Edgar Filing: EZCORP INC

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 30, 2018



o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 0-19424

EZCORP, INC.



Delaware		74-2540145
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



2500 Bee Cave Road, Bldg One, Suite 200, Rollingwood, Texas		78746
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (512) 314-3400

Securities Registered Pursuant to Section 12(b) of the Act:



Title of Each Class		Name of Each Exchange on Which Registered
Class A Non-voting Common Stock, $.01 par value per share		The NASDAQ Stock Market
		(NASDAQ Global Select Market)

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark if disclosures of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	o	Accelerated filer	þ
Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The only class of voting securities of the registrant issued and outstanding is the Class B Voting Common Stock, par value $.01 per share, all of which is owned by a single stockholder. There is no trading market for the Class B Voting Common Stock. The aggregate market value of the Class A Non-Voting Common Stock held by non-affiliates of the registrant was $661 million, based on the closing price on the NASDAQ Stock Market on March 31, 2018.

As of November 10, 2018, 51,614,746 shares of the registrant’s Class A Non-Voting Common Stock, par value $.01 per share, and 2,970,171 shares of the registrant’s Class B Voting Common Stock, par value $.01 per share, were outstanding.

Documents incorporated by reference: None

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EZCORP, INC.

YEAR ENDED SEPTEMBER 30, 2018

INDEX TO FORM 10-K



Item	Page
No.	No.

PART I
1. Business	3
1A. Risk Factors	9
1B. Unresolved Staff Comments	16
2. Properties	16
3. Legal Proceedings	17
4. Mine Safety Disclosures	17

PART II
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
6. Selected Financial Data	19
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
7A. Quantitative and Qualitative Disclosures About Market Risk	46
8. Financial Statements and Supplementary Data	47
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	93
9A. Controls and Procedures	94
9B. Other Information	96

PART III
10. Directors, Executive Officers and Corporate Governance	97
11. Executive Compensation	104
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	120
13. Certain Relationships and Related Transactions, and Director Independence	122
14. Principal Accountant Fees and Services	123

PART IV
15. Exhibits and Financial Statement Schedules	124

Signatures	128

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PART I

This report contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed or implied by those forward-looking statements because of a number of risks and uncertainties, including those discussed under “Part I, Item 1A — Risk Factors.” We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results, and the differences can be material. See also “Part II, Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Cautionary Statement Regarding Risks and Uncertainties That May Affect Future Results.”

Unless otherwise specified, references to the “company,” “we,” “our,” “us” and “EZCORP” refer to EZCORP, Inc. and its consolidated subsidiaries, collectively. References to a “fiscal” year refer to our fiscal year ended September 30 of the specified year. For example, “fiscal 2018” refers to the fiscal year ended September 30, 2018. All currency amounts preceded with “$” are stated in U.S. dollars, except as otherwise indicated.

ITEM 1 — BUSINESS

Overview

EZCORP, Inc. is a Delaware corporation headquartered in Austin, Texas. We are a leading provider of pawn loans in the United States and Latin America with approximately 6,200 team members.

Our vision is to be the market leader in responsibly and respectfully meeting our customers’ desire for access to cash when they want it. That vision is supported by four key imperatives:


•	Market Leading Customer Satisfaction;


•	Exceptional Staff Engagement;


•	Most Efficient Provider of Cash; and


•	Attractive Shareholder Returns.

As of September 30, 2018, we operated a total of 988 locations, consisting of:


•	508 United States pawn stores (operating primarily as EZPAWN or Value Pawn & Jewelry);


•	340 Mexico pawn stores (operating primarily as Empeño Fácil);


•	113 pawn stores in Guatemala, El Salvador, Honduras and Peru (operating as GuatePrenda and MaxiEfectivo); and


•	27 financial services stores in Canada (operating as CASHMAX).

At our pawn stores, we offer pawn loans, which are non-recourse loans collateralized by tangible personal property, and sell merchandise to customers looking for good value. The merchandise we sell consists of second-hand collateral forfeited from our pawn lending activities or purchased from customers. By store count, we are the second largest pawn store owner and operator in the U.S. and one of the largest in Latin America. During fiscal 2018, we acquired or opened 113 pawn stores in Guatemala, El Salvador, Honduras and Peru, and 95 stores in Mexico, bringing our total store count in Latin America to 453, which is 47% of our total consolidated pawn stores. For information about the acquisitions completed during fiscal 2018, see Note 2 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.”

In addition to our core pawn business in the U.S. and Latin America, we operate CASHMAX financial services locations in Canada and own 34.75% of Cash Converters International Limited (“Cash Converters International”), a publicly-traded company (ASX:CCV) headquartered in Perth, Western Australia, with over 750 corporate-owned and franchised locations in 18 countries.

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We remain focused on growing our balance of pawn loans outstanding (“PLO”) and generating higher pawn service charges (“PSC”). The following charts present sources of net revenues, including PSC, merchandise sales gross profit (“Merchandise sales GP”) and jewelry scrapping gross profit (“Jewelry scrapping GP”):

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Segment and Geographic Information

Our business consists of the following three reportable segments:


•	“U.S. Pawn” — Includes our EZPAWN, Value Pawn & Jewelry and other branded pawn operations in the United States;


•	“Latin America Pawn” — Includes our Empeño Fácil and other branded pawn operations in Mexico, as well as our GuatePrenda and MaxiEfectivo pawn operations in Guatemala, El Salvador, Honduras and Peru; and


•	“Other International” — Includes primarily our CASHMAX financial services operations in Canada and our equity interest in the net income of Cash Converters International.

The following table presents store data by segments included in our continuing operations:



	U.S. Pawn		Latin America Pawn		Other International	Consolidated

As of September 30, 2015	522		237		27	786
New locations opened	—		3		—	3
Locations acquired	6		—		—	6
Locations sold, combined or closed	(8	)	(1	)	—	(9	)
As of September 30, 2016	520		239		27	786
New locations opened	—		10		—	10
Locations acquired	2		—		—	2
Locations sold, combined or closed	(9	)	(3	)	—	(12	)
As of September 30, 2017	513		246		27	786
New locations opened	—		12		—	12
Locations acquired	—		196		—	196
Locations sold, combined or closed	(5	)	(1	)	—	(6	)
As of September 30, 2018	508		453		27	988

For additional information about our segments and geographic areas, see Note 15 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.”

Pawn Activities

At our pawn stores, we offer pawn loans, which are typically small, non-recourse loans collateralized by tangible personal property. As of September 30, 2018, we had a closing pawn loan principal balance of $198.5 million, from which we earn pawn service charges. In fiscal 2018, pawn service charges accounted for approximately 38% of our total revenues and 63% of our net revenues.

While allowable pawn service charges vary by state and loan size, our U.S. pawn loans primarily earn 13% to 25% per month as permitted by applicable law, excluding forfeitures. The total U.S. pawn loan term generally ranges between 30 and 90 days. Individual loans vary depending on the valuation of each item pawned, but our U.S. pawn loans made typically average between $100 and $120.

In Mexico, pawn loans earn 15% to 21% per month as permitted by applicable law, excluding forfeitures. The Mexico pawn loan primary term is 30 days. Individual loans are made in Mexican pesos and vary depending on the valuation of each item pawned, but our Mexico pawn loans typically average between 1,100 and 1,300 Mexican pesos, or approximately $55 and $70 using the average exchange rate for fiscal 2018.

In Guatemala, El Salvador, Honduras and Peru, pawn loans earn 12% to 18% per month as permitted by applicable law, excluding forfeitures. The pawn loan primary term in these countries is 30 days. Individual loans are made in the local currency of the country and vary depending on the valuation of each item pawned, but our pawn loans in these countries typically average between $100 and $120 using the average exchange rates for fiscal 2018.

Collateral for our pawn loans consists of tangible personal property, generally jewelry, consumer electronics, power tools, sporting goods and musical instruments. We generally lend from 40% to 70% of the collateral’s estimated resale value depending on a subjective evaluation of a variety of factors, including the estimated probability of the loan’s redemption, and we may additionally offer to purchase the product outright. We consider general merchandise more susceptible to obsolescence while jewelry generally retains commodity value.

If a customer chooses not to repay, renew or extend a pawn loan, the collateral is forfeited and becomes inventory available for sale. We do not record loan losses or charge-offs of pawn loans because the principal amount of an unpaid loan becomes the inventory carrying cost of the forfeited collateral. If the subsequent sale of the forfeited collateral is less than the loan value, this is reflected in gross margin.

The redemption rate represents the percentage of loans made that are repaid, renewed or extended, including loans that may extend multiple times in a given time period. The following table presents our pawn loan redemption rates by segment:



	Fiscal Year Ended September 30,
Redemption Rate	2018		2017		2016

U.S. Pawn	84	%	84	%	84	%
Latin America Pawn	79	%	78	%	78	%

Our ability to offer quality second-hand goods at prices significantly lower than original retail prices attracts value-conscious customers. The gross profit on sales of inventory depends primarily on our assessment of the loan or purchase value at the time the property is either accepted as loan collateral or purchased. As our inventory and sales involve gold and jewelry, our results can be heavily influenced by the market price of gold.

Customers in the United States and the majority of our Latin America stores may purchase a product protection plan that allows them to exchange certain general merchandise (non-jewelry) sold through our retail pawn operations within six months of purchase. We also offer a jewelry VIP package, which guarantees customers a minimum future pawn loan amount on the item sold, allows them full credit if they trade in the item to purchase a more expensive piece of jewelry, and provides minor repair service on the item sold. Customers may also purchase an item on layaway by paying a minimum layaway deposit of typically 10% of the item’s sale price, in addition to an upfront fee. We hold items on layaway for a 90 to 180-day period, during which the customer is required to pay the balance of the sales price through a series of installment payments. If a payment is missed, we hold the item for a maximum of 30 days, after which it is returned to active inventory for sale.

CASHMAX Financial Services

We also operate 27 financial services stores in Canada under the CASHMAX brand. All of the stores are located in the Ontario province, in and around Toronto. These small footprint locations have historically offered primarily short-term, single-payment loans with due dates corresponding to the customer’s next payday (known as “payday loans”). In response to regulatory changes effective January 1, 2018 reducing the economic returns of the payday lending model we have introduced installment loan products to meet the broader needs of our customers. In addition to payday loans, all CASHMAX stores are now offering installment loans with terms ranging from six to 18 months and average yields of 47% per annum. On November 2, 2018, we entered into a financing arrangement with a third-party lender to provide up to CAD $25 million to fund originations of installment loans through November 2019.

Operations

Our pawn operations are designed to provide the optimum level of support to the store teams, supplying coaching, mentoring and problem solving to identify opportunities to better serve our customers and position us to be the leader in customer service and satisfaction.

Our risk management structure consists of asset protection and compliance departments, which monitor the inventory system, lending practices, regulatory compliance and compliance with our policies and procedures. We perform full physical audits of inventory at each store at least annually. Inventory counts are completed daily for jewelry and firearms, and other inventory categories more susceptible to theft are cycle counted multiple times annually. We record shrink adjustments for known losses at the conclusion of each inventory count; as estimates during interim periods and as discovered during cycle counts.

Our success is dependent upon our team members’ ability to provide prompt and courteous customer service and to execute our operating procedures and standards. To achieve our long-range people goals, we offer management and technical skills training utilizing computer-based training modules that can be accessed at the store and district levels. It is mandatory that all field and corporate team members complete specific compliance training annually. We offer formalized management development training to specific executives to enhance their management capabilities and effectiveness and to enhance their career progression. We maintain field trainers who travel to stores to provide hands-on training in high skill areas, such as jewelry evaluation, firearms handling and information technology. Generally, we expect that store team members, including managers, will meet certain competency criteria prior to hire or promotion and participate in on-going training classes and formal instructional programs. Our store level and management training programs are designed to develop and advance our team

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members and provides training for the efficient integration of experienced managers and team members from outside the company.

