EZPW - Earnings call transcript Q2 2019

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Operator

Good morning, ladies and gentlemen, and welcome to the EZCORP Second Quarter Fiscal Year 2019 Earnings Conference Call. [Operator Instructions].

As a reminder, this call may be recorded. I would now like to turn the conference call over to Michael Keim, Investor Relations. Please go ahead, Michael.

Michael Keim

morning, good and you, everyone. Thank

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

to unless foreign differ conference other to And with Commission. due we annual, based contain slides identified, on from currency items. statements on presented otherwise or expectations. performance statements materially expected of current everyone Before the discussed basis, statements quarterly for would a that company's forward-looking our discrete and Exchange well Actual and like the implied the future as forward-looking results and remove I that the fluctuations company's begin, number certain are periods this noted expressed results of are and in operating the these adjusted filed call regarding other effect Securities presentation an factors future in as risks as These and may remind the and those to reports for other by materials, financial are presentation periods.

call like to turn the over I'd Now Stuart? Mr. Stuart to Grimshaw.

Stuart Grimshaw

X Michael. to the everyone, Good to Page welcome second presentation, results. quarter. Thanks, If themes to turn I'd and quarter like from key highlight I the the the morning, of

with America margin XX%. X%, You'll Latin Merchandise PSC strong strong X%. same-store a to see loan in of been underlying were the of was and growth little XX% slipping PLO sales merchandise growth resulted have pawn of with metrics and XX% U.S. X%, for Same-store fundamentals. positive This title XX%. the growth a up from in extremely the quarter growth We recorded X%. loan

a X%, strong remains EBITDA result as X% growth factors. a of slipped revenue net number year-on-year at While of

annual enlargements. $X.X primarily $X.X operations see and result expense million as around novos, Increased improvements in of Latin new the cost expense increased with increase, increased department, was of -- IT increase this enacted in to an new in year. expenses by the in wage for corporate $X.X million, America, hiring around of particularly was by coupled store continued talent, million operations due new a IT the the fees of experienced, expansions result de And and U.S., which the infrastructure. of of benefit million acquisitions, in compensation You'll $X.X plan the a

pay We're X closed developed. We Canadian $X.X continue a loss in impact International reviewing multiple switched our was expense. portfolio was Converters Coupled to a stores of Canada negative on profit a quarter. this equity this capability with strategically single for look to Canadian an as to accounted for opportunities in with digital pay we well as level being this business having lower contribution increased the of from from product business This our reduce EBITDA. Cash variance million circa as already

the While of growth which led sound, share, revenue expenses year. very is EPS to $X.XX to was last the flat has variant a

we've Evergreen to POSX now on what our more call to the end and this calendar track which strategic XXX cover of for terms rolled continues later, our of bit a In stores. be terminals year, I'll investments, out we

grown June XXXX, to our the million. continue for the balance Board sufficient by to quarter cash which million, $XXX million. end of is repayment September XX, We balance In $XX being with $XXX accumulate the consider convertibles the cash XXXX has of

not we've front, the targets reflect and with returns strengthened continue vendor new seen, remain last desired the the the number asking set to composition and see Board over the opportunities, a on ourselves. process directors independent acquisition have month. you disciplined that attractive ROIC we while also we've the of As We of for appointed should

for need than mind, my The to This and X. is quarter our last Slide growth how results clearly in the customers' PSC numbers. strong highlight, the the sales reflected in better PLO, now cash we're market. of Turning serving

in with expand novo continue Latin X stores, America organically X to X expanded de We relocations. stores and

We quarter. also stores Mexico in during acquired this X

we in the and XXX completed rolled XXX XXX. the out previously, POSX into out of should rollout a POSX quarter XXX, out stores As quarter. early terminals current or U.S. Mexico of of end Full of have stores discussed the by total be in into this next

to about underway. X., we Evergreen, And to strategic just Turning on initiatives excited of have we customer-centric remain digital this firstly, platform. the the Slide with digital possibilities recap very

