Q2 2022 EZCORP Inc Earnings Call
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Kevin.
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Good morning, ladies and gentlemen, welcome to the EP Corp, second quarter fiscal 2018 earnings call.
All participants in a listen only mode.
You think it will come back and answer session and instructions will follow.
As a reminder.
Call maybe recorded.
Now I'd like to turn conference over to Investor.
Investor Relations.
Advisors. Please go ahead.
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 investor Scott easy correct Dot com.
<unk>, 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 Companys 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 Securities and Exchange Commission.
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 is <unk> Chief Executive officer of Lockheed given and.
Tim just Vince <unk>, Chief Financial Officer, now I'd like to turn the call over to Lucky get Lucky.
Thanks, Jane and good morning, everyone.
The team continues to consistently execute on the strategic plan, we announced to the market at the end of fiscal 2020, evidenced by another very strong quarter for financial results.
All lines outstanding key driver of our business increased 38% year over year and is at its highest level ever.
For the second quarter.
On a consolidated basis.
Within 4% of pre pandemic levels.
Building on an excellent third quarter EBITDA was up 61% for the second quarter.
Delivered very strong net income of $16 6 million up 75%.
Last year.
I'm also pleased to announce that the board of directors has approved a share buyback program of up to $50 million.
We executed over the next three years.
A rug doctor and liquid balance sheet culled from it and our ability to continue to generate strong cash flows.
We have the capacity to return cash to shareholders by buying back shares at what we believe is an attractive valuation while continuing to grow the business with significant scale.
Beginning on slide three we are a global leader in Poland, Broking, and pre Arlington with thoughtful rates up.
We operate 1100 52 stores in the U S and Latin America.
Strategic investments in adjacent businesses that expand our presence across the globe.
On this slide we talk about building shareholder value, while satisfying the short term cash lead to that customers with an industry, leading customer experience that is fueled by continuous innovation.
I brought in every one of us and have an intense focus.
And our people and the service they provide to our customers.
We will continue with our disciplined approach to cold door acquisition.
The markets in which we currently operate and other advantaged regions that allow us to expand our geographic footprint.
Moving to slide four.
People call in and passion is that core operating thing and its been wholeheartedly embraced biopsy.
<unk> hundred team members.
Those same draws up et cetera.
And we've invested in training incentives and cultural alignment so that we can continuously improve corporate culture and retain our best talent.
We strive to be the first and best choice of our customers pulling dates.
To do that would simplify what we're asking our store teams to do every day into four key actions.
Developing our people.
Serving our customers liking pawn loans and selling secondhand goods.
This significant change in operating culture had been critic critical component in driving our improving results.
What box shows that progression towards our strategic goals and once again I'm pleased with our consistent performance here.
We have invested in developing our team members and I believe we have the most passionate productive committed and motivated team in the industry.
We are focused on continuing to strengthen the core Poland business are executing.
Executing well on driving operational efficiencies significant bottom line growth and enhancing return on capital.
Improving the customer experience remains a priority and we have expanded our points based loyalty program and online payment options for four months.
Turning to our key financial themes for Q2.
On slide six.
As mentioned earlier, the most significant driver for revenue and earnings were down 38% year on year, leading to a 21% increase in PSC.
The typical seasonal decrease in PLO was the lowest we have been on record.
Net revenue was up 14% year over year, and EBITDA was up 61%.
Net income was up 75%.
On slide seven.
You can see the total expenses increased year over year, primarily due to increased store counts. However.
However, the advantage of net revenues for the last 12 months.
Total expenses decreased from 93% to 82%.
Store expenses increased year over year with a full haynesville still counting.
<unk> net revenues decreased from 78%.
70%.
G&A decreased $1 4 million year over year, and as a percentage of net revenue decreased from 15% to 12%.
On slide eight we talk about strengthening our core with a focus on people and systems, we continue to see enthusiasm and proud at all levels of the organization.
Throughout the field operation field support and the cost of <unk> given that it's been a difficult time to stop in general.
Without a thought on bonuses to attract new hires and added robot talent succession reviews, and embedded client to increase retention.
We remain committed to diversity and inclusion initiatives and cultural transformation to ensure team member aligning.
Hey, remember the aligning to our guiding principles of leadership, coupled with the accountability respect.
And sustainability.
Digitization and monetization are improving.
Efficiency, which is providing our customers with increased options and convenience.
It also simplifying processes for our teams in the stores.
On slide nine innovation and growth are essential to our strategy.
How easy plus loyalty system was launched.
Loyalty program was launched in the U S and Mexico during Q1 and is now live in Guatemala, we.
We are above the 930000 customers enrolled Doug with 500000 last quarter.
Online extension payments grew to 15% in Q2 up from 13% in Q1.
We are providing our customers with convenient options for both Paul and in line with the other thing.
We received more than 6000, Google reviews, this quarter, averaging $4 in the U S and we'll be expanding Google reviews in Mexico.
The customer feedback.
Widespread appreciation for our online support enhancements and specifically large chat.
Now inventory showcased Ted continues with 193 stores in the U S. In the third.
