EZCORP Inc (EZPW) 2012 Q2 法說會逐字稿

Welcome to EZCORP fiscal 2012, 2nd quarter earnings release conference call. My name is Christine , and I will 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 early today that is available at our website www.EZCORP.com. I would 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 expectation due to a number of risks and uncertainties and other factors which are discussed in our press release and our filing with the Securities and Exchange Commission.

On the call with me today is Paul Rothamel our President and Chief Executive Officer. I will 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 line for Q&A.

I will 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 revenue to $256 million together with a 140 basis point improvement in gross margins drove operating margins up 70 basis points to 22%.

We consolidated Credit Amigo's results for the first time in February and March. Also included in the quarter were costs associated with acquisition some of which did not close totaling approximately $0.03. Yesterday we announced that the Company is changing its segment reporting, because most of our brick 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 offering and channels being determined by customer preference and local regulation. Accordingly, beginning this quarter we will report segments as follows; US and Canada, Latin America, and other international and I will talk about what is included in those segments in a minute or two.

Where practical expenses including administrative expenses , depreciation and amortization are allocated to segments. Interest is also allocated to segments where indebtedness is in incurred at local country level and is non (Inaudible). Expenses which cannot be allocate are included as corporate expenses. Now beginning with our largest segment US and Canada which includes our 903 stores in the US offering pawn, buy/sell, and/or financial services and our 67 cash advance and buy/sell stores in Canada. US and Canada delivered another excellent performance with a 16% increase in segment contribution driven by a 14% increase in revenues and 25 basis points improvement in contribution margin.

Focusing on the revenue lines first total sales which include 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 change in the 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,due to growth in and quality of our pawn loan book that drives our pawn business be it pawn service charges or sale volumes in 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 will talk more about that in a minute.

Moving on to our consumer loan business in the US 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 mark a significant improvement in our consumer lending business which has seen relatively flat fee revenue over the past couple of quarters. Consumer loan bad debt as a percentage of fees which is almost always lower in the second quarter due to tax refunds improved 45 basis points to 14%. The US and Canada continue to its store front expansion . Opening 6 De Novo stores in the US and 2 in Canada and acquiring 15 more.

The second of our new segments Latin American includes our 205 Empeno Facil pawn stores and our new investment in Mexico Credit Amigo 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 Mexico Pawn business. These statistics reflect the 9% depreciation of the Mexican peso against the US dollar this quarter compared with a 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 open this year to 27 putting us on track to open between 55 to 65 stores this fiscal year.

Credit Amigo contributed total revenue of $7.4 million in the quarter and net revenue of $6.9 million after bad debt as percentage of fees of 7%. After administrative and other expenses of $4.6 million interest expense of $2 million and net income contributable to minorities Credit Amigo 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 the net income we recognized from our two affiliates Albemarie & Bond and Cash Converters International. Contributions from Albemarie & Bond and Cash Converters overall were down 2% in the quarter reflecting a relatively strong first half for A&B offset by a slightly weaker first half from Cash Converters due to a series of one time costs. Added 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 13% increase in administrative expenses.

Now on to balance sheet. We ended the quarter with $47.5 million dollars cash on hand and debt outstanding in March 31st, of $132.4 million of which $13 million was recourse to EZCORP and the balance related to Credit Amigo. 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 as of March 31st up from $210 million a year ago an increase of 46%. Lastly our strategic investments in Cash Converters and Albemarie & Bond carried on the balance sheet at $120.1 million collectively their market value as of March 31st was a $178.1 million representing an unrecognized gain of $58 million.

Before I hand it 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. The change in our guidance is due to slightly slower than expect same store growth in sales,including scrap sales and to a lesser extent loans in our US Pawn business. This slowing is the 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 4.5 times a year. General merchandise typically 3 to 3.5 times a year depending on category.

In the second quarter Company wide gold volume declined around 15% in total grams , but it 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 today is 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 will now turn the call over to Paul.

