EZCORP, Inc. (EZPW) Earnings Call Transcript & Summary

Greetings, and welcome to the EZCORP Annual Meeting of Stockholders. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jean Marie Young with Three Part Advisors, Investor Relations for EZCORP. Jean, you may begin.

Thank you, Maria, and good morning, everyone. During our prepared remarks, we'll be referring to slides, which are available for viewing or download on our website, 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 the periods may differ materially from those expressed or implied by these forward looking statements due to a number of risks or other factors that are discussed in our annual, quarterly and other reports filed with the SEC. 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 CEO, Lachie Given; and Tim Jugmans, CFO. I'd now like to turn the call over to Lachie Given. Lachie?

Thanks, Jean, and good morning, everyone, and thanks for joining us for the 2023 Annual Meeting of Stockholders. We will discuss our corporate strategy and the financial results for fiscal 2022. Before we get to that, I'm happy to report that our voting stockholder has reelected our incumbent directors to serve another 1-year term. Now turning to the presentation. Slide 3 outlines the key components of our corporate strategy, which we announced to the market almost three years ago. I'm pleased to say that it continues to drive operational excellence and deliver consistently strong financial results every quarter for our stakeholders. With a deep focus on our team members and a passion for serving customers, our strategy is underpinned by three distinct pillars. One, strengthening the core operations down to the store level through superior execution on both the pawn and retail aspects of our business and becoming better managers of inventory. We had record-setting PLO and PSC growth in the year with same-store sales up 16%. The second is cost management and simplification. We reduced store operating costs as a percentage of gross profit and continue to build a culture of cost consciousness throughout the organization. The third pillar is growth and innovation, which we are driving through a disciplined approach to store growth and customer experience improvements. We are modernizing the operations at our EZ+ points-based Loyalty Program and online payment options have been very well received by our customers and continue to improve and grow. Slide 4 shows that both total expenses and store expenses have decreased as a percentage of gross profit, even with the expected increases in labor costs and rents associated with lease renewals. G&A expenses remained flat as a percentage of gross profit. On Slide 5, our efforts to strengthen the core operations are directly tied to our focus on people and systems. With a strong team and great systems, we can serve our customers more effectively, make good pool in decisions and effectively manage inventory. We are focused on recruitment, retention, inclusion and incentivization to ensure that the teams remain highly engaged. Improving the bench strength of our field team continues to be a major priority. The Women’s and Black affinity groups we launched have had robust participation and have been received well by our team. In addition to investing in people, we continue to invest in technology and store infrastructure, improving system stability and availability. Our technology and digital initiatives are improving our operational efficiency at the store level and the ease of use of our products and services for our customers. We continue to invest in rearchitecting our [ polls ] in a microservices architecture for increased agility and flexibility. All in-house applications have been transitioned from colocation data centers to the cloud. In addition, we launched mobile technology in our stores that automates manual processes for reviewing loans, saving manager time and providing immediate team member feedback and training. On Slide 6, we believe strongly that innovation is an essential driver for sustained growth. Our EZ+ Loyalty Program has been extremely well received by our customers and grew to over 1.9 million rewards members globally. We continue to enhance the program with bonus points campaigns and increase enrollment and transactions. Online extensions payments grew from 9% to 21% of total extensions in financial year 2022. Moving payments online only freed up time for our team members to service new business, but also provides our existing customers with convenient options to servicing pawn loans and layaways and promotes engagement and loyalty. Store growth is an important element of our strategy. We added 31 stores in fiscal 2022 and have continued our inorganic growth, investing $15 million in a company that owns pawn stores, primarily in the Caribbean as well as a $3 million investment in The Cobblers, a leading artisan and repair platform. We continue to [ incubate ] acquisitions and investments in the first quarter of fiscal 2023. Slide 7. Our business, by nature, makes us a neighborhood recycler and a compelling component of the local circular economy. We are a significant recycler of secondhand goods in hundreds of local neighborhoods. We resold over 5.6 million pre-owned items in fiscal '22, including toxic consumer electronic items such as computers, TVs and phones, as well as tools, musical instruments, household goods and jewelry saving them all from landfill. We use sound recycling and e-waste processing in the U.S. We do not use factories, distribution facilities or heavy truckers. Importantly, we provide an essential, simple, regulated and transparent financial resource for those who are underserved by traditional sources. We continue to execute on our two-year diversity and inclusion plan. Affinity groups have been embraced by our team, and we continue to educate team members with diversity and inclusion training. Our workforce remains passionate and engaged. On Slide 8, we continue to enhance our global training and development programs to improve team member learning. Cash incentives and improved benefits have been rolled out so that we can retain our top talent as retention is a key focus for us. Talent reviews and succession planning have been implemented in the U.S. and Latin America in the interest of developing our team members and improving our bench strength. In the U.S., 65% of team members and 57% of managers identify as underrepresented minorities. Globally, 51% of team members and 45% of managers identifies female. Customers are embracing our online and phone payment options, reducing the need for travel for the stores to make payments. In summary, EZCORP is committed to meeting our customers' needs in a responsible manner and have aligned our business strategy and operations with environmental, social and governance sustainability principles. We are always in search of innovative ways in which we can meaningfully impact our team members, our customers and the communities in which we serve. I'd now like to turn the call over to Tim Jugmans, our Chief Financial Officer, to provide more details on our financial results. Tim?

