EZPW - NASDAQ

Good morning, ladies and gentlemen. Welcome to the E

Thank you, and good morning, everyone. During our prepared remarks, we will refer 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 Sean and good morning everyone. We delivered another impressive set of operational and financial results in the second quarter driven by sustained demand for fast and accessible cash solutions and affordable high quality secondhand goods. We achieved record Q2 revenue of $318.9 million marking a 12% year-on-year increase while PLO also grew 15% to a Q2 record of $271.8 million. Our strong bottom line performance included a 23% increase in EBITDA to $45.1 million and diluted EPS growth of 21% to $0.34. These results again highlight the operating leverage inherent in our business model driven by strong growth, disciplined expense management and enhanced operational efficiency. Together, these factors continue to strengthen our profitability and drive significant value for our shareholders. Beginning on Slide 3, we continue to be a global leader in pawn broking and pre owned retail with 1284 stores across the U.S. and Latin America. Persistent inflation and economic pressure continue to impact customers who are increasingly turning to E

Thanks Lachie. Slide 9 provides a detailed look at our consolidated financial results for the second fiscal quarter. As Lachie mentioned, we closed the quarter with a record setting Q2 PLO balance of $271.8 million reflecting a 15% increase on total and same store basis. PSC revenue rose 12% year-over-year primarily fueled by same store PLO growth. Our inventory increased 32% year-over-year driven by both increased PLO as well as lower inventory turnover at 2.5 times compared to 2.9 times which is still a healthy turnover rate. Lower inventory turnover during the quarter was partially attributed to the expansion of our layaway program in the U.S. as well as a greater composition of jewelry inventory which typically has a longer sales cycle. While these factors contribute to the trend, we remain focused on improving inventory turns and are prioritizing efforts to optimize sales velocity and inventory management. Merchandise sales increased by 8% to $177.4 million while merchandise margin contracted by 150 basis points due to increased price negotiations at the counter. Despite lower merchandise margin, we posted another strong quarter of EBITDA margin expansion increasing 130 basis points to 14.1% reflecting our ongoing focus to drive operating efficiencies and fixed cost leverage. Moving to our U.S. pawn segment on slide 10, revenue for the quarter was up 7% to $221.4 million. Earning assets grew by 21% driven by significant PLO and inventory growth. Approximately half the increase in inventory is due to the increase in customer layaways where sales get recognized in future quarters. Slide 11 includes a map of U.S. states in which we operate highlighting our significant footprint of 542 stores across states. From this page I also want to call out 15% increase in average loan size for the quarter across the U.S. with approximately three quarters of that growth driven by higher prices of jewelry and the remainder due to higher prices on general merchandise. Slide 12 offers an in depth look at our U.S. financial performance, highlighting a 15% increase in PLO both on a total and same store basis. This was driven by high average loan size, enhanced operational performance and sustained growing demand for pawn services. With respect to tax refund season to the end of March this year, the IRS has seen the average tax refund increase by $120 or 3.9%. Even with this increase, we saw the same 9% sequential PLO decrease from quarter one as seen in FY '24. PSC revenue rose 9% year-over-year primarily driven by the same store PLO growth, partially offset by lower PLO yield. In the U.S. we have seen our average loan size increase, but we have seen lower yield due to markets such as Texas where the state regulations mandate lower monthly interest rates as loan size increase. While this still benefits absolute PSC dollars, it does contribute to lower PLO yields. This is driving the disparity between PLO and PSC growth this quarter. On the U.S. retail side, merchandise sales increased by 2% and were up 1% on a same store basis while merchandise gross margin decreased 58 basis points. U.S. pawn EBITDA for the quarter was $49.8 million, up 15% primarily due to higher PSC, with EBITDA margin up once again expanding 173 basis points to 22.5%, underscoring the team's focus on profitability. Turning to our Latin American segment on slide 13, it was again a very strong quarter. Total revenues increased 25%, $97.5 million. Earning assets increased 28% driven by strong PLO growth of 17% and a 44% increase in inventory compared to historically low levels in the prior period. We continue to evaluate and execute actions both systemically and operationally that we have worked well in the U.S. to drive further improvements across Latin America. On slide 14 you can see that we've expanded and acquired our presence in Latin America with 742 stores, opening nine De Novo stores, acquiring one store in Guatemala and consolidating nine stores in Mexico. PLO jewelry composition increased by 400 basis points reflecting our continued focus on growing this category, particularly in Mexico. And from an inventory perspective, jewelry composition was down 90 basis points due to increased scrapping. As shown on slide 15, Latin America experienced 17% PLO growth and was up 14% on a same store basis resulting in a 19% PSC increase. Strong results were driven by our themes execution to drive operating performance as well as a robust loan demand from our customers. On the retail side, merchandise sales grew by 21%, up 18% on a same store basis. Merchandise gross profit grew 11%, partially offset by a 274 basis point margin contraction due to increased price negotiations at the counter. EBITDA grew an impressive 36% to $13.6 million with EBITDA margin increasing by 99 basis points to 13.9%. A quick word on our balance sheet and capital allocation priorities. We are well positioned for the future with a very strong balance sheet and robust liquidity. As Lachie mentioned, during the quarter we completed a $300 million debt financing and as of March 31st we had approximately $505 million of cash. As part of this transaction we received a first time credit rating of Ba1 from Moody's, clearly reflecting the strength of the company's financial position. Slide 28 of our quarterly earnings presentation provides a pro forma view of our debt and convertible note obligations to account for the expected retirement of our May 2025 convertible notes. The pro forma assumes that convert holders do not convert their convertible notes into common stock, which would be done at a share price of $15.90. However, if all the holders do elect to convert their notes, the total number of shares underlying these notes is 6.5 million shares, which we already shown in our diluted EPS calculation. If this were to occur, the $103.4 million of cash that was earmarked to redeem these notes would remain available to the company for other uses. Looking ahead, we believe our focus on growing PLO combined with disciplined inventory management, streamlined systems and a commitment to exceptional customer service will be driving force that sustain our strong momentum through 2025. While consumers continue to navigate macroeconomic pressures, E