Growth and Expansion

We plan to expand the number of locations we operate through opening new (“de novo”) locations and through acquisitions. We believe there are growth opportunities with de novo stores in Latin America and pawn store acquisitions in both Latin America and to a lesser extent in the U.S. Our ability to add new stores is dependent on several variables, such as the availability of acceptable sites or acquisition candidates and the alignment of acquirer/seller price expectations, the regulatory environment, local zoning ordinances, access to capital, availability of qualified personnel and projected financial results meeting our investment hurdles.

During fiscal 2018, we grew our store count in Latin America by 84% as follows:


•	In October 2017, we acquired 112 GuatePrenda-MaxiEfectivo (“GPMX”) pawn stores in Guatemala (72 stores), El Salvador (17 stores), Honduras (12 stores) and Peru (11 stores). This was our largest acquisition to date in terms of store count, and it significantly expanded our store base into Latin American countries outside of Mexico.


•	In December 2017, we acquired 21 pawn stores in the Mexican state of Sinaloa operating under the name “Bazareño.” The Bazareño stores make up the largest chain of pawn stores in Culiacan, the capital city of Sinaloa, giving us the number one position in that market and an important strategic presence in the northwest region of Mexico.


•	In June 2018, we acquired an additional 23 pawn stores in Mexico operating under the name “Presta Dinero.” These stores expand our presence into a number of cities within seven central-Mexico states in which we already had stores, allowing us to achieve synergies in management and administration while giving us a presence in new cities and neighborhoods within those states.


•	Also in June 2018, we acquired 40 pawn stores operating under the name “Montepio San Patricio” in and around Mexico City. This was our largest acquisition in Mexico to date and significantly strengthens our competitive position in the strategically important Mexico City metropolitan area.


•	During the year, we opened 12 de novo stores in Latin America (11 in Mexico and one in Guatemala) and closed one store.

As a result of these initiatives, we now own a total of 453 stores in Latin America, representing 47% of our total pawn stores. We see opportunity for further expansion in Latin America through both acquisitions and de novo openings.

For further information about our acquisitions, see Note 2 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.”

Seasonality and Quarterly Results

Historically, pawn service charges are highest in our fourth fiscal quarter (July through September) due to a higher average loan balance during the summer lending season in the United States and lowest in our third fiscal quarter (April through June) following the tax refund season in the United States. Merchandise sales are highest in our first and second fiscal quarters (October through March) due to the holiday season, jewelry sales in the United States surrounding Valentine’s Day and the availability of tax refunds in the United States. Most of our Latin America customers receive additional compensation from their employers in December, and many also receive additional compensation in June or July, applying downward pressure on loan balances and fueling some merchandise sales in those periods. As a net effect of these and other factors and excluding discrete charges, our consolidated profit before tax is generally highest in our first fiscal quarter (October through December) and lowest in our third fiscal quarter (April through June).

Competition

We encounter significant competition in connection with all of our activities. These competitive conditions may have an impact on our revenues, profitability and ability to expand. We compete with other pawn stores, credit service organizations, banks, credit unions and other financial institutions, such as consumer finance companies. We believe that the primary elements of competition are the quality of customer service and relationship management, including understanding our customers’ needs better than anyone else, convenience, store location and a customer friendly environment. In addition, we believe the ability to compete effectively will be based increasingly on strong general management, regional focus, automated management information systems, access to capital and superior customer service.

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Our competitors for merchandise sales include numerous retail and wholesale stores, such as jewelry stores, discount retail stores, consumer electronics stores, other pawn stores, other resale stores, electronic commerce retailers and auction sites. Competitive factors in our retail operations include the ability to provide the customer with a variety of merchandise at an exceptional value coupled with exceptional customer service and convenient locations.

The pawn industry in the United States is large and highly fragmented. The industry consists of pawn stores owned primarily by independent operators who own one to three locations, and the industry is relatively mature. We are the second largest operator of pawn stores in the United States.

The pawn industry in Latin America is also fragmented, but less so than in the United States. The industry consists of pawn stores owned by independent operators and chains, including some not-for-profit organizations. We are the second largest for-profit operator in Mexico. The pawn industry, particularly full-line stores offering general merchandise and jewelry loans and resale, remains in an expansion stage in Latin America.

Trademarks and Trade Names

We operate our U.S. pawn stores principally under the names “EZPAWN” or “Value Pawn & Jewelry,” our Mexico pawn stores principally under the name “EMPEÑO FÁCIL,” our Guatemala pawn stores under the name “GuatePrenda,” and our El Salvador, Honduras and Peru pawn stores under the name “MaxiEfectivo.” Our financial services stores in Canada operate under the name “CASHMAX.” We have registered with the United States Patent and Trademark Office the names EZPAWN and EZCORP, among others. In Mexico, we have registered with the Instituto Mexicano de la Propiedad Industrial the names “EMPEÑO FÁCIL,” “Bazareño,” “Presta Dinero” and “Montepio San Patricio.” We have registered the name “GuatePrenda” in Guatemala and the name “MaxiEfectivo” in Guatemala, El Salvador, Honduras and Peru.

Regulation

Compliance with federal, state and local laws and regulations is an integral part of how we manage our business, and we conduct our business in material compliance with all of these rules. The following is a general description of significant regulations affecting our business. For a geographic breakdown of our operating locations, see “Part I, Item 2 — Properties.”

U.S. Regulations

Pawn Regulations — Our pawn stores are regulated by the states in which they are located and, in some cases, by individual municipalities or other local authorities. The applicable statutes, ordinances and regulations vary from location to location and typically impose licensing requirements for pawn stores or individual pawn store team members. Licensing requirements typically relate to financial responsibility and character and may establish restrictions on where pawn stores can operate. Additional rules regulate various aspects of the day-to-day pawn operations, including the pawn service charges that a pawn store may charge, the maximum amount of a pawn loan, the minimum or maximum term of a pawn loan, the content and format of the pawn ticket, and the length of time after a loan default that a pawn store must hold a pawned item before it can be offered for sale. Failure to observe applicable regulations could result in a revocation or suspension of pawn licenses, the imposition of fines or requirements to refund service charges and fees, and other civil or criminal penalties. We must also comply with various federal requirements regarding the disclosure of the annual percentage rate, finance charge, amount financed, total of payments and payment schedule related to each pawn loan transaction. Additional federal regulations applicable to our pawn lending business are described in “Other Regulations” below.

The majority of our pawn stores, voluntarily or pursuant to applicable laws, provide periodic (generally daily) reports to local law enforcement agencies. These reports provide local law enforcement with information about the items received from customers (whether through pawn or purchase), including a detailed description of the goods involved and the name and address of the customer. If we accept as collateral or purchase merchandise from a customer and it is determined that our customer was not the rightful owner, the merchandise is subject to recovery by the rightful owner and those losses are included in our shrinkage. Historically, we have not experienced a material number of claims of this nature.

Some of our pawn stores in the U.S. handle firearms and each of those stores maintains a federal firearms license as required by federal law. The federal Gun Control Act of 1968 and regulations issued by the Bureau of Alcohol, Tobacco, and Firearms also require each pawn store dealing in firearms to maintain a permanent written record of all receipts and dispositions of firearms. In addition, we must comply with the Brady Handgun Violence Prevention Act, which requires us to conduct a background check before releasing, selling or otherwise disposing of firearms.

Other Regulations — Our pawn lending activities are subject to other state and federal statutes and regulations, including the following:


•	We are subject to the federal Gramm-Leach-Bliley Act and its underlying regulations, as well as various state laws and regulations relating to privacy and data security. Under these regulations, we are required to disclose to our customers our policies and practices relating to the protection and sharing of customers’ nonpublic personal information. These

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regulations also require us to ensure that our systems are designed to protect the confidentiality of customers’ nonpublic personal information, and many of these regulations dictate certain actions that we must take to notify customers if their personal information is disclosed in an unauthorized manner. We are subject to the Fair Credit Reporting Act, which was enacted, in part, to address privacy concerns associated with the sharing of consumers’ financial information and credit history contained in consumer credit reports and limits our ability to share certain consumer report information. We are subject to the Federal Fair and Accurate Credit Transactions Act, which amended the Fair Credit Reporting Act, and requires us to adopt written guidance and procedures for detecting, preventing and mitigating identity theft, and to adopt various policies and procedures (including team member training) that address and aid in detecting and responding to suspicious activity or identify theft “red flags.”


•	Under the USA PATRIOT Act, we must maintain an anti-money laundering compliance program that includes the development of internal policies, procedures and controls; the designation of a compliance officer; an ongoing team member training program; and an independent audit function to test the program.

•

We are subject to the Bank Secrecy Act and its underlying regulations, which require us to report and maintain records of certain high-dollar transactions. In addition, federal laws and regulations prohibit us from doing business with terrorists and require us to report certain suspicious transactions to the Financial Crimes Enforcement Network of the Treasury Department (“FinCen”). Generally, a transaction is considered to be suspicious if we know, suspect or have reason to suspect that the transaction (a) involves funds derived from illegal activity or is intended to hide or disguise such funds, (b) is designed to evade the requirements of the Bank Secrecy Act or (c) appears to serve no legitimate business or lawful purpose.

•

The Foreign Corrupt Practices Act ("FCPA") was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. Specifically, the anti-bribery provisions of the FCPA prohibit the willful use of mail or any means of instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person, while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to a foreign official to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure any improper advantage in order to assist in obtaining or retaining business for or with, or directing business to, any person.

•

Effective October 2016, Department of Defense regulations promulgated under the Military Lending Act (the “MLA”), formerly applicable to payday loans and auto title loans, were expanded to include various additional forms of consumer credit, including pawn loans. The MLA regulations limit the annual percentage rate charged on consumer loans made to active military personnel or their dependents to 36%.

Under certain circumstances, the federal Consumer Financial Protection Bureau (“CFPB”) may be able to exercise regulatory authority over the U.S. pawn industry through its rule making authority. To date, the CFPB has not taken any steps to exercise such authority or indicated any intention to do so.

Mexico Regulations

Pawn Regulations — Federal law in Mexico provides for administrative regulation of the pawnshop industry by Procuraduría Federal del Consumidor (PROFECO), Mexico’s primary federal consumer protection agency. PROFECO regulates the form and terms of pawn loan contracts (but not interest or service charge rates) and defines certain operating standards and procedures for pawnshops, including retail operations, and establishes registration, disclosure, bonding and reporting requirements. There are significant fines and sanctions, including operating suspensions, for failure to comply with PROFECO’s rules and regulations.

PROFECO requires that we report certain transactions (or series of transactions) that exceed certain monetary limits. Anti-money laundering regulations restrict the use of cash in certain transactions. Relevant aspects of the law specifically affecting the pawn industry include monthly reporting on “vulnerable activities,” which includes certain high-value pawn and precious metal transactions.

The Federal Personal Information Protection Law requires us to protect our customers’ personal information. Specifically, the law requires us to inform customers if we share customer personal information with third parties and to post (both online and in-store) our privacy policy.

Our pawn business in Mexico is also subject to regulation at the state and local level through state laws and local zoning and permitting ordinances. For example, some states require permits for pawn stores to operate, certification of team members as

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trained in the valuation of merchandise, and strict customer identification controls. State and local agencies often have authority to suspend store operations pending resolution of actual or alleged regulatory, licensing and permitting issues.

Other Regulations — Our pawn business in Mexico is subject to the General Law of Administrative Responsibility (“GLAR”), effective July 2017. GLAR establishes administrative penalties for improper payments to government officials, influence peddling (including the hiring of public officials and the use of undue influence) and other corrupt acts in public procurement processes.