Just million an acquisitions retail for that direct significant with Group a or partnering, U.S. What generally offering, thinking the all product the and behind which that and unbanked leveraging which financial rich with uniquely profile is provides build typically a build developed and capable Digital under-banked and captures revenue with to a around this positioned base, Evergreen Ventures, is of the off offering, either high market credit approach for that customer see to many X to transactional will in market recap, customers foundation channel of the customer has. $XXX revenues, fintechs with some customers unique move of is we services in footprint. these offering of -- stream. being estimated size has $X which cost, for our be remain We this customer, disrupt a data circa of EZCORP existing monoline whereas Boston the technology million multiple only base pawn Consulting customer billion conjunction EZCORP solutions

continue out acquisition past customer our such as spent This needs new Evergreen to to work attract being pawn accounts We and will the offering. to that transactional end product the fulsome of offering. broader enhance offering. integrate retention will develop build consistent continued partners as with production is with the also platform user. the the this research continuing well quarter and We've of We customers is offerings, with to and more as customers a ensure believe to discussions completely

this. using have leverage to that get us the are watching currently customer product ascertain that we Our from is this group dynamic learnings and any enables and grading other system, stores insights. a which customer We POSX, we closely to of initiative number is platform can a

be in of pricing product gradually laptops to TVs, this year. systems be pricing for Over will aiming to dynamic first by roll and is will tools. this we the Danny in you The that, the And around July post integrated and financials.

Daniel Chism

Thanks, Stuart, and morning, good everyone.

As as in the noted to In the in continuing XXXX, effective underlying Note on to X been share. historical environment. control None in release, EPS. our of corrections these our results material the period charges in this to discontinued any performance, during IT which We included pawn in in service weakness. system reduced and the them first in this a receivable focused discovered material have controls. prior XX-Q Separately, QX quickly the are have prior rising from were detail corrected our quarter period. earnings our for from reviews. previously the year material we reported, us weakness. income yesterday. no IT amounts material of the or adjustments income IT press fiscal overstatement by and store-level per optimize of reported corrections Greater account previously increased quarter prior prevented of characterize of XX-Q reevaluate to general operations the the caused net the controls statement We're the general Compared weakness in net regain balances we general filed may a Compensating by change primarily $X.XX financial year-to-date to included control in an deficiencies $XXX,XXX reported controls remediating in previously results, $XXX,XXX noticed current with you controls deficiencies compensating diluted correction those level to of

our earnings the year were Stuart On to per results. quarter financial adjusted basis, $X.XX, prior an at Turning mentioned. as diluted flat share to

to net Latin refiner, earnings $X.X and receivable adjusted Cash in in claims be Results and related the a in would bankrupt the of previously Included from $X.X price $X.X included million to quarter of GPMX. Canada consistent recovery the operations was settlement interest Excluding the a reserved PSC-related with prior expense Cash increase owners stock's corporate revenue from expense, and noncash Converters, from GAAP of Converters certain diluted on indemnification million million in in a America of the March of investment carrying million a Evergreen, in $XXX,XXX with of $X.X non-core the EPS value XX. also closing results for $X.XX. impairment decrease

note the the this As removes the The was of $X.X of year noncash million In a of our convertible year business. current noncash in noncash reminder, total principal we the interest expense expense net use noncash which repaid quarter, in to $X.X current $XXX,XXX senior in $XXX,XXX expense to be the to continue will of related to excludes repaid convertible interest income, be the quarter. decline effect million expense adjusted of $XXX and prior expense net This adjusted notes of to expense June as income our to Adjusted quarter interest million in interest $X.X receivable interest the latter of well expected quarter. net continues million as analyze as the from AlphaCredit. cash represent monthly. net interest interest compared on interest debt

