Cash America 2012 Annual Report Download - page 6

CASH A M E RICA INTER N A T I ONAL, INC .
The decision to reorganize
our business in Mexico was the
other major drag on operating
earnings for the Retail Services
Segment in 2012. I hesitate to
dedicate too much of
my limited space in this
message to the topic of
our business south of
the border, since it represents
such a small component of our
overall enterprise and our public
discussions about this business
have been extensive. However,
we have invested signicant
capital into this business venture
and have not yet produced any
meaningful return, unlike the vast
majority of our past acquisitions.
Sufce it to say that we nally
concluded during 2012 that the
gold-only shops in Mexico were
subject to long-term decline and
the physical footprints of those
shops did not provide a sufcient
transitional opportunity. Thus
we elected to close 148 of those
locations in order to direct our
full attention to the 47 full-format
model of pawnshops that we have
opened in the past two years.
The full-format model is what we
have operated successfully in the
U.S. for the past 30 years, and
we believe the future is bright for
this model in Mexico. We intend
to expand our footprint in Mexico
once these remaining
units achieve sustainable
protability. I absolutely
believe we have a
long-term growth opportunity in
Mexico and potentially other Latin
American markets.
E-COMMERCE
Our E-Commerce segment
continues to make great strides
toward its strategic goals of both
product and geographic expansion.
And as I mentioned earlier,
this segment enjoyed an
outstanding year in 2012.
While I have always been
honest with you in acknowledging
our missteps over the years – which
fortunately have been few – I also
think it important to highlight areas
where we have used your capital
wisely and generated superior
returns. Our E-Commerce business
is one of those areas.
We rst entered this business
in 2006 with a desire to capture an
early mover’s advantage
in the emerging space of
unsecured online lending
for the underbanked
consumer. We purchased
CashNetUSA (now Enova
International, Inc.) for an initial
amount of $35 million and an earn-
out payment that ultimately resulted
in an investment of approximately
$250 million. The trailing 12-month
revenue of the business at the time
of the initial acquisition transaction
was approximately $30 million with
just a few million dollars of operating
income. Six short years later, Enova
posted annual revenues in 2012
of $661 million and income from
operations of $126 million. We
can debate a range of enterprise
value multiples that might be
applied to Enova, but even the
low end of that range would yield a
number supporting signicant value
creation with this investment. And
encouragingly, the future growth
opportunities for this segment of our
business appear bountiful to me.
The most exciting part of our
E-Commerce segment’s story is the
evolution of its business model over
the past few years. The business
we acquired in 2006 offered only
one product – a single-pay, short-
term loan product to consumers
in the U.S. Today, that specic
U.S. product accounts for slightly
less than one-third of Enova’s
consolidated revenues. Enova has
expanded beyond the U.S. and now
serves customers in four countries
with a suite of products including
short-term loans, lines of credit
and various forms of installment
loans. Enova launched a new
platform branded “NetCredit.com”
in the U.S. in 2012 in an attempt
to gradually move upstream from
our traditional customer with
an installment loan product
tailored to a customer’s
specic need and credit
prole. These are the customers
who have been squeezed out of the
traditional consumer credit space
by the banks and their regulators –
a universe of new customers
representing a large-scale potential
opportunity for Enova.
In July of 2012, your Board
of Directors made a decision to
withdraw the proposed IPO of
Enova, which it had rst authorized
in September of 2011. The decision
to withdraw the proposed IPO was
based on many factors, such as the
Board’s concerns regarding the
volatility of the IPO market at that
time and the distractions – both
internal and external – created
with a pending Registration
Statement. The Board has indicated
it will continue to assess potential
opportunities to separate Enova
in the future as part of its frequent
reviews of capital planning and
value creation strategies.
4
Segment in 2012. I hesitate to product and geographic expansion.
And as I mentioned earlier,
this segment enjoyed an
outstanding year in 2012.
units achieve sustainable
operations of $126 million. We
can debate a range of enterprise
value multiples that might be
applied to Enova, but even the
our traditional customer with
an installment loan product
tailored to a customer’s
specic need and credit