We are also subject to The Federal Law for the Prevention and Identification of Transactions with Funds From Illegal Sources, which requires reporting of certain transactions exceeding certain monetary limits, maintenance of customer identification records and controls, and reporting of all non-Mexican customer transactions. This law affects all industries in Mexico and is intended to detect commercial activities arising from illicit or ill-gotten means through bilateral cooperation between Mexico’s Ministry of Finance and Public Credit and Mexico’s Attorney General’s Office. The law also restricts the use of cash in certain transactions associated with high-value assets and limits, to the extent possible, money laundering activities protected by the anonymity that cash transactions provide. Relevant aspects of the law specifically affecting the pawn industry include monthly reporting on “vulnerable activities,” which include pawn transactions exceeding 103,000 Mexican pesos and retail transactions of precious metals exceeding 52,000 Mexican pesos. Retail transactions of precious metals exceeding 207,000 Mexican pesos are prohibited. There are significant fines and sanctions for failure to comply with these rules.

In addition to the above, our pawn business in Mexico is subject to various general business regulations in the areas of tax compliance, customs, consumer protections, money laundering, public safety and employment matters, among others, by various federal, state and local governmental agencies.

Other Latin American Regulations

Local governmental entities in Guatemala, El Salvador, Honduras and Peru also regulate lending and retail businesses. Certain laws and local zoning and permitting ordinances require basic commercial business licenses and signage permits. Operating in these countries also subjects us to other types of regulations, including regulations related to financial reporting, data protection and privacy, tax compliance, labor and employment practices, real estate transactions, anti-money laundering, commercial and electronic banking restrictions, credit card transactions, marketing, advertising and other general business activities. As the scope of our international operations increases, we may face additional administrative and regulatory costs in managing our business. In addition, unexpected changes in laws and regulations, administrative interpretations of local requirements or legislation, or public remarks by elected officials could negatively affect our operations and profitability.

Available Information

We maintain an Internet website at www.ezcorp.com. All of our reports filed with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and Section 16 filings are accessible, free of charge, through the Investor Relations section of our website as soon as reasonably practicable after electronic filing. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. Information on our website is not incorporated by reference into this report.

ITEM 1A — RISK FACTORS

There are many risks and uncertainties that may affect our operations, performance, development and results. Many of these risks are beyond our control. The following is a description of the important risk factors that may affect our business. If any of these risks were to actually occur, our business, financial condition or results of operations could be materially adversely affected. Additional risks and uncertainties not currently known to us or that we currently consider to be immaterial may also materially adversely affect our business, financial condition or results of operations.

Changes in, or failure to comply with, laws and regulations affecting our products and services could have a material adverse effect on our operations and financial performance.

Our products and services are subject to regulation under various laws and regulations in each country and jurisdiction in which we operate (see “Part I, Item 1 — Business — Regulation”), and adverse legislation or regulations could be adopted in any such country or jurisdiction. If such legislation or regulation is adopted in any particular jurisdiction, we generally evaluate our business in the context of the new rules and determine whether we can continue to operate in that jurisdiction with new or modified products or whether it is feasible to enhance our business with additional product offerings. In any case, if we are unable to continue to operate profitably under the new rules, we may decide to close or consolidate stores, resulting in decreased revenues, earnings and assets. Further, our failure to comply with applicable laws and regulations could result in

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fines, penalties or orders to cease or suspend operations, which could have a material adverse effect on our results of operations.

Negative characterizations of the pawn industry by consumer advocates, media or others could result in increased legislative or regulatory activity, could adversely affect the market value of our publicly-traded stock, or could make it harder to operate our business successfully.

Many of the legislative and regulatory efforts that are adverse to the pawn industry are the result of negative characterization of the pawn industry by consumer advocacy groups, members of the media or others that focus on the cost of pawn loans or instances of pawn operators purchasing stolen property or accepting it as pawn collateral. We can give no assurance that there will not be further negative characterizations of our industry or that legislative or regulatory efforts to restrict the availability of pawn loans or otherwise regulate pawn operations will not be successful despite significant customer demand for such services. Such efforts, if successful, could have a material adverse effect on our operations or financial performance.

Furthermore, negative characterizations of our industry could limit the number of investors who are willing to hold our publicly-traded Class A Non-Voting Common Stock (“Class A Common Stock”), which may adversely affect its market value; limit sources of the debt or equity financing that we need in order to conduct our operations and achieve our strategic growth objectives; or make it harder for us to attract, hire and retain talented executives and other key team members.

A significant portion of our U.S. business is concentrated in Texas and Florida.

As of September 30, 2018, more than 60% of our U.S. pawn stores were located in Texas (43%) and Florida (19%), and those stores account for a significant portion of our revenues and profitability. The legislative, regulatory and general business environment in Texas and Florida has been relatively favorable for our pawn business activities, but a negative legislative or regulatory change in either of those states could have a material adverse effect on our overall operations and financial performance. Further, as discussed below, areas in Texas and Florida where we have significant operations are particularly susceptible to hurricane and tropical storm activity.

We have significant operations in Latin America, and changes in the business, regulatory, political or social climate could adversely affect our operations there, which could adversely affect our results of operations and growth plans.

We own and operate a significant number of pawn stores in Latin America (primarily Mexico, but also Guatemala, El Salvador, Honduras and Peru). Further, our growth plans include potential expansion in those countries as well as, potentially, other countries in Latin America. Doing business in those countries exposes us to risks related to political instability, corruption, economic volatility, drug cartel and gang-related violence, social unrest including riots and looting, tax and foreign investment policies, public safety and security, and uncertain application of laws and regulations. Consequently, actions or events in any of those countries that are beyond our control could restrict our ability to operate there or otherwise adversely affect the profitability of those operations. Furthermore, changes in the business, regulatory or political climate in any of those countries, or significant fluctuations in currency exchange rates, could affect our ability to expand or continue our operations there, which could have a material adverse impact on our prospects, results of operations and cash flows. For a brief description of the current regulatory environment in the Latin American countries in which we currently operate, see “Mexico Regulations” and “Other Latin America Regulations” under “Part I, Item 1 — Business — Regulation.”

A significant or sudden decrease in gold values or the volume of gold transactions may have a material impact on our earnings and financial position.

Gold jewelry comprises a large portion of the collateral security for our pawn loans and our inventory. Pawn service charges, sales proceeds and our ability to liquidate excess jewelry inventory at an acceptable margin are dependent upon gold values and the volume of gold transactions. A decline in the availability of gold or our customers’ willingness or ability to sell us gold or use gold as collateral for pawn loans could impact our business. The impact on our financial position and results of operations of decreases in gold values or volumes or a change in customer behavior cannot be reasonably estimated because the market and customer response to changes in gold values is not known; however, a significant decline in gold values or gold volumes could result in decreases in sales, sales margins, pawn loan balances and pawn service charges.

A significant change in foreign currency exchange rates could have a material adverse impact on our earnings and financial position.

We have foreign operations in Latin America (Mexico, Guatemala, Honduras and Peru) and Canada, and an equity investment in Australia. Our assets and investments in, and earnings and dividends from, each of these countries must be translated to U.S. dollars from their respective functional currencies. A significant weakening of any of these foreign currencies could result in

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lower assets and earnings in U.S. dollars, resulting in a potentially material adverse impact on our financial position, results of operations and cash flows.

Fluctuations in our sales, pawn loan balances, sales margins and pawn redemption rates could have a material adverse impact on our operating results.

We regularly experience fluctuations in a variety of operating metrics. Changes in any of these metrics, as might be caused by changes in the economic environment, competitive pressures, changes in customers’ tastes and preferences or a significant decrease in gold prices could materially and adversely affect our profitability and ability to achieve our planned results of operations.

Achievement of our growth objectives is dependent upon our ability to open and acquire new stores.

Our expansion strategy includes acquiring existing stores and opening de novo store locations. Our acquisition strategy is dependent upon the availability of attractive acquisition candidates, while the success of our de novo store strategy is contingent upon numerous factors that cannot be predicted or controlled, such as the availability of acceptable locations with a desirable customer base, the negotiation of acceptable lease terms, the ability to obtain required government permits and licenses and the existence of a suitable competitive environment. The achievement of our growth objectives is also subject to our ability to attract, train and retain qualified team members. Failure to achieve our expansion goals could adversely affect our prospects and future results of operations.

Our continued success is dependent on our ability to recruit, hire, retain and motivate talented executives and other key team members.

To remain competitive, sustain our success over the long-term and realize our strategic goals, we need to attract, hire, retain and motivate talented executives and other key team members to fill existing positions and reduce our succession risks. If our recruitment and retention programs (including compensation programs) are not viewed as competitive, or we fail to develop and implement appropriate succession plans for key executive positions, our results of operations, as well as our ability to achieve our long-term strategic goals, will be adversely affected.

We have exposure to Grupo Finmart through promissory notes that we received as part of our divestiture of that business in September 2016. Our ability to recover the amounts owed under those promissory notes is heavily dependent on the success and performance of Grupo Finmart and its parent company, AlphaCredit.

In connection with the completion of the sale of our 94%-owned subsidiary, Prestaciones Finmart, S.A.P.I. de C.V., SOFOM, E.N.R. ("Grupo Finmart") to Alpha Holding, S.A. de C.V. (“AlphaCredit”) in September 2016, we received two “Parent Loan Notes” in the original principal amount of $60.2 million. As of September 30, 2018, the outstanding principal balance on the Parent Loan Notes was $37.4 million. Our ability to recover full payment of the Parent Loan Notes is dependent on the success and performance of the business of Grupo Finmart (as primary obligor) and its parent AlphaCredit (as guarantor). To the extent that Grupo Finmart and AlphaCredit are unable to repay these amounts, our assets, financial performance and cash flows would be adversely affected.

If our assessment of and expectations concerning various factors affecting the collectability of the Parent Loan Notes change in the future, we may be required to record an allowance for losses or otherwise impair the carrying value of the Parent Loan Notes and associated accrued fees receivable, which could adversely affect our financial performance in the period of recordation or impairment.

Litigation and regulatory proceedings could have a material adverse impact on our business.

We are currently subject to various litigation and regulatory actions, including those described in Note 14 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data,” and additional actions could arise in the future. Potential actions range from claims and assertions arising in the ordinary course of business (such as contract, customer or employment disputes) to more significant corporate-level matters or shareholder litigation. All of these matters are subject to inherent uncertainties, and unfavorable rulings could occur, which could include monetary damages, fines and penalties, or other relief. Any unfavorable ruling or outcome could have a material adverse effect on our results of operations or could negatively affect our reputation.

Under our certificate of incorporation, we are generally obligated to indemnify our directors and officers for costs and liabilities they incur in their capacity as directors or officers of the Company. Consequently, if a proceeding names or involves any of our directors or officers, then (subject to certain exceptions) we are generally obligated to pay or reimburse the cost or liability such director or officer incurs as a result of such proceeding (including defense costs, judgments and amounts paid in settlement). We maintain management liability insurance that protects us from much of this potential indemnification exposure, as well as

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potential costs or liabilities that may be directly incurred by the Company in some cases. However, our insurance coverage is subject to deductibles, and there may be elements of the costs or liabilities that are not covered under the insurance policies. In addition, to the extent that our ultimate liability in any such proceeding (or any combination of proceedings that are included in the same policy year) exceeds the management liability policy limits, our results of operations and financial condition could be adversely affected.

One person beneficially owns all of our voting stock and controls the outcome of all matters requiring a vote of stockholders, which may influence the value of our publicly-traded non-voting stock.

Phillip E. Cohen is the beneficial owner of all of our Class B Voting Common Stock. As a result of his equity ownership stake, Mr. Cohen controls the outcome of all issues requiring a vote of stockholders and has the ability to appoint or remove directors and officers who control our policies and operations. All of our publicly-traded stock is non-voting stock. Consequently, stockholders other than Mr. Cohen have no vote with respect to the election of directors or any other matter requiring a vote of stockholders except as required by law. This lack of voting rights may adversely affect the market value of our publicly-traded Class A Non-Voting Common Stock (“Class A Common Stock”).

