EZCORP, Inc. (EZPW) Q2 2012 Earnings Report, Transcript and Summary

Welcome to the EZCORP Fiscal 2012 Second Quarter Earnings Release Conference Call. My name is Christine, and I’ll be your operator for today’s conference. [Operator Instructions] I will now turn the call over to Stephen Stamp. You may begin.

Thank you, Christine, and good afternoon, everyone. This call will address our second quarter fiscal 2012 results. We issued a press release earlier today that’s available on our website www.ezcorp.com. I’d like to remind everyone that this conference call will contain certain forward-looking statements, including statements about our expected financial and operating performance in future periods. These statements are based on our current expectations. Actual results in future periods may differ materially from current expectations due to a number of risks, uncertainties and other factors, which are discussed in our press release and in our filings with the Securities and Exchange Commission. On the call with me today is Paul Rothamel, our President and Chief Executive Officer. I’ll cover our results for the second fiscal quarter and then Paul will talk about our recent growth investments and our long-term strategies for driving sustainable shareholder value before we open the lines to Q&A. I’ll begin with our consolidated results. The second quarter was another very strong performance with net income increasing 17% to $37.3 million and diluted earnings per share increasing 16% to $0.73. A 20% increase in total revenues to $256 million together with a 140 basis point improvement in gross margins drove operating margins up 70 basis points to 22%. We consolidated Crediamigo’s results for the first time in February and March. Also included in the quarter were costs associated with acquisitions, some of which did not close, totaling approximately $0.03. Yesterday, we announced that the company is changing its segment reporting; because most of bricks and mortar stores now offer multiple products, it no longer makes sense to report segments along product lines. The company is increasingly being organized and managed along geographic lines with product offerings and channels being determined by customer preference and local regulation. Accordingly, beginning this quarter, we will report segments as follows: U.S. and Canada, Latin America and Other International and I’ll talk about what’s included in those segments in 1 minute or 2. Where practical, expenses including administrative expenses, depreciation and amortization are allocated for segments. Interest is also allocated to segments where indebtedness is incurred at local country level and is non-recourse to EZCORP. Expenses, which cannot be allocated, are included as corporate expenses. Now, beginning with our largest segment, U.S. and Canada, which includes our 903 stores in the U.S. offering pawn, buy/sell and/or financial services and have 67 cash advance and buy/sell stores in Canada. The U.S. and Canada delivered another excellent performance with a 16% increase in segment contribution driven by a 14% increase in revenues and a 25 basis point improvement in contribution margin. Focusing on the revenue lines first, total sales which includes retail and scrap sales, were up 16% and up 2% on a same-store basis with margins improving 90 basis points. General merchandise sales were actually up 11% same-store, while jewelry store sales were down 14%, illustrating the ongoing changing mix in the business. Scrap sales were up 11% in total and 1% on a same-store basis, helped by a $3.3 million increase in diamond proceeds over the prior quarter. Pawn service charges grew very significantly in the quarter, 17% in total, and 9% on a same-store basis. This growth was underpinned by a 12% growth in total pawn loan balances or 6% on a same-store basis. It is the growth in and quality of our pawn loan book that drives our pawn business, be it pawn service charges or sales volume and margin. The growth in our pawn loan balances is a telling indicator of the health of our lending business. The shift in mix from jewelry to general merchandise is a function of how our customers choose to get immediate cash and I’ll talk more about that in a minute. Moving on to our consumer loan business in the U.S. and Canada, consumer loan fees increased 6% in total and 3% on a same-store basis. Combined consumer loan balances were also up 2% on the prior year quarter. This marks a significant