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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-19424
EZCORP, INC.
Delaware
(State or other jurisdiction of incorporation or organization)
2500 Bee Cave
Road
Bldg One Suite 200 Rollingwood TX
(Address of principal executive offices)
74-2540145
(I.R.S. Employer Identification
No.)
78746
(Zip Code)
Registrant’s telephone number, including area code: (512) 314-3400
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Class A Non-voting Common Stock, $.01 par value per
share
EZPW
The NASDAQ Stock Market
Section 12(g) of the Act: None
(NASDAQ Global Select Market)
Securities Registered Pursuant to
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,”
“accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐ Accelerated filer
☐ Smaller reporting company
Emerging growth company
☑
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☑ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The only class of voting securities of the registrant issued and outstanding is the Class B Voting Common Stock, par value $.01 per share, all of which is owned by an affiliate of the registrant.
There is no trading market for the Class B Voting Common Stock. The aggregate market value of the Class A Non-Voting Common Stock held by non-affiliates of the registrant was $212
million, based on the closing price on the NASDAQ Stock Market on March 31, 2020.
As of November 30, 2020, 52332848 shares of the registrant’s Class A Non-Voting Common Stock, par value $.01 per share, and 2,970,171 shares of the registrant’s Class B Voting Common
Stock, par value $.01 per share, were outstanding.
Documents incorporated by reference: None
Table of Contents
Table of Contents
Item
No.
1. Business
1A. Risk Factors
1B. Unresolved Staff Comments
2. Properties
3. Legal Proceedings
4. Mine Safety Disclosures
EZCORP, INC.
YEAR ENDED SEPTEMBER 30, 2020
INDEX TO FORM 10-K
PART I
PART II
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
6. Selected Financial Data
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
7A. Quantitative and Qualitative Disclosures About Market Risk
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
9A. Controls and Procedures
9B. Other Information
10. Directors, Executive Officers and Corporate Governance
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
13. Certain Relationships and Related Transactions, and Director Independence
14. Principal Accountant Fees and Services
PART III
PART IV
15. Exhibits and Financial Statement Schedules
16. Form 10-K Summary
Signatures
Page
No.
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109
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PART I
This report contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially
from those currently anticipated and expressed or implied by those forward-looking statements because of a number of risks and uncertainties, including those
discussed under “Part I, Item 1A — Risk Factors.” We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often
do, vary from actual results, and the differences can be material. See also “Part II, Item 7 — Management's Discussion and Analysis of Financial Condition and
Results of Operations — Cautionary Statement Regarding Risks and Uncertainties That May Affect Future Results.”
Unless otherwise specified, references to the “company,” “we,” “our,” “us” and “EZCORP” refer to EZCORP, Inc. and its consolidated subsidiaries, collectively.
References to a “fiscal” year refer to our fiscal year ended September 30 of the specified year. For example, “fiscal 2020” refers to the fiscal year ended
September 30, 2020. All currency amounts preceded with “$” are stated in U.S. dollars, except as otherwise indicated.
ITEM 1 — BUSINESS
Overview
EZCORP, Inc. is a Delaware corporation headquartered in Austin, Texas. We are a leading provider of pawn loans in the United States and Latin America with
over 1,000 locations and approximately 5,900 team members.
Our vision is to be our customers’ first and best choice for their short-term cash needs. This vision is supported by a customer-centric strategy that includes the
following:
•
•
•
•
•
•
Providing fast, easy and simple access to cash;
Serving our customers in a friendly and respectful way;
Always being competitive and fair;
Passionately solving customer needs;
Building enduring relationships; and
Recognizing and rewarding customer loyalty.
At September 30, 2020, we operated a total of 1,005 locations, consisting of:
•
•
•
505 U.S. pawn stores (operating primarily as EZPAWN or Value Pawn & Jewelry);
368 Mexico pawn stores (operating primarily as Empeño Fácil); and
132 pawn stores in Guatemala, El Salvador, Honduras and Peru (operating as GuatePrenda and MaxiEfectivo).
At our pawn stores, we offer non-recourse pawn loans collateralized by tangible personal property, and sell merchandise to customers looking for good value. The
merchandise we sell primarily consists of second-hand collateral forfeited from our pawn lending activities or merchandise purchased from customers. By store
count, we are the second largest pawn store owner and operator in the U.S. and one of the largest in Latin America. We also offer a web-based application called
Lana that allows customers to manage their pawn loans in one place.
In addition to our core pawn business in the U.S. and Latin America, we own 34.75% of Cash Converters International Limited (“Cash Converters International”),
a publicly traded company (ASX: CCV) headquartered in Perth, Western Australia. Cash Converters International and its controlled companies comprise a diverse
group generating revenues from franchising, store operations, personal finance and vehicle finance, controlling over 700 stores across 16 countries.
We also own approximately 13% of Rich Data Corporation (RDC), a Singapore-based software-as-a-service company that utilizes global financial services
expertise, advanced artificial intelligence and non-traditional data to deliver a next-generation credit scoring and decisioning platform.
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We generate revenues primarily from pawn services charges (“PSC”) on pawn loans outstanding (“PLO”), merchandise sales and jewelry scrapping. We remain
focused on optimizing our balance of PLO and the resulting higher pawn service charges (“PSC”). The following charts present sources of net revenues, including
PSC, merchandise sales gross profit (“Merchandise sales GP”) and jewelry scrapping gross profit (“Jewelry scrapping GP”):
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Segment and Geographic Information
We conduct our business globally and manage our business by geography. Our business is organized into the following reportable segments:
•
•
•
•
U.S. Pawn, which includes our EZPAWN, Value Pawn & Jewelry and other branded pawn operations in the United States;
Latin America Pawn, which includes our Empeño Fácil and other branded pawn operations in Mexico, as well as our GuatePrenda and MaxiEfectivo
pawn operations in Guatemala, El Salvador, Honduras and Peru;
Lana, which is our customer-centric web-based engagement platform; and
Other International, which includes the consumer finance activities in Canada that we closed in the fourth quarter and our equity interests in Cash
Converters International and RDC.
We began reporting separate financial results for our Lana business in the first quarter of fiscal 2020, and our historical segment results have been recast to
conform to current presentation.
The following table presents store data by segment (excluding Lana, which has no separate physical store locations), included in our continuing operations:
As of September 30, 2017
New locations opened
Locations acquired
Locations sold, combined or closed
As of September 30, 2018
New locations opened
Locations acquired
Locations sold, combined or closed
As of September 30, 2019
New locations opened
Locations acquired
Locations sold, combined or closed
As of September 30, 2020
U.S. Pawn
Latin America
Pawn
Other International
Consolidated
Company-owned Stores
513
—
—
(5)
508
—
7
(3)
512
—
—
(7)
505
246
12
196
(1)
453
22
5
—
480
23
—
(3)
500
27
—
—
—
27
—
—
(5)
22
—
—
(22)
—
786
12
196
(6)
988
22
12
(8)
1,014
23
—
(32)
1,005
For additional information about our segments and geographic areas, see Note 14 of Notes to Consolidated Financial Statements included in “Part II, Item 8 —
Financial Statements and Supplementary Data.”
Pawn Activities
At our pawn stores, we offer pawn loans, which are typically small, non-recourse loans collateralized by tangible personal property. We earn pawn service charges
on our pawn loans, which varies by state and loan size. Collateral for our pawn loans consists of tangible personal property, generally jewelry, consumer
electronics, tools, sporting goods and musical instruments. Security for our pawn loans is provided via the estimated resale value of the collateralized personal
property and the perceived probability of the loans' redemption.
As of September 30, 2020, we had a closing pawn loan principal balance of $131.3 million, from which we earn pawn service charges. In fiscal 2020, pawn service
charges accounted for approximately 33% of our total revenues and 61% of our net revenues.
U.S. pawn loans primarily earn 13% to 25% per month as permitted by applicable law, excluding forfeitures. The U.S. pawn loan term generally ranges between
30 and 90 days. While individual loans vary depending on the valuation of each item pawned, our U.S. pawn loans typically average between $100 and $120.
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In Mexico, pawn loans earn 15% to 21% per month as permitted by applicable law, excluding forfeitures. The Mexico pawn loan primary term is 30 days.
Individual loans are made in Mexican pesos and vary depending on the valuation of each item pawned. Mexico pawn loans typically average between 1,100 and
1,300 Mexican pesos, or approximately $50 to $60 on average using the average exchange rate for fiscal 2020.
In Guatemala, El Salvador, Honduras and Peru, pawn loans earn 12% to 18% per month as permitted by applicable law, excluding forfeitures. The pawn loan
primary term in these countries is 30 days. Individual loans are made in the local currency of the country and vary depending on the valuation of each item pawned.
Our pawn loans in these countries typically average between $100 and $120 using the average exchange rates for fiscal 2020. The average loan amounts tend to be
higher in these countries than in Mexico due to the higher concentration of jewelry loans.
If a customer chooses not to repay, renew or extend a pawn loan, the collateral is forfeited and becomes inventory available for sale. We do not record loan losses
or charge-offs of pawn loans because the principal amount of an unpaid loan becomes the inventory carrying cost of the forfeited collateral. The difference
between the subsequent sale of the forfeited collateral and the loan value is reflected in merchandise sales gross margin.
The redemption rate represents the percentage of loans made that are repaid, renewed or extended, including loans that may extend multiple times in a given time
period. The following table presents our pawn loan redemption rates by segment:
Redemption Rate
U.S. Pawn
Latin America Pawn
Fiscal Year Ended September 30,
2019
2018
2020
88 %
78 %
84 %
78 %
84 %
79 %
Our ability to offer quality second-hand goods at prices significantly lower than original retail prices attracts value-conscious customers. The gross profit on sales
of inventory depends primarily on our assessment of the loan or purchase value at the time the property is either accepted as loan collateral or purchased and our
ability to sell that merchandise in a timely manner. As a significant portion of our inventory and sales involve gold and jewelry, our results can be influenced by the
market price of gold and diamonds.
Customers in the United States and the majority of our Latin America stores may purchase a product protection plan that allows them to exchange certain general
merchandise (non-jewelry) sold through our retail pawn operations within six months of purchase. We also offer a jewelry VIP package, which guarantees
customers a minimum future pawn loan amount on the item sold, allows them full credit if they trade in the item to purchase a more expensive piece of jewelry,
and provides minor repair service on the item sold. Customers may also purchase an item on layaway by paying a minimum layaway deposit of typically 10% of
the item’s sale price, in addition to an upfront fee. We hold items on layaway for a 90 to 180-day period, during which the customer is required to pay the balance
of the sales price through a series of installment payments. If a payment is missed, we hold the item for a maximum of 30 days, after which it is returned to active
inventory for sale.
Closure of CASHMAX
We operated 22 financial services stores in Canada under the CASHMAX brand during the fiscal year. All of the stores were located in the Ontario province, in
and around Toronto. During the fourth quarter, as part of a review of our growth strategies and cost optimization initiatives, we closed our CASHMAX business.
Operations and Risk Management
Our pawn operations are designed to provide the optimum level of support to the store teams, providing coaching, mentoring and problem solving to identify
opportunities to better serve our customers and position us to be the leader in customer service and satisfaction.
Our risk management structure consists of asset protection, compliance and internal audit departments, which monitor the inventory system, lending practices,
regulatory compliance and compliance with our policies and procedures. We perform full physical audits of inventory at each store at least annually, and more
often in higher risk stores or those experiencing higher shrinkage. Inventory counts are completed daily for jewelry and firearms, and other inventory categories
more susceptible to theft are cycle counted multiple times annually. We record shrink adjustments for known losses at the conclusion of each inventory count.
These adjustments are recorded as estimates during interim periods and as discovered during cycle counts.
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Human Capital Management
We employ 5,900 Team Members in the U.S., Mexico, Guatemala, El Salvador, Honduras, Peru and Canada, all of whom are expected to be guided by our vision
and values and by an underlying set of ethical principles. Incorporated into our Code of Conduct, our vision, values and principles define our culture and strengthen
the workforce. We strive to demonstrate to our customers, shareholders, business partners, communities and Team Members that we are worthy of their trust and
continually strive to enhance and differentiate our brand reputation as the best in our industry. Globally, we invest in Team Members at all levels who are expected
to integrate our vision and values in all that we do.
While the People and Compensation Committee of the Board of Directors has the primary responsibility of overseeing our human capital management activities
(including assessing the effectiveness of employee programs and advising management with regard to the quality of the workforce to carry out our strategic goals
and overall human resource strategies), other Board committees also have responsibilities that impact our human capital management as outlined in their respective
Charters. Within management, our Human Resources function has global management responsibility for advising and assisting the business on human resource
matters and executing our overall human capital management strategies.
We are committed to fostering work environments that value diversity and inclusion. This commitment includes providing equal access to, and participation in,
equal employment opportunities, programs and services without regard to race, creed, religion, color, national origin, disability, sex (including pregnancy), sexual
orientation, gender identity, veteran status, age or stereotypes or assumptions based thereon. We welcome and celebrate our Team Members’ differences,
experiences and beliefs, and we are investing in a more productive, engaged, diverse and inclusive workforce.
During fiscal 2020, we appointed a Senior Manager of Diversity and Inclusion, who is responsible for strategic management and planning for diversity and
inclusion within the Company, as well as enhancing our understanding, providing training and development, and partnering with and assisting all of us to be
accountable. During the year, our new Diversity and Inclusion function drove a number of initiatives to enhance our focus on diversity and inclusion and raise our
awareness, including mandatory compliance training on unconscious bias, introduction of the Diversity Word of the Month (a recurring program to raise awareness
and promote constructive conversations about various diversity and inclusion issues), and conducting a series of surveys and group feedback sessions, the results of
which are shared with senior management and help guide our ongoing Diversity and Inclusion activities.
We strive to engage and retain our Team Members throughout the employment life-cycle with effective recruiting and onboarding; competitive pay, benefits and
other total rewards; mandatory and optional programs for professional development and career advancement; compliance training; succession planning; and a safe,
healthy and respectful workplace. Our EZCORP University includes mandatory global compliance training at hire and periodically thereafter, career advancement
training requirements and thousands of self-directed developmental courses.
In response to the COVID-19 pandemic, we quickly implemented safety and health standards and protocols for our Team Members while continuing to offer a safe
environment as an essential service to our customers. Team Members in our Corporate Support Centers have been working from home since March. Our pawn
locations are provided with PPE, other equipment and enhanced cleaning supplies, and are required to adhere to appropriate protocols for social distancing,
limiting density, taking temperatures, reporting and documenting exposures and wearing masks at all times, all as recommended by the Centers for Disease Control
or mandated by local regulations.
We maintain an Ethics Hotline that is available to all of our Team Members to report (anonymously if desired) any matter of concern. Communications to the
hotline (which is facilitated by an independent third party) are routed to appropriate functions (whether Human Resources, Legal or Compliance) for investigation
and resolution. In addition, any shareholder or other interested party may send communications to the Board of Directors, either individually or as a group, through
a process that is outlined in the Investor Relations section of our website.
Growth and Expansion
Part of our strategy is to grow the number of locations we operate through opening new (“de novo”) locations and through acquisitions in both Latin America and
the U.S. and potential new markets. Our ability to add new stores is dependent on several variables, such as projected achievement of internal investment hurdles,
the availability of acceptable sites or acquisition candidates, the alignment of acquirer/seller price expectations, the regulatory environment, local zoning
ordinances, access to capital and availability of qualified personnel.
During fiscal 2020, we continued our expansion in Latin America with the opening of 23 de novo stores (14 in Mexico, 7 in Guatemala, 1 in Honduras and 1 in
Peru). We now own a total of 500 stores in Latin America, representing 50% of our total pawn stores. In fiscal 2020, these stores represented 19% of our
consolidated net revenues as the average scale of Latin
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America pawn stores is smaller than in the U.S. We see opportunity for further expansion in Latin America through both acquisitions and de novo openings.
For further information about our acquisitions, see Note 3 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and
Supplementary Data.”
Seasonality and Quarterly Results
In the United States, pawn service charges are historically highest in our fourth fiscal quarter (July through September) due to a higher average loan balance during
the summer lending season and lowest in our third fiscal quarter (April through June) following the tax refund season, and merchandise sales are highest in our first
and second fiscal quarters (October through March) due to the holiday season, jewelry sales surrounding Valentine’s Day and the availability of tax refunds. In
Latin America, most of our customers receive additional compensation from their employers in December, and many receive additional compensation in June or
July, applying downward pressure on loan balances and fueling some merchandise sales in those periods. As a net effect of these and other factors and excluding
discrete charges, our consolidated profit before tax is generally highest in our first fiscal quarter (October through December) and lowest in our third fiscal quarter
(April through June). These historical trends have been impacted by COVID-19, but we expect them to return in the future.
Competition
We encounter significant competition in connection with all of our activities. These competitive conditions may have an impact on our revenues, profitability and
ability to expand. We compete with other pawn stores, credit service organizations, banks, credit unions and other financial institutions, such as consumer finance
companies. We believe the primary elements of competition are the quality of customer service and relationship management, including understanding our
customers’ needs better than anyone else, convenience, store location and a customer-friendly environment. In addition, we believe the ability to compete
effectively will be based increasingly on strong general management, regional focus, automated management information systems, access to capital and superior
customer service.
Our competitors for merchandise sales include numerous retail and wholesale stores such as jewelry stores, discount retail stores, consumer electronics stores,
other pawn stores, other resale stores, electronic commerce retailers and auction sites. Competitive factors in our retail operations include the ability to provide the
customer with a variety of merchandise at an exceptional value coupled with exceptional customer service and convenient locations.
The pawn industry in the United States is large, relatively mature and highly fragmented. The industry consists of a few large operators (of which we are the
second largest) and then independent operators who primarily own one to three locations.
The pawn industry in Latin America is also fragmented, but less so than in the United States. The industry consists of pawn stores owned by independent operators
and chains, including some not-for-profit organizations. We are the second largest for-profit operator in Mexico. The pawn industry, particularly full-line stores
offering general merchandise and jewelry loans and resale, remains in an expansion stage in Latin America.
Trademarks and Trade Names
We operate our U.S. pawn stores principally under the names “EZPAWN” or “Value Pawn & Jewelry,” our Mexico pawn stores principally under the name
“EMPEÑO FÁCIL,” our Guatemala pawn stores under the name “GuatePrenda,” and our El Salvador, Honduras and Peru pawn stores under the name
“MaxiEfectivo.” We have registered the names EZPAWN and EZCORP, among others, with the United States Patent and Trademark Office. In Mexico, we have
registered the names “EMPEÑO FÁCIL,” “Bazareño,” “Presta Dinero” and “Montepio San Patricio” with the Instituto Mexicano de la Propiedad Industrial. We
have registered the name “GuatePrenda” in Guatemala and the name “MaxiEfectivo” in Guatemala, El Salvador, Honduras and Peru.
Regulation
Compliance with federal, state and local laws and regulations is an integral part of how we manage our business, and we conduct our business in material
compliance with all of these rules. The following is a general description of significant regulations affecting our business.
U.S. Regulations
Pawn Regulations — Our pawn stores are regulated by the states in which they are located and, in some cases, by individual municipalities or other local
authorities. The applicable statutes, ordinances and regulations vary from location to location and typically impose licensing requirements for pawn stores or
individual pawn store team members. Licensing requirements
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typically relate to financial responsibility and character and may establish restrictions on where pawn stores can operate. Additional rules regulate various aspects
of the day-to-day pawn operations, including the pawn service charges that a pawn store may charge, the maximum amount of a pawn loan, the minimum or
maximum term of a pawn loan, the content and format of the pawn ticket, and the length of time after a loan default that a pawn store must hold a pawned item
before it can be offered for sale. Failure to observe applicable regulations could result in a revocation or suspension of pawn licenses, the imposition of fines or
requirements to refund service charges and fees, and other civil or criminal penalties. We must also comply with various federal requirements regarding the
disclosure of the annual percentage rate, finance charge, amount financed, total of payments and payment schedule related to each pawn loan transaction.
Additional federal regulations applicable to our pawn lending business are described in “Other Regulations” below.
The majority of our pawn stores, voluntarily or pursuant to applicable laws, provide periodic (generally daily) reports to local law enforcement agencies. These
reports provide local law enforcement with information about the items received from customers (whether through pawn or purchase), including a detailed
description of the goods involved and the name and address of the customer. If we accept as collateral or purchase merchandise from a customer and it is
determined that our customer was not the rightful owner, the merchandise is subject to recovery by the rightful owner and those losses are included in our
shrinkage. Historically, we have not experienced a material number of claims of this nature.
Some of our pawn stores in the U.S. handle firearms and each of those stores maintains a federal firearms license as required by federal law. The federal Gun
Control Act of 1968 and regulations issued by the Bureau of Alcohol, Tobacco, and Firearms also require each pawn store dealing in firearms to maintain a
permanent written record of all receipts and dispositions of firearms. In addition, we must comply with the Brady Handgun Violence Prevention Act, which
requires us to conduct a background check before releasing, selling or otherwise disposing of firearms.
Other Regulations — Our pawn lending activities are subject to other state and federal statutes and regulations, including the following:
• We are subject to the federal Gramm-Leach-Bliley Act and its underlying regulations, as well as various state laws and regulations relating to privacy and
data security. Under these regulations, we are required to disclose to our customers our policies and practices relating to the protection and sharing of
customers’ nonpublic personal information. These regulations also require us to ensure that our systems are designed to protect the confidentiality of
customers’ nonpublic personal information, and many of these regulations dictate certain actions that we must take to notify customers if their personal
information is disclosed in an unauthorized manner. We are subject to the Fair Credit Reporting Act, which was enacted, in part, to address privacy
concerns associated with the sharing of consumers’ financial information and credit history contained in consumer credit reports and limits our ability to
share certain consumer report information. We are subject to the Federal Fair and Accurate Credit Transactions Act, which amended the Fair Credit
Reporting Act and requires us to adopt written guidance and procedures for detecting, preventing and mitigating identity theft, and to adopt various
policies and procedures (including Team Member training) that address and aid in detecting and responding to suspicious activity or identity theft “red
flags.”
•
•
•
As a provider of consumer financial products, we are prohibited from engaging in any unfair, deceptive or abusive act or practice (UDAAP) under the
Dodd-Frank Act, as they can cause significant financial injury to consumers, erode consumer confidence and undermine the financial marketplace.
The Equal Credit Opportunity Act prohibits discrimination on the basis of race, color, religion, national origin, sex, marital status, age, receipt of public
assistance or good faith exercise of any rights under the Consumer Credit Protection Act.
Under the USA PATRIOT Act, we must maintain an anti-money laundering compliance program that includes the development of internal policies,
procedures and controls; the designation of a compliance officer; an ongoing team member training program; and an independent audit function to test the
program.
• We are subject to the Bank Secrecy Act and its underlying regulations, which require us to report and maintain records of certain high-dollar transactions.
In addition, federal laws and regulations require us to report certain suspicious transactions to the Financial Crimes Enforcement Network of the Treasury
Department (“FinCen”). Generally, a transaction is considered to be suspicious if we know, suspect or have reason to suspect that the transaction
(a) involves funds derived from illegal activity or is intended to hide or disguise such funds, (b) is designed to evade the requirements of the Bank Secrecy
Act or (c) appears to serve no legitimate business or lawful purpose.
•
The Office of Foreign Assets Control (“OFAC”) of the Department of the Treasury administers and enforces economic and trade sanctions based on U.S.
foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in
activities related to the proliferation of weapons
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of mass destruction and other threats to the national security, foreign policy or economy of the United States. We are prohibited from doing business with
named individuals, businesses and countries subject to sanctions and restrictions, and we are required to report any transactions involving those named by
the US. Department of the Treasury.
•
•
The Foreign Corrupt Practices Act ("FCPA") makes it unlawful for certain classes of persons and entities to make payments to foreign government
officials to assist in obtaining or retaining business. Specifically, the anti-bribery provisions of the FCPA prohibit the willful use of mail or any means of
instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of money or
anything of value to any person, while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or
indirectly, to a foreign official to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in
violation of his or her lawful duty, or to secure any improper advantage in order to assist in obtaining or retaining business for or with, or directing
business to, any person.
The Department of Defense regulations promulgated under the Military Lending Act (the “MLA”) limit the annual percentage rate charged on certain
consumer loans (including pawn loans) made to active military personnel or their dependents to 36%.
Under certain circumstances, the federal Consumer Financial Protection Bureau (“CFPB”) may be able to exercise regulatory authority over the U.S. pawn industry
through its rule making authority. To date, the CFPB has not taken any steps to exercise such authority or indicated any intention to do so.
Mexico Regulations
Pawn Regulations — Federal law in Mexico provides for administrative regulation of the pawnshop industry by Procuraduría Federal del Consumidor
(PROFECO), Mexico’s primary federal consumer protection agency. PROFECO regulates the form and terms of pawn loan contracts (but not interest or service
charge rates) and defines certain operating standards and procedures for pawnshops, including retail operations, and establishes registration, disclosure, bonding
and reporting requirements. There are significant fines and sanctions, including operating suspensions, for failure to comply with PROFECO’s rules and
regulations.
PROFECO requires that we report certain transactions (or series of transactions) that exceed certain monetary limits. Anti-money laundering regulations restrict the
use of cash in certain transactions. Relevant aspects of the law specifically affecting the pawn industry include monthly reporting on “vulnerable activities,” which
includes certain high-value pawn and precious metal transactions.
The Federal Law on the Protection of Personal Data Held by Private Parties requires us to protect our customers’ personal information. This law requires us to
inform customers if we share customer personal information with third parties and to post (both online and in-store) our Data Privacy Policy.
Our pawn business in Mexico is also subject to regulation at the state and local level through state laws and local zoning and permitting ordinances. For example,
some states require permits for pawn stores to operate, certification of team members as trained in the valuation of merchandise, and strict customer identification
controls. State and local agencies often have authority to suspend store operations pending resolution of actual or alleged regulatory, licensing and permitting
issues.
Other Regulations — Our pawn business in Mexico is subject to the General Law of Administrative Responsibility (“GLAR”), effective July 2017. GLAR
establishes administrative penalties for improper payments to government officials, influence peddling (including the hiring of public officials and the use of undue
influence) and other corrupt acts in public procurement processes.
We are also subject to The Federal Law for the Prevention and Identification of Transactions with Funds from Illegal Sources, which requires reporting of certain
transactions exceeding certain monetary limits, maintenance of customer identification records and controls, and reporting of all non-Mexican customer
transactions. This law affects all industries in Mexico and is intended to detect commercial activities arising from illicit or ill-gotten means through bilateral
cooperation between Mexico’s Ministry of Finance and Public Credit and Mexico’s Attorney General’s Office. The law also restricts the use of cash in certain
transactions associated with high-value assets and limits, and to the extent possible, money laundering activities protected by the anonymity that such cash
transactions provide. Relevant aspects of the law specifically affecting the pawn industry include monthly reporting on “vulnerable activities,” which include pawn
transactions exceeding 139,442 Mexican pesos and retail transactions of precious metals exceeding 139,442 Mexican pesos. Retail transactions of precious metals
in cash exceeding 271,213 Mexican pesos are prohibited. There are significant fines and sanctions for failure to comply with these rules.
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In addition to the above, our pawn business in Mexico is subject to various general business regulations in the areas of tax compliance, customs, consumer
protections, money laundering, civil protection regulations, municipal regulations, trade code (federal), public safety and employment matters, among others, by
various federal, state and local governmental agencies.
Other Latin American Regulations
Local governmental entities in Guatemala, El Salvador, Honduras and Peru also regulate lending and retail businesses. Certain laws and local zoning and
permitting ordinances require basic commercial business licenses and signage permits. Operating in these countries also subjects us to other types of regulations,
including regulations related to financial reporting, data protection and privacy, tax compliance, labor and employment practices, real estate transactions, anti-
money laundering, commercial and electronic banking restrictions, credit card transactions, usury law, consumer protection, marketing, advertising and other
general business activities. As the scope of our international operations increases, we may face additional administrative and regulatory costs in managing our
business. In addition, unexpected changes in laws and regulations, administrative interpretations of local requirements or legislation, or public remarks by elected
officials could negatively affect our operations and profitability.
Available Information
We file annual, quarterly and current reports and other documents with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of
1934, as amended (the “Exchange Act”). The SEC maintains an Internet website that contains reports and other information regarding issuers that file
electronically with the SEC. The public can obtain any documents that we file with the SEC at www.sec.gov.
We maintain a website at www.ezcorp.com. Our filings with the SEC, including our Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and Section 16 filings, are available free of charge through links maintained on our website under the heading “Investor Relations — SEC
Filings.” Information contained on our website is not incorporated by reference into this report.
ITEM 1A — RISK FACTORS
There are many risks and uncertainties that may affect our operations, performance, development and results. Many of these risks are beyond our control. The
following is a description of the important risk factors that may affect our business. If any of these risks were to occur, our business, financial condition or results
of operations could be materially adversely affected. Additional risks and uncertainties not currently known to us or that we currently consider to be immaterial
may also materially adversely affect our business, financial condition or results of operations.
Company Specific Risks
As a result of the current COVID-19 pandemic, we incurred operating losses in the fourth quarter of fiscal 2020 and expect those operating losses to continue
into fiscal 2021.
The outbreak of COVID-19 began affecting our operations in March 2020. Governmental fiscal stimulus response, stay-at-home orders and business restrictions,
health agency guidance regarding social distancing and public perceptions of the risks associated with the COVID-19 pandemic have resulted in a reduction in the
demand for pawn loans with a resulting significant decline in pawn loan balances. See “Part II, Item 7 — Management’s Discussion and Analysis of Results of
Operations and Financial Condition — Impact of COVID-19.” The decline in pawn loan balances negatively impacted our financial performance during the third
and fourth quarters of fiscal 2020. We expect the impact of the pandemic, and the recovery therefrom, will continue to adversely affect our net revenues and
earnings in fiscal 2021. A prolonged pandemic and recovery may impact our financial condition, results of operations and liquidity in future periods. The extent of
the impact is dependent upon a number of factors, including the longevity and severity of the pandemic, the pace of business reopenings and rebound, the impact of
government responses and the degree to which customer behaviors return to historical norms.
Failure to sustain focus on internal controls could adversely affect our business, results of operations and financial condition.
As described in "Part II, Item 9A — Controls and Procedures," we identified and evaluated certain deficiencies in our IT general controls in the second quarter of
fiscal 2019, and concluded those deficiencies, collectively, represented a material weakness in our internal control over financial reporting. During the fourth
quarter of fiscal 2020, we completed our efforts to remediate the underlying deficiencies, and have concluded that our disclosure controls and procedures and our
internal control over financial reporting are effective as of September 30, 2020. If we do not sustain our focus on internal controls, our consolidated financial
statements may contain material misstatements and we could be required to restate our financial results,
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which could materially and adversely affect our business, results of operations and financial condition, restrict our ability to access the capital markets, require us
to expend significant resources to correct the deficiencies, subject us to fines, penalties or judgments, harm our reputation or otherwise cause a decline in investor
confidence and the market value of our publicly traded Class A Non-Voting Common Stock (“Class A Common Stock”).
Changes in, or failure to comply with, laws and regulations affecting our products and services could have a material adverse effect on our operations and
financial performance.
Our products and services are subject to regulation under various laws and regulations in each country and jurisdiction in which we operate (see “Part I, Item 1 —
Business — Regulation”), and adverse legislation or regulations could be adopted in any such country or jurisdiction. If such legislation or regulation is adopted in
any particular jurisdiction, we generally evaluate our business in the context of the new rules and determine whether we can continue to operate in that jurisdiction
with new or modified products or whether it is feasible to enhance our business with additional product offerings. In any case, if we are unable to continue to
operate profitably under the new rules, we may decide to close or consolidate stores, resulting in decreased revenues, earnings and assets. Further, our failure to
comply with applicable laws and regulations could result in fines, penalties or orders to cease or suspend operations, which could have a material adverse effect on
our results of operations.
Negative characterizations of the pawn industry by consumer advocates, media or others could result in increased legislative or regulatory activity, could
adversely affect the market value of our publicly traded stock, or could make it harder to operate our business successfully.
Many of the legislative and regulatory efforts that are adverse to the pawn industry are the result of negative characterization of the pawn industry by consumer
advocacy groups, members of the media or others that focus on the cost of pawn loans or instances of pawn operators purchasing stolen property or accepting it as
pawn collateral. We can give no assurance that there will not be further negative characterizations of our industry or that legislative or regulatory efforts to restrict
the availability of pawn loans or otherwise regulate pawn operations will not be successful despite significant customer demand for such services. Such efforts, if
successful, could have a material adverse effect on our operations or financial performance.
Furthermore, negative characterizations of our industry could limit the number of investors who are willing to hold our Class A Common Stock, which may
adversely affect its market value; limit sources of the debt or equity financing that we need in order to conduct our operations and achieve our strategic growth
objectives; or make it harder for us to attract, hire and retain talented executives and other key team members.
A significant portion of our U.S. business is concentrated in Texas and Florida.
As of September 30, 2020, more than 60% of our U.S. pawn stores were located in Texas (43%) and Florida (19%), and those stores account for a significant
portion of our revenues and profitability. The legislative, regulatory and general business environment in Texas and Florida has been relatively favorable for our
pawn business activities, but a negative legislative or regulatory change in either of those states could have a material adverse effect on our overall operations and
financial performance. Further, as discussed below, areas in Texas and Florida where we have significant operations are particularly susceptible to hurricane and
tropical storm activity.
A significant or sudden decrease in gold values or the volume of gold transactions may have a material impact on our earnings and financial position.
Gold jewelry comprises a large portion of the collateral security for our pawn loans and our inventory. Pawn service charges, sales proceeds and our ability to
liquidate excess jewelry inventory at an acceptable margin are dependent upon gold values and the volume of gold transactions. A decline in the availability of
gold or our customers’ willingness or ability to sell us gold or use gold as collateral for pawn loans could impact our business. The impact on our financial position
and results of operations of decreases in gold values or volumes or a change in customer behavior cannot be reasonably estimated because the market and customer
response to changes in gold values is not known; however, a significant decline in gold values or gold volumes could result in decreases in sales, sales margins,
pawn loan balances and pawn service charges.
Fluctuations in our sales, pawn loan balances, sales margins and pawn redemption rates could have a material adverse impact on our operating results.
We regularly experience fluctuations in a variety of operating metrics. Changes in any of these metrics, as might be caused by changes in the economic
environment, competitive pressures, changes in customers’ tastes and preferences or a significant decrease in gold prices could materially and adversely affect our
profitability and ability to achieve our planned results of operations.
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Achievement of our growth objectives is dependent upon our ability to open and acquire new stores.
Our expansion strategy includes acquiring existing stores and opening de novo store locations. Our acquisition strategy is dependent upon the availability of
attractive acquisition candidates, while the success of our de novo store strategy is contingent upon numerous factors that cannot be predicted or controlled, such as
the availability of acceptable locations with a desirable customer base, the negotiation of acceptable lease terms, the ability to obtain required government permits
and licenses and the existence of a suitable competitive environment. The achievement of our growth objectives is also subject to our ability to attract, train and
retain qualified team members. Failure to achieve our expansion goals could adversely affect our prospects, future results of operations and future cash flows.
Our development of a digital platform, and the commercialization of that platform, may not be successful.
We have invested in the design and development of a digital platform to enhance our relationships with customers and provide them access to a broader range of
financial products and services. There can be no assurance that our efforts to develop and launch such a digital platform will be successful or that the platform will
be accepted by existing customers or attract new customers. Consequently, we may not realize the expected return on our investment.
We continue to have limited indemnity obligations to AlphaCredit for pre-closing taxes.
Under the terms of the Purchase Agreement related to the sale of our 94%-owned subsidiary, Prestaciones Finmart, S.A.P.I. de C.V., SOFOM, E.N.R. ("Grupo
Finmart") to Alpha Holding, S.A. de C.V. ( “AlphaCredit”) in September 2016, we remain obligated to indemnify AlphaCredit for any “pre-closing taxes” (i.e., tax
obligations arising from the Grupo Finmart business that are attributable to periods prior to the completion of the sale in September 2016). Those obligations
continue until the expiration of the statute of limitations applicable to the pre-closing periods. In August 2019, AlphaCredit notified us of a potential indemnity
claim for certain pre-closing taxes, but the nature, extent and validity of such claim has yet to be determined. The last two payments from AlphaCredit totaling $8.0
million have been placed into escrow pending resolution of the potential indemnity claim.
One person beneficially owns all of our voting stock and generally controls the outcome of all matters requiring a vote of stockholders, which may influence
the value of our publicly traded non-voting stock.
Phillip E. Cohen is the beneficial owner of all our Class B Voting Common Stock, and all our publicly traded stock is non-voting stock. Consequently,
stockholders other than Mr. Cohen have no vote with respect to the election of directors or any other matter requiring a vote of stockholders except in limited
circumstances as required by law. Further, our Bylaws currently provide that the voting stockholder may appoint or remove officers or take any other action that
the Board of Directors may take with respect to officers under the Bylaws. The lack of voting rights may adversely affect the market value of our publicly traded
Class A Common Stock.
In September 2019, Mr. Cohen joined the Board of Directors and was appointed Executive Chairman. As a member of the Board, Mr. Cohen is entitled to vote on
all matters requiring approval of the Board. Our Bylaws currently provide that the presence of all directors shall constitute a quorum for the transaction of business,
and that any act of the Board of Directors requires a unanimous approval of all directors. Consequently, Mr. Cohen, as is the case with each of the other directors,
has the ability to block actions of the Board. Mr. Cohen has agreed that, as a member of the Board of Directors, he will not participate in any Board vote regarding
his position as Executive Chairman.
We have a significant firearms business in the U.S., which exposes us to increased risks of regulatory fines and penalties, lawsuits and related liabilities.
As discussed under “Part I, Item 1 — Business — Regulation — U.S. Regulations — Pawn Regulations,” some of our stores in the U.S. conduct pawn and retail
transactions involving firearms, which may be associated with an increased risk of injury and related lawsuits. We may be subject to lawsuits relating to the
improper use of firearms that we sell, including actions by persons attempting to recover damages from firearms retailers relating to misuse of firearms. We may
also incur fines, penalties or liabilities, or have our federal firearms licenses revoked or suspended, if we fail to properly perform required background checks for,
and otherwise record and report, firearms transactions. Any such actions could have a material adverse effect on our business, prospects, results of operations,
financial condition and reputation.
Our business is subject to Team Member and third-party robberies, burglaries and other crimes at the store level.
The nature of our business requires us to maintain significant cash on hand, loan collateral and inventories in our stores. Consequently, we are subject to loss of
cash or merchandise as a result of robberies, burglaries, thefts, riots, looting and other criminal activity in our stores. Further, we could be subject to liability to
customers or other third parties as a result of such activities. While we maintain asset protection and monitoring programs to mitigate these risks, as well as
insurance programs to
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protect against catastrophic loss or exposure, there can be no assurance that these crimes will not occur or that such losses will not have an adverse effect on our
business or results of operations.
Changes in competition from various sources could have a material adverse impact on our ability to achieve our plans.
We encounter significant competition from other pawn stores, consumer lending companies, other retailers, online retailers and auction sites, many of which have
significantly greater financial resources than we do. Increases in the number or size of competitors or other changes in competitive influences, such as aggressive
marketing and pricing practices, could adversely affect our operations. In Mexico, we compete directly with certain pawn stores owned and operated by
government affiliated or sponsored non-profit foundations, and the government could take actions that would harm our ability to compete in that market.
Our continued profitability and growth plans are dependent on our ability to successfully design or acquire, deploy and maintain information technology and
other business systems to support our current business and our planned growth and expansion.
The success of our business depends on the efficiency and reliability of our information technology and business systems and related controls, including the point-
of-sale system utilized in our store locations. If access to our technology infrastructure is impaired (as may occur with a computer virus, a cyber-attack or other
intentional disruption by a third party, natural disaster, telecommunications system failure, electrical system failure or lost connectivity), or if there are flaws in the
design or roll-out of new or refreshed technology systems (such as our point-of-sale system), we may be unable to process transactions or otherwise carry on our
business in a timely and efficient manner. An infrastructure disruption could damage our reputation and cause us to lose customers and revenue. We consider
security risks from multiple viewpoints, including physical security as well as security of infrastructure and databases. As our technology infrastructure continues
to evolve from on premise to cloud service providers, we continue to assess the security of such infrastructure, including third party service providers.
We invested in Cash Converters International Limited for strategic reasons. We may be required in future periods to impair our investment and recognize
related investment losses, as we have done in the past, and we may not realize a positive return on the investment.
We currently own 34.75% of the outstanding ordinary shares of Cash Converters International, which is a publicly traded company based in Australia. We made
the initial investment in November 2009 and have made incremental investments periodically since then. The success of this strategic investment is dependent on a
variety of factors, including Cash Converters International’s business performance and the market’s assessment of that performance. We have recorded a number
of impairments to the carrying value of our investment in Cash Converters International in the past. After an analysis of Cash Converters International’s stock price
performance and other factors, we determined that the fair value of our investment in Cash Converters International at September 30, 2020 was greater than its
carrying value. Accordingly, we did not record an impairment at that date. See Note 5 of Notes to Consolidated Financial Statements included in “Part II, Item 8 -
Financial Statements and Supplemental Data.” If the fair value of our investment declines and we determine that such decline is other-than-temporary, we may be
required to further impair our investment and recognize the related investment loss, which would adversely affect our results of operations and financial position in
the period of impairment. Furthermore, there can be no assurance that we will be able to dispose of some or all of our investment in Cash Converters International
on favorable terms, should we decide to do so in the future.