Our acquisitions, investments and other transactions could disrupt our ongoing business and harm our results of operations.

In pursuing our business strategy, we routinely conduct discussions, evaluate opportunities and enter into agreements regarding possible acquisitions, investments and other transactions. These transactions may involve significant challenges and risks, including risks that we may not realize the expected return on an acquisition or investment, that we may not be able to retain key personnel of an acquired business, or that we may experience difficulty in integrating acquired businesses into our business systems and processes. If we do enter into agreements with respect to acquisitions, investments or other transactions, we may fail to complete them due to inability to obtain required regulatory or other approvals or other factors. Furthermore, acquisitions, investments and other transactions require substantial management resources and have the potential to divert our attention from our existing business. These factors could harm our business and results of operations.

We have a significant firearms business in the U.S., which exposes us to increased risks of regulatory fines and penalties, lawsuits and related liabilities.

As discussed under “Part I, Item 1 — Business — Regulation — U.S. Regulations — Pawn Regulations,” some of our stores in the U.S. conduct pawn and retail transactions involving firearms, which may be associated with an increased risk of injury and related lawsuits. We may be subject to lawsuits relating to the improper use of firearms that we sell, including actions by persons attempting to recover damages from firearms retailers relating to misuse of firearms. We may also incur fines, penalties or liabilities, or have our federal firearms licenses revoked or suspended, if we fail to properly perform required background checks for, and otherwise record and report, firearms transactions. Any such actions could have a material adverse effect on our business, prospects, results of operations, financial condition and reputation.

Our business is subject to team member and third-party robberies, burglaries and other crimes at the store level.

The nature of our business requires us to maintain significant cash on hand, loan collateral and inventories in our stores. Consequently, we are subject to loss of cash or merchandise as a result of robberies, burglaries, thefts, riots, looting and other criminal activity in our stores. Further, we could be subject to liability to customers or other third parties as a result of such activities. While we maintain asset protection and monitoring programs to mitigate these risks, as well as insurance programs to protect against catastrophic loss or exposure, there can be no assurance that these crimes will not occur or that such losses will not have an adverse effect on our business or results of operations.

We may be exposed to liabilities under applicable anti-corruption, anti-money laundering and other general business laws and regulations, and any determination that we violated these laws or regulations could have a material adverse effect on our business.

We are subject to various anti-corruption laws that prohibit improper payments or offers of payments to foreign governments and their officials for the purpose of obtaining or retaining business, including the Foreign Corrupt Practices Act in the U.S. and the General Law of Administrative Responsibility in Mexico. We are also subject to various laws and regulations designed to prevent money laundering or the financial support of terrorism or other illegal activity, including the USA PATRIOT Act and the Bank Secrecy Act in the U.S. and The Federal Law for the Prevention and Identification of Transactions with Funds From Illegal Sources in Mexico. See “Part I, Item 1 — Business — Regulation.” Further, our business is expanding in countries and regions that are less developed and are generally recognized as potentially more corrupt business environments.

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While we maintain controls and policies to ensure compliance with applicable laws and regulations, these controls and policies may prove to be less than effective. If team members, agents or other persons for whose conduct we are held responsible violate our policies, we may be subject to severe criminal or civil sanctions and penalties, and we may be subject to other liabilities that could have a material adverse effect on our business, results of operations and financial condition.

Changes in our liquidity and capital requirements or in access to capital markets or other financing and transactional banking sources could limit our ability to achieve our plans.

A significant reduction in cash flows from operations or the availability of debt or equity financing could materially and adversely affect our ability to achieve our planned growth and operating results. Our ability to obtain debt or equity financing, including the possible refinancing of existing indebtedness, will depend upon market conditions, our financial condition and the willingness of financing sources to make capital available to us at acceptable rates and terms. The inability to access capital at acceptable rates and terms could restrict or limit our ability to achieve our growth objectives, which could adversely affect our financial condition and results of operations.

We have outstanding $195 million aggregate principal amount of 2.125% Cash Convertible Senior Notes Due 2019 (the “2019 Convertible Notes”) that is due and payable on June 15, 2019. We expect to be able to repay the 2019 Convertible Notes using any combination of cash on hand, cash generated from operations during fiscal 2019 or refinancing all or a portion of the 2019 Convertible Notes. Such refinancing could be necessary if we were to consummate one or more material acquisitions prior to repayment of the 2019 Convertible Notes.

Our access to transactional banking services is an ongoing business requirement. Due to regulatory or business risks faced by retail banks, we may have difficulty in accessing or maintaining transactional banking services in the future. This could lead to increased costs as we would be required to seek alternative transactional banking services or obtain services from several regional or local retail banks.

Changes in competition from various sources could have a material adverse impact on our ability to achieve our plans.

We encounter significant competition from other pawn stores, consumer lending companies and other retailers, many of which have significantly greater financial resources than we do. Increases in the number or size of competitors or other changes in competitive influences, such as aggressive marketing and pricing practices, could adversely affect our operations. In Mexico, we compete directly with certain pawn stores owned and operated by government affiliated or sponsored non-profit foundations, and the government could take actions that would harm our ability to compete in that market.

Our continued profitability and growth plans are dependent on our ability to successfully design or acquire, deploy and maintain information technology and other business systems to support our current business and our planned growth and expansion.

The success of our business depends on the efficiency and reliability of our information technology and business systems, including the point-of-sale system utilized in our store locations. If access to our technology infrastructure is impaired (as may occur with a computer virus, a cyber-attack or other intentional disruption by a third party, natural disaster, telecommunications system failure, electrical system failure or lost connectivity), or if there are flaws in the design or roll-out of new or refreshed technology systems (such as our point-of-sale system), we may be unable to process transactions or otherwise carry on our business in a timely and efficient manner. An infrastructure disruption could damage our reputation and cause us to lose customers and revenue. We consider security risks from multiple viewpoints, including physical security as well as security of infrastructure and databases. As our technology infrastructure continues to evolve from on premise to cloud service providers, we continue to assess the security of such infrastructure, including third party service providers.

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We collect and store a variety of sensitive customer information, and breaches in data security or other cyber-attacks could harm our business operations and lead to reputational damage.

In the course of conducting our business, we collect and store on our information technology systems a variety of information about our customers, including sensitive personal identifying and financial information. We may not have the resources or technical expertise to anticipate or prevent rapidly evolving types of cyber-attacks. Attacks may be targeted at us, our service providers, our customers or others who have entrusted us with information. Actual or anticipated attacks may cause us to incur increased costs, including costs to hire additional personnel, purchase additional protection technologies, train team members, and engage third-party experts and consultants. Advances in computer capabilities, new technological discoveries or other developments may result in the technology we use to protect data being breached or compromised. In addition, data and security breaches can occur as a result of non-technical issues, including breach by us or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. We could be subject to fines, penalties and liabilities if any such information is misappropriated from our systems or we otherwise fail to maintain the security and confidentiality of such information. Further, any such data security breach could cause damage to our reputation and a loss of confidence in our data security measures, which could adversely affect our business and prospects.

We invested in Cash Converters International Limited for strategic reasons. We may be required in future periods to impair our investment and recognize related investment losses, as we have done in the past, and we may not realize a positive return on the investment.

We currently have a significant investment in Cash Converters International, which is a publicly-traded company based in Australia. We made the initial investment in November 2009 and have made incremental investments periodically since then, including a $14.0 million investment in June 2018 to increase our ownership percentage to 34.75%. The success of this strategic investment is dependent on a variety of factors, including Cash Converters International’s business performance and the market’s assessment of that performance. Cash Converters International’s business has been under significant pressure for the past several years, principally as a result of regulatory changes in Australia and the United Kingdom and related class action litigation. After an analysis of Cash Converters International’s stock price performance and other factors, we determined that the fair value of our investment in Cash Converters International at September 30, 2018 was less than its carrying value and that the decline in fair value was other-than-temporary. Consequently, we impaired a portion of our investment, and recognized a related investment loss in the fourth quarter of fiscal 2018. See Note 4 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.” If the fair value of our investment continues to decline and we determine that such decline is other-than-temporary, we will be required to further impair our investment and recognize the related investment loss, which would adversely affect our results of operations and financial position in the period of impairment. Furthermore, there can be no assurance that we will be able to dispose of some or all of our investment in Cash Converters International on favorable terms, should we decide to do so in the future.

We may incur property, casualty or other losses, including losses related to natural disasters such as hurricane, earthquakes and volcanoes. Not all such losses will be covered by insurance.

We maintain a program of insurance coverage for various types of property, casualty and other risks. The types and amounts of insurance that we obtain vary from time to time, depending on availability, cost and our decisions with respect to risk retention. The policies are subject to deductibles and exclusions that result in our retention of a level of risk on a self-insurance basis. Losses not covered by insurance could be substantial and may increase our expenses, which could harm our results of operations and financial condition.

We have significant operations located in areas that are susceptible to hurricanes (notably the Atlantic and Gulf Coast regions of Florida, as well as the Gulf Coast regions of Texas, including Houston), and other areas of our operations are susceptible to other types of natural disasters, such as earthquakes, volcanoes and tornadoes. As noted above, not all physical damage that we incur as a result of any such natural disaster will be covered by insurance due to policy deductibles and risk retentions. In addition, natural disasters could have a significant negative impact on our business beyond physical damage to property, and only limited portions, if any, of those negative impacts will be covered by applicable business interruption insurance policies. As a result, geographically isolated natural disasters could have a material adverse effect on our overall operations and financial performance. For a discussion of the negative impact from fiscal 2017 hurricanes in the U.S. and an earthquake in Mexico, see “Part II, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations.”

Events beyond our control could result in business interruption or other adverse effects on our operations and growth.

Our business and operations could be subject to interruption or damage due to inclement weather, natural disaster, power loss, acts of violence, terrorist attacks, war, civil unrest or similar events. Such events could impair our customers' access to our business, impact our ability to expand or continue our operations or otherwise have an adverse effect on our financial condition.

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We could be subject to changes in tax rates, the adoption of new tax laws in the U.S. or other countries, or exposure to additional tax liabilities.

We are subject to taxes in the U.S. and several foreign jurisdictions. Current economic and political conditions make tax rates in any of these jurisdictions subject to significant change. Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax rates or changes in tax laws or their interpretation.

Goodwill comprises a significant portion of our total assets. We assess goodwill for impairment at least annually, which could result in a material, non-cash write-down and could have a material adverse effect on our results of operations and financial conditions.

The carrying value of our goodwill was $297.4 million, or approximately 24% of our total assets, as of September 30, 2018. In accordance with Financial Accounting Standards Board Accounting Standards Codification 350-20-35, we test goodwill and intangible assets with an indefinite useful life for potential impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, a change in strategic direction, legal factors, operating performance indicators, a change in the competitive environment, the sale or disposition of a significant portion of a reporting unit, or future economic factors such as unfavorable changes in the estimated future discounted cash flows of our reporting units. Our annual goodwill impairment test is performed in the fourth quarter utilizing the income approach. This approach uses future cash flows and estimated terminal values for each reporting unit (discounted using a market participant perspective) to determine the fair value of each reporting unit, which is then compared to the carrying value of the reporting unit to determine if an impairment exists. The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-average cost of capital derived from other publicly-traded companies that are similar but not identical from an operational and economic standpoint. See Note 1 and Note 7 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data” for a discussion of our annual impairment tests performed for goodwill and indefinite-lived intangible assets during fiscal 2018. There were no impairments of goodwill or other intangible assets during fiscal 2018, but there may be impairments in the future should events or circumstances as noted above change.

The conversion feature of our convertible notes, if triggered, may adversely affect our financial condition and operating results.