improvement in our consumer lending business, which has seen relevantly flat fee revenue over the past couple of quarters. Consumer loan bad debt as a percentage of fees, which was always lower in the second quarter due to tax refunds, improved 45 basis points to 14%. The U.S. and Canada continued its storefront expansion opening 6 de novo stores in the U.S. and 2 in Canada and acquiring 15 more. The second of our new segments, Latin America, includes our 205 Empeno Facil pawn stores and our new investments in Mexico, Crediamigo with 45 branch offices. Latin America had another outstanding quarter with revenues up 110% in total and 9% on a same-store basis. Empeno Facil same-store merchandise sales and pawn service charges were up 23% and 20%, respectively. Same-store scrap sales were down 23%, driven again by lower volumes. Pawn loan balances were up 48% in total, 8% on a same-store basis, all demonstrating the robust growth of our Mexican pawn business. These statistics reflect the 9% depreciation of the Mexican peso against the U.S. dollar this quarter compared with the prior year ago. Empeno Facil also continued to execute on its market growth strategy. During the second quarter, we opened 13 de novo stores, including our first store in the important Monterrey market. This brings the total number of stores opened this year to 27, putting us on track to open between 55 and 65 stores this fiscal year. Crediamigo contributed total revenues of $7.4 million in the quarter and net revenues of $6.9 million after bad debt as a percentage of fees of 7%. After administrative and other expenses of $4.6 million, interest expense of $2 million and net income attributable to minorities Crediamigo contributed $200,000 to EZCORP net income for the quarter. The third of our new segments, Other International, includes our online lending business in the UK together with a net income we recognized from our 2 affiliates Albemarle & Bond and Cash Converters International. Contributions from Albemarle & Bond and Cash Converters overall were down 2% in the quarter, reflecting a relatively strong first half from A&B offset by a slightly weaker first half in Cash Converters due to a series of onetime costs. Adding together, our 3 segments increased segment contribution that is income before corporate expenses and taxes by 16% to $70.6 million. Corporate expenses in total increased 17% in the quarter as a result of a 65% increase in interest expense due to a greater utilization of our revolver and a 13% increase in administrative expenses. Now onto the balance sheet, we ended the quarter with $47.5 million cash on hand and debt outstanding at March 31 of $132.4 million, of which $30 million was recourse to EZCORP and the balance related to Crediamigo. Total earning assets, which we define as pawn loans, consumer loans, and inventory on our balance sheet combined with CSO loans not on our balance sheet, totaled $307 million at March 31, up from $210 million a year ago, an increase of 46%. And lastly, our strategic investments in Cash Converters and Albemarle & Bond are carried on the balance sheet at $120.1 million. Collectively, their market value at March 31 was $178.1 million, representing an unrecognized gain of $58 million. Before I hand over to Paul, I should talk about our revision to fiscal 2012 guidance. The revised guidance represents an increase of approximately 13% over fiscal 2011 on a non-GAAP basis and an increase of 19% on a GAAP basis. The change in our guidance is due to slightly slower than expected same-store growth in sales, including scrap sales, and to a lesser extent loans in our U.S. pawn business. This slowing is a result of customers using more general merchandise and less gold to satisfy their immediate cash needs. The impact of this shift in inventory mix is the slow inventory turns. Jewelry including scrap inventory turns as much as 4 to 4.5x a year. General merchandise typically turns 3 to 3.5x a year depending on category. In the second quarter, companywide gold volume declined around 15% in total grams, but was offset by an average 21% increase in gold proceeds per gram, a 17% increase in cost per gram and proceeds from a larger than normal diamond auction. The market price of gold stayed essentially the same as December. Our revised guidance assumes continued declining gold volumes, flat gold prices, and slowing inventory turns as we cycle through the shift in inventory mix. And I’ll now turn the call over to Paul.