Our ability to recover our investment in RDC is heavily dependent on RDC's success and performance, including its ability to obtain further debt or equity
financing.
We have an investment in Rich Data Corporation (“RDC”), a previously consolidated variable interest entity. See Note 6 of Notes to Consolidated Financial
Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.” Our ability to recover our investment in RDC is heavily dependent on
RDC's success and performance, potentially including its ability to obtain further debt or equity financing. To the extent that RDC is not successful, we may be
required in future periods to impair our investment and recognize related investment losses.
We may incur property, casualty or other losses, including losses related to natural disasters such as hurricanes, earthquakes and volcanoes. Not all such
losses will be covered by insurance.
We maintain a program of insurance coverage for various types of property, casualty and other risks. The types and amounts of insurance that we obtain vary from
time to time, depending on availability, cost and our decisions with respect to risk retention. The policies are subject to deductibles and exclusions that result in our
retention of a level of risk on a self-insurance basis. Losses not covered by insurance could be substantial and may increase our expenses, which could harm our
results of operations and financial condition.
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We have significant operations located in areas that are susceptible to hurricanes (notably the Atlantic and Gulf Coast regions of Florida, the Gulf Coast regions of
Texas including Houston, as well as Mexico and Central America). Certain areas of our operations are also susceptible to other types of natural disasters such as
earthquakes, volcanoes and tornadoes. As noted above, not all physical damage that we incur as a result of any such natural disaster will be covered by insurance
due to policy deductibles and risk retentions. In addition, natural disasters could have a significant negative impact on our business beyond physical damage to
property, including a reduction of our loan portfolio, inventory, pawn service charges and merchandise sales. Only limited portions, if any, of those negative
impacts will be covered by applicable business interruption insurance policies. As a result, geographically isolated natural disasters could have a material adverse
effect on our overall operations and financial performance.
Goodwill comprises a significant portion of our total assets. We assess goodwill for impairment at least annually, which could result in a material, non-cash
write-down and could have a material adverse effect on our results of operations and financial conditions.
The carrying value of our goodwill was $257.6 million, or approximately 22% of our total assets, as of September 30, 2020. In accordance with Financial
Accounting Standards Board Accounting Standards Codification 350-20-35, we test goodwill and intangible assets with an indefinite useful life for potential
impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below
its carrying value. These events or circumstances could include a significant change in the business climate, a change in strategic direction, legal factors, operating
performance indicators, a change in the competitive environment, the sale or disposition of a significant portion of a reporting unit, or future economic factors such
as unfavorable changes in the estimated future discounted cash flows of our reporting units. Our annual goodwill impairment test is performed in the fourth quarter
utilizing the income approach. This approach uses future cash flows and estimated terminal values for each reporting unit (discounted using a market participant
perspective) to determine the fair value of each reporting unit, which is then compared to the carrying value of the reporting unit to determine if an impairment
exists. The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-
average cost of capital derived from other publicly traded companies that are similar but not identical from an operational and economic standpoint.
During the second quarter of fiscal 2020, there was an indicator of impairment due to a decline in our market capitalization. We performed a quantitative analysis
as of March 31, 2020 utilizing the income approach. As a result of our quantitative analysis, we determined the fair value of each of our reporting units was below
its carrying value because of the impact of COVID-19, including a significant decline in pawn loan balances due to changes in typical customer behavior and
mandated store closures in our GPMX countries. These factors impacted the forecast of future net revenues and earnings and resulted in lower present value of
future cash flows. This led to a goodwill impairment charge of $41.3 million in the second quarter of fiscal 2020. These impairments were recorded under
"Impairment of goodwill, intangible and other assets" in the Consolidated Statements of Operations
See Note 1 and Note 8 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data” for a
discussion of our annual impairment tests performed for goodwill and indefinite-lived intangible assets during fiscal 2020. We remain confident in our businesses,
as all business units were performing well prior to the impact of COVID-19.
The conversion feature of our convertible notes, if triggered, may adversely affect our financial condition and operating results.
We have outstanding a total of $316.3 million of convertible notes. See Note 9 of Note to Consolidated Financial Statements included in “Part II, Item 8 —
Financial Statements and Supplementary Data.” If the conversion feature of any of those convertible notes is triggered, holders will be entitled to convert the notes
at their option at any time during specified periods. If one or more holders elect to convert their notes, we may be required, or may choose, to settle the obligation
through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their notes, we could be required under
applicable accounting rules to reclassify all or a portion of the outstanding principal of the convertible notes as a current rather than long-term liability, which
would result in a material reduction of our net working capital.
Conversion of our convertible notes into stock may dilute the ownership interests of existing stockholders or may otherwise depress the price of our Class A
Common Stock.
If it were to occur, the conversion of convertible notes would dilute the ownership interests of existing stockholders to the extent we deliver shares of Class A
Common Stock upon conversion. Any sales in the public market of such shares could adversely affect prevailing market prices of our Class A Common Stock. In
addition, the existence of the convertible notes may encourage short selling by market participants because the conversion of such notes could be used to satisfy
short positions, or
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anticipated conversion of the notes into shares of our Class A Common Stock could depress the price of our Class A Common Stock.
We have a limited number of unreserved shares available for future issuance, which may limit our ability to conduct future financings and other transactions
and our ability to offer equity awards to management.
Our certificate of incorporation currently authorizes us to issue up to 100 million shares of Class A Common Stock. Taking into consideration the shares that are
issued and outstanding, as well as the shares that have been reserved for issuance pursuant to convertible notes, warrants and outstanding equity incentive
compensation awards and the conversion of the Class B Common Stock, we had approximately 10.4 million shares of authorized Class A Common Stock available
for other uses as of September 30, 2020. Therefore, our ability to issue shares of Class A Common Stock (other than pursuant to the existing reserved-for
commitments), or securities or instruments that are convertible into or exchangeable for shares of Class A Common Stock, may be limited until such time that
additional authorized, unissued and unreserved shares become available or unless we determine that we are unlikely to issue all of the shares that are currently
reserved. During this time, for example, our ability to complete equity or equity-linked financings or other transactions (including strategic acquisitions) that
involve the issuance or potential issuance of Class A Common Stock may be limited. Further, our ability to offer equity-based compensation to our management
team may also be limited, which could adversely affect our ability to align management’s incentives with stockholders or attract and retain key management
personnel.
General Risks
Public health issues could adversely affect our financial condition, results of operations or liquidity.
Our business may be impacted by public health issues, including other pandemics and the spread of contagious diseases. Such public health issues, and the
government and consumer responses thereto, may (i) limit our ability to supply products and services to our customers as a result of store closures, reduced access
to or foot traffic in our stores, or labor shortages, (ii) adversely affect the demand for our products and services or (iii) cause other unforeseen negative
developments. Any of these factors may adversely affect our financial condition, results of operations or liquidity.
We have significant operations in Latin America, and changes in the business, regulatory, political or social climate could impact our operations there, which
could adversely affect our results of operations and growth plans.
We own and operate a significant number of pawn stores in Latin America (primarily Mexico, but also Guatemala, El Salvador, Honduras and Peru). Further, our
growth plans include potential expansion in some of those countries as well as potentially other countries in Latin America. Doing business in those countries
exposes us to risks related to political instability, corruption, economic volatility, drug cartel and gang-related violence, social unrest including riots and looting,
tax and foreign investment policies, public safety and security concerns, and uncertain application of laws and regulations. Consequently, actions or events in any
of those countries that are beyond our control could restrict our ability to operate there or otherwise adversely affect the profitability of those operations.
Furthermore, changes in the business, regulatory or political climate in any of those countries, or significant fluctuations in currency exchange rates, could affect
our ability to expand or continue our operations there, which could have a material adverse impact on our prospects, results of operations and cash flows. For a
description of the current regulatory environment in the Latin American countries in which we operate, see “Mexico Regulations” and “Other Latin America
Regulations” under “Part I, Item 1 — Business — Regulation.”
A significant change in foreign currency exchange rates could have a material adverse impact on our earnings and financial position.
We have foreign operations in Latin America (Mexico, Guatemala, Honduras, El Salvador and Peru) and an equity investment in Australia. Our assets and
investments in, and earnings and dividends from each of these countries must be translated to U.S. dollars from their respective functional currencies. A significant
weakening of any of these foreign currencies could result in lower assets and earnings in U.S. dollars, resulting in a potentially material adverse impact on our
financial position, results of operations and cash flows.
Litigation and regulatory proceedings could have a material adverse impact on our business.
We are currently subject to various litigation and regulatory actions, and additional actions could arise in the future. Potential actions range from claims and
assertions arising in the ordinary course of business (such as contract, customer or employment disputes) to more significant corporate-level matters or shareholder
litigation. All of these matters are subject to inherent uncertainties, and unfavorable rulings could occur, which could include monetary damages, fines and
penalties or other relief. Any unfavorable ruling or outcome could have a material adverse effect on our results of operations or could negatively affect our
reputation.
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Under our certificate of incorporation, we are generally obligated to indemnify our directors and officers for costs and liabilities they incur in their capacity as
directors or officers of the Company. Consequently, if a proceeding names or involves any of our directors or officers, then (subject to certain exceptions) we are
generally obligated to pay or reimburse the cost or liability such director or officer incurs as a result of such proceeding (including defense costs, judgments and
amounts paid in settlement). We maintain management liability insurance that protects us from much of this potential indemnification exposure, as well as
potential costs or liabilities that may be directly incurred by the Company in some cases. However, our insurance coverage is subject to deductibles and there may
be elements of the costs or liabilities that are not covered under the insurance policies. In addition, to the extent that our ultimate liability in any such proceeding
(or any combination of proceedings that are included in the same policy year) exceeds the management liability policy limits, our results of operations and
financial condition could be adversely affected.
Our acquisitions, investments and other transactions could disrupt our ongoing business and harm our results of operations.
In pursuing our business strategy, we routinely conduct discussions, evaluate opportunities and enter into agreements regarding possible acquisitions, investments
and other transactions. These transactions may involve significant challenges and risks, including risks that we may not realize the expected return on an
acquisition or investment, that we may not be able to retain key personnel of an acquired business, or that we may experience difficulty in integrating acquired
businesses into our business systems and processes. If we do enter into agreements with respect to acquisitions, investments or other transactions, we may fail to
complete them due to inability to obtain required regulatory or other approvals or other factors. Furthermore, acquisitions, investments and other transactions
require substantial management resources and have the potential to divert our attention from our existing business, and there are inherent risks in integrating and
operating any acquired business. These factors could harm our business and results of operations.
We may be exposed to liabilities under applicable anti-bribery, anti-corruption, anti-money laundering and other general business laws and regulations, and
any determination that we violated these laws or regulations could have a material adverse effect on our business.
We are subject to various anti-bribery and anti-corruption laws that prohibit improper payments or offers of payments to foreign governments and their officials for
the purpose of obtaining or retaining business, including the Foreign Corrupt Practices Act in the U.S. and the General Law of Administrative Responsibility in
Mexico. We are also subject to various laws and regulations designed to prevent money laundering or the financial support of terrorism or other illegal activity,
including the USA PATRIOT Act and the Bank Secrecy Act in the U.S. and The Federal Law for the Prevention and Identification of Transactions with Funds
From Illegal Sources in Mexico. See “Part I, Item 1 — Business — Regulation.” Further, our business is expanding in countries and regions that are less developed
and are generally recognized as potentially more corrupt business and political environments.
While we maintain controls and policies to ensure compliance with applicable laws and regulations, these controls and policies may prove to be less than effective.
If team members, agents or other persons for whose conduct we are held responsible violate our policies, we may be subject to severe criminal or civil sanctions
and penalties, and we may be subject to other liabilities that could have a material adverse effect on our business, results of operations and financial condition.
Changes in our liquidity and capital requirements or in access to capital markets or other financing and transactional banking sources could limit our ability
to achieve our plans.
A significant reduction in cash flows from operations or the availability of debt or equity financing could materially and adversely affect our ability to achieve our
planned growth and operating results. Our ability to obtain debt or equity financing, including the possible refinancing of existing indebtedness, will depend upon
market conditions, our financial condition and the willingness of financing sources to make capital available to us at acceptable rates and terms. The inability to
access capital at acceptable rates and terms could restrict or limit our ability to achieve our growth objectives, which could adversely affect our financial condition
and results of operations.
Our access to transactional banking services, as well as international wire services between certain countries, is an ongoing business requirement. Inability in
accessing or maintaining transactional banking or wire services could lead to increased costs or the inability to efficiently manage our cash as we would be
required to seek alternative banking services or obtain services from several regional or local retail banks.
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We collect and store a variety of sensitive customer information, and breaches in data security or other cyber-attacks could harm our business operations and
lead to reputational damage.
In the course of conducting our business, we collect and store on our information technology systems a variety of information about our customers, including
sensitive personal identifying and financial information. We may not have the resources or technical expertise to anticipate or prevent rapidly evolving types of
cyber-attacks. Attacks may be targeted at us, our service providers, our customers or others who have entrusted us with information. Actual or anticipated attacks
may cause us to incur increased costs, including costs to hire additional personnel, purchase additional protection technologies, train team members and engage
third-party experts and consultants. Advances in computer capabilities, new technological discoveries or other developments may result in the technology we use
to protect data being breached or compromised. In addition, data and security breaches can occur as a result of non-technical issues, including breach by us or by
persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. We could be subject to fines,
penalties and liabilities if any such information is misappropriated from our systems or we otherwise fail to maintain the security and confidentiality of such
information. Further, any such data security breach could cause damage to our reputation and a loss of confidence in our data security measures, which could
adversely affect our business and prospects.
We may face business interruptions or other adverse effects on our operations and growth.
Our business and operations could be subject to interruption or damage due to inclement weather, natural disaster, power loss, acts of violence, terrorist attacks,
war, civil unrest or similar events. Further, we may experience information technology or other business systems disruptions. Such events could impair our
customers' access to our business, impact our ability to expand or continue our operations or otherwise have an adverse effect on our financial condition.
We face other risks discussed under "Part II, Item 7A — Quantitative and Qualitative Disclosures about Market Risk."
ITEM 1B — UNRESOLVED STAFF COMMENTS
None.
ITEM 2 — PROPERTIES
We lease our pawn store locations, which are located throughout our geographic areas of operations. See “Part I, Item 1 — Business — Segment and Geographic
Information” Our pawn stores are typically located in a freestanding building or occupy all or part of a retail strip center with contiguous parking. A portion of the
store interior is designed for retail operations, with merchandise displayed for sale by category. Distinctive exterior design and attractive in-store signage provide
an appealing atmosphere to customers. We maintain or reimburse our landlords for maintaining property and general liability insurance for each of our stores. Our
stores are open six or seven days a week.
Leases for our U.S. locations generally have initial terms ranging from three to 10 years and typically allow for renewals in increments of three-to-five years. Our
primary corporate office is located in Austin, Texas and is leased through March 2029 with escalating rent payments annually and including two five-year
extension options at the end of the lease term. Our locations in Latin America are generally leased on three-to-five year terms.
Our existing leases expire on dates ranging between November 2020 and fiscal 2036, with a small number of leases on month-to-month terms. All leases provide
for specified periodic rental payments at market rates. Most leases require us to maintain the property and pay the cost of insurance and taxes. We believe the
termination of any one of our leases would not have a material adverse effect on our operations. Our strategy generally is to lease rather than own space for our
stores. On an ongoing basis, we may close or consolidate under-performing store locations.
As of September 30, 2020 we had a total of 1,005 stores, 505 of which are located in the U.S., with 43% located in Texas, 19% in Florida and the rest spread across
18 other states. We also have 368 locations in Mexico, 87 in Guatemala, 18 in El Salvador, 16 in Honduras and 11 in Peru.
In addition to our store leases, we lease approximately 137,000 square feet of corporate office space in Austin, Texas, 92,400 square feet of which has been
subleased to other tenants. We lease other corporate office space in Querétaro, Mexico (9,500 square feet), Guatemala City, Guatemala (7,700 square feet) and
Miami, Florida (14,200 square feet, all of which has been subleased to a tenant).
For additional information about store locations, see “Part I, Item 1 — Business — Segment and Geographic Information.”
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ITEM 3 — LEGAL PROCEEDINGS
See Note 13 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.”
ITEM 4 — MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5 — MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information
Our Class A Non-Voting Common Stock (“Class A Common Stock”) is traded on the NASDAQ Stock Market under the symbol “EZPW.” As of November 30,
2020, there were approximately 270 stockholders of record of our Class A Common Stock. There is no trading market for our Class B Voting Common Stock
(“Class B Common Stock”), which was held by one stockholder as of November 30, 2020. As of September 30, 2020, the closing sales price of our Class A
Common Stock, as reported by the NASDAQ Stock Market, was $5.03 per share.
Stock Performance Graph
The following Stock Performance Graph and related information shall not be deemed to be “filed” with the Securities and Exchange Commission, nor shall such
information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
The following table compares cumulative total stockholder returns for our Class A Common Stock for the last five fiscal years, with the cumulative total return on
the NASDAQ Composite Index (ticker symbol: IXIC) and the NASDAQ Other Financial Index (ticker symbol: IXFN) over the same period. The graph shows the
value, at the end of each of the last five fiscal years, of $100 invested in our Class A Common Stock or the indices on September 30, 2015. The graph depicts the
change in the value of our Class A Common Stock relative to the indices at the end of each fiscal year and not for any interim period. Historical stock price
performance is not necessarily indicative of future stock price performance.
Company Index
EZCORP, INC.
NASDAQ Composite Index
NASDAQ Other Finance Index
2016
$100.00
$100.00
$100.00
2018
$96.75
$151.47
$136.74
2019
$58.41
$150.59
$152.19
2020
$45.48
$210.23
$159.32
2017
$85.90
$122.29
$125.64
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ITEM 6 — SELECTED FINANCIAL DATA
The following selected financial information summarizes our consolidated financial data, which has been derived from the consolidated financial statements for
each of the five years in the period ended September 30, 2020. The selected consolidated financial data should be read in conjunction with our annual consolidated
financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in “Part 1,
Item 7” below.
Operating Data
Total revenues
Net revenues
Impairment of goodwill, intangible and other assets
Other Charges
Impairment of investments
(Loss) income from continuing operations, net of tax
Basic (loss) earnings per share attributable to EZCORP, Inc. — continuing
operations
Diluted (loss) earnings per share attributable to EZCORP, Inc. — continuing
operations
Weighted average shares outstanding:
Basic
Diluted
Stores attributable to continuing operations at end of period
$
$
$
2020
822,811 $
449,235
54,666
20,388
—
(68,463)
Fiscal Year Ended September 30,
2018 (a)
2017
2019
(in thousands, except per share and store figures)
2016
847,229 $
494,448
—
—
19,725
1,768
812,156 $
481,551
—
—
11,712
37,150
747,951 $
435,507
—
—
—
31,585
(1.24) $
(1.24) $
0.05 $
0.05 $
0.70 $
0.66 $
0.61 $
0.61 $
55,313
55,313
1,005
55,341
55,984
1,014
54,456
57,896
988
54,260
54,368
786
730,319
428,044
—
—
10,957
(9,322)
(0.15)
(0.15)
54,427
54,427
786
(a) In fiscal 2018, we acquired 112 GuatePrenda-MaxiEfectivo (“GPMX”) pawn stores as further described in Note 3 of Notes to Consolidated Financial Statements included in “Part II, Item
8 — Financial Statements and Supplementary Data.”
Pawn loans
Inventory, net
Working capital (a) (b)
Total assets (a)
Long-term debt, less current maturities (a)
EZCORP, Inc. stockholders’ equity
2020
2019 (c)
As of September 30,
2018
(in thousands)
2017
2016
$
$
131,323 $
95,891
460,783
1,197,023
251,016
649,127 $
199,058 $
179,355
514,674
1,083,702
238,380
744,949 $
198,463 $
166,997
489,422
1,241,780
226,702
742,739 $
169,242 $
154,411
503,918
1,021,144
284,807
658,803 $
167,329
140,224
382,908
980,182
283,611
591,921
(a) Amounts exclude assets and liabilities held for sale in conjunction with the disposal of Prestaciones Finmart, S.A.P.I. de C.V., SOFOM, E.N.R. ("Grupo Finmart") in September 2016.
(b) In fiscal 2019, we repaid $195.0 million in aggregate principal amount of our 2.125% Cash Convertible Senior Notes Due 2019 using cash on hand.
(c) Working capital and total asset amounts are inclusive of $0.9 million in gross installment loan balances which were securitized under the CASHMAX securitization facility as further
described in Note 9 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.”
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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, 2020. 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.
Impact of COVID-19
In December 2019, a novel strain of coronavirus, ("COVID-19") was identified in Wuhan, China. This new coronavirus has caused a global health emergency and
was declared a pandemic by the World Health Organization in March 2020. In an effort to contain and slow the spread of COVID-19, governments, beginning in
March 2020, implemented various measures, such as ordering non-essential businesses to close, issuing travel advisories, canceling large scale public events,
ordering shelter-in-place for residents and requiring the public to practice social distancing. Many of these measures have expired or been rescinded, but some are
continuing and others are being reimplemented or considered for reimplementation in November 2020 as COVID-19 continues to spread at rapid rates in many
parts of the U.S.
We began to see the impact of COVID-19 to our operations in mid-March. Since that time and continuing through the fourth quarter and into fiscal 2021, we have
been able to keep virtually all of our stores open for business, although operating under enhanced safety measures and, in some cases, restrictions on occupancy.
We have seen tighter restrictions in our Latin America countries: In Mexico (368 stores), retail sales in all stores were prohibited by regulators during the last three
weeks of May; in Guatemala (87 stores), regulators imposed country-wide lockdowns on many weekends and 39 mall-based locations were closed for extended
periods; in El Salvador (18 stores), our stores were closed from late March through mid-June; in Honduras (16 stores), the majority of our stores were closed
through mid April; and in Peru (11 stores), our stores were closed from mid-March through varying dates through mid-May and mid-June.
Beginning in mid-March and continuing through most of the fourth quarter, we have experienced a significant decline in pawn loan originations and associated
loan balances in both the U.S. and Latin America, as a result of a change in customer borrowing behaviors related to COVID-19. Pawn loan balances at fiscal year
end 2020 were down $51.1 million (32)% in U.S. Pawn and $16.7 million (40%) in Latin America Pawn (down $16.7 million, or 34% on a constant currency
basis), compared to the prior-year end. The overall decline in pawn loan balances led to significantly reduced pawn service charge revenue. Offsetting this net
revenue loss, we saw a strong increase in merchandise sales during March and continuing into the third quarter, before stabilizing in the fourth quarter. As a result
of this increased sales activity, combined with the decrease in loan originations and our liquidity initiatives described below, our cash balance has grown to $312.6
million at the end of fiscal 2020. Sustained lower pawn portfolios will lead to lower pawn service charge revenue and may lead to less inventory available for sale,
which in turn may lead to lower merchandise sales volume in fiscal 2021.
The factors described above impacted the forecast of future net revenues and earnings and resulted in lower present value of future cash flows. We recorded a
goodwill impairment charge of $41.3 million in the second quarter of fiscal 2020. In addition, we (a) determined an impairment had occurred in the fair values of
trade names of previously acquired entities in our Mexico and GPMX reporting units and recorded a related impairment of $2.9 million and $1.7 million
respectively, and (b) determined the carrying amount of certain long-lived asset groups were not recoverable and recorded a related impairment of $1.1 million, all
in the second quarter of 2020.
In order to maximize our ability to meet an expected increase in pawn loan originations, we have implemented several measures to increase liquidity. We have
suspended repurchases of shares under our authorized stock repurchase program, have renegotiated certain supplier and vendor agreements, have slowed the pace
of de novo store openings in Latin America, have delayed certain capital expenditures and were able to delay payments of certain taxes as a result of the economic
relief in the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress in response to COVID-19.
The full extent and duration of the COVID-19 impact on the global economy generally, and on our business specifically, is currently unknown. The pandemic has
had an adverse effect on our net revenues and earnings in fiscal 2020, producing operating losses in the fourth quarter. We expect the impact of the pandemic, and
the recovery therefrom, will continue to adversely affect net revenues and earnings into fiscal 2021. A prolonged pandemic and recovery may have an adverse
effect on our results of operations, financial position and liquidity in future periods. See "Part I, Item 1A - Risk Factors."
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Strategic Initiatives
During the fourth quarter of fiscal 2020, we began to implement strategic initiatives to refocus on our core pawn business and optimize our cost structure in order
to improve our bottom line performance and position the Company for sustainable growth. The initiatives focused on workforce reductions, closure of our
CASHMAX operations in Canada, store closures and write-offs of other miscellaneous charges. As a result of these initiatives, we incurred the following pre-tax
charges during the fourth quarter of fiscal 2020:
•
•
•
•
$6.4 million in severance and other payroll-related costs related to a headcount reduction in the corporate office;
$4.9 million in costs related to the closure of the CASHMAX business and related operations, primarily consisting of severance and other payroll-related
costs, net asset write-offs, impairment of internally developed software and contract termination costs;
$4.1 million in costs primarily related to the closure of four stores in U.S. Pawn and three stores in Latin America Pawn, consisting primarily of severance
and other payroll-related costs and reserves on net assets; and
$5.0 million in other miscellaneous charges, primarily consisting of impairment of internally developed software and contract termination costs.
In addition to optimizing our cost structure to improve profitability and better align with near-term pawn loans outstanding trends, we are focused on creating long-
term shareholder value by strengthening our core business operations and continuing to innovate and grow. Our optimization of pricing, lending and transactional
efficiencies, and the modernization of our IT and data assets, will drive more consistent profitability. Our efforts to give customers more convenient choices, both
in-store and through our Lana platform, will result in a superior customer experience, and our continued de novo store growth will give us the opportunity to
expand our platform.
Civil Unrest
In late May and early June 2020, protests and demonstrations in some cities escalated into riots and lootings in neighborhoods where our stores are located. As a
result, 30 stores suffered losses and damages during the riots and looting activity. A total of four stores in the U.S. suffered total losses, and two of these stores
were permanently closed as of September 30, 2020. We recorded $1.9 million in inventory losses, $0.2 million in loan restitution losses and $0.2 million in
property, plant and equipment losses during the fiscal year. The inventory losses were recorded under "Merchandise cost of goods sold" in our consolidated
statement of operations.
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Results of Operations
Fiscal 2020 vs. Fiscal 2019
Summary Financial Data
The following table presents selected summary consolidated financial data for fiscal 2020 and fiscal 2019.
Net revenues:
Pawn service charges
Merchandise sales
Merchandise sales gross profit
Gross margin on merchandise sales
Jewelry scrapping sales
Jewelry scrapping gross profit
Gross margin on jewelry scrapping sales
Other revenues, net
Net revenues
Operating expenses
Impairment of goodwill, intangible and other assets
Other charges
Non-operating expenses
(Loss) income from continuing operations before income taxes
Income tax (benefit) expense
(Loss) income from continuing operations, net of tax
Loss from discontinued operations, net of tax
Net (loss) income
Net loss attributable to noncontrolling interest
Net (loss) income attributable to EZCORP, Inc.
Net pawn earning assets:
Pawn loans
Inventory, net
Total net pawn earning assets
Fiscal Year Ended
September 30,
2020
2019
Change
(in thousands)
$
272,638
$
498,213
163,732
33 %
47,953
9,912
21 %
2,953
449,235
422,565
54,666
20,388
21,711
(70,095)
(1,632)
(68,463)
—
(68,463)
—
(68,463)
131,323
95,891
227,214
$
$
$
$
$
$
327,366
453,375
155,867
34 %
60,445
7,510
12 %
3,705
494,448
447,439
—
—
42,835
4,174
2,406
1,768
(457)
1,311
(1,230)
2,541
199,058
179,355
378,413
(17)%
10%
5%
(100) bps
(21)%
32%
900 bps
(20)%
(9)%
(6)%
*
*
(49)%
(1,779)%
(168)%
(3,972)%
(100)%
(5,322)%
(100)%
(2,794)%
(34)%
(47)%
(40)%
*
Represents a percentage computation that is not mathematically meaningful.
Net revenues for fiscal 2020 were $449.2 million compared to $494.4 million in the prior year. Pawn service charges (“PSC”) decreased 17% as a result of lower
loan demand and increased loan redemptions believed to be related to the federal economic stimulus in response to the COVID-19 pandemic. Pawn loans
outstanding decreased 34% during fiscal 2020. Merchandise sales increased 10%, but gross margin on merchandise sales declined 100 bps to 33%, resulting in a
net 5% increase in merchandise sales gross profit. Excluding looting charges of $2.3 million and a $2.6 million increase in inventory reserves due to an increase in
aged inventory resulting from the impact of COVID-19, gross margin on merchandise sales was flat at 34%. Jewelry scrapping sales decreased 21%, primarily
reflecting disruption in the diamond auction market. Jewelry scrapping gross profit increased 32% due to a 900 bps increase in gross margin, partially driven by an
increase in gold prices.
Operating expenses decreased 6% due to a $21.0 million reversal in accrued short-term and long-term incentive compensation as well as the implementation of
strategic initiatives, including cost cutting at the store level due to reduced transaction activity.
During the second and fourth quarters, we recorded goodwill, intangible and other assets impairment charges of $47.1 million and $7.6 million respectively,
totaling $54.7 million for the fiscal year, as further described in Note 8 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial
Statements and Supplementary Data.
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Other charges of $20.4 million consist of charges recorded in the fourth quarter of fiscal year 2020 due to the implementation of strategic initiatives, as further
described in Note 2 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.”
Total non-operating expenses decreased $21.1 million, or 49%, primarily due to an impairment of $19.7 million in unconsolidated subsidiaries in the prior year
with no similar impairment in the current year.
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U.S. Pawn
The following table presents selected summary financial data from the U.S. Pawn segment:
Net revenues:
Pawn service charges
Merchandise sales
Merchandise sales gross profit
Gross margin on merchandise sales
Jewelry scrapping sales
Jewelry scrapping sales gross profit
Gross margin on jewelry scrapping sales
Other revenues
Net revenues
Segment contribution:
Operations expense
Impairment of goodwill, intangible and other assets
Depreciation and amortization
Other charges
Segment operating contribution
Other segment expenses
Segment contribution
Other data:
Net earning assets — continuing operations (a)
Inventory turnover
Average monthly ending pawn loan balance per store (b)
Monthly average yield on pawn loans outstanding
Pawn loan redemption rate
Fiscal Year Ended
September 30,
2020
2019
Change
(in thousands)
$
210,081
$
391,921
140,377
36 %
36,691
8,627
24 %
150
359,235
261,608
10,000
11,030
3,106
73,491
385
73,106
182,147
2.3
235
14 %
88 %
$
$
$
$
$
$
248,369
355,996
130,860
37 %
45,815
6,497
14 %
233
385,959
269,003
—
11,879
—
105,077
3,402
101,675
299,674
1.9
292
14 %
84 %
(15)%
10%
7%
(100) bps
(20)%
33%
1,000 bps
(36)%
(7)%
(3)%
*
(7)%
*
(30)%
(89)%
(28)%
(39)%
0.4x
(20)%
— bps
400 bps
*
(a)
(b)
Represents a percentage computation that is not mathematically meaningful.
Balance includes pawn loans and inventory.
Balance is calculated based on the average of the monthly ending balance averages during the applicable period.
Segment contribution decreased $28.6 million, primarily due to a $26.7 million decrease in net revenues.
The decrease in net revenues split between same stores and stores closed during the year is summarized as follows:
Same stores
Closed stores and other
Total
Change in jewelry scrapping sales gross profit and other revenues
Total change in net revenue
Pawn Service
Charges
Change in Net Revenue
Merchandise Sales
Gross Profit
(in millions)
Total
$
$
(39.5)
1.2
(38.3)
$
$
8.6
0.9
9.5
$
$
$
(30.9)
2.1
(28.7)
2.0
(26.7)
PSC decreased 15% primarily due to a substantial decline in new loan originations and associated loan balances because of a change in customer borrowing
behaviors during the COVID-19 pandemic.
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Merchandise sales increased 10% and merchandise sales gross profit increased 7% to $140.4 million primarily due to the impact of federal economic stimulus
measures, with gross margin on merchandise sales down 100 bps to 36%, falling within our target range of 35-38%. Excluding looting charges of $2.1 million and
a $1.4 million increase in inventory reserves due to an increase in aged inventory resulting from the impact of COVID-19, gross margin on merchandise sales
remained flat at 37%.
Jewelry scrapping sales gross profit increased 33% to $8.6 million, due primarily to higher scrapping margins as a result of higher gold prices and a reduction in
demand for diamond scrap sales. Jewelry scrap sales margins increased 1,000 bps to 24%.
Total expenses increased $1.8 million, or 1%. Excluding an impairment charge of $10.0 million and other charges of $3.1 million, total expenses decreased $11.3
million, or 4%, primarily due to a $7.4 million decrease in operating expenses ($5.0 million attributable to cost reduction initiatives and $2.4 million attributable to
the reversal of accrued short-term and long-term incentive compensation) and a $3.0 million decrease in loss on sale or disposal of assets.
Non-GAAP Financial Information
In addition to the financial information prepared in conformity with generally accepted accounting principles in the United States ("GAAP"), we provide certain
other non-GAAP financial information on a constant currency basis ("constant currency"). We use constant currency results to evaluate our Latin America Pawn
operations, which are denominated primarily in Mexican pesos and other Latin American currencies. We believe presentation of constant currency results is
meaningful and useful in understanding the activities and business metrics of our Latin America Pawn operations and reflect an additional way of viewing aspects
of our business that, when viewed with GAAP results, provide 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. 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 instead of 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. The end-of-period and approximate average exchange rates for each applicable currency as compared to U.S.
dollars as of and for the three and twelve months ended September 30, 2020 and 2019 were as follows:
Mexican peso
Guatemalan quetzal
Honduran lempira
Peruvian sol
September 30,
Three Months Ended
September 30,
Twelve Months Ended
September 30,
2020
2019
2020
2019
2020
2019
21.6
7.6
24.3
3.5
19.7
7.6
24.2
3.4
22.1
7.5
24.3
3.5
19.4
7.5
24.1
3.3
21.0
7.5
24.3
3.4
19.4
7.6
24.1
3.3
Our statement of operations constant currency results reflect the monthly exchange rate fluctuations and so are not directly calculable from the above rates.
Constant currency results, where presented, also exclude the foreign currency gain or loss.
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Latin America Pawn
The following table presents selected summary financial data for the Latin America Pawn segment, including constant currency results, after translation to U.S.
dollars from its functional currencies of the Mexican peso, Guatemalan quetzal, Honduran lempira and Peruvian sol. See “Results of Operations — Non-GAAP
Financial Information” above.
Fiscal Year Ended September 30,
Net revenues:
Pawn service charges
Merchandise sales
Merchandise sales gross profit
Gross margin on merchandise sales
Jewelry scrapping sales
Jewelry scrapping sales gross profit
Gross margin on jewelry scrapping sales
Other (expenses) revenues, net
Net revenues
Segment contribution:
Operations expense
Impairment of goodwill, intangible and other assets
Depreciation and amortization
Other charges
Segment operating (loss) contribution
Other segment (income) expense (a)
Segment (loss) contribution
Other data:
Net earning assets — continuing operations (b)
Inventory turnover
Average monthly ending pawn loan balance per store (c)
Monthly average yield on pawn loans outstanding
Pawn loan redemption rate (d)
$
$
$
2020
(GAAP)
2019
(GAAP)
Change
(GAAP)
(in thousands)
$
62,557
$
2020
(Constant
Currency)
(in thousands)
Change (Constant
Currency)
106,292
23,355
22 %
11,262
1,285
11 %
(101)
87,096
69,916
35,938
7,315
1,715
(27,788)
(1,129)
(26,659)
45,067
2.8
70
15 %
78 %
$
$
$
78,997
97,379
25,007
26 %
14,630
1,013
7 %
179
105,196
74,199
—
6,267
—
24,730
606
24,124
78,739
2.4
89
16 %
78 %
(21)%
$
65,513
(17)%
9%
(7)%
(400) bps
(23)%
27%
400 bps
(156)%
(17)%
(6)%
*
17%
*
(212)%
(286)%
(211)%
(43)%
0.4x
(21)%
(100) bps
— bps
$
$
$
112,603
24,838
22 %
11,961
1,347
11 %
(164)
91,534
73,377
37,745
7,749
1,801
(29,138)
(1,625)
(27,513)
49,163
2.4
92
16 %
78 %
16%
(1)%
(400) bps
(18)%
33%
400 bps
(192)%
(13)%
(1)%
*
24%
*
(218)%
*
(214)%
(38)%
—x
3%
— bps
— bps
*
(a)
(b)
(c)
(d)
Represents a percentage computation that is not mathematically meaningful.
Fiscal 2020 constant currency amount excludes net GAAP basis foreign currency transaction gains of $0.5 million resulting from movement in exchange rates.
Balance includes pawn loans and inventory.
Balance is calculated based on the average of the monthly ending balance averages during the applicable period.
Rate is solely inclusive of results from Empeño Fácil.
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During fiscal 2020, we opened 23 de novo stores in Latin America.
Segment contribution decreased $50.8 million, or 211%, to $(26.7) million (down 214% on a constant currency basis), primarily due to the goodwill impairment
charges of $35.9 million recorded during the second quarter. Excluding those charges, segment contribution decreased $14.5 million, primarily due to a decrease in
net revenues.
The decrease in net revenues split between same stores and stores added/closed during the year is summarized as follows:
Same stores
Stores added/closed and other
Total
Change in jewelry scrapping sales gross profit and other revenues
Total change in net revenue
Same stores
Stores added/closed and other
Total
Change in jewelry scrapping sales gross profit and other revenues
Total change in net revenue
Pawn Service Charges
Change in Net Revenue (GAAP)
Merchandise Sales Gross
Profit
Total
(in millions)
$
$
(17.8) $
1.4
(16.4) $
(3.4)
1.7
(1.7)
$
$
$
Change in Net Revenue (Constant Currency)
Merchandise Sales Gross
Profit
Pawn Service Charges
Total
(in millions)
$
$
(14.9) $
1.2
(13.7) $
(2.0)
0.8
(1.2)
$
$
$
(21.2)
3.1
(18.1)
—
(18.1)
(16.9)
2.0
(14.9)
—
(14.9)
Net revenues decreased $18.1 million, or 17%, primarily due to a decrease in PSC of $16.4 million.
PSC decreased 21%, or 17% on a constant currency basis, primarily due to a substantial decline in new loan originations and associated loan balances because of a
change in customer borrowing behaviors during the COVID-19 pandemic. Pawn loans outstanding decreased by 40% during the current year.
Merchandise sales increased 9% (16% on a constant currency basis) as we continued with efforts to reduce aged general merchandise at a higher cost basis, with an
offsetting 400 bps decline in margins to 22% (400 bps on a constant currency basis). Excluding the $1.2 million increase in inventory reserves due to an increase in
aged inventory resulting from the impact of COVID-19, gross margin on merchandise sales decreased to 23% from 26%.
Jewelry scrapping gross profit increased 27% (33% on a constant currency basis) due to a 400 bps increase in margins (400 bps on a constant currency basis), as a
result of higher gold prices.
Operations expense decreased $4.3 million or 6% (1% on a constant currency basis) due to cost reduction initiatives. Of the total decrease, $1.1 million is related to
the reversal of accrued short-term and long-term incentive compensation.
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Lana
The following table presents selected summary financial data from the Lana segment:
Revenues:
Segment contribution:
Operations
Depreciation and amortization
Other charges
Operations expense and other
Segment loss
Fiscal Year Ended
September 30,
2020
2019
Change
$
(in thousands)
34
$
—
*
4,270
1,058
3,258
8,586
7,675
10
—
7,685
$
(8,552) $
(7,685)
(44)%
*
*
12%
11%
*
Represents a percentage computation that is not mathematically meaningful.
Discrete revenues to date are minimal as the Lana product offering launched late in the first quarter of fiscal 2020 and all fees from pawn loan extensions,
including those made through the Lana platform, are reported in our pawn segments.
Operations expense decreased 44% due to the initial investment of non-capitalizable costs in the Lana platform in the prior year.
Segment loss increased 11% primarily as a result of the $3.3 million increase in other charges primarily related to the impairment of Lana software of $3.0 million
and an increase in depreciation of $1.0 million (as the product offering was launched in the first quarter of fiscal 2020) offset by the decrease in operations
expense. The impairment was due to a strategic initiative to focus on significantly improving and strengthening our core pawn business, which led to scaling back
our expectations and development of Lana to a digital customer service platform to support our pawn businesses.
