Everyone wants to know what’s going on in the payday loan industry. What are the latest trends? What’s the newest strategy? How do my defaults compare with every one else and how do I improve? Heck, for that matter how does everyone else even measure or define defaults?
One method of gaining additional insight that we’ve always recommended is to listen in on the earnings calls of the publicly traded companies. By listening in or reading the transcripts, you gain valuable insight into trends, profits or losses, and strategies to enable you to run your business better and manage your investments.
A great example of what you can learn was recently provided by the 4th Quarter earnings report by EZCORP, Inc. Joe Rotunda, President & CEO, reported, “This quarter marks our twenty-fifth consecutive quarter of compounded growth in earnings. It’s also the eighth consecutive fiscal year of earnings growth. I believe this amplifies the strong dynamics within our business. When one component is adversely impacted by an external factor primarily associated with economic conditions, another strengthens and vice versa. This is true both between and within the business segments”.
If you read the transcript, Joe is referring to the ability of EZCORP Inc. to benefit from offering multiple products and services in their stores. Now all their products are focused on sub-prime financial services; pawn, payday loans, auto title loans, gold buying , etc. But the beauty of offering multiple products rather than taking the mono-line approach is that as the economy changes and evolves you always have a spectrum of products that make sense for consumers.
Joe goes on, “For our fourth quarter, we are reporting net income of $16 million. That’s an increase of 44% over last year. Diluted earnings per share were $0.37 compares favorably to $0.26 last year. If you adjust for two unusual elements, which you will be hearing about, the drag of Hurricane Ike …”
Looks like the industry, based on EZCORP Inc., is experiencing record income and phenomenal growth.
Later in the call Joe says, “From a bad debt perspective, we’ve done an excellent job of managing initial defaults through balanced underwriting and an intense focus on getting the customer into the store on the day their loan is due. For this quarter, and as for the year our initial defaults show improvements to last year. However, our net bad debt still increased at a faster rate than fees and we ended the period at 36% of fees versus 31% last year. Without Hurricane Ike, bad debt would have been within three points of a year ago. The increase, I believe, reflects the difficulty in the current economic environment to collect debt once it’s incurred. It shows what the consumer behaves once they default and it shows in the capital markets that buy bad debt as well. So, regardless, we are committed to continue to address process to improve both”.
So, just as we have been harping on, defaults and collections are becoming more of an issue and demand close attention. That’s a trend you need to be aware of. No surprise here but HOW DO YOU DO IT?
Next, Joe discusses some new products EZCORP Inc. has introduced. “Moving from new stores to new products, we have expanded our installment loan to 90 stores in Texas. We’ve been cautious with the product because of the size of the loans, from $1525 to $3000, and the length of the term, which is at five months. We believe we have a pretty good handle on the customer, bad debt management, and we plan to expand the installment loan to several additional states beyond Texas during the New Year.
We also recently began offering another new product, auto title loans. We introduced this product last month in all 11 stores in Missouri. We believe this product offers us an incredible opportunity to leverage our store base and drive incremental returns. It also affords us the opportunity to expand our customer base and to diversify our product assortment beyond solely the payday loan product. Our plans are to move judiciously and expand the auto title loan product to additional three to five states and approximately 100 additional stores by the end of the year”.
And finally, “We are doing installment loans today in Texas and we are doing them under the CSO statutes. We’ve developed the loans so it’s a five-month period, which is as far out as we want to go and the pricing to the customer is approximately 10% of the principal of the loan paid every – twice a month as they go through the period. The rate, if you calculate an APR on it, the APR is somewhat lower for an installment loan than it is for a typical or a traditional payday loan.
Now, rather than go on-and-on dissecting this conference call, we suggest you head over to:
EZCORP 4th Quarter Conference call at SeekingAlpha.com and read it.
And don’t stop there! Get access to those companies you want to follow and listen in on the calls or read the transcripts. Typically, you can do a search, click on Investor Relations and receive an email when a call is scheduled.
There’s some great stuff buried in there you just have to harvest it.
Comments? Suggestions? Let’s hear it!