Q4 2023 EZCORP Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to EZ Corp's fourth quarter and full year fiscal 2023 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 would now like to turn the comps over to Jean Marie Young Investor Relations with three part advisors. Please go ahead.
Okay.
Yeah.
Thank you and good morning, everyone.
Our prepared remarks, we will be referring to slides, which are available for viewing or download from our website at investors got EZ Court dot com before we begin I'd like to remind everyone that this conference call as long as the presentation slides contain certain forward looking statements regarding the company's expected operating and financial performance.
This strategic period.
Statements are based on the company's current expectations actual results for future periods may differ materially from those expressed herein.
A number of risks or other factors that are discussed in our annual quarterly and other reports filed with the Securities and Exchange Commission.
As noted in our presentation materials and unless otherwise identified results are presented on an adjusted basis to remove the effects of foreign currency fluctuations and other discrete items joining us on the call today are EZ Corp's, Chief Executive Officer Lucky Kevin.
I'm, Jeff Miller, Chief Financial Officer, now I'd like to turn the call over to Lucky Lucky.
Thanks, Jane and good morning, everyone.
James consistent execution on our strategic plan is again yielded very strong operating and financial results for our stakeholders.
As we conclude the current fiscal year and three year strategic plan announced in November 2020, we looked at I begin with a review of our fourth quarter performance.
And then we'll move to an overview of the strategic goals, we set three years ago.
The accomplishments that have been achieved in that time.
At the end of Q4 four months outstanding the key driver of our business hit a record $250 million the highest level in <unk> history.
Total Q4 revenue hit a record $261 $4 million driven by higher PSA entitled volumes across all of our regions.
Merchandise sales gross margins remained within our targeted range of 36% with strong inventory turns of two seven times.
Beginning on slide three we are a global leader in Poland, Broking, and prion restock with retail we operate 231 stores in the U S and Latin America, having added another 21 stores this quarter.
The macroeconomic environment continues to be a challenge for our customer base with inflationary pressure increasing interest rate are gas prices and the tightening of credit from alternative lenders, increasing the demand for pulp.
As consumers take cash to satisfy the short term dates.
In addition, consumers seek value for money households, now the consumer goods by purchasing prion products, which also represents a more environmentally responsible way to shop.
We strive to provide the best most convenient experience for our customers through continuous innovation, while positively impacting the environment and the communities in which we set it.
Moving on to slide four people, Paul and passion is our core operating phase.
Our engaged team drive that success. So we are committed to investing in recruitment retention and incentive addition to ensure our team members are highly engaged.
We provide access to critical financial services in the one hundreds of local communities in which we operate offering customers instant cash for any type of value.
We promote.
Our economy with a more affordable and sustainable shopping experience with outstanding customer service and attractive and well positioned store footprint differentiated digital platform proprietary pls system and an innovative loyalty program for our customers.
Our balance sheet is very strong and liquid enabling us to fund significant growth in our earning asset.
Build out of new de Novo stores opportunistic acquisitions from what continues to be a robust pipeline and our.
Share repurchase program.
Slide five shows our progression this quarter on our three year strategic goals.
We believe we optimized passionate productive tenured and committed team in the industry and continue to find new ways to engage and motivate and retain them.
The implementation of the Workday human capital management system globally during the quarter will further improve access to human capital data and enhance training career development and recruitment processes.
A points based loyalty program continues to be highly popular with our customers growing 15% this quarter to $3 8 million members.
We are now working on delivering a superior experience to these customers, including offering tailored products and services to help drive that growth.
Turning to our key financial themes for Q4 on slide six.
You mentioned, the most significant driver of revenue and earnings at an all time high of $240 4 million.
Up 14% with an associated 15% increase in PSC.
Merchandise sales were up 9%, resulting in total revenue for the quarter were $261 4 million up 12%, which was a record for Q4, adjusted EBITDA was $31 $2 million for the quarter up 26%.
Inventory remained strong with inventory increasing slightly year over year.
But improved sequentially by 30 basis points.
Just on the balance sheet came down slightly on a sequential basis, primarily due to increases in PLO and inventory.
On slide seven we show year over year EBITDA growth of 14%, while keeping EBITDA margin flat.