We have outstanding a total of $511.3 million of convertible notes. See Note 8 of Note to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.” If the conversion feature of any of those convertible notes is triggered, holders will be entitled to convert the notes at any time during specified periods at their option. If one or more holders elect to convert their notes, we may be required, or may choose, to settle the obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the convertible notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

Conversion of our convertible notes into stock may dilute the ownership interests of existing stockholders or may otherwise depress the price of our Class A Common Stock.

If it were to occur, the conversion of convertible notes would dilute the ownership interests of existing stockholders to the extent we deliver shares of Class A Common Stock upon conversion. Any sales in the public market of such shares could adversely affect prevailing market prices of our Class A Common Stock. In addition, the existence of the convertible notes may encourage short selling by market participants because the conversion of such notes could be used to satisfy short positions, or anticipated conversion of the notes into shares of our Class A Common Stock could depress the price of our Class A Common Stock.

We have a limited number of unreserved shares available for future issuance, which may limit our ability to conduct future financings and other transactions.

Our certificate of incorporation currently authorizes us to issue up to 100 million shares of Class A Common Stock. Taking into consideration the shares that are issued and outstanding, as well as the shares that have been reserved for issuance pursuant to convertible notes, warrants and outstanding equity incentive compensation awards and the conversion of the Class B Common Stock, we had approximately 700,000 shares of authorized Class A Common Stock available for other uses as of September 30, 2018. Therefore, our ability to issue shares of Class A Common Stock (other than pursuant to the existing reserved-for commitments), or securities or instruments that are convertible into or exchangeable for shares of Class A Common Stock, may be limited until such time that additional authorized, unissued and unreserved shares become available or unless we determine

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that we are unlikely to issue all of the shares that are currently reserved. During this time, for example, our ability to complete equity or equity-linked financings or other transactions (including strategic acquisitions) that involve the issuance or potential issuance of Class A Common Stock may be limited.

We face other risks discussed under "Part II, Item 7A — Quantitative and Qualitative Disclosures about Market Risk."

ITEM 1B — UNRESOLVED STAFF COMMENTS

None.

ITEM 2 — PROPERTIES

Our pawn stores are typically located in a freestanding building or occupy all or part of a retail strip center with contiguous parking. A portion of the store interior is designed for retail operations, with merchandise displayed for sale by category. Distinctive exterior design and attractive in-store signage provide an appealing atmosphere to customers. We maintain or reimburse our landlords for maintaining property and general liability insurance for each of our stores. Our stores are open six or seven days a week.

We generally lease our United States locations with terms of three to ten years with one or more renewal options. Our locations in Latin America are generally leased on three to five year terms. Our existing leases expire on dates ranging between October 2018 and February 2030, with a small number of leases on month-to-month terms. All leases provide for specified periodic rental payments at market rates. Most leases require us to maintain the property and pay the cost of insurance and taxes. We believe the termination of any one of our leases would not have a material adverse effect on our operations. Our strategy generally is to lease rather than own space for our stores. On an ongoing basis, we may close or consolidate under-performing store locations.

The following table presents the number of stores by general location as of September 30, 2018:



United States:
Texas	217
Florida	96
Colorado	34
Illinois	21
Oklahoma	21
Arizona	20
Nevada	17
Indiana	15
Tennessee	13
Iowa	11
Utah	9
Georgia	8
Minnesota	7
Alabama	5
Oregon	5
Wisconsin	3
Virginia	2
Pennsylvania	2
Mississippi	1
Arkansas	1
Total United States locations	508

Mexico:
Estado de México	70
Distrito Federal	59
Veracruz	36
Sinaloa	22

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Guanajuato	21
Jalisco	17
Hidalgo	14
Puebla	12
Tabasco	11
Michoacán	8
Querétaro	8
Nuevo León	7
Chiapas	7
Tamaulipas	7
Guerrero	6
Campeche	6
Morelos	6
Coahuila	5
Quintana Roo	5
Oaxaca	4
Aguascalientes	4
Tlaxcala	3
San Luis Potosí	2
Total Mexico locations	340

Guatemala	74

El Salvador	17

Honduras	12

Peru	10

Canada:
Ontario	27
Total Canada locations	27
Total Company locations	988

In addition to our store locations, we lease corporate office space in Austin, Texas (137,100 square feet, of which 92,400 square feet has been subleased to other tenants), Querétaro, Mexico (8,400 square feet), Guatemala (7,700 square feet) and Ontario, Canada (8,400 square feet).

For additional information about store locations during fiscal 2018, 2017 and 2016, see “Segment and Geographic Information” included in “Part I, Item 1 — Business.”

ITEM 3 — LEGAL PROCEEDINGS

For a discussion of legal proceedings, see Note 14 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.”

ITEM 4 — MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5 — MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our Class A Non-Voting Common Stock (“Class A Common Stock”) is traded on the NASDAQ Stock Market under the symbol “EZPW.” As of November 10, 2018, there were approximately 300 stockholders of record of our Class A Common Stock. There is no trading market for our Class B Voting Common Stock (“Class B Common Stock”), which was held by one stockholder as of November 10, 2018. As of September 30, 2018, the closing sales price of our Class A Common Stock, as reported by the NASDAQ Stock Market, was $10.70 per share.

Stock Performance Graph

The following Stock Performance Graph and related information shall not be deemed to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

The following table compares cumulative total stockholder returns for our Class A Common Stock for the last five fiscal years, with the cumulative total return on the NASDAQ Composite Index (ticker symbol: IXIC) and the NASDAQ Other Financial Index (ticker symbol: IXFN) over the same period. The graph shows the value, at the end of each of the last five fiscal years, of $100 invested in our Class A Common Stock or the indices on September 30, 2013. The graph depicts the change in the value of our Class A Common Stock relative to the indices at the end of each fiscal year and not for any interim period. Historical stock price performance is not necessarily indicative of future stock price performance.

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ITEM 6 — SELECTED FINANCIAL DATA

The following selected financial information should be read in conjunction with, and is qualified in its entirety by, the accompanying consolidated financial statements and related notes.

Operating Data



	Fiscal Year Ended September 30,
	2018		2017		2016			2015			2014

	(in thousands, except per share and store figures)
Operating data:
Total revenues	$	813,515	$	747,954	$	730,505		$	720,000		$	745,770
Net revenues	482,910		435,510		428,230			403,020			421,857
Restructuring	—		—		1,921			17,080			6,664
Impairment of investments	11,712		—		10,957			26,837			7,940
Income (loss) from continuing operations, net of tax	38,927		32,033		(8,998		)	(52,182		)	3,438

Basic earnings (loss) per share attributable to EZCORP, Inc. — continuing operations	$	0.73	$	0.62	$	(0.15	)	$	(0.94	)	$	0.08
Diluted earnings (loss) per share attributable to EZCORP, Inc. — continuing operations	$	0.69	$	0.62	$	(0.15	)	$	(0.94	)	$	0.08

Weighted average shares outstanding:
Basic	54,456		54,260		54,427			54,369			54,148
Diluted	57,896		54,368		54,427			54,369			54,292

Stores attributable to continuing operations at end of period	988		786		786			786			804

Balance Sheet Data



	September 30,
	2018		2017		2016		2015		2014

	(in thousands)
Balance sheet data:
Pawn loans	$	198,463	$	169,242	$	167,329	$	159,964	$	162,444
Inventory, net	166,997		154,411		140,224		124,084		138,175
Working capital (a) (b)	497,341		508,382		387,165		318,107		370,247
Total assets (a)	1,246,920		1,024,363		983,244		898,908		1,023,982
Long-term debt, less current maturities (a)	226,702		284,807		283,611		197,976		213,265
EZCORP, Inc. stockholders’ equity	748,037		662,375		594,983		656,031		812,346


(a)	Amounts exclude assets and liabilities held for sale in conjunction with the disposal of Grupo Finmart as discussed in Note 16 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data.”


(b)	Fiscal 2018 amount is inclusive of $190.2 million in current maturities of long-term debt, net.

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ITEM 7 — MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion in this section contains forward-looking statements that are based on our current expectations. Actual results could differ materially from those expressed or implied by the forward-looking statements due to a number of risks, uncertainties and other factors, including those identified in “Part I, Item 1A — Risk Factors.” See also “Cautionary Statement Regarding Risks and Uncertainties That May Affect Future Results” below.

This discussion and analysis should be read in conjunction with the consolidated financial statements and the accompanying notes included in “Part II, Item 8 — Financial Statements and Supplementary Data.”

Overview and Fiscal 2018 Highlights


•	Basic earnings per share from continuing operations grew $0.11 in fiscal 2018 to $0.73, and fully diluted earnings per share increased $0.07 to $0.69 for the year. Net income from continuing operations grew $6.9 million to $38.9 million.


•	We continue to lead the market in same store growth in Pawn Loans Outstanding “PLO.”


•	PLO more than doubled in our Latin America Pawn segment primarily as a result of the acquisition of 112 pawn stores in Guatemala, El Salvador, Honduras and Peru in October 2017 and another 84 stores in Mexico in December 2017 and June 2018, providing immediate accretion to earnings and a platform for further growth and expansion in Latin America.


•	Operating contribution from the Latin America Pawn segment improved significantly to $34.3 million, up 84%, and comprising 27% of our total consolidated segment contribution.


•	We ended the year with a cash balance of $286.0 million, a 74% increase.


•	We successfully completed a $172.5 million offering of convertible notes with a coupon rate of 2.375% and a seven-year term, improving liquidity and providing capital for potential future acquisitions or debt repayment.

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Results of Operations

Fiscal 2018 vs. Fiscal 2017

Summary Financial Data

The following table presents selected summary consolidated financial data for fiscal 2018 and fiscal 2017.



	Fiscal Year Ended September 30,						Change
	2018			2017			Change

	(in thousands)
Net revenues:
Pawn service charges	$	305,936		$	273,080		12%

Merchandise sales	438,372			414,838			6%
Merchandise sales gross profit	161,754			148,313			9%
Gross margin on merchandise sales	37		%	36		%	100 bps

Jewelry scrapping sales	60,752			51,189			19%
Jewelry scrapping gross profit	8,462			7,258			17%
Gross margin on jewelry scrapping sales	14		%	14		%	—

Other revenues, net	6,758			6,859			(1)%
Net revenues	482,910			435,510			11%

Operating expenses	414,249			381,910			8%
Non-operating expenses	11,585			10,361			12%
Income from continuing operations before income taxes	57,076			43,239			32%
Income tax expense	18,149			11,206			62%
Income from continuing operations, net of tax	38,927			32,033			22%
Loss from discontinued operations, net of tax	(856		)	(1,825		)	(53)%
Net income	38,071			30,208			26%
Net loss attributable to noncontrolling interest	(988		)	(1,650		)	(40)%
Net income attributable to EZCORP, Inc.	$	39,059		$	31,858		23%

Net pawn earning assets:
Pawn loans	$	198,463		$	169,242		17%
Inventory, net	166,997			154,411			8%
Total net pawn earning assets	$	365,460		$	323,653		13%

Net revenues for fiscal 2018 were $482.9 million compared to $435.5 million in the prior year, driven primarily by acquired stores. Pawn service charges increased 12% on a higher average pawn loan balance resulting from acquisitions and same store growth. Merchandise sales increased 6% with gross margin on merchandise sales improving 100 basis points to 37%, falling within our target range of 35-38%.

Total operating expenses increased $32.3 million, or 8%, primarily as a result of the acquisition of 196 pawn stores in Latin America during fiscal 2018. Total non-operating expenses increased $1.2 million, or 12%, primarily due to:


•	Impairment of our investment in Cash Converters International Limited (“Cash Converters International”) in the amount of $11.7 million ($9.2 million, net of taxes); partially offset by

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•	A $4.9 million increase in interest income on our notes receivable from the sale of Prestaciones Finmart, S.A.P.I. de C.V., SOFOM, E.N.R. ("Grupo Finmart"), in addition to ordinary accruals of interest and accretion of associated debt discounts; and


•	A $5.0 million increase in other income primarily due to net recoveries from a legal settlement.