Thank you, Stephen, and good afternoon everyone. Now that Stephen has updated you on the quarter and our current financial views for the remainder of the year , I thought I would spend some time updating you on 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 have 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 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 witnesses over recent months.

First , we believe the United States is a 50 state opportunity, and we have the flexible acquisition into De Novo store models to provide whatever cash solutions our customers demand be it pawn secured orunsecured loans , other financial services , the retail of buying and selling goods or any combination of these. Our various store models deliver 20% plus 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 found the customers responding well to our various store fronts.

Let me take a minute to address our view of the regulatory environment in the United States that has detoured so many competitors from expanding. We are certainly supporters of free markets and consumers making their own decision but do embrace certain regulations to improve transparency, education, and service to the consumer. While regulation is often seen as an industry negative, some of these regulations essentially become barriers to entry to smaller or less sophisticated operations. We have survived and thrived with changing regulations in various markets and made appropriate adjustments to our business model that enable us to continue to serve our customers . The consumer demand does not go away with the stroke of a pen. And our flexible store front solution allow us to adapt to the changing consumer market place 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 out performing our higher return models and our (Inaudible) management team is delivering a great financial growth along with great store count growth. Today we operate over 200 stores in 17 states and 30 major markets primarily in the central and southern portion of Mexico. We believe this market is largely untapped, can support a thousand or more stores , and we intend to accelerate our store openings here as well. We will be a leading provider in every state and major market over the coming years.

Third, in Canada we studied tests of the unsecured lending model and now the Cash COnverters buy/sell model that has created a combined format that again achieves 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 a unique cash solutions footprint in that underserved market place. Finally, as evidenced by our investment in Credit Amigo and Cash Genie we are actively looking for key strategic partners to grow with around the world.

Let me take a minute to speak to the implications of each of these new additions. With Credit Amigo we had one of the fastest growing lending businesses in Mexico to our fastest growing segment. We gain expertise in a cash solution business that is already practiced in several Latin American countries today and can be introduced in other geographies as well. The customer demographics between our two business are similar and offer synergies opportunities over time that will enhances both businesses. Finally, the two combined businesses will make Mexico a much more important segment to our overall financial performance and growth in the near term and overtime.

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 Albemarie & Bond which is based there and Cash Converters that has its second largest presence there after Australia. As you may remember we recently had launched our on online business in the UK. At the same time we have been looking for an another strong partner in that market. The UK market today had a nearly 100 online providers many of which are 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 whom are in-house employees 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 in other countries possibly even the United States. The first non UK launch will be in Finland later this quarter.

Credit Amigo and Cash Genie are two examples of innovative, fast growth, high sustained return companies that will enhance our ability to deliver sustain revenue and earnings growth and enhance our ability to reach more customers in more places with more cash solutions. Given our competitive strengths today , our strong financial position, our expanding customer demand and market place, 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 have.

Thank you. We will now begin the question and answer session. (Operator Instructions). The first question comes from John Rowan from Sidoti & Company. Please go ahead.

The terms and the ability to refinance it. I am just trying to howthat plays into the back half of year.

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

Sorry . Can you hear me now?

Yes.

What is the debt like that you have from Credit Amigo? If it is at 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 is pretty high cost debt based on the interest cost and the amount of the debt , so , yes, that is one of the financial opportunities with the operational opportunities with Credit Amigo, yes.

Okay. As far as the lower of guidance and obviously the shift away from gold. Is it really more of a timing issue as inventory turns slow down obviously you touched on it a little bit with the pawn loan balances being strong. Is that the way we should lookat it kind of pushes revenue out into 2013 because of slower inventory turn and it is just a temporary issue?

That is how we are looking at it today. And as you said there is positive inside because we still have strong loan growth and the inventory is moving toward general merchandise where we are 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.

You may have given this I certainly didn't get it down. Did you say how many grams of scrap you moved through and what it was a year ago?

