EZCORP INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Record Performance: Fiscal Q4 2024 total revenue reached $300.9 million, up 11% y-o-y, with PLO at $279.2 million, the highest level in history. EBITDA was $36.7 million, up 15%, and diluted EPS was $0.26 per share, up 13%.
• Store Expansion: Opened 20 new stores across Latin America and acquired 1 store in the U.S. as of Q4, now operating 1,279 stores in U.S. and Latin America.
• Strategic Goals: Progress in strengthening core pawn operations; U.S. revenue growth due to focus on team development and pawn fundamentals; Latin America gross profit growth from enhanced pricing and customer service. EZ+ Rewards members grew 44% to 5.4 million globally, and traffic to core pawn website increased 23%.
• Innovation: U.S. online payment collections increased $6.2 million, Mexico saw 13% of layaway extensions handled online, and Max Pawn's luxury e-commerce sales grew six-fold through eBay.

Segment Performance

• U.S. Pawn: In fiscal Q4, U.S. revenue reached a record $212 million, up 9% year-over-year. Earning assets grew by 10%, and FY 2024 average U.S. loan size increased by 9%. Merchandise sales increased by 7%, while merchandise sales gross profit rose by 4%. U.S. Pawn EBITDA for the quarter was $43.6 million, up 10%, with an EBITDA margin improving by 24 basis points to 21%.
• Latin American Pawn: Total revenues in Q4 increased 17% to $88.9 million, a record high. Earning assets increased 33%, driven by a 18% increase in PLO and 56% increase in inventory. Gross profit grew by 20% due to enhancements in automated pricing, loan guidance, and focus on customer service. EBITDA climbed 50% to $12.7 million with an EBITDA margin reaching 14%.

Guidance

• Expect to continue driving organic growth by increasing PLO, PSC, and merchandise sales.
• Gross margin is likely to remain at the lower end of the target range of 35% to 38% due to focus on strong inventory turns and limited aged general merchandise.
• Same-store expense increase is expected to come down as inflation rates ease.
• Robust pipeline for M&A, with plans to continue inorganic growth initiatives in existing and new markets.

Risks

• Potential regulatory changes in the U.S. that could impact operations, though the regulatory regime has been stable historically.
• Uncertainties around debt maturities, specifically the $103 million convertible notes due in May 2025 and the need to explore retirement or refinancing options.
• Macroeconomic factors such as inflation, interest rates, and economic pressure from elevated living costs could impact customer behavior and loan demand.

Q: How was the tax rate for the quarter and what's the outlook going forward?

A: There were one-off items in the tax rate, and as Latin America becomes a larger part of net income, there will be slight increases in the tax rate but it will revert to more normal levels.

Q: What's the potential of EZ Rewards and EZ payments in terms of business efficiency?

A: EZ+ has 5.4 million members, and focus is now on engaging this customer base with targeted marketing. Online payments help store team members spend more time serving customers.

Q: Any impacts from hurricanes in Florida on the business?

A: Stores were shut down for a few days, but the team was efficient in getting stores back up, and the effect is seen as short-term.

Q: Comment on customer behavior changes due to inflation and interest rates?

A: Demand has been robust across regions, with strong customer growth and jewelry being a big driver.

Q: Comment on the acquisition of an auto pawn business in Mexico?

A: Acquiring 53 stores in Mexico, strategic rationale is to address the growing collateral role in Mexico, with diligence still ongoing.

Q: Thoughts on regulatory change with the new administration and its impact on the business?

A: Regulatory regime has been stable, and no wholesale change is expected, with focus on staying on top of state and federal regulations.

Q: Expectation of seasonality returning for PLO?

A: Seemingly getting back to more normal seasonality, with tax refund season expected to continue as before.

Q: Turnaround progress in Latin America and margin outlook for fiscal 2025?

A: Latin America has seen strong momentum with people and culture focus, still room for margin improvement but primary focus on PLO growth and inventory turns.

Q: Capital allocation priorities for the 2025 convertible notes?

A: Maintaining flexibility, with options including paying down, straight debt, or convert alternatives, and a decision to be made by May 2025.

Q: Implications of the election on the business in terms of immigration, FX, etc.?

A: No big tailwinds or headwinds, as the business operates independently of political forces with focus on providing cash and secondhand goods services.

Q: Store pipeline outlook?

A: Robust pipeline including de novo stores and M&A, with focus on growing in existing markets and exploring new ones, excited about strategic investments and de novo store growth in Latin America.