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Other International
The following table presents selected summary financial data for the Other International segment after translation to U.S. dollars from its reporting units’
functional currencies of primarily Canadian and Australian dollars:
Net revenues:
Consumer loan fees and interest
Consumer loan bad debt
Net revenues
Segment operating loss:
Operating expenses
Impairment of goodwill, intangible and other assets
Impairment of investment
Other charges
Equity in net loss of unconsolidated affiliates
Segment operating loss
Other segment expense
Segment loss
Fiscal Year Ended
September 30,
2020
2019
Change
(in thousands)
3,823 $
(953)
2,870
5,314
1,149
—
3,802
2,429
(9,824)
535
(10,359) $
5,631
(2,338)
3,293
7,595
—
19,725
—
135
(24,162)
2,668
(26,830)
$
$
(32)%
(59)%
(13)%
(30)%
*
*
*
*
(80)%
(61)%
*
Represents a percentage computation that is not mathematically meaningful.
Segment loss was $10.4 million, an improvement of $16.5 million from the prior year primarily due to an impairment of our investment in Cash Converters
International in the amount of $19.7 million in the prior year with no similar impairment in the current year, offset by a $7.1 million charge, ($10.1 million, net of a
$3.0 million tax benefit) in the first quarter of fiscal 2020 for our share of the Cash Converters International settlement of a class action lawsuit.
We operated 22 financial services stores in Canada under the CASHMAX brand during the fiscal year. All of the stores were located in the Ontario province, in
and around Toronto. During the fourth quarter, we closed our CASHMAX business. We recorded other charges of $4.9 million in this segment, primarily
consisting of severance and other payroll-related costs, net asset write-offs, impairment of internally developed software and contract termination costs.
In October 2019, Cash Converters International agreed to settle the sole remaining class action lawsuit previously lodged on behalf of borrowers residing in
Queensland, Australia who took out personal loans from Cash Converters International between July 30, 2009 and June 30, 2013. Cash Converters International
agreed to pay AUD $42.5 million in two tranches, subject to court approval. We recorded a charge of approximately $10.0 million for our share of the settlement
from Cash Converters International in fiscal 2020 related to this event, in addition to our regularly included share of their earnings.
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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
Corporate expenses (income):
Administrative
Impairment of goodwill and intangibles
Depreciation and amortization
Loss on sale or disposal of assets and other
Other charges
Interest expense
Interest income
Other income
(Loss) income from continuing operations before income taxes
Income tax (benefit) expense
(Loss) income from continuing operations, net of tax
Loss from discontinued operations, net of tax
Net (loss) income
Net loss attributable to noncontrolling interest
Net (loss) income attributable to EZCORP, Inc.
*
Represents a percentage computation that is not mathematically meaningful.
Fiscal Year Ended
September 30,
2020
2019
Change
(in thousands)
$
27,536 $
91,284
(70)%
49,897
7,579
11,356
508
8,507
21,238
(1,587)
133
(70,095)
(1,632)
(68,463)
—
(68,463)
—
(68,463) $
$
55,990
—
10,422
24
—
30,537
(9,485)
(378)
4,174
2,406
1,768
(457)
1,311
(1,230)
2,541
(11)%
*
9%
*
*
(30)%
(83)%
*
*
(168)%
*
(100)%
*
*
*
Administrative expenses decreased $6.1 million, or 11%, primarily due to the reduction of short-term and long-term incentive compensation of approximately
$17.0 million, offset by a $10.9 million increase in labor costs.
Other charges include $8.5 million of charges resulting from the implementation of cost saving initiatives and rationalizing non-core activities. These charges
include $5.4 million in severance costs and other payroll-related costs and $3.1 million of miscellaneous charges.
Interest expense decreased $9.3 million, or 30%, primarily due to the repayment in June 2019 of our 2.125% Cash Convertible Senior Notes Due 2019. Prior to
repayment, the principal amount of these notes was $195.0 million. For additional information about our financing transactions, see “Note 9 of Notes to
Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.”
Interest income decreased $7.9 million, or 83%, primarily due to the declining principal balance on the Grupo Finmart notes receivable, in addition to the reduction
of interest earned on outstanding cash balances after our 2019 Convertible Notes were repaid in June 2019.
Income taxes decreased $4.0 million due primarily to:
•
•
A $74.3 million decrease in income from continuing operations before income taxes; and
A $9 million increase in income tax expense resulting from non-deductible goodwill impairments.
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 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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Fiscal 2019 vs. Fiscal 2018
The Results of Operations discussion for fiscal 2019 vs. fiscal 2018 has been omitted and 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, 2019, which was filed with the SEC on
December 5, 2019.
Liquidity and Capital Resources
Cash Flows
The table and discussion below present a summary of the sources and uses of our cash:
Cash flows from operating activities
Cash flows from (used in) investing activities
Cash flows used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents and restricted cash
*
Represents a percentage computation that is not mathematically meaningful.
Fiscal Year Ended
September 30,
2020
2019
Change
$
$
(in thousands)
49,078 $
109,898
(6,253)
(2,612)
150,111 $
103,517
(27,829)
(198,317)
(507)
(123,136)
(53)%
495%
97%
*
222%
The decrease in cash flows from operating activities year-over-year was due to $33.2 million of changes in working capital and a $20.3 million change in net
income, exclusive of non-cash items. Changes in working capital included certain required prepayments and payments of accounts payable, including certain
discrete items, accrued as of September 30, 2019.
The increase in cash flows from investing activities year-over-year was primarily due to a $129.5 million net decrease in new loan originations and associated loan
balances because of a change in customer borrowing behaviors during the COVID-19 pandemic and a $15.8 million increase in the sale of forfeited collateral,
partially offset by a $26.1 million net decrease in principal collections on the Grupo Finmart notes receivable.
The decrease in cash flows used in financing activities was due primarily to repayment of $195.0 million principal amount of 2.125% Cash Convertible Senior
Notes Due 2019 in the prior year, partially offset by $5.2 million in common stock repurchases in the current year.
The net effect of these changes was a $150.1 million increase in cash on hand during the current year, resulting in a $312.6 million ending cash and restricted cash
balance. Of the ending cash balance on September 30, 2020, $49.0 million was unavailable to fund domestic operations as we intend to permanently reinvest those
funds in our foreign operations and $8.0 million was also unavailable as these funds are being held in an escrow account pending resolution of an indemnification
claim related to the sale of Grupo Finmart.
Sources and Uses of Cash
In December 2019, our Board of Directors authorized a stock repurchase program that will allow us to repurchase up to $60 million of our Class A Non-voting
Common Stock over three years. On March 20, 2020, we suspended the repurchase of shares under the program in order to preserve current liquidity given the
uncertainty of the impact of the COVID-19 pandemic to our operations. The resumption of our stock repurchase program and the amount and timing of purchases
will be dependent on a variety of factors. These factors include the return to normal business conditions, stock price, trading volume, general market conditions,
legal and regulatory requirements, cash flow levels, 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 of Directors has reserved the right to modify, suspend or terminate the program at any
time. During the year ended September 30, 2020, we repurchased and retired 943,149 shares of our Class A Common Stock for $5.2 million.
We anticipate that cash flows from operations and cash on hand will be adequate to fund any future stock repurchases, our contractual obligations, planned de novo
store growth, capital expenditures and working capital requirements through fiscal 2021. We continue to explore accretive 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. Given the current uncertainty related to the
COVID-19 pandemic, we may continue to adjust our capital or other expenditures.
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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 of Notes to
Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.”
In June 2019, we repaid $195.0 million principal amount of 2.125% Cash Convertible Senior Notes Due 2019 at maturity using cash on hand.
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 and 2025, may require us to refinance these obligations through the issuance of new debt securities, equity securities, convertible securities or through new
credit facilities.
Grupo Finmart Notes
In connection with the sale of Grupo Finmart to Alpha Holding, S.A. de C.V. (“AlphaCredit”) in September 2016, Grupo Finmart issued two promissory notes (the
“Parent Loan Notes”) to us in the aggregate principal amount of $60.2 million. The repayment terms of the Parent Loan Notes were amended in September 2017,
and since that time, we received all scheduled payments when due. During the year ended September 30, 2020, we received the remaining deferred compensation
fees of $8.0 million, which was placed into escrow pending resolution of a potential indemnity claim.
Contractual Obligations
Below is a summary of our cash needs to meet future aggregate contractual obligations as of September 30, 2020:
Contractual Obligations
Debt obligations (a)
Interest on long-term debt obligations
Lease obligations (b)
Total (c) (d)
Total
Less than
1 year
Payments due by Period
1-3 years
3-5 years
(in thousands)
More than
5 years
$
$
317,122 $
41,302
246,168
604,592 $
213 $
8,295
66,079
74,587 $
427 $
16,537
89,971
106,935 $
316,482 $
16,470
48,479
381,431 $
—
—
41,639
41,639
(a) Excludes debt discount and deferred financing costs as well as convertible features.
(b) Excludes $8.6 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 11 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 $6.1 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, 2020, these collectively amounted to $24.7 million.
Critical Accounting Policies and 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, long-lived and 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 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, 2020, the
balance of our PSC receivable was $20.6 million. Assuming the average forfeiture rate increased or decreased by 10%, our pawn service charges receivable
balance as of September 30, 2020 would have increased or decreased by approximately $2.0 million.
Inventory and Cost of Goods Sold
We consider our estimates of obsolete or slow-moving inventory and shrinkage estimates 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 estimates 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, 2020, the gross balance of our inventory was $108.2 million, for which we have included reserves of $12.3 million. Assuming the reserve rates were increased
or decreased by 10%, our inventory reserve balance as of September 30, 2020 would have increased or decreased by approximately $1.2 million.
Goodwill and Other Intangible Assets
We perform our impairment analyses utilizing the income approach. This approach uses future cash flows and estimated terminal values for each of our reporting
units (discounted using a market participant perspective) to determine the fair value of each reporting unit, which is then compared to the carrying value of the
reporting unit to determine if there is an impairment. We have determined that our reporting units are equivalent to our operating segments for fiscal 2020. The
income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-average cost
of capital derived from other publicly traded companies that are similar but not identical 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. Discount rates used in fiscal 2020
goodwill valuations ranged from 11% to 19%, compared to 10% to 15% used in fiscal 2019. In testing other intangible assets for potential impairment, we apply
key assumptions that are consistent with those utilized in our goodwill impairment test.
We may perform a qualitative assessment in making our determination of whether it is more likely than not that goodwill and other intangible assets are impaired
under appropriate accounting guidance on an annual basis in future reporting periods. In addition to the assumptions discussed above pertaining to the income
approach, we consider the assessment of potential triggering events to be a critical estimate. The results of impairment analyses for fiscal year 2020 are described
in Note 8 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 that 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 United States 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
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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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Expected operating losses and uncertainties relating to the COVID-19 pandemic, including the impact of renewed economic stimulus measures;
The need to sustain focus on internal controls;
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;
Our ability to successfully develop and commercialize a digital transaction and lending services platform;
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;
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•
•
•
•
•
•
•
•
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
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 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Disclosures
We are exposed to market risk related primarily to gold values and changes in foreign currency exchange rates.
Our earnings and financial position are affected by changes in gold values, and to a lesser extent silver and precious stone values, and the resulting impact on pawn
lending, jewelry sales and jewelry cost of goods sold. The proceeds of scrap sales and our ability to sell jewelry inventory at an acceptable margin depend on gold
values. The impact on our financial position and results of operations of a hypothetical change in gold values cannot be reasonably estimated due to the timing of
scrap sales, among other operational considerations.
Our earnings and financial position are affected by foreign exchange rate fluctuations related to our equity investments and our operations outside the U.S. While
we generally do not seek to hedge amounts in foreign currencies, we consider hedging strategies from time to time to mitigate certain discrete risks of exposure via
short term arrangements.
The translation adjustment from Cash Converters International through June 30, 2020 (included in our September 30, 2020 results on a three-month lag) was a
$1.7 million increase to stockholders’ equity, excluding income tax impacts. During the fiscal year ended September 30, 2020, the $1.00 Australian dollar to
$0.6750 U.S. was flat as compared to the prior year.
The translation adjustment from Latin America primarily representing the change of the Mexican peso during the year ended September 30, 2020 was a
$14.7 million decrease to stockholders’ equity. During the fiscal year ended September 30, 2020, the Mexican peso weakened approximately 10.7% to $1.00
Mexican to $0.0453 U.S. from $0.0507 U.S. as of September 30, 2019. During the fiscal year ended September 30, 2020, the Guatemalan quetzal weakened
approximately 2.9% to Q1.00 Guatemalan to $0.1285 U.S. from $0.1324 U.S. as of September 30, 2019. We have currently assumed indefinite reinvestment of
earnings and capital in Latin America. Accumulated translation gains or losses related to any future repatriation of earnings or capital would impact our earnings in
the period of repatriation.
To a lesser degree, our operations are affected by fluctuations in the exchange rate of the Honduran lempira and the Peruvian sol.
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The translation adjustment from our Canadian operations representing the weakening of the Canadian dollar during the year ended September 30, 2020 was a
$0.2 million decrease to stockholders’ equity. During the fiscal year ended September 30, 2020, the $1.00 Canadian dollar to $0.7507 U.S. was flat as compared to
the prior year.
We cannot predict the future valuation of foreign currencies or how further movements in exchange rates could affect our future earnings or financial position due
to the interrelationship of operating results and exchange rates.
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ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
ITEM 8
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 2020 and 2019
Consolidated Statements of Operations for each of the three years ended September 30, 2020, 2019 and 2018
Consolidated Statements of Comprehensive (Loss) Income for each of the three years ended September 30, 2020, 2019 and 2018
Consolidated Statements of Stockholders’ Equity for each of the three years ended September 30, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for each of the three years ended September 30, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Note 1: Organization and Summary of Significant Accounting Policies
Note 2: Other Charges
Note 3: Acquisitions
Note 4: (Loss) Earnings Per Share
Note 5: Strategic Investments
Note 6: Fair Value Measurements
Note 7: Property and Equipment
Note 8: Goodwill and Intangible Assets
Note 9: Debt
Note 10: Common Stock and Stock Compensation
Note 11: Income Taxes
Note 12: Leases
Note 13: Contingencies
Note 14: Segment Information
Note 15: Supplemental Consolidated Financial Information
Note 16: Quarterly Information (Unaudited)
39
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41
42
43
44
45
46
46
52
53
55
55
56
56
56
58
62
63
66
68
68
72
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Table of Contents
Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors
EZCORP, Inc.
Rollingwood, Texas
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of EZCORP, Inc. (the “Company”) as of September 30, 2020 and 2019, the related consolidated
statements of operations and comprehensive (loss) income, stockholders’ equity, and cash flows for each of the three years in the period ended September 30,
2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of the Company at September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the
three years in the period ended September 30, 2020, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal
control over financial reporting as of September 30, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated December 14, 2020 expressed an unqualified opinion
thereon.
Adoption of New Accounting Standard
As is discussed in Notes 1 and 12 to the consolidated financial statements, the Company changed its method of accounting for leases in the year ended September
30, 2020, due to adoption of ASC Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BDO USA, LLP
We have served as the Company’s auditor since 2015.
Dallas, Texas
December 14, 2020
40
EZCORP, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
Table of Contents
Assets:
Current assets:
Cash and cash equivalents
Restricted cash
Pawn loans
Pawn service charges receivable, net
Inventory, net
Notes receivable, net
Prepaid expenses and other current assets
Total current assets
Investments in unconsolidated affiliates
Property and equipment, net
Lease right-of-use asset
Goodwill
Intangible assets, net
Notes receivable, net
Deferred tax asset, net
Other assets
Total assets
Liabilities and equity:
Current liabilities:
Current maturities of long-term debt, net
Accounts payable, accrued expenses and other current liabilities
Customer layaway deposits
Lease liability
Total current liabilities
Long-term debt, net
Deferred tax liability, net
Lease liability
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 13)
Stockholders’ equity:
Class A Non-Voting Common Stock, par value $0.01 per share; shares authorized: 100 million; 52,332,848 issued and
outstanding as of September 30, 2020; and issued and outstanding of 52,565,064 as of September 30, 2019
Class B Voting Common Stock, convertible, par value $0.01 per share; shares authorized: 3 million; issued and outstanding:
2,970,171 as of September 30, 2020 and 2019
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
41
September 30,
2020
2019
304,542 $
8,011
131,323
20,580
95,891
—
32,903
593,250
32,458
56,986
183,809
257,582
58,638
1,148
8,931
4,221
1,197,023 $
213 $
71,504
11,008
49,742
132,467
251,016
524
153,040
10,849
547,896
157,567
4,875
199,058
31,802
179,355
7,182
25,921
605,760
34,516
67,357
—
300,527
68,044
1,117
1,998
4,383
1,083,702
214
77,957
12,915
—
91,086
238,380
1,985
—
7,302
338,753
521
526
30
398,475
318,169
(68,068)
649,127
1,197,023 $
30
407,628
389,163
(52,398)
744,949
1,083,702
$
$
$
$
EZCORP, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenues:
Merchandise sales
Jewelry scrapping sales
Pawn service charges
Other revenues
Total revenues
Merchandise cost of goods sold
Jewelry scrapping cost of goods sold
Other cost of revenues
Net revenues
Operating expenses:
Operations
Administrative
Impairment of goodwill, intangible and other assets
Depreciation and amortization
Loss on sale or disposal of assets and other
Other charges
Total operating expenses
Operating (loss) income
Interest expense
Interest income
Equity in net loss (income) of unconsolidated affiliates
Impairment of investment in unconsolidated affiliates
Other (income) expense
Income from continuing operations before income taxes
Income tax (benefit) expense
(Loss) income from continuing operations, net of tax
Loss from discontinued operations, net of tax
Net (loss) income
Net loss attributable to noncontrolling interest
Net (loss) income attributable to EZCORP, Inc.
Basic (loss) earnings per share attributable to EZCORP, Inc. — continuing operations
Diluted (loss) earnings per share attributable to EZCORP, Inc. — continuing operations
Weighted-average basic shares outstanding
Weighted-average diluted shares outstanding
See accompanying notes to consolidated financial statements.
42
Fiscal Year Ended September 30,
2019
2018
2020
(in thousands, except per share amounts)
498,213 $
47,953
272,638
4,007
822,811
334,481
38,041
1,054
449,235
341,040
49,897
54,666
30,827
801
20,388
497,619
(48,384)
22,472
(3,173)
2,429
—
(17)
(70,095)
(1,632)
(68,463)
—
(68,463)
—
(68,463) $
(1.24) $
(1.24) $
55,313
55,313
453,375 $
60,445
327,366
6,043
847,229
297,508
52,935
2,338
494,448
358,253
55,990
—
28,797
4,399
—
447,439
47,009
32,637
(11,086)
135
19,725
1,424
4,174
2,406
1,768
(457)
1,311
(1,230)
2,541 $
0.05 $
0.05 $
55,341
55,984
438,372
60,752
304,577
8,455
812,156
276,618
52,290
1,697
481,551
334,841
53,639
—
25,484
463
—
414,427
67,124
27,834
(17,041)
(5,529)
11,712
(5,391)
55,539
18,389
37,150
(856)
36,294
(988)
37,282
0.70
0.66
54,456
57,896
$
$
$
$
Table of Contents
EZCORP, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
Net (loss) income
Other comprehensive loss:
Foreign currency translation loss, net of income tax expense (benefit) for our investment in unconsolidated
affiliate of $354, $(708) and $(353) for the years ended September 30, 2020, 2019 and 2018, respectively
Comprehensive (loss) income
Comprehensive loss attributable to noncontrolling interest
Comprehensive (loss) income attributable to EZCORP, Inc.
See accompanying notes to consolidated financial statements.
43
Fiscal Year Ended September 30,
2019
2018
2020
(in thousands)
(68,463) $
1,311 $
36,294
(15,678)
(84,141)
—
(84,141) $
(10,042)
(8,731)
(1,230)
(7,501) $
(2,638)
33,656
(882)
34,538
$
$
Table of Contents
EZCORP, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
Shares
Par
Value
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive Loss
Noncontrolling
Interest
Total Equity
Balances as of October 1, 2017
Stock compensation
Release of restricted stock
Taxes paid related to net share settlement of equity awards
Reclassification of stranded tax effects resulting from the Tax
Cuts and Jobs Act
Foreign currency translation (loss) gain
Equity classified conversion feature of 2024 Convertible Notes,
net of tax
Net income (loss)
Balances as of September 30, 2018
Stock compensation
Release of restricted stock
Taxes paid related to net share settlement of equity awards
Transfer of subsidiary shares to noncontrolling interest
Foreign currency translation loss
Deconsolidation of subsidiary
Net income (loss)
Balances as of September 30, 2019
Stock compensation
Release of restricted stock
Taxes paid related to net share settlement of equity awards
Foreign currency translation loss
Purchase and retirement of treasury stock
Net loss
Balances as of September 30, 2020
54,398
—
187
—
—
—
—
—
54,585
—
950
—
—
—
—
—
55,535
—
711
—
—
(943)
—
55,303
$
$
$
$
544
—
2
—
—
—
—
—
546
—
10
—
—
—
—
—
556
—
6
—
—
(11)
—
551
See accompanying notes to consolidated financial statements.
$
$
$
$
44
348,532
10,711
—
(311)
—
—
38,995
—
397,927
9,794
—
(3,288)
3,195
—
—
—
407,628
(5,094)
—
(1,435)
—
(2,624)
—
398,475
$
$
$
$
(in thousands)
$
347,885
—
—
—
1,455
—
—
37,282
386,622
—
—
—
—
—
—
2,541
389,163
—
—
—
(8)
(2,523)
(68,463)
318,169
$
$
$
(38,157)
—
—
—
(1,455)
(2,744)
—
—
(42,356)
—
—
—
—
(10,042)
—
—
(52,398)
—
—
—
(15,670)
—
—
(68,068)
$
$
$
$
(2,449)
—
—
—
—
106
—
(988)
(3,331)
—
—
—
(3,195)
—
7,756
(1,230)
—
—
—
—
—
—
—
—
$
$
$
$
656,355
10,711
2
(311)
—
(2,638)
38,995
36,294
739,408
9,794
10
(3,288)
—
(10,042)
7,756
1,311
744,949
(5,094)
6
(1,435)
(15,678)
(5,158)
(68,463)
649,127
Table of Contents
EZCORP, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Fiscal Year Ended September 30,
2019
2018
2020
(in thousands)
$
(68,463) $
1,311 $
36,294
Depreciation and amortization
Amortization of debt discount and deferred financing costs
Amortization of lease right-of-use asset
Accretion of notes receivable discount and deferred compensation fee
Deferred income taxes
Impairment of goodwill, intangibles and other assets
Other adjustments
Reserve on jewelry scrap receivable
Stock compensation expense
Equity in net loss (gain) from investment in unconsolidated affiliates
Impairment of investment in unconsolidated affiliates
Changes in operating assets and liabilities, net of business acquisitions:
Pawn service charges receivable
Inventory
Prepaid expenses, other current assets and other assets
Accounts payable, accrued expenses and other liabilities
Customer layaway deposits
Income taxes, net of excess tax benefit from stock compensation
Net cash provided by operating activities
Investing activities:
Loans made
Loans repaid
Recovery of pawn loan principal through sale of forfeited collateral
Capital expenditures, net
Acquisitions, net of cash acquired
Investment in unconsolidated affiliate
Principal collections on notes receivable
Net cash provided by (used in) investing activities
Financing activities:
Taxes paid related to net share settlement of equity awards
Payout of deferred consideration
Proceeds from borrowings, net of issuance costs
Payments on borrowings
Repurchase of common stock
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents and restricted cash
Net increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of period
Cash and cash equivalents and restricted cash at end of period
Supplemental disclosure of cash flow information
Cash and cash equivalents
Restricted cash
Total cash and cash equivalents and restricted cash
Cash paid during the period for interest
Cash paid during the period for income taxes, net
Non-cash investing and financing activities:
Pawn loans forfeited and transferred to inventory
See accompanying notes to consolidated financial statements.
$
$
$
$
$
$
45
30,827
13,200
45,649
(821)
(8,393)
54,666
1,652
—
(5,094)
2,429
—
11,021
17,043
(875)
(37,401)
(1,647)
(4,715)
49,078
(568,368)
394,469
304,323
(28,526)
—
—
8,000
109,898
(1,459)
(350)
912
(198)
(5,158)
(6,253)
(2,612)
150,111
162,442
312,553 $
304,542 $
8,011
312,553 $
8,489 $
9,753 $
28,797
19,759
—
(4,524)
1,616
—
5,776
3,646
9,751
135
19,725
(732)
(493)
5,732
22,246
1,176
(10,404)
103,517
(737,585)
434,142
288,502
(38,839)
(8,116)
—
34,067
(27,829)
(3,288)
—
1,064
(196,093)
—
(198,317)
(507)
(123,136)
285,578
162,442 $
157,567 $
4,875
162,442 $
12,900 $
11,132 $
25,484
17,595
—
(9,150)
7,916
—
2,607
—
10,784
(5,529)
11,712
(1,788)
(1,074)
477
(3,271)
709
(3,785)
88,981
(707,220)
421,331
266,962
(40,474)
(93,165)
(14,036)
32,396
(134,206)
(311)
—
171,409
(3,510)
—
167,588
(654)
121,709
163,869
285,578
285,311
267
285,578
8,412
13,676
241,252 $
301,357 $
274,590
Table of Contents
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
EZCORP, Inc.
Notes to Consolidated Financial Statements
EZCORP, Inc. was founded in 1989 and is a leading provider of pawn loans in the United States and Latin America. Pawn loans are non-recourse loans
collateralized by tangible property. We also sell merchandise, primarily collateral forfeited from pawn lending operations and used merchandise purchased from
customers. We are dedicated to satisfying the short-term cash needs of consumers, with a focus on delivering an industry-leading customer experience.
As of September 30, 2020, we operated a total of 1,005 locations, consisting of:
•
•
•
505 United States pawn stores (operating primarily as EZPAWN or Value Pawn & Jewelry);
368 Mexico pawn stores (operating primarily as Empeño Fácil);
132 pawn stores in Guatemala, El Salvador, Honduras and Peru (operating as GuatePrenda and MaxiEfectivo).
We have a 34.75% equity interest in Cash Converters International Limited (“Cash Converters International”), a publicly traded company (ASX:CCV)
headquartered in Perth, Western Australia with operations in Australia and the United Kingdom. Cash Converters International and its controlled companies
comprise a diverse group generating revenues from franchising store operations, personal finance and vehicle finance, controlling over 700 stores across 16
countries.
We also own 13.14% of Rich Data Corporation (RDC), a Singapore-based software-as-a-service company that utilizes global financial services expertise, advanced
artificial intelligence and non-traditional data to deliver a next-generation credit scoring and decisioning platform.
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles and are expressed in U.S.
dollars. They include the accounts of EZCORP, Inc., and its wholly-owned subsidiaries. We use the equity method of accounting for entities in which we have a
50% or less investment and exercise significant influence. We account for equity investments for which we do not have significant influence and without readily
determinable fair values at cost with adjustments for observable changes in price in orderly transactions for identical or similar investments of the same issuer or
impairments. All inter-company accounts and transactions have been eliminated in consolidation.
We have reclassified certain amounts in prior-period financial statements to conform to the current period’s presentation.
Use of Estimates and Assumptions
The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and liabilities. We regularly evaluate estimates and judgments, including those related to revenue
recognition, inventory, loan loss allowances, long-lived and intangible assets, share-based compensation, income taxes, contingencies and litigation. We base our
estimates on historical experience, observable trends and various other assumptions that we believe are reasonable, the results of which form the basis for making
judgements about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. Actual results
may differ materially from the estimates under different assumptions or conditions.
Pawn Loans and Revenue Recognition
The carrying value of our pawn loans is based on the initial amounts loaned to customers, which are fully collateralized. We record pawn service charges 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 results of operations and financial condition. If a pawn loan is not repaid, we value the forfeited
collateral (inventory) at the lower of cost (pawn loan principal) or net realizable value of the item. Of our consolidated pawn loans outstanding balance of
$131.3 million as of September 30, 2020, $51.9 million (40%) is attributable to stores in Texas and $14.8 million (11%) is attributable to stores in Florida.
46
Table of Contents
Merchandise Sales Revenue Recognition
Our performance obligations for merchandise sales primarily relate to point in time retail sales in our stores. We recognize the satisfaction of the performance
obligation and record merchandise sales revenue and the related cost when merchandise inventory is sold and delivered to the customer or, in the case of a layaway
sale, when we receive the final payment. Customers have a limited period of time to return merchandise for a refund or exchange, and actual returns for refunds are
not material. Sales tax collected on the sale of inventory is excluded from the amount recognized as sales and is recorded as a liability in “Accounts payable,
accrued expenses and other current liabilities” in our consolidated balance sheets until remitted to the appropriate governmental authorities.
We recognize the satisfaction of the performance obligation and record scrapping (precious metals and stones) sales revenue and the related cost when scrap
inventory is legally transferred to the refiner and the refiner obtains control of the inventory. The receivables outstanding at the end of a given reporting period are
not material. Payment of the receivable from the customer is generally received within a short period of time after the legal transfer of the scrap materials to the
refiner.
Our transaction prices are explicitly stated within the contracts with our customers.
Inventory and Cost of Goods Sold
If a pawn loan is not redeemed, we record the forfeited collateral at cost (the principal amount of the pawn loan) in "Inventory, net" in our consolidated balance
sheets. We do not record loan loss allowances or charge-offs on the principal portion of pawn loans, as they are fully collateralized. We record our inventory using
the specific identification method of accounting.
In order to state inventory at the lower of cost or net realizable value, we record an allowance for excess, obsolete or slow-moving inventory based on the type and
age of merchandise. Our inventory consists primarily of general merchandise and jewelry. Our "Merchandise cost of goods sold" includes the historical cost of
inventory sold, inventory shrinkage and any change in the allowance for inventory shrinkage and valuation. We include the cost of operating our central jewelry
processing unit under “Jewelry scrapping cost of goods sold,” as it relates directly to sales of precious metals to refiners.
We consider our estimates of obsolete or slow-moving inventory and shrinkage critical estimates 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 monitor our reserve estimates pertaining to jewelry inventory depending on the current and
projected prices of gold. Future declines in the value of gold prices may cause an increase in reserve rates pertaining to jewelry inventory.
Situations that may result in excess or obsolete inventory include changes in business and economic conditions, changes in consumer confidence caused by
changes in market conditions ,decreases in demand for our products or inventory obsolescence resulting from changes in technology. During fiscal 2020, we took a
charge of $2.6 million to merchandise cost of sales for inventory provisions primarily related to the write-off of excess and obsolete inventory due to the impact of
COVID-19.
With respect to our Mexico pawn operations, we do not own the forfeited collateral; however, we assume the risk of loss on such collateral and are solely
responsible for its care and disposition and, therefore, record such collateral under “Inventory, net” in our consolidated balance sheets. The amount of inventory
from our Mexico pawn operations classified as “Inventory, net” in our consolidated balance sheets was $12.9 million and $26.9 million as of September 30, 2020
and 2019, respectively.
Cash and Cash Equivalents and Cash Concentrations
Cash and cash equivalents consist primarily of cash on deposit or highly liquid investments with original contractual maturities of three months or less, or money
market mutual funds. We hold cash at major financial institutions that often exceed FDIC insured limits. We manage our credit risk associated with cash and cash
equivalents and cash concentrations by concentrating our cash deposits in high quality financial institutions and by periodically evaluating the credit quality of the
primary financial institutions issuing investments or holding such deposits. Historically, we have not experienced any losses due to such cash concentrations.
Restricted Cash
Restricted cash consists of $8.0 million held in escrow pending resolution of a pre-closing tax indemnity claim related to the sale of Grupo Finmart.
47
Table of Contents
Equity Method Investments
We account for our investment in Cash Converters International and RDC under the equity method. Since Cash Converters International’s fiscal year ends three
months prior to ours, we report the income from this investment on a three-month lag. Thus, income reported for fiscal years ended September 30, 2020, 2019 and
2018 represents our percentage interest in the results of Cash Converters International’s operations for the twelve-month periods ended June 30, 2020, 2019 and
2018, respectively. Because Cash Converters International publicly files semi-annual financial reports with the Australian Securities & Investments Commission as
of and for the periods ended June 30 and December 31, we make estimates for our equity in Cash Converters International’s net income (loss) for the three-month
periods ended March 31 (our reporting period ended June 30) and September 30 (our reporting period ended December 31). Those estimates may vary from actual
results. We adjust our estimates as necessary in our reporting periods ended March 31 and September 30 to conform to Cash Converters International actual results
as shown in their published semi-annual reports. We measure and record all other-than-temporary impairments as of the date of our reporting period.
Leases
We enter into operating lease agreements for real estate related to pawn locations and corporate offices. We determine if an arrangement contains a lease at
inception by determining whether there is an identified asset and whether the arrangement conveys the right to control the use of the identified asset. Operating
lease liabilities are recognized at the lease commencement date based on the present value of fixed lease payments using the Company’s incremental borrowing
rate. As our leases generally do not include an implicit rate, we compute our incremental borrowing rate based on information available at the lease commencement
date applying the portfolio approach to groups of leases with similar characteristics. Right-of-use operating assets are recognized based on the initial present value
of fixed lease payments over the lease term. Our lease terms include options to extend the lease when it is reasonably certain we will exercise its option. We used
incremental borrowing rates that match the duration of the remaining lease terms of our operating leases on a fully collateralized basis upon adoption as of October
1, 2019 to initially measure our lease liability. We evaluate renewal options periodically for any changes in assumptions.
Effective October 1, 2019, we adopted ASC Topic 842: Leases (“ASC 842”). Upon adoption, we elected to utilize the modified retrospective method, including not
to account for lease and non-lease components separately. Lease components generally include rent, taxes and insurance, and non-lease components generally
include common area maintenance. Right-of-use assets are tested for impairment in the same manner as long-lived assets. Under ASC 842, lease expense is
recognized on a straight-line basis over the lease term with variable lease expense recognized in the period in which the costs are incurred. Our lease portfolio
consists of pawn locations and corporate offices with leases terms ranging from three to ten years, including options to renew. We generally account for the initial
lease term of our pawn locations as up to ten years. Our primary corporate office is leased through March 2029 with escalating rent payments annually and
includes two five-year extension options at the end of the initial lease term.
Definite-lived Intangible Assets
Goodwill and indefinite-lived intangible assets are not subject to amortization. We test goodwill and indefinite-lived intangible assets for impairment annually as
of September 30, or more frequently if an event occurs or circumstances change that could indicate a potential impairment. We compare the fair value of our
reporting units with their carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair
value, without exceeding the total amount of goodwill allocated to that reporting unit.
We perform our impairment analyses utilizing the income approach. This approach uses estimated future cash flows and terminal values for each of our reporting
units (discounted using a market participant perspective) to determine the fair value of each reporting unit, which is then compared to the carrying value of the
reporting unit to determine if there is an impairment. We have determined that our reporting units are equivalent to our operating segments for fiscal 2020. The
income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-average cost
of capital derived from other publicly traded companies that are similar but not identical 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. Discount rates used in fiscal 2020
for the goodwill impairment analysis ranged from 11% to 19%. In testing other indefinite-lived intangible assets for potential impairment, we apply key
assumptions that are consistent with those utilized in our goodwill impairment test.
We may perform a qualitative assessment in making our determination of whether it is more likely than not goodwill and other indefinite-lived intangible assets are
impaired in future reporting periods. In addition to the assumptions discussed above pertaining to the income approach, we consider the assessment of potential
triggering events to be a critical estimate.
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Property and Equipment
We record property and equipment at cost. We depreciate these assets on a straight-line basis using estimated useful lives of 30 years for buildings and two to
seven years for furniture, equipment and software development costs. We depreciate leasehold improvements over the shorter of their estimated useful life
(typically 10 years) or the reasonably assured lease term at the inception of the lease.
Valuation of Long-Lived Assets
The carrying values of long-lived assets, inclusive of right of use (ROU) assets, are periodically reviewed whenever events or changes in circumstances indicate
that the carrying value may not be recoverable, such as historical operating losses or plans to close stores before the end of their previously estimated useful lives.
A potential impairment has occurred if projected future undiscounted cash flows are less than the carrying value of the assets. The estimate of cash flows includes
management's assumptions of cash inflows and outflows directly resulting from the use of those assets in operations. In addition to the assumptions associated with
the determination of projected future cash flows, we consider the assessment of potential triggering events to be a critical estimate. When a potential impairment
has occurred, an impairment write-down is recorded if the carrying value of the long-lived asset exceeds its fair value.
Software Development Costs and Cloud Computing Arrangements
We capitalize certain costs incurred in connection with developing or obtaining software for internal use and amortize the costs on a straight-line basis over the
estimated useful lives of the software, typically five years. Net capitalized development costs are included in “Capital expenditures, net” in our consolidated
statements of cash flows.
In evaluating whether our cloud computing arrangements include a software license, we consider whether we have the contractual right to take possession of the
software at any time during the hosting period without significant penalty and whether it is feasible for us to either run the software on our own hardware or
contract with another party unrelated to the vendor to host the software. If a cloud computing arrangement includes a software license, we account for the software
license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license,
we account for the arrangement as a service contract.
Business Combinations
We allocate the total acquisition price to the fair value of assets and liabilities acquired under the acquisition method with goodwill representing the excess of
purchase price over the fair value of net assets acquired. We expense transaction costs as incurred. We recognize any adjustments to provisional amounts and
goodwill that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, with the effect on current
period earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the
accounting had been completed at the acquisition date.
Convertible Debt Securities
In accounting for our convertible debt securities at issuance, we separated the securities into debt and equity components pursuant to the accounting standards for
convertible debt instruments that may be fully or partially settled in cash upon conversion. The carrying value of the liability components was calculated by
measuring the fair value of similar liabilities that do not have an associated conversion feature, including discount rates of approximately 8%. The excess of the
principal amount over the fair value of the liability component was recorded as a discount with a corresponding increase in additional paid-in capital. The debt
discounts will be accreted to “Interest expense” over the respective terms of the convertible debt securities using the effective interest method. The amount
recorded to “Additional paid-in capital” will not be remeasured as long as they continue to meet the conditions for equity classification.
We account for the conversion premium of the convertible debt securities under the treasury method in accordance with our accounting policy, which assumes
settlement of the conversion premium (equal to the as-converted value over the face principal amount) in shares of our Class A Common Stock.
Foreign Currency
Our foreign subsidiaries use the local currency of their respective countries as their functional currency. Assets and liabilities of our foreign subsidiaries' balance
sheet accounts and our equity method investments are translated from their respective functional currencies into United States dollars at the exchange rate at the
end of each quarter, and their earnings are translated into United States dollars at the average exchange rate each quarter. We present resulting translation
adjustments as a separate component of stockholders’ equity.
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Foreign currency transaction gains and losses not accounted for as translations are included in “Other expense (income)” in our consolidated statements of
operations. These gains were $0.5 million, $0.3 million and $0.4 million for fiscal 2020, 2019 and 2018, respectively.
Operations Expense
Included in “Operations” expense are costs related to operating our stores and any direct costs of support offices. These costs include labor, other direct expenses
such as utilities, supplies and banking fees and indirect expenses such as store rent, building repairs and maintenance, advertising, store property taxes and
insurance and regional and area management expenses.
Administrative Expense
Included in “Administrative” expense are costs related to our executive and administrative offices. This includes executive and administrative salaries, wages,
stock and incentive compensation, professional fees, license fees, costs related to the operation of our administrative offices such as rent, property taxes, insurance,
information technology and other corporate costs.
Advertising
Advertising costs are expensed as incurred and included primarily under “Operations” expense in our consolidated statements of operations. These costs were
$2.0 million, $2.0 million and $2.5 million for fiscal 2020, 2019 and 2018, respectively.
Stock Compensation
We measure share-based compensation expense at the grant date based on the price of underlying shares at that date and recognize it as expense, net of estimated
forfeitures, ratably over the vesting or service period, as applicable, of the stock award. Our policy is to recognize expense on performance-based awards, where
satisfaction of the performance condition is probable, ratably over the awards’ vesting period and recognize expense on awards that only have service requirements
on a straight-line basis.
Income Taxes
We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying value of assets and liabilities and their tax basis and for operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the related temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized when the rate change is enacted.
We consider the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the United States 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 the U.S. federal and state income taxes and 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. We recognize interest and penalties related to
unrecognized tax benefits as “Income tax expense” in our consolidated statements of operations.
We consider our assessment of the recognition of deferred tax assets as well as estimates of uncertain tax positions to be critical estimates.
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Earnings per Share and Common Stock
We compute basic earnings per share based on the weighted average number of shares of common stock outstanding during the period. We compute diluted
earnings per share based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding, including
conversion features embedded in our outstanding convertible debt, during the period using the treasury stock method. Dilutive potential common shares include
outstanding restricted stock awards as well as shares issuable on conversion of our outstanding convertible debt securities and exercise of outstanding warrants.
Potential common shares are required to be excluded from the computation of diluted earnings per share if the assumed proceeds upon exercise or vest are greater
than the cost to re-acquire the same number of shares at the average market price, and therefore the effect would be anti-dilutive. There were no participating
securities outstanding during fiscal 2020, 2019 and 2018 requiring the application of the two-class method. When we are in a loss position for the period, dilutive
securities are excluded from the calculation of earnings per share, as they would have an anti-dilutive effect.
