EZPW - EZCorp

[heth247]

I am looking at their "consolidated EBITDA" calculation, on the presentation slide deck, page 7, they arrived at $30.6M, assuming a corporate expenses of $13.3M. However, from their 10Q, CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS, the operating expenses (Administrative) line is 15,479,  which is  actually $2M more than what they used to calculate "consolidated EBITDA". Why is that? It seems to me that they have inflated the consolidated ebitda by $2M. What am I missing?  is this $2M discrepancy for the Evergreen project ($1M/month)?

 

The reason I am taking a close look is, from the presentation slides, they have US Pawn ebitda at 33.3M, and LaAm 10.1M, so the total is 43.4M, but the consolidated is 30.6M. Then I realized that they did not include SGA when reporting those two ebitda numbers. However, when I try to look at SGA, there is this $2M discrepancy. 

[KJP]

Yes, they excluded $2.1 million for Evergreen.  You can see it in the slide showing the adjustments.  Also disclosed on the call of I'm remembering correctly.

 

I may be slow, but I don't understand what Evergreen really is.

[heth247]

Yes, they excluded $2.1 million for Evergreen.  You can see it in the slide showing the adjustments.  Also disclosed on the call of I'm remembering correctly.

 

I may be slow, but I don't understand what Evergreen really is.

 

Thanks, I should have looked at the slides in more details.  Well, to me Evergreen seems to be a mobile app that will cost at least $12M+ (1M per month until it is expected to launch by end of year) to develop...  ;)

 

I don't know, their core business seems to be healthy, but they got too many adjustment/writeoffs, and now this new evergreen project which will eat a significant part of FCF. And their access to capital market for growth is limited.  Maybe that is why market is not really that excited about the results today?

 

[Sunrider]

 

Building a business app should not cost 12m ... this is concerning.

 

 

Yes, they excluded $2.1 million for Evergreen.  You can see it in the slide showing the adjustments.  Also disclosed on the call of I'm remembering correctly.

 

I may be slow, but I don't understand what Evergreen really is.

 

Thanks, I should have looked at the slides in more details.  Well, to me Evergreen seems to be a mobile app that will cost at least $12M+ (1M per month until it is expected to launch by end of year) to develop...  ;)

 

I don't know, their core business seems to be healthy, but they got too many adjustment/writeoffs, and now this new evergreen project which will eat a significant part of FCF. And their access to capital market for growth is limited.  Maybe that is why market is not really that excited about the results today?

[DTEJD1997]

 

Building a business app should not cost 12m ... this is concerning.

 

 

Yes, they excluded $2.1 million for Evergreen.  You can see it in the slide showing the adjustments.  Also disclosed on the call of I'm remembering correctly.

 

I may be slow, but I don't understand what Evergreen really is.

 

Thanks, I should have looked at the slides in more details.  Well, to me Evergreen seems to be a mobile app that will cost at least $12M+ (1M per month until it is expected to launch by end of year) to develop...  ;)

 

I don't know, their core business seems to be healthy, but they got too many adjustment/writeoffs, and now this new evergreen project which will eat a significant part of FCF. And their access to capital market for growth is limited.  Maybe that is why market is not really that excited about the results today?

 

Yes, building an app such as one for a retail store/pawnshop most likely should not cost $12mm.  HOWEVER, I wonder if part of that development cost is maybe advertising/promotion of the app?

 

I can personally attest that a lot of younger people don't even know about OR consider pawn shops.  So if millenials/gen. Z can get exposure to it, it might be a good thing.

[KJP]

 

Building a business app should not cost 12m ... this is concerning.

 

 

Yes, they excluded $2.1 million for Evergreen.  You can see it in the slide showing the adjustments.  Also disclosed on the call of I'm remembering correctly.

 

I may be slow, but I don't understand what Evergreen really is.

 

Thanks, I should have looked at the slides in more details.  Well, to me Evergreen seems to be a mobile app that will cost at least $12M+ (1M per month until it is expected to launch by end of year) to develop...  ;)

 

I don't know, their core business seems to be healthy, but they got too many adjustment/writeoffs, and now this new evergreen project which will eat a significant part of FCF. And their access to capital market for growth is limited.  Maybe that is why market is not really that excited about the results today?