Does that in a highly inflationary environment.
Slide eight focuses on our progress in strengthening our core pawn operations during the quarter investing in people and technology to drive excellent operating and financial results.
In addition to launching the workday human capital management system globally, we continue to upgrade pricing Paul style system and e-commerce capabilities to drive faster transaction times and deliver better customer experience.
On slide nine in the area of innovation and growth.
Our <unk> loyalty program now has over $3 8 million members.
<unk> done a $3 3 million last quarter.
In the U S. We collected $8 million in online pilot, which was up $8 4 million and we revamped the core Mexico website to improve customer experience and grow traffic materially as we've done in the U S over the last 12 months.
Improving customer experience and growing the customer base remain key to our strategy.
We increased global transacting customers bought 5% this quarter and grew visits to Poland website by 16% over Q3.
We opened 19 de Novo stores in Latin America, with 10 in Mexico, seven in Guatemala and Honduras.
And in the U S. We acquired two stores this quarter.
Slides 10, and 11 and outline our ESG highlights for the 2023 fiscal year.
We are a neighborhood recycled.
Telling component of the local circular economy.
We sold $5 4 million pre are in jewelry in general merchandise items this year.
Importantly, we provide an essential simple regulated and transparent financial results for those who are underserved by traditional sources.
During the year, we recycled over $1 2 million pound paper in the U S and have responsibly disposed and have locked services hard drive computers electronics and accessories through sound recycling any waste processing practices in the U S and Latin America.
We successfully completed the full integration of our data center physical services to cloud services through a multi year effort, reducing our environmental footprint and greenhouse gas emissions and ensuring high quality services and availability for our customers.
We have upgraded the logging to Leds and 78% about U S dollars.
Increased 8% from the previous year.
Additionally, 60% of our Latin American stores now have led lighting at 21% increase from the prior year.
We are committed to continuing with initiatives to enhance energy efficiency across all of our stores.
We have revamped the mission of the EZ called Foundation in the U S. They have launched local giving strategy tied to improving quality of life in the communities, where we live and operate through supporting financial literacy food security and financial stability.
Diversity and inclusion are a significant focus.
With several affinity groups in programs operating in the U S and Latin American segments.
66% of U S employees, and 58% of U S management identified under representative minority.
2% of global employees, and 49% of global management are female.
We strive to continually improve the team member experience and engagement by enhancing store based communication scheduling and recognition programs.
I'd now like to turn the call over to Tim Johnson, our CFO to provide more details on our financial results Tim.
Thanks Rocky.
Slide 12 details our consolidated financial results for the fourth quarter.
We ended the period at $244 million up 14% on a year over year basis, which is the high from the <unk> stream.
<unk> revenue was up 15% over last year with growth driven by both increased same store PLO growth and new stores.
Merchandise was up 9% to $145 3 million.
Our highest fourth quarter sales results mentioned.
Merchandize sales gross profit was up 5% due to increased sales offset by an expected 100 basis point margin decrease.
Inventory turnover was strong at two seven times with IHG inventory up one, 3%, a 30 basis point improvement or the third quarter.
We have been successfully working on improvements in the U S and Latam to drive H GM Aloha.
It was another solid quarter with consolidated EBITDA of $31 2 million up 26%.
Turning to our U S corn operations on slide 13, PLO rose, 17% due to improved customer service and higher corn demand.
PSC was up 17% year over year, driven by higher average PLO and yields on.
On the right outside of the business merchandise sales were up 8% with our merchandise gross profit up 3% with an expected 200 basis point drop in sales margin.
Store expenses increased by 11%, primarily due to library in line with store activity.
Higher store count and so a lesser extent expenses related to our loyalty program.
U S pawn EBITDA for the quarter was $39 7 million up 18% on prior year to higher PSA, partially offset by increased expenses.
Slide 14 focuses on our Latin American corn operations.
Segment PLO grew 7% for the fourth quarter with same store PLO up 4% as consumer demand increased.
<unk> was up 9% due to higher average PLO in PLO yields.
Merchandise sales were up 12%, 7% on a same store basis.
Merchandise sales gross profit up 11% due to increased sales offset by a margin decrease of 100 basis points.