Our capital stock consists of two classes of common stock designated as Class A Non-Voting Common Stock (“Class A Common Stock”) and Class B Voting
Common Stock (“Class B Common Stock”). The rights, preferences and privileges of the Class A and Class B Common Stock are similar except that each share of
Class B Common Stock has one vote and each share of Class A Common Stock has no voting privileges, except as required by law. All Class A Common Stock is
publicly held. Holders of Class B Common Stock may, individually or as a class, convert some or all of their shares into Class A Common Stock on a one-to-one
basis. Class A Common Stock becomes voting common stock upon the conversion of all Class B Common Stock to Class A Common Stock. We are required to
reserve the number of authorized but unissued shares of Class A Common Stock that would be issuable upon conversion of all outstanding shares of Class B
Common Stock.
Impact of COVID-19
In December 2019, a novel strain of coronavirus “COVID-19” was identified in Wuhan, China. COVID-19 has caused a global health emergency and was declared
a worldwide pandemic by the World Health Organization on March 11, 2020. In an effort to slow and contain the spread of COVID-19, local, state and national
governments implemented various measures, which have impacted businesses worldwide. Many of these measures have expired or been rescinded, but some are
continuing and others are being reimplemented or considered for reimplementation as COVID-19 continues to spread at rapid rates in many parts of the U.S.
We began to see the impact of COVID-19 to our operations in mid-March when the closure of non-essential businesses and the implementation of stay-at-home
requirements began in our geographic locations. During the third quarter, we were able to keep virtually all of our stores in the U.S. and Mexico open for business
and operating under enhanced safety measures and restrictions on occupancy, but store closure orders in our GPMX countries (Guatemala, El Salvador, Honduras
and Peru) had a more severe impact on our business. Since that time and continuing through the fourth quarter, we have been able to keep virtually all of our stores
open for business.
Starting in mid-March and continuing through most of the fourth quarter, we experienced a significant decline in pawn loan originations and associated loan
balances as a result of a change in customer borrowing behaviors due to COVID-19. This reduced activity resulted in net revenue losses for the year, which were
partially offset by a strong increase in merchandise sales.
The factors described above impacted the forecast of future net revenues and earnings and resulted in lower present value of future cash flows. We recorded a
goodwill impairment charge of $41.3 million in the second quarter of fiscal 2020. In addition, we (a) determined an impairment had occurred in the fair values of
trade names of previously acquired entities in our Mexico and GPMX reporting units and recorded a related impairment of $2.9 million and $1.7 million
respectively, and (b) determined the carrying amount of certain long-lived asset groups were not recoverable and recorded a related impairment of $1.1 million, all
in the second quarter of 2020.
The full extent and duration of the COVID-19 impact on the global economy generally, and on our business specifically, is currently unknown and cannot be
reasonably estimated. The pandemic has had an adverse effect on our net revenues and earnings in fiscal 2020. We expect the impact of the pandemic, and the
recovery therefrom, will continue to adversely affect net revenues and earnings into fiscal 2021. A prolonged pandemic and recovery may have an adverse effect
on our results of operations, financial position and liquidity in future periods.
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Recently Adopted Accounting Policies
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848)
— Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to
contracts, hedging relationships and other transactions that reference LIBOR or another reference rate. ASU 2020-04 is effective upon issuance through December
31, 2022. This ASU has not had a significant impact on our consolidated financial statements and related disclosures to date. We will continue to assess the
applicability to any future arrangements.
Effective October 1, 2019, we adopted ASC - Leases (Topic 842) which requires companies to recognize operating and financing lease liabilities and
corresponding right-of-use assets on the balance sheet using the modified retrospective method provided under ASU 2018-11, Leases- (Topic 842): Targeted
Improvements. Additionally, we elected the package of practical expedients under Accounting Standards Codification ("ASC") 842 as well as the transition
guidance elections to not separate lease and non-lease components for leases under ASC 842. Further, we have elected an accounting policy to not record right-of-
use assets and lease liabilities for leases that have a duration of 12 months or less. See Note 12 for additional discussion.
Recently Issued Accounting Pronouncements
In August 2020, the FASB issued its Accounting Standards Update (“ASU”) 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”). ASU 2020-06 simplifies the accounting for certain financial
instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU 2020-06 amendments
are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal
years beginning after December 15, 2020, including interim periods within those fiscal years. We are assessing the amendments in ASU 2020-06 to determine the
impact on our consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326) (ASU 2016-13). ASU 2016-13 modifies the measurement of
expected credit losses of certain financial instruments, requiring entities to estimate an expected lifetime credit loss on financial assets. The ASU amends the
impairment model to utilize an expected loss methodology and replaces the incurred loss methodology for financial instruments including trade receivables. The
amendment requires entities to consider other factors, such as economic conditions and future economic conditions. A reporting entity should generally apply the
amendment on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which
the amendment is effective. We are still assessing the amendments in ASU 2016-13 and do not expect the amendments will have a significant impact on our
consolidated financial statements and related disclosures. ASU 2016-13 is effective for the first quarter of fiscal 2021.
NOTE 2: OTHER CHARGES
Strategic Initiatives. During the fourth quarter of fiscal 2020, we began to implement strategic initiatives to refocus on our core pawn business and optimize our
cost structure in order to improve our bottom line performance and position the Company for sustainable growth. The initiatives focused on workforce reductions,
closure of our CASHMAX operations, store closures and write-offs of other miscellaneous charges.
Charges and adjustments related to our initiatives are summarized below:
•
•
•
•
$6.4 million in severance and other payroll-related costs related to a headcount reduction in the corporate office;
$4.9 million in costs related to the closure of the CASHMAX business and related operations, primarily consisting of severance and other payroll-related
costs, net asset write-offs, impairment of internally developed software and contract termination costs;
$4.1 million in costs primarily related to the closure of four stores in U.S. Pawn and three stores in Latin America Pawn, consisting primarily of severance
and other payroll-related costs and reserves on net assets; and
$5.0 million in other miscellaneous charges, primarily consisting of impairment of internally developed software and contract termination costs.
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(in millions)
Cash charges:
Labor reduction costs
CASHMAX shutdown costs
Store closure costs
Other
Non-cash charges:
Labor reduction costs
CASHMAX shutdown costs
Store closure costs
Other
NOTE 3: ACQUISITIONS
Fiscal 2019 Acquisitions
Accrued Charges at
September 30, 2019
Charges and
Adjustments
Payments and
Adjustments
Accrued Charges at
September 30, 2020
$
$
—
—
—
—
—
$
$
$
$
$
$
6.4
1.8
1.8
2.5
12.5
—
3.1
2.3
2.5
20.4
0.5
1.0
—
0.3
1.8
$
$
5.9
0.8
1.8
2.2
10.7
In June 2019, we acquired assets related to seven pawn stores operating under the name "Metro Pawn" in Nevada, entering the Reno market and expanding our
presence in the Las Vegas metropolitan area, for an aggregate purchase price of $7.0 million in cash, of which $3.9 million was recorded as goodwill. In December
2018, we acquired assets related to five pawn stores in Mexico for an aggregate purchase price of $0.3 million in cash, of which $0.1 million was recorded as
goodwill. Substantially all goodwill attributable to the fiscal 2019 acquisitions is deductible for tax purposes. We have concluded these acquisitions were
immaterial to our overall consolidated financial results and, therefore, have omitted information that would otherwise be required.
Fiscal 2018 Acquisitions
Camira Administration Corp. and subsidiaries (“GPMX”)
In October 2017, we completed the acquisition of 100% of the outstanding stock of Camira Administration Corp. and subsidiaries (“GPMX”), a business that, at
the time, owned and operated 112 stores located in Guatemala, El Salvador, Honduras and Peru. The GPMX acquisition significantly expanded our store base into
Latin American countries outside of Mexico and provided us with a platform for further growth in the region. Under the terms of the stock purchase agreement
(“SPA”), we paid $53.4 million in cash upon closing and, subsequent to the closing, paid $6.7 million to satisfy the acquired company's indebtedness to members
of the seller’s affiliated group. The SPA specified a further $2.25 million to be paid contingent upon performance of GPMX’s business during a period up to 24
months following the closing date, and the business achieved the specified performance goal during the first quarter of fiscal 2018. Consequently, we made a final
payment of $1.6 million in January 2018 in satisfaction of the contingent purchase price obligation, after reduction for certain adjustments under the SPA, yielding
a total purchase price of $61.7 million.
All Other
In June 2018, we acquired 40 pawn stores operating under the name “Montepio San Patricio” in and around Mexico City, the largest market in Mexico. The
acquisition of these stores was our largest acquisition in Mexico to date and significantly strengthened our competitive position in the strategically important
Mexico City metropolitan area. The physical space in these stores is substantially larger than our average store in Mexico, giving us the capacity to increase their
focus on general merchandise pawn loan and retail activities.
In June 2018, we acquired 23 pawn stores operating under the name “Presta Dinero,” giving us a presence in a number of cities within seven central-Mexico states
in which we already had stores. These stores complemented our existing stores, allowing us to achieve synergies in management and administration while giving
us a presence in new cities and neighborhoods.
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In December 2017, we acquired 21 pawn stores located in the Mexican state of Sinaloa operating under the name “Bazareño.” The Bazareño stores made up the
largest chain of pawn stores in Culiacan, the capital city of Sinaloa, giving us the number one position in that market and an important strategic presence in the
northwest region of Mexico.
The purchase prices of the above acquisitions were paid in cash.
These acquisitions, collectively referred to as "All Other" below, were individually immaterial and we have therefore omitted or aggregated certain disclosures.
Other Information for Fiscal 2018 Acquisitions
The acquisitions described above were all attributable to our Latin America Pawn segment. The allocation of the consideration for the acquired net assets from our
fiscal 2018 acquisitions was as follows:
Cash and cash equivalents
Earning assets
Other assets
Property and equipment, intangible assets, deferred taxes and other assets, net*
Goodwill
Accounts payable, deferred taxes and other liabilities
Total consideration
GPMX
All Other
(in thousands)
2,560 $
17,247
2,145
11,671
34,816
(6,723)
61,716 $
—
8,347
3,737
13,678
7,770
1,621
35,153
$
$
* As September 30, 2018 intangible assets consist primarily of $9.8 million and $6.6 million in trade names acquired with indefinite useful lives, for GPMX and All Other, respectively.
The factors contributing to the recognition of goodwill, which is recorded in our Latin America Pawn segment, were based on several strategic and synergistic
benefits we expect to realize from the acquisitions, including expansion of our store base as well as the ability to further leverage our pawn expertise, investments
in information technology and other back office and support functions of our existing Mexico pawn business. None of the goodwill resulting from these business
combinations is deductible for tax purposes.
The results of the acquired businesses have been included in our consolidated financial statements beginning after the acquisition dates as indicated above in our
Latin America Pawn segment with revenue and net income amounts as presented below. Such net income does not include acquisition-related costs of
approximately $0.6 million for fiscal 2018, which were expensed as incurred and primarily included under “Administrative” expense in our consolidated
statements of operations. It is impracticable to provide historical supplemental pro forma financial information for GPMX and All Other acquisitions due to a
variety of factors, including complexity of restructured entities acquired and access to historical information, such as information necessary to eliminate
intercompany transactions.
GPMX
All Other
54
Fiscal Year Ended
September 30, 2018
Revenue
Net Income
$
$
46.5
7.5
8.0
1.3
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NOTE 4: (LOSS) EARNINGS PER SHARE
Components of basic and diluted (loss) earnings per share and excluded antidilutive potential common shares are as follows:
Net (loss) income from continuing operations attributable to EZCORP (A)
Loss from discontinued operations, net of tax (B)
Net (loss) income attributable to EZCORP (C)
Weighted average outstanding shares of common stock (D)
Dilutive effect of restricted stock and 2024 Convertible Notes*
Weighted average common stock and common stock equivalents (E)
Basic (loss) earnings per share attributable to EZCORP:
Continuing operations (A/E)
Discontinued operations (B / D)
Diluted (loss) earnings per share attributable to EZCORP:
Continuing operations (A / E)
Discontinued operations (B / E)
Diluted (loss) earnings per share (C / E)
Fiscal Year Ended September 30,
2019
2018
2020
(in thousands, except per share amounts)
(68,463) $
—
(68,463) $
2,998 $
(457)
2,541 $
55,313
—
55,313 $
55,341
643
55,984 $
(1.24) $
—
(1.24) $
(1.24) $
—
(1.24) $
0.05 $
(0.01)
0.04 $
0.05 $
(0.01)
0.04 $
38,138
(856)
37,282
54,456
3,440
57,896
0.70
(0.02)
0.68
0.66
(0.02)
0.64
$
$
$
$
$
$
$
Potential common shares excluded from the calculation of diluted earnings per share above*:
Restricted stock**
2,786
2,121
2,218
* See Note 9 for discussion of the terms and conditions of the potential impact of the 2024 Convertible Notes and 2025 Convertible Notes. This amount excludes all potential common shares
for periods when there is a loss from continuing operations.
** Includes antidilutive share-based awards as well as performance-based share-based awards that are contingently issuable, but for which the condition for issuance has not been met as of the
end of the reporting period.
NOTE 5: STRATEGIC INVESTMENTS
As of September 30, 2020, we owned 214,183,714 shares, or approximately 34.75%, of Cash Converters International. Our total investment in Cash Converters
International was acquired between November 2009 and June 2018 for approximately $96.1 million, including the acquisition of 57,631,230 shares in June 2018
for $14.0 million (increasing our ownership by three percentage points) in connection with an underwritten placement of 123.3 million shares by Cash Converters
International for AUD $39.5 million, excluding related costs.
Our equity in Cash Converters International’s net loss was $2.1 million and $0.1 million in fiscal 2020 and 2019, and our equity in net income was $5.5 million in
2018. Cash Converters International did not declare or pay a dividend in fiscal 2020, 2019 or 2018. Cash Converters International’s accumulated undistributed
after-tax earnings included in our consolidated retained earnings were $13.7 million as of September 30, 2020.
The following tables present summary financial information for Cash Converters International’s most recently reported results as of September 30, 2020, 2019 and
2018 as applicable after translation to U.S. dollars:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
55
June 30,
2020
2019
(in thousands)
157,183 $
172,833
330,016 $
68,028 $
51,275
210,713
330,016 $
173,826
152,483
326,309
77,434
26,163
222,712
326,309
$
$
$
$
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Gross revenues
Gross profit
Net (loss) profit
2020
Fiscal Year Ended June 30,
2019
(in thousands)
2018
$
187,025 $
112,511
(7,032)
201,365 $
111,932
(1,210)
201,800
128,366
17,443
At September 30, 2020, the fair value of our investment in Cash Converters International, as estimated by reference to its quoted market price per share, was
greater than its carrying value.
For the first and second quarters of fiscal 2019, we determined that our investment was impaired and that such impairment was "other-than-temporary." In reaching
this conclusion, we considered all available evidence, including evidence in existence as of September 30, 2018. Additionally, we noted the following
developments subsequent to September 30, 2018: (i) continued decline in Cash Converters International's share price; and (ii) ongoing uncertainty around the
Queensland, Australia class action lawsuit regarding historical lending practices by Cash Converters International, for which a settlement agreement was reached
subsequent to September 30, 2019. As a result, we recognized "other-than-temporary" impairments in Cash Converters International
of $13.3 million ($10.3 million, net of taxes) and $6.5 million ($5.0 million, net of taxes) during the first and second quarters of fiscal 2019, respectively. The fair
value of our investment in Cash Converters International was $6.2 million below its carrying value as of September 30, 2019, which we determined was not other-
than temporary primarily as a result of the subsequent settlement of the remaining Queensland, Australia class action lawsuit and recovery of share price.
We will continue to monitor the fair value of our investment in Cash Converters International for other-than-temporary impairments in future reporting periods and
may record additional impairment charges should the fair value of our investment in Cash Converters International decline below its carrying value for an extended
period of time. See Note 6 for the fair value and carrying value of our investment in Cash Converters International.
We hold a 13.14% ownership in "RDC" and recognized a $0.3 million net loss for fiscal year 2020.
NOTE 6: FAIR VALUE MEASUREMENTS
The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value hierarchy prioritizes the quality and reliability of the information used to determine fair values.
Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is
defined into the following three categories:
•
•
•
Level 1 — Quoted market prices in active markets for identical assets or liabilities.
Level 2 — Other observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3 — Unobservable inputs that are not corroborated by market data.
Financial Assets and Liabilities Not Measured at Fair Value
The tables below present our financial assets and liabilities that were not measured at fair value:
Carrying Value
Estimated Fair Value
September 30, 2020 September 30, 2020
Fair Value Measurement Using
Level 2
Level 1
Level 3
Financial assets:
2.89% promissory note receivable due April 2024
Investments in unconsolidated affiliates
Financial liabilities:
2024 Convertible Notes
2025 Convertible Notes
8.5% unsecured debt due 2024
Financial assets:
Notes receivable from Grupo Finmart, net
2.89% promissory note receivable due April 2024
Investments in unconsolidated affiliates
Financial liabilities:
2024 Convertible Notes
2025 Convertible Notes
8.5% unsecured debt due 2024
CASHMAX secured borrowing facility
(in thousands)
$
$
$
$
1,148
32,458
117,193
133,164
872
1,148 $
32,597
— $
24,833
— $
—
1,148
7,764
$
129,979
137,569
872
— $
—
—
129,979 $
137,569
—
—
—
872
Carrying Value
Estimated Fair Value
September 30, 2019 September 30, 2019
Fair Value Measurement Using
Level 2
Level 1
Level 3
(in thousands)
$
$
$
$
7,182
1,117
34,516
111,311
126,210
1,092
634
7,582 $
1,117
28,308
— $
—
20,252
— $
—
—
$
139,969
138,345
1,092
634
— $
—
—
—
139,969 $
138,345
—
—
7,582
1,117
8,056
—
—
1,092
634
Based primarily on the short-term nature of cash and cash equivalents, pawn loans, pawn service charges receivable and other debt, we estimate that their carrying
value approximates fair value. We consider our cash and cash equivalents to be measured using Level 1 inputs and our pawn loans, pawn service charges
receivable and other debt to be measured using Level 3 inputs. Significant increases or decreases in the underlying assumptions used to value pawn loans, pawn
service charges receivable, consumer loans, fees and interest receivable and other debt could significantly increase or decrease these fair value estimates.
In September 2020, we received the final payment from AlphaCredit on the notes receivable related to the sale of Grupo Finmart and recorded the amount under
“Restricted cash” in our consolidated balance sheet as of September 30, 2020. In August 2019, AlphaCredit notified us of an indemnity claim for certain pre-
closing taxes, but the nature, extent and validity of such claim has yet to be determined.
The inputs used to generate the fair value of the investment in unconsolidated affiliate (Cash Converters International) were considered Level 1 inputs. These
inputs are comprised of (a) the quoted stock price on the Australian Stock Exchange multiplied by (b) the number of shares we owned multiplied by (c) the
applicable foreign currency exchange rate as of the end of our reporting period. We included no control premium for owning a large percentage of outstanding
shares.
We use the equity method of accounting for our 13.14% ownership in a previously consolidated variable interest entity, RDC, over which we no longer have the
power to direct the activities that most significantly affect its economic performance. We believe its fair value approximates carrying value although such fair
value is highly variable and includes significant unobservable inputs.
We measured the fair value of the 2024 and 2025 Convertible Notes using quoted price inputs. The notes are not actively traded, and thus the price inputs represent
a Level 2 measurement. As the quoted price inputs are highly variable from day to day, the fair value estimates disclosed above could significantly increase or
decrease.
In March 2019, we received $1.1 million in previously escrowed seller funds as a result of settling certain indemnification claims with the seller of GPMX. In
April 2019, we loaned the $1.1 million back to the seller of GPMX in exchange for a promissory note. The note bears interest at the rate of 2.89% per annum and is
secured by certain marketable securities owned
by the seller and held in a U.S. brokerage account. All principal and accrued interest is due and payable in April 2024. The note approximated its carrying value as
of September 30, 2020.
NOTE 7: PROPERTY AND EQUIPMENT
Major classifications of property and equipment were as follows:
(in thousands)
Land
Buildings and improvements
Furniture and equipment
Software
Construction in progress
Carrying
Amount
2020
Accumulated
Depreciation
$
$
4 $
105,137
127,793
33,729
846
267,509 $
—
(75,445)
(101,888)
(33,190)
—
(210,523)
$
$
September 30,
Net Book
Value
Carrying
Amount
2019
Accumulated
Depreciation
Net Book
Value
4 $
29,692
25,905
539
846
56,986 $
4 $
103,486
127,531
34,245
656
265,922 $
—
(68,895)
(96,142)
(33,528)
—
(198,565)
$
$
4
34,591
31,389
717
656
67,357
NOTE 8: GOODWILL AND INTANGIBLE ASSETS
We test goodwill and intangible assets with indefinite useful lives for impairment annually, or more frequently when there are events or circumstances that indicate
a potential impairment exists. During the second quarter of fiscal 2020, there was an indicator of impairment due to a decline in our market capitalization. We
performed a quantitative analysis as of March 31, 2020 utilizing the income approach. This approach uses future cash flows and estimated terminal values for each
reporting unit (discounted using a market participant perspective) to determine the fair value of each reporting unit, which is then compared to the carrying value of
the reporting unit to determine if an impairment exists. The income approach includes assumptions about revenue growth rates, operating margins and terminal
growth rates discounted by an estimated weighted-average cost of capital derived from other publicly traded companies that are similar but not identical from an
operational and economic standpoint. There is inherent uncertainty associated with these key assumptions, including the duration of the economic downturn
associated with COVID-19 and the recovery period. As a result of our quantitative analysis, we determined the fair value of each of our reporting units was below
its carrying value because of the impact of COVID-19, including a significant decline in pawn loan balances due to changes in typical customer behavior and
mandated store closures in our GPMX countries. These factors impacted the forecast of future net revenues and earnings and resulted in lower present value of
future cash flows. We recorded a goodwill impairment charge of $41.3 million in the second quarter of fiscal 2020. In addition, we (a) determined an impairment
had occurred in the fair values of trade names of previously acquired entities in our Mexico and GPMX reporting units and recorded a related impairment of
$2.9 million and $1.7 million respectively, and (b) determined the carrying amount of certain long-lived asset groups were not recoverable and recorded a related
impairment of $1.1 million in the second quarter of 2020. These impairments were recorded under "Impairment of goodwill, intangible and other assets" in the
Consolidated Statements of Operations. We further evaluated events and circumstances as of September 30, 2020 and determined there were no indicators of
impairment.
The following table presents the changes in the carrying value of goodwill by segment:
Balances as of September 30, 2018
Acquisitions
Effect of foreign currency translation changes
Balances as of September 30, 2019
Measurement period adjustments
Goodwill impairment *
Effect of foreign currency translation changes
Balances as of September 30, 2020
* Represents cumulative goodwill impairment.
U.S. Pawn
Latin America
Pawn
(in thousands)
Consolidated
$
$
$
247,894 $
3,858
—
251,752 $
176
(10,000)
—
241,928 $
51,354 $
(1,721)
(858)
48,775 $
(149)
(31,340)
(1,632)
15,654 $
299,248
2,137
(858)
300,527
27
(41,340)
(1,632)
257,582
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The following table presents the balance of each major class of intangible assets:
Non-amortizing intangible assets:
Trade names
Accumulated impairment losses
Pawn licenses
Amortizing intangible assets:
Internally developed software
Accumulated amortization
Accumulated impairment losses
Non-compete agreements
Accumulated amortization
Other
Accumulated amortization
Intangible assets, net
September 30,
2020
2019
(in thousands)
19,094 $
(4,598)
14,496 $
9,509
24,005 $
67,457 $
(33,646)
(2,579)
31,232 $
3,417 $
(3,394)
23 $
5,600 $
(2,222)
3,378 $
19,938
—
19,938
9,517
29,455
59,436
(24,280)
—
35,156
3,563
(3,399)
164
5,598
(2,329)
3,269
58,638 $
68,044
$
$
$
$
$
$
$
$
$
$
$
The amortization of most definite-lived intangible assets is recorded as amortization expense and included under “Depreciation and amortization” expense in our
consolidated statements of operations. These amounts were $11.2 million, $7.8 million and $5.8 million for fiscal 2020, 2019 and 2018, respectively.
The following table presents our estimate of future amortization expense for definite-lived intangible assets:
Fiscal Year Ended September 30,
2021
2022
2023
2024
2025
As acquisitions and dispositions occur in the future, amortization expense may vary from these estimates.
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Amortization expense
(in thousands)
$
8,344
7,631
5,892
5,159
1,685
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NOTE 9: DEBT
The following tables present our debt instruments outstanding, contractual maturities and interest expense:
2024 Convertible Notes
2025 Convertible Notes
8.5% unsecured debt due 2024*
CASHMAX*
Total
Less current portion
Total long-term debt
September 30, 2020
Debt Discount
and Issuance
Costs
Gross
Amount
Carrying
Amount
Gross
Amount
(in thousands)
September 30, 2019
Debt Discount
and Issuance
Costs
Carrying
Amount
$
$
$
143,750 $
172,500
872
—
317,122 $
213
316,909 $
(26,557) $
(39,336)
—
—
(65,893) $
—
(65,893) $
117,193 $
133,164
872
—
251,229 $
213
251,016 $
143,750 $
172,500
1,092
634
317,976 $
214
317,762 $
(32,439) $
(46,290)
—
(653)
(79,382) $
—
(79,382) $
111,311
126,210
1,092
(19)
238,594
214
238,380
* Amounts translated from Guatemalan quetzals and Canadian dollars as of the applicable period end.
2024 Convertible Notes*
2025 Convertible Notes*
8.5% unsecured debt due 2024
Total
* Excludes the potential impact of embedded derivatives.
2019 Convertible Notes:
Contractual interest expense
Amortization of debt discount and deferred financing costs
Total interest expense
2024 Convertible Notes:
Contractual interest expense
Amortization of debt discount and deferred financing costs
Total interest expense
2025 Convertible Notes:
Contractual interest expense
Amortization of debt discount and deferred financing costs
Total interest expense
2.375% Convertible Senior Notes Due 2025
Schedule of Contractual Maturities
Total
Less Than
1 Year
1 - 3 Years
3 - 5 Years
$
$
143,750 $
172,500
872
317,122 $
(in thousands)
— $
—
213
213
$
—
—
427
427
$
$
143,750
172,500
232
316,482
Fiscal Year Ended September 30,
2019
2018
2020
(in thousands)
$
$
$
$
$
$
— $
—
— $
4,133 $
5,883
10,016 $
4,097 $
6,954
11,051 $
3,074 $
7,556
10,630 $
4,133 $
5,452
9,585 $
4,097 $
6,468
10,565 $
4,144
9,952
14,096
4,133
5,057
9,190
1,559
2,383
3,942
In May 2018, we issued $172.5 million aggregate principal amount of 2.375% Convertible Senior Notes Due 2025 (the “2025 Convertible Notes”). All of the 2025
Convertible Notes were issued pursuant to an indenture dated May 14, 2018 (the "2018 Indenture") by and between us and Wells Fargo Bank, National
Association, as the trustee. Effective October 1, 2019, Branch Banking and Trust Company (“BB&T”), a North Carolina Bank, has assumed the duties and
responsibilities as trustee under the 2018 Indenture.
The 2025 Convertible Notes were issued in a private offering and resold under Rule 144A under the Securities Act of 1933. The 2025 Convertible Notes pay
interest semi-annually in arrears at a rate of 2.375% per annum on May 1 and November 1 of each year, commencing November 1, 2018, and will mature on May
1, 2025 (the "2025 Maturity Date"), unless converted, redeemed or repurchased in accordance with their terms prior to such date. At maturity, the holders of the
2025 Convertible Notes will be entitled to receive cash equal to the principal amount of the 2025 Convertible Notes plus unpaid accrued interest.
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The 2025 Convertible Notes are convertible based on an initial conversion rate of 62.8931 shares of Class A Non-Voting Common Stock (“Class A Common
Stock”) per $1,000 principal amount (equivalent to an initial conversion price of $15.90 per share). The conversion rate will not be adjusted for any accrued and
unpaid interest. The 2025 Convertible Notes contain certain make-whole fundamental change premiums and customary anti-dilution adjustments. Upon
conversion, we may settle in cash, shares of Class A Common Stock or any combination thereof, at our election. We account for the Class A Common Stock
issuable upon conversion under the treasury stock method. If our average share price is over $15.90 per share for any fiscal quarter, we are required to recognize
incremental dilution of our earnings per share.
Prior to November 1, 2024, the 2025 Convertible Notes are convertible only under the following circumstances: (1) during any fiscal quarter commencing after the
fiscal quarter ended on June 30, 2018 (and only during such fiscal quarter), if the last reported sale price of our Class A Common Stock for at least 20 trading days
(whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater
than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period
(the “measurement period”) in which the trading price, as defined in the 2018 Indenture, per $1,000 principal amount of notes for each trading day of the
measurement period was less than 98% of the product of the last reported sale price of our Class A Common Stock and the conversion rate on such trading day; (3)
if we call any or all of the 2025 Convertible Notes for redemption, at any time prior to the close of business on the business day immediately preceding the
redemption date; or (4) upon the occurrence of specified corporate events, as defined in the 2018 Indenture. On or after November 1, 2024 until the close of
business on the business day immediately preceding the 2025 Maturity Date, holders of 2025 Convertible Notes may, at their option, convert their 2025
Convertible Notes at any time, regardless of the foregoing circumstances.
We may not redeem the 2025 Convertible Notes prior to May 1, 2022. At our option, we may redeem for cash all or any portion of the 2025 Convertible Notes on
or after May 1, 2022, if the last reported sale price of the Class A Common Stock has been at least 130% of the conversion price then in effect for at
least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during
any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption. The
redemption price will be equal to 100% of the principal amount of the 2025 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding,
the redemption date.
We measured the fair value of the liability component of the 2025 Convertible Notes under a discounted cash flow approach considering our synthetic credit rating,
as determined with external consultation, including inputs that are not observable in the market. The fair value of the liability component was estimated by
calculating the present value of the cash flows using a discount rate of 8% for a similarly structured liability with no conversion feature, maturing in seven years.
Our estimate resulted in an initial carrying value of the liability component of the 2025 Convertible Notes of $121.3 million with an associated original issue
discount of $51.2 million, exclusive of deferred financing costs, accreted to the face value of the 2025 Convertible Notes based on the effective interest method
through the 2025 Maturity Date.
We accounted for the conversion feature of the 2025 Convertible Notes as a separate equity-classified instrument (“2025 Convertible Notes Embedded
Derivative”). The carrying amount of the 2025 Convertible Notes conversion feature (the “2025 Convertible Notes Embedded Derivative”) is currently included
under “Additional paid-in capital” in our consolidated balance sheets of September 30, 2020 and was initially calculated as $49.6 million ($39.1 million, net of
tax). The 2025 Convertible Notes Embedded Derivative is expected to remain recorded in equity in our consolidated balance sheets as long as it continues to meet
the criteria as an equity-classified instrument in subsequent reporting periods.
We incurred transaction costs of $5.5 million related to the issuance of the 2025 Convertible Notes, which we recorded as deferred financing costs and are included
under “Long-term debt, net” and “Additional paid-in capital” in our consolidated balance sheets.
The effective interest rate for fiscal 2020 was approximately 9%. As of September 30, 2020, the remaining unamortized debt discount and issuance costs will be
amortized through the 2025 Maturity Date assuming no early conversion.
As of September 30, 2020, the 2025 Convertible Notes were not convertible as no conditions of conversion had been met. Accordingly, the net balance of the 2025
Convertible Notes was classified as a non-current liability in our consolidated balance sheets as of September 30, 2020. The classification of the 2025 Convertible
Notes as current or non-current in the consolidated balance sheets is evaluated at each balance sheet date and may change from time to time depending on whether
any of the conversion conditions has been met.
If one of the conversion conditions is met in any future fiscal quarter, we will classify our net liability under the 2025 Convertible Notes as a current liability in the
consolidated balance sheets as of the end of that fiscal quarter. If none of the conversion conditions have been met in a future fiscal quarter prior to the one-year
period immediately preceding the 2025
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Maturity Date, we will classify our net liability under the 2025 Convertible Notes as a non-current liability in the consolidated balance sheets as of the end of that
fiscal quarter. If the note holders elect to convert their 2025 Convertible Notes prior to maturity, any unamortized discount and transaction costs will be recognized
as expense at the time of conversion. If the entire outstanding principal amount had been converted on September 30, 2020, we would have recorded an expense
associated with the conversion, comprised of $39.3 million of unamortized debt discount and issuance costs. As of September 30, 2020, none of the note holders
had elected to convert their 2025 Convertible Notes. As of September 30, 2020, the if-converted value of the 2025 Convertible Notes did not exceed the principal
amount.
2.875% Convertible Senior Notes Due 2024
In July 2017, we issued $143.75 million aggregate principal amount of 2.875% Convertible Senior Notes Due 2024 (the “2024 Convertible Notes”). All of the
2024 Convertible Notes were issued pursuant to an indenture dated July 5, 2017 (the “2017 Indenture”) by and between us and Wells Fargo Bank, National
Association, as the trustee. Effective October 1, 2019, BB&T has assumed the duties and responsibilities as trustee under the 2017 Indenture.
The 2024 Convertible Notes were issued in a private offering and resold under Rule 144A under the Securities Act of 1933. The 2024 Convertible Notes pay
interest semi-annually in arrears at a rate of 2.875% per annum on January 1 and July 1 of each year, commencing January 1, 2018, and will mature on July 1, 2024
(the “2024 Maturity Date”), unless converted, redeemed or repurchased in accordance with their terms prior to such date. At maturity, the holders of the 2024
Convertible Notes will be entitled to receive cash equal to the principal amount of the 2024 Convertible Notes plus unpaid accrued interest.
The 2024 Convertible Notes are convertible based on an initial conversion rate of 100 shares of Class A Common Stock per $1,000 principal amount (equivalent to
an initial conversion price of $10.00 per share). The conversion rate will not be adjusted for any accrued and unpaid interest. The 2024 Convertible Notes contain
certain make-whole fundamental change premiums and customary anti-dilution adjustments. Upon conversion, we may settle in cash, shares of Class A Common
Stock or any combination thereof, at our election. We account for the Class A Common Stock issuable upon conversion under the treasury stock method. If our
share priced increases over $10.00 per share, we are required to recognize incremental dilution of our earnings per share.
Prior to January 1, 2024, the 2024 Convertible Notes will be convertible only under the following circumstances: (1) during any fiscal quarter commencing after
the fiscal quarter ending on September 30, 2017 (and only during such fiscal quarter), if the last reported sale price of our Class A Common Stock for at
least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal
quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive
trading day period (the “measurement period”) in which the trading price, as defined in the 2017 Indenture, per $1,000 principal amount of notes for each trading
day of the measurement period was less than 98% of the product of the last reported sale price of our Class A Common Stock and the conversion rate on such
trading day; (3) if we call any or all of the 2024 Convertible Notes for redemption, at any time prior to the close of business on the business day immediately
preceding the redemption date; or (4) upon the occurrence of specified corporate events, as defined in the 2017 Indenture. On or after January 1, 2024 until the
close of business on the business day immediately preceding the 2024 Maturity Date, holders of 2024 Convertible Notes may, at their option, convert their 2024
Convertible Notes at any time, regardless of the foregoing circumstances.
We may not redeem the 2024 Convertible Notes prior to July 6, 2021. At our option, we may redeem for cash all or any portion of the 2024 Convertible Notes on
or after July 6, 2021, if the last reported sale price of the Class A Common Stock has been at least 130% of the conversion price then in effect for at least 20 trading
days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive
trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption. The redemption price will
be equal to 100% of the principal amount of the 2024 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
We measured the fair value of the liability component of the 2024 Convertible Notes under a discounted cash flow approach considering our synthetic credit rating,
as determined with external consultation, including inputs that are not observable in the market. The fair value of the liability component was estimated by
calculating the present value of the cash flows using discount rates slightly above 8% for a similarly structured liability with no conversion feature, maturing in
seven years. Our estimate resulted in an initial carrying value of the liability component of the 2024 Convertible Notes of $102.7 million with an associated
original issue discount of $41.0 million, exclusive of deferred financing costs, accreted to the face value of the 2024 Convertible Notes based on the effective
interest method through the 2024 Maturity Date.
We accounted for the conversion feature of the 2024 Convertible Notes as a separate equity-classified instrument (the “2024 Convertible Notes Embedded
Derivative”), initially recorded as $39.8 million ($25.3 million, net of tax), inclusive of deferred
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financing costs, on the issuance date and included under “Additional paid-in capital” in our consolidated balance sheet, including an allocated portion of the
deferred financing costs. The 2024 Convertible Notes Embedded Derivative is expected to remain recorded in equity in our consolidated balance sheets as long as
it continues to meet the criteria as an equity-classified instrument in subsequent reporting periods. The carrying amount of the 2024 Convertible Notes Embedded
Derivative included under “Additional paid-in capital” in our consolidated balance sheet of September 30, 2020 was $25.3 million.
We incurred transaction costs of $4.2 million related to the issuance of the 2024 Convertible Notes, which we recorded as deferred financing costs and are included
under “Long-term debt, net” and “Additional paid-in capital” in our consolidated balance sheets. Deferred financing costs recorded under “Long-term debt, net”
are being amortized to interest expense over the expected term of the 2024 Convertible Notes.
The effective interest rate for fiscal 2020 was approximately 9%. As of September 30, 2020, the remaining unamortized debt discount and issuance costs will be
amortized through the 2024 Maturity Date assuming no early conversion.
As of September 30, 2020, the 2024 Convertible Notes were not convertible as no conditions of conversion had been met. Accordingly, the net balance of the 2024
Convertible Notes was classified as a non-current liability in our consolidated balance sheets as of September 30, 2020. The classification of the 2024 Convertible
Notes as current or non-current in the consolidated balance sheets is evaluated at each balance sheet date and may change from time to time depending on whether
any of the conversion conditions has been met.
If one of the conversion conditions is met in any future fiscal quarter, we will classify our net liability under the 2024 Convertible Notes as a current liability in the
consolidated balance sheets as of the end of that fiscal quarter. If none of the conversion conditions have been met in a future fiscal quarter prior to the one-year
period immediately preceding the 2024 Maturity Date, we will classify our net liability under the 2024 Convertible Notes as a non-current liability in the
consolidated balance sheets as of the end of that fiscal quarter. If the note holders elect to convert their 2024 Convertible Notes prior to maturity, any unamortized
discount and transaction costs will be recognized as expense at the time of conversion. If the entire outstanding principal amount had been converted
on September 30, 2020, we would have recorded an expense associated with the conversion, comprised of $26.6 million of unamortized debt discount and issuance
costs. As of September 30, 2020, none of the note holders had elected to convert their 2024 Convertible Notes. As of September 30, 2020, the if-converted value of
the 2024 Convertible Notes did not exceed the principal amount.
2.125% Cash Convertible Senior Notes Due 2019
In June 2014, we issued $200 million aggregate principal amount of 2.125% Cash Convertible Senior Notes Due 2019 (the “2019 Convertible Notes”), with an
additional $30 million principal amount being issued in July 2014. In July 2017, we used $34.4 million of net proceeds from the 2024 Convertible Notes offering
to repurchase and retire $35.0 million aggregate principal amount of 2019 Convertible Notes. The 2019 Convertible Notes paid interest semi-annually in arrears at
a rate of 2.125% per annum on June 15 and December 15 of each year. The 2019 Convertible Notes matured on June 15, 2019 (the "2019 Maturity Date"), and the
remaining $195.0 million aggregate principal amount outstanding plus accrued interest was repaid using cash on hand.
2019 Convertible Notes Warrants
In connection with the issuance of the 2019 Convertible Notes, we also sold net-share-settled warrants (the “2019 Convertible Notes Warrants”). The 2019
Convertible Notes Warrants allowed for the purchase of up to approximately 14.3 million shares of our Class A Common Stock at a strike price of $20.83 per
share. We accounted for the Class A Common Stock issuable upon exercise under the treasury stock method. The 2019 Convertible Notes Warrants began to
expire on a daily basis after we repaid the 2019 Convertible Notes and the last of the unexpired 2019 Convertible Notes Warrants expired in May 2020. As of
September 30, 2020, there were no 2019 Convertible Notes Warrants outstanding, and no shares of Class A Common Stock were ever issued pursuant to the 2019
Convertible Notes Warrants.
CASHMAX Secured Borrowing Facility
In November 2018, we entered into a receivable's securitization facility with a third-party lender (the "lender") to provide funding for installment loan originations
in our Canadian CASHMAX business. Under the facility, a variable interest entity (the "trust") had the right, subject to various conditions, to borrow up to CAD
$25 million from the lender (the "third-party loan") and use the proceeds to purchase interests in installment loan receivables generated by CASHMAX.
The trust used collections on the transferred receivables to pay various amounts in accordance with an agreed priority arrangement, including expenses, its
obligations under the third-party loan and, to the extent available, amounts owned to CASHMAX with respect to the purchase price of the transferred receivables
and CASHMAX's retained interest in the
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receivables. CASHMAX had no obligation with respect to the third-party loan or the transferred receivables except to (a) service the underlying installment loans
on behalf of the trust and (b) pay amounts owed under or repurchase the underlying installment loans in the event of a breach by CASHMAX or in certain other
limited circumstances. The facility was nonrecourse to EZCORP (subject to certain limited guaranty obligations), allowed borrowing through November 2019, and
was to fully mature in November 2021. As part of the closure of the operations of our CASHMAX business, we terminated this facility in September 2020.