Income taxes increased $6.9 million, or 62%, from $11.2 million in fiscal 2017 to $18.1 million in fiscal 2018. The overall increase in our tax expense was driven primarily by a 32% increase in our pre-tax earnings. Income tax expense in both periods includes other items that do not necessarily correspond to pre-tax earnings and create volatility in our effective tax rate. These items include the impact of earnings and foreign tax credits from our equity investment in Cash Converters International, the net effect of state taxes, non-deductible items and changes in valuation allowances. In addition, we were impacted by the Tax Cuts and Jobs Act of 2017 (the "Act") as well as the lapse of statute of limitations on uncertain tax positions in the current year. That tax law change caused us to revalue our net deferred tax assets to reflect the lower U.S. federal tax rate at which deferred tax items are expected to reverse, partially offset by the expiration of statutes of limitations on some previously uncertain tax positions. See Note 10 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for quantification of these items.

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U.S. Pawn

The following table presents selected summary financial data from the U.S. Pawn segment:



	Fiscal Year Ended September 30,						Change
	2018			2017			Change

	(in thousands)
Net revenues:
Pawn service charges	$	237,461		$	238,437		—%

Merchandise sales	350,699			351,878			—%
Merchandise sales gross profit	134,291			128,403			5%
Gross margin on merchandise sales	38		%	36		%	200 bps

Jewelry scrapping sales	47,745			48,203			(1)%
Jewelry scrapping sales gross profit	7,328			6,769			8%
Gross margin on jewelry scrapping sales	15		%	14		%	100 bps

Other revenues	250			219			14%
Net revenues	379,330			373,828			1%

Segment operating expenses:
Operations	263,094			259,977			1%
Depreciation and amortization	12,869			10,171			27%
Segment operating contribution	103,367			103,680			—%

Other segment expenses	271			179			51%
Segment contribution	$	103,096		$	103,501		—%

Other data:
Net earning assets — continuing operations (a)	$	290,140		$	280,673		3%
Inventory turnover	1.9			2.1			(0.2)x
Average monthly ending pawn loan balance per store (b)	$	279		$	280		—%
Monthly average yield on pawn loans outstanding	14		%	14		%	—
Pawn loan redemption rate	84		%	84		%	—



(a)	Balance includes pawn loans and inventory.
(b)	Balance is calculated based on the average of the monthly ending balance averages during the applicable period.

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Net revenue increased $5.5 million, or 1%, due to higher gross margins from our merchandise and jewelry scrapping sales. The increase in net revenue in fiscal 2018 attributable to same stores and new stores added/closed during the year is summarized as follows:



	Change in Net Revenue
	Pawn Service Charges			Merchandise Sales Gross Profit			Total

	(in millions)
Same stores	$	(0.3	)	$	6.4		$	6.1
Closed stores and other	(0.7		)	(0.5		)	(1.2		)
Total	$	(1.0	)	$	5.9		$	4.9
Change in jewelry scrapping sales gross profit and other revenues							0.6
Total change in net revenue							$	5.5

Pawn service charges decreased less than 1% due to a similar decrease in average PLO balances during fiscal 2018, with yield unchanged. PLO balances were negatively affected by Hurricanes Harvey and Irma near the end of fiscal 2017 and the relief funds provided by FEMA and others in the months following the storms, which partially mitigated our customers’ loan demand. Recovery of the loan balance has continued throughout the year.

Merchandise sales were flat, but gross margin on merchandise sales increased 200 basis points to 38%, resulting in a 5% improvement in merchandise sales gross profit to $134.3 million. The increase in gross margin was due to enhanced discipline in pricing and discounting. We expect the merchandise sales gross margin to be within our target range of 35-38% on an ongoing basis.

Jewelry scrapping sales gross profit remained at 2% of current year net revenues, in-line with our strategy to sell rather than scrap merchandise, with a 100 basis point increase in gross margin to 15% due primarily to improvements in lending practices.

Operations expenses increased 1%, primarily due to the cost of labor, and depreciation and amortization increased 27% primarily as a result of additional capital expenditures associated with our store refresh initiatives and a discrete charge of $0.5 million for the retirement of certain assets.

As a result of all of these factors, segment contribution remained flat at $103.1 million.

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Non-GAAP Financial Information

In addition to the financial information prepared in conformity with generally accepted accounting principles in the United States of America ("GAAP"), we provide certain other non-GAAP financial information on a constant currency basis ("constant currency"). We use constant currency results to evaluate our Latin America Pawn operations, which are denominated primarily in Mexican pesos and other Latin American currencies. As Camira Administration Corp. and subsidiaries (“GPMX”) was not acquired until fiscal 2018, its constant currency results reflect the actual exchange rates in effect during fiscal 2018 without adjustment. We believe that presentation of constant currency results is meaningful and useful in understanding the activities and business metrics of our Latin America Pawn operations and reflect an additional way of viewing aspects of our business that, when viewed with GAAP results, provide a more complete understanding of factors and trends affecting our business. We provide non-GAAP financial information for informational purposes and to enhance understanding of our GAAP consolidated financial statements. We use this non-GAAP financial information to evaluate and compare operating results across accounting periods. Readers should consider the information in addition to, but not instead of or superior to, our financial statements prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.

Constant currency results reported herein are calculated by translating consolidated balance sheet and consolidated statement of operations items denominated in Mexican pesos to U.S. dollars using the exchange rate from the prior-year comparable period, as opposed to the current period, in order to exclude the effects of foreign currency rate fluctuations. We used the end-of-period rate for balance sheet items and the average closing daily exchange rate on a monthly basis during the appropriate period for statement of operations items. The end-of-period Mexican peso to U.S. dollar exchange rate as of September 30, 2018 and 2017 was 18.7 to 1 and 18.2 to 1, respectively. The approximate average Mexican peso to U.S. dollar exchange rate for years ended September 30, 2018, 2017 and 2016 was 19.0 to 1, 19.1 to 1, and 17.9 to 1, respectively.

Our statement of operations constant currency results reflect the monthly exchange rate fluctuations and so are not directly calculable from the above rates. Constant currency results, where presented, also exclude the foreign currency gain or loss. We have experienced a prolonged weakening of the Mexican peso to the U.S. dollar and may continue to experience further weakening in future reporting periods, which may adversely impact our future operating results when stated on a GAAP basis.

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Latin America Pawn

The following table presents selected summary financial data from continuing operations for the Latin America Pawn segment, including constant currency results, after translation to U.S. dollars from its functional currencies of the Mexican peso, Guatemalan quetzal, Honduran lempira and Peruvian sol. See “Results of Operations — Non-GAAP Financial Information” above.



	Fiscal Year Ended September 30,
	2018 (GAAP)			2017 (GAAP)			Change (GAAP)	2018 (Constant Currency)			Change (Constant Currency)

	(in thousands)							(in thousands)
Net revenues:
Pawn service charges	$	68,475		$	34,643		98%	$	68,631		98%

Merchandise sales	87,673			62,957			39%	87,485			39%
Merchandise sales gross profit	27,463			19,907			38%	27,382			38%
Gross margin on merchandise sales	31		%	32		%	(100) bps	31		%	(100) bps

Jewelry scrapping sales	13,007			2,986			336%	13,011			336%
Jewelry scrapping sales gross profit	1,134			489			132%	1,133			132%
Gross margin on jewelry scrapping sales	9		%	16		%	(700) bps	9		%	(700) bps

Other revenues	85			645			(87)%	41			(94)%
Net revenues	97,157			55,684			74%	97,187			75%

Segment operating expenses:
Operations	61,361			36,211			69%	61,297			69%
Depreciation and amortization	4,068			2,675			52%	4,086			53%
Segment operating contribution	31,728			16,798			89%	31,804			89%

Other segment income (a)	(2,609		)	(1,856		)	41%	(2,400		)	(a)
Segment contribution	$	34,337		$	18,654		84%	$	34,204		83%

Other data:
Net earning assets — continuing operations (b)	$	75,320		$	42,952		75%	$	76,804		79%
Inventory turnover	2.7			2.4			0.3x	2.7			0.3x
Average monthly ending pawn loan balance per store (c)	$	90		$	74		22%	$	91		23%
Monthly average yield on pawn loans outstanding	16		%	16		%	—	17		%	100 bps
Pawn loan redemption rate	79		%	78		%	100 bps	79		%	100 bps



(a)	Fiscal 2018 constant currency amount excludes $0.2 million of net GAAP basis foreign currency transaction gains resulting from movement in exchange rates. The net foreign currency transaction gains for fiscal 2017 were $0.1 million and are included in the above results.
(b)	Balance includes pawn loans and inventory.
(c)	Balance is calculated based on the average of the monthly ending balance averages during the applicable period.

Our Latin America Pawn business continues to grow rapidly. During fiscal 2018, we increased our store count in Latin America by 84% through the acquisition of a total of 196 stores and the opening of 12 de novo stores. The acquisitions strengthened our position in Mexico and provided our first entry into Guatemala, El Salvador, Honduras and Peru. See “Part I, Item 1 —

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Business — Growth and Expansion.” As a result of these initiatives, combined with strong same store results, net revenue increased $41.5 million, or 74% (up $41.5 million, or 75%, on a constant currency basis). The increase in net revenue attributable to same stores and new stores added/closed during the year is summarized as follows:



	Change in Net Revenue (GAAP)
	Pawn Service Charges		Merchandise Sales Gross Profit		Total

	(in millions)
Same stores	$	3.7	$	1.8	$	5.5
New stores and other	30.1		5.8		35.9
Total	$	33.8	$	7.6	$	41.4
Change in jewelry scrapping sales gross profit and other revenues					0.1
Total change in net revenue					$	41.5



	Change in Net Revenue (Constant Currency)
	Pawn Service Charges		Merchandise Sales Gross Profit		Total

	(in millions)
Same stores	$	4.3	$	1.7	$	6.0
New stores and other	29.7		5.8		35.5
Total	$	34.0	$	7.5	$	41.5
Change in jewelry scrapping sales gross profit and other revenues					—
Total change in net revenue					$	41.5

Pawn service charges were up 98% on both a GAAP and a constant currency basis primarily due to the addition of acquired stores discussed above and same store growth. Including the impact of new and acquired stores and foreign currency movements, the average PLO balance per store during fiscal 2018 increased 22%. Same store pawn service charges grew 11% on a 9% growth in average same store PLO.

Merchandise sales were up 39% on both a GAAP and a constant currency basis, with gross margin on merchandise sales of 31%, 100 basis points below the prior year. As a result of the combination of these effects, offset by foreign currency impacts, merchandise sales gross profit was up 38% to $27.5 million (38% to $27.4 million on a constant currency basis).

Jewelry scrapping sales increased 336% (GAAP and constant currency) with a 700 basis point decline in margin, primarily due to the results of the acquired stores discussed above.

Though we have steadily increased their general merchandise business since acquisition, the 112 GPMX stores acquired in Guatemala, El Salvador, Honduras and Peru in October 2017 have a higher concentration of pawn loans collateralized by gold jewelry than our stores in Mexico, and they scrap a greater portion of any jewelry loan defaults than our other stores. This relationship drove the larger increase in total Latin America pawn service charges and jewelry scrapping sales in relation to the smaller increase in in-store merchandise sales.

We leveraged a 74% increase in net revenue (75% on a constant currency basis) into an 89% increase in segment operating contribution (GAAP and constant currency) due to greater operational leverage from the addition of the acquired stores, resulting in only a 69% increase (GAAP and constant currency) in operations expenses. After a $0.8 million improvement in other segment income, primarily interest income from our peso-denominated note receivable, segment contribution increased 84% to $34.3 million (up 83% to $34.2 million on a constant currency basis). We expect interest income in the segment to decrease in fiscal 2019 as the principal portion of the note receivable continues to be repaid monthly in accordance with its amortization schedule.

