Q3 2022 EZCORP Inc Earnings Call
Core operating thing.
Our diverse and engaged team drive that success.
We continue to invest in hiring training and development. So that we can continuously improve corporate culture and attract and retain the best talent.
We believe that our team driving outstanding customer service combined with our proprietary positive differentiator.
Differentiated digital and IP platform, and strong and liquid balance sheet make us the best choice for our customers pulling in recycled retail Nate.
Slide five shows our progression toward our three year strategic goals.
Believe we have the most passionate productive committed and motivated in the industry and we continue to find new ways to enhance their experience.
We are transforming the customer experience and modernizing the core point is not.
A points based loyalty program and online payment options have been well received by our customers.
<unk> substantially again this quarter.
We implemented <unk> to added customer protection and fraud prevention on Cod pilots.
Additionally, we ran our first national bonus points campaign in the U S to drive door styles and enrollment.
Great success.
Turning to our key financial themes for Q3 on slide six.
As mentioned PLO significant driver for revenue and earnings was up 30% year over year.
Leading to a 33% increase in PSC.
As a result, we saw significant improvements in revenue earnings and expenses as a percentage of gross profit.
While keeping inventory under 1%.
What we used to call net revenue, we now call gross profit was up 20% year over year and EBITDA was up 100%.
Slide seven you can see the total expenses increased year over year, primarily due to increases in store count and labor. However for the past 12 months total expenses as a percentage of gross profit decreased from 92% to 80%.
Store expenses increased year over year with store count, increasing but decrease the percentage of gross profit from 77% to 69%.
G&A increased two and a half million year over year decrease as a percentage of gross profit from 15% to 12%.
On slide eight we talk about strengthening our core with a focus on people and systems we.
We conducted a global engagement survey of our employees last month, and we were very pleased with the result significantly beating global benchmark.
Our commitment to investing in our people through ongoing training and development and our focus on inclusion initiatives and cultural transformation continue to drive improvement in our team member experience.
Which we believe contributes to our excellent operating and financial results.
We are hiring and retaining great people, who are aligned with our corporate culture that team is enthusiastic and engaged we continued to enhance our technology infrastructure and modernize the company. This.
This is transforming customer experience is simplifying processes for our team and the stores and increasing our operational efficiency.
On slide on innovation and growth is the third pillar to our three year strategy and we continue to be pleased with that progress here.
Our easy plus loyalty system now has over $1 4 million customers enrolled.
Doug a 930000 last quarter.
We collected $7 million in online payments this quarter, providing our customers with convenient options for both Poland and layaway servicing.
We received more than 15000, Google reviews in the quarter.
Averaging four nine stars in the U S and Latin America.
Our inventory showcased pilot continued in 193 stores in the U S.
Also piloting the fully commerce experience and 13 stores in Mexico.
We're capturing new customers and the search for a product that becomes much more convenient.
From an inorganic perspective, we opened eight de Novo stores in Latin America during the quarter and acquired three stores in the Dallas area.
We've increased uptake in cash converters from 39% to 41%.
The acquisition pipeline remains robust and we continue to remain disciplined when evaluating these opportunities.
Slide 10 outlines our ESG highlights.
Our business, but very nice job makes it part of the circular economy.
We have a significant recycler of secondhand goods and hundreds of local neighborhood.
We do not use factory distribution facility or heavy trucking.
We are extending the useful life of millions of items and saving them from landfill.
This quarter, we procured over $1 6 million pre owned items and sold approximately $1 4 million items ranging from consumer electrics cameras household goods.
<unk> musical instruments and jewelry.
In addition, we provide an essential simple regulated and transparent financial result.
Those who are underserved by traditional sources.
Diversity inclusion remains a significant focus.
In this quarter, we launched our first black empowerment affinity group.
As I've said, we continue to invest in global training and development programs and talent review and succession planning processes.
This quarter introduced our first Korea week for all of our team members.
In addition over the past few years. The <unk> Foundation has awarded a $190000 in scholarship funding to families and our team members.
We're always in search of innovative and genuine way in which we can positively impact on team members.
<unk> and the communities in which we serve.
I would now like to turn the call over to Tim Guttman.
CFO to provide more details on our financial results Tim.
Thanks Mohit.
Slide 11 details our consolidated financial results.
Hello ended the period at $204 7 million up 30% on a year over year basis, which is the highest in easy coffee stream.
We are now above the Q3, FY 19 same store PLO balance by 5%.
<unk> revenue was up 33% over last year with growth driven by both increased same store PLO growth and acquisition.
Merchandise sales was up 19% with same store sales up 14% as expected 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 China was strong at two eight times.
It was another great quarter with consolidated EBITDA of $25 1 million up 100%.
Turning to our U S pawn operations on slide 12.
Hello Rose, 36% driven by continued focus on our enhanced operating model and better serving our customers.
PSC was up 35% year over year, primarily driven by same store PLO growth.
On the retail side of the business merchandise sales were up 11% with merchandise sales gross profits down 3% due to the expected 500 basis point drop in sales margin.
So our expenses increased 6% with increased store activity.
U S pawn EBITDA for the quarter was $32 3 million up 56% on the prior year.
Slide 13 focuses on our Latin American operation.
Heckman PLO grew 13% for the third quarter or 10% on a same store basis.
As a result, PSC was up 28% driven by higher average PLO coming from same store PLO growth as well as additional stores.
Merchandise sales was up 47%.
29% on a same store basis.
Merchandise sales gross profit was up 24% due to the increased sales offset by margins down 600 basis points.
<unk> expenses were up 21% year over year, mainly due to the 128 corn store acquisition that occurred during June last year.