Same stores in Mexico, offering a full e-commerce experience.
This helps us capture new customers is the search for <unk>.
It becomes much more convenient.
Additionally, we are very excited about the addition of a chief marketing officer to our team who will drive oil marketing initiatives and the execution of that digital strategy.
From an inorganic perspective, we opened three de Novo stores in Latin America during the quarter and a quad three stores in the Dallas area or in April .
We increased uptake in.
<unk> in March and April and now on close to 41% of that business.
The acquisition pipeline remains robust.
We remain disciplined when evaluating evaluating opportunities and are focused on successfully integrating our recent acquisition in an efficient and robust manner.
Slide 10 outlines our ESG highlights.
Our core investment theme for the core business that we are significant recycler secondhand goods in the hundreds of local neighborhood in which we operate.
We have no factory distribution facilities or heavy trucking.
We contribute to the circular economy by extending the useful life of an recycling millions of items.
This quarter, we procured on the $1 5 million pre owned items.
<unk> totaled approximately $1 4 million items, ranging from consumer electrics cameras household goods tools musical instruments and jewelry.
We provide an essential simple regulated and transparent financial results.
Those who are underserved by traditional sources.
Diversity and inclusion remain a significant part of it and we've launched women's empowerment of affinity groups in the U S and Latin America.
Team members now have improved global training and development programs as well as talent reviews and succession planning processes.
For district and store managers in the U S. We launched a new long term cash incentive program to increase retention and have enhanced the incentive programs in Latin America.
I would now like to turn the call over to Tim Dugan, Chief Financial Officer to provide more details on our financial results Tim.
Thanks, a lot.
Before discussing the results I would like to run through the effect of the adoption, which we took at the beginning of the financial year for the new accounting standards for convertible months.
This new standard using the if converted method to calculate diluted EPS.
This method requires a new rider to be adjusted by the after tax interest expense.
It assumes the notes converted at the beginning of the period and the resulting common shares should be included in the denominator.
The application of the if converted method only a pause if the impact is.
Impact to diluted EPS.
On a prospective basis not retroactively.
This materially increases the weighted shares outstanding by $25 2 million, assuming all convertible.
Converted.
Slide 11 details the full calculation for FY 'twenty two in comparison to the old method used for the FY 'twenty one results.
Our consolidated financial results on slide 12.
Hello ended the period at $172 7 million up 38% on a year over year basis, which is the highest equal but as seen at the end of quarter two.
We're now within 4% of the Q2, FY 19 same store PLO balance.
Leasing revenue was up 21% over last year with growth driven by both increased same store PLO growth and acquisitions.
Merchandise sales was up 16% with margins falling back to the high end of our normal range at 38%.
Our focus on selling inventory in the first 90 days has kept inventory turnover strong at two nine times.
It was another great quarter with consolidated EBITDA of $32 $1 million up 61%.
Turning to our U S pawn operations on slide 13.
Yellow rose, 40% driven by continued focus on INR five point operating model and serving our customer needs.
<unk> was up 19% year over year, primarily driven by same store PLO growth.
On the retail side of the business much stockpiles were up 7% with much thought sales gross profit down to 1% TV expected 400 basis point drop in South module.
Even with the growth in transactions, we kept a tight hold on costs with an increase of 1% in store expenses.
U S pawn EBITDA for the quarter was $36 $4 million up 28% on the prior year.
Slide 14 focuses on our Latin American operations.
Segment, <unk> grew 31% for the second quarter or 13% on a same store basis.
As a result, PSC was up 29% driven by higher average PLO coming from same store PLO growth as well as additional stores.
Merchandise sales was up.
57%.
31% on a same store basis.
Merchandise sales gross profit was up 34% due to increased out offset by margins down 600 basis points.
Store expenses were up 22% year over year with 130 additional stores.
Even with the increase in same store transactions, we have kept same store expenses under control only up 1%.
All these changes resulted in Latin America, pawn, EBITDA, improving to $6 million or 67%.
Looking forward on a consolidated basis, we should see PLO levels continue to increase as we move beyond the effects of government stimulus to a more normal economic environment as well as seeing the effects of our improved business model.
However, given the seasonality of our business. The first half of the year is significantly stronger from an earnings perspective than the second half.
These first two quarters are buoyed by a higher <unk> balances as well as stronger sales results.
Results than either Q3 or Q4.
Q3 is the lowest earnings quarter coming off the lowest PLO balance of the year due to tax season, and as the limited special sales opportunities.
In the second half we are likely to see further reduction in sales gross margin as inventory levels increased and so discounting practice are continuing to return to normal levels.
Even though we have kept expense growth to a minimum in Q2, we expect that inflationary and widespread shares will continue to rise in the second half of the.
We continue to successfully execute on our strategic initiatives and I'm very pleased to see that coming through in the form of consistently strong financial results each quarter.
We are excited to see our business returned to pre COVID-19 levels of profitability with a superior operating model that is put out an exciting position to scale the business from here.
I will now turn the lucky for a few closing comments.
Thanks, Tim.
