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EZCORP, Inc. (NASDAQ:EZPW) Q2 2024 Earnings Call Transcript

EZCORP, Inc. (NASDAQ:EZPW) Q2 2024 Earnings Call Transcript May 2, 2024

EZCORP, Inc.  isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, ladies and gentlemen. Welcome to the EZCORP Second Fiscal Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this call may be recorded. I'd now like to turn the conference over to Jean Marie Young, Investor Relations with Three Part Advisers. Please go ahead, Jean.

Jean Marie Young: 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.

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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 EZCORP's Chief Executive Officer, Lachy Given and Tim Jugmans, Chief Financial Officer. Now I'd like to turn the call over to Lachy Given. Lachy?

Lachlan Given: Thanks, Jean and good morning, everyone. For the second quarter of fiscal 2024, EZCORP has produced another very strong set of operating and financial results for our shareholders. Total revenue of $280 million was up 8% and PLO of $232 million was up 13%. Both were the highest for the second quarter in the company's history. From a bottom line perspective, adjusted net income was up 21%. Beginning on Slide 3, we are a global leader in pawnbroking in pre-owned and recycled retail. We operate 1246 stores in the U.S. and Latin America, having added another nine stores this quarter. The macroeconomic environment remains challenging for our customer base. With rising living costs, economic uncertainty and less availability of consumer credit, customers are increasingly using pawnbroking services to satisfy their short-term cash needs.

In addition, these customers are seeking better value for money retail options and so are purchasing pre-owned merchandise, which also has the additional benefit of being more environmentally friendly. We strive to provide an industry leading experience for our customers through continuous innovation and excellent customer service. Moving on to Slide 4, we opened nine de novo stores in Latin America and consolidated five stores during the quarter. In the U.S., we acquired six stores and consolidated one, a record setting Q2 PLO balance of $232 million was up 13%. When comparing the second quarter with the first quarter, earning assets typically decreased due to pay down of balances during tax refund season in the U.S. This year we saw a mild pay downs similar to last year.

Our cash balance of $229 million provides us with substantial liquidity to fund additional organic earning asset growth, to capitalize upon inorganic opportunities as they arise, repurchase shares, and to fund near-term debt maturities if required. Slide 5 shows the continuous, consistent improvement in our financial metrics, with total revenues up 8%, merchandise sales up 6%, gross profit up 10% and adjusted EBITDA up 7%. Strong consumer demand and excellent customer service continues to propel PLO and PSC both up 13%. Turning to our key business strategy highlights for Q2 on Slide 6, we continue to strengthen our core pawn operations investing in people and technology. In Latin America we improved PLO growth by focusing on the fundamentals in our stores and by reinforcing business model best practices.

We continued to modernize our point-of-sale back end and launched workday scheduling to enhance both productivity and efficiency as well as team member work-life balance. EZ+ rewards members grew to 4.6 million globally, with 1.3 million transacting in Q2, almost evenly split between the U.S. and Latin America. Across all geographies, unique customers increased 2%. Team members are at the core of our operating theme of people, pawn and passion. We are committed to investing in recruitment, retention and incentivisation to ensure that our team members remain highly engaged. We hosted our second annual career week focused on growth opportunities for all team members across the organization and launched a variety of workday talent tools. On the innovation and growth side, online payments grew $9.1 million to $21.8 million in the U.S., and we expanded online payments to all stores in Mexico.

An employee in a pawn store, counting jewelry and consumer electronics that were pawned.
An employee in a pawn store, counting jewelry and consumer electronics that were pawned.

The buy online, pickup in store pilot initiative has expanded to 100 stores in the U.S., and we are seeing early success in e-commerce activities in our luxury pawn business in Las Vegas, where this channel is helping drive sales for the category. Slide 7 provides some of our sustainability highlights during the quarter. We sold 1.3 million pre-owned general merchandise and jewelry items and provided critical financial services to customers in need in the hundreds of local communities in which we serve. At EZCORP we foster an environment that values diversity, inclusion and development for all, and we are driving many important initiatives across the organization, enhancing diversity awareness, encouraging inclusive conversations and more. We launched an EZ Pride affinity group and grew all existing U.S. and LATAM affinity groups, EZ inclusive conversations and internal conversations.

