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

Good day, and thank you for standing by. Welcome to EZCORP 2024 Annual Meeting of Stockholders. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lachie Given, CEO. Please go ahead.

Thank you, and good morning, everyone. Thanks for joining us for the 2024 Annual Meeting of Stockholders. We will discuss our corporate strategy and the financial results for fiscal year 2020 to 2023. 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. Beginning on Slide 3. We are a global leader in pawn broking and pre-owned and recycled retail, operating 1,231 stores in the U.S. and Latin America. The macroeconomic environment continues to be a challenge for our customer base with inflationary pressure, increasing interest rates, high gas prices and the tightening of credit from alternative lenders increasing the demand for pawn as consumers seek cash to satisfy their short-term needs. In addition, consumers seek value for money, household and other consumer goods by purchasing pre-owned products, which also represents the 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 serve. Slide 4 shows our 3-year plan strategy pillar. We transitioned in fiscal year 2020 to a senior management team who were mostly promoted from within, and with many years of experience in the pawn business, and we performed a comprehensive strategic review of all areas of the company. We launched a new 3-year plan focused on significantly improving our culture and the bench strength of our store team, enhancing our core pawn operating model with more robust lending and higher inventory turns, reduced costs and expanding our customer base and store footprint with an extreme focus on customer service and engagement. All of this to materially increase operational efficiency, bottom line growth and return on capital for all of our shareholders. As we look ahead to the next 3 years, we remain committed to further strengthening our core strategic pillars, focusing on building and retaining a great team, serving our customers passionately, respectfully and responsibly, growing scale with both stores and customers and increasing profitability and returns to maximize value to all of our shareholders. On Slide 5, our commitment to our internal operating mantra of People, Pawn and Passion has led to growing PLO in revenue to record levels, coupled with a sustainable improvement in ROA. We introduced the cultural transformation in the U.S. in financial year '20, and in Latin America in financial year 2022. The result of this work is demonstrated both in our significantly improved financial and operating results over the last 3 years as well as in our most recent annual company-wide engagement survey, in which we scored 84-point, well above all global benchmarks. Slide 6 looks at the many metrics showing sustained growth in customer engagement. All of these have been critical for us to sustained improvements in operating and financial results. The EZ+ Rewards program has been a resounding success. We believe that we are winning market share in the local neighborhoods in which we operate, as a direct result of this program. EZ+ Payments has grown very quickly, giving our store teams more time to directly serve customers. Our websites have been redesigned and optimized to search, and are now real drivers of traffic into our stores. Google Reviews have also been very successful, and we have an average rating of 4.8. Slides 7 and 8 outline our ESG highlights for the 2023 fiscal year. We are in neighborhood recycler and a compelling component of the local circular economy, and have resold over $5.4 million pre-owned jewelry and general merchandise items in fiscal 2023. Importantly, we provide an essential, simple, regulated and transparent financial resource for those who are underserved by traditional sources. During the year, we recycled over 1.2 million pounds of paper in the U.S. and have responsibly disposed end-of-life services, hard drives, computers, electronics and accessories through sound recycling and e-waste processing practices in the U.S. and Latin America. We successfully completed full migration of our data center physical services or service to cloud service through our multiyear effort, reducing our environmental footprint and greenhouse gas emissions and ensuring high-quality services and availability for our customers. We have upgraded our lighting to LEDs in 78% of our U.S. stores an increase of 8% from the previous year. Additionally, 60% of our Latin America stores now have LED lighting, a 21% increase from the prior year. We are committed to continuing this initiative to enhance energy efficiency across all of our stores. We've revamped the mission of the EZCORP Foundation in the U.S. and have launched local giving strategies aimed at 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 for us, with several affinity groups and programs operating in the U.S. and Latin American segment. 66% of U.S. employees and 58% of U.S. management identifies underrepresentative minorities, 52% of global employees and 49% of global management are FEMA. We strive to continuously improve the team member experience and engagement by enhancing store-based communications, scheduling and recognition programs. I'd now like to turn the call over to Tim Jugmans, our CFO, to provide more details on our financial results. Tim?

Thanks, Lachie. We have seen a substantial improvement in our financial results over the last 3 years. This improvement starts with PLO, which we can see on Slide 9. PLO reached a low point in Q3 fiscal 2020 due to the paydown during COVID, but since then has continued to increase significantly, reaching an all-time record at the end of FY '23. The macroeconomic environment remains attractive for pawn broking as customer demand continues to grow and the internal initiatives that we have executed have driven PLO and PSC into more record territory. As you can see in the PLO composition chart, jewelry pawn demand has been growing at a faster pace than general merchandise, contributing to a high average pawn loan size across all geographies. And we believe there should be more growth going forward in this critical category. On Slide 10, you can see how our improvements to the pawn operating model and team member incentive programs have driven strong inventory turnover with low aged inventory. Similar to the PLO composition, we saw an uptick in jewelry during FY '23, and that tends to turn at a slower rate than general merchandise. Slide 11 shows the significant improvements to general merchandise sales and sales gross profit, which were driven by enhanced operating model changes implemented during this period. The strategy focus on quicker inventory turns and lower aged with new incentive programs designed to drive execution. Merchandise margin in fiscal 2021 was unnaturally higher due to the pandemic and has returned to our normal range of 35% to 38%. Merchandise sales profit growth has been outpacing the margin decrease. On Slide 12, we show the growth in store count from fiscal 2020. In the last 3 years, we have increased store count by 226 stores, we acquired 154 stores with 128 in Latin America and 26 in the U.S. We opened 90 de novo stores, with 87 in Latin America, while consolidating 18 stores. We also expanded our luxury offering with the acquisition and build-out of Max Pawn in the exciting Las Vegas market. Our balance sheet is very strong and the significant strength and has provided a stable long-term funding base from which to execute upon the substantial growth opportunities ahead. In the last 3 years, we have invested $176 million in growing our earning asset base, $55.7 million in the exciting strategic assets of SMG through Founders and CCV. We've also repurchased $19 million of our shares since August 2022. We have maintained our average borrowing cash costs below 3.3% and extended over 60% of debt maturities until fiscal 2029. We've had a number of questions from investors about the upcoming maturity of our 2020, '24 convertible notes. On Slide 13, we provide a summary of providing the answer to many of these questions. In summary, after January 1, 2024, the holders of the 2024 notes have the ability to convert until June 28, 2024. If a holder convert, it will be settled using combination settlement, the default election. This means a holder will be paid cash for the principal amount plus stock to the accreted value above the conversion price of $10 per share based on the 30-day trading share price till June 28. On Slide 14, provides a snapshot of earnings performance over the last 3 years. While obviously, COVID impacted since we embarked on this 3-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 have been worth $164 at the end of fiscal 2023, compared to $118 invested in the NASDAQ Composite Index and $102 invested in the NASDAQ Other Finance Index. As reported in our Q1 announcement for FY '24, our top and bottom line results as well as share price continue to improve. I will now hand it back to Lachie.

Thanks, Tim. We are consistently delivering very strong operating and financial results for our shareholders. driving growth organically as well as through de novo store buildup and disciplined acquisition, all while maintaining a strong liquid balance sheet and returning capital to shareholders. Every day, we continue to work tirelessly towards improving the experience for our employees and our customers in an environmentally responsible way, and to deliver significantly 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, please?

[Operator Instructions] At this time, I would now like to turn the conference back over to Lachie Given for closing remarks.

Thank you very much, everyone, for joining today. We look forward to speaking to you all again at the end of the quarter. Thanks for your support. Bye-bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.