Good day, ladies and gentlemen, and welcome to the EZCORP Fiscal 2016 First Quarter Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded..

I would now like to introduce your host for today's conference, Mr. Jeff Christensen, Vice President of Investor Relations of EZCORP. Sir, you may begin. .

Thank you, Kaylee, and good morning everyone. Welcome to EZCORP's First Quarter Fiscal 2016 Results Conference Call. Joining me today are Stuart Grimshaw, Chief Executive Officer of EZCORP; and Mark Ashby, Chief Financial Officer of EZCORP..

During our prepared remarks, we will be referring to slides which are now available for download from our website at investors.ezcorp.com. .

Before we begin, I'd like to remind everyone that this conference call contains certain forward-looking statements regarding the company's expected operating and financial performance for future periods. These statements are based on the company's expectations.

Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of uncertainties and other factors, including fluctuation in gold prices and the desire of our customers to pawn or sell their gold goods, changes to the regulatory environment, changing marketing conditions in the overall economy and in the industry, and consumer demand for the company's services and merchandise.

For a discussion of these and other factors affecting the company's business and prospects, please see our annual, quarterly and other reports filed with the SEC. .

Now I would like turn the call over to Mr. Grimshaw.

Stuart?.

Thanks, Jeff, and good morning everyone. I hope it's not too early for you all. .

I'd like to start probably turning to Page 3 and just bring you up-to-date as to where we are with the strategy we announced in July 2015. And as you recall, there were 3 areas that we said we'd execute on around focusing the organization, simplifying the organization and optimizing the organization. .

If I turn firstly to the focus, particularly in the pawn business, we have spent a lot of time looking at the service and customer satisfaction recorded in the stores, and in particular, we've initiated both video and phone mystery shopping, which has been quite a proven training tool for us, and we've seen around a 7% to 10% improvement in satisfaction scores over that period of time, and we continue to see benefits from using these measures of satisfaction, particularly for our staff as they learn how to interact with our customers better.

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We've also invested in talent to support the growth initiatives that we do have, particularly in pawn, in our centralized functions, particularly in accounting and risk, and also in Grupo Finmart where we appointed a new CEO, a new CRO and CFO through that period of time.

And overall, when we look at the businesses, we believe we have a very seasoned management team. And Indeed, if we look at the U.S. Pawn business, the average tenure of our senior executives in that business are around 9 years, with experience in the pawn industry specifically.

So we believe that with the focus we're bringing in, we'll see that through the pawn results which is bringing in some very outstanding results. .

In simplifying the organization, we've rolled out a new incentive scheme, particularly for our pawn customers, which do support the mystery shopping initiatives as well, which focuses on customer engagement. Previously, we've focused specifically on metrics, which haven't actually evaluated the overall interaction we have had with our customer.

And we're seeing some benefits from this, and we're ensuring that the incentives are actually paid on a timely basis, reinforcing the behaviors that we're measuring. .

We have completed the wind down of USFS on time, and we have reached agreement with the CFPB, so we have moved past that business now and focusing on the other businesses.

And as we highlighted in July, we have centralized all procurement, and we've identified $4 million of savings on an annualized basis, and -- however, this will be phased through the course of the year.

So the $4 million won't be fully in this year, but it will roll through the next year and will be coming through various quarters of this financial year. .

In terms of optimizing, as we disclosed again in July, we're on track to realize $13 million in cost reductions by FY '18. And I will note that not all those will be coming through the corporate expense line, it will be through the various expense lines as well.

We are targeting systems, particularly our point-of-sale systems in the pawn shops, and actually streamlining that. And as we streamline that platform, we're finding ways we can improve the process and get faster transaction times with our customers..

And finally, we are reviewing the strategic options for the Grupo Finmart business in light of some of the structural changes we've seen in the economy and within the industry itself over the recent quarters, and I'll touch on that a little bit later on.

But in the interim, we have initiated a number of programs designed to actually save costs and actually get a bit of risk-based structure around that business. .