 

Yes, building an app such as one for a retail store/pawnshop most likely should not cost $12mm.  HOWEVER, I wonder if part of that development cost is maybe advertising/promotion of the app?

 

I can personally attest that a lot of younger people don't even know about OR consider pawn shops.  So if millenials/gen. Z can get exposure to it, it might be a good thing.

 

The only potential uses of Evergreen's that I recall being discussed were (i) users taking pictures of items and then getting a very fast quote on the item's pawn value; and (ii) some type of payment functionality.  But during the call, Matt Sweeney [Laughing Water Capital] seemed all excited about this "FinTech" venture and asked whether revenue from it would be reported separately, and Grimshaw suggested that it would.  There was also a vague suggestion that Evergreen would help people who found going to physical store too cumbersome.

 

So what exactly is Evergreen supposed to do?  Physical possession of the collateral by the lender is what makes pawn lending possible.  How is Evergreen going solve that issue for people who don't want to go to pawn stores?  And what "revenue" is going to be specific to Evergreen that would be appropriate to disclose separately?  It sounds to me that the picture-taking aspect of Evergreen is only designed to increase usage of the traditional pawn business. 

 

 

 

[Homestead31]

 

Building a business app should not cost 12m ... this is concerning.

 

 

Yes, they excluded $2.1 million for Evergreen.  You can see it in the slide showing the adjustments.  Also disclosed on the call of I'm remembering correctly.

 

I may be slow, but I don't understand what Evergreen really is.

 

Thanks, I should have looked at the slides in more details.  Well, to me Evergreen seems to be a mobile app that will cost at least $12M+ (1M per month until it is expected to launch by end of year) to develop...  ;)

 

I don't know, their core business seems to be healthy, but they got too many adjustment/writeoffs, and now this new evergreen project which will eat a significant part of FCF. And their access to capital market for growth is limited.  Maybe that is why market is not really that excited about the results today?

 

Yes, building an app such as one for a retail store/pawnshop most likely should not cost $12mm.  HOWEVER, I wonder if part of that development cost is maybe advertising/promotion of the app?

 

I can personally attest that a lot of younger people don't even know about OR consider pawn shops.  So if millenials/gen. Z can get exposure to it, it might be a good thing.

 

From the investor day transcript: 

"We know that over 50%, and growing, of our population that engage with us on a daily basis are millennials. We also know that pawn is just one of many services those millennials or those -- our customers seek, whether millennials or not. We know the -- and it's important, the psychographics and demographics of this customer are very interesting and very valuable to a number of firms. And you've seen many fintechs come out of the ashes to try to address this marketplace. And most have struggled. We are in a very interesting position that we have a huge customer base, and one that's growing every year. And we need to figure out how to bring better value and enhance our pawn experience and enhance our pawn product set."

[Homestead31]

 

 

So what exactly is Evergreen supposed to do?  Physical possession of the collateral by the lender is what makes pawn lending possible.  How is Evergreen going solve that issue for people who don't want to go to pawn stores?  And what "revenue" is going to be specific to Evergreen that would be appropriate to disclose separately?  It sounds to me that the picture-taking aspect of Evergreen is only designed to increase usage of the traditional pawn business.

 

it is still early, and there is obviously risk with any venture, but i do think that Evergreen makes a lot of sense.

 

think of it this way...  if you get a check for whatever reason, do you go to the bank to deposit it?  or do you take a picture and deposit it through your phone?  If you have a bill to pay, do you physically mail the check?  or do you go online and send an electronic check through your bank?

 

the point is that there is value to convenience.

 

as it stands now, when people have pawned an item, they have to physically go to the store to make a payment on it.  this means they are more likely to

 

1) just not pick up the item, in which case it goes into retail, which is a worse outcome for EZPW than giving the item back to the person

2) if they do go to the store, they are more likely to actually pick up the item, which is a worse outcome for EZPW than if they just roll the loan

 

in other words, giving people the option to manage their transactions through their phones should help EZPW improve their business by reducing retail, and increasing length of loan.