increase expense EBITDA in contribution fees. million through bit higher Converters sales and previously operations decrease customer in growth roughly the transition quarter in discussed, longer-term X%, loan moderate lending as as stores to last as in investment Ongoing PLO are were America the decrease Canadian lower of a on a $XXX,XXX same-store stores year. and closed adjusted basis. from the Turning to PSC, overall de new human loans $X.X $XXX,XXX Latin where and EBITDA were as edged in CASHMAX-related margins Canadian we America in was primarily highlights with due The growth a or $X.X consolidated regulatory in of the our pawn slightly the corporate X% same-store concentration costs, monthly lower service capital XX% expect added a operating the expansion, in generated product lower equity reflects commensurate was increase a margins from general half in closed corporate I'd and up or outstanding X%. stores and basis, up X and in lower at year-over-year, a U.S. stores two Canada. merchandise of over the total acquisitions to XX consistent consumer we well Overall to in pawn with and ending average yield XX Merchandise X% increase year greater XX% new organic acquisition and the a in a sales to the following Cash year-over-year months, Slide merchandise. or corporate Latin second move XX% expenses with With operations, arose of and pawn expense. up with growth million novo pawn income, $XXX,XXX balance a portion the product. lending pawn from development experienced professional EBITDA consolidated prior on XX%. PLO store the Including X. charges our On changes segments Through

On Latin Year-to-date so diluted with in the quarter, period far Latin are including year-to-date. adjusted Canada to has EBITDA XX% was full you $X.XX, this the the EPS delivered million the prior and year unchanged the U.S. the margin than both posted EBITDA higher adjusted America. same a roughly up year quarter America long-term and Year-to-date, last at and margins XX% this in with the and to million, X% EBITDA consolidated across $XX.X over is the see are $X.XX. in or XXXX. $X.XX U.S. margins XX% we've flat growth compared progress the from lower to the last up Slide growth increased earnings year and the X and year. EPS attributable relatively EBITDA of year X, $X.X EBITDA can to For in X%, EBITDA Converters. Year-to-date years to Cash the fiscal slightly

do While we're XX and over acquired for suppress margins. the added the past they EBITDA prospects the temporarily growth excited new stores about months,

see fully ahead, we these as opportunity and realized as gain we've Looking integrated stores synergies. are and to efficiencies mature

to shutdown was known. Turning mentioned refund and Page on government effect delay the U.S. the of tax I yet the X. Last quarter, not Pawn highlights

$XXX,XXX continued receiving at to both believe basis, per strong Pawn demand in year-over-year. the X%, with sales on robust customers the XXX consistent meeting charges quarter. the a in merchandise focus X% X% XX% period. ending margins lower X%, were merchandise improved we year, of need loan the on PLO of effects quarter this see were were basis the while X%, increase, up X% end and Loan the did of roughly While up same-store growth points U.S. basis. as up Furthermore, within delay store customers' service aged increased seasonal merchandise at PLO ending from the quarter largely for beginning contained we total our on general at a same-store refunds a reflecting cash. was with throughout remained the

remain suppresses efforts ongoing and to for in frees XX%, aged reduce optimizing improves earning over time revenues benefit margins margins at U.S. exposure the to short costs, in X% well increased Our drives At Pawn up from target expenses higher our said, merchandise inventory XX% U.S. total, within reduces the quarter. return merchandise up to X% lending. general XX% year assets, term. margins from capacity additional range. vacancy reduction. of were up obsolescence, but including on inventory in That and labor remained revenues, prior the net Net XX% Operating were primarily

million, segment's $XX.X was profit largely to lower U.S. tax Pawn year EBITDA depreciation with X% result, expense. flat reflecting up $XX.X the prior to As before the at a million,

sales opportunities per America increase typically America. in highlights season. stores, related while pawn and Latin gain expenses than as leverage, in the to basis In operating growth a impact new acquired at After and $XX,XXX. from growth loan same-store margins further total general was positive operating percent due Latin PLO were points increased seasonally increase at though service quarter, basis prior XX% up the of depreciation gain America in segment expenses continues robust to revenue lower new XX% charges interest, Merchandise quarter. Pawn, scale net XX -- this merchandise. ending to a and XX% increased total and pawn in the continue store prior XX to quarter, approximately balances remained and store were XX% to on Turning acquired scale a as higher EBITDA. U.S., pretax Latin stores, in Merchandise primarily remain quarter to year into the down of strong are growth The in increase bit the million. last The loan to X%, the XX% dollar XX% related of in operating basis. year with than concentration America adjusted XX%. including XX% Margins points Latin XXX with XX%, revenues segment's same-store stores efficiencies the net of strong Slide charges for total lower to they driving to translating income contrast $X.X a the

