expenses primarily due to an increase in costs related to incentive compensation, insurance and our Workday implementation, partially offset by the litigation accrual charge of $2.0 million recorded in the prior period.

Total non-operating expenses increased $33.3 million (462%), primarily due to the net loss on our share of losses in Cash Converters’ net results related to their non-cash goodwill impairment charge and interest expense. Interest expense increased $6.5 million, primarily driven by the net loss recorded on the partial extinguishments of the 2024 convertible notes and 2025 convertible notes, and higher average total debt outstanding at overall higher average effective interest rates due to the issuance of the 2029 convertible notes in December 2022. See Note 9: Debt of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for further discussion.

Income tax expense decreased $4.4 million primarily due to the decrease in income before income taxes of $16.1 million, offset by an increase in tax expense for the non-deductible loss realized on the refinancing of the convertible notes in the current year. Income tax expense includes other items that do not necessarily correspond to pre-tax earnings and create volatility in our effective tax rate. These items include the net effect of state taxes, non-deductible items and changes in valuation allowances for certain foreign operations. See Note 11: Income Taxes of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for quantification of these items.

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U.S. Pawn

The following table presents selected summary financial data from our U.S. Pawn segment:

PLO continued to increase, ending the year at $190.6 million, up 17% in total and 13% on a same store basis due to improved customer service and increased pawn demand.

Total revenues increased 16% and gross profit increased 12%, primarily due to increased PSC.

PSC increased 19% as a result of higher average PLO and yields.

Merchandise sales increased 10%, primarily driven by our continued focus on customer engagement and pricing merchandise to maintain strong inventory turnover. Offsetting the sales increase, merchandise sales gross margin decreased 300 bps to 38%, reflecting a return to normalized margins.

Store expenses increased 12% (10% on a same store basis), primarily due to increased labor in-line with store activity, higher store count and, to a lesser extent, expenses related to our loyalty program.

Segment contribution increased $17.5 million due to the changes described above.

During fiscal 2023, segment net store count in our U.S. pawn segment increased by 14 due to the acquisition of 12 stores, the opening of 3 de novo stores and the consolidation of 1 store.

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Latin America Pawn

The following table presents selected summary financial data from our Latin America Pawn segment, including constant currency results, after translation to U.S. dollars from functional currencies. See “Results of Operations — Non-GAAP Financial Information” above.

PLO improved to $55.1 million, up 19% (7% on constant currency basis). On a same store basis, PLO increased 16% (4% on a constant currency basis) as consumer demand increased.

Total revenues were up 26% (16% on a constant currency basis), while gross profit increased by 25% (16% on a constant currency basis), primarily due to increased PSC, higher merchandise sales and improved gross profit.

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PSC increased 22% (13% on constant currency basis) as a result of higher average PLO and yields.

Merchandise sales increased 30% (19% on a constant currency basis) and 24% on a same store basis (14% on a constant currency basis). Merchandise sales increase was driven primarily by our continued focus on customer engagement, pricing merchandise to maintain strong inventory turnover and increase in stores. Merchandise sales gross margin increased 100 bps to 31%, within our target range.

Store expenses increased $28.0 million, up 31% (20% on a constant currency basis), primarily due to increases in minimum wage and headcount, higher store count and, to a lesser extent, expenses related to our loyalty program and rent. Same-store expenses increased 26% (15% on a constant currency basis).

Segment contribution was up 32% to $31.7 million (24% on a constant currency basis). This increase was primarily due to the reversal of contingent consideration liability in connection with a previously completed acquisition, which was recorded to “Other income,” and the changes in revenue and store expenses described above.

During fiscal 2023, net store count in our Latin America pawn segment increased by 42 due to the opening of 44 de novo stores and the consolidation of 2 stores.

Other Investments and Cash Converters

The following table presents selected summary financial data for our Other Investments and Cash Converters segments after translation to U.S. dollars from its functional currency of primarily Australian dollars:

Segment loss was $26.9 million, a decrease of $28.8 million, primarily due to the net loss on our share of Cash Converters’ net results related to their non-cash goodwill impairment charge.