Thanks, Tim. I'd like to extend my genuine appreciation to our team for delivering another impressive quarter with strong growth across nearly all of our key financial metrics. Guided by our core values of people born and passion, the company remains well positioned to continue to drive sustained growth for our shareholders well into the future. And with that, we will open the call up to questions. Operator?

[Operator Instructions] Your first question comes from the line of Brian McNamara Canaccord Genuity. Please go ahead.

Hey good morning guys. Thanks for taking the question and congrats on the strong results. So I guess -- on the tax season, I think this was probably the most normal one we've had since arguably 2019, and your U.S. PLO declined, as you said, 9% sequentially. I think that was typically like a mid-teens decline sequentially historically, if I'm wrong, please correct me. But in your view, is this just a kind of a new normal or does it speak more to the macro environment and its impact on your customers?

Tim, you can take that.

Yes, sure. That 9% decrease was similar to last year. The average return is only grew like 4% and so it does look like a new normal. It does look like the American consumer costs have gone up more than that 4% of the refund and so there is a lot more costs going in than compared to the refunds. So the last couple of years has been less than 10% drop. And as you said, it was between 15% and 20% drop prior to 2019. So it does look like a new normal if things remain the same.

Great. And then secondly, it's been tariffs, tariffs, tariffs, obviously, recently in the news. Are you guys seeing a tangible impact from tariffs on the positive side yet with price increases either widely in effect or widely expected in the primary market? And are you continuing to see new faces in your stores, perhaps middle and upper income folks trading down?

Tim, do you want to take the tariff one?

Sure. From a tariff perspective, it does -- new items don't appear in our stores straight away so that does take a bit of time. But we are seeing the inflationary effects on general merchandise, so the average loan size last quarter was due to 50% to jewelry, 50% to general merchandise. This quarter, it's 75% jewelry and 25% general merchandise. And so that average loan size continues to grow both because of gold price increases, but also general merchandise is getting more expensive and worth more money. So people are getting larger loans with single items.

