EZPW - NASDAQ

Good morning, ladies and gentlemen. Welcome to the E

Thank you, and good morning, everyone. During our prepared remarks, we will be referring to slides, which are available for viewing or download from our website at investors.ezcorp.com. Before we begin, I'd like to remind everyone that this conference call as well as the presentation slides contain certain forward-looking statements regarding the company's expected operating and financial performance for future periods. These statements are based on the company's current expectations. Actual results for future periods may differ materially from those expressed due to a number of risks or other factors that are discussed in our annual, quarterly and other reports filed with the Securities and Exchange Commission. And as noted in our presentation materials and unless otherwise identified, results are presented on an adjusted basis to remove the effect of foreign currency fluctuations and other discrete items. Joining us on the call today are E

Thanks, Jean, and good morning, everyone. For the second quarter of fiscal 2024, E

Thanks, Lachie. Slide 9 details our consolidated financial results for the second quarter. PLO ended the period at $232 million, up 13% on a year-over-year basis, which is the highest second quarter in E

Thanks, Tim. In closing, I want to thank our E

[Operator Instructions] Our first question comes from the line of John Hecht of Jefferies.

You've added a few stores each quarter in LatAm and in the U.S., and it sounds like there's been small acquisitions and then some organic build-out, too. I'm wondering kind of if you could give us some characteristics of the pipeline? Is -- are there any consolidation opportunities that are worth noting, what geographies would those be? And then where are you focused on organic expansion?

Thanks, John. Look, I think you can see that we've been pretty consistent in adding stores, as you say. I think the pipeline is -- it's always been pretty strong, particularly in Latin America. I think there's lots to do in those countries. In the U.S., we added stores this quarter. I don't think there are many more big acquisitions to do in the U.S. It's much more of a sort of small consistent acquisitions pipeline, whereas in Latin America, you've got still some pretty big chains out there that we can potentially do. But I think what we're showing is that we're disciplined about it. While there's still pretty big things to do out there, I think we're being disciplined on price. Whereas in the U.S., it's much more of a steady as she goes, small but consistent.

Okay. Second question is the U.S. margin -- gross margin on retail has been very, very consistent. There's been an increase in LATAM over the past couple of quarters. Is that tied to mix or just different buying patterns. I'm just curious about the margin trends there.

Thanks, John. Yes, some of it is to do with mix. We also have had much better pricing in Latin America for the last 6 to 12 months, and that's coming through in the pricing. We also are executing the business model a lot better, especially in Mexico and it is driving some of that. So a combination of all those is really a great result from the team.

Okay. And last question, I'm just kind of worried whether we're interested in customer trends. Is there a way to think about new customers versus recurring customers and any kind of changing behavior on that front?

I don't think if there's any changing behavior. I think we're pleased with the organic growth in customer demand. I think it's coming from both sides. We're seeing growth in loan customers. We're seeing growth in people buying secondhand goods. So I think it's been pretty consistent across all of our regions, just core customer growth in the 2 things that we're doing, in the 2 businesses that we run. But we're seeing some nice growth as well in luxury goods. So luxury handbags, watches, jewelry, we're seeing nice growth there. So I think it's a pretty a consistent picture on customer growth, both in the U.S. and in Latin America.

Our next question comes from the line of Brian McNamara of Canaccord.

Congrats on the strong results. So we observed, obviously, PLO is really strong, again, despite more normal tax refunds coming through, driving loan pay downs. Is that just timing? Or are you still running record PLO in May? Or have you seen that typical seasonal paydown of loans?

So the -- typically that finishes at the end of at the end of March. And so you start seeing the build in loan balances from March. So the paydowns definitely do stop. Last year, we did see a very quick turnaround in those numbers. This year, I think it's probably a little bit more normal, where it slowly builds through this quarter. But we are -- with the excellent customer service and the rewards program, we do think we are gaining market share.

Okay. Great. And then I'm assuming the buy online pick up in store test, I think you guys started that in San Antonio, correct me if I'm wrong. I'm assuming that's going well as you're expanding it to 100 stores in Texas and Florida. I guess, what did you see out of that test or pilot or whatever that kind of gave you confidence to roll this out to more stores? And would you expect to roll this out to kind of all your U.S. stores or all your stores in total at some point?