Thank you, Stephen, and good afternoon, everyone. Now as Stephen has updated you on the quarter and our current financial views for the remainder of the year, I thought I would spend just some time updating on our recent strategic activities and how they fit with our overall plan to continue to grow the business and continue to add significant shareholder value. As you know, we’ve been busy testing a variety of initiatives, technologies, products, services and store models in an effort to provide our customers a better and better experience with us as they solve their cash needs. While we have done all of that, we have also delivered a very strong financial performance, nearly doubling our revenue and more than doubling our net income over the last 36 months. And while we certainly intend to continue to learn, test, and understand our customer better, we have made some decisions around accelerating our footprint in several ways, some of which you have already witnessed over recent months. First, we believe the United States is a 50-state opportunity and we have the flexible acquisition and de novo store models to provide whatever cash solutions our customer demands, be it pawn, secured or unsecured loans, other financial services, the retailer buying and selling goods or any combination of these. Our various store models delivery 20-plus percent return on invested capital after tax unlevered and we have proven the math over the last 24 months by adding over 100 stores in existing and new markets. Today, we operate in 24 states and 61 major markets, many of which are recent entries and we have found the customer is responding well to our various storefronts. Let me take a minute to address our view of the regulatory environment in the United States that has deterred so many competitors from expanding. We are certainly supporters of free markets and consumers making their own decisions, but do embrace certain regulations that improve transparency, education and service to consumer. And while regulation is often seen as an industry negative, some of these regulations essentially become barriers to entry for smaller or less sophisticated operations. We have survived and thrived with changing regulations in various markets and made appropriate adjustments to our business model to enable us to continue to serve our customers. The consumer demand does not go away with a stroke of a pen, and our flexible storefront solutions allow us to adapt to the changing consumer marketplace, including regulation. The United States is the largest market in the world, it is our home market, and we intend to accelerate our growth here and strengthen our market leading position over the long-term. Second, our Empeno Facil strategy in Mexico is performing extremely well, doubling its size in less than 24 months. Again, the de novo stores are outperforming our high-return models and our terrestrial based management team is delivering a great financial growth along with great store count growth. Today, we operate over 200 stores in 17 states in 30 major markets, primarily in the Central and Southern portion of Mexico. We believe that this market is largely untapped and support 1,000 or more stores and we intend to accelerate our store openings here as well. We will be a leading provider in every state in major market Mexico over the coming years. Third, in Canada, we studied and tested the unsecured lending model and now at Cash Converters buy/sell model have created a combined format, but again achieve returns that are well above our 20% return threshold. We have the core team in Toronto and will be adding additional talent as we build out unique cash solutions footprint in that underserved marketplace. Finally, as is evidenced by our investments in Crediamigo and Cash Genie, we are actively looking for key strategic partners to grow with around the world. Let me take a minute to speak of the implications of each of these new additions. With Crediamigo, we add one of the fastest growing lending businesses in Mexico to our fastest growing segment. We gain expertise in the cash solutions business that is already practiced in several Latin American countries today and can be introduced into other geographies as well. The customer demographics between our 2 businesses are similar and offer synergy opportunities overtime that will enhance both businesses. Finally, the 2 combined businesses will make Mexico a much more important segment to our overall financial performance and growth in the near-term and over time. Moving over to Cash Genie, it is one of the top 10 online lenders in the United Kingdom today. This investment adds to our UK portfolio along with our investments in Albemarle & Bond, which is based there and Cash Converters that has its second largest presence there after Australia. As you may remember, we have recently launched our own online business in the UK. At the same time, we’ve been looking for another strong partner in that market. The UK market today has nearly 100 online providers, many of which were like us, small in scale and primarily outsourced. Cash Genie was very attractive to us for a variety of reasons. First and foremost, we were impressed with their leadership and very talented team. All of them are in-house employees and not outsourced. They also have significant size and scale compared to most in the market and have a technology platform that is top tier in the space. More importantly, we believe the talent, technology and brand can grow rapidly inside the UK and into other countries, possibly even the United States. Their first non-UK launch will be into Finland later this quarter. Crediamigo and Cash Genie are 2 examples of innovative, fast growth, high return companies that will enhance our ability to deliver sustained revenue and earnings growth, and enhance our ability to reach more customers in more places with more cash solutions. Given our competitive strength today, our strong financial position, our expanding consumer demand and marketplace, and our flexible growth capabilities, we are well positioned to continue to deliver strong shareholder value for years to come. Thank you. And with that, we will take any questions you may have.