I didn't give you numbers of grams. I said we were down 15% in volume compared with the same quarter a year ago, yes. Did you want numbers a gram?

No , that is fine . All right. Thank you.

Okay. It is 1.8 million grams.

All right. Thanks.

The next question comes from Bill Carcache from Nomura . Please go ahead.

Thanks very much. I was hoping you could elaborate a little bit more on this mix shift away from gold. It sounds like what you are saying is that the turns are higher for gold lower for general merchandise, so that is going to push out just from timing perspective in to next year some of the earnings benefit from your pawn lending activities, but is there more than just a timing shift given the margin difference between general merchandise and gold? Is this something you have seen in the past.?Just trying to understand whether this is some cyclical element to this or whether this is something that you expect to persist.

I think there were about 3 questions there. Yes , there is a different in turns between gold and general merchandise. Gold tends to turns much faster because you have the scrapping option. Butblended gold scrapping with jewelry sales turns 4 times to 4.5 times a year compared to 3 times to 3.5 times a year with general merchandise. That is 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 to us in two ways. One is collateral for pawn loan or in the case of gold they sell it to us. So to give you a sort of feel for that gold purchases same store are actual down close to 50% this quarter compared with the prior year quarter. That is how the mix is changing.

So is there any impact there with profitability overtime given margin differences between gold and merchandise based upon lending?

This quarter the margins were very similar 41 and 42.

Okay. And as we look forward, should we expect kind of the traditional margins that we have seen in each of those business or is there a change in margin as well such that the overall profitability has not changed?

I will answer that. 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, and I think even on the GM side we have very healthy margins today in the mid to high 30s depending on the time of the year and that type of thing. You can always see pressure as inventory builds in a business. But we believe primarily because of a 11% comp , that is not a one quarter thing we have been able to sell our GM at double digits for several quarters now so we are confident that we will 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 circular in nature.

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 have seen in the last quarter beginning to end is actually a flattening of gold prices. And we think that is likely to continue. Therefore it will be unmasked put it that way.

I will 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 what you are asking. The fact of matter is that 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 turn rates and composition of the loan balances and the inventory, but they are both very, very profitability.

So the way to think about this is there essentially a mix shift between gold and general merchandise and as result of that there are differences in turns that are going to affect having an near-term impact but ultimately dollars or profitability should not be impacted they just get shifted out a bit further out in time?

That is correct.

Great. One other topic if I may ask. Is the UK deal I would be very curious to hear your thought process there. It seems like there is some uncertainty regarding the regulatory environment in the UK including some of the work that the office of Fair Trading is doing on roll-overs and multiple (Inaudible) accounts and things like, so presumably you guys got comfortable as part of your due diligence. I guess is it fair to assume that your decision to close this deal very recently here, it sounds like April 13th, is that a reflection of your view of the regulatory environment in the UK that it will remain favorable?

Yes, that is exactly right. I think what we have seen from the O.F.T. is very similar to what we are hearing in the United States that the focus is on unfair and deceptive practices. Cash Genie is regarded very highly in the market place over there. Because obviously they don't engage those practice and we don't either. And we generally as I said in my portion of the presentation welcome that kind of regulatory environment which takes up bad behavior and bad players , so we are quite confident over there.

Can you give us a little bit of perspective obviously without getting into too much detail, but just on what kind of an edge you have over there in terms of a having a sense as to inside the regulatory environment kind of what the thinking is and 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. Obviously we have boots on the ground with our own people, we have boots on the ground with Albemarie & Bond, Cash Converters, so we are like everybody else. We work our angles to understand what is going on and we are comfortable with it.

Okay. Thank you very much.

Our next question comes from Liz Pierce from ROTH Capital Partners. Please go ahead.

Thanks . Good afternoon . Stephen, on the gold collar I presume one of the reasons you were able to still have some higher margin is that because of gold collar?

Actual it wasn't. The gold collar wasn't triggered this quarter because we were inside the collar.