Even with the increase in the same store transactions, we have kept same store expenses under control only up 6%.
Latin America pawn EBITDA improved by $2 4 million or 45%, primarily due to higher PSC and increased merchandise sales gross profit offset by increased expenses.
As we reported last quarter, our board has approved a $350 million share buyback program.
We were unable to execute any repurchases in this quarter, given our trading window restrictions.
We reached a tentative settlement litigation matter in early May and took the cautious approach of delaying share repurchases until the settlement agreement was finalized and announced.
We are now in a position to begin to ship repurchases.
And as announced previously we will.
Look to execute this program opportunistic and responsible way taking.
Taking into consideration general market conditions liquidity and capital needs and availability of attractive alternative investment opportunities.
Looking forward on a consolidated basis.
We should see <unk> levels continue to increase beyond these record levels as we move back to pre COVID-19 seasonality as well as seeing the effects of an improved business model.
As we have suggested in prior quarters, we are likely to continue to see a further reduction in the sales gross margin as inventory levels increased in line with PLO and sales discounting practices continue to return to normal levels.
Also as we have seen this quarter expense growth is likely to continue on a sequential basis as inflationary wage pressures continues to rise.
We are pleased that the execution on our strategic initiatives continues to be seen in strong consistent financial results each quarter.
We are excited to see our business reached record levels and pre COVID-19 levels of profitability.
But with superior operating model that has put us in an exciting position to scale the business from here.
I will now turn it over to Lucky for a few closing comments.
Thanks, Tim.
The easy thing is proud of the excellent financial results, we are consistently delivering on behalf of our shareholders.
Our operating mantra of people, Poland passion continues to resonate with that team and delivered excellent operating and financial results for our shareholders.
And with that we'll open the call for questions.
Operator.
Thank you if you would like to ask a question. We invite you to press star followed by one on your telephone keypad.
Do you change your mind also that your question has already been answered you can press star followed by two to withdraw your question and please ensure that you are on mute you likely when preparing to ask your question.
We'll take our first question today from Rajeev Hap map of Jefferies, Steve MTA.
Hey, guys. Thanks, very much for taking my questions and congratulations on another great quarter.
On the PLO you had a big increase in the outstanding amount now past 2019 levels.
Some of which may still be normalization some from inflationary pressures.
At a store level in terms of customer behavior trends.
Guys seeing customer behavior, changing as a result of inflation.
Or are there other factors at play.
No worries.
Let me take a crack at that Tim.
I think so.
As you say cielo has.
<unk> is a pre pandemic levels and we think there are a bunch of different.
Forces at play here.
Firstly seasonality seems to be returning to what we would expect.
As you mentioned there are other factors, including inflationary pressure high gas prices has had a really significant impact on our customer and then thirdly, the availability of credit from alternatives. We think is tightening as the economy begins.
The term so look I think all of those factors.
Have impacted our customers at the store level.
Overlaid by the fact that we think that caused the stimulus.
But we were living in through Covid.
Customer behavior seems to be returning back to that normal seasonal.
Is that seasonal demand I think there are really positive factors at play here driving out driving that loan balances.
Thank you that's very helpful and one more question.
The large growth in return to seasonality you mentioned contain G&A.
With inflation mined over the next few quarters, how should we be thinking about that.
We're not there yet.
I think it is.
The challenge I think youre seeing that across the world not just in our business, but all businesses, but I think it is.
Is a significant challenge I think the team has done a very good job in the past of containing those cost.
But going forward.
I think youre going to state them realizing.
Tim why don't you why don't you give it a shot as well.
Yes, that's correct we've done an extremely good job of trying to contain these but eventually there is.
These pressures to start coming in as you know contracts are in U S.
Salaries.
Come up at year end and stuff like that so all of those kind of wide pressures coming through.
So those will see sequential rises.
As we move forward, obviously, we're doing that.
<unk>.
The best we can in this situation and trying trying to keep these container as much as possible, but there is going to be that growth, which we havent seen in prior quarters.
Great I appreciate that thanks.
Thank you for your question. Our next question today comes from Marla backer with Sidoti Molla Apta.
Thank you.
Given the trends the macroeconomic trends, we're seeing with inflation and interest rates were I think but also given no other trends that you've alluded to in terms of.
Rising interest in the circular economy.
Are you seeing shifts in your customer base.
Upon phase.
Yes.
<unk> and <unk>.
<unk> believes will be sustainable.
Good morning, and thanks, Thanks for the question look I.
I do think it's sustainable.
Trend in secondhand goods retailing, well I think that with with more pressure on our customer given the inflationary environment and challenging macro.
Economy, I think people are looking for a deal.
And people are looking to shopping thrift shops pawn shops.
To get a better deal than borrowing news.
And I think as we've discussed before the younger demographic is actually very attracted to secondhand goods, particularly in clothing.
Shoes luxury handbag, because it's good for the environment, So I think that.
I think that is macro environment as well as the younger demographic coming through I think we will see sustained demand correct secondhand goods.
It's Jeff.
Margins as Tim said in his remarks, I think the margin will be coming under pressure because as PLO grows so does your inventory.
And we are very very focused on turning that inventory quickly.
But as a result, you'll see it seems the pressure on our margin at the top line entitled I think.
I think we're really well positioned for sustained growth there.
Thank you.
Keith Your question Manav.
There are no further questions at this time, so I'd like to hand back to the management team.
Thank you operator.
We thank everyone for joining us this morning.
We're very proud of these results, we're proud of the consistency and I think our team shareholders and our customers.
Great quarter.
We'll talk to you soon thanks.
Thank you. This concludes the call today you may now disconnect your lines.
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