NOTE 10: COMMON STOCK AND STOCK COMPENSATION
Common Stock Repurchase Program
In December 2019, our Board of Directors (the "Board") authorized the repurchase of up to $60.0 million of our Class A Common Stock over three years.
Repurchases under the program were suspended in March 2020 in order to preserve liquidity as a result of uncertainties regarding the COVID-19 pandemic, and no
share repurchases under the program were executed for the remainder of fiscal 2020. Through March 2020, we repurchased and retired 943,149 shares of our Class
A Common Stock for $5.2 million, which amount was allocated between "Additional paid-in capital" and "Retained earnings" in our consolidated balance sheets.
Stock Compensation
On May 1, 2010 our Board of Directors approved the adoption of the EZCORP, Inc. 2010 Long-Term Incentive Plan (the “LTI Plan”). The LTI Plan permits grants
of options, restricted stock awards and stock appreciation rights covering up to 5,485,649 shares of our Class A Common Stock plus any shares that become
available for issuance under either the LTI Plan or prior plans as a result of forfeitures or cancellations of awards without delivery of shares or as a result of
withholding shares to satisfy tax withholding obligations. In December 2017 and November 2018, the Board of Directors and the voting stockholder approved the
addition of 1,100,000 and 400,000 shares, respectively, to the LTI Plan.
The purpose of our LTI Plan is to retain the services of valued employees and directors and to incentivize such persons to make contributions to our company and
motivate excellent performance. Under the LTI Plan, we grant awards of restricted stock or restricted stock units to employees and non-employee directors.
Awards granted to employees are typically subject to performance and service conditions. Awards granted to non-employee directors are time-based awards
subject only to service conditions. Awards are measured at the grant date fair value with compensation costs associated with the awards recognized over the
requisite service period, usually the vesting period, on a straight-line basis.
In November 2019 and May 2020, we granted 222,912 and 12,346, respectively, shares of restricted stock to our non-employee directors with a grant date fair
value of $4.89 and $5.24, respectively. These awards vested on September 30, 2020 and were subject only to service conditions.
In December 2017, we granted 1,308,533 restricted stock awards to employees and 84,250 restricted stock awards to non-employee directors with a grant date fair
value of primarily $9.75 per share. The awards granted to non-employee directors vested on September 30, 2018 and were subject only to service conditions. For
the awards granted to employees, 190,725 vested on September 30, 2018. In November 2020, the People and Compensation Committee of the Board of Directors
determined that the performance targets for the remaining employee awards were partially achieved, and 446,983 of such awards will vest on December 14, 2020.
In addition, 81,896 awards were canceled, resulting in a reversal of $0.80 million of previously recognized stock compensation expense.
In July 2019 and November 2018, we granted 61,138 and 971,615, respectively, restricted stock awards to employees with a grant date fair value of primarily
$10.04 and $9.18 per share, respectively. In November 2020, the People and Compensation Committee determined that the performance targets for such awards
were not probable of achievement. This resulted in the cancellation of 458,960 awards and the reversal of $2.9 million of previously recognized stock
compensation expense.
In April and May 2019, we granted 60,088 restricted stock awards to our seven new non-employee directors with a grant date fair value of primarily $10.64 per
share. In November 2018, we granted 59,812 restricted stock awards to our non-employee directors with a grant date fair value of $9.18 per share. The awards
granted to non-employee directors vested on September 30, 2019 and were subject only to service conditions.
In November and December 2016 and April 2017, we granted 931,260 restricted stock awards to employees and 72,500 restricted stock awards to non-employee
directors, each with a grant date fair value of approximately $9.60 per share. The awards granted to employees vested on September 30, 2019 and 463,467 shares
were released. The awards granted to non-employee directors vested over two years, 50% on September 30, 2017 and 50% on September 30, 2018 and were
subject only to service conditions.
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As of September 30, 2020, the unamortized fair value, exclusive of forfeitures, of share awards to be amortized over their remaining vesting periods was
approximately $1.2 million. The weighted-average period over which these costs will be amortized is approximately two years.
The following table presents amounts related to our stock compensation arrangements:
Share-based compensation costs
Income tax expense (benefit) on share-based compensation
The following table presents a summary of stock compensation activity:
Outstanding as of September 30, 2019
Granted
Vested and released (a)
Forfeited
Outstanding as of September 30, 2020
(a) 268,798 shares were withheld to satisfy related federal income tax withholding.
The following table presents a summary of the fair value of shares granted:
Weighted average grant-date fair value per share granted (a)
Total grant date fair value of shares vested
Fiscal Year Ended September 30,
2019
2018
2020
(in thousands)
$
(5,094) $
420
9,751 $
(1,098)
10,784
(1,656)
Weighted
Average
Grant Date
Fair Value
9.28
5.73
8.67
8.59
5.65
Shares
3,451,024 $
1,472,578
(989,223)
(2,825,459)
1,108,920 $
Fiscal Year Ended September 30,
2019
2018
2020
(in millions except per share amounts)
$
$
5.73 $
5.1 $
9.29 $
11.8 $
9.75
2.3
(a) Awards with performance and time-based vesting provisions are generally valued based upon the underlying share price as of the issuance date.
Other
We have not declared or paid any dividends and currently do not anticipate paying any dividends in the immediate future. As described in Note 9, payment of a
dividend requires an adjustment to the conversion rate of our Convertible Notes. Should we pay dividends in the future, our certificate of incorporation provides
that cash dividends on common stock, when declared, must be declared and paid at the same per share amounts on both classes of stock. Any future determination
to pay cash dividends will be at the discretion of our Board of Directors.
NOTE 11: INCOME TAXES
The following table presents the components of our income from continuing operations before income taxes, including inter-segment amounts:
Domestic*
Foreign
Fiscal Year Ended September 30,
2019
2018
2020
(in thousands)
$
$
(31,989) $
(38,106)
(70,095) $
(9,609) $
13,783
4,174 $
28,645
26,894
55,539
* Includes the majority of our corporate administrative costs. See Note 14 for information pertaining to segment contribution.
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The following table presents the significant components of the income tax provision:
Current:
Federal
State and foreign
Deferred:
Federal*
State and foreign
Total income tax (benefit) expense
Fiscal Year Ended September 30,
2019
2018
2020
(in thousands)
$
$
(6,631) $
10,544
3,913
(1,561)
(3,984)
(5,545)
(1,632) $
431 $
704
1,135
(4,264)
5,535
1,271
2,406 $
(26)
9,288
9,262
9,498
(371)
9,127
18,389
* The year ended September 30, 2018 includes a $2.1 million charge resulting from the remeasurement of our domestic net deferred tax assets based on the new corporate income tax rate as a
result of the Tax Cuts and Jobs Act(“the Act”), as well as $2.6 million charge resulting from recording a valuation allowance against foreign tax credit carryforwards that do not meet the
“more likely than not” threshold to be utilized as a result of tax law changes included in the Act.
The following table presents a reconciliation of income taxes calculated at the statutory rate and the provision for income taxes:
Income tax (benefit) expense at the federal statutory rate
State taxes, net of federal benefit
Mexico inflation adjustment
Non-deductible items
Tax credits
Foreign rate differential
Change in valuation allowance
Stock compensation
Uncertain tax positions
Change in tax rate resulting from enactment of the Act
Non-deductible impairment
Other
Total income tax (benefit) expense
Effective tax rate
Fiscal Year Ended September 30,
2019
2018
2020
$
$
(14,720)
951
(1,120)
772
—
(1,671)
962
598
2,849
—
9,093
654
(1,632)
(in thousands)
878
184
(801)
2,088
(551)
1,080
1,601
(711)
(1,596)
—
—
234
2,406
$
$
$
$
13,623
1,265
(936)
2,214
(615)
1,405
3,986
—
(4,808)
2,558
—
(303)
18,389
2 %
58 %
33 %
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The following table shows significant components of our deferred tax assets and liabilities:
Deferred tax assets:
Cash Converters International
Tax over book inventory
Accrued liabilities
Pawn service charges receivable
Stock compensation
Foreign tax credit
State and foreign net operating loss carryforwards
Book over tax depreciation
Other
Total deferred tax assets before valuation allowance
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Tax over book amortization
Note receivable discount
Prepaid expenses
Total deferred tax liabilities
Net deferred tax asset
September 30,
2020
2019
(in thousands)
$
$
15,049 $
9,737
8,924
1,019
1,565
1,696
15,990
4,651
4,350
62,981
(18,524)
44,457
22,444
12,257
1,349
36,050
8,407 $
14,616
6,858
4,518
1,699
2,758
2,638
15,806
2,659
2,159
53,711
(18,094)
35,617
19,042
15,416
1,146
35,604
13
As of September 30, 2020, we had state net operating loss carryforwards of approximately $123.0 million, which begin to expire in 2021 if not utilized. We also
had foreign net operating loss carryforwards of $42.0 million, which will expire between 2030 and 2038 if not utilized. Additionally, we have a $1.7 million
foreign tax credit that will expire between 2024 to 2027 if not utilized.
Deferred tax assets and liabilities are recorded for the estimated tax impact of temporary differences between the tax basis and book basis of assets and liabilities.
The Company has elected to account for the tax on Global Intangible Low-Taxed Income (“GILTI”) as a period cost and therefore has not recorded deferred taxes
related to GILTI on its foreign subsidiaries. A valuation allowance is established against a deferred tax asset when it is more likely than not that the deferred tax
asset will not be realized. Our valuation allowance has been established to offset certain state and foreign net operating loss carryforwards, capital loss
carryforwards and foreign tax credit carryforwards that are not more likely than not to be utilized prior to expiration. The valuation allowance increased by $0.4
million in fiscal 2020, primarily due to the recording of a valuation allowance for losses generated during the year in certain foreign jurisdictions which we believe
are not more likely than not to be utilized partially offset by a decrease for certain foreign tax credits for which we amended a tax return to take a deduction instead
of a foreign tax credit thereby reversing the deferred tax asset and corresponding valuation allowance. We believe our results from future operations will generate
sufficient taxable income in the appropriate jurisdictions such that it is more likely than not that the remaining deferred tax assets will be realized.
Deferred taxes are not provided for undistributed earnings of foreign subsidiaries of approximately $63.0 million which are intended to be reinvested outside of the
U.S. Accordingly, no provision for foreign withholding taxes associated with a distribution of those earnings has been made. We estimate that, upon distribution of
our share of these earnings, we would be subject to withholding taxes of approximately $3.5 million as of September 30, 2020. We provided deferred income taxes
on all undistributed earnings from Cash Converters International.
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The following table presents a rollforward of unrecognized tax benefits:
Beginning balance
Increase for tax positions taken during a prior period
Increase for tax positions taken during the current period
Decrease for tax positions as a result of the lapse of the statute of limitations
Ending balance
Fiscal Year Ended September 30,
2019
2018
2020
(in thousands)
$
$
1,435 $
1,401
249
—
3,085 $
3,091 $
—
—
(1,656)
1,435 $
6,530
963
—
(4,402)
3,091
All of the above unrecognized tax benefits, if recognized, would impact our effective tax rate for the respective period of each ending balance. The Company
recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During 2020, 2019, and 2018, the Company recognized
income tax expense consisting of interest and penalties of $1.2 million, $0.2 million and $(0.3) million, respectively, due to the accrual of current year interest and
penalties on existing positions offset by the reversal of previous accruals due to the lapse of the statute of limitations. The total amount of accrued interest and
penalties was $1.5 million and $0.3 million in 2020 and 2019, respectively.
We are subject to U.S., Mexico, Canada, Guatemala, Honduras, El Salvador, Peru and the Netherlands income taxes as well as income taxes levied by various state
and local jurisdictions. With few exceptions, we are no longer subject to examinations by tax authorities for years before the tax year ended September 30, 2014.
We believe that adequate provisions have been made for any adjustments that may result from tax examinations.
NOTE 12: LEASES
The weighted-average remaining lease term for operating leases as of September 30, 2020 was 5.2 years, which includes options to extend when it is reasonably
certain that we will exercise the option. We used incremental borrowing rates that match the duration of the remaining lease terms of our operating leases on a fully
collateralized basis upon adoption as of October 1, 2019 to initially measure our lease liability. The weighted average incremental borrowing rate used to measure
the lease liability as of September 30, 2020 was 7.37%.
The details of our right-of-use asset and lease liability recognized upon adoption of ASC 842 was computed based on the consumer price index and foreign
currency exchange rate as applicable then in effect and excluding executory costs on October 1, 2019, were as follows (in thousands):
Right-of-use asset
Straight-line rent accrual
Net lease right-of-use asset
Lease liability, current
Lease liability, non-current
Total lease liability
$
$
$
$
246,028
(8,479)
237,549
45,272
200,756
246,028
In connection with the preparation of our consolidated financial statements for the year ended September 30, 2020, we identified an error relating to certain leases
on the adoption of ASC 842 at October 1, 2019. The error impacted the lease right-of-use asset and total lease liability, both of which were overstated by
approximately $18.0 million on adoption. We concluded the impact on the interim financial statements during fiscal 2020 was immaterial and corrected the
balances as of September 30, 2020. The income statement impact of this correction was immaterial.
The components of lease expense included in "Operations" and "Administrative" expense, based on the underlying lease use, in our consolidated statements of
operations is as follows (in thousands):
Operating lease expense
Variable lease expense
Total lease expense
As of September 30, 2020, maturities of lease liabilities under ASC 842 by fiscal year were as follows (in thousands):
66
Fiscal Year Ended
September 30,
2020
$
$
62,925
11,846
74,771
Table of Contents
2021
2022
2023
2024
2025
Thereafter
Total lease liabilities
Less: Portion representing interest
Total net lease liabilities
Less: Current portion
Total long term net lease liabilities
$
$
66,079
50,895
39,076
28,602
19,877
41,639
246,168
43,386
202,782
49,742
153,040
In December 2014, we entered into a non-cancelable 13-year operating lease for our corporate offices, with rent payments beginning February 2016 and ending
March 2029. Annual rent, net of square footage subsequently terminated as a result of negotiations with the landlord, escalate from $2.5 million at lease inception
to $3.9 million in the terminal year of the lease.
The lease includes two five-year extension options at the end of the initial lease term. The estimated minimum future rental payments under the lease are
approximately $38.1 million. During fiscal 2017 and 2016, we initiated subleases for a portion of our corporate operating office lease for estimated minimum
future sublease payments of approximately $12.2 million. In addition to the above subleases, during fiscal 2018 we entered into an amendment to the operating
lease surrendering another 15% of the initial leased premises. As a result, sublease payments were expected to fully offset our original operating lease obligations
through August 2023, with renewal options available until the end of the master operating lease in March 2029.
During the second quarter of fiscal 2015, we entered into cancellable subleases for our Miami office for an estimated minimum future sublease payment of
approximately $2.9 million. Sublease payments are expected to offset substantially all of our original operating lease obligations over the nine-year period
beginning March 2015 and ending September 2024.
Prior to the adoption of ASC 842, future minimum undiscounted lease payments due under non-cancelable leases as of September 30, 2019 for each subsequent
year were as follows (in thousands):
2020
2021
2022
2023
2024
Thereafter
$
The following table presents the amount of net rent recognized as expense under ASC Topic 840 - Leases (in thousands):
$
69,291
60,588
46,720
32,062
19,969
39,256
267,886
Gross rent expense from continuing operations
Sublease rent revenue from continuing operations
Net rent expense from continuing operations
Fiscal Year Ended September 30,
2018
2019
$
$
65,295 $
(35)
65,260 $
61,821
(109)
61,712
As a result of the COVID-19 pandemic, we believe there was a significant adverse change in the business climate that impacted the office leasing market and a
significant decrease in the market prices of an asset or asset group that affected the value of the right of use asset for our corporate office. We determined the
undiscounted cash flows of the subleases did not exceed the net book value of the right of use asset. We then determined the discounted cash flows of the subleases
did not exceed the book value of the right of use asset, and an impairment charge of $5.0 million was recorded in the fourth quarter of fiscal 2020 and is recorded
under "Impairment of goodwill, intangible and other assets" in the Consolidated Statements of Operations.
We recorded $29.2 million in non-cash additions to our right of use assets and lease liabilities for the fiscal year ended September 30, 2020.
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NOTE 13: CONTINGENCIES
Currently, and from time to time, we are involved in various claims, suits, investigations and legal proceedings. While we are unable to determine the ultimate
outcome of any current litigation or regulatory actions, we do not believe the resolution of any particular matter will have a material adverse effect on our financial
condition, results of operations or liquidity.
NOTE 14: SEGMENT INFORMATION
During the first quarter of fiscal 2020, we revised the financial information our chief operating decision maker (our chief executive officer) reviews for
operational decision-making purposes and for allocation of capital to include the separate financial results of our Lana business. Our historical segment results
have been recast to conform to current presentation. We currently report segment information as follows:
•
•
•
•
U.S. Pawn — All pawn activities in the United States;
Latin America Pawn —All pawn activities in Mexico and other parts of Latin America;
Lana — Our digital customer-centric engagement platform; and
Other International — Primarily our equity interest in the net income of Cash Converters International.
There are no inter-segment revenues presented below, and the amounts below were determined in accordance with the same accounting principles used in our
condensed consolidated financial statements. While we expect the operations of the Lana segment to have a positive impact on pawn loan redemption rates
and therefore pawn service charges and yield, the pawn service charges will all be reported in our pawn segments rather than allocated to the Lana segment.
Only discrete revenues related to the Lana segment will be reported in the Lana segment results. As a digital offering, Lana has no separate physical store
locations.
U.S. Pawn
Latin
America
Pawn
Lana
Other
International
Total
Segments
Corporate
Items
Consolidated
Fiscal Year Ended September 30, 2020
Revenues:
Merchandise sales
Jewelry scrapping sales
Pawn service charges
Other revenues
Total revenues
$
Merchandise cost of goods sold
Jewelry scrapping cost of goods sold
Other cost of revenues
Net revenues
Segment and corporate expenses (income):
Operations
Administrative
Impairment of goodwill, intangible and other
assets
Depreciation and amortization
Loss (gain) on sale or disposal of assets and
other
Other Charges
Interest expense
Interest income
Equity in net loss of unconsolidated affiliates
Other (income) expense
Segment contribution (loss)
Income (loss) from continuing operations before
income taxes
$
391,921 $
36,691
210,081
150
638,843
251,544
28,064
—
359,235
261,608
—
10,000
11,030
106,292 $
11,262
62,557
—
180,111
82,937
9,977
101
87,096
69,916
—
35,938
7,315
385
3,106
—
—
—
—
73,106 $
(72)
1,715
685
(1,586)
—
(156)
(26,659) $
— $
—
—
34
34
—
—
—
34
4,270
—
—
1,058
—
3,258
—
—
—
—
(8,552) $
68
(in thousands)
— $
—
—
3,823
3,823
—
—
953
2,870
498,213 $
47,953
272,638
4,007
822,811
334,481
38,041
1,054
449,235
341,040
—
47,087
19,471
293
11,881
1,234
(1,586)
2,429
(150)
27,536
5,246
—
1,149
68
(20)
3,802
549
—
2,429
6
(10,359)
$
$
$
—
—
—
—
—
—
—
—
—
—
49,897
7,579
11,356
508
8,507
21,238
(1,587)
—
133
498,213
47,953
272,638
4,007
822,811
334,481
38,041
1,054
449,235
341,040
49,897
54,666
30,827
801
20,388
22,472
(3,173)
2,429
(17)
27,536 $
(97,631)
$
(70,095)
Table of Contents
Revenues:
Merchandise sales
Jewelry scrapping sales
Pawn service charges
Other revenues
Total revenues
Merchandise cost of goods sold
Jewelry scrapping cost of goods sold
Other cost of revenues
Net revenues
Operating expenses (income):
Operations
Administrative
Impairment of goodwill, intangible and other
assets
Depreciation and amortization
Loss on sale or disposal of assets
Interest expense
Interest income
Equity in net income of unconsolidated
affiliates
Impairment of investment in unconsolidated
affiliates
Other income
Segment contribution (loss)
Income from continuing operations before income
taxes
$
U.S. Pawn
Latin
America
Pawn
Lana
Other
International
Total
Segments
Corporate
Items
Consolidated
Fiscal Year Ended September 30, 2019
(in thousands)
$
355,996 $
45,815
248,369
233
650,413
225,136
39,318
—
385,959
269,003
—
—
11,879
3,402
—
—
$
97,379
14,630
78,997
179
191,185
72,372
13,617
—
105,196
74,199
—
—
6,267
691
1,609
(1,601)
—
—
— $
—
—
—
—
—
—
—
—
7,675
—
—
10
—
—
—
—
—
—
—
5,631
5,631
—
—
2,338
3,293
7,376
—
—
219
282
491
—
135
—
—
101,675 $
—
(93)
24,124
$
—
—
(7,685) $
19,725
1,895
(26,830)
69
$
$
$
453,375 $
60,445
327,366
6,043
847,229
297,508
52,935
2,338
494,448
358,253
—
—
18,375
4,375
2,100
(1,601)
135
19,725
1,802
91,284
$
—
—
—
—
—
—
—
—
—
—
55,990
—
10,422
24
30,537
(9,485)
—
—
(378)
453,375
60,445
327,366
6,043
847,229
297,508
52,935
2,338
494,448
358,253
55,990
—
28,797
4,399
32,637
(11,086)
135
19,725
1,424
91,284 $
(87,110)
$
4,174
Table of Contents
U.S. Pawn
Latin
America
Pawn
Lana
Other
International
Total
Segments
Corporate
Items
Consolidated
Fiscal Year Ended September 30, 2018
(in thousands)
$
Revenues:
Merchandise sales
Jewelry scrapping sales
Pawn service charges
Other revenues
Total revenues
Merchandise cost of goods sold
Jewelry scrapping cost of goods sold
Other cost of revenues
Net revenues
Operating expenses (income):
Operations
Administrative
Impairment of goodwill and intangibles assets
Depreciation and amortization
Loss on sale or disposal of assets
Interest expense
Interest income
Equity in net income of unconsolidated
affiliates
Impairment of investment in unconsolidated
affiliates
Other income
Segment contribution
Income from continuing operations before income
taxes
$
350,699 $
47,745
237,086
250
635,780
216,408
40,417
—
378,955
263,094
—
—
12,869
203
71
—
$
87,673
13,007
67,491
85
168,256
60,210
11,873
—
96,173
61,553
—
—
4,068
27
25
(2,619)
—
—
—
(3)
102,721 $
—
(42)
33,161
$
The following table presents separately identified segment assets:
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
—
—
—
8,120
8,120
—
—
1,697
6,423
10,194
—
—
184
—
—
—
438,372 $
60,752
304,577
8,455
812,156
276,618
52,290
1,697
481,551
334,841
—
—
17,121
230
96
(2,619)
(5,529)
(5,529)
11,712
(177)
125,876
11,712
(132)
(10,006)
$
$
$
—
—
—
—
—
—
—
—
—
—
53,639
—
8,363
233
27,738
(14,422)
—
—
(5,214)
438,372
60,752
304,577
8,455
812,156
276,618
52,290
1,697
481,551
334,841
53,639
—
25,484
463
27,834
(17,041)
(5,529)
11,712
(5,391)
125,876 $
(70,337)
$
55,539
Assets as of September 30, 2020
Pawn loans
Pawn service charges receivable, net
Inventory, net
Total assets
Assets as of September 30, 2019
Pawn loans
Pawn service charges receivable, net
Inventory, net
Total assets
U.S. Pawn
Latin America
Pawn
Lana
Other
International
Corporate
Total
(in thousands)
$
$
106,340 $
17,931
75,807
690,157
157,408 $
27,623
142,266
635,152
$
$
24,983
2,649
20,084
191,827
41,650
4,179
37,089
202,565
— $
—
—
4,528
— $
—
—
5,918
$
$
—
—
—
34,118
—
—
—
35,041
$
—
—
—
276,393
131,323
20,580
95,891
1,197,023
—
—
—
205,026
199,058
31,802
179,355
1,083,702
The net assets of our Latin America Pawn segment, exclusive of intercompany amounts and inclusive of certain other assets not separately identified above, were
$194.8 million as of September 30, 2020.
70
Table of Contents
The following tables provide geographic information:
Revenues:
United States
Mexico
Other Latin America
Lana
Canada and other
Total revenues
Long-lived tangible assets:
United States
Mexico
Other Latin America
Canada and other
Total long-lived assets
Fiscal Year Ended September 30,
2019
2018
2020
(in thousands)
$
$
638,844 $
131,965
48,146
34
3,822
822,811 $
650,413 $
138,897
52,288
—
5,631
847,229 $
635,780
122,702
45,554
—
8,120
812,156
September 30,
2020
2019
(in thousands)
$
$
36,361 $
15,141
5,484
—
56,986 $
43,274
18,566
5,432
85
67,357
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91Leech!
NOTE 15: SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION
Supplemental Consolidated Financial Information
The following table provides information on net amounts included in our consolidated balance sheets and consolidated statements of cash flows:
Gross pawn service charges receivable
Allowance for uncollectible pawn service charges receivable
Pawn service charges receivable, net
Gross inventory
Inventory reserves
Inventory, net
Prepaid expenses and other
Accounts receivable and other
Income taxes prepaid and receivable
Prepaid expenses and other current assets
Accounts payable
Accrued payroll
Bonus accrual
Other payroll related expenses
Accrued interest
Accrued rent and property taxes
Accrued sales and VAT taxes
Deferred revenues
Other accrued expenses
Income taxes payable
Account payable, accrued expenses and other current liabilities
Unrecognized tax benefits, non-current
Other long-term liabilities
Other long-term liabilities
72
September 30,
2020
2019
(in thousands)
$
$
$
$
$
$
$
$
$
$
27,259 $
(6,679)
20,580 $
108,205 $
(12,314)
95,891 $
10,614 $
6,991
15,298
32,903 $
19,114 $
12,993
4,895
9,071
2,793
6,545
9,291
2,986
3,173
643
71,504 $
4,214 $
6,635
10,849 $
41,838
(10,036)
31,802
189,092
(9,737)
179,355
4,784
10,889
10,248
25,921
25,946
6,149
9,901
5,040
2,793
11,702
10,680
2,929
2,510
307
77,957
1,362
5,940
7,302
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Valuation and Qualifying Accounts
The following table provides information on our valuation and qualifying accounts not disclosed elsewhere:
Description
Allowance for valuation of inventory:
Year Ended September 30, 2020
Year Ended September 30, 2019
Year Ended September 30, 2018
Allowance for uncollectible pawn service charges receivable:
Year Ended September 30, 2020
Year Ended September 30, 2019
Year Ended September 30, 2018
Allowance for uncollectible consumer loan fees and interest
receivable:
Year Ended September 30, 2020
Year Ended September 30, 2019
Year Ended September 30, 2018
Allowance for valuation of deferred tax assets:
Year Ended September 30, 2020
Year Ended September 30, 2019
Year Ended September 30, 2018
$
$
$
$
Balance at
Beginning of
Period
Charged to
Expense
Additions
Charged to
Revenue
(in thousands)
Deductions
Balance at End of
Period
$
2,577
536
2,400
—
—
—
—
—
—
430
—
2,394
$
$
$
$
$
—
—
—
—
276
631
—
209
48
—
—
—
$
$
—
—
—
3,357
—
—
540 $
—
—
$
—
2,160
—
12,314
9,737
9,201
6,679
10,036
9,760
—
540
331
18,524
18,094
20,254
$
$
$
$
9,737
9,201
6,801
10,036
9,760
9,129
540
331
283
18,094
20,254
17,860
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NOTE 16: QUARTERLY INFORMATION (UNAUDITED)
Year Ended September 30, 2020
Total revenues
Net revenues
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
Year Ended September 30, 2019
Total revenues
Net revenues
(Loss) income from continuing operations, net of tax
(Loss) income from discontinued operations, net of tax
Net (loss) income
Net (loss) income attributable to noncontrolling interest
Net (loss) income attributable to EZCORP, Inc.
Basic earnings per share attributable to EZCORP, Inc.:
Diluted earnings per share attributable to EZCORP, Inc.:
First Quarter
Second
Quarter
Third Quarter Fourth Quarter
(in thousands, except per share amounts)
$
$
$
222,435 $
130,069
1,238
0.02 $
0.02 $
223,283 $
127,365
(40,874)
(0.74) $
(0.74) $
210,233 $
102,184
(5,487)
(0.10) $
(0.10) $
166,860
89,617
(23,340)
(0.42)
(0.42)
First Quarter
Second
Quarter
Third Quarter
Fourth Quarter
(in thousands, except per share amounts)
$
$
$
$
215,695 $
130,049
(3,660)
(183)
(3,843)
(477)
(3,366) $
214,730 $
127,690
2,659
(18)
2,641
(753)
3,394 $
202,465 $
115,853
3,361
(203)
3,158
—
3,158 $
(0.06) $
(0.06) $
0.06 $
0.06 $
0.06 $
0.06 $
214,339
120,856
(592)
(53)
(645)
—
(645)
(0.01)
(0.01)
ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A — CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be
disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules
and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial
Officer, to allow timely decisions regarding required disclosures.
In connection with the preparation of this Annual Report on Form 10-K, our management, under the supervision and with the participation of our Chief Executive
Officer and Interim Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30,
2020. Based on that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were
effective as of September 30, 2020. We believe the consolidated financial statements included in this Annual Report on Form 10-K fairly present, in all material
respects, our financial position, results of operations, stockholders’ equity and cash flows as of the dates, and for the periods, presented in conformity with GAAP.
Management’s Report on Internal Control Over Financial Reporting
Management, under the supervision of the Chief Executive Officer and the Interim Chief Financial Officer, is responsible for establishing and maintaining
adequate internal control over financial reporting and for the assessment of the effectiveness of our internal control over financial reporting. Internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d(f) under the Exchange Act) is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. GAAP. Internal control over
financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of assets, (b) provide reasonable assurance that transactions
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are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, (c) provide reasonable assurance that receipts and
expenditures are being made only in accordance with appropriate authorization of management and the Board of Directors, and (d) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
In connection with the preparation of this Annual Report on Form 10-K, our management, under the supervision and with the participation of our Chief Executive
Officer and Interim Chief Financial Officer, conducted an assessment of the effectiveness of our internal control over financial reporting as of September 30, 2020
based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on that assessment, our Chief Executive Officer and Interim Chief Financial Officer concluded that our internal control over financial
reporting was effective as of September 30, 2020.
Our internal control over financial reporting as of September 30, 2020 has been audited by our independent registered public accounting firm, as stated in their
report appearing below.
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Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors
EZCORP, Inc.
Rollingwood, Texas
Opinion on Internal Control over Financial Reporting
We have audited EZCORP, Inc.’s (the “Company’s”) internal control over financial reporting as of September 30, 2020, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance
sheets of the Company as of September 30, 2020 and 2019, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity,
and cash flows for each of the three years in the period ended September 30, 2020, and the related notes, and our report dated December 14, 2020 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
/s/ BDO USA, LLP
Dallas, Texas
December 14, 2020
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Changes in Internal Control Over Financial Reporting
During the second quarter of fiscal 2019, we identified certain deficiencies in our information technology general controls (ITGCs) that are designed to prevent or
detect unauthorized access or changes to certain information technology (“IT”) systems that support our financial reporting processes. Our related IT dependent
manual and application controls that are impacted by the affected ITGCs were also deemed ineffective as they rely on reports generated by the IT systems subject
to ITGCs, resulting in our inability to place reliance on internal controls over related financial statement accounts and assertions. At that time, we determined that
the ITGC deficiencies represent a material weakness in our internal control over financial reporting and reported that material weakness in our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2019.
That material weakness has been fully remediated as of September 30, 2020. During the fourth quarter of fiscal 2020, we continued to manage and monitor a
remediation plan focused on IT control enhancements across our logical access and change management processes and completed the applicable testing to confirm
remediation. During the quarter, there were no other changes in our internal control over financial reporting that, in the aggregate, have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Internal Controls
Notwithstanding the foregoing, management does not expect that our disclosure controls and procedures or our internal control over financial reporting will
prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system will be met. Limitations inherent in any control system include the following:
•
•
•
•
•
Judgments in decision-making can be faulty, and control and process breakdowns can occur because of simple errors or mistakes.
Controls can be circumvented by individuals, acting alone or in collusion with others, or by management override.
The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or
procedures.
The design of a control system must reflect the fact that resources are constrained, and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if
any, have been detected.
ITEM 9B — OTHER INFORMATION
None.
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ITEM 10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Board of Directors
PART III
Set forth below are the names of the persons who, as of December 1, 2020, constituted our Board of Directors and their ages and committee assignments as of that
date:
Name
Committees
Age
Matthew W. Appel
Zena Srivatsa Arnold
Shelaghmichael Brown
Phillip E. Cohen (Executive Chairman)
Hugo R. Dooner
Jason A. Kulas
Pablo Lagos Espinosa
Kent V. Stone
Gary L. Tillett
Robert W. K. (Robb) Webb
Rosa Zeegers
65
42
71
73
50
50
65
62
61
64
60
Audit (Chair), Nominating (Chair), Lead Independent Director
Nominating
Audit, People and Compensation
—
—
—
People and Compensation (Chair)
Nominating
Audit
People and Compensation
Nominating
Director Qualifications — The Board believes that individuals who serve on the Board have demonstrated notable or significant achievements in business,
education or public service; should possess the requisite intelligence, education and experience to make a significant contribution to the Board and bring a range of
skills, diverse perspectives and backgrounds to its deliberations; and should have the highest ethical standards, a strong sense of professionalism and intense
dedication to serving the interests of our stockholders. The following are qualifications, experience and skills for Board members which are important to our
business and its future:
•
•
•
•
Leadership Experience — Our directors should demonstrate extraordinary leadership qualities. Strong leaders bring vision, strategic agility, diverse and
global perspectives and broad business insight to the company. They demonstrate practical management experience, skills for managing change and deep
knowledge of industries, geographies and risk management strategies relevant to our business. They have experience in identifying and developing the
current and future leaders of the company.
Finance Experience — We believe that all directors should possess an understanding of finance and related reporting processes.
Strategically Relevant Experience — Our directors should have business experience that is relevant to our strategic goals and objectives, including
geographical and product expansion. We value experience in our high priority growth areas, including new or expanding geographies or customer
segments and existing and new technologies; understanding of our business environments; and experience with, exposure to or reputation among a broad
subset of our customer base.
Government Experience — Our business is subject to a variety of legislative and regulatory risks. Accordingly, we value experience in the legislative,
judicial or regulatory branches of government or government relations.
Biographical Information — Set forth below is current biographical information about our directors, including the qualifications, experience and skills that make
them suitable for service as a director.
• Matthew W. Appel — Mr. Appel joined EZCORP as a director in January 2015. He serves as Chair of the Audit Committee and is the Lead Independent
Director (and, as such, serves as Chair of the Nominating Committee). Mr. Appel spent 37 years in finance, administration and operations roles with a
variety of companies, most recently Zale Corporation, an NYSE listed jewelry retailer, where he served as Chief Financial Officer from May 2009 to May
2011 and Chief Administrative Officer from May 2011 to July 2014 and co-led the successful turnaround of the company. Prior to joining Zale, Mr.
Appel was Chief Financial Officer of EXL Service Holdings, Inc., a NASDAQ listed business process solutions company (February 2007 to May 2009);
spent four years (February 2003 to February 2007) at Electronic Data Systems Corporation, serving as Vice President, Finance and Administration BPO
and Vice
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•
•
•
President, BPO Management; and held a variety of finance and operations roles from 1984 to 2003 at Tenneco Inc., Affiliated Computer Services, Inc.
and PricewaterhouseCoopers. Mr. Appel began his professional career with Arthur Andersen & Company, working there from 1977 to 1984. He received
an MBA in Accounting from the Rutgers University Graduate School of Business in 1977 and a Business Administration degree from Rutgers College in
1976. Mr. Appel is a Certified Public Accountant and a Certified Management Accountant.
Director qualifications: leadership, chief financial officer and executive management experience; broad business and strategically relevant experience;
retail management experience; financial experience, including accounting, tax and financial reporting; experience in developing growth strategies;
personnel development.
Zena Srivatsa Arnold — Ms. Arnold has been a director since May 2019. She has over 18 years of experience in marketing, brand management, strategy
development and business operations. She serves as the Chief Digital and Marketing Officer of Kimberly-Clark Corporation, a global personal care and
consumer products company. Prior to joining Kimberly-Clark in April 2020, she spent almost six years with Google, serving as Global Head of Growth
for Chromebook (May 2019 to March 2020); General Manager, US Chromebooks (March 2018 to May 2019); Global Head of Marketing, Chromebooks
and IoT (November 2016 to March 2018); Head of Americas Marketing, Google Play (April 2015 to October 2016); and Head of NA Marketing, Google
Play (October 2013 to April 2015). Prior to joining Google, Ms. Arnold spent over nine years in various brand management positions with Kellogg
Company (August 2010 to October 2013) and Procter & Gamble (April 2004 to August 2010). Ms. Arnold began her professional career at General
Electric Corporation, where she served as Product Manager, Server Solutions for GE Capital IT Solutions (April 2002 to April 2004). Ms. Arnold
received a Bachelor of Science degree in Computer Science, with a minor in Business Marketing, from The Ohio State University. She was recognized in
2014 as one of Brand Innovators “40 Under 40,” and has received numerous other professional awards and recognitions.
Director qualifications: leadership, executive management experience; broad business and strategically relevant experience; experience in developing
growth strategies.
Shelaghmichael Brown — Ms. Brown joined EZCORP as a director in April 2019. She has more than 35 years of management experience in operations,
brand and technology at a variety of financial services institutions and other companies. Ms. Brown retired from BBVA Compass in June 2011 as Senior
Executive Vice President and Executive Officer Retail Banking, where she was responsible for a network of over 700 branches; online, mobile and other
electronic banking platforms; traditional consumer and small business credit and deposit products; and marketing. Prior to joining BBVA Compass, Ms.
Brown was President of RediClinic, Inc.; President and Chief Executive Officer of TeleCheck International, Inc.; and Executive Vice President, Manager-
Retail Banking for JP Morgan Chase. Since 2012, Ms. Brown has served on the Board of Trust Managers of Weingarten Realty Investors, an NYSE-listed
real estate investment trust, where she has been a member of the Management Development Committee and the Compensation Committee and is
currently Chair of the Governance Committee. She also serves on the Board of Directors for BBVA USA Bancshares, Inc., where she is a member of the
Risk Committee and the Audit Committee. Ms. Brown received an MBA from the University of Chicago and a Bachelor of Arts degree in American
Studies from Wheaton College. She was recognized in 2009, 2010 and 2011 as one of the Top 25 Most Powerful Women in Banking by U.S. Banker. She
is engaged in a variety of professional, civic and philanthropic activities, and currently serves as on the Board of Directors, and as Foundation Chairman,
of CanCare, Inc.
Director qualifications: leadership, executive management experience; broad business and strategically relevant experience; retail management
experience; financial experience; experience in developing growth strategies; personnel development; deep understanding of conducting business in
highly regulated environments.
Phillip E. Cohen — Mr. Cohen has been a member of the Board of Directors and the Executive Chairman since September 2019. He has been an owner
of, and advisor to, the Company for 30 years. He acquired the Company in 1989 and took it public in 1991 with an initial public offering of Class A Non-
Voting Common Stock. Mr. Cohen has over 40 years of investment banking and financial advisory experience with a variety of firms, including Kuhn
Loeb & Co. Incorporated (1973-1977), Lehman Brothers Kuhn Loeb Incorporated (1977-1979), The First Boston Corporation (1980), Oppenheimer &
Co, Inc. (1980-1984), Morgan Schiff & Co., Inc. (1984-Present) and Madison Park LLC (2004 to Present). Mr. Cohen received a Bachelor of Commerce
degree from the University of Melbourne and a Masters of Business Administration from Harvard University. Mr. Cohen is the sole stockholder of MS
Pawn Corporation, which is the general partner of MS Pawn Limited Partnership, the owner of 100% of the outstanding shares of our Class B Voting
Common Stock.
Director qualifications: leadership; broad business and strategically relevant experience; retail management experience; financial experience; international
experience and global perspective; industry knowledge; experience in
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•
•
•
developing growth strategies. Further, Mr. Cohen has deep knowledge of the Company and its opportunities and challenges spanning multiple economic
cycles.
Hugo R. Dooner — Mr. Dooner has been a director since May 2020. He is the Chief Executive Officer of LoanMart, a privately-held company that is the
largest online auto title loan lender in the U.S. Prior to joining LoanMart in 2014, he was the Executive Vice President, Head of Personal Lending
Division at Santander Consumer USA Inc., a NYSE-listed auto finance company, where he was responsible for multiple lines of business, including
Consumer-Direct Refinance, Private label Credit Card and Consumer-Direct PULs. From 2002 to 2010, Mr. Dooner held positions of increasing
responsibility at HSBC, one of the world’s largest banking and financial services organizations, where he progressed to serve for two years as Vice
President and Director, Head of Portfolio Marketing and Global Servicing Operations. He began his business career in investment banking, serving in the
Business Development Group of Merrill Lynch from 2000 to 2002. He received a Bachelor of Arts in Political Science from the University of California,
Santa Barbara, and an MBA with concentrations in Finance and Entrepreneurship from the University of Chicago Graduate School of Business.