See Note 2 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for quantification of revenue and net income attributable to the fiscal 2018 acquisitions.

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Other International

The following table presents selected summary financial data from continuing operations for the Other International segment after translation to U.S. dollars from its reporting units’ functional currencies of primarily Canadian and Australian dollars:



	Fiscal Year Ended September 30,						Percentage Change
	2018			2017			Percentage Change

	(in thousands)
Net revenues:
Consumer loan fees and interest	$	8,120		$	7,983		2%
Consumer loan bad debt	(1,697		)	(1,988		)	(15)%
Other revenues, net	—			3			(100)%
Net revenues	6,423			5,998			7%

Segment operating (income) expenses:
Operating expenses	10,378			8,639			20%
Equity in net income of unconsolidated affiliate	(5,529		)	(4,916		)	12%
Segment operating income	1,574			2,275			(31)%

Impairment of investment	11,712			—			*
Other segment income	(132		)	(96		)	38%
Segment (loss) contribution	$	(10,006	)	$	2,371		*



*	Represents a percentage computation that is not mathematically meaningful.

Segment loss was $10.0 million, a decrease of $12.4 million from the prior year primarily due to:


•	Impairment of our investment in Cash Converters International in the amount of $11.7 million ($9.2 million, net of taxes) related to shares acquired prior to fiscal 2018; and


•	A $1.7 million increase in operating expenses, including further investment in the development of technology to drive future revenue enhancement.

Due to regulatory changes that became effective January 1, 2018, we are adding installment loan products to meet the needs of our customers. In addition to payday loans, all CASHMAX stores are now offering installment loans with terms ranging from six to 18 months and average yields of 47% per annum. We entered into a financing arrangement with a third-party lender on November 2, 2018 to provide up to CAD $25 million to fund originations of installment loans through November 2019.

Subsequent to September 30, 2018, and after recording the impairment of $11.7 million discussed above, the fair value of our investment in Cash Converters International further declined, which we believe is partially in response to an Australian senate inquiry announcement regarding the operating practices impacting the entire industry. We have impaired our investment in Cash Converters International to its fair value as of September 30, 2018 and will continue to assess our investment in future periods for additional other-than-temporary impairment. Cash Converters International announced settlement of the Queensland class action litigation in October 2018 up to a maximum charge of approximately AUD $16.4 million. We estimate recording a charge of approximately $3.0 million for our share of earnings from Cash Converters International in the first quarter of our fiscal 2019 related to this event, in addition to their regularly included share of earnings.

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Other Items

The following table reconciles our consolidated segment contribution discussed above to net income attributable to EZCORP, Inc., including items that affect our consolidated financial results but are not allocated among segments:



	Fiscal Year Ended September 30,						Percentage Change
	2018			2017			Percentage Change

	(in thousands)
Segment contribution	$	127,427		$	124,526		2%
Corporate expenses (income):
Administrative	53,653			53,254			1%
Depreciation and amortization	8,363			10,624			(21)%
Loss on sale or disposal of assets	233			27			763%
Interest expense	27,738			27,794			—%
Interest income	(14,422		)	(10,173		)	42%
Other income	(5,214		)	(239		)	2,082%
Income from continuing operations before income taxes	57,076			43,239			32%
Income tax expense	18,149			11,206			62%
Income from continuing operations, net of tax	38,927			32,033			22%
Loss from discontinued operations, net of tax	(856		)	(1,825		)	(53)%
Net income	38,071			30,208			26%
Net loss attributable to noncontrolling interest	(988		)	(1,650		)	(40)%
Net income attributable to EZCORP, Inc.	$	39,059		$	31,858		23%

Administrative expenses increased $0.4 million, or 1%, as we continue to focus on controlling administrative expenditures despite the growth of the business.

Depreciation and amortization expense decreased $2.3 million, or 21%, primarily due to acceleration of depreciation in the prior year for certain assets resulting from a decrease in useful life estimates.

Interest expense was flat due to the net effect of the following financing transactions:


•	The May 2018 issuance of $172.5 million aggregate principal amount of 2.375% Senior Convertible Notes Due 2025, including accruals of interest and amortization of associated discounts and deferred financings costs;


•	Extinguishment of debt and other costs of $5.3 million in fiscal 2017 as a result of retiring $35 million principal amount of our 2.125% Senior Cash Convertible Notes Due 2019 and the entirety of our $100 million Term Loan Facility in July 2017; and


•	The July 2017 issuance of $143.8 million aggregate principal amount of 2.875% Senior Convertible Notes Due 2024, including accruals of interest and amortization of associated discounts and deferred financings costs.

For additional information about our financing transactions, see “Note 8 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.”

Interest income increased $4.2 million, or 42%, primarily as a result of our note receivable from the sale of Grupo Finmart, which was restructured in September 2017, including ordinary accruals of interest in addition to accretion of associated deferred compensation amounts. Grupo Finmart has continued to make timely monthly principal and interest payments on the notes in accordance with the amortization schedule. Excess cash on hand has also generated incremental interest income.

Other income included primarily $5.2 million in net recoveries received in connection with the settlement of a derivative lawsuit that was initiated in fiscal 2014 and settled in the third quarter of fiscal 2018. See “Note 17 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplementary Data.”

Income taxes increased $6.9 million, or 62%, from $11.2 million in fiscal 2017 to $18.1 million in fiscal 2018. The overall increase in our tax expense was driven primarily by an increase in our pre-tax earnings from $43.2 million to $57.1 million. Income tax expense includes other items that do not necessarily correspond to pre-tax earnings and create volatility in our

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effective tax rate. These items include the impact of earnings and foreign tax credits from our equity investment in Cash Converters International, the net effect of state taxes, non-deductible items and changes in valuation allowances, the lapse of the statute of limitations of uncertain tax positions in the current year, as well as impacts from the new federal tax in the United States.

On December 22, 2017, the Act was signed into law. Among other things, the Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. The corporate tax rate reduction was effective January 1, 2018 and, accordingly, reduced our current fiscal year federal statutory rate to a blended rate of 24.5%, and will further reduce it to 21% beginning in fiscal 2019 as a result of our fiscal year ending September 30. As of September 30, 2018, we have finalized amounts previously estimated related to the impact of the Act. We recognized a $2.1 million charge for the revaluation of our deferred tax assets and liabilities to the reduced tax rate upon enactment of the Act. In addition, we recorded a charge of approximately $2.6 million to record a valuation allowance against foreign tax credit carryforwards which fail to meet the “more likely than not” threshold to be utilized as a result of changes in tax law enacted as part of the Act. Both items are included as components of "Income tax expense" in our consolidated statements of operations in fiscal 2018. We believe we have adequate foreign tax credits to fully offset any transition tax on the total post-1986 foreign earnings and profit of our foreign subsidiaries as required under the Act.

See Note 10 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for quantification of these items.

Loss from discontinued operations was primarily comprised of the write-off of balances from a discontinued business which we previously anticipated to collect.

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Fiscal 2017 vs. Fiscal 2016

Summary Financial Data

The following table presents selected summary consolidated financial data for fiscal 2017 and fiscal 2016.

During the fourth quarter of fiscal 2017, Hurricanes Harvey and Irma negatively impacted our U.S. Pawn segment and a major earthquake impacted our Latin America Pawn segment. The majority of the financial impacts resulted from the temporary closure of stores as a result of the hurricanes, causing an estimated $5.0 million negative impact to pawn loan balances, with a resulting reduction in pawn service charges. As a result of the storms, 79 stores in Texas and 97 stores in Florida were closed. We were able to reopen most of the stores within two days, and had reopened all of the stores by September 30, 2017. We believe the reduction in pawn loan balances was partially due to the significant inflow of relief funds to our customers and the temporary abatement of rent, utilities and some other monthly bills for affected customers, temporarily reducing the demand for pawn loans.



	Fiscal Year Ended September 30,						Change
	2017			2016			Change

	(in thousands)
Net revenues:
Pawn service charges	$	273,080		$	261,800		4%

Merchandise sales	414,838			409,107			1%
Merchandise sales gross profit	148,313			150,836			(2)%
Gross margin on merchandise sales	36		%	37		%	(100) bps

Jewelry scrapping sales	51,189			50,113			2%
Jewelry scrapping sales gross profit	7,258			8,074			(10)%
Gross margin on jewelry scrapping sales	14		%	16		%	(200) bps

Other revenues, net	6,859			7,520			(9)%
Net revenues	435,510			428,230			2%

Operating expenses	381,910			399,057			(4)%
Non-operating expenses	10,361			28,810			(64)%
Income from continuing operations before income taxes	43,239			363			11,812%
Income tax expense	11,206			9,361			20%
Income (loss) from continuing operations, net of tax	32,033			(8,998		)	*
Loss from discontinued operations, net of tax	(1,825		)	(79,432		)	(98)%
Net income (loss)	30,208			(88,430		)	*
Net loss attributable to noncontrolling interest	(1,650		)	(7,686		)	(79)%
Net income (loss) attributable to EZCORP, Inc.	$	31,858		$	(80,744	)	*

Net pawn earning assets:
Pawn loans	$	169,242		$	167,329		1%
Inventory, net	154,411			140,224			10%
Total net pawn earning assets	$	323,653		$	307,553		5%



*	Represents a percentage computation that is not mathematically meaningful.

Total revenues for fiscal 2017 were $748.0 million compared to $730.5 million in fiscal 2016, driven by increased merchandise sales and pawn service charge growth. Pawn service charges increased 4% primarily due to an increase in average pawn loan balances outstanding during fiscal 2017, despite the negative impacts from hurricanes previously discussed. The increase was driven by continued intense focus on market leadership in meeting our customers' desire for cash. Merchandise sales increased 1% with gross margin on merchandise sales of 36%, below fiscal 2016, but within our target range of 35-38%.

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The estimated decrease in income from continuing operations, earnings per share and pawn loans resulting from natural disasters for fiscal 2017 was as follows:



	U.S. Pawn			Mexico Pawn			Total

	(in millions, except per share data)
Pawn service charges	$	(1.6	)	$	—		$	(1.6	)
Merchandise sales gross profit	(0.2		)	—			(0.2		)
Operating expenses and loss on disposal of assets	1.0			0.1			1.1
Income from continuing operations before income taxes	$	(2.8	)	$	(0.1	)	$	(2.9	)

Diluted loss per share attributable to EZCORP, Inc. — continuing operations	$	(0.03	)	$	—		$	(0.03	)

Pawn loans outstanding as of September 30, 2017	$	(5.0	)	$	—		$	(5.0	)

Total operating expenses decreased $17.1 million, or 4%, due to:

•

A $14.8 million decrease in administrative expense due primarily to a $7.9 million decrease in business and professional fees as a result of the completion of internal control remediation efforts in fiscal 2016, inclusive of $0.8 million in acquisition-related costs, and a $7.0 million decrease in labor costs including the impact of corporate headcount reductions, partially offset by $1.2 million in costs related to our acquisition of GPMX in October 2017;


•	A $2.9 million decrease in depreciation and amortization expense from a lower depreciable asset base;


•	A $1.9 million decrease in restructuring expense as our prior actions are complete; and


•	A $0.7 million decrease in loss on sale or disposal of assets due to a reduction in asset disposals in fiscal 2017; partially offset by

•

A $3.2 million increase in operations expense primarily due to investment in field leadership and customer-facing team members in addition to higher team member benefit costs, $0.9 million in costs (exclusive of $0.1 million in non-operating expenses) attributable to Hurricane Harvey in Texas during our fourth quarter of fiscal 2017 and $0.6 million in losses, net of insurance recoveries, associated with riot-related looting of 12 stores in Mexico during our second fiscal quarter.