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Other Items

The following table reconciles our consolidated segment contribution discussed above to net income, including items that affect our consolidated financial results but are not allocated among segments:

Segment contribution decreased $3.7 million or 2%, primarily due to the net loss on our share of losses in Cash Converters’s net results related to their non-cash goodwill impairment charge, partially offset by the improved operating results of the segments above.

General and administrative expenses increased $3.2 million (5%), primarily due to the impact related to the reversal of incentive compensation for the departed CEO in the prior year and to a lesser extent, an overall increase in incentive-based compensation, and costs primarily related to our Workday implementation, partially offset by the litigation accrual charge of $2.0 million recorded in the prior period.

Interest expense increased $6.5 million (65%), primarily driven by the net loss recorded on the partial extinguishments of the 2024 convertible notes and 2025 convertible notes, and higher average total debt outstanding at overall higher average effective interest rates due to the issuance of the 2029 convertible notes during December 2022. See Note 9: Debt of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for further discussion.

Interest income increased $4.8 million, due primarily to our treasury management with increased market interest rates.

Income tax expense decreased $4.4 million primarily due to a decrease in income before income taxes of $16.1 million, offset by an increase in tax expense for the non-deductible loss realized on the refinancing of the convertible notes in the current year. Income tax expense includes other items that do not necessarily correspond to pre-tax earnings and create volatility in our effective tax rate. These items include the net effect of state taxes, non-deductible items and changes in valuation allowances for certain foreign operations. See Note 11: Income Taxes of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for quantification of these items.

Fiscal 2022 vs. Fiscal 2021

The Results of Operations discussion for fiscal 2022 vs. fiscal 2021 is located in “Part II, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended September 30, 2022.

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Liquidity and Capital Resources

Cash and Cash Equivalents

Our cash and equivalents balance was $220.6 million at September 30, 2023 compared to $206.0 million at September 30, 2022. Our cash and equivalents were held in cash depository accounts with major banks or invested in high quality, short-term liquid investments.

Cash Flows

The table and discussion below present a summary of the sources and uses of our cash:

The $35.3 million increase in cash flows provided by operating activities was primarily due to an increase in net income (when considering adjustments for non-cash items affecting net income) as well as changes in working capital primarily related to the timing of payments of income taxes, inventory, prepaid expenses and accounts payable.

The $2.4 million decrease in cash flows used in investing activities was primarily due to an increase of $33.4 million in net pawn lending outflows and a $29.8 million net increase in cash flows used to fund acquisitions, strategic investments and capital expenditures, the largest of which is $15.0 million related to a note receivable from Founders, as discussed in Note 5: Strategic Investments in Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.” These were offset by a $61.9 million increase in cash inflows from the sale of forfeited collateral.

The $26.5 million increase in cash flows provided by financing activities was primarily related to the December 2022 financing of the 2029 Convertible Notes, in which we issued $230.0 million principal amount of 3.750% Convertible Senior Notes Due 2029 offset by the extinguishment of approximately $109.4 million aggregate principal amount of our 2024 Convertible Notes for approximately $117.5 million plus accrued interest and approximately $69.1 million aggregate principal amount of our 2025 Convertible Notes for approximately $62.9 million plus accrued interest. In addition, we used approximately $5.0 million of the net proceeds from the 2029 Convertible Notes offering to repurchase 578,703 shares of our Class A common stock from purchasers of the notes in privately negotiated transactions. Further, the Company repurchased and retired 1,389,102 shares of our Class A Common Stock for $12.0 million under the Common Stock Repurchase Program during the fiscal year ended September 30, 2023.

The net effect of these changes was a $14.6 million increase in cash on hand during the current year, resulting in a $229.0 million ending cash and restricted cash balance.

