EZCORP, Inc.

Good morning, ladies and gentlemen, and welcome to EZCORP's first quarter fiscal 2021 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this call may be recorded. I would now like to turn this conference over to Mr. Michael Kim, Investor Relations. Please go ahead, Michael. You may begin.

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.ezycorp.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 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 Securities and Exchange Commission. And as noted in the 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. Now, I'd like to turn the call over to Mr. Jason Koulis. Jason?

Thanks, Michael, and good morning, everyone. I want to start by thanking our team members for their ongoing efforts and dedication. We remain focused on the health, safety, development, and retention of our team members through and beyond the pandemic. with the goal of building the most effective and seasoned workforce in the industry. And it is because of this outstanding team that we were able to make the progress we are making toward our goals. I also want to thank our customers for their trust and loyalty through the pandemic. We remain committed to strengthening and growing our core pawn business to address our customers' needs for cash and affordable pre-owned merchandise. Virtually all of our stores remain open. with ongoing initiatives to expand payment options, enhance our digital pawn servicing platform to broaden customer engagement, and increasingly leverage technology and data analytics across geographies to optimize lending and retail pricing. So starting on slide four of the investor presentation, the first key financial theme for the quarter was strong and consistent growth in demand for pawn loans, even as store expenses remained flat quarter over quarter. Pond Lungs Outstanding, or PLO, ended the quarter at $148 million, up 11% on a sequential quarter basis, primarily driven by ongoing efforts to enhance our value proposition to customers and a fading impact from prior government stimulus programs. Having said that, the recently implemented second stimulus package reduced demand for pond lungs in early January before stabilizing in the second half of January. The upcoming tax refund season will further and temporarily curb loan demand and therefore PSC in the near term. Once we get through tax season and incremental stimulus programs run their course, we expect PLO and ultimately upon service charges to pick up as they did in the first quarter and lead to a return to pre-COVID levels. Second, the revenue backdrop remained challenging during the first quarter as well as through January. with pawn service charges and merchandise sales depressed relative to prior year levels as we continue to work through rebuilding PLO. As a result, adjusted EBITDA and EPS were down year over year with further pressure likely to come in fiscal 2021. Third, while lower inventory levels resulting from declining pawn loans and forfeitures are constraining sales to some degree, merchandise sales gross profits trended higher reflecting accelerating inventory turnover and higher margins. For the first quarter of fiscal 2021, our inventory turnover ratio reached 2.9 times compared to two times for the year ago quarter. We also continue to make progress on more effectively managing our inventory. To the point, in aggregate, age general merchandise inventory stood at 2.1 million or 5.2% of total inventory at the end of December 2020. down from 7.4 million or 7.2% of total inventory a year ago. Fourth, in the first quarter, we identified and realized incremental cost savings above what we implemented and communicated in the prior quarter, which we will discuss in greater detail later, and remain on track to meaningfully improve operating efficiencies as a result of our strategic expense reduction initiatives. Looking ahead, while store-level operating costs will trend higher as transaction activity rebuilds, Ongoing cost reduction and simplification efforts across the business position us well to drive outsized operating leverage as assets and revenues rise, thereby driving a step up in earnings power over time. And finally, our balance sheet remains strong with $290 million of cash on hand at quarter end at no near-term debt maturities, providing us with the liquidity and flexibility to continue to fund accelerating PLO growth, de novo store openings, and potential M&A opportunities should they arise, with an ongoing emphasis on generating strong returns on capital. We believe slide five illustrates at a high level how we think about continuing to strengthen and grow our core business. Each of the pieces is critical, starting with the strength of our team members, their passion for pawnbroking, and our focus on customer service. That foundation enables us to drive key strategic initiatives focused on strengthening the core, Reducing and simplifying our cost structure and continuing to innovate and grow. And as reinforced by several key performance indicators this quarter, ongoing execution against our plan will drive sustained growth, financial results, and shareholder value. The key message on slide five is that each piece of the puzzle is critical. We will now go into some additional detail on several of these. Turning to slide six, we want to provide an update and our cost reduction and simplification efforts. As you may recall, on last quarter's conference call, we laid out plans to streamline expenses to better align with the near-term PSC trajectory and to maximize profitability when revenue growth resumes. At the time, we identified and realized approximately 12 million of recurring annual savings, mostly related to G&A. With further work in the quarter, we have raised that to 13 million. and we look forward to continue to report on our progress in future quarters. Turning to store costs, while PLO increased 11% quarter over quarter, we achieved incremental store expense savings during the quarter, which are down over $9 million compared to last year. This has been achieved through improving efficiencies of all levels and leveraging a lower store staffing model. While we will continue to increase productivity, we anticipate adding additional expenses in a cost-effective manner. as transactional demand increases. Stepping back, it's important to reiterate that we will remain focused on extracting further operating efficiencies in fiscal 2021 and beyond with ongoing plans to simplify and centralize corporate functions, standardize back office and store processes, rationalize data and reporting, and automate corporate and store level practices. Next on slide seven, we frame ongoing initiatives to strengthen our core pawn business. From a people perspective, we remain focused on enhancing career development programs and succession planning to promote a passion for prom broking and to improve engagement and retention. In fact, annualized turnover for hourly team members here in the U.S. declined by 24% and Mexico declined by 14% in the first quarter of fiscal 2021. On the technology side, We continue to leverage our next generation point of sale system to automate product pricing, increase transaction speed, and improve pricing accuracy. We continue to optimize lending values and introduce new products and services in a deliberate manner, and we are increasingly adopting business intelligence and customer analytics to improve performance measurement. Turning to our innovation and growth initiatives on slide eight, as we discussed last quarter, We continue to reposition LANA as our digital pawn channel, and we are seeing encouraging results. The number of online extension transactions through lana.com doubled on a sequential quarter basis, while the amount of PSE collected was up 3x compared to the fourth quarter of fiscal 2020. In addition, we introduced layaway payment options in select stores in the first quarter, with plans to broaden participation across all US stores in the next few months. Second, improving customer service remains a top priority. Related ongoing initiatives include the development of online account management and enhancing central customer support capabilities. Next, we remain focused on increasingly leveraging digital to drive client acquisition. We are in the process of developing a comprehensive digital marketing strategy with an initial focus on search engine optimization and social media. and from a process standpoint, we've implemented a disciplined test and learn approach to control marketing spend and maximize return on investment. Finally, in terms of store growth, we continue to take a measured approach to the Novo openings in light of ongoing macroeconomic uncertainty, primarily related to the pandemic and to maximize liquidity to fund PLO growth and any potential acquisition opportunities across core markets that meet our strategic and financial criteria. Our pawn operations play an essential role in meeting the short-term cash needs of our clients, both here in the U.S. and across Latin America, while our complementary retail business facilitates the recycling of pre-owned goods. And while we've made significant progress in optimizing our core pawn business, we remain focused on continually improving all aspects of our operations in order to position EZCORP to drive earnings power and shareholder value over time. So with that, I'd like to turn the call over to Tim Jugmans, our Interim Chief Financial Officer.