Star expenses were up 18% and 14% on a same store basis, mainly due to increases in minimum wage in head count.
Our store count and to a lesser extent expenses related to our loyalty program.
Inventory turnover remained strong at three six times with ice jam at 2% showing a 40 basis point improvement over Q3 due to improving execution in Latam.
For the fourth quarter, Latin American pulling EBITDA decreased by 11% to $7 6 million.
Primarily due to losses from de Novo stores opening during the year.
As we conclude our current three year strategy period, we would like to provide an overview of our team's performance and progress we've made towards our long term objectives.
Wahid.
Thanks Ted.
Slide 16 shows our three year plan strategy pillars.
We transitioned in fiscal year 2020 to our senior management team, who are mostly promoted from within and with many years of experience in the pawn business.
We performed a comprehensive strategic review of all areas of the company.
We launched a new three year plan focused on significantly improving our culture and the bench strength of our store teams and hunting our core <expletive> operating model with more robust lending at higher inventory turns.
<unk> costs.
Expanding customer base installed footprint at an extreme focus on customer service and engagement.
All of this to materially increase operational efficiency bottomline growth and return on capital for all of our shareholders.
On slide 17, our commitment to our internal operating that are people pulling and passion.
Led to growing PLO and revenue to record levels.
With a sustainable improvement in ROE.
We introduced a cultural transformation in the U S in financial year 'twenty.
Latin America or in financial year 2022.
The results of this work has demonstrated both in a significantly improved financial and operating results over the last three years as well as how much recent annual company wide engagement survey in which we scored eight full points.
Above all global benchmarks.
Tim will walk through the significant financial improvements we've seen over the last three years.
Thanks, a lot.
We have seen a substantial improvement in our financial results over the last three years.
This improvement stops with PLO, which you can see on slide 18.
Hello rates, a low point in Q3 fiscal year 2020 due.
Due to the pay down during Covid, but since then has continued to increase significantly reaching an all time record this quarter.
The macroeconomic environment remains attractive coupon broking as customer demand continues to grow and the internal initiatives that we have executed as driven PLO and PSC into more record territory.
As you can see in the PLO competition jobs jewelry pulling demand has been growing at a faster pace than general merchandize contributing to a high average corn line size across all geographies and we believe that they should be more growth going forward in this critical category.
On slide 19, you can see how improvements to the <expletive> operating model and team member incentive programs have driven stronger inventory turnover with low aged inventory.
Let's say the PLO competition, we have seen an uptick in jewelry during FY 'twenty, three and that tends to turn at a slower rate.
In general merchandise.
Slide 20 shows a significant improvement to merchandize sales and sales gross profit, which was driven by enhanced operating model changes implemented during this period the.
Our strategy focused on quicker inventory times, and lower aged with new incentive programs designed to drive execution.
Merchandise margin in fiscal 2021 was on actually high due to the pandemic and is returning to a normal range of 35% to 38%.
Merchandise sales profit growth has been outpacing the margin decrease.
Slide 21 looks at the many metrics showing sustained growth in customer engagement.
All of these have been critical in a tight <unk> improvements in our operating and financial results.
The EZ plus rewards program has been a resounding success.
We believe that there are winning market share in our local neighborhoods in which we operate as a direct result of this program.
EZ plus payments is growing quickly, giving our store teams more time to directly serve customers.
Our website is being re design and optimize for search and we are now real drivers of our traffic to our stores.
Google reviews have also been very successful and we have an average riding a full point height.
On slide 22, we show the growth in store count for fiscal 2020.
In the last three years, we have increased store count by 222 stores. We have acquired 154 stores with 120 in Latin America and 26 in the U S.
Opened 91 de Novo stores with idea of either of them in Latin America, while consolidating 23 stores.
We also expanded our luxury offering with acquisition and build out of Mexico, and an exciting Las Vegas market.
Our balance sheet is very strong and a significant strength as it provides a stable long term funding base from which to execute upon our substantial growth opportunities ahead.
And the last three years, we have invested $176 million and growing our earning asset base.
$5 7 million and the exciting strategic assets of <unk>.
Through founders and CTV.
We have also repurchased $19 million of assay since August 2022.