Sources and Uses of Cash

In December 2022, we issued $230.0 million aggregate principal amount of 2029 Convertible Notes. In conjunction with the issuance of the 2029 Convertible Notes, we extinguished approximately $109.4 million aggregate principal amount of our 2024 Convertible Notes for approximately $117.5 million plus accrued interest and approximately $69.1 million aggregate principal amount of our 2025 Convertible Notes for approximately $62.9 million plus accrued interest. In addition, we used approximately $5.0 million of the net proceeds from the 2029 Convertible Notes offering to repurchase 578,703 shares of our Class A common stock from purchasers of the notes in privately negotiated transactions. See Note 9: Debt of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.” The shares repurchased in conjunction with the transactions discussed above were authorized separately from, and not considered part of, the publicly announced share repurchase program referred to below.

In May 2022, our Board of Directors (the “Board”) authorized the repurchase of up to $50 million of our Class A Common Stock over 3 years. Execution of the program will be responsive to fluctuating market conditions and valuations, liquidity needs and the expected return on investment compared to other opportunities.

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The amount and timing of purchases will be dependent on a variety of factors, including stock price, trading volume, general market conditions, legal and regulatory requirements, general business conditions, the level of cash flows, and corporate considerations determined by management and the Board, such as liquidity and capital needs and the availability of attractive alternative investment opportunities. The Board has reserved the right to modify, suspend or terminate the program at any time. Through September 30, 2023, we have repurchased and retired 1,627,045 shares of our Class A Common Stock for $14.0 million, which amount was allocated between “Additional paid-in capital” and “Retained earnings” in our Consolidated Balance Sheets.

We anticipate that cash flows from operations and cash on hand will be adequate to fund ongoing operations, deb service requirements, tax payments, any future stock repurchases, strategic investments, our contractual obligations, planned de novo store growth, capital expenditures and working capital requirements through fiscal 2024. We continue to explore acquisition opportunities, both large and small, and may choose to pursue additional debt, equity or equity-linked financings in the future should the need arise. Depending on the level of acquisition activity and other factors, our ability to repay our longer term debt obligations, including the convertible debt maturing in 2024, 2025 and 2029, may require us to refinance these obligations through the issuance of new debt securities, equity securities, convertible securities or through new credit facilities.

Convertible Notes

For a description of the terms of our convertible notes, including the associated conversion and other related features and transactions, see Note 9: Debt of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.”

Contractual Obligations

Below is a summary of our cash needs to meet future aggregate contractual obligations as of September 30, 2023:

(a)    Excludes debt discount and deferred financing costs as well as convertible features.

(b)    Excludes $6.7 million in sublease payments expected to be received.

(c)    No provision for uncertain tax benefits has been reflected in the contractual obligations table as the timing of any such payment is uncertain. See Note 11: Income Taxes of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.” Additionally, no provision for insurance reserves, deferred compensation arrangements, or other liabilities totaling $6.6 million has been included as the timing of such payments are uncertain.

(d)    Total excludes contractual obligations already recorded on our consolidated balance sheets as current liabilities, except for the accrued portions of interest and lease obligations which are included in interest on long-term debt obligations and lease obligations captions above.

In addition to the lease obligations in the table above, we are responsible for the maintenance, property taxes and insurance at most of our locations. During the fiscal year ended September 30, 2023, these collectively amounted to $16.3 million.

Critical Accounting Estimates

The preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments including those related to revenue recognition, inventory, loan loss allowances, goodwill and indefinite-lived intangible assets, long-lived and other intangible assets, income taxes, contingencies and litigation. We base our estimates on historical experience, observable trends and various other assumptions that we believe to be reasonable under the circumstances. We use this information to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from the estimates under different assumptions or conditions.

The critical accounting policies and estimates that could have a significant impact on our results of operations, as well as relevant recent accounting pronouncements, are described in Note 1: Organization and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.” Certain accounting policies regarding the quantification of the sensitivity of certain critical estimates are discussed further below.

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Pawn Loan Revenue Recognition

We record PSC using the effective interest method over the life of the loan for all pawn loans we believe to be collectible. We base our estimate of collectible loans on several inputs, including recent redemption rates, historical trends in redemption rates and the amount of loans due in the following months. Unexpected variations in any of these factors could change our estimate of collectible loans, affecting our earnings and financial condition. As of September 30, 2023, the balance of our PSC receivable was $38.9 million. Assuming the average forfeiture rate increased or decreased by 10%, our pawn service charges receivable balance as of September 30, 2023 would have increased or decreased by approximately $1.2 million.