Turning over to Page 4, and I'll focus briefly on the consolidated pawn business before passing to Mark. The concentrated -- the focus we've brought on the customer, we're starting to see the benefits coming through in some of the metrics.

And if I touch on a few of the highlights of this slide, you'll see that the PLO has increased 6% to $160 million, and same-store loan growth grew 3%. And it's good to see that we're experiencing that same-store loan growth in a period of time where it has proven to be a little bit difficult through history. .

I would say that the loan portfolio we're growing, we believe, is a high quality, as evidenced by the consistent pawn loan yield, steady redemption rates and the healthy merchandising margins that are being experienced. And when we look at the merchandising margin, we have increased that to 38.9% from 33.9%.

And Joe Rotunda will be the first to say it's a result of strong management skills, but it's actually the way that he's initiated disciplined loan valuations and effective product life-cycle pricing through the business, and that discipline has been accepted well by a lot of the stores, and we're seeing it through these results.

And when we look to the aged inventory, which we've highlighted before was a problem, or a looming problem over 12 months ago, we've seen that reduce from 17% to 10%. .

When we look at the annualized return on the assets, we have increased to 151% from 142%. And while pawn loan yield has remained relatively stable at 166%, the inventory yield has strengthened to 132% through -- just on product pricing. And we're fairly pleased with the way this business is tracking at this point in time. .

With that, I'll pass it over to Mark for the consolidated results in the other divisions. .

Thanks, Stuart, and good morning everybody. I'll take you through a few charts, showing the consolidated results of the business, which cover the pawn operations and the Canadian operations and then a couple of charts on the Grupo Finmart business. .

If we start on Page 5, which is the consolidated results for the quarter, total revenues were down 7% on last year, but that core pawn revenue was flat, and we did experience growth in our pawn service charges. .

As Stuart indicated, there was some significant improvement in our merchandise gross margin, increasing to 39% from 33.9%. Scrap sales reduced as we focused more on pushing the jewelry through the retail method rather than actually just scrapping, and there was a 48% decrement in scrap sales volume for the quarter. .

Grupo Finmart. When you look at the Grupo Finmart line, you see net interest -- interest income was $11 million compared to $16 million last year, and I'll touch on this in a bit more detail.

But on net revenue basis, it was negative $1 million where the reserving was higher -- the bad debt reserving was actually higher than the interest income for the quarter on a comparison to $9 million for the same quarter last year..

Other operating expenses. They invested -- so the increase really is a result of investing in our platform for growth. There were new store acquisitions; there were 25 that were added after Q1 last year. Investments in store teams and store structures have delivered the outcomes that you're starting to see in the pawn business.

Some run-down costs of CCV in Latin America and some of the investment in the management team in Grupo Finmart, and the commission structure, I'll also touch on a bit later. .

On the corporate expense side, the increase was primarily due to the restatement and restructure costs of $4.3 million, and there were a couple of large credits in last year first quarter, which didn't occur this year for comparative purposes. .

So by the time you take all that into consideration, the continuing ops net income for the quarter was a loss of $7 million against the profit last year of $5 million. .

But turn to Page 6. Page 6 represents the normalized results. So if you take out the effects of the restructure, discrete costs and put it into constant currency and exclude Grupo Finmart for the purpose of this chart, it gives you an underlying indication of the U.S. Pawn, Mexican Pawn, Canadian Pawn and the investments of CCV Australia.

Clearly, it's a strong performance in the pawn business with the core pawn revenue up 3%. As anticipated, and as Stuart mentioned, the merchandise margin increased from 38.9% -- to 38.9% from 33.9%, and I'll give some more flavor on that as we move forward. .

Our operating expenses increased, again, based upon investing in the platform for growth, the acquisition of stores in FY '15, the investment in the store teams, district managers as coaches and mentors and the run-down cost of CCV in Latin America.

As I mentioned before, the comparative corporate expense was affected by our large general credit in the prior year, but fundamentally it was flat. .