Okay. It seems -- I guess I am just comparing it to another competitor that had quite a sharply lower margin on gold on scrap.

I can't speak for them, Liz. Our pawn brokers have pretty judicious how they buy gold.

In terms of the general merchandise versus scrap. Is this going to change how you guyslook at the inventory coming into the store as you think about perhaps having a longer shelf life, how you are going to essential merchandise the store?

Yes, I will answer that currently yes and no. We are fairly agnostic to what the customer brings us as long as they bring it to us and they continue to do that asyou see in our comp performance both on loans and buys. So we have it today we are fairly sophisticated indicated. I think Stephen was clear in talking about our pawn brokers judiciousness. The fact of the matter is in declining gold volumes they did a very, very good job 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 gold we do that today for all the general merchandise categories, so we are already showing you we know how to sale general merchandise we are up 11% comp and we have been up double digits for several quarters now and healthy margins. 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 thinking more on categories and clearly the results speak for themselves that wasn't really what I was getting at. In terms of obviously with gold and you can scrap it and move it gives you a little more luxury on what else you can carry in the store. If you are going to more products , more TVs coming in. The more direct question is do you anticipate the loan to value or anything like that?

I don't frankly. That is the engine that drives everything. We are going to loan as much as we can to take care of customer on the front end, and we will take whatever actions we have to on the backend to remain profitable as we dispose. But the acquisition side is the most important side for us.

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

When we publish the Q, Liz, (Inaudible). we will be talking about specific (Inaudible) that make up the allocated and non allocated corporate expenses, so yes.

So in corporate expenses specifically you will have a breakout of the components?

Yes.

Okay. But on the other segment do you know how we should be thinking about it?

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

I had done that. I was thinking more on the expense side. Because these are things we haven't looked at the divisional level if you will. That was more what I was thinking about.

We will do what we can to help you when be we published the Q.

Okay. All right. Thanks.

The next question comes from Bill Armstrong from CL King & Associates. Please go ahead.

Good afternoon, Paul, Stephen. Getting back to our favorite topic of the evening; gross margins. How would a shift to 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, son on a combined basis they are very similar. Only way it would create pressure is if we were for some reason unable to continue to move the inventory at the rate we have been able to move it.

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

Well, on the sale side Stephen mentioned our general merchandise sale on a comp basis were plus 11. Our jewelry retail comp basis were down 14 so absolutely. Gold has been priced to some degree out of the range of some of our consumers.

Okay. To be clear when we are P&L break out that merchandise sales include general merchandise and retail gold?

Correct.

Okay. Did you see impact from the IRS refund delay this spring?

We did ,Bill but it was all inside the quarter. Our balances had some delay in stretching out of IRS refund , so balances remained a little higher for longer. Merchandise sales didn't balance as soon as we would have liked but overall net debt it all evened itself out during the quarter.

Okay. Last question, on your balance sheet I see a new line item non current consumer loans could you flush out what that it?

That is Credit Amigo.

Okay. Thanks, that is all I had.

Thanks ,Bill.

The next question comes from Henry Coffey from Sterne, Agee. Please go ahead.

Good afternoon everyone. 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. Maybe you would could go over the whole equation again in terms of actual grams sold, and price received, et cetera.

So hi, Henry, in the quarter we sold 1.83400 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 of a gram was $16.90 which was up 17% percent on the prior year. And the market price quarter-to-quarter was up 22% , so we didn't quite capture the entire market.

And then you made a same store reference to jewelry scrapping, or maybe I just picked that up wrong.

I said that same store jewelry sales were down 14%.

Okay, thank you. Were down how much?

14%.

The business when gold started to appreciate the business changed character I would say going back 24 maybe 30 months. It became in many ways an easier business because you could always bring your stuff in it is gold it is jewelry you price it, you always have an out for it even though it is 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 are 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 had any insight into your customer are you simply telling us that his gold piggy bank is empty?