We have maintained our average borrowing cost or low three 3% and extended over 60% of debt maturity until fiscal 2029.
Looking at U S. Pawn on slide 23, PLO was up 80% compared to fiscal 2020 PLO per store is up 71%, which is a new record.
Net revenue is up 26% and EBITDA is up 57%.
In fiscal 2019 was 133% and is now a 157% driven by significant operational and muddle improvements.
Merchandise margin has normalized at 38%.
Looking at Latam on on Slide 24, Elo has doubled since fiscal 2020, while PLO per store is up 43% net revenue is up 63% and EBITDA is up 80%.
Rei in fiscal 2020, 127% and is now 175% driven by our team's focus on customer and operational improvements.
I'll hand, it back to lucky to discuss our strategic investments on slide 25.
Thanks, Tim.
View, our investments and cash converted international and SMG through founded as an important strategic and geographic extension of our core <expletive> operation.
We were founded we have enhanced our exposure to the strategically important to ribbon and Central America regions as well as the Florida market and.
And CTV with Thomas.
Stock exchange in Australia, increasing their exposure in 14 countries, including Australia, and New Zealand and the United Kingdom.
We are extremely excited about the growth prospects ahead for these two very well run businesses.
All of this resulted in a three year earnings performance on slide 26.
While obviously COVID-19 impacted since we embarked on this three year strategy in fiscal 2020 net income has more than tripled and EBITDA has almost doubled with the share price increasing 64%.
Investing $100 in our class a common stock at the end of fiscal year end 2020 would be worth $164 at the end of fiscal 2023 compared to $118 invested in the last that composite index at $102 invested in the NASDAQ Other finance index.
Looking forward on a consolidated basis, we should be PLO continued to grow on a seasonal basis with PSC following suit.
As communicated in prior quarters, we are likely to continue to see gross margin remained at the lower end of that target range of 35% to 38% as we remain focused on strong inventory turns and limited aged general merchandise.
As we adjust salaries and wages during our third quarter, we will see store expenses increased on a sequential basis as inflationary pressures continued to affect the business.
In closing I want to thank our EZ colt team for yet another outstanding quarter and successful completion of our three year strategic plan.
We are consistently delivering strong operating and financial results to our stakeholders.
Balance sheet is robust we grew PLO to the highest level in our history and added 21 exciting new stores this quarter.
We continue to invest in our team and technology, while buying back shares.
We are committed to improving the experience for our employees and our customers in an environmentally responsible way.
Our three year plan and the team that executed at that produced a very significant financial and operating turnaround for our company and we are very much looking forward to producing even better results for our shareholders over the next three years and beyond.
And with that we will open the call up to questions operator.
Thank you ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone. If your question has been answered reducing with yourself from the queue. Please press star one again, we will pause for a moment, while we compile our Q&A roster.
One moment for our first question.
Okay.
Yeah.
Our first question comes from Brian Mcnamara with Canaccord Genuity. Your line is open.
Hey, good morning, guys. Congrats on the strong results thanks for taking the questions.
First a big value big.
Big value retailer this morning.
You all noticed that it saw a sharp falloff in sales during the last two weeks of October and are basically more cautious on the consumer than there were 90 days ago consumers holding out for lower prices. My question as it relates to you I am curious what youre seeing in your stores today, particularly as it relates to new customers or are you seeing new customers.
Good morning, Brian and thanks for the question, Yes, we are seeing new customers.
It's region dependent.
And as you know we've got two thoughts about business, we've got lending on one side and we've got retail on the other I think on the on the demand side lending continues to be very strong, but I think thats reflective of the economy, where in the macro environment I think lift sales.
<unk> is a critical part of the business I think.
The economy.
More challenging I think.
We will also be challenging but people are same value for money in second hand goods.
I think there's a few forces at play here do I think it's.
Going to be a challenge in the future if the macroeconomic environment continues to deteriorate, yes I do.
And balancing that we are still seeing strong demand for secondhand goods, just because represent value for money and.
It also is an environmentally.
Sponsor of a way to shop.
Great and then secondly, I mean, EZ plus recruitment continues to be incredibly impressive I think by our math you are at roughly 3100 members per store.