Director qualifications: leadership, executive management experience; broad business and strategically relevant experience; financial experience; industry
knowledge; experience in developing growth strategies; personnel development; deep understanding of conducting business in highly regulated
environments.
Jason A. Kulas — Mr. Kulas is our Chief Executive Officer, having been promoted into that position in July 2020 after joining the Company in February
2020 as President and Chief Financial Officer. He first became associated with the Company in April 2019 when he was appointed as an independent
member of the Board of Directors. While an independent director, he served on the Audit Committee and the Nominating Committee. Mr. Kulas resigned
from the Board of Directors when he joined the Company as an executive in February 2020, and was reappointed to the Board in connection with his
appointment as Chief Executive Officer.
Prior to joining the Company as an executive, Mr. Kulas spent over 25 years in financial analysis, investment banking and executive-level finance and
operations roles with a variety of companies, most recently Santander Consumer USA Inc., a NYSE-listed auto finance company, where he served as
Chief Executive Officer and a director from 2015 to 2017, President from 2013 to 2015, Chief Financial Officer from 2007 to 2015 and a director from
2007 to 2012. Prior to joining Santander Consumer USA, Mr. Kulas was a Managing Director in Investment Banking with J.P. Morgan Chase & Co.
(1995 to 2007), where he managed JPMorgan’s South Region investment banking office. He has also served as an Adjunct Professor of Marketing at
Texas Christian University (1997 to 1999); Securities Analyst at William C. Connor Foundation – TCU Educational Investment Fund (1994 to 1995); and
an intern and Financial Analyst at Dun & Bradstreet (1993 to 1995). Mr. Kulas received an MBA with a concentration in Finance and Marketing from
Texas Christian University in 1995 and a Bachelor of Arts degree from Southern Methodist University in 1993. He currently serves as Non-Executive
Chairman of the Board of Cash Converters International Limited and as an advisor to Warburg Pincus International LLC. He has been involved in a
variety of civic and philanthropic activities, including the Salesmanship Club of Dallas, Momentous Institute, Exchange Club of East Dallas, Dallas
Citizens Council, Baylor Scott & White Dallas Foundation and Art House Dallas.
Director qualifications: leadership, chief executive officer, chief financial officer and executive management experience; broad business and strategically
relevant experience; financial experience; experience in developing growth strategies; personnel development.
Pablo Lagos Espinosa — Mr. Lagos joined EZCORP as a director in October 2010. He is Chair of the People and Compensation Committee. Mr. Lagos
served as President and Chief Executive Officer of Pepsi Bottling Group Mexico from 2006 to 2008 and as its Chief Operating Officer from 2003 to
2006. He previously held various executive management positions with Pepsi Bottling Group, PepsiCo Inc., Unilever Mexico and PepsiCola
International, Inc., concentrating exclusively in Latin America. Since his retirement in December 2008, Mr. Lagos has been an investor and consultant in
various private business ventures and has served as a keynote speaker on organizational leadership and management. He currently serves as Chairman of
the Board and Executive President for the Mexican subsidiary of Areas, a Spanish global organization dedicated to restaurant and retailing operations in
key public transportation hubs, and as Chairman of the board of Casa del Parque, a privately held enterprise focused on developing senior living
residences in Mexico. He is also a member of the Mexican Advisory Board for Niagara Waters, a leading manufacturer of bottled water in the U.S. and
Mexico. He received a Bachelor of Science degree in Industrial & Systems Engineering from Instituto Technológico de Monterrey, Master of Science
degrees in Industrial Engineering and Operations Research and an MBA from Stanford University.
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Director qualifications: leadership, chief executive officer and executive management experience in significant multi-national environments; deep
understanding of strategically important geographies and international markets; risk management experience; financial experience; experience in
developing, implementing and managing strategic plans, including international expansion; personnel development; legislative and government relations
experience.
Kent V. Stone — Mr. Stone joined EZCORP as a director in April 2019. He has 37 years of experience in consumer and small business banking, all with
U.S. Bancorp, the fifth largest commercial bank in the U.S. His roles included Vice Chairman, Consumer Banking Sales and Support (2013-2017);
Executive Vice President, Consumer Banking Strategic Support Services (2006-2013); Executive Vice President, Business Banking (2001-2006); and
Executive Vice President, Branch Banking (2000-2001). From 1980 to 2000, he held various regional positions with U.S. Bancorp and its predecessor,
First Bank System. Mr. Stone’s extensive banking experience includes retail branch management, digital channels, mortgage lending, private banking,
product and segment management, and marketing. Mr. Stone received an MBA with a concentration in Finance from the Carlson School of Management
at the University of Minnesota in 1985, and a Bachelor of Arts in General Science and Business from Gustavus Alolphus College in 1980. He has been,
and continues to be, active in a variety of civic and philanthropic affairs.
Director qualifications: leadership and executive management experience; broad business and strategically relevant experience; retail management
experience; financial experience; experience in developing growth strategies; personnel development; deep understanding of conducting business in
highly regulated environments.
Gary L. Tillett — Mr. Tillett has been a director since April 2019. He has more than 35 years of experience in public accounting and business
management. He spent 31 years at PricewaterhouseCoopers, where he progressed from entry-level staff to senior partner serving a variety of businesses in
the Insurance Practice, the Transaction Services Practice and the U.S. Financial Services Practice. From 2005 to 2010, he was the Transactions Services
Leader of the firm’s U.S. Financial Services Practice, leading a newly assembled team of professionals providing service to clients pursuing transactions
in the financial services sector. At the time of his retirement from PwC in 2014, he was the Transaction Services Leader of the firm’s New York Metro
Practice, where he led teams advising clients on complex transactions, including structuring, due diligence, valuation and financial reporting. Mr. Tillett
left PwC in 2014 to take the role of Executive Vice President and Chief Financial Officer of Walter Investment Management Corp. (now Ditech Holding
Corporation), a publicly traded independent originator and servicer of residential mortgage loans. Ditech initiated Chapter 11 bankruptcy proceedings in
November 2017. Mr. Tillett retired from his position with Ditech in February 2018 after assisting with the development and execution of the company’s
financial restructuring plan. Mr. Tillett received an MBA from the Manchester Business School at the University of Manchester and a Bachelor of
Science degree with an emphasis in Accounting from the University of Texas at Dallas. He is a Certified Public Accountant.
Director qualifications: leadership, chief financial officer and executive management experience; broad business and strategically relevant experience;
financial experience, including accounting, tax and financial reporting; personnel development.
Robert W. K. (Robb) Webb — Mr. Webb joined EZCORP as a director in April 2019. He has 40 years of experience as a human resources and business
leader in complex global business environments, including Chief Human Resources Officer at Tenet Healthcare Corporation (2016-2017); Executive Vice
President & Chief Human Resources Officer at Hyatt Hotels Corporation (2007-2016); a variety of human resources and business process management
roles with Citigroup and predecessor companies (1999-2007); Vice President, Human Resources & Organizational Effectiveness at Avco Financial
Services Inc., a subsidiary of Textron Inc. (1988-1999); and various human resources and organizational development roles with Westinghouse Canada
(1979-1988). Mr. Webb received an MBA from the University of Nebraska in 2004 and a Bachelor of Arts degree from McMaster University in Ontario,
Canada in 1977. He has participated in advanced management programs at Stanford University and Harvard University. Mr. Webb serves as a director on
the Human Rights Campaign Foundation Board, the Global Board of Operation Hope and the Advisory Board at Arena, and has served on the boards of
the Dallas Regional Chamber of Commerce and Business for Social Responsibility.
Director qualifications: leadership and executive management experience; broad business experience; retail management experience; personnel
development.
Rosa Zeegers — Ms. Zeegers has been a director since April 2019. She has over 30 years of experience in developing and implementing brand, marketing
and retail strategies, as well as managing substantial businesses. She is currently the Founder and Chief Executive Officer of BrandFolia LLC, a brand
strategy consulting firm with a variety of clients, includiong The Kingdom of Saudi Arabia, Boston Consulting Group, EdgeSoft and the AHA
Foundation. Before that,
•
•
•
•
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Ms. Zeegers served as Executive Vice President of Consumer Products & Experiences with National Geographic Partners, a joint venture of 21st Century
Fox and The National Geographic Society (2016-2018). Prior to joining National Geographic Partners, Ms. Zeegers was the Chief Marketing Officer of
Tween Brands, Inc. (2015); held a variety of marketing, brand and business development roles at Mattel, Inc. (2001-2014), including most recently,
Senior Vice President, Global Business Development; and held a variety of marketing and brand management positions with KLM Royal Dutch Airlines
(1995-2000). Ms. Zeegers began her career at Unilever PLC in The Netherlands, where she served in various marketing and sales positions of progressive
responsibility. Ms. Zeegers holds a Masters Degree in Marketing from the Dutch Institute of Marketing and a Masters Degree in German Literature from
Free University Amsterdam. She serves as a board member of The AHA Foundation, a nonprofit organization dedicated to the defense of women’s rights;
a board member of the Full Story Foundation, a nonprofit educational organization; and a member of the advisory board of the Qiddiya Project, part of the
Crown Prince of Saudi Arabia’s “Vision 2030.” She is regularly invited by educational and business organizations to speak on “Doing Business in
Foreign Cultures” and was the 2014 recipient of the Most Powerful & Influential Women Award from the National Diversity Council.
Director qualifications: leadership and executive management experience; broad business and strategically relevant experience; financial experience;
personnel development.
Executive Officers
Set forth below are the name, age and position of each of the persons serving as our executive officers as of December 1, 2020:
Name
Phillip E. Cohen
Jason A. Kulas
Lachlan P. Given
Timothy K. Jugmans
Francisco J. Kuthy Saenger
John Blair Powell, Jr.
Keith Robertson
Nicole Swies
Thomas H. Welch, Jr.
Age
Title
73
50
44
44
55
52
56
42
65
Executive Chairman
Chief Executive Officer
Chief Strategy, M&A and Funding Officer
Interim Chief Financial Officer
President, Latin America Pawn
President, U.S. Pawn
Chief Information Officer
Chief Revenue and Operations Officer
Chief Legal Officer and Secretary
Set forth below is current biographical information about our executive officers, except for Mr. Cohen and Mr. Kulas, whose biographical information is included
under “Board of Directors” above.
Lachlan P. Given — Mr. Given was appointed Chief Strategy, M&A and Funding Officer in September 2020, having served as Chief M&A and Strategic Funding
Officer since September 2019. He served as a member of the Board of Directors from July 2014 to September 2019, holding the position of Non-Executive
Chairman (July 2014 to August 2014), Executive Vice Chairman (August 2014 to February 2015) and Executive Chairman (February 2015 to September 2019).
He also served on the Compensation Committee from July 2014 to April 2019. Mr. Given is the sole beneficial owner of LPG Limited (HK), a business and
financial advisory firm, and prior to assuming the role of Executive Vice Chairman of EZCORP, provided international financial and advisory services to a number
of companies, including EZCORP from October 2012 to June 2014. Mr. Given has also served as a consultant to Madison Park LLC, which has, in the past,
provided certain advisory services to the Company under a series of advisory services agreements. Madison Park is wholly owned by Phillip E. Cohen, who is the
beneficial owner of all of our Class B Voting Common Stock. Mr. Given is also a director of The Farm Journal Corporation, a 134-year old pre-eminent U.S.
agricultural media company; Senetas Corporation Limited (ASX: SEN), a developer and manufacturer of certified, defense-grade encryption solutions; and
CANSTAR Pty Ltd, an Australian financial services ratings and research firm. Mr. Given began his career working in the investment banking and equity capital
markets divisions of Merrill Lynch in Hong Kong and Sydney, Australia, where he specialized in the origination and execution of a variety of M&A, equity,
equity-linked and fixed income transactions. Mr. Given also serves on the board of directors of Cash Converters International Limited and Rich Data Corporation
PLC.
Timothy K. Jugmans — Mr. Jugmans was appointed Interim Chief Financial Officer in September 2020, having served as the Company’s Vice President, Treasury
and M&A since December 2016 and as a consultant to EZCORP performing similar duties since March 2015. From January 2015 to December 2016, Mr. Jugmans
was a principal of Selene Partners Inc., a financial consulting firm providing strategic advice and other business services to a variety of clients, including the
Company
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and Morgan Schiff & Co., Inc. Mr. Jugmans served as the Chief Financial Officer of Morgan Schiff from April 2013 to December 2014, and was Chief Financial
Officer of ShippingEasy, Inc. from July 2011 to April 2013. From April 2005 to June 2012, Mr. Jugmans was a Corporate Advisor at Lexicon Partners Pty
Limited, an independent corporate advisory and consulting firm based in Sydney, Australia. He served in various analyst and senior analyst positions at boutique
investment banks for seven years prior to that. Mr. Jugmans received a Bachelor of Business degree with a major in Finance and a minor in Mathematics from the
University of Technology in Sydney. He serves as a non-executive board member of Ratecity Pty Ltd., which operates one of Australia’s leading financial
comparison sites.
Francisco J. Kuthy Saenger — Mr. Kuthy joined EZCORP in November 2013 as Senior Vice President of Operations for our Mexico Pawn operations, Empeño
Fácil; was promoted to General Manager of that business in May 2014; and was promoted to President, Latin America Pawn in March 2019 with managerial
responsibility for all of our pawn businesses in Latin America. Prior to joining EZCORP, Mr. Kuthy spent over three years (May 2010 to November 2013) as
General Manager of Farmacias Dermatologicas, S.A. de C.V., Mexico’s leading retailer of dermatology and derma-cosmetic consumer products; and six years with
Comercial Mexicana, a large retail chain in Mexico, serving as Chief Operating Officer Bodega Comercial Mexicana (2006 to 2010) and District Manager
Comercial Mexicana Bajio (May 2004 to 2006). Mr. Kuthy held previous positions in business development, sales administration, operations and field
management with Bachoco, S.A. de C.V. (1997 to 2004), Sabritas, S.A. de C.V. (1997) and Wal-Mart’s Mexican subsidiary (1989 to 1997). Mr. Kuthy received a
Bachelor of Arts degree in Economics and an MBA from the Instituto Tecnológico Autónomo de México.
John Blair Powell, Jr. — Mr. Powell serves as President, U.S. Pawn with managerial responsibility for all of our pawn operations in the U.S. He was appointed to
that position in September 2020. Mr. Powell joined EZCORP in 1989 as a pawnbroker in Houston, Texas. During his 31-year tenure at EZCORP, he as held all
field level positions, from store level to multi-unit management positions, including Regional Director of Operations. He moved into Operations at the Corporate
Support Center in 2000 and has been our top Operations Administration executive for the last 13 years, most recently serving as Chief Customer Service Officer
for all of our global pawn businesses. Mr. Powell attended Sam Houston State University.
Keith Robertson — Mr. Robertson joined EZCORP in October 2018 as Senior Vice President, Global IT and New Ventures, and was promoted to Chief
Information Officer in November 2019. Prior to joining EZCORP, Mr. Robertson spent seven years at AIG, working on a global transformation of the IT systems,
facilities and workforce. From 1989 until 2011, Mr. Robertson worked at EDS/HP, last serving as the Chief Operating Officer for the Financial Services division,
where he led IT programs supporting Bank of America, American Express, State Farm and others. Mr. Robertson grew up in Scotland and attended Heriot-Watt
University in Edinburgh, where he graduated with an Honors degree in Electrical and Electronic Engineering.
Nicole Swies — Ms. Swies was named Chief Revenue and Operations Officer in September 2020. She joined EZCORP in November 2002 as a Financial Analyst
and has worked in various finance and analytics positions primarily supporting operations in the U.S. and Latin America pawn segments and the legacy Financial
Services businesses. Ms. Swies is a member of the Community Advisory Council for the Ronald McDonald House Charities of Central Texas and serves on the
finance committee of ConnectHer, a global non-profit organization dedicated to improving the lives of women and girls through projects, stories and film. She
earned her Bachelor of Business Administration in finance from the University of Texas at Austin.
Thomas H. Welch, Jr. — Mr. Welch joined EZCORP in April 2009 as Senior Vice President, General Counsel and Secretary, with his title changing to Chief Legal
Officer and Secretary in May 2017. He joined Dell Inc.’s legal department in 1995, and served as Vice President, Legal and General Corporate Counsel from April
1999 to April 2008. Mr. Welch was principally responsible for legal support of Dell’s corporate securities, corporate finance, mergers and acquisitions, financial
services, executive compensation and benefits, facilities, corporate governance and general corporate matters. From 1992 to 1995, Mr. Welch was Vice President –
Corporate Development of Parker & Parsley Petroleum Company (predecessor to Pioneer Natural Resources Company), and previously was a shareholder with the
law firm of Johnson & Gibbs, P.C., Dallas, Texas. Mr. Welch received a Bachelor of Science degree in Management from Purdue University and a J.D. degree
from the University of Texas at Austin.
Section 16(a) Beneficial Ownership Reporting Compliance
Based on written representations and a review of the relevant Forms 3, 4 and 5, during fiscal 2020, all persons subject to Section 16 of the Securities Exchange Act
of 1934 with respect to EZCORP timely filed all reports required by Section 16(a) of the Securities Exchange Act, except for the following: In December 2019, we
inadvertently missed the 48-hour filing deadline applicable to Forms 4 reporting the vesting of restricted stock units (and related withholding of shares to cover tax
liability) for our Executive Officers. That error was discovered within a few days, and all of the required Forms 4 (which were due to be filed on December 9,
2019) were filed on or before December 16, 2019.
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Code of Conduct
We maintain a Code of Conduct that is applicable to all of our team members, including our chief executive officer, chief financial officer and chief accounting
officer. That Code of Conduct, which satisfies the requirements of a “code of ethics” under applicable SEC rules, contains written standards that are designed to
deter wrongdoing and to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest; full, fair, accurate, timely and
understandable public disclosures and communications, including financial reporting; compliance with applicable laws, rules and regulations; prompt internal
reporting of violations of the code, and accountability for adherence to the code. A copy of the Code of Conduct is posted in the Investor Relations section of on
our website at www.ezcorp.com
We will post any waivers of the Code of Conduct, or amendments thereto, that are applicable to our chief executive officer, our chief financial officer or chief
accounting officer in the Investor Relations section of our website at www.ezcorp.com. To date, there have been no such waivers.
Corporate Governance
Controlled Company Exemptions — The Nasdaq Listing Rules contain several corporate governance requirements for Nasdaq-listed companies. These
requirements generally relate to the composition of the board and its committees. For example, the rules require the following:
•
•
•
•
A majority of the directors must be independent (Rule 5605(b)(1));
The audit committee must have a least three members, each of whom must be independent (Rule 5605(c)(2));
Executive officer compensation must be determined, or recommended to the board of directors for determination, by either (1) a majority of the
independent directors or (2) a compensation committee comprised solely of independent directors (Rule 5605(d)); and
Director nominations must be selected, or recommended for the board’s selection, by either (1) a majority of the independent directors or (2) a
nominations committee comprised solely of independent directors (Rule 5605(e)).
Rule 5615(c)(2), however, provides that a “Controlled Company” is exempt from the requirement to have a majority of independent directors and from the
requirements to have independent director oversight over executive compensation and director nominations. The Listing Rules define a “Controlled Company” as a
company of which more than 50% of the voting power for the election of directors is held by an individual, a group or another company. EZCORP is a “Controlled
Company” within this meaning by virtue of the fact that 100% of the outstanding Class B Voting Common Stock (the only class of voting securities outstanding) is
held of record solely by MS Pawn Limited Partnership and beneficially by Phillip E. Cohen.
The Company has relied on the Controlled Company exemptions in the past, but with the reconstitution of the Board of Directors and Board committees in April
and May 2019, is not currently relying on such exemptions. The controlling shareholder or the Board may implement changes in the future that would again
require the Company to rely on the Controlled Company exemptions under the Nasdaq Listing Rules.
Committees of the Board of Directors — The Board of Directors maintains the following committees to assist it in its oversight responsibilities. The current
membership of each committee is indicated in the list of directors set forth under “Board of Directors” above.
•
Audit Committee — The Audit Committee assists the Board in fulfilling its responsibility to provide oversight with respect to our financial statements and
reports and other disclosures provided to stockholders, the system of internal controls, the audit process and legal and ethical compliance. Its duties
include reviewing the scope and adequacy of our internal and financial controls and procedures; reviewing the scope and results of the audit plans of our
independent and internal auditors; reviewing the objectivity, effectiveness and resources of the internal audit function; and appraising our financial
reporting activities and the accounting standards and principles followed. The Audit Committee also selects, engages, compensates and oversees our
independent auditor and pre-approves all services to be performed by the independent auditing firm.
The Audit Committee has further responsibility for overseeing our risk management and compliance processes. In carrying out that responsibility, the
Audit Committee ensures that adequate policies and procedures have been designed and implemented to (a) manage and monitor significant risks the
Company faces, including financial, operational, security, IT and cybersecurity, legal, compliance and regulatory risks; and (b) assure compliance with all
applicable laws and regulations, including data privacy requirements.
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•
•
The Audit Committee is comprised entirely of directors who satisfy the standards of independence described under “Part III, Item 13 — Certain
Relationships and Related Transactions, and Director Independence — Director Independence,” as well as additional or supplemental independence
standards applicable to audit committee members established under applicable law and Nasdaq listing requirements. The Board has determined that each
Audit Committee member meets the Nasdaq “financial literacy” requirement and that Mr. Appel, Chair of the committee, is a “financial expert” within
the meaning of the current rules of the SEC.
People and Compensation Committee — The People and Compensation Committee has the primary responsibility of reviewing, analyzing and (as
appropriate) approving, on behalf of the Board, executive compensation and organizational development matters, and otherwise assisting the Board in its
overall responsibility to enable the Company to attract, retain, develop and motivate qualified executives and employees who will contribute to our long-
term success. Specific responsibilities and duties include assisting management and the Board in identifying, developing and evaluating potential
candidates for senior executive positions; overseeing the development of succession plans for senior executive positions; reviewing and approving the
amounts and types of compensation to be paid to our executive officers; reviewing and recommending to the full Board the amount and type of
compensation to be paid to our non-employee directors; reviewing and approving, on behalf of the Board, all bonus and equity compensation to be paid to
our other team members; and advising management with respect to the quality of the workforce to carry out our strategic goals. The People and
Compensation Committee is comprised entirely of directors who satisfy the standards of independence described under “Part III, Item 13 — Certain
Relationships and Related Transactions, and Director Independence — Director Independence.”
Nominating Committee — The Nominating Committee assists the Board with respect to the selection and nomination of candidates for election or
appointment to the Board, including making recommendations to the Board regarding the size and composition of the Board and its committees;
recommending to the Board the qualifications needed or required of Board members; identifying and evaluating qualified individuals to become Board
members; making recommendations to the full Board regarding the nomination of appropriate candidates; and assessing and monitoring each continuing
and prospective director’s independence and qualification to serve on the Board and its committees. The Nominating Committee is comprised entirely of
directors who satisfy the standards of independence described under “Part III, Item 13 — Certain Relationships and Related Transactions, and Director
Independence — Director Independence.”
Each of three standing committees is governed by a written charter, a copy of which can be found in the Investor Relations section of our website at
www.ezcorp.com.
Meetings and Attendance — The following table sets forth the number of meetings held during fiscal 2020 by the Board of Directors and each committee thereof,
as well as the number of times during the year that action was taken by unanimous written consent. Our bylaws currently require the unanimous attendance of all
directors in order for a quorum to be present at a meeting of the Board of Directors. In addition to the number of official Board meetings noted below, the Board of
Directors also held 15 other meetings that were not considered official meetings due to the absence of a quorum. Those meetings were sometimes followed by a
unanimous written consent approving the matters that were the subject of the discussions.
All directors attended at least 75% of the meetings of the Board and of the committees on which they served.
Board of Directors
Audit Committee
People and Compensation Committee
Nominating Committee
Fiscal 2020
Meetings Held
Action by Unanimous Written
Consent
10
10
19
4
5
2
3
2
In addition, during fiscal 2020, the Board formed a Share Buyback Committee for the purpose of reviewing and approving the Company’s share repurchase plans.
That committee met a total of three times between December 2020 and March 2020, when we suspended share repurchase activity.
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ITEM 11 — EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis describes our compensation practices and the executive compensation policies, decisions and actions of the People
and Compensation Committee of our Board of Directors (the “Committee”). It focuses specifically on compensation earned during fiscal 2020 by the following
individuals, referred to as our Named Executive Officers.
Name
Jason A. Kulas (1)
Timothy K. Jugmans (2)
Philip E. Cohen
Lachlan P. Given
Thomas H. Welch Jr.
Stuart I. Grimshaw (3)
Daniel M. Chism (4)
Position
Chief Executive Officer
Interim Chief Financial Officer
Executive Chairman
Chief Strategy, M&A and Funding Officer
Chief Legal Officer and Secretary
Former Chief Executive Officer
Former Chief Financial Officer
(1) Mr. Kulas joined the Company as President and Chief Financial Officer effective February 28, 2020, and was promoted to Chief Executive Officer effective July 6, 2020.
(2) Mr. Jugmans was appointed Interim Chief Financial Officer effective September 1, 2020. Prior to this appointment, he served as Vice President of Finance, Treasury and M&A.
(3) Mr. Grimshaw served as Chief Executive Officer in fiscal 2020 until July 6, 2020, when he relinquished that position.
(4) Mr. Chism served as Chief Financial Officer in fiscal 2020 until February 28, 2020, when his employment with the Company terminated.
Executive Compensation Philosophy and Program Design
Philosophy and Goals — Our executive compensation philosophy is grounded on three clearly articulated fundamental principles:
•
•
•
Attract and retain high performers — We want to build and maintain an organization that achieves consistently high results. Therefore, we strive to pay at
levels that will attract and retain high quality executives capable of sustaining high levels of performance and willing to be accountable for the
achievement of results. In line with our philosophy of paying above market for market leading performance, a majority of executive compensation is in
the form of incentives that are at risk, but offer significantly higher rewards for the achievement of outstanding results.
Align long-term interests of our shareholders and executives — Executives should be compensated through compensation components (base salaries,
short- and long-term incentives) designed to drive sustained business performance, build an internal culture of ownership and create long-term value for
our shareholders.
Pay for performance — We expect diligent effort, unwavering commitment and hard work from our executives, and our compensation plans should
recognize and reward superior results that generate significant shareholder value. Actual realized compensation should reflect Company and individual
performance against specific and quantifiable objectives. Executives should be compensated based on achievement of key operational, financial and
strategic results. Compensation earned should align with our sustained performance in terms of profitability and shareholder value.
These principles are reflected in the following best-practice features of our executive compensation program:
What We Do
What We Don’t Do
þ Emphasize performance-based variable pay
þ Link 100% of equity incentive grants to performance goals
þ Require stock retention by executives and directors
þ Perform annual risk assessments
þ Retain an independent compensation consultant
þ Maintain an incentive clawback policy
ý Generally no single trigger change-in-control payments
ý No significant perquisites
ý No hedging or pledging of Company stock
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To further support our fundamental principles, we have designed our executive compensation programs to accomplish the following primary goals:
Compensation Components — “Total direct” compensation is composed of three principal components, each one contributing to the accomplishment of our
compensation program goals:
Compensation Component
Description
Base Salary
• A market-competitive salary.
Short-term Incentives
• Annual cash incentive opportunity that is tied to an
assessment of annual corporate and business unit
financial performance, as well as individual contribution.
Long-term Incentives
• Equity incentive grants, including performance-vested
restricted stock grants tied to achievement of consistent
multi-year growth in earnings.
Executive Retirement
• Annual Supplemental Executive Retirement Plan
contributions that vest over the subsequent three years
from the date of contribution.
Attract and
Retain
Pay for Performance
Shareholder
Alignment
Long-term
Commitment
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
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The Committee reviews the executive pay mix of base salary, cash bonus and long-term incentives annually. The Committee does not target a fixed percentage
allocation among the compensation elements, but rather aims to provide the majority of executive officer compensation opportunities in the form of incentive
compensation.
Benchmarking and Peer Group Data
To attract and retain the best executives for key management positions, we provide compensation opportunities that are competitive based on peer group and
survey data. We do not target any specific pay percentile for our executive officers. It is important to note, however, that the majority of pay opportunities for our
top executives are incentive-based and that actual realizable compensation is heavily dependent upon actual Company results. See “Executive Compensation
Philosophy and Program Design” above. Failure to achieve targeted results could result in realized compensation being below the competitive benchmarks.
Conversely, our incentive compensation programs provide opportunities for compensation to exceed the competitive benchmarks if specified objectives are
achieved at targeted levels or higher. The Committee believes that actual realizable compensation for our top executives is well aligned with our performance.
While the Committee does not set compensation levels for our executive officers based solely on survey or peer group benchmarks, the Committee does regularly
refer to external benchmarking data in its deliberations to ensure that the pay opportunities offered to our executives are appropriate in light of our performance
relative to our peers. The Committee asks its independent compensation consultant to conduct an annual competitive compensation review to benchmark
compensation for our executive officers.
Pearl Meyer & Partners, LLC (“Pearl Meyer”), the Committee’s previous independent compensation consultant, delivered its fiscal 2020 executive compensation
report to the Committee in November 2019 in connection with the Committee’s review and evaluation of executive compensation programs and levels for fiscal
2020. For that report, Pearl Meyer collected competitive pay data for a peer group of 12 publicly traded companies.
There is only one publicly traded company in the marketplace with which we directly compete, FirstCash, Inc. As a result, the Committee uses a set of similarly
sized companies from relevant industries that serve similar customer bases, operate in the retail or consumer finance industries and typically have similar operating
dynamics as the Company. The Committee believes this approach appropriately reflects the diverse labor market for executive talent that we compete in and
presents a reasonable reference for evaluating the competitiveness of our executive compensation levels and practices.
The fiscal 2020 peer group consisted of the following companies. This is the same peer group that was used for the fiscal 2019 review and analysis.
Peer Company
Aaron’s Inc.
Cardtronics Plc
Conn’s, Inc.
Enova
First Cash, Inc.
Francesca’s Holdings Corporation
goeasy LTD
H&R Block, Inc.
MoneyGram International, Inc.
Regional Management Corp.
World Acceptance Corporation
Zumiez Inc.
Stock Symbol
Primary Business
AAN
CATM
CONN
ENVA
FCFS
FRAN
EHMEF
HRB
MGI
RM
WRLD
ZUMZ
Home Furnishing Retail
Data Processing and Outsourced Services — Fintech
Computer and Electronics Retail
Consumer Finance
Consumer Finance — Pawn Operator
Apparel Retail
Consumer Finance
Specialized Consumer Services
Data Processing and Outsourced Services — Fintech
Consumer Finance
Consumer Finance
Apparel Retail
When the peer group was approved by the Committee, the Company was within an appropriate range of the peers across the primary scoping metrics used to
evaluate the peer group, as shown in the following table:
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Scoping Metric
Total revenues
Total assets
Number of employees
Market capitalization
Peer Group Range ($ in
millions)
$4,252 – $353
$4,527 – $188
17,000 – 1,100
$5,560 – $226
Company Positioning
(percentile)
33%
46%
78%
24%
To supplement peer group data, Pearl Meyer also provided data from a review of published compensation surveys. Survey data reflected compensation rates across
a broad group of general industry companies with revenues comparable to ours. Using a survey sample in combination with peer group data (along with the
practice of reviewing market quartiles, as opposed to averages) mitigates the impact of outliers, year-over-year volatility of compensation levels and the risk of
selection bias.
Observations from Pearl Meyer’s Fiscal 2020 Benchmarking Report
Pearl Meyer’s fiscal 2020 executive compensation review was substantially consistent with the previous year’s review and generally concluded:
•
•
•
•
•
•
Base salaries are generally aligned with the market 75th percentile and annual cash incentive opportunities are generally above the 75th percentile, but
long-term incentive values fall below the market median, bringing total direct compensation for our executives, at target levels, within the 50th and 75th
market percentiles overall (87% of the 75th percentile on average).
The average mix of pay for our executives is more heavily weighted toward performance-based incentive pay than the market average, with CEO pay in
particular being more heavily performance-based than peer company CEOs.
Our target short-term incentive opportunities as a percent of salary are generally above the market median, although the upside leverage in our short-term
incentive programs is below typical market practice, resulting in a maximum total cash opportunity for our executives that falls just above the market 75th
percentile.
Our long-term incentive program design is more conservative than market practice due to (a) use of 100% performance-based equity vs. a significant
time-vested component at most peer companies and (b) payouts capped at 100% of target vs. typical practice of providing maximum opportunities of
150% to 200% of target.
The mix of total direct compensation for our CEO is more heavily performance-based than peers and more heavily weighted toward short-term cash
compensation, which places a relatively greater emphasis on producing short-term success. Pearl Meyer observed, however, that the CEO’s overall
compensation included a significant long-term component providing balance and longer-term retention value.
The mix of total direct compensation for our other executives is similar to the market average in terms of balance between short-term and long-term, but
our programs place more emphasis on performance-based pay (short-term and long-term incentive opportunities) relative to the market average.
Components of Compensation and Fiscal 2020 Executive Compensation Actions
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Our executive compensation program consists of four main elements: base salaries, short-term cash incentive opportunities, long-term incentive opportunities
(generally paid in the form of equity awards) and other benefits, including healthcare and retirement benefits. Each of these components is discussed in more detail
below, along with the significant compensation actions that were taken during or immediately following fiscal 2020. To place those actions in context, it is
necessary to understand how the COVID-19 pandemic adversely affected the Company’s business during fiscal 2020 and how that adverse effect impacted the
Company’s executive compensation program, particularly the incentive compensation components.
Consideration of the Impact of COVID-19
As discussed in “Part II, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Impact of COVID-19,” we began
to see the impact of COVID-19 on our business operations in mid-March when governments started to implement various restrictive measures to contain and slow
the spread of the virus. Those measures included mandated closures of non-essential businesses, travel advisories, cancellation of public events, shelter-in-place
orders and social distancing and density restrictions. Those measures, and the general public response to the pandemic, created massive unemployment and other
economic fallout. In response to that fallout, in late March, Congress enacted the CARES Act, which provided $2.2 trillion of economic stimulus.
Although we have been successful in keeping most of our stores open through the pandemic, operating as essential businesses, the adverse impact of the global
pandemic, including customer behavior in response to the government stimulus actions, has been severe. That impact started in mid-March when we began to see a
decline in pawn loan originations and associated loan balances in both the U.S. and Latin America. In the early weeks of the pandemic, the financial impact of the
decline in pawn loans outstanding (PLO) was largely offset by a strong increase in merchandise sales, but the precipitous decline in PLO continued through May
2020. PLO balances remained relatively flat at depressed levels until July 2020 and then started to rebuild in August 2020. Increases in pawn service charge (PSC)
revenue generally lags the growth in the loan portfolio, with the result that PSC revenue (and related profitability) was significantly depressed through the end of
the year.
Consequently, fiscal 2020 can best be described as a financial year that consisted of two distinct halves: a first half (from October through March) that was largely
on track to achieve the financial plan for the year; and a second half (from March through September) defined by actions developed to manage the impact of the
COVID-19 pandemic and position the Company for success once the pandemic subsided. The actions taken by management demonstrated the Company’s
resilience, while negative financial results in the second half, principally due to the unprecedented decline in PLO balances, overwhelmed the positive results of the
first half and resulted in the Company’s significantly missing all of its financial targets for the year. It is important to note that fiscal 2020 financial performance
has an impact on all incentive programs that include fiscal 2020 as one of the performance years. These programs include not only the fiscal 2020 short-term
incentive bonus program, but also the following outstanding long-term incentive awards:
•
•
•
•
Fiscal 2014 award — A six-year award that was granted to Mr. Given in fiscal 2014 in connection with his joining the Company as an executive. The last
25% of the award (75,000 shares) was scheduled to vest on September 30, 2020, subject to achievement of cumulative EBITDA growth targets. Fiscal
2020 was the last year of the six-year performance period.
Fiscal 2018 awards — Three-year awards that were granted to executive officers and key employees in December 2017. The awards were scheduled to
vest on September 30, 2020, subject to achievement of cumulative EBITDA growth targets. Fiscal 2020 was the last year of the three-year performance
period.
Fiscal 2019 awards — Three-year awards that were granted to executive officers and key employees in December 2018. These awards are scheduled to
vest on September 30, 2021, subject to achievement of cumulative net income and EPS growth targets. Fiscal 2020 was the second year of the three-year
performance period.
Fiscal 2020 awards — Intended to be three-year awards that vest on September 30, 2022, with fiscal 2020 being the first year of the three-year
performance period. As discussed below, the terms of these awards were not finalized before the onset of the global pandemic, and they were never
issued.
As a result of the adverse impact of the COVID-19 pandemic, the specified financial performance targets for fiscal 2020 were not achieved, and due to the severity
of the impact, the specified financial performance targets for any performance period that includes fiscal 2020 were negatively impacted. Nevertheless, the
Committee considered it to be fair and equitable to consider the exogenous nature of the COVID-19 pandemic and the effectiveness of management’s response. In
evaluating management’s overall performance during fiscal 2020, the Committee noted the following:
•
Before the onset of the COVID-19 pandemic (i.e., through the first half of fiscal 2020), the Company was on track to achieve the EBITDA performance
target specified in the fiscal 2020 STI plan and the EBITDA growth targets
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specified in the fiscal 2014 LTI award and the fiscal 2018 awards, and was within 97% of the on-track net income and EPS growth targets specified in the
fiscal 2019 LTI awards.
•
During the second half of the performance year, management implemented and executed a number of initiatives, some of which were in direct response to
the COVID-19 pandemic. Those initiatives and accomplishments included the following:
◦ Management was successful in having our business deemed an “essential business,” which resulted in our being able to keep virtually all of our
U.S. and Mexico stores open throughout the pandemic.
◦ Management implemented a comprehensive COVID-19 response framework designed to protect the health and safety of our customers and
Team Members.
◦ Management tested innovative solutions to counter the impact of the pandemic, including curbside pawn to address in-store density restrictions
and provide a more convenient alternative for customers and digital marketing strategies to attract more customers. In addition, we made
progress toward tests for online shopping to provide customers a shopping experience with a reduced physical interaction and for Buy Now-Pay
Later to promote sales.
◦ Management refocused our corporate strategy on our core pawn businesses in the U.S. and Latin America, with an emphasis on store-level
operating performance and return on invested capital.
◦
Beginning in July and continuing to date, management has significantly right-sized the Company’s cost base, with particular focus on the
Executive Committee and Corporate Support Office, where more than $12 million in annualized costs have been eliminated.
◦ Management has strengthened the overall effectiveness of the team by restructuring positions, reducing overall size and ensuring that the right
people are in the right roles at all levels of the Company.
◦ Management has rolled out a new pawn operating model, which seeks to provide a better balance of assets by improving the overall return on
earning assets (ROEA) and net revenue across the U.S. and Latin America. This new model is designed to significantly improve lending
practices at the loan counter and increase inventory turns, which will yield benefits in cash flow, net revenue, earnings and ROEA across the
store base.
◦
◦
The Company continues to pursue attractive acquisition opportunities in both the U.S. and Mexico.
The Company maintains a strong balance sheet and liquidity position.
◦ Management has established a fiscal 2021 budget within a business recovery framework, which the Company will execute with a right-sized
organization.
Base Salary
Our primary objective with respect to base salary levels is to provide sufficient fixed cash income to retain and attract experienced leaders in a competitive market
for executive talent. The base salaries of our executive officers are reviewed and adjusted (if appropriate) annually to reflect, among other things, individual
performance, base salaries for comparable positions from a review of market data discussed previously, experience in role, economic conditions and internal
equity.
The following table shows, for each Named Executive Officer, the base salaries that were in effect for fiscal 2020 and 2019:
Named Executive Officer
Jason A. Kulas (1)
Timothy K. Jugmans (2)
Philip E. Cohen
Lachlan P. Given
Thomas H. Welch Jr.
Stuart I. Grimshaw (3)
Daniel M. Chism (4)
Fiscal 2020 Base
Salary
Fiscal 2019 Base
Salary
$
$
$
$
$
$
$
850,000
370,000
1,500,000
600,000
410,000
1,000,000
450,000
$
$
$
$
$
$
$
—
228,769
1,500,000
600,000
410,000
1,000,000
450,000
Increase
—%
62%
—%
—%
—%
—%
—%
(1) Amount shown represents the annualized base salary paid to Mr. Kulas in his role as Chief Executive Officer. Mr. Kulas joined the Company as President and Chief Financial Officer on
February 28, 2020 and was paid an annualized base salary of $700,000 in that role. He was promoted to Chief Executive Officer effective July 6, 2020.
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(2) Mr. Jugmans was appointed Interim Chief Financial Officer effective September 1, 2020, and the fiscal 2020 amount shown represents the annualized base salary paid to Mr. Jugmans in
that role. Prior to such appointment, Mr. Jugmans was Vice President of Finance, Treasury and M&A, and the fiscal 2019 amount shown represents the annualized base salary paid to him
in that role.
(3) Mr. Grimshaw relinquished his position as Chief Executive Officer effective July 6, 2020. The fiscal 2020 amount shown represents the annualized base salary being paid to Mr. Grimshaw
at that time.
(4) Mr. Chism’s employment with the Company was terminated effective February 28, 2020. The fiscal 2020 amount show represents the annualized base salary being paid to Mr. Chism at
that time.