We've put a cash flow down at the bottom of the chart to give an idea of the movement on last year, and it improved by 27% to $22 million, and that's primarily as we look at and evaluate every piece of CapEx that we put through the business to make sure that this CapEx design should provide a return.

We also did not capitalize on the same ways we did last year, where we now have changed to put more through the operating expense line of the P&L rather than having it sit on the balance sheet if we don't believe it's going to generate significant returns. .

We flip to Page 8. If you look at the U.S. Pawn business, the focus on the customer that Stuart mentioned earlier on is starting to fuel the performance in the business. The core pawn revenue was up 3%, and as you'll see in a couple of charts, we had positive same-store PLO growth at the end of the quarter.

Net revenue was up 6% to $97 million despite the significant drop in scrap revenue of some $8 million for the quarter. Merchandise gross profit improved up to 39.7% from 34.5%, reflecting a reduction in aged inventory and also the way the model is set up for delivering product to the customer. .

Operating expenses increased due to the stores that were acquired after Q1 FY '15 and again, the investment in the store teams. The cash generated on the U.S. Pawn business increased from $26 million to $33 million and also reflect sales, focused again, on income driving capital. .

If we turn to Page 9, the concentrated focus. You see the PLO growth increased 4%; underlying metrics actually support our high quality loan growth.

Slightly positive same-store loan growth for the quarter was 0.5%, supported by the number of new loans made, going up 6% in total, 3% on a same-store basis, constant redemption rate and the increase in pawn service charges. .

Merchandise margin increased, as we've touched on before, and you can see the aged inventory decreasing to 11% of total inventory from 16% assisting in that. Inventory returns were 2.2, down from 2.4 last year, reflecting the focus last year on clearing aged inventory.

The annualized return on earning assets increased 150% from 141% a year ago, with inventory yield and pawn loan yields both increasing. .

The charts on Page 10 are just to give you a pictorial view of what we just discussed. You can see in the chart published at the corner the pawn loan balance. The trend was gradually improving over the last few quarters and has gone positive at the end of Q1, with 4% up on the pawn loan balance up to $143 million over a year ago. .

On the right-hand side, and we spoke about this certainly when we did the year-end numbers, we went from minus 11% to minus 6% at the end of last fiscal year in terms of same-store pawn loan balances to hit positive 0.5% at the end of Q1, which, again, now fuels the growth opportunities within the business..

On the merchandise margin and age inventory chart, you can see the correlation between the two. As the aged inventory increased, and as we had to start to clear it, the gross margin declined. Then as the aged inventory declined, the gross margin started to grow. So it synchronized together..

We move to the Mexico Pawn business on Page 12, which is in constant currency view. Core pawn revenue is up 8%, driven by a very strong growth in PSC revenue, pawn service charges of 22%. Net revenue up 17%. .

Operating expenses increased, again as a result of the investment into the platform for growth, conversion of the 5 concept stores to Empeño Fácil model stores are in progress, and run-down costs of CCV. We will be investing in 4 large styled de novo stores to open during the balance of FY '16.

And this is all supported by investment in store teams, again, district managers on the same basis as was invested into the U.S. Pawn business. Cash flow again improved in the Mexico Pawn business across the quarter..

Page 13 calls out the similar metrics to what we saw in the U.S. PLO increased by 33% for the quarter. Same-store loan growth 34%, which is the sixth consecutive quarter of double-digit same-store loan growth. New loans made were up, redemptions were constant and the pawn service charges increased by 22%..

Merchandise gross margin improved up to 34.9% from 31%, reflecting the decrease in the aged inventory down to a very low 3% of total inventory from 16% last year..

The annualized return on earning assets increased 158% from 149% last year, with both -- so with the inventory yield improving to 124% and the pawn loan yield slightly decreasing to 194%. .

The charts on Page 14 show the correlation of those key metrics. The pawn loan balance has been consistently growing in percentage terms, up to MXN 251 million, and this is all in local currency, by the way. Pawn loan balance growth, you can see the trend that shows 4 of the 6 consecutive quarters of the same-store pawn loan balance growth.

