EZCORP, Inc. (NASDAQ:EZPW) Q1 2024 Earnings Call Transcript
EZCORP, Inc. (NASDAQ:EZPW) Q1 2024 Earnings Call Transcript February 1, 2024
EZCORP, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, ladies and gentlemen. Welcome to the EZCORP First Fiscal Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this call may be recorded. I'd now like to turn the conference over to Jean Marie Young, Investor Relations with Three Part Advisers. Please go ahead, Jean.
Jean Marie Young: 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 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 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 the Securities and Exchange Commission.
And as noted in our presentation materials, 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 Chief Executive Officer, Lachie Given and Tim Jugmans, Chief Financial Officer. Now I'd like to turn the call over to Lachie Given. Lachie?
Lachlan Given: Thanks, Jean, and good morning, everyone. We began fiscal 2024 with an outstanding quarter. Total revenue of $293 million was the highest in the company's history. Our PLO continues to grow, with our highest first quarter PLO ever. Bottom line net income also grew very strongly to $28 million, up 30% on Q1 2023. Beginning on Slide 3. We are a global leader in pawn broking and preowned and recycled retail. We operate 1,237 stores in the U.S. and Latin America, having added another 6 stores this quarter. The macroeconomic environment continues to be a challenge for our customer base, with inflationary pressure increasing the demand for pawn as consumers seek cash to satisfy their short-term needs. In addition, consumers seek value by purchasing preowned merchandise and jewelry, which also represents a more environmentally responsible way to shop.
We strive to provide an industry-leading experience to our customers through continuous innovation. Moving to Slide 4. We opened 5 de novo stores in Latin America and acquired one store in Texas during the quarter. Record-setting Q1 PLO balance of $238.4 million was up 14%, driving a 13% increase in PSC. When comparing the first quarter with the fourth quarter, earning assets are typically impacted by strong holiday sales, lowering inventory as well as consumers in Latin America receiving additional compensation in December, applying downward pressure on PLO balances. Our cash balance was up to $219 million, primarily due to strong cash inflows from operating activities, partially offset by increased PLO inventory, strategic investments, share repurchases and new store acquisitions.
We repurchased $3 million of shares and invested $15 million in Founders to fund SMG acquisitions in Central America. Slide 5 shows our excellent financial metrics for the quarter, with total revenues up 11%, merchandise sales up 7%, gross profit up 11% and adjusted EBITDA up 21%. Strong consumer demand and excellent customer service continues to propel PLO and PSC up 14% and 13%, respectively. Turning to our key business strategies for Q1 on Slide 6. We continue to strengthen our core pawn operations during the quarter, investing in people and technology. In addition to launching a rebuild of intelligent pricing systems globally, we continue to upgrade merchandising, tagging, pricing, point-of-sale system and e-commerce capabilities to drive faster transaction times and deliver better customer service.
EZ+ Rewards members grew to 4.2 million globally with 1.4 million people transacting in Q1, almost evenly split between the U.S. and Latin America. Across all geographies, transacting customers increased 4%. Team members are at the core of our operating theme of people, pawn and passion. We are committed to investing in recruitment, retention and incentivization to ensure that our team remains highly engaged. The Workday Human Capital Management system was implemented globally during the quarter and will further improve access to human capital data and enhance our training, career development and recruitment processes. Innovation and growth are critical to our future. Online payments grew $8.6 million to $20.3 million in the U.S. We launched online app features to securely save payment card details with promotional giveaways, which attracted engagement from over 50% of users, reflecting the successful adoption and positive reception of these enhancements.
Online payments launched in Mexico with the buy online pickup in-store initiatives, expanding to 23 additional stores in Houston. Furthermore, we enhanced Max Pawn luxury e-commerce capabilities on eBay. Slide 7. During the quarter, we sold 1.4 million pre-owned general merchandise and jewelry items and provided critical financial services to customers in the hundreds of local communities in which we serve. We are excited to share that Newsweek recognized EZCORP as one of America's greatest workplaces for diversity. This study highlights the top large and midsized companies recognized by their employees for dedication to supporting a diverse workforce. At EZCORP, we foster an environment that values diversity, inclusion and development for all, with initiatives promoting affinity groups in the U.S. and Latin America, enhancing diversity awareness, encouraging inclusive conversations and more.