[Operator Instructions] The first question comes from John Rowan from Sidoti & Company.

[Audio Gap] What are the terms? Any ability to refinance it? Just trying to understand how that plays into the back half of the year?

We didn’t -- John, you cut out the first half of that, we didn’t get your question.

Sorry. Can you hear me now?

Yes.

All right. What’s your debt like that you have from Crediamigo? Is there -- if it's different terms than what you guys may have, is there any chance to refinance it now that you own the majority of the company?

John, this is Stephen. You can probably figure out that it’s pretty high cost debt based on the interest cost in the amount of the debt. So, yes, that is one of the financial opportunities with the operational opportunities to percentages [ph] with Crediamigo, yes.

Okay. As far as you know the lowering guidance and obviously the shift away from gold, I mean is it really more just a timing issue as inventory turns slowdown? Obviously you touched on it a little bit with the pawn loan balances being strong. Is that the way we should look at it, it kind of pushes revenue out into 2013 because of the slower inventory turn or it's just a temporary issue?

Yes, that’s how we are looking at it today. And as you said, there is positives inside because we've still got strong loan growth, we’ve got -- and the inventory is moving towards general merchandise where we're now running double-digit sales increases as well. So we believe it will push out into 2000 a bit primarily because of what we described and what you just described as well.

Okay. And just -- you may have given this, but I certainly didn’t get it down. Did you say how many grams of scrap you moved through and what is was a year ago?

I didn’t give you numbers of grams, I said that we were down 15% in volumes compared with same quarter a year ago, yes. Do you want number of grams?

No, that’s fine. All right.

It's 1.8 million grams.

The next question comes from Bill Carcache from Nomura.

I was hoping to -- if you could elaborate a little bit more on this mix shift way from gold. So it sounds like what you're saying is that the turns are higher for gold, lower for general merchandise, and so that’s going to push out just from a timing perspective into next year some of the earnings benefit from your pawn lending activities. But is there more than just a timing shift given the margin differences between general merchandise and gold? And I guess is this something you’ve seen in the past, just trying to understand whether there is some cyclical kind of element to this or whether this is something that you expect to persist.

I think there were about 3 questions there. So, yes, there is a difference in turns between gold and general merchandise. Gold tends to turn much faster because you got the scrapping option, but blended gold scrapping with jewelry sales turns about 4 to 4.5x a year compared with 3 to 3.5x for general merchandise. That’s the first thing. The second thing is the underlying health of our pawn lending business is good. We are still achieving middle single-digit, same-store pawn loan growth and we see no reason why that should change. What is changing is the nature of what customers are bringing to us to satisfy their cash needs and they are bringing it in 2 ways: one, is as collateral for pawn loans or, in the case of gold, they sell it to us. So to give you sort of a feel for that, our gold purchases, same-store, are actually down close to 50% this quarter compared with the prior year quarter. So that’s how the mix is changing.

Okay. And so is there any impact there to profitability overtime given margin differences between gold and merchandise-based pawn lending?

In this quarter, the margins were very similar, 41 and 42.

Okay. And as we look forward, I mean as we look forward, should we expect kind of the traditional kinds of margins that we have seen in each of those businesses? Or does that -- is there a change in margins as well such that the overall profitability is really not matching?

I’ll answer. So I think as it relates to both gold scrapping and gold selling, I don’t see any real changes in that side of the equation. I think even on the GM side, we have very healthy margins today in the mid to high 30s depending on time of the year and that kind of thing. So you can always see pressure as inventory builds in a business, but we believe, primarily because of a 11% comp in our ability, that’s not a 1 quarter thing. We have been able to sell our GM at high -- excuse me, double-digits for several quarters now. So we’re confident that we’ll continue to maintain our margins there as well.

Okay. Now is this something you have seen in the past, just for comparison? Or is this kind of more of a change that you expect to kind of persist that is a bit more secular in nature?

So for the last, I think it is, 3 quarters, Bill, we have been reporting declining same-store volume, but that has been masked by 25% increases in gold prices. What we’ve seen in the last quarter, beginning to end, is actually a flattening of gold prices and we think that’s likely to continue. And therefore we are not going to -- it will unmasked, put it that way.

I'll jump in. If you go back 5 to 7 years, which we have done, and looked at history, we do that all the time. In fact we go back 10 years in many cases to understand exactly which you are asking. And the fact of the matter is, is that the productivity or the profitability of our inventories and our loan balances remain quite constant through those periods. They vary a little bit and they are obviously impacted by exactly what we are talking about -- return rates and composition of the loan balances and the inventories, but they are both very, very profitable.

So the way to think about this is, there's essentially a mix shift between gold and general merchandise and as a result of that there are differences in terms that are going to affect -- have a near-term impact, but ultimate profit, dollars of profitability should not be impacted. They just get shifted out a bit further out in time.

That’s correct.