And again, the chart on the bottom shows the correlation between the merchandise margin and the aged inventory. As we see an increase in the merchandise, merchandise margins will clear out the inventory. .

We move to the Grupo Finmart business. Let me just hand back to Stuart on to Page 16. .

Thanks, Mark. What we announced in the press release today is that we're going to do a strategic review of the opportunities for Grupo Finmart, and that's being driven by a number of key factors. We've seen some changes in the industry, particularly in terms of delays being experienced in payments as you'll see there under industry dynamics changing.

Delays in payment have increased as a percent of outstanding portfolio to 16% in Q1 '16 from 11% in Q4 '15. That's been a fairly major structural shift. And when we look at more of the macro trends that we're seeing, certainly the energy situation being experienced through the markets is playing out in the Mexican economy.

And if we look at Pemex, who provides 1/3 of the tax revenues, their revenue stream is reducing substantially, and we're starting to see the flow through that into the delays being experienced in the industry.

As a result of that, it's prudent for us to step back and say, well is this a structural shift that's going to be there for a while, and we do think this could be the case. And as a result of that, we need to review exactly how we manage the business going forward and look at all strategic opportunities that are available to us.

In the short term, while we do that, we have initiated some steps designed to control the financial performance of the company such as reducing the overall G&A expenses by 20%, and that's under way at the moment.

We've actually had to refocus the originations on to the high-quality convenios [ph], those that we haven't experienced delays with over time, initiating shorter-term loans, and we have cut out originating some of the longer tenures that we previously did do.

And we're looking at reengineering the collection process such that the collections performance continues to improve so that the cash coming into the business is quite sustainable. .

With that sort of overall background, I'll pass to Mark just to run through the financials and also just review the accounting policy around the bad debt expenses. .

Thanks, Stuart. If you look at the Grupo Finmart results on Page 17, we've given some of the highlights, and I'll try to give a little bit of color on how these are constructed. The interest income for the quarter was $13 million compared to the same quarter last year of $16 million.

The bad debt expense, as you can see, for the quarter is $15 million versus last year same quarter of $8 million. The industry dynamics that Stuart mentioned really did affect the size of the reserves that were taken during that quarter. .

The Grupo Finmart's nonperforming loans now represent some 34% of the overall portfolio, which was a 19% increase from last year. The majority of these loans, and I'll cover this a bit more on the next page, represent currently employed individuals that we expect to receive funds from in future periods.

So there's a differentiation between the fault and the delay, which is the way we are looking at it internally. .

The interest expense was down slightly, down to $6 million from $8 million last year.

Our total expenses were up, reflecting both an increase in commissions and the investment -- predominantly the investment in the management team, which involves a Chief Financial Officer, new CEO, and Chief Risk Officer and appropriate support that we have invested in over the last 6 months. .

The profit before tax on a constant currency basis was minus $20 million compared to minus $8 million last year. Originations were down from $22 million to $19 million, reflecting the refocus that Stuart touched on earlier. .

Our gross loan balances were up, but also the reserves were up. So on a net loan basis the reserves -- the net loan -- net loan balance, sorry, was $119 million compared to $115 million last year with the net interest margin declining to 21% from 26%. .

If we move to the analysis of the portfolio on Page 18, you can see the reserve increased to $72 million from $42 million last year, which is some 71% increase. If you look at the construction of that, there're 2 major components. The first component is the in-payroll delayed. I'll spend a little bit time talking about that.

The second component is the out of payroll. So the out of payroll, we wrote off 100%, and we don't expect to receive future payment. We do have a small recovery rate on -- out of payroll. .

In terms of the in-payroll delayed, the policies to reserve the loans experience payment delay, as we call it here, of greater than 180 days or as identified in that payroll. So once the loan hits 180 days -- 180 consecutive days, 100% reserve takes place.

When we receive subsequent collections on the delayed loans, the loans do stay in the nonperforming status. Now what happens is that actually reduces the bad debt expense going forward, so the collections were applied against the reserve. Once the reserve for that particular loan has been fully recovered, then it moves up into interest income.