[Homestead31]

not sure why the above post wound up in a quote box as it was original...  reposted below

 

it is still early, and there is obviously risk with any venture, but i do think that Evergreen makes a lot of sense.

 

think of it this way...  if you get a check for whatever reason, do you go to the bank to deposit it?  or do you take a picture and deposit it through your phone?  If you have a bill to pay, do you physically mail the check?  or do you go online and send an electronic check through your bank?

 

the point is that there is value to convenience.

 

as it stands now, when people have pawned an item, they have to physically go to the store to make a payment on it.  this means they are more likely to

 

1) just not pick up the item, in which case it goes into retail, which is a worse outcome for EZPW than giving the item back to the person

2) if they do go to the store, they are more likely to actually pick up the item, which is a worse outcome for EZPW than if they just roll the loan

 

in other words, giving people the option to manage their transactions through their phones should help EZPW improve their business by reducing retail, and increasing length of loan.

 

not to mention, that while this is something FCFS will be able to compete with, for the tens of thousands of mom and pop operators out there, they will not be able to compete with this.

 

would you rather go to a pawn shop where you can check your status on your phone?  or one where you can't?

 

this is important, because anything that drives traffic is a major positive.  Increased traffic means you can take more inventory risk, which means you can loan at higher LTVs.  Incremental LTV is ~100% margin. And higher LTVs means you will drive more traffic, b/c what customer does not want as much money as possible for their item?

[KJP]

not sure why the above post wound up in a quote box as it was original...  reposted below

 

it is still early, and there is obviously risk with any venture, but i do think that Evergreen makes a lot of sense.

 

think of it this way...  if you get a check for whatever reason, do you go to the bank to deposit it?  or do you take a picture and deposit it through your phone?  If you have a bill to pay, do you physically mail the check?  or do you go online and send an electronic check through your bank?

 

the point is that there is value to convenience.

 

as it stands now, when people have pawned an item, they have to physically go to the store to make a payment on it.  this means they are more likely to

 

1) just not pick up the item, in which case it goes into retail, which is a worse outcome for EZPW than giving the item back to the person

2) if they do go to the store, they are more likely to actually pick up the item, which is a worse outcome for EZPW than if they just roll the loan

 

in other words, giving people the option to manage their transactions through their phones should help EZPW improve their business by reducing retail, and increasing length of loan.

 

not to mention, that while this is something FCFS will be able to compete with, for the tens of thousands of mom and pop operators out there, they will not be able to compete with this.

 

would you rather go to a pawn shop where you can check your status on your phone?  or one where you can't?

 

this is important, because anything that drives traffic is a major positive.  Increased traffic means you can take more inventory risk, which means you can loan at higher LTVs.  Incremental LTV is ~100% margin. And higher LTVs means you will drive more traffic, b/c what customer does not want as much money as possible for their item?

 

The modest usefulness you mention is fine, but it's not something that gets me breathless about Evergreen being a breakthrough in "FinTech".

 

I'm interested to see whether the Evergreen investment is ultimately excluded from EBITDA for the purposes of management's incentive comp. 

[Homestead31]

https://www.businesswire.com/news/home/20190204005203/en/EZCORP-Retire-Convertible-Notes-Cash-Hand

 

The convertible bonds due in June 2019 will be retired.  I think this is a positive, as alot of people have been afraid that the company would refinance them at a lower convert price.  Basically this suggests that capital allocation is improving, as one would expect since they made the change to management's comp structure. 

 

i am not saying that all of a sudden we have Outsider type capital allocators on our hands, but I am saying that this stock is crazy cheap.  it is recession proof, growing well, with room to improve margins, and it is trading below estimates of break up value.  that can't last as long as management is disciplined, which it seems like they are now.

[deseretalts]

Well adding 6 new independent directors to the board doesn't get rid of Cohen, but its something.