Okay, great. And then could you also -- one other topic, if I may ask on. Is the -- on the UK deal, would be very curious to hear your thought process there. It seems like there is some uncertainty regarding the regulatory environment in UK, including some of the work that the Office of Fair Trading is doing on rollovers and multiple pinging of accounts and things like that. And so presumably you guys got comfortable as part of your due diligence. So I guess, is it fair to assume that your decision to close this deal very recently here, it sounds like April 13, is that a reflection of your view of the regulatory environment in the UK, that it will remain favorable?

Yes. That’s exactly right. I think what we’ve seen from the OFT is very similar to what we are hearing here in the states, is that the focus is on unfair and deceptive practices. Cash Genie is regarded very highly in the marketplace over there because obviously we don’t -- they don’t engage in those practices and we don’t either. So we generally, actually as I said in my portion of the presentation, welcome that kind of regulatory environment which takes out bad behavior and bad players. So we are quite confident over there.

Can you give us just a little bit of perspective, obviously without getting into too much detail, but just kind of, what kind of an edge do you guys have over there in terms of having a sense as to inside of the regulatory environment, and kind of what the thinking is, and then therefore gaining comfort that the regulatory environment is going to remain okay?

I guess I’m not sure how to answer that other than how I just answered it. We have -- obviously we’ve got boots on the ground with our own people, we’ve got boots on the ground with our moral [ph] bond cash converters. So we are like everybody else, we understand -- work our angles, understand what’s going on, and comfortable with it.

The next question comes from Liz Pierce from Roth Capital Partners.

Steven, on the gold collar, I presume, one of the reasons you were able to still kind of have some higher margins -- is that because of the gold collar?

I'd say more that the gold collar wasn't triggered this quarter because we were inside the collar.

Okay, I guess I'm just comparing it to another competitor that had quite a sharply lower margin on gold, on scrap.

I can't speak for them, Liz, but I mean our pawnbrokers have been pretty judicious how they buy gold here.

Okay, and in terms of the general merchandise versus scrap, is this going to change how you guys look at the inventory coming into the store? As you think about having, perhaps having a longer shelf life, how you are going to essentially merchandise the store?

Yes, I will say, I'll answer that kind of yes and no. We're fairly agnostic to what the customer brings us as long as they bring it to us. And they've continued to do that, and as you see in our comps -- comp performance both on loans and buys and so we have it today. I mean, we are fairly sophisticated. I think Stephen was clear -- or in talking about our pawnbroker's judiciousness, I mean, the fact of the matter is in declining gold volumes, they did a very, very good job of preserving margin. We have systems that help us do that. We have, obviously, processes and some pretty talented people out there, but we do that not just for goal. We do that today for all the general merchandise categories. So we'll -- I think we are already showing you we know how to fill general merchandise, we’re up 11% comp and we’ve been double-digits for several quarters now so, at healthy margins. So we will continue to do that and if the customer wants to bring us gold again, we will take that. If they want to bring us general merchandise we will take that.

I guess, Paul, I was just thinking more on like categories and that clearly the results speak for themselves. That wasn't really what I was getting at, just in terms of -- because obviously with the gold and you can scrap it and move it, it gives you a little bit more luxury on what else you can carry in the store. And you can have more products, more TVs whatever coming in. I guess what I’m -- the more direction question is do you anticipate changing the loan-to-value or anything like that?

I don’t frankly. That’s the engine that drives everything. So we’re going to loan as much as we can to take care of the customer on the front end, and we -- we’ll take whatever actions we have from the back-end to remain profitable as we dispose. But the acquisition side is the most important side us.

Right, right. And then perhaps in this new segment reporting can you give us some insight on how we should think about modeling some of the components that haven’t been broken out before, i.e. corporate expense, and then some of just, some of the individual like the depreciation, amortization, administrative -- maybe how we should be thinking about this by these, each segment?

When we publish the Q, Liz, we will in the MD&A -- we'll be talking about what specific items, what the largest specific items are that make up the allocated and non-allocated corporate expenses, so yes.

So in corporate expenses, specifically. You'll have a breakout of the component?

Yes.

Okay. And then just a bit on the other segment, how we should be thinking about it?

Well we've preserved all the major revenue lines so I was kind of hoping that you could finagle your existing models...