Turning to Slide XX.

balance our ratio ongoing with quarter strong capital At with fund and a the to acquisitions, management. growth the and it cash of the cash, maintain and a of million matures loan when invest of to balances had convertible ended million disciplined to continue capital available period, We to June, development, $XXX million providing new sheet we store X.Xx. debt net We opportunities. other building a of operations in in sufficient retire $XX leverage our of million capital debt $XXX end $XXX

$XX.X in cash of payments those notes accordance principal In Year-to-date AlphaCredit from free the $XX.X of from company the $XX.X addition to AlphaCredit anticipate the under flow another the million interest of receive and interest. fiscal with million, increased million operating we another to to remainder XXXX, principal receivable. receiving timely collected cash We principal continue flow operations, notes. in and plus XX% terms

due to in is AlphaCredit deferred remainder compensation first the in million We This fiscal of the installment also fee, from with collect September expect another the related $X XXXX. XXXX.

have I'll you a turn over the understanding the better results, Stuart. little of that back Now call to financial

Stuart Grimshaw

Thanks, investment high Page of of company. highlights XX, we Danny. On a level the brought the

of resilient an industry we've that Firstly growth has history long is proven over a established that period the time. strong in

ability solutions. continue cash through meet to investment enhance needs we digital our customers' our Secondly, in for and invest to

be price. inorganic to continue the for right growth, only there at but Thirdly, opportunities

to we the customers' in performance solely Fourthly, focus And with and net are on are meeting of being criteria. that needs We some better $X U.S. expansion our America Xx increase from increase revenue the marginal market. to reflects more we've store others than finally, a Latin on numbers. benefits financial cash for seen It building acquirers not net the stores has sense a geographic history increase from million than the revenue make many of marginal of our operational

with that, we'll it so for over pass questions. Michael, And

Michael Keim

Operator, we're ready to take questions.

Operator

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

John Hecht

do take to expect How guys First long transition how a the there? long question Canada is drag? you product be will

Stuart Grimshaw

John, there substantial a going has we're right through simple products. not out figure has of strategic you as growing point at moment. the the at actually few the this is to regulation out, lower-margin business because right It's challenges to we're change. core review look the market obviously The what a We're certainly, size. point figure down We'll in trying got at brought we've change or -- up, as looking just shutting for been thing as a do. not to out time. It's us into at

to have deal that to solution right come way right for that the the and we such, makes everyone. As make with sense we in sure that

John Hecht

how us commitment And update doing expect? Cash then of and is Converters give the you can Okay. on level you an and what there

Stuart Grimshaw

Sure. Yes.

judgment, depressed Our level price. putting depressed class caused moment, of At XX.XX%, share it the that is stages it's which of the on court That less some, but around influence been case lot that, with value of than they're has the value. through a a should action. is say, on stage, it's final sense, this bit the uncertainty I'd a is has be. awaiting held, the At obviously a the going commitment where

regulation the weeks. next means With general a is election that in. labor or environment. the it uncertainty that fair other about thing in is there's might The sense that, get the a what for There's regulatory in Australia X

there stocks bit a questing a has around industry as that well. the sitting most of is So

very clarity be both think of those through hopefully on I will quickly. So

John Hecht

terms -- final demand is is positive variance in geographic then of is, or consistent in of relative there how that And domestically? question you see expectation, any it fairly region to the negative, U.S., kind Okay.