And then on the second part of the question, Brian, I think we are seeing new faces. We are seeing people trade down, but it is a significant strategic initiative for us to drive much more traffic into the stores, and we're doing that in a physical way and in a digital way, which we think we're leading the market on. So new customers, transaction growth is -- it's definitely happening, but it's a key strategic initiative over the next 6, 12, 18 months because we want to see more of it.

Great. And then your merchandise margins in the last few quarters have been a bit kind of lower than what we would have been accustomed to so 34% is below your targeted range. I'm sure there's a bit more negotiation in the stores, but why wouldn't that be a bit better, particularly as your larger competitors kind of doing that merch margin consistently in kind of the low 40s range. Is that simply you guys prioritize the loan counter?

Back for Tim.

Yes. So from a -- what we try and prioritize is trying to prioritize gross profit. And so we look at both the PSC that's going to come through and the gross profit margin and in combination, that's what we're trying to maximize. So at this point in the cycle, what we see is that trying to satisfy the customers' needs with the cash will generate a little bit more PSC if we give them a little bit more money. That means that when -- if that item does drop, we will make a little bit less on the sale of that item. But from an overall perspective, we are trying to maximize that gross profit number. And I think you can see on one of those slides now, we have been consistently producing great gross profit margins on an overall basis for a very long time.

Great. And then just last one on the $300 million in senior notes. Clearly, you have a lot of cash on the balance sheet. Now I'm curious what you intend to do with the extra cash? And if you could remind us of your capital allocation priorities. Thank you.

Thank you, Brian. Look, I think the story hasn't changed at all. I think we're looking for a real balance here on scaling the business up, which we've always said is our number one priority. We think the opportunity is very, very large for our company even within the markets that we're already in. So scaling the business up and balancing that with running a very conservative balance sheet. So we like to be very liquid as all our shareholders know. And so it really is a balance here that we're trying to build. We've got a pretty robust pipeline. The extra cash gives us some real flexibility now in how we can approach those opportunities. I think you'll -- it's not a new day for E

I’m done. Thank you guys.

Thank you. Operator, next question.

Your next question comes from the line of Alex Howell from Stephens Inc. Please go ahead.

Hey guys, good morning. One for Kyle [ph]. Congrats on the quarter and the recent private notes offering. I think most of my questions have actually been asked. I'm just curious how you guys are thinking about your Latin American acquisition strategy going forward and just what you're really seeing out there currently. Love to get your thoughts.

Sure. Yes, sure. So Latin America is obviously a massive highlight of this quarter that we've just reported on as well as 2 or 3 before that. We've seen extremely strong momentum down there across all of our metrics. So across lending, sales, margin, and it's really down to some fantastic operational leadership led by Blair and his operating team in Mexico. We've told the market that we invested heavily in the U.S. business first and that Latin America, we will do the same and I think the market can see now the results of those efforts. So I think Latin America is an extremely important part of our business and getting more important given the organic performance. I think in terms of the inorganic opportunities, absolutely right down there in Mexico and beyond. I think there are small opportunities of 5 to 15 stores, and there's the middle size up to 150 and then 5-plus opportunities above that and when I say opportunity, I just mean operators down there. So it's a very large market. It is a very interesting market for us. But again, we will take a disciplined approach to acquisitions down there. So I think we have made sure that our balance sheet is strong enough to move on opportunistic acquisitions down there, which there are, as I said, a long list of independent operators down there, but we will do it in a way that our shareholders get an appropriate return, that we acquire good management teams and that we think we can improve those businesses. So all-in-all, I think it's more of the same down there, lots of opportunity we've got a really strong balance sheet to go after it, but we'll do it in a disciplined way.

Thank you, guys.

Your next question comes from the line of Craig Irwin from Roth Capital Partners. Please go ahead.