We continued to execute on that strategy in the second quarter and are extremely pleased with the excellent operating and financial results driven by our team members to continue to embrace our culture people colon and passion.
I'd like to thank everyone, who attended our Investor day in Dallas last month.
It was a great opportunity for us to spend time with you in person in the store.
And to show you, what a passionate newpage performance tape.
We are building here at <unk>.
I also want to thank the board of directors for their confidence may be called stability to continue to deliver consistently.
Consistently strong financial results as evidenced by their approval of a three year $50 million share buyback program.
We are very excited about the business of where we can drive it to from here.
And with that we'll open the call for questions operator.
Okay.
As a reminder, if you will.
Like to ask question Press Star then the number one on your telephone keypad.
As far as the number one.
From today to ask a question.
First question comes from the line of.
John Hess from Jefferies. Your line is open.
Hey, guys. Thanks, very much for taking my questions and congratulations on a great quarter.
You mentioned inflationary impacts on some of the G&A, but your costs have been very.
<unk> as a percentage of revenues recently.
How do we balance those two things over the next few quarters.
The expense base against the inflationary pressures.
Thanks, John .
Yes.
Inflationary pressures.
<unk> done a good job in the first two quarters really containing that.
We do think that as soon as <unk> net revenue will still be.
Good bye.
On a dollar basis, we believe that.
Costs will be going out.
But as a percentage of net revenue we think we.
The trailing 12 months that we produce in the earnings presentation will.
We'll be on track for that.
Okay. That's very helpful. Thanks, and then.
The PLO I mean, you guys have had.
Rate increase.
The PLL outstanding.
Obviously some of that bleed from just the normalization some of it is inflationary pressures.
What are you what are you seeing anything different from the customer behavior at the store level.
Tied to inflation or are there other factors driving some of the consumer response to what's going on in the market today.
There are a couple of things there John .
There is a little bit on.
Inflation obviously.
Some of the customers.
<unk>.
In a rising gas prices.
It's also the <unk>.
<unk> in our business model.
So is that the Cana has significantly increased.
A few years.
Especially in.
In the U S.
And the third one I think at a customer.
And then I had a little bit less money.
In tax season.
The child tax credits that were handed out through the year, which meant.
Slightly less of a tax return this year.
It's a combination of three things is really leading to.
Great quarter.
Okay and then final question you added a few stores I think you said in Dallas Whats the pipeline on the acquisition front.
Has the overall <unk>.
Market for whether it's U S or lat am.
The overall market like for potential acquisitions.
Good morning. Thank.
Thanks for your question.
Look I think as it has.
Quarter on quarter.
In most regions in the U S and in Latin America relatively robust.
Loan perspective.
I think multiples.
Likely coming down.
Anthony.
Tommy Bahama in the economy, but within the U S.
It remains.
One last quarter.
Seeing some exciting stuff to do in Latin America.
Pretty robust.
Alright, I appreciate that guys. Thanks.
Sure.
Next question is from monitor backwards.
Your line is open.
Thank you.
Hello.
Just as the environment.
Is is presenting certain challenges and opportunities.
<unk>.
Do you when you look at your store base.
Both of these new stores to mobile you have open via M&A what about us.
Under performing stores are there any stores that you see right now any existing chain.
Do you think might be candidates for closure.
We do that's a good question, we do run a program looking at exactly that.
And we review that very closely.
We nonetheless, not in stores that we have at the moment, we believe for closure.
Obviously underperforming stores and a large portfolio of stores.
We're doing a loss.
Noise around.
But that is something we do look at on a regular monthly basis to see what we're doing with underperforming stores and the way we can.
<unk>.
Okay.
And then.
In terms of some of your digital initiatives you commented on it in the press release.
You commented in the past.
You've expanded some of those initiatives.
Additional markets can you give us a little bit more color on Directionally, where you see taking some of those opportunities.
What you expect.
You might be able to do with some of those initiative.
I think the one.
I did speak about digital is firstly, we are looking at upwards.
When you turn on CLO.
We want to run all of those initiatives and strategy.
Think about it as the B.
The primary driver of.
Can you talk to that.
Yes.
To put a predominant reason and secondly.
Servicing our existing Hoffman.
Quick.
More efficiently in the west.
They only want to come to the stores that have extended hours.
Hi, there.
It's really a two pronged strategy.
The Big one was the thought about us.
Trying to attract new customers to what we do particularly young people.
First thing we'd becoming.
Seriously large international business, where young people.
Andrew.
I think the trend is incredibly exciting for us and.
The.
Predominantly reach those customers.
I think it is very important.
Because they want to transact digitally.
Not really.
Fulfill that growing customer base and doing it across.
<unk>.
And potentially new markets as well.
Thank you.
There are no further question at this time I would now like to turn the conference back concern Okay.
Thank you operator, and thanks, everyone for joining this morning, obviously.
Terrific.
Pools that we're all very proud of the painful and thanks for joining and we look forward to talking to many of your mindset.
Okay.
Ladies and gentlemen. This concludes today's conference call you may now disconnect.
Thank you.
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