Total non-operating expenses decreased by $18.4 million from fiscal 2016. This decrease was primarily due to:


•	A $5.2 million increase in income from our unconsolidated affiliate due to improvement in performance of Cash Converters International as a result of improved operations and the completion of fiscal 2016 restructuring actions;


•	No impairments of our investment in Cash Converters International in fiscal 2017, compared to an $11.0 million impairment ($7.2 million, net of taxes) in fiscal 2016;


•	A $12.0 million increase in interest income as a result of our notes receivable from the sale of Grupo Finmart including a $3.0 million gain as a result of the restructuring of the notes receivable in September 2017, in addition to ordinary accruals of interest and accretion of associated discounts; and


•	A $1.6 million decrease in other expense primarily due to net foreign currency transaction losses in fiscal 2016 as a result of movement in exchange rates; partially offset by

•

An $11.3 million increase in interest expense primarily as a result of our Term Loan Facility obtained in September 2016, including accruals of interest in addition to amortization of associated discounts and deferred financings costs. We incurred loss on extinguishment of debt and other costs of $5.3 million, recorded as a component of interest expense, as a result of the retirement of $35 million principal amount of 2019 Convertible Notes and the Term Loan Facility in July 2017, funded by proceeds from our offering of 2024 Convertible Notes.

Income taxes increased $1.8 million, or 20%, from $9.4 million in fiscal 2016 to $11.2 million in fiscal 2017. The overall increase in our tax expense was driven by an increase in our pre-tax earnings from $0.4 million in fiscal 2016 to $43.2 million in fiscal 2017. Income tax expense includes other items that do not necessarily correspond to pre-tax earnings and create volatility in our effective tax rate. These items include the impact of earnings and foreign tax credits from our equity investment in Cash Converters International, the net effect of state taxes, non-deductible items and changes in valuation allowances. In

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fiscal 2017, state tax expense decreased due to a decision to elect to file combined returns in certain states that allow combined filings where separate returns were previously filed. In addition, we recognized a partial reversal of our valuation allowance by realizing a portion of our capital loss carryforwards in connection with the restructuring of our Grupo Finmart notes receivable. See Note 10 of Notes to Consolidated Financial Statements included in “Part II, Item 8 — Financial Statements and Supplemental Data” for quantification of these items.

In fiscal 2016, we sold our Grupo Finmart business. Loss from discontinued operations, net of tax, included a gain of $34.2 million, transaction costs of $8.0 million, a $73.2 million goodwill impairment charge and a general operating loss of $44.8 million, before income taxes.

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U.S. Pawn

The following table presents selected summary financial data from continuing operations for the U.S. Pawn segment:



	Fiscal Year Ended September 30,						Change
	2017			2016			Change

	(in thousands)
Net revenues:
Pawn service charges	$	238,437		$	229,893		4%

Merchandise sales	351,878			348,771			1%
Merchandise sales gross profit	128,403			131,503			(2)%
Gross margin on merchandise sales	36		%	38		%	(200) bps

Jewelry scrapping sales	48,203			47,810			1%
Jewelry scrapping sales gross profit	6,769			7,672			(12)%
Gross margin on jewelry scrapping sales	14		%	16		%	(200) bps

Other revenues, net	219			331			(34)%
Net revenues	373,828			369,399			1%

Segment operating expenses:
Operations	259,977			255,321			2%
Depreciation and amortization	10,171			12,242			(17)%
Segment operating contribution	103,680			101,836			2%

Other segment expenses	179			1,780			(90)%
Segment contribution	$	103,501		$	100,056		3%

Other data:
Net earning assets — continuing operations (a)	$	280,673		$	270,974		4%
Inventory turnover	2.1			2.2			(0.1)x
Average monthly ending pawn loan balance per store (b)	$	280		$	270		4%
Monthly average yield on pawn loans outstanding	14		%	14		%	—
Pawn loan redemption rate	84		%	84		%	—



(a)	Balance includes pawn loans and inventory.
(b)	Balance is calculated based on the average of the monthly ending balance averages during the applicable period.

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Net revenue increased $4.4 million, or 1%, primarily due to larger outstanding pawn loan balances during fiscal 2017, offset by the negative impacts from hurricanes previously discussed. The increase in net revenue in fiscal 2017 attributable to same stores and new stores added/closed since the prior year is summarized as follows:



	Change in Net Revenue
	Pawn Service Charges		Merchandise Sales Gross Profit			Total

	(in millions)
Same stores	$	8.4	$	(2.6	)	$	5.8
New stores and other	0.1		(0.5		)	(0.4		)
Total	$	8.5	$	(3.1	)	$	5.4
Change in jewelry scrapping sales gross profit and other revenues						(1.0		)
Total change in net revenue						$	4.4

Pawn service charges increased 4% primarily due to a 4% increase in average ending monthly pawn loan balances outstanding during fiscal 2017, continuing our trend of year-over-year growth, driven by continued intense focus on market leadership in meeting our customers' desire for cash. The increase in pawn service charges is inclusive of the negative impacts from hurricanes previously discussed.

Merchandise sales increased 1%, but gross margin on merchandise sales was 36%, 200 basis points below fiscal 2016. As a result, merchandise sales gross profit decreased 2% to $128.4 million. The decrease in merchandise sales gross profit is inclusive of the negative impacts from hurricanes previously discussed.

Jewelry scrapping sales gross profit remained flat at 2% of fiscal 2017 net revenues, in-line with our strategy to sell rather than scrap merchandise, with a 200 bps basis point decline in gross margin to 14%.

We improved total segment expenses to 42% of revenues from 43% in fiscal 2016. In dollar terms, segment expenses increased by $1.0 million, in line with our increase in net revenue. This increase was primarily due to costs attributable to Hurricane Harvey in Texas and Hurricane Irma in Florida during our fourth quarter of fiscal 2017 as previously discussed and $3.5 million higher labor costs with investment in field leadership and customer-facing team members in addition to higher team member benefit costs. These items were partially offset by a $2.0 million decrease in depreciation and amortization from a lower depreciable asset base. Restructuring activities have been substantially completed, resulting in a further $1.0 million offsetting reduction compared fiscal 2016.

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Latin America Pawn

The following table presents selected summary financial data from continuing operations for the Latin America Pawn segment, including constant currency results, after translation to U.S. dollars from its functional currency of the Mexican peso. See “Results of Operations — Non-GAAP Financial Information” above.



	Fiscal Year Ended September 30,
	2017 (GAAP)			2016 (GAAP)			Change (GAAP)	2017 (Constant Currency)			Change (Constant Currency)

	(in thousands)							(in thousands)
Net revenues:
Pawn service charges	$	34,643		$	31,907		9%	$	36,819		15%

Merchandise sales	62,957			60,331			4%	67,629			12%
Merchandise sales gross profit	19,907			19,329			3%	21,383			11%
Gross margin on merchandise sales	32		%	32		%	—	32		%	—

Jewelry scrapping sales	2,986			2,282			31%	3,291			44%
Jewelry scrapping sales gross profit	489			397			23%	542			37%
Gross margin on jewelry scrapping sales	16		%	17		%	(100) bps	16		%	(100) bps

Other revenues	645			385			68%	684			78%
Net revenues	55,684			52,018			7%	59,428			14%

Segment operating expenses:
Operations	36,211			38,481			(6)%	38,750			1%
Depreciation and amortization	2,675			2,965			(10)%	2,862			(3)%
Segment operating contribution	16,798			10,572			59%	17,816			69%

Other segment expenses (a)	(1,856		)	2,064			*	(1,783		)	(a)
Segment contribution (loss)	$	18,654		$	8,508		119%	$	19,599		130%

Other data:
Net earning assets — continuing operations (b)	$	42,952		$	36,576		17%	$	40,273		10%
Inventory turnover	2.4			2.5			(0.1)x	2.4			(0.1)x
Average monthly ending total pawn loan balances per store (c)	$	74		$	70		6%	$	78		11%
Monthly average yield on pawn loans outstanding	16		%	16		%	—	16		%	—
Pawn loan redemption rate	78		%	78		%	—	78		%	—



*	Represents a percentage computation that is not mathematically meaningful.
(a)	Fiscal 2017 constant currency amount excludes $0.1 million of net GAAP basis foreign currency transaction gains resulting from movement in exchange rates. The net foreign currency transaction losses for fiscal 2016 were $1.3 million and are not excluded from the above results.
(b)	Balance includes pawn loans and inventory.
(c)	Balance is calculated based on the average of the monthly ending balance averages during the applicable period.

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In fiscal 2017, net revenue from the Latin America Pawn segment increased $3.7 million, or 7% (up $7.4 million, or 14%, on a constant currency basis). The increase in net revenue attributable to same stores and new stores added/closed during the year is summarized as follows:



	Change in Net Revenue
	Pawn Service Charges		Merchandise Sales Gross Profit		Total

	(in millions)
Same stores	$	2.2	$	0.3	$	2.5
New stores and other	0.5		0.3		0.8
Total	$	2.7	$	0.6	$	3.3
Change in jewelry scrapping sales gross profit and other revenues					0.4
Total change in net revenue					$	3.7



	Change in Net Revenue (Constant Currency)
	Pawn Service Charges		Merchandise Sales Gross Profit		Total

	(in millions)
Same stores	$	4.2	$	1.7	$	5.9
New stores and other	0.7		0.4		1.1
Total	$	4.9	$	2.1	$	7
Change in jewelry scrapping sales gross profit and other revenues					0.4
Total change in net revenue					$	7.4

Pawn service charges were up 9% (15% on a constant currency basis) primarily as a result of same store loan growth, with an increased average ending monthly pawn loan balance outstanding during fiscal 2017 of 6% (11% on a constant currency basis), driven by continued intense focus on market leadership in meeting our customers' desire for cash, offset by foreign currency impacts.

Merchandise sales were up 4% (12% on a constant currency basis), with gross margin on merchandise sales of 32%, consistent with fiscal 2016. As a result of the combination of these effects, offset by foreign currency impacts, merchandise sales gross profit was up 3% to $19.9 million (11% to $21.4 million on a constant currency basis).

We leveraged a 7% increase in net revenue (14% on a constant currency basis) into a 59% increase in segment operating contribution (69% on a constant currency basis) due to focused expense management, despite absorbing start-up costs from de novo stores. After a $3.9 million improvement in other segment income, primarily interest income and foreign currency impacts, segment contribution increased 119% (130% on a constant currency basis) to $18.7 million ($19.6 million on a constant currency basis).

Segment expenses decreased by $6.5 million ($3.7 million on a constant currency basis) primarily due to:


•	A $1.4 million decrease ($0.3 million on a constant currency basis) in labor costs largely due to foreign currency impacts;


•	A $1.9 million increase in interest income as a result of our notes receivable from the sale of Grupo Finmart, including a $0.5 million gain as a result of the restructuring of the notes receivable in September 2017, combined with the ordinary accruals of interest and accretion of associated discounts;


•	A $0.5 million decrease in restructuring charges as we have substantially completed all prior restructuring actions; and


•	A $1.4 million decrease in foreign currency transaction losses; partially offset by


•	$0.6 million in losses, net of insurance recoveries, associated with the riot-related looting of 12 stores during our second fiscal quarter.

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Other International



	Fiscal Year Ended September 30,						Percentage Change
	2017			2016			Percentage Change

	(in thousands)
Net revenues:
Consumer loan fees and interest	$	7,983		$	8,769		(9)%
Consumer loan bad debt	(1,988		)	(1,965		)	1%
Other revenues, net	3			9			(67)%
Net revenues	5,998			6,813			(12)%

Segment operating expenses:
Operating expenses	8,639			7,803			11%
Equity in net (income) loss of unconsolidated affiliate	(4,916		)	255			*
Segment operating income (loss)	2,275			(1,245		)	*

Impairment of investment	—			10,957			(100)%
Other segment (income) expense	(96		)