Thanks, Lachie. Turning to our financial results for fiscal 2022 on Slide 9. PLO ended the year at $210 million, up 19% year-over-year basis with the PSC up 23% year-over-year due to higher same-store PLO growth and acquisitions. Merchandise sales were up 21% and Merchandise sales gross profit margin was 38% compared to 42% in fiscal 2021 as expected. We remain committed to keeping a aged general merchandise under control. For the year, EBITDA was $112.9 million, up 66% year-over-year. In the first quarter of fiscal 2023, we derisked the balance sheet with $230 million 7-year convertible debt refinancing on the near-term convertible notes. We have enhanced our low cash cost capital base that is essential for growing our pawn portfolio across all our regions and to pursue substantial opportunities for pawn store expansion across the globe in a disciplined and focused way. I will now hand it back to Lachie for his closing comments.

Thanks, Tim. We are consistently delivering very strong operating and financial results for our shareholders, driving growth through de novo store build-outs and disciplined acquisitions, all while maintaining a strong liquid balance sheet and returning on capital to shareholders. Every day, we continue to work tirelessly toward improving the experience for our employees and our customers in an environmentally responsible way and to deliver enhanced value for our shareholders. That concludes the end of our presentation today, and we'd like to open it up for a few questions. Operator?

[Operator Instructions] Our first question is from David Kanen with Kanen Wealth Management.

So in the last earnings call, you guys specifically called out increases. You used the word pressure, which could be a negative. But you called out operating expense increases, which obviously everyone is seeing due to inflation. My question is, with the tailwinds that you're seeing in PLO growth, which is obviously much higher margin business, do you expect gross profit dollars, okay, as far as you can see today, growing at a faster rate than the inflationary pressures on OpEx?

Tim, do you want to take that?

We got -- David, we -- similar to the answer we gave at the end of Q1. We continue to focus on trying to build bottom line value by moving the top line and trying to keep those costs under control. Obviously, those costs have been kept well under control over the last couple of years, but there is that inflationary pressure coming through as we have seen in the Q1 results. But we continue to work as hard as we can to make sure that, that bottom line continues to grow.

Okay. So you're answering in the affirmative that gross profit dollar should grow at a faster rate than OpEx thus getting bottom line growth.

No, we're saying that that's our objective. That's our objective. That's what we are working hard to do. We're in month three of the quarter. So we've got to be very careful what we say here. But it is -- that is absolutely our objective is -- as Tim said, is what we said at the end of the Q was to grow bottom line value. pressures, as you've identified, is increasing due to inflation. And I think Tim and his team have personally done a fantastic job over the last couple of years, keeping it in check, but it is getting more difficult. But our objective is to try and do as you say.

There are no further questions at this time. I would now like to turn the floor back over to Mr. Given for closing comments.

Thanks, operator, and thank you all for joining. We look forward to speaking to you all at the end of the quarter. Thank you.

Excuse me, we actually do -- I thought we had another question, but it looks like this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.