I would answer that 2 ways , Henry, our loan portfolio is still predominately gold. It is about 62% of our loan portfolio is still gold. That has only moved a couple of percent over the last year, year and a half. And by the way what we are also seeing is the pick update , even though we are lending more on that the pick up rate has moved up. So our thinking is frankly, yes , their piggy banks are certainly emptier than they have been, and what they have they are hanging onto. Which to us means less either dropping into inventory or less dropping into the scrap heap. And the other half of that, the manifestation for those folks that are out of gold their GM buys are up and our gold buys are down.

So 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 gradually going to increase over the next couple of quarters?

That is what it looks likes. Now, if gold races back up we will see where it comes from.

Right. Exactly. The last time you went into a succession of missing on earnings was sort of 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 you won't find yourself in that hole again?

Well, I think a couple of things. I am familiar with 1 miss -- quarterly miss before I got here.

That is all it takes by the way.

I understand. So I guess what I would tell you -- all I can tell you without giving away the secrets to the farm the proof is we are moving it right now. It is not just for a quarter. We have been moving general merchandise in double digit for a long time, in fact most of last year we were in the high single digits and low double digits and selling general merchandise at very healthy margins. I am confident we made changes in our marketing schemes in our mark down schemes and there are expertise and systems at the store level that continue to do that.

You have got a bunch of new businesses going on that you talked about all of which seem very, very excited. Are those businesses expected to contribute immediately to growth or are we going to see more of an investment cycle there?

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

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

We gave you guys for the back half of year we're heading into our own planning session.

I'm looking beyond this year I am trying to look 2 or 3 years forward.

I would say we would not be happy at 15% we would be looking for 20% plus growth every year.

Acquisition are challenging, you have a control shareholder who seems to be religiously against buybacks any chance he will either soften that position or let go of his fee. I think if he had done either of those you would have beat the quarter and not been in this box.

As Paul referenced in his talk, Henry , wehave multiple models and opportunity to deploy the Companies cash resources at 20% plus ROIC. It make a share buyback pushes it further and further down the list. When you have 30 plus ROIC in Mexico , 30 plus in Canada, 20 plus in the US why would you.

I will take the discussion offline, but you don't have a lot of leverage on your balance sheet and you could probably do both. Thank you.

Thank you.

The next question comes from John Rowan from Sidoti & Company. Please go ahead.

Hi guys sorry for the follow-up. I just wanted to make sure I understood. When you said before that your volume of gold buying was down 50% , that is just gold buying that doesn't include any defaults that are technically a buy, right?

That is just buying, John, it is 50% and that is by volume. It is not forfeit if that is what you mean, no.

That is strictly people just coming in to sell gold that is completely separate from people coming pawning and then defaulting.

That is correct.

Okay. I just wanted to make sure I understood that. Thank you.

Thank you.

The next question comes from Bob Ramsey from FBR. Please go ahead.

Hey, good afternoon. Could you remind me with Mexico as opposed to the US does the gold make up a different percentage of the business down there or is it similar?

It is much smaller. It is actually kind of a flip side, so the PLO is less than 20% today of our business. It is a GM business down there.

Okay great. In terms of the Cash Genie deal that you all did can you give any color on what EBITDA or revenue expectations are for that business or can we simply take the international numbers we have this quarter and then try to build a full quarter off of that or how should we think about the contribution?

Cash Genie was closed after the quarter so there is nothing in this quarter for Cash Genie. Our expectation is based on their fiscal year there in October 31 fiscal year. October 31, 2012, they should be in the $5.5 million to $6 millionnet income range.

Okay. And that is the expectation for a full year earnings through October 31st; is that right?

That is correct. There is not a huge wrap in the first year because Cash Genie has been a little capital constraint which is one of the reasons they kind of came to us, but we expect it to take off from there next year.

Okay. And then with Credit Amigo how should we think about is there seasonality in their business or is it pretty constant quarter to quarter to quarter. 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, so the schools months are the more profitable months for Credit Amigo.