No, no I have done that. I was thinking more on the expense side. Like, just -- I mean because these are things that we haven’t looked at divisional level, if you will. That's more what I was thinking about.

We’ll do what we can to help you when we publish the Q.

The next question comes from Bill Armstrong from C.L. King & Associates.

Getting back to our favorite topic of the evening, gross margin. How would a shift of general merchandise result in lower gross margins when general merchandise generally has higher margins than jewelry?

It has higher margins than scrap, it doesn’t have higher margins than jewelry sales. So on a cost combined basis they're very similar. And the only way it would create pressure is if we were, for some reason, unable to continue to move the inventory at the rate we’ve been able to move it.

So you’re seeing a move away from gold retail rather than gold scrap?

Well, on the sales side Stephen mentioned our comp -- our general merchandise sales on a comp basis are plus 11. Our jewelry retail kind of comp basis were down 14%, so absolutely it’s gold. Gold has been priced, to some degree, out of the range of some of our consumers.

Okay. So then to be clear, when we’re looking at your P&L breakout, that merchandise sales include general merchandise and retail gold?

Correct.

Okay. Did you guys see any impact from the IRS refund delays this spring?

We did, Bill, but it was all inside of the quarter. So our balance is -- there was some delay in stretching out of the IRS refund. So balances remained a little higher for longer and merchandise sales didn’t bounce as soon as we would have liked, but overall net-net it all evened itself out inside the quarter.

Okay. Last question, on your balance sheet, I see a new line item, a non-current consumer loans. Could you flesh out what that is?

That is Crediamigo.

The next question comes from Henry Coffey from Sterne Agee.

First a simple question. Stephen, you talked about -- I just didn’t get it written down fast enough. You were talking about your scrapping or same-store activity there, and maybe you could just go over the whole equation again in terms of actual grams sold and price received, et cetera?

Yes. So in the quarter, we sold 1.834000 grams which was 15% down on prior year. The price we received was $26.35 per gram, which was up 21% on the prior year. And the cost per gram was $16.90 which was up 17% on the prior year. And the market price at quarter-to-quarter was up 22%, so we didn’t quite capture the entire market.

And then the -- you made a same-store reference to jewelry scrapping. Or maybe I just picked that up wrong.

I said that same-store jewelry sales was down 14%.

Were down how much?

1 - 4.

The business, when gold started to appreciate, the business changed character over, I would say, going back 24 or maybe 30 months. It became in many ways an easier business because you could always bring your stuff in, and it's gold and it's jewelry and you price it. You always have an out for it even though it’s a lower margin out, and that seemed to create a lot of robust -- that seemed to be a very robust way of addressing borrowing needs. And now you're saying the business is shifting, which is not surprising because when first cash reported -- their numbers reflected the same thing. So just a couple of questions around that. If you've had any insight into your customer or are you just simply telling us that his gold piggy bank is empty?

I would answer that 2 ways, Henry. Our loan portfolio is still predominantly gold. So it’s about 67% -- I’m sorry, 62% of our loan portfolio is still gold. That’s only moved a couple percent over the last year, year and a half. So -- and by the way what we are also seeing is their whole -- so the pickup rate, even though we are lending more on that, the pick rates had moved up. So we seem to -- our thinking is frankly, yes, their piggy banks are certainly emptier than they have been, and what they have, they are hanging on to. Which to us means less either dropping into the inventory, or less they are dropping into the scrap heap. And the other half of that is, the manifestation is, for those folks that are out of gold there's -- our GM buys are up and our gold buys are down.

So they are bringing in more -- they are gradually bringing in more general merchandise so that level of jewelry, either in the loan bank or the inventory bank, is going to gradually decline and general merchandise is going to gradually increase over the next couple of quarters?

That's what it looks like, now. The gold race is back up, we’ll see where it comes from.

Right, exactly. The last time you went into a succession of misses on earnings, was that a prior to your arrival of the company or at least early on? And there were a lot of issues with liquidating merchandise at retail. What changes have you taken over the last couple of years so that you won’t find yourself in that hole again?