[KJP]

Cohen's back!  I love the market reaction.

[racemize]

Cohen's back!  I love the market reaction.

 

The compensation package is insane.  Glad I sold this nonsense.

[mwtorock]

Cohen's back!  I love the market reaction.

 

The compensation package is insane.  Glad I sold this nonsense.

 

Yeah, i was just to say the same thing lol. the net profit of all other shareholders vs. Cohen -- insane!

[Foreign Tuffett]

I refuse to believe that a company that owns and operates pawn shops has bad corporate governance.

[bilo]

Investors are really throwing in the towel on this.  Anyone see news as to why this is down big (again) this morning?  I see trustee change but don't see how this is significant economically.  With new compensation Cohen certainly had incentive to start marking period at a low level (more phantom shares issued) and then have good share performance over next 12 months.  Not saying it is engineered, however don't see it as all that terrible.  Any thoughts here? 

[whistlerbumps]

Jefferies downgraded to hold

 

We are downgrading EZPW to Hold based on corporate governance actions which, in our

minds, represents misalignment with non-voting shareholders. While we acknowledge

that valuation is below LT averages, we find it difficult to recommend EZPW given the

history of controversial actions by the owner of 100% of the voting shares, who was just

appointed as Executive Chairman of the Board, despite a history of non-alignment. Our

PT is $6.50, which is ~7.5x CY20 EPS.

[bilo]

Thanks Whistlerbumps.  The Co. is already famous for governance problems and disputes, in light of this I saw the phantom shares as a positive.

[KJP]

This is a good illustration of why it can be a mistake to believe that a controlling shareholder must want a high share price because he or she owns most of the equity.  The reality is that, unless they are borrowing against their shares or have mark-to-market issues (e.g., a fund), controlling shareholders really only care about the price of their shares when they sell them.  The share price at any time before that is irrelevant to them, and thus they may prefer to effectively loot the company via, e.g., excessive compensation, even if it causes the share price to decline, knowing that any buyer would still pay full price for the business in a sale that eliminates the problematic comp/governance.

[bilo]

agree KJP, indeed in many circumstances a controlling shareholder might want a lower price.  This is why I viewed the phantom share compensation as a positive, if perhaps a small one - it provides Cohen some incentive to get the share price up over a defined time horizon. 

[KJP]

agree KJP, indeed in many circumstances a controlling shareholder might want a lower price.  This is why I viewed the phantom share compensation as a positive, if perhaps a small one - it provides Cohen some incentive to get the share price up over a defined time horizon.

 

They finally put a buyback authorization in place:  https://investors.ezcorp.com/investor-news/press-release-details/2019/EZCORP-Reports-Fourth-Quarter-Fiscal-Year-2019-Results/default.aspx

 

Of course, having an authorization in place and actually using it are two different things.

[Gregmal]

Epic stuff here. Bravo Mr. English....

 

https://seekingalpha.com/article/4310971-ezcorp-inc-ezpw-ceo-stuart-grimshaw-on-q4-2019-results-earnings-call-transcript

 

 

[KJP]

It's interesting that, despite the apparent likelihood of a recession, this purportedly counter-cyclical business is still selling off.  Of course, given the governance, it's hard to buy this at any price.

[Philip Morris IV]

It's interesting that, despite the apparent likelihood of a recession, this purportedly counter-cyclical business is still selling off.  Of course, given the governance, it's hard to buy this at any price.

 

Also interesting that FCFS has sold off almost identically, despite being the paragon of this industry and having none of the governance or other overhangs of EZPW.

 

If counter-cyclical is the bet, FCFS is a purer play.  And if EZPW gets choked by their balance sheet, FCFS could be poised to take share.  It's not hard to see PLOs increase from here, perhaps even drastically.  More difficult for me is underwriting (1.) the risk they get swamped with forfeited collateral they can't move and (2.) whatever the heck transpires down in Mexico (whose government has yet to take COVID-19 seriously).  Even if PLOs spike down there, they still have to fight the MXN peso in free-fall.