Inventory and Cost of Goods Sold

We consider our estimates of obsolete or slow-moving inventory and shrinkage in determining the appropriate overall valuation allowance for inventory. We monitor our sales margins for each type of inventory on an ongoing basis and compare to historical margins. Significant variances in those margins may require a revision to future inventory reserve estimates. We have historically revised our reserve pertaining to jewelry inventory depending on the current price of gold and resulting trends in margins. Future declines in gold prices may cause an increase in reserve rates pertaining to jewelry inventory. As of September 30, 2023, the gross balance of our inventory was $169.1 million, for which we have included reserves of $2.7 million. Assuming the reserve rates were increased or decreased by 10%, our inventory reserve balance as of September 30, 2023 would have increased or decreased by approximately $0.3 million.

Goodwill and Indefinite-Lived Intangible Assets

When testing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine an impairment is more-likely-than-not, we are then required to perform a quantitative impairment test; otherwise, no further analysis is required. We also may elect not to perform a qualitative assessment and, instead, proceed directly to a quantitative impairment test. When performing a quantitative impairment test, we apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

When we perform a quantitative goodwill impairment test, we estimate the fair value of the reporting unit using an income approach based on the present value of expected future cash flows, including terminal value, utilizing a market-based weighted average cost of capital (“WACC”) determined separately for each reporting unit. The determination of fair value involves the use of estimates and assumptions, including revenue growth rates, operating margins and terminal growth rates discounted by an estimated WACC derived from other publicly traded companies that are similar but not identical to us from an operational and economic standpoint. We use discount rates that are commensurate with the risks and uncertainties inherent in the respective businesses and in our internally developed forecasts.

We test indefinite-lived intangible assets for impairment by first assessing qualitative factors to determine whether it is necessary to perform a quantitative impairment test. If we believe as a result of the qualitative assessment that it is more-likely-than-not that the fair value of the indefinite-lived intangible asset is less than its carrying amount, a quantitative impairment test is required. Otherwise, no further testing is required.

We consider the assessment of the occurrence of triggering events or substantive changes in circumstances that may indicate the fair value of goodwill may be impaired to be a critical estimate. Furthermore, we consider the assumptions discussed above pertaining to the income approach we use in the quantitative testing of impairment to be critical estimates.

The results of the impairment analyses for fiscal year 2023 and fiscal year 2022 are discussed in Note 8: Goodwill and Intangible Assets of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.”

Income Taxes

Management believes that it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with future reversals of existing taxable temporary differences, will be sufficient to fully recover the net recorded deferred tax assets. In the event we determine all or part of the net deferred tax assets are not realizable in the future, we will make an adjustment to the valuation allowance that would be charged to earnings in the period such determination is made. We have included valuation allowances against deferred tax assets for net operating losses and tax credits not expected to be utilized based on specific facts and estimates for each jurisdiction.

We consider the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the U.S. on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. We have not recorded a deferred tax liability related to foreign withholding taxes of our undistributed earnings of foreign subsidiaries indefinitely invested outside the U.S.

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We may be subject to income tax audits by the respective tax authorities in any or all of the jurisdictions in which we operate or have operated within a relevant period. Significant judgment is required in determining uncertain tax positions. We utilize the required two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. We adjust these reserves in light of changing facts and circumstances, such as the closing of an audit or the refinement of an estimate. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We believe adequate provisions for income taxes have been made for all periods.