Well I think a couple things. I’m not -- I’m familiar with one miss, quarterly miss before I got here. So I guess what I can tell you -- all I can tell you without giving away the secrets to the farm -- is the proof is that we are moving it right now. And it’s not just for a quarter, we've been moving general merchandise at double digit for a pretty good time. In fact most of last year, we were in the higher single digits and low double digits and selling general merchandise at very healthy margins. I am confident that we made changes in our marketing schemes and our markdown schemes and in our expertise and systems at the store level that continue to do that.

Is it -- you’ve got a bunch of new businesses going on which you’ve talked about, and all of which seem very, very exciting. Are those businesses expected to contribute immediately to growth or we are going to see more of an investment cycle there?

So the 2 that we just described, the investment cycle was in the first half of the year and they will continue -- they will be contributing immediately now. Now for the full year, as they hit their targets they will be marginally accretive and then in the next year obviously we’ll get the full benefit of those rapidly growing businesses against no negativity around securing those businesses. So we'll get the full benefit next year. The back half, the full benefit next year.

Absent some significant development, should we start thinking about this is as a 15% growth business?

We gave you guidance for the back half of the year, we’re headed into our own planning sessions...

Looking beyond this year, I’m trying to look 2 or 3 years forward.

No, I think -- I would say we would not be happy at 15% will be looking for 20-plus percent growth every year.

Acquisitions are challenging. You’ve got to control shareholder who seems to be religiously against buybacks. Any chance that he will either soften that position or let go of his fee? I think if you had done either of those you would have beat the quarter and not been in this box.

As Paul referenced in his talk, Henry, we have multiple models and opportunity to deploy the company’s cash resources at 20% plus ROIC. It makes a share buyback -- just pushes it in further and further down the list when you got 30-plus ROIC in Mexico, 30-plus in Canada, 20-plus in the U.S., why would you?

I mean I will take the discussion off line but you don’t have a lot of leverage on your balance sheet and you probably could do both.

The next question is comes from John Rowan from Sidoti & Company.

I just want to make sure I understood. When you said before that your volume of gold buying was down 50%, that’s just the gold buying. That doesn’t include any defaults that are technically a buy, right?

That is just buying, John. It's 50% and that’s by volume.

50% and...

It’s not forfeit, if that’s what you mean, no.

Okay, but that’s strictly just people coming in to sell gold, that’s completely separate from people coming in pawning and then defaulting?

That is correct.

The next question comes from Bob Ramsey from FBR.

Could you remind me with Mexico as opposed to the U.S. -- does the gold make up a different percentage of the business down there or is it similar?

Yes, it's much smaller. It’s actually kind of the flip side. So the PLO is I think is less than 20% today of our businesses, the GM business down there.

Okay, great. And then in terms of the Cash Genie deal that you all did, can you give any color on sort of what EBITDA or revenue expectations are for that business? Or can we simply take the international numbers you’ve got this quarter and then try and build a 4 quarter off of that, or how should we think about the contribution?

Cash Genie was closed off for the quarter. Paul says there is nothing included in this quarter for Cash Genie. So our expectation is that based on their fiscal year, so they're in October 31 fiscal year, October 31, '12 they should be in the $5.5 million to $6 million net income range.

Okay and that is the expectation for a full-year earnings through October 31, is that right?

That is correct. Sorry, I was going to say there's not a huge ramp in the first year because Cash Genie has been a little capital constrained. It's one of the reasons they kind of came to us, but we're safe to take off from there next year.

Okay and then with Crediamigo, how should we think about -- is there seasonality in their business? Or is it pretty constant quarter-to-quarter-to-quarter, or how should we think about that?

There is some seasonality because a significant percentage of their customers, for example, school teachers effectively get interest holidays during the summer months, and so the school months are the more profitable months for Crediamigo.

Okay. And then with Crediamigo, I know you all have highlighted that there are 170 sort of contracts or agreements with different Mexican employers right now. How are those negotiated? How do you sort of build the business and enter contracts with new employers? How does is it work between you and negotiating these contracts?

Yes, so there's kind of 2 sides of the house with Crediamigo and our team down there, there's a team focused on exactly that. So they go out and negotiate these contracts with large government agencies primarily today are the most lucrative because they get a fax as to government employees who in Mexico have a very long retention rate, very little turnover. And so there's a team that does that and that’s what they're focused on and it’s kind of a -- you are generally working with government agencies so it’s not the fastest process. So it’s a fair amount of work and stick-to-it-iveness, I guess I'll say. And then the other half of it is, is there's a sales force out of these 44 locations in the country that -- then once the contract is in place, go to the employees and self services, which are primarily the installment of the loan.