Hi, good morning and thank you for taking my questions. So to step back into the big picture, right, you obviously are executing really well on some of these initiatives you've put in place, like I guess the one that jumps out to me is the longer-term layaways and the 15% increase in layaways that's delivered in the quarter, right? Then you also have other tailwinds that are sort of non-discretionary like the price of gold going through $3,000 an ounce. Lachie, can you maybe just talk us through how these discretionary and nondiscretionary tailwinds are materializing in your business? Is the benefit from things like the longer-term layaways already in? Or is it still building? And should we see a similar impact from gold prices benefiting the jewelry business, does that come through over time? Or does it come through much more quickly in an individual quarter?

Thank you, Craig. Good morning. Yes, so Tim and I both have sort of -- we'll split that question up a bit. But in taking that step back, which I think is a good thing to do, I think you're dead right. We have got our own internal initiatives that are driving much better operational execution and performance. And then you've got external macroeconomic, including the gold price, things that are going on that are also on balance helping. And so I think both of those two separate buckets are helping to drive the really strong performance. In terms of the internal stuff, I think your question on the layaway program, look, the layaway program, if you remember, you don't recognize sales until those layaways are paid in full. So we expect that we have essentially put off sales into the next few quarters as a result of those layaways. So we haven't recognized the sales to this point on that question, but -- which hopefully sets us up for some strong sales periods going forward. But many, many other internal initiatives that are driving this performance. You've got a lot of time being spent on how we price products at the loan counter. You've got a lot of work going on, on lending grids, how much -- what our LTV should be like what categories. You've got lots of marketing initiatives going on around both digital and in-store. And really, Blair just leads an operating format that is highly disciplined, it's not a knee-jerk type of regime. It is a -- we run a really balanced business here and I think the last 3 years or 4 years of a really simple strategy around this operational execution piece is what's been so critical in driving the financial performance and then I think the stock price. In terms of the external stuff, yes, gold is obviously a big driver of average loan size. So we've seen -- it really is quite momentous PLO growth. A year ago, I would have been saying that 8% loan growth is fantastic, and we're seeing 15%. So it's pretty -- it really is exceptional growth on the lending side, and that's the core of the business that we're in. So the gold price is certainly helping on the lending side. And then on the selling side, look, there's some very different, in some ways, competing external things going on out there. It's getting tougher for the consumer. Gold prices on the buying side are getting high, and if they keep getting higher, start to become a little bit more unaffordable. So on the selling side, we've just got to be really disciplined and dialed in on our discounting cadence to really move this inventory. But at the moment, we're pretty happy with the way that's going in the U.S. We've got more to do in the U.S. around selling, but with the layaway program about to hit, we think we should be driving some good selling there. And then you can see in Latin America, it really is doing very well down there. So I think, look, it's a really good point. There's two things going on, the stuff we're doing internally and the macro side. And at the moment, you can see from the financial results that it really is a great time to be in the pawn business. Tim, if you want to add anything to that?

Yes, just a little bit more detail on those layaways. What -- you're correct in saying that this is -- continues to build. And so those sales haven't come through. Those sales will start coming through in the next few months. And then you'll see the full effect of that layaway program actually in the sales lines. At the moment, you're really only seeing it on the balance sheet and in the growth of those layaway balances. On the gold side, the one thing to remember is that we're not moving our loan amounts daily on the gold price increases. So we do it -- we really look at the more longer-term views of gold. And so we are looking at that all the time, but we're not reaching lending gold at the level of the price of gold today, but probably a few months ago is where we're probably lending at gold at the moment. So there's always some room even if gold does come down that we have some buffer there.

Thank you for that. So my next question is about the luxury market and Max Pawn. This is one, I guess, that kind of piques my interest because I can see a fairly substantial opportunity for expansion of your customer base. Can you maybe just update us on Max Pawn. I guess last quarter; you said sales were up 50%, which is phenomenal. What would it take for you to look to grow the storefronts or look to grow the online presence around Max Pawn and drive more revenue through this channel?