So that's a cost recovery method of accounting. .

What we do notice is that the collections on the delayed loans increased at a similar rate to what's in the payroll reserve. And if you look at the -- in the chart above, the collections percentage on the in-payroll reserve, and we annualize these numbers, has been consistent at about 16%, so the collections do come back.

What that does reflect is the timing, and therefore the timing for how long it will take for that loan to be repaid. .

indebtedness, leave of absence, or alimony. Those are the 3 main drivers of what we see on the in-payroll delayed areas. And the increase of some 70% for the quarter, which is the $18 million, the accounting treatment of that actually takes that all through the P&L. So we see an increase in bad debt expense. .

So in summary, the cause of the negative profit loss performance is because we have not received a substantial amount of loan payments for 180 consecutive days. But from an accounting treatment perspective, and we've mentioned this before, it is a very blunt instrument, it rubs it off and then works on the cost recovery basis coming forward.

So it's not that those loans are back into a performing status, but the fact that we do start to recover against quite a few of those loans. .

So on that note, I'll hand back to Stuart. .

Thanks, Mark. What I'd just like to do is probably summarize with 5 key points and then we'll open it up for questions.

So I think as we've been through this, what we're seeing is the concentrated focus on serving and satisfying our customers beyond their expectations is actually starting to work, and we're seeing that coming through in some of the key metrics. We're building a platform for growth in the pawn business. We are investing in talent.

We are investing in systems. And as you've seen, we have done a couple of acquisitions to continue to bolster our representation in areas which we want to strengthen. The execution mentioned above is running well. PLO balances are up 6% year-on-year and 3% on a same-store basis. Redemption rate is consistent at 83%.

The merchandise margin is up 500 basis points to 38.9%. Return on earning assets is up 900 basis points to 151%, net revenues are up 7%, free cash flow up to $22 million, a 27% increase, and are all strong fundamentals and is tracking well. .

However, we are in the early stages of our 3-year strategic program, but the indicators we've mentioned are slightly ahead of the expectations we have set internally.

And finally, as we've just been through, the recent structural changes to the Mexican economy and the payroll lending industry, is forcing a review of strategic options and opportunities for Grupo Finmart. .

So with that, I'll open it up for questions. .

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

First question, I guess is related to expenses in the quarter and then maybe expenses going forward. I know you highlighted like $1.6 million or $1.7 million of -- kind of nonrecurring expenses this quarter.

But I'm wondering if there was anything else elevated just -- whether it's accounting or anything as you kind of work through some of the restructuring that we should think about? So I guess that's the first question, expenses.

And the second, Stuart, you mentioned your ongoing cost base, can you just maybe give us a little sense for what the kind of expectations over the course of the next 5 or 6 quarters would be per quarter in terms of cost base? And is that going to come in the admin or the OpEx side?.

Well, I'll do mine. What we always work to, John, is we are always working to try and reduce the cost base at each quarter. The procurement savings that we indicated is around $4 million, but probably expect to achieve something around 70% of those savings through the course of this year, with the other 30% being reflected into next year.

We've sort of made a commitment that we would try and get $13 million off the expense line within the 3 years, and we think we're on plan to achieve that. I think the way -- obviously, there's a reasonable amount that will come through in the back end from 18 months onwards as we get the full benefit of some of the initiatives that we are saving.

So I think you'll see it will be more of a step up than a straight line from here on. On a quarterly basis, we just don't really analyze it on that way, so I'll just give you those indications, and you can work your model through that. .

It's Mark. John, just to add a little bit to what Stuart was saying. The -- in terms of the quarter, I think we called that normalized view of that number would be if you take out the reinstatement, restructuring costs, the discrete items. Basically, I think if you boil it back down it would be somewhat flattish.

Stuart mentioned about procurement savings and certainly some savings. We certainly target to be better each quarter-on-quarter.

