EZCORP, Inc. (EZPW) Earnings

Management highlights

• Delivered exceptional quarter with adjusted EBITDA up 76%, diluted EPS up 76%, total revenues up 42%. • Improvement broad-based with contributions from PSC, merchandise sales, and scrap gross profit due to elevated gold prices. • PLO at all-time high, PSE revenues up, retail merchandise sales and margin improved. • U.S. pawn segment saw growth in revenues, core pawn, PLO, PSE, and merchandise sales/margin. • Latin America had strong quarter with core porn and PLO growth, merchandise sales and margin improvement. • SMG contributed to results, with PLO, revenue, and segment EBITDA reported. • Focus on expanding PLO, improving industry efficiency, scaling operational best practices, and managing M&A pipeline.

Guidance

• Expect scrap and scrap gross profit margins to begin to normalize towards historical levels next quarter if gold continues to stabilize. • Expect a sequential increase in expenses through the year as continuing to integrate recent acquisitions and build de novos and scale operational best practices across all jobs. • M&A pipeline remains active in both the US and Latin America, and continue to approach each opportunity with rigorous financial discipline. • Focus on expanding PLO, improving industry efficiency, and scaling operational best practices across all geographies.

Segment performance

Consolidated financial highlights: Adjusted EBITDA rose 76% to $76.9 million, margin expanding 340 basis points to 18%; diluted EPS improved 76% to 58%; total revenues reached a record $434.9 million, up 42%. PLO increased 31% to $342.1 million, an all-time high. PSE revenues rose 27% to $147.3 million. Retail side: merchandise sales climbed 22% to $207.2 million, same-store sales up 7%, merchandise margin expanded 210 basis points to 36%, scrap margins expanded from 22% to 38%. U.S. pawn segment: ended quarter with 559 stores, total revenues increased $60.8 million, or 27%, core pawn revenue grew 11% to $226.7 million, core pawn gross profit grew 13%, PLO expanded 16% to $230.5 million, PSE improved 13% to $98.8 million, merchandise sales climbed 9%, merchandise margin improved 170 basis points to 38%, segment EBITDA improved 57% to $80.9 million. Latin America: ended quarter with 840 stores, total revenues rose $16.5 million, or 19%, core porn revenue grew 18% to $95.6 million, core pawn gross profit grew 25%, PLO expanded 27% to $79 million, CPI rose from 41% to $42 million, merchandise sales climbed 17%, same-store sales up 8%, merchandise margin improved 410 basis points to 34%, segment EBITDA improved 24% to $19.6 million. SMG: transaction closed on January 2nd, PLO for SMG was $32.6 million at quarter end, contributing $51.3 million of revenue, segment EBITDA was $9.5 million at a margin of 18.5%.

Analyst Q&A

• Q: How would you characterize the tax refund season relative to expectations going into the quarter?

  A: At the end of last quarter thought there would be slightly higher tax refunds in dollars but it wouldn't affect customers much, average tax refund was slightly higher than last year but lower than estimates, also had increase in gold price through the quarter and gas prices at end of March drove people to stores.

• Q: What are the areas of low-hanging fruit to improve store productivity and profitability in SMG stores and how much did SMG add to EBITDA in the quarter?

  A: SMG is a well-run business, bring various expertise like strong lending practices, using AI in pricing and LTVs, strong sales programs, starting with people, compensation, recognition, career path, and Tim's financial function elevates ability to help store and district managers. SMG segment EBITDA was $9.5 million for the quarter.

• Q: Can you remind us of your approach to pricing your gold loan book and risk involved with significant sell-off?

  A: Run pretty conservatively, not changing price on a daily basis, looking at average view, gold price hasn't moved that much.

• Q: Assess customer characteristics, new customer activity, and changes in customer behavior?

  A: Building marketing capability, targeted digital marketing to attract/re-attract customers, targeting jewellery business, customers keen to buy second hand for value for money, average loan size up due to demand for cash.

• Q: Update on adoption and impacts of technological investments like loyalty programs and digital initiatives?

  A: 75-odd percent of customers on loyalty program, teams love it, digital initiatives still testing and piloting, SEO, SEM performing well, all inventory now online across US, online quote available, but still early.

• Q: Sensitivity to gold prices on core pond metrics, retail margin expansion, and earnings if gold normalizes?

  A: Core porn business well-protected, if gold prices drop, customers might bring more items, need to separate demand for cash and gold price impact.

• Q: Acquisition and store growth opportunities, integration of SMG, de novo store growth in geographies?

  A: Focus on integrating recent acquisitions like SMG, Laredo, El Buffalo, Mupley in Guatemala, in US mainly small acquisitions, in Latin America enormous opportunity for M&A and de novo, working on AI models to lift capability for de novos.

• Q: LATAM retail trends, differences from US?

  A: Starts with culture, leadership group in Latin America is tenured and outstanding operators, jewellery focus, results are fantastic, still huge opportunity down there.

• Q: Long-term plans with Max Pawn and luxury pawn opportunity?

  A: Focus on maximizing potential of Max Pawn stores, seeding luxury across store base with Easy Porn Lux in Austin, opening up new customer segments.

• Q: PLO growth if gold prices plateau, same store trends once SMG anniversaries?

  A: Intention is to keep building metrics, PLO is leading indicator, US same-store loans up 13%, Latin America same-store PLO up 15%, business capable of more growth