Cautionary Statement Regarding Risks and Uncertainties That May Affect Future Results

This Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend that all forward-looking statements be subject to the safe harbors created by these laws. All statements, other than statements of historical facts, regarding our strategy, future operations, financial position, future revenues, projected costs, prospects, plans and objectives are forward-looking statements. The words “may,” "can," “should,” “could,” “will,” "would," “predict,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such statements are only predictions of the outcome and timing of future events based on our current expectations and currently available information. Actual results could differ materially from those expressed in the forward-looking statements due to a number of risks and uncertainties, many of which are beyond our control. Accordingly, you should not regard any forward-looking statement as a representation that the expected results will be achieved. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report. Such risks and uncertainties include, among other things:

•Changes in laws and regulations;

•Negative characterizations of our industry;

•Concentration of business in Texas and Florida;

•Changes in gold prices or volumes;

•Changes in sales, pawn loan balances, sales margins, pawn redemption rates or other important operating metrics;

•Our ability to continue growing our store count through acquisitions and de novo openings;

•Continuing indemnification obligations for pre-closing taxes related to our sale of Grupo Finmart;

•Our controlled ownership structure;

•Potential regulatory fines and penalties, lawsuits and related liabilities related to firearms business;

•Potential robberies, burglaries and other crimes at our stores;

•Changes in the competitive landscape;

•Our ability to design or acquire, deploy and maintain adequate information technology and other business systems;

•Failure to achieve adequate return on investments;

•Potential uninsured property, casualty or other losses;

•Potential natural disasters;

•Financial statement impact of potential impairment of goodwill or other intangible assets such as trade names;

•Potential conversion of Convertible Notes into cash (which could adversely affect liquidity) or stock (which will cause dilution of existing stockholders);

•Limited number of unreserved shares available for future issuance;

•Public health issues that could adversely affect our financial condition or results of operations;

•Changes in the business, regulatory, political or social climate in Latin America;

•Changes in foreign currency exchange rates;

•The outcome of future litigation and regulatory proceedings;

•Potential disruptive effect of acquisitions, investments and new businesses;

•Potential exposure under anti-corruption, anti-bribery, anti-money laundering and other general business laws and regulations;

•Changes in liquidity, capital requirements or access to debt and capital markets;

•Potential data security breaches or other cyber-attacks; and

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•Potential civil unrest or government overthrow and other events beyond our control.

For a discussion of these important risk factors, see “Part I, Item 1A — Risk Factors.”

In addition, we cannot predict all of the risks and uncertainties that could cause our actual results to differ from those expressed in the forward-looking statements. You should not place undue reliance on our forward-looking statements. Although forward-looking statements reflect our good faith beliefs, forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Accordingly, you should not regard any forward-looking statements as a representation that the expected results will be achieved.

We specifically disclaim any responsibility to publicly update any information contained in a forward-looking statement except as required by law. All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to inform the reader about matters affecting the financial condition and results of operations of EZCORP, Inc. and its subsidiaries (collectively, “we,” “us”, “our” or the “Company”) for the two-year period ended September 30, 2022. The following discussion should be read together with our consolidated financial statements and accompanying notes included in “Part II, Item 8 — Financial Statements and Supplementary Data.” This discussion and analysis contains forward-looking statements, and our actual results could differ materially from those anticipated in these forward-looking statements. See “Part I, Item 1A — Risk Factors” and “Cautionary Statement Regarding Risks and Uncertainties That May Affect Future Results” below.

Results of Operations

Non-GAAP Financial Information

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide certain other non-GAAP financial information on a constant currency basis ("constant currency") and “same store” basis. We use constant currency results to evaluate our Latin America Pawn operations, which are denominated primarily in Mexican pesos, Guatemalan quetzales and other Latin American currencies. We analyze results on a same store basis (which is defined as stores open during the entirety of the comparable periods) to better understand existing store performance without the influence of increases or decreases resulting solely from changes in store count. We believe presentation of constant currency and same store results is meaningful and useful in understanding the activities and business metrics of our Latin America Pawn operations (in the case of constant currency) and our store operations (in the case of same store results) and reflect an additional way of viewing aspects of our business that, when viewed with GAAP results, provide a better understanding and evaluation 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. We use this non-GAAP financial information to evaluate and compare operating results across accounting periods. Readers should consider the information in addition to, but not rather than or superior to, our financial statements prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.