Stuart Grimshaw

Florida bit which well-covered of those results. the variability X of best in out lot of markets. seen little We've Florida through Texas, are a those. of continue both drive but good pretty and still a growth some the and to We're very we believe Midwest, Texas There's

Operator

from And Pendy Sidoti. Greg of with question the your comes next line

Gregory Pendy

that the within First, place there bit go catch-up. into a thought what some something we year-end? just quarter, a that first scrap, is of little should I given expect in time to might Is that wanted -- be took something

Daniel Chism

bit obviously think Greg, a I'd than of which just bit margin takes better Yes, more is that, we QX, selling a some I'd versus of get out catch-up rather say, that it in refinery little also of there being expect do and stores, that little John long But trying send the -- although strategically to provides probably able term, to overall return. to longer to that immediately. scrap, jewelry

Gregory Pendy

that around alone, with little of is aged improved side then, And a bit, is -- also X% U.S. inventory within and a that jewelry guess, inventory? continuing the there just higher I Is the Okay. you that on just of mix up inventory. kind

Daniel Chism

that What loan inventory, big the difference would I in X% mix. in the balance a up up not the X%, There's the say was growth is it's same-store. while it's

there and actually well is say healthy those younger pace. I'd to The categories. in at So We're pressure in a are trying it more the relatively turning track keep growth relationship.

Gregory Pendy

balance but the final U.S. side, cadence strong just color off monthly very the on, PLO the on you're kind looked what you And of of balance I coming the on can us throughout of quarter? makes guess, know, I question, then a XQ just one That PLO like give guess. sense. I some the

Daniel Chism

loan bit the that over next later say, which the beginning figures loans would one said the saw bit of delay, quarter then refund slower. dive don't tax also little the little We months, the started bit shifted portfolio we back in repayment as several quarter, was don't we move the typically anomaly season monthly with of within the that. a it the of loan a I rebuilding into into that the on

Although well-encapsulated the finish really start was to the tax quarter. season from within refund fairly

within shifting actually was resolved received. largely of just So when itself but cash bit of I it that a quarter, the think little

Operator

Instructions]. [Operator

question the B. next Your Buck FBR. of Scott comes line with from Riley,

Scott Buck

South drill like Is a primarily build Latin I it down out, want and that Central some in Mexico? to bit headwinds. there's America sounds into America universal that America? Or Mexico, little across pricing is on the

Stuart Grimshaw

seeing There us. the expectations said, healthy this Scott, opportunities, stage in so at much as I primarily are for reasonably Mexico. it's them, for we're in what vendor are not but

Central We all. or haven't really at looked South at much in the in America way

into some geography. been focus the Our as our have has we Mexican gaps region in primarily really

fill-in ours. So acquiring. -- of whether expectations and where but target is well. gap, At are has vendors, around, continue will their which to -- some try There's which a stage, there very interested some the few sort works to there's we stopped believe us geographies trying large we change price would we're this and from and there meet see

Scott Buck

helpful. the given growth for pipeline organic That's store Mexico? headwinds what's or And store in the Okay. new there, I mean,

Stuart Grimshaw

open you one? could Danny, that

Daniel Chism

relocations Yes, but seen looking pretty and nice those with of some we've where those. so opened have of at those return. acquired stores around on pretty we've we More again, stores payback also healthy when they been GuatePrenda, number a not centered do only have and remodels this of a year,

to opening year. new I additional believe, of new and of year-to-date stores remainder -- continue the stores We nine kind have we're opened, the in

Scott Buck

Great. one And me. last for

openings prices the stores of a slower over the seen pricing recent and given issues have of Or accretion acquisition become the have -- a more past you path XX store recent paid? acquired to you the pricing the months, Some problem? there,

Stuart Grimshaw

been chain, which we're out of be the prices while. well. bought, that -- capital they've above acquisition out seeing the moment, few most a coming for of on GuatePrenda we've The point returns done and we've strong this thought we into at are which probably very time The their the integration. would small change, reasonably been have at we larger performance around worked very, The has where a

Operator

call Stuart Grimshaw. back I would like the to now, to over Mr. And turn

Stuart Grimshaw

support in around this your listening the we'll the calls investment for be morning. community. We of for day everyone, most much, with appreciate and very Thanks

day. a have So great you. Thank

Operator

today's Ladies and thank gentlemen, This call. conclude participation. for does you your conference

disconnect. now may You

EZCORP (EZPW) 9 May 192019 Q2 Earnings call transcript