Obviously, the key Delta here is improving engagement and all that stuff.
And I appreciate the color and then Jack I think 73% of your transacting customers. Our rewards members how should we think about that moving forward, particularly as the customers that use multiple pawn shops, how do you keep those customers captive and kind of any color you can provide on.
Your progress there.
Yes.
Exactly what we're trying to do I think the material growth in the number of rewards customers.
<unk> continues to be incredibly strong.
It's got to come a time or a quarter, where that that stopped the store, but we're very very happy with the with the amount of customers that have signed up for the rewards program and as you say, it's all know about in Geismar.
I think I mentioned to you last quarter, we've got a outsourced firm that is helping us to really maximize the value of that customer base, we're coming up with Thailand marketing programs to that customer base to provide them with deals and discounts to get them back into the store.
Look I personally think it's an important part of the consumer story here, where we think we're winning market share. We think it's part of growing PLO and styles.
I think I think it will continue to look we get these engagement pace brought I think it is going to be really important in driving and driving revenue and earnings.
Great and I'll, just ask a third one and then I'll hop back in the queue. Maybe this one for Tim I'm curious, how we should think about expenses for fiscal 'twenty forward just given the catch up you experienced on some inflationary line items last year will this year be more of a quote unquote normal year.
Definitely still experiencing a little bit of that inflation, obviously, a little bit less.
Then we saw this year.
But sally.
Salary growth.
Mind strong keeping al.
Keeping our tenured employees.
Number one thing that we're trying to do.
You also do have some pressure that is mounting and especially in Mexico with.
Luckily minimum wage increases yet again, and there's definitely a push to go to a 40 hour work week.
Instead of 48 in Mexico, So we're waiting to hear from that government down there on what's going to change.
So there are a number of things outside our control there.
Do you see it a little bit.
Less than.
We've experienced this year.
Alright, thanks, guys.
Again, ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone.
Our next question is going to be a follow up from Brian Mcnamara one moment.
And Brian Your line is open.
Great.
Can you guys give an update on your progress in Latam It seems like Theres a lot of low hanging fruit there given the leadership changes implemented over the last year and the progress, particularly on some of the acquired stores.
So you kind of mentioned headwinds on over the last couple of quarters.
Sure look I think it's probably our biggest strategic opportunity is the not only the organic improvement in Latin America, particularly in Mexico, but also the inorganic opportunity and you can see that we're opening new stores.
They're doing quite well and there's a pretty robust acquisition pipeline down there. So I think.
You brought in pulling it out and get it out our biggest strategic opportunity.
With the people Blair a CLO done a magnificent job across all of the regions, but he started in the U S.
Starting with the people the bench strength.
And that's what we're doing in Mexico now we are revitalizing that culture.
Strong signs of growth down there of improvement in the business certainly in the bench strength of the people.
We expect that business to.
That'd be a really big part of our story over the next one to three years.
Great and then last one for me I'm just curious what your plans are for capital allocation this year.
You have some investments here.
Convert maturing.
Investors when you talk to your so your stock is very cheap they want or purchases to be obviously, a higher priority I'm just curious kind of how.
So as you think about share repurchases this year.
Another good point.
We are trying to balance the.
The growth opportunities are capital required to grow our earning assets as well as to build new stores as well as to acquire New school stores. So that's <unk>.
Priority one is really scaling this business up.
And capitalizing upon the growth. We also as you know we locked in my entitled liquid balance sheet.
To do those things, but we are obviously buying back shares.
We have $35 million ish coming due in May clearly, we've got the cash to two.
To close that out then we have another 100 million coming the year after that.
Look I think the liquidity that we've got.
<unk> is a really strong story for us and I think given where the stocks out at the moment.
Saying that we've been pretty active in buying back buying back shares I think we've done $19 million now clearly a high return on capital.
But we will assess that each quarter to try and balance that with growth opportunities and debt maturities.
Alright, thanks, very much guys.
Thanks, Rob.
Im not showing any further questions at this time I'd like to turn the call back over to Rocky for any closing remarks.
Thank you operator, and thank you everyone for joining today, we will spud speak to most of you over the course of the day to day. Thank you Les.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
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