Constant currency results reported herein are calculated by translating consolidated balance sheet and consolidated statement of operations items denominated in local currency to U.S. dollars using the exchange rate from the prior-year comparable period, as opposed to the current period, in order to exclude the effects of foreign currency rate fluctuations. 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. Our statement of operations constant currency results reflect the monthly exchange rate fluctuations and are not directly calculable from the rates below. Constant currency results, where presented, also exclude the foreign currency gain or loss. The end-of-period and approximate average

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exchange rates for each applicable currency as compared to U.S. dollars as of and for the twelve months ended September 30, 2022 and 2021 were as follows:

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Operating Results

Fiscal 2022 vs. Fiscal 2021

These tables, as well as the discussion that follows, should be read in conjunction with the accompanying condensed consolidated financial statements and related notes.

Summary Financial Data

The following table presents selected summary consolidated financial data for fiscal 2022 and fiscal 2021.

PLO increased $34.1 million (19%) to $210.0 million. This is the highest period-end PLO balance we have ever recorded. The increase was due to strong loan demand reflecting continued recovery above pre-COVID levels.

Total revenues increased $156.7 million ( 21%), and gross profit increased 18%.

PSC increased $60.7 million ( 23%) as a result of higher PLO. Merchandise sales increased $90.1 million (20%), and merchandise sales

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gross profit increased $17.9 million (10%), due to a return to more normalized inventory levels and our improved core retail strategy of selling general merchandise inventory in the first 90 days. Gross margin on merchandise sales declined 400 bps to 38%, reflecting a return to more normalized margins, but remained in our targeted range.

Operating expenses increased $34.9 million (8%) primarily due to (a) a $26.6 million increase in store expenses as a result of increased labor in-line with store activity and rent associated with lease renewals and (b) a $7.8 million increase in general and administrative expenses due to asset write-downs associated with IT infrastructure migration and corporate office sublease, a litigation accrual and increased labor and software licensing costs.

Total non-operating expenses decreased $7.9 million (52%). Interest expense decreased $12.2 million, driven by the Accounting Standards Update 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), (“ASU 2020-06”) accounting policy change, which no longer requires debt discount be included on our balance sheet effective October 1, 2021. The policy change eliminates the non-cash interest amortization of the debt discount. See Note 1: Organization and Summary of Significant Accounting Policies included in “Part II, Item 8 — Financial Statements and Supplemental Data” for further discussion of this recently adopted accounting policy. The interest expense decrease was partially offset by a decrease in equity income for our unconsolidated affiliates primarily due to Cash Converters’ net results, which included an impairment, primarily of its ROU lease assets, that was attributed to COVID-19.

Income tax expense increased $10.1 million primarily due to an increase in income before income taxes of $51.7 million. Income tax expense includes other items that do not necessarily correspond to pre-tax earnings and create volatility in our effective tax rate. These items include the net effect of state taxes, non-deductible items and changes in valuation allowances for certain foreign operations. See Note 11: Income Taxes of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for quantification of these items.

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U.S. Pawn

The following table presents selected summary financial data from our U.S. Pawn segment:

PLO continued to increase, ending the year at $163.5 million, up 20% in total and on a same store basis, due to increased loan demand reflecting a recovery above pre-COVID levels.

Total revenues increased 19% and gross profit increased 16%, reflecting higher average PLO for the year driving higher PSC.

PSC increased 22% primarily as a result of higher average PLO.

Merchandise sales increased 15% due to our return to more normalized inventory levels and our improved core retail strategy of selling general merchandise inventory in the first 90 days. Offsetting the sales increase, merchandise sales gross margin decreased 300 bps to 41%, reflecting a return to more normalized margins, but remained in our targeted range.

Store expenses increased 5% primarily due to increased labor in-line with store activity and rent associated with lease renewals.

Segment contribution increased $43.5 million due to the changes described above.

During fiscal 2022, we acquired three stores in the U.S.

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Latin America Pawn

The following table presents selected summary financial data from our Latin America Pawn segment, including constant currency results, after translation to U.S. dollars from functional currencies. See “Results of Operations — Non-GAAP Financial Information” above.