The backbone of the company is our passionate, productive, tenured and committed team members and we continue to find new ways to enhance their experience. Community engagement is also critical to the culture we are building at EZCORP. We are working with nine us charities whose work closely aligns with our stated goals of supporting financial literacy, eradicating food insecurity, empowering young people to achieve success, and poverty intervention. I would now like to turn the call over to Tim Jugmans, our CFO, to provide more details on our financial results. Tim?

Tim Jugmans: Thanks Lachy. 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 EZCORP's history. PSC revenue was also up 13% over last year with growth driven by both increased same-store PLO growth and new stores. Inventory turnover was strong at 2.9x with aged general merchandise at 2.3%. Merchandise sales were up 6% to $161.1 million. Merchandise sales growth profit was up 4% due to increased sales and flat margins as we focus on increased turnover and keeping aged general merchandise inventory low. It was another solid quarter with consolidated EBITDA of $36.2 million, up 7%, driven by higher PSC offset by a 10% increase in expenses.

Turning to our U.S. pawn segment on Slide 10, total revenues were up 10% to $207.6 million, which was the highest second quarter in our history. Earning assets increased 10% driven by a PLO increase of 11% and 9% in inventory. Strong pawn demand and excellent customer service continues to drive PLO, which in turn drives inventory growth. Slide 11 provides a map showing the U.S. states in which we operate. Our U.S. store count has grown to 535 stores with six stores acquired and one store consolidated in the quarter. PLO jewelry composition is up 100 basis points due to continued operational focus on this category, which also drove the 9% increase in average loan size. Inventory general merchandise composition is up 300 basis points, driven by an increase in handbags, shoes and tools.

Slide 12 provides a snapshot of the U.S. segment financials. PLO growth of 11% drove the PSC increase of 14% year-over-year. On the retail side of the business, merchandise sales were up 6% with merchandise sales gross profit up 2% with 100 basis point decrease in merchandise sales margin. U.S. foreign EBITDA for the quarter was $43.2 million, up 7% due to higher PSC, partially offset by a 12% increase in expenses. Turning to our Latin American segment on Slide 13, total of revenues were up 4% to $72.6 million, which was the highest second quarter in our history. Earning assets increased 11%, driven by a PLO increase of 19% and inventory increase of 2%. Our store count in Latin America increased four in the quarter to 711 stores in four countries.

PLO jewelry composition is up 600 basis points with our operational focus on growing this category, especially in Mexico. This jewelry composition increase has also driven average loan size up 9% on a constant currency basis. Our PLO balance increased significantly in the LATAM region by 19%. This was driven primarily by improved operational performance by our team as well as continued strong pawn demand in these markets. PSC was up 10%, driven by both same-store PLO growth and new stores. On the retail side of the business, merchandise sales gross profit was up 8% with merchandise sales up 6% in addition to 100 basis points improvement in sales margin. EBITDA grew very strongly for the quarter to $9.4 million, up 23% on the prior year. This was due to higher PSC partially offset by a 7% increase in expenses, with same-store expenses increasing 2%.

Looking forward on a consolidation basis, we should see PLO continue to grow on a seasonal basis with PSC following suit. We continue to focus on strong inventory turnover and limited aged general merchandise. While we remain committed to expense management we expect to see expenses increase on a sequential basis, primarily due to ongoing inflationary pressures filling vacancy into our stores and year-over-year store count growth. Our focus on growing quality PLO, optimizing inventory management, improving systems and processes and delivering excellent customer service should continue to drive strong financial results in our business. I will now turn it over to Lachy for a few closing remarks.

Lachlan Given: Thanks Tim. In closing, I want to thank our EZCORP team for delivering another outstanding quarter of operating and financial results for our stakeholders with record Q2 total revenues and PLO. We are very pleased with the strong growth this quarter in our LATAM segment. We can see real momentum building in that business with stronger execution of our enhanced operating model by our teams, producing improving results across almost all financial and operating metrics. It has been an excellent first half of 2024 and we look forward to driving enhanced value for all of our shareholders for the remainder of the year. And with that we will open the call for questions. Operator?

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To continue reading the Q&A session, please click here.