We're also quite conservative I think in some of our accounting treatment in terms of expensing items that maybe in the past would have been capitalized, and we've changed our internal accounting policies on that, but we expect to absorb that down into the numbers that we're providing. .

So you should see the DNA probably go down by year 3 to match some of the potential short-term increases, which might come through. But, obviously, we try to manage the cost base to flat to slightly negative on a quarterly basis. .

Okay.

And in some of the states, are they spread through OpEx, admin, or are they concentrated in one line item versus the other?.

Some will come through the store expenses and some will come through the admin. I'm not sure about the split, what that would be, but it will be a mix. .

Okay. And then moving to the strategic review on Grupo Finmart, what -- I'm just trying to understand what the option would be. I mean, it's an ongoing business. Do you have commitments to the unions down there? You're the servicer I assume, so if you were to either dispose of this, I assume you have to dispose of the whole thing.

And can you shut it down if that becomes the only option? I'm trying to understand what your range of options are. .

The range of options at the moment is to try and get the company back on what we would term as a normal footing where the bad debt expense starts to actually behaving on a flat line basis. So the accounting policy makes that difficult as you originate more and with the delays we're having.

All options are open, but there are risks, obviously, in every option you do take. For instance, if shutdown was one of those options, and I don't think that would be an option to follow, but if it was, I think your ability to collect is somewhat limited from thereon as you signify departure from the industry.

It's not something we would rapidly entertain because we think there are better options in terms of managing the business and even looking at partnerships.

The one thing we've said that, if businesses aren't meeting their cost of capital then we have to be fairly strong about the way we look at the options and move in a way that maximize the shareholder value.

So I think if we use the -- we have to convince ourselves that while being in the hole, we can get that cost of capital return, and if not, then we have to move into areas which could be -- I mean, the only other option that I'm sure you're aware of. .

Okay. And final question, the equity income line. I know there's -- you've managed some asset sales, and it's been volatile in the recent quarters because of that.

How do we think about -- do you guys have -- can you give us a sense of how to think about that equity income line? Whether it's seasonally adjusted or just on a quarterly basis going forward?.

I think the major part of it is actually the equity income from cash [indiscernible] into some cash convergence in Australia. They'll be released -- and they're released on a half yearly basis, not a quarterly.

So we take an estimate to a degree of what we think that contribution could be and then we firm it up this quarter once they announce their half yearly's, which is in about 3 weeks' time... .

And is there -- in your opinion, is that business fairly consistent now, or is there still some volatility in it?.

Well, they're undertaking a strategic review. What we do is we look at the analysts' forecasts and take our -- take a line in the sand from what the analysts are projecting for the earnings and then true it up once we get the final results in.

They're undertaking a strategic review at this point of time, looking at the options of some of the businesses they have, and we'll see what the outcomes of those are. .

And our next question comes from the line of Bill Armstrong with CL King. .

I wanted to talk about the retail margins. They were up pretty nicely. And you talked about the lack of aged inventory markdowns being part of that.

Were there any other drivers there, maybe mix either between jewelry and general merchandise and what you're seeing within those categories?.

There has been a slight shift to jewelry, but what we've found is that we're actually pricing better at the loan. When we are doing the loans we're actually pricing much better, which sets us up for success with the cycle, the pulling cycle that runs from there.

So that when the inventory does drop, it's actually at a price that we can achieve the margins on. And as we've mentioned before, that's why we refer to it as a quarterly loan portfolio because we haven't seen an increase in redemptions. Yields have remained the same, the margins have been healthy.

So it's actually that discipline that I talked about before and the marking of the product through the product life cycle and the customer metrics that we're seeing is supporting everything we're doing. So there's no simple solution. What we find is getting the discipline right at the start sets us up for the success all the way through. .

And even with that more disciplined pricing, your same-store balances in the U.S. were up a little bit year-over-year.

Do you see that continuing to stay in positive territory as we move forward?.

Is this the PLO you're talking about?.

Yes, yes, the same-store for U.S. .

