What the Market Missed About EZCORP's Earnings

Yes, we know that EZCORP (NASDAQ: EZPW  ) reported $0.59 in earnings-per-share, and record revenues of $277 million, in its first-quarter earnings report last night. But while the market was focusing on those numbers, it missed what was really important in EZCORP's quarter.

What you missed
Many casual observers might have noted record revenues for the quarter and EPS in line with expectations and thought that was good enough. This was probably the reason EZCORP shares spiked briefly in the aftermarket hours after it issued its report. However, the factors behind these numbers help paint a better picture as to what is actually going on with the company and how it might perform in the future.

Inside the revenue
Record revenues are always exciting, but it's more important to find out how the company got there. If they "acquired" the revenue by purchasing more stores or other companies, it might not be a sustainable model going forward. However, if they grew through organic methods, like increasing traffic to existing stores or raising prices, increasing revenues going forward might be sustainable.

EZCORP used a mixture of these methods to achieve its record revenue. Its 11% increase in total revenue was boosted by its performance in Latin America, which itself was boosted by the mid-year acquisition of Crediamigo in Mexico.  However, if you only consider the organic growth of the company, total revenues increased by only 3.4% . While not a terrible number, it is less than half of the total revenue growth.

Inside the earnings
EZCORP estimated that it lost approximately $10 million  in revenue from the change in "gold metrics" during the past year, which in turn affected the bottom-line results. New ordinances in Dallas and Austin, two Texas cities important to the company's financial services business, resulted in the loss of an estimated $1 million  because of restrictions placed on the short-term lending that the company practices.

On the other hand, the decline in net income during the quarter was also due in part to the company's "growth initiatives." Those initiatives accounted for $5 million in incremental expenses, leading to a 9% increase in operating expenses from the same quarter last year. Other infrastructure costs associated with the expansion into a more complex global company accounted for another $1 million in total costs. Without these costs, which were needed to feed the international expansion of the company, administrative expenses would have remained flat from last year.

What it means going forward
Was this quarter the first of many like this for EZCORP? It's hard to say. From its actions over the past year, it seems to me that the company is looking to grow into new markets at the expense of short-term success. Without these aggressive foreign overtures, the company would most likely report higher earnings, though it could be missing out on great opportunities outside of the United States. I'm willing to give the company the benefit of the doubt for the time being, though future quarters of rampant acquisition would give me pause before investing my money here.

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