We launched an inaugural round of local giving, which included U.S. districts donating to charitable organizations that support financial literacy, eradicating food and security, empowering young people or engaging in poverty intervention. In addition, we hosted company-sponsored volunteer events at local food banks. The backbone of the company is our passionate, productive, tenured and committed team members, and we continue to find ways to enhance their experience. We promote the circular economy with a more affordable, sustainable shopping experience for our customers, always working to improve their experience with innovations in our digital platforms, proprietary POS system and loyalty program. I'd now like to turn the call over to Tim Jugmans, our CFO, to provide more details on our financial results.
Tim?
Timothy Jugmans: Thanks, Lachie. Slide 9 details our consolidated financial results for the first quarter. PLO ended the period at $238.4 million, up 14% on a year-over-year basis, which is the highest first quarter in EZCORP history. PSC revenue was up 13% over last year, with growth driven by increased same-store PLO growth and new stores. Inventory turnover was strong at 2.9 times with aged GM inventory at 1.3%. Merchandise sales were up 7% to $174.6 million. Merchandise sales gross profit was up 6% due to increased sales with flat margins as we focused on increased turnover and keeping aged GM inventory low. It was another solid quarter with consolidated EBITDA of $46.4 million, up 21%, driven by higher PSC, offset by a 7% increase in expenses.
Turning to our U.S. Pawn segment on Slide 10. Total revenues were up 12% to $217.4 million, which is the highest in our history. Earning assets increased 12%, driven by an increase of 14% in PLO and 8% in inventory. Strong pawn demand and excellent customer service continues to drive PLO, which in turn drives inventory growth. Our U.S. store count has grown to 530 stores, with one store acquired in the quarter. PLO jewelry competition is up 100 basis points due to continued operational focus on this category, which also drove the 6% increase in average loan size. Inventory general merchandise composition is up 200 basis points, driven by an increase in handbag, shoes and tools. PLO growth of 14% drove the PSC increase of 14% year-over-year.
On the retail side of the business, merchandise sales were up 6%, with merchandise sales gross profit up 4%, with a 100-basis-point drop in merchandise sales margins. U.S. pawn EBITDA for the quarter was $50.2 million, up 19% from the prior year due to a higher PSC, partially offset by a 5% increase in expenses. Turning to our Latin American pawn segment on Slide 13. Total revenues were up 9% to $75.5 million, which was the highest first quarter in our history. Earning assets increased 1%, driven by an increase of 11% for PLO, offset by the inventory down 11%. Our store count in Latin America has increased by 5 in the quarter to 707 stores in 4 countries. PLO jewelry composition is up 500 basis points, with an operational focus on growing this category, especially in Mexico.
This jewelry composition increase has also driven average loan size up by 8%. PLO rose 11% due to improved operational performance and continued strong pawn demand. PSC was up 8% year-over-year, driven by both same-store PLO growth and new stores. On the retail side of the business, merchandise sales gross profit was up 14%, with merchandise sales up 8% in addition to a 200-basis-point improvement in sales margin. EBITDA for the quarter was $11.3 million, up 16% on the prior year due to higher PSC partially offset by a 10% increase in expenses. The expense increase was primarily due to the increase in labor and driven by minimum wage and headcount, higher store count and rent. Looking forward, on a consolidated basis, we should see PLO continue to grow on a seasonal basis with PSC following soon.
We continue to focus on strong inventory turnover and limiting aged general merchandise. While we remain committed to expense management, we expect to see expenses increase on a sequential basis primarily due to ongoing inflationary pressures and filling vacancies in our stores. Our focus on growing quality PLO, optimizing inventory management, seamless integration and enhanced customer service should continue to drive strong financial results in our business. I will now turn it over to Lachie for a few closing remarks.
Lachlan Given: Thanks, Tim. In closing, I want to thank our EZCORP team for delivering an outstanding quarter of operating and financial results for our stakeholders. We made more total revenue and more merchandise sales than in any quarter in the company's history. PLO is at the highest level for any first quarter ever, and our balance sheet is highly robust. We continue to invest in our team and technology, while also buying back shares. It's been an excellent start to 2024, and we look forward to driving enhanced value for all of our shareholders for the remainder of the year. And with that, we will open the call for questions. Operator?
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