Well, if you look at the last couple of quarters we've had some very good momentum coming through, and obviously, as management, it's our intention to continue to grow those balances. However, in this quarter, we'll probably see them come off due to the large retail and tax refunds coming through.

But on an average basis, our intention is to continue that trajectory. .

Our next question comes from the line of Vincent Caintic with Macquarie. .

Question on pawn loan growth. You had demonstrated strong growth in both the U.S.

and Mexico, and I was wondering if you could give us a view on how that's going to shape up for 2016, particularly I think some investors are concerned about energy prices and how that might impact loan growth?.

Yes. One of the things obviously, we mentioned saying this, is to continue to improve the pawn loan balances, which means that we've got to keep focused on the customer at the storefront level. So we're committed to that. We haven't put any growth targets out there, Vincent, but I'll give you a bit of a sense.

Most of our customers actually adjust quite rapidly to what's happening to their hip pocket, and we find that they can adjust pretty much within a 45- to 60-day period. So while we get this initial sticker shock, or whatever it is, they actually adjust their whole patterns to that.

And typically the energy prices may provide a bit more cash in their pocket, but their underlying behavior or the need for cash is still there. And what we find with our customers is that by staying close to them, they actually still come back via retail or via pawn.

But we don't expect that to be a major driver of any change in our approach to running the business. We believe that the management initiatives we're taking at the store level, focusing on the customer, sort of removes some of the macro impacts from what we see over time.

And the role we have is to ensure we grow the business at a rate which is sustainable and takes account of the macro impacts. .

Got it. Great.

And then touching on that, you've grown stores this year as well, and I was wondering what your appetite is for opening more stores or buying more stores?.

As we fly out to Mexico, we're going to do 4 de novo stores. In the U.S. we might do some -- we might just do some if the opportunity is right. We don't want to pursue acquisitions for the sake of it, but where it makes sense, we will do it.

But really, as you'll see it would be nice to sort of do bolt-ons where it makes sense, but really the focus of investing our money really has to be back into the talent we have at the store level and at the district manager level. We know that we can get some really immediate returns by investing smartly there.

So most of the money will be invested back into the store level, and there will be some opportunistic acquisitions if they do come up. .

Our next question comes from the line of Jon Segal with Highbridge. .

Quick question for you. Going through the queue this morning, saw there was substantial repayment of indebtedness, $29 million or so.

Just curious what that relates to? And if holding company capital is going down to the Grupo Finmart entities?.

It's actually the net for amortization of the loan portfolio in Grupo. So you'll see for the variable trust [indiscernible], I think there's about $12 million drop in that one and then there's the [indiscernible]. So that's just a natural amortization of those facilities. .

[Operator Instructions] Our next question comes from the line of Alex Lach with Camden Asset Management. .

One of my questions has already been answered, but if you could just talk about general liquidity management going forward. Again, you mentioned potential opportunistic acquisitions, but if you can talk about how low you're comfortable with your cash balance et cetera, that would be great. .

Yes. I mean, we watch liquidity on a daily basis. At the moment, we're coming into probably our peak liquidity season whereas the tax refund checks do start hitting our customer's accounts, and they do hit our stores, they pay-down the loans and purchase stock. So we're in the peak liquidity.

So we do set internal buffers which we don't disclose to market. But what we do do is look at -- just to give you a sense of how we look at it, we do look at the loan growth out for the next 12 months, and we look at the intended sales, and we actually probably vary those on a daily basis based upon the feedbacks from the stores.

So if it's -- the comfort you need around liquidity, we do watch it very seriously, and we continue to retain the conservatism around that. So if an acquisition did arise, which would breach one of the buffers that we do set, we wouldn't undertake that acquisition. .

And I'm showing no further questions at this time. I'd like to turn the call back over to management for closing remarks. .

Thanks very much for your time, and we once again apologize for the early hour of the morning, particularly if you're on the West Coast. We will be available for calls through this weekend. We will be visiting a number of cities next week, so we look forward to meeting with you and discussing the results. And thanks again for listening. .

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day. .

Thank you..