As indicated in the table above, the Committee, in December 2019, determined that the base salaries for all executive officers, including the Named Executive
Officers, should be held flat for fiscal 2020, and no base salary increases were approved at that time.
When Mr. Kulas joined the Company as President and Chief Financial Officer in February 2020, management recommended, and the Committee approved, a base
salary of $700,000. This amount was the product of the negotiations with Mr. Kulas and reflected Mr. Kulas’ public company executive experience and the broader
role he was expected to have within the Company. When Mr. Kulas was promoted to Chief Executive Officer in July 2020, the Committee approved a base salary
increase to $850,000, a 21% increase over his base salary as President and Chief Financial Officer. The Committee considered this increase to be an appropriate
reflection of the increase in duties and responsibilities inherent in the Chief Executive Officer role.
Mr. Jugmans was appointed Interim Chief Financial Officer effective September 1, 2020. At that time, the Company promoted certain individuals into executive
officer positions. In each case, management recommended, and the Committee approved, base salary increases that reflected the increased roles and responsibilities
and were aligned with the market.
In November 2020, the Committee determined that the base salaries for all executive officers, including the continuing Named Executive Officers, would be held
flat for fiscal 2021. Consequently, the fiscal 2021 base salary for each of the continuing Named Executive Officers (Mr. Kulas, Mr. Jugmans, Mr. Cohen, Mr.
Given and Mr. Welch) will be the same as the base salary for fiscal 2020 as shown in the table above.
Annual Short-Term Incentive
Our executive officers, as well as other key Team Members, are eligible to participate in our annual Short-Term Incentive Compensation Plan, which is designed to
provide a powerful performance incentive contingent upon participants' contributions toward achievement of annual corporate and business unit financial results,
as well as personal objectives that are tied to our strategic goals.
In December 2019, the Committee approved a short-term incentive (STI) incentive compensation plan for fiscal 2020 that was substantially identical to the fiscal
2019 plan (i.e., payouts of 0% to 150% based on achievement of specified levels of EBITDA), believing that EBITDA performance continues to align with the
objectives of our long-term strategic plan and correlates strongly with total shareholder return. The incentive opportunity for each executive officer was a function
of a designated target amount (stated as a percentage of base salary) and a business performance modifier ranging from 0% to 150% based on the achievement of
specified EBITDA-based performance goals.
For participants in a specific business unit, the performance goal was based on that business unit’s achievement of specified levels of EBITDA. For other
corporate-level participants, the performance goal was based on the Company’s achievement of specified levels of consolidated EBITDA (excluding the impact of
our investments in Cash Converters International and RDC) ranging from $86.6 million to $112.1 million. The overall plan was subject to a “Company
Performance Gate,” such that no participant would receive a payment if the Company did not achieve the minimum level of EBITDA required for a corporate-level
payout, regardless of the EBITDA achieved by specific business units. This calculation provided the maximum payout opportunity for each executive, with the
final payout amount subject to an evaluation of the executive’s individual performance. Individual performance is evaluated in terms of achievement of individual
goals and specific accomplishments, but individual performance modifiers cannot exceed 100%. In calculating EBITDA, the Committee is permitted to make
adjustments for special or extraordinary events or circumstances if the Committee, in its discretion, considers it appropriate to do so.
The following table sets forth the fiscal 2020 STI target (stated as a percentage of base salary) for each of the Named Executive Officers, all of whom were subject
to the corporate-level performance goal based on consolidated EBITDA:
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Named Executive Officer
Jason A. Kulas (1)
Timothy K. Jugmans (2)
Phillip E. Cohen (3)
Lachlan P. Given (4)
Thomas H. Welch Jr.
Stuart Grimshaw
Daniel M. Chism
Fiscal 2020 Target Amount
(as a % of base salary)
150%
60%
100%
75%
60%
225%
60%
(1) The percentage shown represents Mr. Kulas’ STI target in his role as Chief Executive Officer. When Mr. Kulas joined the Company as President and Chief Financial Officer in February
2020, the terms of his offer set his STI target percentage at 125% and guaranteed a minimum payout of $875,000. Half of that guaranteed amount was delivered in the form of a restricted
stock award (90,768 shares) that vests on the one-year anniversary of Mr. Kulas’ start date (February 28, 2021). When Mr. Kulas was promoted to Chief Executive Officer in July 2020, his
STI target percentage was increased to 150%, although the guaranteed minimum was not changed. The actual target amount for fiscal 2020 will be the product of proration reflecting his
time spent in each role.
(2) The percentage shown represents Mr. Jugmans’ STI target in his role as Interim Chief Financial Officer. Prior to his appointment as Interim Chief Financial Officer effective September 1,
2020, Mr. Jugmans STI target percentage was 50%. The actual target amount for fiscal 2020 will be the product of proration reflecting his time spent in each role.
(3) Mr. Cohen, in his role as Executive Chairman, is not a participant in the STI plan, but is subject to a separate incentive opportunity specified in the terms of his employment. Pursuant to
those terms, he has the opportunity to earn a bonus payout of up to 100% of his base salary. See “Executive Chairman Incentive Award” below.
(4) The percentage shown represents the STI target approved for Mr. Given at the beginning of the year. Effective September 1, 2020, Mr. Given was promoted to Chief Strategy, M&A and
Funding Officer, assuming additional responsibilities principally related to Company strategy, and his STI target was increased to 100%. The actual target amount for fiscal 2020 will be
the product of proration reflecting his time spent in each role.
Due to the severe impact of the COVID-19 pandemic during the second half of the performance period, the “Company Performance Gate” under the fiscal 2020
STI plan was not achieved, and therefore, no payouts under that plan were earned (other than the guaranteed minimum amount for Mr. Kulas). However, in light of
management’s COVID-response initiatives taken to position the Company for future success as the COVID crisis subsides, as described above, the Committee
approved discretionary cash bonuses that were significantly reduced from the original plan for eligible participants. The amount of the discretionary bonus for each
executive officer was based on an evaluation of that executive’s individual performance and ranged from 40% to 60% of the original STI target amounts. The
following table sets forth, for each Named Executive Officer, the amount of the discretionary bonus approved, compared with the amount that would have been
received had the fiscal 2020 STI plan paid out at target:
Named Executive Officer
Jason A. Kulas (1)
Timothy K. Jugmans
Phillip E. Cohen (2)
Lachlan P. Given
Thomas H. Welch Jr.
Individual Performance
Modifier
Discretionary
Bonus Award
Target STI Payout
—
60%
60%
60%
55%
$
$
$
$
$
875,000 $
73,923 $
700,775 $
277,377 $
135,300 $
970,086
123,209
1,167,956
462,295
246,000
(1) When Mr. Kulas joined the Company as President and Chief Financial Officer in February 2020, the terms of his offer guaranteed a minimum payout of $875,000. Half of that guaranteed
amount was delivered in the form of a restricted stock award (90,768 shares) that vests on the one-year anniversary of Mr. Kulas’ start date (February 28, 2021). The remaining half
($437,500) will be paid in cash at the time the discretionary bonuses are paid to the other executive officers.
(2) Mr. Cohen’s bonus payout was calculated as described below under “Executive Chairman Incentive Award.” One-half of the amount shown ($350,390) will be paid in cash at the time the
discretionary bonuses are paid to the other executive officers. The remaining one-half ($350,385) represents an estimate of the amount that will be paid on September 30, 2021. The actual
amount paid on that date may be more or less than $350,385, depending on the trading price of the Class A Common Stock at the time. See “Executive Chairman Incentive Award” below.
The Committee continues to consider the design framework for the fiscal 2021 STI plan, which will likely retain many design elements from the fiscal 2020 plan,
such as payouts ranging from 0% to 150% depending on the achievement of specified levels of EBITDA. The target amount percentages for each of the continuing
Named Executive Officers will remain unchanged from fiscal 2020 as follows: Mr. Kulas, 150%; Mr. Jugmans, 60%; Mr. Given, 100%; and Mr. Welch, 60%.
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Long-Term Incentives
General — Long-term incentive (LTI) compensation, in the form of performance-based equity awards, is a key component in our executive compensation
program, helping to encourage long-term commitment, shareholder alignment and long-term performance orientation. The value of equity awards over time bears a
direct relationship to the price of our shares and the returns experienced by our stockholders.
All of our executive officers are eligible to receive equity incentive awards. We structure our LTI compensation program to place greater emphasis on long-term
performance that enhances stockholder value. Unlike many of our peers that have a significant time-based vesting component to their long-term awards, 100% of
our LTI awards are subject to performance-based vesting. To further emphasize the long-term nature of these awards, 100% of the LTI awards vest at the end of a
three-year performance period, rather than a prorated vesting each year during the performance period. The Committee believes this structure incentivizes and
rewards longer-term vision and strategies, and provides a balance to our short-term programs, which are focused on annual performance.
Grant frequency — The Committee considers new LTI grants for all executives each year. LTI awards may be made at any time as determined by the Committee,
and the grant price for accounting purposes is generally the closing trading price on the date the award is approved. The annual LTI awards, however, are intended
to incentivize performance over the full designated performance period. Therefore, the Committee considers it appropriate to use the stock price at the beginning of
the performance period in determining the number of shares or units to be granted, even though the awards may be approved by the Committee at a later date. In
the Committee’s view, this methodology, consistently applied, neutralizes the stock price as a factor impacting the timing of awards.
Fiscal 2020 LTI awards — At the beginning of fiscal 2020, the Committee considered a number of plan design changes for the fiscal 2020 LTI awards, but
ultimately decided to use an award design that was substantially similar to the fiscal 2019 awards (i.e., 0%, 50% or 100% vesting based on achievement of
specified levels of net income and EPS growth). Before the fiscal 2020 awards were finalized, however, both management and the Committee recognized that
further consideration of the terms of the awards was appropriate in light of the onset of the COVID-19 pandemic and the potential impact to our business
performance. Accordingly, no LTI awards were issued in fiscal 2020. See “Replacement of Fiscal 2020 LTI Awards” below for a discussion of replacement awards
that were granted after the close of fiscal 2020.
Vesting of fiscal 2014 and fiscal 2018 LTI awards — The outstanding fiscal 2014 and fiscal 2018 awards were scheduled to vest on September 30, 2020, subject to
the achievement of specified EBITDA growth rates over the designated performance period (six years, in the case of the fiscal 2014 awards, and three years in the
case of the fiscal 2018 awards). These awards were on track to achieve the specified performance target as of March 30, 2020 (11/12ths of the performance period,
in the case of the fiscal 2014 awards, and 5/6ths of the performance period, in the case of the fiscal 2018 awards). In addition, the award agreements governing
these awards permit certain specified discretionary adjustments in determining whether the EBITDA growth performance targets have been achieved.
Because these awards had substantially achieved their stated performance targets and in light of the strong performance of management in response to the COVID-
19 pandemic and the substantial actions taken to position the Company for future success as the COVID crisis subsides, as described above, the Committee, in
November 2020, acknowledged the level of achievement of the specified performance targets prior to the global pandemic and used its permitted discretion to
approve the vesting of a portion of these awards (11/12ths in the case of the fiscal 2014 awards, and 5/6ths in the case of the fiscal 2018 awards). This decision
resulted in the vesting of the following number of shares for the Named Executive Officers:
Named Executive Officer (1)
Timothy K. Jugmans
Lachlan P. Given
Thomas H. Welch, Jr.
LTI Award
Fiscal 2018
Fiscal 2014
Fiscal 2018
Fiscal 2018
Original Award
13,926
75,000
94,737
43,158
Number of Units Vested
11,605
68,750
78,948
35,965
(1) At the time he relinquished his position as Chief Executive Officer in July 2020, Mr. Grimshaw held a fiscal 2014 award covering 100,000 shares and a fiscal 2018 award covering 315,789
units. Those awards were forfeited and terminated under the terms of his Transition Employment Agreement. See “Exit Arrangements for Former Chief Executive Officer” below. At the
time of the termination of his employment in February 2020, Mr. Chism held a fiscal 2018 award covering 47,368 units. That award was forfeited and terminated in connection with his
termination of employment.
Modification of Fiscal 2019 LTI Awards — As noted above, the negative fiscal 2020 financial results caused by the COVID-19 pandemic also impacted the
outstanding fiscal 2019 LTI awards. These three-year awards were issued in December 2018 and are scheduled to vest on September 30, 2021, subject to the
achievement of specified net income and EPS growth targets. At the
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end of fiscal 2019 (the first year of the three-year performance period), these awards were within 95% of the on-track net income target and 99% of the on-track
EPS target. With the impact of the COVID-19 pandemic beginning in March 2020, however, the on-track targets for fiscal 2020 were not met and the impact on
fiscal 2021 financial results is expected to be even more severe. Consequently, it is now clear that the three-year performance targets will not be met by the end of
fiscal 2021.
Because these awards had substantially achieved their stated performance targets through the first 18 months of the performance period and in light of the strong
COVID-response performance through the second year of the performance period, the Committee decided in November 2020 to modify the terms of these awards
as follows:
•
•
For each award, only 5/6ths of the total units will be available to be earned, which acknowledges the fact that, through the first two years of the three-year
performance period, these awards were on track for 18 months and off-track for six months.
Vesting of the awards will be subject to achieving a new performance target based on fiscal 2021 bottom line performance, as follows:
•
•
•
If the specified base target is achieved, then 60% of the available units will vest;
If actual bottom line performance equals or exceeds a more challenging “stretch” target, then the remaining 40% of the available units will vest;
and
If actual performance falls between the base target and the stretch target, then the vesting percentage will be interpolated between 60% and 100%
of the available units.
Because the vesting of these awards in accordance with their original terms was made impossible by the COVID-19 pandemic, the Committee believes that it is
fair and equitable to give management an opportunity to earn some portion of the awards through future performance measured against challenging goals.
Consequently, the Committee believes that this modification is appropriate and will serve to motivate the management team to exceed fiscal 2021 performance
targets, which will position the Company to achieve a robust three-year plan.
Due to the difficulty in forecasting the business and setting appropriate performance targets in the current challenging environment, the Committee will retain the
discretionary authority to adjust the specified base and stretch targets, up or down, based on macro conditions and economic outlook.
The following table shows, for each continuing Named Executive Officer, the number of fiscal 2019 units originally awarded in December 2018, as well as the
number of units that will be available for vesting subject to achievement of the performance targets described above.
Named Executive Officer (1)
Timothy K. Jugmans
Lachlan P. Given
Thomas H. Welch, Jr.
Original Award
12,828
84,111
38,317
Available for Vesting
10,690
70,093
31,932
(1) At the time he relinquished his position as Chief Executive Officer in July 2020, Mr. Grimshaw held a fiscal 2019 award covering 280,373 units. That award was forfeited and terminated
under the terms of his Transition Employment Agreement. See “Exit Arrangements for Former Chief Executive Officer” below. At the time of the termination of his employment in
February 2020, Mr. Chism held a fiscal 2019 award covering 42,056 units. That award was forfeited and terminated in connection with his termination of employment.
Replacement of Fiscal 2020 LTI Awards — As noted above, the terms of the fiscal 2020 LTI awards were not finalized prior to the onset of the COVID-19
pandemic, and thus, no LTI awards were issued in fiscal 2020. With the current practice of issuing awards that have a three-year vesting cycle, the fiscal 2020
awards would have been available for vesting at the end of fiscal 2022. The Committee considers long-term incentive awards to be an integral part of the
Company’s overall executive compensation program, and realizes that, without an LTI opportunity that potentially vests at the end of fiscal 2022, we would have a
gap in the long-term incentive award structure. Consequently, the Committee has determined that it is appropriate to grant new LTI awards that, in effect, replace
the fiscal 2020 awards but that are available for vesting at the end of fiscal 2022.
In November 2020, the Committee approved the issuance of fiscal 2020 replacement awards on the following terms:
•
The number of units granted to each participant was equal to the number of units the participant would have received had the fiscal 2020 awards been
granted. That number was determined by dividing the participant’s LTI target amount (based on a percentage of base salary) by $6.46, the trading price of
our Class A Non-Voting Common Stock at the beginning of fiscal 2020.
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•
•
•
•
Vesting is subject to performance measured against specified net income targets. The Committee considers net income to be the long-term shareholder
value metric against which management should be measured, as it reflects the scaling of profitability in a fiscally robust way. Net income takes into
account the full bottom-line performance and growth of the Company, including a prudent capital structure; it is the metric that primarily drives our stock
price, closely aligning management’s interests with those of our shareholders; it is one of the three primary financial goals in the Company’s new
“Strategic Goals and Measures” framework; and it is less susceptible to manipulation, as EPS often is with debt-financed share buybacks that potentially
put financial position at risk.
Performance will be measured over the next two years (fiscal 2021 and fiscal 2022). The number of units awarded are allocated equally between the two
years, with each year measured separately. Vesting for each year will be determined as follows:
◦
◦
◦
If actual performance is 80% of the performance target for the year, then 50% of the units allocated to that year will be “banked”;
If actual performance is 100% or more of the performance target, then 100% of the units allocated to that year will be “banked”; and
For actual performance that falls between 80% and 100% of the performance target, the percentage of units banked will be interpolated between
50% and 100%.
Each year will stand on its own, and any units allocated to a year that are not banked at the end of the year will be forfeited.
At the end of the performance period (i.e., the end of fiscal 2022), the aggregate number of banked units will vest for those participants who remain
employed at that time.
Again reflecting the difficulty in forecasting the business and setting appropriate performance targets in the current challenging environment, the
Committee will retain discretionary authority to adjust the performance target for fiscal 2021, up or down, based on macro conditions and economic
outlook.
The following table shows the approved fiscal 2020 replacement LTI awards for the continuing Named Executive Officers (other than Mr. Cohen, who is subject to
a separate incentive program and is not eligible for LTI awards):
Named Executive Officer
Jason A. Kulas (1)
Timothy K. Jugmans (2)
Lachlan P. Given (2)
Thomas H. Welch, Jr. (2)
Percent of Base Salary
Number of Units
150%
50%
80%
80%
129,517
17,706
74,303
50,773
(1) Mr. Kulas’ LTI target percentage was 100% when he joined the Company as President and Chief Financial Officer in February 2020, and was increased to 150% when he was promoted to
Chief Executive Officer in July 2020. The Number of Units awarded was calculated by prorating the target amounts based on time in each position (assuming an October 1, 2019 start
date), and then dividing the result by $6.46, the closing trading price of our Class A Common Stock on September 30, 2019.
(2) The Percent of Base Salary and Number of Units shown represent the amounts that would have been used at the beginning of fiscal 2020 had the fiscal 2020 awards been issued at that
time.
Fiscal 2021 LTI Awards — The Committee continues to consider the design framework for the fiscal 2021 LTI awards, and thus, no fiscal 2021 LTI awards have
yet been issued. The Committee has determined, however, that number of units that will be awarded to each participant once the terms are finalized will be
determined by dividing the participant’s LTI target amount (based on a percentage of base salary) by $5.03, the trading price of our Class A Non-Voting Common
Stock on September 30, 2020. The following table shows the number of fiscal 2021 LTI awards for the continuing Named Executive Officers (other than Mr.
Cohen, who is subject to a separate incentive program and is not eligible for LTI awards):
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Named Executive Officer
Jason A. Kulas
Timothy K. Jugmans
Lachlan P. Given
Thomas H. Welch, Jr.
Percent of Base Salary
150%
80%
100%
80%
Number of Units
253,479
58,847
119,284
65,209
Executive Chairman Incentive Award
As Executive Chairman, Mr. Cohen has an incentive compensation opportunity of $1,500,000 per year (100% of base salary), awarded in the form of cash-settled
phantom stock units (“Units”) tied to the trading price of the Company’s Class A Common Stock, as follows:
•
•
•
Award — At the beginning of a fiscal year (the “Performance Year”), the number of Units awarded will be determined by dividing $1,500,000 by the
stock price at the close of the immediately preceding fiscal year.
Vesting — The awarded Units will vest at the end of the Performance Year so long as the “Company Performance Gate” under the Company’s STI plan
for the Performance Year has been achieved. The Company Performance Gate is the level of performance (generally measured in terms of adjusted
EBITDA) needed to achieve any payout under the STI plan. Even if the Company Performance Gate is achieved, the Committee in its discretion may
reduce the number of Units that vest based upon the Committee’s evaluation of Mr. Cohen’s performance during the Performance Year against Key
Performance Indicators (KPIs). Conversely, if the Company Performance Gate is not achieved, the Committee in its discretion may choose to vest some
or all of the Units based an evaluation of Mr. Cohen’s performance against the specified KPIs.
Payout — The vested Units will be paid out in two installments. The first installment will be paid as soon as practicable after the end of the Performance
Year and will be an amount of cash equal to 50% of the vested Units multiplied by the stock price at the end of the Performance Year. The second
installment will be paid out at the end of the next fiscal year and will be an amount of cash equal to 50% of the vested Units multiplied by the stock price
at that time.
At the beginning of fiscal 2020, Mr. Cohen received 232,198 Units, which was calculated by dividing the bonus opportunity ($1,500,000) by $6.46, the closing
price of the Class A Non-Voting Common Stock on September 30, 2019.
At the end of the year, the Committee noted that the Company Performance Gate under the fiscal 2020 STI plan was not achieved. However, the Committee
reviewed Mr. Cohen’s accomplishments during the year (including his counsel, advice and contributions to the formulation and development of the Company’s
strategic plan; his contributions to the identification and development of acquisition and investment opportunities; and his involvement in the formulation and
execution of the Company’s financing strategy) and determined that vesting 60% of the Units would be an appropriate reward to recognize those accomplishments.
This percentage also aligned with the discretionary bonus percentages that were approved for other members of management. See “Components of Compensation
— Annual Short-Term Incentive” above.
Consequently, in November 2020, the Committee approved the vesting of 139,319 Units. Under the terms of Mr. Cohen’s incentive opportunity, 50% of those
vested Units (or 69,660 Units) are to be paid out currently based on a per-Unit value of $5.03 (the closing price of the Class A Common Stock on September 30.
2020), which translates to a cash payout of $350,390. The remaining 50% of the Units (69,659 Units) will be paid out at September 30, 2021 based on the closing
price of the Class A Non-Voting Common Stock at that time.
Supplemental Executive Retirement Plan
We provide selected executives with a non-qualified Supplemental Executive Retirement Plan (“SERP”) to offset some of the negative impacts of the highly paid
executive contribution limitations applicable to our 401(k) retirement savings plan. For fiscal 2020, the Committee approved contributions to the SERP for each of
the executive officers equal to 10% of base salary. This resulted in the following contributions to the SERP for each of the Named Executive Officers:
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Named Executive Officer
Jason A. Kulas
Timothy K. Jugmans
Philip E. Cohen
Lachlan P. Given
Thomas H. Welch Jr.
Stuart I. Grimshaw (4)
Daniel M. Chism (5)
Fiscal 2020 SERP
Contribution
(1)
(2)
(3)
60,000
41,000
100,000
45,000
$
$
$
$
(1) Mr. Kulas joined the Company as an executive in February 2020 and was not eligible for SERP contributions until October 1, 2020.
(2) Mr. Jugmans is not eligible for SERP at this time.
(3) Mr. Cohen is not eligible for SERP contributions.
(4) This amount became part of Mr. Grimshaw’s vested account balance, which will be available for distribution to Mr. Grimshaw following the termination of his employment.
(5) This amount, along with other unvested amounts, was forfeited upon the termination of Mr. Chism’s employment in February 2020.
In November 2020, the Committee approved fiscal 2021 contributions to the SERP equal to 10% of base salary for each of the continuing Named Executive
Officers (other than Mr. Jugmans and Mr. Cohen). Those contributions were $85,000 for Mr. Kulas, $60,000 for Mr. Given and $41,000 for Mr. Welch.
Other Benefits and Perquisites
The executive officers participate in other benefit plans on the same terms as other team members. These plans include medical, dental and life insurance benefits,
and our 401(k) retirement savings plan. In addition, we provide supplemental healthcare benefits to our executive officers. The amount of that benefit for the
Named Executive Officers is included in the “All Other Compensation” column of the Summary Compensation Table below.
Exit Arrangements for Former Chief Executive Officer
On November 14, 2020, we entered into a Transition Employment Agreement with Stuart I. Grimshaw, our former Chief Executive Officer. The agreement, which
became effective on November 21, 2020, sets forth the terms and conditions of Mr. Grimshaw’s employment as special adviser and his ultimate separation from
employment with the Company. The terms of the agreement were reviewed and approved by the Committee.
Under the terms of the Agreement, Mr. Grimshaw’s employment as special advisor will continue for three years unless earlier terminated pursuant to the
provisions of the Agreement. As compensation for services as special advisor, we will pay Mr. Grimshaw an aggregate of $800,000 as follows: $200,000 was paid
on the effective date of the Agreement; $225,000 was paid on November 30, 2020; $225,000 will be paid on December 31, 2020; and $50,000 per year will be paid
over the three-year term of the agreement. In addition, we will pay Mr. Grimshaw $1 million in the form of salary continuation over the one-year period
commencing on the effective date of the agreement. This amount represents the contractual severance arrangement that was part of Mr. Grimshaw’s terms of
employment as Chief Executive Officer.
The agreement specifies that Mr. Grimshaw will not receive any other payout under the fiscal 2020 STI plan or any payments in lieu thereof (other than the
payments described above) and that he will forfeit all of the LTI awards that were outstanding at the time he relinquished the position of Chief Executive Officer in
July 2020 (covering 696,162 shares of Class A Non-Voting Common Stock in the aggregate).
The Agreement contains customary release provisions pursuant to which Mr. Grimshaw releases the Company from any and all claims and demands. It also
specifies that Mr. Grimshaw will continue to be subject to non-competition and non-solicitation restrictions during the term of the Agreement (or, if terminated
earlier, for at least one year following the effective date of the Agreement).
The Agreement may be terminated by Mr. Grimshaw for any reason, and may be terminated by us for cause or if Mr. Grimshaw accepts certain other employment
or engagements.
Executive Compensation Governance and Process
Composition of the People and Compensation Committee
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The People and Compensation Committee is comprised of three members — Mr. Lagos, Ms. Brown and Mr. Webb — each of whom is an independent director.
See “Part III, Item 10 — Directors, Executive Officers and Corporate Governance — Board of Directors.”
Role of the Committee
The Board of Directors has authorized the Committee to establish the compensation programs for all executive officers and to provide oversight for compliance
with our compensation philosophy. The Committee delegates the day-to-day administration of the compensation plans to management and retains responsibility for
ensuring that the plan administration is consistent with our policies.
Annually, the Committee sets the compensation for our executive officers, including objectives and awards under incentive plans. In addition to overseeing the
compensation of our executive officers, the Committee approves all awards under long-term incentive plans for all other team members, and makes
recommendations to the Board of Directors on appropriate compensation for the non-employee directors.
The Committee also oversees development of succession plans and corresponding individual development in order to maintain the talent necessary to fulfill our
operational and strategic objectives, assesses the effectiveness of our employee programs, and advises senior management with regard to the quality of the
workforce to carry out our strategic goals and on overall human resources strategies. For more information on the Committee's role, see “Part III, Item 10 —
Directors, Executive Officers and Corporate Governance — Corporate Governance — Committees of the Board — People and Compensation Committee,” as well
as the Committee's charter, which can be found in the Investor Relations section of our website at www.ezcorp.com.
Role of Management
The Committee receives data regarding compensation trends, succession plans, issues and recommendations from management. Members of management,
including our Chief Executive Officer, Chief Human Resources Officer and Chief Legal Officer, attend Committee meetings at the invitation of the Committee. In
addition, our Chief Executive Officer provides input on individual performance and recommendations regarding compensation adjustments to the Committee for
executive officer positions other than his own.
Role of the Independent Compensation Consultant
Under its charter, the Committee has sole authority to retain, terminate, obtain advice from, oversee and compensate its outside advisors, including its
compensation consultant. We have provided appropriate funding to the Committee to do so.
For the past several years, the Committee retained Pearl Meyer as its independent compensation consultant. In March 2020, following an RFP process in which the
Committee received and reviewed proposals from a number of providers, the Committee selected and retained Mercer as its independent compensation consultant.
None of our management participated in the Committee's decision to retain Mercer (other than our Chief Human Resources Officer, who, at the request of the
Committee, helped facilitate the RFP process, and our Chief Legal Officer, who was present during the Committee’s deliberations). The Committee’s independent
compensation consultant reports directly to the Committee, and the Committee may replace its independent compensation consultant or hire additional consultants
at any time. The Committee’s independent compensation consultant communicates with, and attends meetings of, the Committee as requested.
The Committee monitors the independence of its consultants on a regular basis and believes that Pearl Meyer was, and Mercer is, independent in providing
executive compensation consulting services to the Committee.
During fiscal 2020, the Committee’s independent compensation consultant, among other things, advised the Committee on the principal aspects of our executive
compensation program, updated the Committee on evolving best practices, and provided market information and analysis regarding the competitiveness of our
program design and award values.
Compensation Risk
The Committee continually monitors our general compensation practices, specifically the design, administration and assessment of our incentive plans, to identify
any components, measurement factors or potential outcomes that might create an incentive for excessive risk-taking detrimental to the Company. The Committee
has determined that our compensation plans and policies do not encourage excessive risk-taking.
Our executive compensation program provides a balance of short-term and long-term incentives that reward achievement of profitable, consistent and sustainable
results.
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•
Annual incentive compensation tied to achievement of profitable Company or business unit performance (as measured by consolidated and/or business
unit EBITDA); and
• Meaningful long-term equity incentive opportunities that are 100% performance-based and provide an incentive to deliver long-term growth in
stockholder value as a result of sustained earnings growth, prudent balance sheet management or other measures.
We maintain the following policies to mitigate compensation risk:
•
•
•
Clawback Policy — The Board of Directors retains the right to seek reimbursement (clawback) of incentive compensation (whether cash or equity) from
any executive officer who has, in the Board’s determination, violated our policies or otherwise engaged in intentional misconduct that, in either case,
caused a material restatement of financial results.
Anti-Hedging Policy — We maintain a policy prohibiting the trading of “derivative securities” related to, or engaging in “short sales” of, our stock by
members of the Board of Directors, executive officers or any other persons associated or affiliated with the Company (through employment, contractual
relationship or otherwise) who are designated from time to time by the Board of Directors. For purposes of the policy, a “derivative security” is any
option, warrant, convertible security, stock appreciation right or similar right with an exercise or conversion privilege at a price related to our stock, or
similar securities with a value derived from the value of our stock; and a “short sale” is any sale of stock that the seller does not own or any sale that is
consummated by the delivery of stock borrowed by, or for the account of, the seller. The Board believes that this policy, by preventing the shifting of the
risks of ownership of Company stock, helps to align the interests of management with the interests of the other Company stockholders.
Executive Share Retention Policy — The Board of Directors has adopted stock ownership requirements applicable to the members of the Board of
Directors and the executive officers. Pursuant to those requirements, each non-executive member of the Board of Directors and each executive officer is
required to hold a number of shares of Class A Non-Voting Common Stock having a market value equal to the applicable “Required Multiple” of the
annual retainer fee (in the case of the non-executive directors) or base salary (in the case of the executive officers). The Required Multiple is equity to 4X
for the non-executive directors and the CEO, 2X for the Executive Chairman and 1X for the other executive officers. Each person subject to the stock
ownership requirements is required to hold at least 50% (in the case of the non-executive directors) or 30% (in the case of the executive officers) of each
vesting of restricted stock or restricted stock units until the required stock ownership amount is satisfied. Thereafter, such person can sell shares (subject
to our trading window policy) as long as the required stock ownership amount is maintained. Because each share of Class B Voting Common Stock is
convertible into a share of Class A Non-Voting Common Stock, the shares of Class B Voting Common Stock held by Mr. Cohen are treated as the
equivalent number of shares of Class A Non-Voting Common Stock for purposes of applying the stock ownership requirements.
All directors and executive officers are currently in compliance with the stock ownership requirements.
Other Executive Compensation Matters
Severance — We provide the following severance benefits to our executive officers (other than Mr. Cohen):
•
•
Each of our executive officers will receive salary continuation for one year if his or her employment is terminated by the Company without cause.
Generally, restricted stock awards, including those granted to the executive officers, provide for accelerated vesting of some or all of the unvested shares
or units in the event of the holder's death or disability.
More information on severance arrangements can be found under “Other Benefit Plans — Certain Termination Benefits” below. The Committee believes that these
benefits provide important protection to the executive officers, are consistent with practice of the peer companies and are appropriate for attraction and retention of
executive talent.
Restrictive Covenants — Each of our executive officers (other than Mr. Cohen), along with other key team members, has entered into a Restrictive Covenant
Agreement under which the executive is subject to confidentiality and non-disclosure obligations with respect to various categories of proprietary, competitively
sensitive and confidential information. In addition, each such executive has agreed that, for a period of one year following the termination of employment with the
Company, he or she will not compete with the Company (within a defined area) and will not solicit the Company's team members or suppliers.
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Compensation Committee Report
The Compensation Committee has reviewed the foregoing Compensation Discussion and Analysis and has discussed it with management. Based on that review
and those discussions, the Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in our Annual
Report on Form 10-K for the fiscal year ended September 30, 2020.
Pablo Lagos Espinosa (Chair)
Shelaghmichael Brown
Robert W.K. Webb
Compensation Committee Interlocks and Insider Participation
The persons who served as members of the Compensation Committee during fiscal 2020 (Ms. Brown, Mr. Lagos and Mr. Webb) are not and have never been an
officer of or employed by the Company and do not have any relationship that requires disclosure under Item 404 of Regulation S-K, the SEC’s rules requiring
disclosure of certain relationships and related party transactions.
Summary Compensation Table
The table below summarizes the total compensation for fiscal 2020, 2019 and 2018 for the Named Executive Officers. See “Part III, Item 11 — Executive
Compensation — Compensation Discussion and Analysis” for a description of how we determined the Named Executive Officers.
Name and Principal Position
Fiscal Year
Salary
(1)
Bonus
Stock Awards
(2)
Non-Equity Incentive
Plan Compensation (3)
All Other Compensation
(4)
Jason A. Kulas (5)
Chief Executive Officer
Timothy K. Jugmans
Interim Chief Financial Officer
Philip E. Cohen
Executive Chairman
Lachlan P. Given (5)
Chief Strategy, M&A and
Funding Officer
Thomas H. Welch Jr.
Chief Legal Officer and Secretary
Stuart Grimshaw (5)
Former Chief Executive Officer
Daniel M. Chism
Former Chief Financial Officer
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
$
424,808 $
—
—
236,374
237,250
220,096
1,500,000
—
—
600,000
600,000
600,000
410,000
425,769
410,000
1,000,000
1,000,000
1,000,000
192,115
450,000
450,000
— $
—
—
73,923
—
—
350,390
—
—
277,377
—
—
135,300
—
—
—
—
—
—
—
—
683,878 $
91,334
—
—
117,761
—
—
—
—
—
772,148
1,110,886
—
351,750
—
—
2,573,824
3,702,943
—
386,074
461,838
437,500 $
—
—
—
47,241
82,191
—
—
—
—
519,534
787,500
—
177,581
274,444
—
1,750,000
2,625,000
—
126,000
302,400
56,455 $
40,000
—
5,646
6,183
5,663
21,028
—
—
82,200
81,372
153,588
69,570
68,858
77,664
121,538
381,200
175,811
506,623
70,497
80,587
Total
1,602,641
131,334
—
315,943
408,435
307,950
1,871,418
—
—
959,577
1,973,054
2,651,974
614,870
1,023,958
762,108
1,121,538
5,705,024
7,503,754
698,738
1,032,571
1,294,825
(1) The amounts shown under “Salary” reflect the gross amounts of base salary paid to each of the Named Executive Officers during the fiscal years so noted. The fiscal 2020 amounts for Mr.
Kulas include amounts paid to him in the role of President and Chief Financial Officer (February 28, 2020 to July 6, 2020) and Chief Executive Officer (from July 6, 2020).
(2) Amounts represent the aggregate grant date fair value of restricted stock or restricted stock unit awards, computed in accordance with FASB ASC 718-10-25. See Note 10 of Notes to
Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.” The actual value realized by the Named Executive Officer with respect to
stock awards will depend on whether the award vests and, if it vests, the market value of our stock on the date the stock is sold.
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The fiscal 2020 amount shown for Mr. Kulas includes $112,116 related to a restricted stock award that he received as a director before joining the Company as an executive.
For a description of these awards, see the “Grant of Plan-Based Awards” table under “Incentive Plan Based Awards” below. See also “Compensation Discussion and Analysis —
Components of Compensation — Long-Term Incentives” above.
(3) Amounts represent the bonuses paid pursuant to the Short-Term Incentive Compensation Plan. See “Compensation Discussion and Analysis — Components of Compensation — Annual
Incentive Bonuses” above.
The fiscal 2020 amount for Mr. Kulas represents the minimum fiscal 2020 STI payout that was guaranteed when Mr. Kulas joined the Company as President and Chief Financial Officer in
February 2020.
(4) Amounts include the cost of providing various perquisites and personal benefits, as well as the value of our contributions to the company-sponsored 401(k) plan and Supplemental
Executive Retirement Plan. For Mr. Kulas, amounts include fees that were paid to him in his capacity as a non-employee director prior to his joining the Company as an executive in
February 2020. For detail of the amounts shown for each Named Executive Officer, see the table under “Other Benefits and Perquisites — All Other Compensation” below.
(5) Mr. Kulas and Mr. Given also serve on the board of directors of Cash Converters International Limited, with Mr. Kulas serving as non-executive chairman. Until August 28, 2020, Mr.
Grimshaw served as non-executive chairman of Cash Converters International Limited, when he was replaced by Mr. Kulas. The director fees paid to each of them by Cash Converters
International Limited were as follows: Mr. Given, approximately $70,000 each year; and Mr. Grimshaw, approximately $130,000 each year. These amounts are not included in the
Summary Compensation Table, as they were paid by Cash Converters International Limited, which is not controlled by EZCORP.
CEO Pay Ratio
The following information sets forth our calculation of the ratio between the annual total compensation of Jason A. Kulas, our Chief Executive Officer, and the
annual total compensation of our median Team Member (“CEO Pay Ratio”).
• Mr. Kulas’ total annual compensation for fiscal 2020 was $1,987,833. That number is derived from the numbers set forth in the Summary Compensation
Table above, except that we annualized the the base salary to $850,000 and excluded the amount of director fees we paid to Mr. Kulas prior to his joining
the Company as an executive in February 2020.
•
•
Our median Team Member’s total annual compensation for fiscal 2020 was $13,878, consisting of gross annual wages, bonuses, retirement contributions
and other benefits.
Based on those numbers, our CEO Pay ratio for fiscal 2020 is 143:1.
Because Mr. Kulas joined the Company four months into the fiscal year and then was promoted to CEO three-quarters through the fiscal year, the total
compensation number shown in the Summary Compensation Table is not necessarily indicative of Mr. Kulas’ typical total annual compensation for a full year as
CEO. Mr. Kulas’ total annual compensation, when considering base salary, short-term and long-term incentives at target levels and typical other compensation, is
approximately $3,500,000. When using that number, our CEO Pay Ratio is 252:1.
Our CEO Pay Ratio is based on the following methodology:
• We are using the same median Team Member for our fiscal 2020 CEO Pay Ratio calculation as we used in fiscal 2019, as there have been no changes in
employee population or compensation arrangements that would result in a significant change to our pay ratio disclosure.
• When we identified our median Team Member last year, we selected gross wages as the most appropriate measure of compensation and applied that
measure consistently across our Team Member population. Gross wages generally include salary and wages (regular, hourly and overtime), commissions
and bonuses. We annualized the compensation of all permanent full-time and part-time team members who were hired during the year.
• We calculated the median Team Member’s total annual compensation in accordance with the rules used to calculate the CEO’s compensation included in
the Summary Compensation Table above.
•
Using this methodology, we determined that our median Team Member was a full-time store manager located in Mexico where Team Member wages are
significantly lower than in the U.S.
In calculating CEO pay ratios, companies are permitted to adopt a variety of methodologies, apply certain exclusions and make reasonable estimates and
assumptions reflecting their unique employee populations. Therefore,our CEO Pay Ratio, as described above, may not be comparable to CEO pay ratios reported
by other companies due to differences in industries and geographical dispersion of employees, as well as the different estimates, assumptions and methodologies
applied by other companies in calculating their CEO pay ratios.
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Incentive Plan Based Awards
The following table sets forth certain information about plan-based awards that we made to the Named Executive Officers during fiscal 2020. For information
about the plans under which these awards were granted, see “Compensation Discussion and Analysis — Components of Compensation — Annual Incentive
Bonus” and “Compensation Discussion and Analysis — Components of Compensation — Long-Term Incentives” above.
Grants of Plan-Based Awards
Name
Jason A. Kulas
Timothy K. Jugmans
Philip E. Cohen
Lachlan P. Given
Thomas H. Welch Jr.