Okay, but the negotiation I guess is all done by Crediamigo employees. There is no outside party involved in that transaction of process?

Correct.

Okay and would it be mostly government agencies? Is it at all political? If there was a change in control and political party in Mexico, does that affect the contracts or is it outside of politics?

I am not sure anything in government is outside of politics, but that’s -- I guess I would say we took all that in consideration and we don’t expect any real changes. These are not exclusive contracts by the way, so just because we have a contract with the government agency or Crediamigo does, means -- doesn’t mean that they are the only ones. In fact these contracts generally are very long-term contracts and so once they are in place they are in place. And -- but you still have to get your fair share because there may -- in some cases we may be the only contract provider but in other cases there could be other providers. So we are quite competitive with those other providers.

Okay and when you say they are long-term contracts and what is a typical contract term?

Many of them are open ended in fact, but they're a year to multi-year contracts.

The next question comes from Bill Carcache from Nomura.

A follow-up on Crediamigo. Would you say or do you expect to see opportunities for a payroll deduction model in the U.S.?

We do know that there are a couple of smaller folks doing that today. And so we certainly know that it’s a very accepted model for instance in Brazil and Columbia, to name just a couple. But there are possibilities in the United States. We’ve passed some discussions around that that’s not right in front of us, but it's a possibility.

Okay, great. And finally one of your competitors announced a large acquisition of large format, full service stores in Mexico. Can you talk about whether your growth outlook for Mexico -- if that involves primarily just de novo growth or are there some acquisitions potentially on the horizon there?

We have done just one small acquisition in Mexico. We would certainly do an acquisition or a number of acquisitions if we thought they fit the model correctly. It just so happens today that the vast majority of our activity down there has been de novo versus in the U.S. it’s been more acquisitions. So we are open to both. The marketplace doesn’t have a lot of those sizable chains that are full size. There's a lot of chains that say they're full size but aren't really in Mexico, and it’s primarily a gold market. So we are actively looking.

Your final question comes from Gregg Hillman from First Wilshire.

Yes, I had a question about basically macro factors that drives your pawn loan balances in the stores in the United States. I was -- one would be like the recession in United States. I was wondering: number one, is the price of gold one of those factors that drives pawn loan balances in United States like -- or is that not a factor in securing other factors?

Sure, I don’t think there is any question that the more valuable gold is, the more likely that one of our customers would use it as collateral. I don’t think there is any question about that. The degree to what -- how heavy is that factor weighted against their need for cash today in the situation they’re in versus using general merchandise that can’t -- if we could figure that out, we'd be having be a different discussion. So I would say that it is a factor.

Okay, and is there some sort of halo effect with gold, over and above, that just drives people in the store that wouldn’t otherwise come into the store and get pawn loans or is that not the case?

I don’t think we'd see that, no.

Okay. And then what would be the impacts -- I guess you're a hedge now -- so basically, with your new policy of the collar then a $500/ounce decrease in the price of gold shouldn’t affect your operations that much. Is that correct?

We will have downside protection, sure, but a $500 decrease? Yes, we would be protected after the first $85 to a $100, yes. We don’t -- the floor isn't at a stock price, it's usually at a discount for the stock.

Okay. So there would be like an impact for like 3 or 4 months and then you would resume -- once the gold stabilizes you would resume presumably drilling again?

That's not what I was trying to say. I was trying to say that, we stop with the first -- depending on where the floor is put in the collar, we would suffer some downside, but below the floor then we're protected. And that protection would then give us time to adjust our loan values based on the movement in gold prices.

How much do you have to pay for this protection?

Nothing because we also sell our coal for exactly the same premium as the gold [ph] . Hence the collar, zero cost collar.

There are no additional questions at this time. Please go ahead if any additional remarks.

Thank you for your interest in EZCORP and thank you joining us today we look forward talking to you in 90-days.

Thank you for participating in the EZCORP Fiscal 2012 Second Quarter Earnings Release Conference Call. This concludes the conference for today. You may all disconnect at this time.