Okay. And then with Credit Amigo I know you have all highlighted there are a 170 sort of contract 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 it work between you and negotiating these contracts?

So it there is kind of two sides of the house with Credit Amigo and our team down there. There is a team focused on exactly that. They go out and negotiate these contracts with large government agency primarily today are the most lucrative because they get us access to government employees who in Mexico have a very long retention rate, very little turnover. So there is a team that does that, and that is what they are focused on and it is kind of generally with a government agency it is not the fastest process. It is a fair amount of work and stick to it I will say. And the other half of it is there is a sales force out of these 44 locations in the country that then once the contract is in place go to the employees and sell services which are primarily the installment loan.

Okay . But the negotiation I guess is all done by Credit Amigo employees there is no outside party involved in that transaction or process?

Correct.

Would it be mostly government agency, is it at all political if there was a change in control in the political party in Mexico does that affect the contracts or is it out side of politics?

I'm not sure anything in government is outside of politics. I guess I would say we took all that into consideration and we don't expect any real changes. These are not exclusive contracts by the way. Just because we have a contract with the government or Credit Amigo does, that doesn't mean they are the only ones. In fact these contracts are generally are very long-term contracts , and once they are in place they are in place. But you still have to get your fair share because 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 when you say long-term contracts, what is a typical contract term?

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

Okay . Great thank you guys.

The next question comes from Bill Carcache from Nomura. Please go ahead.

Thanks . A follow up on Credit Amigos would you say or do you expect to see opportunities for a payroll deduction model in the US?

We do know that there are a couple of smaller folks doing that today. So we certainly know it is accepted model for instance in Brazil and Columbia to name just a couple. There are possibilities in the United States we have had some discussions around that that is not right in front of us but it is a possibility.

Great . 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 is that involves primarily normal growth or are there some acquisition potentially on the horizon there?

We have done just one small acquisition in Mexico. We would certainly do an acquisition or number of acquisitions if we thought they fit the model correctly. It just so happens today that the vast majority of our activity has been De Novo and in the US it has been more acquisitions. We are open to both. The market place doesn't have a lot of those sizable chains that are full size. There is lot of chains that they say they are full size but aren't really in Mexico and it is a primarily a gold market, so we are actively looking.

Okay thanks very much.

You bet.

The final question comes from Gregg Hillman from First Wilshire. Please go ahead.

Good afternoon. I had a question about basically macro factors that drive your pawn loan balances in the stores in the United States . One would be like the recession in the United States. I was wondering number one is the price of gold one of those factors that drives pawn loan balances in the United States or is that not a factor ascompared to other factors?

Sure I don't think there is any question the more valuable gold is the more likely one of our customer would use it as collateral. I don't think there is any question about it. The degree as to how heavy factor is weighed against their need for cash today in the situation they are in versus general merchandise if we could figure that out we would be having a different discussion. I would say it is a factor.

Okay. Is there some sort of the hammer effect with gold over and above that just drives people in the store that wouldn't otherwise come in the store and get pawn loans or is that not the case.

I don't think we see that, no.

Okay. What would be the impact -- (Inaudible) basically with your new policy of the collar that a $500 ounce decrease in gold shouldn't affect your operations that much; is that correct?

We will have downside protection sure, but a $500 decrease we would be protected but for the first $8,500, yes. Because the floor isn't at the stock prices it is usually at a discount to the spot.

Okay. So there would be an impact for 3 months to 4 months than you would resume once the gold stabilized you would resume presumably growing again .

What I was trying to say that we suffer the first , depending on where the floor is put in the collar, we would suffer some down site below the floor and we are protected. That protection 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 (Inaudible) for exactly the same premium hence the collar. The zero cost collar.

Okay, fineThanks very much.

Thank you.

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

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

Thank you for participating in the EZCORP fiscal 2011 second quarter earnings release conference call. This concludes the conference for today. You may all disconnect at this time.