Look, I think it's still early, Brian. I think we're in 100 stores now across 3 markets. It's -- we're at a point where we've got the pilot test in a place where we want it. We've got photography going well now. We've got teams trained. So I think it's -- now is where the pilot is actually happening. So I think by the end of this quarter, we'll know if we've got a successful test. I would like to think we can roll it out into more stores. Customers early on are seeming to like it. We're having some early success. But I think this is the quarter where we'll really know. So we said in the materials also that e-commerce is going pretty well in the Max Pawn business. While that's still relatively small, we're seeing some strong early results there. So look, I think this quarter in the quarter where we'll see if this is a real business that we're going to roll out. So we're pretty confident that early on, it looks good. But I think this time next quarter, we'll have a much better idea of how it's going.

Got it. I appreciate all the incremental detail on the rewards program. I think that's really helpful for investors. Are you surprised at how successful you guys have been at kind of digitizing a very historically physical business. You got to come into the store, you got to negotiate and things like that? And how is that kind of overall digitization? Obviously, acknowledging it's a very -- it will continue to be a very physical business kind of to date, given the initiatives you rolled out.

If I was to be truthfully honest, yes, I am quite surprised at how well it's going. We've got nearly 5 million rewards customers. So it's I think -- truthfully, I think it has gone a lot better than we would have thought. So it's a very large program. I think it's very successful. I think the engagement looks really strong. But as we've said to you and our shareholders a bunch of times, it's now time to really work out how we best use this customer base in terms of engaging them, giving them the best benefits that we can drive. So look, I think the digitization, to answer your question, has got a lot better than we would have believed. I think we're leading the industry. But now it's time to really work out how to best engage that customer base and drive real growth for them and for us.

Got it. And then perhaps one for Tim. Costs were a bit higher than we expected. What's driving that? And how should we think about costs in Q3 and the back half of the year?

Yes, we continue to invest in our teams, driving some of the costs, obviously, in Latin America, there's also the costs that the government is instituting with increased minimum wages. A little bit on rent renewals as well, causing some of that cost to come through. Well, we see the successful advertising rewards program is also being successful. So the cost is also increasing. So there's a couple of those things driving those costs. We do expect the costs to sequentially rise through the quarter, through Q3 and Q4. These inflationary effects are still in play as we've seen the U.S. government still keeping rates steady with the inflation still out there.

Got it. And then finally, probably our most important question relating to capital allocation. What drove the decision to pay the principal amount of your 2024 convertible notes in cash? And would you expect to do the same for the 2025? And what other options would you consider absent kind of repeating that? Would you consider straight debt or something like that?

Thank you, Brian. I mean, look, I think we've been really consistent in the way we think about capital. I think as a Board, as a team, we're always looking at all alternatives. We look at equity, debt, equity linked in the capital stack. So look, I think it's a really consistent message. We are conservative in the way we think about the balance sheet. We like to be very liquid because we're growing quickly. We've got lots of potential acquisitions that we can do at the right price. We're buying back shares. So look, we're trying to balance all of those competing initiatives and we've been very clear with our investors and our shareholders that all alternatives are always on the table. But look, I think our financing strategy has been an excellent one. I think we are very liquid. We're very conservative, and we've got plenty of capital to go after what we think is a truly global big opportunity and all alternatives are on the table. And I think this quarter has been a really strong one. I think you're continuing to see strong growth in the U.S., but I think really pleasingly, we're seeing fantastic results in Latin America. And I think that's been a real highlight for this quarter where we're seeing great loan growth, sales growth and the team who are driving, particularly Mexico and Guatemala, obviously, are having some really sustained now strong growth. So I think it's been a really great quarter for both businesses, the U.S. and Latin America. And I think on your question on the balance sheet, the strategy is showing that we've got the right amount of capital to grow the business both organically and inorganically. So we're really happy with the quarter. And one of the big highlights is Latin America. So we're really pleased with what the team has been able to achieve down there, and we're looking at driving even stronger growth in the coming quarters.

I would now like to turn the conference back to Lachie Given for closing remarks. Sir?

Thank you, everyone, for joining, to our team at E