Yes, it's definitely an exciting part of the business. And so starting at the top, we are ahead of where we thought we would have been when we started out on this process. So that's a great place to start. This business is gathering momentum, obviously, based in Vegas at the moment, run by a really experienced pawn broker in Michael Mack. And so we're really happy with the way the business is going. And you're right, we also think that -- we're proving it up in Vegas in a multiunit format. We started with one store and now we've got more. So we're proving that up, and we're really happy with the way that's going but we are now looking at new markets. We think there are some really natural candidates around the United States to begin with that would be suitable here. But I think you've seen from this management team over a period of time now that we like to do things in a disciplined way. We look at return on capital, but I love the way you're thinking, which is customer base, expanding that natural customer base that we've always had. And so I think you will see in the coming couple of years, this business expand but we're really happy with the way it's going. It is still small. It's a small part of the pie at the moment, but in 5 years, I would like to think that it's a much bigger part. And we're also gathering expertise from that business and rolling it out into some of our stores, actually, a lot of our stores. It's obviously not full luxury stores in the easy pawn business, but we are feeding many, many stores with some luxury goods that we're learning from the Max Pawn category or that we sort of had already. So I think the luxury category in itself is a really interesting -- while small today, a really interesting 2 to 5-year play for us.

Excellent. Well, congratulations again on a really solid quarter. And I’ll go ahead and hop back in the queue. Thanks.

Thanks, Craig.

Your next question or your final question comes from the line of Raj Sharma [ph] from Texas Capital Bank. Please go ahead.

Hi, thank you. Congratulations on the solid performance. Thank you for taking my question. So after -- just after the completion of the debt offering and the expected takeout of the converts, just remind me again, please, what would the shares outstanding be? And then I've got a couple of follow-up questions.

Yes, yes. So there's a good summary on that effect in the back of that presentation. On Page 28 and 29, we go through that detail of the debt refinancing. So there's 6.5 million shares associated with the 2025 converts, depending on what holders elect to do will depend on how many get converted.

Got it. Got it. And then any color -- more color on the founders group, how their performance is going in this environment?

Yes. Thanks, Raj. So Simple is doing really well. They are 100 stores across Florida and the Caribbean and some of Central America, seeing similar -- they're now getting into scale, which is fantastic and they are seeing similar trends to what we're seeing across very strong lending growth in sales, margin. So we're really happy with the way that those guys are going. And yes, we sit here as a long-term holder of a preferred security in essentially what's the third largest ban broker in the United States now. So as I said, we're really happy with the way they're going. The business is performing well, solid team that is stable. We'll continue to assess our -- what we do with them in the future. But for now, we're really happy.

Got it, thank you for that. And then just last question for me. You have an off-balance sheet sort of growth -- vehicle that's a really smart structure that -- can you -- are there more plans to do something to have growth around that structure? Any color on that? And then what was that about $50 million...

Yes. Look, we designed that structure specifically for Simple, for the business that we've just talked about. I think it's been a really successful structure as we've been able to see that business scale very, very quickly using off-balance sheet debt. And we have a preferred in that business. And look, it's not a vehicle we thought of to do other things in or anything like that, doing more partnerships in that vehicle. This is specifically for that situation, which I think has worked really well. But yes, every quarter, we're always considering how we can help Simple more, what their needs are, what their shareholders' needs are. But it's obviously very strategically relevant for us as the third largest operator. We've worked with their management team for many, many years and know them well. So in time, with them, we will think about how our future looks together. But for now, we like being a preferred holder of that security and staying close to the situation.

Thank you again for taking my questions. I’ll take it offline. Solid results. Thank you.

Thank you.

I will now turn the call back over to Lachlan Given for closing remarks.

Thank you, operator. Thank you, everyone, for joining today. We're really proud of another fantastic quarter. So looking forward to talking to many of you during the day and over the next week or so. Thanks, everyone.