Stuart Grimshaw
Daniel M. Chism
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards (1)
Estimated Future Payouts Under
Equity Incentive Plan Awards (2)
Grant Date
2/28/2020
12/2/2019
12/2/2019
12/2/2019
12/2/2019
12/2/2019
12/2/2019
Threshold
Target
Maximum
Threshold
Target
Maximum
Grant Date
Fair Value (3)
$
875,000 $
61,603
1,500,000
231,148
123,000
1,125,000
135,000
970,086 $
123,205
1,500,000
462,295
246,000
2,250,000
270,000
1,455,129 $
184,808
1,500,000
693,443
369,000
3,375,000
405,000
$
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
(1) These amounts represent the potential payouts under the fiscal 2020 Short-Term Incentive Compensation Plan. See “Compensation Discussion and Analysis — Components of
Compensation — Annual Incentive Bonuses” above. The “Target” amount is the amount that will be paid if the specified performance goals are achieved at the target level (although the
Compensation Committee may reduce any award if it chooses to do so). The “Threshold” amount reflects the amount that would be paid if the minimum performance goals are achieved,
while the “Maximum” amount represents the maximum amount that will be paid if the maximum performance goals are achieved or exceeded. See the “Non-Equity Incentive Plan
Compensation” column in the Summary Compensation Table above for the amount of the actual payout for each of the Named Executive Officers.
(2) These amounts represent the fiscal 2020 awards under the Long-Term Incentive Plan. The terms of the fiscal 2020 awards were never finalized, and thus, no fiscal 2020 awards were ever
made. As discussed in “Compensation Discussion and Analysis — Components of Compensation — Long-Term Incentives” above, the People and Compensation Committee has approved
replacement awards, and these awards will be shown as fiscal 2021 Equity Incentive Plan awards.
(3) Represents the estimated grant date fair value of fiscal 2020 equity awards, assuming payout at “Target” level. This is the estimated amount of aggregate compensation cost we expect to
recognize over the performance period, determined as of the grant date. See “Compensation Discussion and Analysis — Components of Compensation — Long-Term Incentives” above.
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The following table sets forth certain information about outstanding stock awards held by the Named Executive Officers as of the end of fiscal 2020. None of the
Named Executive Officers holds any stock options.
Outstanding Equity Awards at Fiscal Year-End
Name
Jason A. Kulas
Timothy K. Jugmans
Philip E. Cohen
Lachlan P. Given
Thomas H. Welch Jr.
Stuart Grimshaw
Daniel M. Chism
Award Date
3/2/2020
12/11/2018
12/12/2017
12/11/2018
12/12/2017
2/1/2016
12/11/2018
12/12/2017
12/11/2018
12/12/2017
2/1/2016
Number of Shares or Units of Stock That Have
Not Vested
Market Value of Shares or Units of Stock That
Have Not Vested (1)
Stock Awards
$
90,768
12,828
13,926
—
84,112
94,737
75,000
38,317
43,158
280,373
315,789
100,000
—
—
(2)
(3)
(4)
(3)
(4)
(4)
(3)
(4)
(5)
(5)
(5)
(6)
(6)
456,563
64,525
70,048
—
423,083
476,527
377,250
192,735
217,085
1,410,276
1,588,419
503,000
—
—
(1) Market value is based on the closing price of our Class A Common Stock on September 30, 2020, the last market trading day of fiscal 2020 ($5.03).
(2) These awards are scheduled to vest on February 28, 2021, the one-year anniversary of Mr. Kulas’ joining the Company as President and Chief Financial Officer.
(3) These awards are scheduled to vest on September 30, 2021 subject to the achievement of specified net income targets. See “Compensation Discussion and Analysis — Components of
Compensation — Long-Term Incentives” above.
(4) A portion of these awards (5/6ths in the case of the awards granted in 2017, and 11/12ths in the case of the award granted in 2016) vested on December 14, 2020 following approval by the
People and Compensation Committee. See “Compensation Discussion and Analysis — Components of Compensation — Long-Term Incentives — Vesting of Fiscal 2014 and Fiscal 2018
LTI Awards” above. The remainder of these awards were forfeited as of such date.
(5) These awards were forfeited upon execution of Mr. Grimshaw’s Transition Employment Agreement in November 2020.
(6) All of Mr. Chism’s outstanding awards were forfeited upon the termination of his employment in February 2020.
The following table sets forth, with respect to each of the Named Executive Officers, certain information about restricted stock vesting during fiscal 2020:
Stock Vested
Named Executive Officer
Jason A. Kulas
Timothy K. Jugmans
Philip E. Cohen
Lachlan P. Given
Thomas H. Welch Jr.
Stuart Grimshaw
Daniel M. Chism
(1) Computed using the fair market value of the stock on the date of vesting.
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Number of Shares Acquired on Vesting
Value Realized on Vesting (1)
Stock Awards
24,768
11,362
—
81,374
37,071
271,248
—
(2) $
(3)
(3)
(3)
(3)
124,583
58,969
—
422,331
192,398
1,407,777
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(2) This award was made to Mr. Kulas on December 11, 2019 in his capacity as a non-employee director. It vested on September 30, 2019 (market value, $5.03 per share).
(3) These awards vested on December 3, 2019 (market value, $5.19 per share) and are presented gross, exclusive of net shares withheld to satisfy individual tax withholding obligations.
Other Benefits and Perquisites
401(k) Retirement Plan — All team members are given an opportunity to participate in our 401(k) retirement savings plan (following a new-hire waiting period).
Subject to statutory limits of the IRS, this plan allows participants to have pre-tax amounts withheld from their pay and provides for a discretionary employer
matching contribution (historically, 25% up to 6% of salary). Matching contributions are made in the form of cash. Participants may invest their contributions in
various fund options, but are prohibited from investing their contributions in our common stock. A participant vests in the matching contributions pro rata over
their first three years of service provided their hours worked requirement is met. All of a participant’s matching contributions vest 100% in the event of the
participant’s death or disability or the termination of the plan due to a change in control.
Supplemental Executive Retirement Plan — The Internal Revenue Code limits the amount of pre-tax savings that highly paid executives can contribute to the
401(k) plan. To offset some of the negative impact of these limitations on retirement savings and to encourage retention of key executives, we provide selected
executives with a non-qualified Supplemental Executive Retirement Plan (“SERP”), with similar investment alternatives as are available under the 401(k)
retirement savings plan. Company contributions to the SERP are formula-based, reviewed and recommended by management and approved by the People and
Compensation Committee each year. For fiscal 2020, our annual contributions to the SERP were calculated as a percentage of base salary as of October 1, 2019,
with that percentage being 10% for executive officers and 6% for one other employee. For fiscal 2021, the Company contributions to the SERP will continue at the
same rates for continuing Executive Officers. Under the terms of the SERP, participants are also allowed to voluntarily defer all or a portion of their salary and
bonus payments into the SERP. There were ten participants in the SERP during fiscal 2020.
All Company contributed SERP funds have a vesting schedule as an additional retention tool. Generally, the funds vest over three years from the contribution date,
with one-third vesting each year. All of a participant’s Company contributed SERP funds vest 100% in the event of the participant’s death or disability or the
termination of the plan due to a change in control. In addition, all Company contributed SERP funds are 100% vested when a participant attains normal retirement
age (generally 60 years old and five years of active service) while actively employed by us. All Company contributed SERP funds are forfeited, regardless of
vesting status, if the participant’s employment is terminated for cause.
A participant may not withdraw any portion of his or her SERP account while still employed by the Company unless, in the sole opinion of management, the
participant has an unforeseeable emergency, which is defined as a severe financial hardship resulting from an illness or accident of the participant, the participant’s
spouse or a dependent; the loss of the participant’s property due to casualty; or other similar extraordinary and unforeseeable circumstance arising as a result of
events beyond the participant’s control.
The following table describes the SERP contributions, earnings and balance at the end of fiscal 2020 for each of the Named Executive Officers:
Nonqualified Deferred Compensation
Named Executive Officer
Jason A. Kulas
Timothy K. Jugmans
Philip E. Cohen
Lachlan P. Given
Thomas H. Welch Jr.
Stuart Grimshaw
Daniel M. Chism
Company Contributions
in Fiscal 2020 (1)
Aggregate Earnings
in Fiscal 2020 (2)
Aggregate
Withdrawals/Distributions
in Fiscal 2020
Aggregate Forfeitures
in Fiscal 2020
Aggregate Balance at
September 30, 2020
(3)
$
— $
—
—
60,000
41,000
100,000
45,000
— $
—
—
(12,459)
(18,741)
(30,116)
—
$
—
—
—
—
—
—
(173,140)
$
—
—
—
—
—
—
—
—
—
—
492,012
819,999
941,210
—
(1) These amounts were included in the Summary Compensation Table above in the column labeled “All Other Compensation.”
(2) These amounts were not included in the Summary Compensation Table as the earnings were not in excess of market rates.
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(3) Of the Aggregate Balance at September 30, 2020, the following amounts were previously reported as compensation in the Summary Compensation Tables for prior years: $300,000 for Mr.
Given, $523,504 for Mr. Welch, $500,000 for Mr. Grimshaw, $90,000 for Mr. Chism,.
All Other Compensation — The following table describes each component of the amounts shown in the “All Other Compensation” column in the Summary
Compensation Table above.
Named Executive Officer
Jason A. Kulas
Timothy K. Jugmans
Philip E. Cohen
Lachlan P. Given
Thomas H. Welch Jr.
Stuart Grimshaw
Daniel M. Chism
Health Care
Supplemental
Insurance (1)
Year
Value of
Supplemental Life
Insurance
Premiums (2)
Company
Contributions to
Defined
Contribution
Plans (3)
Housing
Allowance
Other Benefits (4)
Total
2020 $
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
12,138 $
—
—
—
—
—
13,896
—
—
20,808
19,452
29,483
20,808
19,452
29,483
13,896
12,984
20,128
8,670
19,452
29,483
$
812
—
—
1,392
1,392
1,392
1,392
—
—
1,392
1,920
2,088
1,392
1,920
2,088
1,392
1,920
2,088
580
1,920
2,088
3,505 $
—
—
4,254
4,791
4,271
5,740
—
—
60,000
60,000
60,000
47,250
47,361
45,973
106,250
104,125
104,750
47,373
49,125
49,016
— $
—
—
—
—
—
—
—
—
—
—
62,017
—
—
—
—
—
31,378
—
—
—
40,000 $
40,000
—
—
—
—
—
—
—
—
—
—
120
125
120
—
262,171
17,467
450,000
—
—
56,455
40,000
—
5,646
6,183
5,663
21,028
—
—
82,200
81,372
153,588
69,570
68,858
77,664
121,538
381,200
175,811
506,623
70,497
80,587
(1) We provide a fully insured supplemental executive medical plan to certain executives, including all of the Named Executive Officers, to cover most healthcare costs in excess of amounts
covered by our health insurance plans. The amounts shown represent the total premiums paid for the supplemental executive medical plan for each of the Named Executive Officers during
each of the years presented. Additionally, in fiscal 2018, from January 1, 2018 through April 30, 2018, we carried a fully insured International Medical Plan for certain executives,
including all of the Named Executive Officers, and canceled their participation in the group health plan during that time. The amount shown in 2018 includes these additional premiums
paid on behalf of the Named Executive Officers.
(2) Represents group life insurance premiums paid on behalf of the Named Executive Officers. The benefit provides life and accidental death and dismemberment coverage for the Named
Executive Officers at three times annual salary up to a maximum of $1 million.
(3)
Includes Company contributions to the 401(k) plan and the Supplemental Executive Retirement Plan.
(4) The amounts shown as Other Benefits include the following:
Mr. Kulas — The amounts shown represent directors fees paid to Mr. Kulas in his capacity as a non-employee director prior to his joining the Company as an executive in February 2020.
Mr. Welch — The amounts shown represent Company-paid subsidy for health club membership.
Mr. Grimshaw — The amounts shown represent perquisites and other personal benefits, including relocation benefits and reimbursement of U.S. taxes incurred in connection with the sale
of his principal residence in Sydney, Australia, spousal travel for business-related meetings and Company-paid subsidy for health club membership.
Mr. Chism — The amount shown represents severance paid to Mr. Chism in connection with his termination of employment in February 2020.
Certain Termination and Change-in-Control Benefits — The following is a summary of various agreements that provide for benefits to the Named Executive
Officers upon termination of employment or a change-in-control:
•
Restricted Stock Award Agreements — The standard restricted stock award agreement pursuant to which we grant restricted stock or restricted stock units
to our team members generally provides that vesting is accelerated in the event of the holder’s death or disability.
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Table of Contents
•
•
SERP Contributions — For all executives who participate in the SERP (including the Named Executive Officers), any unvested Company contributions to
the SERP will vest in the case of death or disability of the participant or a change-in-control.
General severance benefits — We currently provide each of our executive officers (other than Mr. Cohen) with one-year salary continuation if his or her
employment is terminated by the Company without cause.
The following table sets forth the amounts of severance or termination benefits that would have been payable to each of the Named Executive Officers upon the
occurrence of various events, assuming each of the events occurred on September 30, 2020:
Resignation for Good Reason:
Jason A. Kulas
Timothy K. Jugmans
Philip E. Cohen
Lachlan P. Given
Thomas H. Welch Jr.
Termination Without Cause:
Jason A. Kulas
Timothy K. Jugmans
Philip E. Cohen
Lachlan P. Given
Thomas H. Welch Jr.
Death or Disability:
Jason A. Kulas
Timothy K. Jugmans
Philip E. Cohen
Lachlan P. Given
Thomas H. Welch, Jr. (2)
Salary
Incentive
Bonus
Healthcare
Payments
Accelerated Vesting
of
Restricted
Stock (1)
Accelerated
Vesting of
SERP Balance
Other
$
850,000 $
370,000
—
600,000
410,000
850,000
370,000
—
600,000
410,000
—
—
—
—
—
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
456,563
134,573
—
1,276,860
409,820
—
—
—
120,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1) Represents the number of shares subject to accelerated vesting (as described above), multiplied by the closing sales price of the Class A Common Stock on September 30, 2020 ($5.03).
(2) Mr. Welch was fully vested in his SERP account at September 30, 2020.
The People and Compensation Committee has the authority under our stock-based compensation plans to issue awards with provisions that accelerate vesting and
exercisability in the event of a change-in-control. To date, the Committee has not included change-in-control acceleration provisions in any awards. Unless such
provisions were subsequently included, then the only benefit that would inure to the Named Executive Officers by reason of a change-in-control itself would be the
accelerated vesting for SERP contributions (equal to the same benefit as that set forth under “Death or Disability” in the table above). If an executive’s
employment was terminated following a change-in-control, then the additional benefits described above would apply, depending on the circumstances of the
termination.
Director Compensation
Each non-employee director receives a basic annual retainer fee, with the Lead Independent Director, the chair of the Audit Committee and the chair of the People
and Compensation Committee each receiving an additional amount. During fiscal 2020, the basic annual retainer fee was $80,000, and additional amounts paid to
the Lead Independent Director, the chair of the Audit Committee and the chair of the People and Compensation Committee were $40,000, $27,500 and $15,000,
respectively. Annual retainer fees are paid in cash on a quarterly basis.
The non-employee directors are also eligible for stock option and restricted stock awards. The number of options or shares of restricted stock awarded, as well as
the other terms and conditions of the awards (such as vesting and exercisability schedules
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Table of Contents
and termination provisions), are determined by the Board of Directors upon the recommendation of the People and Compensation Committee.
The following table sets forth the compensation paid to our non-employee directors for fiscal 2020. Mr. Cohen and Mr. Kulas are executive officers of the
Company and do not receive any additional compensation for serving on the Board of Directors.
Director
Matthew W. Appel
Zena Srivatsa Arnold
Shelagmichael Brown
Hugo R. Dooner
Jason A. Kulas (2)
Pablo Lagos Espinosa
Kent V. Stone
Gary L. Tillett
Robert W. K. (Robb) Webb
Rosa Zeegers
Fees Earned or Paid in
Cash
Restricted Stock
Awards (1)
Total
$
147,500 $
80,000
80,000
33,333
40,000
95,000
80,000
80,000
80,000
80,000
112,116 $
112,116
112,116
63,952
112,116
112,116
112,116
112,116
112,116
112,116
259,616
192,116
192,116
97,285
152,116
207,116
192,116
192,116
192,116
192,116
(1) Amounts represent the aggregate grant date fair value of restricted stock awards, computed in accordance with FASB ASC 718-10-25. See Note 10 of Notes to Consolidated Financial
Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.” The actual value realized by the director with respect to stock awards will depend on the market
value of our stock on the date the stock is sold.
Each of the non-employee directors received a grant of 24,768 shares of restricted stock in December 2019. That amount was determined by dividing $160,000 (200% times the annual
director fee) by $6.46, the trading price of the Class A Common Stock at the beginning of fiscal 2020. All of these shares vested on September 30, 2020. The values shown were computed
using the closing price of our Class A Common Stock on the date of grant, which differed from the amount used to determine the number of shares awarded.
As of September 30, 2020, none of the non-employee directors held shares of unvested restricted stock.
(2) Mr. Kulas served as a non-employee director until February 28, 2020, when he joined the Company as President and Chief Financial Officer. The amounts shown indicate the
compensation paid to him in the capacity of non-employee director.
The non-employee director compensation program for fiscal 2021 will generally be the same as the fiscal 2020 program described above, except that the annual
equity award program will be transitioned to begin and end on annual stockholder meeting dates. To implement that, the non-employee directors will receive a
grant of 15,905 share of restricted stock in December 2020. That amount was determined by dividing $80,000 (one-half of the normal equity grant) by $5.03, the
trading price of the Class A Common Stock at the beginning of fiscal 2021. Those shares will vest on March 31, 2021. At the next annual meeting of stockholders
(likely to be in March 2021), at which directors are elected to serve for a one-year term, the non-employee directors will receive a full annual award ($160,000,
representing 200% times the annual director fee, divided by the closing trading price of the Class A Common Stock on the day immediately preceding the annual
meeting), and those shares will vest on the date of the annual meeting of stockholders in 2022.
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ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Equity Compensation Plans
Stockholders have approved the 2010 Long-Term Incentive Plan, which we currently use for stock incentive awards. These awards can be in the form of stock
options, stock appreciation rights, stock bonuses, restricted stock, restricted stock units, performance units or performance shares. We do not have any equity
compensation plans that were not approved by stockholders. The following table summarizes information about our equity compensation plans as of September 30,
2020:
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of Securities to
be Issued Upon Exercise
of Outstanding Options
(a) (1)
Weighted Average
Exercise Price of
Outstanding Options
(b)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
(c)
—
—
—
$
$
—
—
—
1,344,115
—
1,344,115
(1) Excludes 1,108,920 shares of unvested restricted stock that were outstanding as of September 30, 2020.
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Stock Ownership
Phillip E. Cohen controls EZCORP through his ownership of all of the issued and outstanding stock of MS Pawn Corporation, the sole general partner of MS Pawn
Limited Partnership, which owns 100% of our Class B Voting Common Stock. The following table presents information regarding the beneficial ownership of our
Common Stock as of December 1, 2020 (except as noted below) for (i) each person known to us to be the beneficial owner of more than 5% of the total number of
shares outstanding, (ii) each of our directors, (iii) each of the Named Executive Officers, and (iv) all directors and executive officers as a group. Unless otherwise
indicated, each person named below holds sole voting and investment power over the shares shown, subject to community property laws where applicable.
Beneficial Owner
MS Pawn Limited Partnership (a)
MS Pawn Corporation
Phillip Ean Cohen
2500 Bee Cave Road
Bldg One, Suite 200
Rollingwood, Texas 78746
Blackrock, Inc.
nd
55 East 52 Street
New York, New York 10055
Lafitte Capital Management LP
13505 Fitzhugh Road, Bldg 1
Austin, Texas 78737
Dimensional Fund Advisors LP
6300 Bee Cave Road, Building One
Austin, Texas 78746
Vanguard Group, Inc.
P.O. Box 2600, V26
Valley Forge, Pennsylvania 19482-2600
First Wilshire Securities Management, Inc.
1214 East Green Street, Suite 104
Pasadena, California 91106-3171
Renaissance Technologies LLC
800 Third Avenue
New York, New York 10022
Matthew W. Appel
Zena Srivatsa Arnold
Shelagmichael Brown
Hugo R. Dooner
Pablo Lagos Espinosa
Jason A. Kulas
Kent V. Stone
Gary L. Tillett
Robert W. K. Webb
Rosa Zeegers
Timothy K. Jugmans
Lachlan P. Given
Thomas H. Welch, Jr.
Directors and executive officers as a group (18
persons)
Class A Non-voting
Common Stock
Class B Voting
Common Stock
Number
Percent
Number
Percent
Voting Percent
2,974,047
(b)
5.38 % (b)
2,970,171
100 %
100 %
7,397,511
(c)
14.14 %
4,479,139
4,310,876
3,513,202
2,878,786
2,713,059
111,071
33,352
33,352
12,346
140,771
40,352
33,352
33,352
33,352
33,352
20,200
443,058
153,338
(c)
(c)
(c)
(c)
(c)
(d)
(e)
(f)
8.56 %
8.24 %
6.71 %
5.50 %
5.18 %
*
*
*
*
*
*
*
*
*
*
*
*
*
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,237,171 4237171
(g)
8.10 %
2,970,171
100 %
100 %
(a) MS Pawn Corporation is the general partner of MS Pawn Limited Partnership and has the sole right to vote its shares of Class B Common Stock and to direct their disposition. Mr. Cohen
is the sole stockholder of MS Pawn Corporation.
(b) The number of shares and percentage reflect Class A Common Stock, inclusive of Class B Common Stock, shares of which are convertible to Class A Common Stock on a one-to-one
basis.
(c) As of September 30, 2020 based on Form 13F.
(d)
(e)
(f)
Includes 11,605 unvested restricted stock units expected to vest within 60 days of December 1, 2020..
Includes 147,698 unvested restricted stock units expected to vest within 60 days of December 1, 2020.
Includes 35,965 unvested restricted stock units expected to vest within 60 days of December 1, 2020 and 433 shares held through the Company’s 401(k) retirement savings plan.
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Table of Contents
(g) Group includes those persons who were serving as directors and executive officers on December 1, 2020. Number shown includes 433 shares held through our 401(k) retirement savings
plan and 249,780 unvested restricted stock units expected to vest within 60 days of December 1, 2020.
* Shares beneficially owned do not exceed one percent of Class A Common Stock.
ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transactions
Review and Approval of Transactions with Related Persons
The Board of Directors has adopted a written comprehensive policy for the review and evaluation of all related party transactions. Under that policy, the Audit
Committee is charged with the responsibility of (a) reviewing and evaluating all transactions, or proposed transactions, between the Company and a related person
and (b) approving, ratifying, rescinding or taking other action with respect to each such transaction. With respect to any specific transaction, the Audit Committee
may, in its discretion, transfer its responsibilities to either the full Board of Directors or to any special committee of the Board of Directors designated and created
for the purpose of reviewing, evaluating, approving or ratifying such transaction.
Employment arrangement with Nicholas Cohen
Nicholas Cohen, the son of Phillip E. Cohen, the beneficial owner of all of our Class B Voting Common Stock and our Executive Chairman, has been an employee
of the Company since May 2018. Effective October 1, 2020, Nicolas Cohen was promoted to the position of Senior Director, Business Optimization and
Implementation with an annual base salary of $200,000, a target short-term incentive bonus of 30% of base salary ($60,000) and healthcare and other benefits
typically provided to similarly positioned team members. The Company considers the employment relationship with Nicholas Cohen to be a related party
transaction that is subject to the Company’s Policy for Review and Evaluation of Related Party Transactions. Accordingly, prior to promotion and compensation
increase discussed above, the Audit Committee reviewed and approved the extension of the promotion and the terms of employment.
Director Independence
The Board of Directors believes that the interests of the stockholders are best served by having a substantial number of objective, independent representatives on
the Board. For this purpose, a director is considered to be independent if the Board determines that the director does not have any direct or indirect material
relationship with the Company that may impair, or appear to impair, the director’s ability to make independent judgments.
The Board has evaluated all relationships between each the Company and each of the persons who served as a director during any portion of fiscal 2020 and has
made the following determinations with respect to each director’s independence:
Director
Status (a)
Matthew W. Appel
Zena Srivatsa Arnold
Shelaghmichael Brown
Phillip E. Cohen
Hugo R. Dooner
Stuart I. Grimshaw
Jason A. Kulas
Pablo Lagos Espinosa
Kent V. Stone
Gary L. Tillett
Robert W. K. (Robb) Webb
Rosa Zeegers
Independent
Independent
Independent
Not independent (b)
Independent
Not independent (b)
Not independent (b)
Independent
Independent
Independent
Independent
Independent
(a) The Board’s determination that a director is independent was made on the basis of the standards for independence set forth in the Nasdaq Listing Rules. Under those
standards, a person generally will not be considered independent if he or she has a relationship that, in the opinion of the Board of Directors, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a director. The Nasdaq rules also describe specific relationships that will prevent a person from
being considered independent.
(b) Mr. Cohen and Mr. Grimshaw were executive officers of the Company during fiscal 2020 and, therefore, not independent in accordance with the standards set forth in the
Nasdaq Listing Rules. Mr. Kulas because an executive officer of the Company on February 28, 2020, and from that date, is not independent in accordance with the
standards set forth in the Nasdaq Listing Rules.
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Table of Contents
ITEM 14 — PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table presents all fees we incurred in connection with professional services provided by BDO USA, LLP for fiscal 2020 and 2019:
Audit of financial statements and audit pursuant to section 404 of the Sarbanes-Oxley Act and quarterly reviews
Audit related fees
Tax fees
All other fees
Year Ended September 30,
2019
2020
1,695,400 $
—
—
—
1,695,400 $
1,870,875
—
—
—
1,870,875
$
$
The amounts shown for fiscal 2020 include our current estimated costs for the fiscal 2020 integrated audit, for which we have not yet received final billings. The
amounts shown for fiscal 2019 include an increase of $163,500 in fees that were billed above our initial estimates for fiscal 2019 after we filed our Annual Report
on Form 10-K for the year ended September 30, 2019.
The Audit Committee has adopted a policy requiring its pre-approval of all fees to be paid to our independent audit firm, regardless of the type of service. All non-
audit services were reviewed with the Audit Committee, which concluded that the provision of such services by BDO USA, LLP was compatible with the
maintenance of that firm’s independence in the conduct of its auditing functions.
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Table of Contents
ITEM 15 — EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this 10-K:
(1) Financial Statements
PART IV
The following consolidated financial statements of EZCORP, Inc. are included in “Part II — Item 8 — Financial Statements and Supplementary Data”:
•
•
•
•
•
•
•
Report of Independent Registered Public Accounting Firm (2020 and 2019) — BDO USA, LLP
Consolidated Balance Sheets as of September 30, 2020 and 2019
Consolidated Statements of Operations for each of the three years in the period ended September 30, 2020
Consolidated Statements of Comprehensive (Loss) Income for each of the three years in the period ended September 30, 2020
Consolidated Statements of Cash Flows for each of the three years in the period ended September 30, 2020
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended September 30, 2020
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules
Financial statement schedules are omitted because they are not required or are not applicable, or the required information is provided in the consolidated financial
statements or notes described in Item 15(a)(1) above.
ITEM 16 — FORM 10-K SUMMARY
None.
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Table of Contents
Exhibits
Exhibit Description of Exhibit
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
10.1*
10.2*
10.3*
10.4*
10.5
10.6
10.7
10.8
10.9
Amended and Restated Certificate of Incorporation
Certificate of Amendment, dated March 25, 2014, to the Company’s
Amended and Restated Certificate of Incorporation
Amended and Restated By-Laws, effective July 20, 2014
Specimen of Class A Non-voting Common Stock Certificate
Description of EZCORP, Inc. Class A Non-voting Common Stock
Indenture, dated July 5, 2017, between EZCORP, Inc., and Wells
Fargo Bank, National Association, as trustee
Indenture, dated May 14, 2018, between EZCORP, Inc., and Wells
Fargo Bank, National Association, as trustee
Successor Trustee Agreement, dated September 12, 2019, Between
EZCORP, Inc., and Wells Fargo Bank, National Association, as prior
trustee, and Branch Banking and Trust Company, as successor trustee
EZCORP, Inc. Supplemental Executive Retirement Plan effective
December 1, 2005
Amended and Restated EZCORP, Inc. 2010 Long-Term Incentive
Plan, Effective November 28, 2018
Form of Protection of Sensitive Information, Noncompetition and
Nonsolicitation Agreement between the Company and certain
employees, including the executive officers
Form of Restricted Stock Award for non-employee directors
Call Option Termination Agreement, dated June 29, 2017, between
EZCORP, Inc., and UBS AG, London Branch
Warrant Termination Agreement, dated June 29, 2017, between
EZCORP, Inc., and UBS AG, London Branch
Call Option Termination Agreement, dated June 29, 2017, between
EZCORP, Inc., and Jefferies International Limited
Warrant Termination Agreement, dated June 29, 2017, between
EZCORP, Inc., and Jefferies International Limited
Call Option Termination Agreement, dated June 29, 2017, between
EZCORP, Inc., and Morgan Stanley & Co. International plc
10.10 Warrant Termination Agreement, dated June 29, 2017, between
10.11
21.1
23.1
31.1
31.2
32.1†
101
104
EZCORP, Inc., and Morgan Stanley & Co. International plc
Transition Employment Agreement between the Company and Stuart I.
Grimshaw, dated November 14, 2020
List of Subsidiaries of EZCORP, Inc.
Consent of BDO USA, LLP, Independent Registered Public
Accounting Firm
Certification of Principal Executive Officer, pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934
Certification of Principal Financial Officer, pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934
Certification of the Principal Executive Officer and Principal Financial
Officer pursuant to 18 U.S.C. Section 1350
Interactive data files pursuant to Rule 405 of Regulation S-T:
(i) Consolidated Balance Sheets,
(ii) Consolidated Statements of Operations
(iii) Consolidated Statements of Comprehensive (Loss) Income
(iv) Consolidated Statements of Stockholders’ Equity
(v) Consolidated Statements of Cash Flows
(vi) Notes to Consolidated Financial Statements
Cover Page Interactive Data File in Inline XBRL format (included in
Exhibit 101)
_____________________________
Form
Incorporated by Reference
Exhibit
File No.
Filing Date
Filed Herewith
8-K
8-K
8-K
S-1
8-K
8-K
8-K
8-K
8-K
8-K
0-19424
0-19424
0-19424
33-41317
0-19424
0-19424
0-19424
0-19424
0-19424
0-19424
3.1
99.1
3.2
4.1
4.1
4.1
4.1
4.1
October 3, 2013
March 25, 2014
July 22, 2014
August 23, 1991
October 3, 2013
July 6, 2017
May 15, 2018
October 7, 2019
10.94
10.1
December 1, 2005
November 29, 2018
10-K
0-19424
10.15
November 24, 2010
10-K
10-Q
10-Q
10-Q
10-Q
10-Q
10-Q
0-19424
0-19424
0-19424
0-19424
0-19424
0-19424
0-19424
10.17
10.2
November 24, 2010
July 31, 2017
10.3
10.4
10.5
10.6
10.7
July 31, 2017
July 31, 2017
July 31, 2017
July 31, 2017
July 31, 2017
x
x
x
x
x
x
114
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*
†
Identifies Exhibit that consists of or includes a management contract or compensatory plan or arrangement.
The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.
The instance document does not appear in the interactive data files because the XBRL tags are embedded within the Inline XBRL document.
115
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized:
SIGNATURES
Date: December 14, 2020
EZCORP, Inc.
By:
/s/ Jason A. Kulas
Jason A. Kulas,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated:
Signature
/s/ Jason A. Kulas
Jason A. Kulas
Title
Chief Executive Officer and Director
(principal executive officer)
Date
December 14, 2020
/s/ Timothy K. Jugmans
Interim Chief Financial Officer (principal financial officer)
December 14, 2020
Timothy K. Jugmans
/s/ Phillip E. Cohen
Executive Chairman of the Board
Phillip E. Cohen
/s/ Matthew W. Appel
Matthew W. Appel
/s/ Zena Srivatsa Arnold
Zena Srivatsa Arnold
/s/ Shelaghmichael Brown
Shelaghmichael Brown
/s/ Hugo R. Dooner
Hugo R. Dooner
/s/ Pablo Lagos Espinosa
Pablo Lagos Espinosa
/s/ Kent V. Stone
/s/ Gary L. Tillett
Kent V. Stone
Gary L. Tillett
/s/ Robert W. K. Webb
Robert W. K. Webb
/s/ Rosa Zeegers
/s/ Fred Herman
Rosa Zeegers
Fred Herman
Director
Director
Director
Director
Director
Director
Director
Director
Director
December 14, 2020
December 14, 2020
December 14, 2020
December 14, 2020
December 14, 2020
December 14, 2020
December 14, 2020
December 14, 2020
December 14, 2020
December 14, 2020
Chief Accounting Officer (principal accounting officer)
December 14, 2020
116
This filing amends the Company’s Current Report on Form 8-K filed on July 8, 2020 to include information that was not available at the time of the original filing.
Item 5.02 — Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers
(e) On November 14, 2020, the Company and Stuart I. Grimshaw (former Chief Executive Officer) entered into a Transition Employment Agreement (the
“Agreement”) regarding the terms and conditions of Mr. Grimshaw’s employment as special adviser and his ultimate separation from employment with
the Company. The Agreement became effective on November 21, 2020 upon the expiration of a seven-day revocation period.
Under the terms of the Agreement, Mr. Grimshaw’s employment as special advisor will continue for three years unless earlier terminated pursuant to
the provisions of the Agreement. As compensation for services as special advisor, the Company will pay Mr. Grimshaw an aggregate of $800,000 as
follows: $200,000 on the effective date of the Agreement; $225,000 on November 30, 2020; $225,000 on December 31, 2020; and $50,000 per year
over the three-year term of the Agreement.
In addition, the Company will to pay Mr. Grimshaw $1 million as severance for his termination of employment at the end of the Agreement. This
amount represents the contractual severance arrangement that was part of Mr. Grimshaw’s terms of employment as Chief Executive Officer and will be
paid in the form of salary continuation over the one-year period commencing on the effective date of the Agreement.
The Agreement specifies that Mr. Grimshaw will not receive any other payout under the fiscal 2020 short-term bonus plan or any payments in lieu
thereof (other than the payments described above) and that he will forfeit all of the long-term incentive awards that were outstanding at the time he
relinquished the position of Chief Executive Officer (covering 696,162 shares of Class A Non-Voting Common Stock in the aggregate).
The Agreement contains customary release provisions pursuant to which Mr. Grimshaw releases the Company from any and all claims and demands. It
also specifies that Mr. Grimshaw will continue to be subject to non-competition and non-solicitation restrictions during the term of the Agreement (or,
if terminated earlier, for at least one year following the effective date of the Agreement).
The Agreement may be terminated by Mr. Grimshaw for any reason, and may be terminated by the Company for cause or if Mr. Grimshaw accepts
certain other employment or engagements.
A copy of the Agreement will be filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended September 30, 2020, which is due
to be filed on December 14, 2020.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
SIGNATURES
EZCORP, INC.
Date: November 27, 2020 By:
Thomas H. Welch, Jr.
Chief Legal Officer and Secretary
Entity
Brainerd Honduras, S.A. de C.V.
Brainerd, S.A.
Brainerd, S.A.C.
Brainerd, S.A. de C.V.
Camira Administration Corp
Cap City Holdings, LLC
Change Capital International Holdings, B.V.
Change Capital Mexico Holdings, S.A. de C.V.
CCV Americas, LLC
CCV Latin America Coöperatief, U.A
CCV Pennsylvania, Inc.
CCV Virginia, Inc.
EGreen Financial, Inc.
EZ Talent S. de R.L. de C.V
EZ Transfers S.A. de C.V.
EZCORP (2015) Asia-Pacific PTE, LTD
EZCORP FS Holdings, Inc.
EZCORP Global, B.V.
EZCORP Global Holdings, C.V.
EZCORP International, Inc.
EZCORP International Holdings, LLC
EZCORP Latin America Coöperatief, U.A.
EZCORP USA, Inc.
EZMONEY Alabama, Inc.
EZMONEY Canada Holdings, Inc.
EZMONEY Canada, Inc.
EZMONEY Colorado, Inc.
EZMONEY Hawaii, Inc.
EZMONEY Holdings, Inc.
EZMONEY Idaho, Inc.
EZMONEY Kansas, Inc.
EZMONEY Management, Inc.
EZMONEY Missouri, Inc.
EZMONEY South Dakota, Inc.
EZMONEY Tario, Inc.
EZMONEY Tennessee, Inc.
EZMONEY Utah, Inc.
EZMONEY Wisconsin, Inc.
EZ Online Sales, Inc.
EZPAWN Alabama, Inc.
EZPAWN Arizona, Inc.
EZPAWN Arkansas, Inc.
SUBSIDIARIES OF EZCORP, INC.
Jurisdiction of Organization
Exhibit 21.1
Honduras
Guatemala
Peru
El Salvador
British Virgin Islands
Delaware
Netherlands
Mexico
Delaware
Netherlands
Delaware
Delaware
Delaware
Mexico
Mexico
Singapore
Delaware
Netherlands
Netherlands
Delaware
Delaware
Netherlands
Delaware
Delaware
British Columbia
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
British Columbia
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
SUBSIDIARIES OF EZCORP, INC.
Entity
EZPAWN Colorado, Inc.
EZPAWN Florida, Inc.
EZPAWN Georgia, Inc.
EZPAWN Holdings, Inc.
EZPAWN Illinois, Inc.
EZPAWN Indiana, Inc.
EZPAWN Iowa, Inc.
EZPAWN Management Mexico, S. de R.L. de C.V.
EZPAWN Mexico Holdings, LLC.
EZPAWN Mexico Ltd., LLC.
EZPAWN Minnesota, Inc.
EZPAWN Nevada, Inc.
EZPAWN Oklahoma, Inc.
EZPAWN Oregon, Inc.
EZPAWN Services Mexico, S. de R.L. de C.V.
EZPAWN Tennessee, Inc.
EZPAWN Utah, Inc.
Janama Honduras, S.A. de C.V.
Janama, S.A.
Janama, S.A.C.
Janama, S.A. de C.V.
Khoper Advisors, Ltd.
Madras Investments Corp.
Maxiefectivo Peru, S.A.C.
Maxiprestamos. S.A. de C.V.
Miravet Planning Corp
Mister Money Holdings, Inc.
Operadora de Servicios, S.A. de C.V.
Parkway Insurance, Inc.
Payday Loan Management, Inc.
Prenda Aval, S.A. de C.V.
Renueva Comercial, S.A.P.I. de C.V.
Rich Data Corporation Solutions PTE. LTD.
Rich Data Corporation North America Inc.
Rich Data Corporation (Australia) PTY. LTD.
Salvaprenda, S.A. de C.V.
Shenzhen Shu Feng Technology Co. LTD.
Texas EZMONEY, L.P.
Texas EZPAWN, L.P.
Texas EZPAWN Management, Inc.
Texas PRA Management, L.P.
Unicode Market, Inc.
USA Pawn & Jewelry Co. XI, LLC
USA Pawn & Jewelry Co. 19, LLC
Jurisdiction of Organization
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Mexico
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Mexico
Delaware
Delaware
Honduras
Guatemala
Peru
El Salvador
British Virgin Islands
British Virgin Islands
Peru
El Salvador
Panama
Colorado
El Salvador
Texas
Delaware
El Salvador
Mexico
Singapore
Delaware
Australia
El Salvador
China
Texas
Texas
Delaware
Texas
Panama
Nevada
Nevada
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
EZCORP, Inc.
Rollingwood, Texas
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-202626), Form S-8 (No. 333-221996) Form S-8 (No.
333-215294), Form S-8 (No. 333-210647), Form S-8 (No. 333-209088), Form S-8 (No. 333-202628), Form S-8 (No. 333-191677), and Form S-8 (No. 333-
228618) of our reports dated December 14, 2020, relating to the consolidated financial statements, and the effectiveness of EZCORP, Inc.’s internal control over
financial reporting, which appears in this Annual Report on Form 10-K. Our report on the effectiveness of internal control over financial reporting expresses an
adverse opinion on the effectiveness of the Company’s internal control over financial reporting as of September 30, 2019
/s/ BDO USA, LLP
Dallas, Texas
December 14, 2020
Certification of Jason A. Kulas, Chief Executive Officer,
pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
I, Jason A. Kulas, certify that:
I have reviewed this Annual Report on Form 10-K of EZCORP, Inc.;
1.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: December 14, 2020
/s/ Jason A. Kulas
Jason A. Kulas
Chief Executive Officer
Certification of Timothy K. Jugmans, Chief Financial Officer,
pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2
I, Timothy K. Jugmans, certify that:
I have reviewed this Annual Report on Form 10-K of EZCORP, Inc.;
1.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: December 14, 2020
/s/ Timothy K. Jugmans
Timothy K. Jugmans
Chief Financial Officer
Certification of Jason A. Kulas, Chief Executive Officer, and Timothy K. Jugmans, Chief Financial Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The undersigned officer of EZCORP, Inc. hereby certify that (a) EZCORP’s Annual Report on Form 10-K for the year ended September 30, 2020, as filed with the
Securities and Exchange Commission, fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, as amended, and (b) the
information contained in the report fairly presents, in all material respects, the financial condition and results of operations of EZCORP.
Date: December 14, 2020
Exhibit 32.1
/s/ Jason A. Kulas
Jason A. Kulas
Chief Executive Officer
/s/ Timothy K. Jugmans
Timothy K. Jugmans
Chief Financial Officer